December economy digest

Hi Everyone, I hope the below will summarize some important updates from the economy that influences our investment decisions. These are taken from all resources found around the blog community

In Australia: Building/ from nosebleed to nosedive
Although there is still a high volume of work in the pipeline, it’s clear to see that apartment construction will need to fall, and fairly soon.
Unfortunately last month’s record spike in non-residential approvals – presumably driven by Packer’s latest Barangaroo adventures – was not replicated this month, with the value of non-residential approvals all but halving month-on-month, from $5.4 billion to $2.8 billion.

Overall, although it could take a little while, it seems that it won’t be too long before residential construction will switch from being a driving force for the economy to becoming a headwind.

Meanwhile, in New Zealand:

Download the New Zealand Property Report in full here.

The New Zealand housing market has settled into a typical pre-Christmas pattern, as Kiwis turn their focus to the upcoming holiday period.
Real-time market statistics from for the past three months (ending 30 November) show a comparative cooling in demand across the main centres – most noticeably Auckland.
Demand is measured by the average number of views per listing for September, October and November 2016 which are then compared to the same period in 2015.

Sydney home values up 14.4% this year:
While Australian share markets continue to dither at nearly 20 per cent where they were fully a decade ago, Sydney home values were up by another +14.4 per cent over the first 11 months of the year.
No wonder so many investors have given up on Aussie shares with such consistently dismal returns.
Over the last quarter capital growth has rotated towards units in Sydney (+2.9 per cent), although quarterly house prices were still up by +2.3 per cent to be a strong +15.3 per cent higher over the year to date.
Melbourne home values were up by a similarly robust +11.3 per cent over the past year.
US unemployment lowest in 9 years
Employment increased for a record 75th consecutive month, with nonfarm payroll employment up by +175,000, broadly in line with expectations.
The results for September (+208,000) and October (+142,000) were revised up and down respectively, the twin revisions netting out to ‘not a lot’.
Over the past three months employment has increased by +176,000 per month on average.
Changes to pension asset test
A good read if you’re planning on pension for your future: here.
This will take effect in Jan 2017!
Another “predict” article for where property prices will go in 2017
Very hazardous if you ask me however, you can read some “experts” from Mozo here
First time in 100 quarters… Recession?
After 100 consecutive quarters without a recession, the economy posted a negative GDP result for the third quarter, but real national income measures surged to a record high.
Whether or not we experience a technical recession next quarter is open for debate, but it looks to be unlikely based on the recent growth in retail spend.
Overall, strong public investment figures in the first half of the year masked a softening underlying trend in growth in the economy.
An annual GDP growth figure of +1.8 per cent feels much more in line with the metrics we’ve seen elsewhere, including low employment and wages growth, soft inflation, and a budget in deficit.
Property investment on the rise
Loans to property investors rose 4.6 per cent in September to reach the highest level in more than a year, according to the latest ABS figures. The value of the loans was $12.4 billion, with most demand ($11.5 billion) for established housing stock. Over the 12 months, lending was down 15 per cent to $137.5 billion.
Price metric reveals true cost of renting has introduced the median room price metric to help renters understand the true cost of renting in Australia. Using the median room price cuts distortion attributed to property type (flat, unit, house). For example, Melbourne is one of the cheapest cities to rent an apartment or house ($380 p/w) but not an individual room ($163 p/w), the cost to rent an apartment/house in Perth is the same, but $33 per room cheaper. The metric is particularly useful for renters who share a home with others.
Strata laws in focus:
On 30 November 2016, new strata laws came into effect in NSW. The new provisions mean owners can be forced to sell the building for redevelopment if 75 per cent of owners in the strata block want to sell. The Property Council Queensland wants similar new body corporate laws to be introduced in their state to allow the majority of owners to force the sale of units in ageing strata blocks.

November economy diggest

Hi Everyone. I usually try to summarize myself a few economic every month, to keep on top of things and I have decided it could be a good idea to share this content.

US real estate price finally recover

It was reported that the famed US Case-Shiller index now records house prices as having finally moved above their 2006 peak.
Case-Shiller’s index enjoyed a spectacularly bubbly run over the two decades running up to 2006, with prices all but quadrupling over that time, but it’s been a very different story since the sub-prime crisis erupted.
And nationally prices at long last eclipsed the previous peak seen in July 2006, albeit very marginally.


New home sales 2 years low
New home sales declined by 8.5 per cent in October to their lowest level in two years.
Sales were down for both detached houses (-8.2 per cent) and multi-units (-9.2 per cent).
The Housing Industry Association (HIA) sees this as consistent with its forecast of housing starts declining to 172,000 by 2018/19, driven by a substantial drop in apartments, which is fair enough.
More parents helping their kids to enter the market

According to a Fairfax report, figures from both NAB and Westpac have confirmed that guarantor loans are becoming increasingly common. The loans see parents or close family members provide their property as security for a home loan, eliminating the need for a deposit.

NAB told Fairfax guarantor loans had risen from 4.8% of all new loans in 2010 to 6.7% last year. A Westpac spokesperson also told Fairfax that the number of guarantor loans through its St.George subsidiary had risen 9% in the last year.

Immigration up
Annual net permanent and long term arrivals into Australia increased marginally in September to +267,500, some way up from the nadir of +262,800 in June
Aussies to struggle with repayments?

A study by UBank has found 25% of borrowers are experiencing stress due to their home loan repayments, the Daily Telegraph has reported. The study found borrowers were sacrificing holidays, social events and time with family in order to meet their mortgage payments.

According to the Daily Telegraph, 56% of the survey’s respondents said they had missed out on time with their children to earn more money to meet home loan repayments, while 54% said they had sacrificed a family holiday due to financial pressures. Around 59% said they had cut a family holiday short because of financial strain due to mortgage repayments.

Boom and bust report
Christopher’s Housing Boom and Bust Report 2017  has now been released and is immediately available at this link.
It may pay to be cautious as the housing market is currently at its second most overvalued point on record driven by a combination of factors including loose monetary policy, strong population growth and booming local economies, especially in New South Wales and Victoria.
The earth awaits
The Earth Awaits started to imagine a tool that would build budgets for places all around the world while considering the important aspects of a person’s lifestyle: their price range, family size, housing needs, and their lifestyle expectations. I knew about Numbeo, which gathers cost of living data for cities around the world. I knew where to get information about safety, visa information, and I had a pretty good idea of how to create a budget that would reflect the local cost of living anywhere in the world. Someone just had to put all the pieces together. Why had nobody thought of this before?
US Fastest earning growth
The US Bureau or Labor Statistics reported that the US economy added +161,000 jobs in October, with upwards revisions to the two preceding months totalling +44,000.
Business expectation to rise to 17 year high
Reports Greg McKenna over at Business Insider
Capital city prices continue to rise
CoreLogic reported its October dwelling prices today, which you’ll no doubt read about elsewhere.
Capital city dwelling prices rose by +7.5 per cent over the year to October.
Vacancy rate down in October
Vacancy rates declined nationally to 2.3 per cent in October according to SQM Research, led by falls in Sydney, Melbourne, Perth, Canberra, and Hobart.
Sydney (1.7 per cent) and Melbourne (1.9 per cent) have seen their rental markets tighten a little over the past year. Nationally, rental markets have held fairly steady over the last 12 months. There was another uptick in Brisbane to 3 per cent, where there is also a high number of inner city apartments still under construction.
Bonus: Excellent article on how to transfer property and its consequence on CGT
The main issues to think about and plan around when gifting or transferring property include:

  • When was the property purchased by the transferor
    • Before 19/09/1985 or
    • After 19/09/1985
  • Why is the transfer necessary .. at this time
    • Is there a better result when transferred throuh a will
  • What is the Capital Gains tax status of the recipients/transferee
  • Stamp duty implication to be paid by the transferee
  • Centrelink implications for the transferor – where they are of pension age
  • Legal/conveyancing fees for transfer

To better understand the implications of CGT when gifting and transferring property it is important to start with understanding the basics of how capital Gains tax works. Click the link below for the fact sheet we have prepared on the PTS website

For case studies and examples of the implications on transferring or gifting property or just adding names to title click the link below to the fact sheet we have prepared on our website

Update on investments (Japan real estate, shares and investment bonds)

Financial independence australia

Hi Everyone,

Instead of doing an article the way I do these days – telling a bit of a story – I have decided to keep on giving “real life scenarios” on things I’m working on and their results. After discussing on forums, I have discovered that my investment path is quite unusual, most probably because of my European background. While most Australians focus on Australian property and shares (Australian again – franking benefits), I’m a big believer that a successful investor needs to spread investments not only on asset classes but also geographically, and this means overseas.

Because I believe in Do It Your Own – the most effective way to learn! – I also want to invest directly in overseas markets, whether this is shares or real estate. I haven’t done an article yet on what are my goals and where I’m tracking as I’m somewhat shy on spreading my finances in front of the “world of the internet”. But here what I have decided to do:

Japan real estate update:

It took me a while but I have now signed the documents with the local agency that I’m going to be dealing with. I had to witness a limited power of attorney and contract of services with a solicitor – Paid $75. A JP wouldn’t do it (tried 3 times!).
TIP: A notary was suggested. They usually charge around $110 to $150 per document. The solicitor was able to do the same for $75. Nice way to say $40 bucks!

I will send all these documents to Japan now for the agency to sign.
Next is an upfront payable service fee to have them engage and start selecting properties. Fairly common and again somewhat inexpensive compared to a similar service here: A buyer’s agent will charge around $15k AUD with $2k upfront in Australia..

I’m also lucky as I have a Japanese colleague who has nicely accepted to run past the deals to see if he can detect something irregular. He has mates and family across the country if needed.

I have discussed with 4 different reference customers, from Australia and from I’m originally from: France. I wanted to check that I wasn’t part of a giant scam and checked their Linkedin profiles, etc… Picked up some great advice along the way on exchange rate issues and the minimum amount of money that I should leave in Japan at any time.

Once the agency is engaged, I have to transfer money. And this is where the exchange rate potential issue kicks in. The returns and entry points as discussed in my previous article are a lot more attractive (7 – 8% with entry points of around $40 to $50k AUD) in Japan than in Australia. But this money invested has to be “luxury” and what I mean by luxury is money that is not needed in urgency to pay bills. So far, the agency uses OZForex which seems ok to do transfers, but they charge $90 per transaction from Japan to Australia (their local bank) so the amount has to be quite substantial to make it worth the effort, when transferring money back home.

I don’t plan to bet on exchange rate, just to keep an eye on it not to get screwed!

Direct US share via Interactive broker first buy!

It tool me while but here it is, I have done my first share purchase! Code is VOO directly bought in USD, in the US, via Interactive Brokers. I’m actually quite proud as I had no idea what was the share market and how to invest in it few months back.

It seems VERY important for tax purposes to keep track on the purchase so I have started an excel file that I keep in Google Drive for simplicity, security and easy access across devices. I have noted: The date purchased, number of shares, what price I bought them for and what shares they were.

I will do a complete article on how I from no knowledge to doing my first investment directly via an online broker. IB charges $6 per trade which is ridiculously cheap compared to all others, including CMC market that I have also opened an account with. That’s also the only online broker that gives me complete direct access to all share markets around the world. I also hope that they will put back their multi currency accounts back to have instant access to Forex at unbeatable prices:
I could then use Interactive Brokers as a bank for my travels back to France, and deposits from my real estate in Japan directly without the burden of using an agency to collect the rent! Fingers crossed.

A last word on trading. I never understood why people go crazy about shares. I know understand. I own real estate also and the main difference between the two is that you see shares go drop and climb within minutes. Because I’m trading in the US and didn’t want to wake up at 3am when the markets open there, my first buy was unsuccessful:
– I tried to buy just below $201 per share which was the lowest price the previous day
– the next day, it was already at $202 and by the time I placed my order and checked it has been processed, it went up!

Saying all this, the S&P500 is trading at all time high and I have left a lot of cash on my offset account so far. As I said previously, it’s not if it will crash, It’s when.

Investment bond:

With Superannuation (salary sacrifice), here is probably the second most tax effective way to invest these days in Australia.

Mr Barefootinvestor gives some great advice, I’m going to follow up on his ideas! I had a close look and it is all starting fine:
– An investment that pays off with deferred tax arrangements. Which means that if you are above 30% tax bracket, you have tax advantages within the bon
– No capital gains tax nor revenue taxes after 10 years
– I had even found a company that would offer Vanguard index shares: Austocklife

The fees are not good (almost 1% per annum), but the benefits out weight the cost.

I’m looking at opening an account for my wife and I. But also for our kids as this is a nice way to have them started in 10 years time financially. It seems that you have the possibility to change names of ownership quite easily, which, frankly, would help a lot! I would then open an account and then transfer the benefits if we’re well off financially to our kids. If we’re in need in 10 years, we have a great investment completely tax free. If we run in trouble before, we still have our investments in shares and real estate we can turn back to.

More on this soon.

In the mean time, see y’all!!

October economy diggest

Hi Everyone. I usually try to summarize myself a few economic every month, to keep on top of things and I have decided it could be a good idea to share this content.

Sydney real estate prices sent through the roof

According to residex, Sydney’s median unit price now sits at a record high of $705,000, having increased by +44 per cent or $217,000 since July 2012.

Sydney house prices are now only +2 per cent higher than one year ago, despite being +24 per cent higher over the last two years (and +61 per cent higher than in July 2012).

Rents rising are now slowing down
According to the ABS, rents rose by 0.7% last quarter.
The indices rose 1.3% over the twelve months to the September quarter 2016, compared with a rise of 1.0% over the twelve months to the June quarter 2016.
Hot Auction clearance still in Sydney
Corelogic confirmed that of hot auction markets with the combined capital city clearance rate spiking above 80 per cent this week on lower volumes than a year ago
More debate around apartment oversupply
An interesting article from finders, explaining with links to even more articles on the subject. The risk of oversupply in Brisbane and Melbourne could turn into catastrophic employment situation, should the economy be not strong enough to absorb it.
Land prices are at all time high
If you quickly look through Housing Industry Association‘s website, you will see that residential land prices really have been steepling higher, up by another +2.6 per cent in the June 2016 quarter.
This takes the median lot value to its highest ever level at $237,535.
Over the past five years the median lot value in Australia has increased by +25 per cent.
Forecast of a decline in housing price for 2018
Another article from finder, using Shane Olivier’s details:
“Nationwide price falls are unlikely until the RBA starts to raise interest rates again, and this is unlikely before 2018, at which point we are likely to see a 5% or so pullback in property prices,”
Still new more vehicles on the road
The ABS confirmed that new vehicle sales rising to their highest ever level with a massive 100,640 units shifted in September 2016, for a 2.5 per cent month-on-month increase.
Vacancy rates start to rise
SQM Research reported that year-on-year vacancy rates are slightly higher.
Sydney and Melbourne reported vacancy rates of 1.8 per cent and 2 per cent respectively.
In Brisbane, where there is still a significant pipeline of inner city apartments set to hit the market, vacancy rates are 2.9 per cent.

I’m considering investing in Japanese real estate

Investing in Japan real estate

In the search of diversification and performance, I have decided to consider other global markets than Australia.
I have had people contacting asking for some more details about my investing approach so I have made the decision to cover more of hard figures, not only theory. Last article about my  personal experience seem to get more people interested…

If you’ve been researching on personal finance for a while, you will now know that it is important to diversify. Diversification comes into two flavors: Asset class and geography.

It appears to me that it is very important, when you invest in real estate, to get exposed to different markets. In Australia, many people would invest interstate as an example, but, to me, this is not enough: You’re still applying your risk to one economy which represents only more or less 2% on a global scale.

Why Japan?

When I started to research for the next investment in real estate, I wanted the following criteria:
– Safe large economy
– Regulated economy
– Rental demand
– Highest possible returns
– Minimal risks with vacancies, tenants, etc..

Japan appealed to me as the third largest economy, with a population driven to move to big cities (sustaining long term demand), with low rate of ownership (around 60%). The Japanese culture makes it a real safe investment: Japanese people are stable in nature, would stay in the same unit for 10 – 15 years. Lastly, the returns (around 8% outside Tokyo and Osaka) and low entry tickets (around $40k to $80k AUD per unit) helping me to make Japan in the target list.

Few issues arose with language barrier, the impossibility to open local bank accounts, exchange rate, quakes, etc… And due diligence is once again key to find local contacts you can count on – More on this as I progress.

We also traveled there last year and it appealed to me that there is a potential and that the language barrier would stop many foreigners to invest there. I saw this as an opportunity.

Where am I at now?

I’ve found a local agent, Australian background, who’s been running his business for a few years now. I have done extensive research and connected to many reference clients.

My strategy is to buy one or two full tenanted units, for around $30 to $40k each. I don’t plan to buy more as I consider this still as high risk and you shouldn’t put more than 10% in risking investments.

My plan is to keep no more than $5k AUD equivalent in Japan in case, and transfer half the funds to secure the first unit and the other half on settlement. Again, this would help me feeling more confident not having $100k out of the bank at once!

What is next?

Now that I have found the agent, I’m comparing his fees with other local agents and listings.
I’ve narrowed down my research with 3 regions in Japan, and I will also ask the help of a japanese colleague on what he believes on the regions and the deals.
I have concentrated my efforts on tier 2 and tier 3 cities with long term growth, and no more than 3 hours by bullet train from Tokyo.

I will continue to monitor the region at suburb level and then start to make my research on deals, using local websites and/or

More on this soon,

See y’all!

Are you ready for when this will crash?

Crash proof your finances

Crash proof your finances

Hi Everyone. Today we’re going to discuss a high sensitive subject: Housing/stock market crash.
As specifically housing. It’s not “if”, it’s “when”. I know I know, Australia is different, we’re a young country, the Lucky Country.

Here is the thing, even the dumbest people of earth like D. Trump sometime are getting it right: “We’re in a bubble right now, and the only thing that looks good is the stock market. But if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful.”

Interest rates are at the lowest in history: Great! Or is it? Interest rates is a tool used by central banks to stimulate the economy. But what if it doesn’t work? Then, it just creates what we are experiencing right now: A giant bubble.

When I hear that some of my colleagues with one salary are getting mortgages for triple the size of my unit (and we’re on two good salaries) to say to me: “If the interest rate goes up by 1%, I’m bankrupt”.
When I see that we can’t rely on our biggest economic partner numbers – China – China’s numbers are wrong?
When I see that EVERYONE seem to believe that real estate is always a good investment Or is it really?

All lead me to believe that we should be all careful or end up like  this

So what do we do? Stop investing? Hide behind a wall waiting for the crash?
Obviously not, and this is what I did and am doing:

1/ Pay off your house asap:
I bought my unit, even if I knew that we were in a bubble. But I bought in 2013, just at the beginning of the boom. I also own an investment property. My goal is to repay the loans asap. Sure, I could gamble and use equity, etc etc.. In fact, there no month where I don’t receive a call/email from my bank inviting me to use my equity.
I have an offset account and I put everything I can. And I spend less then I earn. So that I own the bank less after the end of every month

2/ Put a safety net in place:
What if you lose your salary (laid off, injury, etc etc)? You should have at least 3 to 6 months (if possible more), in cash, just in case. Believe me, trouble occurs as you can read in My story

3/ Continue investing and be careful with your expenses:
There is one thing you can control: Your expenses. Market are up and down, and eventually crashes. But by controlling your expenses, you will be able to recover faster. I personally use Pocket Book. A great free tool.

Don’t pay attention to the news and keep on investing in value without too much debt exposure. You have way more chances to succeed than financial planners

LICs and index funds should be your best friends. Stay committed.

4/ Don’t trust government schemes and your colleagues: Do your research and due dilligence
Sounds silly? The only person’s judgement you should trust is you and your guts.
Negative gearing? Superannuation? As I read in the book highlighted earlier, “you should invest with the flow”. Really?
So why did we have a GFC then?

The only thing you should spend time on is educative yourself and read forums, and question everything.

5/ Start thinking of a way to diversify your revenues:
Another job? A side hustle? Investing in other countries/ currencies?
Every one will agree that best way to secure your future and your investments is by diversifying (assets and geography)

6/ Get the right level of insurances:
This is very true for us Australians as we have many insurances and very important ones, but many are also just not mandatory. They should be in my own opinion. Again, MoneySmart has some great articles on the subject.


See Y’all!

Pay less. Cut your electricity bills. Actionable tips.

My electricity bill

My electricity bill

Above is a screenshot taken from our electricity bill last quarter. As usual, we will analyze the facts and what we can see here is a house with 4 people (mine – in blue) consuming less electricity than an average house with one person around my area.

I would mention that we don’t have gas at home and we cook every night. So how on earth are we achieving this, with two kids and two adults? Here are few tips of things we have changed and things we’re doing on the everyday that make a difference.
You can also see that electricity usage has decreased by 20% since last year (from 10kWh down to 8kWh per day) and we’re spending 50% less than a house with 2 persons. Means that the actionable tips below will save you a minimum of $250 per quarter or $1000 per year!

  • Turn off lights we don’t use:

You leave a room, you turn offthe lights. Very simple, very efficient. But I’m still surprised with the number of people who leave the lights on everywhere they go (at home, in the garden, at work, etc…).

  • Change your bulbs to high efficiency ones:

We went to Coles and changed all bulbs to white (very important to drive more light) low consumption bulbs

  • Turn down the oil heaters or don’t use them at all:

In winter, we tend to use them around two weeks only. And only to warm up the kids room before going to bed. Instead of trying to cover the entire floor plan, why not wear some warm clothes? Side tip: Move, do crazy things with kids, you’ll get warm and they will love it!

  • Let the natural “warm” wind flowing:

Even in winter, we’re lucky to live in a country where days are usually topping at 15 degrees minium. Leave the windows opened during the day, especially the ones that have sun exposure. You will gain inside one or two degrees easily.
One important point: Opening the windows very early morning is completely useless: It brings humidity in and it’s usually colder outside than inside. If you can wait until 11am, do so.

  • Combat humidity:

Humidity is a killer. It’s actually what makes us feel even colder than what it currently is. So 20 mins of a good dehumidifier is, in my opinion, a lot better than 2 hours of oil heating.

  • Cook!

We cook a lot. In fact, almost every night. When we use the oven, we leave it open as we have finished cooking. Here is free heating!

  • Prewash:

We prewash every dish before putting them in the dishwasher. This way, the 30mins program is enough.

  • No dryer:

We go rid of it. A WASTE of energy. Dry your clothes outside or on the balcony

  • Small programs on the washing machine:

We did the test and realize that it’s a lot better not using the washing machine fully loaded (instead, we do 75% loads) and let it run for 30 mins only than fully loading it and leaving the 2h program on

  • Remove the PC chargers when not used:

A PC charger takes a LOT of energy (most 3 digits watts). Charge only as needed and unplug when finished. It also saves your battery in the process as batteries don’t like to be charged when full, it kills their lifespan.

  • Same with mobile phones:

Don’t let them charged all night. Charge them alongside your PC during the day, in car when driving and a bit at home. Not all day and night long.

  • You don’t need all these appliances!

Do you REALLY need the latest toast maker, latest portable grill, Thermomix, etc etc… I honestly don’t believe we do and it saves money along the way

I would lastly mention that by doing this, you also save a bit the environment… another reason to do a bit of effort everyday 🙂


See y’all!

You need help from ASIC to spend less on your car

I’m always asking myself the question to see if I should change my car. Every couple of years, we all do. And most people I know actually are “investing” in a new car every 3 years. I drive an old Peugeot (Yes ! A French car for a French guy, how classic!) 306, since 2010. This car is nearly 20 years old. But it drives great. Sometimes I’m pissed off with the money I spend on fuel, insurance, etc…

But seeing the new report from ASIC around Australia and car ownership, I was in chock but also feeling better: Compared to many, I don’t spend that much.
You can access the full (excellent report) here:

What we learn:
– Many are driving cars that are consuming above 10l / 100kms. That’s insane! In an age where we now have cars that consume sometimes less than 5L per km, why would we do this?
If I read the report, that means that we could instantly save around $800 per year, just by switching to a fuel efficient car
– 13 000kms per year… WOW… I do less than 5000kms per year and I have one child at school that is 10kms away from our place + I’m a sales guy, always on the move…
We should question every time we take the car: Can I walk to the groceries instead of driving, can I walk to the beach instead of driving, can I take my bicycle to go to the gym.
I still see my colleagues driving down from work to the gym to “exercise” – That’s 500m. It would help your body and your wallet if we were all walking (even better, running) to the gym. Not mentioning the environment…
– People buy a lot on finance (more than 50% of the time). I have discussed the details  and we should NEVER buy on finance. If we are forced to, we should review of need vs our wants. We need a car, but maybe not a BMW…
– More interestingly, we buy new. This is very very hard for me to understand. As soon as you turn the key on for the first time, If you consider (according to the report), that we buy cars on average that are worth nearly $28k AUD, we’re wasting already few thousand dollars from day one. We could buy the same car, one year old, for $23-$25K, and also save on stamp duty in the process.

See Y’all!

BMW vs Fiji

Two weeks of holidays in Fiji still cost less than a new Beemer!

Two weeks of holidays in Fiji still cost less than a new Beemer!

We’re just coming back from Fiji. Well, a month ago to be exact. As a foreigner, it’s like a dream come true. You think in pictures of what your holidays would be like in a paradise where you get tanned while drinking a cocktail. In fact, the reality appeared to be even better for us, and this could be an experience of a life time… that we might do all over again…

What stroke me is this: As our first day back, we’re having a chat with our colleagues and at the school run early morning. While many of the families we know had the luck to go there too, not all have traveled around the islands as we did, and had some “luxury” experiences such as snorkeling with Manta Rays or staying in these hotels in the middle of idyllic corals. Even better, we’ve heard things like: “How can you possibly afford this?” “That’s way too expensive for us” “We wish we could but we just can’t, you’re so lucky!”

Lucky? Really? The people saying these comments are the same people driving 7 seater cars that they park at night in their double garage of their 5 bed/3 bathroom housing. How is that for a luck! I’m not judging the fact that many prefer luxuries to immaterial “souvenirs” such as holidays – Not only they do that, everyone does, all our mates in Europe – To me it’s just where you place your priorities. But, please, don’t talk to me about affordability, the numbers just don’t stack up.

Here, I’m not going to talk about the whole lifestyle difference but just what could downgrading a car could do in your holiday lifestyle alone. As we all know, holidays is not there just for fun, it’s also a time to decompress, a time to re-center, a time to sleep, to release from our day to day duties. It provides much longer benefits than just these one or two weeks. That can be something you carry on for an entire year or longer. I’m still closing my eyes today when stressed and think of some of the things I’ve witnessed more than 10 years ago to decompress..

So here it is, and because I’m a little crazy, like we’re doing this year, we will be going overseas for 2 x 2 weeks. I’m not entering into details on what we save on when we travel, but we don’t hesitate to spend when we want to (That our priority of the year!). Fiji has cost us $7k AUD for two weeks – 2 adults and 2 young kids – Flights included.
So we will most likely spend another $7k AUD this year for the next trip.
But I have budgeted $16k AUD in complete transparency.

Now, let’s compare this to one of the mum who mentioned that she “cannot afford this”. Today, she’s driving a BMW X5, that she’s bought brand new (sic!) and on finance (another sic!) – Outch $185K brand new!!

I’m going even to be nice and say that she’ll keep the car for 10 years – We tend to change every 3/4 years (sic!) – and that she found an incredible 2% rate. Her repayments would be $1700 per month or $20k AUD per year. But she will still prefer driving a money wasting car then going on holidays 2 times per year in Fiji for 10 years!

Some would argue that I have chosen a wrong example, an overpriced car. Not a problem. If the same lady would just buy a $80k car, she would still need to spend – just on repayments! – almost $10k per year! Then you add comprehensive insurance and all the lot (we spend much more on new things than we do on old..)
If she had chosen to buy a $10k car, with plenty of life left to it, that she would have paid cash. The next year, she could then put $10k AUD against her holidays instead of car repayments.. and this for the next 10 years!

And feel happy, and feel relaxed, and not financially pressurized…

Now it takes pride to do this. We’re (I do!) receiving comments every day about my car, the fact that we leave in a two bed apartment with 2 kids, that we’re not going to restaurants on week ends, etc…
But to me the reward when I face this beaches and am about to go for my second snorkel of the day by a water of 26 degrees doubles, what do I say… quadruples!

Where will YOU travel next?

See Y’all

Early independence calculator and the costly mistake of your networth

financial independence

Ok ok ok… I start off but saying that I have done some mistakes with calculations, nobody’s perfect right! And we all learn along the way.

So… Everyone agrees that you become financially independent when therevenues from your passive investments (as opposed to active, ie working for a company) equals at minimum to your monthly spending. Simple calculation right?
Not so as people tend to ask few relevant questions: Passive investments, would you count your superannuation? What about your safety net? How do you factor inflation and taxes? And i also all depends how you calculate your Net worth.

I’ll be straight: There is no-one that can predict future of inflation, market and real estate returns, etc.. At best, we guess so don’t take any calculator you find on the web for granted.
Here is how I got wrong: For a long time, I use to count my home in my net worth calculation and my safety spend

For those who don’t know, safety spend is money that you keep in case of emergencies. It is recommended to have at least 3 to 6 months worth of expenses in cash, just in case. Like insurance, you may never need it, but if you do, you will be able to concentrate on the emergency it self and not another financial pressure on top of that. Basically not as immature as I was young:

Back to net worth: If you count your home unrealized equity in your house, as I did, I don’t think you’re in the right. I know some people say that you can sell, you can access to reverse mortgages, etc… But, again, that’s a big bet ! What if the mortgage industry is being regulated and you cannot access the equity anymore? You could sell… But you will have to live somewhere else and unless you’re willing to downside, you might lose more money than you gained (taxes to sell AND to buy again!)

So here is the way I track my years until financial independence:

1/ Getting to know your spending levels:

To do this, I use Pocketbook:
One free tool that links your account details to preset expenses and categorize them for you. So, in 9 months, a year from now, you can exactly know how you spend, not making assumptions as other calculators do..
On my side, I modified manually some expenditures like kids day care.
Also, you can track your expenses but not your revenue. In case of real estate, I use my tax returns to know exactly how much I’m making or losing per year

2/ Calculating your net worth:

Many tools I have used along the way but one simple is coming from Moneysmart:

Again, count only what brings you revenue, not your car, bicycles and tools… 🙂

I take into account my superannuation.

One word on real estate. As we all know, real estate (RE) in Australia is very rarely making monthly revenue returns in the beginning. As such, I suggest not to invest in RE if you’re planning to retire in 5 years: Your investment is likely to cost you monthly than bringing monthly. Unless you buy to resell or buy in region (Big bet BTW!).
To get an idea of my long term returns on RE, I use the calculator below:
Again, there are assumptions but might give you a fair idea of LONG TERM returns. I insist, RE will help you in case you’re investing there in the long haul.

3/ Annual savings

I track these monthly and make an average. I have done my own excel file. Contact me if you want to have a copy.
This is an important step as this is the money your going to invest yearly until you plan to retire.

4/ Calculate your early independence date

That’s the exciting part and I use two calculators to cross check.
The first one is much straight forward, enter your net worth from above, your monthly spending and saving… and voila!

The other one… I LOVE !:
Why? Because it gives you many possibilities: Add your superannuation repayments when you turn 60 (and this date is also your choice!), taxes, inflation rates assumptions, rate of returns of your investments.
You can see straight away your impact of your yearly spending on the feasibility to retire of not

See y’all!