The Most Common Ways To Achieve Financial Independence

Every investor is different, coming to the table with a different amount of capital, a different risk tolerance, a different lifestyle and different vision for their investment outcome. To me, that’s the magic of finding ways to achieve financial independence – you can create your ultimate lifestyle in a way that suits the current one.

This is important because there are pros and cons of different asset classes and not every one of them will suit every person in the same way. 

For example, coughing up huge upfront chunks of cash to finance a property deposit isn’t realistic for those where their savings rate simply cannot exceed the rate of property inflation. 

On the other hand, the short-term volatility of shares may make others too anxious, working to turn investing into a negative experience for their mental health, instead of an empowering and exciting one.

For those with an earlier retirement springboard than most, maxing out the tax-friendly enclave of their superannuation account is pretty silly if they can’t touch it until they’re 60. Others just have no interest in bonds, trusts and other lower-profile types of investments, and no keenness to manage them either.

The sweet spot really is to look at your lifestyle and how much you can afford to funnel in. Be honest in how hands-on you want to be in managing any investments and finally, find a healthy calibration between your risk tolerance and your timeframe to financial freedom.

The general rule of thumb is that longer timeframes can afford to withstand more short-term volatility – in exchange for higher growth – and shorter ones may benefit from more conservative (but lower return) investments. 

When you match your lifestyle to your goals, you’ll find an ideal investment structure that helps you to stay committed for the long-haul, and a committed investor is a successful one, no matter what happens in the market.

Here’s a summary of the most common investments that can help you to achieve financial independence, and the pros and cons of each.

Property and real estate.

While houses, townhouses, units and acreage may seem more tangible than other types of investments – as in, you can actually touch the foundation, open the door and look out of the window – they’re definitely a hands-on investment vehicle. 

I have a love-hate relationship with investment property, because there have been times where renting out mine feels like way more hassle than it’s worth. 

In a renters market, where supply is rife and renters have ample choice, it can be hard to find tenants at all, and when you do, they’ll be in a strong position to negotiate down their rate, or specify exit terms unfavourable to you – like ending their lease with little notice and no penalties.



Likewise, if you get a tenant who doesn’t take good care of your property, breaches the terms of their agreement or defaults of their rent, it can be an expensive exercise even with landlords insurance (which is highly recommended, but yet another cost). 

Ultimately, I believe that people always need somewhere to live (and as property investors, we have an ethical investing duty to ensure safe and affordable housing), but the holding costs of property do need to be considered.

Pros:

  • It’s simple. Getting your head around the purchase of a property is fairly straightforward. In many cases, the most stressful part of it is finding the right place, and either having your offer accepted or lifting your paddle at the auction.
  • As returns go, property errs on the side of stability. Property, particularly in Australia where I live, does well. Research supports that the last three decades of housing inflation has been extremely profitable for homeowners and property investors (a 412% average increase, in fact) and this equates to strong capital growth (your property rising in value) and solid return (rental yield) in a stable, high-demand market.
  • Property offers a lot of tax deduction opportunities thanks to our federal governments obsession with real estate. Not only can you offset most expenses against the income derived from rent – including loan interest – but all acquisition, sales and maintenance costs can be added to what’s known as your ‘cost base’, which is the liability you have for capital gains tax if you sell. If you operate at a loss, this can potentially wipe out your CGT liability completely, and even carry over to offset future gains from other investments, which isn’t restricted to only property. In short, history shows your investment will pay off, but even if it doesn’t, the hit will be minimised.

Cons:

  • Cost, because it can – and very well may be – a sinkhole at times. Although your losses can be minimised if you meet certain conditions, there are high entry and exit costs to real estate which go beyond the cash deposit. Stamp duty, legal fees, the agents fees, lenders mortgage insurance, landlords insurance… it all adds up. You have a bad tenant? Have to make regular repairs? In cases where insurance doesn’t cover you, that will come out of your pocket. You can’t find a tenant for a few months, or longer? The mortgage still needs to be paid. If reserve interest rates rise and the rental market hasn’t caught up enough to help shoulder that cost, you’re eating more and more into your income to cover the difference.
  • Property is the opposite of liquid money. If you need cash quickly, selling in a hurry isn’t going to be easy, or fun, and the tax and fees you’ll pay will eat into your profit even if you do. If the housing market is going through a rough patch, you’ll feel it at the sale price, and it’ll sting.

Company and fund shares.

Otherwise known as private equity, buying shares is buying a portion of a business (or many businesses) and taking your fair slice of any profits created. 

For dividend investors, which is a very common form of long-term financial independence investing, that profit is delivered as a payment to your bank account many times a year, and eventually replaces your income from a traditional job.

While I love shares and they’re my favourite type of investment, I realise that they can seem intimidating. If you’ve ever cast an eye over the trading floor of a virtual stock exchange, or heard the newsreader talk about the performance of the S&P500 or the Dow Jones in their nightly report, for a newbie, it does all look and sound like gibberish – I get it. But practice makes perfect and it can be a lot of fun if it’s the right investment type for you.

My husband and I invest in a share portfolio that is broadly diversified like this:

  • 40% global exchange traded-funds and listed investment companies (exc. AU)

  • 20% ethical and prospecting exchange-traded funds and listed companies

  • 20% US exchange-traded funds and listed investment companies

  • 10% Australian exchange-traded funds and listed investment companies

  • 10% emerging market exchange-traded funds and listed investment companies

This is a pool that represents the best mix for our risk appetite, which is moderate to high. 

We have a good base of local and international picks, a decent chunk of ethical holdings – which we believe is important and where we’ll see a lot of technology and investment go – as well as new markets, which is a speculative bet for us based on what countries we think will experience a resource, technology or economic boom.

In addition to this, we use cash boosts to short stocks, which is where we’re “borrowing” stock, betting the share price will fall before selling it back. We call this our ‘Black Swan’ portion, but full disclosure, it’s certainly not a strategy a new investor would use. Let’s take a look at some of the clear pros and cons of shares generally.

Pros:

  • It’s so easy to start buying shares. The upfront investment is minimal in comparison to other types of investments, like property, and online brokerage is cheap with competitive fees. You could take $1,000 right now and by the end of the trading day, own part of a business with an investment that’s now working to use your money to make you more. Rinse and repeat that enough times and you’ve got yourself an income you’re earning poolside.
  • If you need to sell your shares, theoretically the trade could all be finalised within two days and the effort on your part is minimal. I’m simplifying it and not touching on the tax and fee component, but you get my drift. It’s not a labour-intensive task and can get cash in your bank account quickly.

Cons:

  • You do need to have a basic understanding of how to buy, sell and understand shares. Not a comprehensive understanding – this comes with time and practice – but you want to have done some research on what fund or company you’re investing in, why, and what to expect in terms of holding time and returns. Signing up to a free online brokerage and taking a look at the terms you see in front of you can be helpful. When I started all those years ago, I went to talks and seminars, signed up for online courses, and very, very frequently took terms like ‘close price, ask/offer, growth stock, mid-cap’ and literally pasted into Google “what is <thing>” or “video example of <thing>”. Yeah, and people herald me now for being an investing whiz. That is literally how I started.
  • You can lose money. Not that you can’t in any other type of investment, of course, but the sharemarket typically experiences a lot more short-term volatility, with sometimes multiple price fluctuations in a single day. Given that share price is a direct result of market sentiment, even a slightly controversial news article can have your holdings plummeting. For many investors, diversification helps to cushion your portfolio against individual stock drops and history shows that in many cases, such events are not a concern for long-term performance. It’s never a guarantee, but I personally don’t lose sleep over it.

Fixed interest.

Fixed interest investment vehicles cover things like bonds, term deposits, mortgage offset accounts and even high-interest savings accounts. 

It’s not a bad idea to have a bit of diversification if this investment type suits you, and the peace of mind that comes from having access to money in a relatively low-risk and simple environment can be reassuring. 

Bear in mind, though, that your return is going to reflect the risk.



Pros:

  • Fixed interest investments are good places to start making your money work for you while you learn how to invest. Additionally, they can be helpful if you have a hefty mortgage that you can offset the interest on (particularly handy when reserve interest rates are inherently high), or if you have a clear plan for your child to attend a tertiary education provider and want to make the investment upfront.

Cons:

  • For certain bonds, you’ll need to meet the conditions of the bond before the money or benefit can be released.
  • The returns are low and if your money is principally tied up in structures like this, you risk them not exceeding the cost of inflation which can actually lose you money. 

Superannuation.

If you have a superannuation fund with money in it, you’re an investor. You’re invested into a diversified portfolio of growth and defensive stocks across various industries and that is working for you to ensure your retirement income.

How you choose your asset allocation and how much you invest in will determine how much sits in the overall pot. I love having a superannuation account and see it as another very strong investment pillar in my overall plan, but I also harbour concerns that it’s a relatively new concept and may become outdated. I like how the tax-effectiveness of it works for me as I earn an income to build wealth, but I also know that the fees earned are higher than I am charged in some share investments, so if super wasn’t so tax-effective, I’d move the balance elsewhere. 

Pros:

  • If you’re in normal employment, your employer likely has to pay into it by law, so it’s an investment vehicle that’s accruing with you having to do much at all.
  • Superannuation is very tax-effective, with an amount of non-concessional contributions allowed per year taxed at a very appealing rate (15%). In many cases, this is well below the marginal tax rate you’d otherwise be hit with if you kept it as income.

Cons:

  • In many cases (and depending on your age bracket), you won’t be able to touch it until 60, so if you want to retire early, you’ll need to create passive income from other sources to bridge the gap between your retirement age and your preservation age. You’ll also need to consider the fee implications of not contributing to the fund if you retire before 60, because fees can eat away a significant chunk of the principal amount. By that stage, compounding interest should be doing some very powerful work but it’s always good to be aware of any forces that can impact the funds value (and this includes having it in the wrong risk allocation for your age and needs).
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Ethical Investing for Beginners

“The secret to a fulfilled life is not only to do well, but to do good.” That’s ethical investing 101.

Whatever your personal, political or social view of the world, there’s one thing we can all agree on: it’s never been as batshit crazy as right now. 

Reeling off the back of (and sometimes dipping back into) a global pandemic, sandwiched somewhere between ravaging bushfires, devastating floods and arid drought – ethical investing is on the mind of many of us looking to be cleaner with our investments. 

How can we still amass wealth without ruining the planet in our efforts?

What’s the point of retiring into a world that’s unravelling at the seams anyway? 

Is it possible to make ethical and sustainable choices with our money – and if so, how? 

More importantly, how do we know what’s really green – and not just greenwashed? 

Today we’ll cover ethical investing for beginners. Buckle up, FIREpioneers, we got some serious whips to crack.

Where do I start with ethical investing?

There’s a deep-rooted conundrum at the heart of ethical investing; a simple effort-to-return equation that has most people putting it on the ‘later’ list. Cost-effectiveness.

Is it cost-effective, and profitable, to invest ethically?

In my opinion, yes. In fact, our ethical index fund stock has performed significantly better than their dirtier, more rascally counterparts – with FAIR and VESG in particular smashing excellent annual and five-year returns. 

Analysts at The Guardian agree, too, a year ago publishing promising Morningstar research that showed how well ethical funds did leading up to, and even despite COVID’s economical fallout. 

Better, in fact, than industry-leading traditional funds.

So, yeah, ethical investing makes total sense – so long as you can actually get a return that matches, or exceeds, non-ethical funds of a comparable structure. Luckily, the odds of that aren’t so odd in 2021, meaning you shouldn’t be penalised for trying to do the right thing by mother E.

Paying a premium that only morally outweighs the alternative, only to wear the virtue signal as a badge of sacrifice is just silly. We’re lucky we’re living in a time where we don’t have to choose between fiscally sound investments, and ones that make us feel less disgusting.

So, with that said, what’s the easiest way to figure out if an index fund is truly ethical?

ESG-accreditation. 

Funds that meet the stringent criteria for environmental, social and governance standards can be safely invested in with the knowledge that rootin’ tootin’ pollutin’ industries aren’t benefitting from your dollars. 



Think fossil fuels, but also the tobacco, alcohol and porn industries, companies that test on animals, export live animals or are known to support offshore sweatshops, and companies that support gambling and violence. These are usually referred to as “sin stocks”, meaning defensive assets that perform well even during economic dips (because, well… humans).  

The Morningstar Sustainability Rating offers a good overview on ESG criteria here if you’re skeptical, but the accreditation does stack up well by all accounts.

Ways to ethically invest.

In ethical indexes and ethical funds, fund managers are tasked with investing in companies and industries that have a meaningful level of oversight into not just the impact of the industry, but all people involved in the supply chain and all materials and resources used – including where they end up.

Given that share investing is such an integral part of many people’s path to financial independence (you can even ‘paper trade’ for practice!), investing in ESG funds is a good place to start on your ethical investing journey – but it’s not the only way. Let’s take a look at some others.

Consider how to gear property investments more effectively.

I don’t mean that kind of gearing.

Owning and tenanting investment real estate is often the subject of many ethical criticisms, but I think that in a market where we have gross undersupply of good homes to the amount of people needing to live in them, tenanting an investment property out responsibly is crucial to ensure well-managed, tenant-focused housing.

Case in point: we put our Sydney property on the rental market during the first serious Australian COVID lockdown of 2020. 

At one point, we had two very different tenancy applications presented to us. One was of a double-income couple (one in a full-time paramedic role, a position that would be considered largely safe in the context of a global health crisis), and the other from a jobless and divorced single mum of two.

We were also doing this at a time where a national moratorium on rent payments had been announced. If our tenant couldn’t pay their rent, given the circumstances of the pandemic we would have no right to evict them. The shortfall would be on us.

The single mum had written us a beautiful application that stated her case clearly. She told us that she had been looking for a while (been rejected from many), had fallen in love with our place and was excited to gain back some normalcy there with her daughters. She told us that her ex-husband had agreed to cover her rent payments, given she had no permanent income.

It was risky, but when my husband and I discussed our responsibility to conduct ourselves in our investment position for the good of all, the decision was clear. 

We accepted her application, against our agent’s advice. We figured that in a renter’s market, which it was at the time, the dual income couple would have no issue finding a place. They didn’t – they were accepted on another they had applied for by the next day – and we welcomed her into our home. She’s just renewed another year and has been a fabulous tenant to date. We have reciprocated by making sure that we are open to fair and reasonable negotiations in regards to rent price, repairs are made swiftly and without fuss and that the agent’s we have chosen always behave in good faith to her.

Now, I’m not saying that you should run around as a bleeding heart. 

We asked our tenant if she could mitigate the risk by paying for three months upfront. Similarly, there will be contingencies you can put in place around your property and you’ll know when a tenancy application just doesn’t feel right. At the crux of it, though, I believe that properties owned by everyday Australians, rather than by developers or corporate entities, are always better for the community in the long-run.

Look at your ethical investing potential as a whole.

Superannuation is a great and tax-effective way to achieve financial independence. 

Given that for many people their employers have to pay into it mandatorily, and they can’t access it until they reach “preservation age” (can we just take a minute to let that horrible term sink in?!), it’s got all of the factors a good FIRE investment-eth make. 

Early start. Regular contributions. Compounds long-term. Lovely jubbly.

…But there are ways to do it ethically.

Super is essentially share investing, just within a specific company structure, and you don’t do the investing because the fund management team does – less their transaction fees which are built into the model. 

Superannuation funds like Verve Super and Future Super come to mind straightaway, but you can find a few out there. Investment returns data for these funds is really promising, too – I encourage you to go and have a look. 

Another option is to move into a self-managed super fund, where you choose and manage your own investments and insurances. I know that for me, though, with my age and the fact that I’m proactive in the share market already, an industry fund is the one that gives me that same exposure but with one less asset to actively think about.



If you have any cash held in a savings bank account, you might be pleased to know that you can move to banks who prioritise ethical practices now, too. 

Personally, I think it’ll be hard to find a bank completely green but there are certainly options whose lending clientele don’t extend to the likes of fossil fuel conglomerates at the very least. 

Bendigo, Suncorp, Heritage and ME are included in this list, with Bank Australia up there as the most generally clean bank. Financial products within certain non-ethical banks might also have an ethical component, but to me that’s akin to invading a country by force and then setting up a sweet little hospital to deal with the casualties. Cynical but true.

Ultimately, you’re probably not going to see a huge return on bank savings compared to having it invested elsewhere, but it’s worth looking at your money holistically. Many day-to-day transactions happen through a bank account, so why shouldn’t it be scrutinised to the same degree?

Other ways to pursue ethical investments.

  • Use everyday spending cash flow for good. Invest in solar panels for your house, or opt for the green power energy plan from your energy provider (many have one). Adopt minimalism into your life more broadly.
  • Use your money to make tax-deductible donations to registered charities, and use that to offset your income tax. If it’s going somewhere, better to be in the pockets of a registered charity than the tax office.
  • Can’t afford to free up extra cash from your income to donate for causes you care about? Use dividend income instead. Dividends, when donated to registered charities, can be tax-deductible too, avoiding the CGT component.
  • Invest your time. Head to the local pound or homeless shelter – or any organisation in an area you’re passionate about – and invest some elbow grease and hours. Even contributing to a community garden or beach cleanup is a better use of time when the alternative is sitting in an office chair, wiling away.

Good luck! As you move through the stages of financial independence, it’s very commendable to think about ethical investing on the way. Luckily these days, making sure your FIRE aspirations don’t start the next bushfire is not only morally right – but fiscally sound.

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The Six Steps To Ensuring Your Financial Independence (And Early Retirement!)

If you’re like any of the Aussies with FIRE on the mind (in short: swapping extravagant lifestyles for frugal, intentional living and investing) – the biggest question for  you is… how? The answer, simply, is following the six steps to ensuring your financial independence and early retirement. 

Whatever demographic you fall into, DINK, SINKS, a big brood of kiddos, single parents, young, old and all those in between, these steps don’t discriminate.

Whatever your final income number (let’s say, a passive annual income of $50,000 generated from an asset base of $1,250,000 comprising of rent, dividends, super, interest… or a mix of all, assuming you’re withdrawing between 3-4% of its value), this methodology has been tried-and-tested across the globe. And while that big scary number feels so far away, remember the beauty of compounding.

The sooner you start, the sooner you hand over the baton for your investments to carry the load later on.

I really love this concept and feel it’s so under-rated. We feel we can’t start because we don’t have the tenacity to go the whole hog. But we forget that we don’t have to.

Here’s the logic in short: get rid of your debts (as a big, big priority), keep the costs of living as low as possible for your situation and then use that extra cashflow to invest in safe, low-risk investment vehicles (a fancy term for things that carry and return your cash in good markets).

The key is to simplify. Everything. Not just your money, but your life.

Basically, figure out what brings you joy and security? Spend on that.

What interests you and curates the world you want to live in? Invest in that.

This ensures you’re putting your money to good use, both on a day-to-day spending level and a long-term investing level. Thousands of Australians have done this and are on their way to reaching their financial independence goal. Don’t discount how achievable it is for you, too. Here’s how.

Step one: It’s and et’s… they commit, budget and execute.

They not only make the decision to hit financial independence, but they create their budget (a plan) and execute it.

They look at the different types of FIRE, like leanFIRE (with a lower passive income, think <$50,000 per annum, which maybe they’re supplementing with a part-time job, working six months out of the year, or a profitable side hustle that cashflows part of their lifestyle), fatFIRE ($50,000>, up to a number that only you can decide, because hey, it’s your retirement, and you can either work some of it, or none of it, or spend big or small), and everything in between. 

They map out their process, learn how to invest (which is part confidence, part expertise and part trial-and-error, not in that order) and ensure they have cash to do this with.

They look at their personal risk profile around investing, like whether they’re okay with the hands-on nature of property, the short-term volatility of shares, the delayed gratification of superannuation or the slow burn of trusts and term deposits, and they understand their income and outgoing numbers intricately.

While it’s great to start now (and look, why not?), they also appreciate the power of research and learning, so they’re not anxious to get amongst it immediately for fear of missing out. The reality is, this is a perceived threat. Any time is right to invest, as long as it’s the right time for you.

Step two: Bye bye debt, you sucker.

With a plan, comes action.

Get onto that toxic debt, friends. Seriously, it’s bad. So bad and unnecessary. Be it credit card debt, car loans, personal debt (like owing friends or family money, even if there’s no interest charged), AfterPay, ZipPay, the whole shebang. The interest charged (or the mental burden of owing) is like a weight you can, and should, throw off the side of the boat of your life as soon as possible.

It’ll hinder you from accessing the good debt of building wealth, like business loans, home loans or even capital for debt recycling. Truth bomb: there’s nothing good about owing on a personal level.

The argument of strengthening your credit score is negligible… I mean, does it really? One or two unexpected defaults due to a change of circumstances, or a late pay-check and you’re in the red again, marked as an unpredictable candidate, undoing all of that hard work to establish a strong score.

Step three: They get intimate with a high savings rate (and look at ways of boosting their income).

Get ready for some initial sticker shock.

FIRE proponents save at least 30% of their after-tax income on a regular basis. And if they can’t find the money to do this from their current income, or by minimising expenses, they find ways to boost their income to save at least 30% of that after-tax.

It’s a fundamental, potentially inconvenient truth to accept: you’ve got to normalise saving.

You have to locate, and keep, disposable cash. The more that can be saved to be put to work (so you don’t have to), the better. At a minimum, 30% looks like $25,000 (before tax) from an average before tax wage of $84,968. And the more you can squirrel away, the faster you’ll bring forward that magic early retirement number. 

Step four: They lower their risk ratio with a strong emergency fund stashed up.

The unexpected is both expensive and unavoidable.

At least one years’ worth of annual expenses are a safety buffer that keeps your head above water when everything goes to pot.  Putting together a “life happens” nest egg protects you from the terrifying reality of poverty after job loss, major repairs, becoming sick, crystallizing a loss, and above all, the dangerous debt trap.

Being tax, or growth smart with where this is kept – like an offset or redraw facility, or high-interest savings account or term deposit, could be a very clever move as it gives it not only a home, but a job to do.

Step five: They focus on building multiple income streams.

They shift from chasing income in the traditional way, like employment or business ownership. If it requires an exchange of their time for the money, it’s too active of an income strategy. Instead, they seek ways to bring in money while they sleep: passively.

Some passive income streams include share dividends, rental yield, interest from a bond or term deposit or creating something that pays ongoing royalties or ad revenue.

Diversification may be a good strategy to ensure that your income isn’t totally affected when one stream goes through hardship (many investments generally don’t perform in a vacuum; when some do well, others won’t, and vice versa), but this isn’t completely necessary. Some income streams within the same asset class can still be wildly different. Diversification can still be achieved for the same investment type.

Step six: See you never negative net worth, hello positive net worth.

Finally, the magic happens.

Any assets (what is owned) now exceeds any liabilities (what is owed). 

And compounding can carry the rest of the load. Hooray!

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Paper Trading: How To Get Started With ‘Fakevesting’

So many Australians are terrified of share investing because of the risk in buying shares, and also because they don’t feel comfortable with their ability to make money on their money. If that’s the case – paper trading, i.e. “fake-vesting” might just be for you.

Paper trading is essentially the sharemarket’s version of try before you buy. Also known as fake-vesting, it’s a process that helps you get a sense for how your money would theoretically dip and grow before you actually invest anything physical.

For the uninitiated, it’s an introduction into how the share market works, what different share vehicles look like, and how that growth and loss might actually affect your principal investment (the money you initially invested) in a real-world fluctuation scenario.



Ah, fluctuation. If there’s anything that’s a certainty in investing, it’s that your money is going to change in value. Sometimes many times a day, certainly many times a week and most likely, many times in the year. And disclaimer: that’s totally normal.

The value of stock moves constantly because of market forces – like hype, which affects supply and demand, as well as world events, public perception and even propaganda. By the way, a great watch for how inciting propaganda can affect share market value is the Bill Ackman war on Herbalife documentary ‘Betting On Zero’. Really interesting stuff.

So, think of paper trading as an investing game. It’s the stock version of Monopoly. You’re not really buying Mayfair, nor are you really buying the real estate investment trust managed fund that now owns Mayfair. Instead, you’re trying your hand to see what it might look like if you did.

You can paper trade in a few different ways, using online games (stock market simulators), weekly trackers or, if you’ve got the time to actively manage your virtual portfolio, through an Excel spreadsheet.

One tool I used to love for playing with stocks was the Google Finance tool. It had this rockstar feature where you could add any stock to your virtual portfolio and manage it from there. Essentially, you’d pick a stock, a date you bought it and then how much theoretical money you would have used to buy it. You’d work this out by looking at the current share price and calculating how many shares you could afford with the theoretical sum you’d use for a purchase of that type.

You could then see the “day’s return” and the overall return of the stock, and compare it with others in your portfolio. It always used real trading information so the returns were accurate – it’s just the capital that was missing. It wasn’t perfect, though. Some things I remember about Google Finance was that it didn’t show aggregate returns of an entire portfolio the way some brokerage platforms would – just individual stocks, and it was very American (including lots of terms we don’t really use here).

This is largely how most similar simulators work, by and large – just with less bells and whistles.

Unfortunately, Google Finance appears to have lost a lot of that original functionality but I’d still recommend it to get a good overview of how to assess a worthwhile stock holding. It’s also so interesting to watch how the stocks move in real-time. Remember the fluctuations note? Watch how share prices hop to and fro every few minutes and you’ll start to see why fluctuations are par for the course.

Next up is the ASX Sharemarket Game. Some of us might remember doing a version of this when we were in school (which was technically a straight shot to teaching kids how to gamble), but if the public version is anything to go off of, it’ll be a decent learning experience.

The premise is that you get $50,000 in virtual cash to invest over 15 weeks (representing three and a half months of potential profits to be gained). You should aim to have diversification across your portfolio by getting access to over 200 companies listed on the ASX, with their live prices, and you will have to pay brokerage (the cost of initiating the trade) using your virtual money. 

You can see everything through your main portfolio dashboard, and you can even implement stop-loss orders, which is where you set instructions for automatic selling once your holding loses a certain amount of value, usually dropping under a specified share price.

This is interesting to play with (the purpose is to minimise loss as much as possible), but I personally don’t worry about stop-losses because prices typically recover – and then invariably grow – over a long enough period. This is why you can take the 15 week timeline with a pinch of salt. It’s not indicative of long-term return and that’s really the secret sauce for financial independence, retire early followers. We depend on our shares for income, so letting them ride and compound is in our best interest. This can be over ten, twenty, thirty years… or forever.

StockWatch works very similarly, except that it’s limited only to the top 200 ASX-listed companies, which means no exposure to international companies. As we’re fairly small in global terms (and heavily resource-based), this can be quite limiting. In the real world, having both Australian and global picks is a much better representation of share diversity.

One thing I particularly like about this platform though is the community forum, which is great for finding investment resources and things to read up on to help with strategy. Know that the advice isn’t always sound, though. In fact, they’re mostly opinions, but it’s a good way to share ideas and see how others are doing with paper trading.

If you’re not too techy and the idea of putting all of your information into a game doesn’t work for you, you can keep an eye on stock movements via an Excel spreadsheet. In fact, this is what my husband and I do before we invest into anything. It’s much more manual and doesn’t update anything in real-time, but we can manually collate market movements every couple of months.

We usually have our eye on a few different stocks before we invest in them, and we typically look closely at the one-year performance, three-year performance, the management fee and the 52-week low and high (the lowest and highest points it has traded at over a yearly period) through our Excel comparisons.

Once I have that information, I can work out how much my shares would be worth had I invested a default amount – usually buying around 50 units, but it depends on the share price of course – over that year, three years and more, less the management fee.

If I wanted to dive deeper, I could also work out how much the reinvested dividends (the payments I had opted to have returned to the portfolio for more compound growth) would have impacted the overall return. It’s not going to be completely accurate, of course, and doesn’t easily account for losses, but it’s a sound start for wrapping your head around the numbers.

So how long should you paper trade for in order to get more savvy with it?

I’d think of it less a blanket time frame, because various share vehicles will appreciate across very different time periods. 

For example, some established companies are already experiencing strong shareholder returns, while others may not perform well until later, when our consumer habits mean there are more demand for those products (think ethical industries and new technologies). 

Instead, reframe it as an answer to the question: “how long will it take me to save a pool of money that I’m comfortable actually investing in the share market?”. If it will take you six months to save $10,000, and that’s what you’d like to use to foray into share investing, then use that six months as a runway to start paper trading before you do the real thing.

My personal ethos on investing is always the same – it’s really never too early to get started. This is for a couple of reasons:

If you’re new to investing, the concept of buying “shares on sale” is actually redundant. This is why some people like to “practice” first – so they can nab a bargain when it comes up. But with no exposure to the real market, you won’t really know what a share sale looks like. Thus, everything is always relative to your context at the time.

Secondly, it’s never about timing the market – it’s about time in the market. 

Shares, whether they be individual company stocks (i.e. owning a business directly), or exchange-traded funds (i.e. ownership into a fund that tracks market indexes) have always performed well over time. That is to say that many historically have always gone up at a rate that significantly exceeds inflation and yields exciting returns.

Reckon you could turn $200k into a million big ones over the next decade? The best thing is to Nike it. Just do it.

But understandably, if you want to try your hand first, paper trading is a good place to start. In any purchase, the ability to try before you buy is a very sound strategy. Just remember that while you won’t make any actual losses, you also won’t make any gains either.

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The Stages Of Financial Independence

A lot of folk say that financial independence doesn’t follow a linear path. That the stages of financial independence change.

I disagree, because actually, if you look at common themes in people’s finances across the spectrum, the trends are clear.

Personal finance is of course, always personal, but the “stage” we find ourselves in at any point in our life is often one of only five others. This starts at being completely dependent on others and ends at being completely financially independent from anyone.

Everything in between is where you make your money mojo.

Bear in mind, some people never move out of the first couple of stages, or sit comfortably somewhere in the middle anticipating a traditional retirement at 65. Some people get to the later stages, but fall back after major life catastrophes, and a small handful reach the holy-grail state of eternal passive income and are financially set for life.

Whatever your current stage, it’s not too late to progress it. Once you understand where you sit, the reality sinks in and you can start looking at where you want to be, moving out of the stage that doesn’t suit and into one that looks a bit better on you. Here are the stages of financial independence, from dependence to abundance, surviving to thriving.

Stage 0 – Dependence

Baby, you were born this way. This is what I’d call the newborn state, where your basic existence is funded by others – their financial generosity feeds you, clothes you, keeps you warm and well and covers your everyday needs. This is usually your parents, or carer – but shockingly, adults also fall into this category. It’s called debt; a lifestyle funded entirely by creditors, where you spend more than you earn and your income (if any) barely touches the repayments. If that life line was cut off, you’d sink.

Stage 1 – Solvency

The next in the stages of financial independence is called solvency, where you’re up-to-date on your bills and meeting your financial obligations as and when they come in. You don’t depend on handouts or credit, you’re not creating anymore debt with your lifestyle choices and by all accounts, you’re earning some sort of profit through your income – you’ve got some disposable cash. If you’re actively paying down debt – even if it’s a minimum repayment – you are paying down your bills so you are considered solvent (amazing work – this is the first step to building real, lifelong wealth).

Stage 2 – Stability

Stability is achieved once you’ve hit some basic financial goals – like being personally debt-free. Note that this is debt outside of that which is typically considered to have growth potential, like a mortgage, a business loan or student debt (this is still a priority to pay off but not as urgent as consumer debt). And if you’ve got some basic savings to cover an unexpected event, as well as continuing to support yourself with your income, you’re stable.

Stage 3 – Agency

You’re completely debt free! Congratulations. This is one of the most important stages of financial independence. You’ve paid off all debt, including a principle mortgage and you’ve got enough FU Money in the bank to walk away from anything at any time (my advice is to have this in your arsenal, anyway). You’re a free agent, not tied to anyone or any workplace entity to dictate your decisions. This is the last stage in the “surviving” category – from here, it’s all about building wealth. In my humble opinion, you can (and should) start this building wealth ASAP. It’s never too early to start investing.

Stage 4 – Security

So you’ve been diligently investing in a broad range of asset classes and now, your passive investment income (income you do not actively work for) covers a basic standard of living. Simple food, keeping that roof over your head (either rent, or because you’ve paid off your mortgage like in the third stage of financial independence – covers basic fixtures, repairs and annual home and contents). Maybe also medical expenses, new clothes when the old ones tatter, the bus fare to town. Not much more, but you could do this indefinitely.

Stage 5 – Independence

Those magical words – financial independence. This is where the standard of living you’ve become accustomed to, and those creature comforts you love, are both serviced by your investment income. You don’t need to work if you don’t want to. You’re living well above the poverty line in a modest and comfortable but fulfilling way. As you’ve probably been investing for a while, this way of life is not new and something you’ve grown happily accustomed to.

Stage 6 – Abundance

Although I write a lot about financial independence – financial abundance is really the goal with money, at least for us. Your passive income pays for everything, and then some… you can travel, build a passion business (with no expectation or need for it to become profitable), you can give wealth away to others, you can make guilt-free luxury purchases… the list is endless. You’re earning far more than you need so a huge chunk of that income is disposable. Ah-mazing!

 

Retirement ages on reaching the final stages of financial independence

 

How young can we achieve this? According to a U.S. LIMRA Secure Retirement Institute study, less than 1% of people will achieve retirement before the age of 54. Closer to home (ABS research), 8% will achieve it between the ages of 45-49 years, with presumably a smaller percentage any younger. Hopefully, though, that’s changing. 

So where do you sit in all of these stages of financial independence? Where would you like to be? What would best reflect your financial goals? I’d love to hear about them.

In the vein of sharing (and because we all love a little nosey into someone else’s stage), hubster and I are getting closer and closer to Stage 4. With the compounding benefits of our investments (that lovely interest on the principal sum as well as the accumulated interest already earned), will hopefully reach Stage 6 within the next decade.

Now, wouldn’t that be a nice place to exit stage left?

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