Author Topic: Case Study: Young Melbourne Family starting their FIRE Journey (Australia)  (Read 2484 times)

Archies

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Hi Mustachians,

Life Situation:
We are a married couple in our mid to late 30s, both professionals and post-grad educated (with the corresponding HECS debt). We have one wonderful 1 year old son and are hoping to have another child in the next year or so - the last couple of years have been seen my wife off work for maternity leave and then resume.

We are fortunate in the fact that we both have a massive aversion to depcriating assets and unhealthy debt, but while our car is paid in full, we have rode the credit card/travel hacks dragon for the past year with mixed results and have accrued $12,000 of debt which we have on 0% interest for the next 18 months.  (side note, we are reasonably disciplined but have still been stung with interest and annual fees that we didn’t monitor closely enough – a lesson weve learned is that to do it successfully it requires significant vigilance)

That said, we do have a very Australian debt – our mortgage for our family home in inner city Melbourne we purchased in late 2016 is over $1m.

We feel that in some areas we run a very tight ship and have invested significant time ensuring we pay competitive utilities and insurances. We prefer our money to work for us in the background. That said, we are confident there is additional fat to trim without curtailing our lifestyle.

****************************************************************************************************
Income: Employment
Me, Age 38:

Gross Salary: ~$140 000 (in addition, I receive 15.4% superannuation instead of the regular 9.5%)
Income Tax and Medicare: ~$41 500
Take home: ~$98 500

Partner, Age 35:
Gross Salary: $120 000 (this represents .8FTE – my wife will raise back up to 1FTE in approx. 3 years once both with the pay bump)
children are in childcare)
Income Tax and Medicare: $30 500
HECS Repayment: $9 500 (calculated at 8% of gross)
Take home: ~$80 000

Monthly combined take home: $15 000/month

No other income

Bills and Expenses Monthly

Electricity, Water, Gas: $230
Internet/Mobiles: $95 [Internet $60, Mobile $35]
Groceries: $870
Takeaway, Exercise, Clothing, Beauty, Dinner with friends: $870
Cleaner: $260
Travel: $700
House Maintenance: $200
Transport: $170 (Myki and fuel)
Car Registration: $60
Insurances (H&C, Car, Income, Health): $360
Childcare: $1 170 (this will double within 2 years when the second child comes along)

Total (bills/expenses): $4 565/month

Debt Payments Monthly
Mortgage $4 800 ($3 650 interest, $1 150 principal)
Credit Card: $154
Total (All Expenses): $9 519 /month

Total Excess money for reallocation: ~$5500


****************************************************************************************************

Assets: $1 635 000

Superannuation (His): $210 000 with PSSAP, with 15.4% contributions (or ~$20 000 a year)
Superannuation (Hers): $90 000 with Hostplus, with 9.5% contributions (or ~$10 000 a year)
Melbourne Property: $1 320 000
Mazda CX5 (2014)*: $15 000

*Paid cash, own outright

Liabilities: -$1 112 000
1) Melbourne PPORMortgage | Balance: $1,030,000, no offset account
- Terms: Interest & Principal @ 3.55%
- Years remaining: ~28 years and 6 months
2) HECS Loan #1 | Balance: $70 000
- Terms: Paid through taxes, indexed annually to CPI (1.5% in 2016), will have paid off within 9~ years)
3) Credit Card: $12 000
- 0% for next 18 months

Current Net Worth: $523 000

****************************************************************************************************

Goals:
1) Significantly limit our overconsumption and start making more considered financial decisions
2) Prepare for pregnancy and the year off work my wife will take
3) Prepare for house renovations ($300 000)
4) Prepare to send our children to private school ($15,000 p.a. each at peak – a similar figure to the childcare we are currently paying for each child) (we appreciate arguments against private schools but are firm believers)
5) FIRE or at least cut back to self employment/hobby employment and reduced hours by ~age 55 (17 years)
6) Our ultimate retirement goal/compelling future vision is to fund an endless cycling trip through the south of France and elsewhere from 55 onwards.  We expect this lifestyle will have significant costs of $80,000 a year (including accommodation, visits back to children etc).  This does not include what we do with the family home during this period.  Our calculations indicate this is possible, but we need to work on it aggressively now.

Immediate Plan:
1) Pay off Credit Card within the 3 months with excess money for reallocation
2) Reallocate excess money to pay off our PPOR and clear this within 10 years (including funding a renovation in 3 years) and then switch to other investments to drive FI.  (noting timeframes will be tight but redirecting the mortgage payment of $10 000/month to income generating income such as ETFs for 7 years will help us reach our target of $840 000 before our super preservation date).  Future potential wage increases are our margin for error.
3)      We are not inclined to use the before-tax super contribution for the time being – we have calculated our FIRE rate from the excellent Aussie Fire Bug tool and having money in Super will not be an issue for us – it will be pre-retirement money that is the constraint.

Questions
1)      Does this pass the sniff test? (observations, face punching welcome)
2)      Are there any Australian tax advantages we should be using?
3)      Are others successfully and aggressively using points hacks?
4)      We frequently worry about the balance between frugal living and the time overhead that managing this takes us and getting the balance right between investing in ourselves and our relationships.  Keen to hear thoughts in this area.

Many thanks for your thoughts and replies!
« Last Edit: March 01, 2018, 09:06:44 PM by Archies »

mjr

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You're spending $22,000 p.a. on travel, a cleaner and going out, beauty, takeaways, etc.

You have a 1 million dollar mortgage.

Need I say more ?

TassieFI

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Hi there, first of all good for you posting your case study.  I’m a lurker, not a poster (this is my first case study post), so I admire your bravery...lol! I’m 10 years older than you and so have been through what you are about to go through (major house reno, paying off mortgage, time off having a baby, private school and now funding Uni, etc.) so hopefully I’m able to provide something useful to you in my post.

First just a couple questions of things that may be worth thinking about or looking into doing if you haven’t already. 
Do you actually track your spending or are these estimates?  The way it is posted makes me think you are estimating...If you don’t religiously track your expenses I would definitely start tracking every penny as you may be doing better/worse on your spending than you think and this can be a real shock.
Do you have any emergency savings of some sort?  It doesn’t look like you do and with that amount of debt, I’d be stressed to the max in the event of a job loss, serious illness or injury (adult or child as if your child or spouse becomes seriously ill work takes a back seat....I’ve been there and it is unbelievably stressful and I couldn’t imagine being financially strapped at the same time) as it looks like you have no back up other than your super.
Do you have term life/disability or trauma insurance?  If you do is it enough to cover your mortgage, etc.

To answer your questions you posted....on travel rewards/points we don’t currently do it as we find it is way too much effort for what it’s worth in our current situation.  We did do it in the past when my spouse was flying a heap for work, but then not using credit cards but just point type cards with virgin and Qantas. Not to say that it may not be worth it, but from looking at how you have accumulated $12,000 in debt trying to use a credit card to accumulate points I’d say give it a miss for now. 

I think you are maybe a bit ambitious as to how much you are going to have leftover monthly  to put towards non-super Savings, debt repayment, etc., so that you can retire at 55 and spend 80k per year.  I think the following things should be taken into account: daycare costs for bub #2 as that’s another $1700 in daycare fees alone gone per month. Private school tuition also increases for the most part yearly and depending on how well the school manages its finances, some years it can be pretty substantial as well as things like school trips, sports and other activities.  Interest rate increases on your mortgage are inevitable and this should be taken into account as well as at the moment they are very low and renos pretty much ALWAYS go over....it’s nothing for that 300 k budget to turn into 350 k or more due to unforeseen problems.

As far as minimizing tax, I’m not aware of a lot of things that aren’t either confusing or expensive to set up other than salary sacrificing into super or taking advantage of salary packaging if it’s available to you (NOT a novated lease though!).  Others would be able to offer you way better advice than me with regards to other things you can do.

So I guess to sum up my long winded rambling post (lol) I think that before you take on more financial stress with an expensive renovation or having a baby with a spouse off work or take on ANY more debt, you need to know where EVERY penny is currently going and get some of that debt taken care of and establish an emergency fund of some sort.  Look at your current and future spending (the current house debt and future reno as well as the travel, cleaner, takeaways, etc)) and REALLY think about is it worth it to you both?

All the best and hope that I have provided you with some useful info and things to think about.  Looking forward to seeing how you progress!


Archies

  • 5 O'Clock Shadow
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Many thanks for your posts, MJR for the reality check and TassieFI, for the experience and different perspective.

TassieFI, regarding your questions:
->In fact I have just started tracking every dollar we spend since the start of the year.  The figures for everything but transport, travel, groceries and luxuries are fixed so that makes the tracking easier.  That said, budgeting for one time expenses (like our recent insulation install which cost $2000) is something we need to get better at.
->we (I) have income insurance through Zurich and have a very secure job (government) so we have turned up the risk slightly on emergency funds, essentially considering credit cards as our overflow in case of emergency - having cash sitting there not performing rubs me the wrong way.  That said, your experience is good food for thought and made me realise we haven't really worked through any scenarios (if X happens, what do we do) so we will do that to ensure we are comfortable with our current approach or like you've  said, create an emergency fund.

So I guess to sum up my long winded rambling post (lol) I think that before you take on more financial stress with an expensive renovation or having a baby with a spouse off work or take on ANY more debt, you need to know where EVERY penny is currently going and get some of that debt taken care of and establish an emergency fund of some sort.  Look at your current and future spending (the current house debt and future reno as well as the travel, cleaner, takeaways, etc)) and REALLY think about is it worth it to you both?

This is really good advice.  Like everyone we are susceptible to optimism bias in our predictions, so its sobering to actually track where every penny goes, tighten up the accuracy of our future costs and adjust our models accordingly.

A while ago I built a 30 year forecast model which covers income, expenditure, super, school fees, time off etc etc to ensure we're on the right track.  What was missing was tracking our spending so we know where every penny goes.  I've started annually adjusting that and calculating our net worth - taking a couple of days during the Christmas break to spend time on it - to make sure we're on track.

(on a side note I have decided to rebuild this model to use present value and remove the inflation component from everything (so consider super growth as say 4% instead of 6.5% and apply the same concept to pay rises, school fees etc) - it wasn't really useful seeing a figure of $xxxxxxxxx 30 years into the future which we cant relate to the here and now to determine if this is enough)
« Last Edit: March 02, 2018, 07:15:15 PM by Archies »

Kyle Schuant

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My immediate thoughts: offset, renovation and private schooling.

There are other things to point out in your budget like your groceries and travel, but these three are the big ones. First let's deal with the stuff costing you hundreds of thousands of dollars, then we'll worry about the tens of thousands, then the thousands.

1. Offset account. Get one. This allows you to put extra on the mortgage, while being able to draw it out in case of some emergency. Paying extra makes a huge difference to when you are debt-free, and saves you a lot in interest. See - https://www.ing.com.au/home-loans/calculators/extra-loan-repayments.html

For example, $1.03 million at 3.55% for 28 years gives us repayments of $4,841. An extra $133 a month would save 1yr3mo and $30k in interest. That's basically your planned private school fees for a year for both kids. An extra $260 a month is 2yr4mo and $56k saved. For reference, taking your current spare income of $5,500 and putting it all on means you pay off the house in 10 years instead of 28, and saves you $405k in interest. That's your children's $15k pa private education, with $15k in change. Lacrosse and violin for everyone!

2. House renovations, $300k. Does your place need renovations? What's wrong with it?

3. Private schools, $390k (13 years x 2 kids @ $15k per year per kid). This can be at least halved, as there's no doubt that in primary school it makes no difference.

Altogether these three things are accounting for over a million dollars over the next decade or two. A million. You could just about buy your whole house again for that.

A far more important factor, the report argues, is the background of the child's family, including income, social circles, the number of people who had completed high school in their neighbourhood, their parents educational attainment or health factors, such as the weight of a baby at birth.

But there is one key factor to rule them all. "Children in families with more books at home have consistently higher test scores," he said. Those books can prove their worth long before the child scribbles down their first word. "One of the strongest predictors of a child's success is their level of development at preschool. What the data suggests is that because they haven't been exposed to schooling yet, whatever skills that have been developed due to nature or nurture are really influential."

[https://www.smh.com.au/national/nsw/private-v-public-schooling-20150416-1mm8bn.html]

Your childr
en will have parents with a high income, educated people in their social circle, if your house is $1.5 million then everyone in your neighbourhood has a uni degree, let alone finished high school - and you'll have books in your home. For primary, ditch the private and save yourselves $210k. Read your kids a bedtime story.

As for high school, the kids themselves say it makes little difference. Going to a private school gives them more access to things like lacrosse, rowing, learning French and so on, but gives them a less culturally diverse social circle - that's their words, not mine [https://www.smh.com.au/lifestyle/life-and-relationships/private-public-or-selective-high-school-does-it-really-matter-20180124-p4yytp.html]. But at the least private primary school is pointless.


There may be a cultural argument for example we're Jewish - but the Jewish schools are $25k per child annually. For that we can just take them to synagogue and go to some community events and all that.

Our children are going to state primary schools, but a good one - one with a bilingual programme. In this, the second language is less important than the sort of people who seek out and send their kids to a bilingual school - it's mostly higher income and better-educated parents who are involved in their children's learning. In other words, the same benefits of a private school but at much less cost.

In secondary school, we'll seek out a similar one, and if our children are lagging in something, get them a tutor. If the lad is dumb in maths, we find some maths undergrad and give her $5,000 in cold hard cash she doesn't have to claim against her student allowance, in exchange for a year of three hours a week of maths tutoring for him.


« Last Edit: March 02, 2018, 09:06:27 PM by Kyle Schuant »
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Bee21

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Yeah, I was wondering about the house renovation costs/plans.what is wrong with your 1+ mil abode that it needs so much spent on it?  Melbourne property prices are crazy.

just curious, what method did you try for travel hacking? I am always jealous of the Us people and the free travel they can score. It costs a mint just to leave Australia. Mind you, it is equally expensive to travel locally so we are screwed. Are you planning to travel with the 2 little ones or you can cut back a bit on international travel in the near future?

i also second having an offset account. You can use the 30-55 day interest free credit card periods to your advantage if you are disciplined enough and pay off the mortgage earlier. It worked well for us. But of course we did not have a melbourne mortgage.

what really sticks out is the eating out, shopping, clothes, takeaway expenses, that is a lot, especially if you can't itemise it. See where the money is going. And the housecleaner is expensive. Is it once a week?  Can you have it once a month for a deep clean only?

You have a really good income, but a scary amount of debt. At this income level, the cc debt is a bit extravagant. Hope you can sort that out before your wife goes on mat leave. Not sure you can retire early though with these expenses. What did the calculator say?

As for the private/public schools, it is your call. Our local public primary school is actually  better academically than the 8k nearby private schools, but you see some interesting looking parents in the schoolyard. The more of these I see the more inclined I am to fork out the money for high school. Scary.  But of course whenever I talk to some really snobby private school parents I also freak out.

Kids are expensive. It will be more than the 15k. There will be uniforms, sports, music, school trips etc, etc.

Archies

  • 5 O'Clock Shadow
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Many thanks for your replies and your great ideas and provocations (I use the term in the best possible way).

  • Kyle: Offset: When we first got our mortgage getting one with a mortgage was .03% more expensive.  While it was preferable, I ran the numbers and it wasn’t worth the cost, particularly as we have one free redraw per month.  We are planning to do what you’ve  suggested however and put the ~$5,000 per month (once the credit card debt is paid) onto the mortgage and get it knocked over asap.
  • House renovations: Our kitchen is 40 years old and beginning to fall apart.  The house wasn’t properly maintained prior to us being there so there are a number of things we need to fix (new roof, restumping).  That said, we will review the quote we have received to really focus on minimising this figure.
  • Bee21: Melbourne property prices ARE CRAZY.  In the 3 years we were house hunting the market tore away from us in a simply breathtaking way.  I hated spending that much money on our house – particularly one we knew would need a reno at some point – but with my pregnant wife we made a decision leaning towards stability.
  • Private schools: My wife works at the school and this may be an expectation as a member of the community.  That said, great food for thought and something we will investigate.
We don’t want to go too deep into the private school argument (perhaps a topic for another thread), my wife went to a public school and I went to a private for primary school and public for high school.  We feel that once you’ve got the books, the educational attainment, the people in your neighbourhood and the health factors, what is the best possible next advantage?  Our personal view is that private schools add value.  The primary reasons are the higher top tier university acceptance rates, the networking/future networks and not excluding options for future careers and opportunities.

https://www.smh.com.au/education/ties-that-bind-prove-a-private-education-has-its-awards-20101203-18jx0.html

https://www.smartcompany.com.au/people-human-resources/leadership/revealed-the-corporate-clique-ruling-australias-private-schools/2/

That said, we respect everyone’s education choices and we understand the cost/benefit debate. (and absolutely agree about the limited social diversity – we both come from lower middle class backgrounds and are thinking deeply about how to provide them with this)

I like your idea about bilingual schools.

Bee21:  Thanks for your advice on kids being expensive (particularly *more* expensive than we think) – its amazing how difficult it is to plan in the “known unknowns” into your forecast budget models.

Finally, I plan to provide an update on this thread at the 30 and 60 day mark with progress.  The eating out, living expenses etc is one area that we are definitely focusing on, and we have just started tracking every dollar we spend so we can tighten in those areas.
 The key proof in the pudding will be if we can clear the $12,000 credit card debt in 2 months.  Will report back.

Rob_S

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25 x expenses = FI is the rule of thumb.

You base expenses are 4,565 less 1,170 child expenses = 3,395 per month or 40,740 pa. This seems reasonable.
To fund your expenses you will need to save (40,740) x 25 = 1,018,500
You also need to pay back your mortgage of 1,030,000.
You also want to renovate which adds in another 300,000.
HECS and CC debt is another 82,000.
Private shool is another 390,000
In order to be FI you need to accumulate 2,820,500.
Based on your current figures you save 66,000 pa. It's going to take a while.

Your going to have to think outside the box to get to FI.

Downgrading the reno to just the basics and ditching private school save you over half a million.

A suggestion not enough consider, despite BareFoot preaching it to the masses, is moving away from the city. The cost of housing is east coast Australia's trouble spot when it comes to FI. Having all that equity locked in a house is not helping you get closer to FI. Consider a tree change to free up the equity in your home and get yourself to FI. I wouldn't do it if it would jeopardise your salaries but its worth considering when the stash grows.

Good luck clearing that credit card. Your coming from sound base with those salaries.
« Last Edit: March 05, 2018, 01:59:44 AM by Rob_S »

marty998

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I guess only Aussies will understand a thread like this :D

Every 1% increase on your mortgage rate will result in a $10,000 increase in the interest costs per year. That is frightening, but at least you're coming off a low base - 3.55% is a cracker of a rate.

As we all know, the normal rules of inflation don't apply to childcare or private school fees, so you can be sure that $15k will turn into $25k before you can blink.

Good luck - keen to hear progress in 2-3 months!


mustachepungoeshere

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Mazda CX5 (2014)*: $15 000

*Paid cash, own outright


If this was Reddit and sidebars were a thing, I would vote for it to contain one piece of information: cars are not assets.

Unless you drive something that Rowan Atkinson can crash twice and still sell for a $13 million profit, it doesn't count.

Archies

  • 5 O'Clock Shadow
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Agree. Hate cars, crap assets, we bought second hand and paid cash replacing our 15 year old Lancer.  Would still be happily driving it now if we didn't fall pregnant. 

So net worth is $15k less than stated given the intent isnt to sell up tomorrow but rather accumulate to FI.

I believe this is my first face punch.  The room is whirling but I'm still on my feet.

Kyle Schuant

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0.03% is nothing, especially if you plan to be tossing around hundreds of thousands of dollars on renovations and private schools - you'll need the offset!

Definitely get another quote. If your house genuinely needs $300,000 of renovations, honestly I would sell the damn thing and move somewhere to a place that doesn't need it. One suburb further out would probably be $100,000 cheaper, if not $200,000, leaving you $100-200k better off.

"My wife works at the school and this may be an expectation as a member of the community."

You would be paying $30,000 a year to meet the expectations of the community. Is the community worth $30,000 to you? If yes, then nothing more need be said, plenty of people pay that much extra for a particular neighbourhood, tithes to a religious institution, membership of yacht clubs and all that sort of thing. It's not something I'd do, but that's me, I'm not interested in impressing people who'd forget me five minutes after I've left.

But if not... what else is holding her there? Presumably if the fees are that, then she's paid more than she would be at a public school. In purely financial terms, if she is earning less than $30k more at a private school than she could at a public one, she is better off moving to a public one and thus not being bound by the community expectations. But again, I understand that things other than money do matter. I'm just pointing out the financial side of it. For you and your wife, not considering the benefits for the children of either, the inequation is,


A. Current salary - $30k fees + other benefits (community etc)
vs
B. Salary at public - $1k fees + other benefits (diversity etc)


If A < B, then she should move.
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marty998

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Agree. Hate cars, crap assets, we bought second hand and paid cash replacing our 15 year old Lancer.  Would still be happily driving it now if we didn't fall pregnant. 

So net worth is $15k less than stated given the intent isnt to sell up tomorrow but rather accumulate to FI.

I believe this is my first face punch.  The room is whirling but I'm still on my feet.

You are not the first person here to state they need a new car because, pregnant.

The car was old, fine. But why does everyone believe a sedan (which used to be called a "family" car) is not big enough for a family?

Have kids become monster size in the last 15-20 years?

Bee21

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Come on people, the car is paid off, give op some slack.

i can't get over those melbourne prices though. Last year they wanted to transfer my husband to melbourne and we refused. Because of those house prices. In brisbane you can still get a decent newish 3 bedroom for under 500k in a non fancy but not too feral suburb. And melbourne salaries are not that much higher. I was always wondering how average people manage in sydney and in melbourne.





Moomintroll

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Hi there, longtime lurker/first time poster here.

I was wondering if you could do the exercise of thinking which thing you could most handle to compromise on in order to save more?

For example, do you need a total of $1.6 million worth of house/renos in what I am assuming is a fairly middle class part of Melbourne?

Would $500k worth of house in somewhere regional like Ballarat or Geelong do the same job for you? Or $800k worth of house in a cheaper neighbourhood of Melbourne? I strongly think Aussie property prices are poised for a correction and it is not a great time to load yourself with debt which could put you into negative equity. Trust me, I'm from Melbourne but I now live in Ireland, and there's nothing like living here to understand that yes, property prices can go down as well as up.

I totally echo other posters in my complete lack of belief in the value of private schools (I live in Ireland where there are hardly any private schools - none at all in our entire city - and kids here get some of the best educational outcomes in the world), but if it's important to you could you do the public primary/private high school instead and save a few hundred grand there?

I also wouldn't assume your job is 'in government so safe'. Life can happen, jobs can disappear for different reasons. Last year I took my 4 year old to the GP for a quick visit to grab some antibiotics for what I thought was just a sore throat. Unfortantely he was the one in a million who had cancer. Fortunately cancer treatment is completely free for kids in ireland, but 6 months of intensive chemotherapy for a kid meant I had to almost completely stop working to care for him and my husband had to cut his work right down for much of that time to care for our other child, give me a break from round the clock caring for him etc etc. Not wanting to suggest something like that will happen to you guys, but it just shows that really random stuff can happen out of nowhere and put a huge dent in your finances. We're just lucky we had a house in Melb, bought back in 2004 and renovated ourselves for cheap, that we could sell so we were able to get by through that period.

As others have said, daycare for a second kid is gonna whack you for another 15-20k a year - ouch. I also wouldn't underestimate the chance of just finding it all too tiring and intense after a while - we did the 2 full time jobs + 2 kids in daycare thing for a while and eventually became totally burnt out & exhausted - it's part of the reason we left Melbourne actually.

Anyway not wanting to pour cold water on everything, just reckon you should really sit down and question some of your expectations & beliefs. Sounds like you are living a quite typical well-to-do Melbourne life, with the expensive house/renos/private schools etc, which is totally fine if that's what you want, but not really Moustachian in the sense that you haven't really questioned the assumptions contributing to your high spending lifestyle.

Very best of luck on your journey & hope you get cycling round Europe before too long :)

Archies

  • 5 O'Clock Shadow
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But why does everyone believe a sedan (which used to be called a "family" car) is not big enough for a family?
You’ve made an incorrect assumption.  The Lancer was a 3 door coupe so there were practical reasons for the upgrade.   That said, there were also strong emotional reasons that went to reliability (just like purchasing the house went to stability). 

just reckon you should really sit down and question some of your expectations & beliefs. Sounds like you are living a quite typical well-to-do Melbourne life, with the expensive house/renos/private schools etc, which is totally fine if that's what you want, but not really Moustachian in the sense that you haven't really questioned the assumptions contributing to your high spending lifestyle.

Very best of luck on your journey & hope you get cycling round Europe before too long :)
Many thanks for sharing your own journey, that is really important perspective.  Love the last point you make about the Mustachian values and challenging our lifestyle assumptions, and I hope your son is going great – our own son is the centre of our universe.  Your comments about children costing more and needing to reassess our forecast model is wise and something we will do.  We have not really had the conversation about it becoming tiring and intense.  We thrive off pushing ourselves but recently we've wanted to get the balance between enjoying life and getting ahead right for us - with our son coming along family time has shifted up as a priority.

A bit of background – we both come modest upbringings and absolutely embrace the living simply and happily ideal.  We don’t have free to air telly or cable because we value family time over it.  We bike, walk and catch PT because of its health and environmental benefits, my wife is vegetarian and I am the most enthusiastic, worst DIY home handyman the world has ever seen – I’m probably giving myself a bad rap given I’ve tiled houses, jack hammered concrete, laid concrete bases etc etc

That said, we are self aware enough to recognize we are aspirationals and that is reflected in housing and education choices that not everyone shares.

The great thing about these forums is that it challenges your otherwise set thinking.  For instance, the public primary/private secondary is a debate we need to reopen.

Our family values are having a happy, loving, fit family, Financial Security, Excellent Education, Satisfying Careers and Ability to travel.  I can tell you that because those values are on page 1 of our financial forecasting spreadsheet – it’s the lens we see everything else through.

So thanks again for the suggestions, challenges and perspectives – they are all welcome!

(and I hope the above doesn’t sound too defensive – given the relative anonymity of these forums we are ‘opening up’ the Johari window a lot wider than usual.)

(Note to self: update the values to reflect Financial Independence)
« Last Edit: March 05, 2018, 04:14:30 PM by Archies »

Kyle Schuant

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Have kids become monster size in the last 15-20 years?
No, but now child seats are the law, so that for example my car that can seat 3 adults in the back can only fit two children. And when you put groceries on the front seat the car computer beeps at you and asks the imaginary front seat passenger to put their seat belt on. And so on.


We didn't buy a larger car, but I see why people do. Though if you buy a 4WD for the city I reserve the right to feel contempt and caution.
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MrThatsDifferent

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25 x expenses = FI is the rule of thumb.

You base expenses are 4,565 less 1,170 child expenses = 3,395 per month or 40,740 pa. This seems reasonable.
To fund your expenses you will need to save (40,740) x 25 = 1,018,500
You also need to pay back your mortgage of 1,030,000.
You also want to renovate which adds in another 300,000.
HECS and CC debt is another 82,000.
Private shool is another 390,000
In order to be FI you need to accumulate 2,820,500.
Based on your current figures you save 66,000 pa. It's going to take a while.

Your going to have to think outside the box to get to FI.

Downgrading the reno to just the basics and ditching private school save you over half a million.

A suggestion not enough consider, despite BareFoot preaching it to the masses, is moving away from the city. The cost of housing is east coast Australia's trouble spot when it comes to FI. Having all that equity locked in a house is not helping you get closer to FI. Consider a tree change to free up the equity in your home and get yourself to FI. I wouldn't do it if it would jeopardise your salaries but its worth considering when the stash grows.

Good luck clearing that credit card. Your coming from sound base with those salaries.

This is what you should be paying attention to.

HappierAtHome

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You're mid to late 30s with a very high income - how come your net worth is so low? For context, we're 30 and 37, our highest combined income was roughly the same as your current income and our net worth is literally twice yours. Were you previously living paycheck to paycheck? If yes, have you 100% changed the habits that caused that?

marty998

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But why does everyone believe a sedan (which used to be called a "family" car) is not big enough for a family?
You’ve made an incorrect assumption.  The Lancer was a 3 door coupe so there were practical reasons for the upgrade.   That said, there were also strong emotional reasons that went to reliability (just like purchasing the house went to stability). 

Fair enough, thanks for clarifying.


Richmond 2020

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I’d echo what other posters have said about evaluating your priorities re education and lifestyle.

I would however suggest that you look serious about how you might best release equity from your home once you retire. You will have the lions share of your assets parked there and a good path to fire in your circumstances maybe to liquidate at fire and move out of Melbourne. Alternatively, renting out your property while you travel may be an option.

urbanista

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Imho, it is not possible / hard to relate to your situation unless one has the same circumstances.

It is not crazy to have 1.3M house in Melbourne in need of 300K reno. Our house is valued at 1.4M and is not even possible to renovate. We are doing a knockdown/rebuild. One might think the house is very close to the cbd? Nah, 45-50 minutes one way commute to work for both of us. Welcome to Melbourne.

And yeah, we will be doing a 12K private school too. That kid is getting a Catholic education, and thats what the local Catholic school charge.

Ok, first of all. You have HIGH income. You can absolutely affird your lifestyle and retire early too. You are saving 5500 a month plus another 2K in super. Thats 7500 a month savings, nothing to sneeze at.

But you do need to manage costs. Here are some ideas.

 Child care costs will go up but then down after kids are at school. We sent DS to gov kinder 2 days a week plus another 2 days in a private child care centre. Saved a lot on fees and the kinder was absolutely fantastic. Very experienced teachers, huge garden etc. Much better quality that day care centre.

Do you have to go private for primary school? Is public primary an option? Since you wife works at a private school, she won't have an issue of getting the kids there starting some time after year 6. Public primary schools at wealthy suburbs are usually pretty good.

300K reno can wait. Just do the kitchen now, and put the rest for later.

Your biggest challenge is the 2nd maternity leave when wife's income would go to zero.
« Last Edit: June 10, 2018, 04:34:51 PM by urbanista »

Kyle Schuant

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It is not crazy to have 1.3M house in Melbourne in need of 300K reno. Our house is valued at 1.4M and is not even possible to renovate. We are doing a knockdown/rebuild. One might think the house is very close to the cbd? Nah, 45-50 minutes one way commute to work for both of us. Welcome to Melbourne.
... what?

I guess different people have different expectations.
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urbanista

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It is not crazy to have 1.3M house in Melbourne in need of 300K reno. Our house is valued at 1.4M and is not even possible to renovate. We are doing a knockdown/rebuild. One might think the house is very close to the cbd? Nah, 45-50 minutes one way commute to work for both of us. Welcome to Melbourne.
... what?

I guess different people have different expectations.

Don't know about expectations but median house price (600sqm land or more) in the Eastern, South East and many Northern suburbs with 45 minutes door-to-door commute is around 1-1.5M depending on a suburb. A lot of them are very old and small. So it is not uncmmon to pay 1.3M and renovate.

Moomintroll

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Or, if you've owned there for a while, you can do what we did: sell your Melbourne house while prices are high, move to a lower COL country/city and buy a place outright.

The OP has $300k of equity, so could chop his mortgage to about a quarter of what it currently is by moving to one of the many commutable towns and cities near Melbourne such as Castlemaine, Ballarat, Geelong etc.

Wouldn't work for everyone, but an awful lot of Melbourne people I know, both retirees and those with young families, have done this to escape the high housing prices.

Archies

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Many thanks for all of the comments.  An update on our progress before I respond to specific comments below:

We are at the end of our 6 months in building towards our goal of achieving financial independence.  Some of the things we’ve done recently to help us on our journey:

  • Ensured both my wife and I are committed to our plans.
  • Tracking every dollar and applying Sinkey graphing to get a sense of the flow.  The key benefit to this is that it has allowed us to to zero in on exactly where we are not meeting our budget and make decisions to tighten up the discipline in those areas - a massive broad problem invariably has its source in a specific spending category, and we have worked hard to tighten our belts. Every 4 weeks I review our previous performance.
  • Read a lot - the Millionaire Next Door has had the biggest impact.
  • Paid off credit card debt so besides the mortgage we are completely debt free.
  • Reviewed the draft paper of the Productivity Commissions superannuation review. This has led to a minor adjustment but otherwise we are happy with our “set and forget” structure.

Urbanista: thanks for the childcare and education suggestions, the government childcare is not something we've taken a lose look at.  It’s a signficant cost even with the new subsidy changes - we’ll do another review of our options and get updated quotes.  Private school for secondary only is another question we're tackling at the moment.

Richmond 2020: thanks for the suggestion, it’s a great point in our retirement. Nominally we want our family home as a base until our children finish university but from then onwards our base could be anywhere - country victoria or a much smaller lockup. Right-sizing is something we’ll consider closer to Fi.

Kyle: From a mustachian perspective we are trading time with the family for housing costs. My wife’s 10 minute total daily commute and my own 1 hour total daily commute mean we are very fortunate to have a lot of family time, but we absolutely see how crazy a million dollar mortgage can seem from the outside.

Moomintroll: thanks, this will be something we consider if my wife’s suburban job moves. We know many “village commuters” in London who do the same and have great QoL and low CoL.  As a retirement option we are absolutely interested in this.
« Last Edit: June 17, 2018, 09:20:55 PM by Archies »