Our diarist reveals four of his best financial decisions.
In diary entry #10, I wrote about the six life/investing lessons that I had learned from writing these articles. Some who commented thought I was being a little tough on myself, so this week I have decided to pat myself on the back by writing about some financial, life and investment decisions that I am proud of.
Pat on back 1 -- Living well within our means
This has been the cornerstone of our financial lives.
We have always lived within our means, even in the early 1990s when we had the perfect storm of (i) moving house and doubling the mortgage, (ii) starting a family, (iii) my wife giving up full-time employment, followed by (iv) the 1992 financial crisis when the Chancellor of the Exchequer put up the Bank of England base rates every few hours until they reached 15%.
That left us with a 35% reduction in income, another mouth to feed and a mortgage that had increased more than fourfold. Try telling young 'uns these days that we had a mortgage interest rate of 17% and they won't believe you!
By 'eck times were tough, but we just cut back massively and made ends meet.
Pat on back 2 -- Paying off the mortgage
By the end of the 1990s our financial situation had improved greatly, but we continued to operate to a budget and eventually found ourselves saving a decent three-figure sum each month. With commission payments, we also had the opportunity for significant lump sum savings.
"Why didn't you invest it?" I hear you scream. Well I think we did, but you may disagree.
I guess many other people would have invested in the dotcom boom of the late 1990s, but we wanted a guaranteed return and to reduce our dependency on work, given that the world of sales can be quite precarious, so it made perfect sense for us to drive very hard to pay off our mortgage.
We did this by the end of 2001, by which time the dotcom bubble had well and truly burst. Looking back on that decision I have absolutely no regrets -- I think it was the right call for us. Our mortgage interest rate was around 7.9%, which represents a guaranteed gross return of about 13% to a higher rate tax payer. I would take that any day!
Pat on back 3 -- A lucky property purchase
By the middle of the 2000s we were saving even more, with regular monthly savings now in four figures and commission available on top.
By the middle of the decade we had bought an inexpensive investment property off-plan. At the time, I was worried that we had bought at the top of the market, but it has been a great buy.
Not only does it generate an income, its capital value had more than doubled within 3 years and we also get to use it ourselves from time to time. I know it is worth less that its peak value now and it may fall further, but I definitely have no regrets.
Pat on back 4 -- Thinking about the next generation
It always pays to think ahead with finances, so we have always felt we had to consider the next generation and educate them in money management.
We started saving £24 per month in an endowment when we had a 1-year old baby which went a long way towards contributing to university costs. An endowment may have not been the best vehicle for doing this, but at least we did something and we managed to continue to pay it during the very tight times in the early 1990s.
Even more importantly, I think it is important that we bring the next generation up to be sensible about money: to understand about the dangers of credit, the importance of living within one's means, the difference between a need and a want and to have a wariness of how and when we are sold to.
Evidence so far is positive -- my wife often comments that our young one is "a tight git like its father". I think that is a term of endearment, so am quite happy with that!
Missed opportunities?
I am sure we have missed some great investment opportunities along the way, but are now in a better place to buy some shares.
In one of my first posts on the Fool discussion boards nearly ten years ago I wrote, "At the moment we have no investments in equities... not even index trackers. … This is something I need to address because we are losing a lot of potential growth. At the moment I am holding back, because my first real wish is to pay off my mortgage …. Equities seem to be for the longer term and given the 10% drop in UK share values in 2000 that would certainly confirm to me that you should be in equities for the long term."
Hey, at least I am consistent -- if a bit slow in getting round to buying shares. But I did pay off that mortgage and did get round to investing in some index trackers!
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