Goal - Financial Independence In Ten Years

[Heisenberg]

Looking at Slovenia myself, been holidaying there for years, love the place.

 

[Guest]

On 18/12/2016 at 23:42, Roy said:

 True. Financial indépendance means not having to work for money.

 

 

I thought not having to work for a paycheck was rentiering, not FI. 

[onlyroadtoheaven]

Just an update on my original post and strategy, thanks to some great advice on here, especially @Roy - I have advised Theresa May to make him chancellor to sort out our debt crisis.

I will not be buying any more PMs until there is a clear indication of where they are headed. My AIM shares have been spiking in both directions so will be investing in FTSE for more stable returns and dividends. Will also invest in P2P lending where the rates seem are strong. Savings going well except for my new rescue cat who has medical issues - animals are not good for this plan to work properly. My wife is cheap so hopefully this cancels out the extra cost!

I have created lots of spread sheets and treat the plan like a business, studying its progress to keep my interest and motivation high. My next step is to find a 2nd income stream/job to compliment my full time job which will go straight into savings. This part is tricky with no practical skills.

[breaktwister]

I am interested in P2P lending but not put any research into it - any advise on where I should start or pitfalls to look out for?

[SilverTanner]

9 hours ago, breaktwister said:

I am interested in P2P lending but not put any research into it - any advise on where I should start or pitfalls to look out for?

Breaktwister,

In terms of P2P I would suggest reading the 'p2pindepentforum.com'. Going through all the different platforms and posts should help in deciding whether it is for you.

For me I know I should be putting more into this rather than buying coins but I can't help myself? I call it diversification!

ST

[FISHONAJ]

Hi all, my first post. I live in Ohio, USA - google Warren Buffett. His company is ( BRK.A :NYSE )

He recommends ETF'S like ( QQQ :NASDAQ )

Cheers, AJ Johnson III

[richo]

My suggestion is meet a girl/woman during middle age who has lots of equity in her house, when she moves in use the equity to pay of the remainder of your mortgage.

Financial independence achieved at 40.

[KDave]

Buy low sell high = financial independence 

The plan is to build what I can between now and when I can't physically/don't want to work anymore, and if that achieves financial independence then great stuff. Work is good, but things can change and I like to save.

Personally I have been trying to work out what to do once I get this mortgage. I can achieve far higher returns on money invested than I can if I overpay the mortgage (interest rates where they are now), but perhaps there is more 'value' in paying off the mortgage early by overpaying? Is it better to have a stash of savings/investments in case I run into hard times or interest rates rise, or better to have a shorter mortgage with less interest cost potential? The rate is fixed for 5 years. I am going to do the math myself eventually but would appreciate points of view. 

[shawy2510]

I overpay my mortgage by £150pm & it reduces my term from 22yrs to 15yrs saving around £12,000 in interest alone, but I want to move to a bigger house so the term is most likely going to end up being 22yrs but with a bigger house. I then buy gold with whatever spare I have. The more you pay off your mortgage the better personally as in 5yrs if the rate goes up significantly your LTV will get you a better rate.

[Roy]

1 hour ago, KDave said:

I can achieve far higher returns on money invested than I can if I overpay the mortgage (interest rates where they are now), but perhaps there is more 'value' in paying off the mortgage early by overpaying?

This is indeed the case, and a decision that I made too. Not saying it's the best decision but one that I thought hard about and the best for me.

There are too many variables to advise someone. House prices may rise/fall. Sickness/injury insurance? Probably best to fall back on our old friend 'diversification'!

As long as you are doing something positive, it'll turn out ok in the end 

Edited May 11, 2017 by Roy

[SilverTanner]

I am also currently overpaying the mortgage, but less than I was, despite the low rate, to try and clear it in 10 years. Extra funds are mainly going into P2P as, at the moment, the return easily beats paying off the mortgage. As we are 'up north' the mortgage is only small anyway, or even tiny, and probably equivalent to a year or so of payments down south! The base rate would need to go up by more than 3% to switch back to paying the mortgage.

Moving to a bigger house will need a lottery win as at my age I would rather have some savings and coins? (which could always be sold on retirement to provide a lump sum to invest for income if it came to that)

[Roy]

Different county, but same boat ST! 

[KDave]

Thanks chaps,

When I calculated the 'equivalent return' on making overpayments on the mortgage, it is just over 1% return on the money in saved interest. The time saved on the mortgage might make it worth doing, as it will mean one less financial commitment sooner and reduce the risk of exposure to interest rate rises, but a 1% return on cash is poor when greater compounding returns can be made elsewhere. The other reason to pay debt off early is that to not do so is basically a speculation that interest rates will stay low and manageable over the term, which in itself is a risk. The numbers only make sense not to overpay right now - if interest rates rise, I would be better off with a smaller mortgage on which to pay interest obviously. 

At the end of 25 years (on paper), if rates stay low I will be much, much better off investing in yield assets, and if rates go up at any point the option of overpaying is still there. If rates go up considerably later, and yield investments do very badly at the same time meaning the capital is not available to reduce the debt, then I may regret this course. 

If the numbers change then the plan will change but right now its makes sense not to overpay at all, and to invest everything instead. Wish me luck    

[KDave]

I have change my mind  

Over payments when comparing investing vs over payments over the same time frames - ie, saving 5 years from the mortgage vs investing for the same time frame, the compounding effect is lessened which makes it easier to justify the over payments. 

Although on paper you are better off investing by several thousand if you can find the return, and if you use long time horizons then the compounding returns win easily - nothing is guaranteed over such a time period and I am not convinced such a return, or the earned capital, could be reliably maintained. There is also the question/risk of interest rates rising. The idea of eliminating a recurring living cost several years early is very attractive. Although overpaying is a rather low return, it is a guaranteed return in saved interest, vs a speculative bet on compounding returns which only really matter over significant time frames. I think I can live with the lost paper capital that may or may not have come to pass in exchange for the guaranteed returns (financial and otherwise) of paying off the debt early.

[vand]

If you already have a mortgage then making overpayments on it is imo the BEST thing that you can safely do with your money. It's represents zero risk and a very good guaranteed long-term return. With anything else the risk is not zero and the returns are not guaranteed.

BUT.. that doesn't mean that if you don't have a mortgage you should rush out and get one!  The boat has sailed on that one and now is not the time to be piling into housing.

Edited May 19, 2017 by vand

[KDave]

As an investment I agree, housing is the equivalent of buying stocks at the top imo.

In regards to my situation, it doesn't matter as the house is not a financial asset. Where rent was a liability, now the mortgage is a liability, but is cheaper than the rent and will end in 25 years. I can't rent in my current job and keep my family settled, so buying is also the best option for us for non financial reasons. We are lucky that where we are buying prices have been practically stagnant for the last few years and compared to the rest of the UK, prices are cheap relatively speaking, certainly in terms of price/income. I had hoped to buy later after the anticipated correction but plans have had to be moved forward. 

Someone at work asked me to let them know when I start buying stocks again so they can sell theirs, such is the legendary reputation of my market timing. With me buying, the top for housing is most certainly in  

[vand]

Eventually we would like to move up the property ladder to a bigger house, but in today's low inflation envorinment that is much more difficult that it has been if you had bought a house 20-30 years ago as debt is not eroded by wage inflation. So the only option is to make overpayments to bring your mortgage term down. Most people stretching themselves buying "starter homes" today will find it almost impossible to trade up without a significant increase in income. When you hear people saying that the "economy is not working for them" this is precisely the sort of thing that makes it so.

[vand]

 

[vand]

Been spending a lot of time catching up with the FIRE movement lately.

Getrichslowly.org & MrMoneyMustache.com are two excellent resources.

There's lots of really good personal blogs & podcasts, too. 

I spent good few hours reading through https://fi180.com/  - really inspiring sutff, and there are links in all the articles that take you on a merry tour of some of the best FI sites around.
https://radicalpersonalfinance.com/ is an excellent podcast.

The BBC even touched on it, shock horror: http://www.bbc.com/capital/story/20181101-fire-the-movement-to-live-frugally-and-retire-decades-early

I'm hooked..

Edited January 3, 2019 by vand

[vand]

The Millionaire Next Door (Thomas Stanley) was written in 1996 long before the current FIRE moment, but is rightly considered a one of the cornerstones of FI and still highly relevant today.

At the heart of the book is Stanley's formula for Prolific Accumulators of Wealth (PAWs) vs Underaccumulators of Wealth (UAWs). Although it has drawn criticisms for oversimplification, it does the intended job of measuring net worth against income.

Highly recommended:

 

[vand]

Key takeaways from The Millionaire Next Door (none of these should come as a surprise):

- Typical Millionaires ($1m-$10m) tend to have a strong offence (high income), although not spectacularly high. The median was $131k (in 1996). 
- They are mostly college educated, and believe education is an investment
- They also have strong defence (frugality) in relation to their incomes
- The structure their spending and investments to take advantage of tax law
- They are overwhelming dominated by business owners and entrepreneurs
- They own their home, have been married for a long time with children
- They are not traders. They invest long term, usually holding what they buy for 5 years or more, and overwhelming for 1 year or more
- They live in nice but not exclusive neighbourhoods
- They overwhelming drive modest used cars paid for in cash and understand that a car is the ultimate expression of lifestyle creep
 

There is also some interesting sections on what they dub "Economic Outpatient Care" - supporting grown children who are unable to support their own lifestyle. They interestingly propositions that by overly providing for and spoiling their children, the self-made affluent are doing more to harm their development than they realise.

 

Edited June 23, 2019 by vand

[vand]

I like this concept of building equity in your work: http://freedomisgroovy.com/the-groovy-donts-of-building-wealth/

[motorbikez]

Having had a brief look at this thread, even the most disciplined entrepreneur with exceptional money management skills & hard assets(business, land, property,shares etc) has a 40% chance of failing to achieve financial independence in 10 years. Read Divorce, I became financially independent at 51 years of age although it took me 25 years to get there not 10.

Divorce shatters that so keep her sweet lol.

[JunkBond]

8 minutes ago, motorbikez said:

keep her sweet.

Easier said than done.

[motorbikez]

51 minutes ago, JunkBond said:

Easier said than done.

Lol don't I know it, but you come through the other side & good riddance  to her. Two great kids though so not all bad.