Aussie Firebug

Financial Independence Retire Early

AUG21 Net Worth $999,022 (+$42,710)

AUG21 Net Worth $999,022 (+$42,710)

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 🔥


Not a whole lot to report for August.

The month was mostly just us continuing to set up our home in lockdown which meant bulk orders to Kogan, Kmart and Bunnings.

I was never really that into plants before but boy oh boy how things have changed. It’s incredible what an enormous Monstera in the kitchen can do to the feng shui of a room 😂🌱

I’ve also finally managed to start a project that’s been on my mind for probably over 10 years… a nerds man cave!

Here’s the progress so far.

I’ve got a few more things to add but I’m really happy with how it is coming together. The AFB podcast has not been consistent over the last few years because I never had a creative space where I could focus on writing/recording pods. I can’t tell you how different the vibe is when I start work or create something for AFB in my new room compared to the set-up in London.

I have heaps of other projects that I can’t wait to get stuck into. I want to build a little garden shed with my old man, a veggie garden, bike racks in the garage and many more. I guess this is why people say that there’s always something to fix/improve when you buy a house 💸

Oh and I’ve sorta become obsessed with turning every conceivable object in our home into a smart device lol. I’ve always been interested in home automation and now I can finally put some of my research into practice. One project I’ve got high on my list is to turn our garage door into a smart door. Google home (on my phone) knows my location and will be able to open my garage door within 100Ms or close it once I’ve left the house. It’s completely unnecessary and ridiculous but I love it lol. It also doesn’t cost a bomb either (around $70 bucks).

I’m keen to hear from you guys in the comment section below if you’ve set up any cool home automations?

Net Worth Update

Ahhh man… C’MON 😂😂😂

Sooooo close to the big 1 mil this month but alas, we will have to wait a little bit longer. Reaching the million is nothing more than an arbitrary figure and doesn’t actually mean anything but it’s still a nice milestone to hit and does make us stop and look back at how far we’ve come.

The share market went bananas in August plus Mrs FB had a pretty big tax refund which meant a hefty amount of cash contributed to an overall excellent month for the net worth.

Oh and I almost forgot but another huge shoutout to Milton for continuing these epic returns over the last few months. We (Milton shareholders) got a special dividend plus the share price went up and Milton return 15.6% in the month of August!!! I got really lucky with this one considering I’m selling it soon. I don’t know a whole lot about SOL but I was going to sell Milton anyway so the recent gain has been the cherry on top!

The FIRE portfolio continues to grow and is now at an all-time high of $760K

Our expenses dropped off dramatically as we returned to ‘normal’ life post-wedding/buying a home. They’re probably a bit low because of the lockdowns but we’ll see.

 

Properties

No updates this month.

Property 1 was sold in August 2018

Property 3 was sold in April 2021

*DISCLAIMER*
The current value of our properties is a rough guesstimation based on similar surrounding properties. I only really update these when we get an official bank valuation

ETFs/LICs

The above graph is created by Sharesight

Huge returns all around! The market can’t stay like this forever, but since it’s impossible to know when the next drop will be, buying for the long term seems like a great choice IMO.

 

Networth

Ask Firebug Fridays 32

Ask Firebug Fridays 32

Nothing written below is financial advice. The questions and answers below 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.

Question (01:42)


Hi Aussie Firebug

I have 3 kids aging from 21 to 14 who are great savers and want to invest in ETFs and LiCs.

I’m educating them financially by teaching them everything from Rich Dad Poor Dad but don’t know much about share investing. Do you have any guides for investing in shares?

Tina

Firebug’s Answer


Hi Tina,

I’m going to suggest three books.

  1. The Bogleheads’ Guide to Investing by Taylor Larimore
    An excellent book that provides a practical real-life understanding of how to become a passive investor through low-cost index funds and ETFs. It explains how the stock market works and why tracking the index makes sense for most people when it comes to investing. Skip the US chapters
  2. Money School by Lacey Filipich
    A great practical book written for Aussies but also has timeless wisdom that is applicable anywhere in the world. Lacey is someone who has walked the walk and reached financial independence in her 30’s so she knows what she’s talking about. My favourite thing about this book is that it’s very direct. You’ll learn practical skills on how to actually execute a plan. Sometimes financial books can either be too anecdotal, or way too dry and boring. Lacey strikes a fine balance of good-humoured relatable stories that emphasise the importance of peer-reviewed investing strategies.
  3. The Psychology of Money by Morgan Housel
    The older I get, the more I realise it’s mostly our behaviours that determine if we’ll succeed with money/investing. I always thought that it’s how much you know, that the really smart guys and gals would be the ones with superior returns but Morgan shatters this myth in ‘The Psychology of Money’ with fantastic examples of why even some of the most brilliant minds suck at managing their money and investing. I really liked this book because it focuses on the most neglected part of investing… mindset! Life happens outside of spreadsheets and we’re often our own worst enemy when it comes to building wealth.

Blogs and podcasts are a bit like junk food really. Nothing beats a well-written book!

I’d also like to give a shoutout to Passive Investing Australia. It’s a blog that you’ll probably be able to read in one or two nights but it answers a lot of the most commonly asked questions in a really clear and succinct manner.

I hope that helps 🙂

🔥🐞

Question (09:21)


Hi Aussie Firebug,

Thank you for all the sensational and user-friendly content to date!

I’m a newly inspired millennial seeking FIRE (thanks to your podcast) and was curious to get your views on investing in high dividend-yielding ETFs (Australian and global) vs your current strategy of Aus ETFs/LICS, VTS and VEU. I get that the former typically produces lower capital growth and has higher MER, but wondering if you have ever considered the strategy given the potential for higher dividend income?

Keep up the awesome work!

Cheers,
Reg

Firebug’s Answer


Hi Reg,

Thanks for your kind words about the content mate 🙂

There’s a misconception when it comes to chasing high yielding shares called the dividend yield trap.
I’m a fan of receiving dividends because they’re tied more to the fundamentals of the business than the share price which can largely be influenced by the behaviour of the market even if the cash flow of the business hasn’t changed one bit.

Let’s take Commonwealth bank for example. On the 14th of Feb 2020, CBA closed at ~$91 bucks.

Just over a month later it closed at ~$58 bucks during the COVID crash. That’s a drop of 36%. Did anyone actually think Commonwealth bank lost 36% of its value in a month? Probably not. Were people running for the hills and acting irrationally? More likely.

But the interesting thing is that the CBA August dividend didn’t drop that much compared to the previous year (as a percentage).

For the majority of businesses, dividends go down less (as a percentage) than the share price in a crash and can be more reliable in retirement. But whilst I do like dividends, the total return on investment is ultimately the most important number when judging how well an asset performs.

Let’s imagine two scenarios when evaluating how two investments have performed.

  1. Company AAA is currently trading for $100 per share and pays $3.5 per share once a year. Dividend yield = 3.5%
  2. Company BBB is currently trading for $100 per share and pays $3 per share once a year. Dividend yield = 3%

Let’s pretend that we buy 1 share in both companies and after 1 year these are the results:

  1. Company AAA is now trading at $90 per share and pays $4. per share once a year. Dividend yield = 4.4%
  2. Company BBB  is now trading at $110 per share and pays $2.5 per share once a year. Dividend yield = 2.3%

The dividend yield for company AAA has gone up! But the total return is actually a net loss of $6.5 whereas company BBB’s dividend yield has gone down but the total return is $13!

Growth is really important which is why focusing on the dividend yield can be a bit of a trap sometimes.

Diversification and low management fees are within our controls (to an extent) as investors which is ultimately why we invest how we do. I hope that answers your question Reg 🙂

Cheers,

🔥🐞

Question (14:20)


Hey dude,

I just wondered whether an episode of the podcast addressing patience might be coming up in the future. It’s a massive part of FIRE I think. Waiting each month for net worth’s to rise, checking markets too often, waiting for dividends, waiting to get paid, waiting even though goals can seem so far away.

Keen to hear your thoughts.

Dave

Firebug’s Answer


Hi Dave,

This is an interesting topic and one that I struggled with at the start of my FIRE journey.

If I could go back in time, I would explain to my younger self that financial independence doesn’t make you happy. It’s what you can do with the extra time you’ve bought back that really makes you happy. I’d also explain the concept of coast/flamingo FIRE where you can really start to control your time years before you reach your FIRE number. You’ll be surprised what an extra 10 or so thousand dollars a year of passive income can do to your psyche.

And I know it sounds corny but you’ve really got to enjoy the journey and make sure you’re living a fantastic life along the way. FIRE is more of a life philosophy for me as opposed to a destination I need to reach in order to be happy.

Breaking things up helps a lot too. The first $100K is often the hardest. Once you pass that, compound interest really starts to kick in.

I hope that helps mate 🙂

🔥🐞

AUG21 Net Worth $999,022 (+$42,710)

JUL21 Net Worth $956,312 (-$11,992)

I publish these net worth updates to keep us accountable, inspire others 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 🔥


A coupla big changes for these updates as we kick off a new financial year.

But before I dive into that, I have to talk about the big milestone for July… which was moving into our new home 🏡.

We got the keys on the 9th and I couldn’t be any happier with how it’s all turned out. Yeah, moving sucks and it took a few weeks of setting everything up until it felt like home… but man… there’s just no better feeling than being settled in your very own castle with your wife 💑!

It’s such a far cry to where we were just 12 months ago. Working, eating and sleeping in a tiny bedroom in SE London whilst flat sharing with 3 roommates. But going through all that just makes this feeling so much sweeter. Mrs FB and I have always rented in pretty modest apartments since moving out of home because it’s all we needed. But this house represents our future. We have two spare bedrooms atm but hopefully, they will be filled in the not so distant future 🤞.

It’s the little luxuries like a walk-in wardrobe, ensuite and open plan kitchen that just makes us feel super appreciative of the position we’re in.

I feel like we’ve ticked off some major milestones in 2021:

  • Got back to Australia ✅
  • Started my freelance business ✅
  • Sold investment property 3 ✅
  • Got married ✅

But buying a home was the big one (wedding close second 😜) and it really feels like we’re embarking on the next chapter of our lives.

Net Worth Update

Righto righto,

So this update has been a long time coming. Because whilst the purpose of these net worth updates has mostly been about keeping us accountable and giving some inspiration to others. A major component of them is to give a practical guide as to how we’re going to fund our retirement once we hit FI.

And the net worth figure alone doesn’t really tell the whole story. I have been thinking all month about what to include and exclude in these updates moving forward and come to the following conclusion.

  • I’m keeping the net worth number to be as transparent as possible. It’s not the best number to determine FIRE status but it does give a complete picture of our finances so it’s staying in
  • The PPoR is going to be included as an asset
  • There’s a new chart (below) that will show our FIRE progression. This will only include income-producing assets and will not include our PPoR
  • The same chart will also include how much money we’ve spent each month
  • I will include a 4% line that will show what our portfolio could theoretically redraw in retirement
  • Once the 4% line eclipses our expenses, I will officially declare us FIRE and it will be the end of these updates

So without further ado, here are the new charts

I’ve reworked the net worth visual to give a more complete picture and show exactly how we arrive at our number each month.

A few things to note:

  • HECS debt has been included. This has actually been factored in from the start but I’ve never put it in the charts because I was lazy
  • I’ve separated the PPoR from our investment property (IP). The reason behind this is because the equity of our IP is a part of our FIRE number whereas the PPoR is not. We’re planning to sell our last IP this year so hopefully it will be less confusing once that happens
  • You need to hover (or click, for the mobile users) over each part of the bar chart to show the exact numbers because the visual got too messy if I forced it to display all the numbers

The FIRE portfolio represents all of our income-producing assets (minus any debt associated with them). The above portfolio is what will generate the income for us in retirement. You might have noticed that I haven’t included Super in this portfolio.

Why’s that you ask?

Because that’s not our strategy! We decided to pay more tax and become financially independent outside of Super as opposed to doing the 2 pot strategy that the Aussie Firebug calculator works out for you.

And before you comment, yes yes yes. I know. The two-phased strategy is the quickest and most tax-efficient way to reach FI for Australians (as my calculator demonstrates), we just don’t want to have to draw down our pre-super pot. Plus it makes a lot more sense the closer you are to your preservation age. A bit harder to stomach when we first started this journey in our mid 20’s.

Now, this chart is actually the most important one and displays the two metrics that determine if we have reached FIRE.

  1. How much money are we spending to maintain our lifestyle
  2. How much money can we draw from the FIRE portfolio to fund this lifestyle

A few things to note:

  • The expenses are all over the place because we’ve had a few one-off items this year like the wedding and buying a home. Now that we’re in our house, the expenses should start to be more consistent
  • We’re using the 4% rule for this calculation and I’ve gone back and done the rough calculations for the last 6 months so the graph looks a bit prettier (as opposed to just having one data point). So for July 2021, our FIRE portfolio is $721,461. Four percent of that = $28,858. Divide that number into 12 and we get $2,404. So theoretically (using the 4% rule), our FIRE portfolio could fund a lifestyle of $2,404 a month right now.
  • I’m lumping cash and real estate equity into the 4% rule to make it easier. We plan on selling our last IP this year anyway so the FIRE portfolio will be made up of some cash but mainly shares in the future
  • You’ll notice a bit of a dip for this month for our 4% withdrawal. This is because $106K of cash was poured into our PPoR and we’re not including that asset in our FIRE portfolio because it doesn’t produce any income. We also had to pay stamp duty in July which was around $18K cold hard cash 💸😢

And that’s it! I will keep the FIRE Progress chart rolling every 6 months so it doesn’t clog the visual too much.

What do you guys think? Does this paint a clearer picture of our FIRE progress and how we plan to become financially independent? Are there any other key bits of data you’d love to see included in these updates?

I’d love to know your thoughts in the comment section below 🙂

Properties

No updates this month.

Property 1 was sold in August 2018

Property 3 was sold in April 2021

*DISCLAIMER*
The current value of our properties is a rough guesstimation based on similar surrounding properties. I only really update these when we get an official bank valuation

ETFs/LICs

The above graph is created by Sharesight

With the house finally settling in July, it’s time to jump back into the share market.

I’m just getting my ducks in a row to execute the debt recycling strategy that my accountant and I have cooked up. More details on that in the coming months 😁

 

 

Networth

AUG21 Net Worth $999,022 (+$42,710)

JUN21 Net Worth $968,304 (+$31,744)

I publish these net worth updates to keep us accountable, inspire others 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 get wealthy enough to retire is easy but it takes many years of being consistent and sticking to a plan. The table at the bottom details our entire journey starting from being $36K in debt all the way until we reach 🔥


Soooooo…. we got married in June 🤵👰🎉

📍Airlie Beach

God damn did it feel good to finally tie the knot after all the trials and tribulations during the last 16 months.

I originally wanted to elope back in Marid when I popped the question to Mrs. FB. But she wanted a destination wedding and it was a priority for her to have the family attend… which is fair enough.

Who could possibly have known that a global pandemic was around the corner 😅?

It was a smallish wedding of only 26 people (10 children). We just had our immediate family which made the whole experience really special and one that we’ll never forget.

It was the first time that everyone from both sides got together. I felt like we were the McCalister’s from Home Alone when we arrived at the airport to fly up. 26 people with nearly half of them being kids was absolute mayhem in the best possible way 😁. I was convinced that at any moment one of the parents were going to bellow out…

“KEEEEEEEEEVIN!”

We stopped at Brissy and had our honeymoon down in Byron Bay. Here are some of my favourite shots from the trip.

Whitehaven Beach

Airlie Beach

Brisbane

At The Farm in Byron Bay

Macadamia nut farm

🏄‍♀️… at Byron

We’ve had a blast over the last 2 weeks but now I’m ready to head back home and move into our new house (settlement is on the 9th).

We’ve just got to 🙏 that everything goes smoothly when we fly back to Vic. To be fair though, the latest outbreaks have been a bit of a headache for us but I’d take headaches in the honeymoon 100/100 vs having to deal with this shit before the wedding.

There was a little lockdown in Vic before we flew up, but by the grace of God, Queensland allowed regional Victorians to enter literally 1 week before our wedding. And now with the latest round of lockdowns, we got insanely lucky to get married the week that we did.

We personally know 5 couples who had to reschedule their weddings in 2021 due to the lockdowns so we can’t complain at all!

Net Worth Update

The major boost this month, which was completely unexpected, was from our last LIC… Milton!

I haven’t looked into the finer details of it, but I believe Milton has been bought out by another company called Soul Patts. And the agreement will see Soul Pattinson pay an equivalent offer value of $6 per Milton share.

Which, in plain English means that the share price of Milton went through the roof.

Milton returned us 27% ($12K) basically overnight 😱🏌️‍♂️🥳

Holy crap am I glad we haven’t sold out of Milton yet lol. I’m still planning to sell Milton to simplify our holdings plus I prefer ETFs vs LICs these days but wow this little bump has been very welcomed.

It’s honestly the most exciting thing to ever happen to the shares portfolio 😂. I mean… I got a message from my mate Jimmy a day before our wedding and I’d imagine that the feeling I got wasn’t too dissimilar to what most speculators feel when their gamble pays off.

Granddaddy LICs and most ETFs are solid choices for reaching FIRE in Australia but it’s extremely rare that you’ll ever get a major bump like this in such a short amount of time.

It was a good month overall for the sharemarket which saw more gains come from the rest of the portfolio plus Super.

The wedding/honeymoon plus a few bits and bobs for the house made it an expensive month. Add to the fact that I only worked 6 billable days in June meant that we didn’t save that much in cash, unfortunately.

Properties

No updates this month although you can now see the numbers for property 3 using the link below :).

Property 1 was sold in August 2018

Property 3 was sold in April 2021

*DISCLAIMER*
The current value of our properties is a rough guesstimation based on similar surrounding properties. I only really update these when we get an official bank valuation

ETFs/LICs

The above graph is created by Sharesight

No buys again this month. We’ll be back at it once the house settles in 3 days 🙂

 

 

Networth

Investment Property 3 Has Been Sold

Investment Property 3 Has Been Sold

Our second investment property (IP) has officially been sold 🎉👏

I say second because we first sold IP1 back in 2018, but this IP was actually the third property we bought and I’ve always referred to it as IP3 on this site so it can be a bit confusing.

Selling IP3 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 are looking to exit all our positions in direct real estate except for our PPoR which we bought in 2021.

We still have one IP left (IP2) which hopefully will be sold at the end of 2021.

 

What Was The Return?

Following the theme from the IP1 sale article, I’ll get straight to the point.

We turned $65,313 into $126,298 over 6 years which works out to be an annualized after-tax return of 11.62%

If you’re interested in all the finer details of how we arrived at that figure please read on.

 

The Numbers

IP3 was bought in SE Queensland for $250K in 2015.

Buying expenses

$1,000.00 Initial deposit
$400.00 Building and Pest inspection
$11,500.00 More of the deposit
$37,900.25 Rest of Deposit
$2,078.83 Legal and conveyancing fees
$200.00 Settlement Fee
$728.40 Land Titles Office
$9,900.00 Buyer’s agent fee
  • Stamp duty was added to the loan for this IP instead of paying it upfront.
  • I paid a 20% deposit to avoid LMI
  • I used a buyer’s agent because back in 2015 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 out sourced it.

Actual money spent so far: $63,707

Cash Flow/Holding Costs

Cash flow Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Rent – Expenses $1,679 -$118 -$1,976 $711 -$1,285 -$1,989
Depreciation $6,911 $4,117 $3,375 $2,872 $2,529 $2,293
Tax Refund $1,935 $1,567 $1,979 $799 $1,411 $1,584
Total $3,615 $1,448 $3 $1,510 $126 -$404

Total cash flow over the 6 years = $6,298

Notes:

  • I had a lot of repairs that needed to be taken care of before I sold the property in year 6 which was the most expensive year. Year 3 and 5 also had some pretty hefty R&M jobs too.
  • 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.
  • I used the diminishing value method for depreciation.

Actual money spent so far: $57,409

Selling Costs

  • $599 – Conveyancing
  • $7,305 – 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

Total Selling Costs: $7,904

Total money committed to this investment over 6 years: $65,313

The IP was sold in June for $320,000

I invested $65,313 of my own money and received $126,298 6 years later giving me an annualised return of 11.62%.

 

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.

I know people like to crunch the numbers based on purchase and sold prices without factoring in leverage, but I just can’t see how this gives an accurate depiction of the investment when 99.99% of property investors use leverage when investing. It’s the only way real estate makes sense IMO.

The tax bill for this investment was washed through the trust and most of the gains actually went to my self-funded retiree parents. So just like IP1, we didn’t actually have to pay any tax for IP3.

I need to write another trust article that highlights our strategy when it comes to trust distributions because the trust is actually shaping up to be an enormous tax minimisation vehicle especially combined with debt recycling which will also be doing once our new home settles this month.

 

Why Did I 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

IP3 wasn’t that much of a headache tbh. But it was still way more work than our share portfolio. I know hindsight is 20/20, but the share market would have actually made us more money in the same period of time with 0 work involved… 😑

But this is easy to say now in 2021 after a huge bull market. I’m still happy with the returns but it further illustrates to me that you really need to add value or solve a problem with real estate to make bank.

This may surprise some of you but I bought, managed and sold IP3 without ever actually seeing it in person 😅.

I paid someone a very high amount to do all the due diligence work for me so I was confident that the property was legit (I was still nervous until I received my first rent check lol). I also never improved the value of the property which is one of the biggest advantages I’ve always said property has over shares… the ability to physically add value. I seriously just bought it, dealt with a few tenant issues here and there and sold it 6 years later.

IP1 was very different because I put in the work (sweat equity) and physically improved the value of the home which was reflected in the sale price.

And now we only have IP2 left which we will be putting on the market later this year 🙂

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