by Aussie Firebug | Dec 16, 2021 | Podcast
Summary
Have you ever wondered how far your donations to charities really go? I know it feels good to donate and we should all consider giving away part of our wealth considering we Aussies are some of the wealthiest people on the planet, but I’m not sure many of us really go over with a fine-tooth and comb how the money is spent and how many people are affected with every dollar.
Today I’m speaking with Luke Freeman, a former tech and marketing professional who had a desire to positively affect the lives of the less fortunate in the world. Luke is the Chairperson and a Board Member of Effective Altruism Australia and Executive Director of Giving What We Can, which are both charitable organisations designed to help the less fortunate.
The attributes of effective altruism share a lot of similarities with the FIRE movement. It’s all about using evidence and reason to figure out how to benefit others as much as possible, and taking action on that basis.
Some of the topics we discuss in this episode:
- Who is Luke Freeman and how did he become interested in giving back to others? (03:05)
- What is Effective Altruism Australia (EAA) and how did it start? (07:33)
- Is EAA a not-for-profit organisation and how does it actually work? (10:04)
- What are the tax advantages of donating through EAA? (14:58)
- What metrics does EAA use when assessing how effective time and money are used in charitable organisations? (16:39)
- Is corruption in charitable organisations a real issue or is it overblown by the critics? (22:56)
- What are some of the biggest problems in the world that EAA is targeting? (27:25)
Links
by Aussie Firebug | Dec 11, 2021 | Net Worth
I publish these net worth updates to keep us accountable, have others critique our strategy and show that reaching financial independence in Australia is very doable without winning the lotto, having a high paying job or inheriting a wad of cash. The formula to be able to retire early is simple, the hard part is being consistent and sticking to a plan for many years. The table at the bottom details our entire journey from being $36K in debt all the way until we reach 🔥
We finally hit it…
November was the month the Aussie Firebug household joined the two comma club and recorded a net worth of over a million dollars! I’m pretty sure we actually hit it in September but since I only record our net worth on the last day of every month, the market pullback at the end of September meant we missed it.
It’s a bit of a pointless milestone but something to celebrate nevertheless. I always knew I wanted to be good with money growing up but I never had an overarching goal that helped guide me in this endeavour until I discovered the concept of financial independence and then FIRE later on.
The concept of money is actually quite abstract if you think about it. I had a really interesting chat with Vijay Boyapati on the AFB podcast the other day which made me really ponder such thoughts such as what is money? And how does anything come to be a medium of exchange in the first place?
I made a connection early on in my life that everyone wanted more money and I thought people who had lots of it must be doing something right. I wasn’t really aware of the different circumstances and advantages that some people had which enabled them to get more money easier than others. Things like connections into good-paying jobs, a stable household that fostered learning and development, or sometimes just straight-up rich parents giving their kids everything.
I simply thought money was desirable, and those who had worked out a way to get a lot of it were smart… and I aspired to be one of those smart people. I had a secret money goal of becoming a millionaire before 30 in high school after reading countless articles on moneymag.com.au, Yahoo Finance, realetstae.com.au etc. They glorified the status of millionaires so much and really emphasised that if you were to obtain this elite financial achievement before 30, you were very special.
Our consumerism culture partly relies on the glorification of wealth to an extent. The marketing machine constantly pushing money, wealth and exorbitant lifestyles down our throats in Ads, Music videos, reality TV etc. Endless consumption is the fuel of a capitalist society which also drives the growth of assets which plays a huge part in why we are able to retire early. If everyone lived a FIRE lifestyle, none of us could retire early.
Oh, the irony!
Modern-day consumerism culture definitely had an effect on me growing up. I just kept correlating wealth with life progression which is funny because I live by a completely different life philosophy these days. The million before 30 was nothing more than a dream that didn’t have any tangible outcomes associated with it, I just wanted to get there.
So I fell a bit short of my meaningless high school dream but Mrs FB is still 29 so I can live my goal through her at least haha.
But wrapping this point up, whilst the status of millionaire is nothing more than an arbitrary term (that’s probably lost a lot of meaning in recent years anyway due to inflation), it’s still a decent achievement and one that the wife and I stopped to celebrate.
Net Worth Update
The share market was decent in November and we weren’t hit too badly by Christmas spending either which made for a sold month in terms of savings. But the real needle mover for the net worth came from the sale of IP2. The reason we had such a big jump was due to the fact that I hadn’t updated its valuation ($205K) in some time and the price we sold it for ($250K) was more than I thought we were going to get.
This should theoretically be the last big jump the net worth every sees since we’re 100% passive now in index funds.
Spending is higher than usual due to Christmas and a few bits and bobs for the house.
*Expenses include everything we spend money on to maintain our lifestyle. We do not include paying down our PPoR loan as an expense, only the interest
*Investment income is simply 4% of our FIRE portfolio divided by 12
Properties
IP2 has officially been sold which means we’re officially 100% passive investor now🥳🎉
We were extremely happy with the price we got and the selling process was a breeze (markets still hot in SE Queensland). We did pay a fair chunk in selling fees but there wasn’t much I could and tbh, the price was so much more than I thought we were going to get that I decided to just take the convenient option and just pay someone else to do it.
I’ve had a few people ask me why we sold and it really boils down to simplifying our life. I have a limited amount of mental bandwidth each week and whilst IP2 (or any of the other properties for that matter) wasn’t that much work, it was still more work than what our share portfolio requires. We just have shifting priorities these days.
The investment properties were 100% about making us money. I use to really enjoy researching and investing in property but those days are long gone. We’ve reached a point now where I don’t feel compelled to hustle for every buck like I did 5-10 years ago. I’m focussing more on lifestyle design these days. And managing the properties were a small drag on this lifestyle so we struck whilst the iron was hot and exited our last IP in November.
Property has been an amazing asset class for us and I’m still a big believer that it can be an incredible wealth-building tool for the right investor… we’re just ain’t the right investor these days and that’s all there is to it!
I’ll be removing this PROPERTY section in these updates from now onwards.
Property 1 was sold in August 2018
Property 3 was sold in April 2021
Property 2 was sold in November 2021
Shares
The above graph is created by Sharesight
SOL was officially sold in November for three reasons.
- SOL was originally Milton before the merger and with our exposure in A200 and VAS, I thought there was too much overlap and wanted to simplify our holdings. Selling Milton (that turned into SOL) was the obvious choice because we didn’t have that much money invested in it.
- The concept of legislation risk hit me like a mac truck when franking credit refunds were on the chopping block back in 2019. It turned out that Labor didn’t get elected but I remember thinking how pissed off I would have been if the rug was pulled out from under me during retirement… I decided that ETFs pose a slightly lower risk profile compared to LICs because of the structural differences between the two. I wrote more about this here if you’re interested.
- We wanted to execute our debt recycling strategy and needed a bit more cash to fully pay down the first split of our PPoR loan. Once IP2 settled and we had a decent chunk of cash, SOL ended up proving the rest of the $$$’s we needed to fully pay down our first loan. This wasn’t really a reason for selling SOL per se, more of a convenience and good timing.
With the sale of SOL we are now back down to 4 holdings. But now comes the hard part…
dropping ~$210K into the markets 😬
I swear the older I get the more I realise that good money habits and solid investing is 95% psychological.
I know what I should do. I have mountains of research and studies to comfort me in my decision and it should be made quickly with conviction… but I just can’t help and fall prey to the dangerous game of trying to time the markets 😅
The money has been transferred to our Pearler account for a few days now and I just keep checking the markets thinking how nice it would be for a dip. A 10% drop would be ideal, 5% would be lovely… hell… I’ll even take 2%!
ANYTHING!
No one wants to buy at the top and the decision is extra hard when it’s a lump sum. I’ve even answered questions like this a bunch of times on various AFF podcasts on what I would do in their situation but I’m telling you guys… when push comes to shove and you’re faced with the decision yourself… it can be difficult to execute the gameplan lol.
I’ll probably drop it in sometime this week but it’s so hard for me not to try and find the bargain. I’m often fighting my inner monologue that goes something like this:
“There’s always another crash Matt… just wait a little bit longer… Bitcoin had a crash the other day… Have a quick Google on what the experts think are going to happen… wow, so many of them are predicting GFC 2.0… yes… yes… keep going down the doom and gloom rabbit hole”
😂😂😂 it’s a brutal feedback loop.
Networth
by Aussie Firebug | Dec 9, 2021 | Podcast
Summary
Today I’m speaking with Julia Druery, a mum of two, living on the Gold Coast who was studying to become a financial advisor before a tragic event hit her family back in 2016. Julia’s husband Kent suffered from an acquired brain injury which left him with several permanent disabilities and no longer able to work. Thankfully Kent had various insurances in place before the injury which helped to relieve the financial pressure of this life changing event.
Some of the topics we cover are:
- Julia shares the story of her husband Kent’s acquired brain injury. (08:54)
- What was the process of claiming insurance payments after the injury occurred? (12:03)
- What is trauma insurance and is it included in default super cover? (17:25)
- Why is lifestyle an important consideration when making insurance decisions? (27:16)
- How much does all this cover cost and is it really worth it? (30:32)
- How has Julia & Kent’s insurance cover impacted their lifestyle today? (35:01)
- Julia’s personal experience with debt recycling. (48:18)
Links
by Aussie Firebug | Dec 4, 2021 | Investing, Real Estate
Our third and last investment property (IP) has officially been sold 🎉👏
It was actually the second investment property that we bought and I’ve always referred to it at IP2 in this blog but we sold IP1 back in 2018 and IP3 a few months ago which is why it’s technically the third to hit the road.
Selling IP2 continues our strategy for creating a passive income to fund our lifestyle in retirement. The investment properties had a different purpose in our original strategy for reaching financial independence, but now we exited all our positions in direct real estate except for our PPoR which we bought in 2021.
What Was The Return?
Following the theme from the IP1 and IP3 sale articles, I’ll get straight to the point.
We turned $56,326into $119,094 over 8 years which works out to be an annualized after-tax return of 11.29%.
If you’re interested in all the finer details of how we arrived at that figure please read on.
The Numbers
IP2 was bought in SE Queensland for $169K in 2014.
Buying expenses
| $2,000 |
Initial deposit |
| $380 |
Building and Pest inspection |
| $25,700 |
More of the deposit |
| $6,487 |
Rest of Deposit |
| $6,625 |
Outlays including stamp duty and Legal Fees |
| $200.00 |
Settlement Fee |
| $488 |
Land Titles Office |
| $9,900 |
Buyer’s agent fee |
| $200 |
Guarantee Fee |
| $200 |
Fee for attending settlement |
- I paid a 20% deposit to avoid LMI
- I used a buyer’s agent because back in 2014 I was very time-poor. I didn’t have the time or desire to go up to Queensland to scope out the place and really do my due diligence so I outsourced it.
Actual money spent so far: $52,181
Cash Flow/Holding Costs
| Cash flow |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Year 6 |
Year 7 |
Year 8 |
| Rent – Expenses |
-$1,121 |
-$2,116 |
$1,148 |
-$1,202 |
$1,672 |
$64 |
-$3,144 |
-$2,041 |
| Depreciation |
$5,940 |
$4,556 |
$3,496 |
$2,799 |
$2,339 |
$2,036 |
$1,835 |
$1,702 |
| Tax Refund |
$2,613 |
$2,469 |
$869 |
$1,480 |
$247 |
$730 |
$1,842 |
$1,385 |
| Total |
$1,492 |
$353 |
$2,017 |
$278 |
$1,919 |
$794 |
-$1,302 |
-$656 |
Total cash flow over the 8 years = $4,894
Notes:
- I had a lot of repairs that needed to be taken care of before I sold the property in years 7 and 8.
- I’ve included depreciation and a tax refund even though this property was held in a trust and not in my name. This means that the taxable income of the trust was lowered but my personal income was not affected. It’s hard to measure the full effect of the depreciation so I just used a refund amount based on the 37c tax bracket as I did for IP1 and IP3.
- I used the diminishing value method for depreciation.
Actual money spent so far: $47,287
Selling Costs
- $635 – Conveyancing
- $8,405 – Went through a traditional agent for the sale because the property was located in Queensland and I wasn’t in a position to go up there and host open days. The commission was a lot more than IP3 because apparently gold coast property has a premium attached 🙄
Total Selling Costs: $9,040
Total money committed to this investment over 8 years: $56,327
The IP was sold in November for $250,000
I invested $56,327 of my own money and received $119,094 ($250,000 – $135,800 + $4,894) 8 years later giving me an annualised return of 11.29%.
Return on Investment (ROI) and Tax
I used this website to calculate my return on investment for IP3. The formula was the following:
Annualized Return = ((Ending value of investment / Beginning value of investment) ^ (1 / Number years held)) – 1
And just like I explained in my IP1 Sold article, I’m only calculating how much of my money was spent, and how much cash I got back after I sold. Because that’s all that really matters IMO, it’s all about the cash on cash returns.
The tax bill for this investment will be washed through the trust and all of the gains will most likely go to my self-funded retiree parents or potentially my sister who has just had a baby and isn’t working. They will hopefully be kind enough to gift the profit back to the trust. So no tax be will be paid for this investment.
One last thing to note is that even though we had this property over 8 financial years, we technically only owned it for 7. So I used 7 in the calculations FYI
Why Did We Sell?
In a nutshell, selling our investment properties is part of our current investment strategy. We want to pump more $$$ into our index style share portfolio to create a passive income stream that will free us from the 9 to 5 grind.
Conclusion
Not much else to say really. I’ve been talking about going 100% passive for years and it feels awesome to finally be in this position.
The only thing left for us to do is deploy the $200K+ of cash we have sitting in the bank atm. We plan to debt recycling part of our PPoR loan with this money before we dump it into the markets but the details of that are in another article that I’ll hopefully publish before the end of the year (not long now).
Real Estate has been an incredible wealth-building tool for Mrs FB and I but there’s something super satisfying knowing the days of tenant issues are over… at least for now. We have no intention of jumping back into real estate in the future but ya just never know!
Spark that 🔥
by Aussie Firebug | Dec 2, 2021 | Podcast
Summary
My guest today is fellow Aussie, Vijay Boyapati who is an Ex-Google engineer and the author of The Bullish Case for Bitcoin. Vijay’s book has been translated into over twenty different languages and is said to be one of the most read pieces of literature on Bitcoin. This is a monster episode and we go deep into so much more than just Bitcoin and the Blockchain.
Some of the topics we get into include:
- Who is Vijay and what led him to start working for Google? (04:28)
- Vijay shares why he identifies as a Libertarian and what he learned from working in Silicon Valley. (08:13)
- Why Vijay left his job at Google in 2007 to work on the Ron Paul US presidential campaign. (11:46)
- What exactly is Bitcoin and the Blockchain? (15:06)
- Why is Bitcoin important and what problem does it solve for the average person? (31:51)
- Gold v Bitcoin (45:27)
- Will Bitcoin be used as money anytime soon? (01:02:22)
- FIRE community Q&A (01:17:57)
Links
