Author Topic: Think we're on the right path..  (Read 2980 times)

Reue

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Think we're on the right path..
« on: June 24, 2013, 10:25:28 AM »
Hi guys! Long time lurker, first time poster.

I think my partner and I are on the right path however fear we may be sleepwalking towards a cliff edge or missing out on the golden opportunity!

Our current situation:

- Live in the UK, ages 25+26.
- Work in 'ok' jobs for our ages, making 25k + 35k
- Currently renting the world's smallest appartment
- Saving about 1000 a month into Cash ISAs
- Both paying into workplace pensions with employer matched 4% and another 6% AVC
- Saving towards a house deposit. Need about 40000 which we should have in 2 years.

So while it feels like we are saving ok for the house deposit, I cant help but feel we might be missing out. MMM mentions the 7% compound growth however cash ISAs in the UK are paying 2% these days. Its too short a term to invest in shares (i think?).

Also is 1k per month a good amount? Feels like it compared to our friends but maybe a drop in the ocean for you Mustacheians!

arebelspy

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Re: Think we're on the right path..
« Reply #1 on: June 24, 2013, 10:44:37 AM »
- Work in 'ok' jobs for our ages, making 25k + 35k
...
Also is 1k per month a good amount? Feels like it compared to our friends but maybe a drop in the ocean for you Mustacheians!

The trick is to not look at the amount you're saving in absolute dollars, but as a percentage.

12k/yr out of 60k gross is a 20% savings rate.  It's pretty good compared to most people, it's fairly low for a Mustachian (the average here, according to a poll of a few hundred forum users, is about 50%).  You are in a high cost of living area, but still that could probably be pushed up.

With only a two year timeframe, it's probably not worth putting your money into a riskier investment that will earn more.  On a long timeframe (i.e. the rest of your life - financial independence, early retirement, etc.), yes.  Two years until you will need it, no.

If the timing on the house purchase is flexible (i.e. you'd be okay if it had to be delayed a year or two due to potential investment losses), then you're okay with risk and may want to go for it for the potential gains.  That depends on you and your partner's personalities.

Welcome to the forums!
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Reue

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Re: Think we're on the right path..
« Reply #2 on: June 24, 2013, 02:24:54 PM »
12k/yr out of 60k gross is a 20% savings rate.  It's pretty good compared to most people, it's fairly low for a Mustachian (the average here, according to a poll of a few hundred forum users, is about 50%).  You are in a high cost of living area, but still that could probably be pushed up.

Is that 50% of gross or net?

arebelspy

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Re: Think we're on the right path..
« Reply #3 on: June 24, 2013, 03:40:34 PM »
12k/yr out of 60k gross is a 20% savings rate.  It's pretty good compared to most people, it's fairly low for a Mustachian (the average here, according to a poll of a few hundred forum users, is about 50%).  You are in a high cost of living area, but still that could probably be pushed up.

Is that 50% of gross or net?

Unspecified.

https://forum.mrmoneymustache.com/welcome-to-the-forum/mustache-poll-how-much-do-you-save/

I'm sure some answering did net, some gross.

Of the 391 responses at the time of this writing, 177 (45%) have 51% or higher savings rate.  Only 36 (9%) are at 20% or less.

The way to look at it is this: you've got a great start, far better than most.  Now you have a chance to tighten and cut the fat and improve and skyrocket your savings to FIRE!  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

pom

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Re: Think we're on the right path..
« Reply #4 on: June 24, 2013, 04:00:20 PM »
Most people calculate it as a percent of net but there is no gospel (nor should there be).

You are doing ok for your age group. The easiest way to increase your saving rate will be not to increase your spending as you get pay raises. It is easier said than done but with a strong will and a badass attitude it is definitely doable.

In the last 15 years my salary increased 150% in real term yet my expenses increased 'only' about 40%. If I had not increased my expenses so much, I would be FI already; I am trying to lower them 20%.

If you can find a way to reduced the expenses instead of increasing them, then that would be really badass.