Articles I Love – Spending Your Dollars on Experiences not Things

Buying experiences in place of more things…

I’m all about getting value for money, and this is especially true with my ‘Treat Yo Self’ funds.

This is why I think it is so important to get my best ‘bang for my buck’ when it comes to these funds. Essentially, I want to maximise my ‘fun to funds ratio’ so I get the greatest enjoyment out of my relatively small fun fund.

Articles I’ve Read

This group of articles speaks to the core of this concept. The overwhelming consensus is to spend your fun money on experiences and not things. This will give you the most enjoyment, give you long-lasting memories (especially if they are novel experiences) and will give you the most bang for your buck.

Money can buy you happiness if you spend it on these three things. 

This article which appeared in the Sydney Morning Herald really gets to the crunch of this issue. Spending your money on experiences, time, and on others provide the best ways to boost happiness from your hard-earned dollars.

Why you should spend your money on experiences, not things

It goes into the reasons why money is better spent on experiences than things. I particularly liked some of thes reasons, such as the constant need/want to upgrade your ‘things, and those disappointing things that just sit there reminding you of your disappointment.

The science behind why you should spend money on family holidays and not toys

And here is one for the families out there. Try it for yourself… What are your most vivid and important childhood memories? Is it that monster truck that you got among all the other presents on Christmas day? Or is it the first time that dad took you camping? This article really drives home the point that your kids really just want to spend quality time with you.

There are others

There are many more articles that discuss this often overlooked topic. Perhaps next time you will forgo buying that new X-Box game and instead spend the money to go shark diving.

Cheers, Brendan

Meet FIER Brendan

The FIER Australia blog is first and foremost about money.

We’re going to cover a lot of ground. Undoubtedly we’ll end up in some unfamiliair and unomfortable places. In addition we will be exploring many topics that may not seem financial in nature on the surface. Some of these topics will be amusing, weird, and (hopefully) fun tangents into the topics of lifestyle, cultural, and political issues. But when it boils down to it we will be talking about money and how our relationship with it can either give freedom or chain us down.

Money can be incredibly powerful; both positively and negatively. Most imprtantly, if you have a good relationship with it, it can give you freedom. Freedom from worry. Freedom to live your life as you choose. Freedom to stick your middle finger up at your boss, quit your job, and to know that you will be ok financially (if this is what you want).

Me? I like my job, and my journey towards Financial Independence and Early Retirement is far from over. I imagine if you are reading this, yours isn’t over either: otherwise, you’d be sipping Mojito’s in Hawaii and I’d be writing a blog about the ‘Best ways to invest your capital for a comfortable retirement’ while I trek around the globe riding all of the best mountain bike trails. In addition, I’m not going to ‘teach’ you how ‘I retired at 30 with an investment portfolio of $30 million’. I wish I could, but my journey, like yours has just begun. 

I’m inviing you along for the ride.

Well, what is the point of the blog then?

The purpose of this blog is to serve as a learning resource (both for me and for you) as I experiment with different wealth building strategies.  It will be a no bullshit, and completely transparent looking glass into my financial life. Through documenting my trials and tribulations, this will serve as a resource for what does and doesn’t work for building wealth and working towards Financial Independence and Early Retirement (FIER) in the unique financial environment that is Australia. 

It will serve as a guide and reminder to what wealth building strategies are worthwhile, and others that you should avoid like the plague.

Who Are You?

Now lets talk about you. Where do you sit on ‘the ladder’ of financial independence and early retirement (FIER)? Which of the below best describes you?

1. Retired. My capital is in diverse investments earning me a steady income.

2. I’m still working, but I choose to work as the income from my investments actually pays for my day-to-day living expenses.

3. Still working a 9-5 job (more or less). Have some savings, have paid off the mortgage and I am working at building my investment portfolio. I also have a side-hustle where I am making some extra money.

4. Same as above, but I have a mortgage. I also have a small amount saved in a rainy day fund.

5. Same as above, but I have other loans (credit cards, personal loans, car loans) as well as the mortgage, and no additional savings.

6. Just scraping by. Working a 9-5 job, but my expenses eat up every last penny of my income each week.

7. Scraping by. In and out of work (casual work maybe) and spending more than I earn.

8. Desperate. I’m on the verge of bankruptcy (or have declared bankruptcy). ‘How did I get myself in this mess?’. ‘I can’t even afford groceries’. More money leaves my bank accounts than is going in and I can’t see my way out of this mess. Multiple credit cards and loans, and I can’t find work.

You can do it!

No matter where you sit on the ladder, there are certain things you can do to move to the step above. Moving to the next step creates momentum. It creates new better habits; habits that if maintained can lead you down the path to financial freedom quicker than you realise.

Goals

You’re goal (like mine) should be to move up on the list until you reach your stopping point. You have to be committed to take control of your financial future and make the necessary changes to get there. Yes, you might have to make some sacrifices, and if you aren’t willing to, I can’t help you. Additionally, we all have different goals, and your goals from this might well be different from mine. It might be to pay off all of your credit cards. But, I reckon that once you start the ball rolling that you might not be happy with just being debt free; and you will aim for something much higher. Think about what your goals are (we will come to this again and again over time).

My long-term goal, for example, is to reach the second top wrung of the ladder. Ask yourself, where would you like to get off?

Everybody can move up the ladder to FIER. You just need to take control of your financial future, stop playing the blame game and blaming external forces for your problems, get off your ass and do something about it. I can’t stress this enough; to become successful, YOU need to own your problems and (excuse the pun) take the bull by the horns. You have to make the choice. Do you want to grind away for the rest of your life at a job simply to pay the bills? Or do you want to have the freedom to choose to do what you want?

By extreme frugal living, increasing earnings, and maximising savings, I will be able to become financially independent sooner rather than later.

Become a regular reader of this blog, and come along on the journey with me to Financial independence and early retirement (FIER).

Cheers, Bendan

My Experience with Credit Card Stoozing – Round One

Credit Card Stoozing…

I had often wondered whether I could transfer an amount off an introductory offer credit card to my offset account; or whether is was even legal to do so.

Apparently it is; and it is a great way to decrease the amount of interest you pay on your mortgage.

But what’s the catch? If you transfer the maximum amount as a balance transfer off a credit card to your offset account, you can save on the interest in the mortgage whilst paying no interest on the money borrowed (for a period of time).

Right. But… You would have to be disciplined.

It’s a trap!!

These offers are setup as a trap, to lure in unsuspecting customers who are unlikely to pay off their credit card prior to the interest free period running out.

The banks have done their numbers (they’re quite good at doing these numbers things) and have found that we are unlikely to to disciplined, and we are going to end up paying interest on these credit cards.

Why do the banks allow credit card stoozing? It’s a numbers game for the banks. Sure they will take a financial hit for those of us that take advantage of these interest free schemes; but in the grand scheme of things they ultimately make much more  money from the undisciplined credit card holders they they suck into the vortex.

So, you have to be incredibly disciplined if you want this to work for you.

Or… What I prefer… you have to set it on AutoPilot, forget about it, and enjoy the interest savings.

My Plan of Attack

So… I wanted to have a crack at this credit card stoozing scheme. So, I formulated my plan. I felt like George Clooney in an incredibly bad (and boring) Ocean’s Eleven spinoff except this way of robbing the bank is legal.

So, I started to plan ‘Stooze don’t Lose’.

Step 1: Take out a credit card with a 0% interest period.

Step 2: Transfer the credit card balance to the offset account.

Step 3: CUT UP THE CREDIT CARD!

Step 4: Setup an automatic transfer of that amount back onto the credit card account towards the end of the interest free period.

Step 5: Rinse and repeat.

MIND BLOWN! RIGHT?!?!

I’ve always thought of credit cards as being evil beasts that suck the life out of even the most frugal of us. I never thought that they could be a tool to help me on my way to financial freedom.

Now, to put it to the test. Surely something will come up in big red writing at some stage saying that what I am trying to do is illegal.

I can’t believe I’m considering this (getting a credit card).

Why do banks allow this? Surely someone is going to call the police on me if it works.

 

Everything was going swimmingly..

It’s incredibly easy to apply for a credit card.

I just clicked on the one that had the annual fee waived with an introductory offer of 0% for balance transfers for the first 12 months.

And then… I hit a SNAG!

Wow, don’t they make things difficult for you?!?!

To think that I actually thought that credit card stoozing would be easy peasy lemon squeezy… It’s actually difficult difficult, lemon difficult.

Unfortunately for me, Westpac did not ‘have an agreement’ with my particular financial institution for balance transfers.

*Lightbulb moment*

Where there is a will, there is a way.

But I have my ING and Commonwealth Visa Debit Cards, perhaps I can organise a balance transfer to them, and then transfer the money from there to my OffSet Account.

Brilliant!

Nope, Nope, Nope!!

I tried to go through this process, and ended up being stuck in the same spot as before. the lovely lady on the other end of the phone (she really was lovely) notified me that it was not possible to organise a balance transfer to a visa Debit card, as there was no balance owing on the card to be transferred.

Damn, Damn, Damn!!

I was stumped, and here I thought I’d be printing free money by now.

Disgruntled and incredibly annoyed that my little scheme had fallen flat on it’s face, I packed up my bat and ball and decided that I didn’t want to play anymore (just kidding).

So, I called up, cancelled the card, with the intention of trying again when I worked out another method.

Watch out for Round 2!

I’m thinking that two credit cards may be required for this little scheme to work.

I think I might try that with the next effort (I’m determined to make this work, as I’m committed now).

You’ve won this round banky mcbankyton. :/

Conclusion for Round 1: FAIL!

Cheers, FIER

The FIER Calculator v1.1

A little explanation about my FIER (Financial Independence and Early Retirement) calculator.

This little spreadsheet was created, as I wanted a way to track my Increase in Net Worth, until I reached such a point that I reached that magical x25 number.

If you don’t know what the ‘x25 Rule’ is, it may be worthwhile checking out the post covering it here.

But, I decided to make it more complicated than that. Of course.

I decided I didn’t actually like the x25 rule as much as I liked. This came from the fact that not every part of your net worth will give you a 4% return on investment. Especially your home.

Despite my home making up a very large proportion of my net worth, it does not (and never will) make up a large proportion of my passive income. In fact, as it stands, it is making me 0% return on investment.

How is it different?

Most of the Financial Independence spreadsheets I have seen assume a 4% return on your net worth. As discussed above, this is not the case.

For my calculator, I wanted to be able to allocate different levels of returns depending on where the capital was invested.

For example, capital that is in the share market will, on average, on the long term, have a much higher return on investment that money that is sitting in a high interest bank account.

How it works.

Saving for retirement is all about habits, and this is how this calculator works.

With my FIER calculator, you simply enter into the assets spreadsheet, on a fortnightly basis, the amounts that are currently allocated to each of your asset ‘classes’. In here as well, you enter your expected return on that particular asset.

In the liabilities spreadsheet, enter where you owe money as well as the interest rate of each of these amounts.

From these amounts, the spreadsheet will automatically calculate the estimated passive income (from your assets) and passive loss (from your liabilities) which will be displayed in the passive income/loss tab.

The last thing you need to enter is your expenses for the fortnight. These are any expenses such as groceries, phone bills, car repairs: basically anything that isn’t interest on your debts.

The calculator takes all of these figures and:

  1. Calculates a rolling 12-month average for your passive income, earnings and your living expenses
  2. Calculates how much your savings have increased for the fortnight, and how much your savings have increased per fortnight on average over the past 12-months
  3. Based upon your average rate of saving, it calculates how long (in years) it will take for your passive income to cover your living expenses.

Why 12-months?

the truth is, I wanted to create a calculator that averaged out over a shorter time-frame (say 3-months) so you could track more recent improvement in your spending and earning habits. However, some large expenses (e.g. insurances, car rego etc.) only happen once a year and not including these may give an unrealistic view of your savings habits.

I could change my opinion on this in due course, and even as I am writing this I am sitting on the fence (for example, it may help in instilling new habits). I think in future iterations there will be a function combining the two so you can compare long-term and short-term savings habits.

How do I reach Financial Indpendence Sooner?

There are two main ways that this can be achieved, and they are easily accounted for in the FIER calculator.

  1. Save more (Spend less or earn more) – either way results in a greater increase in your net worth per fortnight and will get to to FI sooner.
  2. Invest in assets that have better returns – this is important, make your savings go to work for you by placing them in places where your returns are going to be higher that the average savings account

Because my FIER calculator makes it’s estimates by your rolling average of savings; you do not have to enter your earning into the calculator to make it work. It does all of it’s calculations based upon your savings habits and increasing Net Worth.

I have not included super in my calculations.

Although Super technically adds to your Net Worth; it’s not much good to you for early retirement when it’s sitting, inaccessible in your super account. Obviously if you want to be able to retire on the income generated from your investments, you cannot access the income from your Super Nest Egg until you reach the governments Super Maturation Age.

Sure, drawing down on your capital outside of super should be balanced out by the returns on your super fund.

With governments playing around with Super Rules, it’s not something I’d be willing to bank on. Who knows what might happen to the rules surrounding your super account in the future. I expect that the rules about who can access their super, how quickly you can draw down on these amounts, and how much it is taxed will be changed in the forseeable future and I don’t want to be reliant on it as my saving grace as I whittle away my savings outside of super.

Sure, there are arguments for and against including super in your calculations. Being the ultra-conservative pessimistic bean counter that I am who is increasingly suspecting of our governments ability to meddle with our ‘retirement nest eggs’ I just would rather be safe than sorry with my calculations.

Here it is.

v1.1 of my FIER calculator can be downloaded from here. Now, bear in mind that it is a work in progress, and I am having to relearn a crap load of excel commands as I’m building it, but more features will be added as I go.

Let me know what you think. Obviously it is a work in progress and there are plenty of limitations to the calculator (taxes for example).

But, it should prove as a good starting point.

FIER.

The x25 Retirement Rule

Members of the FIER club use an incredibly simple formula to determine how much capital we need for retirement: the ‘x25 rule’.

‘The x25 Rule’

How Does It Work?

It’s stupidly simple. It’s so simple a Kardashian with a calculator could work it out.

To calculate the approximate amount of capital that you need in order to retire; simply multiply your annual living expenses by 25. This is the average amount that you would need to retire on, based on an average investment return of 4% and your current living arrangements.

Capital Required = Annual Living Expenses x 25

A message to the haters: like the ‘i before e’ rule that was drilled into us since we first learnt to spell; this ‘rule’ is more of a guideline, and it is based upon a number of assumptions; namely:

  1. Your living expenses will remain the same over time and;
  2. An average 4% return on your investment

You say, “But I know I can better returns that that, that’s a pittance”

True, and you probably will get a better return on that by investing in Lego. But us FIERies like to be ultra-conservative; and I would prefer to have too many savings and too much passive income coming in from investments than having to go dumpster diving behind doughnut king living off stale doughnuts.

So that’s where the 25x rules comes from.

What about the ‘4% Rule’?

They are different sides of the same coin, so to speak.

The 25x rule and the 4% use the same underlying maths; they just are looking at different perspectives: pre- versus post- retirement.

The 25x rule is what we strive for when we are saving for retirement. That magical number that tells us ‘when you reach this amount, you are no longer tied to your job’.

The 25x rule and the 4% use the same formula

The 4% rule comes into effect after you ceremoniously hand in your resignation. Alas, now you have to rely on the income coming from those investments you so tirelessly saved up using the x25 rule. Assuming you managed to save 25x what your living expenses were, you should be able to live off the income from your investments. That is if you maintain an investment return of 4%. Incidentally (because maths, yo!) 4% is also the amount of your capital that you can safely spend annually without reducing the amount you have invested.

Based on assumptions, if you spend more than that 4% in a year, you could be eating into your capital and there will be less capital available to earn you an income the following year. This is something we desperately want to avoid, as this capital needs to sustain us for some time.

But, hey, I’m not there yet, so let’s worry about that when it comes (hopefully sooner rather than later).

‘It’s not enough; I don’t want to live like a uni student in retirement’

Neither do I.

Share houses, living off Ramien Noodles and Vegemite on toast, whilst you sweat it out at home because you can’t afford to turn the air conditioner on. Why would you willingly choose to live like that?

As aforementioned, the 25x rule is just a guide, and just because you reach this savings goal does not mean you have to give up work. But, by gese, it gives you peace of mind.

If you expect that your living expenses will increase when you leave the workforce, you can ‘budget’ for that (insert sickening feeling in the stomach as I write the word ‘budget’, yuck, yuck, double yuck). What I mean by that is, calculate how much you expect it will cost you to live per year when you throw in the towel, and multiply it by 25. This gives you the (approximate) amount of savings you will need to fund your new lifestyle.

I like my job, and I don’t want to retire

Great! Don’t!

But when you reach that magical x25 figure, at least you will have the choice to work instead of having to go to work just to make ends meet.

FIER gives you the CHOICE to work IF you WANT to

Is it only me that sighs in relief when I imagine being in that situation?

Not only that, but in the era of ‘sometimes employment’ and the so-called ‘gig economy’, if you lose your job you know that you can maintain your current standard of living without having to sell a kidney.

*Insert another sigh of relief as I imagine such a situation

The ‘RULE’ is not Set in Stone

You are free to make your own assumptions. In addition, some investments and items that add to your net worth are likely to earn less than others (take your house for example).

Oh deary me, now I’ve put the cat among the pigeons, now that little bit is going to stir some trouble. Especially for the majority of Aussies who absolutely adore property.

‘It only goes up’ they say.

‘Always safe in bricks in mortar’ says another.

Ok, so this conversation is probably more suited to another blog post.

The truth is, your home is NOT a money making asset. Well, at least I don’t look at it that way.

Why? You ask.

Well, first of all it does not earn me money (not yet atleast, although I’ll be renting out the spare room soon). In fact, it costs you money to maintain (this is why some people actually consider it a liability instead of an asset).

In addition, I like my house. It suits my lifestyle. And I don’t plan on selling it anytime soon.

To  reiterate: Your home is NOT an income generating asset!

Obviously it can make you something, (i.e. that housemate who will tell you that they ‘actually like lumpy milk’); but if you are like most people your home is not going to make you many dollarydoos (the official currency of Australia) anytime soon. Sure, it might have risen in value: but the only way to realise these capital gains is to sell it.

dollarydoos

This also helped me realise that not all assets are created equal in terms of income generation. Thus, I will be using the x25 ‘rule’ as a guide, and a guide only.

If you decide to use it, you should too.

FIER

 

My First Ever Net Worth Report

Welcome to my May 2017 Net Worth Report!

Incidentally, it’s also my first ever Net Worth Report.

There are lots of things happening in FIER land, with a few projects underway which should help with increasing my passive income and net worth once complete.

Most people would rather their bare ass to go viral on a Paris Hilton sex tape than for the whole world to see their net worth. I’m pretty much the same, but in the interests of transparency and accountability I am baring all (finances, not my white ass).

I’ve seen a few other people do a similar thing, and I thought it was pretty cool. Being transparent with my audience is incredibly important to me; so there won’t be any embellishing of my Net Worth, and you, the reader, can get a true indication of what works and what doesn’t as I win and fail miserably along the way.

These Net Worth Reports serve two main purposes. First is to hold myself accountable to continuously increase my Net Worth. Having my Net Worth posted in a public space encourages me to try new things continuously and experiment to increase my Net Worth and to report on what I learn. Secondly, it allows you guys to learn from my wins and losses along the way.

Many of the things I try (hopefully) will be winners. Many will be failures. Either way, they will serve as great lessons for both of us on our way to Financial Independence. But lessons are only part of it. Putting it out there forces me to push through these failures and read, watch, listen, learn, and put these lessons into action. Taking action is the most important part.

Important Things Going On in May

Well, since this is the first ever Net Worth report it  may be worthwhile to briefly describe a few projects that are currently in progress.

First of all, I have been busy blocking off the upstairs area of my house to allow for a Housemate to move in with me. Although I will not realise any real gains in Net Worth immediately from this project, the improvements in my house (including running power to my garage) will increase the my Net Worth, as it will increase the value of my property. In addition, increasing my passive income (from either a House Mate or Air BnB) will allow me to save more and increase my Net Worth by a little bit more month-by-month; so it’s a long game play.

This is the only major project that was active last month; I’m sure they will get bigger and crazier as we go along.

Asset Breakdown

Bank Accounts

CommonWealth Bank
Daily Expenses Account = $114.56

ING Bank
Splurge Account = $639.09
Smile Account = $100.00
Longer-term Expenses = $305.73

Loans.com.au
OffSet Account = $50,764.38

Super
Host Super = $51,529.05

Property
My House Value = $259, 000

Liability Breakdown

HECS
HECS Debt = -$33466.45

Loans.com.au
Mortgage = -176,190.46

So, adding all of these up I have a net worth of $151 252.

However, if I am really committed to retiring early (i.e. what the blog is about) I feel I would be mistaken to include my super account in these calculations. Already we cannot access the money in our super until close to retirement age, and if the current trend of increasing the retirement age is to continue, one could only expect that the Super Maturation (i.e. when we can access the money in our super) will only increase accordingly.

So, taking away what is in my super account, I have an adjusted (or accessible) net worth of $101 266. I will continue to report both of these figures in each Net Worth report.

So, we have a starting point.

Plans for the next Month

I have a few plans in stall for the next month. One is to finish these renovations so I can welcome guests into my house and start earning an income from my largest asset (my house). In addition, I will be exploring some ‘hacks’, investment strategies, de-cluttering and selling things that I don’t use and I don’t get value out of. Hopefully you will get some value out of these projects that are coming up.

Thanks again for your support, and good luck with your own endeavors of early retirement and financial independence.

Brendan