Author Topic: Case Study: path to FIRE (Australia)  (Read 1245 times)

maverick@84

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Case Study: path to FIRE (Australia)
« on: August 23, 2017, 09:32:47 PM »
Hello everyone,
Apologies in advance for any errors I may have made given this is my first post. Looking towards streamlining my life on the path to FIRE. Look forward to your feedback and punches!

(Note all figures in AUD)


Life Situation: Married; self 32 / wife 27;
Abode - Sydney, Australia for last 3 years (on work Visa; originally from India)
Jobs - I work with a bulge bracket investment bank / wife is a fashion buying assistant with an e-commerce company
No kids atm

Gross Salary/Wages: own - $240k p.a. (ex. bonus; last year was 90k); wife $42k p.a. (she is just 4 months into her first job in Australia prior to which she was volunteering full time with a non-profit org)

Individual amounts pre-tax deductions:
Superannuation (similar to 401k) - 9.5% of gross salary for both
 
Other Ordinary Income: N/A

Qualified Dividends & Long Term Capital Gains: ~$2k in 2016

Post tax cash flow per month: $15,000/month (own $12k + wife $3k)


Current expenses: (per month)
Rent; $3,228
Groceries; $600
Office lunch / coffee: $300
Electricity: $150
Netflix: $15
Internet: $80
Mobile phone: $88 (24 months plan with device) + $50 (wifey)
Ipad: $70 (24 month plan)
Apple music: $15
Health insurance: $250 (mandatory, as we are not eligible for Australia medical cover given we are non-residents)
Travel / commute: $200
Car loan + insurance: $1,373 ($1,100 loan repayment which will close in Jan-18; $110 comprehensive insurance)
Car rego + servicing + toll (amortisation of annual costs): $150
Apartment cleaning: $200 ($100 per fortnight)
Miscellaneous: $500 (eating out, entertainment,sinking fund for annual vacation etc)
Mom allowance: $300
Life insurance: $150
Parents health insurance: $43
Total Expenses; $7,762/month

Surplus: $7,632 / month

Assets:
Investment property (India) fully paid - $94k (under construction till Jun-2018 post which will rent out at 3.5% gross yield)
Direct equities: $28k
Fixed Term deposits: $22k
Cash at bank: $60k
P2P lending: $26k
Superannuation: $50k

Liabilities:
Mortgage - N/A
Car loan - $7.7k remaining ($1.1k per month till Jan-18) - Mazda 3 (#1 mistake of buying a brand new car on a loan)

Net Worth; $223k (ex superannuation)

Note: The reason for low net worth (relative to income) is because of a few personal commitments we had to take care of in the past (bought back our family home in India). Now that's behind us, we are very focused on building our life together..

FIRE in India:
A comfortable number would be ~ 30k - 35k per annum ex. housing (however, it is a high inflation / high growth economy with ~8% yoy CPI). Thus am keen on leveraging into Indian equities to match the return to the CPI. I also plan to open my own fund with ~200k seed capital in the future).

Tax in India - lower than Au though both countries on progressive taxation. Currently am on the highest tax bracket at 48% marginal tax rate; highest tax bracket in India is 30%.

Specific Question(s):


1)   We are looking to becoming financially independent in 5 - 7 years. What would it take? What would we need to get our expenses down to and what type of income would we need to earn?  In other words “what price are we going to have to pay to make this happen”?
2)   What are the first steps that we should take to gain control over our situation that will give us the most bang for our buck?
3) We will most probably go back to India by the time we FIRE up - what investments should I focus on to build up my cash flows

Earnestly request your insights. I promise to revert back to your queries / responses with a minimum level of detail and earnestness

Regards,
Mave
« Last Edit: August 23, 2017, 11:12:46 PM by maverick@84 »

bigchrisb

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Re: Case Study: path to FIRE
« Reply #1 on: August 23, 2017, 10:01:32 PM »
Hi and welcome. 

You will get more Australian's looking at this if you put (Australia) in the end of your journal title.

If your income and budget numbers are right, you are saving about 50% of your income.  You can put a calculation or spreadsheet together, but using https://networthify.com/calculator/earlyretirement?income=180000&initialBalance=273000&expenses=88416&annualPct=5&withdrawalRate=4 as an example, it reckons you have about 14 years to go.

Things I'd be thinking about:
1. What are your expenses likely to look like in FIRE?  I assume that India would be cheaper than Sydney?  What would your FIRE in India budget be?  That's probably a more appropriate target than your current spend.
2. You have had a massive income and bonuses the last few years, but your wealth is a long way short of what you would have from your income minus your budget levels.  You mention personal commitments in the past - what makes you think that these are actually behind you?
3. I'm sure others will comment on your expenses, but do you need separate life insurance?  You may already have some cover through super? 

As to your questions:
1: All else considered equal (again using that calculator from the link above, which is a simplistic assumption) to get your 5-7 year target you need to be at a 70% to 75% savings rate, compared to the 50% you are currently at.  This means you either need to cut your current expenses in half, or your expected FIRE budget in half, or extend your timeline. 
2. If your numbers are correct (very high income, 50% savings rate), then you are already doing pretty well.  Get rid of the silly stuff (like your car loan) and trim your costs a little, then get on with enjoying life while savings rate and compounding does its job.
3. I know nothing about how tax in India works.  I'd want to understand that.  I'd also want to have more global exposure and less Australian exposure than most Australians.  I'm also a fan of equities, where as they are only ~12% of your non-super assets.  Were it me, I'd be adding to international ETFs, so I had more growth exposure and less AUD currency exposure - if most of your time in FIRE will be in India.

maverick@84

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Re: Case Study: path to FIRE (Australia)
« Reply #2 on: August 23, 2017, 10:25:27 PM »
bigchrisb,

Thank you very much for your review. Appreciate everything you said.


You will get more Australian's looking at this if you put (Australia) in the end of your journal title.


Done.


If your income and budget numbers are right, you are saving about 50% of your income.  You can put a calculation or spreadsheet together, but using https://networthify.com/calculator/earlyretirement?income=180000&initialBalance=273000&expenses=88416&annualPct=5&withdrawalRate=4 as an example, it reckons you have about 14 years to go.


Yes - am basing the 5 - 7 years on the conservative assumption of ~30% - 50% year end bonuses while I move through the ranks in the bank. Realistically, I am planning to treat these cash flows as windfalls to be invested in whole.

FIRE in India:
A comfortable number would be ~ 30k per annum (however, it is a high inflation / high growth economy with ~6% yoy CPI). Thus am keen on leveraging into Indian equities to match the return to the CPI. I also plan to open my own fund with ~200k seed capital in the future).

Tax in India - lower than Au though both countries on progressive taxation. Currently am on the highest tax bracket at 48% marginal tax rate; highest tax bracket in India is 30%.

I completely agree around (1) getting rid of the silly expenses; and (2) focusing on international ETFs. On life insurance, I agree on the insurance through super, but when we do move back to India, I would need a level of cover. This is the premium I pay for a term life cover in India (wanted to lock in the lower premium rates when I started it at the age of 25).

Only qualm I have currently is spending a bomb on rent in Sydney (which to an extent is not far away from the median), but I am toying with the idea of getting a deposit on a small-ish apartment asap (~200k).

Let me know for any further clarifications.
« Last Edit: August 23, 2017, 10:36:39 PM by maverick@84 »

Freshwater

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Re: Case Study: path to FIRE (Australia)
« Reply #3 on: August 23, 2017, 10:48:51 PM »
Hi Mave & welcome to the forum.

When you FIRE in India, I presume you will buy a home? How much will that be and does the 30k exclude housing?

Thoughts and questions on current expenses:
- Your comprehensive car insurance seems incredibly high, but I'll assume it also includes CTP which might make it similar to mine.
- Ipad - how come you are on a plan, given your income you could have just bought it? Is it cheaper as part of a bundle or something?
- Phone - as soon as you are out of your 24 months, get onto Aldi or similar - I pay $15 a month. Maybe your wife can switch now if she's not on a plan.
- Internet - shop around - I pay $60.
- Life insurance - you don't have kids, and you probably have life insurance through your super. I'd check that out and possible lose this.
- Car loan - can you just pay it off now with your cash if there are no early payment penalties?
- Maybe start bringing in leftovers for lunch a couple of days a week to cut down lunch costs.
- Apple music - can you use a free service?
- Your health insurance - given your salary, you'd be up for extra tax or would take out private hospital cover to avoid that tax anyway, so $250 isn't actually that bad a deal.
- Rent - there are probably cheaper options out there if you want to go hard for a few years.

I think I've suggested $1,500+ of savings a month that won't cause any pain :) Assuming you need to save 25 x annual expenses that shaves $450k off the total if you were staying here. Given your going to India, 30k x 25 is just 750k, plus whatever your home will cost. Sounds totally doable in 5 years given your income and bonuses.

Good luck!

maverick@84

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Re: Case Study: path to FIRE (Australia)
« Reply #4 on: August 23, 2017, 11:28:42 PM »
Hi Freshwater,

Thank you for your very helpful perspective. I should have noted the cost of living in India was ex. housing (i've updated the master post).

Car insurance $110 per month ex. CTP actually. I will shop around for a better deal (any suggestions?). Am half convinced I don't really need a car in Sydney and may just sell this puppy. Have clocked 7k on the meter in 2 years (mostly used for weekend drives); still has the new smell
Ipad pro (wifi + 4G) - It is a better deal than buying outright as on a 10gb 4G plan as well (optus)
Phone - agree, will move to a cheaper service provider for both of us
Life insurance - its more a plan for when am FIREd back in India
Office lunch - definitely agree; we seem to spend a lot on fruit bowls ($6) and salads ($8) for lunch; coffee - dunno if I can let go of though I try to keep to just one a day (unless am doing all nighters at work)!
Car loan - will check though I am guessing the early payment penalty would outweigh the interest saved for 7 months

Agree on all the other points as well.

Freshwater

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Re: Case Study: path to FIRE (Australia)
« Reply #5 on: August 23, 2017, 11:51:54 PM »
Getting rid of the car sounds like a good idea if you don't use it and you are living in an inner suburb. Depending on where you are, you could join a car share group or just use uber/taxis and hire a car for occasional trips out of town. We did the calcs once and it came out even for us but our car gets used bit more than yours and we also really love driving it and have a dog. See Go-Get and Pop-car and Car Next Door, there's probably more.

If you keep it, there's insurance comparison websites that might help. I'm with aami and pay $650 I think even after an at-fault crash. You'll get loyalty and no-claims discounts over time so it does come down in price.

Either way you'll be without the car payment soon which will be huge. 

We only use our ipad at home on wifi. What is the 4G for that you can't use your phone? I might just be too old to know these things and I was using a tiny screen iphone 4 til very recently!



maverick@84

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Re: Case Study: path to FIRE (Australia)
« Reply #6 on: August 25, 2017, 02:54:46 AM »
Freshwater,
I just got a new car insurance with Woolworths deive less pay less policy. It practically costs half of what I was paying GIO. Thank you very much for your advice :)

marty998

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Re: Case Study: path to FIRE (Australia)
« Reply #7 on: August 25, 2017, 06:06:13 AM »
I once paid a $24 million invoice* to an investment bank. I guess some of it ends up in pockets such as yours :)

With your income you won't be able to salary sacrifice as you'll already be at the $25,000 super contribution limit, and you will be hit with division 293 surcharge tax on your ordinary 9.5% contributions.

It hasn't been pointed out here, but $200 a month for apartment cleaning? I get that you're a busy person, but that sort of thing is a big no-no here!

*I expected it to be gold plated at the very least. I was severely disappointed.

maverick@84

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Re: Case Study: path to FIRE (Australia)
« Reply #8 on: August 25, 2017, 06:24:02 PM »
Marty,
Haha that is a big fee for one transaction. Yes the amount which we get paid is directly related to the advisory fees we drive for the firm based on corporate mergers, acquisitions and capital raises (IPO, FPO, debt etc).

Thus bonuses vary between years and a good year could look like 150% of base salary; and a bad year could be zilch.

It is a trade-off though as am clocking 70-80 hours a week including being accessible to my clients 24x7.

I agree on the apartment cleaning costs - we will stop that going forward and get it done ourselves. The missus has been advising the same for a while.

I have recently started investing in p2p lending and am curious if I should move all my debt / fixed income investments into it. Typical gross return looks like 7% - 12%

marty998

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Re: Case Study: path to FIRE (Australia)
« Reply #9 on: August 26, 2017, 03:34:37 PM »
Yeah I've had a few dealings with IBs. You guys work insanely ridiculous hours to get deals over the line.

Helps keep a few lawyers, accountants, consultants and auditors in business too.

Whether there is any resulting shareholder value created is an entirely different story :D

happy

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Re: Case Study: path to FIRE (Australia)
« Reply #10 on: August 28, 2017, 06:40:19 AM »
Hi!  Just found you - that (Australia) worked for me :)

Welcome - it looks like you've got good advice already.

With your good incomes, your 5-7 year plan should be quite doable. It should be quite possible for a couple to live in Sydney on <50k a year i.e. 4k a month. There's more than 1 family on here that manages to do that with kids.

My comments are:

- Rent should be able to get lower,
- electricity is high, look into reducing usage
- cleaner could go, as long as your wife is on board with that...with your hours you won't have much time for household chores
- office inch/coffee is OUT, make and BYO
- miscellaneous needs to be examined and reduced
- netflix/internet/mobile phone/ iPad/apple music seems overly inclusive - can't you stack some functions and get rid of some of these?

Others have covered some of the other stuff.

Please don't offended but is this really your expenditure or just what you think you spend? Have you tracked it? There are some key items missing e.g. water, (or is it in the rent?), petrol ( or is that under travel/commute?) clothing? gifts? haircuts? dental?

I found tracking my expenditure for a year was invaluable. Track everything. See what you can eliminate. If you can't get rid of an item try either spending half as much on it at the same frequency, or spend the same amount half as often. Work hard to reduce or eliminate  daily or weekly expenses.  Reducing a weekly expense by $10/week is the same as dropping 2 bigger items a year that cost $260 each. Thats why the coffee/bought lunch expense is important to get rid of.

We'd love it if you post updates, or consider starting a journal. There's also a Sydney meet up group ( look on the meet up subform) if that was of interest.
Journalling at Happy Aussie Downshifter

nath

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Re: Case Study: path to FIRE (Australia)
« Reply #11 on: August 28, 2017, 07:04:50 AM »
Hi there,
Nath from Melbourne here.

Great household income you have, and pretty standard living expenses but more than likely your job ties you to living in Sydney, so pretty hard to lower your major expense of rent without moving 1+ hours away from the city, which would totally not be worth it.
Net worth wise I feel you are only just getting started but saving say 100-150k per year over the next 10 years may put you in a reasonable situation to retire in Aus.
First you will need to get your permanent residency which is $$ then buy an apartment, have a family and all the rest of it. Hopefully this bonus environment continues for you.

Of course if the plan is to move back and retire in a quiet town in India then you are probably already FI :)

happy

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Re: Case Study: path to FIRE (Australia)
« Reply #12 on: August 28, 2017, 07:38:14 AM »
On  a quick scan of realestate.com you should be able to rent a 2bedder in the inner west, inner south for $600pw, possibly less. You can rent a pretty nice 2br apartment right in the CBD for $800pw...so you have to be able to do better than that. Of course if you head to the northside or eastern suburbs you'll pay more.
Journalling at Happy Aussie Downshifter