March 2019 - That Girl On Fire

The Beautiful Relationship Between FU Money and FI

There’s a common acronym within the financial independence, retire early (FIRE) community – and it’s used often. FU money.

For many, it’s a pipe dream they’re diligently working toward being able to say to a specific person, and for others, it’s a general vernacular they’ll carry in their arsenal for when the time comes.

FU money is having the power to dictate what you do and when you stop doing it, and it goes magically hand-in-hand with financial independence.

People’s definitions for it can vary, but on the whole, FU money is having enough in the bank to walk away from situations that don’t serve – whether they be toxic or, you know, just boring.

The reason it’s not quite the same as reaching financial independence is because FU money is really only a temporary stop-gap.

It’s breathing room while you remove yourself, take stock of your situation or life and reevaluate your next move. Eventually, you’ll need to go back to income-generating activities, but you’re not tied to a situation that isn’t serving you while you conduct that existential due diligence.

Usually, it’s having 6-months worth of expenses saved up for what I like to call crossroad moments.

A boss taking advantage of your hard work; colleagues that define irritating, useless and narcissistic; one-sided relationships that are all take and no give; travelling curveballs where you no longer feel safe or happy, or even wanting to live overseas for a while.

The list is endless – and it can also be applied to FU’s on a smaller scale.

Getting a taxi all the way home at 2am in the morning when that first date romp has gone sour.

Booking a nanny and staying at a hotel for a few nights when you need a break from a non-stop screaming toddler.

Buying your own secondhand runaround car so you’re not dependent on anyone else on getting you around.

Having the ability to turn around and say “no, actually, FU” is a wonderful superpower to have and one that everyone should have the luxury of. It can be life-changing.

And the swear words are optional.

FU money is something that is an omnipresent force; a way of thinking.

Your FU might be a simple “I’m quite alright, thank you. I’ll see myself out,” so as not to burn any bridges if it’s an industry you love, people you want to maintain a relationship with, or in front of peers you respect.

In my financial world, it’s not quite so literal, particularly as I tend not to say those words to anyone.

I work for myself and as a business owner, I don’t have anyone to report to. Clients, sure – but I take a lot of pride in working only with clients and organisations where the relationship is equal.

I treat them with professionalism and respect, and I expect that in return.

But in a way, my FU money allows me to do that.

To look for warning signs in certain lead client interactions, and easily walk away without fear I won’t be able to make my mortgage payments that month, or pay off my credit card bill when it comes in… or live on baked beans and home-brand toast.

It’s the ability to walk away from anything at any time, slinging swear words or not, without life-altering repercussions.

And look, I’m sure some people might say “but we can walk away from anything, at any time, we all have that power.” And sure, I think this idea of agency is important, but unfortunately, without the cash to accompany, in many cases it’s idealistic at best.

Because the reality is, when we have no financial buffer, our ability to make large-scale decisions is halted and impaired. We become paralysed with the knowledge of how difficult things will be; even with the knowledge of how bad things are now.

And that’s enough to keep us chained to the present. Of course we can change our circumstances while we’re in a bad situation, but just like alcohol clouds our judgement, fear and flurry clouds our ability to take the next step.

Getting to multiple job interviews when in full-time employment isn’t easy.

Finding a new place to live when you’re stuck in a relationship where one person controls all the purse strings isn’t easy.

Booking emergency flights home during the trip from hell when you’ve already maxed out your credit card and have $300 to your name isn’t easy.

Financial independence is about bulletproofing your future with money, so that you earn an income separate from your day-to-day job. FU money is about bulletproofing your pride and your safety, so that you never have to depend on anyone but yourself right now.

As in today. So what the FU are you waiting for?

FU money? Yes, please! But how?!:

Saving 6-months of your salary seems hard. I GET IT. Especially if you’re currently paying down debt or are new to getting your money sorted.
But one thing that’s important to remember is that it shouldn’t be 6 months of salary as you’re used to right now.
Instead, look at the minimum cost of living you can get away with. The basics. Mortgage or rent. Bills. Food to fill your fridge. Bit of public transport money. Insurance premiums (TPD, life, trauma, pet and hospital cover – because emergency ambulances can cost up to $1,000, and air ambulances can run you $10,000).
Many experts actually cite this as usually being between 40%-60% of your current income.
That means if I earn $80,000 (the average Aussie income), I need between $16,000 and $24,000 to cover my basic expenses for six months.
At $1,350 a month, I could have six months of income saved in a year. If I live in an area with a lower cost of living, or have less outgoings – that would be less time, or the same amount of time but saving less commensurate with income.

March 17, 2019/4 Comments/by Michelle

Financial Independence

FIRE Burning, Retire Early: Saving Half A Million In 8 Years

My Financial Independence, Retire Early (FIRE) journey began when I was a little girl. I would look at people working until they were in their 70’s, mostly when they didn’t want to, and feel so bleak about my own working future.

Still, everywhere I turned, working was a necessity, because there was no other alternative. Even more strangely, working until old age was just something that was expected.

This I didn’t understand… surely there were more interesting ways to collectively spend our precious time? And why would we choose to work until we could barely stand anymore?

It wasn’t until I was in the workforce myself many years later that these feelings became particularly profound.

Despite my earnest excitement to be earning a full-time wage (9.5% superannuation! Annual leave!), I couldn’t shake the thought that working until 70 was now the bottom-line of my life.

Sure, I might get lucky and always enjoy my roles – and in a hopeful economy, the income would be consistent and well worth what I spent on my university degree.

Still, I’d be in it for the long-haul because that was just what humans had to do at this point in history.

To be honest, it really grated at me. I felt hopeless for a while.

Then I found FIRE, and I symbolically danced around it like the early homosapiens did a million years ago.

FIRE stands for Financial Independence, Retire Early; a term encompassing a whole community of people who were architecting amazing lives without the need for exchanging their time for a steady income.

This was the money-savvy elite; the personal finance prefects, who saved aggressively and invested it with as much fervour. In mere years, they had created income streams that were entirely passive.

Passive income, retire early def: “Passive income is income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it.” – Wikipedia.

In many cases, this passive income replaced (and sometimes exceeded) their day-to-day pay check.

It was through anything from share market dividends, rental yield, retirement fund payouts, interest payments from bonds and term deposits and even ad revenue or royalties from content.

Whether it was one, two, or all – the underlying outcome was the same:

Work was optional.

I’d always been okay with my money. I saved when I could, I stayed away from toxic personal debt and tried to live within my income bracket – but this was going to require a lot more dedication. I was committed and started straightaway.

Over the last 8 years, my husband I have saved over half a million Aussie dollars combined, pouring our earnings into investments that will buy our retire early “work freedom” decades before we otherwise could.

Now, we routinely invest 75% (or more) of our incomes each month into a very strategic investment portfolio across property, shares and stocks, superannuation, commodities and bonds.

We’ve seen some awesome returns so far and it’s spurred us to keep going.

Our (conservative) calculations show that we should be completely financially independent from our jobs at some point within the next decade.

These calculations take into account inflation (of which our investment returns should easily exceed) and any taxation implications. They also factor in the average cost of having and raising a child. We are trying to cover every base.

This isn’t by any means a definitive list, but it gives you a snapshot of the principles behind how we do what we do.

Live for the income you earn, not the income you want.

It’s money management 101, but it bears repeating – especially in this day and age.

While it’s never been more normal to self-deprecate and and laugh at our own misgivings, we’re also living in an age of total social fabrication. The Keeping Up With The Joneses mentality has transcended our immediate neighbourly boundaries and landed smack bang into our virtual ones.

We see highly-stylised lifestyle snapshots for people living in all corners of the globe. It looks effortless and abundant and we struggle to discern between what is product placement and what is truth.

Marketers are insidious; they find us anywhere and everywhere and will stop at nothing to make cart checkouts easier, fuller and more recurring. Loan providers are predatory and advantageous.

But we also have a responsibility to start spending more dutifully, too. When a 2018 survey of household comfort found that 1 in 10 Australian households overspent their income each month (with less than $1000 in savings to accommodate the shortfall), it was obvious where a lot of the culpability was lying.

Get to know every dollar coming in, and be ruthless in every dollar going out. Use a budget to account for important, non-negotiable costs, and eliminate anything that’s draining your money.

When income does rise, be careful not to inflate your lifestyle costs to go with it. My income varies as a small business, but my expenses do not. That means extra profit goes straight into investments. As for any loss? It barely touches the sides of my cost of living.

For those new to the retire early lifestyle, it might be easier to start with a very conservative savings rate of 10%. When this starts to become habitual (and easier), ramp it up.

Want to retire early? Have less in order to do more.

Being thoughtful, intentional and premeditated in the way you allow material things to come into your life is a very important pillar of financial independence. Granted, not everyone who subscribes to the FIRE methodology is a minimalist – but I think the most successful ones are.

The name of the game is personal abundance: finding joy in experiences over objects, and using the space created by decluttering to make way for more enriching pursuits.

For me, cutting out the consumer noise led to a greater appreciation for so much more beyond the stuff.

Not only did I make money in what I could sell, but I save so much in only buying what I need, when I need it.

I do not allow marketers to incessantly bombard me, I never kill time by meandering around the shops, and when I identify something I do need to buy, I compare widely and pay using cash for discounts (I also use cash-back apps).

If it’s true that we overspend or impulse buy because we’re overwhelmed, time-poor and exhausted, then it stands to reason that eliminating or streamlining these triggers will do us a world of personal and financial good.

Start investing, and then do not stop.

Generally speaking, the average return of the sharemarket is about 7% (this has been even despite major economical dips and world events).

Other investments can do equally well (if not amazingly well) but are typically a little more dependent on other factors (for example, geography and uniqueness in the case of property).

I won’t list these all here because there’s no one-size-fits-all approach to investing – but, if you invest sensibly with the goal to make long-term return, the outcome will rarely be bad.

Long-term return really is that which is focused on growth (growing in value over time), and providing cashflow that exceeds the rate of inflation. Savings accounts don’t always do this – and sometimes you can even go backwards with your money “invested” through the bank.

Investing in high-growth investment vehicles with a moderate amount of risk is where a lot of retire early proponents carve their path. It’s certainly where we’re carving ours.

We learnt how to invest ourselves by reading widely, attending talks, speaking to financial professionals, and a little trial and error. It’s completely possible to invest well on your own (just like it’s completely possible to invest well with expert help).

It depends on the person and situation.

Our investment portfolio is a mix of property, shares (mainly Australian and US exchange-traded funds but some individual companies and classes), superannuation, and a few others. They’re in liquid and non-liquid vehicles – meaning we could pull out money in some without much hassle, and others with a lot.

But, we don’t really plan on doing that. Why? Because these investments are going to provide the brunt of our income one day.

In the future, we’re keen to start investing seed capital in startups, which represents a much higher risk. This is because I believe people and ideas drive successful shareholder returns, and I want to be at the forefront of finding great investments this way.

I also like having diversity across the type of investments we have (this makes it easier to weather the storm during market fluctuations).

Ultimately, how and where you invest is up to you. But start ASAP. I talk about this on my Instagram sometimes; how people often wait for ‘market drops’ and ‘share sales’. This is great if you can buy on sale (in fact, it’s my favourite time to buy), but if you haven’t yet invested… you probably don’t know what shares on sale look like.

And you won’t until you’ve had some time in the market, observing how it works. The best thing to do is to start.

Build an emergency fund that keeps you afloat.

Although savings accounts aren’t always great for investing potential, there’s certainly a place for them – at least in our journey.

In FIRE (and in everyday life), cashflow is so important. In particular, having access to money stored away that prevents you from reaching for lines of credit or putting yourself in compromising financial positions can make or break your efforts.

We call ours our ‘S*!# Happens’ account, and it makes up about six to eight months worth of our combined yearly expenses. We use it to cover unexpected bills and curveballs we didn’t anticipate, as well as act as a buffer in case one of us can’t work for a period of time.

The reason cashflow is important is because it keeps you liquid without penalty.

While it’s important to have some liquid investment assets, there’s no guarantee the market will be performing well when you want to draw them. Plus, there’s that pesky capital gains tax that might apply to the sale.

Having access to cold, hard cash bulletproofs you against the unexpected, and it keeps you afloat when you need it the most. It’s very powerful for your wallet and your sanity, and a high-interest savings account (with no withdrawal penalties) can at least earn you a little while it sits there.

We employ our savings to offset the interest applied to our principal mortgage, which for us far surpasses the return of a savings account, but it depends on your unique situation.

We invest first, save second, pay routine expenses third and spend last – this is a good formula to follow when it comes to saving your own emergency fund.

If you’re in debt, think about swapping out the investing part with paying down debt until you’re ready for that step.

Live to give.

This one is worth mentioning because it’s the right thing to do upon amassing more wealth.

When you start to get better with money, think about how you can better the lives of others with your changes. After all, the secret to living is giving.

Not only can it be super tax-effective, but it a core pillar of how many retire early followers plan to contribute to the world in absence of their work (should they choose not to work on anything).

The amazing thing about FIRE is that people don’t have to have great money stories to start doing it.

In fact, some of the FIRE followers who adopted the FIRE principles didn’t do it to retire early – but to speed up their journey away from stagnant debt. They did it to become more financially free. Often, just like us, they were everyday earners.

We’re not expecting a major inheritance or paying for everyday expenses with a trust fund.

While we earn good incomes, they are still commensurate with that of those expected in a major capital city. We have higher expenses for that reason, too.

We chuckle at times about how when we reach complete FIRE, we might choose we aren’t ready to retire early at all.

I enjoy running my business and he finds his work very rewarding – but that’s the amazing thing about the Financial Independence, Retire Early movement.

When something is based on opportunity, it’s hard not to start thinking about what you could do with all of the new open doors.

March 9, 2019/2 Comments/by Michelle

Intentional Spending

Here’s How I Saved Over $1000 By Doing Frugal February

Finding extra cash by starting a side-hustle is about as mainstream now as mowing your own lawn. It’s a great way to upskill, network – and of course, earn more cash. Beautiful, lovely cash that can be used for paying down debt, investing into the stock-market, buying property, donating to causes you care about. But what if having more money in your pocket at the end of every month didn’t actually require extra work? Say hello to Frugal February.

Frugal February is all about creating more money every month just by making more frugal swaps in everyday life. By excluding some of our discretionary spending, the theory is that we can collectively find more money in our budget, instead of having to work to earn it.

I put this to the test in February this year.

By the end of Frugal February, I had almost $1300 extra in my bank account, and as a small business owner with a goal to retire early by investing widely, this cash was a welcome addition to my portfolio. Here’s exactly what I did through Frugal February to save and find more money, and what you can do too.

All discretionary spending went out the window.

To start, I went through my budget with a fine tooth comb to omit anything that I didn’t consider completely necessary.

This included many convenience purchases, which are so draining on the wallet. Think coffee, lunch in between meetings and door-to-door transport. I also cancelled and rescheduled any social outings – seeing as it was only a month, I figured that I could go without for a short period of time.

The next step was prioritising food and transport as necessities, but tweaking the way I spent on them. I walked frequently (or caught buses when it was too hot to do that), packed snacks and meals in my bag, and kept tea in a thermos to fulfil the coffee itch and ritual sipping I so enjoyed when working.

I’m a big fan of using subscriptions that have pause features (without penalty), so I put all of them on freeze, stopped drinking alcohol and planned everything in advance to avoid any last-minute temptations from striking up.

I stopped letting marketers target me.

It’s in a businesses’ interest to incessantly market to us, and we now live in a society where that’s so normalised, we struggle to identify when it’s even happening. I have conducted major email and browser cookie culls before, but was surprised at how many had slipped through the cracks since (and how many purchases I’d made without thinking).

I unsubscribed from everything, mercilessly.

It was strangely cathartic and opened up a new challenge of looking at local, free marketplace hubs for things I needed to buy. As it turned out, I was in the market for an iMac – which I found secondhand but in great nick for $140. Sure, it’s a 2007 version, but it works a dream, looks like new and had been completely refurbished.

I also made a new face serum using existing beauty products I had left over from other purchases. It took me half an hour and cost nothing. Honestly, it’s one of the best I’ve ever used so far for my skin.

Something borrowed, something re-gifted. Nothing new.

People often think that frugal people live like Ebenezer Scrooge, but anyone who knows me knows that I love treating people with gifts. It’s a real joy to give things to people you love and care about. But sentimentality can be expensive, and it’s only getting pricier.

So, instead of ducking to the shops in preparation for a dinner party, birthday celebration or Valentine’s Day – I turned my attention closer to home. In any given cupboard, I had unboxed candles, beautiful homewares with the tags still attached and lovely wines that had never been corked. And I’m not alone – how many of us have a bunch of stuff gifted to us from Christmas that would probably never otherwise see the light of day?

That wasn’t all, either. I went to a business dinner wearing a labelled dress I borrowed from a friend. And one other friend told me she borrowed camping gear for her first time in the wilderness (aka a caravan park). She hated camping so much she’ll never do it again… what a waste that would have been!

I jumped on the Do It Yourself bandwagon.

Something I’m definitely working on in my finances is calling in help for things I could do myself. I’m not averse to dropping off items to the dry-cleaner or alteration place, or using a house cleaning service or a car-wash – but for Frugal February, everything stopped.

I pulled out my dusty sewing kit for one of my favourite items of clothing when the seams tore, pulled up my sleeves to clean our car inside out on a weekend morning, and even braved the darkest depths of the kitchen sink cupboard to seal the water heater drip tray waste pipe when we realised it might be letting bugs in.

A lot of those things I’ll continue to do.

Discounts on everything became my modus operandi.

Whilst it wasn’t the most enjoyable exercise, I spent an afternoon one day ringing around all of the subscription providers I had contracts with, and point blank asked for a discount. My goal was to haggle down my monthly fees, even if just a few dollars – it all adds up, especially if a few providers agree unanimously.

I began with open-ended statements like: “When I took a good, long look at my last bill, I felt like I was paying too much.” This was to see what they would suggest (perhaps it might be more than I was going to ask for, and I didn’t want to short change myself). If they didn’t immediately offer a better deal, I asked outright: “Is there anything you can do before I start shopping around?”

To my surprise, many were quick to comply, and were even happy to. Some needed a little more persuading, but ultimately, offered a small discount after a while. Overall, I’m now better off $600 for the whole year, which is around $50 per month in additional savings. All for the time it took to make a few polite phone calls.

Frugal celebrations only, thanks.

Frugal February falling on Valentine’s Day is both a blessing and a curse.

On one hand, it feels a little like you’re missing out – but on the other, you stand to save so much. Many retailers and restauranteurs will openly admit that the markup on their products and menus (often fixed price) is much more than they’d otherwise get away with charging – but on that day of the year, the demand very much exists.

This year, we replaced flowers, dinner and gifts for a homemade meal, cards made on Canva and a good old planning session of the next years’ share portfolio asset allocation. Sounds like a riot, I know – but to us it was actually fun. Just like the gift-giving thing above, we buy into the idea that the only way to show affection or appreciation is by buying stuff. It’s not.

We can have a great time and be thoughtful without digging deep into anything physical – and it doesn’t just have to occur over the month of February. Any month can be frugal with enough prep and motivation, so get out there and see how much extra you can accrue.

March 6, 2019/0 Comments/by Michelle