I’m not regulated to provide financial advice, which is tailored to your unique circumstances.
But here’s some financial thoughts from someone who now lives on a boat.
Reddit user u/LinkedInInquisitor, don’t bother reading this one. It ain’t for you!
Wait, what?
OK, that was a cheap shot at a plump static target. For context, this week I commented on a post on the subReddit r/FIREUK and received this delightful reply that made me smile:
“Yeah, I wouldn’t take financial advice from people leaving on a boat.”
U/LinkedInInquisitor, 27 September 2023
I’m presuming it was supposed to be “living” because I’d mentioned that I live on a boat. Regular readers might be sick of hearing about this, I don’t like to talk about it… except all the time.
Then again, maybe it’s because I’m technically an ex-pat. Well, sort of. If you squint really hard and don’t ask questions. That irks some people.
This quote was just the inspiration I needed to write a full blog post. So, thank you Captain Negative! I hope your FI Campaign is as long, tedious and risk-averse as you crave it to be.
For the rest of us…
…here are my thoughts on four big FIRE topics that I have developed in my quest to live on a boat, for your judgement and entertainment:
- Think about your emergency fund needs, don’t just go with whatever someone else says
- Getting started is more important than over-optimising
- Minimalism is awesome
- Liquidity means empowerment
1. Emergency funds revisited: what’s your emergency?
I’ve recently reassessed how much we keep in an emergency fund.
It’s £12,000-15,000. Done!
That number is boring and on its own means nothing. I mean, why should it? For some readers, that’s a year’s spending. For others, that’s four weeks’ at best.
What’s more interesting is how I got to that figure. Maybe you could reverse-engineer this thinking and look at your own.
BuT DaVe RaMSey SayS… BuT Mr MOneY MOUstachE sAys…
I’ve looked at how different people give comments about emergency funds in the past. What if I told you I think they’re all right AND all wrong?
Ooh, a paradox! Love it.
Seriously though: internet long-term financial advisor Dave Ramsey says an emergency fund is $1,000. Mr Money Moustache says you don’t need one and can use credit cards in an emergency. I’ve seen all sorts of flavours from £1,000 to six months’ mortgage or rent to a years’ expenses thrown around.
Why these are all right
Dave Ramsey has probably based his working out on the fact that several financial surveys in the US suggested a large percentage of Americans can’t find $1,000 in an emergency. So, reasonably, he should get his followers – who aren’t all into FIRE, they’re just regular people doing whatever their goals are – to clear this simple hurdle first.
Sensible. This is what I’d do if I was him.
MMM – a person I’m generally a fan of – is thinking about people in FIRE who will very quickly have a lot of liquid assets and a great credit rating. He also talks about using credit cards for everyday spending (which makes more sense in the US where cash back cards are more common) and having most of your money in exchange traded funds, which you can draw down from in about 3 days with most brokers. Sell on day one, put in the withdrawal request and wait for the bank transfer to clear.
Requires a bit more thought and discipline, but he’s talking to his Moustachians. They can handle it.
Conventional wisdom is 6 months’ expenses or mortgage/rent, depending on which financial book you read. That’s aimed at your average Brit, who (a) might not be flush with job prospects and (b) we know through Office of National Statistics surveys isn’t an investor. It makes sense that they have a chunky safety buffer, it’s all they’ve got outside of pensions and property in most cases.
Logical, easy to follow, will work in most circumstances and certainly won’t do much harm.
So if you consider the target audience: all of these are right.
And why they’re all wrong FOR YOU
You are a semi-unique individual. I mean, just based on the volume of human experience, taking into account everyone on the planet, no-one is truly unique; but you’re probably unique enough in combination that a one-size-fits-all approach may in fact be one-size-fits-none.
There is no way Messrs Ramsey or Money Moustache could ever tailor their content at you individually unless you directly reached out to them and got their attention.
Chances are, there is no perfect fit off the peg that will suit you. Which means you might want consider tailoring.
Most Likely Course Of Action
I dimly recall back from my military days having to plan against what an enemy will likely try and do to you. We called it the Most Likely Course Of Action.
Thinking this through for FIRE: what is the most likely emergency you’re going to face?
When we lived in a house, we both worked full time and had a 50% savings rate. If one of us was sacked from our jobs, the other could carry both indefinitely.
So the impact on one of us getting canned was pretty bearable.
We’re both well educated, motivated and employable. We lived in a city and could commute to three other cities comfortably by train. It wasn’t likely we’d be unemployed too long, albeit we might end up with a smaller income.
Our biggest risk was actually the boiler failing or a window getting broken.
Accordingly, we had an emergency fund of around £3,000. That was coincidentally also four months’ mortgage payments, but to be honest we’d start selling shares if we got desperate.
Don’t confuse Most Likely with Most Dangerous
There is a more extreme assessment: the Most Dangerous Course Of Action. What could happen, within the realms of possibility, that would make you change your plan and drop everything to deal with it?
This is where we consider that both of us could be unemployed concurrently. Or our roof could collapse. Or, I don’t know, the Elder Gods could take their revenge.
Why didn’t it affect our emergency fund?
Because we’d have to change tack, ignore FIRE for now and sell off assets to deal with the situation.
If we plan for Most Dangerous instead of Most Likely, then we’re most likely going to over-prepare and misallocate resources from way cool assets to lame inflationary cash.
Your call.
Which is how we came to our emergency fund number
£12-15,000 is enough on our boat to haul her out and do a major repair. Think along the lines of get a professional boatyard to treat fibreglass blisters throughout the hull, or replace the entire engine.
On a boat, these things might appear without warning and need dealing with instantaneously. We can’t wait three days for our funds to clear, we’d need to take most of the action straight away.
Sounds like the Most Dangerous plan, right? Well, we bought an older boat. The girl is 20 years old, and the sea is mean to vessels. Stuff like this does spontaneously happen, so we need to have a plan for it.
My point? Consider targeting your emergency fund on the likely emergencies, not on an arbitrary number.
Especially if you heard it from someone on the internet.
Word of caution: this approach presumes you actually have a decent investment pot starting up. Having £3,000 and then not adding to your ISA or other investing account is a lot riskier than having £1,000 in cash and £12,000 in ETFs that you pay into every month.
2. Early on, putting more into investments is better than optimising your return
During the time I’ve been writing this blog, my opinions have developed quite a bit.
At first, I was all in favour of optimising the hell out of my investments. I spent a lot of time thinking about risk and reward, minimising fees and all that jazz.
This is all good stuff to be fair, but do you know what makes a bigger difference than spending hours and hours of optimising?
Putting more in the damned account!
Obviously, over time, this changes. Of course it does. When a 1% gain in efficiency is worth more than you’re contributing each month, you’re going to want to optimise. If you’re only trickling cash in and your FI Campaign is being waged over 25 years or more, it mathematically does add up.
In the early days, though, the hourly return on optimising your investment plan is probably dwarfed by a single additional contribution.
How this works out
You decide one day to hit CoastFI in 10 years or less. Hypothetically. I don’t know anyone who is doing that, pure fantasy…
You could spend hours and hours (and I did!) agonising over how to optimise your investments. Do I pick 100% equities? Should I use a global tracker or an S&P500? Free platforms or pay-to-use?
These are questions you might want to ask yourself, and like I said they’re not bad. But, in the first five years at least, it’s not worth spending more than an hour over total.
In fact, I’ve now just dropped this approach to simply dump my pot into a robo-investor, partly for this reason.
If you’re saving £10,000 a year, you’re contributing £800 a month. Your time has a pretty big return on it.
In the first 5 years, starting from zero, the difference between a 7% return and a 6% return is £1,374.04. Sounds like a lot, right? That’s a bit over a month and a half!
But at the 3 year point it’s only a £450.20 difference.
Now, you’d be right to say “so I should get this right at the start!”, except that you don’t know how to make this happen. Unless you’re the baddie in Back to the Future II, you can’t tell if your chosen investment plan is going to be the 7% one or the 6% one.
Even worse, most higher-returning investment strategies show volatility over a time frame of 10 years or less.
Research time is an opportunity cost
So you could back-test lots of scenarios, or spend weeks trying to work out which platforms give you the closest replication to a nifty thing you saw on portfoliocharts.com.
And, what? Not invest for a month? Two? How long would you put this off for?
If you delay by a month, you’re already behind £800 in the pot. That’s more than you would have been down if you were a whole 1% less effective in your investment pot choice at the three year point.
Thing is, you’ll never know if it was the right call or not until long after the fact.
What else could you do in that time?
I reckon I’ve spent maybe a hundred hours thinking about how to optimise my portfolio.
Even when I was doing Uber Eats as a side hustle, I could have used that time to put an extra £2,000 in the pot to start with.
Alternatively: I could have gained a new skill or retrained into a more lucrative line of work, I could have learned to grow my own food (which I still suck at!) and reduced my monthly expenses, I could have even just spent more time writing (which I love doing) and maybe tried launching my own books again.
In fact, if you’re going to optimise something because you’re feeling obsessive, how about looking at your lifestyle costs again? A penny saved is better than a penny earned in the big FI campaign.
So, yeah: don’t over-optimise an investment portfolio early on at the expense of getting started.
Probably a waste of your time, and your time is valuable.
3. Minimalism is awesome
I once saw – on a FIRE forum, no less – someone comment to the effect that minimalism is the worst social trend, on the grounds that it makes us want to be happy with austerity.
Bullshit.
To be fair to the commenter: I get it. “Live with less” sounds dodgy. Images of knitting your own jumpers in brown and green with a hint of neon orange or purple (“hippy chic”) around a cow dung stove in a rotting wooden caravan come to mind.
Just me? Maybe I’m the prejudiced one here, but it’s what I thought ten years ago.
Stumbling into minimalism
Hilariously, I missed the whole Marie Kondo thing. That came and went as a craze in six months when I was on a deployment somewhere. I only know her from third-person imitators.
I discovered minimalism through The Minimalists website, which I stumbled upon while looking for something else. They’ve since made a Netflix video and I’d recommend it if you’re curious.
Anyway, the point is that minimalism is about being conscious of what you own, not about living like a monk and beating yourself with razor wire for having more than three pairs of socks. If you have a need for it and use it, by all means own it – just be aware that there’s a cost to ownership and it isn’t just the purchase price.
Spending intentionally
It was minimalism that inspired my whole approach to “spending intentionally”. Not quite the same, but these two ideas can go hand in hand.
Basically it boils down to this: if I own fewer things, I can own better things.
The boat we live on is a great example. We could have bought a perfectly reasonable liveaboard for £40,000 in the UK. No question. Instead we’ve paid a lot more for it…
…but we have a solid hull, a keel-stepped mast, and yet it’s a boat with a more spacious internal shape. If we’d kept the budget low we could have had one or at best two of those three things. We’ve also now fitted a brand new engine, so that’s not likely to be a concern for us in the next decade and it even has a five-year warranty on it.
My laptop died, and I now write this blog on the iPad Air I replaced it with. As this is one of the few things I own, I could get a pretty decent spec tablet and a Magic Keyboard, all within budget and without guilt. Paying for the higher spec means that I have GPS on it, I can put a local SIM card in it when I travel, and it also doubles as a chart plotter for the boat. If I’d saved the money and bought a laptop, which would easily have been £400 cheaper, I wouldn’t have this additional option and when I visit the UK I’d need WiFi or a second phone, instead of tethering off the iPad with a 4G/5G SIM.
If I could speak to my 20-year-old self…
I’d tell them: buy less and buy better. Don’t rush to buy stuff and have to accept poor quality, take your time and get the thing that does what you actually want it to do so you don’t have to buy additional items later or replace it sooner.
4. Nothing is as empowering as knowing that you’re free to leave whenever you want
A few years into my FI campaign, I’m debt free and earning so much more than I spend. In fact, my expenses are only as high as they are because I’m living in a high cost area.
If I was sacked or just lost my temper and quit my job today, I could do absolutely nothing for an entire year and live the exact same quality of life with zero repercussions in the exact place I am now.
That’s assuming I brought in zero pennies and my partner didn’t give me an allowance.
Oh, wait. It also assumes I don’t just move my home and leave, because – you know – boats. But I get that this isn’t relevant for most of my readers.
If I was to reduce my costs and travel, I could probably do it for two years without earning a penny, in Northern Europe or the USA. If we went further afield, this could be a lot cheaper.
Which is why I’m a fan of liquid assets
It’s entirely true that I could go big with my pension pot and probably hit FI sooner due to the favourable tax treatment on pension investments.
Can’t liquidate pensions on a whim, though.
Obviously, I do the employer contribution matching. Duh! Why miss out on money I’m owed?
Realistically though I massively overdo liquid and accessible assets. My investing account (I can’t have an ISA any more, perils of being offshore – but if I were in the UK I’d still have one) is my big FI pot, my main effort.
I’ve got things like crypto, gold and private equities. I quite like them, but nothing is as reassuring as having a big investment account that can be drawn down if I need it.
“I wouldn’t take financial advice from people living on a boat”
Your call. I’m not responsible for you.
I wouldn’t take financial advice from someone who:
- Overdoes their emergency fund out of fear or lack of critical thinking
- Obsesses about their portfolio balance before they’ve put anything significant in it
- Thinks owning stuff is the same as living well
- Doesn’t feel empowered by having readily re-deployable assets
But that’s just me.
