A lot of bloggers report on how their “pot” of savings is performing, and have created a name for this “pot”, so as I am going to start updating on my “pot”, I wanted to come up with a suitable name. As this “pot” is to fund my desire to achieve Financial Independence / Retire Early (FIRE), I have chosen to call it The FIRE Engine. I have chosen this name as it is the engine that will drive me to being able to live my life without the need to turn up at an office five days a week to work for “The Man”, in other words it is the engine that will drive me to the FIRE.
One day in the not too distant future, The FIRE Engine will provide me with the money to replace my salary and wave goodbye to “The Man” and his henchmen.
The FIRE Engine currently comprises three elements, the first and largest is my Self Invested Personal Pension (SIPP) which is a tax favourable account where any payments in receive tax relief from Her Majesties Revenue & Customs (like the IRS for any US readers). The second element is my company pension, which again is tax efficient as any payments into this account are taken from before tax income, which as a higher rate taxpayer means that if I pay in £100 it only costs me £60 from taxed income. The double whammy is that my employer matches my contributions (up to a maximum amount), therefore the £100 I pay becomes £200. So for every £1 it costs me from taxed income I get £3.33 paid into my pension (this beats any return you may get on any legal investment) so if your employer runs a pension and offers payment matching then “back up the truck” as the Americans would say. The third and final element is my Individual Savings Account which is also tax beneficial, but instead of tax benefit on payments in, any money that is taken out is exempt from either income tax or capital gains tax.
I currently pay money each month into my company pension (up to the limit my employer will match) and my ISA, but no longer pay into my SIPP. The reason I pay into my ISA instead of my SIPP is that I believe that these accounts are less likely to be changed in their tax treatment by our government than SIPP’s (if you are likely to be able to retire before 55 the other major benefit is that you can access money in your ISA anytime, but you can’t intake money from a pension account before 55 at present without being hammered by our lovely taxman).
The updates will cover any share buys I have made, the current value of my FIRE Engine, and an assessment of how much income it may provide me with (this can only be an assessment at present as the Company Pension doesn’t actually pay any income, but is a fund where the quoted price per unit rolls up any income. I can however say exactly how much I have earned on my SIPP & ISA, therefore I will calculate the equivalent income on Company Pension pro rata to the income in my SIPP and ISA).
As I received a bonus from work which was covered in my Savings vs Income post, I added this to my usual payment into my ISA, which, along with accumulated dividends that were not re-invested in previous months, allowed me to buy 30 additional shares in Next PLC, this has now brought my holdings in this company to 60 shares. As I automatically re-invest the dividends in my ISA and two companies paid dividends in August, 9 shares were added to my National Grid holdings to bring the total to 311 shares with £7.60 left over (in the UK dividend re-investment doesn’t allocate fractions of shares). 19 shares were also added to my Vodafone holdings, to bring the total holdings to 651 shares with £0.02 left over to add to the cash in my ISA account. Next PLC also paid an interim dividend and a special dividend, but this wasn’t enough to buy more shares so £48.00 was added to the cash in my ISA.
The bumper dividends paid in my SIPP in August meant that sufficient cash had accumulated in my SIPP to make buying more shares cost effective. I was able to use this to buy an additional 95 shares in Royal Dutch Shell to add to my existing holdings which means my SIPP holding in RDSB is now 375 shares.
I didn’t actually record the portfolio values on 31st August, but the current value of The FIRE Engine is £169,575. This sum is made up by £98,086 in my SIPP, £35,758 in my ISA and £35,731 in my Company Pension.
The dividend income from my SIPP and my ISA in August was £1,159.80 so If the Company Pension had paid income at the same rate, I would have received a total of £1,469 for the month of August.