Dave Ramsey’s take on how to become a millionaire

The other day on Youtube, I typed ‘Invest £100 a month’. I was trying to find examples or testimonials of people who invested this much a month because, as I have said before, becoming a millionaire £100 at a time would take more than a lifetime.

Well, Youtube didn’t disappoint; I wasn’t prepared for this though! XD

Obviously, if I am breaching copyright I am happy to take this down. However, this video is too good not to share!!! No copyright infringement is intended and all credit of this video goes to Dave Ramsey.

Investing £100 a month, my own – uneducated – calculations

Dave Ramsey here is assuming 12% interest.

I do not pretend to know much about the stock market just now, so I prefer to project using 7% interest. The results I get are very decent and manage to hit my own minimal Financial Independence for retirement. But as the title of the blog suggests, I would be a lot happier with a million pounds.

Investing 15% of income, my calculations

I have just had a small raise of £54 from this month and was wondering how to calculate this amount. I had two options.

Option 1: the first was to just calculate 15% of the new salary.

Option 2: the second was to calculate 15% of the old salary, then add £54 on top of that. That would mean that any raise would get added directly into the investment without tempting me in lifestyle inflation.

In the end, I decided that option 2 would be more in keeping with advice from the FIRE community. Therefore, I entered that particular amount in the calculator, again with 7% interest and 2% inflation.

Again, as you can see, with 7% interest I would probably still not hit a million in 40 years. However, I would end up with a very tidy sum of £742,797,94.

My take away point from crunching the numbers

After playing around with the calculator with some time, I came up with these final, realistic(ish) number.

To retire at the age of 65 with one million pounds, I would have to invest £475 a month (7%, 2% inflation) until then. I better start saving/investing then!

This month I managed to invest £236.74, nearly 50% of that target amount.

So I have some way to go to reach this goal. However, I have hit a milestone this month: I have finally saved up the equivalent of 6 months of salary in my emergency fund!

To conclude: I would love to be more optimistic about the market and have the knowledge that I would need to be able to make similar statements to Dave Ramsey.

One point he did put across powerfully is consistency and discipline are key in this process and that sacrifices can be made to get there.

Now my last question is: after a raise, does my emergency fund need to be topped up to 6 times the new salary?

Exercising without breaking the bank: my personal story

Due to the extraordinary events that have happened this year, many places have had to close, including gyms. As a result, many people stared working out from home.

I have had a love/hate relationship with the gym. I used to go (about 2 years ago) once a week to use the static bike, treadmill and cross-trainer. As I was paying £7 every week and could get a monthly subscription for £25, I took the plunge and signed the contract. That was the last time they saw me!

Somehow, becoming a member was counterproductive for me, as I started making excuses not to go. You may think that it’s because I lacked self-discipline and you would be right . The only difference between January newbies and me is that it actually happened in October.

From then on, I decided the gym was not for me.

What are the alternatives?

I am not an exercise enthusiast. So it’s kind of by accident that I started exercising at home during the pandemic.

Online platforms like YouTube make access to so many free workouts really easy, with plenty talented enthusiast practitioners sharing their tips and tricks.

I have also found that Instagram has a lot a great content once you get over the sponsored content and the perfect body shots.

I think the major breakthrough was discovering ways of exercising that don’t require lots of equipment. Calisthenics and yoga are two sports that I am dabbling into and a great thing about both is that these can be practised, at least in beginning, with no equipment.

Controlling my spending

As with all new hobbies and a recurrent sufferer of shiny object syndrome, I browsed Amazon for exercise aids and equipment.

However, starting this financial journey has lead me to question every single purchase that I nearly made.

The one purchase I gave into in the 2 months I have started exercising at home were yoga blocks and although I am glad to have purchased them and they were really affordable, I know deep down that I could have managed without them too.

The next purchase I want to make is for a pull up bar.

The trick I am using to stop myself buying it in the short term is to delay this expenditure until I reach a significant milestone (serious exercising for 6 months for example).

To conclude:

So what was the point of me sharing this today?

I used to buy all the things when starting a new hobby (I own tap shoes although I tap danced only 3 weeks and good knitting yarn is surprisingly expensive). However this journey has taught me to carefully evaluate what I really need and delay purchases until I know that I am truly commited to my fitness journey.

Keeping your cool when stocks go down

This morning I logged into my stocks and shares ISA and found out that my £500 deposit was now only worth £498! Where have those £2 gone? Was investing ever a good idea in the first place?

In the short term seeing numbers fluctuate up and down can be scary and daunting; especially given how much hard work is required to save and invest that money in the first place.

It is easy to forget in the midst of this that only a week ago, my investment was worth £506. So how can I avoid that sinking feeling in my stomach when it all seems to go wrong?

Only invest what you could realistically afford to lose.

There is an important reason why most financial gurus out there cite investing as the last step of a financial make over, after saving up 6 months emergency fund.

This money could probably give you a lot of returns. However, it may be years, or even decades before the investment pays off – depending on the market.

Having an emergency fund in an easy access savings account enables you not to depend on selling to get your investment back. And thanks to dear Murphy and his law, it would probably happen when the markets weren’t doing so great.

For peace of mind, only invest what you can afford to lose (even if nobody really wants to ever lose it of course!)

Remember you’re playing the long game

You’ve done your research and in good faith invested in what you thought were decent index funds, ETFs or mutual funds. All the graphs showed a steady increase for the last 5 years (apart from the blip in March). And now your investment portfolio is steadily losing value.

Don’t give up just yet. Have a look at the last 5 years and see how many high and lows the graph shows on a day to day basis and how the average still goes up over the course of the years. One of the huge differences between a fixed interest ISA and an online stocks and shares ISA (like Vanguard for example) is that the daily variations of the market are reflected in the day to day value of the latter.

Don’t get obsessed with the numbers. Just let it do it’s magic in the long term.

Don’t forget, it’s all about learning

I admit that seeing the numbers going down can be unsettling at first and that long term investors seem to have nerves of steel. The good news is: you are becoming one of them!

At the end of the day, people can research for years how to make the best investment, makeup strategies as to how to (hypothetically) time the market and what the best brokerage is… the only way to learn about investing is, unfortunately, to invest!

It is by going out there, out the comfort zone of the ‘what-ifs’ and ‘maybes’ that the most powerful lessons are learned. This initial learning and experience then serve as a solid base for further learning and understanding of the wonderful world of investments, whether you read finance magazines, go through FIRE forums posts or watch Youtube videos on the topic.

Enjoy the learning curve!

To conclude:

First save. Then invest.

Going back to basics – expense tracking

Image by Bruno /Germany from Pixabay

Every financial blog post, podcast, Youtube and article that I have read over the last two years have contained this one piece of advice: ‘track your expenses’. This was usually followed by: ‘create a budget’.

I have during different periods of my life definite phases:

  • the ‘I have no money so what’s the point’ phase
  • the ‘Not having a budget works for now, why bother’ phase
  • the ‘I need to track my spending obsessively with loads of charts phase’
  • the ‘I missed a week, I give up!’ phase

You may recognise yourself in one or more of those. I know that I have cycled through these quite often at different times. However, there was a golden period of 4 months were I did have it down to a tee. That’s what I aspire to go back to.

So what should I have done differently at the time?

Find a really motivating long term vision.

Image by <a href="https://pixabay.com/users/ToNic-Pics-3001971/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=1573529">Tom und Nicki Löschner</a> from <a href="https://pixabay.com/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=1573529">Pixabay</a>
A long term vision.

In that golden era, I recorded all my spending and savings and knew exactly where every single £1 went. I saved enough for my yearly car insurance with a sinking fund; I even saved for Christmas presents. However, there was one problem that affected the sustainability of my system: I didn’t have a long-term goal.

At the time I hadn’t even heard of the FIRE movement. I didn’t have any concrete financial aspirations. I had never even considered investing in the market or real estate as an option. So when I saved money, though it did feel good, I didn’t have a clear purpose for it other than spending it later.

Since getting more interested in personal finance, I have discovered the caveat of not saving/investing for retirement. I have learned how inflation very slowly gnaws through savings. As a result, I have found out I cannot afford not to invest in my future.

Know your milestones

As you saw in my last post, there are some resources out there that can give some realistic and broken down milestones for financial goals; whether it is saving 3 months of expenses for an emergency fund, investing enough to cover basic living expenses, or just striving to be debt-free.

Creating a long term plan with realistic and achievable goals is the one vital thing I didn’t do during that 4-month golden phase. As a result, the £10 I saved on my phone bill, the £5 I didn’t spend on drugstore make-up and the £3 I saved by packing my lunch that day just got absorbed by my everyday spending.

What I do in those moments now is take out a calculator to work out how much closer to my goal I would be if I didn’t spend that amount. Even if it’s 0.00012%, I know that it is making a difference. Charting progress on a graph can also help to see this change visually.

Learn the art of delayed gratification

This is by far the most difficult one for me at the moment. I want to see progress and I want to see it now!!!

I know how frustrating it is to see number creep up super slowly. Times where I have set backs and times where I overspend. And times where I think to myself ‘is it really worth it?’

I want to throw in the towel, give up the hard work of going through my accounts everyday, writing everything down, planning every expense and be disciplined in my spending. I just want to live in the moment, ‘Carpe Diem’ and buy that thing I really want.

However, I need to remind myself that though the process takes time, it will be completely worth it one day. I know this because of the inspiring testimonials of people who have done this before me.

To conclude: This is something I am starting to work on from now. I hope to be able to share this journey to inspire and motivate people on their own journey.

Canceled a subscription? Do this one thing to actually save money

Image by 3D Animation Production Company from Pixabay

You have finally taken the plunge. You have canceled a subscription (Netflix for example) in order to save money. You may feel good about yourself. That £5.99 is going to matter, it is going to help you towards financial independence.

However, the risk is that in three months’ time, this additional money is absorbed by your costs of living. It is easily done with £5.99. Two nice cups of coffee at a well-known coffee chain and you could forget how much self-discipline it took you to save that money in the first place.

Therefore, there is an additional step that is essential for that money to make a real difference.

Pretend that you still have to make those payments, but to yourself.

You may have managed to live with this monthly or quarterly bill for quite some time. Years maybe. Somehow, it would just get lost among all the other bills as an ‘essential’ or as a ‘fact of life’. Unless you have had to cancel subscriptions because of a financial emergency rather than an attempt to live more frugally, the likelihood is that you would still be able to cover your essentials as well as the odd little treat without this sum ever being in your bank account.

The solution, therefore, is to create a standing order to your savings account for that exact sum , on the day that it would be due.

For example, my Netflix subscription was due on the 21st of every month. I have set the standing order up for the 21st of every month and labeled it under ‘SAVINGS NETFLIX’.

With this all automatically set, you can just carry on with life, knowing that your discipline and dedication to your new frugal way of life is paying off, £5.99 at a time.

To conclude: I wish I would have thought about this in the past. How much more would I have saved ? How much closer to my goal would I be ? (Maybe not more than £150 overall but still!!)

Why I have decided to give up Netflix for good

Netflix

I am writing this today as a commitment to my future-self: I thereby promise not to subscribe to Netflix ever again.

Although for the longest time I had been able to resist the siren calls of this subscription, I eventually gave in to the promises of entertainment that my colleagues raved on about constantly.

“This series is amazing!”, one of them would comment whilst sipping her cup of tea during our lunch break, “you don’t know what you’re missing!”.

Was it FOMO (Fear of missing out) or the ubiquitous statement that “everyone has it” that enticed me to sign up for the free trial? What I didn’t know at the time is that I had willingly entrapped myself into a snare that I would struggle to get out of: binge-watching.

I have on occasion watched four episodes back to back. Korean dramas, rom-coms, chick flick movies, films off the beaten track. Days upon days of free time have been swallowed by the films and series this platform offers. Some of them have been great discoveries and have provided great entertainment. Others have been utter disappointments.

I can see people coming from afar and saying: “5.99/month is not very expensive, it would save you money rather than buying and renting films”. And they would be right. It could potentially save money if it wasn’t for the fact that not all films that I would like to see are on Netflix and that despite the overwhelming choice, I have found myself with “nothing to watch”! How paradoxical, given the huge choice of films and series that are available.

Another argument in my favour would be that it is very enticing to consume content that is readily accessible and provide 1 hour and 40 minutes of fun. However, in this new £1,000,000 mindset, I need to focus on becoming a ‘producer’ rather than a ‘consumer’.

So farewell Netflix, it is with a sad and heavy heart that I let you go.

As a comforting last thought, I have included a screenshot of a financial freedom calculator that shows the hypothetical free time I could ‘buy’ yourself by choosing to save a given amount rather than spending it. This is for one month subscription for a hypothetical retirement fund of £1,000,000 (with an estimated growth of 6% and inflation rate of 3%).

To conclude: for every month I save on a Netflix subscription, I am hypothetically ‘buying’ 0.1 days of freedom in the future.