FIRE starter

[Mia85]

This is a thread for discussing FIRE (Financial Independence Retire Early) and supporting each other in planning for the future.

For anyone new to FIRE, the idea is that you live significantly below your income and invest the surplus, usually in low cost funds. The aim is to amass enough that you can live off the returns. At that point you are finanically independent and you are free to spend your time as you wish (which might include working if you want to do that).

There's a huge amount on the internet about it. Lots of news stories e.g. here and here One of the main gurus of the movement is Mr Money Mustache and his website is a good starting point www.mrmoneymustache.com

A lot of the FIRE discussion out there seems to be very US based and/or men in their 20s with no kids trying to retire extremely young so I though it'd be great to talk here and hopefully find likeminded people.

Dashel how long has it been for them to sort that? What's the stage at which they fix what's in the pot?

@LunaHeather I opened it on the 16th of February, but it couldn’t verify my bank account so I had to submit a bank statement and that took forever to verify and then I had to wait a week for the money to go out.

Thanks @Dashel. Tbf without the maintenance and tax credits I'm stuffed as it stands, hence the five year plan to build my business and increase my income!

@AgnesWaterhouse1566

It sounds like you may need to prioritise your mortgage. However do you have any minimum payment criteria on either your mortgage or pension? How much do you think you would have available for overpayments?

You may have seen that I keep a sub account for money earned outside of my wages and use this for overpayments. Could you do something similar? I find it very motivating to get around to doing a survey or selling something.

I commit a proportion of my matched betting income to mortgage overpayments however I was pondering whether that cash should go into my pension instead.

This thread has certainly given me food for thought!

@Dashel I live a good clubcard balance too. Do you do the trick of using a Tesco debit card for double points?

@flowerycurtain do you mean putting your credi card in the chip n pin device and then going hops sorry wrong card and putting his work card in? DH will do that if he is buying expensive stuff but not for cheaper transactions.

DH is not as frugal as I am, he thinks he has a good salary so doesn’t need to live like “we are about to be repossessed”

Regarding Tesco, does anyone get coupons from them? We occasionally get post turn up for old occupants of our house and there was one of those Tesco mailings with bonus club card points and a free Easter egg voucher- all tied in to their club card number. I haven’t had one in years and years. I’m guessing it’s because they aren’t spending on it, but just curious in case others are.

If anyone uses their local co op for a top up shop, I would recommend joint their scheme and checking every week for offers. I only recently realised this was a thing and I have been able to get a £1 off a £5 shop each week, but you need to preload the offers which change every Sunday. I know it’s expensive, but it’s our only local ish shop for bread and milk, so this takes the sting out of it.

Hi All,

I was signposted to the thread as I have been trying to figure out my finances and keep on track.

I am 30 child free with a similar aged partner. I was on a low income (10k PA) for the majority of the last 5 years due to going part time initially due to a mental health crisis and then as I recovered I set up a business which is now doing very well after a few years of hard work. Luckily I had a partner willing to help support me through this period despite being on an average salary himself (20K).

We suddenly have income which we dont really know what to do with so excited to read your stories, gain inspiration and try to set up my finances for the future.

Welcome @lemonswan

One helpful thing to ask yourself is, what are your goals? That is really important in figuring out what to do.

Ps. I don't only mean financial goals. I mean more general life goals. Your financial strategy should be in service of your life goals. Work to live not live to work!

As well as the Clubcard app (I am a big spender and usually average about £25 a quarter in vouchers), I also signed up for the Clubcard+ payment method and have the app. Although this costs £8 a month, in terms of convenience at the checkout (just open the app and they automatically scan and debit your chosen card), it also entitles you to two Big Shop discounts of 10% per month. I reckon by careful planning I am saving between 25-30 a month.
I also have the app linked to my credit card so I find it easier to track (and adjust as necessary) my supermarket budget. Then I make one payment to my credit card at the end of the month.

I've found my people! DH and I are in a position to FIRE. I'm a SAHM to primary aged dc and he still works (because he enjoys his job). But his plan has always been to retire around 55. But we now have enough income outside of his job (3 mortgage free rental properties) that if he were to stop work it wouldn't impact our daily lives. We're now investing any spare money into building up money for the dc to cover uni costs and house deposits for them.

It's a bit weird but most of our friends don't really know about our financial situation. We live in a mid range house, drive mid range cars, don't wear designer brands. We spend a 4-5k a year on family holidays (outside of covid) but that's our only big extravagance.

@Starface

Thank you for the welcome.

Our main goal is a gorgeous house. We are garden designers and want to start a plant nursery. So we want a house that has a design studio, space for a plant nursery, a drive big enough for 4 cars and bifold doors.

That is my only goal in life. To be able to enjoy day to day living in a beautiful home spending my time between tending to my plants and designing peoples gardens.

Being able to go for dinner without watching the price would also be a plus, but holiday wise we are rather low key. Anywhere to rest our heads and visit a nice garden does us nicely and we prefer europe because the plants are similar climate to here. So no need for a large holiday budget.

I wont complain if we ever get to the position where we can afford skiing but its not a priority. The house is really the only thing I care about.

@LemonSwan Are you a director of a limited company? If so then having the company pay in to your pension is the most tax efficient - talk to your accountant. If you are a sole trader the you can pay in to a Personal Pension or Self Invested Personal Pension.

Also use the ISA tax wrapper. It is more accessible than the Pension wrapper so is useful for building up money for use before retirement, as well as during retirement.

As you are under 40 you may also want to look at using a Lifetime ISA (LISA).

Hi all just discovered this thread. DH and I try to live by this principle and live below our means. Expecting DC1 this year, we own our home but on mortgage.

@embroidedflower - interested to know how you managed 3 properties mortgage free! Impressive do you have any tips?

The whole thing is pretty complicated, it's hard to answer anything in one quick post!

I guess the thing is you are actually quite young so you have different priorities pulling at the same money. You need to work out how much to allocate to different goals and the costs of your choices.
The UK Personsl Finance Reddit thread has a great flowchart which really helps in terms of thinking about priorities.

I guess other goals might include having enough to have a comfortable retirement. This thread is focused on FIRE (financial independence retire early) so saving for retirement is quite a big focus here.

Do you think you will want children? As then you also need to consider maternity leave and childcare as well.

You usually also want to have a certain amount of living expenses saved in case of life events - redundancy etc.

Do you own your own home or are you saving for a deposit (not that these are the only options)? If the latter, think about a LISA, as the government add to this (free money).

You should definitely start a long term savings plan for retirement - this will be via a SIPP or via a LISA. Both add money from the government but operate in different ways, mainly how much money gets added, how you are taxed on exit. You can think of SIPPs, ISAs as wrappers (like a sweet wrapper). You have to make a choice about which "wrapper" to use for your investments, and then also which type of investment (or sweet) to keep inside your wrapper. There is a lot to learn! The reason it is important to allocate some money towards this now is to take advantage of compounding. Basically the earlier you start the less you have to put in. I would have a good google to understand this principle and play around to make sense of how much you and your partner might want to put aside. Check your work pensions too if you have them. Your employer may be giving you more free money into these. You might be able to get more if you put more in.

I guess in terms of your plant nursery goal, the other thing I was thinking is that there is probably a lot to learn about business structures and how these can help you achieve your goals. Part of the property will be used for the business and this will have implications. I'm not sure what, but you would need to understand this.

Sorry, all that was for @lemonswan

Thanks @starface

I appreciate your comprehensive reply.

Basically we have been going round in circles for the last 6 months trying to figure out what to do - whether to move slightly up the ladder or invest, or save or buy a BTL. We want to have children in the next couple of years so trying to factor this in.

I am a ltd company director as is DP. I also have a 10k part time job and DP still a full time job on 21k. He gets a good pension top up from employer but me hardly anything. We each take max directors salary before NI for our company (so c. 50k household income in total), and accumulated 30k profit on top last year.

We have a house valued 250k and 150k left on the mortgage. I have a plan to reduce this to 50k over the next 2 years by making max overpayment this year. 15k overpayment on SVR before remortgaging to reduce the term by 10 years to enable us to continue making max 10% repayments each year whilst keeping our monthly payments high enough to make a difference. Then make a lump sum in 2 years (30k) when the fix ends to bring our monthly repayment down to 350pm for maternity leave.

I think this gives us good flexibility to what to do in 2 years time. We can then assess the cost of childcare vs our earnings and either stick tight or make the jump to the forever home.

The next year will be tight throwing all money into this but after that we will be constrained as to how much we can overpay and start accumulating too much. If this happens I am going to open a holding company to enable me to be more risky with stocks and shares with the protection of offsetting losses which I dont have with personal investments.

After we get to the forever home we can think about BTLs as a pension strategy alongside the holding companies income which would enable us to funnel 40k a year each into pension tax free to catch up.

Thats the plan anyway.

If you think its a bonkers plan please let me know because I feel like it changes everyday but this is the best one I think we have so far.

Oh and on the plant nursery. We are lucky as it comes under a market garden which is not a business property and tax exempt :)

Ahh to the good life fingers crossed. It is my dream

*rate exempt not tax exempt sorry

Welcome to all the new people. This flowchart.ukpersonal.finance is the flowchart starface mentioned above and it's a very helpful starting point.
Congratulations on making such a huge change Lemonstar. What is your thinking on putting so much effort into reducing the mortgage rather than other investments now?

@DressyGerbera we've been very lucky with low interest rates over the last decade and longer. Plus we bought back in the days when house prices were more affordable.

DH bought his house in early 2000s (so 20+ years ago). He also had a btl. When I met him Id just bought my small flat (for the princely sum of £37,500 which seemed like a fortune to 23 year old me at the time.). I moved into his but kept my flat in case we ever split up 😅. In 2011 I inherited £230k which I used to buy our family home we live in now (mortgage free) . We did think about pooling all our money into one house, but decided it would be best if we kept our big finances separate and house prices were crashing so we didn't want to risk it. So he has 2 houses both rented out and I have a house and a flat (with the flat rented out). Once we'd moved into the family home bills went down as we had no mortgage, so saving/overpaying on the other properties seemed sensible. Dh has always used his work bonuses to chuck towards paying off his house. The rents have always covered the mortgages and we've been lucky to have awesome tenants and have never had too many issues. We have built up a healthy slush fund to cover unexpected expenses like boilers breaking, etc.

So I would say own a flat, meet someone who owns a house. Inherit some money. Build a time machine to take you back to when houses were affordable. But my only practical advice would be to overpay on your mortgage, even little bits can knock years off. Sorry if it's not very helpful.

I'm going to be completely honest and say there are aspects of your plan that are so far removed from my experience that I only just follow, Lemon.

But essentially - overpay mortgage massively in order to 1) reduce overheads during maternity and childcare and 2) be in a position to leverage to the max to obtain dream home.

For retirement, intention is to corral wealth in company, then later divert that into personal pensions. I will be honest and say I don't understand much about company structures and doing things this way, so have no way to assess whether your strategy around this has major problems or not. I guess I am used to thinking about stocks and shares from a personal finance perspective. I simply don't know how you even buy them as a company although there must be ways.

When you say doing risky things with stocks and shares, what do you mean? My philosophy is to accept that I am not a trader, and haven't the time or interest to gather the knowledge required. I'd be more likely to lose money via the costs of trading. I go for a buy and hold strategy, with etfs and some funds. Though these are etfs and funds deemed high risk. Riding the market and using compounding to accumulate wealth slowly over time. Because I'm not trading my etfs, losses aren't realised. I will most likely only gain over a long period of time. So unless I'm being completely stupid, there aren't losses to offset really. I may not have understood how this works though - I have no idea how company accounting works from this point of view. I'd also point out there will be tax on this somehow.

But if you invest within an ISA, you won't have to pay tax on any gains. And if in a LISA you get an immediate extra 20% from the Gov, which is a huge gain, as well as gains from being in the market. You can put in 4000 per year up to age 50 and can only open one before 40. Getting up to 1000 additional from the gov each year. As you have a first house, it would be locked up until 60 (or pay a punitive 25%tax on withdrawal). But given you sound like you intend to hit lifetime allowance with pensions, you might want to consider using this now, as it's on a use it or lose it each year basis. It could be better than using your company structure? That 20% is pretty unbeatable.

And yes if I was doing BTLs now from scratch I would do it in a company, as you can't offset the mortgage on an individual basis, the way you could. I personally have avoided BTL so far as it feels to undiversified to me, plus too much work for the money. But I'm lazy that way...

But it doesn't sound unreasonable to me otherwise.

Hi Lemonstar

"If this happens I am going to open a holding company to enable me to be more risky with stocks and shares with the protection of offsetting losses which I dont have with personal investments. "

I'd be interested to hear more about this, I didn't know it was an option.

Your house and garden plans sound wonderful!

Today has been one of those days on MN when I'm stunned how much people spend on ordinary things. Not a judgement, just I think those are the people who nearly scared me into thinking I'd have to work till 65...certainly retirement articles are written from a totally consumer POV.

Thank you @Mia85 and @Starface

I am making this up as I go along and this plan is all but 48 hrs old because last week it was BTL and the week before it was step up the ladder. I am not kidding when I say we have been going round frantically in circles. We have 6 days left to make this decision before end of tax year.

I think the main issue I am having is the majority of our cash is currently sitting in our company. So we have personal finance decisions linked to business finance decisions and I am being honest I find theres too many decisions and its very confusing. My accountant is excellent but that is also part of the issue. I say can we do this, he says yes of course to most of my ideas.

The no1. goal is the house because it will enable us to start our other business. So yes that was absolutely my thinking..
But essentially - overpay mortgage massively in order to 1) reduce overheads during maternity and childcare and 2) be in a position to leverage to the max to obtain dream home.

When everyone talks of 20% extra from Gov on personal finance for pensions (ie. an ISA). I am thinking well the money in my business account is already extra 7.5% - 27.5% extra (at basic rate - even higher on other bands); depending on if/how/when I drawn it down into personal finance, as well as dependent on decisions we make in the next financial year (as you can claim losses against a previous profit year or even push losses into a future profit year - and we set our own salaries so can run a profit or loss if we choose). Its a bit like elastic money reconciled on a 3 year rolling basis. So I look at the 30k in the bank today and rather than heres 30k to spend - its well this could be 30k or it could be y, or z, or xyz.

I find it mind boggling.

Re. investments... The attraction of having flexibility to offset losses and gains means we can take a riskier position. I was planning to hedge a crypto portfolio against Index funds or standard portfolios. I dont want to day trade at all but if I caught a swing I would sell some and then put the gains into the traditional market or wait for it to drop or choose another coin.

The tax would be that the holding company would hold shares in our other companies. So we would pay 20% corp tax before that is released in dividends to the holding company. The advantage is dividends pass tax free to the holding company so it is max leveraging for reinvestment, and is advantageous if we ever hit the higher income brackets. Apparently we can funnel retained earnings from here into a pension very tax efficiently. How - I havent got that far.

Capital gains tax also does not apply to properties in diversified holding companies. Personal Capital gains is 18-28% whereas properties in a company can be sold at the end for just 10% entrepreneurs tax.

The pensions thing is confusing me. I like the LISA but my accountant is saying keep the money in the business unless you are going to use it for something now.

Sorry its a real ramble. Its 2.45am and I am still here reeling through calculations and decisions as I really need to instruct the accountant by tomorrow!

Its helpful to write it out so thank you