FIRE Strategy... Where to start?

All,

Have always had the goal of being financially independent as early as possible. But have never really had a strategy, more so just accumulated at the time.
***Edit - recently realising that we can only borrow another 530k before hitting a serviceability wall has made me think, do we have the right investments?

Am currently 35 with 4x IP's (1 on the market to sell), around 320k in super and a reasonable income. No ppor, but looking to purchase in the coming 12 months.

Where do people start with their detailed strategy and work towards it? Is it retirement income, then back calculate? Life goals? Are there any programs or spreadsheets people would recommend?

I don't think I've done poorly so far, but don't feel as though I am doing the best possible.

 

Not just retired income. Also PPOR, which seems to be something a lot of people ignore for some reason. Especially if you want a PPOR that is low yield, that eats up a lot of your assets.

 

Yes, agreed. I do intend to own PPOR outright too.

 

You might want to look in to debt recycling.

 

What income do you require to "retire" without that number it's pretty hard to come up with specifics.
Once you know your required income you can start thinking about the best way to develop investments that produce it.

Sounds like you are doing well so far, well done.

 

Start with expenses as this is the root of financial independence. If you have a low set of living costs you will need less capital to get there. If your expenses where $0 you would be there now.

Once you work out what you need to live on then work out what amount of capital you will need to generate that amount.

This will depend on yield.

If you can get a 4% yield and need $50,000 pa to live on then divide $50,000 by 4% = $1,250,000

This is the amount of unencumbered income generating assets you will need.

So now work out how to get that.

 

You could 'google' FIRE strategies, there are many blogs, just be sure to get the Aussie ones as they're likely more relevant. Could highly recommend you search StrongmoneyAustralia.com, he retired at 30. As @Hodor said, depends on income you require to retire.

 

There are plenty of FIRE resources on the net. MMM (Mr Money Mustache) I believe was the beginning of the popular sites but is USA focussed. It has a busy forum attached though, including some Australian threads and posters.
Although not strictly FIRE, I found the latest Barefoot investor book basic, but useful, particularly around the day to day strategies you will need to get there.

 

Sounds like a similar situation to myself. Accumulated property and figured somehow we'd get to Financial Independence. Later realised that shares provide an incredible passive income stream in comparison, without the headaches and mountain of expenses that come with property.

As others have said, it's really about working out your expenses and then you'll need 25 times this number in investments providing you around 4% passive income. For us that meant we have to sell down our portfolio and tip the funds into shares, because given the debt level and low yield and high expenses, there's no way our property was going to deliver that.

Having a high enough net worth is not quite enough, it has to be parked in the right places. As @monk pointed out I have a blog, trying to share what I've learned over time about Financial Independence in Oz, and what I'd do differently starting again.

 

Working out your anticipated expenses is the key - then its what method to do this. I have read the calculate 70-80% of what you are currently spending - I think that could work if you are say close to retirement perhaps not if you are 25 years old. I think the ASFA numbers are understated but clearly depends on what type of lifestyle you lead or want to lead. Also the younger you are the more you will spend - and you should also have the opportunity to generate income if you need to. So looking at the expenditure across different decades I think makes sense.
We estimated 100K when we were 50 as part of our financial planning. We stopped work at 52/51 (no children) almost 2 years ago and expenditure for last year was approx 120K - we are however travelling in Australia so not having home expenses saves a lot. Our budget is 1K a week for living expenses (fuel, food and accomodation) and 1K a week for all the rest which includes insurance, contents storage, rego, communications. We are not including expenses for our investments - so no loan repayments included. I would not say we live a life of luxury on that although when we purchase something we do buy quality.
We will move into a home soon so that will be an interesting to track what impact that makes.

 

Much appreciated! Although I've probably done this a bit blind tbh.

Cheers! I think it may have been an article from strongmoney I read last night that got me thinking! I will get back on and read more!

I will definitely follow up on your blog. How did you start or get into shares? I tend to hear a lot of comments like yours above regarding share income streams. But have absolutely no experience.

 

Jonathan Mendonsa, co-host of the ChooseFI podcast says there’s a concrete definition of FIRE:

 

The info that helped me the most in getting started was from Peter Thornhill, which has written a book about investing for growing income in the sharemarket rather than focusing on share prices.

Started buying individual shares but later moved to buying low cost LICs and index funds as there is no effort involved, perfect for long term investing and healthy passive income.

I'm not allowed to link here but if you dig around on the blog you'll likely find lots of relevant info on shares and investing that is pretty digestible for beginners and all other stuff relating to FI in Oz

 

Much appreciated I'll get stuck in

 

My initial thoughts, given we (mostly I) like some nice things, travel and we are likely to have a dependent (or fast approaching uni/ trade). I would be aiming for around 140k to 150k nett as a couple. This equates to 3.75m unencumbered assets, yes?

Fwoah, fair amount given that we would need to pay off a ppor in that period too!

Seems tough to achieve! Not sure if I keep this as a stretch target and can come down when it gets closer.

Assuming that I leave super completely out as this will not be accessible?

 

Yes that sounds roughly right lol a fair chunk of change that's for sure! That's why most early retirees opt to dial down the luxury a bit (or a lot!), to gain freedom much sooner. Depends on what's more important to each individual at the end of the day.

If wanting to retire pretty early, usually super isn't included, unless planning to sell down the portfolio to make it until 'super access' age (if super is going to also be a decent sum).

 

@Ardi

Charlie Munger: The First $100,000 is a B*tch

The following chart from Four Pillar Freedom shows a 'simple chart' on how long it takes to accumulate $1 million by investing $10,000 each year at a 7% annual rate of return:



Obviously investing more, higher returns etc all affect that chart

With your goals you may enjoy reading hishermoneyguide who have similar goals to your stated

Also from that site

"If you’re going to have your retirement funded through dividends, you’re going to have to buy a fair few shares.

Take, for example, Commonwealth Bank of Australia (ASX:CBA), which is Australia’s most valuable company – worth some $140 billion. (And we’ll use CBA has an example throughout this article.)

The company has 1.77 billion shares in circulation. Each share in the past year entitled you to a total gross dividend of $6.15. Of that, $4.31 was cash, and $1.84 was pre-paid tax in the form of franking credits. That gives you a total gross yield (or return) of about 7.6% (clearly cash invested in the bank is better than cash in the bank!).

So to get $1,000 of gross dividends in CBA shares per annum, you’re going to need about 162 shares.

Given that CBA shares are currently trading at about $80 (eg: that’s how much it costs to buy one share), that means you need to invest a just under $13,000 to get $1,000 back each year.

If you’re like us and want to get a gross income of $150,000 a year – and if you hypothetically only invested in CBA (which you’d never do because you need diversification!) – you’d need approximately 24,390 CBA shares, worth $1,951,200.

So clearly you need to save and invest a lot of money – over a long time (unless you’re a trust fund baby!) – before you can make a dividend-funded retirement happen – regardless of whether you buy CBA or any other stocks.

For us, this will be a 20-year journey to save and invest enough money to make our investments self-sufficient and to fund our desired lifestyle."

 

And watch out for wealth killers i.e don't get divorced

 

Quick look... living expenses under 22k for 2018!

 

Mortgage not included there, a massive savings rate

From their site We saved $135,385 in 2018 – 86.5% savings rate!