Ready to embrace a mortgage-free journey

IAAM

A bit about me:

I'm married and have 2 grown up children (+ 2 adorable grandchildren). My DH and I both work full-time and are very lucky to have relatively secure jobs.

I've been finding myself wishing time away recently so that I could become mortgage free. As my mortgage isn't due to end until 2033, I realised that this is a dreadful mindset to have and I need to come up with an actual plan if I'm desperate to get rid of the mortgage early.

I've done a bit of soul searching to try and understand why I want to fast track paying off the mortgage. If I know what's behind all of this then, once my initial enthusiasm wanes, I'll have something to keep spurring me on when my spending habits start slipping. 

So, why am I so desperate to pay off the mortgage:-

1.) My job has changed a lot in a few years and it's now pretty soul-destroying! I've looked for alternative jobs but the salaries are considerably less than what I currently earn and are far less flexible. (I am a homeworker and go into the office when it suits me in my current job). If the mortgage is paid off then I could resign from my job and do voluntary work one or two days a week, or maybe find a part-time job which I actually enjoy doing (or maybe not work at all!)
2.) I have lots of hobbies and interests and there just isn't enough time in the day to do them at the moment. If I didn't have to work to pay the mortgage then I could start enjoying my free time again and get so much more out of life
3.) I have several friends who have retired early and it would be nice if I could meet up with them more often. At the moment, I see them at weekends (which is my precious time because of work) or I occasionally book a day's leave (which isn't great either). I always seem to start text or phone conversations with "I'm really sorry I've taken so long to call...."
4.) I could help my children more with the grandchildren
5.) I think my health would improve! As I get quite stressed with work these days, my blood pressure is a bit higher than it should be, I rarely do enough steps during the day; I sometimes comfort eat as I'm tired, I don't always sleep well if I've got a deadline or horrible piece of work that's looming etc. etc.

Crikey - that's more reasons than I initially thought there would be and will, hopefully, be enough to keep me grounded when I get saving fatigue!

Some other things about me: I already do Top Cashback and I think it's brilliant. It doesn't take up any time at all and some of the cashbacks are pretty good. I've seen that some people do Shopmium. I had a quick look at that today and, unless I'm missing something obvious, it seems quite limited in what discounts there are. I think there were only about 10 - 15 products when I registered earlier and I wouldn't normally buy any of them so it wouldn't really be a saving to me :-(

I also saw that some people do surveys. I went through a period a few years ago of doing surveys but I stopped because there were a few times where I'd spend 20 minutes on a survey and then just get paid 10p! For me, my time is more valuable than 10p and I'd rather spend 20 mins enjoying a good book or chatting to a friend. 

I am a relatively regular bank switcher and have changed banks 3 times in about 2 years. That has worked very well although it's now difficult to switch as I like my current bank. A real dilemma!

I'll post a full SOA tomorrow but I know I definitely spend too much money on groceries, Christmas and birthdays. Hopefully the SOA might show a few other areas that I can attack too.

Thanks for reading to the end :-)

IAAM

Here's my SOA:

Mortgage owed: £165,436.07
Fixed rate: 1.64%
Fixed rate end date: 28 Feb 2025
Remaining term: 10 years 6 months (Feb 2033)
(DH is currently making monthly overpayments of £111pm which will reduce the mortgage term to 9 years 9 months i.e. July 2032)

My savings: £18,167 
Pension: Various pension pots held, with varying retirement ages. I'd like to have a retirement income of between £20,000 - £25,000 (including the state pension) when I retire so I will have to increase my current pension contributions to achieve that

Net income: £2,227 pm (pay rise of £25pm due next month)
Standing order to joint a/c: £1,100 
Pension contribution: £176
Vodafone: £15
Medicines/supplements: £40
Petrol: £50
Car insurance/tax/MOT: paid annually but I always use comparison sites and then phone my provider at the time to see if they can beat the other quotes. (It usually works out at about £300 all in as my car tax is about £20 as it's low emission).
Disposable income: £846 pm

I already knew that I had a significant disposable income each month and so I'm tackling my "personal" budget first (and so is my DH) before we then look at things we can reduce (or cancel) from our joint budget. The only exception to this is our groceries which form our biggest joint expenditure and can definitely be reduced from their current level.

I suspect this isn't the way most MSErs would go about this but our joint liabilities are already tightly managed (other than groceries) and we do use comparison sites etc. It's our individual disposable income which seem to be running away with us - as you can see from my SOA above.

So my challenge is going to be more about my attitude to money and the choices I am currently making when I spend money, rather than trying to find ways to cut costs (although I'm sure there will still be room for that on some things). I think the reasons I outlined in my first post for wanting to be mortgage free will definitely help to keep me focused on the task in hand.

Background info on my mortgage:
My mortgage currently allows us to overpay by 10% p.a. of what we originally borrowed, without incurring any charges. That works out at £23,000 pa. (We are currently only overpaying by £1,332 pa!).
We are also in a very strong position that our rate is fixed for another 2 years and 4 months. We clearly need to capitalise on this and reduce the mortgage as much as we can before Feb 2025. I suspect that interest rates in 2/3 years time will be much worse than they are currently and we need our balance to be as low as possible before then.

My DH and I have had a bit of a spending spree recently with trips away, birthdays, going to weddings and hotel stays and we will need to top up our joint account around 3rd November to cover these additional costs. Until then, I won't know how much money from my October (and possibly November) pay I'll need to put towards this so I'll have to wait until then to start chipping away at that £165,436.

In the meantime, I'll try and come up with a budget for Christmas presents as that is definitely a weakness of mine. I'm incredibly generous but I have an amazing family who would be equally happy having small token gifts rather than the gifts they usually get. And they would all love for me to be retired and to enjoy life more too.

I'm curious to know how everyone decides what their budget is for Christmas presents?

LadyWithAPlan

Nice to see a shiny new diary. Maybe print out your why list and put next to where you buy stuff online  
Or aim to have a £ set amount as a goal to hit for increased savings, OP and Pension contributions.

We have reduced our Xmas spend from huge excess- a few hundred each in stockings plus a main gift each to now a family shared main gift (so if people want a big thing all family members such as parents/grandparents/aunts etc) pool money for the big gift so £50-80 each plus individual stockings. It still costs - probably £100 each + for the stocking plus the main.  This year we will cut the stockings down a little - my sister always says try to limit to 5 gifts each but there are her little kids so thats always difficult so I normally put more like 10 gifts each - however with COL, my parents being on a fixed income and 2 of us in the wider family aiming to save for house deposits we do all want to cut down.
Its hard as I do have excess income as you do but its about choices and the bigger life goals.

IAAM

LadyWithAPlan - thank you for the great ideas. I will definitely write down my reasons and carry the note in my purse and have a post-it on my laptop, to cover all spending formats!

I can completely relate to the excessive Christmas spending. I adore Christmas and get so much enjoyment from giving lovely presents. But there are other ways to achieve this (like you've found within your own family) and it just needs a bit of thought and a new plan. 

I love your final comment about choices and bigger life goals. That is so true and it's a succinct reminder of what I am striving for.

I can see your signature mentions FIRE. I've looked at a few FIRE websites recently and they've been interesting and helpful and I'm intrigued about what the FIRE figures and percentages in your signature mean?  Would you mind explaining them?

I'm just about to have a read of your journey so far, but thank you for your comments to my post

IAAM

Having read some great MFW diaries on here (especially @LadyWithAPlan), I've decided on my initial next steps:
1.) Set up an initial standing order to overpay the mortgage by £111pm. (This matches what my DH is currently overpaying by). This is a minimum but the sooner I do it then the sooner it starts making a difference. I'll review the amount in the next couple of months (see point 3).
2.) Look into making additional contributions to my pension as these will automatically attract tax relief. (Need to check out making monthly contributions vs making ad hoc payments; how easily I can access the money; any limits (or implications) on withdrawing Tax-free cash at a later date and using this to put towards the mortgage)
3.) How to decide the potential split between overpaying the mortgage, making additional pension contributions and increasing my savings pot (which is currently in Premium Bonds).
4.) Working out how I can be more mindful of spending my disposal income. The idea @LadyWithAPlan came up with (printing off a list of my reasons why I want to be mortgage free) is definitely going ahead and I'll see what else I can use to change my behaviours.

IAAM

Has anyone discovered that the minute you come up with an actual plan for saving or reducing debt, life will throw you some challenges just to test you?

So this is Day 3 of my exciting MFW journey and in the last couple of days I've had to pay out unexpected costs for a new tyre and some dental work. It's a bit disappointing as I had grand plans of starting my journey BIG and going full-in with money towards my mortgage/pension & savings in the first month or two to prove my new-found commitment and to see some immediate changes to figures.

Still, we live and learn and it's been a timely reminder that, whatever our savings strategy, there will always be those curveballs that come along when we least expect them. 

I'll take another look at my savings this weekend and make sure that I've got sufficient emergency funds (with easy access!) so that it covers these unplanned things. This might also help me with working out that mortgage OPs, pensions and savings split.

LadyWithAPlan

hi - on FIRE there are some great threads on here and calculations and assumptions can vary hugely - so you just have to best guess for yourself.
This is a long explanation but really my % and stats are  just a more specific positive goal to aim for, especially as saving an extra £300 per month over a decade rather than generous presents  of £3600 per year (300 x 12) can really help you for the rest of your life.
Work out now a end date of work - then work backwards..what you need to save to get there.


One standard way though is to ask how much you want to retire on income wise per annum
eg £23,000 per annum and  multiply by  25
so £23000 x 25  = £575k - so you need to save a pot of £575k that to get 4% drawdown on it per annum without eating into the golden goose. (so £575,000 * 0.04 = £23000)

- If you will get State pension  at 66 then of course that £800pm approx will kick in at 66 (currently)  so thats £9k per year less you have to fund from your savings but you wont get that til you are 66.
- plus you will probably have a company pension -or a few. Defined Benefit - you can ask for an idea on what you will get at present per year - and it may start at 60 or 65. Defined contribution you have to save and is more at the mercy of the markets.

So you may get say £10k per year from say 60 on a DB pension and an extra £9k per year at 66 on state pension. So 19k 
So thus is we are aiming for £23k a year you will  have £19k coming in from age 66 so need to save a further £4000 per year - £4k x 25 = so thats £100,000 you need extra for you.

The standard 4%  return is on your assets minus inflation but it comes from assuming inflation is running though lower than it currently is and of course for  stock markets to go up by their standard 10% - which of course is not happening. So lots of peoples FIRE calculations are up in smoke as they are not getting the returns they expect  and the Cost of living is higher.

Plus if you do earn £23k a year once you are retired you will probably be paying income tax on that.
You can get 25% tax free on pension withdrawals.  So some people want ISAs as well as tax has already been paid.

Plus there is a gap if you want to retire at 60 but will only get your SP at 66 - there is a gap so thats £9k extra per year you need to make up til you hit SP. 
This is why many people also have ISA's as they are tax free on withdrawal and it helps in the intervening years.. although as a HR tax payer you get better tax benefits so always worth adding to pension as well

FIRE - though means retire early - so you may want to retire in a decade and maybe you are 43 now - so at 53 you are too early to get your pension - SIPPS you can currently access from 55- and your SP is now 66.
So that means if you are looking to retire in a decade at 53  and want a £23k a year income from then you have to save more for the intervening years from 53 to age 60 and then less once you hit 66
 then the £575k nest egg needs to happen in ISA's and other accounts. So you can work a % on what you have saved vs what you want to save.


I personally ignore any main house asset in the FIRE  calculation unless you are gaining an income from it, some people do include their homes as in theory they could sell them to gain income except then where are they going to live? If they are planning to downsize then maybe the difference is part the FIRE.

So having a good idea of how much it costs you to live, having a paid for home, what does basic and luxury mean to you means you can start putting figures down and have something to aim for.

IAAM

Thank you SO much for investing all that time in explaining it to me - and with the worked examples. I'm extremely grateful. 

Working backwards from a set target date is a fantastic idea as it shows just how high that bar will be to achieve it, and the scale of compromises I will need to get there (or whether I need to have a re-think).

I do have quite a few different pension pots but they all have pension modellers on their websites so I can play around with the figures. They're all defined benefits (with the exception of just one), so that does make it much easier, and accurate, to predict how things would look at different retirement ages.

It can be difficult gauging how much income to aim for in retirement, but Which produced some research on this, which I've found to be a helpful starting guide. I then have a look at the different breakdowns to determine how closely the figures relate to my personal circumstances and how I like to spend my money.

How much will you need to retire? - Which?

It does feel as though the MFW plan is now really taking shape regarding the finer detail :-)

IAAM

Some positive steps taken so far this weekend:
1.) I'm going to pay £111pm OP to mortgage (starting next month)
2.) £500 will be set aside each month (from next month) to put towards additional pension contributions and savings. (I'll need to do some more research to determine how it's best to split this figure). I'll keep this under review over the coming months to maximise using this money as well as not restricting my access to the money too much
3.) Give myself a monthly spending budget of £352.98

I did some Christmas shopping today and managed to use some Boots Advantage points (together with a 3 for 2 offer) to buy presents for 3 people, at no actual cost. I also got a fab Christmas present for another family member for just £7.99. 

So 4 Christmas presents purchased for £7.99!

I've got M&S vouchers and John Lewis vouchers coming next month so I'm hoping to buy more presents with those, at cost neutral if I can.

IAAM

My plan for today is: 
 1.) do a stocktake of the Christmas presents I’ve bought so far and what presents I still need to get. I’ll check what value the vouchers from John Lewis and M&S will be next month and then I can see what gifts I could get with these. 

2.) read some more MFW journeys on here to give me some ideas for my own plan of action
3.) do a meal plan for the next few days.
4.) have a look at the calendar for things coming up in the next month and see if there’s anyway of bringing the costs down

South_coast

On the bank switching, you could set up an account with A N Other bank (one that doesn't have a switching offer available) specifically to switch away from. It's a bit more of a faff, as you have to make sure it's got the right amount of direct debits etc for the bank you're switching to and wait for them to have been collected once so they're "active", but it allows you to work your way round the bonuses without ever switching your actual bank. That's the way I've always done it. 

Extra points if you do it multiple times and have several switches doing the rounds at once!