My Retirement Week (7)

This was the week of Black Friday which I was thoroughly sick of by Monday. Even Johnson’s Cleaners (where I used to drop off my shirts for ironing) sent me a “Black Friday” offer. I mean, are school tuck shops in on the act? Churches? Brothels?

nigella jpg

You’re a what in the kitchen?

Brothels. Hmmm. I see that Nigella is on TV. There’s an old saying that every man wants a wife who is a cook in the kitchen and a whore in bed. Nigella seems to be trying to turn that on it’s head. And anyway it’s not true. What every right-thinking man wants is Delia in the kitchen. End of story. I wrote last week that November is made for curries. I forgot to mention that it’s also made for warm, hearty soups, and if there’s one recipe I will fight to the death for, it’s Delia’s version of lentil and bacon. I cannot go through a week in winter without it. (Just watch you don’t pour in a big tin of chopped tomatoes, you only need half one.)

I like to browse a few travel blogs, sometimes just for the pictures of sunnier climes, and one of my favourites with some great photography from the American West is Wheeling It. This week, however, Nina posted a reflective note about the Darker Side of Blogging, which was really interesting for anyone who blogs regularly or is thinking about it. Another blog I follow, Julie and Jason’s Our Tour posted several photos of sunny Spain, although seemingly sleeping in an RV can be pretty cold at this time of year, even on the Costa del Sol.

The winter weather also had me thinking about buying decent footwear for walking as I need to keep up my Fitbit’s 10,000 steps a day. I have a pair of excellent shoes that I bought years ago, Brasher Countrymasters, but the padded heel at the back of the shoe (not the sole) has gone all weak and mushy. It’s quite irritating to walk with, feels not unlike as if your sock has rolled up within your shoe. Being frugal, however, I thought I’d see if I can find a cobbler – remember them? – who might be able to repair this. Do real ones still exist though?

Talking about winter, Captain Scott was once asked that within his band of men, how many were equipped to take on the leadership role if he were to die en route to the antarctic.
“One in twenty”, he replied.
“Is that an approximate or exact number?” he was further questioned.
I find this rule applies to other things. About one in twenty books I read I’d recommend to others as a must buy. One in twenty films is a must see. Same for box sets. And, having written the paragraph above, recipes. So I’m pleased to wholeheartedly recommend to you a book I’m reading this week that might be the one in twenty : Sapiens: A Brief History of Humankind. Trust me on this, and put it on your Santa list. And I’ll try to let you know when I think I’ve written my one in twenty blog post that’s worth reading. Bear in mind, however, that this might mean I could write two hundred and then do ten in a row.

The Costs of Retirement

I’ve been retired, or at least not earning a salary, for a year now. It’s a shock, when I think about it, what a massive swing in income and expenditure that has meant for me. So I tend not to try and think about it too much!

What I do think about though, is what the costs associated with “retirement’ can be. Where is my money going every month, and what am I spending it on? I’m certainly not spending any less on myself than I did when I was working – I allow myself the exact same “personal” spending money as I always did every month – but the way I spend it has brought about some noticeable changes.

Various 2010-37

Bannatynes coffee, and yes, I smuggled in the Twix

These days, I think a lot more about the value I’m getting out of what I’m spending. A lot of the time, my money is going on the same things that it always did, but the results coming from that expenditure are different. For example, my gym membership is still the same at forty pounds a month. When I was working, I used the gym maybe two or three times a week. Now I am there almost every day, so the value I’m getting from my membership versus previous has increased immensely. On the other hand, I do spend more cash at the gym because I tend to have a coffee and a read at the paper in the cafe after I’ve finished my ordeal in the pool or on the treadmill. It’s a small reward that I’ve time to indulge in – I’m generally not rushing off to do the next thing on my list. I reckon that’s costing me an additional tenner a week that I never used to spend, but in terms of pleasure and relaxation I’m pretty happy to pay it.

Talking of coffee, I now tend to meet up with my wife in town maybe twice a week after her work. Previously this was a weekend “treat” crammed into everything else we had on our agendas. We’ll head somewhere for a coffee and a cake in one of our favourite cafes and moan about how before, when I was working, we never used to spend this money. But what’s it worth to sit and chat, knowing that the mobile won’t ring, the e-mail won’t ping and our colleagues (and bosses) won’t wonder where we are? It’s such a totally different and more enjoyable experience now and feels like something we want to do when we feel so inclined, as opposed to “have to do” as part of a weekend routine.

On a similar subject, we do still eat out quite a lot, but not quite as much as we used to. Previously, we’d often impulsively jump into a restaurant to simply save the time and hassle of cooking. Or we’d grab a takeaway. When I think back to what I used to cram into a weekend I’m surprised I ever cooked at all.  Now, not only do I have the time to cook, I also have the inclination to do it. The same can be said for grocery shopping, which used to come late night via the Tesco website and delivery van. These days I grace Lidl or Aldi with a personal weekly presence.

Where else am I spending my cash? I do find I’m spending a bit more on socialising, because I actually enjoy going out more than I used to. The kind of job I had, the hours I put in and the enforced socialising I had to do that went along with it meant that come the weekend, I pretty much put seeing friends on the back burner. And, being away for three or four nights a week, I’d feel guilty about heading for a few pints on the fifth. It was just another area where although I had the money, I felt I didn’t have the time. These days I might be a bit more conscious about the cost when I’m handing over twenty quid for a round of drinks, but I’m definitely thinking it’s money well spent.

There’s quite a lot of other areas where my spending habits have changed – I don’t buy any Kindle books now, because I visit the library. I used to pay to have my work shirts laundered, but now I don’t need the shirts and (deep breath on this admission) I do my own ironing. What else? Buying convenience food has pretty much gone by the board. We probably save a tenner a week just on local parking charges because now we always walk into town.

Going forward, when it comes to holidays, the flexibility we have to take flights when we want to and at relatively short notice will be a big cost reduction for us, and I’ve been surprised at some of the savings you can make if you’re prepared to do the research (I could never be bothered with all that “work” in the past).

My goal for retirement was to ensure I had the same disposable income available for us as we had when I was working and, so far, I’m on track with that. But I am still  a lot more conscious about costs, which is probably an inevitable output when you have no monthly pay cheque coming in (believe me, taking your income from your investments is absolutely not the same thing!) But I think I am spending money much more thoughtfully than I used to, and getting more personal value from it. And that can only be a good thing.

My Retirement Week (6)

Isn’t it typical? Last week I wrote about cancelling Amazon Prime, and this week I get an e-mail from them about their new, “Exclusive to Prime” TV show, an adaptation of a Philip K. Dick novel, The Man in the High Castle. Which, of course, I’d really like to see. Damn you, Amazon!

One subscription I didn’t cancel was to the money magazine Money Week, which I still read on a weekly basis. I noticed, however, that they’re doing a free podcast, hosted by the editor Merryn Somerset Webb (the financial thinking man’s Beyonce.) I picked out the interview with Matt Ridley, a Times columnist and author of The Rational Optimist, an excellent book – although here he’s plugging his new one. It’s quite interesting listening and covers a lot of ground although some of it is pretty patchy to be honest. It jumps from why we don’t need central banks to vaping, to climate change, to Bitcoin’s blockchain technology, the evolution of Scottish banks and a host of other topics.

I was quite concerned with how I’d fill my winter days in retirement, but it’s amazing how they drift by. I’ve spent some time cooking this week, partly in the never ending search for the ultimate curry recipe. I tend to use this recipe these days to make a batch of onion base and then experiment from there. (November weather is made for curries.)

The stormy weather earlier in the week kept me in at night, trying to find something on TV I could get into. Like so many others I’m always on the look out for Box Sets* that I can swallow in big gulps, so I tried Fargo (Series One) which I’d heard was pretty good. And it is. But maybe not quite as good as it thinks it is. There’s just too many scenes and characters that prompts me to think that the writers and directors were just trying too hard to be witty, cool and left-field. I could imagine them sitting in a script room, saying “Okay, how about just after the car bursts into flames, we have a camel wander down the street past it? From nowhere! Wearing a pair of Ray Bans! Wouldn’t that be rad, or what?! I mean guys, Breaking Bad never did that kind of shit!”

Unless I become totally immersed in a drama, I do often find this kind of subjective barrier forming between myself and whatever I’m watching. I blame Holden Caulfield, the protagonist in the famous book The Catcher in the Rye (his voice has stuck with me from school days) who aims many of his caustic observations at actors and the movies. In particular, I recall this scene where Holden can’t allow himself to enjoy a Broadway show:

“I came in when the goddam show was on. The Rockettes were kicking their heads off, the way they do when they’re all in line with their arms around each other’s waist. The audience applauded like mad, and some guy behind me kept saying to his wife, “You know what that is? That’s precision.” He killed me. Then, after the Rockettes, a guy came out in a tuxedo and roller skates on, and started skating under a bunch of little tables, and telling jokes while he did it. He was a very good skater and all, but I couldn’t much enjoy it because I kept picturing him practicing to be a guy that roller-skates on the stage. It seemed so stupid.”

Holden’s observations have ruined a lot of entertainment for me over the years. I mean, I can admire Britain’s Got Talent as much as the next man….no, I’m sorry, I can’t.

One way to avoid the guy who keeps telling his wife “That’s precision”, and which early retirement allows, is to visit the cinema on a Tuesday afternoon. It’s cheaper too. The place is empty, even if you’re visiting, as I did, to see Spectre, the new James Bond.  (It was okay, not as good as Skyfall, IMHO). I noticed in the empty foyer that the packet of Maltesers I’d just bought beforehand in the 99p Store was there for sale at £3.99. The same bag! Anybody paying that amount shouldn’t be allowed out. Mind you, my wife wasn’t too happy about me forcing her to buy a can of Coke in the same store. “No way”, she said. “I can’t drink out of a can without a straw.” Of course, anticipating this objection, I’d already brought one of those from home. I had to sneak these treats in concealed in my heavy jacket, as I daren’t risk suggesting using my wife’s handbag. That was already stuffed with bags of Sunkist popcorn (6 bags for 99p) versus £4.99 for the smallest bucket of popcorn in the cinema. Some may argue that it’s a shame that Early Retirement has forced such frugality upon us, whereas we, in the FIRE community, know that such frugality is what allows us to retire early.

When not watching telly or reading, I’ve been writing this and chilling to Camera Obscura’s Desire Lines which I hope sounds suitably trendy. Just because I’m retired doesn’t mean that I’m musically committed to James Last and His Orchestra. Manuel and His Music of the Mountains, well, that’s another story.

*Box Sets = Middle Class Obsession

It’s Up to You

The most annoying advice I’ve heard in British history was spouted by Van Morrison on his live album “A Night in San Francisco”.

He’s jamming, which I believe is the word, with Jimmy Witherspoon, on the medley, “When Will I Become a Man?” (Mmmm, nice.)

“Hey Van”, drawls the ancient Jimmy, sounding like an exhausted oracle of Delphi who’s run out of ideas, “Please tell me, When do I become a Man?”

Quick as a whip, Van retorts, “It’s up to you”.

A stupid question, maybe. And an equally stupid answer?

Or the whole of Western existential philosophy summed up in two lines?

Which is it?

Well, it’s up to you.

Over the years, Van’s voice responds in my head to answer the most difficult and nebulous questions I’ve had cause to ask myself. Should I change jobs? Move house? Relocate? Pay off the mortgage or invest that lump sum I’ve built? Fire that underperforming employee? The more difficult the question, the more the answer echoes back. “It’s up to you”.

The most recent example I have is today when I postulated to myself, “If I was sitting in the pub with a good mate, and he laid out his financial circumstances as being exactly the same as my own, and asked me whether he should retire or look for a job, what would I advise him?”

The honest answer was that I’d tell him, under those specific circumstances, and taking into account those monetary considerations, “It’s up to you”.

But that’s not what I want to hear! Can’t someone tell me, exactly, what to do? Should I commit to the retired life and content myself with it? Or should I make a proper effort to get back into work? I’m stuck, unable to find the answer within myself. I’m working hard to appreciate what I’ve got, but I’d be lying to myself if I was to say I didn’t miss some aspects of the working life and the security of a hefty salary package arriving in my bank account every month. I feel that contentment will only descend once I make a decision and stick to it, really commit to it, whether that’s retiring completely or really making an effort to find paid employment. It’s a big decision though, a life changing decision and I want some help and advice. Can’t a trusted friend who knows me and my situation just tell me exactly what I should do?

No. Of course not. They never can and they never will. Oh, people close to you can tell you very quickly and decisively that your views are wrong and misguided over the question of quantitative easing, but ask them if you should take a new job in Dubai and see what they say. They just reflect back, as good friends do, your indecision. The bigger your doubt, the more they hand it back to you to sort out. This, incidentally, is what good counsellors do.

I once noted down a cracking quote I read about professional counselling. It came from a patient of Sheldon Kopp, recounted in his book “If You Meet The Buddha on the Road, Kill Him”:

“I came to therapy hoping to receive butter for the bread of life. Instead, at the end, I emerged with a pail of sour milk, a churn, and instructions on how to use them.”

Anxious, depressed, indecisive, unhappy, troubled?  Or just wondering whether to enjoy retirement or return to paid employment? Take responsibility for the question and make a decision. You know where the answer to your problems is going to come from, but you will have to do the work. Oh, and please bear in mind, even at the end of it, you still might not reach enlightenment.

Nevertheless, it’s a fact that the more effort you put in to something, the more you will get back out. This is a truth that applies as much to thought processes and decision making as anything else. It seems to be a statement of the bleedin’ obvious that nobody can make decisions on the really big personal questions in life other than yourself. Unfortunately we live in a culture where so many factors are framed to be the responsibility of someone else that it’s very easy to expect, or even demand, answers from elsewhere. But, in the end, it’s up to you.

My Retirement Week (5)

Not a Brain Surgeon

Bender the Robot: Not a Brain Surgeon

This week, I have been mostly organising my finances, which I posted about on Wednesday. Once I got into the swing of things, I cancelled a few almost “obsolete” costs that I have had hanging around for a while. Firstly, I nixed a backup service I used when I was working, Spideroak, which cost me about £7 a month. It was an excellent piece of software, quietly working away in the background, but these days Google Docs and icloud, with their ultra-cheap storage options, remotely hold copies of my photos, music and documents. I don’t bother keeping movies as they’re pretty much all downloadable these days – and this thought led me to cancelling Amazon Prime and Amazon Lovefilm. I’ve watched about two of their movie downloads in three years, buy less and less from their site, seldom watch the discs they send and have Deezer for music. The latter plays through my Sonos system, Amazon music doesn’t, so Amazon Prime was confined to history. That’s saved £15 a month. What else was I not getting value from?

My digital subscription to The Times was next. It costs £26 a month and I just don’t read it every day. Plus my gym has a free copy of the physical newspaper (if I can beat the pensioners to it, which might be a challenge.) I looked at the website to cancel but unlike Amazon and Spideroak, you can’t simply point and click to cancel, you have to call. I braced myself for a desperate sales pitch offering me the world but instead received an offer for the Sunday Times tablet edition and 7 day access to the Times Website for £8 a month. Deal!

I must have started a trend because next to be cut was EDF energy bill, and amazingly I didn’t even have to ask. I submit meter readings for my joint gas and electricity bills every month because I like to keep tabs on my own usage. I started doing this when I realised I was being systematically overcharged on my annual Direct Debit, then given what seemed like a whopping discount the following year because I was way in credit. The next year, I would receive an increase again. It was a payment rollercoaster that my own laziness was allowing. I decided to get a grip and work out what I should be paying every month based on my usage and started to take a note of and submit regular readings. Now, as a consequence, EDF have reduced my Direct Debit by £15 a month without me having to request it. I would say that was very nice of them, but frankly all utility companies are bastards, so I won’t. I’ll also need to check it as a guard against a big increase after winter. I sceptically assume that if they’re undercharging me, they have a reason for it.

Taken together, those four cuts and reductions have saved me £55 a month or £660 a year. That’s a golf weekend in Spain! Unless I tell the wife.

I also probably save almost twenty quid a month on Kindle downloads these non-working days as I have time to visit the library, but I still have a backlog of titles on my device that I bought during my working life and haven’t yet read. (Waiting for trains at London Victoria meant I’d wander into W H Smiths, note titles I fancied and download them to my Kindle on my 3G connection. Oh, the excesses I indulged in as a wage earner!) So this week, I began one of them, Do No Harm: Stories of Life, Death and Brain Surgery. It’s excellent, definitely one of my better choices, even if it does give me the willies with its tales of mucking around in peoples’ brains with occasional triumphant or disastrous results. We really are physically not much more than the meat-bags that Bender the Robot in Futurama describes us as, although the doctor writing this book was much more eloquent about the metaphysical side of his work:

“It is a source of awe, amazement and profound surprise that my consciousness, my very sense of self, the self which feels as free as air…. the self which is now writing these words, is in fact the electrochemical chatter of one hundred billion nerve cells.”

Where's a shark when you need one?

Where’s a shark when you need one?

Talking of brain cells, on TV I am managing to obliterate millions of them by watching the second series of The Affair. It’s frightening to think that Series One could have wiped out the brain cells that I might have utilised to end global poverty, but there you go. I mention this only because the series fits in with my blog title and ticks three of the boxes with its focus on Sex, Money and Death. Unfortunately, it’s not as well written as my blog and, if you think the writing on my blog is complete and utter shite (which it may well be) well, it’s still not as well written as my blog.

On the subject of well-written blogs, a tweet from Jacob Fisker pointed me to Living a FI where I read through some posts that I was soon wishing I’d written. Or maybe posts that I was hoping to write. Although it’s lengthy, this post on finding a way to stop trying to “fill the unforgiving minutes with distance run” (due thanks to Mr Kipling) put into words a lot of what I’m struggling with in “early” retirement. Filling your days isn’t difficult, but filling them without guilt, or even almost a sense of shame, can be.

Pension Erection

Damn, did I bring SIPP protection?

Damn, did I remember SIPP protection?

The night’s are fair drawing in, and so is the year. Only fifty sleeps to Christmas, or something like that. As the year draws to a close, I start looking at my financial position more closely and comparing with the previous year. I like putting things “in order” and in comparison.

This year, because I have time, I decided to have a look at our pensions. I have three – one defined benefit, one defined contribution, one SIPP. My wife, having moved across several NHS and Council authorities, has five. Five! Of mine, two are online and can be checked daily, if you’re so inclined, telling you what’s in your pot. The other, I have to write away for a projection. My wife has two online and three that I’ve had to write for a projection on.

So far, so straightforward. Oh I wish. When do we want to take them? All three of mine I can take at 55. My wife has four she can take at 60 and the fifth at 65 (although I have still to confirm this, it might be 60 too.) On my defined benefit, and on the others, I can take the tax free lump sum and a reduced monthly payment. Or not. My wife also has this option. That’s quite a few permutations to juggle and calculate.

Of course the figures jump around too. One of my pension pots is currently about ten percent under where it was eight months ago, making an almost fifty grand difference. What will it be worth three years from now when I’m planning to take it? How long is a piece of string? Do I project forward at 4%, 6% or 8%. Or do I assume it will not increase at all in real terms from where it is today?

As for my wife’s pensions, I need the projections as I’ve no idea, on all five, what the numbers might look like five years down the road from when I last checked. Never mind a further eight years from today when we might actually take them. What margin of error should I use when I receive the quotes? If a defined contribution pension says it looks like it might pay out £5,000 a year, should I assume £4,500 as gloomy downside or £5,500 as a sunnier alternative? Probably best to stick with their number, whatever that is.

So, by the end of next week, hopefully, I’ll maybe have eight pension projections across various age “scenarios” of 55, 60 and 65 and two combinations on each with lump sums or not. My mind boggles to think how many models I could make out of this bunch of options. And this is before I start to think about drawdown versus annuity on some, none, or all of them.

Okay, keep it simple. I think the first filter to apply is straightforward –  do I take the tax free lump sums? “Yes”, is the quick answer on that, because anything tax free is worth having. I can take them as initial income and shovel the remainder into ISA’s over the years that the cash lasts. Or, could I give to my wife to put in a SIPP that she can claim tax back on when she reaches 60? Whatever, I take the tax free cash.

Tax. If there is one financial subject that defies simplicity surely this is it?  One simple fact, however, is that in my humble opinion I have paid enough over the years. For almost thirty years I was chipping in over forty percent of my salary to the Treasury, so I really don’t want to put in much more. As far as I can see, that means I have to be taking out an income of about ten grand in pensions (as can my wife) before we hit the basic tax rate. Is there a way I can increase that income on a tax free basis? Probably, I hope, but that’s going to take some further research on Monevator on my behalf to try and find out. Nevertheless, please feel free to give me some pointers in the comments if you have any ideas about minimising tax payments on pensions! At this stage, as far as I can see, paying some tax looks like an inevitability.

All of these are my First World Problems, and I’d be first to admit I’m lucky to have them. Or is it “luck”? At twenty two years old, I signed up on my first day at work to the company Defined Benefit scheme because my boss basically told me it would be really stupid not to. That was possibly “lucky” and I owe him a big thanks for that. If he’d told me it would cost £200 a month off my salary, I think there’s no way at that age I would have done it. About three years later, at a pensions seminar arranged by my work, I realised the importance of what I’d done and resolved to keep salting the cash away at the maximum contribution rate in any job I took. So that was more “knowledge” than “luck”. My wife is similar, although she can’t explain why she took pensions from the day she started working in the NHS at seventeen year old. She just knew it made sense and did it.

Building pensions aren’t, and often can’t be, for everyone. I like the old Chinese saying, “The best time to plant a tree was twenty years ago. The second best time is now”, but when it comes to pensions, “The best time to plant a tree was twenty years ago, the second best time was nineteen years and fifty one weeks ago.” These days you have more choices and much more information. Company pensions have seen better days and property often feels like a better bet. If only the Government would stop piddling around with ISA’s we might put more trust and money in them – we would if we could, no doubt.

In the end (which I’m nearing) when it comes to money, we just need to save what we can, when we can and in whatever we can. It’s difficult to go wrong with that.

My Retirement Week (4)

stealing sheep jpg

Gently Johnny My Jingalo

“Who was the second man to run the four minute mile?” This was a rhetorical question I used to use at work sessions discussing “first mover advantage” in markets. This week, I picked up the autobiography of the second man to step on the moon, Buzz Aldrin, called Magnificent Desolation. Unfortunately, it wasn’t too lively an account, but at least Buzz was candid enough to admit that being the second man to set foot on the moon (and thus forever eclipsed by Neal Armstrong) did become a bit of an issue for him. He turned to drink for solace, amongst other things.

I didn’t see much of note on the TV this week. I did watch a movie, “Amy”, the documentary about the short and talented life of Amy Winehouse. It was quite sad. It seemed that all she wanted was being able to do what she loved (sing jazz) on a smaller scale than other people planned for her. She ended up being a part of other people’s dreams, driven and fuelled by her innate talent that earned bucket loads of money.  Inevitably the hangers-on and the takers appeared and she was possibly too young and vulnerable to resist their demands. As Buzz Aldrin found, alcohol (and also in Amy’s case, drugs) offered an escape route. Unlike Buzz, she didn’t come back from them.

You’d think in retirement that you’d have loads of time for everything, but one area I struggle with, versus my working life, is listening to podcasts. I used to travel a lot, and these were ideal hours to wile away listening to the hours of unedited verbal diarrhea spouted in, say, American tech podcasts. “Wouldn’t it be great”, I thought, “if someone could point to the Top Podcast episodes, instead of shows?” And of course, someone has.

Twitter is great at delivering a lot of guff into your life, but occasionally you find something that you’re glad someone tweeted about. I doubt I’d have found this video by Stealing Sheep, which someone posted as “addictive”. I’ve gone back to watch it a few times now myself. There’s something strange and almost creepy about it, very Wickerman-ish, and you think you might have missed something each time you watch it, so back you go.

There are some great columnists in The Times, which I subscribe to. Unfortunately that means any link I insert can’t bypass the paywall. I did copy this one by Matthew Syed for fellow blog followers to read, as I thought it was excellent. If there was one thing I couldn’t be bothered with at work it was enforced team building exercises and it’s good to see that this whole concept is being undermined!

In the news, the article that caught my interest this week was Amazon opening a physical bookshop in Seattle. I love bookshops so I really hope that’s a trend, although the irony is not lost on me that it has been Amazon that has closed so many bookshops throughout the land.

Finally, part of the retirement life is ensuring that you keep your social network active. For me, this requires the occasional early doors pint with the locals on a weekend. Last week, I noticed one of the old regulars straining to get up out of his seat.
“You’re struggling a bit there, old boy”, I remarked.
“Aye, true”, he said, finally making it to his feet. “But my wife still calls me Spiderman”.
“Really?” I asked, “She still thinks you’re fit then?”
“No. It’s because I can’t get out of the bath.”

I’m still chuckling at that one.

Balloon Payments

PFP Advisor

PFP Advisor

There are many ways to have a financial car crash. One of the best is to actually go and buy a car. A couple of years ago, we bought a second hand motor from a local dealership. Before signing on the bottom line, we had to choose our financing preference. We’d quite a few options, from paying cash (ouch!), to borrowing through extending our mortgage, to taking on a bank loan, or some sort of combination of these. There was also the option of taking the dealership’s Personal Finance Plan. Somehow, at the time, the latter seemed the most attractive offer for us, despite me knowing in my heart that I should bite the bullet and simply write a cheque. If only we could practice what we preach.

Nevertheless, it was the Personal Finance Plan we went for, paying a small deposit and relatively painless monthly contributions. The main stipulation that we had to watch was that we had to stay within an agreed annual mileage. The way these things work, providing you maintain payments and don’t exceed the mileage you commit to, the dealership “guarantees” to buy back your car in three years for a stated sum, given to you when you sign up. How can you lose? A very short summary: I paid a £1,000 deposit, signed up to pay 42 months Direct Debit at £230 a month and would have a final “balloon payment” of £4,700 at the end to purchase the car outright. Or, at that point, I could hand the car back, buy a new one, and enter into a new Personal Finance agreement.

Imagine my surprise, then, when last week I received a nice letter from the garage telling me our credit agreement was up and offering, as agreed, to “buy” our car back from us at the stated price they committed to. You’ve heard of a wake up call? I kind of remembered the detail of the agreement….but I kind of forgot that I’d have to hand the car back when the time came in order to pay the money I still owed on the Personal Finance Plan! Yes, they “buy the car back” from you, and take the proceeds to pay off the debt you still owe them. Great, I have cleared the car loan. Not so great, I now have no car.

This final payment is nicely termed the “balloon payment”. What they don’t tell you is that the chances are you are the balloon in the equation. I admit it, I had completely forgotten that despite paying a decent deposit, despite staying within our mileage agreement and despite paying our direct debit every month without fail, I would still owe the garage what now looked like a shitload of cash three and a half years later! Either that, or they’d take the car off me to cover it. How had I deluded myself?

Well, there was another party complicit in the delusion and they were now asking me to come in to discuss “upgrading” to a newer model. Oh how seductive it sounds. I hand the old car back to them. This can now both pay off the remaining debt and possibly act as part of the “deposit” on the next Personal Finance Plan (because the car’s resale value is well above the £4,700 owed, giving some negotiation wriggle room). I then don’t have to worry about writing a cheque to them for £4,700. Note the psychology here: my outstanding debt of £4,700 has now morphed, somehow, into a “deposit for a new car”. We can now choose our next car, sign up a new direct debit and drive it straight off the forecourt into a joyful motoring future.

Some key points here, all the same. The old car has now become part of the next deposit. I still have to stump up some additional cash to add to that deposit though, maybe £2,000 this time, to secure the newer motor – but hey, that’s a lot better than paying them the £4,700 I owe to keep my current (much older) model, isn’t it? It’s “double bubble”! My old car not only pays off the cash I owe, it also contributes toward a new one. How good is that?!

Secondly, the revised Direct Debit will be about £30 a month ahead of the current one, taking it from £230 a month to £260. In the scheme of things, that isn’t too bad, is it? I could cut £30 off the monthly grocery bill without breaking sweat.

Finally – although let’s not focus on this too much as it’s way in the future – at the end of this new agreement, I’ll owe the garage about £6,000 as a balloon payment on my “new” car. Or not. Because I can just repeat this cycle again! All I’ll have to do at that point  is stump another new deposit (£2,500?), a new Direct Debit (maybe up to £280 a month) and I can have yet another new car! Oh brave new finance world that has such deals within it!

Right now, I am fuming at myself for being a schmuk. Of course, I should – and could – have paid cash. I fell for the easy, short term, pain free, option that only comes home to roost way in the future. Unfortunately, “the future” has turned out to be “today”. Now I have to face up to my previous idiocy, pay off the debt, be stuck with my old car and lick my wounds.

Or I can sign up to a new Personal Finance Plan and have a new motor.

Don’t bet that I won’t!