Higher middle earners- how do you afford your fancy life?

[Led921900]

This is very much a tongue in cheek post … and yes I might be crying in my Tesco finest Prosecco but….

I live in London and there are smallish but relatively expensive houses around me that sell for about £1.1 million… inhabited by 2 parent 2 children families with nice cars, bugaboos and doodle dogs who go on all inclusive foreign holidays. How???

It’s not that unusual…. whereas we have a household income of about £140k which I thought was pretty good and I don’t feel like we’re doing particularly well at all. No prospect of upsizing our house, no fancy cars, no foreign holidays at an algarve all inclusive. I have had 3 kids but my childcare is cheap (£55 nursery a day full time) and to be honest when the kids are school age the childcare difference between 2 or 3 kids is hardly anything.

So how are you all doing it? It’s no fancy extensions for us, no upsizing to a nice house, no fancy cars (running a cheap Citroen) and our fancy foreign holiday is driving 10 hours to a nice Eurocamp caravan with air conditioning.

Is it…

1. Bank of mum and dad or inheritance has allowed you to afford a nice house with small mortgage?

2. Not having kids?

3. A very well paid job (if so, what and what earnings?).

My background is working class northerner but I can’t see the lifestyle we have now on a very good income is any different than what my parents could afford with us! And I’ve looked at my job elsewhere and the cut in earnings is more than the lower mortgage (although actually houses in nice areas near good schools i. Wirral/manchester are about the same as mine anyway!)

I don’t get it?

There are plenty of AI’s that you can pay £30/40/50k and not a penny on top like the rest of us would. Plenty of beach fly and flopAIs at those prices if you know where to look!

most of my clients are great, they’re not demanding but they know what they want. The demanding ones are they one’s tier spend smaller but want the top experience. It’s hard telling them what their money buys (when to the rest of us they’re spending shit loads. But it doesn’t look like it in terms of what they’re getting if that makes sense.)

Yes I agree with this, at least inasmuch as UMC is code for ‘generational wealth’. There is a much better selection of high end accommodations to choose from if you don’t need AI (indeed, most of the nicest hotels don’t offer AI), and if you can easily afford to pay for food, drinks, etc on site on an a-la-carte basis, why limit yourself?

@kiddietaxi the Four Seasons doesn’t do an AI or Mandarin Oriental & ‘all you can eat & drink’, exactly. Holiday companies can book for you & arrange flights, you can prob pay up front to eat there 14 nights but that’s not ‘we’re going on an All Inclusive’ as understood by most. Also most are going to want to go a la carte for food as you say/off site & have flexibility at high £££.

@Elphamouche we do reasonably ok and there are only 2 of us - so I had a look at Ikos- mm - looks exactly like my H likes- but wow- the prices!! So we do very nice places indeed and don't do AI and spend maybe 40% of the ikos price- including all spending money

A combo of luck and hard work. I come from a working class family, haven’t had a penny since I left uni and moved out. Have had love, support and occasional babysitting from parents but no BOMAD. Knowing this, my partner and I saved HARD in our 20’s, bought our first flat, renovated it, then sold it, moved on and then moved on again before lockdown. Partner did get a small random inheritance from a relative (I realise very lucky) but by that point we had built up something like 250 equity / savings and were about to go up the next rung of the ladder anyway. We have sacrificed nice cars, clothes, holidays, gym memberships etc but can now afford for me to be a SAHM, with 500k plus equity in SE, and high earning partner. Relatively low mortgage. It’s all come good in the end but we were driven to make it happen. Lucky though to have bought our last house before prices went up. We also bought houses that needed some work and were less desirable than the ones with flashy new kitchens etc. When we first rented it was a small flat in a developing area, nothing flashy.

Also, OP, have you thought about putting more into your pensions via salary sacrifice to enable you to take out a good chunk at 57 tax free to pass on to your children for deposits? This is what we’re planning to do. Huge tax savings now and it means we can’t spend the money if it’s locked away - we’ve started to lack discipline when it comes to saving!

I think I must be fairly odd. When we go on holiday, we book everything direct. I have been on one holiday package in my 68 years, and I paid on Friday afternoon to leave on Saturday morning. It was fine. I swam a lot most days, ate sardine sandwiches on the beach and took myself on a day long bus trip to see the dockyard that sent all the Portuguese 15th century voyages of discovering the world.

Re buying houses, we bought our house almost 30 years ago. No way on earth could we afford anything similar now. But we shall be selling it in the next couple of years, downsizing, and giving our DC an advance on inheritance, hopefully at a stage of life that will make their life better.

I think we are probably at the lower end of “higher middle earners” and DH always wishes we had more money but I feel we have a very good life and are very lucky. We have one child and very unlikely to have more.

We own a small but comfortably sized three bed end terrace. We live in an area with some very “good” schools and pay premium for that but because the house isn’t huge our mortgage is still very manageable, about 10% of our combined salaries. The majority of the deposit was saved for by us but we did get a few thousand towards it from parents which we were very grateful for, I also stayed with them some of the years I was saving. They also paid a lot of our wedding which we did not ask for.

We have an old car that we have owned outright for a couple of years since the finance ended but we are about to take out a loan and get a newer (but not brand new) car, monthly payments probably 5% of our combined salaries. Childcare currently is about 5% but will be free when she turns 3 as we get family help and work compressed hours for the non-funded days.

We have savings of about 5 months of our net combined salaries.

We take 4-5 “holidays” per year. This will be a mix of e.g. a long weekend in a 4 star hotel not far from home, a few days away in a cottage in uk with family, visiting relatives abroad, a week self catering in a flat with a pool abroad, a few days at a premier inn in London, a few days in Disneyland Paris/ Alton towers etc so it depends what you class as a holiday. On holiday we don’t tend to look at prices and just do what we want but we don’t have expensive tastes.

So I don’t think this counts as a “fancy life” but it’s a very comfortable one I’m happy with.

@kikisparks everything you say sounds reasonable,but when I compare your spend expectation to mine 30 years ago, when I was your current age, the goal posts are different.

We were a 30-something entrepreneur and a freelance writer. I earned very well and paid the household expenses while DH built a really solid business. At 43, we had one child. Now we are dismantling our life's work. And trying to keep all the balls in the air.

To be frank I think you hit the nail on the head re marrying a rich man.. I think the younger generation will be very savvy in choosing partners if they want to achieve a certain lifestyle but two incomes are a must.

Okay I can’t find it now but on the last few pages of posts someone suggested overpaying into their pension to then draw down on it for their kids.

What a great idea, I am paying and have maxed out my employer contribution (I pay 6% and they pay in 9%) but obviously anything else I put in will not incur any tax (not sure if there’s a maximum contribution there) and be invested in I assume a pretty solid investment portfolio. I can draw down from 55 at which point my eldest will be 23 (so might not exactly do it then, maybe at 60!).

At the moment I can’t say I have any spare to put in but when the childcare and elderly cat costs come down will certainly look into this option.

I actually am not a big believer in massive pension contributions as I’m more carpe diem! I’ve seen health issues including colitis leave my parents not able to do too much in their retirement (from their 70’s onwards). My own philosophy has been if the home should be paid off before retirement then fill your boots now and don’t put things of to tomorrow. But as a mechanism to save efficiently for my kids it sounds like a great idea.

Thanks for the tip!

Found it looks like tax relief of £60,000 2024/25 and no tax relief on contributions worth more than 100% of their annual earnings.

Not that I’d ever achieve £60k but good to know!

Interesting point about overpaying into your pension. I’d not considered this before. My only issue is I guess if you die in your early 60s your pension is lost (dh is significantly older than me so I’d expect him to be dead by the time I’m in my early 60s, so no spouse benefits). Whereas if I’d left my money in a savings account, etc it goes to DC? Both my parents died in their 60s and their decent teaching pensions were gone with them. Shame because they got far less than they ever paid in.

No, if you die before you make use of your private pension it forms part of your estate and will be “cashed in” and given to your beneficiaries. It’s not a state pension after all it’s investments you’ve been making specifically tied to certain age restrictions (and tax relief!).

I assume their teaching pension was a perk of their job and benefits rather than working like a private pension? As part of my workplace pension scheme I have to nominate my beneficiaries.

But if I pay £10k extra in, as that will be on the 40% rate, it represents an extra £4k invested for my children as I’d only have been pocketing £6k of that myself after tax to invest myself for my kids.

So a great idea overall! (Up to £60k anyway, but even if you were banking £60k for your kids for 10 years- savings yourself paying at least £24k of that in tax, that’s still £600k for them when you draw it down!)

I wonder if it’s different for teaching pensions then as it’s not strictly a private pension, ie there is no individual “pension pot”. I will make enquiries

Maybe it was but maybe privatized now?

Anyway already realised the drawdown will itself be subject to tax. I’ve read you can draw down 25% tax free up to £268k the rest will be taxed as income. But that’s pretty generous itself. If I could get £90k ish for each kid and take it tax free I’d be pretty happy! (Don’t think my earnings and outgoing support that amount exactly). Also obviously tax stuff changes all the time so contributions and draw downs may change.

Still think it’s generally a good shout if you’re saving for your kids so it’s money you’re not likely to need until your 50’s and their late 20’s say then stick it as contributions to your pension tax free and hopefully a reasonable portfolio of investments!

Peoples situations change massively, over their life times though.

Just 15 years ago, I only earned £1250pm, and my outgoings were more than that. I had to buy food on credit cards.

Here we are 15 years later and :

Kids have left home

I've had a redundancy payment and an inheritance, which I used to reduce the mortgage, meaning our monthly payment is only £235.

Income is now much larger, due to change in job. So household income circa £100k

My friend was struggling until recently - she's just inherited half a million.

@Led921900 we put a huge amount into our pensions for this very reason. To some extent live more frugally now than we 'should' as a result. Between us around £3500 a month. And this is where we could be living the luxury lifestyle that you talk about but we don't. I imagine there are many who earn similar to us and put the bare minimum in. So on the outside it looks like they earn more.
Our plan is to take the tax free lump sum at age 57 (11 years away) to repay the mortgage and maybe give the kids something. Then hopefully retire in early 60s.

Yes, this is what we’re doing. In our case, my partners employee contributes a tiny amount (think 3%) and so if we want to have any sort of a decent pension pot we have to contribute quite a lot. His income hits the 60% equiv tax rate (his earnings 100-125k) so it just makes sense to put this money into a pension rather than pay it in tax. We hope to see it grow faster than in a standard savings account. It also helps not being able to access it as that gives us more discipline not to spend it!

Also, I definitely take on board people saying that you don’t know what’s round the corner / maybe just use the money now etc but I’d rather have covered all bases and have the option to give my children a deposit and then not need it when the time comes, if we get an inheritance for other sources or save more etc. We’ve come from families where deposits/ inheritances haven’t been received when we thought they might (for various reasons), and surrounded by people who have lived the high life but have kept little back for retirement and have to keep working/ complain they have no money etc. we just don’t want history to repeat itself and we are trying to be sensible whilst balancing that with having a good life and living for today (I’m naturally cautious!). Also, the main aim is to retire as early as possible / as early as we wish to!

We do this as well and yes, it is worth doing! DH‘s work only allows us to contribute 12% in addition to normal contributions, but that definitely adds up over time. Doing this will also help with cash flow in the university years (we’ll have 3 in uni all at the same time for at least a year or two 🫨) because we’ve never seen that 12% as part of our income, so just stopping those contributions during the uni years will be a hefty ‘raise’.

I unintentionally married well. DH is a self taught programmer and turned £300 into circa. 7m in the last 4 years trading on the financial markets. No family money on either side, just educated risk taking and good luck.

What do you spend your much increased earnings on, @RomeoRivers and other high earners?

I’ve already mentioned on the thread my lack of ambition and work ethic and sometimes I would love to be inspired by a new lifestyle. I’m too content being small fry and not at all well set-up for a pension, especially if my OH left me.

We bought a big house outright in the neighbouring affluent town, in catchment of the best state schools.

We’ve always wanted a large family so I’m currently pregnant with no.3, (planning for 4 DC) and I’m a SAHM.

We go on multiple AI holidays a year, ticking off the countries on our bucket list.

Otherwise we’re quite normal, because our income isn’t guaranteed we can’t spend what we earn, so we have money in investments to future proof us. Plus we’re young, so we’ve got 18+ years of providing for the kids and our pensions to think of, and the tax man takes half.

One of the big reasons for pension saving via a SIPP is that it involves a trust, which separates it out of your personal estate/tax situation.

Because we were self-employed since we were mid-30s, when we created ours and found ourselves a bit short of scope to make our investment (in one commercial shed freehold) we added our infant son to the membership. It's cost quite a bit in admin and time to do so, but DS has a personal pension pot valued at almost £40k at 24, and he's put in nothing except our £3,600 contribution.

He/we can stick in £3,600 annually (more if he has the earnings to make additional contributions, the limit is age-related, plus he gets 5% of the rent). It's outside our estate for IHT, so while there's no spending or releasing capital from it before he hits 57 (current rules) unless he were to be massively disabled or terminally ill, in which case there are different rules. [Elite athletes/professional sports people usually have SIPPs from their first high earning years onwards because if they suffer a career-ending injury, they can access the money deposited or investment income to pay for care or housing. I think the youngest age is 35.]

But it provides security, and of course, when our trusteeships pass to DS, when we die, there will be (under current rules) an option to bring in a spouse and any children.

What’s a commercial shed?

A commercial shed is one of those industrial units on an estate that can be used as a warehouse, or a kitchen showroom, or a manufacturing workshop, or as office space, a school extension, a server farm, or soft play space. From the outside, it's an enclosed space that the tenant rents as premises and fits out to do their work. Ours currently houses a design prototyping and short run production manufacturer. As long as their business is legal, they pay the rent every month and do the maintenance, I don't really care what they do.