by Aussie Firebug | Jan 2, 2021 | Financial Independence, Investing, Tax
I’m writing today’s article as if I could somehow post it back in time, two years prior would have been perfect.
You see, Mrs Firebug and I were packing up our life in Australia, about to jet off to the other side of the globe with a strong desire to see all the wonderful and interesting places that Europe offers. But quitting your job and moving to London can be scary shit yo! I’m a pretty confident person normally but you do second guess yourself when you’re out of your comfort zone.
But you know what? Working hard and investing during our early/mid 20’s left us in a really good spot financially and we avoided a lot of potential worry and stress had we made this trip beforehand.
Still, I really had no idea what to expect and wasted a lot of time and money simply because I didn’t know what I’m going to share with you in today’s piece.
I’m writing this guide to help ya out. If you fall into one of these categories:
- You want to move to London
- You already live in London
- You want to move overseas but continue to invest in Australia as we have done
Then this is the guide for you!
Are you sure you want to live in London?
Before we dive into the article, I want to warn any would-be Londoners of one unavoidable fact.
London is stupidly expensive!
It ranked 19th in Mercer’s 26th annual cost of living report. To put that into perspective, Syndey ranked 66th and Melbourne came in at 99th.
You really need to ask yourself what’s important. We predominately moved to the UK to be close to Europe for travelling. Mrs. FB is a school teacher and she basically earns the same amount of money in London as she would in just about any other city or town in the UK. But most of the high paying contract jobs in tech were in London which is the reason we decided to move there.
Had I been in an industry that didn’t attract a premium in The Big Smoke, there’s a very good chance we would have ended up somewhere else like Liverpool, Edinburgh or Belfast.
IMO, you really should heavily consider living somewhere else if your salary is < £35K or you can get paid a similar wage somewhere else in the UK.
I know a lot of people who moved to London straight after uni that worked minimum wage jobs at a bar and couch-surfed through Europe. London would be one of the last places on earth I would choose to live if I had a minimum-wage gig (Cafe work in Thailand/Mylasia comes to mind). Don’t get me wrong, it’s an amazing city, but there’s an array of other really good cities in the UK where you can do lower-paid work and not have to pay the outrageous rental costs of The Big Smoke.
But if you’re still keen on London, please do read on.
Setting up life in London
Find a home
We lived in two apartments during our tenure, the first being in Norbury (Zone 3) before succumbing to the classic Aussie stereotype and set up shop in Melbourne 2.0 aka Clapham (Zone 2). We were paying £900/m (bills included) in Norbury for our room that had a private ensuite in a brand new apartment right next to the overground station. In Clapham North we paid £900 + bills (£60) per month for a classic Edwardian style flat that was a lot older but actually had more character which grew on me.
The Zones dictate how central the location is to the city (Zone 1 being the most central location) and they actually make a difference in the cost of public transport too.
Zone 1 is too expensive IMO (you may be able to find a cracking deal) and we found the sweet spot in terms of location and price was in Zone 2. Zone 3 was ok but if you’re planning to commute via bike, you could be looking at a 45-60 minute trip each way which is a little bit offputting for most. IMO it is so worth paying a bit extra to be closer to the city so you can cut down your riding time to be 20-30 minutes to the CBD. Check out this zone map for more info.
One of the best resources I can recommend is the Aussies in London Facebook groups. There are a few of them getting about and sometimes the groups that are a bit smaller (<15,000) are actually better. These groups are not only fantastic to find spare rooms, but they also act as a market place for second-hand bikes, clothes plus tips and tricks. You can usually get some killer deals on there when people move back to Australia and sell a lot of their stuff. If you post a pic of yourself with a bit of a write-up, there is a great chance that you’ll get some messages from people looking for a flatmate. I’m not on Facebook anymore but I’m sure there are a few people in those groups who’d benefit from this guide so feel free to share this around.
We personally found this way of finding a place much better than going through websites like Spareroom which was the website we used for our first place. Those other websites will charge you a premium to be able to access newly listed rooms/properties plus dealing directly with the flatmates was always a better experience even when we didn’t want to live in the flat.
It depends on what you’re looking for too. A lot of people will say that you should live with people from other cultures/countries to get the proper experience which probably won’t happen if you’re looking for rooms on an Australian Facebook page.
Here are my general recommendations based on our experiences for finding a home in London.
- Flat sharing is fun and is a key part of the experience (way cheaper too)
- Couples have it much cheaper than singles even factoring in the extra price couples sometimes have to pay for
- Having our own ensuite was worth it (for us)
- London has great public transport but there are some black spots. Try to get as close to a tube station/overground as you can. If you can get near a big hub (like Clapham Junction), even better
- Biking is the best way to get around the city (more on this below)! Bike superhighways are a recent edition (I believe old Bojo had something to do with them actually) to London but they are superb and something I would try to live near to make my commute into the city a hell of a lot easier. There is a world of difference riding in a dedicated lane vs weaving in and out of traffic
Banking
Thank your lucky stars that you didn’t move to London ~ pre-2016. Setting up a bank account used to be one of the most bothersome tasks before the digital banking shakeup in 2014 that changed everything. Horror stories used to be common where people would move to London and get stuck in a shit sandwich loop. They couldn’t sign up for a flat because the rental agency wanted to see payslips/bank statements but the old school banks wouldn’t let someone open up an account that didn’t have a place of residency in the UK, but they couldn’t get a place without… yeah, you get it.
What a nightmare!
From what I heard, the 2008 financial crisis introduced extremely strict banking rules which meant a whole bunch of red tape and general pain for ex-pats trying to start a new life. Fast forward 6 years and the government started to ease the barrier of entry for banking licences and reduce the restrictions which gave rise to a new concept in baking… the challenger banks.
You might have heard of 86 400, Volt and Up. These are called Neo banks in Australia but they’re really just copy cats based off a concept that was started here in London.
I bank with both Monzo and Starling and can recommend both. They are seriously epic. The apps for both are extremely well developed and do everything you need. You can’t get a better interest rate for international travel either and there are no fees associated with the account.
But the best feature of all, hands down, is how effortlessly you set up your account. It’s 100% done through the app. No branches or dealing with people at all. You fill out a bunch of questions, record a selfie video saying who you are, take a photo of your passport and a few other documents and you’re done. The card gets mail out to your location and that’s it!
If I had to choose, I’d probably go with Monzo purely because it’s more popular and they’re cool features you can do if you share a meal with a group and everyone uses Monzo.
Phone Plans
Boy oh boy is it ganna be hard going back to Australian phone plans after you see what kind of deals you can get in the UK.
Mrs. FB and I are both with Voxi (a subsidiary of Vodaphone) and their plans are very good. Going from country Victoria where I was paying something like $40 for a gig of data which wouldn’t even bloody work half the time, to deals like these was unreal.
Unbelievable! £12 quid (~$24 AUD) for unlimited video streaming/social media. And the connection was never a problem for us here in the south of London.
It’s cheap and it works but the best feature bar none was definitely not having to get a new sim card when we were hopping around Europe to all the other countries. I love technology 🙏.
We can only vouch for Voxi because it’s the plan we used but I have seen other similar ones that were just as good.
Transport
This is a big topic and one that can potentially save you £1,000’s of pounds each year.
First things first. Download City Mapper right now! It’s hands down the best navigation app for getting around London. I’m a massive Google Maps fanboy and it took me a while to migrate over to City Mapper but man, once I did, I was well and truly converted. It is really designed for cities (there’s one for NYC, Paris, Hong Kong) and I found it to be a lot more accurate than Google Maps was when it came to service disruptions.
IMO, biking is the most superior form of transport in London and it’s not even close! You might be rolling your eyes because this is such a FIRE thing to say but trust me with this one, London is a really bike-friendly city with the additions of the Bike Superhighways that were added in the last few years.
I’m not even saying this because of how much money you save and the added benefit of the extra exercise, it’s generally a mood booster to cycle around this gorgeous city each morning when I was commuting to the office. It’s also the quickest form of transport (I consistently flew past cars commuting up High street on my way to the city) and you are never rushing to catch a train or bus. How many of you guys out there look forward to your commute in the mornings? If the sun was shining, my morning rides were more often than not one of the best parts of my day. Now granted I have been told that 2020 did have particularly good spring/summer/autumn and the weather does play a big part. But boy oh boy when the sun does come out, riding through Battersea park, over London Bridge and around the cute streets of Notting Hill are memories I’m going to cherish forever and I know I’ll miss those rides when we’re back in Australia.
Handy tip: Check if your employer participates in the Cycle to Work scheme. You get a bike for free at the start, then the amount is deducted from your pay every month until it’s paid off. Because the amount is deducted before tax, you end paying less tax, and therefore you pay less than the bike actually cost.
The London Underground AKA “The Tube” is a feat of engineering the likes of which I’ve never seen before. It boggles the mind how I can miss a train and wait no more than 90 seconds before another one rocks up. The efficiency for a network to run like this is mindblowing for my simple noggin 🤯 and I have to admit, when I first started catching the tube, there is a little bit of novelty it.
I have fond memories of landing my first contract and catching the tube to work in central London. I really felt like a Londoner power walking through the endless crowds of white-collar city slickers in my new chinos and overcoat… and theeeeeeeeeeeeeen the novelty wore off three weeks later 😂.
I really only caught the tube (pre-covid) when I had to after I bought a bike. It’s bloody handy to have it up your sleeve though.
One of the best features of ‘Transport For London’ (tfl) is being able to use your cards tap and go technology straight off the plane. You know how travellers have to buy a Miki card when they get to Melbourne and want to use public transport? You don’t need to do that in London which is fantastic. You as long as you have a VISA/Master Card with tap and go tech you’re good to start using the public transport system. You can even use your Apple watch to tap on and off. Pretty sweet!
Handy tip: If you’re under 30, the number 1 thing I would recommend is buying a railcard as soon as you get here and pair it to your Oyster card which is the equivalent of a Myki/Oapl (city transport card).
Unfortunately, you need an Oyster card to have the railcard discount apply to your fares (there was talk about linking the railcard to your bank card but not sure how far along that is). The card costs £30 and you can seriously make that back within 2 trips out of the city if you’re using the national rail for a big trip. The card typically saves you 1/3 of the fair for both buses and trains during non-peak times and you’d be hard-pressed to find anyone who wouldn’t save money buying this card.
It’s a digital card too which is cool. You download an app and when you buy national rail tickets, you just select that you own a railcard and you’ll get a discount (you’ll have to show the app if an inspector comes by of course, however, we never got asked to show our railcards).
Buses cost £1.5 per trip (or £1 if you use your railcard during off-peak) and get the job done. They aren’t as quick as the tube usually, but unless you’re in a rush, the buses are great and it can save you a lot of £££ during your stay.
Gyms
We had memberships at PureGym and TheGym which are budget gyms (around £19.99/m) and had everything we needed. You can keep fit just by running and doing bodyweight exercises tbh. I’ve just always prioritised a gym and those two above were the best value for money that I could find.
Tips and Tricks
Cheap Flights
Sky scanner is pretty much the go-to website for searching and comparing flights. However, I would recommend to book directly with the airlines especially with so many cancellations due to covid and the third party websites can be a nightmare to get refunds from.
Euro-star
The Euro-star was a fabulous option for us to travel directly to Paris and Brussels. It can be quite expensive but if you book in advance you can get some really good deals and avoid the dreaded airport. It leaves from St Pancras International Station which is attached to Kings Cross Station.
Sending Money Back Home
I have sent over $60K AUD back home (to continue investing of course) using a company called Transferwise. They have the best rates for sending money back and the process is really simple. You can get a free £500 transfer by using my affiliate link* which means you won’t have to pay any fees.
I’ve also sent money from Australia to my Monzo bank account too.
* This link is an affiliate link and I may earn some commission from it. Please see my affiliate page for more info.
Finding a job
We only have experience in two areas which I’ll cover below. But there’s just so many different pathways to finding a job in London that it would impossible to cover them all.
I will say that for white-collar workers, LinkedIn is utilized heavily. Make sure that’s up to date and looking good.
Teaching
By Mrs. FB
Being a teacher is a great job to have when moving to London or any UK city for that matter. I am a Primary school teacher and was able to take care of a lot of the admin side of things before I left Australia. I chose to sign up with anzuk Education as I had a friend who had used them as her agency. They took care of a lot of the paperwork before my arrival and organised my DBS and International Police Check which you will need to work in schools. They will give you copies of these at your registration appointment. I found them to be organised and professional.
When we arrived in London I went to my registration appointment at the agency and spoke to them about what type of work I was looking for and they asked if I wanted to use an Umbrella company or PAYE. I chose PAYE because I was only using one agency and this would be a higher day rate in the end as the umbrella company take a chunk for their fees. I started with day to day supply work so I could become more familiar with the school system. This was okay but requires you to be flexible and move around to a lot of different schools which I didn’t always love especially when you get a tough class! I also felt quite overwhelmed trying to find different schools especially being new to London and using the tube and overground for the first time. I ended up only saying yes to work that had a reasonable commute time as some days it would take an hour to travel to the school.
I started at £135 a day (PAYE) and just accepted that rate initially. This was probably my biggest regret as I should have negotiated my pay from the get-go and would encourage you to do so. At the time I had 5 years teaching experience and my friend who was working with the same agency and only had 1-year experience started at the same rate. I learnt pretty quickly that all agencies are the same in that respect and will try to pay you as little as they can get away with unless you challenge them.
After a month of supply work, I ended up taking a long term contract for the summer term teaching a Grade 3 class at a Catholic school in Vauxhall. I was lucky that the class were lovely and I got along really well with some of the teachers at the school. We would go for Friday night drinks at the pub to debrief about the week. I preferred working at the same school each day and being able to make better connections with the staff and students but with this comes more responsibility and planning. I made sure to ask for a higher day rate from the agency and was earning £160 (PAYE). After the summer break, I was called by the agency to once again work at this school and cover a Year 4 class which I was very excited about, especially not having to find another school. I taught there until the pandemic hit and was then able to go on furlough pay through the agency which I was super grateful for.
Overall, my experience of teaching in London was really positive. My top tips would be:
- Negotiate your pay: don’t be too scared to ask for a higher rate. I am a people pleaser and it was very difficult for me to do this but with a little pep talk from Mr FB I was a pro in no time 😉. You will hear the same spiel from the agency each time about them only taking a small cut for their fees etc (don’t believe them lol). You can even speak to other agencies to get an idea of how much they offer as a day rate and use this as leverage.
- It’s okay to be picky: If you didn’t like the school or the class you were teaching for the day and the agency want you to continue working there, say no. I did a number of trial lessons/days at different schools before I accepted my long term position.
- Find a contact at the school: If you like a particular school, make sure to talk to the deputy headteacher or whoever is in charge of finding supply teachers at the school. Tell them you had a great day and would love to come back, that way they can request you again through the agency.
Hope this was helpful 🙂
Contracting (in tech)
Okie Dokie, this part below is probably what I would have liked to have known the most when I got to London at the start of 2019.
A lot of people are attracted to contracting predominately due to the below three reasons
- Contractors charge more than their PAYG counterparts
- Contractors pay a lot less tax
- Contractors can deduct a lot of expenses
I had always heard how lucrative contracts were in Australia and you could reasonably expect to double your hourly wage in sacrifice of job security, Super, holiday pay, sick leave etc. etc.
This suited me down to a tee! We didn’t come to London to build a career or to try and save money, we wanted a job that would allow us to make enough money to live and travel basically.
And after 8 years in the public sector, I wanted to see if I had the chops to handle the private industry in one of the most competitive job markets in the world.
To say I was unsure is putting it lightly… and I’ve always been a confident/optimistic type of guy but quitting your job and moving to the other side of the world can strike fear into even the most bullish of people.
The below guide is everything you’ll need to know to land a high paying contract gig in London and something that would have saved me a lot of headaches and wasted time. It won’t cover all the administration tasks for running a company (too much to cover) but I’ll link to some great resources that go over everything in detail.
Limited, Umbrella or PAYE?
The structure in which you contract in is probably the first piece of this puzzle you need to figure out.
Almost all contractors I met in London were operating under a Limited company structure due to the major tax advantages. But that doesn’t mean it’s the best option for everybody so it’s good to know what the options are.
I know it can be a bit boring but you really need to know about a piece of legislation called IR35 because it has major implications for contractors and is more often than not, the deciding factor for what structure you choose.
In a nutshell, IR35 was introduced to stop contractors working as ‘disguised employees’ whilst receiving all the tax benefits on being a contractor. The lack of job security and employee benefits are the reason why contractors have tax advantages in the first place. Therefore if you’re working as a ‘disguised employee’, HMRC (UK’s ATO) will argue the point that you’re not accepting the increased risks and you will not be entitled to the tax advantages.
You can read up on their definition of a ‘disguised employee’ but I think we all known who they’re talking about. You know the guys that work a job for years and then decide to start a company and contract back to their employer at double the rate without skipping a beat. I’ve meant a few people who have done that within government over the years and it’s a smart thing to do really. The UK government see this as a tax loophole and I can understand why they want to plug it.
The definition of what is considered outside of IR35 (you’re not a ‘disguised employee’) vs what’s inside IR35 (you’re a ‘disguised employee’ and will not receive any tax benefit) is a grey area and will be assessed case by case if you ever get audited. Usually, the contracts are advertised as either inside or outside IR35 online which helps.
Limited Company
Generally, if the gig falls outside of IR35 and you’re going to be making > £30K then you’ll most likely be better off using a Limited Company (otherwise an Umbrella Company is the way to go).
Ther’s a lot more administration overheads Limited Companies though so be aware that you’ll have to do a lot more work. Raising invoices (and following them up 🙄), paying for insurances, registering your company and submitting a separate tax return etc.
The UK’s government website is a fantastic resource with a lot of really great written articles. If you’re convinced that setting up your own company is the right move, I’d strongly recommend this starting guide.
Umbrella Company
The major advantage here is everything is done for you. You save yourselves a lot of time and stress by going through an Umbrella as the contract is actually held by the umbrella company and the employer. You don’t get paid by the employer, they pay your umbrella company and then the umbrella company pays you.
The IR35 ruling is less important here because as far as I’m aware if you’re going through an umbrella, you’re going to be paying the full amount of national insurance (NI) tax so it’s pretty much irrelevant. This does open your options up a lot more though as almost all public sector contracts fall within IR35.
The main reason a lot of people start contracting in the first place is to make as much money as possible. It’s for this reason that most choose to go through a Limited Company vs Umbrella.
PAYE
It’s possible to become PAYE through an agencies payroll (if they offer it).
This option is the most inefficient (in terms of tax minimisation) of the three because you will have to pay full tax and NI contributions on all your earns and you won’t be able to claim valid business expenses.
Finding contracts
There’s a lot of different ways to skin a cat but I’ll cover what worked for me.
I used a website called Job Serve to find contracts but there are soooooooooo many places to find jobs it can be overwhelming. I wouldn’t recommend signing up to a whole bunch of alerts on various sites because the same job gets advertised across many platforms and your inbox will become unmanageable really quick.
There are a few niche websites that you need to pay to see ‘private listings’ but I never used them so I can’t comment.
I’m not sure if Melbourne or Sydney are the same but be prepared to deal with recruitment companies in London. It’s almost unheard of that a company will advertise a contract directly. 99% of the time it will go through a recruitment company and I have no idea why. The amount of people that are in recruitment in London is insane. Really high turn over rate too but I have heard you can make bank if you hustle hard without any quals or experience so it’s appealing to a lot of young people. It can be really frustrating dealing with a middle man that doesn’t know the requirements half the time and they never call you back to say if you didn’t get the gig 🙄. If you don’t hear from them within a week, it’s safe to assume that you weren’t shortlisted.
Here’s how the game is played:
- A company decides they need a contractor for X amount of time and are willing to pay £Y per day
- More often than not, a specific skill is required in a project that the company either doesn’t have in-house, or they need more of ASAP. It’s partly because of this urgency that contractors are paid as much as they are
- The job description with requirements and nice to haves are prepared (half the time by just copying a template or another listing). Handy tip: don’t be discouraged by how much experience and skills are in these job descriptions. They are so over the top and don’t reflect what you’ll be doing 90% of the time. I once came across a listing that said you needed 3 years experience in a technology called Dataflows which would have been fine… except Dataflows was invented in 2018 😂
- The new contract hits the recruitment market like a fresh shipment of crack to LA in the ’80s. An ungodly amount of recruitment agencies all rush out to and try to find a suitable candidate as they take a cut from your daily rate for however long the contract goes for. They will usually advertise the day rate with their cut already factored in (but always ask!). So if you see a contract for £450/d, the company that needs a contractor is probably actually paying something like £650/d but £200 of that goes to the recruitment company
- If it’s at a good rate within the city, the candidates are usually shortlisted within a few hours (that’s been my experience anyway). Handy tip: When I was ready to land a new contract I would basically refresh the Job Serve page (with my keywords) every 15 minutes. As soon as a contract pops up that you’re interested in, call the recruiter to touch base with them which will do three things:
1. It shows that you’re really interested in this contract. Recruiters want candidates to be able to go to interviews that same day sometimes (happen to me once). Make sure you get their actual email address so you can send your resume to them directly
2. You have a chance to ask a bit more about the contract that may not have been in the listing. You can confirm that it’s outside of IR35, open to someone on a tier 5 visa, located within London etc. Sometimes you can get a bit more out of them in terms of what the project is about and this will help you decide on whether you do in fact have the skills to perform what’s required.
3. You will prioritise your resume over others and the recruiter will actively look out for yours in their inbox if the phone call has been successful
- If you’re still keen to get the gig, tweak your resume to make sure you cover all the key requirements (don’t stress if you’re not proficient in everything, just say you have some skills and back yourself to learn on the fly if needed. The goal here is to make it to the interview) and update your LinkedIn page to make sure it matches (yes, some people do check to make sure it matches your resume). This was one of my resume’s I used when I was applying for contracts last year.
- If everything has gone right, you should be getting a call from a recruiter pretty soon (within a week) to set up your interview. Go in with confidence and crush it to secure the contract 👊
- Once you win the gig, you’ll be sent a formal contract that lists a whole bunch of crap but you’re probably only really interested in making sure that the day rate is what was agreed upon and the details for your first day.
- Rock up on the first day and go from there… your boss for the engagement will tell you who you need to send the invoice to and how accounts payable works etc. etc.
And there you have it, you’re officially a contractor in the big city 😊
The above is my experience but it may be different for you. I’d love to hear from an actual London recruiter in the comment section and get their take on the whole situation.
Mistakes
The two biggest mistakes I made when I was first looking for contracts were:
- Applying for contracts that were over a week old. Recruiters will always tell you that the contract hasn’t been filled yet but what they’re really doing is just hedging their bets if something happens to their current candidate. There’s no harm in applying for old contracts but all three of my gigs in London came from freshies and after speaking to a few recruiters at the pub, it’s really a game of first in best dressed with this type of work. I mean think about it, if the company really wanted to take the time and invest in finding the right person, they would probably just create a permanent position. Contractors are hired guns!
- Not jazzing up my LinkedIn for the first two weeks 😅. I cannot stress this enough, LinkedIn is really, really important in London for some reason. I did have a LinkedIn profile before I came to London but I hadn’t updated it in years. A big reason my phone was dead quiet during the first few weeks was because of how bad my LinkedIn profile was. No previous experience, no updated profile pic, no quals or skills.
Paperwork
I used a company called SJD as my accountant for both my personal and companies tax returns. If I could do it again, I’d just create an account with Free Agent and pay to use that product. It’s the cheaper option but it’s also the easier one IMO. My accountant didn’t do a whole lot TBH and it sort of annoyed my every time I saw the £110 go out of my business account each month. Their software was crap too. I would hire an accountant to help with the closure of the company and that’s about it.
It doesn’t take much to learn the ins and outs of using HMRC website and the Free Agent software really covers everything you need to run a small Limited Company used for contracting. The hardest part of contracting is raising invoices and chasing them for payment. But if you work for a good company that pays on time, it’s super easy.
You’ll also need to pay for public liability and indemnity insurance to cover your ass in case something goes horribly wrong. This usually costs < £1,000 depending on how much coverage you get.
Salary/Dividends
What many contractors do is pay themselves a small salary and then pay the rest of the money they made through dividends which have a much lower tax rate. This does depend on a number of things, IR35 being on the most important ones.
Resources
The best resource I can recommend hands down has to be Contractor UK. It’s predominately a forum board but it also has some really well-written articles that cover everything you’ll need to know about contracting in the UK.
It covers the entire UK but the community seems to be heavily London based and leans towards Tech jobs. I asked many questions on that forum and it helped me out a lot.
Tax/Investing whilst overseas
I’ve had a tonne of questions over the last two years about these two topics.
They usually go something like…
“AFB, how do you invest back in Australia when you’re in London” & “How does it affect your tax return”?
This is such a hard area to get good solid info on because of how different the rules can be for different circumstances.
Take our situation for example. We have been able to continually invest without much hassle whilst being overseas because all of our wealth is held in a discretionary trust fund with a corporate trustee. What I did before we left Australia was cease control of the company that was the corporate trustee of the trust and have my mum step in to run it while we were away. That meant that she had 100% control of our assets and technically could have gone on a YOLO trip of her own (plz no mum). The advantages of being able to distribute income from the trust to other people worked perfectly for our situation even though I had no intention of utilising the trust this way when I first set it up. When we return in a few weeks, I will retake ownership of the company and be back in control.
In hindsight, would I set up a trust just to make it easier if/when I moved overseas? No, I wouldn’t. Investing through a trust overcomplicates things and you can FIRE without one.
There are different strategies for utilising retirement accounts in the UK but it’s just so circumstantial with too much to cover. I never went on a deep dive into these strategies either because I was a contractor. Mrs. FB opted out of her pension scheme so she receives more £££ but paid more tax. This works for us because Super isn’t a part of our financial independence strategy.
International tax law is an insanely complicated and circumstantial topic and I’ve got no hope in hell trying to explain 1% of it in a blog post. So what I’ve done is invite Evan Beissel, a Tax Partner at Mazars to create a guest post (below) that will cover the basics.
Please let me know in the comment section below what specific questions you want answered. I’m going to get Evan on the podcast in 2021 to flesh out other topics we no doubt missed in this brief overview.
*FYI this isn’t a paid guest post. Evan reads the blog and offered his services and expertise for this article for free and AFB gets no kickbacks. I’m sure Mazars will get some traffic but the content below is of mutual benefit to both the AFB audience and Mazars.
Moving overseas and Tax, A short guide for Firebug’s
By Evan Beissel, Tax Partner, Mazars
Whilst tax law is an immensely complex topic, many of us can get away with only interacting with a small number of rules that are relatively easy to understand. For example, most working Australians
would know that when they prepare their tax return that their salary is included in their income and that certain work-related expenses and charitable donations may be deducted from their income to
calculate their taxable income.
However, one way that you can make your tax affairs substantially more complex is to move
overseas. Not only do you need to now understand the tax rules of another country where you are
living and earning income, but you may also still be subject Australian tax to some extent. You have
now entered the mysterious and wonderful world of international tax.
Whilst there is no one-size-fits-all playbook to these tax rules, there are some key concepts and topics that are common to many, which I will try and explore here and hopefully leave you with a bit more knowledge than you started with.
Tax residency 101
Tax residency is a huge topic and too big a topic to cover in detail here, but it is well worth covering
the basics.
Firstly, tax residency is a concept that exists separate from residency for immigration purposes. For
simplicity, for the rest of this article, I will simply refer to residents and non-residents as meaning in
relation to tax residency. Most developed countries (Australia included) tax their residents on
worldwide income whilst non-residents are generally only taxed on income sourced in that country.
Source is another topic that can get quite complicated, but as a simple example, salary
income from working in an overseas country would generally be sourced in that country, and
investment income such as dividends received from a foreign company is generally sourced where the company is based.
Another key issue to understand is that tax residency is not exclusive, and every country has different rules. So you can, for example, remain a tax resident of Australia whilst living in the UK, but also be a tax resident of the UK. In this case, double taxation agreements become critical – these are agreements between two countries on which country has priority of taxing rights in various
circumstances. Not all countries have a DTA with Australia, however, these are in place for most
developed countries including the UK.
In Australia, there are a number of residency tests that can cause you to be a resident for tax
purposes. The most relevant of these is the ‘ordinary resides test’ and the ‘domicile test’.
Under the ordinary resides test, you are a resident of Australia if you ordinarily reside in Australia.
Generally, this is not difficult to establish –for example, if you are living permanently in Australian do
not have a home in any other country. However, it can get difficult to establish where someone
ordinarily resides if they spend time in multiple countries and have multiple residences where they
regularly reside. There is a body of legal precedent to assist in these greyer areas, but for most
people, this is not an issue and it doesn’t warrant further discussion here. Suffice to say, if you move
overseas for an extended period and don’t retain a home in Australia usually you would be considered to no longer ordinarily reside in Australia.
The domicile test relies on the legal concept of domicile which in broad terms refers to a person’s
legal ‘home country’. Without going down a rabbit hole on domicile rules, as a starting point if you and your parents live permanently in Australia then it is likely you have an Australian domicile. However, if you or your parents immigrated to Australia, then it is possible you may not have an Australian domicile. This distinction is critical as someone with an Australian domicile is much more likely to remain an Australian resident when they move overseas.
Under the domicile test, someone who has Australian domicile is a resident of Australia unless they have established a permanent place of abode outside Australia. A permanent place of abode refers to a locality rather than a dwelling (e.g. you might establish London as your permanent place of abode, rather than a particular house or flat that you live in whilst you are residing there). Permanent does not mean indefinite but does require an intention to reside on a ‘permanent’ basis. There is no minimum time period that is considered to indicate permanency and this is an area of residency rules that can be quite difficult to establish with certainty.
Whilst the ATO have sometimes used a two year period as a rule-of-thumb, this is not based in legal precedent. Ultimately, whether you have established a permanent place of abode outside Australia will depend on the specifics of your own circumstances.
Tax issues for Aussies moving to London
So you’ve decided you want to move to London for a couple of years. What does this mean tax-wise?
Firstly, tax residence becomes important here:
- Depending on your individual circumstances you may or may not cease to be an Australian
tax resident. If you do remain an Australian tax resident, you would be liable for tax in
Australia on income earnt in the UK
- If you are living in the UK for an extended period you are likely to become a UK tax resident
during your stay, and so will also be taxed in the UK.
To illustrate, let’s consider a couple of examples. For both examples, let’s assume you have the following income sources whilst living in the UK:
- Salary income from a job in the UK
- Rental income from an Australian property
- Dividend income from Australian shares
- Retaining Australian residency
In this case, it is likely you would also be treated as a UK tax resident whilst living there so you would be a dual resident for tax purposes. In broad terms, both countries will therefore tax all your worldwide income (note this is a simplistic summary but should be the case for most ordinary salary-earners with modest investment income). However, the country where the income arises (i.e. where it is sourced) would have priority of taxing rights, and the other country should provide a credit for tax paid in the other country subject to rules in each country which may limit the tax credit allowed. The tax paid on each type of income is summarised below.
|
Australia |
UK |
| First taxing rights |
Australian rental income Australian dividend income |
UK salary |
| Second taxing rights (with credit for tax paid in first country) |
UK salary |
Australian rental income
Australian dividend income |
- Ceasing Australian residency
If you cease to be an Australian resident when you move overseas, then Australia would only tax income sourced in Australia whilst overseas. However, for a non-resident of Australia, the mechanism for paying tax changes for certain types of income. Dividends, interest, and royalties (usually payments for use of intangible property) are no longer included in taxable income and taxed at marginal rates but are instead subject to withholding tax at a flat rate (subject to reduced rates under some DTAs).The common rates for interest and dividends are shown in the table below:
| Income type |
Withholding rate |
| Interest |
10% |
| Dividends (unfranked) |
30% (default rate) / 15% (treaty rate) |
| Dividends (franked) |
0% |
In the UK, as a UK resident, you would be taxed on your worldwide income with credits for Australian tax paid on your Australian income.
Investing whilst living overseas
So, can you continue to invest whilst living overseas? The short answer is a definite yes, but the tax
can certainly get more complicated than simply investing as an Australian resident. This applies both if you invest in Australia, of if you invest overseas.
Dividends
One important example is franked dividends. Our franking credit system is almost unique to Australia and does not operate well across borders. From an Australian perspective, both resident and non-resident investors receive favourable tax treatment of dividends that have been ‘franked’ with credits generated from tax paid by the company. Australian residents receive this benefit in the form of a tax credit that reduces the tax they pay (and may even be refunded if their marginal rate is less than the company rate), whilst non-residents do not pay withholding tax on franked dividends. However, foreign tax rules (including the UK) generally do not recognise franking credits and therefore the dividends are taxed without regard to the franking credit, this can produce a high effective rate of tax on the underlying company profits that have been paid out to shareholders.
Investing in overseas shares may not produce a much better outcome – dividends paid by these
companies would also be subject to tax without credit for company tax paid. Further, once you return to Australia, you do not have access to the franking credits you would have had if you had purchased Australian shares. The one possible advantage here is that foreign companies on average may pay less of their profits in dividends and therefore reduce the component of dividends in their long-term returns.
Ultimately, in many cases, it is necessary to accept some increase in tax paid on dividends whilst
living overseas.
Capital gains
Capital gains is another area where moving overseas can add significant complexity to your tax
affairs.
If you retain Australian residency whilst living overseas, then all your worldwide assets remain subject to Australian CGT under the same rules as if you remained in Australia. However, you may also be subject to capital gains taxes in the country you are living in.
Foreign residents are generally only subject to Australian CGT on Australian real property and certain similar assets. However, if you cease to be an Australian resident, you are faced with a choice for your non-Australian real property assets. You can choose to either:
- Have a deemed disposal of all these assets for their market value, such that any capital gains
or losses would be realised for Australian tax purposes; or
- Elect to keep these assets as subject to Australia CGT until they are sold.
The best choice will depend on your particular assets and circumstances. However, if you choose the second option, that you will lose the 50% CGT discount in proportion to the number of days you are a non-resident of Australia. This reduction in the CGT discount also applies to real property that
remains subject to Australian CGT.
Any of these assets you hold when your resume Australian residency in the future (except assets that have remained subject to Australian CGT such as Australian real property and assets elected as described above) are deemed to be acquired for their market value at that time. This becomes the cost base that is used to calculate a capital gain or loss when you sell these assets.
If you sell assets that are subject to CGT in both a foreign country and in Australia, you should be
able to claim a tax credit in Australia for the foreign tax paid. However, to the extent you can claim the 50% CGT discount in Australia, you may only get a 50% credit for tax paid overseas which can result in a higher overall tax rate than if you were only subject to CGT in either country. Also, when you cease to be a resident of the country where you have been living you may have a deemed disposal under the local tax rules. In this case, you would usually not get any credit in Australia, as you do not realise a capital gain in Australia at that time.
At this point, you will hopefully have gained some understanding, whilst also understanding that this is a complex topic that can’t be addressed in full in one blog post. Unless your circumstances are very straightforward, I would strongly recommend obtaining professional advice that is specific to your own circumstances.
This publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.
Summing Up
London… what a city!
It’s almost a right of passage these days for young Aussies to make the pilgrimage across the Indian ocean and explore all the wonders of Europe. Now given you’re reading a FIRE blog, it may not come as a shock to you that there was a brief moment before we embarked on our YOLO trip two years ago where I considered not going because of the financial consequences. Nothing is truly free and this trip of a lifetime was not an exception. Quitting my job to travel the globe meant that we would have to delay our freedom, hopefully in exchange for some lifetime memories. And with the power of hindsight, I can honestly say that…
This trip has been one of the best things I’ve ever done in my life!
Do I still want financial freedom and only do meaningful work (FIRE)?
(Stone Cold voice) OH HELL YEAH!
But holy mackerel, I’m telling ya guys, the levels I’ve climbed on the life experience ladder over the past 24 months has just about eclipsed the previous 10 years.
And it’s not just about the travel. The work-related opportunities in London were one of the biggest surprises I had and it was almost better than the sightseeing. It’s so different from where I’m from and the city is just brimming with an entrepreneur spirit and outside the box mentality. Contracting can be tough but there’s nothing better than being apart of a really bright and diverse team and working together to build a solution.
London has not only broadened my horizons but the experiences I’ve had whilst being there has altered what I want to do once I reach financial independence (but that’s for another article). It’s an incredible city that will always be our second home.
Wrapping up now I’ll leave you with this…
I wish I did this trip earlier in life and really want to send a message of caution to any aspiring young Firebug’s reading this. Getting your shit together financially is really important and reaching financial independence is the ultimate money destination. But do not let an obsession with reaching this goal rob you of something you can never, ever get back… exploring this big beautiful planet when you’re young and growing. There’s a world of difference between travelling in your 20’s vs coming to see Europe later in life at 50…
Spark that 🔥
by Aussie Firebug | Nov 20, 2020 | AFF
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.
A bit of a different AFF today guys,
It’s been ages since I last uploaded any audio content and I wanted to give you all an update as to what has been going on.
I also touch on a topic that I’ve already covered but my thoughts have changed over the last few years and I think a few people would like to hear what I would have done differently if I had to start my FIRE journey all over again from scratch.
Enjoy ✌
Heads up grammar Nazis, the following transcription is half human half machine and not 100% perfect (nowhere near it 😅) so expect a few typos and errors…
Intro + Podcast update (0:57)
Hey guys. Welcome back to another episode of Ask Firebug Fridays. It has been a very long time since I last recorded one of these episodes, uh, or any of my podcasts for that matter. It’s been nearly six months. Since I last produced any audio content, and I felt like I needed to just give you guys an update as to what’s been going on during the last half of this year with Aussie Firebug.
And I also wanted to touch on a topic that I’ve actually already covered before, but my perspectives have, has changed on that topic over time. And I think it will continue to evolve, but I wanted to just get, give you another update on that subject matter, because I think it might help out a few people, but first let’s talk about the podcast and generally.
Aussie Firebug content of light. Let’s get into it. Okie dokie. So unless you’ve been living under a rock this year, you’re probably aware of the global pandemic that has gripped the world. So COVID hit in March this year, 2020. And my company that I’m working for basically went into overdrive. So I’m working for a startup and for anyone out there that hasn’t worked for a startup before, it’s not uncommon for the first couple of years.
Uh, w at working for a startup or when you’re working for a startup that it’s pretty full on. You’ve got the founders, they’re the early adopters. People are all trying really, really hard to make this new idea, make this new company work, and it can be quite stressful. And there’s a lot of work and people are putting in, you know, ridiculous hours.
So I’m working for a startup and then when COVID hit and everyone started working from home, I felt like that workload and the stress and everything was compounded a lot by people working from home and maybe, you know, managers, not sure if people are working as hard as, as they could be, or as efficient as they could be if we were in the office.
And I’m sure that, you know, people out there that are listening to this pod, uh, that are, that have been working from home this year. You can probably back me up when I say that the lines between what is work and what is not work is really, really blurred at the moment. And I guess, um, you know, we’re all trying to adapt to this, this new world that we’re currently living in, but I found myself on the computer.
You know, past five 30, just finishing off a few little bits and bobs, uh, for the job. And next thing you know, it’s like seven 38, and you know, I’ve got to have dinner, I’ve got to go to bed soon and it’s a really unhealthy thing to get into the habit of doing, but it just sort of. I know, it just sort of happened to me and a lot of my colleagues and essentially you do that long enough.
You’re going to get burnt out. And that’s exactly what happened to me this year. I was sick of staring at a bloody computer screen for potentially, you know, 12 to 14 hours a day. Well, I don’t know about you guys out there, but I do a lot of my leisure stuff. Um, in my leisure time playing video games or watching YouTube videos, it’s on the computer or it’s looking at some sort of screen.
And even I was thinking about this the other day, like even when you’re at work, yes, I’m still working on a screen predominantly, but I get breaks all the time. Like if I’m going to. You know, the coffee maker or the water fountain, or, um, just going into a meet meeting with people and like looking at them face to face.
It’s like it gives your eyes a break from the screen. And it’s crazy to think about how long, all a whole bunch of people working from home all around the globe have been staring at a screen for this long, for this amount of time, without any breaks. Like I literally wake up, I’m staring at the screen all day.
I’ve got all my meetings there. And, you know, this is, this is nothing new. A lot of people are going through this. Um, and actually funny side story, not, not really funny, but, um, I actually had to get glasses during lockdown, which was, you know, I’ve never needed or never felt like I’d needed glasses before, but they, the, the glasses that I did end up getting reduced the stress on my eyes or something like that.
Um, so it wasn’t so much that I need them to see per se it’s just to help me, like, not. Concentrate too hard on the screen or something. Uh, it helped with the headaches anyway, so they must be working. But, um, it was funny to listen to the optometry, say that the amount of people that have booked in to get new glasses during lockdown has just been through the roof, which I can totally understand with everything that’s been going on.
So anyway, I was working too much and the last thing I wanted to do. Is jump on the computer to do, even though it Aussie bug. And this podcast is a passion project when I didn’t have to be in front of a computer. And especially after like the hardcore lockdown finished in London and we were able to go out and weekends and things of that nature, I was getting out, I was getting out on my bike and if we weren’t like exploring London on the weekends, we did do a few trips overseas during the weekends and stuff like that.
Um, so I really just haven’t. I, I haven’t wanted to jump on the computer during my spare time. And that’s where a lot of the Aussie Firebug content that I do make happens. It’s either after work or on the weekends, maybe in the morning or something like that. But I just felt like I had to get away from the screen as much as humanly possible when I wasn’t at work.
So as a result, uh, you can imagine Aussie Firebug content fell off a cliff, but I really just wanted to give this update to you guys because I’ve had a few people actually messaged me saying, you know, a steward on the podcast is the podcast. When’s the new episodes coming out. And I thought I better release something just to let you guys know that it’s still, I’m still recording episodes.
And I actually still have. Um, I currently have a lot of episodes in the editing room and I’m sure, um, maybe there’s people listening that have been on those episodes and sort of, uh, wondering when they’re going to be released. And for, for those of you out there, I definitely am going to release them and edit them and stuff like that.
I just, I found it really hard to, as I said, have the willpower to be in front of a computer when I, when I don’t really need to be. And I guess that’s, that’s the beauty of running, you know, a passion project and a side hustle is like, I only have to do it when I want to do it. I’m really just crawling to the finish line with this contract.
It’s sort of killing me a little bit, this contract. So I just want to get it done. Finished the year, have a really good rest and I’ll be back better than ever in 2021. And I’m really excited about, I’ve got some really good podcasts guys in the editing room that I can’t wait to get out. Uh, but it’s nothing is going to be released until next year.
On the blog side of things, I’ve always done my monthly net worth updates and they will continue. But in terms of the podcast or any audio content, uh, that nothing, nothing new will be released this year. It’s going to happen in 2021. And that’s really the update and that’s really all I wanted to say with this.
So I am taking a little break and see you guys next year.
What I would have done differently if I had to start all over again (7:58)
Okay. So to finish the last ask, Firebug Friday episode of 2020, what a year it’s been, uh, we’re going to revisit a question that I’ve already covered, but I’ve had some, as I mentioned in the intro, my thoughts on this has changed quite a bit.
Especially in the last two years, it’s really been a, a learning experience for me. And I think I’ve really grown as a person and I’ve really broadened my horizons in the last two years. And I, um, I’m excited to speak to you, you guys about that, especially in regards to fire as well, like it, cause it goes beyond fire for me in the last two years, but I think there are some, some great lessons that I’ve learned that I can apply for.
Uh, the, the journey that is financial independence retire early and, um, yeah, so let’s get into it. So the question is what would you do differently if you were starting again from scratch today? And it’s a great question. Um, and I think a lot of people ask that when they knew to find they’ll come into the forum boards or the Facebook page, the Aussie fire discussion group, and they will ask this and that they’re hoping for people that have done the journey to, you know, speak on their experience.
So I want to break this down. I really want to focus on the financial independence side of thing for, for this question, because the retire early part, I think is a lot more philosophical. And I could probably do a whole episode on the retire early and why it’s important and you know, what, what, what should be the driving factors of why you even want to go on this journey to begin with?
But I think it’s going to be too long. If I, if I go, if I delve into that, Um, that sidebar. So I’m going to stick with, what would I do differently if I’m starting again from scratch today in regards to financial independence and reaching financial independence and not necessarily the quickest way possible, but doing it the best way?
I think so that’s not depriving yourself of everything, but I just, there was, there’s a few things that I would tweak. So first of all, I’m going to break. Financial independence for me is there are three major components. And then there’s sub components within those major components are of reaching financial independence.
So the first major component and the most important one, and I’m going to list these in order of importance as well, which I think is important. So the first one is the savings rate, which I think is universally regarded as the most important thing. And for good reason, amongst the fire community. It, it has that double whammy effect of not having to produce as much passive income to live a great lifestyle and also having more money to deploy, to invest.
So as you, you know, as you get a higher savings rate, both of those things happen at once, which is why it is so important. And it definitely is, uh, the main thing people should focus on. Yeah, the second major like segment or part of reaching financial independence, in my opinion. And the second most important.
And Mike, this is where my views are starting to change and has been updated in the last two years. Is income potential. So that means your earning capacity. And I’m going to go into detail in a minute, but that is in my opinion. Now I’ve changed my mind. I had a, I actually didn’t even think about this one, um, till I moved overseas, but income potential is a major one that does not get.
Enough limelight in the fire community. And the last major piece for this is obviously investing because you need that passive income. But I think that way too many people focus on investing and even they, they skip a lot of people when they first discover financial independence, they will skip the savings rate.
And they definitely a lot of people, even that have been around the financial independency in a long time, or skip the. Income potential, uh, and they’ll go straight for it. They will go straight to investing. Right. So you’ll always see questions about investing, you know, VAs 8,200. The Vanguards diversified high growth index versus, you know, make your own portfolio.
There’s a whole bunch of questions that always gets asked on the Aussie fire discussion group on Facebook, which I’m a moderator of. And it’s fine to ask those questions. Don’t get me wrong, please. You know, it’s not like you should stop asking them, but really the bread and butter over reaching financial independence is really your savings rate.
And your income potential in my mind, if you can nail those two things, the investing side, why whilst important, I don’t want to downplay, like there’s not important, but it’s really like, it’s, it’s largely out of your control and you should really focus on those other two things, which is why I want to, I want to dig deeper into those two things for this question.
And we’ll start with obviously the first one, the, uh, savings rate. So let’s start again. Let’s start from the top. The savings rate. Is obviously how much of your paycheck you can save. And it’s got that double whammy effect. Like I said, the higher your savings rate, you have the more money you have to invest, but also the other side is the less you, the less passive income you need to be able to live your lifestyle.
So that awesome double effect is happening now. My views on the savings rate has definitely changed over the years. And really what I would say I would, if I was starting again from scratch, I would focus on the four big areas that 98% of people, 99% of people will most likely spend majority of their, or the majority of their expenses will fall into these areas.
And they are housing. Food transport and holidays Eve, you can nip these four big areas in the bud and establish good financial habits early on in the piece. Most of the other things take care of themselves. Now I that’s an, that’s a, a viewpoint that I didn’t have my whole life. Actually the majority of my life, I really sweated the small stuff way more than I really should have to be honest.
Like I think back now, And I cringe a little bit about how, how much of a tight ass I was back in the day. And I definitely like, I hate using the word regret because I, you know, you can’t change it and it is what it is, but there are definitely things that I could have done differently. And I, I would have done differently if I was starting again from scratch.
And I’ll give you an example because when I was younger, actually, between. Like the ages of maybe like 14 to about 26 or 27. I was probably, you know, one of the biggest Tituss you’ll ever meet in your life. And. I was, I grew up a little bit crazy with how much money I was trying to save around about the time that I discovered fire.
And I used to set these hardcore budgets, like $2,000 a month. That was all I was allowed to spend. And it didn’t matter what emergency popped up because there was always some sort of thing that popped up during the month, but I just have to, I had to figure out and deal with it. Right. So if I had to get new new tires on my car and I had to spend my four or $500.
Well, that’s $500. That’s like 25% of my budget was gone for that month. And I always worked around that. Like, you know, that the famous saying, pay yourself first. I definitely did that. I was like living that mantra heavily. So when I got paid, it was like all of it was saved. And at that point I wasn’t invested in the share market.
I was saving for a deposit for investment properties. And I would stash that money away and then whatever money I had left over, I would just have to deal with it. I had to make it work. Right. So it was like, I looked back and it was definitely, I saved a lot of money that’s for sure. But now that I’m older, I do sometimes wonder, did I sacrifice?
And I give something up in terms of friendship groups. Uh, in order to squeeze out that little, few percent of a savings rate and was it worth it and looking back now, I’m not too sure it was. And like, if you, I’m not saying I lost any friends, you know, cause I was too much of a tight ass, but I really like, you have to, if you’re getting invited to social gatherings and events, And you’re constantly not going because you’re worried about money and like saving as much as possible, which I definitely went through a few years of that back in the day you’re going to get, or your friends are going to stop inviting you to those events and those gatherings.
And I’m still, I still have mates and I’m still friends with the people I grew up with and everything like that. But yeah, I like since moving to London and. Going out and not worrying so much because I’ve definitely treated my time overseas as like an adventure and a holiday. Um, and so I do go out for beers with my work colleagues all the time.
I’m not too, you know, I, I hardly even worry about, uh, you know, if we go out for dinner and everything like that. And what I found is I still track how much we spend religiously. And I don’t think that’s just like a habit I’ve always got. And we actually aren’t even spending that much more. We really aren’t.
And I feel like because we have good financial habits built in already. We can like live a little bit and the small stuff really doesn’t matter as much as I thought it did at the start. So as long as in my mind, as long as someone’s got housing, food, transport, and holidays, Within reason and optimized as much as possible.
I think that. Yeah. You know, going out and having beers with your mates and spending money on that coffee. I don’t think it matters as much as I thought it did at the very start. Now I know that there’s going to be people out there that have done the math on it. And I understand all that. Trust me, I, I get all that.
I was living in a spreadsheet myself, uh, at the start of the journey. So they can say like, it adds up over the course of the year. Then you compound that you invest at this. This is how much money you gave up. I get all that, but I think sometimes it’s okay to just not sweat the small stuff and to live a little bit within reason.
If you’ve got those four things under control, I think you’ll be more than okay. And if I could go back, I’d probably change a few things at the start of my journey and. Last point on this, the housing part of the equation is, is probably no, I think it’s definitely the biggest part because the other three, like you can just follow common sense.
You know, food, try to make as many meals at home. It’s going to be healthier. It’s going to be cheaper, better for you, et cetera, et cetera. Um, transport, you know, don’t buy a brand new $50,000. You’d have Europe, an apprentice tradie. It’s going to set you back financially a lot. And holidays, you know, do you really need to go to, uh, the, you know, the latest Island that the Kardashians went to or something, or the latest girl on Instagram has been not learning videos too.
Pick your holidays and, you know, be as efficient as possible with it. So I feel like those three areas are pretty self-explanatory, but the interesting one, and just from my experience, uh, in the last couple of years, like just growing up with, with people and seeing what people do, my people, I went to high school and stuff with housing is such an interesting one because, and I’ve thought about this a lot.
A lot of my mates, uh, boys and girls, they started working and pretty much everyone’s every like the group of friends that I grew up with and like, uh, that generation, like I was born in 89 and, um, I’m a millennial also. So our parents had a, really, a strong sense of home ownership was making it in their eyes.
And so like, if. It was constantly repeated at the dinner table. Like this person has bought a house like this, this young, you know, it might one of my oldest sister’s friends. It was like 22. She’s got a house. Well, she must be doing so well for herself. She’s setting herself up like. I think a lot of people out there listening, even my, uh, Google analytics has anything to go by, fall into the same age range that I’m in.
So I’m hoping that a lot of you guys out there can relate to this, that our parents, like if you’ve got boomer parents getting a house and getting a home, owning a home really young, it was like the ultimate sign that you’re doing well in life, which is really funny because. I just, I don’t think that our generation, the millennials value, and I don’t want us to be speaking on behalf of a whole generation, but our generation is a lot different to our parents’ generation and a hell of a lot different to our grandparents generation as well, because that’s, that’s the other thing I was thinking of, like my grandparents on my dad’s side is Italian and they migrated to Australia.
So. I could understand that having a bit of land to call you on your own and like starting this new life and by getting a house that you can raise your family. And that was like a big deal. That was like the dream you go to another country, set yourself up, right. Get start a new life. And then they had kids which were our parents, the boomers, and they’ve sort of grown up with the same, you know, similar mentality, like get a house.
Start a family. Like that’s, that’s sort of what the goal is in life. And I really feel. Like that is not the case for millennials. We do like, and I think the statistics back it up as well. We do a hell of a lot more traveling and we’re exploring the world and we aren’t working the one job for our whole career.
Like those days are really, um, they’re gone that, you know, you go to a, you started a corporation, you work hard, you work your way up the ladder. I really don’t think like there’s going to be people. I’m sure that do that still, but, um, they’re far and few in between. Most people will have a lot of jobs throughout their career.
And most people as well, most millennials, uh, have traveled way more than their parents. And that’s like due to a whole bunch of factors, um, a higher standard of living, you know, travel costs coming down and stuff like that. But the point I’m trying to make here, and I’m going to tie this back to the housing point is a lot of these people that I grew up with and I’ve seen, you know, in my home town and everything.
They ended up getting, they end up buying these like four bedroom houses when they were 22, 23. And I’m not saying that that’s like a bad thing because it’s not it’s, you know, you can sit yourself up and you can pay it off. If you’re lucky, you know, by the time you hit 30 and everything, and that’s good, that’s better than most people.
Right. But if we’re talking purely on finances, and this is a point that is often, often overlooked, there is an opportunity cost that comes with buying such a big house, or to put it a another way, taking out such a big loan at such an early age. And half the time, like, hopefully, you know, you guys can relate a little bit and you, you might know someone that has done this, but half the time these people, they buy, they buy the humongous house and they only live in like 20% of the house.
They might use the kitchen, their bathroom, their room, and then there’s like three empty rooms. They got this big space of land, this big block, and they’re not using hardly anything. But what they don’t realize is they’re paying for all that. So, like, that’s not, you know, they’ve got this big house and everything, but they’re still paying for it.
And they have so much of their capital tied up into an asset that isn’t produced. Are you seeing any income? Now? You can argue, you can say, yeah, but you can sell it later on for a profit and pay no tax, which is the nice thing about, um, the primary place of residency. And yes, that is true. But. You are locking away so much capital that it isn’t able to compound when it’s not producing any, any income.
So that’s a lot different, a lot different than investing or buying an investment property and, and living in a much smaller area and really trying to save a whole bunch of money and, and put that into an income producing asset. It’s a lot different. And I’m not saying either way is right or wrong, because as many people know there’s intangibles that come with buying a house and a lot of people buy a house for different reasons.
But if we look purely from a, from a financial point of view, All I’ll say, is that be sensible when it comes to housing and either you’re going to buy a big house early on and like, that’s what, that’s what you’re going to do. Just know that you are going to be paying for it. And that opportunity costs is there.
So you really need to ask yourself, do you really need a house that costs that much money? And do you even know what you want to do for the next seven years? Because if you don’t really know what you want to do, So, what we did is rented this tiny two bedroom flat in the country that cost bugger rolls like.
At one stage, it was like $190 a week, which is just really, really cheap. And we just poured money into income producing assets. And I really feel like that sped up our journey a hell of a lot, and it almost would have been, it almost in some sense would have been crippling if we had taken out a decent size loan early on in the piece.
And what’s funny is that we were really close to doing that back in like 2013, where. You know, are we going to rent? Are we going to buy? And I can tell you that I’m so glad that we went down the renting path because not only has it opened up doors and it’s allowed us to travel and everything, because sometimes I think if you’ve got a house, are you really going to take that risk and maybe move to another place to get a new job or go overseas or anything like that?
If you’ve got this mortgage tied, To your name and everything. And I think that I really truly think that that might put a lot of people off. So I think you just got to ask yourself, do you really need to own a home? And I think for people, with families and stuff like that, yes, that’s a good reason.
That’s what we will eventually own a home for that reason. But I think that too many people, uh, pushed in the direction of homeownership, especially by their parents when they don’t even really know what they wanted to do with their life. And, uh, yeah, it’s just something to be aware of. But either way you go and I guess I’ll wrap it up now in this, with this point is just be sensible and try to optimize the housing as much as possible.
So whether you rent. Do you know, do it appropriately and sort of live within your means and get that nip that in the bud. And as I said, good financial habits early on in the piece. And if you buy a house, try to buy appropriately because bigger is not always better. And you’re going to have that opportunity cost.
If you tie up all your capital in a non-income producing asset. You know, it, it could, you could miss out on many years of, uh, compounding. That’s all I’ll say, all right, the second major part. And I think this does not get covered enough and my eyes are really opened and I’ve really broadened my horizons really.
In regards to this part is the income potential on the road to financial independence, right? I wasn’t even thinking about this and I didn’t really, even, this is like a brand new area for me. Um, but I did actually recently contribute to Pearl is ebook called Aussie FIRE, where I spoke about how important it was to increase your income and how it’s often overlooked.
And it has taken me years to realize this, moving to another country where my skills are in demand has really broadened my horizons. Your earning capacity is the biggest asset of all during the accumulation phase. Now I want to, I want to repeat that because it’s SU I, I feel like it’s super important and it doesn’t get spoken about enough in the fire community.
Your biggest asset is not your share portfolio at all. It isn’t your biggest, your biggest asset is your earning capacity. Now, once you’re finished with the accumulation phase, Yes, your share portfolio will, you know, it will be so large that it’s going to be doing the heavy lifting, but it, that doesn’t kick in until the very end and on the journey towards financial independence, you really have two major leavers at your disposal, how much you’re willing to save and how much money you can earn.
And those two, those two are the drivers to financial independence. Trust me on this. Like I’m. W we, uh, to also use away from the angle and we are, we’re almost on like cruise control now because it’s just going to happen regardless if I add to the snowball or not, we’re going to get there. But, um, the, the savings rate is super important.
It’s number one. So have that optimize key, like dial that in, but then try to increase your income. Trust me on this, investing in yourself by upscaling. And getting that education and maybe moving jobs every few years will annihilate any passive income investment returns during the accumulation phase, which is what I’m assuming the bulk of people out there listening are in.
If all we’re starting again from scratch today. What I would do differently is I would jump onto Google and find out how much, like look at the people that are in a similar age bracket, experience, demographics, you know, our location, everything like that, and find out how what’s the average, what’s the medium, uh, wage for someone in my job description or someone in my role.
Right. And if I was earning. More than the average, then that’s awesome. There isn’t really many low fruit to pick if I’m earning more than the average, because I’m already doing really well. If I’m in, if I’m average or, you know, in the medium, um, I can look at like, what is the next jump in my career that I can take that can get me that pay rise and.
This is a really important point for people that are earning below average incomes, especially in your field. This is like one of the, this is one of the, I’m not going to say easiest, but it has to be one of the lowest hanging fruits that you can go after. If you are earning below average salary, if you’re putting as much effort into optimizing your savings rate.
And especially if you’re putting a whole bunch of effort, Into trying to calculate and work out the, the most efficient and most optimized investing portfolio. Maybe put some of that effort into actually trying to jump the ladder at work and getting a raise or even better. And what I found through experience is to job hop into a new position because that in my experience, that is the best way to get serious gains in your salary, your yearly, your yearly salary.
Can increase astronomically. If you are willing to move somewhere where your skills are in demand. Now, of course this isn’t going to work for everyone and I’m not factoring in, you know, people’s situations and everything like that. But I’m talking about purely from a financial independence point of view.
If you are looking to increase your income. Job hopping is the best way to do it. In my opinion, yes. You’ve got to have the right skills and experience helps and all that stuff and having the right certifications. But if you are willing to move, I feel like that is the easiest way to increase your income substantially a lot easier then to do it through investing.
Like if you think about it, let’s just say that. By you going to another place or moving jobs, you can potentially get like a $20,000 raise in your salary, which I don’t think, you know, obviously there’s, there’s a variety of people listening in from various backgrounds and everything, but it’s not unheard of for someone to go from, you know, 70,000 to $90,000.
Right. It’s it’s not that crazy. How long would it take for you or for anyone out there to invest your way to $20,000 worth of passive income? It’s going to take a hell of a lot longer to do that than it is to put in the effort and to grind away at increasing your income, whether it be in your job or maybe doing a side hustle or something, or doing something after work, if you’re like maxed out in your earning potential in your current job, then I would seriously consider starting a side hustle.
Even if it only generates a, you know, a thousand bucks a month. That’s still $12,000 a year. And again, how long would it take you to generate $12,000 from passive investing income? It’s going to be a hell of a lot longer. Like this is a real game changer. It can be a massive game changer, uh, to anyone on the road to financial independence.
And I really feel it’s not spoken about. Nowhere near as much as it should be because the savings rate is always the best. And I definitely agree with that because a dollar saved is a dollar earned and you’re not going to pay tax on it and all that good stuff. But I’m just speaking from experience.
When I moved from Australia to London, where my skills were more in demand and there was more of a, you know, more lucrative jobs over here and stuff like that. I more than doubled my earnings when I moved over here and my sort of my brain sort of exploded to be like, I never knew opportunities existed like this for people with, you know, within my skillset.
I always knew that there was higher paying jobs in the city, but I didn’t know it was like this. And you don’t know until you try. All I’m saying is once you have optimized your savings rate, In my opinion, try to increase your income. That should be the next biggest thing on anyone’s list. Investing is definitely important and like, you should understand investing, but once you’ve got the basics down, you really want to set and forget and automate that as much as possible.
And I think as well, that a lot of people in the fire community they’re hustlers at heart. I, I truly believe that like a lot of people that come to this community. And stick around and are actually, you know, trying to reach financial independence. They’re not just, they’re not just cruising the forums, not, not trying to actually implement this lifestyle, that the proper ones that are doing this.
I really think that there’s ambition and there’s like entrepreneurial spirit in a lot of people that pursue fire that enthusiasm and that heart, that willingness to work hard and like do the grind and everything. It is much, much better suited. To try to increase your income. Then it is to try to get the most efficient and perfect portfolio mix in the world.
And I don’t think enough is spoken or written about that part of financial independence where savings rates. Awesome. But so is increasing your income. And like I said, your earning capacity is your biggest asset. And that’s taken me many years to realize that. And lastly, the last major part or, or major component of reaching financial independence is the investing.
I’m going to keep it short and sweet with this. If I were starting again from scratch, I would just keep it really, really simple, even though I had success with property early on. And a lot of that was to do, was to do with luck, or it’s hard for me to say that I wouldn’t do it again because if I knew hindsight is 2020.
So if I knew. I knew I was going to make as much money. I probably would have done it again. I definitely would have done it again, but if, I didn’t know, like if it was going to be a random timeline, I probably would just go straight to a. Passive income share portfolio. And the only reason I say that is because just my mind.
Yeah. So at the moment, I don’t want to be renovating houses anymore or anything like that. And I’m sort of just over that and I’ve just got other ambitions. There’s other things that I want to do. So I would just be, I’d go the lazy route. Um, passive style index investing. I probably would go either VAs or a 200, either one is fine for my Australian component.
And then I’d, I’d even, probably go, um, VGs. Over my current one that I got the VT VTS and VU and own that. I’m only saying that because of the, uh, annoying w eight Benny form, even though I really like the VTS and VU, and I like to tweak, I like to be able to dial in the, how much is the in the U S how much is in the world and everything like that.
That super duper simple I’d either go various a 200 VGs. Or I would just go the Vanguard, highly diversified index, high growth option. I think it’s called the, the VD HG option and just, and that’s where I’d keep it. And I would just I’d invest in a 50 50 split between me and ms. Firebug and that’s it.
That’s what I would do if I was standing in from scratch today. Super duper simple. So to recap that, and to conclude that. I would focus on three main areas, the most important being savings rate. I would optimize that again, get that really efficient. I would lock in nip in the bud housing, food, transport, and holidays.
And I wouldn’t sweat the small stuff as much old. I would live a little bit more if I could do it again, then I would concentrate on my income potential. Where am I skills going to earn me the most amount of money? And I would take more risks in this regard. Moving overseas to where my skills are in demand has been.
The best thing that I’ve ever done in my life is the last two years has been awesome. And I wish I did this when I was younger. I’m glad we did it, but I really wish if I’ve always five years younger still, we we’d go to another city or another country and we do it all again. But we’re just at the stage in life now where we want to settle down and start a family next year.
So it’s, you know, it’s a little different now, but. It really, I cannot say this. I can’t speak highly enough of getting off the Island, getting away from Australia and seeing the world exploring and using your talents in other countries. It’s just, it’s one of the best things I’ve done, highly, highly recommend.
And lastly, with investing, I would just take that really, really simple approach and do a. Ridiculously simple portfolio, something like VD HG or VAs plus VGs and I would just throw money. I would just throw money in it. So every I would automate it. I would automate it as much as possible. So when I save a set amount every single month and we try to do about $5,000 these days, that would just get thrown in there.
So whatever splits I’m running, I just automatically invest. And eventually over time that snowball grows to a ridiculous amount. And that’s really about it. Once I got those three components locked down, everything else works itself out.
Okay. That is it for 2020, the very last episode. I hope you guys enjoyed it.
