Mid-month update: side income

I thought it would be a good idea to start providing a regular update on how we are doing with regards to side income.

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Side income is not a priority for us in our debt pay-off plan. As a dual-income, one-kid family we make substantial income from our full-time jobs, so our main focus since starting this blog in April has been to cut costs and live as frugal a lifestyle as we can to take advantage of the moderately high salaries that we both make. We have been successful at this so far and our savings strategy is focused on keeping costs low. However, we also have a monthly goal (set in May) of making £50 in side income each month.

So, how are we doing? Since this is my first time writing a post specifically about side income, I am going to keep things simple and list all side income to date since starting this blog in April 2017. Each time I do an update I will add the next period’s side income to the previous update so that eventually, over time, I will have a cumulative total of all side income since the blog began.

Finally, for reference, side income will include: active income (paid in cash or gift cards) over and above our full-time jobs and will exclude: refunds for returned goods, passive investment income, capital gains, tax rebates, government benefits and reimbursement of expenses, such as work travel claims.

Here is our side-income since April 2017: Screen Shot 2017-06-22 at 20.26.12

These aren’t particularly impressive figures, but of the income figures detailed above, £188.75 of it was made in June, so we are well above our goal of £50 for this month.

Our main side income continues to be from matched betting, but as I wrote previously, it is not a long-term sustainable income stream. The polling clerk job was a fantastic experience working a village polling station for the UK general snap election. Unfortunately, elections are only once a year, so I will not be able to rely on this income either. And the Swagbucks gift card income* has been a nice addition, but includes a few introductory bonuses, so may be difficult to sustain at this level.

I would like to think we could improve on the £50 per month goal, but with university classes starting again for me in a couple weeks, I will be time-poor so I am not going to increase our target just yet.

Over time, however, I would like to look at diversifying our side income streams. Some ideas I have are: selling items on eBay, earning affiliate / other blog income, making items and selling them on Etsy (no idea what yet!), and mystery shopping.

Oh and before I go, I have decided to link this post up in the Money Making Madness Linky hosted by Charlotte Burns from Lotty Earns, Emma Bradley from Mum’s Savvy Savings, Emma Drew from EmmaDrew.Info and Lynn from Mrs Mummy Penny.

*This Swagbucks link is a referral link which means if you sign up to Swagbucks through this link I would get a referral bonus at no cost to you. I will only ever link to things I have used and love. Thank you for the support.

The curse of the defined benefit pension

Trapped in the world of pensions

I went to a very interesting finance seminar today. I work in public sector finance and the seminar was focused on defined benefit pensions the public sector and I tell you…the discussion left me perplexed.

For those that are not aware, a defined benefit (DB) pension is a workplace pension very common in the public sector (and historically available at large private sector companies but less-so now) where your employer guarantees you a pension income in retirement based on a predetermined calculation. Most schemes, mine included, also include life insurance as part of the deal. Here is an example (and this is a completely made-up scheme but loosely based on my current scheme):

  • You contribute 8% of your gross salary to the scheme
  • Your employer contributes 10% of your gross salary to the scheme
  • You work for 20 years under these conditions
  • Your accrual rate is 1/60th
  • Your gross salary at retirement is £60,000
  • In this example, you would be guaranteed to receive an annual pension at retirement of 20 years x 1/60th x £60,000 = £20,000, which is usually linked to inflation.
The typical reaction to pension calculations

So on the surface, this seems like a great deal right? As an employee you have a guaranteed income in retirement linked to inflation. You will have a stress-free retirement in exchange for a long and successful career in the public sector. Simple.

But here is the thing which became clear to me as I listened to the seminar: in a defined benefit pension scheme you will contribute an amount from your salary during your employment which has absolutely no direct link to the pension income you will receive. This is risky and means you have little control over when and how you you receive your pension.

Furthermore, in the current economic environment, the total contributions made into DB schemes are normally not enough to fund the scheme. With interest rates low and people living longer, the schemes are becoming riskier and the deficits higher. Eventually, the scheme trustees will have to either: (1) reduce pension benefits; (2) take on more risk; (3) require higher contributions into the scheme; or (4) CLOSE THE SCHEME. The problem is employers can’t increase their contributions infinitely and employees will start opting out of the scheme if employee contributions are too high. Employers then have to plug their pension deficits even more. It is a vicious downward spiral and the reason many private defined benefit pension schemes have closed.

Personally as an employee in the public sector, now that I have contributed to the scheme for a few years, I feel a bit stuck. I can obtain a valuation of my pension and transfer it to a personal plan, but then would lose out on the guaranteed pension in the future and the life insurance benefit I am currently receiving. In fact, the UK Money Advice Service states:

“Any potential advantages of transferring from a defined benefit pension scheme to a defined contribution one are often outweighed by the costs, risks and loss of benefits involved”

I am also worried about the possibility that the pension I think I am going to get when I retire is actually nowhere near the pension I will actually get because it simply isn’t affordable.

As I walked back to my car from the seminar, I reflected on my journey to financial independence and my hopes to retire earlier than the standard pension age. A specific part of the presentation stuck with me. The presenter spoke about the lack of freedom that one has in a defined benefit scheme.  He had a slide which depicted the three typical phases of retirement:

  • The first phase is the ‘ACTIVE PHASE’ –> this is the phase in retirement where the retiree is still active, traveling the world, visiting friends and family.  Spend in this phase is high.
  • The second phase is the ‘WIND-DOWN PHASE’ –> in this phase the retiree is less active and takes fewer trips as mobility starts to decrease. The retiree is still relatively healthy but less able to travel and therefore spend is modest.
  • The third and final phase is the ‘CARE PHASE’ –> this is where the retiree is elderly and requires increasing amounts of care, possibly in a care home. Mobility is close to zero and spend is very high (but likely funded through assets).

Looking at these phases, clearly retirees will want income to be geared towards the start of their retirement. This is when retirees will have high expenses that they do not want to fund through assets. However, inflation-linked defined benefit pension schemes provide the majority of their value towards the back-end of retirement. Only around a third of the value is realised in the first 10 years. And if I want to retire at say, 50 or 55, then my ACTIVE PHASE will be even longer than most. So does this mean my ‘gold-plated’ defined benefit pension scheme is less valuable then I thought? Perhaps.

Above all, the thing I have taken away from today’s presentation is the realisation that I must continue on my journey towards financial independence and debt reduction on my own terms. This does not mean I am considering withdrawing from my workplace pension scheme. To replicate in a personal pension the pension I would get through my workplace scheme I would have to invest around 40 to 45% of my gross salary (rather than the 8% I currently contribute) and even then it wouldn’t be guaranteed!  So I will continue contributing, but when running early retirement forecasts, I will reduce any dependence on workplace pensions and focus on robust post-tax investments to fund the majority of our early retirement years.

Net worth update: May 2017

Net worth update (1)

After writing my savings strategy post and thinking about long-term goals, I was starting to feel very excited about eventually becoming debt free. I kept imagining what financial independence will feel like and was feeling super motivated to get us to debt-free status. But when I put together my net worth update for this month, my motivation took a nose-dive. A few things happened that put me off track and it felt like in the short-term nothing was really happening. Here are the figures:

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Our net worth at the end of May 2017 was £63,637. This is £25,641 higher than last month, but only because I added in my husband’s personal pension (SIPP) worth £26,090. Taking out the pension value, our net worth actually decreased by £448. Short-term debt increased by £22 because I refinanced our second loan for a lower interest rate and ended up taking out a loan for a slightly higher amount than what was due on the previous loan. I put this increase into savings, but it does not feel nice to see a debt balance increase, whatever the circumstance. Add onto this the financial fiasco with British Airways last week and the payment of quarterly MBA fees of £2,030 this month and, well, the combination just makes me feel like I am crawling slowly towards financial independence rather than running towards it.

To help me with motivation, I am going to set some mini-goals for the rest of 2017. I am hoping that with these short-term goals I can see more visible progress towards our overall strategy. My goals will be:

  • Increase our net worth each month, by any amount
  • Make £50 per month from side income (e.g. matched betting, freelancing, etc.)
  • Spend £400 or less on groceries and toiletries each month (previously we spent £500 per month)
  • Make an over-payment to unsecured debt each month, whatever amount

I will update against these goals each month now until the end of the year.

 

Visiting New York

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Brooklyn Bridge Park

I have today just returned from a quick and tiring but fulfilling trip to New York. I know New York well. My father is from New York and I lived there for two years after university. A lot of my friends and family are there, so it was a mainly a trip back to see them and to bring my son for the first time.

We had a 5 day trip planned to fit in with my son’s half-term break from school. We were flying with British Airways and as luck would have it, right before we were about to board our flight, global BA IT systems crashed and all flights were cancelled. The 5 hour period in Heathrow after the cancellations were announced were absolute chaos (think crying children, 4-hour long queues, missing BA staff and low food supplies). We had to drive 2 hours back home without our bags.  We ended up purchasing another flight the next day online (which we are claiming back from BA), but it meant our trip was cut short by a day. Four days in NYC jet-lagged, on a budget, wanting to visit people and see attractions is just crazy, I would not recommend it.   On top of that we didn’t receive our baggage until day 3 of the trip so we had to spend most of the first day buying toiletries and clothes. Thank goodness BA have confirmed they will reimburse expenses and pay compensation. I have already put my claim in but we are currently out of pocket by just shy of £4,000 until the reimbursement is paid!

Once we finally got to New York, we were lucky to stay in a large 2-bedroom Airbnb apartment in Brooklyn, two blocks from my old apartment and steps away from the subway. It was the perfect base from which to explore the city. We did mainly free activities where we could meet friends and family and see the sites without having to pay extortionate entrance fees. New York does not have free museums like London or Washington DC, so you have to seek out free attractions.  Here are some of the free things we did over the three days:

  • We went to The High Line. I had never been here and this place blew my mind. It’s an elevated, disused railway-line in Manhattan that has been turned into a free public park. The planting is beautiful.  There are views of the Hudson river to the west and the park snakes through the neighborhoods of Chelsea and the Meatpacking District. I recommend going early on a weekday as there are narrow sections that can get quite crowded. We went at 9.30am on a Tuesday and it was perfect.
  • We walked from The High Line to the Flatiron building and then to Union Square and around the streets of Greenwich Village. Meandering around Greenwich Village is one of my favourite things to do.
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The High Line, New York City
  • We went to Cortlandt St Stration on the R line and walked around Westfield at the World Trade Center and viewed the 9/11 memorial. The Westfield building is incredible to see, it reminded me of a rib-cage.  The space is very calm and peaceful even when packed with people.
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Westfield, World Trade Center
  • We went to Grand Central Station and stood in the lobby for a good 15 minutes, then walked to Bryant Park and the New York Public Library. From there we walked to Times Square, walking in and out of the shops.  Then we walked to Central Park, found some green space and relaxed.

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Times Square
  • We visited Brooklyn Bridge Park and the Brooklyn Heights Promenade. This is a great part of Brooklyn and offers amazing views of the lower Manhattan skyline.
  • We walked around the Brooklyn neighborhood of Park Slope for hours and hours. There are tons of little shops, cafes, music venues, and beautiful quintessential Brooklyn brownstones.

 

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Brooklyn Bridge Park

This is not to say that I did not have moments of weakness. I am prone to frugal failures, after all. I spent $100 just on myself to eat out with old friends. We were in a restaurant for 6 hours eating and drinking and talking and the restaurant was expensive (but delicious!). I also bought my son a couple toys and I purchased some cheesy souvenirs.

Overall though, assuming we get the money back from BA (we better!), we have spent much less than our budget of £1,000 spending money for the week. The £1,000 was put aside for budgeting purposes but I wanted us to spend significantly under this – and we did! I am still reviewing spreadsheets to work out exactly how much we spent that won’t be reimbursed, but I’m thinking it is closer to £500 including my lavish dinner out.

There are lots more free things to do in New York that we did not get time to do and I want to give a big THANK YOU to the great tips I received from other bloggers. If anyone else knows of other free attractions in New York that I did not mention above, I would love to hear about them in the comments.