Only freedom will do

Well done Mr E, brilliant :T:T

Got it, ta muchly.

Two units of freedom! I like that

edinburgher wrote: »

Our net worth target is approximately £500,000. Written down, it seems ridiculous, but half the people on this forum live in houses that cost at least half of that! We could sustain our current lifestyle (including mortgage payments) on that with some room for fun. It also excludes state pensions and the possibility of inheritances in a few decades because ... at the current rate, we're c. 22 years away from that (ignoring compound interest/growth, which will hopefully take a good chunk off). ... The maths is scary, but empowering.

I'm considering a more general post over in the pensions section about FI and me but since I achieved my initial FI goals already and am working on my pension goals you might find this a bit empowering, year by year totals for net worth but not including mortgage balance that would disrupt the series without changing the answer much (it's under a year's earnings):

1: 10k
2: 27k
3: 45k big switch from saving to investing started this year.
4: 72k 25%+ pay raise this year.
5: 146k Thank the 2008 crash and recovery!
6: 191k Bought flat, interest only, about 1.1 income multiple
7: 216k
8: 260k Reached first FI in around year 7/8
9: 298k
10: 354k

"First FI" means my initial targets of supporting myself without relying on benefits indefinitely, so if I wanted to I could just do voluntary work. Depends on assumed income need and repaying mortgage/investment goals. Not a retirement target.

Starting in year 10 I'm becoming mostly income tax free due to VCT purchases as well as quite hefty pension contributions. Could have done that in year 9 but didn't. In year 11 I expect to use salary sacrifice down to a bit over minimum wage and use VCT buys to eliminate most of the remaining tax.

Since reaching first FI I've been working more on retirement targets and such things as maybe needing half a million US Dollars to emigrate to the US or a million Australian to move there. In addition to living expenses, though in some countries the investment isn't permanent.

For the coming tax year I'm expecting around £5,800 in mainly P2P interest and VCT income. In addition to work income and other investment income.

I'll probably reach your target in two or three years and reach age 55 around year 13 unless I just choose to stop working and accumulating from work income sooner.

edinburgher wrote: »

Big pay rise

Courtesy of a company takeover and salary matching, I was underpaid for what I was doing before.

edinburgher wrote: »

House at 1.1 multiple - how on earth did you manage this? I would basically be living in a slum to repeat this feat in Glasgow!

A cheap flat in an inexpensive area but not a slum area. Work plan included loft insulation (one loft bit had none, the rest 100mm), central heating installation, double glazing installation, new kitchen, new bathroom, redecorate throughout.

edinburgher wrote: »

You're only the second person I've ever seen who was grateful for 2008

From the numbers you can see why. Add in investment stoozing that accounts for around £12,000 of the gain. I saw it was probably a once in a lifetime opportunity and acted.

edinburgher wrote: »

You have worked hard for it, well done.

Thanks.

I also did most of it during one of history's longest bull markets, and I know it. So I'm preparing or starting to move more of my equity money into P2P to reduce vulnerability to equity price moves. Then I'll try to buy after the big drops, while recognising that there could be more.

edinburgher wrote: »

May I ask where you stand on the increasing earnings vs. reducing expenses debate? There are often arguments over on the Early Retirement Extreme forum along the lines of:

1) reduce expenses - I don't want to live like a monk, I'm not averse to the comfort of the modern world.

I've spent a lot of my adult life doing voluntary work or otherwise on benefits or low incomes. I started the FI journey after exhausting my savings doing voluntary work on something hugely socially worthwhile that everyone here probably uses routinely. I didn't need to reduce expenses, I was already used to living on not a lot. I increased expenses. But things like not routinely taking holidays or not having a car would be considered deprivation or impractical by many people, just not me. I have a mobile phone. The one I got in 2005 because work mandated me having one. It's a phone, it works. I work from home so don't need more in a mobile device. I don't pay much attention to reducing expenses and don't worry about it. I waste money and don't worry about it. It's not a lot in the big scheme of things for me, I'm not into skimping or substantial lifestyle changes but what I just do as habit would be big lifestyle changes for others.

edinburgher wrote: »

2) increase income - I used to believe this was the least flexible of the 3, but since taking up MB and picking up some tiny passive income streams, I am changing my mind. It seems to be very hard to make significantly more money from your main job, but quite easy to make a bit more in general.

I don't do this except investment income. A couple of years from now I anticipate that my P2P and VCT income will be above my minimum living expenses and that both will be tax free.

While I didn't start this way before or at the beginning of the FI road, my income now puts me into the top decile. That's not unreasonable, in half the countries of the world I'd be the national expert in what I do if I moved there and I hold my own very well in the rest. Year 5 was the first year in my life when I was potentially a higher rate income tax payer. Potentially because of course I used pension contributions to stop any significant higher rate tax paying.

edinburgher wrote: »

3) increase ROI - as a passive investor (with an active focus on investing more!), I feel this is relatively limited. Yes, we can tweak our finances/portfolios, but it's a high order activity for most of us (i.e. you can't do it very often, but when you discover a good tweak, it can save ££££ instantly)

I do fairly well but not spectacularly well. I pay attention and have noticed things like the P2P opportunities. I haven't done it as much as I could but I know for example that the XIRR for my work pension is over 10% after charges before inflation because I started to track that in a spreadsheet: takes entering the amount paid in each month and the total current value, so it was mostly just learning how to do it.

edinburgher wrote: »

Perhaps 4) reduce tax is more relevant than 3) for UK folks? We earn less on average and houses etc. cost more than in the US

It's relevant for both places. I should really have started VCT investing sooner, left it at least a year and perhaps two or three years later than I should have. Mostly because I didn't take the time to investigate it enough. If you want a tip in this area, read the documents about the Albion VCT offers. Notice that the Albion VCT one is 100% asset-backed and projected to pay 7% tax free, 10% after allowing for the effect of the 30% tax relief. They also have a buyback policy of 5% of net asset value so the chance of a clean exit when desired looks good. Those are far from the best performers but they are overall good lowish risk performers in the VCT area. I'll go for medium or medium high risk next time, this is a good starting point.

Start to ask yourself why you are choosing to pay income tax. If you get comfortable with VCTs you no longer need to pay much of it once you've accumulated enough non-pension money so that you can afford to defer your income for five years, the minimum holding time to keep the VCT initial tax relief. Getting to that point can be more lucrative than pension investing and you pick up tax free income as part of the deal.