How to be mortgage free and retiring earlyBy Money Mage · · Retire Early, Mortgage, Frugality, Fruggles
You have no mortgage at 35? You are thinking about retiring early?
Most people would say ‘madness’!
Most 35-year-olds are stuck in rented or a few years into their first mortgage. Very few own their home outright.
This blog will provide radical habits and money changing principles. I’ll cover a lot of ground from cost of living, how to save, paying off debt, how to retire early, paying off mortgages early, figuring out when I can retire, and simple frugality hacks. I’ll do this as your guide - with helpful tips and tricks - right from me, The Money Mage. I’m going to help you become a Grand Money Mage too.
Quit trying to Keep up Appearances
Most of the well-off people I know are oblivious to the consumerist veil draped over them.
Aspiring to lifestyle.
People become trapped in a system of control. Trapped in a spending loop fed by propaganda, advertisements, and peer pressure. Most of the less well-off people I know end up trapped bordering the breadline by the same system.
We’re trapped in a socially-reinforced consumerist dystopian hell. Aspiring to lifestyle.
We love each other. Yet we spend tens of thousands of pounds on artificial white gown weddings. White gown weddings that nothing of our love for each other but much about our so-called wealth.
We hell-commute to our hell-work to earn a living. Yet we spend tens of thousands on plush top-of-the-line vehicles. Plush vehicles in which we sit in traffic jams, spitting out health destroying fumes.
We need to stay warm. Yet we become tricked into buying the most expensive designer clothes. Tricked by an Instagram image and a handy Amazon affiliate link. A link taking us one click away from a couple of hundred dollars pretty, oh-so-pretty coat.
We think the world of each other. Yet we spend a fortune on junk we gift wrap and hand out as meaningless presents. Junk that fills our homes. Stuff. Stuff we don’t need and likely don’t want.
We want to look after our bodies. Yet our friends pressure us into going out to pubs and restaurant. Eating-out meals containing more calories than anyone needs in a week. Saying no ruins your social circle.
The first step of change is awareness. Admitting you have a problem. We have a problem.
The Poor get Poorer
The problem is more sinister. In this broken consumerist system the poor keep getting poorer. Income equality - the difference in income between the rich and the poor - has been worsening since 1964.
If you don’t earn £40,000 or more per annum, you are getting poorer
‘Poor’ casts aspersions of squalor. Visions of Dickensian slums. Not quite, anyone who is not in the top 20% of earners is becoming poorer every year.
Think for a minute. If you don’t earn £40,000 or more per annum, you’ve been getting poorer since 1964. Chances are I am speaking about you. If not, you’re already a Money Mage or very lucky. The poorest in society become trapped in a cycle of dependence on the consumerist system. Earn a salary, spend it on expectations set by others, rinse, repeat.
Half of households would struggle to pay an unexpected bill of £100
At the same time, wealth is increasing.
Close to the Precipice
You don’t have to be poor to be close to the precipice. We’re all a couple of bad decisions away from poor, to poorer to serious trouble. I know of someone who forgot to insure their house. Then had a catastrophic structural failure and had to declare bankruptcy. I know people dependant upon their vehicle for work. They forgot to renew their car insurance, got pulled by the police and are now banned from driving.
These are extremes.
The main danger is borrowing. Especially innocent-seeming debt.
Subtler bad decisions can drive you over the financial precipice as well.
The main danger is borrowing. Consumer spending is at an all-time high and consumer borrowing remains high. Especially innocent-seeming debt.
- You earn the UK median monthly income of £1,733/mo net.
- You have a handful of savings.
- Your washing machine breaks down.
- Your savings wipe out replacing or repairing the washing machine.
- Next month your car has issues and you have to get an emergency repair done at the local garage. Even at mates rates, you can’t afford it.
- You add the £320 parts & labour to your 19% APR credit card, with the full intention of paying it off in full next month.
- Something else happens the following month, and you can’t pay the card off in full.
The debt spiral risks beginning.
Clear down debts and you pay less interest
Monthly interest on £320 at 19% APR is circa £5. Sound cheap for getting your car fixed? Less than the price of a cheap wand.
As soon as you start only making your minimum monthly payments, your repayment term stretches out indefinitely. Before you blink your growing credit card interest is a looking like a small mountain.
Pay down as much of your debts as you can. The blue line shows paying first-month minimum payment recurring every month. Clearing the debt 11 years early. Saving £888 in interest.
The rule is simple: clear down debts and you pay less interest.
Decrease spending, debt & increase Saving.
There’s another way.
Buck the trend. Stop keeping up appearances. Realise the grass isn’t greener in the aspirational lifestyle. Start Saving. Become a Money Mage.
I have no money to save, you robed fool, I hear you scream.
You do. You spend it all.
Money Mages learn many frugality hacks. Here are some.
Economic and Financial Awareness
Awareness of the wider economy, interest rates, inflation, and looking after your money is important. Knowledge of the economy and wider basic financial systems is weak in many.
Fruggles and their fruggle money.
What are the different kinds of mortgage available to me? What kind of saving accounts are available? What does risk profile mean? What is an offset mortgage? What is the individual savings account allowance for fiscal 2018/19? When does the tax year run? When do I have to file my self-assessment by? What is a SIPP? What are the tax implications of having a SIPP?
The consumerist veil enshrouds the naive masses. Trapping them in a dystopian hell. Adverts blaring out, enticing hard earned money out of wallets.
Let’s call them fruggles. Fruggles and their fruggle money.
Fruggles struggle with finance jargon. At mage school, we’re taught no-nonsense, jargon-free financial information. I’ll try and help with that. With pictures and charts. Simple, straight-talking information. Fruggles: Subscribe and stay tuned.
High-interest debt can mountain up, causing stress, anxiety, worry, and worse. Before you know it you can be in a downward whirlwind of compounding interest.
Becoming debt free isn’t only financial sense. It’s a huge achievement and a weight off your shoulders.
Pay off your debts as soon as you can.
Some debts are a higher priority than others. Priority depends on the consequence of non-payment. Take your mortgage: if you are in mortgage arrears, you can lose your home. Citizens advice provide tools to help with debt prioritisation.
I pay off my debts in priority order:
- Will non-payment risk where you live?
- Will non-payment risk court proceedings or a criminal record?
- Any other debts, paid off in order of APR starting with the highest.
Cut your spending to not grow your debts. Clear your debts. Then build a habit of spending less without building further debts.
If you’re lucky enough to have manageable debts - get paying them off. Pay them off before you think about luxury spendings like new cars or big holidays.
If your debts are a continual concern seek free professional help. Money Advice Service & Citizens Advice can help.
Consider: 1) What debts you have? 2) What spending you have? Can it reduce? 3) What are your priority debts? 4) How do you plan to pay off your debts? 5) What is your plan to reduce spending levels so you don’t continue the debt spiral?
Becoming debt free isn’t only financial sense. It’s a huge achievement and a weight off your shoulders.
Saving a Buffer
“Saving for a rainy day”. Now it’s building a buffer or creating an emergency fund. It’s saving for a rainy day for pity’s sake. Instant access savings you can dip into if you need to when it rains.
This habit is dying. Fewer people are saving, and those who are savers are saving less. Interest rates on savings are at a historic low. The dystopian consumerist system is persuading everyone to spend rather than save.
A rainy day fund of 6 months of net monthly income frees you from the system.
You are likely losing value from your cash accounts due to low interest rates on savings. Losing value I hear you scream, how can cash in a bank lose value?
Inflation. Inflation is the month-by-month increase in the cost of goods and services. Fuel. Food. Energy. Clothes. In November 2018 Inflation was at 2.2% meaning that every year the cost of stuff we buy goes up by 2.2%.
Money in cash accounts earns interest.
Imagine putting £100 in a bank account today that earns 1.5% interest. In 5 years time, it will have grown to £107.78.
Yet the ‘purchasing power’ of £100 in 5 years will have decreased. As the costs of goods and services will have gone up due to inflation. £100 today is actually worth £111.62 in 5 years time (at 2.2% inflation for 5 years).
Your savings rate needs to beat inflation for your money to grow. If your saving rate is below inflation, the ‘purchasing power’ of your money is decreasing.
The problem is most households can’t save. An FCA survey in 2017 identifies ⅙ of households would struggle to pay an unexpected bill of £50. Half of all households would struggle to pay an unexpected bill of £100 of at the end of the month.
Fiscal policy is encouraging households to spend not save. Spare household income is so low, people are on the precipice of a debt spiral.
The good old-fashioned rainy day fund comes to the rescue. If you had a rainy day fund of half of your monthly income, a one-off £100 bill would not be a problem. If you have a rainy day fund of 6 months of net monthly income you free yourself from the system.
Who doesn’t love cars? I hate cars. I am the only driver in the Money Mage household so cars have a special place on my shelf-of-hate.
Not only are you killing your wallet you are helping to kill the planet too.
They are often an expensive necessity, to get you to-and-from your hell-work so you can earn a living. Most people are sat there with Spotify blaring. Trudging between traffic jam after traffic jam. Traffic light after traffic light. Breakdown after breakdown. Teetering along at less than 15mph filling your lungs with particles.
Cars are a scourge. I hate them. I own one, but I hate the concept of owning one.
Yet there are plenty out there who can’t get enough of cars. There were 2.5m new car registrations in 2017, 1.06m of those being private new registrations. 1.06m brand new vehicles in 2017 purchased by individuals. Consider this: £19bn consumer spending on new private cars in 2017.
The very worst thing about cars is they are gas guzzling, polluting, machines. Average CO2 emissions are actually going up not down. Not only are you killing your wallet you are helping to kill the planet too.
There are other ways. Take public transport. Trains though are a subject for later. If you are lucky enough to live close to work, cycle, walk or jog in if there are showers. Rideshare. Take an electric bike. Work from home more. Take a job closer to home.
Whatever you do, think long hand hard, and delay the decision for a month, before splashing out on a new motor. I’ll follow up a later post on why new cars are a complete scam.
Getting married? Congratulations. Getting married at the average cost of £30,355? Fool. Why don’t you get married to the person you love with two witnesses, in a private, intimate ceremony for £125? Misery old git I hear you mutter. Splash out a bit then - get married in a smaller ceremony surrounded by your closest 20-30 friends and family. Go on, throw a party as well. I bet you can find ways of doing it for well under £30,000.
Let’s leave engagement rings for another time.
Love and care for each other and your friends is way more important
There’s nothing wrong with marriage, although I’m not a believer in the institution. I’m definitely not a believer in throwing away a hard-earned £30,000 for a day of pseudo-wealth peacocking. If you disagree, think how long it takes to save £30,000. How much do you save a month? How many months to get £30,000?
Love and care for each other and your friends is way more important than white gown wedding shows.
More to come
With these few spells, I’m just scratching the surface. Subscribe now for as many Money Mage tips are coming.
Homeownership amongst 25 to 34-year-olds has collapsed.
Millennial fruggles, walking about like they rent the place.
The buy-to-let boom and symbiotic soaring house prices have forced most of the age group out of the market. Homeownership across England amongst 25 to 34-year-olds has almost halved since 1991. Down from 65% to 35%. In the 16-24 bracket’s homeownership is down fivefold, from 46% in 1991 to 9% today. Millennial fruggles, walking about like they rent the place.
Renting is driving wealth out of younger people’s wallets.
In London and the major cities, the picture is even bleaker. Homeownership in London is down to 20% amongst 25 to 34-year-olds.
Rent is another form of control by the system. Renting is driving wealth out of younger people’s wallets. The Poor get Poorer.
Free yourself from the rental system of control
The 1980s boom of home ownership is dying. We are risking a return of Victorian and Edwardian lodging houses for the middle classes. It’s already starting with AirBnB room lets. And government tax breaks to entice us into bringing in lodgers. I know well-off people in their mid to late 40s still renting with little chance of ever owning property.
This tendency to always rent is creating a crisis of later life wealth. On top of a crisis of later life care. 65+ home ownership currently is still high, but it is a lagging indicator. There has been a decline in homeownership for the last 15 years in the 55-64 age group.. A decline for 3 decades of home ownership in all other age groups. The government relies on property ownership to fund later life care. Our children’s generation risk renting into old age. Who will pay for their care? Where will they live? Social housing? What social housing I hear you bash away on your keyboard.
The best way to gain wealth in the early years is to free yourself from the rental system of control. Stop renting as soon as you can afford. I know all your friends are renting. I know there is a voice telling you your job might not be secure and you might need to move. I know you can’t see how to save for a deposit. You will regret spending your hard earned money on someone else’s property equity.
This argument is often rebutted by ‘Paying off mortgage interest is the same as paying rent’. I’m sorry but people who say this are wrong. Wealth loss due to mortgage interest is peanuts compared sustained rent.
The blue line is interest on a £130,000 mortgage over 25 years at 2.24%. Compared to an equal monthly outgoing rental of £566/mo over 25 years (with inflation at Bank of England target of 2%).
Lose £40K or £210K?
Free yourself from the rental system of control.
Paying off the Mortgage
The number of properties owned outright now surpasses the number of mortgaged properties. This is likely driven by trends in buy-to-let and downsizing elderly owners. Only 3.3% of 25 to 34-year-olds and only 11.9% of 35-44 own their home outright. Owning outright at 35 and you are well the way to financial independence. And possible early retirement.
Mortgage Overpayments are an area of lacklustre knowledge.
Mortgage interest rates are low. But low interest over 25 to 35 years still compounds. And today’s historic low interest rates only have one way to go.
Do you know what Early Repayment Charges are? Do you know what happens if you pay your mortgage off early? Mortgage Overpayments are an area of lacklustre knowledge.
You can reduce the amount of interest you pay by paying more of your mortgage debt. Called overpaying.
Most mortgages contain the ability to overpay a certain amount year. These overpayments go towards paying off your mortgage. Running down the interest and principal at a faster rate. Be careful though, as some mortgages contain extra charges for early repayment. You will need to speak to your provider or check your mortgage Key Features.
Additionally, some mortgages also allow overpayments to build a buffer. You can use this buffer in the future for a ‘payment holiday’ period. Payment holidays mean you can stop paying your mortgage for a period. Money put towards mortgage overpayments is triple purposed. It pays off your mortgage faster. It reduces the interest you pay. It builds a safety buffer so you can pause your mortgage payments if you need.
Consider what happens if you overpay your mortgage by double every month. Double I hear you scream! Yes, double:
The blue line shows mortgage interest over term if you overpay double every month. You can pay off a £130,000 25-year mortgage 14 years early. Saving £23,454 in interest.
If your mortgage permits it, if the worst comes to the worst and your income drops, you can phone your provider and negotiate a payment holiday.
Mortgage Overpayments are one tool you can use you to increase your long term wealth. But be wary of using this as your only tool. Pensions are more important. If you can beat your mortgage interest rate, savings and investments are important. Subscribe and Money Mage will tell you why later.
Your mortgage Key Features can provide more information. So can a call with your provider.
Be Mortgage Free
Imagine if you will: you’ve paid off the mortgage. Or if you don’t own a house yet, you no longer have to pay rent.
I live in a low cost of living area. Rent and mortgages for a decent property are around £550-850 per calendar month. If you were not paying this, you save £6,600 to £10,200 extra every year.
The impact on the cost of living is significant. You no longer have to spend £6,600 to £10,200 per year to have somewhere to call home.
Save or invest £550/mo 10 years at a modest 2.5% and you’ll have £83,522.96. Over £10K of that is due to compounded interest.
Apply this to other costs of living savings and soon you are building significant wealth.
When can I retire? The awful truth about FIRE
This whole way of life has now got a name: FIRE. Financial Independence, Retire Early.
FIRE isn’t all it’s made out to be.
FIRE has turned into an internet storm. There’s even a Reddit. It’s a thing. In no small part to the likes of Mr Money Mustache.
Like most popular things in life, FIRE wasn’t the inventive step. It’s a well-packaged meme of existing behavior. Money Mages have lived a life of looking after money for years. Well before FIRE was even a thing. It’s part of who we are, learned from Money Mage School.
Yet, FIRE isn’t all it’s made out to be. The retiring early part of FIRE is a warning. The retiring-at-30 part of FIRE is dangerous for most.
The current firestorm is unachievable for the majority of fruggles. Fruggles need the help FIRE offers to stop spending all their money. In reality, the majority are not going to go to retire at 34-years-old. They do not have the income.
When can I retire? The amount of money you need to retire at 30 is significant, more than you’d think. You need enough to live on, for 50 years, without it running out.
Recall 50% of households in the UK in 2017 would struggle with an unexpected £100 bill.
The retire early bit of FIRE is sleight of hand. Sleight of hand isn’t Magery. Have aspirations to retire early. Have aspirations to be semi-retired. Only the wealthiest 1% or 2% will have enough funds to retire at 35.
What about the breed of firestarters who retire but then start work! Working when retired used to be called being semi-retired! Now it’s “I’m retired but freelancing in the industry I used to have a full-time job in”. Freelancing most of your time is being self-employed, not retired.
Recall 50% of households in the UK in 2017 would struggle with an unexpected £100 bill. We shouldn’t try to talk to households that struggle with a £100 bill about amassing £1,000,000 to retire at 35.
I don’t have aspirations to retire at 35 like some. Retiring early at 55 is fine by me. In fact, I’d be bored out of my skull if I retired tomorrow. I’d make trouble of myself.
We should help with growing wealth, using money wisely, savings and investments, living frugally, frugality hacks, living well, looking after yourself, and having fun.
The fruggles need help to see the socially-reinforced dystopian hell they are in for what it is, encouragement to swallow the pill, and help with knowledge & support for when they awake in the goop.
Help them all become Money Mages.