FIRE Strategy for a noob

Discussion in 'Share Investing Strategies, Theories & Education' started by Cmelderis, 28th Mar, 2019.

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  1. Cmelderis

    Cmelderis Well-Known Member

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    Hi All,
    A little on our background for those who don't know it.
    My partner and I currently earn over 200k and all of our savings are simply in the bank.
    We have no PPOR or IP's and are happy renting for a very modest price in Perth for now as we are looking at relocating in a couple of years.
    I have been reading a bit on FIRE recently and I like the simplicity of it. I believe we could live on 50% of our income.
    My thoughts are keep a buffer in the bank ( say 60k for now ) and put all our other savings ( approx 20k ) into ETF's ( Vanguard ) as well as ongoing contributions of approx 5k a month ( is there any difference between contribution weekly/fortnightly/monthly? )
    We are also looking to buy an IP at some stage in the next 12 months so can use our buffer for that
    ( plus a "gift" from my mother ) when the time is right.....just holding tight for now and watching the market as this IP will likely be in Sydney or Sunny Coast ( Sunny Coast only as this is where we are looking to relocate to hopefully so would then be able to move in temporarily )
    My partner earns double what I earn ( 140k vs 75k ) is there a strategic way we should do this?
    Is this a reasonably good strategy?
    Thank you all
     
  2. Anne11

    Anne11 Well-Known Member

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    What is your long term plan? Any PPOR in the plan? If yes, will you have enough deposit? If no, investing into shares and/or properties make sense.
     
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  3. Cmelderis

    Cmelderis Well-Known Member

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    PPOR eventually yes and yes we will have deposit set aside from the shares and IP. We can always reduce the 5k a month and put some into savings account for deposit if we need to build more.
     
  4. Trainee

    Trainee Well-Known Member

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    Your savings are about 80k altogether?
     
  5. Silverson

    Silverson Well-Known Member

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    My opinion only.

    Keep saving, especially if you want to buy a ppor or ip in Sydney, more so now in tighter lending environments.
    Also not to be rude but earning over 200k your savings rate should be higher and your comment regarding the FIRE movement and you being able to live on 100k, well I should hope so!
    My thoughts only, you guys are in a good place!
     
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  6. jprops

    jprops Well-Known Member

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    To be fair, the OP didn't mention how long they have been earning that figure.
     
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  7. Cmelderis

    Cmelderis Well-Known Member

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    Thanks All
    We have only been earning this kind of money the last 10 months
    Also 100k is not 50% post tax..210k is gross, net would look more like 140k I would imagine ( will know at tax time! ) therefore 50% is 70k so big diff to 100k and we have a couple of expensive passions that we are not prepared to give up ( horse for me MX/cars for partner )
    We will keep saving money in the bank but I really think we should start investing a decent chunk to start that compound interest wheel turning
     
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  8. Cmelderis

    Cmelderis Well-Known Member

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    At this stage yes but growing approx 5k plus a month
     
  9. Anne11

    Anne11 Well-Known Member

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    If you intend to save for a house in less than 5-7 years then best to put savings into high interest earning accounts. If you invest in shares and need to sell but the markets by then dropped by 50%, how would you feel?

    My opinion only.
     
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  10. Cmelderis

    Cmelderis Well-Known Member

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    Thank you but plan is to save for a house aside from the etfs/managed funds
    I see our money sitting in the bank earning F all while we figure out where we wanna live etc so surely it’s better to get it into something with a return and keep some aside for a deposit when we are ready?
     
  11. Anne11

    Anne11 Well-Known Member

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    As long as your return after tax is better than mortgage rate and the capital remains in surplus during those investing years or when you need the fund
     
  12. Cmelderis

    Cmelderis Well-Known Member

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    Can you explain the importance of return after tax being better than mortgage rate please?
    Thank you
     
  13. Anne11

    Anne11 Well-Known Member

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    If your mortgage rate is at 4% you need to earn 4%/(1- your current tax rate) or more and the investment to appreciate in value to be better off investing than paying down the mortgage.

    Although investing and paying off the mortgage on your own home will have the added benefit of increasing your asset base, which over the long term hopefully appreciate in value
     
  14. Trainee

    Trainee Well-Known Member

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    Paying off the mortgage doesnt increase the asset base.
     
  15. Cmelderis

    Cmelderis Well-Known Member

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    Plus I dont even have a mortgage.....
     
  16. sfdoddsy

    sfdoddsy Well-Known Member

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    Wouldn’t be even higher, potentially, given a mortgage is paid from your after tax income?
     
  17. Anne11

    Anne11 Well-Known Member

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    I gave the formula to calculate that % you need to earn before tax to match the after tax %, say for example: if your tax rate is 32.5% plus 2% Medicare, you will need to earn at least 6.1% before tax to have an after tax 4%