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Income

September 2014 has been a big month in terms of income. MrRichLife finally started receiving payments from his TPD insurance and this month we received all the backpay since he lost his job. I also got a big rent payment this month from my investment properties. One of them is due to settle next month, so we’ll see a drop in that income going forward. We won’t be expecting this much income per month in the future, but it’s a nice one off.

Sep 14 Income

Expenses

MrRichLife has decided to use the backpay of his TPD insurance payout to invest in the setup of a few nano-businesses, so I’m going to start tracking those expenses separately since they are a large chunk of our expenses this month. I’ll dedicate a separate post to what he’s working on.

Tax and investment expenses were also large this month, mostly due to accountant and bank portfolio fees. I anticipate that we still have a few more months of high spending in this category as we get our family finances and estate plans set up. I’ll also do a separate post on what we have been up to in this regard soon.

We haven’t paid this months childcare, so that will be a big payment next month.

Discretionary expenses were a win this month. We spent well below our budget due to reduced spending on groceries and not spending all of our ‘personal’ allowances. Fuel, dining out and medical expenses were all high, but offset by savings in other areas.

Sep 14 Expenses_2

Savings Rate

Because of our high income and lack of spending on childcare this month, our savings rate was 64%. I’m not expecting a repeat of this next month unfortunately as we have all of our bills coming in, large business expenses and our income will be back to normal levels.

Sep 14 Savings rate

Savings Invested

We are doing well against our savings goal and hope to remain on track to invest $100,000 this year.

Sep 14 Investments_2

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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

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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

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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