2018. Fin.

Well, the silly season is over for another year and it brings an opportunity to reflect on habits of the year just past. This post reflects on our spending and saving habits over 2018. I’ve added a quarterly comparison as well.

Income

We averaged $10,280 throughout 2018. This came from a mix of salary, rental income and dividends not reinvested. Total dividends earned in 2018 (including reinvested) were $531.50. A fair way to go in our FI journey!

Over the quarter (October – December), our average income was $14,987. The increase in this quarter was due to tax returns in October.

Expenses

Throughout 2018, we were aiming for monthly expenses of under $5000. Unfortunately, we didn’t meet this target and our monthly expenses were $5538 – so there’s a bit of fat that can be cut from our expenses. The biggest killer for us is definitely food. Our groceries cost pushed close to $10,000 for the year and our dining out budget cost close to $3000. We’re not the most frugal in this space. This will definitely be an area that we seek to focus on in 2019 – becoming more intentional with our food purchases, meal planning and increasing our vegetarian meals. As we live in a very remote part of Australia, our food costs can be exorbitantly high when we buy locally so making sure that we plan our meals carefully is essential.

A huge category for us in 2018 was travel expenses. We are often on the road travelling long distances to both eastern and southern capitals. Not being intentional with planning these trips meant that we spent close to $7000 on ‘on-the-road’ costs. This included plane flights, accommodation, food and other variables. Eye opening to the say the least! Some of these are unavoidable, but in 2019, we’ll need to look at ways to reduce our travelling costs.

Our vehicle costs were also expensive in 2018 – in part because of the conditions we drive in. We replaced a fuel tank, suspension, and had regular servicing on two 4WDs throughout 2018. One of the vehicles is leased – which means that maintenance and fuel costs are coming out of pre-tax income. This does have its benefits given the distances we drive.

A win for budget tracking in 2018 was the realisation of how much I spent on a mobile plan. I maintained a low plan with a major mobile provider because I needed mobile coverage when in city areas. However, not having mobile coverage where I live meant that this was rarely utilised. We switched to Boost Mobile because it gave me the same coverage, better data and was prepaid. We will see how much this impacts my mobile expenses in 2019.

Investments

2018 was our first year of seriously investing outside of super. We had experimented with Acorns in 2017 but branched out into ETFs in 2018. At the end of 2018, our portfolio looked like this. Our strategy involves using cash to offset our mortgage and buying ETFs/LICs in $5000 increments.

Zooming in on our ETF/LIC/Crypto holdings, our breakdown is below. There is no intention to further invest in crypto holdings at this stage. I definitely see a future for cryptocurrencies, but without expert knowledge, I’m not comfortable in throwing more coin at a speculative space that provides no income. There is also no intention to purchase more shares in Telstra. We are aiming for a 50/50 split between Australian and international equities – and a 90/10 split between international and Asia.

The portfolio has had a bit of a slip in the turmoil of the last three months – mainly with VGS and AFI values falling. I took some opportunity of the drop to pick up more VGS. I should have waited an extra week though!

We increased the equity in our IP by $25,000 throughout 2018. We took a loan with a little over 10% deposit and now have close to 20% equity. This puts us a little over three years ahead on our principal payments. 

Networth

At the start of 2018, our net worth sat at a respectable $109,000 (excluding superannuation). At the end of 2018, we had grown our networth by $51,065. This included paying down our mortgage and investing in a diverse portfolio of ETF/LICs. I think we could have increased this by an addition $10,000 had we been more intentional in sticking to our budget. But still, it’s a fantastic result. 

That brings us to 2019 – what adventures will it bring? 

It’s our final year in a very remote place – our future moves may see a reduction in income or a move back to dual incomes. We are planning a huge adventure for 2020, which may set our FI plans back, but will give us the opportunity to experience the FI life. We also have some potentially big expenses occurring in 2019, which may impact on our strategy. 

Our goals for 2019 are: 

  1. Use YNAB to make more intentional expenses in food, travel and vehicle purchases reducing the expenses in these categories by 25% in 2019. 
  2. Invest $30,000 in ETFs/LICs during 2019.
  3. Own 25% of our IP by end of 2019. 
  4. Plan, prepare and deliver on a wedding in 2019 and a 12 month sabbatical in 2020. 

I’m not sure if we’ll have a chance of achieving all four of these goals – but let’s have a crack, hey? 

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The power of zero sum budgeting

So you’ve discovered the concept of FIRE. You’ve stumbled upon a few blogs. You’ve read up a bit on index funds. But it still seems like you don’t earn enough money to achieve your goals. Frugality seems like a chore. FatFIRE seems like a life time away. Just give up, right? You’re destined to be working until your Super preservation age comes around. 

I’ve certainly felt like that. It didn’t seem to matter whether I earned a significant salary or a pittance. Dollars seemed to fall through my fingers. In my hedonistic twenties, I’d always find a way to scrounge a few dollars for a beer, and occasionally save a small amount for a decent holiday. I had no concept of how much I was spending or what I was spending it on. The hand-to-mouth lifestyle went on longer than was necessary – despite my best efforts to teach (punish) myself otherwise. 

It took me too many years to discover zero sum budgeting. I tried various tools to track expenses – spreadsheets; Pocketbook and countless others. None had any effect. I either stressed because I had no idea what categories to establish, ignored it because I didn’t like that it was telling me that I had overspent, or didn’t trust it enough to link it to bank accounts. But then I discovered YNAB. (Yes, this is an affiliate link – if you choose to use YNAB through this link, I will receive a free month). 

What is zero-sum budgeting? Zero-sum budgeting is a pretty simple concept. Earn money and put all of it to work. Have $100 left over at the end of the month. Give it a job – even if that job is next month, or savings, or most importantly, investing. Zero-sum budgeting is a game changer and YNAB is the best tool I have found to achieve it. So how did YNAB change the game for me? 

It didn’t ask me to budget too far ahead. It asked me to budget only what I had. If that was $1000, then I could work out what my priorities were until that $1000 ran out. And it asked me to put all of it to work. In my first few months of using YNAB, I could only budget two weeks in advance. I would still run out of money in that two weeks – but YNAB encouraged me to roll with the punches. I would take from categories that hadn’t been touched or add categories that emerged as important. And gradually I discovered that by tracking what I was purchasing, adjusting my budget as I went and always budgeting to zero, I slowly stopped stealing from my savings categories and discovered that the amounts I was budgeting to spending categories were more and more often accurate. 

Within six months, I was budgeting a month in advance. I had an emergency fund. I had categories for long term expenses. I was controlling my money and responding, rather than reacting, to changes in circumstances. 

In two and a half years of using YNAB, both solo and with a partner, I have grown from having a small pool of savings to purchasing a home (currently as an Investment Property) to paying over $30,000 off the principal, having $50,000 offsetting the mortgage and close to $30,000k invested in low-cost index funds and listed investment companies. And I know more about my spending than I ever have before.

All of this for the princely sum of $50 USD a year. Thanks Jesse Meecham.

Sure, Mr SoF, you might say – your income has grown in that time. And yes, I would answer. But we’ve also become a one-income household, had a child and numerous expensive car issues. There has not been a month where we haven’t paid off our credit card in full.  Not a month in the last 18 months where we haven’t put extra on our mortgage. 

If you’re stuck at how to start your journey to FIRE, then I would start here. I dare you to try it. 

New portfolio members

School on Fire’s aim is to build a portfolio that generates at least $60,000 of passive income from dividends through both growth and income ETFs and LICs. Our current aim is to hold 50% Australian shares (in low cost LICs) and 50% international shares (90% VGS & 10% emerging markets). We also hold Telstra and some small cryptocurrency holdings, but any single company or speculative stock should be less than 5% of the portfolio.

October and November have been exciting months for our portfolio. This has mainly been brought about through generous tax returns. We have been able to add two new purchases to our portfolio.

Our first purchase this month was stock in Milton Investment Company (MLT). Milton is a listed investment company that aims to increase dividend payments over time, provide capital growth to shareholders and invest in a diversified portfolio of Australian assets. Coupled with it’s low expense ratio, it fits the criteria of our portfolio well. We were also able to buy it at a slight discount to premium thanks to the October rumbles in the marketplace.

Over at Strong Money Australia, you can read a fantastic review of MLT.

Our second recent purchase was the Vanguard ETF, VAE, which focuses on Asian companies, excluding Japan. I had some doubt about purchasing VAE over VGE to fill my need for emerging markets, but the preference to hold emerging Asian economies over economies like Russia and Brazil was the deciding factor. The five biggest markets held by VAE are:

  1. China
  2. Korea
  3. Taiwan
  4. Hong Kong
  5. India

While recent growth has been flat – it has averaged 8.44% growth since inception and has a dividend yield of 2.40%.

Our portfolio now looks like this.

October.png

 

 

Quarterly Update – July – September 2018

Welcome to our first quarterly update. In this post, I examine our general expenses to keep track of how we are performing over time. I use YNAB to manage my budget. It’s a small price to pay for a piece of software that I’ve found extremely effective.

Income

We averaged just over $8000 a month income for the quarter. This was made up of salary payments, rental on our property and dividends. A pretty standard quarter.

Expenses

When tracking expenses, I have decided to not include mortgage payments or investment purchases as these go towards creating income for us or paying off debt. My logic is that the money paid becomes assets held.

We averaged $4792 in expenses a month. This is in line with our FIRE goal of living off $5,000 a month (excluding housing).

Expenses (excluding investments & mortgage)

Our average monthly expenses (largest to smallest) were:

  1. Food, Shelter & Security – $2018
  2. Vehicle Costs – $1004
  3. Splurge – $403
  4. Travel Expenses – $393
  5. Non-Essential Expenses – $369
  6. Work Expenses – $292
  7. Children – $152
  8. Savings – $124
  9. Pets – $37

Our two biggest expenses were groceries and fuel costs for our vehicles. Unfortunately, because we live remotely, these costs are somewhat unavoidable as food prices, fuel prices and costs of wear & tear on vehicles from dirt roads are all high. We also went on a holiday to the coast, which cost us a pretty penny in fuel and a new alternator for the car.

Investments

Our debt on our IP reduced by $1229.35 across the quarter. We are currently paying Principal & Interest off IP as we intend it to be our home when we return from living remotely.

We are in the early stage of accumulation at the moment. We are purchasing shares of broad-based index funds and LICs in $5000 portions at semi-regular intervals. We bought 785 shares of Australian Foundation Investment Company. This complements the shares of Vanguard International ETF and Telstra that we already held.

July Quarter.pngOur small portfolio saw a return over the quarter of 8.88% largely on the back of Telstra shares bouncing back over $3.00. This included a dividend payment from Telstra and AFIC.

The tiny amount of cryptocurrency that we hold (Ripple & Stellar) fell $212.75 over the quarter. However it is still valued higher than what it was purchased for in 2017.

Networth

Outside of super, we saw an approximate increase in our networth of $8000. We’ve now  hit $130,000 of assets outside of super.

How was your first quarter of 2017-18?

 

Reflections on 2017/18

2017/18 has come to a close and it’s time to reflect on our achievements so far.This year was the year we discovered FIRE. The past few years have all been journeys in learning about finances, but the spark really started when we discovered Mad Fientist, Aussie Firebug, Mr. Money Mustache, ChooseFI and all the other bloggers, podcasters and writers that we’ve been incessantly listening to and reading over the past 9 months.What were some of our life achievements in 2017/18?

  • We bought a house (sure, in June 2017, but it counts). It’s generating income currently, but will eventually be our PPOR.
  • We discovered parenthood and all the delights of a 0-12 month old. Plus we dropped to a single income.
  • We bought our first ETFs (VGS), and exited Acorns (now RAIZ).

We are big fans of YNAB for tracking our finances and in 2017/18, we kept a comprehensive record of every purchase. Looking at our expenses for the year, I was ecstatic to discover our savings rate.

44.79%

How did we calculate this? I took our post-tax income, subtracted our expenses excluding mortgage payments and investment transfers, and added the interest paid on our mortgage. I’ve excluded our employer superannuation contributions and additional contributions that we make, as we won’t see that money until we are at least 60.Please comment below if you have suggestions on more effective ways of calculating savings rates.Other financial achievements we made were:

Mortgage principal reduced by $28,000

ETF Portfolio begun

Financial Independence feels a very long way away right now, but I do think we’ve started in the right direction.How did your 2017/18 go? How would you calculate your savings rates? What were your achievements?

The first lesson.

It is 2010. I am 27.

The past four years have been a blur. Late nights, loud music, sticky bars and hangovers, shitty jobs, mark an extensive overseas expat experience. Multilingual, but lacking direction, I returned to Australia ready to explore the next steps.

But reality always catches up.

Standing in an a one bedroom apartment, 400 metres from the ocean, I watch a partner walk out. Seated on the couch, I examine payslips, bank accounts and a lease agreement. They don’t add up. There is no way that I can stay in this place until the end of the lease. I have a couple of grand in the bank,  a job that barely paid minimum wage and a big pit in front of me. I was about to return to university and was looking forward to learning again

I didn’t know it then, but this was the first day of my journey to Financial Independence. It would be another 5 years before I even learnt about FIRE. This was the moment of realisation; that I could not sustain the lifestyle I was living and still have the lifestyle I wanted. I had created this situation, and I was determined that I would teach myself a lesson that I couldn’t unlearn.

I was going to stay in this apartment come hell or high water until the lease ended.

I found myself a temp job that paid well and would keep me on the books until university started. I built myself a rudimentary excel spreadsheet and started tracking my spending. I began working out what I was going to need for the 10 months ahead.

Once university came along, I calculated that by maximising my potential income (AUSTUDY and employment), I would have $200 a month less income than my rent. This was a problem. I had a few grand in savings and decided that if I was going to learn my lesson, I would have to use these. In hindsight, there were better options available – break the lease, find a share house, move back to family… all would have been better options. But I am stubborn.

I gave myself $400 of my savings a month to live off – $200 to make up rent, $200 to live off. My Austudy and other earnings would go to rent. I would live the leanest existence I could. Lentils were my friend. Home cooking – my friend. God, it was hard. On Fridays, I could hear the club banging next door. Downstairs the smells of the Thai restaurant wafted up. I was lonely, poor and pissed at myself.

To dig myself out of my hole, I explored couchsurfing.com – here I made temporary friends – travellers who would bring beer, food and conversation for a bed for a few nights. I threw myself into study – spending hours in the library: a substitute for a home I didn’t want to return to.

But I got there. In August 2011, midway through my degree, I won a permanent position. There was light at the end of the tunnel. I knew where I was going and that I was going to have an income again. My enforced frugality was ending. Two months later, the lease ended. I was free. I had survived a year as one of the precariat – living on the precipice of financial turmoil.

Nothing could stop me now.