The Plan

I’m just a regular bogan, but I’ve created this site so that everyone can follow my transformation into a wealthy bogan.

Financial Independence

I can hear you asking “Why should I bother saving money? That’s boring.”

  •  You’ve got some nerve

Besides, work until you’re 65? Forget about it.

I left home at age 17 to study and pretty much put off getting a job. Once I graduated, I wanted a job, but found out that I couldn’t get one because of this thing called the “economy”.

I’ve actually never held a permanent job, and there’s a fair chance I never will. Once I graduated, commodity prices crashed. Welfare in Australia is a great safety net but it’s a bureaucratic minefield. It’s a real struggle trying to live this way – I’d rather just be rich.

My motivation for financial independence (FI) is to be self sufficient. I wanted control over my finances and my future. Whenever I had a job, I worked hard (kind of), and saved every cent I could. I ate a lot of 2 minute noodles. It hasn’t happened quickly and it hasn’t been consistent, but my net worth is certainly heading upwards.

NWAugust

Is Mi-Goreng the key to success?

Despite being in and out of employment, I’ve managed to grow my net worth faster than if I’d been employed full time and simply saved the money in a bank account.

It’s pretty depressing being unemployed and things can go backwards faster than your mother unbuttons her overalls. But having some smart investments has helped soften her blow. Once I have a certain amount (a few hundred Andy G’s) I might move it all into dividend-paying shares and live off the income. Or I’ll take it all to the casino; depends how I feel.

Anyhow, humble brag aside, if you’re financially independent then you don’t need to worry about employment, and that’s pretty awesome. Maybe you want to keep working and buy a new set of rims for your Commodore every year, and that’s OK too. Everyone has different goals, even though yours are obviously cooler. Being able to stop working by age 30 isn’t going to be easy, and is probably not going to happen, but I’m gonna give it a red hot go. Even if I fail, I’ll still be doing OK.

My Budget

No, not that ad with the blonde girl who stops you from wasting your paycheck away at the pokies. I’m talking about my actual budget.

I aim to spend <$600 per week / $30,000 per year

I could get this down to <$20K per year if I sold the V8 and moved somewhere cheaper. But I won’t be doing that. I reckon I live like a king, yet I’m not a high income earner; apparently my income is smack-bang on the average for Australia.

Property

“Property only ever goes up” – Everyone.

I invest in property for the cash-on-cash return (COC) and the ability to borrow an absolute truckload to put towards it.

I own two properties, and each of them has a pretty decent COC. I waited until I had held a job for 6 months straight before I bought my first property: the absolute cheapest one I could find in the metro area.

Property 1: $24K upfront + $4K renovation

I gave it a bit of a spruce up (what I call a “Cheapie Reno” – keep an eye out for my upcoming book) and it revalued 23% higher. I immediately let the bank lend me more money with bugger-all deposit to buy a second property. I gave that one a bit of a once-over and here we are. Two properties in Australia, in a capital city, for a total of $45K.

Property 2: $10K upfront + $7K renovation

Now I hate when people brag about their multi-million dollar property portfolio and don’t factor in any expenses – so I’m going to slap you in the face with some real true facts:

Total cash in = $45K

Annual rent = $28K.

Annual interest = $15K

Annual costs = $5.5K (property manager, council rates, insurance)

Total expenses = $38.5K

Net return = $6.5K

All up, that’s a cash-on-cash return of 14.4% per year – remember that COC I was bragging about?

Plus, since I’ve borrowed to the hilt, if the properties grow in value by 1%, that’s another 10% return on the money I actually invested. Big COC. Of course, there are risks:

  • If property prices fall, I’m screwed
  • If interest rates rise, I’m screwed
  • If my tenants trash the place, I’m screwed actually OK thanks to insurance

There’s also the cost of maintenance and vacancies to consider:

  • By renovating during settlement, I was able to fix every minor issue myself so there hasn’t really been many problems. Without the Cheapie Reno (patent pending), I’d be forking out a bloody fortune for repairs! Leaking tap? You’ll have to pay a call-out fee, plus parts, plus $100/hr labour for a plumber.
  • I try my best to be a good landlord. I rent the home I live in, so I can empathize with my tenants. I want them to enjoy the place and feel at home – so I do everything I can to keep them happy. Having a friendly property manager definitely helps too.

I bought these two properties while I had a good run of employment, because you gotta make hay while the sun shines. They make me about $600 a month which is pretty sweet, and renovating is fun. I’d recommend it, but I’m not a financial advisor, so I can’t.

“This website is negatively geared”

I have a lot of crippling debt for a fella my age.

Shares

The Australian Stock Exchange (ASX) is currently hotter than a fox in a forest fire but I’m still looking for opportunities.

The Australian market is dominated by big ol’ banks and miners, but really Oz is just a small part of the world, so my strategy for now is pretty cruisey:

  1. Invest in undervalued dividend paying stocks on the ASX, and then
  2. Invest in everything else because why not

Point #2 is pretty easy – just buy ETFs (exchange traded funds) that basically cover the whole world market excluding Australia. My boy Donald says the USA is nice – ASX:VGS and ASX:VGAD are two that I encourage you to suss out. Then there’s Aussie stocks that pay sweet, sweet dividends, which brings me back to Point #1.

The banks in Oz lend everyone money for their properties, which I already own some of, so if property falls, so do the banks, and so do my monies. While everyone’s got a hard on for those so-called “blue chips”, I’m looking for the new recruit, next season’s star, the ugly duckling that is about to grow into a beautiful sexy swan.

Withdrawal Rate

The famous Trinity Study suggests that a withdrawal rate of 4% (if your portfolio is 50% stocks, 50% bonds) ‘guarantees’ that your money lasts 30 years. At 6%, it’s ‘guaranteed’ to last 15 years. But this study is based on U.S historical rates.

trinity-study-column.jpg

May the odds be ever in your favour

Notice how portfolios with more stocks than bonds tend to have higher success rates. If I wanted a 10% withdrawal rate over 15 years, I could stash the lot in stocks and it would be more likely than not (56%) that I’d succeed. It all depends on risk tolerance.

Realistically though, one should take this study with a grain of salt. You can obviously withdraw more each year if you want to be a bit risky. Withdraw less if you want to guarantee that your assets will last forever and a day, or if you are concerned returns will be lower. If you have money coming in from other assets (property, business) then that changes things as well. There’s no one hard-and-fast rule that applies to everyone.

And on that note..

I wish you all the best of luck and hope you enjoy following my investment journey. Keep an eye out for my monthly updates!

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