Reducing Our Environmental Footprint with Sustainable Choices

Thanks to the team from Sustainable living for this week’s wealth building strategy: Reducing our environmental footprint to increase our savings rate.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

The focus at Sustainable living is saving money and the planet at the same time! By rejecting consumerism, we can all reduce our environmental footprint.

I love the ideas these guys come up with, making it easy for slackers like me to make easily achievable environmental choices, one at a time.

I’m proud to say, due to following this site, the Aussie Doc household had our first (of many) gift wrap free Christmases this year.

Name/ Online identity:

Cash Hippy & Mr Hack
Facebook: https://www.facebook.com/CashHippyAU
Twitter: SustainableLiving@CashHippyAU

Website:

https://sustainable-living.blog/

Sustainable Living: The Eco-Friendly and Frugal Path to Financial Independence

“9 to 5” profession:

School teacher & factory worker

Side Hustles:

Casual Education Consultant: ASIC MoneySmart education program

Online shop: www.sustainablelivingshoponline.com
Adsense and affiliate links on the blog

The odd freelance writing job here and there.

Surveys through Octopus. Here’s my link if you’d like to sign up:
SelfWealth: whilst not strictly a side hustle, it has provided free ASX trades throughout 2020. By using my link to sign up to the online broker with $9.50 trades, you’ll get 5 free trades (and so will I).

I also do election work on weekends when it is available.

Job Spotter (currently ceased during Covid)

What are your investing goals?

Our goal is to reach $1M in index funds to provide an approximate annual income of $40K.

When our superannuation kicks in it will be the icing on top of the cake.

What is your investing time frame? How far along are you?

Well, we are late starters to FIRE and will never be able to retire at 30 years old, as we are both already on the tail end of our 40s and still have two young children at home (the other four are young adults).


We possibly won’t be able to ‘retire early’ depending on how circumstances play out, but we will definitely be absolutely fabulous self-funded retirees.

What the most powerful wealth building tool available to you?

Index funds in the stock market, and capital gains on our PPOR. Apparently, property values in regional Victoria are skyrocketing at the moment.

What wealth building habits are you utilising to reach your goals?
Reducing Costs

Reducing Costs

The first thing we did was to examine every household cost and reduce or delete it.

For example, going pre-paid on a cheap phone plan, re-financing our mortgage to a much lower interest rate, re-negotiating our electricity and gas bills, looking for the cheapest insurance quotes, cancelling Netflix and Stan etc.

Reducing our Environmental Footprint

Another thing we did was to stop buying single use items. Plastic disposable razors were replaced with a metal reusable safety razor; cling wrap was swapped for beeswax wraps and containers; paper towel and cleaning wipes were replaced with washable rags; and, many other environmentally friendly and frugal changes were made.

Money Organisation & Improving Financial Knowledge

At the same time we changed over to using the Barefoot Investor personal finance method and decided to live from one wage. The other wage is invested into the stock market every two weeks.

I am also continuously improving my personal finance knowledge by listening to blogs, reading articles and being involved in events such as FinCon.

What is your strategy to achieve this?


This is how we divide our income Barefoot Investor style (one income only):

  • 70% Daily Expenses (regular bills, food, fuel, smaller costs, budgeted for gifts)
  • 5% each, Splurge (personal do what you want, no questions asked money)
  • 10% Fire Extinguisher (unexpected bills)
  • 10% Smile (holiday fund – or what it is that makes you smile)
  • Mojo: any money over $1,000 in the Fire Extinguisher gets funnelled into Mojo with the aim of reaching at least six months of living expenses

Any extra income from side hustles goes into our shares trading account.

We purchase shares via the dollar cost average strategy. This means that shares are purchased on a regular schedule (for us every two weeks) regardless of whether the stock market is up or down with
the end result of the price paid over time being ‘averaged’.

Although, with the share market dipping so low due to Covid, we were able to repeatedly buy shares at bargain basement prices. These
shares recovered in value and gave a good boost to our portfolio.

We feel our strategy of combining the Barefoot strategies with a high savings rate to invest in shares is a system that works well for us. We still get holidays, some splurge money each, yet also have the reassurance that our bills are budgeted for and any unexpected costs can be managed – as well as saving for retirement.

Were there other strategies before? If so, what made you pivot?


Previously, we realised something had to change as we were both earning a middle class income, yet were living payday to payday. We didn’t have any debt, apart from the mortgage, and we paid our bills on time. Yet, we weren’t getting ahead financially.


Around the same time we were becoming increasingly concerned at the amount of waste our household produced, and the declining sustainability of the environment.


It was then I had an epiphany – by reducing our household waste, we were also saving money and reducing our environmental footprint.

And thus the sustainability journey begun, not just financial sustainability, but also the sustainability of the planet we live on.

Any final suggestions?

By reducing your spending, you’ll not only save money but you’ll also create less environmental waste. And that’s a win for you, your community and the planet Earth.

Cash Hippy & Mr Hack

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

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.

Stamp Duty Changes: What do they Mean for You?

The high fees involved are the biggest impediment to property purchases in Australia. Recent stamp duty changes are sure to interest those of us purchasing property in Victoria or NSW over the next few months.

Stamp duty varies from state to state, but with rates of up to 6% of purchase price, has a massive impact on property affordability.

Stamp duty changes in Victoria

Commercial and industrial properties will have stamp duty discounted by 50% from 1st January 2021.

Residential property worth up to $1 million dollars will have stamp duty discounted. A 50% stamp duty discount is available on brand new property, 25% on existing properties and vacant land 25%.

A contract of sale must entered between 25 November 2020 and 1st July 2021 to be eligible for the discount.

The discount can be applied with first home buyers grant use, and regardless of whether the property is for owner occupation or investment.

Homes costing over $1 million dollars do not receive a stamp duty discount. First home buyers buying property worth less than $600,000 have been exempt from stamp duty all together since 2017.

For those purchasing an established property for $600,000, the discount save around $7,500. Great news!

Check out the Victorian stamp duty rates here.

Victorian Land Tax Relief.

Land tax is payable on investment properties over a certain threshold for each state. The threshold in Victoria is particularly low at $250,000 land value (per individual, excluding principal place of residence).

For landlords significantly affected by COVID, and either having empty property or needing to discount rent by 50%, discounts in land tax are available of 25-50%. Check your eligibility for land tax discounts.

Applications for 2021 land tax relief will close on 30 June 2021.

Changes to Stamp Duty in NSW

First home buyers are currently exempt (until August 2021) from stamp duty on new homes up to $800,000 and vacant land purchased for up to $400,000. A first home buyer grant is available to eligible new home builders/purchasers of $10,000.

NSW home owners are exempt from land tax on their principal place of residence. Owners of vacant land, commercial or residential investments with a land value over $755,000 (for 2021) pay NSW land tax currently.

NSW is proposing an option for home buyers. Pay stamp duty up front (and land tax if over the threshold every year) OR skip the stamp duty and pay an annual property tax instead.

If a home buyer chooses to pay the annual property tax, the house will be forever liable for property tax instead of stamp duty and land tax, even after resale. All properties will, as a result gradually become liable for property tax rather than stamp duty (over decades).

For those home owners who have paid stamp duty, there will be no property tax payable. Feedback on the plan is still being gathered.

Pros and Cons of the Property Tax

At first glance, removing stamp duty seems like a big win for those trying to get into the property market for the first time. But first home buyers purchasing for less than $650k for established properties and $800k for new homes don’t pay stamp duty. A $25,000 grant (only for three years though) to maintain some advantage for first home buyers.

First home buyers of established properties may benefit from skipping the stamp duty and getting into their home faster.

Stamp duty is a huge expense, and discourages people to move home. Over the very long term, an annual property tax will allow people to move home for affordably. But home owners buying their forever home, the property tax will likely cost more if they stay put for 15-20 years.

For investors, the switch to a property tax would reduce the upfront expense of buying a property. Significantly, the property tax would be deductible against income. Stamp duty is not tax deductible, but the cost can be added to the capital base. This means you can’t deduct the cost of stamp duty against income, but can use the cost to reduce capital gains tax at point of sale.

The huge elephant in the room is the inability of any government in history to keep it’s word. Once committed to property tax, you can not switch back. If the government decides to significantly increase tax over time, you could be a lot worse off that you calculated when making the decision. Will they introduce something else to replace stamp duty?

 

Does this affect you?

What do you think of the changes?  Are you planning to buy soon?  Would you choose a property tax or stamp duty?

Check out the FOMO article you are trying to get into a hot property and want to avoid gettng carried away , paying too much or buying the wrong property.  

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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Foreign Currency Exchange 2021 – TorFx Review

I recently had to move some British pound to Australian dollars. Moving a significant amount of money overseas is a nerve wracking prospect.

Scammers are getting more sophisticated, and fooling so many people each year. If you are needing to move some british pound to AUD, you are right to be cautious and do some research of the companies involved.

Foreign Currency Exchange Rate

As I am sure you are aware, the currency exchange rate fluctuates on an hourly basis. Therefore, ideally your transfer will occur when the original currency is strong versus the recieving currency. In March 2020, one British pound converted to 2 Australian dollars.

Making a Currency Exchange Forecast

But predicting the movement of currency is unreliable. Forex traders attempt to trade currencies, taking advantage of the volatility in currencies to make profits. Only 10 -20% of retail forex traders succeed in making a profit (before tax!).

Forex traders are, presumably, examining charts and data trying to predict which way currencies are going. If they get it wrong the vast majority of the time, it’s unlikely casual currency converters are going to get it right.

When the British pound is above average when you want to exchange currency, make the exchange pronto. If it’s below average, it’s up to you if you want to wait and see if the situation improves. You could be waiting a while!

Companies that Offer Currency Exchange

There are a plethora of companies and banks offering to transfer currency. They may charge commissions, and a “spread” (difference between the buy and sell price). The most expensive way to transfer currency is using one of the big four banks.

As with buying ETFs, don’t be fooled by “fee free” claims, the company is making money somehow, find out how.

Different fee structures are better at different sizes of transfers. This handy comparison site helped me choose TorFX for my currency transfer.

The Problem with Comparison Sites

But be aware, comparison sites are paid commissions. They may recommend a particular company for a better commission.

If you are transferring money to or from the US or New Zealand, this independent government site compares the options. If you are transferring money to or from India, Indonesia, Vietnam or the Phillipines, there is an independent government comparison site here. Both of these sites are not paid commissions for recommendations, unfortunately there is not similar for UK transfers.

Factors in Choosing a Currency Exchange Company

You will want to understand how the company transferring currency handles changes in the exchange rate. Is the exchange rate fixed at the point at which you agree to the transfer? Or, does the transfer occur at whatever is the rate at the time of the transaction.

You will also want to know how quickly the company can transfer the money.


Are You Relying on Someone Else Sending or Recieving the Currency? How Tech Savvy are they?

Do you need someone to move the money for you in the UK? If the money is coming from your aged parents, can they use the online banking system? If they are going to struggle, it is worthwhile using a company that allows them to transfer the money into an account in their own country, and the transfer company handles it from there.

A few years ago I transferred some cash from my UK account (I couldn’t organise transfer overseas from overseas!) to my parents and asked them to organise an international transfer. They somehow transferred the money to a fictitious account in the wrong country. Eventually, I did recieve the money in Australia, after incurring multiple rounds of international transfer fees!

Check the Actual Company Website

The company involved should have an Australian Financial services license, and a good number of online reviews to assure you they are genuine.

Then you can also check Scam Watch to make sure the company aren’t flagged as scammers.

I have used Transferwise in the past, too long ago to remember much detail, but I didn’t have any trouble.

TorFX Review

TorFX came up as the most cost effective to transfer my British pounds to AUD dollars.

The website is easy to navigate, clearly displaying the Australian financial services license number at the bottom of the page.

Larger transfers need to be confirmed by phone call. The customer representative who called me was friendly, helpful and reassuring. He understood my concerns and gave me simple step by step instructions on what to do next. Then, written instructions were emailed.

It was a simple online bank transfer from the UK side, into a UK account. As I was getting my parents to make the transfer for me, transferring into a UK account made it as easy as possible for them.

TorFX emailed to let me know the money had arrived in their accounts, and it was transferred into my Australian account (again, with email confirmation) within a couple of working days.

TorFX did exactly what I wanted to them, and provided a cost effective, quick and easy service. If you’re needing to transfer some currency, check out the comparison sites above and check out the fee structure carefully. Confirm company has an Australian financial services license and plenty of good online reviews.

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.

Wealth building Strategy: Automated Investing into Diversified Assets

Thanks to The Flawed Consumer for this week’s wealth building strategy: automated investing into diversified assets

Each week, I have asked a finance blogger or podcaster to share their investing strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

Name/ Online identity:

TFC/The Flawed Consumer

Website:

www.theflawedconsumer.com

“9 to 5” profession:

Conservation Project Manager (Protected Area Management)

Side Hustles:

Flipping items on Gumtree/Marketplace/Ebay

Blogging/writing

What are your investing goals?

To achieve Financial Independence (FI) through saving and investing by age 50. To be achieved by moving towards investing 40% of income into a diversified portfolio of sustainable shares, bonds, cash and property.

What is your investing time frame?  How far along are you?

My FI investing timeframe is 20 years. I’m almost 4 years along the journey.

I would say I’m definitely still at the start of my investing journey at the moment, as I knew nothing about investing 4 years ago, so am still learning.

The more I learn, the more I’m able to trust in the system and part with higher sums. So, I expect our investments to sharply increase in the coming years.

What the most powerful wealth building tool available to you?

Building knowledge of personal finance –  spending, saving, frugal living and investing. As they say, knowledge is power… And this is very true.

Without the understanding of how to make more money, spend less, live frugally and build wealth through investing, We would still be trying to keep up the Jones’ like a bunch of idiots!

The online personal finance community has been invaluable for building this knowledge and keeping us on track when things get hard.

What wealth building habits are you utilising to reach your goals?

Automated savings and investments… It has made a massive difference! We used to be the kind of people that would spend first and save what was left (If any).

But through automated savings payments and investments each fortnight, we now save first and only spend what is left. This ensures we always save and invest according to our goals.

Also, living more frugally is a critical habit we’ve formed and are still honing.

What is your strategy to achieve this?

We’ve set up automated payments of set amounts to each of our savings accounts that transfer each payday before we have a chance to spend the money. I’ve also done the same for my investments as well.

Additionally, we both voluntarily contribute an extra 5% each pay to our superannuation, which We set up through salary sacrificing.

How long have you been using this strategy?

Just over two years.

Were there other strategies before?  If so, what made you pivot?

We had attempted to save manually, but just found ourselves getting trapped in the cycle of spending more and not saving as much as we wanted. So, we automated to remove that possibility!

What makes your strategy suit your personal situation?

My wife has a tendency to spend more than I do and falls into the trap of buying nicer groceries, etc if the money is there. If there is a small budget available to go shopping with, etc we are both better at making do with what we can. So, automation of our savings before we do our grocery shopping etc suits us perfectly.

Where do you stand on home ownership vs renting? 

We “own” our own home (or, rather we will on the day we pay off the mortgage). This is a tough one. Owning your home can be great if you purchase at a good price and can sell higher later. But, houses are a money pit… It’s insane how much they cost! If we had understood just how expensive it is to own your own home, we may have thought twice about buying.

One day, when we own our home outright, it’ll be a great choice I’m sure. But, sometimes I wonder if renting is the smarter option. In saying that though, I live having a place that’s ours and that we have made a home for our family. Our home is our sanctuary, and we would hate to go back to renting despite the cost of owning. A a stable and secure home environment is very important to us.

Where do you stand on the great property vs shares debate?

I think the Australian ideals about property are outdated and don’t work in the modern world where the price of housing is ridiculous. So I sit on the diversified portfolio of non-property investments side of the debate.

Where do you stand on investing for capital growth vs income? 

I support both options. Both options assist with achieving and living an FI life.

Do you have any financial regrets?

Many! To summarise though… Being stupid with money in my 20’s. The first few years of our 30’s have been spent digging ourselves out of the financial holes we dug in our 20’s, and then trying to set ourselves up for the future.

If only I knew what I know now about money 10 years ago, we’d be much further along in our FI journey.

Any final suggestions?

Be smart. Be wise. Take risks… But, not too many.

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.

Wealth Building Strategies: Dividend Income with Miss Balance

Thanks to Miss Balance for this week’s wealth building strategy: Dividend income focus investing. Investors seem to be split between those focussed on dividends, and those more interested in total return. Aussie Doc focuses on total return, so it’s interesting to see the alternative viewpoint.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

Name/ Online identity:

Miss Balance

Website:

https://www.allaboutbalance.com.au/

“9 to 5” profession:

Human Resources at a not for profit

Side Hustles:

Support Work – disability and aged care, dog sitting, babysitting, market research and points collecting

What are your investing goals?

My goal is to have an income stream from dividends to pay my basic expenses for me in future when I take time out of the workforce for starting a family or working on passion projects.

What is your investing time frame?  How far along are you?

I have been investing since 2016, so 5 years now. I am currently investing a little over 60% of my after tax income. I will continue to invest long term, though the amount I invest will likely vary over time.

What the most powerful wealth building tool available to you?

The basic of wealth building is spending less than you earn. Some choose to lower expenses, others choose to earn more. I believe a combination of both is most powerful. Then once you have some spare cashflow, it needs to be invested to be able to compound over time.

What wealth building habits are you utilising to reach your goals?

I have optimised spending and also worked on increasing and diversifying my income.

I have continued to add value at my 9-5 job to earn promotions and pay rises, as well as having multiple side hustles that I enjoy and also bring in more income.

Every month I track and review expenses to see how I’m tracking.

Where do you stand on home ownership vs renting? 

I currently rent and have done since I moved out of home. Housing is expensive in Sydney and I have never been committed enough to one location to want to buy.

I like having the flexibility at the moment to be able to move when I want, which I have done a few times. I took the opportunity to move overseas, as well as locally when I got a new job.

Now my commute is only 7 minutes and free as I can walk.  I also enjoy having a smaller rent payment than what I’d be paying for a mortgage and rates, so I’m able to invest the difference.

One day if I have a family with young children, I may be looking for more stability, though for now this work best for me.

Where do you stand on the great property vs shares debate?

I believe both have their place. There is money to be made in property if you have the time and energy to invest in learning about markets, often buying and fixing up properties to sell for a profit. I personally choose to go with shares. There are a few keys reasons for this

  1. Property often requires a larger upfront cost,  with shares I can buy smaller amounts
  2. I can sell a small amount of shares if needed, you can’t sell off the bathroom
  3. If you have tenants, you will need to keep up maintenance and property management, or pay someone else to do it. With shares, nobody calls at 3am to say the water heather needs replacing asap
  4. I don’t have the interest in learning more about property – this is potentially the most important point

Where do you stand on investing for capital growth vs income? 

Currently I’m working towards building a stream of income from dividends to be able to cover career breaks such as starting a family or working part time on passion projects. I believe capital growth will also happen over time, though that’s not my main focus for now.

Do you have any financial regrets?

Not really regrets. I have certainly learnt a lot over the past few years and of course can look back and be mad at myself for not knowing sooner, not savings more, enjoying life too much in the early years etc. Though I don’t see any benefit in doing that.

Instead, I like to focus on how much I’ve achieved, and where I want to move forward to in the future rather than dwelling on the past. Live, learn and move on to new heights.

Any final suggestions?

Don’t overthink it. Investing can be as simple or as complicated as you would like it to be. I would suggest newbies

  1. Understand their risk tolerance
  2. Pick an investment vehicle they are comfortable with
  3. Get started. You can always tweak as you learn more.

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.

Wealth Building Strategies – KeepinitFrugal: Building financial Knowledge

Thanks so much to Sarah and Laura at Keeping It Frugal for this week’s wealth building strategy: Building financial knowledge.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

Name/ Online identity:

Sarah & Laura – Keepin’ It Frugal

Website:

Keepinitfrugal.com

“9 to 5” profession:

We run two businesses – a graphic and web design business and a food blog.

Side Hustles:

Keepin’ It Frugal 😉

Selling on Gumtree & eBay

What are your investing goals?

We have two main goals.

The first one is to have our food blog support our lifestyle, and then use the extra growth to put straight into our investments.

The second goal is to reach traditional FIRE within 10 years.

What is your investing time frame?  How far along are you?

We’ve been investing since July 2018 and plan to not touch our investments for at least 10 years, when we hit FIRE.

What is the most powerful wealth building tool available to you?

The library. The ‘wealth’ of financial knowledge we’ve built up over the last few years through reading has been astronomical. There’s so many tips, tricks and systems we’ve implemented which have helped us achieve what we’ve built today.

What wealth building habits are you utilising to reach your goals?

  • Consistent investing on a monthly basis.
  • Still reading as much as possible to hone in on any new techniques.
  • Working hard to grow our digital business online, to support us and our investments.

What is your strategy to achieve this?

  • Read 50 books a year. I’ve actually already reached it this year, and I’m currently up to 61!
  • Investing is part of our monthly budget. I pay us, the mortgage and our shares every month. That way it becomes habit, and automatic.
  • We work on our food blog 5 days a week, working on new content and updating old posts as we go.

How long have you been using this strategy?

  • Reading: 1 year.
  • Investing: 2 ½ years.
  • Food Blog: 6 Years.

Were there other strategies before?  If so, what made you pivot?

Originally we were more focused on our design business, however, that required a lot more of our time for money. Whereas, the blog is much more passive, and we really enjoy cooking and creating the content for it, so it was a win win to start focusing on that more.

2020 was a big year of change for everyone, and it definitely made us question what we enjoyed most and make the pivot to concentrate on the blog.

What makes your strategy suit your personal situation?

Being foodies who love to travel, it makes sense to concentrate on our food blog, and utilise the skills from our design business to make it beautiful and informative!

We also love working, and don’t mind reaching FIRE not as quickly as some who feel they’re stuck in the rat race.

Where do you stand on home ownership vs renting? 

We purchased our home and plan to pay it off alongside investing.

We chose ownership over renting, as the right house became available in the right suburb. It was also a private sale, so we got it for a great price. House prices in South Australia are not as high as interstate areas, so our repayments (including all fees and utilities) are still cheaper than renting in the same area.

We find the stability of owning property and ability to renovate it as we please are both big wins for us.

Where do you stand on the great property vs shares debate?

Shares are the path we’ve taken. We enjoy the ease of monthly investing, and knowing the money is very liquid in the instance there was a real emergency at any point (not that we plan on touching our shares at all!). At this point in time, we don’t want the hassle of tenants, finding the right place and the upkeep and maintenance of property.

Where do you stand on investing for capital growth vs income? 

I feel like we’re currently standing in the middle. We love the dividends and franking credits available in Australia, but we also like the diversification and growth of overseas stocks like the US and EU.

Do you have any financial regrets?

No regrets – you can only make decisions based on what you know at the time. I’m glad to have started our journey when we did and look forward to seeing the progress we’ve made in another 5 years time.

Any final suggestions?

Consider why you are focused on the goals you’ve chosen, and how you can bring them just a little closer each day.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

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.

How to Invest: What is a Stock Dividend?

Investing in the share market can be the most passive way to create income. You may be wondering what is a stock dividend and how franking credits work. Before you start investing, you should have a general wealth building strategy.

When you invest in the stock market, you can make money through dividends or capital gains.

What are Capital Gains?

Capital gains means the increase in the value of the stock, index fund, managed fund or LIC.

The value of investments listed on the stock exchange bounce up and down all the time, but over time the general trend is upwards.

If you buy a stock for $1 and over 30 years the price of that stock increases to $4, your capital gain (per stock) is $3. Any amounts of gains can be made without incurring tax, until the asset is sold. Capital gains are discounted by 50% if the asset has been held for at least 12 months.

What is a Stock Dividend?

The other way you can make money through the share market, is by earning dividends.

When the company produces a profit, the companies can use this to reinvest to grow the business.

Fast growing companies will want to use their profits to expand and create more profits the long-term. Young companies may not pay a dividend, if they wish to invest in growing the business. Berkshire Hathaway does not pay out a dividend because Warren Buffet is confident he can reinvest profits for further growth.

If a company cannot utilise the profits effectively for growth, they can pay out the profits to share holders as a dividend. Larger, more established businesses often produce profits well above the amount they can effectively reinvest in the business. These tend to be dividend paying stocks.

Some investors are very focussed on dividend paying stocks. They aim to gradually grow a passive income through dividend income. As a result, these investors like to buy large, stable stock that consistently pay a dividend, that increases over time.

Dividends are taxed at your marginal rate. Franking credits, can however, generously reduce tax payable.

 

What is a Stock Dividend: Are Dividends a Legal Requirement?

Not all companies pay dividends, and even those that do are not obliged to continue. During the Global financial crisis, many companies stopped paying, or drastically slashed dividends.

Many investors love the idea of dividend investing as a way to gradually grow income over time, without making withdrawals. But dividends cannot be relied upon. In the event of a stock market crash, dividends may dry up and need to plan for this eventuality.

Are Dividend Payments Taxable?

Dividends are taxed as regular income, at your marginal rate. For many readers that will incur 45% tax. This can obviously eat into your returns in a dramatic way.

Australia is quite generous with investors though and offer Franking credits (aka imputation credits) on your franking credits. The business you own a share in pays tax on profits at the business rate (30%). If your dividend pay out is then taxed, the profits are effectively taxed twice.

Franking credits aim to avoid double taxation.

ATO

When you receive a dividend, the ATO will take into account the 30% tax already paid by the business. If the investor is on a marginal rate of less than 30%, they will receive a refund for excess tax paid. If on a marginal rate of more than 30%, the investor will only pay the difference between 30% and marginal rate (so an extra 15% for those on the top bracket).

Sometimes businesses have not had to pay tax on income, there will be no franking credit attached to this part of your dividend. Some dividends are “fully franked”, others are “partially franked” for this reason.

How Are Franking Credits Calculated?

Company A makes $100 profit per share.

They are taxed at the corporate rate of 30% on that profit.

They pay out the remainder as a dividend to shareholders = $70

 

Shareholder Sam on 0% tax bracket (Non-earning spouse) receives $70 dividend and declares at tax time

ATO “Gross up” original profit to $100

Then tax at marginal rate – 0% tax owed

Then deduct tax credit for tax already paid = -$30

Shareholder Sam receives $30 tax refund. Cha-ching!

Lets examine the same situation for Shareholder Sally on the top marginal rate of 45%

Company A makes $100 profit per share.

They are taxed at the corporate rate of 30% on that profit.

They pay out the remainder as a dividend to shareholders = $70

Shareholder Sam on 45% tax bracket (Non-earning spouse) receives $70 dividend and declares at tax time

ATO “Gross up” original profit to $100

Then tax at marginal rate – 45% tax owed = $45

Then deduct tax credit for tax already paid = -$30

Shareholder Sally owes the ATO $15 (well it is better than $45)

Are Dividend Reinvestments Taxable

Dividends, whether they are reinvested or not, are taxed at your marginal rate. If you want to reinvest your dividends, brokerage fees need to be paid again.

Dividend reinvestment plans allow automated reinvestment of the dividend into the same asset. This saves on brokerage, and takes advantage of the powerful effect of automation, removing temptation to spend investment income. If a dividend reinvestment plan (DRP) is available, this option will be offered when by the share registry after asset purchase.

However, dividends that are reinvested are still taxable. As you have not actually received then income, you need to pay tax out of your own pocket.

Dividend substitution plans (DSSP) are advertised as allowing you to delay paying tax on dividends. In these plans, the company (AFI or Whitefield) reward investors by giving them bonus shares in lieu of cash dividends.

This avoids taxation and brokerage. Instead of being taxed (and claiming franking credits) each year, the value remains invested to continue compounding for many years. When you eventually withdraw your earnings, this will be taxed as a capital gain.

DSSP can be advantageous for high income earners (and high tax payers), particularly if they will be on a lower tax bracket at time of withdrawal.

DRP is generally advantageous for low income earners (and <30% tax payers) that will receive franking credits.

 

Do Dividend Pay Outs Affect the Stock Price?

Stock prices tend to drop after the ex-dividend date. The ex-dividend date is the day after which new stock purchasers will not be eligible for the next dividend. This is probably not relevant to long-term investors.

The stock price dropping when a dividend is paid out prompts me to wonder what the difference is between a dividend pay out and equivalent withdrawal?

Dividend Yield

Dividend yield is the annual dividend total divided by the price of the share. This is important to investors seeking dividend income, but irrelevant to those looking only to maximise total return.

Tax time

Further information on dividend taxation is available at the ATO. Your broker should provide an end of year statement to take to your accountant at tax time, or Sharesight will provide a statement if you have linked your account.

Dividends vs Capital Growth

Investors seem to be divided in this. I can see the appeal of dividend income for low income earners (up to a point), but see total return as my goal overall.

With a generous income currently, I don’t need a few hundred dollars a year in dividend income, and certainly don’t want to pay tax on income I don’t actually need.

I would prefer to receive all growth in capital gains (at least until I am closer to retirement!). The longer I can delay taxation, the longer the untaxed growth has to compound. Capital gains are discounted 50% when I finally withdraw, when I expect to be in a lower tax bracket.

What is a Stock Dividend: Conclusion

A stock dividend is a way for the company to share profits with shareholders.

Not all companies give out dividends. Those that do should be 1. Making a profit and 2. Unable to use the profits to invest back into growth effectively.

Companies that traditionally have paid dividends will not necessarily continue to do so (particularly if there is an economic downturn).

Higher income earners should not chase dividends, it is more efficient to delay income and taxation until it is required.

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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Wealth Building Strategy: Serina Bird – A little Bit of Everything

Thankyou to Serina Bird for this week’s wealth building strategy: A bit of everything

Serina Bird is a former diplomat, published author of the fabulous book The Joyful Frugalista, podcast host and money coach.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

Name/ Online identity: 

Serina Bird aka The Joyful Frugalista

Website:   

http://www.joyfulfrugalista.com

“9 to 5” profession:   

Formerly worked at the Department of Foreign Affairs and Trade. Now left to write/podcast/startup full time.

Side Hustles: 

AirBnB and writing

What are your investing goals?

My previous goal was to save enough to leave work!  Now we are aiming to build up our net worth.  Hubby retires in 2 ½ years and wants to travel around Australia. I want to be (even more) wildly wealthy so am working on startups.

What is your investing time frame?  How far along are you?

I started actively investing in 2005. My investing strategy was disrupted due to separation (August 2014), but I’ve rebuilt – and remarried.

What the most powerful wealth building tool available to you?

When I think back to when I was 15 and had my first real job (i.e. not just working in my mum’s factory on holidays), I knew I wanted to invest my money and I wasn’t sure how. 

A friend suggested I ‘contact a stockbroker’ to invest – but that was too daunting for me as a teenager. And I didn’t really know anyone else who was investing like that.

These days there are so many digital platforms that make it easy – and check – for anyone to invest. And there’s so much more information about how to do it as well. 

Investing in the share market in particular is now for everyone: not just for the upper elite.

Serina Bird

What wealth building habits are you utilising to reach your goals?

My husband and I work together as a team, set yearly goals and work together to achieve them.  We track our expenses and always shop around for better deals. Saving and investing is part of our regular life.

We are conservative investors – hubby is more conservative than me.  I get impatient sometimes and would like to take greater risks in some areas. But we talk through options and come to joint decisions, and then we stick with them.

What is your strategy to achieve this?

As hubby is in the remaining few years of being in the workforce, superannuation is a key part of our strategy.   He automates salary sacrifice to almost the maximum allowed.

We set a joint goal in 2020 to pay off the mortgage. We achieved that briefly this month, although it’s back in the red again due to some large annual bills such as insurance. 

A key strategy was tracking our progress. I created a ‘kill the mortgage’ spreadsheet and charted the progress. It went from $120,000 in February 2019 down to being $1,800 in credit earlier this week. 

Looking at that graph and focusing on it was hugely motivational, and helped us focus our strategy.

How long have you been using this strategy?

Hubby and I met in 2017 and made our first investments in RAIZ not long after. We then bought investment properties together in December 2017.  We’ve pretty much worked as a team since then, focusing on paying down the mortgage and building up super.

Were there other strategies before?  If so, what made you pivot?

In my first marriage, we were focused almost exclusively on residential property investments. We did have some shares, and I also had Vanguard index funds, but mostly we invested in property. 

We were highly geared at the time, and that was quite stressful when the marriage broke down as there wasn’t really anything by way of an emergency fund – actually, we had an overdraft so we owed money. 

And also, while on paper we had high net worth, I always felt poor as it was a struggle from payday to payday to find money to pay bills. I was more frugal that my ex husband, and that was a source of tension as well.

In my husband’s first marriage, he also didn’t have a lot of spare change and finances were quite tight. He did not invest outside of super and the family home. In fact, they’d never really considered investing or talked about it.

Having learnt from these experiences, feeling abundant and ensuring there is always cash to splash if we need it is important to us. 

We’ve focused more on building up super, and we also focused on paying down the mortgages (taking advantage of record low interest rates).  We talk regularly – sometimes daily – about saving and investing.  We now have access to equity in the mortgage that we could use if we needed it. 

In addition, we each have sanity money, which we put on our Qantas debit card, and thus we each have our own money to pay for splurges (in my case, catching up with girlfriends and op shopping and buying gifts).

It feels so empowering to have our own money to do what we like with!

What makes your strategy suit your personal situation?

We are conservative investors, and this suits us as I have primary school aged kids to support. Also, I’ve now quit my stable, full-time public service job and my future startup income is as yet uncertain. 

Hubby is in the final years of his career, and while he has a great pension coming to him soon, his days in the workplace are now literally numbered. Accordingly, we are at a stage where overall we wish to take less risks.

Where do you stand on home ownership vs renting? 

I purchased our first home in 2001. It was $229,000 and I remember feeling freaked out about investing nearly a quarter of a million dollars. What different times we live in now!

We moved, and I then sold that family home in 2017. It was time to move out of the family home and I also wanted to move into a smaller and more secure apartment to make it easier for me as a single parent.  Originally, I planned to sell the home and then rent for a while. I was even hoping that the money would enable me to pay for rent for a long time – maybe indefinitely. This seemed a good cost saving strategy.

Within weeks of looking at properties, I discovered that the rental market where I lived wasn’t as cheap as I thought. Also, most places were quite small. I found a three bedroom place for sale and decided to look at it for comparison purposes. I ended up buying it at auction at few days later: it was two blocks from my kids’  new school, surprisingly roomy and at a good price. It meant taking on a mortgage again but it has been worth it.

When deciding to buy this apartment, I was clear it was a lifestyle choice.  Apartment prices have not gone up in recent years, and although I haven’t made money I haven’t lost it, either. But the lifestyle benefits have been immense.  My kids can walk to and from school (and it’s a fabulous school that they would not be able to get into if they didn’t live in the catchment area).  I used to cycle to work; now I work from home and cycle, walk or take the light rail to most appointments.  Hubby had a heart attack not long after we were engaged (not related to me, or at least, I hope not!), and being in a low-maintenance environment was great for him during recovery.

Where do you stand on the great property vs shares debate?

I grew up in a household of property investors, and I naturally gravitated to property.  Despite the higher entry price, property is often easier for people to understand. You can touch it, you can own it, you can improve it.  You can also leverage other people’s money effectively to grow wealth. Most of my wealth has grown through property.

To be honest, I love property. I get excited just at the thought of owning property and love looking at properties that are for sale.

Shares have a lower entry point, and it’s becoming easier and easier to invest due to competitive online broking products.  And now there’s even micro-lending platforms as well. 

I think it’s a mistake to think you either invest in property OR in shares.  They are different investments and they function differently. Shares are more liquid, for example, and have a lower barrier to entry.  Property is harder to get into but you can improve on it.  Making additional repayments is also a way of ensuring you have funds available in case of an emergency.

Where do you stand on investing for capital growth vs income? 

Earlier on in my investing journey. I was on an above average salary and was able to reap some benefits from negative gearing.  Accordingly, most of my earlier property investments were aimed at capital growth. And some achieved that – one in particular achieved stand out capital growth.

At this stage of our investing journey, we are looking predominately at investments that bring in good income. That’s because I have now left full-time work and hubby is about to retire.  All four of our investment properties are now positively geared and we would be hesitate to purchase property that was significantly negatively geared.

Do you have any financial regrets?

“Regrets, I’ve had a few. But then again, too few to mention.”

Heaps of regrets.

Selling shares during a time when we needed to pour them into properties. Not keeping a closer eye on my finances at one point (two properties were vacant for six months and my ex husband didn’t want me to ‘worry’ so hid it from me). Convincing my (now) husband to buy into some rare earths stocks that went no where, not investing in gold late last year/earlier this year. Selling one of my investment properties that my ex wanted to sell rather than buying it from him outright. Not taking the time to understand my super sooner (if I had, I would have contributed more – long story), and above all, not listening to my instincts.

But I had the courage to start the savings and investing journey, and bit by bit, I’ve made some huge strides and I’m really happy with how things are going.

Any final suggestions?

Thank you for the opportunity to comment. I find our ‘strategy’ changes around every year.  Hubby and I about to pivot and change our strategy in the new year. Usually, we examine what we are doing and tweak it each year.  The end of the year is always a great time to reflect and recalibrate.

Serina has kindly shared her worst financial mistake, and how to avoid it: Over leverage.

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.

Investing Strategy: Dave from Strong Money Australia

I am so excited to be able to share the Wealth building strategy from Strong Money Australia.

Dave and his partner bucked the trend at a very early age and instead of consumer goods, saved and invested aggressively.

The blog, Strong Money Australia, is very relevant to high income earners, whether they are striving for early retirement, or just financial peace.

Thanks so much Dave for sharing this week’s wealth building strategy: Investing in a diversified share portfolio.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

Name/ Online identity:   

Dave from Strong Money Australia

Website:   

http://strongmoneyaustralia.com

“9 to 5” profession:   

None now, haha!  I worked as a forklift driver/storeman on my FI journey.

 

Editor: I’m mortified to admit I made a mistake in the original version of this article. In my simple mind forklift drivers in Perth work in mines. But apparently this is not true. Neither Dave or his partner worked in the mines during the journey to FI. Sorry Dave!

Side Hustles:   

Never had any.  I did overtime to earn extra cash which was quite effective!

What are your investing goals?  

Simply to continue growing our portfolio over time and have it generate increasing amounts of income.

What is your investing time frame?  How far along are you? 

For the rest of my life.  I’m in my early 30s now, so I’ve hopefully got another 70 years or so 🙂

What the most powerful wealth building tool available to you? 

At this stage I guess it’s my ability to earn more money if more wealth is desired.  Other than that it’s simply about continuing to make half-decent investment decisions.

What wealth building habits are you utilising to reach your goals? 

Keeping our living expenses from blowing out.  And investing on a regular basis, regardless of what’s happening.

What is your strategy to achieve this? 

Investing in a diversified portfolio of income producing assets (shares).

How long have you been using this strategy? 

Around 5-6 years now.

Were there other strategies before?  If so, what made you pivot?  

Yes, we invested in property before that.  I realised that even if our properties were paid off the income would be woeful due to all the expenses.  Also the growing realisation that leverage doesn’t always work out that well, especially if your timeframe is relatively short (like ten years).

Where do you stand on home ownership vs renting? 

My feelings on this change as the numbers change.  Both have their benefits which I’ve written about extensively – here’s one example.  Renting has made sense for many years, but now with mortgage rates at 2%, buying is pretty attractive.  Even once expenses are included, the monthly costs will be pretty similar to renting, yet you get the other benefits of home ownership.

Where do you stand on the great property vs shares debate?

I actually think shares make the most sense in many cases.  Property leverage can turn out great, but it doesn’t always work that way. 

It’s 100% reliant on capital growth, which is very sporadic and unreliable, not to mention the enormous upfront and ongoing costs of owning real estate.  Plus, we don’t really have strong cashflow property here in Australia (except commercial), unlike our friends in the US.

You often need a couple years of growth just to break-even when you consider the upfront costs and possibly ongoing negative cashflow from the other ongoing expenses. 

Then the market might be quiet for a couple years.  Then you get a couple years of growth, and then you might be at the end of a 10 year FIRE journey and need to pay tax to reinvest in an asset that actually produces decent income!

Shares are simpler, you simply keep adding cash and making relentless progress every month.  It’s extremely low cost.  Very little hassle, very little paperwork, and none of the headaches around tenants, property managers and so on. 

It’s also extremely easy to be highly diversified and own lots of dominant cash producing companies, whereas property is a very concentrated bet on one asset in one location and one local economy. 

Where do you stand on investing for capital growth vs income? 

Both are important obviously.  If you get no growth, your income will be going backwards after inflation.  So it’s really a spectrum. 

I want to invest in assets that have both a decent income and decent chance of growth over time.  In retirement, I love receiving income from our investments – it’s enjoyable, effortless, and really captures the essence of passive income and FIRE I think 😉

Do you have any financial regrets? 

Not really.  Being so one-eyed about property in the beginning probably wasn’t a good idea.  So I now try to keep an open mind about a lot of different things. 

Any final suggestions?

Being adamant that there is only one way to do something is usually wrong.  There are many smart people out there with seemingly opposite ideas (whether it’s investing, nutrition, whatever) and they can both be successful. 

It’s about finding what works for you, and letting other people do their own thing.

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.

Wealth Building Strategies: Medical Financial Podcaster Dev Raga – Building Income through Dividends and Rent.

Thanks to our medical financial podcaster Dev Raga for this week’s wealth building strategy: Automated passive index investing.

Each week, I have asked a finance blogger or podcaster to share their personal wealth building strategies. I am hoping these will be useful to compare lots of different strategies and perspectives to provide ideas and insight in your own investing journey.

Dev Raga is a rural GP with an interest in all things medical finance, and runs a popular medical financial blog at Devraga.com.

Dev Raga bases his podcast episodes around powerful principles such as pay yourself first, save 20% of your post tax income and automate passive stock market investing.

His approach is simple, effective, and easily implemented by busy (Non-finance) professionals.

Website:

www.devraga.com

“9 to 5” profession:

Medical Doctor

Side Hustles:

Investing, teaching GP registrars

What are your Investing Goals? 

The aim is to create enough passive income via dividends. I don’t want to sell any of my assets, and will live off dividends/rental income for retirement and preserve capital.

What is your investing time frame?  How far along are you?

I am in year 11. Investing time frame 40 years.

What the Most Powerful Wealth Building Tool Available to You?

Income. Reinvestment of dividends, and let this compound over 40 years.

What wealth building habits are you utilising to reach your goals? Pay yourself first 20% of after tax income and invest it. Automate it. Reinvest dividends. Buy broad based index funds. Have few investment properties. Keep it simple.

How long have you been using this strategy?

Since internship Used to save up to 50-70% of income. Now 20% of after tax income is saved.

Were there other strategies before?  If so, what made you pivot?

No other strategy.

What makes your strategy suit your personal situation?

Its easy, simple, low cost. I am a doctor, so focussing on my expertise while my money works for me.

Where do you Stand on Home Ownership vs Renting?  Why?

I own my own home. No debt. Living in your own home is an emotional decision. My own home is not an investment. Renting = living in someone else’s home. I don’t have to ask for permission to put a nail through the wall in my own home. I don’t have to ask permission to have a dog in my own home.

Where do you stand on the great property vs shares debate? Why?

I have investment properties. I don’t think I will buy another one anytime soon. My Vanguard index fund portfolio never rang me during Covid and asked for a rental reduction, or fix the plumbing.

Where do you Stand on Investing for Capital Growth vs Income?  Why?

Both. I believe for an investment to be good: it needs to be more valuable in 40 years, and during that time frame it needs to pay me income. Otherwise its speculation.

Do you have any financial regrets?

Didn’t start early. But I started in my 20s. Should have started in my teens.

Any final suggestions?

Keep finances and investing simple. The simpler it is, you are more likely to follow the plan.

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

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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