Warning long post - It was a very useful exercise for myself to write this out, and if you are reading this, I would encourage you to do one yourself.
I wanted to do one of these for years, but always felt too shy. Finally I decided to do it under a new account.
I would really appreciate feedback.
Age: Early 40s
Spouse’s/Partner's age: same
Annual gross income from employment or profession: ~375k
Annual gross income of spouse: ~50k (works part time)
Monthly take-home pay: (varies, depending on bonuses and shares)
Type of employment: Both private sector employees
In general are you:
(a) spending more than you earn, or
(b) saving?
Saving, have saved all my life. Parents didn't come from wealthy families, so I guess this was ingrained young.
Rough estimate of value of home: 800k (Dublin)
Amount outstanding on your mortgage: 275k, about 20 years left, paying 17k per year, regularly overpay.
What interest rate are you paying? 2.3% fixed with UB, plan to renew at 2.2 or switch to Avant at 1.95 or pay it off.
Other borrowings – car loans/personal loans etc: none.
Do you pay off your full credit card balance each month? Yes.
If not, what is the balance on your credit card?
Savings and investments:
shares in my company: 250k (probably 30% of this value would be liable for CGT)
Bank deposit: 220k
Do you have a pension scheme?
Yes. We max out contributions.
410k (2/3 in occupational pension, 1/3 in a Davy PRSA)
spouse: 50k over two occupational schemes, maxes out the higher rate relief.
Do you own any investment or other property?
300k value. mortgage 60k, ecb+.6%, ~750p.m, rent 1500pm
Ages of children:
From early primary school to university.
Life insurance:
~700k mortgage policy decreasing balance
~600k work policy
Background info
We realise we are very lucky, fortunate, and are in an extremely privileged situation. I'm actually embarassed to write about our very fortunate position in this post. I don't think friends and family know how comfortable we are. And externally, other than owning an expensive bombsite, we certainly don't 'look' or 'act' wealthy. Although, now that I write it, I am not really sure how wealthy looks and acts.
Earnings have increased exponentially over the last 5 years. Pessimisitically, I am probably topping out now, and If I lost my job, earnings might drop to 100-200k.
We are careful with our money, and have always lived below our means, we don't 'outsource' much work. We are happy, and don't feel like that we are sacrificing today for a better tomorrow. But we are fairly ruthless on managing the costs of the things we have, have always been on the lowest mortgage rate, always price around for cheapest suppliers for utilitiies, insurance etc., Have rented out rooms when younger. Have invested since I was 18, and saved since before my communion. But have also used spent my communion money long ago!
We have good health insurance. (from work). Some disability insurance from work too, but I don't know the details.
I am holding a lot of money concentrated in my employer's shares. Historically this paid off very well. I occasionally sell off a load and pay down the mortgage. Currently holding some cash in preparation for renovation.
I am comfortable with stock market ups and downs, tax returns etc., I am willing to take risk, and to invest for long term.
I am also relatively comfortable dealing with tenants and tradesmen, and am somewhat handy, but right now I would rather have more free time!
Spending
Our total outgoings are about 65k per year (includes 10k on rental mortgage, and 16k on ppr mortgage, and childcare. Exclude pension contributions).
Lifetime goal:
I have had a lifetime goal to be comfortably financially independent (i.e. have enough assets that could comfortably cover our expenses till death, without relying on an employer, and without living on beans on toast). I'd like to hit this goal ASAP.
My 'plan' was to own my own home mortgage free, and one or two 'average' rental properties, which should deliver about 30-60% of the 'average' wage, and then to have an equity portfolio (in pension first) covering the rest, and eventually the state pension.
We will accumulate roughly 150k of cash (& company shares) per year after tax a year. Hard to get an exact number but in that region. Net worth increased about 225k over the last 12 months (additional 75k was from pension and shares growth).
Upcoming Large Expenses.
Big job on the house. Not sure what this will cost. I am guessing 2-400K. The cash in bank is for this (and probably some or all of the current shares).
Replace a car, budget 10k.
Potentially pay off the mortgage 300k.
College - I assume the kids will live at home, and that our current childcare budget will cover it.
Advice to self (from reviewing finances)
You should spend more money, especially to create some great memories, you could die tomorrow, what are you keeping it for?
You should outsource more work and even pay a little more to gain more time.
Questions:
1. What should we do with the additional 150k p.a?
I don't know how many more years I will continue to earn at this rate, I would like to invest the money wisely. The options I see are:
-pay off the mortgage, to do that over the next two years feels too safe, I would prefer to have the money work harder for me, I understand that is riskier, but I also have a 20-60 year timframe.
-contribute beyond tax relieft to pension (If I retire early, I understand that I might never be able to use the carried forward tax relief, but at least tax free growth)
-invest outside a pension (not very tax efficient...maybe a large basket of shares directly)
-buy a second rental property? and then a third?
-set up trusts or pensions for the kids (saw some threads here on that recently), and start using the 3k exemption per year? (we never had access to something like that growing up, and I think we benefitted from having to do it ourselves, and I fear they might just blow it, but houses are not cheap these days).
-Some of several of these?
2. How much of our wealth is, too much, to hold in my company shares?
3. Should we long term lease of the rental to the council? They pay 80% of the market rent, there is less risk of non payment, less paperwork, and less time needed to manage it.
4. Should we bother switching to Avant 1.95% and fix for 3, 5, or 7 years or Should we Fix with UB for 2 years or 5 years.
Avant is .25%p.a. lower rate would lower interest by 700 per year, but would cost 1400 switching fess (1200 solicitor + 200 valuation). I would only starting save 700 per year in year three, and by that time, I would likely have a large lump sum to pay most of it down, so potentially no savings. If fix with UB for 2 years, and pay off the allowed 10% per year, that would be about the same interest saved as going to Avant, after the two years, the mortgages available with UB might not be very competivie, and the whole market might be less competive. If I fix with UB for 5 years, I can pay off half the remaining mortgage over the next five years, and that is sort of committing me to take more risk with my savings, and try to make them work harder.
5. Should we sell the bombsite, and buy a nice done up house in the same area? rather than committing to the stress and pain and one or two years of doing a large renovation?
I can't believe you read this far! Thanks for considering our case, and I'd appreciate any insights or suggestions you might have.