Case Study: Melbourne Couple with Life Changes Ahead (Australia)

[_Stupendous_]

Hi all, before I start I just wanted to thank everyone for their contributions to this forum.  The content is amazing and has helped us to move towards financial independence.  The journey is different for everyone and we thank you in advance for your comments and advice on our story below. 

Life Situation

Married, 36 & 39, first child due in July.  Living in Melbourne and preparing for life changes while planning for the future.  We started focusing on our journey toward financial independence about 5yrs ago.  We purchased a property close to the Melbourne CBD 3 yrs ago.  Last year we made the decision to move 40 minutes away from the CBD.  Our new house is debt free and our rental property covers the mortgage and expenses.  It nets a small profit but is cash negative due to the Principal & Interest mortgage.

Income: 

Me, Age 36
Gross Salary: $80,000
Bonus: $25,000
Net after tax:$76,000
Superannuation (9.5%) after tax (15% tax rate): $6,460

Partner, Age 39
Gross Salary: $200,000
Bonus: $15,000
Net after tax:$140,000
Superannuation (9.5%) after tax (15% tax rate): $16,150

Combined Net Income, monthly
Work Income:  $18,000
Superannuation (15% tax rate): $1,880
TOTAL NET INCOME: $20,360

Expenses, monthly
Groceries: $700
Eating out: $400
Alcohol: $80
Car & Transit: $260
Sports and Fitness: $200
Mobile Phones, Internet:  $90
Netflix & Foxtel Now (half the year for AFL):  $40
Health Insurance & Medical: $400
Vacation, One-Time Expenses: $800
Clothes, Cosmetic: $300
Utilities: $280
House Maintenance: $300
Dog: $100
TOTAL EXPENSES: $4,050

Assets
Investments (ETF's): $150,000
Superannuation (SMSF invested in ETF’s):  $300,000
Primary Residence: $700,000
Rental Property:  $1,100,000

Liabilities:
Mortgage on Rental Property (3.69% P&I, Variable): $700,000
Investment Loan (4.09%, Interest payments covered by dividends): $150,000

Net Worth:  $1,400,000

Notes

-Expenses will increase with the baby due later this year.  My partner plans to return to work early 2019 so daycare costs will add approx.. $1,200 per month.
-We intend to sell the CBD rental property within the next 5 to 10 yrs and invest those funds into ETF’s to provide an income stream. 


The Plan

2018 thru 2019:  Me to work FT, partner to take maternity leave and return to work early 2019 at 75%
2020 thru 2021:  Me to work FT, partner at 75%
2022 thru 2026:  Cut down to part time work with $100k combined work income.  Roughly $1.3M in ETF’s at start of 2022.
2027 onward:  Financial independence with cash generating assets of roughly $2.1M in ETF’s.

Questions

-Does ‘The Plan’ sound possible and what are the main risks we should watch out for. 

-Should I consider contributing additional to Superannuation while working FT.

-Would it set us back considerably if we cut down on work for 2018 thru 2021 while the baby is quite young and then work at a higher income from 2022 onward once school starts.

-Where could we focus on cutting our expenses.  They are a lot lower than they were when we started down this path in 2013 ($7,600 per month).  We have tackled our overspending gradually which has been effective but there is always room for improvement. 

[Llewellyn2006]

I'm sure the eating out and booze costs could be trimmed for starters. $300 a month for clothing and cosmetic costs - that is bonkers and way over the top!! I know our US friends will pile on about the grocery costs but it wasn't until I started tracking our expenses that I learnt how expensive it is to eat well in Australia. There's only two of us but it costs us around $800 a month, so I'm not sure if you can do much better there.

Not sure which mobile provider you're using but we are in the process of swapping over to Amaysim, only $10 every 4 weeks for unlimited calls and texts and 1GB of data (I think - we don't use the data so it's not a factor for us). The changeover couldn't have been easier and you can keep your old number. And salary sacrificing into super is always a good idea if you can do it.

[Hirondelle]

You have an amazing income and decent expenses so your savings rate is great, so I'm wondering why you're planning to work for another 10 years? I think your plans look very solid and though working PT will delay FI/RE time with the little one is important.

Some questions/points of critique:
- Eating out seems high. I know in the grand scheme it doesn't matter much, but for "badassity" purposes, reconsider how important this is for you and if you could cut down.
- Clothes and cosmetics is too high. I can't imagine any reasons to justify $300/month for that.
- $800 a month for vacation and one time expenses is also high. What kind of what time expenses should I think off here? What part of this money is vacation expenses? Do you expect vacation expenses to go down once the baby arrives (e.g. less international travel for the first years?)
- Your partner earns a lot more than you. Why did you come to the decision to let her work part time while you keep your FT job? Would it be an idea that you go parttime and she keeps working fulltime? I know this is a very personal decision and in most cases the woman reduces her workload, but on average the woman is also the lower-earning partner, so I'm wondering how you came to this decision with your partner being a (much) higher earner.

[Freedomin5]

Yes, having the higher income person work less also didn’t make sense to me.

[_Stupendous_]

Thanks for the responses.

I signed up for Amaysim and look forward to the $10/mo it is significantly lower than what I had.  I also do not use data often on that phone so that will work out really well.

I've tracked expenses the past few years and to be honest we have not taken a close look at the clothes & cosmetics category.  I'm going to go back through to understand why that is coming in so high. 

The $800 for vacation and one-time was largely a result of an overseas trip each year to visit family.  We have since collected quite a few frequent flyer points to reduce that going forward.  Also, to your point we do not expect to travel overseas as often with the baby coming soon.

I appreciate your feedback on the work plans after the baby arrives.  We have given it some thought and your comments are definitely on point.  We kept coming back to the fact that my work has flexible hours and I can work from home some days each week.  It also rarely requires interstate or overseas travel.  My partners job involves long hours and frequent interstate travel.  The hope is that by reducing to 75% it will provide flexibility to be at home more often.