# Path to Financial Freedom



## Zion2022 (27 Aug 2022)

As an introduction. I consider myself very financially literate and would often advise friends and family in this area. I have however made some terrible financial decisions myself in the past by not practicing what I preach. I fear I’m too involved to make objective decisions anymore.

*Personal details*

Age: 29
Spouse’s/Partner's age: 28
Number and age of children: None

*Income and expenditure*
Annual gross income from employment or profession: €220k base + €50k cash bonus + 30k RSUs (variable)
Annual gross income of spouse: €30k
Monthly take-home pay: €11,500 (excluding bonuses)
Type of employment: Private sector - permanent full-time

In general are you:
(a) spending more than you earn, or
(b) saving?
- Saving significantly. Cost of living (ex mortgage) is c. 40k per annum. Diverting 6k per month + c25k per annum bonus into savings/investments.

*Summary of Assets and Liabilities*
Family home worth €1.3m with a €930k mortgage remaining
Cash/savings: €170k
Defined Contribution pension fund: €180k
Company shares: 0

*Family home mortgage information*
€630k with lender @2.5%, 5 years fixed. 34 years remaining. Monthly repayment €2.2k. No early repayment options (I fixed at a bad time regarding swap rates so my early redemption charge is significant)
€300k family loan @ 0% interest. Repayments to begin in 5 years time over a flexible term.

*Other borrowings*
None

Do you pay off your full credit card balance each month?
YES

*Other savings and investments:*
- €150k cash primarily earmarked for home improvements 
- €20k in Investment account

Do you have a pension scheme?
Yes - €180k Fund. €4k per month employee + employer contribs. 100% global equities.
Wife has a small pension

Do you own any investment or other property?
No

Other information which might be relevant

Life insurance:
Yes, €3m + 50% salary. Combined death in service + Mortgage protection
Health insurance: 
Through work

*What specific question do you have or what issues are of concern to you?*

My concerns are twofold:
1. I’m extremely conscious that we bought a house for an amount well in excess of what I’d have advised to someone else. We plan to have a decent sized family so downsizing would be a nuclear option. I know that the cost of debt will be far far higher in 5 years time so I am neurotic about minimising our exposure to higher rates when our fixed period expires.

2. I find my job increasingly stressful to the point I’m not sure how sustainable it is long term. I would love to be in a position to take a step back and work either in a less senior role, or ideally do consulting work. This work wouldn’t be guaranteed so I’d want to be financially secure before I could consider this. The debt we have now means I have to endure for the foreseeable.

My current thesis is: 
We can save c.€100k per annum (+12k equity cleared from mortgage each year). I plan to put 100% of this into global equities (any advice on how best to do this would be much appreciated. Given tax treatment of ETFs, I feel forced to invest in 20-30 large cap stocks which is not ideal). 
When our fixed period is up in 5 years we should have close to enough to pay off the bank loan (assuming no market collapse). 

That would leave us with a fairly modest €300k family debt with no interest charge. We could pay this off over 20 years. At this point, whilst nowhere near set for life, I’d certainly feel I was no longer a slave to the corporate world and could start exploring my options for a more fulfilling career.

Is there anything I’m missing here? (I know, sell the house - but again I’m not open to this). I sometimes fear I’ll be selling out my 20s and 30s just to be financially solid and this might be something I’ll regret in future.


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## Brendan Burgess (27 Aug 2022)

Zion2022 said:


> - €150k cash primarily earmarked for home improvements




This jumps out at me.  You acknowledge that you have bought a bigger house than you should have. But now you plan to spend another €150k on it! 

If they are home improvements and not essential maintenance, do without them. 

Brendan


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## Brendan Burgess (27 Aug 2022)

Zion2022 said:


> €630k with lender @2.5%, 5 years fixed. 34 years remaining. Monthly repayment €2.2k. No early repayment options (I fixed at a bad time regarding swap rates so my early redemption charge is significant)



Are you sure about this?

If you repay €100k now, what will the early repayment fee be? 
With 5 years to go, you will pay €13k interest on it.  How does the break fee compare to that? 

Brendan


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## Brendan Burgess (27 Aug 2022)

Zion2022 said:


> Yes - €180k Fund. €4k per month employee + employer contribs.





Zion2022 said:


> Age: 29



You have a big fund for your age and will hit the fund size limits fairly early. 

Is there scope for you to reduce your contribution without impacting what your employer contributes?  If so, you should do so. 

Brendan


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## Brendan Burgess (27 Aug 2022)

Zion2022 said:


> I plan to put 100% of this into global equities (any advice on how best to do this would be much appreciated. Given tax treatment of ETFs, I feel forced to invest in 20-30 large cap stocks which is not ideal).
> When our fixed period is up in 5 years we should have close to enough to pay off the bank loan (assuming no market collapse).



If the break fee on your mortgage exceeds the interest saved, then this would be the right strategy. 

There could well be a stock market collapse - in fact, there probably will be at least one in the next 5 years. 

Not sure if you need to go as high as 20 stocks.  You can handle the risk from a smaller number. 

Brendan


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## Blackrock1 (27 Aug 2022)

Zion2022 said:


> As an introduction. I consider myself very financially literate and would often advise friends and family in this area. I have however made some terrible financial decisions myself in the past by not practicing what I preach. I fear I’m too involved to make objective decisions anymore.
> 
> *Personal details*
> 
> ...


you have a good job and salary, at your age with that kind of seniority there should be scope to really kick on over the next decade, im not being unkind but arent you a bit young to be feeling 'corporate burn out'. Once you have kids i get it, but for now id be maximising my earnings, getting the loans paid down so that when the kids come along and you want to take it a bit easier you can, also you dont have to be in an uber stressful job to make similar money, the two dont always go hand in hand. Further, as you get older and more experienced your ability to manage stress and put things in perspective improves.


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## Zion2022 (27 Aug 2022)

Brendan Burgess said:


> This jumps out at me.  You acknowledge that you have bought a bigger house than you should have. But now you plan to spend another €150k on it!
> 
> If they are home improvements and not essential maintenance, do without them.
> 
> Brendan


Thanks Brendan. Yes I think you’re right here. Probably about €75k is ‘essential’ or has real payback in terms of improved energy efficiency. Bathrooms etc. can wait. I’ll see if I can convince the wife. €75k saved would be a big lump to ‘save’ at this stage.



Brendan Burgess said:


> Are you sure about this?
> 
> If you repay €100k now, what will the early repayment fee be?
> With 5 years to go, you will pay €13k interest on it.  How does the break fee compare to that?
> ...


I’ve never formally checked, but I think the 5 year swap rate was down about 1% from when I locked in (probably ticked back up since). So I estimated I’d have an ERC of roughly 5% (1% x term length). So €5k on €100k repayment say. Probably worth confirming this which I’ll do next week.


Brendan Burgess said:


> You have a big fund for your age and will hit the fund size limits fairly early.
> 
> Is there scope for you to reduce your contribution without impacting what your employer contributes?  If so, you should do so.
> 
> Brendan


No, I contribute 7%. Employer 15%. That’s perfectly maxing out the matching. I’d hate to miss out on any employer match and SFT might be less of an issue if I move to contracting later in life I guess. So feel I should accumulate now while it’s ‘cheap’


Brendan Burgess said:


> If the break fee on your mortgage exceeds the interest saved, then this would be the right strategy.
> 
> There could well be a stock market collapse - in fact, there probably will be at least one in the next 5 years.
> 
> ...


I’m torn on this. I regularly advise people to not invest with a mortgage to be repaid. But if my ERC brings the benefit down to say 1.5% per annum by repaying (2.5% IR less 1% ERC charges) Over a 5 year horizon I guess the likely result (historically speaking) would be heavily skewed towards investing instead. This brings risks of course, although I do wonder, given our relative financial strength if we should look to carry the risk to seek the extra return. Difficult decision.


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## RichInSpirit (27 Aug 2022)

One loan that you could overpay at the moment if you have extra money is the family loan. Without any early payment penalty. 
I know it is at zero percent interest but it would be a load off your mind for the future and might also make for more harmonious family interactions in the future.


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## Brendan Burgess (27 Aug 2022)

> So €5k on €100k repayment say



€5k to save €13k in interest seems worth it.  I think it's a better option than investing in the stock market.



Zion2022 said:


> Over a 5 year horizon I guess the likely result (historically speaking) would be heavily skewed towards investing instead. This brings risks of course, although I do wonder, given our relative financial strength if we should look to carry the risk to seek the extra return.





> I think I need to financially plan for flaming out.



I really don't think you should take the risk with such a large mortgage in relation to your salary and the risk that you might burn out.  Go for the low-risk option here.

If you had a much smaller mortgage, I would live with the borrowing to invest risk.

Brendan


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## Zion2022 (27 Aug 2022)

Blackrock1 said:


> you have a good job and salary, at your age with that kind of seniority there should be scope to really kick on over the next decade, im not being unkind but arent you a bit young to be feeling 'corporate burn out'. Once you have kids i get it, but for now id be maximising my earnings, getting the loans paid down so that when the kids come along and you want to take it a bit easier you can, also you dont have to be in an uber stressful job to make similar money, the two dont always go hand in hand. Further, as you get older and more experienced your ability to manage stress and put things in perspective improves.


Yeah I take your point on ‘burn out’ and I probably phrased incorrectly. I very much had your mindset when we bought our house. My salary and career were only heading one way. I really saw it as reasonable and likely that I’d be earning upwards of €500k by age 35.

However my last promotion has taken me to more of a ‘figure head’ position from previously managing small teams/doing technical work.
It’s not necessarily the work that’s stressful, more that it’s the first time in my life I feel out of my depth. That upward career trajectory feels like it’s suddenly stalling out and I’m not sure my skill set is suited to further upward movement anyway.
In addition to the stress of not being happy with the quality of my performance in the role, I also have to do a lot of public speaking which, whilst a strength of mine, is always something which brought sleepless nights.

I hope you’re right that I get better at handling the stress as I get older. It’ll change everything if I do! But for now I think I need to financially plan for flaming out.


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## Brendan Burgess (27 Aug 2022)

Zion2022 said:


> That’s perfectly maxing out the matching. I’d hate to miss out on any employer match and SFT might be less of an issue if I move to contracting later in life I guess. So feel I should accumulate now while it’s ‘cheap’



Fully agree. This takes priority over everything else. 

Brendan


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## interested21 (27 Aug 2022)

Brendan Burgess said:


> You have a big fund for your age and will hit the fund size limits fairly early.
> 
> Is there scope for you to reduce your contribution without impacting what your employer contributes?  If so, you should do so.
> 
> Brendan



Sorry if off-topic, but do you have a rule of thumb for when and how a high earning young person should think about scaling back pension contributions to best manage the fund size limits?


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## Brendan Burgess (27 Aug 2022)

interested21 said:


> Sorry if off-topic, but do you have a rule of thumb for when and how a high earning young person should think about scaling back pension contributions to best manage the fund size limits?








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## NoRegretsCoyote (28 Aug 2022)

Zion2022 said:


> *Personal details*
> 
> Age: 29
> Spouse’s/Partner's age: 28
> ...


First off congratulations. You have an exceptional salary for your age. €270k is more than five times average full-time earnings, and most people don't have peak earnings until about 50. 

I don't know what you do, but I think there is big risk here in two dimensions. The first is your sector of employment which is clearly extremely profitable today but might not be in 5 or 10 years.  I'm old enough to remember the post-2008 crash and there were people breezily making six-figure salaries in construction and related activities who found themselves on jobseekers' benefit in the space of a few months. The second risk is personal, highly-paid people can be quite dispensable when the wind changes internally.



Zion2022 said:


> *Summary of Assets and Liabilities*
> Family home worth €1.3m with a €930k mortgage remaining
> Cash/savings: €170k
> Defined Contribution pension fund: €180k
> Company shares: 0


At that value you have a house that's bigger than your needs and a prestige address in Dublin. I suspect it's surplus to needs , particularly before you don't have children. You have a very big mortgage. You have a big cushion as well in the form of cash and the family loan but it's a lot of debt in total.

I don't have too much specific advice. I just think that in general you should make plans that are robust to something like a halving of your net family income over the space of five years.


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## Zion2022 (28 Aug 2022)

NoRegretsCoyote said:


> First off congratulations. You have an exceptional salary for your age. €270k is more than five times average full-time earnings, and most people don't have peak earnings until about 50.
> 
> I don't know what you do, but I think there is big risk here in two dimensions. The first is your sector of employment which is clearly extremely profitable today but might not be in 5 or 10 years.  I'm old enough to remember the post-2008 crash and there were people breezily making six-figure salaries in construction and related activities who found themselves on jobseekers' benefit in the space of a few months. The second risk is personal, highly-paid people can be quite dispensable when the wind changes internally.
> 
> ...


Yeah that’s very true. Currently my employment prospects are fairly robust and I could easily replicate my salary elsewhere. I’ve never worked through difficult economic times though and I know that it’s inevitable at some stage.
The reality is that we currently couldn’t maintain our situation with a halving of our income. I’m hoping by aggressively paying down debt whilst we can should insulate us going forward. Just hope the good times last long enough for us to put a meaningful dent in it. 

We could ultimately sell the house if it came to it. But conscious the conditions which would precipitate a major fall in my income would likely mean a significant drop in the value of the house too.

I suspect a Sinn Fein government in a few years will significant impact my net income and house equity - so need to make hay while the sun shines!


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## interested21 (28 Aug 2022)

Zion2022 said:


> I could easily replicate my salary elsewhere


Maybe there's a side of tech with which I'm totally out of touch, but I find this somewhat hard to believe. Nothing I've seen has suggested to me that ~300k comp packages are easy to come by in Ireland, especially for someone in their late 20s no matter how talented.

Take for example this Reddit survey on /r/DevelEire. Out of 300 responses only 2 were earning +200k, and these types of surveys usually mainly attract responses from people earning above average.

If what you're saying is true, I find it hard to believe that you wouldn't easily see a halving of your salary through a downturn in tech, or a even a downturn in your specific company.

Sometimes the things I see in our industry makes me think of Steve Carrell's character in The Big Short when the stripper tells him that she has 5 houses and he rings his associates and says "Hey there's a bubble!"

As a result I think you're dead right to pay down your debt as aggressively as possible. You've worked hard to get into an incredibly impressive situation and you've used that to get a significant amount of leverage. You should de-leverage as quickly as possible to decrease your downside risk.


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## Gordon Gekko (28 Aug 2022)

The base seems very high relative to the bonus and RSUs.

It suggests someone who’s not client facing in the tech or aircraft leasing space.

Congrats.

It does seem high for a 29 year old.


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## Kilkenny06 (29 Aug 2022)

Zion2022 said:


> 2. I find my job increasingly stressful to the point I’m not sure how sustainable it is long term. I would love to be in a position to take a step back and work either in a less senior role, or ideally do consulting work. This work wouldn’t be guaranteed so I’d want to be financially secure before I could consider this. The debt we have now means I have to endure for the foreseeable.


In my experience the stress does not go away, and upping your standard of living to "reward" yourself for the stress only makes things worse. The demands and responsibilities of higher-paid employees are increasing all the time, and in certain industries it's surprisingly difficult to get lower-paid, less stressful/responsible jobs - interviewers don't understand why you are applying for a particular job which is less senior than where you are now, and I would be reluctant of mentioning anything to do with "stress" or its synonyms in an interview. Consulting comes with its own pressures.

Given your mortgage rate is relatively low, I would personally max out my pension, and aim to build substantial and growing wealth which will give you more options in the future and make you less reliant on salary income. Other than the house, you're both doing a good job keeping your cost of living relatively low given your income, and you should try and avoid creep in this area or it will lock you into requiring higher-paid jobs. Unfortunately a more expensive house may lead to mixing with wealthy friends, and I imagine there will be some pressure to keep up with the joneses as a consequence (particularly if kids are on their way) - I suggest awareness of lifestyle creep is the first step in tackling it and giving you the space to drop down to a lower-paid role.


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## Brendan Burgess (29 Aug 2022)

Zion2022 said:


> Do you have a pension scheme?
> Yes - €180k Fund. €4k per month employee + employer contribs. 100% global equities.
> Wife has a small pension





Kilkenny06 said:


> Given your mortgage rate is relatively low, I would personally max out my pension, and aim to build substantial and growing wealth which will give you more options in the future



Great post Kilkenny apart from the above. 

With a high mortgage, and a good pension fund already at a young age, the priority should be to reduce the mortgage pressure.  They have plenty of time to boost the pension when the mortgage is at a comfortable level. 

Brendan


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## Zion2022 (29 Aug 2022)

Brendan Burgess said:


> Great post Kilkenny apart from the above.
> 
> With a high mortgage, and a good pension fund already at a young age, the priority should be to reduce the mortgage pressure.  They have plenty of time to boost the pension when the mortgage is at a comfortable level.
> 
> Brendan


Thanks Kilkenny, agree completely on the lifestyle creep. I have battled against it aggressively and will continue to do so.

On the pension bit, I do worry about the standard fund threshold and for general peace of mind, I’d rather chop down our debt to safe levels rather than pursue strategy’s of wealth maximisation with higher risk. The debt is cheap now, but it won’t be for much longer.

Brendan, thanks for the previous advice on early repayment of mortgage. Your post motivated me to actually make the call and the ERC terms are far more favourable than I had calculated. We’re going to pay off a chunk with savings and also look to fix for a longer period (7+ years) at a lower rate. Already feel like the weight has slightly been lifted!


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## DublinHead54 (29 Aug 2022)

Zion2022 said:


> The reality is that we currently couldn’t maintain our situation with a halving of our income.



This would be a concern for me personally. High paying jobs are hard to come by, and more so now given the global hiring freeze many tech firms are going through. Although it looks like you have an artificially lower mortgage as 1/3rd of the debt is to family and not being repaid right now. 

I'll go against the trend here and say an additional focus should be to keep cash on hand to fund your lifestyle and pay bills for an extended period of time.


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## Blackrock1 (29 Aug 2022)

Zion2022 said:


> Thanks Kilkenny, agree completely on the lifestyle creep. I have battled against it aggressively and will continue to do so.
> 
> On the pension bit, I do worry about the standard fund threshold and for general peace of mind, I’d rather chop down our debt to safe levels rather than pursue strategy’s of wealth maximisation with higher risk. The debt is cheap now, but it won’t be for much longer.
> 
> Brendan, thanks for the previous advice on early repayment of mortgage. Your post motivated me to actually make the call and the ERC terms are far more favourable than I had calculated. We’re going to pay off a chunk with savings and also look to fix for a longer period (7+ years) at a lower rate. Already feel like the weight has slightly been lifted!


i wouldnt be too aggressive with battling lifestyle creep there has to be some reward for stress and achievement as long as it is proportionate.

Also dont be too hard on yourself, regardless how good you are at your job being put in more senior positions is new to everyone at some point and a lot of the required skills are learned and experience is the only answer to that. I'm sure if people are honest no one who has been promoted to senior roles (especially early) could say they didnt feel out of their depth at some point. When that feeling goes away the stress dissapates somewhat in my experience, i also feel you tend to get the best out of yourself the more 'out of your depth' you feel.


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## Steven Barrett (29 Aug 2022)

Have you spoken to a career coach or do you have a mentor that you can speak to about your career? Imposter syndrome is very common but your employer obviously thinks you are the best person for the job. It will take you some time to get used to the role. If there is someone with a lot of experience who can help you it will be money well spent. On the public speaking, it is natural to have nerves beforehand and it keeps you sharp and focused. Not sure what to do about the sleepless nights, a glass of whiskey before bed? 

Steven
www.bluewaterfp.ie


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## Peanuts20 (29 Aug 2022)

Zion2022 said:


> However my last promotion has taken me to more of a ‘figure head’ position from previously managing small teams/doing technical work.
> It’s not necessarily the work that’s stressful, more that it’s the first time in my life I feel out of my depth. That upward career trajectory feels like it’s suddenly stalling out and I’m not sure my skill set is suited to further upward movement anyway.
> In addition to the stress of not being happy with the quality of my performance in the role, I also have to do a lot of public speaking which, whilst a strength of mine, is always something which brought sleepless nights.
> 
> I hope you’re right that I get better at handling the stress as I get older. It’ll change everything if I do! But for now I think I need to financially plan for flaming out.



You will get better at managing stress as you get older. You'll learn how to cope with things better and how to prioritise and most importantly, you'll learn that most of the things you stress over are actually largely irrelevant. Think back to what had you stressed with work 12 or 18 months ago, are they issues now or have they passed and been largely forgotten about?. 

You do need to think about investing in your career so take advantage of whatever training you can get from your employer. Also don't feel afraid to utilise any support mechanisms you can get through work as well.

For now, focus on paying down the debt and taking time out to enjoy life a little


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