Recently some stuff has been happening in my life that has caused me to need to make some decisions with regards to my financial planning and investments in the near future. Namely, I've decided to stop making regular investments for the next 6 months before re-assessing how I should continue my journey towards financial independence. In this article I wanted to put down some of my thought process on why doing this makes sense to me, and why I think it's the most sensible move for long term financial success.
Our life's journey will often come with a few patches where things aren't perfectly smooth. The journey towards financial independence is no different. With wedding planning well underway and a home purchase for my mum on the horizon, I have two major financial risks that I need to be prepared for. The best way I can think of is to stop investing temporarily in order to increase my cash reserves. It sounds like my progress will take a hit, but the impacts may not be as severe as I first thought.
Two Big Things Causing Turbulence
Back in April I proposed to my fiancée and we've been working towards a wedding scheduled for May next year. Needless to say, wedding costs can rack up quite quickly... even when you're keeping to a sensible budget.
But budget or no budget, there are costs involved which requires funding from money that would've otherwise gone into saving and investing.
That's one thing causing "financial turbulence" for me right now.
Note: Don't read the word "turbulence" in a negative manner. I use it simply to convey that the current period in my journey towards financial independence has a few extra things to think about and handle.
Only needing to handle wedding costs would've been fine, as I had already been setting aside a small amount over a long period in anticipation that such a day would come.
However, what's happened recently is my mum has sold her house but hasn't yet found a new home to move into. There's a whole bunch of personal reasons mixed into this decision so don't try to find any financial logic with this move.
But the problem remains.
With the completion date of the sale fast approaching, a new home needs to be found relatively quickly.
Luckily, a family friend has kindly offered to let my mum stay with her temporarily. It gives us a bit more breathing room for the search but this can only be a short term solution.
At the root of the problem is the fact that my mum's house isn't worth a huge amount, so she's struggling to find a new home in a decent area to purchase for a similar price. Even if she looks for a home that's smaller than the one she's moving out of.
With this going on alongside my wedding preparations, I am treating it as a second source of turbulence that I need to provide financial support to deal with.
Because let's face it, I'm not going to turn my back on my mum's struggles...
The Mitigation Plan: Raise Cash
If my mum is struggling to buy a new place with the funds she has from the recent house sale then the easiest thing is for me to provide a bit of a boost to her budget.
So my near term plan is to raise a sizeable amount of cash that will be available if needed.
As I've been planning a wedding for the past couple of months I already have a relatively large cash reserve set aside in order to pay for the various costs. Fortunately, I baked in a whole bunch of contingency budget in case I overspent on certain items but with careful spending control everything seems to be on track.
That means the contingency can be redirected if needed.
As someone who moved their life to another country recently I've gotten accustomed to living off a spending fund of a sorts. It's basically just a sum of cash that I utilise for day-to-day living which gets replenished through my monthly income, rather than living directly off the income itself. It just means I don't need to worry about my salary being late or anything of that sort of nature.
It covers a couple of months of living costs and can also be added to the pot if needed. All this means is I start living directly off my monthly income until the turbulence is dealt with.
I also have my standard emergency fund on top of all this.
A wedding may not be an emergency but helping my mum find a new home to live in when she hasn't got a home certainly is.
All in all I have a sizeable amount of cash in reserve that can be used, and I am planning to increase this by a further £18,000 over the next 6 months.
With this pot I should be able to handle a worst case scenario where I need to spend a relatively large sum of money to help my mum buy a new home, while still being able to stick with the original budget for my wedding, and keep my existing investments intact.
The Impact To My Progress Towards Financial Independence
Producing £18,000 over the next 6 months means I need £3,000 a month, which is the amount I pretty much invest on a regular basis under normal circumstances.
It's a pretty big hit to take as that's almost enough to max an ISA if I were still in the UK. But not all is lost.
The markets this year have performed quite well so far and I was actually able to hit my annual target at the start of September. Anything extra is basically a bonus for me.
If I forego the extra and start my saving immediately, I'll be able to build up around £9,000 by the year's end.
This wouldn't be taking anything away from my progress towards financial independence since I already hit my annual target.
The impact would only start in January next year as I need to continue saving for another 3 months to make the remaining £9,000. So in total, this is only going to set me back by around 3 months.
Not to mention, my existing investments are going to remain invested right the way through so they'll grow alongside the market if it continues to rise.
If the markets fall... well, I'll only be getting lucky that I didn't buy at the higher prices.
With a 3 month timeframe I can look at it in really simple terms.
3 months is a quarter of a year, and if the long term average return each year from index funds is 8% then I can say I'll be losing out on 2% growth on £9,000.
That's £180... not exactly the end of the world.
So on balance it seems as though the impact to my progress won't actually be that much after all.
When The Skies Clear Up
This whole thing is some precautionary measure by myself in case the two items causing turbulence, my wedding and my mum's house purchase, take up more money than originally expected.
But there's a chance that everything could go smoothly without a need for all of my cash reserves to be utilised.
My wedding is on track to remain within budget, and my mum might be able to find a new home in a nice area that costs a similar amount as the house she recently sold.
If this were to happen then I'd effectively have a lump sum of cash sitting to the side with nothing but clear skies ahead.
If that were to happen there'd only be one thing to do - a lump sum investment into the index.
I might have missed out on a couple months of market growth by not investing the money, but the fact that I still have the lump sum would be considered a big plus.
Because it means I didn't need to spend it.
The lump sum investment would boost my progress by a nice amount and would effectively return me back to my original progress position, or close to it.
Or, if luck would have it, the lump sum cash would allow me to buy the market at a discount which would give me even better returns in the long run.
One can only hope!
But regardless of what happens, the silver lining is the knowledge that the turbulence being experienced right now will definitely clear away eventually.
Adapt And Adjust (Final Scribbles)
Handling wedding preparations, raising cash for mum's house move, and the day job has taken up quite a bit of my energy in recent weeks. So this week's article is a bit shorter and is more a brain dump from a deeper personal perspective compared to the usual.
I guess it's sort of my way to rationalise and confirm that my actions for the next 6 months make sense. And when talking through the overall impact, I think it does.
After all, if I don't make preparations in order to handle the financial turbulence, there could be a day where they actually become a real problem.
If that were to happen I may find myself needing to take more drastic actions in order to fix things. Like selling my investments in order to come up with the cash required to cover various costs.
I dread to think of the overall impact that would have on my journey towards financial independence. Maybe it wouldn't be a lot, maybe it would.
But it's the uncertainty that's truly concerning.
The financial independence community often talks about a "set and forget" approach, which will serve most of us well for the majority of the time.
But sometimes the journey is about adapting and adjusting in order to keep things pointed towards the right direction. We don't want to keep travelling forward blindly and not realise that we've been blown off course somehow.
This is one of those moments for me.
While the path may be a bit more turbulent right now compared to the usual, I have no doubt that in a few short months I'll be back on the straight and narrow and making good progress towards my desired destination.