Can you achieve financial freedom on a working-class income, or if you come from a working-class background?

Does working-class financial freedom look the same as other forms of FIRE?

What even is ‘working class’ anyway?

What’s in a name?

I don’t know about you, but I struggle with the term working class. 

What does it mean? Who qualifies? 

Is my flat cap flat enough?

Is my collar too faded to be properly blue?

Currently the most widely accepted way of defining class is through socioeconomic background.

Look back at your parents’ occupations when you were 14. Were they employed in manual or service jobs? Did they work as drivers or machine operators or cleaners? Were they long-term unemployed?

If so, then you probably fit the standard definition of working class.

Work and class

When I was a kid my dad drove a bus. Meanwhile my mother stayed home and took on odd jobs – like cleaning and childminding – to make ends meet.

We had no money for extras, or even for things that most people would consider essential. If we needed anything that had to be bought new – like school shoes – we would get creative. We’d set up a table at a jumble sale and sell our old clothes. Or we’d make something from the odds and ends of furniture found in skips to drum up a bit of extra cash.

A lot of my early memories are of playing in a blanket fort under a trestle table in a church hall.

Before anyone takes out the tiny violins, I should add that I had a great time. My dad drove a bus! And I got to rummage in skips!

Yes, foreign holidays and restaurant meals are great – but have you ever experienced the thrill of finding a complete Victorian marble fireplace abandoned in a back lane? You don’t know what you’re missing.

I was working class, firmly and unarguably. So were my parents, my grandparents, and their grandparents – as far up the family tree as the eye could see. There was no such thing as inheritance, because nobody owned anything or earned more than they needed.

And that was fine. It certainly cut down on the family feuds at funerals.

We practised what is apparently now called loud budgeting. In other words, we were upfront about how much we had – or not. If somebody invited us somewhere, we’d check how much it was going to cost and cheerfully say no if we couldn’t afford it.

Nobody had a problem with that. Everyone had their own challenges.

Working class hero

I was working class, and happy to be so.

But then my parents did something bold. They stepped out of their box – or more accurately, they pushed me out of it.

When I was ten they sent me to sit the entrance exam at a private girls’ school.

To my surprise, I got in. And I didn’t just get in! I won a scholarship.

Because we were broke, I also qualified for a government assisted place – a scheme meant to improve social mobility by funding places for poor kids at elite private schools.

Between the two funding pots we didn’t have to pay a penny in school fees. Which was just as well, because we could barely afford the uniform.

So off I went to my fancy new school, loaded down like a Buckaroo mule with my cookery basket, hockey stick, and enormous schoolbag. Every morning I lumbered at top speed through the council estate so that I wouldn’t get beaten up.

It didn’t go well – unsurprisingly. 

The girls at my new school kept asking me where I stabled my pony and how often my family went skiing. Nothing in my life so far had prepared me for such questions. I’d spent the previous summer making a hammock out of a collapsed bit of fence by the old railway line. I had a side hustle charging 20p to walk people’s dogs so that I could buy a mix-up at the corner shop.

I quickly learned not to mention my life at all.

The trick, I found, was to watch and imitate the other kids. 

Classification

Studying the other kids taught me a lot about people’s awareness of money – and about what happens to families when they lose their money.

Let’s just say that private schools are not very charitable in those instances. 

I could write a whole Rich Dad, Poor Dad-style book about the effect of private school on my perception of wealth. It certainly shaped my ideas of working-class financial freedom.

Imitating the other kids kept me out of trouble, but it also messed with my own perception of class.

Was I still working class? I was just as poor as I’d always been. My parents were still working manual jobs. I was still running through the council estate every day.

Nothing had changed. But people at home had started to treat me differently. 

By the time I was 14 I was in a full-blown identity crisis, neither fish nor fowl. I had an accent that careered unpredictably from regional to posh.

In the evenings I routinely scouted the back lanes for change that people had dropped, while at lunchtime I sat next to a kid whose dad was on the board of Northern Rock. (Sadly I was not aware of the irony at the time.)

Class and hard work

My response to being a perpetual outsider was to double down at school. I decided that since I was there anyway, I was going to get the most from it that I possibly could.

I worked hard, and then even harder. Not having a social life was pretty handy in that respect.

It didn’t go unchallenged. Random Barbour-clad parents would stop me in the street to find out my latest test scores and interrogate me about who my private tutors were. But in the end I came out of that school with a set of results that made people blink in astonishment. 

(Did you know that the kid who gets the highest A-Level result in the country gets sent a special certificate? I can show you if you like…)

However I also came out with a sense of detachment from all class-based norms and customs. It wasn’t easy for me to connect to any of them. And that has stayed with me. 

I still don’t ski, or ride horses, or drink martinis at the country club. I have no intention of doing so.

But I also don’t want to buy a round at the pub or go on holiday to Benidorm with the girls or take out payday loans. 

I became classless.

And then into that void floated the idea of financial freedom, working-class style. 

I realised that I was going to have to develop my own goals and shape the life that I wanted. And that it was going to be different to anything I’d encountered in any social class. 

At work on class

Since then, I’ve run into plenty of FIRE people online who have similar ideals and aspirations.

But I’ve never come across the exact mix of lifestyle, saving, and spending that I’ve developed, or that I aim for. I’m still trying to imagine for myself a life that doesn’t seem to exist anywhere except in my own head.

So am I working class, or middle class, or upper middle class, or an ‘emergent service worker’  – or am I something else now? 

I shop at fleamarkets. I take public transport everywhere. Frequently I buy the food with the yellow discount stickers. I have never darkened the doorway of a Waitrose. 

But…

I am highly (possibly over-) educated. I have far more money in savings than anybody I know.

Also I take part in activities that apparently are well and truly ‘elite’ (according to the BBC’s slightly bizarre class calculator). 

FIRE exit

I’ve come to the conclusion that I am indeed something else. I think of it as escape class.

Escape class is characterised by a gleeful and anarchic form of strategic frugality. 

I will happily dispense with frippery while accumulating money in tax shelters. I’ll teach my kid about investing while sending him to community college. I will build up a vast private library of rare books while living next door to an HMO with a permanent guard of vest-clad lurkers. 

Then eventually I will get to escape the rat race, and all the restrictive social rules that come with our social roles.

I may not fit into narrow definitions of working class anymore, and I don’t entirely fit the FIRE model that is floating around these days.

But one thing that’s stuck with me from my working class upbringing is the idea that the System is the Enemy and must be Beaten.

I was never quite sure what that meant, and I’m still not. But I take comfort in the fact that whatever the System is, I’m well on my way to beating it.

Do you feel like you want some financial freedom in your life, but you’re not sure where you fit in? Then please do join me in escape class.

I can budge up – and there’s plenty of room for more.

What caught my eye this week.

The first few days of a new year are often an anti-climax. It turns out the problems we had last year aren’t magically wiped away by how human beings decide to formally turn a page.

However this time there’s déjà vu in the mix too. Because early 2025 has a distinct end of 2022 vibe.

Yes, bonds are selling off – and people are writing mean things about central banks and a UK chancellor again.

In fact, earlier in the week it was being framed with straight-up Truss-talk – another UK gilt crisis.

It’s true the UK is somewhat uniquely placed for bullying, being so enfeebled.

But rising yields are global, even if pundits in every country have tried to spin the rise in borrowing costs as their nation’s own special curse.

Here we’re blaming Rachel Reeves’ tax-raising and spending budget.

In the US people point to incoming Trump tariffs and a government deficit in the trillions continuing to add to its planet-sized national debt – as well as a growing conviction that inflation isn’t quite licked.

But yields are up in Europe too – in the EU and outside of it.

For example in Romania – where the ten-year yield is nearing 8% – I suppose they’re blaming their own barmy strongman moment.

It’s different this time

As often happens with bonds, trouble was brewing for months before it landed on the front pages.

Financial nerds (guilty) were especially worried by the unusual development illustrated in this graph:

As Torsten Slok at Apollo wrote when he posted it:

The market is telling us something, and it is very important for investors to have a view on why long rates are going up when the Fed is cutting.

By the end of the week – when the US posted a surprising high ‘jobs number’ that showed the economy was firing on most cylinders – the consensus was that the ‘terminal rate’ was going to end up higher, and that this was what the clever market had already discounted.

Terminal bore

The ‘terminal rate’ is just bond-wonk talk for where they expect rates to end up for the five minutes when everything is in balance, before the next crisis strikes and central banks have to act again.

Six months ago everyone was looking forward to multiple rate cuts from the US Fed. And many were still wondering where the long-promised recession had gone.

So yields seemed dead set to fall.

But looking at markets now, I’d be surprised if even the one Fed cut still expected comes to pass this year.

Of course, saying “yields are up because the terminal rate is higher” really just palms off the question of “why?”

As does another bit of bond jargon that I think is relevant – the ‘term premium’.

This term premium is basically the extra return you’d expect and demand for buying long-dated bonds instead of short-term bonds.

But without getting into the weeds – and knowing full well that some readers will confidently declare they know exactly what it is in our comments – let’s just say the term premium is a bit controversial.

That’s because it involves estimates of risk, not simple maths. (Some people even deny it exists!)

It’s a mad-a world

The sober way to assess the graph above is to say that the US economy is much stronger than was expected, inflation has been largely dealt with but is still over-target for the usual laundry list of reasons, and that Trump will cut taxes, boost growth, and continue to add to the US national debt.

However I’m minded to agree with economist Paul Krugman, who speculates there may now be “an insanity premium on interest rates”.

Krugman writes:

Look at the dynamic over the past few days.

Jeff Stein of the Washington Post reported that people around Trump were planning a fairly limited, strategic set of tariffs rather than the destructive trade war against everyone Trump has been promising; Trump quickly responded with a Truth Social post calling the report “Fake News” and declaring that he does too intend to impose high tariffs on everyone and everything.

In short, Sources: “Trump isn’t as crazy as he looks.” Trump: “Yes I am!”

Then, as if to dispel any lingering suspicions that he might be saner than he appears, Trump held a press conference in which he appeared to call for annexing Canada, possibly invading Greenland, seizing the Panama Canal and renaming the Gulf of Mexico the Gulf of America.

This morning CNN reported that Trump is considering declaring a national economic emergency — in a nation with low unemployment and inflation! — to justify a huge rise in tariffs.

Like any economist Krugman has been wrong about plenty of things, but I think he’s on the money here.

I’d even argue there’s some kind of Stockholm Syndrome thing going on in US politics at the moment, which has reached across the pond to us too.

A man who early last year was found guilty on 34 counts of falsifying business records to disguise hush money payments to a porn star has been re-elected as President for a second term.

You may recall the headlines:

Trump is the first ex-president to be sentenced for criminal conviction.

Yet this week he wasn’t given anything for his crimes – basically because he’s about to be a President again and nobody wants a fuss.

No fuss, like, say, that we saw four years ago when his followers run rampant through one of the US government’s most important buildings and multiple people died:

If you think this is all normal then good luck to you.

Indeed even if you’re one of his Poundshop fans stirring up trouble on social media this week – someone whose knowledge of history doesn’t seem to extend beyond The Battle of Britain – then you have to admit that for good or ill, things seem to be ‘in play’.

Just since Krugman’s recap we’ve had the MAGA wing blaming the L.A. fires on excess wokeism. As opposed to, say, last year being the hottest globally since records began due to human-induced climate change.

And now I read Peter Thiel opining in the FT and calling for a Truth and Reconciliation process in which US state secrets are declassified by Trump to the world because “the Internet won”.

Meanwhile Trump’s best-buddy and backer Elon Musk is getting stuck into politics here, in Germany, and elsewhere. And the same faction of Tories who clutched their pearls when Obama suggested Brexit didn’t make a whole lot of sense eagerly leapt up with their tails wagging and teeth drooling when this foreign master called.

You can obviously see my biases here – but it is all relevant for the bond market.

In the first Trump presidency we saw yields roiled by his random Tweets. Such uncertainty has a cost.

In short, bond holders want more of a return when they’re hostage to a self-proclaimed revolution, and I am pretty sure that’s reflected in the escalating term premium

Back in basket-case Britain

US bonds matter because they act like gravity on yields around the world.

If you can get 5% on 20-year US Treasuries – which you now can – then it’s harder to justify owning say European government debt on lower yields, let alone that of an emerging-emerging market like the UK.

The UK 30-year gilt yield is now 5.4% – up from a yield of 5.1% when we sang Auld Lang Syne and just 4.3% back in September.

That’s a huge move.

Mostly this reflects rising yields across global bonds, but the UK does seem to be getting it a bit worse.

Sure, the Budget won’t have helped. I didn’t like Labour’s anti-growth tax on business either.

True, blaming the new Labour government for coming clean on the mess left by the previous 10-plus years of unavoidable events – Covid, Ukraine – and witless self-harm – the ongoing cost of Brexit, which more or less covers the spending gap Reeves is trying to fill – seems to me like chastising the parents who are cleaning up a ruined house after a teenage party goes viral on Facebook.

But that’s democracy. He or she who who’d wear the crown must drink from the poisoned chalice.

And on that note – not incidentally – we have Nigel Farage and Reform waiting in the wings and polling a 20% share of the popular vote.

When you consider the best that can be said about Brexit is house prices didn’t immediately crash – but absolutely nothing good came of it, not even the all-important fall in immigration – then you can see the problem.

As in the US, some people are still voting with their hearts and feelings, not their heads.

In such a climate anything can happen. And with UK government borrowing now looking like rising and becoming more costly to service even with grown-ups in charge, I can well understand why a bond holder would want more return for holding a 20-year bond baby.

(Bigger picture: how’s your bug-out emergency plan coming along?)

Inflated expectations

With all that out my system, let’s also admit higher yields are about inflation expectations, as I said.

True, this is undoubtedly linked to politics too. The timing in Torsten’s graph above makes that clear. Non-token tariffs and mega-deportations would cost the US economy, and hurt the rest of us too.

But just on the numbers, inflation hasn’t yet returned to target in the US and most other places, and the big US jobs number won’t have settled any nerves.

Personally I don’t understand the surprise.

Just 18 months ago, confident sages were telling us we’d need a recession and soaring unemployment to bring down the double-digit inflation.

In fact we needed neither – probably because double-digit inflation was yet another hangover from the pandemic, more than anything normally cyclical – but I’m not surprised it’s lingering on above 3%.

I was warning here as far back as 2020 that the aftershocks from global lockdowns would reverberate for years, like a cranky old machine you turn off and restart. It was never going to be a painless reboot.

But how much does a little bit of ongoing inflation really matter, anyway?

Inflation targets are arbitrary, and while it would do more damage to abandon them here, the Fed and other Central Banks can probably quietly ignore them if they believe inflation will still eventually settle, if they’d rather keep the economy humming. Especially when inflation expectations seem anchored, and in the main the big demands for huge pay increases have gone away, at least outside of the public sector.

Alas, the trouble, as I’ve belaboured above, is that political and fiscal events are rocking that quiet agenda.

The bond scare and you

So what does this all mean for our personal finances?

Well, mortgages probably aren’t going to get cheaper anytime soon.

Even if the UK does go back into recession, the Bank of England can’t really cut much against wider rising yields. Besides, it’s that market rate environment that really sets mortgage rates.

Higher government borrowing costs could well mean more taxes, too. Goodness knows from where.

And/or spending cuts – but ditto.

On a brighter note savings rates should stiffen a bit. Good news for those with a stash of cash.

The 60/40 sitrep

Another thing worth mentioning is that bond portfolios won’t be feeling anything like as much pain as in 2022.

Yes you’ll probably be looking at capital losses rather than the gains that seemed likely a year ago. But check out this five-year graph:

Source: Google Finance

The recent declines in iShares’ core long-term bond ETFs are not pretty, but they’re nothing on the scale of what we saw in 2022.

As I’ve stressed a few times over the past couple of years, the dramatic re-rating of bonds from the near-zero era was a one-time massacre that shouldn’t put you off the asset class for life.

If your preferred asset allocation wants them in your portfolio, then you needn’t overly-fear a repeat of 2022. Or at least if we saw another 2022 in a hurry then we’d have problems that would roil everything else in your portfolio except perhaps for gold and tins of beans.

Finally, I presume those of you who believe that holding individual long bonds would somehow have saved you from the murderous maths of the 2022 bond sell-off will finally listen to me when I say that it wouldn’t have.

Here’s how the Treasury 4.5% 2042 gilt has behaved over the past three months, for instance:

Source: Hargreaves Lansdown

And here’s the five-year chart:

Source: Hargreaves Lansdown

As the second chart shows, own expensive bonds trading above-par and you’ll get whacked when yields rise, whether you hold the bonds individually or in an ETF that makes the job easier for you.

There are other reasons you might prefer to own individual bonds. But I see so much confusion in the comments about it that I think it needs its own article. For now know that reducing duration is the only way to prevent this kind of short-term volatility (typically at the cost of long-term returns).

The bond news signal

I’ll leave you with a hopeful thought.

Normally when ever-boring bonds make headlines around the world, we’re near or even past the peak of things getting worse.

So I imagine yields will steady from here. At least for a while.

Have a great weekend!

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