Optimising finances for career change

[menlo_ie]

Age: 37
Spouse’s/Partner's age: N/A

Annual gross income from employment or profession: €240k (90k salary + bonus + shares)
Annual gross income of spouse: N/A

Monthly take-home pay: ~€3,600
(a good chunk goes toward share purchase scheme and pension AVCs)

Type of employment: Private sector

In general are you: saving

Rough estimate of value of home: €260k
Amount outstanding on your mortgage: 17k
What interest rate are you paying? 2.75% (LTV Var <=50%)

Other borrowings – car loans/personal loans etc: None

Do you pay off your full credit card balance each month? No credit card

Savings and investments:
€40k cash
€20k Irish Life Investment plan (€160 per month)
€10k Revolut investments (mix of 10 diverse stocks)
€70k Sellable company shares

Do you have a pension scheme? Yes
Current value €104k
Monthly contribution: €1457 (including 7% employer matching contribution and 6% AVCs)
I recently made a single premium contribution of €10k (to avail of 4k tax refund)

Do you own any investment or other property? No

Ages of children: No

Life insurance: Yes

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

I'm well aware that I'm in a very privileged position at my age and lucky to be earning well. I have mainly benefited from the company performing well over the last few years giving me good returns from RSU stock. While I like my job right now, I have no intentions of working this profession to retirement. I'll end up wealthy and very bored with life. I'm currently re-training on an outdoor pursuit I thoroughly enjoy and while some will say I'm mad, I'm planning to transition away from office life to give it a proper go. The goal is to be flying solo by 40 (metaphor, I'm not becoming a pilot). I'll need land which means selling up my existing PPR and purchasing a new home with the land. With the proceeds from my PPR sale I'd expect to supplement the new property in the region of 100k and then there are start up costs for the new venture of about €50k. Obviously I need to think about future security and worst case scenarios but I feel I'm approaching this sensibly and not making any impulsive decisions. If I plan and execute with care, I can make this a successful transition allowing room for failure (and there will some).

The primary goal for me over the last few years was to minimise debt and I think I've done well there having the mortgage almost paid off and no other debt. I've been paying lump sums every 6 months as shares vest. I'm intending to make the final mortgage lump sum payment by Spring 2021 and that leaves me in a great position to maximise my pension and savings over the next 2 years for the new road ahead.

My question is how to optimise my finances over the next 2 years in order to minimise risk and give myself a good buffer to start with. My goal is to have a fund of 350-400k in 2 years time with zero debt and a mortgage-less PPR . My current income alone (assuming no major stock crashes) should have me quite close but what can I do to capitalise on this meanwhile and have it work for me a little bit. I'm not willing to take any huge risks on this. I know cash in the bank is not building wealth but I will also need to be able to move quickly when the right property come up. Ideally I can time it to sell my home at the same time to avoid a pointless 2nd mortgage to cover the purchase of a new property. On pension, I have estimated my fund will be worth €170k in 2 years time based on current trajectory and I plan to keep making payments into it to this albeit much reduced which is why I want to ensure I can maximise payments now while I can.

Thanks all in advance!

 

[_OkGo_]

	Today	2 yrs
PPR	260	360
Startup	-	50
Cash	20	350
Shares & Investments	100	0
Total	380	760
		(380)
Pension	104	170

Is my table above correct? (For simplicity I have reduced cash by 20k and ignored PPR mortgage)
If so, then you need to add €380k of wealth in 2 years to achieve what you are trying to do. Even on your income, that sounds like a bit of a stretch to be able to retain €190k net income from €240k gross. Maybe there are other unvested shares that will vest in the next 2 years that plug the gap??

If you are trying to time the move, then I presume that means that you could continue in your current employment when you move to a new PPR. If so, then why try so hard to avoid the second mortgage. There are costs to 'timing a move' such as temporary rental which sometimes is not very temporary. You could still blitz the new mortgage and even consider renting your existing PPR. With the level of equity you have, it would probably be profitable for you straight away.

Why do you need the €350-400k buffer? Will your new venture be cash intensive or is the buffer for yourself? If you are savings as hard as you have described, your own living expenses are probably less than €20k so why the big buffer if you know you are comfortable living on that amount? If this is the case, you could keep €100k in cash and hold on to the original PPR which will give you rental income. You may not even touch much of the €100k and if you really need to, you can always sell the rental.

With your new venture, how soon do you see it creating an income for you and what level of income do you expect? Again, asking this so that you can match it to your actual living expenses and maybe your cash buffer does not need to be so large.

And finally, would/could you consider ever returning to your well paid occupation in the future? If not, then maybe a few extra months or a year in the job now will give you all the freedom you need instead of having it hang over you that you may need to go back

 

[menlo_ie]

OkGo, thank you for taking the time to reply, I really appreciate it. You've given me a few things to think about.
Your table is quite correct in terms of my current situation. What I probably wasn't clear on is that I would like ~400k to be my initial starting fund in 2 years. That's before I dig in for associated property and startup costs. I guess my cash buffer after the venture begins moves closer to 200k. This is generously allowing me 200k + proceeds of my PPR to get set up.

Over the next 2 years, gross income will at likely stay around the 220-240k mark, that's conservatively assuming no growth of share value. I'll have no mortgage payments and I have no other major expenses (no kids) so monthly savings will be approx 2k (24k pa). Shares will vest every 6 months yielding conservatively ~110-120k net pa. I also put a % of my salary into a share purchase scheme. This yields ~5k every 6 months.

This allows me live a very comfortably life, I don't want for anything right now apart from upkeep on the home, enjoying my pursuits and a few holidays a year. I'm certainly not denying myself enjoyment or living over-frugally. 20k a year with no mortgage is covering me very well.

My projections to hit the ~400k are:

	Monthly Savings	Share Purchase	Shares Vesting	Total
Year 1	24k	10k	110k	144k
Year 2	24k	10k	110k	144k
				288k

So over 2 years I should be adding approx 290k giving me a total fund of 420k (and equity of ~720k valuing PPR at 300k). There could likely be a lot more growth and savings but I'm using cautious estimates.

Why do you need the €350-400k buffer? Will your new venture be cash intensive or is the buffer for yourself?

I don't need it for anything. It's a buffer for me, it is security in essence. The new venture will not be cash intensive but will be labour intensive I guess I'm really moving towards a simpler existence and living expenses should be quite low, similar to now. I also need to account for the new property and startup costs being way more than I anticipated,

If you are trying to time the move, then I presume that means that you could continue in your current employment when you move to a new PPR. If so, then why try so hard to avoid the second mortgage. There are costs to 'timing a move' such as temporary rental which sometimes is not very temporary. You could still blitz the new mortgage and even consider renting your existing PPR. With the level of equity you have, it would probably be profitable for you straight away.

Yes this is very true and in fact it would be ideal to move as soon as I can to the new PPR while in employment so I can get a head-start on the venture. This is a nice idea on renting existing PPR, one I'll give some more thought to. Given the fact I won't be earning a lot for the first year or two, this could be a good tax efficient income stream. I'm not completely against the 2nd mortgage, in fact I'm only recently approved in principle for a 2nd mortgage which is valid for another year. My reluctance on the second mortgage is more around the hassle, the paperwork and drawn out process only for me to pay it all off as soon as funds come in if selling the PPR.

With your new venture, how soon do you see it creating an income for you and what level of income do you expect?

That's a fair question and probably one I should have covered. I've done my research and it's possible to make a good living. Year 1 would be setting up and getting running, I don't expect to be turning any massive income. I hope that by year 2 I would be generating an income of €35-50k and if executed smartly and things go well, by year 5 years could eventually be grossing closer to a 6 figure salary. My buffer is really just to give me that peace of mind over the first few years really. A business plan will be in place before anything happens.

And finally, would/could you consider ever returning to your well paid occupation in the future?

Yes I wouldn't rule that out. Life is fluid, people and plans change. I would never be too proud to admit it didn't work out and return to my old occupation. As I said originally, I enjoy my current job, it's well paid and it's fulfilling work but I also have this big itch I need to scratch and try something else.

maybe a few extra months or a year in the job now will give you all the freedom you need instead of having it hang over you that you may need to go back

This is a question I ask myself a lot. Why the 2 years? Why by the time I'm 40? Why not one more year to give myself that additional peace of mind? I guess my fear is that one more year becomes one more year becomes one more year, etc. You get what I mean. It comes down to the fact I could leave life tomorrow and money is not everything. I'm also aware that It's easy to say that when you have money. There is something strongly drawing me towards this vocation yet I do want to be prudent about it and transition in a responsible manner. Sorry that's probably too much of a spiritual answer for AAM but point taken, one more year, maybe.

I guess my question is still around how to hold wealth right now and as it accumulates over the next 2 years. Keep it in deposit in order to ensure easy access or leave a portion of it in investments? Previously I immediately sold my shares and threw them at the mortgage. Because I don't need to do that anymore, as shares vest, I'm leaving them in the trade account as the company has been solidly performing over the last few years. It makes me a little uneasy that at the drop of a hat it could come crashing down. Unlikely, but possible.

My second question is, how healthy is a €170k pension pot at 40? Contributions will continue as I feel fit but will obviously dramatically decrease. The lifestyle I plan on leading should not demand a significant pension.

Thank you again, even writing down my thoughts has been a useful process.

 

[_OkGo_]

Thank you again, even writing down my thoughts has been a useful process.

That is the key

I think I see where I made my mistake. The vesting RSU's you will receive are net gain to you (i.e. the company sells shares to cover your tax liability so that you get the 'full' value of them. So you are on target to add the €290k to your wealth that you need

My second question is, how healthy is a €170k pension pot at 40?

Very healthy I imagine. It's all relative to the lifestyle you live which at the moment is not particularly expensive. Even if you didn't add to the pot, the €170k could easily grow to ~€400-500k by the time you are retiring.

Yes I wouldn't rule that out. Life is fluid, people and plans change. I would never be too proud to admit it didn't work out and return to my old occupation

There is something strongly drawing me towards this vocation yet I do want to be prudent about it and transition in a responsible manner.

I think you have answered your own question with these two statements. At 40, you will have a very comfortable cash buffer even if the new venture does take a bit more than expected. You are comfortable returning to work if necessary (but probably unlikely). Maybe that profession allows you to do some short term consulting which you could use if absolutely necessary to top up your reserves. But you currently live comfortably on ~€20k (net) so if you are generating anything like the €35-50k in year 2 then you probably won't use much of your buffer.

You don't sound like the type of person who is going to foolishly plough money into a sinking enterprise. Worst case scenario, you use up €100-150k of your buffer over 4 or 5 years and you return to your old occupation. You are not really at risk of getting into financial difficulty because you are not taking on any debt. And your fall back is a very well paid job.

So I would say go for it as you planned

 

[SPC100]

Jobs that pay at that rate are rare. Landing them is rare and not guaranteed. Most ventures fail.

How easily could you land a highly paid role again in 5 years time?

Partner and kids. Either of these can have big impact on location you can live and your budget. And they are liable to arrive rapidly and upset your plans.

I don't want to dampen your spirit, but what if venture fails or only covers your living cost, and if you could 'only' get a 100k job in five years. And you have several kids and a partner that wants to live in prestigious area.

You might be better off sticking it out in current role for another year or two extra and investing the extra money.

Can you take unpaid career break where you have option to return? That plus building up some holidays, and trying to launch the venture before your break starts could allow you to lower risk taste the other life.

Can you hire someone to start the other venture while you continue to earn big money but test the venture.

 

[PebbleBeach2020]

Work til 45 or even 48. Bank another million plus and if the venture goes tits up, you should still be ok.

 

[AAAContributor]

Partner and kids. Either of these can have big impact on location you can live and your budget. And they are liable to arrive rapidly and upset your plans.

I don't want to dampen your spirit, but what if venture fails or only covers your living cost, and if you could 'only' get a 100k job in five years. And you have several kids and a partner that wants to live in prestigious area.

The OP lives on €20k a year.

Flash SUVs and McMansions will be secondary to whatever the OP wishes to do. Any prospective partner that has these as primary ambitions is probably not simpatico with the lifestyle of the OP.

It is no harm conducting a 'pre-mortem' of the OP's plans but this aspect I wouldn't be concerned about based on the discussion so far.

 

[SPC100]

I tend to agree, but love is blind, and kids and a stay at home partner would increase the base cost a fair bit.

 

[menlo_ie]

So I would say go for it as you planned

Thank you again for your input OkGo, really useful.

 

[menlo_ie]

Jobs that pay at that rate are rare. Landing them is rare and not guaranteed. Most ventures fail.

How easily could you land a highly paid role again in 5 years time?

Partner and kids. Either of these can have big impact on location you can live and your budget. And they are liable to arrive rapidly and upset your plans.

I don't want to dampen your spirit, but what if venture fails or only covers your living cost, and if you could 'only' get a 100k job in five years. And you have several kids and a partner that wants to live in prestigious area.

You might be better off sticking it out in current role for another year or two extra and investing the extra money.

Can you take unpaid career break where you have option to return? That plus building up some holidays, and trying to launch the venture before your break starts could allow you to lower risk taste the other life.

Can you hire someone to start the other venture while you continue to earn big money but test the venture.

Thanks for the feedback SPC and I appreciate you looking at it from a different angle. No spirts were dampened. Yes a lot of ventures fail but well planned ventures can learn to thrive with a good dose of passion and a lot of grind. It's the road less travelled but I'd really like to take a walk down it someday.

Of course kids are a possibility, I haven't ruled out anything and yes it does happen suddenly as I learned form some of my friends recently.

I'm not hugely worried about landing the same high paying role down the line, I've got a lot of experience and with the strong sector I'm in, I could land a well paying role that would provide me the basic comforts and security. I don't like thinking of that as a possibility but I have to be realistic also.

This is more of a lifestyle change so hiring someone to start the venture for me is almost like hiring someone to live my life for me for a while. I'm eager to transition but I have no illusions that life will be suddenly bliss and I'm at one with nature. I'm not chasing happiness here but gravitating towards a quieter life that suits my personalty more. I like quiet. Any partner I settle down with will most likely have the same outlook.

I don't see my employer jumping at the career break idea but it's worth a discussion when it comes to that. I'm not sure I'd like the uncertainty of a career break hanging over me as much as a safety net that would be. It kind of feels like it should be all in if I'm doing this right.

Noted on sticking in there for another year or two. It's a real consideration. If I can stumble upon the right property in the near future, the journey can start while I juggle my job then and I'll take it from there. Thanks again!

Flash SUVs and McMansions will be secondary to whatever the OP wishes to do. Any prospective partner that has these as primary ambitions is probably not simpatico with the lifestyle of the OP.

I don't think I could have put it better myself AAA I get this is a money forum and who doesn't like money, but it's not the ultimate goal.