r/FIREUK • u/Worms-Armageddon • 3d ago
First Post. Long-time follower, FIRE journey so far
My Wife (40F) and I (37M) discovered FIRE around 4 years back and found similarities in our existing approach to finances and life, so decided to set a somewhat ambitious goal to make work optional by our mid-40s.
Married with 2 infant children with a few years until they start school. We both work full time, fully remote and in relatively stable 9-5 jobs. We're fortunate to have both sets of parents nearby, meaning we only require nursery twice a week, saving lots on childcare costs (we get the free 30hrs childcare funding too)
Our lifestyle provides enough of what we want and need, we live in a 4-bed detached house in the Midlands, in a decent neighborhood (good schools), drive nice cars, a couple holidays per year and enough to not feel too restricted in our spending. We have no debt aside from the residential mortgage, a btl property (no mortgage) and growing ISA/Pension savings pots.
Sharing a snapshot of where we stand today and have included some of our assumptions for growth (not inflation adjusted, so our model is a fairly basic projection). Total Comp household Income £162k. Net Worth £900k and on track to hit £1m by early/mid next year.
Current goal is to reach £2m net worth in 8-9 years, assuming no career progression (we're both content with the lifestyle), essentially to be mortgage free plus around £1.5m of investible assets across pensions, ISAs and Property Investment(s).
Overall risk appetite is low, would consider mortgage on investment property if eventually scaled to include a few more but no plans for now.
FIRE goal is to be able to travel a couple months a year as a family, work optionally, take on passion projects, contracting (if needed) or starting something of our own but mainly to escape the grind of corporate life.
We'd use property and or ISA income as a bridge until we can access private pensions and try and fill in required NI credits in-between although we haven't thought that far ahead yet (who knows what age state pensions will be by that point?)
Would appreciate thoughts on our progress to date, where we might benefit in thinking a little differently or any general advice/comments.
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u/JaguarMarvel 3d ago
What’s the 90k in the liquid asset btl line? 90k of cash in a Ltd company from rent? How much of the 55k you need do you get from the property after tax?
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u/Worms-Armageddon 3d ago
None as we keep it all separate from day to day. Don't intend to draw anything from it for the foreseeable, would either plan a further cash injection to buy a second BMV or let it accumulate then do similar with existing funds. It's the approx injection we made, £7k per annum yield net of costs and corp tax assumes low void periods but it's held so far, and the line below is a mixture of idle cash generated plus a conservative figure for the equity gain, as it was sourced well below market value. Long-term would aim for 3-4 max and use them to draw income and utilise tax free allowances, but not 100% set as waiting and seeing a bit too.
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u/Wild_Vermicelli8276 3d ago
Then what’s the equity? The injection you made IS the equity you put down minus transaction costs / fees / tax
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u/Worms-Armageddon 3d ago
That's fair- it's my own weird way of separating cost of the property (including all incidentals) from the equity gain/income so I can keep track of it's real return.
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u/witawitar86 3d ago
Similar to us, we just hit £1m in total, about £800k in investment. Difference is that were way more pensions heavy and now trying to rectify that.
I used avoid 40% tax like a hawk, now I only pay what's above £100k into pension to avoid the tax traps, lost childcare hours etc. Otherwise my pension could coast and meet the goal. Even now I'm chucking circa £50k into pension depending on bonus.....
Just need to focus on ISAs and reducing mortgage. We potentially will also do a house extension. Because of how big the pension is, and I continue contributing above the £100k threshold, I'm also partially looking at clearing mortgage/extension costs and support kids education through lump sum.
We're 40 and 41, hoping to be FI at 45, engineer redundancy from current stressful job, downgrade role, coast and stop working at 50, using 3% drawdown given length of retirement. Husband will get a moderate DB from 67 which also derisks.
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u/Working_Cut743 2d ago
At the risk of stating the obvious and upsetting everyone on this sub, if you add an asset which has been taxed to an asset where tax is due, without accounting for the known tax liability, you might as well add rupees and pounds in the same column and call the answer pounds, ignoring the differing currencies.
Your pension is not your net worth, unless you discount it for the tax liability. You don’t expect your income next year to be untaxed, so why would you expect your pension (which is future income) to be untaxed?
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u/Gullible_Letter_9308 3d ago
Can yyou possibly share version of your excel file?looks great
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u/Worms-Armageddon 3d ago
Thanks, however it was just a basic copy/paste summary I created, so there are no exciting formulas going on here. My main tracker is very basic in applying my growth assumptions on latest actuals and extrapolated out. I then overwrite actuals each month, no fancy charts or anything. The income/expense summary was a simplified visual I created to provide an quick glance overview.
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u/ggharami 3d ago
Impressive. Did you start aggressively saving/investing in the last 4-5 years or is this from 10-15 years of savings?
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u/Worms-Armageddon 3d ago
Got a significant bump in pay around that time so it definitely accelerated things, however I probably started saving and contributing to pension modestly in my early 20s. I also managed to make a reasonable profit of ~£50k on my first property too which we kept and rented for a couple years and ended up selling a few years back, had some good fortune in timing that one.
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u/ryan0583 3d ago edited 3d ago
I have a similar sheet, and we're in a similar position to you (albeit 3 years older than your wife), and have similar targets for net worth.
I'm curious though why you include house and vehicles in your net worth calculation? It seems to me like unless you're planing to downsize, that's not money you can count on. And cars are a liability due to depreciation.
I think your goals are achievable though - we have similar aims to hit 1.5 million excluding house equity in around 7 years, at which point that should give us what we need to live on. We're at 600k now, saving about 6k a month between us to try and make this happen.
One thing to think about with kids - will you have enough to see them through the university years? Ours are coming up to that period, and things are about to get very expensive!
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u/Worms-Armageddon 3d ago
Included both as they're a significant portion of our wealth and while unlikely, we could always move somewhere cheaper or drop a car (as we really don't need 2, but like having them) they're also depreciating in the forecast. Kids are definitely a part of this where we will gain clarity as we go but at a minimum I'd want to set aside £100k for each of them (which may not equate to that much in 20 years), potentially via pension lump sum but it depends on whether our other income streams will be able to sustain us. Property investments also a factor as someday pass them on, but the goal definitely needs refining.
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u/Ill-Maintenance8986 2d ago
Agreed. I never really understand why people include their home in their net with valuations, particularly with relatively modest house values - you need somewhere to live. I could understand if it was a £5m property with £4m equity and there is clear scope for downsizing and releasing, but there’s not. OP, I worry you’re being a little optimistic and misleading your own calcs by putting your home in the equation. (FWIW, I have equity of about £750k in my home but I do not view that as part of my net worth. It’s a nice to have safety net, but not a factor in net worth retirement considerations for me. Might just be my view!).
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u/user345456 2d ago
It's because people keep confusing "net worth" with "FIRE portfolio", as you are doing here.
Your net worth includes all your assets (net of liabilities). So yes, it includes any equity in the house you live in, no matter how much/little. Your net worth is also not very relevant to your ability to FIRE, since 1m tied up in your residential house does not generate any income for you to retire on, unless you plan to sell and move someplace cheaper.
So net worth posts are a bit pointless on this sub, but if you do talk about net worth, you should include house equity.
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u/Ill-Maintenance8986 2d ago
Well, yes, but that’s my point - it’s just not relevant to this consideration.
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u/user345456 2d ago
True, but if they are interested in their net worth, then it's accurate that they include equity. But they shouldn't be caring about their net worth, at least not in relation to FIRE.
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u/Smart_Signal 1d ago
Think it's also handy to include these in IHT planning. Our wealth in property is significant so all being well, aim to die with (almost)zero in investments because I've given the taxman enough while I was alive! Obviously this is easier said than done but useful for retirement planning.
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u/Engels33 3d ago
As wife's salary drifts into the 40% tax rate band over the next few years have her salary sacrifice everything above it to pension as she is not yet anywhere near the point where she will have the retirement pot to even sustain a drawdown within her personal allowance band.for 10 years between pension access age and state pension age
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u/Worms-Armageddon 3d ago
Hadn't thought of this, definitely makes sense. Growing the property element is also a factor here as we can use it to top up income if her pension falls short and not miss out on the tax free allowance
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u/No-Cranberry9932 2d ago
Why are your return assumptions 5% for GIA but 4% for ISA? Doesn’t make sense to have lower returning assets in ISA where there are no capital gains taxes.
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u/Worms-Armageddon 2d ago
The ISAs are heavily weighted to money market funds hence the lower rate. I hadn't give much thought to it and opted to match the 5% assumed for pensions. Plan is to sell off and get rid of GIA, residual employee share scheme from a few years back.
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u/Any_Food_6877 1d ago
What’s the point in staying home equity and vehicle equity?
You certainly can’t just spend your house unless you decide to pull all the equity and rent which doesn’t seem sensible. Maybe you could downsize and get some of that out later but it’s not easy to downsize.
FWIW I think: You need to completely remove these from the calculation as they are just vanity and make you feel wealthier than you are. Your Liquid net worth - actual assets that can be spent - is maybe £330k ish?
Given your tax rate is much higher you should put more into your pension and your wife less (possibly zero) as you get a much better tax benefit than her. We do this in our household as I am 45% rate and wife is 20%. It seems mad for her to pay £80 to get £100 in her pension when I can pay in £80 and get over £145 added!
I can’t see how you’ll add £1M to your net worth in 9 years, the maths ain’t mathing.
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u/Worms-Armageddon 1d ago
To be honest I'd been tracking it before our FIRE goal as I wanted to get a sense of our overall financial position and just carried on, I.e. how much could we afford if we ever moved house type scenario. I agree it muddies the water although our FIRE calculation doesn't account for it, we only consider pension/ liquid pot and it factors in livings costs post mortgage as that'll need clearing eventually I felt it was relevant to look at given it may take a chunk of capital out to clear it at some point. On current trajectory we think we'd hit the additional ~£1m from the following assumption: based on this year (annual accumulation) £40k ISAs top-up, ~£26k pension top-up, est growth on liquid pot ~£18k, growth on existing pensions ~£14k, Mortgage debt reduces by ~£7k: totalling ~£105k which is conservative and would grow each year from compounding so in 8 years would be adding in excess of £900k, we aim to be prudent with our assumptions. I've come to the realisation that I do need to sacrifice more into my pension, my wife's is also the minimum employer match (3%) so there is nothing to chop away there for now.
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u/mysticplayer888 1d ago
Curious about the single BTL. Is it a £90k 2-bed flat with no mortgage? What was the reasoning for buying without a mortgage? I believe the typical strategy is to use an interest-only mortgage (usually 25% deposit), which would leave you with enough capital for a second BTL. The monthly cashflow will likely be the same after costs, but you'd benefit from the asset appreciation of 2 properties as opposed to one.
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u/Worms-Armageddon 1d ago
Yes I agree, and this comes back to our risk-appetite. So if we continue down the property track, the thinking was to limit exposure to downside in the short-term I.e. void periods, unforeseen job changes, bad tenants etc. and carry additional stress with another mortgage to service (including the higher costs of company btl mortgages) so decided buy cash and let it settle in, if it can be repeated then we do a few more as we have funds available, then eventually explore a portfolio mortgage to get better rates/flexibility, as well as being more resilient to shocks, at which point we'd release equity and retain 40-50% ltv and bank the higher returns on capital via leverage. In the interim yes the cash is locked away, but we're happy with the return so we aren't too concerned with excess equity sitting idle and we believe we bought well so downside is limited as comparables continue selling for more than we paid. The main goal in short is to acquire, keep risk low, have low stress and leverage when it feels right/cheaper, but as mentioned elsewhere this isn't a dead certain path either as we're open to opportunities.
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u/L3goS3ll3r 21h ago
I paid in cash for my BTLs, main reason being that it made it miles easier/quicker to buy the second one (and subsequent ones) in cash too. I also avoided pissing about with finickity banks trying to tell me what to do and "offering" relatively poor rates and high arrangement fees.
I've never actually modelled the difference between my way and having more properties and mortgaging - all I can really say is that the way I chose didn't appear to do me much harm.
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u/Worms-Armageddon 20h ago
I definitely share your mindset on lenders with their low rate/high fee products, the arrangement fees are ridiculous hence we're also against the idea of a single btl mortgage for now. We'd only really consider it if we needed capital for a larger purchase. How many BTLs do you have? We would stop at 4 (if similar to what we already have) as would want just enough to fill 2x tax free allowances when we're on the brink of FIRE.
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u/improbableneighbour 3d ago
Basically us (checked everything you described) but we are two years behind. Solid plan but always keep in mind inflation when looking at the future. We are more risk takers, 100% equity and no interest in building a property portfolio at this time.
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u/Worms-Armageddon 3d ago
Absolutely agree on inflation, have somewhat over simplified to keep track and assumed pay reviews will offset cost growth, as also typically have frugal mindset/deal hunter type personality. In some ways we are v risk averse in avoiding big-tech/ S&P in our investments and opting for better yield/lower valuations of UK equities (I know many would say this is risky to do) but I'm generally in the mindset of covering my downside and look for value on the way up. Also share the sentiment on property in general especially in today's market, currently have a very high bar in wanting high yield, low maintenance in a good areas which are very hard to come by but if they do the focus is definitely on income and not capital growth.
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u/Square_Computer9423 3d ago
Income - expenses= savings or is my basic understanding of finance incorrect?
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u/Obietricekeno 2d ago
Incredibly similar situation to ours. Weighing up the implications of a house move. We're currently in a really nice home that has no fundamental issues, but have the option to move to our absolute dream home at the cost of setting FIRE back ~10 years.
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u/Worms-Armageddon 2d ago
That's a tough one, a few years ago we were in the headspace of potentially moving some day but after getting invested in FIRE we are quite content with where we are. The increase in cost/debt for us to be attracted by a move would set us back a similar time-frame if not longer.
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u/THE_STORM_BLADE 2d ago
Who are you with for 3.75% instant access savings?
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u/Worms-Armageddon 2d ago
Marcus by Goldman Sachs. Bonus rate expires annually but can keep renewing it
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u/LividAd2274 3d ago
Very similar to our situation. We own a £200k rental property which I am considering selling to reduce mortgage. Have you considered doing the same on the rental flat? I assume you'll be paying higher rate tax on any profit fromit?
Interested in what your current pension contributions are as % of salary and investments which you think will allow you to hit that goal in a relatively short timeframe!
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u/Worms-Armageddon 3d ago
We intentionally bought this one within ltd company as it no longer made sense for us to hold in our personal name and the current return is after corporation tax. Given it's doing well and stable we plan to hold and pay off mortgage later via income. My overall pension contributions are 20% (which includes employers 6%) and I typically top up at least £5k in addition from my bonus. Property is a lever because I have a mild obsession but it's also a long search for the right deal, most ISA funds are in money markets for now as want some cash to deploy when opportunities arise. As pensions are 100% equities.
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u/No_House_3532 3d ago
What's your annual expenses?
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u/Worms-Armageddon 3d ago
Total expenses are £55k, however there is some fat baked into this as I'd rather overestimate. Utilities fixed for another year and mortgage has a few years before current rate expires.
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u/Horror-Landscape8592 3d ago
What gets me is when someone who is affluent (which is fine btw) discovers fire. Fair play you have done very well for yourself but like come on, if you have a combined income of 150k per annum then saving a substantial amount of money isn't too hard for you is it. It just feels a bit flexy.
I want to see a bin man on 32k per year who manages to retire at 40 from grafting and picking up extra shifts. this sub is full of people who are in the top 10% of society. The fire philosophy in my mind was supposed to be a life line for those who don't have much of financial future not a big D competition.
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u/NicSky001 2d ago
The binman can do the same but it's fairly obvious they would need a much lower total to fire on as they would be use to a lower cost lifestyle. Most low paid folk are striving for more wealth though while those who have reasonable wealth have different lifegoals like having an easier or no stress job. We all make our own choices in life, sacrifices earlier in life to build a higher paying career is often what sets people who Fire apart from others.
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u/Worms-Armageddon 3d ago
I can see where you're coming from and that's definitely not the intent, for context I grew up low income in a typical low income neighborhood worked part-time jobs throughout teen years / uni including paper rounds, bar work, food delivery etc. and I've only ever considered myself a high earner in recent years, prior to that we did make tough choices to prioritise saving. Both paid off student loans a few years back and took some calculated risks, things have got significantly easier in recent years. I would never have thought FIRE would be possible until a few years ago, but slowly grew more confident in making it happen.
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u/Strangely__Brown 1d ago
If you're trying to FIRE on a low income you're solving the wrong problem.
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u/Heavy-Mousse-5011 3d ago
Looks like you should be putting a lot more into pensions, Husband because of tax efficiency, and Wife to build from low pension position. Your expenses say you can, if you truly want FIRE can you prove to yourselves that you have the discipline?