Share Your Financial Independence Strategy

G'day all!

I thought it would be nice to have a thread where everyone can share their strategies to reach financial independence. I'll start with mine. It only occured to me today as I haven't thought about it before.

Me and my partner will actually only need 40k py passive income as that's more than enough for a comfortable lifestyle in my home country (Europe). Our capital base so far is $1.1M. We'll need one more property to bring the portfolio value to 1.6M at 88% LVR. Assuming average CG rate of 4% (conservative), our portfolio value in 18 years will be worth 3.2M. Profit upon sale and CGT would be 1.4M, however due to inflation (assumed 2.5%), 1.4M would be worth 900k in 18 years. Then we buy shares with 5% yielding dividends, and that's our 45k py.

That's our humble financial independence in 18 years. It doesn't take into account paying any principal on the debt (just holding over 18 years and paying interest) so we might be able to make it in 15 years.

 

G'day to you

Are you saying you have $1.1m equity?

Based on your capital base numbers and requirements you appear to be financially independent already?

 

I wish haha.. total value of assets is 1.1M. The equity is far from it.

 

Oh OK. Still having a plan and knowing your numbers is an excellent start.

We are looking at FI by 2020 based on super assets and non super shares with a 5% drawdown- a little more aggressive than the oft quoted 4% rule but we will also have IPs to sell down the track.

You raise a good point about geographic arbitrage and retiring to a cheaper cost of living area. Even within Australia this is possible by moving to a regional area.

 

Awesome post!

@Realist35 - do you mind if I ask where in Europe?

What will you do for accomo in Europe? I assume rent since buying will eat into your $900k nest egg?

Best of luck with your plan! It's awesome that you've got something in place to work towards.

Cheers

Jamie

 

It's Montenegro, nice little Mediterranean country. Cost of living there is very cheap, beautiful beaches and mountains. Economy sucks, but at least it's safe and it's also becoming a popular tourist destination.

I've got a family home there so wouldn't need to buy one. Even if you do, you can buy a beautiful house for 150k. For not much more you can buy a waterfront house.

A little add lol:
Montenegro Top 5 – Must Visit Places in Montenegro

 

Wow that's only a couple of years away, lucky you!

 

Probably a bit older than you! But yes feel very lucky.

 

I was there 10 years ago! Till this day - I still say Montenegro is one of the nicest places I've been in Europe. Kotor is in a league of its own! I spent a couple of weeks in Budva and done some day trips.

I'm not sure how the economy is looking now but 10 years ago - $40k AUD per annum would have you living the good life! Pretty sure our apartment near the beach was 10 euros a night back then.

 

Montenegro is on my bucket list. Has been for about 6 months since I saw photos of the mountains there. Looks awesome for hiking.

 

Haha nice. Yeah Kotor is beautiful. That's where I'd actually like to retire, either Kotor or Budva.

The economy overthere probably hasn't changed since the last time you were there. It's probably even worse unfortunately. What I like though is friendly people and it's generally a safe place.

 

Before I moved to Australia hiking was my favorite hobby. Because all the mountains are so close (the whole country is very small), you can spend every weekend hiking. I used to do it often with these guys:

Montenegro Phototrekking

 

I was wondering the exact thing and tried to spreadsheet the numbers

If assumptions on growth and inflation plays out, you may not need to sell the portfolio at all.

For example, saving 20k each year and placing the cash into offsets and you will have hit your target of ~60k (40k adjusted for inflation) in 18years

 

Very handy spreadsheet!

Couple of things

1. Are you sure rent grows at the same rate as growth (ie more than the rate of inflation)?
My assumption is that it can not grow faster than inflation because people simply can not afford that.
I have not seen the growth of rental income over time though - I am curious now.

2. If he lives overseas for more than 6 months of the year, and he his properties are in Australia, he is a non-resident and his tax rate (as of today and I don't see any reason why the government would lower it) is 1/3 of his income from the first dollar earned (no tax free threshold), so he will require and extra 50% on top of that for yearly income.
This is unless he has accounted for this in his initial figures.

 

Nice work mate! Saving 20k per year should hopefully be feasible and not having to sell the portfolio would be a massive advantage. Your spreadsheet really says it all.

I am wondering though how much tax I'd be paying in Montenegro on rental income earned in Australia. Tax paid overthere is only 9% on shares and income, but I'm not sure how it works when the source of the income is a rental property overseas.

What I've noticed in your spreadsheet is that you used 5% IR. I think the long term average is 7.5% which would reduce the net income, but hopefully CG of significantly more than 4% compensates for that

 

Question from left field for you...

Lets say you got some information that you missed something in your calculations and found that you needed 55k pa instead of 40k pa.
What would you do differently knowing that?


I think that anyone who has any kind of financial plan, pretty much tries to grow the biggest nest egg they are capable of, so while working backwards is important to have hard numbers understood, I am not sure the specifics make much difference in guiding you since if you could have done more, you would already be doing it. Would welcome anyone's thoughts on this.

 

Awesome places - and friendly people too.

Have you checked out any of the articles from Mr Money Mustache? The basic rundown is that by eliminating spending money on crap we don't really need we can get by with less money and spend more time enjoying life.

He gets by on around $25k per annum USD from memory (invests in shares and lives of dividends- the same concept could be applied to property and rental income) - so I reckon you'll be living like a prince on $40k. Here's the website Mr. Money Mustache

 

Nice! Thanks for sharing

 

I have no plan. I will just keep making money and try to enjoy the journey. Husband, father, family man. That's my duty.

 

I was going to say the same thing but thought it sounded a little trite

Keep earning in a well paid job, buy something when it makes sense, sell something when it makes sense and hopefully it all works out