Author Topic: Reader Case Study (Australia): How can I better Mustach-ify my budget?  (Read 2142 times)

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Hello Mustachian community!

Long time reader, first time post-er

About two years ago I read through the MMM blog and have been following it ever since. I also look at posts on the forum for inspiration. Iíve been implementing MMM principles as best I can. I am at the point where Iíve done all the Ďeasyí stuff, but I have much room for improvement (as will be evident below). Some changes I know but find hard to consistently implement (less eating out), and other changes need making but I donít know what they are. I would greatly appreciate this forumís advice on what I can change and how to stick to changes I should already be doing. 

I will set out my general situation, investments, income, expenditure and specific questions.

Several face punches are probably forthcoming, I understand this.

General situation
Wife and three children. Eldest nearly 4, youngest (and last) is six months. Wife and I are 30ish. My wife will be back at work from maternity leave in January 2019. From then we will both be working full-time on ~92k each (before tax). The below assumes our full-time salaries (wifeís is about 2/3rds at the moment). No consumer debt or credit cards (never have). I want FIRE. My wife is finance-conscious but finds FIRE implausible. And/or, she would prefer to spend money renovating our current house (much DIY) as a higher priority goal. My wife is financially risk-adverse and so prefers saving to investing (e.g., paying down mortgage over buying index funds). I am more interested in investing, and I want to renovate too, but the lack of post-renovation FIRE plan does concern me. Our work/childcare drop-off is fairly efficient as childcare is near work and we both work in the same area (different employers). Shouldnít change with school, as the school is near our house (although home-school-childcare-work by bicycle will be a bit irritating).

Investments
The two properties are cross collateralised

Property 1
Bought for $260k in 2011
Currently worth $500k
Rent in $435/week
Mortgage (interest only) ~$1250/month (principal $345k)
Costs ~$16,000/year (excluding capital depreciation and loan interest above) (is high due to strata issues)

Property 2
Bought for $430k in 2014
Currently worth $550k
Rent in $2,000/month
Mortgage (interest only) ~$1,700/month (principal $460k)
Costs ~$8,000/year (excluding capital depreciation and loan interest above)

Both on fixed interest mortgages expiring in about 12 months. Property 1 should become positively geared, or close to, when strata gets sorted in about 12 months.

Income
Salary income* - $4,400/fortnight (from January 2019)
Tax return ~$11k/year
Misc other Ė varies, but each year we seem to get $10-20,000 from other sources. An inheritance, gift, I got a personal injury payout two years agoÖ It just appears

Total: $125,000 (excl misc other)

Cash at hand ~$25,000 (in an offset account)

*after tax and after compulsory HECS repayments

Expenditure
Mortgage on home $2,537/month
-   we will be in this house until we die. Itís five bed two bath two storey on 850sqm. Double garage. We plan to extend and make a second living area with deck. We like entertaining and have relatively large parties/gatherings frequently. I did try to suggest living in a smaller place close to work etc. but thatís not what we went with in the end. Many eco-friendly modifications are planned (solar, double glazing, proper insulation, etcÖ)
Repair and maintenance on home $6,500/year
-   This includes various ongoing minor renovations, landscaping the garden, buying a compost heap, capital tool costs (for example, $300 paint sprayer to do the garage, which we now have forever and will use on other painting projects). Pretty much anything we would buy from Bunnings (hardware store)
Childcare $2,932/month
-   Limited options here we think. All childcare centres in our area are about $120/day/kid. Might be marginally more profitable to stay home with them instead of working but neither of us want to
-   The above figure includes the government rebates and we also get one day per week from my parents
Actual out of pocket to support negative geared investment properties $5,000/year
Transport $11,628/year
-   I cycle to work one or two days/week at the moment, from January 2019 our aim is 3+ days per week
-   We own a 2012 Ford Territory (cheapest that fit three car seats incl a capsule) and a 2011 Suzuki Alto. Both bought second hand no finance.
-   $3,800 fuel, $2,500 parking ($14/day, expecting to reduce this with cycling), $1,200 servicing, misc other (occasional taxi and such)
Charity $2,800/year
Groceries $500/fortnight.
-   This is a normal amount (weíve compared with friends, the Internet, so on) but not a Mustachian amount. We struggle to get it lower
-   It includes everything you would buy at Woolworths, not just food (so shampoo, razor blades, batteries, what have you)
-   We generally shop at Woolworths and usually online. Going to the shops with three kids is impossible, and we donít want to waste precious kid-free time after bedtime going shopping (should we?). Before kids we used Aldi and only what was remaining at Woolworths
-   I do stock up on non-perishables when theyíre on special. I do have a Rewards card and sometimes I get ok deals through that too (e.g. there was 2000 points per packet of dishwasher tablets I use once, so I bought a yearís supply. Instant free return flights for a wedding I was going to, yay).
-   We have a Thermomix and my wife does an excellent job of cooking lots of meals, we have a stacked freezer, etc.
-   Alcohol is only bottles of whisky, maybe one per month Ė I only drink whisky lime and soda. Healthiest and cheapest I could do, kicking alcohol altogether I havenít pulled off yet
Insurance $2,500/year
-   Home is insured (not contents) $1,000/year
-   Ford Territory is comprehensively insured $1,000/year
-   Alto is third party only, $265/year
Gas and electricity $3,400/year
-   I have energy efficient bulbs and timers that turn devices off etc. Long term plan is to get rid of gas altogether once thereís proper heating/cooling. Not sure what else I can do without large capital cost (such as double glazing)?
Water $1,800/year
-   A bit high as we water the lawn so it stays green. Minor improvements planned for shower heads and such
Internet $80/month
-   Was $40/month for the first year. Unlimited VDSL, actual speed 72mbps (like the NBN but better). NBN is more expensive. I canít seem to find cheaper than $80/month with enough data?
Phones $50/month for two
-   Both have iPhone 6Ss (owned outright). Will probably upgrade them next year?
-   Plan is Aldi mobile, $25/month/phone. Best I can find that is on Telstra (other carrierís coverage is too crap)
Health insurance $4,000/year
-   Open to cutting this, but with several children the extras seems to pay itself off. The hospital part is less necessary, itís more about choice of doctor if a kid needs their face stitched back together or such
Medical $1,700/year
-   Pharmacy, out of pocket (mainly for the GP)
Clothing $2,500/year
-   I feel like we donít buy that much in the way of clothes, but a few things here and there adds up? Maybe room for improvement
-   Includes dry cleaning because I hate ironing. Have not found good wrinkle-free shirts
Domestic stuff $7,000/year
-   This is a general category. Everything that isnít in another category. Stuff bought on eBay, or at Target or Kmart, etc.
Gifts $2,800/year
-   Weíve gone hard on this category and struggle to get it any lower. Fairly large family where gifts are expected for birthday/Christmas for kids (doesnít have to be particularly pricey)
Cleaner $500/year
-   Once a fortnight for two hours
-   Excuse is several small children and general exhaustion. Not intended to be an ongoing cost forever
Holidays $5,000/year
-   Mainly weekends away with friends, and Christmas
Entertainment $1,650/year
-   iTunes, movies, theatreÖ We use a lot less iTunes than we used to but have replaced it with less frequent but pricier theatre tickets
Eating out $8,500/year
-   This is all food that is not groceries (including coffees etc.)
-   Much room for improvement
-   Less than it used to be
-   We donít get takeaway to home ever anymore
-   Not sure how to cut it further other than better self-discipline
-   The killer is work snacks/ícoffeeí (hot chocolate) for me, and eating out in general Ė we never order delivery to home, but most weeks we will eat out two or three or four times, lunch at a cafť on the weekend or something. Weíre not good at packing our own main meals when going places other than work
Other
-   There are a few other items like sport, association fees, other miscellaneous Ė maybe $2-3,000 total for all of them

Total: ~$150,000

You will observe this means our expenses are $25,000 more than our income. Yet we donít have credit of any sort (except mortgage, but we donít redraw). Our savings do go down over time, but not by $25,000/year, and not consistently down. The misc other income above seems to cover it by magic. Also, 2019 will be our highest cost year ever Ė three children in childcare is $36,000 by itself. In 2020, eldest will go to preschool for 2-3 days/week, which is free. So it gets cheaper after that. Going to a public primary school. Even with uniform costs and excursions and so on, it is not $60/day out of pocket!

Specific Questions
-       Properties: Do we keep them? Sell them and buy shares? Sell and pay down home mortgage? But leverage Ė 5-8% capital growth on $1mil is a lot more than 10% on $195k of shares? If we keep them, long or short-term? All input welcome
-   I would be interested what people think of our car choices. Itís probably not worth changing them over to other cars (stamp duty etc.), but I thought weíd made a reasonable decision? Territory was $16,000 (upgrade from a Subaru Forest which we sold for $9k) and the Alto was $5k. I use the Alto as much as possible when bike isnít plausible (itís a 1.1L four seat go-kart). We are considering selling the Alto and buying e-bikes instead, as weíre unlikely to both need a car at the same time anymore. Peopleís thoughts?
-   Groceries: what do I do to lower it?
-   Do I need comprehensive insurance on the Ford Territory?
-   What can I do to reduce utility bills that is not a capital work? What are clever ways to use less electricity in particular?
-   Private health insurance: do I need it? I think maybe not. But what if my kidís face needs to be stitched up, I donít want the intern doing it?
-   What are practical tips on reducing eating out? This is probably our most discretionary budget item and we really struggle to reduce it further
-   Any pointers on making my budget (and life generally) more Mustachian are welcomeÖ

Thank you!


Freedomin5

  • Handlebar Stache
  • *****
  • Posts: 1248
  • Location: China
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #1 on: November 05, 2018, 03:47:42 AM »
Neither of your properties appear to meet the 1% rule. In fact, it doesnít look like the rents even cover the carrying costs. I would sell them and put the money into index funds.

Youíre also spending $42000 per year for the privilege of living in your mansion. Now, if you want to stay there for the rest of your life, that is your choice, but you have to realize that your electricity, water, and other costs are partially related to the size of your house. Youíre not going to cut anything significantly unless you downsize your house. If you do so, you will likely ďmagicallyĒ see many of your other expenses go down.

With regard to food, do you only buy fresh produce that are in season? I donít know how a typical grocery store is set up in Australia, but we shop the edges of the store, as most of the prepackaged processed foods are located in the center aisles, with the cheaper fresh produce located at the edges of the store. We also identify the cheapest foods and eat more of those. And we eat fewer expensive foods (eg, meat, cheese, seafood, wine).

Re: eating out. Instead of making going to a resataurant an outing, replace eating out with other free outings, like a picnic at a park, or going for an outing after eating lunch at home. You could also try to set a limit on what you spend. For example, bring $20 in cash, and thatís all youíre allowed to spend while on the outing. Once itís gone, itís gone.

nath

  • 5 O'Clock Shadow
  • *
  • Posts: 26
  • Location: Melbourne Australia
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #2 on: November 05, 2018, 04:06:34 AM »
Hello fellow Aussie
Without questioning everything I have a few comments.
Keep all your properties donít sell if you donít have to.  Based on your income and expenses you wonít be able to borrow money for investment propertyís anymore due to banks lending criteria tightening unless one of you has a large pay rise.
As you mentioned the yearly expenses for your family is $150k so the banks will certainly take this into account, and if you sell one property you wonít be able to buy it back again, possibly ever.
Also you are gaining the tax breaks and eventually rental income rises and It can be great leveraged wealth building. These properties could also be used by your kids when they are older depending on their location.
My second observation is you are right in the middle of the big spending rat race here. If you can find a way to reduce your big expenses then do it. Child care seems really big. Perhaps the relatives can help out a bit more often?
Also try and delay overseas holidays and cheap out so you can save as much as possible.
Definitely keep the private health insurance, not only is it handy in case of an operation and annual dental checkups, but otherwise you will pay extra tax through the Medicare Levy. Also if you drop it for more that a certain period (I think itís 12months) and you are over the age of 30, they will charge you additional lifetime loading on the premiums.
I wouldnít worry about any type of index funds until you can reduce your mortgage exposure a bit. Besides you will be already invested in shares though your super.
The offset account on the home loan is your best answer.  Your $25k balance /emergency fund seems rather low...
Once you have a couple hundred grand in there then maybe spend half on the renovations (which isnít a net worth loss as you are adding property value) and you will start principle and interest on the other 2 loans eventually too.
If you ever have a chance to refinance, do not use cross colatarisation and I would recommend using a different bank for each property for extra security.
Car wise the Alto is a death trap. Try and upgrade to a Mazda 3or something.
Eventually the Territory will need to upgraded too just buy another newer family car for cash, unless you can tax deduct one of the vehicles for business use then finance it.
Ooh yeah you canít be spending more than you are earning, something has got to change.
Hope I give you something to think about. :)
« Last Edit: November 05, 2018, 04:33:16 AM by nath »

mrmoonymartian

  • 5 O'Clock Shadow
  • *
  • Posts: 78
  • Age: 36
  • Location: Brisbane
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #3 on: November 05, 2018, 05:05:12 AM »
Thanks for propping up the economy mate. Please don't cut back or there will be a recession.

Only please do cut out the lawn watering if you live in the dry bit of the country.

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #4 on: November 05, 2018, 04:23:04 PM »
Please let me know if I am not quoting properly, I am new to this

Neither of your properties appear to meet the 1% rule. In fact, it doesnít look like the rents even cover the carrying costs. I would sell them and put the money into index funds.

True. They were places we lived previously, so not bought as investments - otherwise I'd like to think I would choose better! My only question is, will it be better keeping them to access the capital gain return? The capital gain return on ~$1mil is more total $ than the return on ~$200k of shares, even if the shares are 'better' investments?

Youíre also spending $42000 per year for the privilege of living in your mansion. Now, if you want to stay there for the rest of your life, that is your choice, but you have to realize that your electricity, water, and other costs are partially related to the size of your house. Youíre not going to cut anything significantly unless you downsize your house. If you do so, you will likely ďmagicallyĒ see many of your other expenses go down.

I accept this. It was a 'family' decision. I guess is there anything I can do to shrink it a little bit - knowing that utility costs will never be miniscule.

With regard to food, do you only buy fresh produce that are in season? I donít know how a typical grocery store is set up in Australia, but we shop the edges of the store, as most of the prepackaged processed foods are located in the center aisles, with the cheaper fresh produce located at the edges of the store. We also identify the cheapest foods and eat more of those. And we eat fewer expensive foods (eg, meat, cheese, seafood, wine).

This is helpful. Yes we generally only buy fresh. We don't pay lots of attention to what's in season. Can definitely reduce consumption of meat and cheese. Thanks.

Re: eating out. Instead of making going to a resataurant an outing, replace eating out with other free outings, like a picnic at a park, or going for an outing after eating lunch at home. You could also try to set a limit on what you spend. For example, bring $20 in cash, and thatís all youíre allowed to spend while on the outing. Once itís gone, itís gone.

Eating isn't the activity, it's more like we end up eating out when we're doing an activity - go to the playground or the zoo or what have you, end up being there at a meal time, buy some food. I like your suggestion of a pre-determined amount though, and we should pack food better. Any tips on packing lunches? We find it easy for the kids, they love sandwiches. We're not meant to eat too many carbs though. What do you do? And what works well to eat without re-heating?

Thanks

Gremlin

  • 5 O'Clock Shadow
  • *
  • Posts: 88
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #5 on: November 05, 2018, 04:39:08 PM »
I'm going to start by asking whether you genuinely want FIRE?  You say you do, but your actions speak otherwise.

There's so many different places to make improvements, but I'll pick and choose here...

Eating Out.  I can't fathom spending this much eating out.  My guess is that eating out becomes the "default" due to a lack of planning.  Do you plan your menu for the week?  Not just dinners at home, but breakfasts, lunches and snacks as well for the whole week.  With your diary in front of you so that you know that "Tuesday night is the night we're going to be at...".  Think about the alternatives to "eating out" and work them into your plan.  Can you have your main meal at lunch and a light snack in the evening when you get home from being out?  Can you pack snacks?  Your kids are young enough that they won't mind.  Mrs Gremlin and I do this and our grocery list reflects this.  That doesn't mean never eating out, but it then becomes a conscious choice rather than a default.

You have a soft spot for hot chocolate at work.  Buy a tub of the powder and 3 L of milk and bring it in with you. 

Domestic Stuff ($7k).  Wow.  Not sure how this manages to add up to this, but you need to break it down further if you're going to destroy it.  This is a massive black hole of spending.

Car usage:  $3,800 on petrol and $2,500 on parking and yet you are close enough to work to ride? This is 100% a lifestyle choice.  You need to choose whether your lifestyle is this or a lifestyle that will help you reach FIRE.  Most people don't FIRE, not because they're not attracted to the idea of FIRE, but because they're not willing to choose a lifestyle that gives them that.

Gifts:  This can very quickly add up with large families unless you are willing to do something about it.  We've implemented a system where each niece and nephew gets one present from the entire extended family.  We take turns to buy and have an agreed budget so it all evens out.  Instead of lots of crap, they get one nice present each which tends to be valued more by the kids and our total gift amount has reduced considerably.  Repeat for the grown ups.

Phones:  Your plans aren't going to break the bank, but why the need to upgrade your handsets?  This is exactly the sort of lifestyle inflation that puts FIRE out of reach for so many people.

Dry cleaning because you don't like ironing?  Face punch.  Your clothes budget should be able to come down too, but many other pieces of low hanging fruit if you want to reduce your budget.

Insurance.  I don't like looking for areas to increase spending, but you're practically living paycheck to paycheck, with x-coll'ed loans, needing both wages to survive yet you don't seem to be paying for life insurance.  Also don't underestimate how much it would cost to replace contents if your house burned down, particularly if you're spending $2,500 on clothes and $7k on domestic stuff each year.  I'd add both of these (even if your contents has a very high excess).

Gas and Electricity.  I don't know your climate, so can't comment on whether this is reasonable or not.  But the most expensive things to run are those that change temperature.  So heating and cooling in particular.  You have a big house.  How good is your insulation?  Is ALL of your house insulated to the same level - including garages with internal access?  Do you keep it all warm in winter?  Do you run air con in summer?  Can you set temps a degree or two higher/lower?  Can you zone your house and only warm/cool what you need?  Do you have multiple fridges?

Cleaner.  Is your cleaner genuinely $500 per year for 2 hours a fortnight?  If so, that's well below minimum wage.  What's going on here?

But as Freedomin5 said, your biggest luxury is your house.  You have more house than you need.  This is reflected in your mortgage, your utilities, your insurances and probably your domestic stuff.  This is a choice.  You can choose this.  But if you also want FIRE, you need to be far more ruthless elsewhere.

Mortgage v investing.  In Australia, with no deductibility on PPOR and (generally) higher interest rates than many parts of the world, the mathematical trade-off between paying down a mortgage or paying into offset (particularly on PPOR) and investing is less clear cut than in many other places.  It may work for you but it may not.  Do your own calcs on this before you decide a path.  But unless you get your spending under control, this is a theoretical consideration for you at the moment.

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #6 on: November 05, 2018, 04:50:21 PM »
Keep all your properties donít sell if you donít have to.  Based on your income and expenses you wonít be able to borrow money for investment propertyís anymore due to banks lending criteria tightening unless one of you has a large pay rise.
As you mentioned the yearly expenses for your family is $150k so the banks will certainly take this into account, and if you sell one property you wonít be able to buy it back again, possibly ever.
Also you are gaining the tax breaks and eventually rental income rises and It can be great leveraged wealth building.

Yes, we are at maximum lending - 80% across the two investments, and about 60% on our house. No more mortgages for me at the moment. And I have definitely noticed the tightened criteria, the bank just recently was fussy about re-fixing one of the loans as interest only.

I gather you think the higher capital gain return via leverage on the properties is a better option than selling up and buying $200k shares?

My second observation is you are right in the middle of the big spending rat race here. If you can find a way to reduce your big expenses then do it. Child care seems really big. Perhaps the relatives can help out a bit more often?

Agreed. My parents do one day a week plus incidentals (sick children that can't go to childcare etc.). My wife's parents live in another city so can't really help with childcare regularly. What do you think is an appropriate amount to ask grandparents to do?

Also, we could get a cheaper centre - maybe $90-100/day instead of $120. But, it's not close to work. So we'd have to drive. That means parking of $14/day, as well as general car costs, as well as lost health benefits of cycling. Which I think is not really worth it, and may in fact be more expensive?

And/or, from 2020 onwards these costs will reduce substantially. If I wait it out one year, then I can hopefully put the money I'm suddenly not spending on childcare straight into savings.

Also try and delay overseas holidays and cheap out so you can save as much as possible.

We don't do overseas holidays actually! What else can I do to cheap out?

Definitely keep the private health insurance, not only is it handy in case of an operation and annual dental checkups, but otherwise you will pay extra tax through the Medicare Levy. Also if you drop it for more that a certain period (I think itís 12months) and you are over the age of 30, they will charge you additional lifetime loading on the premiums.

From what I understand, the lifetime loading is small enough that you'd be ahead by not paying an annual premium even if you later had to get insurance with a large loading https://www.youtube.com/watch?v=jIVuiiC12HY

As for tax, we're only just over the threshold. So it would be a straight up numbers game? As in, if the annual premium is more than the tax we save, then we'd be better off paying tax?

I wouldnít worry about any type of index funds until you can reduce your mortgage exposure a bit. Besides you will be already invested in shares though your super.
The offset account on the home loan is your best answer.

So pay down mortgage over investing in index funds. Ok :)

If you ever have a chance to refinance, do not use cross colatarisation and I would recommend using a different bank for each property for extra security.

That's interesting. The cross-collaterisation is only for the investment properties, not our house. Still a bad idea you think? And different banks - I've never heard this suggestion before. What makes it more secure? Doesn't it make it harder to get a better rate - one big mortgage gets a lower rate than several small mortgages?

Car wise the Alto is a death trap. Try and upgrade to a Mazda 3or something.
Eventually the Territory will need to upgraded too just buy another newer family car for cash, unless you can tax deduct one of the vehicles for business use then finance it.

Oh ok. I'm surprised. Alto had four stars. Has airbags etc. Is it just because it's small? Also, upgrading costs money, I thought the Alto was my one Mustachian success! If I changed it I'd probably get e-bikes - unless there's a reason not to?

Gremlin

  • 5 O'Clock Shadow
  • *
  • Posts: 88
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #7 on: November 05, 2018, 04:50:38 PM »

Eating isn't the activity, it's more like we end up eating out when we're doing an activity - go to the playground or the zoo or what have you, end up being there at a meal time, buy some food. I like your suggestion of a pre-determined amount though, and we should pack food better. Any tips on packing lunches? We find it easy for the kids, they love sandwiches. We're not meant to eat too many carbs though. What do you do? And what works well to eat without re-heating?

Thanks

Depends on what you'd like to have for lunches, etc.  I'd typically spend half an hour on a Sunday whipping up a large salad, divvying it up into six meals worth and popping them in the fridge.  Maybe also have a bunch of single-serve packs of whatever protein you want (ham, chicken, tinned tuna, etc).  Then it's just grab and go during the week.  Vary the protein and you get a different salad.  A backpack with a cooler bag and water bottle and you're done.  My salads wouldn't be a sad lettuce, tomato and cucumber combo.  I'll typically go for something that I would've 'treated myself' to at a cafe - roasted pine nuts, sweet potato, fresh beetroot, feta, etc.  I'd then vary each week.  The ingredients for the week might add to $30.  But spread over 5 or 6 meals and when the alternative is a bought lunch, it's a huge difference to the back pocket.

But it's important to plan for it and shop to it.

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #8 on: November 05, 2018, 05:17:31 PM »

Eating isn't the activity, it's more like we end up eating out when we're doing an activity - go to the playground or the zoo or what have you, end up being there at a meal time, buy some food. I like your suggestion of a pre-determined amount though, and we should pack food better. Any tips on packing lunches? We find it easy for the kids, they love sandwiches. We're not meant to eat too many carbs though. What do you do? And what works well to eat without re-heating?

Thanks

Depends on what you'd like to have for lunches, etc.  I'd typically spend half an hour on a Sunday whipping up a large salad, divvying it up into six meals worth and popping them in the fridge.  Maybe also have a bunch of single-serve packs of whatever protein you want (ham, chicken, tinned tuna, etc).  Then it's just grab and go during the week.  Vary the protein and you get a different salad.  A backpack with a cooler bag and water bottle and you're done.  My salads wouldn't be a sad lettuce, tomato and cucumber combo.  I'll typically go for something that I would've 'treated myself' to at a cafe - roasted pine nuts, sweet potato, fresh beetroot, feta, etc.  I'd then vary each week.  The ingredients for the week might add to $30.  But spread over 5 or 6 meals and when the alternative is a bought lunch, it's a huge difference to the back pocket.

But it's important to plan for it and shop to it.

Thanks, very helpful

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #9 on: November 05, 2018, 06:08:40 PM »
I'm going to start by asking whether you genuinely want FIRE?  You say you do, but your actions speak otherwise.

Exactly right. That's why I'm here. My actions need to match my aspirations, and I need help with that.

Eating Out.  I can't fathom spending this much eating out.  My guess is that eating out becomes the "default" due to a lack of planning.  Do you plan your menu for the week?  Not just dinners at home, but breakfasts, lunches and snacks as well for the whole week.  With your diary in front of you so that you know that "Tuesday night is the night we're going to be at...".  Think about the alternatives to "eating out" and work them into your plan.  Can you have your main meal at lunch and a light snack in the evening when you get home from being out?  Can you pack snacks?  Your kids are young enough that they won't mind.  Mrs Gremlin and I do this and our grocery list reflects this.  That doesn't mean never eating out, but it then becomes a conscious choice rather than a default.

Good point. We do meal plan, but it's mostly main meals, and we don't always account very well for when we'll be home or not (which can lead to food going off and being wasted). The problem is definitely us and not the kids, we pack for them fairly well. I will take this on board.

You have a soft spot for hot chocolate at work.  Buy a tub of the powder and 3 L of milk and bring it in with you. 

I don't care for it really, it's more social. I find it hard not to order when everyone goes for coffee. I can get tea, which is healthier but costs the same. Would I be correct that the solution is to eat some concrete and be prepared to say 'Oh no thanks but I'll come for the walk'?

Domestic Stuff ($7k).  Wow.  Not sure how this manages to add up to this, but you need to break it down further if you're going to destroy it.  This is a massive black hole of spending.

Good point. I will think about how to get more detail on the category so I can destroy it.

How do I tell acceptable from not acceptable spending? For example, I recently bought a Google Home, as a way to play music in the house (and its many other functions). I'd been thinking about playing music at home for a while, and was pushed to action in fact by re-reading MMM's post on candlelit dinners. It was $109. Is that a valid purchase? Should I have bought a $30 speaker instead?
Or, I bought two toddler-appropriate board games for my kids the other day - about $60 together. I want to introduce them to board games and card games and other such family fun. Not sure how to do it without buying board games? These particular ones were not available second hand. Maybe I should have bought just one?

Car usage:  $3,800 on petrol and $2,500 on parking and yet you are close enough to work to ride? This is 100% a lifestyle choice.  You need to choose whether your lifestyle is this or a lifestyle that will help you reach FIRE.  Most people don't FIRE, not because they're not attracted to the idea of FIRE, but because they're not willing to choose a lifestyle that gives them that.

We definitely want to cycle more and plan to. It's about 35min each way and both my wife and I have a trailer with children, so it's ok for to/from work only, but if we need to go somewhere else that day it gets trickier. But yes I accept this advice and it is good to have this validated as a worthwhile aspect of budget to attack :)

Gifts:  This can very quickly add up with large families unless you are willing to do something about it.  We've implemented a system where each niece and nephew gets one present from the entire extended family.  We take turns to buy and have an agreed budget so it all evens out.  Instead of lots of crap, they get one nice present each which tends to be valued more by the kids and our total gift amount has reduced considerably.  Repeat for the grown ups.

Will do. Any pointers on convincing the in-laws (who are big gift givers) to adopt this? They have for adults (there's just Secret Santa, not everyone buying everyone else something), but they all seem to enjoy giving the kids mountains of presents :|

Phones:  Your plans aren't going to break the bank, but why the need to upgrade your handsets?  This is exactly the sort of lifestyle inflation that puts FIRE out of reach for so many people.

Fair. We have iPhone 6Ss. I recently had the battery replaced for $40. I expect to get another 12 months or so out of it. After that, software updates and such make them a bit slow and horrible? But we wouldn't replace with a new one, probably a second hand iPhone 7. Is this still undue lifestyle inflation?

Dry cleaning because you don't like ironing?  Face punch.  Your clothes budget should be able to come down too, but many other pieces of low hanging fruit if you want to reduce your budget.

Fair. I would love recommendations for iron-free business shirts that don't feel like you're wearing plastic. I truly detest ironing. Any other chore is fine. Cleaning the toilet, or getting kid vomit out of the carpet... All fine compared to ironing. Yes I know, I'm a complainypants and I should eat some concrete :(

Clothing budget is also a bit of a black hole, I need more detail. It doesn't feel like my wife or I buy clothes often, we don't go shopping for fun or anything. But yes point taken.

Insurance.  I don't like looking for areas to increase spending, but you're practically living paycheck to paycheck, with x-coll'ed loans, needing both wages to survive yet you don't seem to be paying for life insurance.  Also don't underestimate how much it would cost to replace contents if your house burned down, particularly if you're spending $2,500 on clothes and $7k on domestic stuff each year.  I'd add both of these (even if your contents has a very high excess).

Oh we have life insurance, TPD and income protection insurance through Super. All set to appropriate levels (80% of income for two years, and enough Life/TPD to pay off the PPOR mortgage with more left for modifications such as wheelchair ramps or what have you)

On contents, the excess isn't the issue it's the annual premium nearly doubles in price. We're good at sourcing furniture second hand and similar. We think we wouldn't mind building up from scratch again on contents.

I think we have the typical problem that our spending matches our earning. Because we don't have any credit, we seem to go through boom/bust cycles - try really hard to not spend money, get lazy and resort to spendypants habits, start to run low, try really hard again, rinse repeat. Breaking out of the cycle and permanently reducing spending is what we struggle with.

Gas and Electricity.  I don't know your climate, so can't comment on whether this is reasonable or not.  But the most expensive things to run are those that change temperature.  So heating and cooling in particular.  You have a big house.  How good is your insulation?  Is ALL of your house insulated to the same level - including garages with internal access?  Do you keep it all warm in winter?  Do you run air con in summer?  Can you set temps a degree or two higher/lower?  Can you zone your house and only warm/cool what you need?  Do you have multiple fridges?

No the house is not maximally insulated. We intend to do this as part of ongoing renovation efforts (e.g., we intend to renovate upstairs next, which will involve ripping all the gyprock off, and the ceiling, and stuffing it full of rock wool, etc.).

No we only use the gas heater when we're home, and only in lounge/dining. We do have oil heaters for bedrooms for overnight for the children (heating to about 16C).

We have a portable 5kw air con and a reverse cycle that's similar. We use them only when we're home and only for living areas we're using.

Generally heating the house to 18C in winter and cooling to 22C in summer

Can't zone, but we intend to put in a proper ducted heating/cooling system where we will be able to

We have a fridge/freezer and a stand alone freezer. The second freezer is to keep a stock of discounted meat, pre-made meals, etc.

Noting my wife is on maternity leave, so this winter was probably higher than usual due to someone being home all day in terms of heating/cooling

Should I be increasing the priority of insulating the house? Doing upstairs is six months away at the moment, while we finish outside

Cleaner.  Is your cleaner genuinely $500 per year for 2 hours a fortnight?  If so, that's well below minimum wage.  What's going on here?

I looked into this. It's $500 for six months, not 12. We intend to stop the cleaner in January 2019. Shouldn't need one if everyone is out of the hose five days a week.

But as Freedomin5 said, your biggest luxury is your house.  You have more house than you need.  This is reflected in your mortgage, your utilities, your insurances and probably your domestic stuff.  This is a choice.  You can choose this.  But if you also want FIRE, you need to be far more ruthless elsewhere.

Fair.

What would Mustachians consider an appropriate amount of house for two adults and three children (including when the children are teenagers)? Would you make children share bedrooms? Would you cut the guest bedroom? What's a Mustachian amount of yard?

Mortgage v investing.  In Australia, with no deductibility on PPOR and (generally) higher interest rates than many parts of the world, the mathematical trade-off between paying down a mortgage or paying into offset (particularly on PPOR) and investing is less clear cut than in many other places.  It may work for you but it may not.  Do your own calcs on this before you decide a path.  But unless you get your spending under control, this is a theoretical consideration for you at the moment.

I think we would go with paying down mortgage, due to wife's risk averse-ness. Noted it is theoretical. Hopefully not for long...

Thank you

Eileen63

  • 5 O'Clock Shadow
  • *
  • Posts: 52
  • Location: Australia
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #10 on: November 05, 2018, 08:11:29 PM »
How do I tell acceptable from not acceptable spending? For example, I recently bought a Google Home, as a way to play music in the house (and its many other functions). I'd been thinking about playing music at home for a while, and was pushed to action in fact by re-reading MMM's post on candlelit dinners. It was $109. Is that a valid purchase? Should I have bought a $30 speaker instead?
Or, I bought two toddler-appropriate board games for my kids the other day - about $60 together. I want to introduce them to board games and card games and other such family fun. Not sure how to do it without buying board games? These particular ones were not available second hand. Maybe I should have bought just one?


I'd consider both to be unacceptable if expenses are larger than income. Perhaps try dividing your expenses into 'needs' and 'wants'. 'Needs' you find the money for but 'wants' wait until income is greater than expenses and there's some left over cash you can spend on a 'want' [even then I'd budget an amount that you won't go over when considering the purchase]. 'Wants' could be left for birthday or christmas presents from others. Boardgames - check with your parents/in-laws to see if any are still around from when you were children. Check 2nd hand stores for appropriate boards (you can always use buttons etc for counters if the original ones are missing).

Gremlin

  • 5 O'Clock Shadow
  • *
  • Posts: 88
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #11 on: November 05, 2018, 08:13:52 PM »
Coffee Breaks at Work:  I get the social aspect but yep.  "I don't really feel like anything today, but I'll come for the walk".  It's perfectly fine to respond like that.

Domestic stuff:  It's not my place to judge acceptable vs unacceptable spending.  I like listening to music.  I like board games as entertainment for kids.  But all of this is a choice.  Keep going as you're going or reduce this sort of spending.  It's easy to say "I want that" and pay full retail.  Or shop online and find it for 5% off and convince yourself you've "saved". 

It strikes me that you don't have a budget.  Some mustachians can't stand the idea of budgeting because they find it lets them spend up to their budget.  You don't have this problem.  You're already spending more than you earn and it's the magical inheritance or gift fairies that's keeping you from going under.  If you want some of this stuff, then set a budget for it, but don't go over on it.  That may mean you can only get one board game, not two.  Or that you can only "afford" the $30 speaker.  Or that you'll have to "save" your budget this month and pool it with next month to be able to afford it.  Or you have to choose between the board games for the kids or the speaker for you.  Not both.

Gifts:  Each family is different.  Just ask.  Maybe they'll be feeling the same way but don't want to be the one to bring it up.

Phones: If a new(er) handset is important, prioritise it.  Fit it into your budget (above) for domestic items and buy it.  If it doesn't make the cut into your budget, then you can't afford it.  A new(er) handset is a luxury not a necessity.

Ironing:  Okay.  I get that you don't like ironing.  My wife hates ironing, but I actually don't mind it.  You're a team.  What could you offer to take off your wife's to do list if she did the ironing instead?  Be generous with your offer and make it worth her while if you want to save here.

Contents:  Second hand furniture might be okay, but things around the house add up quickly.  You've probably got several thousand dollars worth of clothes in wardrobes, thousands of dollars of cutlery, crockery and cookware.  Even a thousand or two of food in your freezer/fridge/pantry.  Shoes, books, computers, phones, bikes, light fittings, whitegoods, curtains, blinds, rugs all add up.  If you have the means to self-insure that's fine, just be aware that contents is more than just a couple of beds and a sofa.

Insulation:  Insulation is a reno job that saves you money not makes your house look better.  The order of priorities depends on which you value more.

Heating & Cooling:  You need to get comfortable with what works for you.  But you also don't need to be comfortable only within a small temperature range.  I'm in a part of the country where winter heating bills aren't much, but summer cooling bills can be horrid.  We cool our rooms to 28C during the day and bedrooms to 24C at night.  We've conditioned ourselves to this over several years and now it doesn't "feel hot".  Each year we bumped the default temperature up half a degree from the year before.  Otherwise, we let insulation do it's job and kick around in t-shirt and shorts.  MMM has a great article on this.

Similarly in winter we run at 13C during the night if needed (which is very rarely in our location).  But again, this started from 18 in winter and 23 in summer.

House size:  I don't think there's a right answer here, but it becomes one of trade-offs.  If your home is your "forever" home and you aren't prepared to compromise, then that's that.  But you need to be honest what the trade-offs are.  Maybe that includes reaching FIRE? 

In terms of what works for us, I have a three bedroom home for a family of four (me, Mrs Gremlin, teenage boy and nearly teenage girl).  Kids each have a bedroom, but vacate and camp in our room or sibling's room when needed as a guest room.  We don't have a dedicated guest room.  I still think of our home as ridiculously anti-mustachian.  Wife and I both have separate dedicated "nooks" as our home offices without a dedicated room for either.  We've thought hard about how to optimise the space we have.  I must admit that the idea of a five bedroom place that "requires" further living spaces and outdoor decks sounds very much like you're "keeping up with the Joneses".

Budget:  You alluded to the fact that you're spending what you're earning.  In fact, you're not.  You're spending more than you're earning and that's a problem.  If you're going to smash down that mortgage, pay that down first each fortnight (including what you'd like to be "investing" as additional principal payments).  Then budget to live off the rest.  And make sure Mrs Australian Guy is on exactly the same page otherwise this will just breed resentment. 

Gremlin

  • 5 O'Clock Shadow
  • *
  • Posts: 88
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #12 on: November 05, 2018, 08:47:00 PM »
One more thing...

Buying things seems to be your solution to your issues.  You mentioned buying a Google Home to help have music at date nights.  You've asked (twice!) as to what shirts you should buy to avoid ironing.  Mustachians don't think like that.  You can't BUY YOUR WAY TO MUSTACHIANISM!

Work with what you've got.  Optimise the shit out of it til it works for you not the other way round.  Be happy with your life.

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #13 on: November 05, 2018, 09:35:52 PM »
One more thing...

Buying things seems to be your solution to your issues.  You mentioned buying a Google Home to help have music at date nights.  You've asked (twice!) as to what shirts you should buy to avoid ironing.  Mustachians don't think like that.  You can't BUY YOUR WAY TO MUSTACHIANISM!

Work with what you've got.  Optimise the shit out of it til it works for you not the other way round.  Be happy with your life.

That is an astute and helpful observation

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #14 on: November 05, 2018, 10:14:33 PM »
Domestic stuff:  It's not my place to judge acceptable vs unacceptable spending.  I like listening to music.  I like board games as entertainment for kids.  But all of this is a choice.  Keep going as you're going or reduce this sort of spending.  It's easy to say "I want that" and pay full retail.  Or shop online and find it for 5% off and convince yourself you've "saved". 

Yes I would be the latter. I get the best price, but the best price is still spending money on something I don't necessarily need. Board games could have waited until Christmas. Or maybe now I've bought them I don't need other Christmas presents for children. Hmmm. Helpful.

It strikes me that you don't have a budget.  Some mustachians can't stand the idea of budgeting because they find it lets them spend up to their budget.  You don't have this problem.  You're already spending more than you earn and it's the magical inheritance or gift fairies that's keeping you from going under.  If you want some of this stuff, then set a budget for it, but don't go over on it.  That may mean you can only get one board game, not two.  Or that you can only "afford" the $30 speaker.  Or that you'll have to "save" your budget this month and pool it with next month to be able to afford it.  Or you have to choose between the board games for the kids or the speaker for you.  Not both.

I like to think we're actually fairly good at budgeting. Or more accurately, tracking where all our money goes. See attached version of 2018-2019 financial year budget. We have something similar dating back to mid 2012.

What do you think of the Excel? Should I be using a different or better budget? Or - I think more likely - is the problem that we just don't stick to our budgeted amounts?

Gifts:  Each family is different.  Just ask.  Maybe they'll be feeling the same way but don't want to be the one to bring it up.

Will do.

A new(er) handset is a luxury not a necessity.

Fair. Ok.

Ironing:  Okay.  I get that you don't like ironing.  My wife hates ironing, but I actually don't mind it.  You're a team.  What could you offer to take off your wife's to do list if she did the ironing instead?  Be generous with your offer and make it worth her while if you want to save here.

I reluctantly accept that I will need to come to an arrangement whereby I don't pay someone to do my ironing. :'( Thanks

Contents:  Second hand furniture might be okay, but things around the house add up quickly.  You've probably got several thousand dollars worth of clothes in wardrobes, thousands of dollars of cutlery, crockery and cookware.  Even a thousand or two of food in your freezer/fridge/pantry.  Shoes, books, computers, phones, bikes, light fittings, whitegoods, curtains, blinds, rugs all add up.  If you have the means to self-insure that's fine, just be aware that contents is more than just a couple of beds and a sofa.

Ok I will re-think it more carefully

Insulation:  Insulation is a reno job that saves you money not makes your house look better.  The order of priorities depends on which you value more.

Haha fair. Ok. It moves up the list then.

Another question: we intend to put solar on the roof. First the roof needs re-doing, or at least fixing. Is re-roofing and putting solar a higher priority than insulation? Which do I do first?

Also, what's the best type of roof - MMM articles are US-focused and compare to shingles, which Australia doesn't have really. Tiles, metal, or something else?

Heating & Cooling:  You need to get comfortable with what works for you.  But you also don't need to be comfortable only within a small temperature range.  I'm in a part of the country where winter heating bills aren't much, but summer cooling bills can be horrid.  We cool our rooms to 28C during the day and bedrooms to 24C at night.  We've conditioned ourselves to this over several years and now it doesn't "feel hot".  Each year we bumped the default temperature up half a degree from the year before.  Otherwise, we let insulation do it's job and kick around in t-shirt and shorts.  MMM has a great article on this.

Ok. I'm at sort of an advantage here. We will put in a proper system as part of renovations at some stage, and we can start at a fairly Mustachian rate. As it is, the heating/cooling is only the living area and it's more of an escape from the rest of the house. Internal temp of 30C has happened several times at one end of the house, even with air con going full blast at the other end (because it's a big house and average size old air con). But yes we should suck it up a bit more in general, I remember the article I read it recently.

House size:  I don't think there's a right answer here, but it becomes one of trade-offs.  If your home is your "forever" home and you aren't prepared to compromise, then that's that.  But you need to be honest what the trade-offs are.  Maybe that includes reaching FIRE? 

It will definitely make FIRE further away and I accept this.

In terms of what works for us, I have a three bedroom home for a family of four (me, Mrs Gremlin, teenage boy and nearly teenage girl).  Kids each have a bedroom, but vacate and camp in our room or sibling's room when needed as a guest room.  We don't have a dedicated guest room.  I still think of our home as ridiculously anti-mustachian.  Wife and I both have separate dedicated "nooks" as our home offices without a dedicated room for either.  We've thought hard about how to optimise the space we have.  I must admit that the idea of a five bedroom place that "requires" further living spaces and outdoor decks sounds very much like you're "keeping up with the Joneses".

Yes 'requires' is a bit strong. That's definitely a lifestyle choice. We like having guests and parties and such. We could rearrange the current internal sqm to suit, but it's the same price as extending, so overall more value per dollar to extend. We don't actually need it bigger, if that makes sense. Another thing I probably need to accept extends FIRE further into the future. But I'd prefer guests and parties and 20 years to FIRE than much fewer guests and parties and 15 years to FIRE, or what have you.

Budget:  You alluded to the fact that you're spending what you're earning.  In fact, you're not.  You're spending more than you're earning and that's a problem.  If you're going to smash down that mortgage, pay that down first each fortnight (including what you'd like to be "investing" as additional principal payments).  Then budget to live off the rest.  And make sure Mrs Australian Guy is on exactly the same page otherwise this will just breed resentment.

Yes.



I would like to note, due to my now deflated view of my money management skills, that prior to the 2018-2019 budget, every budget has included 'voluntary mortgage repayments', generally between $500-1,000/month (which was ok on combined $110k before tax, not so much on combined $180k before tax). Overspending our income is a new thing for us, caused by maternity leave and several children. Our response is the problem: living like we always did and not reducing our costs (even temporarily).

Thanks again

Gremlin

  • 5 O'Clock Shadow
  • *
  • Posts: 88
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #15 on: November 06, 2018, 02:08:29 AM »

I like to think we're actually fairly good at budgeting. Or more accurately, tracking where all our money goes. See attached version of 2018-2019 financial year budget. We have something similar dating back to mid 2012.

What do you think of the Excel? Should I be using a different or better budget? Or - I think more likely - is the problem that we just don't stick to our budgeted amounts?

Excel is fine.  I think you might be reasonable at tracking (but that "Domestic Stuff" bucket is still huge and somewhat of a black hole).  That doesn't make you good at budgeting.  Budgeting is all about ensuring you're prioritising the right things.  Such as aggressively paying down your mortgage and creating a buffer for investment (if FIRE is what's important to you).  Decide what you want to "spend" on these things and make it happen first.

We like having guests and parties and such. We could rearrange the current internal sqm to suit, but it's the same price as extending, so overall more value per dollar to extend. We don't actually need it bigger, if that makes sense. Another thing I probably need to accept extends FIRE further into the future. But I'd prefer guests and parties and 20 years to FIRE than much fewer guests and parties and 15 years to FIRE, or what have you.


That's fine.  But if it were me, I'd crunch the numbers to ensure that's ACTUALLY the trade-off you're making.  When you crunch the numbers, is this the difference between FIRE in 15 and FIRE in 20?  Or is this the difference between FIRE in 15 and retiring at 65 trying to live a champagne lifestyle on a beer budget? 

nath

  • 5 O'Clock Shadow
  • *
  • Posts: 26
  • Location: Melbourne Australia
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #16 on: November 06, 2018, 02:13:35 AM »
Keep all your properties donít sell if you donít have to.  Based on your income and expenses you wonít be able to borrow money for investment propertyís anymore due to banks lending criteria tightening unless one of you has a large pay rise.
As you mentioned the yearly expenses for your family is $150k so the banks will certainly take this into account, and if you sell one property you wonít be able to buy it back again, possibly ever.
Also you are gaining the tax breaks and eventually rental income rises and It can be great leveraged wealth building.

Yes, we are at maximum lending - 80% across the two investments, and about 60% on our house. No more mortgages for me at the moment. And I have definitely noticed the tightened criteria, the bank just recently was fussy about re-fixing one of the loans as interest only.

I gather you think the higher capital gain return via leverage on the properties is a better option than selling up and buying $200k shares?

Yes definitely. The shares would not be leveraged limiting returns, Although at least the shares would have no holding costs. Such as maintenance and insurances etc. but as I mentioned I think itís best to hold your properties indefinitely. The 1% rule is not valid in Australia as the other poster mentioned. (Google it for further reading)

My second observation is you are right in the middle of the big spending rat race here. If you can find a way to reduce your big expenses then do it. Child care seems really big. Perhaps the relatives can help out a bit more often?

Agreed. My parents do one day a week plus incidentals (sick children that can't go to childcare etc.). My wife's parents live in another city so can't really help with childcare regularly. What do you think is an appropriate amount to ask grandparents to do?

This depends on your family dynamics, but personally my wife only works part time and I have unlimited baby sitting available from retired grand mothers. However my daughter is starting school next year so itís getting easier and easier. Your schedule will also get better in a couple more years too.

Definitely keep the private health insurance, not only is it handy in case of an operation and annual dental checkups, but otherwise you will pay extra tax through the Medicare Levy. Also if you drop it for more that a certain period (I think itís 12months) and you are over the age of 30, they will charge you additional lifetime loading on the premiums.

From what I understand, the lifetime loading is small enough that you'd be ahead by not paying an annual premium even if you later had to get insurance with a large loading https://www.youtube.com/watch?v=jIVuiiC12HY

As for tax, we're only just over the threshold. So it would be a straight up numbers game? As in, if the annual premium is more than the tax we save, then we'd be better off paying tax?

That would be assuming your family never needs any extra cost medical care. The savings by not having it would be minimal too as the extra Medicare tax levy is 1% flat on your $180k, so $1800 extra tax each year.

If you ever have a chance to refinance, do not use cross colatarisation and I would recommend using a different bank for each property for extra security.

That's interesting. The cross-collaterisation is only for the investment properties, not our house. Still a bad idea you think? And different banks - I've never heard this suggestion before. What makes it more secure? Doesn't it make it harder to get a better rate - one big mortgage gets a lower rate than several small mortgages?

This is something I have always practiced. Basically it means if you stuff up everything with one bank and they are about to repossess your property, they donít take everything at once. The only property you lose is the one with that bank.  The avoidance of riches to rags overnight basically. I even pay a slightly higher interest rate on some properties just for that privilege. Call it an extra form of insurance.  Also when times are good and you want to refi and draw down equity, you only need to worry about the refi on one property. Not 2 or 3 different properties in different areas potentially appreciating/depreciating at different amounts. Also if you were to sell one of your cross-colataral investments tomorrow, the bank might ask for extra equity top-up on your existing loan, or it could even trigger a lenders mortgage insurance bill on the property you keep.
 Of course as you get wealthier it becomes less important to do this sort of stuff as you will be able to weather many storms, but for someone starting out trying not to risk the lot , just go to different banks

One other thing with your situation is when you do put all the loans on principle and interest eventually, it is a forced savings mechanism. So potentially you will go from savings of 0% income each year to quietly 30-40% each year as you amortize your mortgages. plus automatic super contributions so could be as high as 50%. Not bad at all really you just have to fix the cash flow issues and you can do well. .

« Last Edit: November 06, 2018, 02:25:10 AM by nath »

marty998

  • Walrus Stache
  • *******
  • Posts: 5790
  • Location: Sydney, Oz
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #17 on: November 06, 2018, 02:34:49 AM »
Ooh it's nice to see another Australian here!

A few points -

- you haven't listed your location, which is quite important. There's a huge difference in terms of cost of living between city/rural or Sydney/Hobart for example;
- Agree with above, do not cross-collateralise if you can help it. Split loans should have been your friend here - fire your broker if s/he advised cross-collateralisation;
- Where are your investment properties? Regardless, I wouldn't hold your breath waiting for capital growth any time soon. You are going to have to be prepared to eat a lot of negative gearing in the medium to long term;
- On private health insurance, the easy win is to cancel the obstetrics part of your cover if you and your wife are done with baby making.

The fat everywhere else has been covered... I reckon you will make a lot of gains by simply being able to shave 5-10% from each category.

Little Aussie Battler

  • Stubble
  • **
  • Posts: 152
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #18 on: November 06, 2018, 02:52:06 AM »
Some good suggestions here.

I didn't see it mentioned above, but $2,800 pa on charity seems a little high when you are barely covering your costs.

Perhaps something to drop for a few years, and then pick back up once the kids are all in school?

Eileen63

  • 5 O'Clock Shadow
  • *
  • Posts: 52
  • Location: Australia
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #19 on: November 06, 2018, 06:52:09 PM »
Tracking vs Budgeting

It was said above, and I'll reiterate that in my mind they are not the same thing.

If you've tracked your income paths and your expenses for a year (or a few years), you'll be able to get a sense of the expense cost and when various bills are due (i.e. you'll be able to see that some months may be particularly expense heavy if say rates, car insurance, car registration and body corporate fees all fall due in the same month). From this you can do up a budget for the coming months allocating all the 'need' expenses first and if you see that you may have some cash left over that month allow for a 'want' if required (i.e. for Jan I'll allow $70 for new work clothes). This way you can be closer to ensuring that your income for a month does not exceed your outgo.

middo

  • Bristles
  • ***
  • Posts: 395
  • Location: Country Western Australia
  • Learning.
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #20 on: November 06, 2018, 07:55:19 PM »
Another Australian chipping in here:

Some suggestions

  • Stop going to Bunnings.  Unless it is super important or super urgent, stop going there.  That will save you $6500 per year.  Tools are easy to justify (ask me how I know this) but just stop buying them.
  • Get your insurances lower.  House insurance can be difficult, but it is possible to lower it.  Get bomb insurance on BOTH of the cars.  Savings of $750 per year here alone.
  • Eating out - just don't do it.  Time your trips away from meals, or take the food with you.  Hard, but possible.
  • Stop parking the car.  Use the bike or public transport.  That parking is ridiculous.
  • Ironing your own shirts!  Stop being lazy.  Everyone hates doing it, I do mine with a home brew in hand.  Just get in the habit of doing them and save the money yourself.
  • You have a cleaner?

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #21 on: November 07, 2018, 07:22:40 PM »

I like to think we're actually fairly good at budgeting. Or more accurately, tracking where all our money goes. See attached version of 2018-2019 financial year budget. We have something similar dating back to mid 2012.

What do you think of the Excel? Should I be using a different or better budget? Or - I think more likely - is the problem that we just don't stick to our budgeted amounts?

Excel is fine.  I think you might be reasonable at tracking (but that "Domestic Stuff" bucket is still huge and somewhat of a black hole).  That doesn't make you good at budgeting.  Budgeting is all about ensuring you're prioritising the right things.  Such as aggressively paying down your mortgage and creating a buffer for investment (if FIRE is what's important to you).  Decide what you want to "spend" on these things and make it happen first.

We like having guests and parties and such. We could rearrange the current internal sqm to suit, but it's the same price as extending, so overall more value per dollar to extend. We don't actually need it bigger, if that makes sense. Another thing I probably need to accept extends FIRE further into the future. But I'd prefer guests and parties and 20 years to FIRE than much fewer guests and parties and 15 years to FIRE, or what have you.


That's fine.  But if it were me, I'd crunch the numbers to ensure that's ACTUALLY the trade-off you're making.  When you crunch the numbers, is this the difference between FIRE in 15 and FIRE in 20?  Or is this the difference between FIRE in 15 and retiring at 65 trying to live a champagne lifestyle on a beer budget?

Thanks

Will get finder detail on 'domestic stuff'. Will also do the numbers properly on house trade off, good suggestion

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #22 on: November 07, 2018, 07:27:59 PM »
Keep all your properties donít sell if you donít have to.  Based on your income and expenses you wonít be able to borrow money for investment propertyís anymore due to banks lending criteria tightening unless one of you has a large pay rise.
As you mentioned the yearly expenses for your family is $150k so the banks will certainly take this into account, and if you sell one property you wonít be able to buy it back again, possibly ever.
Also you are gaining the tax breaks and eventually rental income rises and It can be great leveraged wealth building.

Yes, we are at maximum lending - 80% across the two investments, and about 60% on our house. No more mortgages for me at the moment. And I have definitely noticed the tightened criteria, the bank just recently was fussy about re-fixing one of the loans as interest only.

I gather you think the higher capital gain return via leverage on the properties is a better option than selling up and buying $200k shares?

Yes definitely. The shares would not be leveraged limiting returns, Although at least the shares would have no holding costs. Such as maintenance and insurances etc. but as I mentioned I think itís best to hold your properties indefinitely. The 1% rule is not valid in Australia as the other poster mentioned. (Google it for further reading)

My second observation is you are right in the middle of the big spending rat race here. If you can find a way to reduce your big expenses then do it. Child care seems really big. Perhaps the relatives can help out a bit more often?

Agreed. My parents do one day a week plus incidentals (sick children that can't go to childcare etc.). My wife's parents live in another city so can't really help with childcare regularly. What do you think is an appropriate amount to ask grandparents to do?

This depends on your family dynamics, but personally my wife only works part time and I have unlimited baby sitting available from retired grand mothers. However my daughter is starting school next year so itís getting easier and easier. Your schedule will also get better in a couple more years too.

Definitely keep the private health insurance, not only is it handy in case of an operation and annual dental checkups, but otherwise you will pay extra tax through the Medicare Levy. Also if you drop it for more that a certain period (I think itís 12months) and you are over the age of 30, they will charge you additional lifetime loading on the premiums.

From what I understand, the lifetime loading is small enough that you'd be ahead by not paying an annual premium even if you later had to get insurance with a large loading https://www.youtube.com/watch?v=jIVuiiC12HY

As for tax, we're only just over the threshold. So it would be a straight up numbers game? As in, if the annual premium is more than the tax we save, then we'd be better off paying tax?

That would be assuming your family never needs any extra cost medical care. The savings by not having it would be minimal too as the extra Medicare tax levy is 1% flat on your $180k, so $1800 extra tax each year.

If you ever have a chance to refinance, do not use cross colatarisation and I would recommend using a different bank for each property for extra security.

That's interesting. The cross-collaterisation is only for the investment properties, not our house. Still a bad idea you think? And different banks - I've never heard this suggestion before. What makes it more secure? Doesn't it make it harder to get a better rate - one big mortgage gets a lower rate than several small mortgages?

This is something I have always practiced. Basically it means if you stuff up everything with one bank and they are about to repossess your property, they donít take everything at once. The only property you lose is the one with that bank.  The avoidance of riches to rags overnight basically. I even pay a slightly higher interest rate on some properties just for that privilege. Call it an extra form of insurance.  Also when times are good and you want to refi and draw down equity, you only need to worry about the refi on one property. Not 2 or 3 different properties in different areas potentially appreciating/depreciating at different amounts. Also if you were to sell one of your cross-colataral investments tomorrow, the bank might ask for extra equity top-up on your existing loan, or it could even trigger a lenders mortgage insurance bill on the property you keep.
 Of course as you get wealthier it becomes less important to do this sort of stuff as you will be able to weather many storms, but for someone starting out trying not to risk the lot , just go to different banks

One other thing with your situation is when you do put all the loans on principle and interest eventually, it is a forced savings mechanism. So potentially you will go from savings of 0% income each year to quietly 30-40% each year as you amortize your mortgages. plus automatic super contributions so could be as high as 50%. Not bad at all really you just have to fix the cash flow issues and you can do well. .


Thanks, very helpful, especially Australian-specific property advice. And nice to hear an encouraging comment too :)

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #23 on: November 07, 2018, 07:39:17 PM »
- you haven't listed your location, which is quite important. There's a huge difference in terms of cost of living between city/rural or Sydney/Hobart for example;

Canberra. Which I'm led to believe is relatively high cost of living, albeit not as bad as Sydney or Melbourne

- Agree with above, do not cross-collateralise if you can help it. Split loans should have been your friend here - fire your broker if s/he advised cross-collateralisation;

Yes I didn't actually intend to cross-collaterise them. I explicitly didn't want to in fact. The bank however said it could lend $X (I forget) based on what we had, and neglected to mention that an assumption of $X was cross-collateralisation. I didn't realise until after we had the loans. And I read the contracts. Given the Royal Commission going on I'm not surprised by this incompetence/dodginess/difficulty. Anyway, my PPOR is separate at least, and advice noted I will undo it in the future when possible

- Where are your investment properties? Regardless, I wouldn't hold your breath waiting for capital growth any time soon. You are going to have to be prepared to eat a lot of negative gearing in the medium to long term;

An apartment in Sydney. It should get a boost when the strata issues sort out regardless of the property market. That said, even flatlining for a while it will still have made a 100% gain for us in six years. And if I hold it long-term, Sydney will go up again eventually, I am inclined to assume? But yes, no short-term gain and minimal medium-term. I think that's ok

A house in Canberra. Canberra property has slowed down a little, but it's still going up rather than backward. And there are some medium-term local developments that should increase its value. So still worth holding I think? Probably more profitable than selling and paying down mortgage? Especially as the cost to re-enter the market later is high (stamp duty etc.)?

- On private health insurance, the easy win is to cancel the obstetrics part of your cover if you and your wife are done with baby making.

I tried and couldn't! Defence Health has it on all their hospital policies. Despite this, Defence Health was the most value per dollar cover we could find (we changed to them from AHM 18 months ago).




Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #24 on: November 07, 2018, 07:44:04 PM »
Some good suggestions here.

I didn't see it mentioned above, but $2,800 pa on charity seems a little high when you are barely covering your costs.

Perhaps something to drop for a few years, and then pick back up once the kids are all in school?

I'm ideologically opposed. And it's less than it used to be. I think it's important and worth keeping up the habit. If we dropped it, chances are it wouldn't return. My priorities would be:
1) Necessary bills (mortgage, utilities, etc.)
2) Charity
3) Savings
4) Everything else

A very plausible suggestion though, thanks

Gremlin

  • 5 O'Clock Shadow
  • *
  • Posts: 88
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #25 on: November 07, 2018, 07:45:31 PM »
I just wanted to add...

You're asking some really good questions here and sometimes the answers can be challenging.  You're currently running hard on the hamster wheel being a good little consumer like what you've been conditioned to be. Some of this can be overwhelming.

If this is right for you, start small with your changes.  By all means, you need to get your spending under control, but if it's too overwhelming to go cold turkey then do it over time.  Be realistic about what you'll commit to and shave pieces off your spending bit by bit.  But get it to the point where you control your spending, rather than your spending controls you.

Facepunches are meant to hurt, but it's intended as tough love and overall this is a supportive community.  Stay a part.  Check in every month or two on this thread and tell us how you're doing.  We'll continue to support you if you continue to look for it. 

But finally, make sure Mrs Australian Guy is completely on board.  This can't be a journey one partner takes on behalf of the family.  You both need to own your path to FI (and the RE bit too, if that's what you want).

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #26 on: November 07, 2018, 07:47:33 PM »
Tracking vs Budgeting

It was said above, and I'll reiterate that in my mind they are not the same thing.

If you've tracked your income paths and your expenses for a year (or a few years), you'll be able to get a sense of the expense cost and when various bills are due (i.e. you'll be able to see that some months may be particularly expense heavy if say rates, car insurance, car registration and body corporate fees all fall due in the same month). From this you can do up a budget for the coming months allocating all the 'need' expenses first and if you see that you may have some cash left over that month allow for a 'want' if required (i.e. for Jan I'll allow $70 for new work clothes). This way you can be closer to ensuring that your income for a month does not exceed your outgo.

Good idea. We were trying to do this with pocketbook, but ran out of steam (general tiredness and many children etc.). Will try and pick it up again, it was a useful behaviour modifier looking at phone and being told 'No, budget for [clothes, whatever] all spent this month'

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #27 on: November 07, 2018, 08:04:40 PM »
Hi fellow Australian :)

  • Stop going to Bunnings.  Unless it is super important or super urgent, stop going there.  That will save you $6500 per year.  Tools are easy to justify (ask me how I know this) but just stop buying them.

Yes and no? How do I tell the difference between valid and invalid spending at Bunnings? We are renovating the house, so not going to Bunnings isn't really possible. I assume buying insulation and paint and such is valid? Whereas replacing one of the powerpoints so it has a USB plug is probably not necessary right now, even though it would be convenient. Say for example, we recently bought a fencing bar. It was $60. But it meant we could dig post holes and remove a stump for various gardening projects, rather than paying for the stump to be ground and/or hiring a post hole digger.

More generally we could definitely be more restrained at Bunnings, advice I will note down. How to determine valid/invalid purchase I find tricky though - for the reason you mention, it's easy to justify what you want

  • Get your insurances lower.  House insurance can be difficult, but it is possible to lower it.  Get bomb insurance on BOTH of the cars.  Savings of $750 per year here alone.

How do I lower the house insurance? It's not contents, and I make sure I'm not slugged a 'lazy tax' each year. I think the excess is fairly high too. What else could I do?

Cash at hand is $25k and a replacement Territory is $16k. Am I in a position to self-insure? I could just accept the replacement car would be older or such, not sure if I could convince Mrs Australian Guy of this (understandably, given it carries three small children)

  • Eating out - just don't do it.  Time your trips away from meals, or take the food with you.  Hard, but possible.

Yes

  • Stop parking the car.  Use the bike or public transport.  That parking is ridiculous.

Well it's $14/day per work day. Is that more than most of the rest of Australia?

Public transport in Canberra sucks. The $14 saves me 80 minutes of commuting per day. Not to mention the nightmare of small children on public transport. Not really a viable option?

Cycling is though, and Mrs Australian Guy is on board too so that should cut parking a car to one or two days per week, not three or four

  • Ironing your own shirts!  Stop being lazy.  Everyone hates doing it, I do mine with a home brew in hand.  Just get in the habit of doing them and save the money yourself.

Yes ok :(

  • You have a cleaner?

It's a short-term expense, to relieve some of the burden from Mrs Australian Guy. Should be scrapped in January


Thanks :)

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #28 on: November 07, 2018, 08:09:38 PM »
I just wanted to add...

You're asking some really good questions here and sometimes the answers can be challenging.  You're currently running hard on the hamster wheel being a good little consumer like what you've been conditioned to be. Some of this can be overwhelming.

If this is right for you, start small with your changes.  By all means, you need to get your spending under control, but if it's too overwhelming to go cold turkey then do it over time.  Be realistic about what you'll commit to and shave pieces off your spending bit by bit.  But get it to the point where you control your spending, rather than your spending controls you.

Facepunches are meant to hurt, but it's intended as tough love and overall this is a supportive community.  Stay a part.  Check in every month or two on this thread and tell us how you're doing.  We'll continue to support you if you continue to look for it. 

But finally, make sure Mrs Australian Guy is completely on board.  This can't be a journey one partner takes on behalf of the family.  You both need to own your path to FI (and the RE bit too, if that's what you want).

Thanks :)

Mrs Australian Guy is generally on board. The contentious parts are more what to cut - things I think are important she'd happily get rid of, or vice versa. We should both cut but it can sometimes devolve into tit for tat 'Well I give up this and you still have that stupid thing so why should I even bother!'

Well today I cycled to work for the second time this week, I took snacks from home when shopping yesterday, I've deferred various purchases to an 'I want list' rather than just buying them (some shirts), I'm not buying the USB powerpoint and I'm not getting a spotify subscription (should be able to make do with my existing music library/free spotify). Just need to keep it up

And yes I was prepared for face punches and I understand they're tough love. It hurt a little more than I expected is all. Still, behaviour change effected so far so worth it

middo

  • Bristles
  • ***
  • Posts: 395
  • Location: Country Western Australia
  • Learning.
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #29 on: November 07, 2018, 08:10:50 PM »
As far as tracking expenses, I use the government app TrackMySpend.  You can keep it on your phone or send it to the cloud if you want.  You can break it down fairly finely if you want, and export it to an email easily.

marty998

  • Walrus Stache
  • *******
  • Posts: 5790
  • Location: Sydney, Oz
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #30 on: November 08, 2018, 12:31:54 AM »
Ouch - ACT Land Tax is painful. I got rid of my Canberra apartment because of the ratcheting land tax. It's genuinely oppressive and is going to rake in much more than stamp duty ever did.




mrmoonymartian

  • 5 O'Clock Shadow
  • *
  • Posts: 78
  • Age: 36
  • Location: Brisbane
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #31 on: November 08, 2018, 01:10:45 AM »
And yes I was prepared for face punches and I understand they're tough love. It hurt a little more than I expected is all. Still, behaviour change effected so far so worth it
Yep, get the attituge right and the rest will take care of itself. Happy saving!

Freedomin5

  • Handlebar Stache
  • *****
  • Posts: 1248
  • Location: China
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #32 on: November 08, 2018, 05:03:15 AM »
Re: charity. Perhaps it will help to think of it this way. You are basically spending more than you make, which means that you are giving away money that doesnít even belong to you/ that you did not earn. Youíre robbing Peter (future you) to pay Paul (the charity).

Perhaps a better way is to donate Time. So go pack Christmas boxes for Operation Christmas Child, or use one of your vacations to build homes with Habitat for Humanity, or go to a homeless shelter to serve Thanksgiving or Christmas dinner, or spend an afternoon sorting donated clothes. THOSE lessons are much more valuable in teaching your kids to truly care for the poor and downtrodden than simply throwing money at the poor.

Ideologically it makes far more sense to donate your time and actually interact with the people you are helping than just giving money.

Bee21

  • Bristles
  • ***
  • Posts: 474
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #33 on: November 08, 2018, 02:39:34 PM »
Come on people, let him donate to charity if he wishes so. It is not like they are drowning in debt and can't put food on the table.

Your food expenses are reasonable for a fam of 5 in Australia. I can't see it getting much lower without compromising quality and fresh produce. Woolies online is better than coles. Maybe get your fruit and veg from the markets, but shopping with kids will make it more expensive.

Eating out- you will gave to give it up. It is overpriced and not that good. My aussie husband radically reduced his work lunches etc after realising that for 20 dollars the 4 us would get a decent lunch in the centre of Vienna.  He kept his office coffee expenditure as entertainment.

Ironing- yep, it sucks, but it is  only 5 shirts, can't be that hard? Do it while watching the news. It helps if you dry them on a hanger.

Cleaner- if the problem is clutter (with kids is understandable), work on reducing it. It is easier to clean if there is minimal clutter.  Have a system, like every week you spend extra time on deep cleaning one specific area and just maintain the rest.  Eg first week of the month kitchen, second bedrooms, third bathrooms. Google flylady.

Not commenting on the house and car expenses,  but I think your biggest problem is the 'miscellaneous' unplanned spending. Work on it.

Bee21

  • Bristles
  • ***
  • Posts: 474
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #34 on: November 08, 2018, 03:43:11 PM »
One more thing. There was a thread here last (?) year about Aussies comparing their annual expenses. Dig it out if you can. Based on the numbers I saw there I revised our house and car insurance, and got a way better deal combining them. Give it a try, it might work for you too. Esp the house ins, I was horrified when I realised that we were underinsured, and we could get a much better policy for less.

Health insurance is a rort, I hate it, they never seem to cover the large expenses. I add it up every year, and it is sort of even with the extras.

AliEli

  • 5 O'Clock Shadow
  • *
  • Posts: 63
  • Location: Melbourne Australia
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #35 on: November 08, 2018, 04:48:50 PM »
Can you personally try to do a "no spend" month? No Kmart, no ebay? If you want your wife to get on board it may help to try rolling back your own consumer spending and see feel it for yourself.

PHI - I'm a nurse, we are about to have our second bub, but we only have extras through Aust Unity bc we both need glasses and we like the dental cover too. It's $65 / month and very little additional out of pocket when we make a claim. I've worked in public and private hospitals (including outpatients dealing with elective wait lists) and PHI doesn't offer value for money IMO. Our kids are covered under this policy (though we haven't claimed anything for them yet, so that's not been promised but not tested).

Charity - I liked the suggestion of giving time rather than money. Are there any breakfast programs at your local schools you could participate in? Our local food bank has enough donated food, but no man-power to prepare and give it out to kiddies. 

Food - do you have a local food cooperative? We have one in town and it saves us a considerable amount on basics (eg rice, lentils, flour etc). Bulk buying shops can also be good if there's no cooperative available. We have also bought a second-hand bread machine off gumtree for $20 and I make out bread for next to nothing. Is a veggie patch an option? Canberra doesn't have a great summer season, but you could have success with a few zucchini plants, some spinach and lettuce etc, and the reject shop sells great seeds for $1.69/ pkt. If you can't garden at home, is there a community gardening group you could join? Do you eat meat every day now? Cutting out 1-2 days of meat each week should reduce the grocery spend. There are some great Facebook groups dedicated to reducing grocery spending, as well as sites like budgetbytes.com to make more affordable meals and reduce your overall spending. We have neighbours with chickens and a lot of people around us have fruit trees - can you source any of you food from your neighbourhood?

MaybeBabyMustache

  • Handlebar Stache
  • *****
  • Posts: 1308
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #36 on: November 08, 2018, 05:51:49 PM »
All of the others have given great feedback. A couple of thoughts on the ironing question:

1) Do you buy "no wrinkle/iron free" shirts? Our local Costco sells them for $20 or so. We wash at home, dry in the dryer for 5 minutes, then hang.
2) Have you tried steaming vs ironing? Works well for getting out most wrinkles & I personally find much less aggravating. Not sure what level of ironing scrutiny your shirts face in the work force, so that may not work.

Moomintroll

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #37 on: November 09, 2018, 06:40:27 AM »
Welcome Australian Guy!

Just one quick observation as I previously lived in Canberra too.

I now live in Ireland, and wow, there is no better thing to do than move from Australia to Ireland to get the idea that property can go down as well as up through your head! Really, really think about whether it might save you pain to ditch those properties now, while the sale price is good and will lock in some gains, than tie yourselves into a potential downward spiral that might take a decade to come good, right when you have a young family and massive daycare fees etc to find.

The banking inquiry, changes to lending practices and various things to make property investment less attractive could all conspire to make a perfect storm for Aussie property prices and I highly doubt Canberra will be magically exempt from that. Personally i am delighted to be shot of all my Aussie property as of 12 months ago, because I just think it's peaked and things can only go downhill for the next few years.

TassieFI

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #38 on: November 09, 2018, 03:04:59 PM »
Agree with Moomintroll on the property....Iíve seen the same thing with things going up like crazy for years and then going backwards, both overseas AND in Australia  When I look at your opening post all I can see is that you canít afford those investment properties and to me their value as an investment is very questionable with the numbers you have provided.  Leverage cuts both ways and considering you spend more than you make, I would be VERY concerned as to how you would deal with an adverse event with your properties (eg. renters move out, interest rates move against you, you or your spouse lose your job, one of you becomes ill, etc.).  Your risk to me is HUGE by having so much investment money in only two assets, especially when you need to put money IN to keep those investments.

I would definitely sell the properties to take your gains you have already made and get your spending under control if you want FIRE.  The best way to get there is to spend a lot less than you make and not rely just on your investments to get you there.

Good luck on your journey!

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #39 on: November 15, 2018, 05:01:25 PM »
Thanks to everyone's continued replies, founts of good advice

Your food expenses are reasonable for a fam of 5 in Australia. I can't see it getting much lower without compromising quality and fresh produce. Woolies online is better than coles. Maybe get your fruit and veg from the markets, but shopping with kids will make it more expensive.

What do you mean Woolies online is better? Cheaper, or more useful...? I like prefer Woolies, Mrs Australian Guy thinks it's more expensive than Coles though and that perhaps we should change.

I don't find the markets to be much cheaper really?

Eating out- you will gave to give it up.

Yes

Cleaner- if the problem is clutter (with kids is understandable), work on reducing it. It is easier to clean if there is minimal clutter.  Have a system, like every week you spend extra time on deep cleaning one specific area and just maintain the rest.  Eg first week of the month kitchen, second bedrooms, third bathrooms. Google flylady.

We're actually fairly good on clutter. It was more the deep clean yes - we'd manage all the surface cleaning, but the floors would never get mopped say, and after a while that's a problem. Plus several nearly consecutive maternity leaves meant Mrs Australian Guy was a bit tired of being chief cleaner. I clean also but the extent is limited by being at work obviously. Anywya cleaner is coming to an end, will look into Fly Lady :)

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #40 on: November 15, 2018, 05:08:30 PM »
Can you personally try to do a "no spend" month? No Kmart, no ebay? If you want your wife to get on board it may help to try rolling back your own consumer spending and see feel it for yourself.

Sounds like a good idea!

PHI - I'm a nurse, we are about to have our second bub, but we only have extras through Aust Unity bc we both need glasses and we like the dental cover too. It's $65 / month and very little additional out of pocket when we make a claim. I've worked in public and private hospitals (including outpatients dealing with elective wait lists) and PHI doesn't offer value for money IMO. Our kids are covered under this policy (though we haven't claimed anything for them yet, so that's not been promised but not tested).

What are your thoughts on choice of doctor - if your kid's face needed stitching up, would it have been worth it to be able to ensure you had an experienced surgeon?

Food - do you have a local food cooperative? We have one in town and it saves us a considerable amount on basics (eg rice, lentils, flour etc). Bulk buying shops can also be good if there's no cooperative available. We have also bought a second-hand bread machine off gumtree for $20 and I make out bread for next to nothing. Is a veggie patch an option? Canberra doesn't have a great summer season, but you could have success with a few zucchini plants, some spinach and lettuce etc, and the reject shop sells great seeds for $1.69/ pkt. If you can't garden at home, is there a community gardening group you could join? Do you eat meat every day now? Cutting out 1-2 days of meat each week should reduce the grocery spend. There are some great Facebook groups dedicated to reducing grocery spending, as well as sites like budgetbytes.com to make more affordable meals and reduce your overall spending. We have neighbours with chickens and a lot of people around us have fruit trees - can you source any of you food from your neighbourhood?

We do have a veggie patch, we find it hard to use the veggies to make a dent in the grocery budget though. As in, we'll get lots of tasty zucchini all at once for a few weeks and then nothing. Some of it can be made into stuff and frozen but what about the other 11 months of the year? Have never quite figured this out. We do have chickens which reduces our egg budget slightly I guess

Yes should cut out some of the meat

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #41 on: November 15, 2018, 05:11:29 PM »
All of the others have given great feedback. A couple of thoughts on the ironing question:

1) Do you buy "no wrinkle/iron free" shirts? Our local Costco sells them for $20 or so. We wash at home, dry in the dryer for 5 minutes, then hang.
2) Have you tried steaming vs ironing? Works well for getting out most wrinkles & I personally find much less aggravating. Not sure what level of ironing scrutiny your shirts face in the work force, so that may not work.

I haven't previously bought non-iron shirts but I've discovered they are good enough now to be worth it. But buying more shirts isn't very Mustachian! I think I might put some on Christmas list once I find some I like. Short answer: no but I will now

:)

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #42 on: November 15, 2018, 05:23:52 PM »
Welcome Australian Guy!

Just one quick observation as I previously lived in Canberra too.

I now live in Ireland, and wow, there is no better thing to do than move from Australia to Ireland to get the idea that property can go down as well as up through your head! Really, really think about whether it might save you pain to ditch those properties now, while the sale price is good and will lock in some gains, than tie yourselves into a potential downward spiral that might take a decade to come good, right when you have a young family and massive daycare fees etc to find.

The banking inquiry, changes to lending practices and various things to make property investment less attractive could all conspire to make a perfect storm for Aussie property prices and I highly doubt Canberra will be magically exempt from that. Personally i am delighted to be shot of all my Aussie property as of 12 months ago, because I just think it's peaked and things can only go downhill for the next few years.

Thanks!

Yes. But leverage? I keep flip-flopping. On the one hand, even though the market is going down in Sydney, I don't expect it to crash. If we held the property long term, flat line and gradual increase is ok? The market in Canberra is going fine. And then even if we did sell up, we'd net hopefully $150-200k. We could put that straight into PPOR, leaving a ~$300k mortgage. We can put the 'spare' cash from lower mortgage payments and the amount we were spending subsidising investment properties into the mortgage on top, making it go down fairly fast. And then I guess we'd buy index funds. But that means five years from now we'd have one asset - the PPOR. Might be cheap to live but doesn't produce income. So we'd be starting effectively from zero at investments. Whereas if we kept the two properties, and were prepared to hold them longer term, we'd get some capital gains, and increasing rent, and in five years it seems more likely we'd be net ahead (even though we'd still have a mortgage)?

Also Mrs Australian Guy's parents made a lot of their money renovating and flipping houses. In retrospect, they think they would have made much, much more money by holding the properties and renting them instead of flipping, even accounting for the fact this would have meant less total properties. The long term benefit far outweighed the short-term gain of $100k or whatever. So maybe property is like shares - if it's long-term, it's fairly safe, you just have to hold on and not worry about year to year ups and downs?

Round and round and round thinking about this

Australian Guy

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #43 on: November 15, 2018, 05:44:41 PM »
Agree with Moomintroll on the property....Iíve seen the same thing with things going up like crazy for years and then going backwards, both overseas AND in Australia  When I look at your opening post all I can see is that you canít afford those investment properties and to me their value as an investment is very questionable with the numbers you have provided.  Leverage cuts both ways and considering you spend more than you make, I would be VERY concerned as to how you would deal with an adverse event with your properties (eg. renters move out, interest rates move against you, you or your spouse lose your job, one of you becomes ill, etc.).  Your risk to me is HUGE by having so much investment money in only two assets, especially when you need to put money IN to keep those investments.

Oh I just replied to Moomintroll. I would appreciate your thoughts too. If holding the property long-term, it's not a huge risk, same as shares? And the properties, being leveraged, will make much more total $ than putting the equity in shares, even if the shares have a higher % return?

middo

  • Bristles
  • ***
  • Posts: 395
  • Location: Country Western Australia
  • Learning.
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #44 on: November 15, 2018, 08:19:42 PM »

PHI - I'm a nurse, we are about to have our second bub, but we only have extras through Aust Unity bc we both need glasses and we like the dental cover too. It's $65 / month and very little additional out of pocket when we make a claim. I've worked in public and private hospitals (including outpatients dealing with elective wait lists) and PHI doesn't offer value for money IMO. Our kids are covered under this policy (though we haven't claimed anything for them yet, so that's not been promised but not tested).

What are your thoughts on choice of doctor - if your kid's face needed stitching up, would it have been worth it to be able to ensure you had an experienced surgeon?


I would ask here, how would you know if a surgeon is experienced or not?  And how would you know if they are good or not?  And what is to stop you paying privately if rare event such as an accident happens.  Remember, if you go in through emergency, it is all free.

We do have private health insurance, and it is not for accident cover.  It is our "cancer cover".  For that slow growth that needs removing but isn't life saving, so the public system won't prioritize it until it is life threatening or stupidly painful.

Bee21

  • Bristles
  • ***
  • Posts: 474
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #45 on: November 15, 2018, 08:50:37 PM »
Woolies is not cheaper but I liked the fact that if you ordered 1kg chicken and they packed 1.2kg i had to pay for 1kg. Coles would charge for the 1.2

As for the health insurance, you can't win this. I have been waiting for 6 months for an ophtamologist appt for the kid in the public system. I have private health, but it would be 350, cos they don't cover specialist appt if you see them in their office. And i had several cases when I forked out the money and they wanted me to be examined by the medical student. Hell no. As it is not that urgent, I 'll wait. When I needed surgery urgently as i did not want to suffer, I used the private health. It still cost me over 2k.

good luck. You are in an expensive life phase with all those childcare expenses. Try to curb the expenses you can actually control, like the house renos and the 'shopping'. Not sure about the investment properties either, but I am not an expert. I just don't like negative gearing, especially in the current climate.

Moomintroll

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #46 on: November 16, 2018, 04:26:59 AM »
Hi again Australian Guy

So this is the position with your properties:

Quote
Property 1
Bought for $260k in 2011
Currently worth $500k
Rent in $435/week
Mortgage (interest only) ~$1250/month (principal $345k)
Costs ~$16,000/year (excluding capital depreciation and loan interest above) (is high due to strata issues)

Property 2
Bought for $430k in 2014
Currently worth $550k
Rent in $2,000/month
Mortgage (interest only) ~$1,700/month (principal $460k)
Costs ~$8,000/year (excluding capital depreciation and loan interest above)

Both on fixed interest mortgages expiring in about 12 months. Property 1 should become positively geared, or close to, when strata gets sorted in about 12 months.

Personally my issues with this scenario would be:

1. They are costing you around $24k a year to own. This money could be invested in another form, such as index tracker funds or super funds.  Or you could reduce debt by paying off your PPOR quicker. So there's the opportunity cost of where else that money could be living and working for you, instead of in these properties. It could be decreasing your PPOR debt or increasing your liquidity etc. There are other forms of investment and leverage than overpriced Aussie housing.

2. Most importantly in my view, you have 2 x interest only loans due to expire in a year. Have you read about the situation with interest only investment loans in Australia recently? When they expire, you may find your bank doesn't want to know you but instead issues a demand for the full amount pronto. Or you may find the only new interest only loan you can get is on much worse terms - higher interest, less flexibility etc. Banks are massively tightening their lending criteria and demanding much more documentation on how you spend every cent to access any form of credit, even for home loans on PPORs, let alone negatively geared investment properties. Do yourself a favour and google news stories on 'Australia interest only investment loans'. Read them carefully and be sure you fully, truly understand that the situation is changing before deciding to hang on to those properties. Read headlines like "One in five people with a mortgage wouldnít qualify today, broker warns" or "Interest only mortgage shock: 900,000 borrowers to be hit with much higher loan repayments" and ask yourself, are your special and wonderful Canberra properties so special and wonderful that they are exempt from this changing lending landscape?

3. You are assuming growth, and only growth, over time. This is the Aussie mindset but be aware this may actually not happen. Houses can lose substantial value overnight just like stocks. Ask an American. Ask an Irish person who bought a one bed flat in Dublin for Ä400k in 2008 and has since between stuck with the debt on a place only now worth Ä300k.

4. You are projecting the past onto the future. Your PIL are probably right, THEY could totally have made more money by hanging on to THEIR properties, that they bought at a-long-time-ago prices because Australian property has enjoyed a long, long period of overall growth. That does not mean YOU, now, having bought at recently-ago-super-overvalued-prices, can make money by holding onto them until a-few-years-into-the-property-slump prices arrive.

5. You personally are in for a time of mega high expenses. You have young kids, you might find yourself with a sick or special needs kid suddenly, your spouse might burn out from the kids + work treadmill, reducing work capacity for one or both of you. Imagine how you would cope for example if public service starts cutting jobs, and then your lender won't refinance those interest only loans but instead demands P&I payments starting next week?

I don't mean to be putting you on a downer, it is great that you are thinking about this stuff and you have a lot going for you, but I just read your numbers on those properties and worried you were sleepwalking into a pretty bad scenario based on some untested assumptions. Some food for thought there anyway :)

TassieFI

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #47 on: November 16, 2018, 01:03:54 PM »
Spot on Moomintroll in my opinion! :-)

marty998

  • Walrus Stache
  • *******
  • Posts: 5790
  • Location: Sydney, Oz
Re: Reader Case Study (Australia): How can I better Mustach-ify my budget?
« Reply #48 on: November 17, 2018, 04:01:35 AM »
2. Most importantly in my view, you have 2 x interest only loans due to expire in a year. Have you read about the situation with interest only investment loans in Australia recently? When they expire, you may find your bank doesn't want to know you but instead issues a demand for the full amount pronto. Or you may find the only new interest only loan you can get is on much worse terms - higher interest, less flexibility etc. Banks are massively tightening their lending criteria and demanding much more documentation on how you spend every cent to access any form of credit, even for home loans on PPORs, let alone negatively geared investment properties. Do yourself a favour and google news stories on 'Australia interest only investment loans'. Read them carefully and be sure you fully, truly understand that the situation is changing before deciding to hang on to those properties. Read headlines like "One in five people with a mortgage wouldnít qualify today, broker warns" or "Interest only mortgage shock: 900,000 borrowers to be hit with much higher loan repayments" and ask yourself, are your special and wonderful Canberra properties so special and wonderful that they are exempt from this changing lending landscape?

The loans will simply convert to P&I at the end of the interest only period. Mortgage repayment on property 1 will jump by about $700/month to about $2000/month (assuming he's 8 years in). Mortgage repayment on Property 2 will jump up to about $2600/month.

There are some good 2 year fixed rate deals in the market at 4-4.2% which the OP should look at. Personally I am hoping these rates will still be there next year as I have a loan coming off fixed in August next year.