Hi all. I came across MMM around six months ago, and it's changed my whole mindset about life. My wife is on board, and we're now working on making FI a reality. We wish we'd realised this much sooner, but are now making changes to make it happen.
We are in our early thirties and have two kids, aged 9 and 6. We live in Melbourne, Australia which is one of the most livable cities in the world - but also unfortunately one of the most expensive.
We hope to retire within a decade.
Income - 190-250k
My wife and I both work as contractors in unrelated fields. Our income tends to vary, especially my wifes income which is pure commission. My gross income is roughly 70-80k, and my wife has just returned to work and expects to make at least 120k but hopes for closer to 170k.
Expenses - 66k once car is sold
Our living expenses are in flux as I'm currently selling my car (bought pre-mustache, hoping for 55-60k) but owe around 35-40k on it. My wife's car lease finishes in September and has a 12k balloon. The money from the sale of my car should cover the 12k balloon on hers, plus buy another cheap car for me with a little left over. We plan on moving to one car in the future but can't do it yet. Our total car payments are currently nearly 2k per month, but this should drop to zero by September.
Other living expenses, not including housing or the current car loans, are about 4k a month. We should be able to lower that a bit further as we go.
To summarize, once the car loans are gone we should have a gross income of 190-250k and yearly expenses of around 48k not including housing.
We currently pay $1456 in rent per month, which is ridiculously cheap for a three bedroom unit in our area, bringing our current yearly expenses (without the car loans) to around 66k.
Assets - Zero, soon to be ~400-500k
My wife was off work for a while and then working part time, and we haven't managed to save much. We currently have 62k in cash, but most of this is for tax which had been deferred from a previous year in my business so effectively we are at more or less zero. However my wife has been back at work for around six months and she doesn't get paid her commissions for roughly that long (she gets a refundable retainer in the meantime) so when that starts to come in we should be able to start growing our net worth quite quickly, particularly once the car loans are gone.
I do have an investment property near Brisbane which I bought when I was about 20, which has been terrible and is on the market. When it sells I should get about 15-20k out of it.
We don't have any other liabilities - we have a rewards card which we pay in full each month.
A few months after starting our FI journey my grandmother passed away and I learned I was to receive an inheritance of around 300-400k. The next day was Christmas day, and my parents in law informed us that they intended to gift us 100k for a house deposit. We were understandably stunned. I should have the money from the inheritance by the end of the year, and my parents in law intend to give us the 100k when we buy a house.
The Goal - 2 - 2.5 million
We're still not sure about this one. It would be less if we owned a home outright, somewhere around this amount if we were renting. This figure will likely change as we get closer, but it's the ballpark of what we want before we RE.
The Dilemma
Although the rent is very cheap, we've been in our current unit for around seven years now and we've outgrown it. My wife in particular hates it. It's ugly, small, falling apart, has recent mould issues with a leaky pipe or similar that the landlord is putting off fixing and really, it's rather depressing. It's also in one of the dearer areas of Melbourne (Caulfield South).
Despite its shortcomings, if we moved out and back in the next day we'd probably pay $500 a week instead of $335. We have it cheap presumably because we've been there that long.
My wife works in the outer western suburbs, so has a solid hour and half round trip. I work in an area from around St Kilda down to Beaumaris and greatly benefit if I live in that area for work (I work as a contractor on call for 14 hours a day, and the system assigns jobs based on time to arrival). If I lived outside the area I'd still need to be close to it for when I switch over with employees etc. My wife may also move, possibly to Brighton which is the next suburb over, but also possibly at some stage to the outer SE suburbs.
This makes it almost impossible to be close to both of our work areas, and locks me into one of the most expensive areas of our city.
House prices are ridiculous and many think we're in a bubble. My parents in law are pushing us to buy - they've made all their money in real estate like many baby boomers. I'm not at all convinced we'll see the same high growth over the next 10-20 years as I don't think it's sustainable. Interest rates are at record lows and some suggest we're headed for a recession or big slow down. Not many of my mates can afford to buy. Houses needing lots of work or in some cases knockdowns are going for over a million in many areas we're looking in. Brighton and Hampton are out of the question, but once affordable suburbs like Bentleigh East and Moorabbin are being advertised at around 700-800k and going for 1.1 and upwards in some cases.
Housing is the one area we're really unsure where to go with.
It's not like the States here - you've got a few major cities dotted around the coast. Sydney prices are worse. My skills aren't transferable at all meaning moving really isn't an option.
As I see it we have a few choices:
Move out and rent (at least $600-700 for anything 3 beds in the area that isn't a complete dive), stick all our savings in index funds.
Buy something in the area for 900-1 mil, spend more doing it up. Pay the mortgage down? Then start saving?
Buy a block in the area, knock it down, use my incoming inheritance to build a new home, sell it after a year or so and hopefully profit? (My wife works for a builder and gets a discount).
Down the track, we'd like to travel, frugally, a lot. We also love hiking and would like to try some big bike packing trips. Long term, post retirement and when the kids have moved out we like the idea of owning something in the CBD or inner north (Fitzroy etc) that we could easily rent out short term - a week or so booked through AirBnB while we are on a two week hike would see us come out ahead financially. If we owned a home in the suburbs it would be harder to rent it out short term.
Perhaps we should look at buying our long term place there now, stay renting and pay it off, but then I'm buying into what I think is an overpriced market to invest. Then again if prices soften I would think the inner north would be pretty insulated.
I really don't know which way to go - everywhere I turn I read conflicting opinions.
While ultimately we need to make our own decision, I'd really love to hear what others might do in my situation.
Cheers!