Feeds:
Posts
Comments

Income

Income Nov 14

Income this month was boosted by the receipt of MrRichLife’s small inheritance from his Pop’s estate.

Expenses

Expenses Nov 14

Urghhh…another huge month of expenses in the tax/investment category. Both MrRichLife and I are making quarterly PAYG tax instalments to the ATO now, which means at least $3000 in additional tax every 3 months! I need to retire so we don’t have such big incomes I guess. We also had a big bill from the Solicitor for wills and power of attorneys and a big bill from the accountant for getting the Family trust and Company up and running again. Hopefully the Family Trust will help us to reduce our tax burden and make it all worthwhile!

MrRichLife has continued to add to his tool collection for his nano-businesses. He’s got a budget of $7500, so he’s spent about 75% of that so far.

‘Discretionary’ expenses were not too bad this month. Groceries and dining out were surprisingly good, although I did go a little overboard with shopping for some new clothes for me and RichLifeJnr and some xmas gifts.

Savings Rate

Savings Rate Nov 14
This month we saved 51% of our income. It’s not awesome, but considering our ridiculous tax and investment expenses and MrRichLife’s business purchases, it’s not too bad I suppose.

Savings Invested

Savings Invested Nov 14
Just over $45,000 transferred for investing so far this financial year. We are doing well against our savings goal and are well on track to invest over $100,000 this year.

Asset Allocation

Asset allocation Nov 14_2

We’ve started dollar-cost-averaging into gold, bonds and shares, but they don’t really show up on the chart yet due to small quantities so far. Dipping our toes into the market ever so slowly.

Change in Net Worth

Net Worth Nov 14

This is a new chart this month. I want to track changes to our Net Worth. We need to make sure that we are continuing to grow our early retirement ‘stash’. Looks like a good month. Net Worth is up nearly $32,000 this month due to savings, inheritance and maturation of a couple of term deposits.

Income

Oct 14 Income

October 2014 has surprisingly been a good one in terms of income, mostly because we received our ‘refund’ of this quarter’s Child Care Rebate and a refund from the tax office for overpaid taxes. WooHoo! Income from the rental properties has dropped a little because we settled on one house this month, but an increase in investment income has almost compensated for the loss.

Expenses

Oct 14 Expenses

Unfortunately, we had another big month for expenses too. ‘Tax and investment’ expenses were large again this month, mostly because we paid a solicitor to have our wills and power-of-attorneys drawn up. It’s money well spent in terms of estate planning, but all of these big outlays are making it difficult to get our monthly expenses down to a reasonable level. Also had to pay a double lot of insurance for the rental properties. Should have paid our taxes too, but we are late. Oops.

We paid two months worth of  ‘childcare’ this month which accounts for the big expense in this category.

MrRichLife has continued to add to his tool collection for his nano-businesses. He’s got a budget of $7500, so he’s spent just over half of that so far.

‘Discretionary’ expenses were ok this month, but only because we don’t need to pay our ginormous gas and electricity bills until next month. Ouch! We need to do more to reduce our energy usage. Also, we overspent on food… again. I’m not too concerned because we had two long weekends in October and instead of spending money on a weekend at a B&B, we enjoyed a staycation.

Savings Rate

 

Oct 14 Savings rate
This month we saved 53% of our income. I’m pleased to say that so far this year, our passive income has covered all of our expenses. That means everything I earn should be making it’s way into building our retirement stash.

Savings Invested

Oct 14 Savings Invested
Just over $33,000 transferred for investing so far this year. We are doing well against our savings goal and are on track to invest $100,000 this year.

Asset Allocation

Oct 14 Asset Allocation

With the sale of one property this month, I’m taking the opportunity to rebalance our portfolio somewhat. I’ve started dollar-cost-averaging into gold, bonds and shares, but they don’t really show up on the chart yet due to small quantities so far.

Recently, The Escapologist offered a new online wealth building series: The 11 Secrets Every Wealth Builder Must Know. It’s free, so if you are interested, check out The Escapologist. They produce some very thought provoking newsletters.

I’m happy to report that the very first chapter ‘The Secret of the Golden Buckets’, has helped me to answer a question I’ve been pondering for a few months.

But firstly, what are the Golden Buckets? The diagram below illustrates the flow of money in our lives. Income flows from the well and into the first bucket, Spending. Whatever amount we spend each month leaks out of our Spending bucket, leaving less to flow to the Saving and Investing buckets. The concept is pretty obvious so I won’t belabour the point.

Golden buckets

What was interesting to me was the difference between saving and investing. In this article, the author distinguishes between them because he believes it will help to acquire wealth safely.

Saving and investing are the same in the sense that you are setting aside some portion of your current earnings for the future. The difference is the purpose of saving is to safeguard that set-aside money, whereas the purpose of investing is to grow it.

The Savings bucket

There are two main things the Savings bucket should comprise of.

  1. Anything you are saving for that you will be paying for in less than seven years, such as saving for a new car, upcoming holiday, home renovation project, deposit on a house or living expenses once retired.
  2. Start Over Again (SOA) fund – the money you put aside in case of a financial disaster. To start, your SOA fund should have a minimum of three months’ living expenses.

Money in the Savings bucket should only be in super-safe investments – investments that are highly unlikely to go down in value in the next 10 years. These include bank savings accounts, term deposits and safe bonds with short-term durations.

The Investing bucket

The purpose of the investing bucket is to grow wealth. This is the bucket used to fund all future, long-term expenditures (i.e. more than seven years).

If you are young, you may use this bucket to put aside money for your children’s school expenses. But for the most part, the money in this bucket will be for your retirement. And when you look at investment returns from a long-range perspective like that, even a few percentage points can make a huge difference.

The Investing bucket therefore, is where you can theoretically afford to take a few more calculated risks.

My Golden Buckets

When I read this article, a lightbulb went on for me. I have a lot of money in the Savings bucket and I was beginning to wonder if I should just transfer that over to the Investing bucket. However, knowing that I plan to retire in the next few years I was very reluctant to put those funds at risk. This is why I currently have so much of my portfolio in Cash.

The Golden Buckets analogy has helped me to put a value on the amount I need to keep in my Savings bucket, and gives me confidence to move the excess to the Investing bucket. Hurrah!

What are your thoughts on this analogy?

Do you have your own way of differentiating between funds for Saving and Investing?

Get A Life

I recently set a deadline for retiring at 40. I’ve worked out some scenarios, run the numbers and realised that financially it’s doable.

I’ve come to realise however, that there are really two sides to being ready to retire early. The first is financial preparation, but the second is mental readiness. When I really started to think about whether I was mentally prepared for retirement it became quite clear to me that the answer was no.

Firstly, I had no idea what I was going to do with my time. It couldn’t just be a replication of what I do on the weekends. The weekends are mostly about decompressing from the work week, domestic chores and family time. For me, retirement needs to be so much more than that if I’m to really enjoy it.

Secondly, I hadn’t yet worked out how to make the mental shift from an extreme saver to a spender. I realised I had some homework to do.

Since then, I’ve been reading through Ernie Zelinski’s book, How to Retire Happy, Wild and Free. One of the activities that has really resonated with me is the ‘Get a Life Tree’, where I brainstorm all the things I might like to do in retirement. It is still a work in progress, but it’s actually been such a wonderful exercise.

I now realise I have no shortage of things to do in retirement, and in fact I need to start incorporating more of these things into my life right now. So without further ado, here’s my ‘Get a Life List’.

Activities I Like Now

  • Spending time with my husband

  • Spending time with my son
  • Reading academic literature
  • Researching
  • Writing my thesis
  • Going to the movies
  • Personal Financial Planning
  • Reading about Economics and Investing
  • Reading about Peak Oil and energy descent
  • Watching movies and TV series online
  • Visiting Cafes for Brunch or Coffee

Activities I liked in the past

  • Spending time with good friends
  • Travelling the world
  • Photography – Travel

  • Photography – Dogs
  • Drawing
  • Running a Business
  • Going to the Theatre
  • Going to the Library
  • Creative writing
  • Playing cards
  • Having a dog
  • Buying houses
  • Renovating houses
  • Blogging – Travel
  • Blogging – Dogs
  • Blogging – Simple Living and personal finances
  • Playing computer games
  • Op Shopping
  • Reading – Literary Fiction
  • Reading – Historic Fiction
  • Reading -Science Fiction/Fantasy
  • Reading – Non-fiction
  • Being a member of a book club
  • Business Improvement Consulting
  • Growing vegetables and fruit
  • Preserving the bounty – Jams, pickles, chutney

Activities that will keep me fit

Travel

  • Camping trips
  • Train trips
  • Cruises
  • Slow travel
  • B&Bs for the weekend
  • Roadtrips to see family
  • RV trip across North America or Europe
  • Intrepid Family Travel

New activities I’ve thought of doing

  • Make new friends

  • Keep a journal
  • Write my autobiography
  • Write a novel
  • Publish a photo book
  • Hold an art exhibition
  • Run a B&B
  • Off-grid/sustainable living
  • Run a Hobby Farm
  • Get a PhD
  • Run a consultancy business
  • Learn to dance
  • Learn a language (or two)
  • Learn to ride a horse
  • Meditate
  • Learn Tai Chi
  • Become a coach – Life/Business
  • Become a renowned author/speaker
  • Learn an instrument – Ukulele, harmonica, drums
  • Research the Family Tree
  • Become involved in Transition Towns
  • Become involved in a Train Museum
  • Become involved in Energy transition – renewable energy/energy efficiency

 

 

 

3086190671_d3096f8345_z

As you can see from the chart below, our current asset allocation is heavily skewed towards property, with 75% of our current portfolio under our management in this one asset class.

Asset allocation Sep 14

Don’t get me wrong, property has done very well for us over the years. Since the early 2000’s we’ve bought a total of seven properties but we’ve gradually been selling them off so we now have three remaining. We bought at the beginning of the boom years and the properties we hold have doubled or tripled in value since then.

We sense that this happy story may not continue for much longer and because house prices have increased faster than rents, the yield on the properties are not what they used to be. In fact, we can get just as good income from term deposits, without all the headaches.

So, in order to lock in some of the gains, reduce our risk if there is a property correction and to balance our portfolio a little, we’ve decide to sell one house. It will settle in October.  Afterwards, our asset allocation will look like this:

Asset allocation Oct 14

You can see we are still heavily skewed in favour of property and cash, but a little more balanced than it currently is.

Over the next month, I intend to develop an investment plan to balance out our portfolio a little more.

What does your asset allocation look like? Care to share?

Photo by: Christopher Chan

Travel Hacks

460701184_8a6f6ddce5_z

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

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.

 

 

 

 

Follow

Get every new post delivered to your Inbox.