Rickardo's 10 years to freedom blog

[Rickardo]

Hi Guys,

A quick monthly update for June followed by an end of financial year wrap up.

Income: $6400 (primary job)

Expenses: $3,828

Saving Percentage: 40%

It was a low saving month due to me travelling through Asia for a fair bit of June/July. It was a holiday but also a bit of an experiment to see how I'd potentially like living in Asia if I wanted to pull the ERE trigger quite soon and retire to an Asian country with much lower living expenses. Overall I enjoyed it but don't think I'd want to live there long term, I just enjoy the living standards and way of life too much where I currently live.

Now for an end of (Australian) financial year update for the period July 2013 to June 2014.

Net Income: $100,000 (approx.)
Living Expenses: $42,629
Saving Percentage: 57%

I'm reasonably happy with my spending over the year and it's close to my desired long term average of 60%. Implementing a couple of the strategies I spoke about in earlier posts really helped bring down my core living expenses of housing, food and car/transport.

Net Wealth calculations as follows:

Assets
Real Estate: $1,797,200
Retirement Accounts: $169,739
Shares: $39,307
Cash: $25,000
Total: $2,031,246

Liabilities
Real Estate Mortgages: $1,428,937

Net Worth: $602,309
ERE Net Worth (exc. retirement acc): $432,570

That's a total net worth increase of $133,166 or 28.39% from last year, mainly due to savings, increases in the value of real estate and retirement accounts, and a small amount of growth in shares. I was hoping to hit $650,000 but still reasonably happy to be over $600,000. It's well below the goal of $1,000,000 net worth by this date which I set for myself a few years ago, but I guess it's better to set high goals and not quite get there, rather than not set any at all right? I have just turned 30, so for my age I guess I'm not doing too badly since all my wealth has been acquired through hard work, saving and investing, rather than any family handouts.

[Rickardo]

Hi guys,

I have decided to update quarterly rather than monthly, which will give a smoother representation of my expenses. This update relates to July to September 2015.

Income: $25,185

Expenses:
Rent $2599.98
Car $2,513.21
Travel $831.91
Presents $738.63
Food – Supermarket $580.42
Financial Assistance $400
Food - Restaurants $363.6
Alcohol $284.95
Entertainment $247.4
Sport/Gym $274.25
Utilities $199.47
Health / Toiletries $183.31
Coffee $174.2
Food - Take Out $148
Public transport $115
Other $32.7

Total Expenses: $9,687

Saving Percentage: 60%

Net Worth: $625,125

Overall my saving percentage was right on where I want to be. It is slightly higher due to me receiving an extra pay cycle (only happens once a year). I'm pretty happy with my spending, I'm living well, enjoying myself and still saving enough. There's always room for improvement but I think my balance is pretty good right now.

I have started investing in dividend stocks over the past 9 months, and while I haven't seen much capital growth yet it's nice to see some positive income rolling in!

[Rickardo]

Happy New Year to all, time for an update.

September to December Quarter:

Income: $28,825

Expenses:

Rent: $2600
Car: $1765
Travel: $1090
Food - Supermarket: $905
Food - Restaurants: $865
Alcohol: $712
Entertainment: $634
Family Assistance: $600
Health: $662
Utilities: $393
Food - Take Out: $227
Clothes: $194
Christmas presents: $286
Sport/Gym: $167
Coffee: $57
Other: $50
Financial Education: $203
Public Transport: $168

Total: $11,629

Savings Rate: 57%

Looking over the categories I would consider my spending a bit too high, but not too far off where I want to be, when considering some car repairs and pre payments for some future travel took up a fair bit of it. I still think alcohol and overall food spending is above where I want to be long term, but i'll keep working on those.

Net Worth: $790,407

Time for a yearly reflection of 2014, highlights included:

• -Took a really fun month long trip around South East Asia, managed to have a great time at a relatively low cost
  -Had 3 different roles at work which allowed me to work in 3 different offices, teams and environments, and definitely learnt a lot.
  -Built on a great relationship with my girlfriend, had a lot of fun and new experiences together
  -Increased my net worth by $256,988 or 48% which I'm absolutely ecstatic over. It mainly came from growth in real estate prices however some is also attributed to continual savings. I feel like a lot of the investing work I did over the past 5-10 years is really starting to pay off now, and barring any major market meltdowns it's only going to get better over the next 5-10 years, which will put me in a position of choice and freedom that most people will never have in their 30's.

It was a great year overall, and with a big upcoming year planned things aren't slowing down! Thanks to all in the ERE community for all the mindset assistance.

[Rickardo]

Hi Guys,

A bit of an update on my investment strategy / goals, I’m happy to hear peoples critical thoughts or hopefully others may learn something. You can go back to my first journal entry for more specifics, but initially my Long Term Goal was:

At 40 years old (10 years 6 months from now), obtain a passive income through investments of $70,000 per annum. This will be a mixture of investment returns and drawing down cash savings.

I have now refined it to:

At 40 years old (9 years 3 months from now), obtain a passive income through investments of $50,000 per annum. This will be a mixture of the following:

$30,000 from a defined benefit pension
$10,00 - $15,000 from dividends
$5,000 - $10,000 from rent

Changes in Investment Strategy

Since I posted my first investment strategy, there have definitely been some shifts in my thinking. I have slowly been moving some of my asset allocation away from property and towards shares (ETF’s) and my retirement pension. 18 months ago my plan was very residential property focused, and while now it still forms a significant component of my asset base (and it’s still where I expect to gain the largest capital gains from), shares and my retirement pension are now more prominent (especially relating to income).

There are a couple of reasons for this, but the main being my employment is not as secure as it once was, so I want to put myself in a position where I have more investment/pension income coming in should I lose my job.

Another reason is I didn’t truly understand the power of my defined benefit pension plan. When I first started working, accessing it was over 40 years away so while I did give it some thought, it was just too far away (even for a long term financial planner like myself). However as the years have ticked over and I’ve learnt more, I’ve realised I can access it 5 years earlier than I first thought (age 55 rather than 60) and I could potentially access it immediately if I get retrenched. This has made me change from putting the minimum contribution (2% of salary) to the maximum (10%). I now realise I am extremely fortunate to have access to this guaranteed income stream, and therefore intend to take full advantage of it.

To run a couple of examples:

1) Get retrenched today: $10,687 pension for life or 26.7% of my retirement living expenses paid for, that I never have to worry about again
2) Get retrenched at 35 years old: approx $20,000 pension for life or 50% of my retirement living expenses paid for
3) Get retrenched at 40 years old: approx $30,000 pension for life or 75% of my retirement living expenses paid for
4) Retire at 40 years old and wait till 55 to access: $45,000 pension for life from age 55 or 112.5% of retirement living expenses.

So you can see, it’s very powerful. I’m hoping the first 2 scenarios do not happen, but if 3 or 4 happen essentially it means with a small amount of supplementary income I’m done with work for life. Obviously in the fourth scenario I’d have to self fund myself for 15 years, however I could do this reasonably easily with dividends / rent and drawing down cash savings / selling some property. Even if I fully depleted all my equity during the period, once my pension kicked in I wouldn’t need it anyway.

In addition to this income stream I should have a good amount of equity in investment capital (real estate and shares) which I could borrow against / sell if I needed additional funds. However I’m hoping I won’t have to do this.

I know I am forecasting well into the future and there are many risks. For example I could lose my job earlier, the property / share market could go nowhere or backwards, interest rates could rise, rents and dividends could drop, etc. But based on where I am right now, I’m comfortable with those risks and therefore this strategy. Interested in others thoughts?

[1taskaday]

Hi Rickardo,I also have a choice of taking a reduced Defined Benefit pension at age 50 or retiring But not accessing the pension until age 60.To me based on pure math calculations it makes no sense to leave it until age 60 to draw it down as the increase over the 10 years is so small.

What am I missing? I have no idea...I wish there was a book(easy to understand) that explains the best way to draw a Defined Benefit pension.

From what I understand most people recommend leaving it until "proper" retirement age eg. Ermine on simple living in Suffolk,why?I just can't understand just based on the maths?

I know he has AVC's as well but again I don't know how this all ties together.It is so frustrating...nobody seems to know the complete story...I have often said when I finally put the whole of the pieces together I would love to put it into a book so that others could understand it all easily.But I suppose that's the thing...when people retire and have everything set up they just loose interest in pensions and move on to other things.

[Rickardo]

Hi All, time for another quarterly review.

Income $20,995

Rent $2,692
Car $1,040
Moving Expenses $1,031
Food - Supermarket $1,035
Travel $580
Clothes $570
Food - restaurants $567
Financial assistance $400
Health / toiletries $376
Alcohol $327
Presents $301
Food - take out $212
Sport/gym $167
Public Transport $164
Utilities $159
Entertainment $96
Financial education $80
Coffee $35


Total: $9,832

Saving Rate 53%

Overall not a bad quarter, fairly happy with how the expenses are tracking. I moved into a new apartment, slightly more ($10per week) but much bigger in a quieter and nicer location, and only added about 5 minutes extra to my train commute. As you can see there were some expenses associated with moving (removalists, new connection fees, some new furniture, etc) but hoping to stay in this apartment for a while so I'm not too concerned.

I have noticed that 'something' unexpected expense wise comes up every quarter, it's either a car repair, moving expense, health, travel, etc, which is why I'm keeping a bit of flex in my ideal $40,000 per year living expenses. It's what I'm aiming for, but if they happen to rise to say $42 or $45,000 per year I'm not going to be too concerned. I know as long as I keep my long term savings rate above 50% I'm in a great position.

Net Worth: $808,378
ERE Net Worth: $618,602

The wealth is moving along nicely with gains this quarter mainly from cash savings and share appreciation. I'm getting closer to my first major milestone, the $1,000,000 Net Worth mark.. If things keep going the way they are it shouldn't be more than 2-3 years, but hopefully sooner!

[Rickardo]

Hi All,

Time for an end of (Australian) financial year update for the period July 2014 to June 2015.

Net Income: $96,000 (approx.)
Living Expenses: $40,646
Saving Percentage: 58%

I'm very happy with my spending over the year and it's close to my desired long term average of 60%. I have continued being disciplined with some of the strategies I spoke about in my initial posts and these have really helped bring down my core living expenses of housing, food and car/transport.

Net Wealth calculations as follows:

Assets
Real Estate: $2,018,000
Retirement Accounts: $196,161
Shares: $103,617
Cash: $19,513
Total: $2,337,291

Liabilities
Real Estate Mortgages: $1,452,931

Net Worth: $884,360
ERE Net Worth (exc. retirement acc): $688,199

That's a total net worth increase of $281,158 or 47% from last year, mainly due to increases in the value of real estate, however some is also attributed to savings, retirement accounts, and purchasing shares. I am getting much closer to the $1million mark and would love to hit this within the next 12-24 months. The numbers speak for themselves, they really show when you live below your means, invest conservatively and wisely in growth and income producing assets, that over the long term wealth really starts to snowball. I’m loving it! This site has been a great boost to me in terms of having a much more considered think about my lifestyle and living expenses – so thank you all for that. Here’s hoping in my next financial year update I’ll be a millionaire!

[Gilberto de Piento]

Great job! 58% is awesome.

[Rickardo]

Hi guys,

Quarterly review time.

Income: $29,293

Expenses: $12,238

Saving Percentage: 58%

Expenses were relatively high this quarter (higher than average) but the savings percentage still looks good because of how the dates in the year fall, I got an extra pay drop. I also earned over $5,000 from my second job.

The reason for the increase was mainly travel expenses ($3,600), because I was travelling for over a month. I did a lot of trekking and went through Nepal/India which are relatively cheap countries but I did spend a bit more than usual. The two reasons are it was relatively expensive to go on a 2 week guided tour, and also I'm getting a bit over travelling cheaply so things such as hotels, transport etc are now starting to go up when I travel.

I'm still loving all the travel though so it's worth the cost, taking 1-2 months a year out of the workforce has been really refreshing and setting me up well to start the lower work pace which I hope to start in about 4-5 years. It does actually make the first few days back in the office really hard though!

Net Worth: $979,753
ERE Net Worth (Excludes retirement accounts): $761,253

I am edging ever closer to the $1,000,000 Net Worth mark and should reach it sometime next year at the latest, unless asset prices keep declining (which they may). It will feel good to break it, but I don't think I will feel too differently, as I keep seeming to want to push for more! I'm planning on posting a bit of an update in terms of goals, etc, early December, to coincide with me being on this site for 2 years. I'm really looking forward to the progress even in that short amount of time.

Signing off until then!

[jennypenny]

I'm planning on posting a bit of an update in terms of goals, etc, early December, to coincide with me being on this site for 2 years.

I'll be curious to see what your actual goals are wrt net worth. Most people here would pull the plug with a net worth close to a million, but you're still working two jobs from the sounds of it. Do you like what you do?

[steveo73]

I'm planning on posting a bit of an update in terms of goals, etc, early December, to coincide with me being on this site for 2 years.

I'll be curious to see what your actual goals are wrt net worth. Most people here would pull the plug with a net worth close to a million, but you're still working two jobs from the sounds of it. Do you like what you do?

In Australia house prices are so expensive that 1 million isn't that much. I don't consider my house as an FI asset. I view it as a way to minimise expenses via no rent. I do consider my mortgage as debt.

We are close to paying off our house. I hope to post on this early next year. I assume its about $1 million net worth there. I figure at $600k outside of my house I have FU money and at $800k we should be reasonably safe.

[Rickardo]

I'm planning on posting a bit of an update in terms of goals, etc, early December, to coincide with me being on this site for 2 years.

I'll be curious to see what your actual goals are wrt net worth. Most people here would pull the plug with a net worth close to a million, but you're still working two jobs from the sounds of it. Do you like what you do?

In Australia house prices are so expensive that 1 million isn't that much. I don't consider my house as an FI asset. I view it as a way to minimise expenses via no rent. I do consider my mortgage as debt.

We are close to paying off our house. I hope to post on this early next year. I assume its about $1 million net worth there. I figure at $600k outside of my house I have FU money and at $800k we should be reasonably safe.

jenny,

As steveo mentioned above, Australia is a bit different in terms of property, for example a median property in our biggest capital city is now over $1mil, which leads to Net Worth here being a bit misleading, as you really have to hold quite a bit of wealth outside of your primary house to make it comparable. From memory, while Aussies are not very good savers in general, the average wealth of an Australian family is over 700k (mainly due to equity in property and compulsory retirement contributions).

If i had $1mil in financial assets returning say 4-5% gross per annum to give me an income stream of over 50k, that would be very different. But i'm not there yet, that's why i'm currently reconsidering my goals.

Your question about my job(s) is an interesting one, no i wouldn't say i love them, but i certainly don't dislike them. The best description would probably be somewhere between tolerate and like. Why am i still working so hard/much? Probably due to really wanting to accumulate enough to set myself up for life while i'm still somewhat enjoying working, i really don't want to get into retirement then realise 5 years later i have to go back to work. There's probably a bit of fear in this too, having a bit of a conservative accumulation mindset, it's likely i'll work longer than i have to just to be really sure.

[steveo73]

http://www.abs.gov.au/ausstats/abs@.nsf ... enDocument
http://www.smh.com.au/business/the-econ ... 163ip.html

There are a couple of interesting articles here showing Australia's per capita wealth. We appear wealthier I think simply because we are still in a housing bubble. I honestly don't know if or when it will correct.

I'm not complaining but this to me is a reason why in Australia you need to save a little longer than the standard savings figures. I view those savings rate to retirement figures as being spot on once your house is paid off.

[Rickardo]

Hi All,

It has been two years since I started my journal here. Thought I’d do a bit of a general reflection and update.

About me
A now 31 year old male living in Australia with my partner, semi separate finances (we generally split most things) and no children (yet).

I’ve been working in the same profession for nearly 11 years and I am still enjoying it (but not as much as 2 years ago). At this point I’m still content to work for another 5+ years but the earlier I have the option to leave or go part time the better.

All figures below are annually in Australian dollars (when I started the blog our dollar was about the same as $US but since then has dropped to 1AUD = 72cents US, although given I transact mainly in AUD it doesn’t make much practical difference to me)

Income
$116,000 employment
$8000 dividends

Investment/Tax Expenses
-20,000 income taxes
-13,500 retirement account contributions
-2000 rental (negatively geared property)

Living Expenses:
Between July 2012 and June 2013: $51,845
Between July 2013 and June 2014: $42,684
Between July 2014 and June 2015: $40,646

So far between July 2015 and current date I have spent about $20,000. I’m trying to keep this to $40,000 to June 2016 but will likely go over due to a higher amount of travel than usual (worth it) and future car repair/maintenance expenses.

I showed last year I can spend near my desired rate ($40,000) but really feel like $50,000 would be the spending point where I wouldn’t have to always be checking my spending, as naturally I’ve never really spent more than this in any year.

My current net worth sits at about $980,000

Housing and lifestyle
Live in an apartment with my partner, approx 10 kilometres from work. It’s in an upmarket area about 8k from the city centre and 500 metres to local shopping (which provides everything we need except a major shopping centre). Use public transport / walk as much as possible. Use car 2-4 times a week to attend second job and visit family / friends.

Long Term Goals
In my first post 2 years ago it was this:
At 40 years old (10 years 6 months from now), obtain a passive income through investments of $70,000 per annum. This will be a mixture of investment returns and drawing down cash savings.

I altered it a little in my post of March 2015 and have now refined it further:

After 20 years of working (9 years 2 months from now in February 2025, at 40 years old), obtain a passive income through investments to meet future living expenses in full – being $50,000 per year. This will be a mixture of the following:

$30,000 from a defined benefit pension
$10,00 - $15,000 from dividends
$5,000 - $10,000 from rent

In addition to this income stream I should have a good amount of equity in investment capital (real estate and shares) which I could borrow against / sell if I needed additional funds. However I’d prefer not to do this.

Where I’m at right now:
$12,108 from defined benefit pension
$8000 from dividends
-$2000 from rent

Therefore I’m $18,108 or 36% there.

Looking back, I can see how far I’ve come even in the last 2 years and I’m confident I’ll be able to reach my goals (hopefully even much earlier). If I’m still tracking at the same pace in 3 years I will have the ability to change my hours to part time by either doing 3-4 days per week or taking 2-3 months off per year to either travel, or do whatever else I feel like.

I’m hoping to look back at this post in 5 years time and laugh at how low my goals were! That’s the plan, and I’m fairly confident in achieving them. All I really have to do is keep working, which isn’t such a bad thing to sacrifice given if I live to 80 years old it means I’ll have 40 years of absolute freedom.

Any questions feel free to ask.

[steveo73]

Hi Rikardo,

I have some questions:-

How did you get a defined benefit pension and can you draw on it at 40 ?
Will you own your home and therefore pay no rent when you retire ?

[Rickardo]

Hi Rikardo,

I have some questions:-

How did you get a defined benefit pension and can you draw on it at 40 ?
Will you own your home and therefore pay no rent when you retire ?

Hi steveo,

See my posts 19 and 24 in this thread for a more detailed explanation, however I got very fortunate as my employer offered a defined benefit pension when I started (it has since been closed to new employees).

I can't draw on it until 55 unless I get retrenched. So when I say $30,000 from a defined benefit pension at 40yo, it's still partly hypothetical as I may not have access to it. However all I need to do instead is use cash savings/asset sales/other income and wait till 55, by which point it will be much higher than 30k.

I am currently renting, I'm yet to decide whether to get a long term PPOR and this will likely be decided once I have to factor in kids.

[steveo73]

I am currently renting, I'm yet to decide whether to get a long term PPOR and this will likely be decided once I have to factor in kids.

I mainly asked because your costs seemed really high if you weren't paying any rent. Your costs now seem lowish to me. Myself and my wife are aiming for an income between 25k to 40k when we retire which we may stretch to 50k. That includes though a paid off house.

[fiby41]

If I may ask, what comes under the Financial education $80 category?

[Rickardo]

If I may ask, what comes under the Financial education $80 category?

Mainly books on investing/mindset. I could probably put them in entertainment because I do enjoy them, but decided to split them up

[Rickardo]

I am currently renting, I'm yet to decide whether to get a long term PPOR and this will likely be decided once I have to factor in kids.

I mainly asked because your costs seemed really high if you weren't paying any rent. Your costs now seem lowish to me. Myself and my wife are aiming for an income between 25k to 40k when we retire which we may stretch to 50k. That includes though a paid off house.

My core living expenses of food, transport, utilities and rent sit it around 22-25k, so everything else is really just extra