Salary increase - what to spend/save money on?

[RosesforTea]

Two years ago I made the difficult decision to take a stressful but very high paying job. Prior to taking the job I was on a good income, in a lovely house, a lovely location close to family. I was 43, single (would like to meet someone, but hadn’t so far) and professionally had reached the limit for my job in that location. Income wise I I earnt a good income, but had a mortgage 30% of my salary, and as a single person I felt the weight of earning enough for my mortgage and retirement quite keenly.

Made the difficult decision to take a job doubling my salary, but it meant I had to move away. My main reason for doing so was financial security, giving me the option to retire early. There was also a bit of a need for professional advancement in there (I didn’t feel I could stay in the other job another 25 years to retirement, no matter how perfect the town and house were), and also a bit of a change socially (new people, new friends, maybe new relationships).

When taking the job, I knew it would be stressful, and I would need to prioritise my physical and mental fitness to keep it up. I have been doing this as best as possible, but the job still does take a toll.

However, when I started the job, I had a rough financial plan which I thought would take me about 2 years (it did). I:

• paid off consumer debts
• paid a lump sum as far ahead in my mortgage as my current fixed rate will allow, now I pay the regular monthly amount
• paid a lump sum as much extra into my retirement account as I am allowed, now I contribute the monthly maximum amount
• saved up an Emergency Fund of 6 months expenses
• saved up an additional lump sum to be immediately put on the mortgage when the current fix ends soon
• put money into my house and fixed or made all improvements on my list (I am not living there at the moment).

I now found myself in the odd position of having achieved all my money goals. I never thought this would happen (although I do work very, very hard for it). I am trying to plan my next set of financial goals? Considering money was a huge reason I took this job, and I am still concerned about the risk of burnout and/or the need to take early retirement, those are priorities. These are my current thoughts, but none seem right -

• after the fixed mortgage is over (within a few months) stay on a variable rate and send all leftover to the mortgage, aiming to do so until I pay it off (probably another 5 years, when I am 49)
• put 2/3rds of the money to the mortgage, but also 1/3rd into the stock market, with the aim of long term investing to produce an income in retirement (retirement accounts are full funded, so this would just be via normal stock market)
• use equity from main home, and buy an investment property, with the aim of providing an income in retirement.

Something else? I am not interested in Olive oil farms or odd investments.

All thoughts and guidance gratefully received.

PS I apologise if this post is insensitive to those earning less. Whilst I have spoken about me working hard/stress and retiring early, this was for context to explain motivation for taking the job and for what to do with the money. I know we all work hard every day, whether it is properly remunerated or not. I also have seen colleagues not live to take retirement and/or retire from stress in my job. Some of them are trapped by big mortgages and/or expenses and have to stay working, and I don’t want to make that mistake.

After seeing the length of that, I’ll to a shorter one:

TL;DR - assuming you may have to retire early from stress, where would you prioritise any excess funds, once your mortgage and retirements payments were maxed out?

Have you got an ISA? I'd put a chunk into a Stocks and shares ISA if you dont already have one.
Id also save up more than 6 months of emergency fund.

I'd be wary of buy to let/investment properties in your circumstances personally, certainly while you are still working any way, I could (and have previously!) done long posts on the whys and wherefores but since you did a TLDR I will too, BTL on a small scale is essentially tax inefficient and time-consuming/stressful as an investment vehicle and not necessarily more profitable or less risky than managed index-linked investment funds. Potentially when you do retire, if you have a lump sum available then (esp if enough to purchase outright) that might be the time to have a BTL, depending on how much pension income you are drawing, but take tax advice and choose your area and property carefully.

In fact probably now is a good time to see a good independent financial advisor to get a good diversified portfolio and plan since you have the basics in place. For instance you may also be better off not paying off your whole mortgage once your current rate ends, instead investing that money elsewhere - esp if you have ISA allowance (this years and upcoming years available). Good advice should cost a few hundred pounds but worthwhile when you are talking about investing thousands...

Also, while you sound very sensible don't forget to live a little, allocate some money to holidays or hobbies or whatever makes you happy. Also do think about your retirement plans, when you have a very stressful job it's hard to see the wood for the trees but there are ways in many industries/professions to scale down rather than stop entirely which can be both financially and emotionally helpful, obviously without knowing what you do no-one can advise but freelance/part time/retire and return/consultancy can be good options to consider, if any of this requires some investment in training or business set up costs it would be good to plan and budget for this now...

@MaizeAmaze I already contribute the maximum amount into the ISA each year, so regrettably can’t do this. However I can increase the Emergency Fund, we’re you thinking 12 months and was there a reason you felt this was important? Another option here is to get income protection insurance.

@maxelly thanks for you thoughts, I will arrange to see someone. As I mentioned above, I can’t do this via my ISA, but can do so via ‘normal’ routes (and pay tax). I was thinking of buying Exchange Traded Funds (ETFs) as these seem to be good for new/inexperienced people and spread risk.

I understand what you mean about it perhaps making more financial sense to invest the money, rather than pay of the mortgage, given the difference in interest rates on my mortgage vs the stock market, however taking a step back - the two things I need to retire are an income in retirement that meets my bills + fun/lifestyle money, and a paid-for house (the mortgage being the biggest bill I have, and therefore getting rid of it prior to retirement reduces the income I will need). Psychologically, once the house is paid off, I feel that retirement is more achievable and within view, so I want it to have a high priority, even if hindsight shows I might have been a few thousand better off the other way. (Hindsight could also show the stock market dropping and interest rates rising, meaning paying off the house first was the right ways go!)

I think you are right about holidays and things that make me happy. These first two years I have been on overdrive, wanting to ‘live’ on my old salary and use all the extra salary to reach the financial goals and persuade myself taking this job was the right thing to do. I didn’t want to fall into my colleagues traps of lifestyle inflation and being unable to retire. One colleagues (with a similar job/salary background to me, except 3 years longer in this job) actually told me they were struggling the other day, that the money just goes, and that they would be working for as long as possible before retirement to save up and pay their house off. It shocked me to my core, as when they first took the job, they said (similar to me) that setting themselves up financially was a priority.

If you have fully funded pension and full advantage of ISAs, then I can't see why you need to also invest for retirement outside of those wrappers. Honestly, what you have invested in those two should be quite enough. You can use the ISAs for retirement before 57, and pensions for retirement after. Stay invested, use the 4% rule for withdrawal. How much do you need to live? You clearly aren't spending most of what you earn as it is.

I agree that next best thing is to pay off mortgage.

Rental property income is taxed as income before you take off mortgage payments, so presumably very tax inefficient if you are earning high enough to max out pension and ISA. Or you could put it within a business structure. But do you want to start a property business? It is quite a lot if work, even with a management company.

If you do want to invest, use a GIA and make sure you understand the capital gains tax rules, as you can make a certain amount of money tax free this way every year. Although if the only thing you wil do with this money is reinvest it, one wonders what the point is in some ways.

In the spirit of your burnout/early retirement concerns, couldn't you give yourself a "spending allowance" and force yourself to enjoy your money now? Presumably this can be protective against burnout to an extent if you do it effectively. Why do you have to wait until retirement to be happy? You may want to not allow yourself to enjoy luxury in case you feel you have diminished income later? But you would probably still have a nice life, even if a bit simplified? I would be giving myself permission to really enjoy things. There come a point where the money is just piling up fir no reason. Enjoy it! Spend it! It seems madness to work so hard not to do this.
Or give to charities you value in an Intentional way?

Wouldn't bother with BTL property, alot of hassle for small return after, maintenance, management fees and tax. And CGT when you liquidate the asset.
Invest in classic cars maybe?