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Budget (A)

Our budget is looking good this month. It’s amazing what can be done with a clear goal in mind and a solid plan to achieve it. We actually spent less than budgeted on our discretionary expenses (does not include housing, investment expenses or childcare) this month which I’m very happy about.

Budget Aug

Figure 1: Budget August 14

Savings (B)

While it looks like we didn’t quite meet our savings target, it’s only because MrRichLife didn’t transfer all of the funds to our investment account before the end of the month. We actually have another $6K sitting in our transaction account, being lazy.

I easily managed to transfer 50% of my income to savings this month. Mr RichLife only saved 30% of his income due to unexpected child care expenses.

Savings Aug

Figure 2: Savings August 14

Income (A)

I’ve bought myself an extra 20 days of recreation leave for this year, with the money coming out of my salary for the next 20 fortnights. My income will subsequently go down a little bit, but with tax savings I hope it doesn’t impact our ability to meet our savings goals.

This month we also received our quarterly refund of the Child Care Rebate (CCR).

MsRichLife Aug Inc

Figure 3: MsRichLife August Income

MrRichLife Aug Inc2

Figure 4: MrRichLife August Income

Expenses – The usual stuff (B)

Groceries/Dining Out/Alcohol/Coffees are still our biggest expense but we are doing a lot better this month. We were a little bit over budget, but I was away for a week so it’s worse than what’s shown.

I went on a holiday to visit family for the week. Most of my holiday budget was blown on hiring a car for the week. Otherwise, I spent very little.

Medical expenses are still high this month. I’m looking into whether it’s going to be worth getting private health insurance.

We really managed to cut down on miscellaneous purchases, sticking well inside our budgets.

MsRichLife Aug Exp

 

Figure 5: MsRichLife August Expenses

Unexpected Expenses (B)

We’ve moved Child Care centres and found out we needed to pay a two week bond. This amounted to a big child care payment from MrRichLife’s account this month.

MrRichLife Aug Exp

Figure 6: MrRichLife August Expenses

 

Travel Hacks

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I came across a term ‘Travel Hack’ yesterday, and with interest I started reading the internets to see what it’s all about.

I love to travel, but since RichLifeJnr came along, our trips have been limited to visits to the family, short farmstays and weekends at a beach house. My Wanderlust has not gone away though and I’ve been getting itchy feet lately.

Now that we are trying to stick to a budget in preparation for early retirement, does that mean my travel dreams get put on hold indefinitely? No necessarily…I just need to be smarter about how we might travel.

Flights

Getting to and from anywhere when you live in Australia is just downright expensive. However I suddenly remembered that I have membership with both Qantas Frequent Flyer and Virgin Velocity. Out of interest I logged on to my accounts and was pleasantly surprised at the number of points I have.

Qantas

202,797 points. That’s enough to get returns flights to Bangkok for all three of us.

In researching Travel Hacks, I also came across ideas to boost the number of points you have. After a bit of research I discovered that  ANZ is currently offering a credit card with 50,000 bonus Qantas frequent flyer points. I’m going to look into that a bit more seriously, because buying those extra points would cost over $1000.

50,000 extra points would mean all three of us could get return flights to Johannesburg, Tokyo or Honolulu!

Virgin

41,437 points. For that, I can get a return flight to Fiji for one of us or all three of us to Brisbane or Melbourne return.

I haven’t yet been able to find any amazing deals to boost my Velocity points, but realised that I can add my car rental for my upcoming trip. That might add a bit.

Cruises

I’ve never really been that interested in cruising, but after reading a few blogs from Families who are travelling the world in slow time, I might be converted. The idea is that if you have excess time, but limited funds you can actually use cruises to get you between locations, whilst providing accommodation, food and entertainment for a reasonable daily budget.

As an example, VacationsToGo currently has a deal where you can travel London to Boston for AUD$801 per person ($57 per night) or Vancouver to Los Angeles for $181 per person ($31 per night).

I have even seen deals where kids under 17 travel for free. Obviously this type of travel requires extreme flexibility, but I have dreams of being free enough to take advantage of such deals. It might be something we consider when RichLifeJnr is out of nappies and old enough to go to the kids club.

Accommodation

In Australia, I regularly use Stayz to book reasonably priced, self contained apartments or houses. I love that you usually have your own cooking and washing facilities and can live more like a local, without breaking the budget. There are probably better ways to organise longer stays, but I find short breaks have been well accommodated using this website.

AirBnB is another website I’m hearing good things about, but I haven’t used it yet. It seems Australia hasn’t quite embraced it yet, but some of the places in Europe look fantastic. Dreaming of an apartment in Prague for a month!

 

How about you? Have you got any Travel Hacks you care to share?

Photo by: Norma Desmond

After undertaking some calculations, we have come up with a goal for monthly expenditure and savings, so I will try to update that monthly.

This month, we haven’t done so well. After really reviewing our expenses from last year, I think we’ve been kidding ourselves that we are frugal. Head is now out of the sand and the budgeting begins.

Expenses (C)

We overspent this month. But to be fair we didn’t have a solid budget in place. Hopefully next month will be better.

Jul14 goal vs actual

Figure 1: Expenses – Goal vs actual – July

The usual stuff (C)

Groceries/Dining Out/Alcohol/Coffees are still our biggest expense. We really need to have a look at this category for ways to make some savings.

Bills were big this month. Heating (Gas and Electricity) costs us a fortune at this time of the year, but I noticed that we used more than the same time last year. Perhaps we need to reprogram the new thermostat and drop the temperature just a bit.

MsJul14Expcut

Figure 2: MsRichLife July Expenses

Unexpected Expenses (B)

We have decided to sell one of our investment properties, which means we have started to incur solicitor and accountant fees.

MrRichLife had some medical expenses which are not covered since he’s not working. I’ve since submitted some paperwork to get him covered under my health cover and hopefully we can claim them back (we’ll see).

MrRichLife got a speeding fine. Nuf said.

MrJul14Exp

Figure 3: MrRichLife July Expenses

Income (A+)

We had a great month in terms of income. Three fortnight’s worth of pay has helped that, plus the rent we received was higher than usual. We also received refunds for some of my work travel expenses and medical costs.

MsJul14Inc

Figure 4: MsRichLife July Income

MrJul14Inc

Figure 5: MrRichLife July Income

Savings (C)

Jul14 saving goal vs actual

Figure 6: Savings – Goal vs actual – July

Unfortunately, I didn’t manage to save 50% of my income, which was my primary goal. Because this was a long month, I got charged for 6 weeks of childcare and two months of Landlord insurance. I also got walloped with more income taxes *sigh*.

MrRichLife didn’t transfer our monthly savings to our investment fund yet, so that should show up next month. We are aiming to save and invest $70,000 this year.

In my last post, I indicated that we need to get our expenses down by 25% if we have a hope of me successfully retiring at 40. By successful, I mean we don’t go broke before we die. Today, I thought I’d spend a bit of time looking at what our expenses consisted of last financial year.

FY13-14 Expenses Ms

Figure 1: MsRichLife FY13-14 Expenses

FY13-14 Expenses Mr_2

Figure 2: MrRichLife FY13-14 Expenses

Savings (50.0%)

Last year we saved 42.3% of my net pay (after tax and rent) and about 65% of MrRichLife’s income. We could have done better than this, but as you’ll see we had some big, one off expenses last year which shouldn’t be repeated this year. It’s not too bad considering we weren’t being particularly conscious of our spending. There is much room for improvement though, and I’ve set the immediate goal of saving at least 50% of my net pay each month from here on.

Income Tax and Investment Expenses (12.0%)

Income taxes (in addition to what is taken from my pay) accounted for 11.7% of my expenses. Ouch! I called the ATO the other day and questioned how much I’m paying to them every three months and told them to go back through my payments to check they are correct. Guess what! I was overcharged $1500 and I can expect a refund soon. I hate how much I send to the Tax office, but there is little I can do to reduce the amount at this point. We are planning on selling one house soon and moving the cash into MrRichLife’s account, so that should help.

Investment Expenses mostly consists of Landlord insurance payments that are not taken care of by my property manager. They have slowly been creeping higher and higher and it’s about time I get some new quotes!

Rent (8.0%)

At the moment we are very happy with our rental arrangements so won’t be making any savings in this category.

Motorbike (6.8%)

MrRichLife bought himself a motorbike last year. Hopefully this one off expense won’t be repeated regularly!

Groceries, Dining Out & Alcohol (6.1%)

This category presents the biggest opportunity to make savings in our budget. These calculations don’t capture all the food and coffees we buy with cash, so in reality we are spending more on this category than indicated. I’d like to work with MrRichLife to work out a plan to reduce this item significantly. I’ll endeavour to write a separate post on what we come up with.

Childcare (4.8%)

In reality we get 50% Child Care Rebate so this expense is not as big as shown here. We could cut back on days, but honestly we think we’ve found the right balance for our family with The Boy in childcare for 2-3 days a week.

Bills (2.9%)

Gas, Electricity, Phone, Internet, Insurance and Medical. I know that our Gas and Electricity usage has crept up this year. We’ve recently had our central heating replaced so hopefully that will be operating more efficiently than the old one.

Holidays (2.0%)

Most of our holiday expenses have been incurred in visiting our families interstate. This also includes flights that I’ve already paid for an upcoming trip to see my family and attend to my high school reunion. We’ve also been away for a couple of weekends as a family.  I love to travel and am prepared to cut other things out of our budget to ensure we can continue to do so. I don’t intend to reduce spending in this category, and actually expect it to rise this year.

Emergency Cash (2.0%)

We keep a bit of cash available in case of emergency, so this isn’t actually an expense. The withdrawal hopefully shouldn’t need to be repeated in future.

Car (1.8%)

We only have one car, and we don’t put a lot of kilometres on it each week. MrRichLife does most of the maintenance himself to save some money. I could ride my bike some of the time to save a bit of fuel and wear and tear, so I’ll revisit that topic in a separate post.

Job Expenses (1.1%)

Most of these expenses are reimbursed or tax deductible, so this category needs no work.

Other (4.3%)

The ‘other’ category captures all the smaller categories, that do add up to a lot. These are things like shopping, clothes, entertainment, hobbies, personal care etc. Given that all these ‘little’ expenses add up to a large chunk of our budget, we probably should see where we can cut down.

Summary

That was an interesting exercise to undertake. The most expenses were incurred through extra income tax payments and investments expenses. This is something I need to spend some time analysing further. There were also quite a lot of one off purchases and withdrawals last year which shouldn’t be repeated this year. The next biggest opportunities for improvement are in the ‘food’ and ‘other’ category. It might be worth setting ourselves some challenges to start bringing these expenses down.

 

 

 

 

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I’ve recently discovered Mr Money Mustache and have consumed all of his posts and delved headlong into the Forums. What a treasure trove!

One of the themes of his blog is The 4% Rule, which is essentially a rough guide to how much you need to retire. This little figure is based on The Trinity Study, a study to determine “safe withdrawal rates” from retirement portfolios that contain stocks and thus grow (or shrink) irregularly over time. This study defined ‘success’ as not going broke during a 30-year test period.

So if I accept that a 4% withdrawal rate won’t leave me broke in my old age, then the assumption is that I would need a portfolio of $1 Million to give me $40,000 per annum.

The interesting thing for me, is that (as MMM points out) the trinity study assumes a retiree will:

  • never earn any more money through part-time work or self-employment projects
  • never collect a single dollar from social security or any other pension plan
  • never adjust spending to account for economic reality like a huge recession
  • never substitute goods to compensate for inflation or price fluctuation
  • never collect any inheritance from the passing of parents or other family members
  • and never spend less as they age

I fully expect that we will do a bit in our retirement to keep some money trickling in; we expect to get a bit from superannuation in our old age (but when or how much is yet to be seen); and we know that we can downscale our life if circumstances require it. So, in short, the 4% rule is theoretically quite conservative.

After reading all of this, I started to feel like maybe it was possible to retire easily at 40. However being the careful person that I am, I wanted to test some assumptions by running a few scenarios. This is where some Early Retirement calculators came in very handy. You can check them out here:

I decided to base my simulations on the following set assumptions:

  • Starting portfolio $600,000
  • Property portfolio providing an income of $20,000 per annum
  • Superannuation or pension of $30,000 per annum starting when I turn 60.
  • Additional savings of $50,000 per annum until 40 (retirement age).

cFIREsim1

Scenario 1. In the first simulation, I assumed that we continued to spend like we currently do (minus things like childcare that we would no longer use), that we would continue to rent a house in our retirement and that we make no additional income. This scenario has a 63-71% chance of success (i.e. that we don’t go broke).

Scenario 2. On the second run, I cut our living expenses by 25%. This time, we have a 95-100% chance of success. Okay, that sounds better, but we don’t really want to rent forever. We want to buy ‘The Farm’ when we retire! Let’s see what happens.

Scenario 3. Ok, so this time we bought ‘The Farm’ for $500,000 upon retirement. I reduced our expenses by the equivalent of the rent we wouldn’t pay. This scenario has a 73-81% chance of success, which is not good enough for conservative old me.

Scenario 4. What if we bring in a small income of $10,000 per annum in retirement? Well, it looks like we have 97-99% chance of success! That will do!

So what does all of this mean? Essentially I can retire easily at 40 IF we reduce our current living expenses by 25% before then. If we want to buy ‘The Farm’ then we have to be prepared to find an additional $10,000 per annum from some side hustles, which I think is more than achievable.

That was a very worthwhile exercise and I feel like we now have something concrete to work towards:

  1. Develop a budget such that we can live comfortably on 25% less than what we currently spend (not including childcare and other work-related expenses that would disappear in retirement).
  2. Identify some opportunities for side hustles that could bring in $10,000 per year.

 Photo by: Matt Shalvatis 

40

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In just over 2 1/2 years I’ll be 40 and that’s the deadline that I’m setting for my retirement.

I’m putting it out there and publically setting a goal of retiring before mid 2017.

So, how did I arrive at this point?

I started working when I was 12, cleaning the floors of a pizza restaurant every morning before school. At 16 I was working three jobs in addition to going to school, playing sport and being involved in other extra-curricular activities. I bought my own car and started investing in shares. I finished school and went off to University to earn a degree in Engineering.

By the time I was 23, I decided I’d had enough of working. At that point I set a goal to retire at 40. My staff at that time (who were 20 years my senior) laughed at me and told me to just go out and enjoy my life. After all, you are only young once. I ignored them and decided instead to invest in rental properties that I set up as student accommodation for the nearby University. The property market boom was just beginning and because I had set my properties up to have a positive cash flow, the banks were more than happy to keep lending me money. Within 18 months I had five houses. Between working full-time and managing my rentals, I worked long hours but the hard work and risks I took in those 18 months have set me up for life. Thankyou to my 23 year old self for your foresight!!!

Since then, life has had it’s share of ups and downs. I lost a lot of money in the Global Financial Crisis (GFC) of 2008. It was really, really painful. But….I learned a very valuable lesson about how the global financial system really works.  I won’t go down that rabbit hole right now, else we’ll be here all day. I decided to get out of debt as quickly as possible and re-focus on my goals of financial independence in a different way.

Twelve years ago I met my husband, we got married in 2007 and in 2012 our son was born. Since the birth of our boy, I’ve been in a baby-induced bubble.  Between full-time work and the all consuming role of raising a new human, there has been little time or headspace to dedicate to anything else. I wonder whether other new parents can relate? I am just now finding that I am able to start looking back outside myself and my family to the big picture.

When I finally put my head above the parapet and had a look around, I realised that my husband and I had achieved all of the goals we had set for ourselves. We had lived overseas for a few years, we have paid off all our debt, we had started a family and my husband left work to become a Stay At Home Dad (SAHD). In fact, I just rediscovered this post from 5 years ago and am amazed at how much of that dream has now come true. There are still some parts of this dream I’m still working on, but the ‘bones’ of it we have already.

I’m the sort of person that needs that 5 year vision to be set clearly in my mind. Once I can visualise it, things seem to just fall into place. It’s easy to make decisions based on whether the outcome will take you closer or further away from your dream. Lately I’ve been feeling a bit lost. Without that clear vision, I don’t have a guide for making decisions.

For this reason, I need to start developing a new vision of the future. That starts with my decision to retire at 40…halfway through my next 5 year plan.

What comes after? Not yet sure.

What comes before? That’s what I need to work out with some more clarity.

Photo by: Guille

 1876711558_74d4c6bd29Photo by: random letters

It had been many years since I last went camping, but in the last few months I have been aching for more time in the mountains surrounded by trees. Living on the coast in Southern California makes it difficult to get my dose of green, so I’ve been pestering hubby for weeks to take me camping. Finally we made the time to go the other weekend. We packed up all our stuff, put the dog in the back and headed off to the mountains for a couple of days hiking. Even though I knew I wanted to love camping, I wasn’t really sure how I was going to like it. Thankfully I loved every minute of it and I think there were a couple of important lessons that could be integrated back into my everyday life:

  • Making do with what we we have. While camping, we only have limited amounts of food and water. Being happy eating from our limited stores is a good mental skill to have.
  • Enjoying the simple things. Building a fire, practicing on the slackline or making a coffee over the camp stove can all be lessons in living in the moment and enjoying the simple things.
  • Remaining flexible. On our first day of hiking, our dog was not well. After one and a half hour hours of hiking the Pacific Crest Trail she simply stopped and would not get up again. Hubby had to put her over his shoulders (all 62 pounds or 28kg) and carried her out. Thankfully we weren’t too far from a road, so I sat with her in the shade while hubby went back for the car. Our day of hiking was somewhat ruined, but conducting a medical evacuation for our dog was a good lesson in remaining flexible to changing conditions.

Since getting back to our everyday life, I’ve been dreaming of heading back to the mountains. Unfortunately we don’t have any weekends free at the moment, but later this month we plan to spend a week in Colorado, South Dakota and Wyoming…camping all the way. I can’t wait.

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