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The FIRE-ish Story

OK, I have mentioned a few things about myself in the previous posts but let’s stop dealing with rough estimates, let’s have a look at the real, exact numbers of FIRE-ish.

Some people who blog about FIRE started out with a larger salary or in most cases, with a partner or spouse who were on board with it, therefore a dual family income. You hear about savings rates upwards of $100,000/year which is hugely impressive. Unfortunately it is not attainable for me currently with a salary of €57,000 before tax.

I am not complaining as I have decent salary and I am only 28 so have plenty earning potential in the future. Also, while I am seeing someone, it’s FAR too early for the financial talk, so for now, I am calculating purely based on my expenses and income.

November will be considered Month 1 of this journey and will be using October’s paycheck as it is payed the last day of the month. Let’s have a look:

Income:
Basic pay: €4,835.25
Extra pay: €806.03
TOTAL: €5,641.28

Deductions:
Pension Contributions: €292.63
Universal Social Charge: €208.56
Pension related deductions: €327.75
Pay Related Social Insurance: €225.65
Tax: €1,134.37
TOTAL: €2,188.96

Net Income: €3,452.32

Awesome! Now I have €3452.32 to get everything started during Month 1.

But what do I take home from looking at my payslip?
The tax and “compulsory” charges are outrageously expensive.
The pension contributions make up 5.19% of my gross pay and this does not come with employer contributions as it is the state pension scheme. But this only accounts for €292.63 out of the €2,188.96 deductions, meaning that 33.62% of my gross pay goes towards “tax.

OK, now that I know that 38.8% of my gross pay is taken away immediately, it kind of limits what I can do with what I thought was a decent earning power. I’ve gone from €57,000 per year gross pay, to €41,500 per year net pay.

Either way, I can’t change that unless I move country (more on that in a later post).

Back to what can I do, with my take home…

Budget20500

I have calculated my monthly expenses at around €20,500 as you can see here, using the Mad Fientist’s Financial Tracker!

You can see my monthly expenses broken into each category based on essential spending (bills) at the top and discretionary spending lower down. I feel this is a little frugal looking and the extreme of saving (which is what we are aiming for). There is still room for improvement here though.

At a quick glance though, I can save €20,907.84 a year, or €1,742.32 each month.

That actually isn’t a bad starting point at all!

In a previous post, I mentioned that I was calculating retirement based off an assumed yearly cost of living which is €25,000. I rounded up because I assume that in retirement I will have other expenses like kids and travel, etc. But that doesn’t mean I can’t live a bit more frugally now while in my 20’s!

Retirementcalc
Years to retire VS. Savings Rate (Screenshot from networthify.com)

Plugging the numbers into this retirement calculator, it shows I can retire in 16.6 year with my current savings of 50%. Added to my current 28.4 years, I am smack bang on track to retire at 45!!!

Now comes the fun part why I try to reduce my spending and increase my earnings. Essentially increasing the savings rate and reducing the time to retirement!

What should I be doing with my money

The FIRE-ish story
This is my story

Now that I know what I should be having as a Net Pay for then next few months (I move jobs in January), I can plan what to do with the money.

Income: €5,641.28

Deductions: €2,188.96

Net Income: €3,452.32

I don’t want to feel like I am living to a strict budget. It’s always good to have a loose one so that you keep track of spending from month to month. I decided to set my budgeted expenses at €1,750 to cover all mandatory expenses and some discretionary ones. Technically after the €1,750, I shouldn’t need to spend anything else except if there is an unexpected expense.

Monthly savings: €1,752.32

I realised that my retirement planning is based around a €25,000 a year living expense but that is the upper end of living for me. Currently, I am well below those monthly expenses though so I will put the extra into savings while I can.

I get paid one of the last days of each month so I usually sit down on the 1st of the Month and sort out my savings.

Additional Voluntary Contributions

The first withdrawal is an Additional Voluntary Contribution, or AVC, to my retirement fund. More on AVCs in a previous post, but for now, for my age bracket, I can only contribute 15% of my total Gross Income to pension.

€4,835.25 x 15% = €725.29 max tax contribution

€725.29 (total contribution) – €292.63 (pension deduction on payslip) = €432.66

I can add another €432.66 each month to my pension scheme. BUT WAIT…. if you put in AVCs, you get a tax break as it is taken out pre-tax. Therefore, with my being in the higher tax bracket of 40%, for each €432.66 I put in, I only actually pay €259.60 of my own money. This saves me €173.06 each month but I still get €432.66 added to my pension….FREE MONEY!

Investments

As I am paying the AVCs myself after tax (then claiming back tax relief), I am calculating my investments after the €432.66 for now. Once I get the lump sum back after I claim the tax break, I will put that into investments as well. Therefore, I am going to be putting €1,492.72 each month into my investments, think i’ll round this up to €1,500 cause it’s so so close! That means €18,000 each year!! Awesome!

What does that mean though? Lets assume I will retire when I turn 45, this €1,500/month will compound to €576,936.86*
That isn’t too bad at all, and it also gets me 92.3% of the way to my end goal of €625,000.

Based on the €173.06 that I should get back each month, I should be able to add a further €2,076.72 each year. This extra amount, adding up to €1,673.06/month, which compounds to €636,667.25 by the time I am 45. And look!!!! That’s over the €625,000 required nest-egg I need for retirement. IDEAL!!

AVC’s are the difference between retiring at or before 45, and having to stretch it out another year!

Extra Savings

There is still a lot of potential for extra savings. Being more frugal can come in handy when I try to reduce expenses and invest the extra savings.
Other possibilities include getting raises in work which will come naturally as I get more senior and experienced. I will be working overtime so that extra money will all automatically go into savings but this isn’t guaranteed income so I won’t include this in my regular calculations.

Side Hustle

This is a big area that I don’t know much about yet but I am very intrigued at the idea of a side hustle. Essentially, this is where you have something on the side that can be monetized to create a side income. I am going to look into this a lot more before writing too much about this.

*This assumes a 7% annualized return on investments in an S&P 500 index tracker


I am Steve, the author and owner of Fire-ishwhere I try to share my story and help people towards Financial Independence with small tips and tricks that add up. Follow me on Twitter at @fire_ish and on Pinterest. I am trying to grow my readership so if you enjoyed this post, please share it!


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