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Archive for October, 2014

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.

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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?

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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

 

 

 

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