Irish Financial Independence & Personal Finance Podcast

March 2022 Portfolio Update

Sunday 3rd April 2022

The Dual Budget Approach

I sat down recently to work through our monthly budgeting. Like many families out there, with inflation kicking in pretty hard at the moment, there has been a noticeable squeeze on the bottom line!

We have recently upgraded our car (see below) in an effort to reduce our transport costs. We are also looking at installing solar panels in an attempt to get some control over rising electricity prices.

I have mentioned in the past that trying to become FI with children is nearly impossible. Here is a typical monthly budget for our family with three children:

Category Monthly Budget
Groceries €900
Transport €350
Electricity €100
Heating €100
Internet + Phone €80
Healthcare €300
Security €30
Insurance €58
Mortgage + Other Household Costs €700
Total Costs €2,618

It should be noted that this budget is what I would refer to as a “cost of living budget”. It includes no fun - no golf membership, movies, takeaways, eating out, birthdays, Christmas, extra kids activities, clothes, education expenses, holidays etc. This is just your standard budget to cover basic cost of living. Remember too, these costs are after tax.

It should also be noted that there is a Child Allowance in Ireland, which works out at €420 per month for three children, so after taking this into account, the costs we pay for directly is €2,198.

Our average income tax is around 17%, therefore for our family to cover just our living expenses, we need a before tax monthly income of around €2,526.44.

This is around €30,317.28 per year, or if using the 4% rule, a portfolio of €757,932 just to cover our living expenses as a family.

Assuming I were to build a portfolio of €757,932, I would still be required to work to pay for all the fun stuff in our lives. Truthfully, this was an extremely sobering moment - it just shows how difficult it is to become fully financially independent with children.

I reflected on this for several days, and eventually realised that perhaps I was looking to take on too much. There will come a day, where our children will start earning their own incomes and paying for their own way in the world, so perhaps planning based on a budget without including the expenses of our children is a better approach.

I decided to sit down, and work out a budget for myself and my wife, if we were to retire today without children. It came in as follows:

Category Monthly Budget
Groceries €400
Transport €200
Electricity €100
Heating €100
Internet + Phone €80
Healthcare €200
Security €30
Insurance €58
Mortgage + Other Household Costs €700
Total Costs €1,868

Taking into account the gross amount needed before tax, this came in at around €2,250 per month or €27,000 per year. Therefore, a portfolio of around €675,000 would cover our basic cost of living for myself and my wife.

Long term, we will need to pay off our mortgage to ensure that we can not only cover our living expenses, but also have some fun while living in early retirement! All up, it seems that a yearly budget for myself and my wife of €30,000 per year seems to be about right, especially if we were to clear our mortgage on our primary residence.

The whole experiment overall has highlighted one thing - raising a family in Ireland is expensive - and trying to retire with children is nearly impossible!

The Barista FIRE Alternative

I have been considering an alternative approach to my FIRE plan recently. One idea I have would simply be to build a portfolio of €750k, start withdrawing an income of €30k a year from it, and simply adopt Barista FIRE to cover whatever other expenses I have. An additional €10 - €15k per year would cover us, and eventually our children would be independent from us and our mortgage will be paid off, and we can make the slow transition into full time retirement.

The best part about this approach is that our Flamingo FIRE number is far lower - only €375k to become Flamingo FIRE - which would mean I am now over 67% of the way to Flamingo FIRE!

I don’t have to make a decision on this just yet. For now, I am happy to push on and try to at least hit Flamingo FIRE. To date, I have been pushing to build a portfolio of somewhere between €400k - €500k before adopting semi-retirement, but I am also happy to look at other alternatives such as Coast FI and Slow FI. Much of this will depend on how long feel I can continue to push myself - at some point I will want to cut back.

Donation to Red Cross

I would like to thank those who have supported some of the recent FIRE Dave Live Events. I received €35 in affiliate commission from those who purchased tickets for the event. My wife matched another €15 - so all up €50 was given to support the Red Cross, who are on the ground supporting people in Ukraine.

Dealing with Rising Fuel Prices

In 2015 our family bought a 2006 seven seater Toyota Corolla. It is a 1.6 litre petrol car. In the summer of 2020, the car was costing us around €11 per 100km. As of March 2022, the cost has increased to around €17 per 100km and rising!

I decided to sit down and crunch the numbers. Was it possible to buy a new car that would actually save us more money in the long run? I have never seen owning a car as an investment, but could car ownership be twisted in such a way that if it were to save you money in the long run, that it might actually be a benefit to buy a newer, more tax efficient vehicle.

The short answer is yes it is. We ended up buying a 2013 diesel car that costs around 12c per kilometer. The tax and insurance was also cheaper. The car cost us €6,000.

The fuel savings has worked out at around €25 per week. I was able to calculate the following. I used a depreciation rate of €1,000 per year on the vehicle:

Fuel Saving (per year) €1,300
Car Tax Saving (per year) €324
Insurance Saving (per year) €200
Depreciation €-1,000
Total Savings €824

Buying a new car was going to save us around €824 per year, even after depreciation. If reflecting this as a return on investment, this would return around a 13.7% return on our initial €6k purchase of the car in year one (824 / 6,000).

I met someone recently who had a brand new IONIQ electric car. They are very cool. He was very happy with it and mentioned it was only costing him €12 a week in electricity to run it. The hidden cost of course, is depreciation of the vehicle itself, which given it was a new car, was going to be a significant hidden cost.

So when considering this be sure to factor in depreciation. Newer cars will depreciate more per year because their cost is higher to begin with.

I do want to make a final point on this. We made a decision to upgrade our car solely on a financial basis and for what our family needs (which is a 7 seater car). In truth, I have found driving a diesel car not as fun as I would have liked - they are noisy and it often feels like driving a truck.

My dream actually, is to own an electric car. Especially with us currently looking to install solar panels, I am fascinated by the idea of charging a car from electricity that gets generated by the sun (I know the solar panels won’t be able to fully charge the car).

The trouble of course, is that 6 or 7 seater electric cars are rare, and if they do exist, they are expensive (we are talking €80k plus for a Tesla Model X).

I am currently exploring the option of buying a little Nissan Leaf. 80% of our journeys are small trips with less than 5 passengers in the car, so a little 2013 Nissan Leaf would do us nicely for smaller journeys. The frustrating aspect of this, is that we will still require our 7 seater car for the times that we can’t use the electric car due to distance or number of passengers.

And here is the bottom line - it makes zero financial sense for us to own two cars. My wife doesn’t drive, so it means that we always have one car sitting in the driveway.

The trouble is, driving the diesel car gives me no joy. I bought the car based on a financial decision. I recall Thomas, from the Limerick FI Meet Up Group many months ago was talking about his love of farming. He said something like “I know this doesn’t make any financial sense, but what I am doing brings me joy. I am doing what I love and that means more to me than money.”

For me, an electric car is my dream - and even though owning two cars makes zero financial sense, this is something that I am currently considering. I will make further updates on this in the future if I do decide to make the plunge and buy an electric car.

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