Aussie Firebug

Financial Independence Retire Early

Nothing written below is financial advice. The below questions and answers are for general information only and should not be taken as constituting professional advice. You should always do your own research when making any financial decisions.

As the popularity of the FIRE movement in Australia continues to grow. More and more of my time is spent responding to readers who have submitted a question. What started out as a few questions a week has turned into a few questions a day, so I’m starting a new series called ‘Ask Firebug Fridays’ where I read out my responses to those questions.

There is some seriously good content within both the questions being asked and the response. Considering I spent 10+ hours a week responding, I thought it would be a cool idea to release some of that content. Especially when the same questions are being asked over and over.

So last week I added a disclaimer to my contact me page so I could publish the questions and my answers. I have removed personal information so that submitter stays anonymous.

Here are some of the questions you guys asked last week and my response.

Enjoy!

 

 

 

Question


Hi Mate,

I came across your blog during my research on how to adopt and implement the FIRE principle. I thought I might have been the only one on oz trying to adopt this methodology, a lot of it is US based. Also, have tried having awkward discussions with family and friends about this way of life and thinking when I mention retiring early I get the “look” followed by are you losing it.

I have found your blog to be a fantastic resource for laying down some good foundations, however, my struggle is I’ve had the light bulb moment a bit later than yourself I’m in my mid 30’s with 2 kids and already own a home. We have a saving rate of about 50% and we are smashing down the mortgage but I am worried while we are paying it down i’m missing out on lost time for compounding in index funds. I am trying to find a starting point and direction for investing or should I just be happy and pay down the mortgage, should I look at a couple of positively geared investment properties to speed up the pay down time? I do have a tax problem at the moment being in the highest tax bracket and have no deductions even with maxing out my salary sacrifice for super.

I only ask you for this guidance, because with all the material available and podcasts I have listened to, it always seems to give you a pathway from a starting point of zero, not if you’re thick like me and realised a bit later down the track having already committed to kids and mortgage.

Look forward to your reply

Regards
Jake

 

Firebug’s Answer


Hi Jake,

I’ve also had the look many times haha but that’s cool. I probably would have thought someone was crazy too if they had told me about it before I discovered FIRE.

You know what’s funny? I get a few questions from readers such as yourself who think they have missed the boat because they have only found out about this stuff in their 30’s. To be frank, taking an interest in your finances in your 30’s probably puts you ahead of 90% of Australians. It’s still SO YOUNG!

My first observation from your email was the big fat 50% savings rate 🤑🤑🤑! The single most important figure in anyone’s race to FIRE How accurate is this number? Do you track every transaction?

Assuming this accurate, you’re in very good shape.

Second point. You’re in the highest tax bracket you say? So you earn over $180K? Mate, you’ll be FIRE in no time if that’s true.

If you want to lower your taxable income without the hassles of an investment property, look into fully franked dividends. All Australian base companies distribute dividends with franking credits. Don’t fall into the trap of wanting to lower your taxes at the expense of negative gearing. It doesn’t make sense to spend $1 to save 45c. Looking into setting up a trust with a bucket company too. This can lower your taxes on your investments and have them held in a bucket company until you’re want to distribute in a lower income tax year for example.

Pay down your loan vs investing is a timeless debate and at the end of the day, it comes down the individual. You’re never going to lose paying down debt. But statistically speaking, investing should give you more post-tax income than the interest you would have saved paying down a mortgage. This one’s up to you mate, there’s no right answer.

Hope that helps,

-AF

 

Question


Yo man I keep feeling like buying property, probably just because of societal pressure. I actually don’t want to own a house, but I’d do so if I thought it would be more advantageous than buying shares.
I buy (and hold) VTS, VEU and VAS. I rent a townhouse in Brisbane with my gf and my half if the rent is $140/week.
I notice you own property but I think you started investing in bricks and mortar before you found indexed etfs.
If you were at the start of your journey to FI (as I am now), would you still buy the property or just keep renting and buy shares instead?
Also relevant that I may retire overseas to a country with lower cost of living.

Anyway sorry for asking for this without much of a preamble, I actually really like your writing and that’s why I ask you. I don’t readily take advice from people because most people aren’t really very switched on.
Let me know any of your thoughts!

-Eduard

 

Firebug’s Answer


Hi Eduard,

You’re right. I bought my investment properties before discovering the ETF approach.

It’s funny because my properties have done a lot better than my shares…BUT! I will never know the true return until I sell them, so it’s hard to say.

If I were starting from scratch today I would just buy shares. Do I think shares are better than property? Not necessarily.

You need to be the right investor for real estate to work for you. I think there’s a market for people will to do physical work and improve their investment (something you can’t do with shares). But for 95% of the population, I think shares are better.

I just like watching the snowball grow and it throwing off money (dividends) each quarter. The mental side of investing is more important than the returns to an extent. Invest the way you feel comfortable as this will help you when it matters (through a bear market).

There’s no right answer here, educate yourself as much as possible until you reach a point where you can make a confident decision

Hope this helps 🙂

-AF

 

Question


Looking at doing an EXCEL Spreadsheet myself for my ETFs.

In your video how to buy ETFs, how is your cash invested and total ETF worth so different, when your cash invested should always be more because we pay brokerage? And its like 5k difference, I don’t know how that’s possible. I’m surely missing something!

And keep up the vids mate.

Regards,

Matthew

 

Firebug’s Answer


Hi Matt,

That’s because the ETF’s grow over time, whereas the cash invested stays the same. At the very beginning when I buy, because of brokerage, I will alway have more cash invested then what the investment is worth. But over time that changes.

Does that make sense?

-AF

 

Question


Hi, I’m 18 years old and recently began investing into ETFs. However, as I was researching I found it confusing to decide whether ETFs or your average managed index funds would be better in reaching FIRE. I know you personally go for ETFs but from research, managed index funds also seem viable. Basically, why do we pick ETFs over those index funds?

Thanks mate,

Jeffrey

 

Firebug’s Answer


Hi Jeffrey,

I’m assuming you’re talking about the difference between an ETF and an equivalent managed fund product, sometimes from the same provider like Vanguard.

Check out this article I wrote a few years back on How to Buy ETFs. I briefly explain the differences there. But basically, it works out cheaper for me because I buy in bulk lots ($5K each month) and the management fees on ETFs are lower than the managed fund equivalent. Both are good products and the major factor between the two will be how often you’re buying because the brokerage fees will add up with ETFs if you’re buying every week or something.

Crunch the numbers and see what works out better for you.

-AF

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