Aussie Firebug

Financial Independence Retire Early

Ask Firebug Fridays 29 feat. Lacey Filipich

Ask Firebug Fridays 29 feat. Lacey Filipich

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 (03:29)


Hi Firebug

Great Content!

I have a Market Timing / Crystal Ball forecasting question!

Do you employ any strategies of buying shares prior to the Ex-Dividend date deliberately to be entitled to the dividend payment and or franking credits with the 45-day ownership rule or buying shares immediately after the Ex-Dividend date to buy the shares at a price point normally lower than the price prior to the Ex-Dividend date?

Cheers,

Daniel

Firebug’s Answer


Timestamp: 3:29

Question (10:00)


Hey mate,

I just stumbled across your podcast today and honestly mate, I’ve never felt like anyone thought the same way as me, it was like you were in my head. I’ve felt like I know I need to invest to achieve financial freedom but as you say when you have mortgages etc you always find a reason not to.

I’m keen on getting into ETF’s as you suggest on your podcast but still am unsure on how and where to start. Don’t wanna buy the wrong one etc.

I wanna set and forget, I am a good and dedicated saver and I think I can make it work. But how do you know if your pouring massive amounts of money into the ETF’s that you don’t lose it all if it takes a turn wiping out all that you’ve worked for leaving you with nothing?

Cheers
Nick, Gippsland

Firebug’s Answer


Timestamp: 10:00

Question (27:58)


Hi Aussie FIRE Bug

If you were to buy a house would you use Peter Thornhill’s strategy to pay off the house earlier? I am referring to, using the equity in the home to borrow a line of credit to borrow shares. Then using the dividends to pay off the house.

Is this as good as it sounds?

Thanks for putting this blog together. I have learnt so much and I’m so excited to achieve FIRE one day.

Kind Regards

Trevor

Firebug’s Answer


Timestamp: 27:58

APR21 Net Worth $900,125 (+$12,972)

APR21 Net Worth $900,125 (+$12,972)

Late update this one.

Even though I’m only working part-time, it was a pretty busy April/start of May.

Two major updates:

  1. We sold IP3 🎉
  2. We have gone unconditional on another PPOR (the first house we got accepted on fell through due to a bad B&P report)

I’ll make another post that dives into the numbers from the sale of IP3 similar to the one I did for IP1 which you can read about here.

The market conditions were just too good to pass up and we received two offers that were in the range we were happy with so after a bit of back and forth, we accepted an offer and had a smooth sale process.

It turned out to be an investor too which was surprising. The agent we used to sell the house had told me that 90% of the sales were going to first home buyers and not investors. This worked out perfectly for our long time tenant who was very worried about finding a new place because apparently, new leases are hard to come by.

It’s just crazy what Covid has done to the real estate market.

This is why we were even more stoked to finally go unconditional on a PPOR after a successful B&P. Yeah, we paid more than we would have liked to but that’s just the way the game is being played at the moment.

We ended up paying $515K for a 4 bedroom house that’s 10 years old in the area we wanted. We realistically could be in this house for 15+ years. I reckon this place would have sold for around $420K fourteen months ago but oh well.

I know there’s a lot of people sitting on the sidelines waiting for a crash to happen and you know what, they have very good reason to believe that one might be just around the corner. I mean, investing fundamentals are cactus right now and nothing seems to make sense.

All I’ll say is that you need to make the right decision for yourself and nobody else. Sometimes it’s not about money either. Paying so much for a PPOR was definitely not the best financial move for us. Renting a smaller place would have been a lot better money-wise. But we’re getting married in a few weeks and hopefully having kids in the coming years. I love the fact that we’re in such a strong financial position to be able to get the house we wanted without any financial pressure whatsoever.

To me, that’s why we invest and care for our wealth in the first place. Not to make the most money but to live a happy life.

I honestly can’t wait to move in and finally, finally set up a home just the way I want without any restrictions. We’ve always rented/lived at home so this will be the first time in both our lives where we can bring Mrs. FB cats into our house, decorate and design our living space, hang some pictures of our travels on the wall etc. It’s very liberating and I’m definitely going to show off the home office/battle station once I’ve fully set it all up 😁

Net Worth Update

The share market did all the heavy lifting in April and we managed to crack the $900K mark, woohoo!

One loose end we finally managed to clear up was sorting out the rest of our money in the UK and closing all of our accounts. Our bank accounts have been a mess since we’ve moved back to Australia and a huge priority this year for me was to streamline our investments/bank accounts.

Selling IP3 was a big improvement and now we only have IP2 left to offload which I plan to do at the end of the year.

We’ve also changed our personal banking to UP which unfortunately isn’t a supported bank with Pocketbook (the software we use to track our expenses). Add the new accounts I’ve had to set up for my new business and things have been getting unwieldy very quickly. We basically haven’t been tracking our expenses very well for the last couple of months and it’s crazy how many things slip through the cracks when you’re not on top of it.

On a positive note, my new consulting cheques should start coming in next month so I’m really keen to get back on track with investing and not just building our house deposit.

 

Properties

Most of the property updates have been covered above. I’ll be adding the in-depth article from the sale of IP3 in future updates.

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

We didn’t buy or sell any shares in April as we were continuing to build our house deposit. However, now that we are unconditional, I’m really looking forward to getting back into the swing of things with our share portfolio. I’ve got some big plans with how we’re going to debt recycle the PPOR and I really can’t wait to settle on the property and get cracking.

 

 

Networth

Ask Firebug Fridays 29 feat. Lacey Filipich

Ask Firebug Fridays 28

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.

Question (01:25)


FB & Mrs FB,

Loving the blog you have created and reading about your journey. Just to keep it short, I was wondering if you’ve come across any literature about tax minimisation to get to FIRE? As in (and I’m no expert), is it possible to set up a shell company to buy/own the share portfolio so that all income is taxed at company rate (30%)? That’s a lot lower than the upper limit of personal tax (45%).

And I hope you are loving Europe, it was the single best personal development experience I’ve done for myself. I just wish I didn’t piss up the wall my contract rates as an IT professional. I probably would have hit FIRE by 35yo if I had saved it, and now just starting my journey at 44yo with 2 kids makes it just that little bit more challenging.

Damien

Firebug’s Answer


Hi Damien,

First off, apologies for taking forever to get back to you mate.

I’m glad you’re enjoying the blog/podcast mate 🙂

Ahhh tax minimisation, a very interesting topic for sure. In all the research I’ve done, SS into Super is one of the best ways to lower your tax bill and it allows your assets to compound in a low tax environment. The only reason I don’t do it is that we plan to reach FIRE before our preservation age and don’t want to use the drawn down strategy.

But for someone at your age, it’s one to seriously consider.

I have seen the whole bucket company taxed at 30% strategy but honestly, complicating your investments like this is usually more of a headache than it’s worth. There are so many hidden costs associated with all that and simplicity is worth its weight in gold IMO.

I totally agree with you about the personal development part. London was the best thing we’ve ever done. Grew more in two years than I did in the previous 7 lol.

All the best in your journey mate

-AFB

Question (10:17)


*This question was asked back in 2019*

Hi AFB,

With the interest rates being cut to 0.75% to boost the economy and the prediction of a recession occurring very soon. I was wondering if it is wise to invest into ETFs now or wait for the recession to hit then buy. I understand that it is impossible to predict if a financial crisis will occur but I’m tempted to wait and buy after. Just wondering what your thoughts are

Thank you, Nam

Firebug’s Answer


Hi Nam,

A lot of people ask this question and I always give the same answer.

It’s almost impossible to time the market so I’d rather not think about it and automate my investments as much as possible. If you set rules for yourself such as, I’m going to invest $X amount each month rain hail or shine, you remove the temptation of trying to time the market. And you’ll probably sleep better at night too. Because the last thing you want is to wait it out and watch the market continue to soar up, up and up! If that happens, it’s really hard to dush yourself off and buy back in at the record height.

Some people have had success with timing, but from the research, I’ve done, on aggregate it’s a loser’s game.

Cheers,

AFB

Question (21:14)


Hi Firebug,

Love ya work, it’s been really inspiring.

We are currently paying off a mortgage on our own place, and we will continue to focus on paying that down for the next couple of years. We are currently deciding where will start investing after that and unsure if we will buy an investment property or LICs and ETFs.

I’ve loved your various comparisons of the pros and cons of property and shares. shares definitely feel like a better fit for us from a lifestyle perspective. The thing that keeps pulling me back to the idea of property is the power of leverage and as we are still in the initial wealth-building phase I can’t help but feel that it seems like a more powerful way to get ahead. I’ve heard you dismiss the use of leverage in the share market as too risky to consider, noting a couple of your podcast guest have recommended it in certain ways. I’m sure you’ve looked into some of the various options for leveraging into shares. I’d love to hear your thoughts in more detail on the various options and why you have ruled it out entirely.

Keep up the great work!!!

Firebug’s Answer


Hi Chris,
I’m glad you’ve found some inspiration from my ramblings 😁

Sometimes I might come across as being anti-property and leverage in some of my articles/podcasts but I’m actually a fan of using these tools for the right investor. The issue is, IMO, most ‘mum and dad’ investors are not well-suited to be in an active investment class like property.

Having said that, the availability of cheap credit without margin calls is an attractive value proposition for property that shares can’t compete with on a like for like basis.

However, there are some great alternatives if you’re looking to use the power of leverage with the passive nature of index investing.

  1. NAB equity builder. A low(ish) interest rate loan to buy ETFs/LICs through doesn’t have margin calls 😮. Sounds too good to be true right? Well, from what I’ve read, there’s a little bit more to this product but it’s definitely one to look at. I found this review by Carpe Dividendum to be very helpful.
  2. Paying down your PPOR and then withdrawing the equity to pump into ETFs… aka debt recycling.This is the P. Thornhill special and something I actually plan to do this year now we’re finally in the market for a PPOR. In a nutshell, you take non-tax-deductible debt (a PPOR loan) and pay it off. You then pull the money back out to invest in shares. This means more $$$ to invest with and it turns your non-deductible loan into a deductible one so you can claim the interest repayments (for the investment part of the loan) in your tax return.I plan to fully document this process when we do it this year so make sure you’re on the mailing list if you’re interested 🙂

I think debt recycling is probably the safest option but it’s not for everyone (you need a PPOR to start with). There’s also the psychological benefits of being debt-free that you’d need to consider (everyone’s different).

Hope that helps mate.

-AFB

APR21 Net Worth $900,125 (+$12,972)

MAR21 Net Worth $887,153 (-$7,833)

My (f)unemployed dream came crashing down in March…  that’s right, I messed around and got myself another… job 😲

But this time it’s different. And I’m really excited to share some of the details with you guys (I might even make a pod about it).

This shouldn’t be all too surprising considering Mrs. FB and I are not financially independent yet but I had been thoroughly enjoying the abundance of free time during February. It was nice to just have a little break and stop to think about what we want to do next.

If you’re an experienced FIRE devotee, you’d know that meaningful work is a staple for all humans and whenever anyone in the FIRE community talks about the retire early part, they’re not referring to never working again. But if you’re new around here, I can totally understand that you might think that stopping all forms of work is the goal because of the word retire in the FIRE acronym. But it’s really about freedom, choice and having control of our most precious resource of all… our time.

So given that fulfilling/meaningful work is awesome, and is something I plan to do until the day I die, I had been thinking long and hard in February as to what my next move was work-wise. It’s an interesting thought experiment that I’d encourage all of you guys out there reading to try.

What would you do if money wasn’t a concern? 

Money is still a concern for Mrs. FB and I (not FI just yet) but we’re so far along the journey that it almost feels like I could try my hand at anything and still be ok long term as long as it made some sort of income.

In the past, I had given serious thought about really ramping up AFB content and increasing the monetisation of the site and podcast. Hell, the increase in general podcast popularity in the last two years, especially in terms of advertising maturity would have probably been enough income each year from the site/podcast to be able to coast to the end goal. This thought popped back into my head but I kept thinking… do I want to do AFB as a proper job? And if I was being truthful to myself, the answer would always come back as no. AFB is first and foremost, a passion project. And I intend to keep it like this all the way until we have reached FIRE. Plus I couldn’t see myself enjoying the idea of spending my days behind a microphone/keyboard all the time.

At my core, I’m an extrovert nerd who loves sports, keeping fit and solving puzzles. My career in technology has always been a good fit, it’s just that the full-time nature of the job always felt like I was giving up way too much of my time each year.

So the longer I thought about it, the more I was leaning towards starting my own business as a freelancer in the data services and analytics space (my specialty).

And that’s what I ended up doing!

I landed a contract for 3 days a week in the project space which was so much more exciting to me. A lot of my old job was admin/operations which were never my thing. I like to solve business process problems utilising technology. That’s my jam and I tinker around in that space during my free time anyway. It’s the sort of work I’d been doing during the last 2 years in London but the pace of those contracts were a little too intense. I’ve been working 3 days a week since mid-March and my work-life balance atm is honestly on another level. 3 days of work and 4 days free every week is a serious game changer holy shit.

I feel like I get so much done during those three days too. How many people do sweet f’all from Friday lunchtime to knock off? Isn’t it a bit crazy, I’m sure there have even been studies done on how much work actually gets done past 12 PM each Friday yet most people piss fart around the office chatting or trying to look busy just to clock up their hours (I’ve been guilty of this too). I have so much more drive and purpose with my work these days. I don’t feel like I’m trading my time for money anymore because I’m scratching that extrovert collaboration itch of my personality with this type of work.

And that’s the big update from March. I’m going to work this freelancer gig for the foreseeable future to satisfy my love of solving problems with technology that allows for plenty of free time to work on other creative projects like AFB and anything else that pops up 🙂

Net Worth Update

Have you noticed a trend when it comes to FIRE related forums such as Reddit/Facebook/Whirlpool that 90%+ of the questions asked by newcomers are about investing? I’m almost certain that people discover FIRE and think that we all must be the second coming of Warren Buffett or something. That’s the only explanation as to why we can retire early right? In reality, it’s a high savings rate and usually a decent income that builds the foundation of the portfolio all the way up until around 70%-80% of the end goal, and then compounding does its thang.

A huge reason why we’re able to have a high savings rate is that we don’t conform to societies pressures and expectations to always buy the latest and greatest and consume as much as possible… most of the time 😅

It’s okay to splurge every once in a while on something you value highly… Which just so happens to be an engagement ring for Mrs. FB 😂

I’ve never really understood the whole diamond ring thing but ya know what? I know Mrs. FB better than anyone else in the world and she would never spend that much money just because the marketing machine told her she needs it. As long as she’s happy, I’m happy and god knows how much I’ve spent on weird obsessions over the years that she never understood but that’s just what a relationship is all about… understanding and compromise.

I actually read an incredible blog post in March that did make me step back and reassess what’s actually important in life and how money is simply a tool that we can use to become free but is not as high in the pecking order as you might think.

It’s a long read but trust me, it’s one of the rawest and most sobering articles I’ve ever come across in 7+ years of consuming FIRE content in all formats.

Living a FI was one of the earliest FIRE bloggers on the internet and he has rarely provided an update since retiring early in 2015. This isn’t an article that you can skim through, dedicate half an hour of reading time and check out his latest post here. I won’t ruin it for you but my biggest take away from reading it was there needs to be more consideration to how your partner is feeling during and after the journey towards financial independence. Because I don’t know about you, but I’d rather be broke in a happy relationship vs FIRE’d without my life partner.

I remember feeling a bit down when Mr Money Mustache revealed that he had split up with his wife a few years ago. I mean, I respected this guy so much (and still do) and thought that his philosophy on life was one that I could look to for inspiration and mould my own around. He’s written about the breakup a few times and reiterates that their way of life did not contribute to the relationship breakdown but man… it’s hard not to wonder… Especially after reading the Living a FI update and all the issues he faced once he reached financial independence and quit his job. There’s a whole other mental side to this movement post-retirement that doesn’t really get talked about much. Food for thought.

But yeah, the engagement ring plus my outfit for the wedding and a huge tax bill for AFB really smacked the old NW around for this update. Shares/Super really pulled through though so the damage wasn’t too bad

 

Properties

Property… Ugh…

I feel like Mrs. FB and I have done pretty well since we’ve been back home. She’s back teaching, I’ve started a business and have found work, the wedding in June is all systems go, we’ve sorted out a whole bunch of life admin work and tied up many loose ends in the UK. The last major piece of the puzzle is finding a PPOR to call our home.

And we were so close to ticking this off in March 😩

Long story short, we found a place that was right where we wanted to be, had all the features we needed, was within budget and our offer had been accepted. But the building report was not satisfactory and the most annoying thing about this heated market is the inability of buyers to negotiate. I won’t get into the finer details, but the vendor was making it really hard for us to get the deal done. Wouldn’t share engineering reports, kept changing the reasons as to why the defect was occurring, and completely ignoring other issues that were raised. Our gut told us to walk away from this deal which is what we ultimately ended up doing but I won’t lie, we were pretty shattered. I’d even started to imagine our future children running around the backyard lol. Emotions come into play so much more with a PPOR as opposed to buying real estate for investment purposes solely.

And it’s not like the vendor has to address our concerns right? Buyers are lining up around the corner for these type of properties and because we were asking too many questions, it was probably just easier for them to accept a slightly lower offer 🙃. I’ll probably meet the couple who ends up buying that house at the pub in 20 years time and they’ll tell me that they haven’t had any issues with it… 😤. Ah well, everything happens for a reason and it helps me sleep at night imaging that we dodged a bullet but who really knows.

So we’re back at square one now and I’m starting to realise why so many couples just get sick of the whole process and end up either buying something that they don’t love or overpay. We’re not at that stage yet but it’s easier now for me to relate.

Property 1 was sold in August 2018

*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

We continue to build up our PPOR deposit and didn’t purchase any more shares in March.

 

 

Networth

Ask Firebug Fridays 29 feat. Lacey Filipich

Ask Firebug Fridays 27 feat. Family Finance

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.

I didn’t only have the audio answer this week guys (ran out of time this week). Below are the questions, but you’ll need to listen to the pod for our response, sorry readers 😅

 

Show notes:

 

Question (00:03:55)


Hi Aussie FIREbug, love your work!

I heard you talk about insurance on the Aussie HIFIRE podcast episode, but you didn’t mention private health insurance. I’m already 34 and earn over the threshold for the Medicare surcharge, so basic insurance would mean I would just about break even with taxes saved. If I retire early though, this driver would disappear and the benefits (choice of specialist, ambulance cover across states etc) are unlikely to be made use of in my younger years. If there are zero benefits, I’d also much rather pay additional taxes than pay to a health fund.

Thoughts?

Charlotte

Question (00:15:12)


Hello AFB,

Long time reader/listener, first-time commenter.

I really enjoy it when you write/talk about the positive impact that your parents had on you growing up, especially when it came to money management and working hard (my parents had the immigrant mentality too).

I have three children, 2, 5 and 7 and I’m trying to strike the fine balance between teaching them that money doesn’t grow on trees, but also giving them all they need to flourish into wonderful people.

What will your approach be if/when you have kids and do you think you’ll be as hard on them as your dad was on you?

Alex

Question (00:26:08)


Hi Aussie Firebug,

You’ve mentioned that you and Mrs Firebug are planning to have kids one day. How does this affect your FIRE plans and have you budgeted for an increase in expenses?

The wife and I are trying for kids and I’m not quite sure how to model for children as there seems to be such a disparity amongst parents as to how much a child ends up costing.

Cheers,

Dean

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