Michael interviewed with me back in December 2020 and was only 5.5 years away from his FI number and working off the 4% rule (based on the Trinity study).
In preparation for the latest interview I asked Mike for an up to date photo and was delighted when he shared a recent family picture, as I have been privileged to meet his lovely family (pre-pandemic of course!)
Looking back to our early conversations and specifically in the last interview, Mike said:
“In 2017 I made the decision to start to journey towards financial freedom. I was sick of selling my time for money and realised that through the power of compounding interest, I could work towards financial independence.!”
This is such as strong catalyst to kick start the FIRE journey, and after catching up with Michael since to check in and see how things have developed;
Mike shares his latest strategy.. “Increased Income”.
This latest interview really expands on the Mike’s story in greater detail.
So I hope you have your tea, coffee or beverage of choice ready, this is a good one..
Michael, how are you getting on with your Fire journey now and has anything changed since?
Life is very much the same in the Houghton Household. In theory, our situation shouldn’t really change much – the hard part about the FIRE journey is finding a way to make the numbers fit in with your lifestyle – once that is done, it really is a matter of rinse and repeat.
There is much talked about in the FIRE community about the importance to cut expenses and most of the questions I get on The Irish FIRE Podcast relate to investing. I think the FIRE community is missing the biggest opportunity of all – income. One’s ability to increase their income is probably the biggest factor in whether someone is going to achieve FIRE or not in Ireland.
I will back this up with an example.
With expenses, we can only reduce these so far, and for most of us, reducing our expenses by 20% will be a great achievement. We have a very simple rule in the Houghton Household – we won’t sell time for money and pay 50% tax on it. Basically, we refuse to pay 50% tax on any income that we earn through selling time (such as income from a job, or contracting etc) – we will ensure that income is only taxed in the lower tax rate (typically around 16%). We have some rental income and passive income which is taxed at 50% – that is OK because it isn’t income that is tied directly to our time. For me, working for 60 minutes, and 30 minutes going to the Irish Tax Department is simply not viable – so we have taken it off the table when we consider how we generate income.
So, as a result, we typically live off low taxable income. I have a company set up which I work through for my software development income, and I receive a payslip each month which is based off the “standard tax cut off rate” – which works out at €44,300 per year. As mentioned earlier, this is taxed at around 15%, with any additional euro above that, being taxed at around 50%.
We simply find a way to make living off this lower income work month to month. We have 3 young kids, so this isn’t always easy. There are months where we have to hustle and really budget hard – but we know deep down that it is a self inflicted struggle and we keep the bigger picture in mind.
At the moment, its been particularly difficult because we are renovating our house. We moved out of our 3 bedroom, semi-D last year (and found a way to keep the old house and rent it out). We moved into a bigger 4 bedroom house, and managed to get a good deal on the property in July last year, just as we left the first COVID lock-down. The property does need a lot of work, and its a project we have committed to taking on – all be it, it is stretching the family finances a little, and we have had to cut back on other luxuries – but again, we have the big picture in mind.
Have you picked up any new ideas, strategies or tips?
Back to my point about income….
Once we knew that €44,300 was the most that we were going to need to earn to cover our lifestyle, the question then become – can we earn more, and what can we do with the additional income.
This was a journey that started back in 2017, when I took a year to reflect on ways to increase my income. I was a freelance software developer, selling time for money. I charged and invoiced based on an hourly rate.
I had to undergo a medical procure in 2017 which had to be done twice to be a success. I won’t go into details what the procure was, however there was something which really stuck with me about what happened that day. I joked with the doctor, that if I only wanted to get the procedure done once, would I only have to pay half. To which he replied “your not paying for my time, your paying for the 8 years of medical school and the fact that I have done this procedure successfully on over 500 patients… your paying for my experience and expertise”.
With nearly 15 years experience as a software developer at the time, this really stuck with me. I was in an industry famous for selling time for money, yet very few industries operated in that way. A doctor typically charges €60 for a 10 minute consultation. Most people pay it without too many complaints. I imagine doctors wouldn’t get as much business if they told patience’s their price was €360 an hour. This is effectively what they are charging, however obviously we are billed differently as a customer with a fixed rate. (This isn’t a dig at doctors, I understand doctors have significant overheads, staff costs and VAT to pay – I am just using it as an example).
I started to change the way I invoiced my clients. I moved away from billing X hours per day, and instead starting focused on billing to a daily rate.
Initially, my days took longer as I got adjusted to the system. I remember almost giving up a few times. After a few months however, I really started to see dividends. When I stopped selling time for money, the entire incentive structure changed. I suddenly wanted to avoid pointless meetings, as they were taking me away from working efficiently. I looked for efficiency in every task I worked on. Quality become even more important, as did doing the job right the first time. I was able to leverage on my expertise and experience to do a task right the first time, in the most efficient way possible.
Within 12 months, I had doubled by daily rate. Part of my 12 month journey had seen my find better clients who were happy to pay more for this efficiency. I felt I was doing the work of a team of software developers – I had proved it was possible to double my income.
With the extra income, I was able to start investing. At first I invested through my company, but today I invest through a self directed pension, which is far more tax efficient and allows me to invest considerable income into it each year.
By September 2018 I wanted to spend more time with my young family, and also had several passion projects which I wanted to start. I decided to reduce daily billable work back considerably and started working part time. I did this for around 18 months, and it was great to have so much time with my family – especially my youngest child who was only one at the time.
By mid 2020, I was keen to start getting a bit more serious about the investing side. I had a very simple idea – half my income would go towards covering our immediate needs (supporting our present self), with the other half being invested and going towards our future (supporting our future self). Therefore, each day I spent working, is one day closer to making our lives better in the future.
Finding the right balance in how much I try to earn each day is the challenge. Balancing a family life with work can be difficult – but there is sanctification each day knowing that we are working towards a better future.
And the numbers stack up. In 3 years our investment portfolio has grown from zero to around €170,000. Based on the numbers, we are less than 5 years from being FI, however it is very likely I will continue to work in some capacity as a software developer after that – knowing that I have the freedom to adjust my daily billable rate as I see fit.
You can follow my journey towards financial freedom by visiting www.firepodcast.ie. I run a podcast and release one to two episodes per month, and you can also subscribe to my monthly newsletter to receive regular updates on my own journey.
Read Interview #1 again Interview: Michael Houghton – Irish Fire Podcast | FIRE Dave