How will you answer “What do you do?” in your post-FIRE life?

I have a tonne of things lined up for our post retirement lifestyle. I started two Google Keep lists months ago on my phone to jot down ideas when I am out and about – all to avoid the fear of being bored in our retirement.

 

I’ve been thinking about this a bit lately, as we get closer to our FIRE date of December 2020. Some of the FIRE folk can get very focused on the goal of FIRE and forget about the living between now and FIRE; as well as the living after FIRE.

I’ve noticed it in myself. When people ask me “what do you do?” I respond with my current job and it gives me a certain level of pride. I work in the public service. I work in the PM’s department, no less. I also noticed this tendency to define myself by my job when I was a lawyer. It came with a certain amount of unspoken kudos. In a way, I didn’t have to prove my intellect – my job title did it for me. To date, my role in the workplace has been doing some pretty heavy lifting, in terms of describing who I am. I’ve let my job title describe me for years.

Even in the two years leading up to our FIRE date, I am going to have to start redefining who I am, as I move to lower levels of responsibility in our transition out of the workforce phase. I won’t be leading a body of work – I will contributing to a body of work, of which someone else is leading. This will be a struggle for me – I’m an out-in-front-energising-the-people kind of a person.

Don’t get me wrong – the work stress combined with raising teenagers has been a bit of an overload, and I will be looking forward to less responsibility in the work place. But it leaves me struggling for words when people in future ask me “what do you do?”

Are we retirees? Feels like it will age us before our time. I will be 48 when we hit our FIRE date. Retirement in Australia is usually 65. When I have used this term lately people say I am too young to retire. Retirement conjures up images of endless afternoon teas, afternoon naps on the couch and the golf course lifestyle of the 65 and over. Are we travellers? We will only travel for a month or two in winter each year because my husband likes the routine of home. Vegetable growers? I guess but we will grow mainly in spring and summer. I guess I could resort to this shopping list style of describing what we do.

I could say I am financially independent – but I don’t think it provides enough detail about what being financially independent means. It could mean I am filthy rich or living on social welfare…

In some ways I would like to be a little bit provocative and challenge the status quo. When people ask me “what do you do?” I could say “well…… I don’t work”. But in a way I don’t want to leave the questioner feeling uncomfortable or inadequate. That kind of statement could shut down any conversation. Equally, it could open up a number of questions about why I don’t work. But as a community, even though FIRE awareness is growing, I think it’s still early days for the individuals and families to think about a post-work life, or even a life that doesn’t focus on getting up and working every day. People who know me know the plan; but for those that don’t, I imagine shutting down the “what do you do?” conversation will find people stumped for a follow up question.

I’m having a hard time settling on what the answer will look like. For now, I think I will say I am pursuing a number of projects like sustainability, travel and veggie gardening; as well as spending quality time with my family.

I think this will be a work in progress. How will you answer this question in your post FIRE life?

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Creating your own death spreadsheet part 2 – net worth tracking

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So… once you have the total cost of your expenses nutted out and indexed for the rest of your life, you come to the part where you need to calculate the income required to meet those expenses. I’ve written about the income my family will need in retirement here but another important part of the equation is to keep track of your net worth – particularly for future planning – and not just the income producing assets. For example, our home is worth nearly $1m, makes up about one third of our net worth and while it doesn’t produce any income right now, it is important for us to keep track of the value in case our circumstances change and we are required to think about how to better deploy that capital for our financial needs.

What is net worth? In my head, net worth is your family assets minus liabilities. Prior to getting serious on our financial future, our net worth would have been barely in the black territory – closer to zero, more like it- as we had a mortgage of $350k. But after some serious knuckling down, some employment payouts and some granularity on the value of my husband’s superannuation pension, our net worth is tracking quite well for our early retirement.

Some net worth trackers out there include the family home; others exclude it. I like to think of the family home as part of the potential income earning asset pool, because you can create ways to use it, like Air BNB, hosting a student; or downsizing later for less and using a smaller capital pool to generate income.

As I share these numbers and the calculation methods, it is not lost on me that my family and I are in an incredibly privileged position. We are both educated. My parents started off in financial dire straits but slowly built some wealth over time (they showed me how to do it, really). My husband’s parents were educated and had successful careers. Both of us were fortunate enough to go to university and have had reasonably successful careers, living in the highest income per capita city in Australia. Jobs are plentiful here. Even though we have both been through redundancies at various times, we have enjoyed a short break and found work within a few months, without any financial losses.

But once again, I find the financial independence numbers for an Australian context hard to find out there in web-land, so I put ours out there to start filling the void. I hope others are prepared to do so too, so we can build a context rich picture for other aspiring financially independent people out there.

We paid down our mortgage following the year of austerity and have no other forms of debt, so I’ll be reporting on our assets only. I use an app called Wealth+ and manually enter the numbers each little while. The numbers fluctuate because we invest the share market; our house increased in value by $50k during the year and we got a closer idea of the value of my husband’s superannuation which boosted our assets significantly. He has a defined benefits scheme and we previously valued it based on his annual statements. Now we have moved the fund to cash and have received a pension estimate from the fund, we have valued his super at 25 x the annual net pension, assuming he lives until he is 80 and draws down from age 55.

So here are the screen shots of the app. We started tracking our net worth on the app in February with a commencing value of $3.423m. As at 28 July, our net worth is valued at approximately $3.545m.

net worth 2

net worth 1

The categories I track are below:

net worth categories

I love watching our progress. Investing and saving can be hard if you can’t see the gains. Knowing our net worth has increased by nearly $120k since I started tracking this February is so motivating and really exciting to show my far-less-interested husband (giggle!) about the progress we have made this year.

Do you calculate your net worth? What method do you use? How do you find it compares to the US versions of FIRE?

How to start you own death spreadsheet in Excel – part 1

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Grimly titled but the death spreadsheet is the most useful spreadsheet I have ever created.

I created the first version of this document back in 2014 when I felt like I was trapped in an awful job, earning quite well but job stress was out of control and I wondered if I had to tolerate this level of angst and frustration for the rest of my life.

To wrestle back some form of control, I decided to create a spreadsheet to work out exactly how much we needed to earn to live a reasonable life – for the rest of our lives. To build this spreadsheet, David and I had many conversations, over a period of time, to think about and design the type of financially independent lifestyle we would be happy with. An extravagant, luxurious one? No – not really our thing. A really nice lifestyle that includes international travel once a year, travelling within Australia, going to other capital cities, money for our hobbies/passions, time for volunteering and one home renovation project a year? Yes, definitely. I’ll take that version of financial independence any day of the week.

In 2014 we were close to paying out our mortgage, so our expenses were about to change considerably. I also knew both had good superannuation or retirement savings, so I wanted to understand, excel spreadsheet cell by cell how much we needed to earn in order to be financially independent.

And so the death spreadsheet was born. On the top line, I created a table out to David’s average life expectancy and mine (there is a little age difference 😊). Then I plotted out our expected income and expenses until we died. Fun, huh!?!

Key assumptions for the spreadsheet:

  1. Indexation of 2% for wages and our superannuation pensions (except for mine – I’ll take a flat rate)
  2. Inflation over our lifetimes (around 2%)
  3. Conservative estimated earnings on our investments at 5% over the next thirty or so years.

I created detailed expenses tabs that adjusts for this year and next when our expenditure circumstances will remain the same. In 2020 we expect to be paying for only one child in total – the other children may be living here and eating with us, but they will be largely responsible for their own expenses.

I have highlighted the current year we are in, and the year my husband’s superannuation commences ( I LOVE to see those two drawing closer together – means we are closer to financial independence).

You can see our net result bounces around a little but that’s ok – over the 12 year period, it works out about even. In my next post, I will detail how I have calculated our expenses over this period, and how I have calculated how our investments will support us in our two stage financial independence plan, paying down like an annuity.

Excel has saved my sanity! Never thought I would say that out loud to the world…..

 

So why financial independence and how does it relate to simple living?

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This is a quiet nook in the corner of our newly renovated living area.  I’ll do a house tour later this year.

So why financial independence and how does that relate to simple living?

I love the fact as humans, we are constantly evolving and changing.  I have always had a really big thirst for knowledge, and when I am really interested in a topic, I emerge myself in all available material to learn and grow and connect with like-minded people.

I have found this is absolutely the case on my simple living journey.

First came the feeling over being overwhelmed. With five kids more than half time, a busy job, two kids with mental health issues and interests outside of work, I felt I was never on top of things and always running behind.  My to do list was always longer and greater than 24 hours in any day and I never truly felt like I could sit down and relax.

My health started giving way and I realised things needed to change.  So we created the year of austerity to pay down debt and not be a slave to full time employment.  We achieved this goal in 2015 after some hard work and a small inheritance.

During this time, I was also organising the whole house like crazy.  I thought if I made some sense of the physical chaos in my life, simplicity would descend upon our household like some kind of magic.  A place for everything, everything in its place.

But of course, I organised every drawer within an inch of its life, felt only marginally less overwhelmed and realised I just needed to downsize and declutter.  For a while I donated, sold and gave away stuff in my house like a possessed woman.  Gumtree, eBay, Vinnes and Buy Nothing New became my best friends.  We also renovated which provided a great opportunity to reassess a lot of clutter in our house. The downsizing was enormous – I stopped counting at 25000 items, and I forced myself to reassess all purchases, use up all cosmetics, audit the fridge, pantry and freezer……..

I found the two upsides of decluttering were:

  1. The house felt refreshed, sorted and clear of things that previously made my brain ache. I confirmed in the maximalist/minimalist debate, I’m definitely in the latter camp, although far from living out of my back pack with less then 100 items to my name.  Funnily enough, the first year of our retirement David and I have decided we will go through the house and declutter again as a first priority because we can still identify many items that need to go.
  2. We spent so much less money following a consciously commitment to this form of living and this has enabled greater savings for our FIRE plan.

Once I discovered the FIRE community and worked out we could work less I immediately amped up our savings plans and began consuming everything I could on saving, investing and planning for an early retirement. I realised the FIRE path was really one that could really support my goals of living simply and with less stress.  FIRE became the wind beneath my simplicity wings and the two goals merged into one. I reduced my working days to three a week and began living a simpler life – with a longer term financial plan.

So – in short – from overwhelm to organisation to minimalism to FIRE.  I’m sure it’s such a well-worn path. With December 2020 looming, it can sometimes be a source of overwhelm all on its own, but I am looking forward to writing about our plans for our post FIRE life and all of the hope for a peaceful life it holds. For me, financial independence and simple living are inextricably linked.  To live a simpler life I need to have a source of passive income to pursue the things I want to pursue – be fast when I want to be fast and slow when I want to be slow.

Are you on any of the paths to financial freedom or simple living? Have you been down a similar path?

Financial independence update May 2018

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This is from the Triennial exhibition at the National Gallery of Victoria – spectacular.

It’s been awhile on the post (apologies friends!) but sometimes life takes over (like teenagers and their needs) and priorities change. But I’m keen to let you know where we are up to on the financial independence journey and tell you we have 925 days to go until we are financially independent.

NINE HUNDRED AND TWENTY-FIVE DAYS

Feels like an eternity and super close, all at once. I have a countdown app on my phone and I when I started it, the number was 1009 days. In a very short period of time, over one hundred days have passed, so this is going to fly by quickly.

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So I am keen to write a bit more on this topic and share with you how and why our finances allow us to live a simpler life.

For this post, I want to share with you our financial independence plan. Not to brag, or to be compared to others. I’m just doing it to actually disclose my numbers and my plan, so anyone doing research on this topic can find some cold hard numbers. Lots of websites talk about “…x times my annual expenses” or $1m at a 4% withdrawal rate. But a lot of these sites are from the US and while they are interesting to read about, I am often left wanting after a google search to find something that represents middle class, urban Australia. And if you can’t find, it create it. Start a conversation. That’s my view.

So we have two scenarios we are working on. One is base level, worst case, where both of us feel compelled to leave our jobs immediately…..(usually a Sunday night sort of conversation at our house – let’s call this the Sunday night calculations) and the more realistic and comfortable version, where there is enough padding (let’s call this scenario Padded FI). Sunday night calcs involve finishing up our well-paying jobs with current savings and just earning enough to make our living expenses between now and December 2020; Padded FI (Financial Independence) see us working in our well-paying jobs until December 2020 and continuing our current savings rate (around $50k per year).

One more thing before I disclose the numbers – we have a two-stage strategy. I am 45; my husband is 52. We are close enough to superannuation to take this approach – Stage 1 Before Super and Stage 2 After Super. But I think anyone contemplating financial independence in Australia can think about it in two stages – pre-super and post-super.

For us, it looks like this:

Now:                   Work to save/pay living expenses until December 1, 2020

Stage 1:               Live on my husband’s superannuation, which he can access from 55 and supplement with investment earnings (2021-2032)

Stage 2:               Access my superannuation at the start of 2033 when I’m eligible to start  drawing a super pension (aged 60) and continue my husband’s (indexed)                          superannuation pension

US case studies rely on the 4% withdrawal rate for thirty-somethings, for the rest of their lives. We only really need to build sufficient passive income for a twelve year period to supplement my husband’s superannuation, before accessing mine.

In Australia, for those families with superannuation, the numbers might work a little differently. You may find you need to live off investment incomes for a period of time until you can access your superannuation. Or you may decide to supplement lower superannuation pensions with some investment income. Either way, it’s important to do your long term financial projections to understand your particular circumstances and discuss your strategy with your financial advisor. Ours got the tick of approval a couple of weeks ago at our annual appointment with our financial advisor.

Stage Income total Sunday night Padded FI
Stage 1 Husband pension $       73,621 $         73,621
Investment earnings $       27,433 $         29,819
Income total $     101,054 $     103,440
Savings remaining $               – $     120,000
Stage 2 Husband pension $       86,414 $         86,414
My pension $       40,000 $         40,000
Income total $     126,414 $     126,414
Savings remaining $               – $     120,000

 

As you can see, the difference in income is not that great, but the financial security of some money in the bank is worth the otherwise sleepless nights of not having a safety buffer. So we push through working more and continuing to adhere to the budget, in order to enjoy the fruits of our work later on in life.

Do you have a financial independence plan? Are you thinking about retiring early from a job and pursuing other business or creative interests? If you are game, share your numbers 😊

We are home! Slow travel lessons

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Hello everyone we are back and alive! After a month of being in Italy, Switzerland, Paris and Singapore we are back into reality.

It was such an experience and everyone was definitely fabulous. We didn’t miss a bus or train or subway thanks to my detail-oriented husband, and we didn’t lose anyone.

So as for the slow travel/minimal suitcases – I have to say that I am hooked. Taking cabin luggage only meant that:

  • We did not over pack. I packed:
    • Three pairs of pants
    • Two pairs of shoes
    • Three t-shirts
    • A coat
    • Two jumpers
    • Underwear and light pjs
    • Minimal makeup – eyeliner, mascara, bb cream, two lipsticks. We took a risk that in most places we would have access to a hair dryer and otherwise we would tolerate holiday hair.

* Reality test: we are wearing the same clothes in most photos. We didn’t mind. We also took a small portable washing line and hand washed underwear when we could not find a local laundromat.

It also meant that we did not buy a heap of things that we would not really need at home. You know that feeling – I must be this leather jacket/piece of jewellery/touristy ornament because I am never going to be back – is such a holiday spending trap. My husband brought a small foldup light bag that we put extra purchases in, but it was across the seven of us, so really we couldn’t buy much. The photos and memories have been the things that we have come back to the most, since being at home, not the things that we bought.

  • We had accommodation in apartments where we could cook our own food for breakfast and sometimes lunch/dinner. We could buy and store snacks and fill up our water bottles.
  • We did not try to do everything. We visited a major attraction each day (Roman ruins, Eiffel Tower etc) but also had plenty of down time in cafes or in apartments reading and watching the world go buy. It was such an exercise in people watching.
  • Two other slow travel tips – for the foodies, a food tour in each new city is a must. You get to learn about the local places to pick up the best cheese, baguettes, charcuterie and wine. Then for the rest of the stay, those places become your favourite local haunts and you avoid hit-and-miss food experiences.
  • Secondly – we had eight busy days in Rome and Florence and headed to Lake Como. Nothing to do there but relax, look at the lake, go for a boat trip, drink cocktails and read books. It was such a great “down time” part of the trip in an absolutely stunning location (see view from our hotel – you get what I am saying).

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It would be remiss of me to say that yes, we were fleeced on this trip. Our accommodation was sub-standard, over-priced and next time I would not use a travel agent to make the accommodation bookings. I was nervous taking seven people over and just wanted the certainty of a travel agent booking.

Next time, I will have the confidence to do it myself, and save quite a bit of money. I will still look for apartments in the hearts of the cities we visit, but will do a lot more research on Trip Advisor and make the bookings myself.

We also have a funny Trevi fountain story – we came up from under the subway, saw a small, understated fountain and thought – hey there is a self-stick seller lurking around – this must be it! Kids crammed into a photo and threw coins over their shoulder, made a wish, and we went off on our merry way.

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Until we found this:

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We just laughed so hard I thought I was going to wet myself. Ohhh the joys of being one of those stupid, uncultured travellers that I’m always complaining about at home….

Now that we are back, my husband and I are in the process of making some exciting lifestyle choices about work, our family and projects that we want to complete here around our home. I’ll write more about that next time. Hope you are all well and taking steps towards your slower paced life.

Transition to zero waste part 2

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Today in the Low waste series I wanted to talk about being low waste in the work place.

For a typical worker, this usually comes down to three things:

What you wear to work

What you eat at work

How you manage your work flow

For today’s post I will focus on what to wear. Like many of us I have struggled with a wardrobe full of clothes and nothing to wear. Prior to adopting a simple lifestyle I’d hazard a guess that nearly 80% of my disposable budget went into clothing, shoes and handbags. My habit was shopping. I shopped if I was sad, bored or needed a pick me up. I shopped to celebrate and to spend time with friends. My kids knew that on the weekends they were with me, we shopped for fun. We joked about how many bags we bought home. Looking back I’m pretty ashamed. I’m also ashamed at the opportunity cost of buying all those clothes the time and the wasted money. Money that could have been devoted to financial freedom. Anyways, onwards and upwards from here

So my approach to my work wardrobe is very different these days. Now I look at clothes as a means to an end. I need to look professional at work, but really every dollar I spend on having multiple wardrobe options is another two dollars that I have to work, and it stands between me and not having to work for an income at all!!

If that’s not motivation, I don’t know what is.

So I know approach my work wardrobe using Courtney Carver’s Project 333. I raise eyebrows at work when I mention it, usually followed by a comment that people haven’t realised that I have worn the same thing twice.

The approach is simple. Thirty three items for three months. It involves sitting down and being really deliberate about your wardrobe for a few days. It starts with:

What are the basics that I need in my work wardrobe? For me its ten dresses, two suits that have skirts and shirts. To keep things matching, I usually chose complementary colour schemes. This summer it’s been black, navy and grey.

Then I need a couple of layer pieces like some cardigans and perhaps a scarf or two.

I then turn to mind to what is going to delight me this season – thinking about your fashion interests that season what are a few nice pieces to update my wardrobe and make me feel contemporary

Finally a couple of statement jewellery pieces and a great bag

I have to admit that I am not an op-shopper, but to keep my waste low, I limit the clothes that I buy, and then donate clothes once I have finished with them so that other people can enjoy these pieces that I have enjoyed.

Do I get sick of the same old same old? Sure I do. But I also think about whether it’s worth me having multiple work looks, compared to a life of no work and independent income streams. That keeps me satisfied with wearing similar clothes over and over again for sure.

 

Part 5: Retirement planning (or for younger people – financial independence planning!)

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Last financial post for a little while. Well – just for a few weeks…

This week I’m thinking about retirement. I’m really thinking about it because I am having a little mid-life retirement right now, and I’m on the other side of forty.

A couple of things have happened to spur me into action to think about retirement planning at the wee age of 42.

  1. When I was on the treadmill of full time work, I had no idea of how much money I was aiming for, to save for our retirement. If you find yourself in a job that doesn’t thrill you each day, this question about how much money you need in retirement comes into sharper focus (when can you get the hell out of your work place).
  2. At 42, I also had more of an idea of the type of lifestyle I want to live in the second half of my life. And for us, the second half of our lives is less about career and more about fulfilment. It’s less about keeping up with the soccer mums and more about spending time with my family. Being clear on the type of life we want to live means that I can be more realistic about what living expenses I will need

I will ‘fess up. I spreadsheeted our life in excel right out to my husband’s death. I thought about a comfortable retirement where we owned our own house, travelled once a year internationally and pottered about Australia every now and then. I made provisions for:

  • A contribution to either the children’s education or a deposit on a home, given how difficult that is. To do that, I have planned to lock away $20k per child in a growth account until they require it
  • An upgrade to our existing house – it needs a new kitchen, bathroom and ensuite need an update, and possibly the exterior verandah and steps. It’s a 25 year old house and things are starting to peel/chip/rust/corrode/rot – you get the picture
  • $200k to down size and upgrade our house as our birds leave the nest – not sure when this will be, to be honest. But when it happens, I’m keen to live in a house that is consistent with our values like minimalism, leaving a minimal environment footprint and self-sufficiency.
  • We will need to get cars at some point in the future. I’ve budgeted $50k for that, because I know that we will get something second hand or an electric car.

So all up, we need an extra $500k on top of what we need to live on, to meet our anticipated living expenses between now and retirement.

Following these calculations, we went to see a trusted financial planner (word of mouth).

We looked intently at our superannuation pensions and realised that my husband (who I now love a little bit more) has a great pension that he can start to access in five years that will meet our living expenses.

We already have savings. In summary, this means is that we need to save another $440k to meet our anticipated capital or lump sum expenses, maintain our private health insurance and combined with the pensions we will have a standard of living that is equivalent to $100k per annum in five years’ time – and for now, it’s tax free income.

So let’s work backwards. If my husband and I continue to work full time/part time over the next five years, we should be able to save approximately $50-$70k per annum. That will mean that by my husband’s pension age, we will have between $250k – $350k in the bank towards those capital outlays, sans any interest that we have earned.

Come early retirement time, we will need to earn between us around $50k extra per year for 3-5 years to make sure our capital lump sums are taken care of. That’s a very part time job for me at the ripe old age of 48. My husband will be 55.

Prior to completing these calculations, I felt like I was on a working full time treadmill until the ripe old age of 65 at least. The purpose of completing these calculations was to see whether or not that treadmill for life was actually necessary – and guess what – it’s not.

By gritting your teeth through the boring bit of looking at the figures, and getting some advice, you can predict to the greatest extent that’s possible in this uncertain world – what the second half of your life can look like. A part time job for both of us enables us to pursue our passions (volunteering, travel, music, doing up old cars, growing veggies) and taking the slow road in life. It was this calculation that enabled me to take this recent career break and reassess the way we want to live.

Here is the calculation in summary:

  • Current expenses, and then add an inflationary multiplier each year (I chose 3%). Extrapolate out to the time that these expenses are relevant and then reassess. For example, I calculated that we will have kids requiring full care for the next eight years and after that, they will be making some contribution to their own living expenses, therefore our overall expenses will be less. Extrapolate that new figure out until the average survival rates for men and women in your country.
  • Think about the big lump sums that are coming your way in the future. Home upgrade? Medical procedures? Big travel plans? Replacing cars? Home renovations? Contribution to children education expenses? Still paying off the mortgage? When will that be complete? Total this amount.
  • Now add in current income with a wage increase (I used 2% to be conservative)

If you set up the spreadsheet horizontally, and add in when lump sums will occur, you can actually forecast when your cash will be called upon, and the cumulative cash flow position of your family.

Add in when you will start receiving superannuation pensions and there you have the best prediction of your family cash flow. Here’s a blank version of how I set up this sexy spreadsheet:

retirement calcs post tax
Kirsti 43 44 45 46
Husband 50 51 52 53
CPI 0.03
2016 2017 2018 2019
Expense
Capital exp
Extra travel
Kids savings
Renovations
Replacement cars
Total capital
Income required
Salaries
Husband   current income
Kirsti’s current income
Income total
Pensions
Husband pension
Lump sums
Kirsti’s pension
Total pensions
Surplus/shortfall
Carry forward (savings)
Return on savings

I’ve extrapolated this out until my husband’s death at 87…. (cheeky!)

I cannot stress the importance of getting good financial advice. Without ours, we would not have realised how good my husband’s superannuation fund was and how early it was going to enable us to retire.

Now to be clear, retirement for me isn’t about heading off to the golf course and playing bowls at the age of 48 (although if you love golf and bowls, go for it). Retirement for me is retiring from the ball and chain of full time work that I am resentful of. Retirement for me is financial freedom, part time work and the time, space and money to focus on the things that truly bring me joy and fun.

Perhaps this position is best summed up as financial independence and the freedom to live your life as you choose.

Part 4 – net worth tracking (stop yawning)

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As part of my five part series on family financial management, today’s post is about net worth tracking.

One of the biggest questions that I have turned my mind to over the past eighteen months or so is our family’s net worth – that is – our family balance sheet. It’s a bit like putting a business lens over your family finances and seeing whether the family company is actually growing its asset base.

So net worth tracking – what is it, and how do you do it?

It sounds so fancy, but simply put, your family net worth is calculated by deducting your liabilities from your assets, and bingo – that is your family net worth.

So, why should I go to the trouble of working out what our net worth value is? Five simple reasons:

  1. At any given point in time, you can see whether you are growing your family assets and achieving your financial goals. You can also critically examine composition of your assets, for example and see whether you have any over exposure in terms of risk that you may want to readjust.
  2. You can also see whether you are financially going backwards. For example if property values are falling and you are only making interest only payments on your mortgage (the principal is not reducing) you are going backwards, financially. If you want to change the situation, by tracking your net worth, you will be alerted to this situation and will be able to re-jig your finances accordingly.
  3. Net worth calculations will keep you honest and real about your financial situation if you track it over time. It’s easy to redraw cash on the mortgage to pay for an overseas holiday or put a pool in (we have done this one!) and continue to dip into your redraw facility like it is free cash without any consideration of the long term financial impacts for you and your family. Watching your net worth stagnant over time as a result is an eye opener. We did this for about three years. A combination of seeing our static family balance sheet and a strong urge to spend more quality time with family and less time at work propelled us into action (the Year of Austerity) and beyond.
  4. Net worth calculations are super important in retirement planning. I’ve found that being on this side of 40 has really sharpened my interest in knowing whether I will have enough money to seriously retire and focus on projects that I am actually interested in.
  5. It’s important for estate planning. Perhaps for my generation, intergenerational wealth has not seemed as necessary (I’m a self-starter and have made my own way in this world financially) but for our children, market predictions on employment prospects and economic growth generally are looking a bit bleak. I’d like to think that I will have some $$ to leave all of our five kids as a back-up fund for them and their future families in times of hardship.

For the purposes of being a useful calculation, you want to not include the short term, small assets that can seriously fluctuate at any given point in time. For example, our “trading” account, where our salaries are paid into and our credit card is paid out of, can wildly fluctuate between $12k and $50 depending on what time of the month it is, and whether we have paid our credit card recently. Because this could overstate or understate our net worth position at any time, I leave it out of our calculations.

Similarly, on the liabilities side, we pay off our credit card in full every month and it could have either $2k on it, or $9k, so again, I leave it out of our net worth calculation.

If, on the other hand, the credit card was not being paid off each and every month, and had become core debt – a long standing liability – then I would definitely deduct it off the family asset balance, because by not including it, I would not be viewing the true family financial position.

So, again, in the interests of being open and transparent, for our family, I’ll share our net worth position as at today.

Six monthly I usually do a little bit of my own real estate research to estimate the value of our family home and I use our six monthly superannuation balances to calculate super. I have to say, since the Year of Austerity and paying off our mortgage, we look financially under control and I like that.

Our net worth looks something like this:

Assets

Family home                                                      $700k

Savings account                                                $ 61K

Superannuation                                               $556k

Shares                                                                  $   5k

Total                                                                      $1.322m

Minus Liabilities

Core credit card debt                                     $0

Mortgage                                                            $0

Net worth                                                           $1.322m

 

Now I realise for some this is as boring as bat shit. But for me, it completely motivated me to think about running our family like a business so I could absolutely understand the goal posts of what we needed to save to retire (see next fortnight’s post); what we needed to budget for in the short term and therefore how much I needed to work and most importantly HOW MUCH TIME I COULD ACTUALLY SPEND WITH MY BEAUTIFUL FAMILY and not feel guilty about whether I had planned financially for the future.

I was easily prepared to be very bored to work that all out!

Give it a go, and tell me what you think. For some it will be facing the music but the music won’t go away by ignoring it.  For others, it might be quite surprising and liberating….

Part 3 – Where to from here now that our income has been halved

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Where has the time gone! The first three weeks of not working have been really busy – in a productive way. I’ll write about that later.

But for now, I wanted to update you on the family budget now that our income has been halved and I am not working – part 3 of my financial series.

As I mentioned, we have been to see a financial advisor on our superannuation and retirement needs, particularly now that David is nearly 50 and I am nearly 43. It’s important to understand the long game, and to understand how hard we have to work (or not work!) to ensure that we have both a reasonable standard of living now and in our retirement.

Main changes: I have reduced our food budget, and my mobile plan. There is not a lot of wriggle room in this budget – by the time we also get our allowances (which have also reduced) we have about $1000 spare per month. I intend to build this as a bit of a cash flow to help us on the heavier months when we have more expenses.

So our one income budget looks like this:

Expenses   yearly monthly fortnightly
26 2
Car rego $ 2,200.00 $       84.62
Car insurance $ 1,100.00 $       42.31
House ins $ 1,100.00 $       42.31
car services $ 1,000.00 $       38.46
petrol $     120.00
Sundry $     300.00
fernwood $       24.00
internode $   75.00 $       37.50
mobile $   35.00 $       17.50
pocket money $       25.00
cleaning $       65.00
food $     400.00
electricity $ 1,200.00 $       46.15
gas $ 1,782.00 $       68.54
water $ 1,000.00 $       38.46
rates $ 1,300.00 $       50.00
primary school fees $ 100.00 $       50.00
piano $     600.00 $       23.08
netball $     350.00 $       26.00
health insurance $ 1,600.00 $       61.54
girls clothing $ 1,500.00 $       57.69
movies $     100.00
red cross $   25.00 $       12.50
guitar $     600.00 $       23.08
dancing $     400.00 $       15.38
oxfam $   25.00 $       12.50
Boys school fees $ 4,624.00 $     177.85
Girls school fees $ 550.00 $     275.00
Girls mobile $   30.00 $       15.00
foxtel $   50.00 $       25.00
gifts $ 3,000.00 $     115.38
boys expenses $ 200.00 $     100.00
total       $ 2,489.85

The main thing that I will focus on to reduce our food bill is to really cook from scratch. I like the health benefits of this as well, as I am really keen on reducing the amount of processed food that we buy. Things that I already cook from scratch include:

  • Bread – sour dough is may favourite
  • Yoghurt – greek and vanilla
  • Mozzarella
  • Pancetta
  • Biscuits and cakes for the children
  • Hommus (Yotam Ottolenghi’s  recipe is so yummy)
  • Preserves  – I preserve food when it is particularly season and tasty – like mangoes, apricots, peaches, tomatoes

The second way I will reduce the food budget is by buying in bulk from our local Food Co-operative. The food is organic and not packaged, which I really subscribe to. I take in my own jars and produce bags so there is no plastic packaging.

Finally, I will grow up to 50% of our fresh produce. My husband and I have just spent the weekend building three new vegetable beds. This weekend’s outlay has been around $1000 – I have spent all up around $2500 on the veggies beds – but they will pay themselves off in no time.

My job is to keep an eye on the family budget and to make sure that we are on track. Bottom line is if I don’t keep track of it, I am back to work so of course, keeping expenditure within budget is my number 1 priority! I am loving not working and providing really healthy produce for my family.