The recent tax year-end prompted me to review all my spending. Somewhat arrogantly, I had thought I was in pretty good shape, but it seemed as good a time as any for a once-over just to be sure.
Time to step away from the head shot and visit the full length mirror, if you like. A few extra pounds around the middle can turn into a death sentence for your financial independence plans if left unattended. Best to blitz that fat early on before it becomes several layers deep.
On first glance, the silhouette was lean and sculpted. No obvious lumps or bumps have crept in unnoticed. But getting close and personal, I noticed some expense lines that have been ignored for the last few years, having being considered essential. Like stretch marks of life – a necessary evil that accompanies having a family and taking care of yourself.
Protecting Before Investing
One of the cornerstones of personal finance is protection. Financial advisers commonly suggest “protecting before investing” – prioritizing security over investment. But does there come a point where this no longer applies? When we accumulate enough wealth are we effectively self-insured?
“You don’t buy life insurance because you are going to die, but because those you love are going to live.” – unknown author.
As a single parent it has been important to me to have my own life insurance policy in place. If anything were to happen to me while the boys were still dependent, I wanted to make sure they were covered financially and could have a similar standard of living as the one I would have provided.
They are now both teenagers – still dependent on me but with less years on the horizon until they are standing on their own feet (she says, optimistically 🙂 ).
Since I took out the policy I have moved job and now work at a company that provides a policy of its own – 4 x my salary paid to my dependents should I die whilst I still work there. Add to that the nest egg I’ve built up over the last few years and considering I’m around 3 years out from FI, I have a pleasantly positive net worth. All things considered, I think I would be leaving the boys well provided for. If I were to die right now, they would be quite wealthy. (Odd that I don’t feel wealthy – guess that’s a post for another day).
In a few year’s time when I quit the day job, that company payout will not be available but the nest egg will be bigger. If it’s enough for me to live on for up to 40 years of retirement, it’s enough to give them a good start in life.
My quest for financial independence has made the personal life insurance policy redundant. One recurring monthly expense scrapped – and with one easy swoop pounds are shed!
(If only weight loss was that simple, sigh…..).
The next part takes a bit more thinking about. This is something nobody wants to consider for themselves but what position would I be in if I were to have a serious accident or illness? I currently have a policy that would pay out a sizeable lump sum. I have kept this policy for many years and have avoided thinking too hard about it for reasons I can only describe as completely irrational. A voice in my head telling me that the minute I cancel this one, something hideous is going to happen.
Looking at it logically, the purpose of this policy is to provide for myself financially if I am unable to work long term. A few years ago, when I had a large mortgage and little savings and investments, this was really important for my peace of mind. But again – as the nest egg has grown, is it really necessary anymore? This cover is not cheap – it’s £1200 a year I could be funneling into my investment accounts instead. And I only plan to work for another 3 years or so, so in the whole scheme of my working life, that’s a small part of income lost.
Heaven forbid, should one of those things befall me, I think I would be ok financially. While I am still employed my company provides cover which would pay out 75% of my salary until age 65. And once I have reached financial independence, I am not reliant on being able to work any more. I am effectively self insured.
Time to pull the plug on this one too.
That’s two monthly recurring payments eliminated – cause for celebration!
And The Moral Of The Story Is…
Let’s be honest, insurance is not an interesting topic. There was no way to make this post riveting reading. But there is a point to the story.
When I discovered early retirement was actually within my capability I was ruthless with expenses, cutting out anything unnecessary and scaling back on the luxuries. But no matter how optimized I think my expenses are – life moves on, circumstances change and what was once essential can easily become obsolete.
As stupid as it sounds, cancelling those policies does feel a bit like tempting fate. But at the same time – it feels good to know I have it covered. I am my own insurance company. And just to keep those niggling thoughts at bay, I’ve decided to use some of the expense saved and spend it on my health – time to get back to those exercise classes. Body Attack and Body Combat – here I come!
Join the Discussion
How often do you review your spending and really think about every line? What have you found that has become obsolete spending? Do you have any irrational thoughts that cause you to spend more than you need? Let me know in the comments.