I've had a strange week since posting the first instalment on my blog. I had typed up the bulk of the second instalment the day after posting the first part with the intention of just adding a few bits towards the end of the week, such as an update on my financial position and what I decided to do with my credit card. Something got in the way though, and I'm currently talking into my phone through speech-to-text to get this update saved on the cloud, so that Darren Scothern (Chief Editor of Now We Live) can edit it and post the blog for me.
I've been suffering with Achilles Tendonitis in my left foot for a few weeks and I've been having physio for it. I did some exercises on Monday night and felt fine. In the early hours of Tuesday morning I woke up in a lot of pain, but this time from my right ankle. It was agony to even have the duvet resting on the foot. The slightest movement was extremely painful, and I could not put any weight on that side. So, I went to the Minor Injuries unit, but they could not help. I returned home and proceeded to get worse as the day went on. At around 4am on Wednesday morning I was desperate. I was in the most pain I could ever remember experiencing and I've had torn muscles, strained ligaments, and an assortment of other injuries. This has been the worst pain I've experienced.
I arrived at Accident and Emergency at around 6am Wednesday morning and saw the triage nurse quite quickly. I was wearing some tracksuit bottoms, a simple t-shirt and sweater. It was cool in the A&E waiting area with the big doors to the outside opening frequently and blasting cold air inside, but I was sweating. I took my jumper off and my t-shirt was soaked. I felt a little faint and asked my girlfriend to get me some water. I took a few sips and started feeling worse. The pain was so bad I could not think straight. I felt the blood drain from my head and face. My girlfriend and the medical staff later told me I turned grey. I told my girlfriend something, I can't remember what exactly. I felt like I was slipping away, like an out of body experience or something. I have a heart condition that is being managed with medication, and I remember thinking, just for a split second, this is it, my heart has given out and I'm going into shock. Then everything went dark.
I opened my eyes and I was on the floor of the A&E department with a group of medical staff around me. They lifted me on to a bed and wheeled me through to a ward. I was in and out of it at this stage. I was put through a series of tests on my heart and eventually was given morphine for the pain. I left hospital after 6pm with a support boot for my foot, my crutches and some stronger painkillers. But no diagnosis. I have an appointment next Wednesday with a private specialist.
It's been a freaky few days. I'm still in a lot of pain but it's not as severe as it was yesterday*. I can't stand without support. I'm using crutches to get around the apartment. I never knew that the ankle could cause this much pain. It's difficult to describe just how bad it is. It's like a white, blinding flash of pain starting in the ankle and surging through my body like an electric charge. Yesterday, had they offered amputation with the promise the pain would go, I would have taken it and thanked them.
On that somewhat depressing note, here is the second instalment of Mortgage Advisor on F.I.R.E.
David Scothern: 07/11/19 (edited by Darren Scothern, 08/11/19).
*after having this checked over by Darren, my pain got so bad that I considered calling an ambulance. In the end, I had a telephone call from a doctor who told me to increase my painkiller dosage. Before going to bed last night I took eight pills: 2 x codeine, 2 x nefopam, 2 x paracetamol and 2 x amitriptyline. It seemed to work, although I am not promoting this course of action. If you’re in pain, please seek medical attention and do not self-medicate.
My Financial Education
I grew up in a working-class household where financial education was not "a thing". My parents were very young when I was born and whilst I could not have asked for more loving or supportive parents, they were basically still children when they had me. It would have been unreasonable to expect them to impart financial wisdom on me. What I learned about money, initially, I learned from them. What they learned, they learned from their parents. And so on.
I remember sitting at home when I was a teenager one evening. I was maybe 18, or 19. For some reason, I was thinking about interest. The idea that money could create money was fascinating to me. Even at this age, despite not knowing the terms passive income, compound interest, or what things like asset allocation meant, I knew that if I wanted to be wealthy my money would have to work for me. I remember crunching numbers and working out how much I would need to have saved in an ISA to earn £1,000 per year in interest. The number seemed so far off at the time. Without a solid financial education, it was.
I started dabbling in share dealing a few years ago but most of my trades were ill informed. I won some. I lost more. I was learning about money, but slowly and without direction. It was a chance discussion with a friend and coworker that turned my groping around in the dark into a laser-like focus.
My friend, who is as frustrated and unfulfilled with working a J.O.B. as I am, told me about a book he was reading by an author who was a financial guru of sorts. The tag line of the book was that your home is not an asset, and instead it is actually a liability. I was intrigued. Some of you will know who I am talking about, and specifically which book I am referring to. It is Rich Dad, Poor Dad by Robert Kiyosaki. I signed up to an Audible account and started listening. The book changed my life. That is not hyperbole. The book...
Robert Kiyosaki discussed things I had known on some level, but not well enough to put them into words. After I finished Rich Dad, Poor Dad, I bought another book by Robert Kiyosaki, Cash Flow Quadrant. I finished that book quickly and purchased another by him; Guide to Investing. I was enthralled. Over the course of 2018 I finished several books on finance and investing, with a few other personal development books thrown in, and I kept a list of what I had read or listened to. Here is the list:
Rich Dad, Poor Dad by Robert Kiyosaki
Rich Dad, Poor Dad: Cash Flow Quadrant by Robert Kiyosaki
Rich Dad, Poor Dad: Guide to Investing by Robert Kiyosaki
Shares Made Simple by Rodney Hobson
Seven Habits of Highly Effective People by Stephen Covey
Money by Rob Moore
Think and Grow Rich by Napoleon Hill
FU Money by Dan Lok
Deep Work by Cal Newport
Start Now, Get Perfect Later by Rob Moore
The Five Rules for Successful Stock Investing by Pat Dorsey
Start With Why by Simon Sinek
I also read a fair amount of fiction, history and politics books. On a side note, Audible is an absolutely amazing service. I struggle to read physical books for long periods as I suffer from cluster headaches and migraines. I also have floaters in my vision that make reading frustrating for me as I see black spots all across the page. So, Audible allows me to listen and learn in a relaxed frame of mind. In 2018 I completed 33 books. As of November 4th, 2019, I have finished 79 books on a range of topics. As you have probably guessed there are quite a few finance and personal development books in there:
The Daily Stoic by Ryan Holiday
Property Investing Secrets by Mark Homer and Rob Moore
Multiple Streams of Property Income by Mark Homer and Rob Moore
Life Leverage by Rob Moore
No Money Down Property Investing by Kevin McDonnell
Meditations by Marcus Aurelius
How to Own the World by Andrew Craig
Fake by Robert Kiyosaki
The Naked Trader by Robbie Burns
Trading in the Zone by Mark Douglas
The Complete Turtle Trader by Michael Covel
Financial Freedom by Grant Sabatier
Trend Commandments by Michael Covel
I Will Teach You To Be Rich by Ramit Sethi
100 Side Hustles by Chris Guillebeau
Reset by David Sawyer
The Simple Path to Wealth by JL Collins
The Millionaire Next Door by Thomas J. Stanley and William D. Danko.
Your Money or Your Life by Vicki Robin
High Performance Habits by Brendon Burchard
The Complete No Nonsense Guide to Property Investing by David Tarn
Man's Search For Meaning by Viktor E. Frankl
The 4-Hour Work Week by Timothy Ferriss
The Richest Man in Babylon by George S. Clason
Secrets of the Millionaire Mind by T. Harv Eker.
And again, quite a bit of fiction. I have found that many of the best lessons I have learned about investing are the simple ones. There are no complicated systems or "hacks" for becoming wealthy. It is simple. The difficult part is that it requires persistence, discipline and an ability to think in the long-term. This is where the study of stoicism has helped me. It has helped me realise that I cannot control the external, but instead can only control the internal. Viktor Frankl's Man's Search for Meaning is a moving and powerful book. It is an account of Viktor Frankl's experiences in the Nazi Concentration Camps in the Second World War. Even if you have no interest in financial independence, this book should be read by everyone. Many of Frankl's observations can be applied to many walks of life and his work is similar to the Stoic philosophy in many ways.
Stoicism helped me by focusing my thoughts on the long term and understanding that I can only control my thoughts and my behaviours. So how does this relate to financial freedom? Well, I cannot get from my current position to wealthy overnight. If I try to get rich as quick as I can, then I will probably fall flat on my face. Instead of working on the end result, I need to work on the process. The process is internal and under my control. The end result is not. As I have read in a number of sources, the process of making money should be systematic, mechanical and the money should do the work through compounding. I do not work for my money, my money should work for me. I set up the correct process, and the money is created for me.
The Buy-to-Let Process
I discussed in my previous blog how I would potentially have £100 per month coming in from my first BTL after costs and splitting the rent with my JV partner. Compounding is where the process picks up from.
When I will receive the rent from this future BTL, I will still be earning money from my J.O.B. So, in addition to the £400 per month I save in Premium Bonds now, I will have the money freed up from paying off my credit card and the rental income from the first BTL. In total, at this point, I should be saving in the region of £700 per month. Assuming I want to get to £14,850 saved (the amount I needed for the first BTL) it would take approximately 20 months to save this amount. However, there are a couple of secret weapons. There is my own residence and my first BTL.
Additional Borrowing on a Mortgage
As time goes by, the debt owed on my main residence will reduce. Also, I live in an up and coming area of Sheffield that was voted the best place to live in the whole of the UK (Google Kelham Island). As my mortgage debt comes down, I will have enough equity in my property (the difference between your mortgage debt and the value of the property) to complete additional borrowing and put that towards the deposit. The plan is to release £10,000 this way. I will use £5,000 to fund my second BTL. The other £5,000 will be for my girlfriend to invest. Assuming I need £14,850 and I already have £5,000 from my residence, I only need £9,850. I also have the initial BTL.
When I was working out the cost of the first BTL, I included £3,000 for refurb costs. The idea is that we buy a property that needs some work. Not a complete refurb but a few quick hits that can improve the valuation. Once we have owned the BTL for six months we will be able to look at either additional borrowing or a remortgage to another lender to release the equity from the increased valuation. Switching to another lender would probably be more difficult and costly as it would require us to have taken an initial mortgage with no early repayment charges. Although there are some around, I suspect we will probably go with a fixed rate with a lender we know and trust. So, a further advance with the existing lender to take some of our money back out of the deal. It would work like this:
I understand that the process requires a lot of research and with one exception there are no guarantees. From over a century of records; property prices increase over time. This is as close to a guarantee as you can get. There are peaks and troughs throughout, but, properties will only increase in value over time. Because the interest only debt is stagnant the gap between the debt and value will only increase in the longer term which potentially allows you to return to the well several times. Each BTL becomes a plant producing seeds that will turn into other plants. Exponential growth is the name of the game.
Once we have two BTL earning rental income, instead of saving £700 per month towards the third property I will be saving £800 or more. Then, I have three properties which can be used to release more equity; the two BTL and my own residence.
A rough timeline...
Mid-2020: One BTL
End of 2020/Early 2021: Two BTL
End of 2021: Three BTL
Mid 2022: Four BTL
End of 2022: Five BTL
End of 2023: Six or more BTL.
The beauty of this plan is that the release of equity from each property already owned can be combined so that two or more properties can be "working" together to produce the deposit for one more BTL. Once you get to the point where you have ten or more BTL working for you, the speed at which property portfolios can grow is astonishing. It seems like it is too good to be true, but I personally know people that have done this; people I have met personally and professionally. It can be done. It will be done.
Financial Update (read to my girlfriend who typed it up for me and compared to last week).
Premium Bonds: £8,650 (up £400 from last week).
Stocks and Shares ISA: £6881.20 (up £362.20 from last week).
Credit Card debt: £3,937.23 (down £58.42 from last week).
F**k It Fund: £850.96 (up £0.61 from last week).
Surplus Cash (not including cash marked for living expenses): £300
Total Wealth Figure (All Assets minus all Debts): £188,758.76 (including value of my residence) - £138,856.06 (including mortgage) = £49,903.
I've used some of the spare cash I had last week to increase my Premium Bonds and I've kept some cash spare. I'm not wanting to commit yet to a definitive strategy of concentrating on the credit card or building up the deposit fund in my Premium Bonds. I've been using the credit card for day-to-day spending and then round up the payment I make to pay the debt down every couple of days. For now, I think I will keep to this middle-of-the-road approach and see what happens in the new year.
In the next instalment I will talk a little about the other arm of my strategy for long-term wealth; my Stocks and Shares ISA. I will also discuss some of the books I've read in a little more detail and recommend which ones are good to start with if you want to begin your own journey to financial independence.
Thanks for reading,