35 year olds with decent incomes, how to dismount from the hamster wheel?

[thedaddyman]

Start with some basics, ensure your wills and any guardianship arrangements if the worst ever happened are in place. Then do a full end to end tax review to ensure you are paying tax in the most efficient manner and that you are claiming for absolutely everything you can claim for and that you have claimed for past years where possible.

In terms of reducing debt- 2 things to consider

• Have you any other big spends planned for the next couple of years- change in car as an example
• Are the home improvements now finished?. Until they are, you always run the risk of a builder going, "We have a problem here" and then having to dig into your savings.

It might be worth considering a long term savings/investment product for the kids as well and, for example, dumping the childrens allowance into it.

 

[Abalone]

Thanks everyone for the input

Mate I don't mean to come across as harsh but you're better off getting that house balance down before anything else

Not harsh, but prior to this year mortgage was €256k at 2.2% interest on a house valued at €430k so mortgage reduction was not a priority and other investments were as we had the capacity to maximize tax advantaged schemes.

In terms of reducing debt- 2 things to consider

• Have you any other big spends planned for the next couple of years- change in car as an example
• Are the home improvements now finished?. Until they are, you always run the risk of a builder going, "We have a problem here" and then having to dig into your savings.

It might be worth considering a long term savings/investment product for the kids as well and, for example, dumping the childrens allowance into it.

No definitive big spends on the horizon, maybe an attic conversion at some point. My car will be driven into the ground! Home improvements are finished but we sat on our cash throughout to make sure we were in a position to respond to anything unforeseen so in a position to put a dent in the home improvement loan.

The prevailing opinion here has been to tackle the additional debt so I think we'll definitely focus on wiping out the home improvement loan as a priority in the medium term.

Children's allowance is being put towards childcare currently, it seemed to make sense to just use it for something when we started paying for childcare as inflation was running so high at the time that trying to beat it felt a bit futile. I'd like to get to the other side of paying off some portion of our outstanding debt before getting into how we could invest extra cash.

 

[_OkGo_]

Annual gross income from employment or profession: 100k
Annual gross income of spouse/partner: 82,500

Is this inclusive of health and bonuses or are they on top of that?

Monthly take-home pay: €7k combined

Assuming for a moment that your €182.5k doesn't include BIK, your net take home is €9.9k plus €280 in child benefit.

After 20% pension, the net is still €8.1k, soon to increase to €8.25k with budget changes. Your ESPP and APSS are just saving mechanisms so do not reduce your net per say.

With €100k knocked off your home loan, you will have mortgage/loan of €1250 and childcare of €1k. That leaves a lot of disposable income for everything else so live comfortably and enjoy it. Use any excess to reduce the mortgage.

Cash: €93k

Very clear you should use this to pay down the home improvement loan and retain the €20k from ESPP as an emergency fund

Spouse has €20k in employers share purchase scheme

Most ESPP are run on 6/12 month cycles with a 15% discount on 10% of salary. The most your spouse can have tied up is €4k/8k. To have €20k means she has just retained the shares for 2.5 years so should sell all immediately. Treat ESPP as a bonus, you get 15% of 10% or an additional 1.5% salary plus a bit extra if share price increases.

€42k in shares in my employer between bonus share purchase scheme (no PAYE on bonus if left in the scheme for 3 years) and unvested RSUs.

Like the ESPP, you should treat this as additional income and execute same day sale on RSU vesting and for the APSS sell immediately on the 3 year mark. Do not hold them any longer than necessary to get the tax benefit

Value of pension fund: €334k combined, we both make maximum contributions

You are way ahead of the curve with pension funding for your age. Keep up the 20% contributions but be confident that if for any reason you need to reduce it then do so because you are in a great position.

And just in case you aren't doing it, the 20% limit is based on gross income which includes BIK, bonuses, the discount on ESPP, the value of vested RSU's (not the gains).

 

[Seaniemed]

returns of the Global Stock index:

1 year - 35.28%
3 years - 9.51% per annum
5 years - 13.06% per annum
10 years - 11.87% per annum

Minus management fee, CGT so thats more like 6% net?

 

[OEP1990]

Minus management fee, CGT so thats more like 6% net?

What management fee?

 

[Steven Barrett]

returns of the Global Stock index:

1 year - 35.28%
3 years - 9.51% per annum
5 years - 13.06% per annum
10 years - 11.87% per annum

Take 1% off for management fees and 41% tax. You are still up.

1 year - 20.22%
3 years - 5.02%
5 years - 7.12%
10 years - 6.41%

Of course, that is past performance and not future performance. Carrying too much debt is a big obligation, so I am not saying to carry too much debt and invest instead. But in the last 10 years, you would have been better off investing.

 

[Fibbernacci]

Just a thought. All I hear about these days is how Warren Buffett is selling stocks and creating an enormous cash pile while US stocks are massively overvalued in comparison to earnings. Presumably the Sage of Omaha is intending to pile into a fire sale of stocks when they crash.

Entirely speculative of course but is having a 93k cash pile actually an envious position here. If it were me I would hold on for a downturn and rush in.

Of course the market can stay irrational longer than you can stay solvent Yada Yada Yada.

 

[ClubMan]

Of course the market can stay irrational longer than you can stay solvent Yada Yada Yada.

Not to mention that timing the market is a mug's game, yada, yada, yada...

 

[Fibbernacci]

True but if you can get around 2% on deposit after tax vs something like 6% after tax on long term stock investing the disincentive to 'timing the market' is not as strong. Overvalued markets always fall eventually and the potential upside is big. Perhaps it's an idea to retain say half the cash to double up as a rainy day fund/potential investment cash pile.

 

[ClubMan]

Just a thought. All I hear about these days is how Warren Buffett is selling stocks and creating an enormous cash pile while US stocks are massively overvalued in comparison to earnings. Presumably the Sage of Omaha is intending to pile into a fire sale of stocks when they crash.

Entirely speculative of course but is having a 93k cash pile actually an envious position here. If it were me I would hold on for a downturn and rush in.

True but if you can get around 2% on deposit after tax vs something like 6% after tax on long term stock investing the disincentive to 'timing the market' is not as strong. Overvalued markets always fall eventually and the potential upside is big. Perhaps it's an idea to retain say half the cash to double up as a rainy day fund/potential investment cash pile.

Or, if you think that Buffet is on the right track then surely it would make more sense to buy Berkshire Hathaway?

 

[Abalone]

Is this inclusive of health and bonuses or are they on top of that?


Assuming for a moment that your €182.5k doesn't include BIK, your net take home is €9.9k plus €280 in child benefit.

After 20% pension, the net is still €8.1k, soon to increase to €8.25k with budget changes. Your ESPP and APSS are just saving mechanisms so do not reduce your net per say.

With €100k knocked off your home loan, you will have mortgage/loan of €1250 and childcare of €1k. That leaves a lot of disposable income for everything else so live comfortably and enjoy it. Use any excess to reduce the mortgage.


Very clear you should use this to pay down the home improvement loan and retain the €20k from ESPP as an emergency fund


Most ESPP are run on 6/12 month cycles with a 15% discount on 10% of salary. The most your spouse can have tied up is €4k/8k. To have €20k means she has just retained the shares for 2.5 years so should sell all immediately. Treat ESPP as a bonus, you get 15% of 10% or an additional 1.5% salary plus a bit extra if share price increases.


Like the ESPP, you should treat this as additional income and execute same day sale on RSU vesting and for the APSS sell immediately on the 3 year mark. Do not hold them any longer than necessary to get the tax benefit


You are way ahead of the curve with pension funding for your age. Keep up the 20% contributions but be confident that if for any reason you need to reduce it then do so because you are in a great position.

And just in case you aren't doing it, the 20% limit is based on gross income which includes BIK, bonuses, the discount on ESPP, the value of vested RSU's (not the gains).

Thanks, this is where my own head is regarding the path forward, just need to negotiate unpaid maternity leave before we can really double down on it all.

Just a thought. All I hear about these days is how Warren Buffett is selling stocks and creating an enormous cash pile while US stocks are massively overvalued in comparison to earnings. Presumably the Sage of Omaha is intending to pile into a fire sale of stocks when they crash.

Entirely speculative of course but is having a 93k cash pile actually an envious position here. If it were me I would hold on for a downturn and rush in.

Of course the market can stay irrational longer than you can stay solvent Yada Yada Yada.

Warren Buffett could also be going through some Biden/Trump style cognitive decline, the US economy has been expected to turn through all the Fed rate rises and we're still waiting so I think I'd rather pay off some debt!

 

[conor_mc]

Just a thought. All I hear about these days is how Warren Buffett is selling stocks and creating an enormous cash pile while US stocks are massively overvalued in comparison to earnings. Presumably the Sage of Omaha is intending to pile into a fire sale of stocks when they crash.

Entirely speculative of course but is having a 93k cash pile actually an envious position here. If it were me I would hold on for a downturn and rush in.

Of course the market can stay irrational longer than you can stay solvent Yada Yada Yada.

I think Buffet spent 2 years sitting on cash prior to the dot.com bust. If you have a darn good record at picking value stocks then that might be worthwhile, but sitting on cash to buy a passive index, it’s not really comparing like for like. And tbh, I’ve been mulling over the same question myself re pension investments too, resisting the urge to time the market so far!