It’s a great question
I’ve become more reflective over the last 5 years after a decade of changes in my personal life.
Life is generally great along all traditional middle class metrics. I’ve gotten married to someone amazing and have three gorgeous kids. Work is enjoyable. Since having kids, I have become more reflective on the future, and our finances.
I do not want to be trapped in mortgage debt for the next 30 years. Working till retirement age just to pay off our house debt does not excite me. I would love to have the freedom that would come from paying of this debt early, and all the subsequent life options that would come with it – time with family, travel, and the choice to spend time on projects that are truly important to me and our family – the flexibility to live a better life.
The only real way to build wealth is to accrue assets that compound over time. It does not come from trading time for money.
Action was needed to change the narrative.
We have stable jobs with a joint household income of approx £5500 a month (roughly £66,000 take home annually), after tax, NHS pension contributions, NI, etc.
We have about £350,000 to be paid off on our mortgage over the next 30 years (at an interest rate of 1.84% fixed for the next 5 years) . This is roughly £1315 a month, and once you add in council tax, utilities, TV License, Car tax, House, Life and Car Insurance, it comes to about £2000 a month.
Groceries and Childcare add another £1100.
TV, phone and Internet, 2 mobile phones, Amazon Prime and Netflix add another £150.
Transport costs are another £200 per month in fuel and trains.
Repayment of a £8000 car loan is £150 per month. (APR 2.8% since you asked)
I haven’t itemised every single line item, but our lifestyle costs are about £4000 a month. There is a degree of scope to cut it back a little, but I don’t consider it particularly extravagant living.
2 years ago I had a temporary reduction of about £500 a month in take home pay. It made life tricky for a few months, but we adjusted to make things work. When the situation was resolved, it crystallised the fact that that there was an opportunity to invest that £500 a month in order to get money working for us. Taking the long term view, I decided to consider the next 7 years which would take me to my mid 40s:
£500 a month x 12 months x 7 years takes you to £42,000
How could you invest £42,000?
Property has historically been a great way for people to build wealth as has been a great historic go-to-strategy, but it isn’t a solution for our current situation. Property is very expensive in our area. With a 2 bed flat near us costing upwards of £275,000. It is highly capital intensive, requires a large deposit (25% for a buy to let), and a large mortgage at less favourable rate to our residential mortgage, has high transaction costs (stamp duty, fees etc), is time intensive to manage, and is not very liquid – you typically can’t sell a portion of a house easily. I am not interested in investing in cheaper property far away from where I live.
Property would have the advantage of producing rental income as well as the potential for house price appreciation over the longer term. Personally, I feel that the best days of property appreciation are behind us.
Bank savings Interest rates are pathetic (but loans are cheap!)
I have a good credit score and no credit card debt.
I have a high volatility tolerance – this is not the same as risk, but the two are often conflated.
I am willing to put in the time and energy into researching companies.that I believe will outperform over a 5-10 year period due to a market leading position backed by secular tailwinds.
I believe that it is possible to outperform the market in the medium term, even if that is not shown every year.
I took out £39k at about 3% interest in loans to invest in a stocks and shares ISA. This lead to an initial outstanding loan total of approx £43,400 once you factor in the interest over 7 years. The amount outstanding is currently down to about £31,170, and I have 5 years to go to pay off the loans.
Once the loans are paid off, I will continue to add regularly to the ISA.
The loan will be paid off over approx of 7 years at £517 a month, close enough to my initial considered savings target of £500. It’s an amount that I am comfortable paying off from within my own salary envelope while contributing to our joint account as normal.
I’m front loading the investment because I want to accelerate the process of compounding and I realise that time in the market is the best way to to this.
I had about added about £13,000 of personal savings over the last 2 and a half years to the £39,000, and have invested a total of £52000.
Targets and Goals
I want to exceed an compound annual growth rate (CAGR) of 25% in my ISA and grow it to over £1 million over the next 15 years. It is an outrageous goal, but one that excites me. I don’t expect it to be an easy or smooth process, and I understand why it might seem impossible, but it feels like a worthy challenge and why not shoot for the stars?