Empower Wealth Review: A Year of Property Investment in Review

This article is one of a series of articles outlining my experiences as a client, and an Empower Wealth review.

March 2021 – Update.  We have just finished buying property for investment number 2.  Check out my article in avoiding getting carried away with FOMO in a hot property market.

I have a simple financial plan, that has developed slowly over the past four years.  As a high-income earner with a stay at home spouse, the plan is to purchase a property in each of our names, then pivot to aggressively investing in index funds and superannuation. Then, five years before an earlyish retirement (maybe), we enter the debt pay off stage.

My priorities are investing for the future, building inter-generational wealth whilst maximizing our quality of life.  Most important is time and holidays spent with our young kids.

Read about my approach to whether to invest in Property vs Share and whether I regretted purchasing an investment property after six months.

Despite the serious pain caused the thought of a $15.000 Empower Wealth buyers agent fee, I decided to suck it up and pay (here’s why).  So in the end, we were assisted by professionals at Empower Wealth, a buyers agency in Melbourne.

This review is long overdue, I apologize to those that have been requesting it!  My one year review is actually 15 months, but we’ve just got the all important valuation.

Empower Wealth Review

Read about why I decided to pay for professional advice for property investment.  I was thoroughly impressed with the service provided by Empower Wealth.  They were patient, helpful, and well organized.  Our buyers’ agent found a property that provoked a bidding war between tenants, the winner of which moved in the day after settlement.  They have proactively checked in since purchase to make sure it’s going OK, and to review interest rates.

Our Experience as Landlords

We have now been landlords for around 15 months.  Our first tenants were wonderful, taking great care of our house and always paying the rent on time.  There have been a few repairs required, most right at the start of tenancy when things got noticed.  Since then, we replaced a toilet and a stove top.

Our property managers liaise with the tenants and generally send an email, allowing me to approve a repair quote electronically.  This suits me, as at work I often don’t answer my phone, and so this system minimizes hassle.

Our tenants gave their notice in August as their new home build was complete.  The cost of re-advertising was a bit pricey at $770.  It pays to look after and keep your tenants!  The property was quickly re-leased and our new tenants moved in days after the previous ones moved out.

I was unable to attend the exit inspection due to COVID-19, but the landlord sent detailed photos through, with no issues to report.

Owning a Rental Property through COVID

The property’s stove top broke in the middle of COVID, causing a bit of a saga.  Then, our property manager couldn’t source a replacement.  With COVID-19, suppliers are struggling to restock.  So sorting this did involve the property manager calling me a couple of times to update and check the plan with me.  They worked out a solution and offered a rent reduction to our patient tenants (with our consent), for being stuck eating salad for a couple of weeks.

The rent arrives in our bank each fortnight, and bills go straight to the property manager to be paid and charged to our account.  It is great to have less life administration to deal with, with all the financial records organised by the property managers, ready for tax time.

Many landlords and tenants have been experiencing financial stress during COVID, but we were lucky.  But luckily, our tenants had very secure employment, as do I, so there were no issues.

I did worry about finding a replacement tenant, but was quickly reassured by the property manager “We will have no issues renting, it’s a great property”.  That was a relief with so much negativity around renting and property in the media.

Find out about the Victorian residential tenancy act changes.

Cash-Flow Management

This property was chosen for it’s capital growth potential, and is negatively geared for the foreseeable future.

Here is a summary of the costs vs rent for the tax year 2019-2020.

Income 26,384
Expenses

–          Interest on property loan

–          Council Rates

–          Water

–          Repairs & Maintenance

–          Quantity surveyor Report

–          Insurance

–          Cleaning

–          Property agent fees

–          Depreciation

20,900

1,451

1,206

3,549

495

1,562

716

2,928

28,22

Net Rent -9,245
Tax Refunded from PAYG employment 4,160
Out of pocket costs -5,085

We have a loan to value ratio of > 80% and with this, couldn’t get an interest only loan.

Principal payments are another $12,100 for the year.  This is reducing our mortgage debt on the investment loan, but isn’t the most efficient use of savings.

I would rather use this to invest in index funds, or even pay our non-deductible home mortgage down.  We will try and get this converted to an interest only loan this year.

Valuation of Investment

After labour lost the election in 2019, silly old me thought that was the end of the drama.

Then came COVID, dire media predictions of the Australian property market collapsing, and now a recession.

The stock market collapsed 30%, and has recovered back to all time highs.

A large reason for me wanting to own rental property was to have income unrelated to the stock market.

After watching the events of 2008-2009, I thought it would be a great idea to diversify into a less volatile asset.  I don’t mind the volatility while I’m working and investing, but after retirement that sounds stressful!

With record low interest rates and a bidding war leading to higher than expected rent, we’ve saved money faster than expected.

I did plenty of extra shifts shortly after buying to ensure we had a plentiful emergency fund.  Then I’ve been asked to cover more shifts due to staff taking more sick leave at work (COVID Precautions).

As long as our home and 1st investment property have held their value overall, we are ready financially to buy our 2nd investment property.

I contacted Empower Wealth, who have been thrown into chaos with the rest of Melbourne, and are working from home.  After an initial chat with our mortgage broker, we have ordered valuations of the two homes.

The valuation is finally in.  Our home valuation has dropped 0.88% over 18 months.  I would say we are in a regional town vulnerable to the negative effects of COVID, so am actually relieved the drop isn’t far worse.

Our investment property has increased 7.3% in 15 months.  This is again better than I had expected, given the situation, and provides unexpected equity to use for our next purchase

Empower Wealth Review: Thoughts 1 Year after Investing

Our first investment property has largely been looked after by the rental managers.

There has been more work involved than buy index funds, with several emails and four phone calls through the year.

This seems like a small effort for the added benefit (keeping in mind added risk) of leverage and diversification.

Costs Gains calculated for 12 months
Buying costs -36,000
Buyer’s agent fee -14000
Net Out of pocket costs of holding property for tax year 2019-2020 after rental income and tax deduction -5,085
Capital gain 34,400
TOTAL -50,085 34,400

So the capital gain for the first year did not quite paid for all the buying and holding costs. But it’s getting close, especially if you consider paying a buyer’s agent saved me an equivalent amount off the purchase price.  Of course, the first year’s capital gain is pretty meaningless in the grand scheme of the investment.  We need strong and consistent capital growth over the long term, only time will tell.

Empower Wealth Review: The Next Property Purchase

I have spoken to colleagues who used Empower Wealth to choose their property.  Despite being very happy with the advice and service provided, decided they could go it alone the second time and regretted it.

For those of us not in the property industry, it’s important to recognise our knowledge and experience gaps.  Buying property often goes horribly wrong, due to a lack of research, absence of legal governance over “property advisors” and an overconfidence amongst investors.

A property investment is a huge purchase, using borrowed money that has to be paid back, regardless of investment performance.  It is critical that an appropriate property is selected.  Now, having seen the value provided by Empower Wealth, we wouldn’t try and purchase another investment without carefully chosen professional help.

Unfortunately for me, I have no financial incentive to recommend Empowered wealth 🙂 If you want to check out Empower Wealth, their website is here.

Conclusions

I am so pleased we finally took the plunge to be property investors and that we found Empower Wealth to guide us.  We feel optimistic about the future performance of our investment.  I think we have been lucky through COVID-19, and despite the gloom and doom in the media, our valuations are up, allowing us to start the process of purchasing again.  Wish us luck!

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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Setting a Christmas Budget and Not Destroying the Planet

This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

Do you love the traditions of Christmas, get carried away with gift buying, and never stick to a Christmas budget?   This year, many families are going through a rough time.  There will be more difficulty getting to shopping malls, and unfortunately for many, financial strain.  Perhaps 2020 could be an opportunity to embrace a less commercial, more meaningful Christmas.

On Christmas day as kids, we were spoiled silly. My parents must have saved hard to provide the Christmas they imagined, as they weren’t wealthy.  We would wake on Christmas morning and launch into ripping gift wrap with wild abandon.  I barely stopped to see what each gift was before moving on to the next!

Yet, my warmest memories are of anticipation; decorating the tree and getting excited on Christmas eve.  Once, a reindeer shoe was dropped by the fireplace, another year there were sooty footprints on the hearth.  Now that’s Christmas magic!  I challenge you to think back to Christmas as a child, what gifts can you recall?  What are your fondest memories?

So often the “True meaning” of Christmas is lost in the highly marketed aspect.  For many, Christmas obviously has religious significance, but for our family it is about spending time together and slowing down.  As a parent, I have had to resist the tendency for stress over choosing presents and preparing food to destroy the day.

I have become convinced that family traditions, new and old, are what creates real Christmas magic.

How to Find the Meaning of Christmas Away from Family.

Healthcare professionals are often separated from their families by work over Christmas.  This year, even more families may be stranded apart for the festive season.

For those away from family this year, there are many ways to make sure you don’t miss out.  One trick is rescheduling Christmas for a time we can all spend together.  In 2020, Christmas in July may become more of an event, offering a semi-official chance to enjoy a novel cold Christmas together once COVID travel restrictions have passed.

If you are working this year, arrange a “Second Christmas” with your family.  But don’t worry, celebrating Christmas with your work family is often a lot of fun, and is great team bonding.

Celebrating Christmas At Work

There is a special atmosphere in hospitals at Christmas.

Wards often go to great (and competitive) lengths to decorate festively, with staff decked out in Christmas inspired uniforms.

Everyone generally brings a plate of something delicious, meaning most of us eat too much.  There may be even be bubbles in the form of soft drink!

Unfortunate patients who are stuck in hospital over Christmas appreciate the happy attitude and festive spirit staff bring to work.

The Secret Santa tradition often involves buying a lot of wasteful rubbish, but can help bond you into a new team.  Either opt out of the tradition or buy a consumable gift (coffee) unless you know the recipient well enough to buy something they will want and use.

Outside work, an “Orphans Christmas” is a regular hospital tradition for staff separated from their families.  Find out if anyone has organized it, or plan one yourself.  Ask everyone to bring a dish, meet at the beach, or home (ideally with a pool).

Christmas is a challenging and lonely time for many.  Try and find those going through difficult times, or feeling left out and make sure to include them.

Choosing Christmas Traditions

Traditions are so important at Christmas.  But they don’t need to be the same traditions you have always followed.  As your life situation changes, make new traditions that suit you.

Taking the kids on a Christmas eve decoration tour of our suburb has become an annual tradition in our house (although sometimes Christmas eve has to be rescheduled).

This year, we will start a new tradition of visiting the local Christmas tree farm to choose a real tree.

I used to enjoy a relaxing time decorating our tree to cheesy Christmas tunes and a glass of wine.  The kids now “help” decorate the tree while I enjoy a couple of wines.

The shopping centres are horrendous for the entire month of December.  With no parking, aggressive shoppers it becomes a pretty stressful experience.  I avoid when possible through December, doing my Christmas shopping online in recent years.  I may even get groceries delivered this year, to avoid the chaos.

Shopping malls sum up all the consumerism and waste that is wrong with Christmas (Bah Humbug!)  I hope by avoiding them I can get less sucked in.

Setting a Christmas Budget

No one should go into credit card debt for gifts, but unfortunately many do.  Do you know how much can you afford to spend?  It is easy to start swiping the credit card and worry about it later, but this will delay you reaching your bigger goals.  Are you saving for something more important?  Decide on your priorities, set and write down a budget, then split it between the following categories.  Old fashioned pen and paper, a note on your phone will do but there are also apps available that will keep a running total of your budget.

– Christmas Budget: Food

Are you hosting Christmas or have been invited to a friend or family’s home, what will you contribute?  If working, what will you take in? What about special goodies for home?

Many find spreading the cost over a few weekly shops more manageable, although it is likely this is just hiding how much you are spending.

You could use accumulated supermarket points to reduce the expense (you’re not flying anytime soon anyway).

Booze is probably a big expense category for Aussies.  Alcohol has become a huge part of our culture, dangerously for some.    Maybe splash out on smaller quantities of your favourite beverage and save some money (and your health) by having some alcohol free days.

– Christmas Budget: Decorating

If you don’t yet have a collection of decorations, think before you collect a load of rubbish you will later dump.

Consider going environmentally friendly and saving money at the same time.

Real trees can be brought in pots and kept alive to be reused each year, depending on your climate.

Recycling a plastic tree from an opportunity shop is obviously more environmental than buying new.

Natural decorations such as pine cones can be an alternative to plastic baubles and tinsel.

Rather than stocking up on a huge number of generic ornaments, consider keeping the tree relatively bare initially and adding ornaments collected as you travel.  Being spread far apart, our extended family often exchange small but carefully chosen Christmas ornaments by post in lieu of gifts.

– Christmas Budget: Cards and Wrap

Christmas cards are pretty wasteful.  I still send a handful, but only for my older relatives who do not communicate through the internet.  Whether by email or snail mail, relatives and friends get a personal message wishing them a wonderful Christmas.

Christmas wrapping paper is often not recyclable.  This year, I am adopting the Furoshiki tradition of wrapping gifts with fabric.  It’s a perfect idea for our family gifts, and can be reused every year.  How luxurious!

– Christmas Budget: Gifts

Most people have too much stuff.  The last thing anyone wants to do is to be the giver of an unwanted gift.

Some choose a gift-free Christmas.  If you still want to give a gift, instead of stuff, consider experience-based gifts.  Recent gifts I have enjoyed giving are tickets to an event, a virtual book club subscription , UK gardening Calender including seeds to be planted each month, charity donations and craft beer delivery.

Teaming up with family members often means you can buy a more expensive, but better quality gift.

Starting a family Secret Santa, so everyone buys one decent gift instead of lots of smaller ones can save everyone a lot of money.

Consider whether it’s time to make a “gifts for kids only” agreement with your family.  Or agree on something tokenistic.

Taking the time to choose a used book and writing a personalized message in the cover to me is so much more meaningful than a generic, thoughtless, and far more expensive gift.

– Buying for Kids

Consider buying gently used children’s toys.  Kids get brought SO MANY TOYS.  Most of them are plastic and end up in the landfill.

The four gift rule may be something parents wish to embrace.  It helps prevent us from getting carried away by ruling that kids should receive one gift they want, one they need, one to read, and one they will wear.

Not raising entitled, spoiled kids, take a conscious effort for those on above-average incomes.

With gifts from Santa especially, consider some of your child’s friends families may be going through tough times.  Presents from Santa should be modest and affordable.

If you are an Aunt or an Uncle, wanting to spoil your niece or nephew, consider taking them to a show or sports game (just the two of you!).

If separated by distance, consider a kids magazine or activity subscription, or try and find a gift that will last them beyond their current developmental stage.   These are often “Classic” basic toys such as role play*, classic games such as jenga*, and the all-time favourite, Lego*

To get a reasonable deal, starting early is key.  Research prices early and make a note so you can ensure any “Special deals” are true price reductions.

Sales including Black Friday (27th November), Cyber Monday (3rd December)  may or may not present better value.

Plan ahead and budget for Christmas so the silly season doesn’t delay your progress towards bigger goals

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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Family Trusts Australia: Will they Benefit You?

This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

Family Trusts Australia wide are hugely advantageous to the very wealthy due to the ability to split income and significantly reduce tax burden. 

According to the Australian Bureau of Statistics only 3% of households owned family trusts in 2009-2010.  In total, trust income in 2013–14 exceeded $340 billion. 

Almost 50% of persons with a taxable income over $500,000 have some income from a trust. 

Although not exactly an equitable situation, the government have so far failed to limit these advantages for the very wealthy.  What sort of income is necessary before a trust worthwhile? 

There are many types of trusts.  In this article we will focus on “family” aka discretionary trusts Australia, and testamentary trusts.

What Are Family Trusts Australia?

A discretionary trust is not a legal entity, but a legally recognised relationship between trustee and beneficiary(s). 

The trustee can be a person (usually a parent), a group of people (i.e. both parents) or a company (with parents as shareholders / directors).

Setting up a company involves extra costs, adds asset protection advantages and means in the event of death, a new company director can be appointed. 

The trustee is responsible for the trust, liable for it’s debts and decides which beneficiaries trust income is distributed to.  Trustees are legally required to act in the best interest of the beneficiaries and must be free from conflicts of interest.  

The beneficiary receives income from the trust.  There may be one or several beneficiaries, and with a discretionary trust the beneficiaries can change over the time.

Advantages of Family Trusts Australia

The most attractive feature of a family trust is the ability to split income between beneficiaries to minimize tax.  It is therefore most advantageous when a family has several low-income persons (e.g. adult children, retired grandparents and non-working spouse). 

The trust does not have to pay tax on income, unless it fails to distribute all income.  However, undistributed income is taxed at 45%. 

Beneficiaries pay tax at their own marginal rate.  Children under 18 receiving non-employment income are taxed at penalty rates of 66%.  Therefore, kids are not good beneficiaries until they are adults.

Assets sold from a trust retain the 50% capital gains discount eligibility they would benefit from outside a trust.

Asset protection is often a quoted benefit of a discretionary trust.  If a beneficiary becomes bankrupt or financially troubled due to a legal case, any trust assets can be protected in some circumstances. 

This protection is only valid if the assets have been inside the trust for a number of years before the financial/legal situation occurs.  A discretionary trust is unlikely to provide any protection from your assets in the most likely financially devastating event, a divorce.

Disadvantages of Family Trusts Australia

Discretionary trusts can get pretty complicated, with corporate trustees, and lending strategies that can attract the unwanted attention of the ATO. 

It is harder to borrow to buy property inside a trust, usually requiring loan to value rations of 60-70% as opposed to 80-90%. 

Land tax is payable once you own over a state threshold in land value.  Each state has it’s own threshold, and the threshold is for each individual or trust.  So a family could own three properties in NSW with land value under the threshold of $734,000 without paying land tax, if one property was owned by mum, one by dad and one inside a trust.  However, in Victoria, land tax is charged at a higher rated for properties purchased in a trust. 

Family trusts incur set up and administration costs.  I was quoted $600 for set up, $2000 annually for maintenance.  There are firms online that will produce a DIY version for a fraction of this, but if everything is not correct may cost you far more.  In order to save enough tax to compensate for these costs, assets in the trust probably need to value $300,000. 

Any financial losses in the trust remain trapped inside the trust.  They can be used to reduce tax on future financial gains within the trust, but cannot be used to negatively gear against employment income.

A discretionary trust has a lifespan of 80 years.  Then, your children or grandchildren need to transfer the assets and pay capital gains tax. 

Fixed, Hybrid and Bare trusts Australia

Fixed trusts define the beneficiaries’ predetermined income distribution percentage in the trust deeds.    Hybrid trusts can combine some fixed distributions with some discretionary.  A bare trust has only one beneficiary.

For Example: Family A – Single High Income

Mum earns $300,000

Dad stays at home earns $0

Children 16, 18, 20 all non-earning, studying

Inheritance $300,000

Mum’s marginal tax rate is 45%, dad’s is 0%, and they have 2 adult children who are currently on a 0% marginal rate

Option 1.  Invest in dad’s name

Invest $300,000 in Australian shares – Yield 7% investment income $21000 + Franking credit refund

Buy $300,000 in International shares – Yield 4% investment income $12000. 

Income will gradually increase if reinvested over time and reach the point at which dad will be taxed.

Dad could pay dividend income into superannuation to minimize taxable income

Will be protected from legal issues related to mum’s business if high risk

Option 2. Invest in Superannuation as Non-concessional contribution

Mum has plenty of earnings! They want to invest long-term so lack of access to superannuation not an issue

Investment income taxed at 15% but will convert to long-term lump sum after retirement,

Using super is more advantageous the closer to preservation age you are, as you cannot pull this money out before you meet conditions of release.

Despite mum’s high income, dad is still eligible for the spouse contribution – Mum can claim 18% Tax offset for contributing $3000 to dad’s superannuation.  Dad is not eligible for the low income super contribution unless he earns a little himself.

Superannuation is a type of trust, so offers asset protection

Option 3. Invest via a Trust

Will allow distribution of income to dad and adult children on low tax bracket – perfect for funding university studies.  Once the eldest child is earning an income and on a higher tax bracket, the youngest child will turn 18 and become a beneficiary. 

May be an option for parents many years from retirement who don’t wish to have money trapped in superannuation.  This overcomes the issue of investment income exceeding dad’s tax-free threshold, but once the children are all working further beneficiaries will be required to minimize tax burden (eg retired grandparents).  May also be useful for very few families who already contribute the maximum super concessional contributions ($100,000 per year, each!) 

Also an option to own the business inside a trust of self-managed superfund for income streaming and asset protection. Trusts are less restricted by rules than a self managed super fund (SMSF).

 

Family B – Double Strong Incomes

Mum earns $150,000

Dad earns $150,000

Kids 16, 18, 20

Inheritance to invest 300,000

Option 1. Invest in mum/dad’s names

Mum and dad are both on the 37% tax bracket. Dividends will be taxed at this rate.

? Asset protection an issue for either – do they own a business?

Could consider using inheritance to pay down home mortgage, increasing equity.  Then using equity to invest in a growth asset (eg negatively geared property) in the parent with the better income earning potential.  There will be no tax payable until the property becomes positively geared. In the meantime, losses from investment income are offset against employment income of highest earner reducing PAYG tax burden.    Lump sum is no longer accessible, but there may be cash flow freed up from mortgage pay off.

Option 2. Invest in superannuation

Pay $300,000 investment income into superannuation. Could put in lower income potential parent (using bring forward arrangements) or split between two.  Will be inaccessible until preservation age and income taxed at 15% until rolled into a retirement account.  Asset protection benefits of a trust apply.

Option 3. Invest in trust

Will allow income distribution to children whilst they are over 18 and earning low incomes.  As the children earn better income, further beneficiaries will be required to minimise tax.

 

Variations of Discretionary Trust

Fixed trusts defines the beneficiaries’ predetermined income distribution percentage in the trust deeds.    Hybrid trusts can combine some fixed distributions with some discretionary.  A bare trust has only one beneficiary.  Could split contribution between adults, or put in lower earning potential partners account to avoid hitting superannuation cap.  Cannot access until preservation age, but this does support you in sticking to your long-term goals

For the Aussie Doc Family

I talked to my accountant about ownership of the next investment property. 

There doesn’t seem to be much advantage for us right now over owning in Mr Aussie Doc’s name.  Mr Aussie Doc also hits preservation age in less than 5 years, so superannuation is far more attractive to us.  

We may reconsider at a later date (when the kids are closer to 18) but far prefer to keep things simple and low cost if possible. 

Testamentary trusts Australia

Testamentary trusts are a common feature of wills, and could be far more appropriate for your situation. 

These trusts only come into effect on the death of the benefactor (you!). 

Different from discretionary trusts, there is no penalty tax for children under 18.  They are entitled to an $18,200 tax free threshold similar to adults when receiving income through a testamentary trust. In the event of your untimely death whilst your children are dependents, the tax advantages can help make your superannuation, life insurance and other assets support your family for longer.

A discretionary testamentary trust allows income distribution to vary year to year, to maximise tax advantages, but will involve the trustee making these decisions.  A fixed testamentary trust is probably simpler to manage but may not minimise tax as well every year.   You can pay a professional to act as trustee, this will obviously involve fees but may help maintain family harmony.

A discretionary trust is also claimed to help protect your child’s inheritance from divorce, or if your partner remarries.  It also allows some control over assets, if the child is likely to mismanage the assets.

 

A discretionary trust may be advantageous for family’s with businesses or significant assets outside superannuation, and multiple low-income beneficiaries.  Many families could benefit from a testamentary trust as part of their will.  The aim of the article is to give you an easier to understand summary of trusts.  You must seek independent professional, and carefully chosen advice.  Bare in mind that you starting a trust nenefits your accountant due to fees paid when considering this advice.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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FI Australia: What the Movement Has to Offer

This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

What is FI Australia?

“Financial independence” is defined as having enough investment/ passive income to pay for all your living expenses.  After this is achieved, the FI Australia crowd argue, you have complete control over your time, the most precious resource of all.

Financial independence chasers work hard, save 50+% of their take home pay and invest aggressively in the stock market.  Young adults are the typical FIRE chasers, although the has inspired older Aussies that it’s not too late.  If a 20-year old can reach financial independence in 10-15 years, so can a 50-year old!

But I Don’t Want to Retire Early!

That’s great news!  It should be everyone’s aspiration to do work they love.  It’s really what FIRE chasers are aiming for.  Most continue to “work” after reaching financial independence.  But they don’t drag themselves to a job they can’t stand for good pay.  They do work they find meaningful and enjoyable, regardless of any payment. 

But situations, employers, and work place cultures sometimes change for the worse.  Burn out is common, predictable in many professions.  Your health is not guaranteed, we never know what challenges lie ahead for us.

The journey from financial dependence to independence is a continuum.  With each step away from spending every dollar you earn comes more financial security and flexibility.  Doctors’ income is traditionally rock solid.  COVID-19 has changed that, with many doctors being underemployed

Kevin MD, a US Dr and finance blogger points out even high-income earners can perpetually put off saving until “next year”.  He describes Dr Timex and Dr Rolex.  Which are you?                                                                                                                  
FI blogs and podcasts include a lot of tips on how to make the most of your income.   Everyone should pick the low hanging fruit (tax, salary sacrifice) to save money without lifestyle sacrifice.  It’s up to you how far you wish to go after that.

FI Australia: A Way to Minimise Your Carbon Foot print

Many passionately believe in doing what they can for the environment. 

Others would choose to reduce their environmental impact if the actions involved are accessible. 

Purchasing trendy “Eco” products whilst continuing to consume so much more than necessary doesn’t make a lot of sense. 

Reducing your spending often results in lower environmental costs too. 

Do you buy a new car every few years or keep the same vehicle for a decade+?  Are you driving to work alone, car pooling, using public transport or biking?  Do you buy clothes every month and order products online or make do with what you already have?   

Becoming smarter with your money inevitably leads to a lower carbon footprint. 

Protect Yourself From Financial Scammers and Unscrupulous Advisors

Many professionals outsource managing their investments.

There are a lot of financial professionals wanting to get rich.  Sometimes that desire conflicts with serving the clients best interests. 

There are great advisors out there, but they are difficult, if not impossible to find without a bit of financial literacy. 

You really can’t trust anyone with your hard-earned money completely.  That’s a guaranteed way to get ripped off.

FI Australia vs FI Overseas

Much of the financial independence information has been US centred until 5 years ago.  I still listen and read a lot of US blogs and podcasts, and find them useful for broad ideas and motivation. 

But the lack of local information has been frustrating, being unable to utilise the US tax hacks and investing vehicle recommendations. 

I discovered Aussiefirebug around 2015 as the first Australian financial independence blog. I started this site after not finding anything relevant to high earners (and higher spenders) in Australia. 

In the last few years, several other great Aussie blogs and podcasts have started.  With these come growing information about the Australian tax system, and superannuation.  You would be mad not to use your savings as efficiently as possible!

Phases of FI Australia

– Emergency fund

It has become increasing clear that everyone needs an emergency fund. 

It is commonly recommended that 3-6 months of living expenses should be saved in case of an emergency. As a public hospital employee with months of accrued sick leave and income protection, this may be excessive. 

So this is all very individual.  Work out how much you need to keep as accessible cash in case of emergency.   

– Fun Savings

The next step up is to have enough spare cash to be able to take extra (unpaid or half pay) leave from work for…whatever you like. 

I prioritize maximizing holiday time with my young children.  Therefore, having cash saved to cover a few weeks expenses on half pay annually provides a lot of happiness “Bang for Buck”. 

Others may choose to take a few weeks off between jobs to travel and catch up with friends and family.

– “FU” money /Financial Freedom

Cheekily branded “FU” money, this sum provides a lot of financial freedom.  The idea that if your work situation gets nasty, you are able to walk away knowing you have savings to sustain you for a few months whilst finding a better job.  This kind of sum can also be used to fund extended travel. 

-Coast FI

This milestone means you have reached a point with your investments, that if you add no more savings you can expect to be financially independent by your desired retirement age.

Over a decade, investments will double if earning 7.5% annually post tax. 

The idea of “Coast FI” is that you can stop investing, and earn only what you need to fund your day to day life.  It seems ironic this is where most people start (spending all they earn), but in this situation you know your retirement savings are on track and you may choose to work less hours.

– Financial Independence

Your investment income fully funds your living expenses.  You no longer need to work, but can choose to do whatever you wish.  High income earners should aim to be financially independent by their desired retirement age. 

“How To” FI Australia

The goal of saving 50+% of your income can seem overwhelming at first.  Focus on achievable small wins to begin with.

The most powerful levers for increasing savings rate are

1. Earn more than average income (~$80,000)

Many doctors will achieve this quickly.  How much do Doctors earn in Australia?

2. Reduce housing costs

Buy less house than you can afford. Particularly if you are buying in an area not likely to experience strong capital growth.  Consider renting instead of buying, especially if you’re not staying put for 10 years

3. Keep transportation costs low.

Cars will make you poor” was the best financial advice I was given as a child. Car ownership is expensive.  Paying interest on a depreciating asset is madness, although extremely common.  Buy less car than you need, and pay cash.  Look after it and don’t change your vehicle more than once a decade.

4. Grocery costs

How much do you spend on groceries? How do you compare to the average?

Costs can be fairly painlessly reduced by meal planning.  Focus on buying items based on price per unit (INSTEAD of being seduced for special offers), unless of course you prefer a particular brand. 

Cooking in bulk produces less waste, in the long run saving money. 

Try and minimise packaged food and junk!  We all know it’s not good for the environment or our health. 

5. Insurance costs

They must be the most annoying expense in your budget! 

We usually receive ZERO benefit from insurance policies.    Pay only for insurance policies you need, as the consequences of not being insured would be disastrous. 

Get quotes for each policy every year, the insurance companies will only charge you their lazy tax otherwise! 

6. Optimise taxation.

  1. As your income increases, tax will become your biggest expense (by far).

The awesome part about all this, is that it is surprisingly easy to start saving more.  There are many ways to use being a little smarter managing money to your advantage.  It’s easy to ease into increasing savings without big slashes to your lifestyle. 

If you’re convinced of the benefits of increasing your savings rate, you will probably want to start tracking your spending.  It’s almost impossible to change what you don’t know. Work out where your money is going?  Does it align with your values?  Find and eliminate those sneaky subscriptions you have forgotten about and don’t use.  Work out what areas you could reduce spending to bring your money behaviour more in alignment with your values.  Being a bit smarter with your money

Very much like losing weight, going extreme all of a sudden is usually painful and unsustainable.  But if you start gentle, and listen to the most important message over and over from the FI crowd – Consciously align spending with your values.  Stop unconscious spending.  Stop the silly waste and leaks because you didn’t get round to working out a better way.  Soon, you may even find your savings rate increasing accidentally, as your choices and savings start to snowball. 

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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