PositiveBalance's Positive Postings on the Path to Paying off Peter & Paul and...

edinburgher

I'm going to miss out quite a few bits of your post because hiddenshadow (who is a lady from memory) has already deluged you with helpful information. Might want to print those answers actually, the forum format doesn't do them justice re. comfortable reading.

PositiveBalance wrote: »

but there *might* potentially be better investments in the shorter term that could mean I would end up at retirement age with more money to my name if I were to use whatever spare money I have now to make those investments! (And also if I knew what I were doing! :rotfl:)

Perhaps the answer is a mix.

Bingo!

To disagree with hiddenshadow on one point, I don't necessarily think that more pension savings would be best for you, with one caveat. The tax benefits of a pension are great, but they aren't as flexible. Chances are that you might need to access some of your money before traditional pension age, which says 'ISAs' to me. You can effectively lower your tax rate with a pension, but they are so inflexible...

The caveat is delaying gratification. We don't *get* to be silly with money that is intended for our retirement. You've got a lot on your plate. Start slowly, but build up to a point where you are better able to resist the urge to spend the money on something else.

Where did you start? What have you been reading? I remember you saying that you were increasing your pension savings after some sort of pay rise. What is your approach? All this money you have floating round in all these online loans is your short-term savings, is it? How are you playing it? There so much on your diary now I will be searching forever!

Therein lies the rub - I have learned a lot - but it's because I'm genuinely interested in the topic! Books are much better than blogs in my opinion, you get all the same messages, but properly researched and referenced. I've enjoy The Richest Man in Babylon (Clason), Your Money or Your Life (Dominguez/Robin), Smarter Investing (Hale), Early Retirement Extreme (Lund Fisker). Blog wise, Monevator, Early Retirement Extreme, Retirement Investing Today and Simple Living in Suffolk are on my regular rotation. Not as big a fan of American PF blogs as some, it's all cursing and punching your debt in the throat :rotfl:

My pension savings are quite straightforward. I have a preserved gummint pension worth £2k/y and a stakeholder pension invested 100% in globally diversified equity funds. In time I will need to buy some bonds to offset this, but none are available at the moment. Like hiddenshadow, keeping costs down is important.

So my approach (as it is) is to be fully diversified, invest as cheaply as possible and rebalance back to my target allocations for different asset classes (cash/S&S/bonds/P2P/property) as required.

P2P loans serve as an emergency fund (emergency income stream more like), but they're also a part of our plans to extend our house as required. We still have a wodge of cash at 5% for more conventional emergencies, although I'd use 0% debt before savings these days

hiddenshadow wrote: »

A final thought (sorry, this is getting super long!) - pensions here are extra-awesome because of the 25% lump sum tax free thing (that doesn’t exist in the US - wish it did!).

Really? I thought you could roll them into one of the IRAs and then take money out faster/more tax efficiently that way? Argh! The financial literature is all blending into my cup of tea :rotfl:

Top tips for PB

hiddenshadow

edinburgher wrote: »

Really? I thought you could roll them into one of the IRAs and then take money out faster/more tax efficiently that way? Argh! The financial literature is all blending into my cup of tea :rotfl:

(Warning - this is entirely about US retirements, so skip over if uninterested!)

Enh, sort of. There's the tradational IRA which is like the defined contribution pension here - money comes out of your pay first, pre-tax, earnings are tax-free until you use it, then you're taxed on whatever you withdraw. (That's where the tax-free 25% lump-sum thing doesn't exist.)

Then there's the ROTH IRA which has limits on how much you can put in per year (traditional does as well but it's more than 3x the ROTH limit). Money goes in post-tax, comes out tax-free - basically the US version of a S&S ISA. There are also income limitations, but you can work around them somehow (can't remember how as I was never lucky enough to be in that situation - think it's still less awesome with the workaround).

With the US tax system being so much more complicated with more income tax bands (and federal as well as state income tax), deductions, etc - generally it's best to max out your traditional IRA first as you're likely paying more in income tax while in work than you will while in retirement, so you may as well get the tax benefits now. However, if you're confident you'll be better off having more tax-free money it may make sense to max out the ROTH first and then do the traditional. You only get company matching on contributions to the traditional (as that's the one done via your paycheck, ROTH is done manually), which also complicates the either/or.

You can move money from traditional to ROTH but then you pay taxes to do so (because you skipped taxes when contributing to traditional in the first place, so you have to pay the taxes sometime).

Finally you can withdraw money early from either if you really want - you can take out your contributions to (not earnings) ROTH IRA anytime tax/penalty free. You can take money out of your traditional IRA early - usually with a 10% penalty on top (but certain life events are exempt). Thanks to the contribution limits, though, you may have issues trying to replace what you withdrew (and you may shoot yourself in the foot re: value at retirement).

TL,DR - traditional IRA = defined contribution pension here, contributions are pre-tax, withdrawals are taxed; roth IRA mostly = S&S ISA here, limited contributions are post-tax, withdrawals are tax-free

hiddenshadow

edinburgher wrote: »

To disagree with hiddenshadow on one point, I don't necessarily think that more pension savings would be best for you, with one caveat. The tax benefits of a pension are great, but they aren't as flexible. Chances are that you might need to access some of your money before traditional pension age, which says 'ISAs' to me. You can effectively lower your tax rate with a pension, but they are so inflexible...

The caveat is delaying gratification. We don't *get* to be silly with money that is intended for our retirement. You've got a lot on your plate. Start slowly, but build up to a point where you are better able to resist the urge to spend the money on something else.

Yes, definitely. My advice above is focused more on the “I don’t want to be penniless in my old age” mindset. I think ISAs are great for short/long-term savings (and/or emergency funds). I think people tend to undersave for retirement so I take the (possibly extreme) view that you should make really sure that you’re OK in that regard and then fit the rest of your life spending/savings goals around what’s left. (Caveat there is that this assumes that you’re in a financial position to be able to take money out of your pay for the very long-term future, if you’re down to your last penny before payday then obviously there’s not any room for adding pension savings.)

At the end of the day, I like the challenge of “X into my pension guarantees that I will have a good cushion at retirement, which leaves Y to live on..can I do it?”. This (generally) seems to be the opposite approach to most people, who look at their current lifestyle/goals and then say “ok, yeah, I guess I can manage £50/mo into a pension”. I’m not saying my way is better (or recommended for anyone else unless they also like that challenge). I suppose my #1 rule for money is the one I listed above (no one cares about your money except you), but the #2 one is “pay yourself first” (so that you guarantee that amount goes to whatever goals you have, and - in theory - avoid lifestyle inflation).

Final 2p - definitely not opposed to ISAs, though at the moment they seem a bit pointless thanks to better interest rates elsewhere. (Though the time-limited nature of adding to them is a reason to contribute anyway, on the assumption that having the tax-free wrapper on a larger sum of money later when interest rates are higher will be more beneficial.)

PositiveBalance

Hello everyone,

Well I've been trying to find the pieces of my mind to put them back together. The above has made me realised that I have to ask myself some questions I didn't even realise I needed to ask to quantify with how much I want to end up with in the savings pot/pension. I have no idea what to say due to inflation etc & I hope to be able to afford a better lifestyle when I'm older, so how am I supposed to figure out how much that will cost?

I'd like to travel, too (sooner rather than later and oh why not? Later as well.), and I suppose I will need a new car from time to time. How do I factor all that in?

Having said that I have lots of questions, it has helped me to flesh out what I need my current shorter-term savings goals to be:

1. GET INSURANCES (1 month)
2. Check with government pension service how many years I have worked and 'buy' them. (6 weeks)
3. £50.00 into new back account for one-off investment next month
4. Get house to value ratio down to 80% before next renewal of mortgage (21 months)
5. Save up potential mortgage shifting fees (21 months)
6. Save £1500 tuition fees next year (8 months = £187.50pcm)
7. Save £1500 tuition fees year after (20 months = £75pcm or wait until 1st lot saves then start again and it's £125.00pcm for 12 months)
8. Save up £1000 emergency fund (12 months, I hope)
9. THEN Save 3 months salary
10. THEN Save 6 months salary
11. Home improvements (numerous)
12. Pay my debts
13. ISA for this year (open): (ASAP)
14. Investments: investigate and make decisions (retirement planning, long-term investment – stocks and shares, bonds, property, land, mid-term savings and short-term savings)
15. Pension: check T&Cs and if can change if on the rubbish one and also see if it's worth increasing my contributions at this point.

Long term: financial freedom (inc. not being penniless in my old age and not finding myself in that horrible 'too old to get a job' situation without actually being retired.)


So that's what I've been thinking about. I've been reading some blogs as well.


I have emailed my former landlord about my deposit and the last month's rent as well. so that's something else done.


I have listed the concert tickets on Facebook and will go on the reselling sites if necessary tomorrow. I would rather sell them direct to someone I know/a friend of a friend/through the artist's page than have to go the other route: it's faster and cheaper for all concerned.

I think I have forgotten to mention that my current aim is to get the house into a livable condition so I can get a lodger and use the income from the lodger to pay of debt at a faster rate than I would otherwise be able. (I need to look into the rules/laws around having lodgers to see if there are any lodger-shaped hoops I need to jump through.)

And I bought fairy lights! They aren't as exciting as Ed's amazing JL lights to most, but they are the first set for my first ever Christmas tree!

hiddenshadow

That's an impressive list, PB! It all looks doable, especially the longer term things.

Good luck with the landlord/concert tickets, hope those are easily sorted.

Yay for fairy lights/first tree! We haven't bothered doing a tree, but the look of the lights is the one thing I miss (not enough to go out and buy any though ).

edinburgher

Final 2p - definitely not opposed to ISAs, though at the moment they seem a bit pointless thanks to better interest rates elsewhere. (Though the time-limited nature of adding to them is a reason to contribute anyway, on the assumption that having the tax-free wrapper on a larger sum of money later when interest rates are higher will be more beneficial.)

By ISAs, I always mean S&S ISAs. I have a grand total of £1 in a cash ISA!

And I bought fairy lights! They aren't as exciting as Ed's amazing JL lights to most, but they are the first set for my first ever Christmas tree!

That's wonderful, we just replaced our Christmas tree lights, our 9 year old set were starting to die off :santa2:

Karmacat

That looks a great list, PB, and the small actions, like posting the concert tickets sale, and the landlord letter, are the things that will add up to achieving what you want.

But .... are you shift work? Otherwise, what are you doing posting that sort of post at 3 in the morning :eek::eek::eek:

SueP19

Hi PB

I am new to this board too, love your long list

SOA would be a great idea, even if its just an estimate for the time being, the great MSE'rs will help you look to what you can cut and improve

Will follow, as like you we have old debts too..........if you can negotiate them all to 0%

:j

hiddenshadow

edinburgher wrote: »

By ISAs, I always mean S&S ISAs. I have a grand total of £1 in a cash ISA!

Fair enough. I would lump S&S ISA into the "savings for 5+ years" category as they're stock-based, and right now we're throwing all of those at our mortgage.

PositiveBalance

hiddenshadow wrote: »

That's an impressive list, PB! It all looks doable, especially the longer term things.

Thanks! I'll be back for more advice about the longer-term stuff, thanks, but I'm just trying to get read as much as I can get my head round at the minute and sort out the manifold things I have to sort out at the minute!

hiddenshadow wrote: »

Good luck with the landlord/concert tickets, hope those are easily sorted.

Thanks again! Email from landlord saying it's all been sent over to their finance dept (It's a long story but I should hopefully get more than the deposit back) and tickets listed on BookFace. There doesn't seem to be too much interest so I'll look at the reselling websites ASAP.

hiddenshadow wrote: »

Yay for fairy lights/first tree! We haven't bothered doing a tree, but the look of the lights is the one thing I miss (not enough to go out and buy any though ).

Well if there is too much light there wouldn't have any shadows for you to hide in, would there?!

edinburgher wrote: »

By ISAs, I always mean S&S ISAs. I have a grand total of £1 in a cash ISA!

Would opening an ISA, saving my money in a higher interest rate account then transferring it into the ISA on the last day to take it forward to the next year be a potentially good idea?

How much more does the savings rate have to be pre-tax to figure out if it's a better deal than an ISA? There must be a formula, but I am too wool-brained to think about it?

edinburgher wrote: »

That's wonderful, we just replaced our Christmas tree lights, our 9 year old set were starting to die off :santa2:

They are LEDs. I wanted to make you proud. :rotfl:

Karmacat wrote: »

That looks a great list, PB, and the small actions, like posting the concert tickets sale, and the landlord letter, are the things that will add up to achieving what you want.

But .... are you shift work? Otherwise, what are you doing posting that sort of post at 3 in the morning :eek::eek::eek:

*Shuffles and mumbles* I'm just a bit owly like that (although it has been getting a bit out of hand, even by my standards)!