Author Topic: Case study - want to live in 2 countries/should I invest in property? AU & FR  (Read 1164 times)

Kangourou

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Hi all - new to the forum and have decided to start getting serious about FIRE.
Any advice/feedback would be appreciated on whether I am on the right track and what investments I should be looking into. Ideally I would like to retire by 40-45yo and have a lifestyle of moving regularly between Australia and France (eg 6 months in Sydney, 6 months in Paris).

LIFE SITUATION
Iím 32yo, living in Sydney, Australia, with a 26yo husband and no children (no plans to have children either). We keep our finances largely separate except for a Vanguard index fund, and pay for everything 50/50. He is already way ahead of me with FIRE with no university debt, lower expenses, second job and generally better at saving.

We live in a sharehouse, donít own a car and use a car sharing service, public transport, walking and bike to get around. We eat a largely vegetarian diet when cooking at home and reduce costs by shopping at Aldi a lot. We do long haul international flights every year as my husband is from Europe. My savings rate is theoretically 50% but I often ruin that on impulsive and unnecessary purchases. I am getting a lot better at this (cancelled my credit card) but still not perfect - plus my major weakness is eating out and wine. I have a rich personís taste in these things unfortunately.

INCOME
Income from full-time job: $63,700 per year ($2012 per fortnight after tax)
I have salary packaging of $16,000 per year which reduces my taxable income.

EXPENSES
$200/fortnight to Vanguard index fund
$800/fortnight to emergency fund
Rent/bills (flat rate) $320/fortnight
Phone bill $25/month
Groceries $100/fortnight
Entertainment/eating out $350/fortnight
Physio $27/fortnight 
Health insurance $18/fortnight (need this to drastically reduce the cost of physio and also to get cheaper dental and free glasses every year)
Spotify $4.50/month
Gym $43/fortnight
Car share $25/fortnight
Public transport $80/fortnight
Hairdresser $37/fortnight ($110 every 6 weeks)

ASSETS
50% of a Vanguard index fund VDHG ETF $9,000
$3,000 in Raiz (previously known as Acorns)
$2,500 emergency fund
$41,000 in superannuation (My Future Super). Superannuation is compulsory in Australia and I canít touch this til Iím old. Employers have to contribute 9.5% of my income to it every pay. Fees are $93.60/year membership and 1.79% admin and investment fee. The return is 6-10% per year after fees and taxes.

DEBT
$90,000 HECS (University) debt. I donít see it as a priority to pay this off as it just increases with inflation (sometimes even lower than that). Repayments come out automatically every year from my tax return according to income, and there is no incentive to pay it off earlier.

QUESTIONS
At the moment my main focus is building my emergency fund to $15,000. After that I plan to invest 100% of my savings. What should I invest in? How could I save more?

I know the most obvious solution is to get a higher paying job, however I am doing what I love in a field that is not generally well paid. I am a lawyer but in the community/human rights field. I am actively trying to negotiate a pay increase of $10k which is more reflective of my level of experience, and at the same time applying to other higher paid jobs ($75-100k per year).

Also, should I invest in property? I am interested in this but it is very over valued in Sydney (and prices are dropping) and Iím worried it is not worth it. Another option is in France (where we are both citizens) but maybe the taxes will be high and it will not be worth it. Iíll look into this more seriously once we have a deposit. My husband is generally against the idea of buying property but is open to being persuaded.  Ideally I'd love to have an apartment in both cities but I suppose it's probably unrealistic.

What do you think?



« Last Edit: July 30, 2018, 08:48:00 AM by Kangourou »

MrThatsDifferent

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Ok, Iím not as good at this as others but Iíll share my thoughts on what Iíve read, keep what works, discard the rest:
óIím not sure what the emergency fund of $15k is for, seems high to me if youíre trying to build wealth. Iíd reduce that goal to $5k. So, Iíd increase the amount to Vanguard to $800/ftn and the rest to savings.
óThe entertainment/eating out is really high. This would be where Iíd focus my energy and reduce as much as possible.
óIíd move the money from Raiz into Vanguard, fees are less and returns will be better
óIíve never heard of My future super, I moved all my supers into Australian super as itís an industry one, lowest fees and great returns, continually on top 5 list of supers.
óYour salary is ridiculously low for your skill set, I pay the receptionist as much as you make and staff with far less education are making 20-30k more. Think outside the box, you might be able to find other work that pays more but letís you work 4 days, giving you 1 day you can dedicate to humanitarian causes. But thatís super personal. Another way to think, make your money now, FIRE with the life you want and then do humanitarian work as part of your retirement. Otherwise youíre probably sacrificing $300-500k with this low paying work, when someone with your skills shouldnít have to.

Kangourou

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Ok, Iím not as good at this as others but Iíll share my thoughts on what Iíve read, keep what works, discard the rest:
óIím not sure what the emergency fund of $15k is for, seems high to me if youíre trying to build wealth. Iíd reduce that goal to $5k. So, Iíd increase the amount to Vanguard to $800/ftn and the rest to savings.
óThe entertainment/eating out is really high. This would be where Iíd focus my energy and reduce as much as possible.
óIíd move the money from Raiz into Vanguard, fees are less and returns will be better
óIíve never heard of My future super, I moved all my supers into Australian super as itís an industry one, lowest fees and great returns, continually on top 5 list of supers.
óYour salary is ridiculously low for your skill set, I pay the receptionist as much as you make and staff with far less education are making 20-30k more. Think outside the box, you might be able to find other work that pays more but letís you work 4 days, giving you 1 day you can dedicate to humanitarian causes. But thatís super personal. Another way to think, make your money now, FIRE with the life you want and then do humanitarian work as part of your retirement. Otherwise youíre probably sacrificing $300-500k with this low paying work, when someone with your skills shouldnít have to.

Thanks a lot - that makes a lot of sense -  I think I'll follow all of your advice!

reeshau

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I think you should track your spending more closely.  Your current total, as listed, is $2,029.50, slightly more than your income.  And you don't list any payment on your debt.  Are you making any?  The entertainment expense is crazy.  It would be crazy, even if it was monthly!  You say you like eating out and wine--and of course, you are French citizens--but do you like them more than FIRE?  Do you like them more than your passion job?  Thinking of your wants as competing for your money may help your willpower when you need to persist at your goals.  If you need to take it in steps, I would ask if all your wine comes while eating out--it would be much cheaper, of course, to indulge in a good bottle of wine at home.

You need to target having your student debt gone, at least by the time you FIRE.  Having that large a liability will be very limiting--if you have an emergency, or a significant market drop, it may endanger your finances.  You say it only grows at the rate of inflation, but at 3%, that still means it will grow by 25-50% by the time you FIRE.  A small percentage of a very large number is still a large number.  Ignoring it now is giving your future self a very big problem.

Perhaps if MrThatsDifferent's advice goes too far, you could turn it around:  supplement your passion job with some part-time work at typical legal pay, and focus that on your debt.

Notch

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You need to target having your student debt gone, at least by the time you FIRE.  Having that large a liability will be very limiting--if you have an emergency, or a significant market drop, it may endanger your finances.  You say it only grows at the rate of inflation, but at 3%, that still means it will grow by 25-50% by the time you FIRE.  A small percentage of a very large number is still a large number.  Ignoring it now is giving your future self a very big problem.

Perhaps if MrThatsDifferent's advice goes too far, you could turn it around:  supplement your passion job with some part-time work at typical legal pay, and focus that on your debt.

Just to clear this up for people outside Australia:  HECS (student) debts do not have to be paid back unless you earn above a minimum amount (roughly $52,000), and then repayments are automatically taken out of your paycheck.  Interest is applied to the debt once per year at the official inflation rate.  There is absolutely NO reason to make any voluntary payments towards this debt.

reeshau

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@Notch,

Thank you for the explanation.  I understand your point but it is still accruing interest.  If it is shielded from an unemployment situation, then there is a degree of safety.  But it seems like @Kangourou is open to making more money, and could make a lot more of it.  My concern is also how this debt is interpreted in France, for example when applying for a mortgage.

On a personal level, it is money you borrowed.  It would bug the shit out of me to leave it outstanding.  Part of the joy of FIRE is the freedom from obligations; debt obligations being one of them.

Notch

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@Notch,

Thank you for the explanation.  I understand your point but it is still accruing interest.  If it is shielded from an unemployment situation, then there is a degree of safety.  But it seems like @Kangourou is open to making more money, and could make a lot more of it.  My concern is also how this debt is interpreted in France, for example when applying for a mortgage.

On a personal level, it is money you borrowed.  It would bug the shit out of me to leave it outstanding.  Part of the joy of FIRE is the freedom from obligations; debt obligations being one of them.

Haha yes, I agree it is satisfying to get rid of debts, but this one is a special one from the government, that is only meant to be repaid if you earn a reasonable income.  The best way to think about it is:

Would you buy a bond that only bears interest at the rate of inflation, and only distributes earnings if you have an income above $52,000, and that can't be sold?
« Last Edit: July 31, 2018, 05:27:31 AM by Notch »

reeshau

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The other question it brings up is:  how sacred a cow is it?  If you are relying on it to remain *forever*, what stops the government from ending or modifying the program during some kind of financial crunch?  Another word for freedom is independence, and this seems to be a kind of dependence.  I readily admit this is coming from a US standpoint, but there are wide swaths of public and private retirees that had their future plans blown to hell in 2008.

From more of a financial geek standpoint, is the earning level indexed?  There are also a number of US programs who have had all sorts of unintended consequences because the legislators "forgot" to index them to inflation.

YoungGranny

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Just FYI it looks like they are contemplating changing the Hecs income threshold from $52k to $45k which I think you would then fall into. Looks like this would go into effect next July if it passes so it might be something to keep in mind as you plan out your budget and potential future expenses.

https://www.theguardian.com/australia-news/2018/jun/28/student-debt-how-the-governments-hecs-changes-will-affect-you

reeshau

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Thanks @YoungGranny.  While this is an incremental change, it's exactly the kind of uncontrollable change I was thinking of.  I know very little of this specific program, but reading that article I also see that changes were made to ensure repayment while living overseas, too.


YoungGranny

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Agreed @reeshau  - it also looks like they revised the income down from $55.6k in 2016 as well. That amount of recent changes and uncertainty would make me not want to rely on it, but again I live in the US and am not an expert on this program so take my insight with a grain of salt :)

Gremlin

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Another Aussie here.  I think it's dangerous to assume constancy in the HECS repayment rules.  The government have tinkered with them on numerous occasions over the years.  I know plenty of people who have declared that they'll "never have to pay HECS back" who have found themselves dealing with repayments many years down the track once the rules have changed.  It's a liability.  It may never be repaid, but relying on the rules remaining as they are (or as they will be after the latest revision) is not a strategy that would fill me with confidence.

Notch

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Haha this poor case study has gone off track. 

I agree this program is susceptible to being 'tinkered' with.  Recently, the earning's definition was expanded to include foreign income, to capture repayments from those who leave Australia after university.  There has even been proposals in recent years to change the rate of interest to match the 10 year bond yield (roughly the government's cost of funds).

However, in the mean time, there is very little incentive to make voluntary repayments.

reeshau

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It's true that there is no external incentive to make repayments.  I read further that there used to be a reduction in mandatory payments when you made voluntary contributions, but that was removed.  I was thinking primarily of internal, ethical motivation:  do you think you have participated in a government program on education?  Or, did you take out a personal obligation?  Each person has to answer that for themselves.

But, there is another way to address it:  make a savings goal to save an equivalent amount, earmarked for repayment.  In this case, you could at least benefit from the earnings or interest this money generates.  But it's very strange to think of this in a retirement planning scenario, because effectively it has no end point.  You either need it, or will grant it to your heirs.
« Last Edit: August 01, 2018, 06:03:09 AM by reeshau »

Fresh Bread

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Shocked at your income! I'd work on that and drop the eating out etc by half. There's a few little things you could tinker with, like dropping Spotify and getting the $15 ALDI phone deal. I wouldn't buy a house if you can be religious with an automated and high savings rate.

But mostly you need a higher paid job, that's crazy for a professional in Sydney.

Moonwaves

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Do you have any specific area in France you would like to live? Are you thinking somewhere close to family or is it more just to have a base in Europe? Long-haul flights are a big expense once a year (financial and environmental). Just for fun, have you figured out how much of your stash will be needed just to cover that cost? :)

Kangourou

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But, there is another way to address it:  make a savings goal to save an equivalent amount, earmarked for repayment.  In this case, you could at least benefit from the earnings or interest this money generates.

I like this idea!

Kangourou

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Do you have any specific area in France you would like to live? Are you thinking somewhere close to family or is it more just to have a base in Europe? Long-haul flights are a big expense once a year (financial and environmental). Just for fun, have you figured out how much of your stash will be needed just to cover that cost? :)

Most likely Paris - close to friends and as a base in Europe. Family are a few hours away by direct train too. You're right that I should take that cost into account - I was thinking of looking into getting serious about accruing frequent flyer points too to offset it.

Kangourou

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Shocked at your income! I'd work on that and drop the eating out etc by half. There's a few little things you could tinker with, like dropping Spotify and getting the $15 ALDI phone deal. I wouldn't buy a house if you can be religious with an automated and high savings rate.

But mostly you need a higher paid job, that's crazy for a professional in Sydney.

I know :( I've recently started to come to that realisation - some of my friends earn double. I'm actively looking for other jobs (hopefully in government) to rectify this.

I already have Aldimobile (love it). Will give the lower plan a go.

Moonwaves

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Do you have any specific area in France you would like to live? Are you thinking somewhere close to family or is it more just to have a base in Europe? Long-haul flights are a big expense once a year (financial and environmental). Just for fun, have you figured out how much of your stash will be needed just to cover that cost? :)

Most likely Paris - ...
You have expensive tastes. :) 
On the other hand, it could be that property in Paris could be a good investment. I assume you'll be thinking about renting out the place you're not currently living in?

DoNorth

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I live in the Charente region right now and one of the main factors that has me considering buying a property in France are the extremely low interest rates.  They are much lower than in the US and last time I looked they were hovering around 1% to 1.5%  at the moment and the euro to dollar rate is quite good as well.  I'm not sure how the Australian dollar stacks up, but it could be a good time to buy in the EU.