Archive for the ‘Financial Freedom’ Category

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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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).


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 

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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

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All this talk of buying houses by Early Retirement Middle Way and Money on My Mind has me yearning for another property of my own. Of course, it’s completely out of the question for the moment because:

  • I’m in the USA for another two years so there is no point buying another house back in Australia now;
  • My finances are such that I probably couldn’t get a loan for another property now anyway; and
  • Apparently house prices have started dropping in Australia, so I can’t really recoup a profit from one of the other houses if I sold it.

Still, it doesn’t stop me dreaming. I love having my own place. I envisage having my own garden, putting in rainwater tanks and a greywater recycling system. I foresee a solar system on the roof. I want to live close to town so that we can do without a second vehicle and so we can walk or ride to shops, cafes and work. If we rent, we won’t be able to do any of these things.

Unfortunately, in order to buy a property close to the town I’m thinking, with enough land to have a garden and fruit trees, it’s going to cost a pretty penny. *Sigh* I guess I’m going to have to relegate this dream to the ‘longer term’ pile and just focus on the baby steps to reach that goal.

Photo by: Aaardvaark

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I’m currently reading Your Money or Your Life. It’s one of those books which seems to have been raved about on many of the blogs I frequent. Based on the title, I figured it was just another book about how to make or save more money. I just finished the preface last night and I’m pleased to see that it’s so much more. It looks to be about balancing our thoughts on money with how we live our lives. It’s just what I need right now.

I’ll admit that I have some financial hangups. I grew up in a family which only just made ends meet, so as a child I always felt stressed about money. I started working at the age of 12 and by 15 I was working three jobs in addition to going to school. I was a diligent saver and started investing in the share market at 16. At 23 I decided I was going to be a millionaire by 40, and for the last 8 years that was the financial goal I was focused on. I bought a lot of property before the boom in 2000, my net worth was growing steadily and I was on track to reach my goal quite easily.

The financial crisis of 2008 brought this dream crashing to the ground. I lost a lot in the stock market crash. It’s almost too painful to think about how much, but on paper it’s a loss of somewhere between $150,000 – $250,000 (Yes I’ve been sticking my head in the sand). That wouldn’t be so bad, but I was highly leveraged into those shares and I still have a huge loan costing me a lot of interest for assets which are devaluing daily.

So, being the type of person who is willing to learn a lesson and move on, I’m choosing to see this whole mess as an opportunity to re-evaluate my goals and thoughts on money. Some points I’ve read in this book really resonate with me, in particular the definitions outlined below.

  • Financial Intelligence: Being able to step back from your assumptions and your emotions about money and observe them objectively.
  • Financial Integrity: Learning the true impact of your earning and spending, both on your immediate family and on the planet. It is knowing what is enough money and material goods to keep you at the peak of fulfillment – and what is just excess and clutter.
  • Financial Independence: Having enough income sufficient for your basic needs and comforts from a source other than paid employment.

All this time I think I’ve been focused on being Financially Independent without really giving it any deeper thought about what it meant for the rest of my life. I was driving myself into the ground, making myself stressed, working in a job that at times made me feel like I was dying a slow death. Why? I guess that’s what I need to work out.

I’m excited to think that over the next year I’m going to re-evaluate my relationship with money and re-design my life to incorporate more elements which align with my values.

Photo by: Cati Kaoe

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I came across this video on One Green Generation the other day. It was the perfect reminder of what I want my life to be about. Why do I need to have a million dollars so I can retire and live the good life? Why not reassess what a good life means to me and live it now?

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I was tagged by Money On My Mind. Here are 6 things you don’t know about me…

  • In my life I’ve been a cleaner, waitress, surf shop assistant, kitchen cabinet maker, student, landlord, photographer and an aerospace engineer. I’ve rarely worked only one job at a time. As a teenager I worked three jobs in addition to going to school, playing sport and acting in the high school musical. No wonder I’ve always been exhausted! I started working at the age of 12.
  • I’ve always been a saver and I find putting away money the most natural thing in the world. At 15 I bought my own car (a 1969 VW beetle) and at 16 I bought my first shares. The first time I went into debt was when I bought my first home at 23.
  • Growing up, I remember my family being poor. I never felt hard done by and my parents worked hard to make sure we had all our needs met. It was kind of fun finding enough pots and pans to catch the water leaking through the roof when it rained. My sister and I also became very resourceful with our toys. Once we were given someone’s hand-me-down Barbie Doll. We already had one Barbie, but really wanted a Ken doll. So we cut off Barbie’s hair and boobs and there you have it…the world’s first transexual Barbie doll.
  • As a teenager I became a savvy thrift-shopper. I would find amazing, unique pieces of clothing and everyone would always comment on my outfits. (In a positive way). My most memorable purchase was this amazing tailored, black velvet jacket which I found for 20c.
  • In school I was a straight-A student. At the end of grade 12 I was awarded the Australian Students Prize which goes to the top 500 students graduating high school each year.
  • Since my early 20’s it’s been my goal to become a millionaire by 35. If you combine mine and my husbands net worth, we have over a $million now (despite losing a lot on the stock market). I think I set this goal becuase I thought I would feel secure when I had that much money. I don’t…and that’s why I’m changing the way I live my life. I hope by blogging the journey, that I will receive the clarity I need.

I am tagging:

Simple Green Frugal

Middle Way

Choosing Voluntary Simplicity

Ugly Debty

Canadian Dream: Free at 45

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