Now that I have declared our ambitious plans to pay off our debt and mortgage in 10 years, I suppose it is about time that I set out exactly how we might be able to do this.
It will not be easy, especially since we have debt from fertility treatments, MBA tuition fees, and a house move. So yeah, it’s a going to be a long journey. Here is how I think we can do it:
- Firstly, and this is absolutely fundamental to our plan, we are now living well within our means. Our monthly income is more than enough to cover our expenditure. Here is what our typical monthly income and expenditure looks like, including regular transfers to investment/saving accounts:So even after £800 transferred to savings and investment accounts, we have £1,632 left over. Over the next year, this surplus will be earmarked to pay for the final year of my MBA course. We will hold it in our main bank account (we get 2% interest in there up to £5k) until the fees are due.
- My MBA will be paid for in July 2018. At this point, assuming only minimum debt repayments have been made, our unsecured debt will total around £16,500. We will start to over-pay our highest interest (3.4%) debt by £1,000 per month. The £632 remaining will be kept in our main bank account for annual family trips and other non-emergency yearly costs.
- Following this plan, our highest interest debt will be paid for by March 2019 and our next highest by June 2019. We will then only have our mortgage outstanding.
- We plan to then snowball our debt towards the mortgage, plowing £1,416 into a stocks and shares ISA on the premise that our mortgage interest is less than 2% whereas annual returns on stocks will be much higher than this. We will also divert our SIPP investments to the ISA so that it is not locked away for when we want to pay off the mortgage.
- Finally, assuming all goes to plan (fingers crossed!) we will have saved the value of our mortgage in an ISA by April 2027 and exactly 10 years from now we will pay the mortgage off all in one go!
Here is my net worth forecast (excluding the value of our house and any emergency funds held in cash) at the end of December for the next 10 years if all the above goes to plan:
I have made some assumptions in working out these figures. They are:
- We will receive an average of 5% annual return on investments in stocks.
- Salary increases will not be invested, but kept for annual cost of living increases.
- The ISA allowance will increase to £21k by 2020.
- We will not incur any penalty to pay the mortgage off early.
I would be more than happy to receive any comments on if our plan could be improved in any way.
After the mortgage is fully paid, we will then work on retiring within 3 years from that. Using those dates, I will be 49 and Mr Small will be 55, at which point he can cash in his work final salary pension and SIPP. This may not seem like early retirement, at least compared to the extreme early retirees out there, but for us it will be less than 15 years after we start our financial independence plan and we would be absolutely thrilled with that result.