Early Retirement Extreme Forums

I also think it makes sense to count loan principal payments in savings rate, because 1) your net worth goes up

I *do* factor the change in net worth into our net worth calculations, I just have a mental block re. adding it to savings rate

I try to avoid too narrow a definition of savings and wealth, but I think that it can be easy to mentally discount certain forms. For some reason I find stocks (lines of code in a broker's platform) less tangible than our home, which is a massive pile of bricks!

My loan does have interest applied and the boom in central bank money printing has helped to keep it low. For my particular flavour of loan, the amount is either the lower RPI, or the average of a pool of bank rates +1%. Thanks to the negligible BoE base rate, we're paying 1.5%.

I would like to pay it off, but it still feels like easy money. Our mortgage rate is 3.15%, I can get 4.8% after tax from relatively secure P2P lending, 4% after tax from current account offers etc. etc. The threshold for repayment is £17,335, we pay 9% of salary after this.

Where possible, I try to save and invest all of our money in a tax efficient manner. Currently our pensions and all other equity holdings are protected from tax. We pay tax on cash savings and P2P cash, but this is a smaller part of our portfolio and P2P will hopefully be sheltered after the budget next April.

I will be very disappointed if we're paying any tax on our investments or are in a position where it is counted as 'earned income' by the time we reach FI.

Well, since I don't track all expenses, for me,
SR = (ΔNW - investment gains) / income
i.e. any change in NW caused by me and not the market are automatically part of the savings rate
I guess it's best to use whatever method seems fair to yourself and motivates you most.

I am also not in a hurry to pay any extra towards my mortgage right now since the interest rate is set at 6m EURIBOR + 0.5%, which right now means exactly 0.549% It's an adjustable rate mortgage though, so obviously things can change.

Wow! 0.549% is tasty

I expect our rate to drop to 2.25% in April, a great change from the 4.99% we were paying in 2012.

Ah so your student loan laws in Scotland are not too burdensome either. I feel sorry for people in USA with student loans.

That sounds like a huge interest rate on p2p for low risk. I have noticed this p2p being mentioned by a couple of people on this forum now. I might check it out. Does this stand for person to person?

Yes it does. The particular site I use has never had a lender lose a penny of capital or interest, but it doesn't offer the best rates. These tend to come with greater risk that I don't feel the need to take on. More than enough risk with our stocks and bonds

Ah ok. There is only one provider in NZ of P2P. I have just been doing some research. Interest rates are massive. Lowest is 9.99% for the lowest risk lending. But interest rates in NZ are generally quite high I think. I have a deposit in a massive commercial trading bank ( very low risk) earning 4.15%.

NZ must be thriving if people can afford 10% for P2P loans? That is akin to the amount that I was getting when I used a P2P platform that gave loans to Slovakia, Greece, Spain etc. (fairly subprime in Eurozone terms).

mm well it has been thriving I supposed. 8 months ago we were supposed to have a "rock star' economy is what they called it. Now suddenly everything seems to be turning to shit and looming recession is the phrase of the day. But the p2p platform is brand new so who knows they might not be getting any takers at that interest rate yet. There is no secondary market for p2p here yet. So your stuck with them till the end once you buy.

A day I was not particularly looking forward to has arrived, we are thinking about moving house. The 'joy' of seeing your hard saved FI money being transubstantiated into a pile of bricks that you get to pay for for another 25 years

Ydobon wrote:Yes it does. The particular site I use has never had a lender lose a penny of capital or interest, but it doesn't offer the best rates. These tend to come with greater risk that I don't feel the need to take on. More than enough risk with our stocks and bonds

Ratesetter? That's the one I use and pleased with it so far. Interested to hear more about your P2P experience/thoughts.

That's the one egg, it has been a doddle to use so far, although my average rate probably isn't as high as people who have been 'in' for years. I think I'm floating at about 5.9%. I basically treat it as a proxy for cash, which I can't get so great a rate on (now that our TSB accounts are all maxed). I know that's naughty (treating it as cash), but the provision fund is a great comfort.

I was a long term Zopa user (several years), but found that rates just kept falling. I'm not sure how they compare with Ratesetter, but they used to always be a few points below them.

I have also experimented with Bondora, which is a European P2P lender, but I bailed out relatively quickly. Despite very high headline rates, I didn't like the amount of administration required (international money transfers, currency risk, the fact that they would only return money to my bank account who have terrible rates etc. etc.)

Funding Circle also seems popular, but I'm not entirely convinced by lending to businesses unless the loans are asset backed. In addition, the higher interest rates on offer have me uncertain as to whether a) the loans are just riskier per se or b) it's just more expensive for businesses to access finance in the UK?

Oops, I am short one update, will rectify this evening.

I am annoyed with myself. Big life changes (moving to a more expensive family house at the end of October) mean that I have gotten out of the habit of tracking our savings rate and net worth. It's especially disappointing as I haven't forgotten to track spends, so can only see one side of the picture, as it were.

This is just an excuse, I forget that with FI comes the need to be exceptionally focused at times!

I will get back to it at the end of October.

On the positive side, I am hoping that our move will make the idea of ERE more palatable to my wife. We will be getting the space we need to raise a family, a suburban life in an area with enough character to avoid the and a reasonable enough mortgage bill that we'll still have plenty of money left to invest.

I have recently discovered that one of her key worries is running out of money. At the same time, I have been discussing investments (particularly P2P lending, where she seems to like the drip drip of interest). Now all I have to do is show where her fears and my plan to allay said fears will meet in the middle. It was a real Eureka! moment, not something that I experience that often during an argument

Quick straw poll - do people include savings interest/P2P interest/dividend income/bank account bonuses/cashback in their 'income' calculation when calculating savings rate for the month?

Nope, as that's part of the investment pile doing its own accumulation and could be used for replacing wage income. Savings rate is what you keep out of your wages.

George the original one wrote:Nope, as that's part of the investment pile doing its own accumulation and could be used for replacing wage income. Savings rate is what you keep out of your wages.

+1. It's part of your return percentage if it stays in that account and you reinvest it.

I would only call that "income" if I took it out of my account and spent it (on something besides another investment).

+2 for me. Although I do count cash back from credit card as income simply because it offsets the expense. I could just not log the expense, but then it gets confusing. It depends how you track finances. Ultimately, it isn't much at all since I never use my card anymore so it counts nothing for my savings rate.

Ydobon wrote:Quick straw poll - do people include savings interest/P2P interest/dividend income/bank account bonuses/cashback in their 'income' calculation when calculating savings rate for the month?

I include it in savings and income. I don't really track expenses though. So if I earn $5k in dividends I put that down as income and if I don't save it it also ends up being part of my spending. I don't count any asset depreciation or appreciation.

Basically I calculate my savings rate as "savings/income" where savings is all savings that I make and income is all income including dividends and interest (interest doesn't really count because I get so little of it). My expenses become income - savings. I also have an emergency fund which I consider spending.

Accounting is just a somewhat arbitrary method for seeing where the money goes. If you calculate savings rate as the ratio to earned income, it's useful in the sense that a savings rate of 100% signals financial independence (because once you're FI you're presumably saving all your earned income.)

However, if you're already FI, then this method doesn't make a lot of sense anymore (consider that your savings rate would go UP if your earned income goes down! Not very intuitive.). Perhaps then you'd be more interested in how bad-ass or efficient you are with all your earnings vis-a-vis expenses in which case your baseline would be all forms of income and gains.

Unless you think such exercises are fun, the most commonly used metric is annual expenses / after-tax job income. This is close enough for government work and would work for everybody but special cases. Put it another way, if the exact method matters, you're likely screwing around at the edge of the domain space where the simplified model no longer works.

Nope. Nor do I include any other bits of random income. I want to put pressure on myself to get my savings percentage up.