Episode 60 – Mike Lewis - When to Jump Today in the episode, we interview the author of When To Jump, Mike Lewis. The book is about career change or starting your own business. In this interview we cover: Mike’s jump to being a professional sportsman His job and career before he became a sportsman Events that unfolded and didn’t go to plan when he left his career Framework: Jump Curves - 4 phases of taking a jump What made him decide to keep going Mike’s 2nd jump of writing the book When to Jump and how it unfolded How he strategized and made it happen When he started this idea Learnings from his jumps Details and overview about the book and its contents, including a sample case study Mike’s sense of things from the people he talks to The importance of planning in making a career change Mike’s plans for the next year or two.    Links mentioned in the show When to Jump Podcast When to Jump Instagram When to Jump Facebook When to Jump Twitter Mike Lewis LinkedIn

Episode 59 – The Beauty of the Worst Case Do you remember those Worst Case Scenario Survival Handbooks that were around everywhere about a decade ago? How to land a light aircraft if the pilot has a heart attack, or how to survive a bear attack. I don’t know if they extended to surviving a zombie apocalypse, but I wouldn’t be surprised if they did. They were good fun reads and made a great Christmas present. In today’s episode we’re going to explore how planning for the worst case can be liberating. How it can melt the ice that has you trapped in your current state. And the best bit? It’s not hard – just two easy steps. Planning for the worst case is a key tool in enabling you to gain the choices in life that you deserve. So let’s dive into today’s Financial Autonomy episode – The Beauty of the Worst Case. When investing, we know from history that the best investment returns come from growth assets – shares and property. Why then don’t investors have all their money, 100%, in shares and property? Why diversify and hold things like bonds? The answer is that whilst we always hope for the best, a wise person plans for the worst. Planning for the worst case is something that’s common across government agencies and businesses. The Emergency Services for instance will plan out their response to a large bush fire or flood. A bank might develop a plan to handle a significant global disruption to financial markets. Or a pharmaceutical company might have a plan for dealing with an extortionist tampering with their products. So how can you use this proven process to help you achieve your Financial Autonomy goals? Step 1 is to acknowledge your fears and define them. If your Financial Autonomy dream it to make a career change, like we heard from Tim in episode 55, then perhaps your worst case scenario is that you quit your current job and can’t break into the new career that you dream of. That’s a totally reasonable fear. And for many of us, that fear is enough to stop us moving forward. It’s paralysing. Now one solution to overcoming this paralysis would be to just try and push it out of your mind – the “be positive, it’ll never happen to me” approach. Having a positive mindset is certainly important in leading a happy and fulfilling life. But to achieve big changes, we need more. So on a piece of paper, or my preferred method, a white board, write down your worst case. What’s your greatest fear in embarking on your Financial Autonomy goal? Perhaps there’s more than one. There’s some relief in achieving this step alone, in acknowledging your fears. But of course we’re only half done. Now that you’ve defined your worst case, in step 2 we need solutions. So it’s brain storming time! If you feel comfortable, perhaps you could invite others in to join you to get some fresh ideas. Imagine what you would do if your worst case actually happened. Write down your solutions. Now this is not your preferred outcome, and it’s also not the most likely outcome either. So therefore your response are likely to be things you’d prefer not to have to do. But the point is they are things you could do if you had to. If the career change didn’t work out, could you go back to your old career? If the new business you started just wasn’t delivering what you needed it to, could you get your old job back? What if you took a year off to travel with your partner, and half way through the trip decided you couldn’t stand one another and went your separate ways. Would you fly home, or continue the journey solo? When I made my big jump from employee to self-employed in 2006, I had 8 months of income saved up. That was my runway. If it didn't work out, I had to go and find another job. That was how I dealt with my worst case scenario. And with that in mind, I ensured that before I left I did what I could to strengthen my professional networks, and I made sure I finished up on good terms, so that if I needed a reference or a simple connection in the future, people would answer my call. I also considered where I was at professionally and how employable I’d be. I felt that given my experience at that point, and some of the successes that I’d had, I would be able to secure another employee role if it came to that. Now fortunately it never did come to that. But acknowledging my greatest fear – what if this just doesn’t work out – and having a solution to that, was enormously powerful in providing me with the confidence to make the leap. If you take nothing else away from this post, take this – planning for your worst case is enormously empowering. I’ve found it so useful that I’m implementing it into more and more of what I do. When I develop my yearly business goals, I now also list some worst case scenarios and how I’d deal with them. We’ll be introducing an affordable financial modelling solution in the near future so that you can get a robust answer to the “am I crazy to do this?” question. As part of that we typically explore two worst case scenarios – both involving adverse investment market outcomes, to see what impact that would have on your plans. Adding these worst case scenarios magnifies the usefulness of the work enormously. Imagine your Financial Autonomy goal is to retire at 50. We build a financial model to show you how that looks over the long term, and the findings are that your goal is possible. Now we could stop there. But how much more powerful does the modelling exercise become if we also add in how it looks if you were unlucky enough to suffer a share market crash in the first year of your retirement? (Refer Ep 38 – Will my money run out? To see why this is a particularly bad outcome). If the modelling shows that your goals remain viable – awesome! But if instead it highlights a potential problem, you can start planning solutions. Perhaps you change your asset allocation in those initial years so you don’t have too much share market exposure. Or you figure in picking up some part time work so you can give your savings time to re-build. Whatever the solution, planning for the worst case enables you to move forward with greater confidence. There will always be uncertainty in life. And for many of us, it’s this uncertainty that prevents us from taking the big steps that we’d like to make. Planning for the worst case could be the way for you leap over your uncertainty barrier.

When I started my career in investment markets almost 20 years ago all the investment options were what we’d now call Active. We didn’t call them that at the time, it was just the standard way that money was managed. Passive investment had been around for some time, pushed primarily by John Boggle of Vanguard which first launched a passive index fund in 1975. But it took quite a while for enough data to come in, for investors to begin to appreciate why some hard questions needed to be asked about the focus on Active investment management. In more recent times the trend has swung in favour of the passive approach, and variations of that process, with ETF’s (Exchange Traded Funds) driving broad adoption. The increased acceptance and utilisation of passive investment strategies is almost certainly the biggest shift in investment strategy thinking since managed funds kicked off in Australia in 1955. So in today’s episode I’ll be sharing with you the difference between these two approaches, and how we apply these alternatives when helping our financial planning clients. As mentioned, Vanguard is the best known proponent of passive, or index investing, though interestingly Blackrock is bigger. The idea of passive investment is that instead of trying to do research on different companies and identify winners, you simply buy the whole market. The thinking is that if you do this, you should get the average return of all investors. So let’s say you’re buying an index fund over the ASX200 – the index of Australia’s 200 largest companies. If the ASX200 grew by 5% one year, then that tells you that across all of the investors in that market, half did better and half did worse, and the average came in at 5%. So if you invest in a passive index fund over the ASX200, you will get the average return, 5% in this example, less whatever fees the fund manager charges. Now compare this to the Active manager. Their entire rationale is to beat the market. If the average is 5%, their entire rationale for existence is that by doing all sorts of research and analysis, they can identify insights others have missed, and so deliver superior performance compared to the rest of the market. Now the astute Financial Autonomy audience will immediately identify that given the mathematical foundation of an average is that half of all results will be below, and half will be above, then clearly, not all active fund managers can be successful. Now it is fair to say that not all participants in investment markets are fund managers, there are of course mum and dad investors too, but by far the bulk of trade is conducted by the funds. And so we arrive at the number one challenge when working with active fund managers – what if you choose one that under-performs? But in actual fact, it gets even harder, because not only does the successful active fund manager need to beat the index, but they need to do it after their fees, or at least the difference in their fees versus a passive index alternative. And active fund managers tend to like to pay themselves a lot. So beating the average by say half a percent, won’t cut it if the fund charges 1% to manage the money in the first place. So what do the numbers tell us? In data to the end of 2017 (SPIVA Statistics and Reports), when measured over 5 years, only 37% of active funds outperformed the benchmark, and in the US it was even worse with only 16% achieving what they’d set out to do. To put it another way, if you have some money to invest and you’re trying to pick an active fund manager in Australia, there’s a 63% likelihood that you’ll pick the wrong fund and get under-performance. And in fact that number might be generous due to something called survivorship bias – funds that perform really badly close, and so they don’t register in the data. Now to be fair, index managers underperform the benchmark too because of their fees. But because they don’t need to employ overpaid fund managers, their fees are really low. You can buy an index fund over the Australian share market for a cost of about 0.14%, and over the US market for an incredibly low 0.04%! I thought this quote from Brian Portnoy author of The Geometry of Wealth summed things up well: “Beating the market. That’s a silly and fruitless game. It’s not tied to your real needs. It’s attached to your ego.” Tying your investment decisions back to your needs, or goals is really important. You’ve got a goal, let’s say that’s to buy 5 acres out of town and grow your own food. To make that a reality you determine a dollar amount that you need to save up to enable the purchase. Now of course you could just chip away putting your savings in a bank account until it builds to the necessary amount, but it’s likely to be smarter to invest your savings and let compounding of returns do some of the work for you. A lot of what we do for clients is financial modelling to ascertain how their goals can be met. So for instance we might find that, given your existing financial position and capacity to save, you could achieve your goal in 6 years, assuming your investment earn an average of 7%. If you then embark on that journey, you want to have a high level of confidence that your investments will indeed earn 7%. A portfolio would be constructed to gain you adequate diversification and minimise risk. Now you could choose as part of the portfolio to employ active managers, in the hope they will do better than the market, and so, deliver to you higher returns than you’d assumed so that you reach your goal sooner. It’s certainly tempting. But let’s revisit the data. 63% of Australian active funds and 84% of US active funds fail to beat the benchmark after fees. So is that a bet worth taking? My preference would be to do whatever we possibly can ensure your goal is met, and that means having the highest confidence possible as to what the investment outcome will be. All investments involve risk, and returns are never guaranteed. But I know that if I invest in a passive index fund, I’ll get pretty close to the market return. And I know what on average that return will be, so that over a 6 year time frame, as is the case in this example, I can embark on the strategy with a high degree of confidence that in 6 years’ time I’ll have the funds needed to buy my little farmlet. Now I should just pause here a moment and flag that I’m not totally of the view that all active management is a waste of money. We have many clients who’ve chosen to incorporate ethical considerations into their portfolio, and specialist fund managers, particularly with a focus on sustainability have delivered some great results that have indeed exceeded benchmarks on a consistent basis. There has also been some evidence to indicate that in the Australian small company space, active management might add value. Here many of the participants are day traders and simple punters, and so there does seem to be profits available to investors by employing fund managers to go out and research less well known business, and then sifting the wheat from the chaff. As the weight of money has moved from active management to passive over the years, active managers have responded, producing strategies to improve portfolio diversification and complement other passive holdings.   There’s another interesting wrinkle in this discussion of passive vs active investing, and that is investor behaviour. There’s great data out of the US produced by Dalbar which compares the market return, which is what a passive index investment will deliver, to the return that the average investor actually experienced. Over 20 years to the end of 2016 (the most recent data I could find). The S&P500 index returned 7.7%. However the average fund investor achieved returns of 4.8%, a difference of almost 3%. Over 20 years that is huge! To put some dollars around that, $100,000 invested at 7.7% grows to $440,000 in 20 years, whereas if you earn the lower 4.8%, your $100,000 gets to a much lower $255,000. So what’s going on? The main answer is that investors jump in and out at the wrong time. They tend to get in after markets have had a few good years, and then they tend to get out when markets drop. To get the average market return therefore they needed to do 2 important things: Invest so that your money tracks the index, which is most easily done with an index fund Leave your investment alone – all the evidence suggests that investors who try and time the market fail, and as shown in the numbers just mentioned, the impact is not minor.   So armed with this knowledge, how do we tackle things at Guidance, my financial planning practice? We don’t have a one size fits all approach, however our starting point is to use index solutions such as ETF’s, and then add in active management only where there is a specific strategy requirement. A solution that we use a lot is model portfolios built using entirely index funds, but with an overlay as to the allocation across the sectors, eg. Australian vs International shares vs Property. Once a year the model manager, a large US based global institution, conducts a detailed review of market and economic conditions, and rebalances the asset allocations within certain band limits to reflect what they see. They’ll never be all in Australian shares, or hold none at all, but depending on their assessment, they might tilt allocations 3 or 4% in one way or the other. They’ve been running models this way for over 30 years and their performance has been enough to cover fees and deliver a slight out-performance against the market benchmarks. Given our job is to help our clients achieve their goals, this is the outcome we want delivered. The more certain the outcome, the better. Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Episode 57 – 4 Hour Work Week – still relevant today? Originally published in 2007, The 4 Hour Work Week by Tim Ferriss, made some huge waves upon its release. It also laid foundations for its author that continue to this day. Indeed anyone who’s ever browsed the iTunes podcast charts will have come across Tim Ferriss, whose self-named show is regularly towards the top. As regular readers and listeners know, the reason Financial Autonomy exists is to explore how we can all gain choice in our lives. Without doubt The 4 Hour Work Week aims to deliver the same, albeit with a quite specific formula for success. Now I have to confess that I didn’t pick up the book when it came out. I can’t recall exactly when I became aware of it, but it was a bit like a movie everyone was talking about – I kind of felt I knew all the best bits, and with all the hype, I just couldn’t find the enthusiasm. 11 years on and with the hype having faded, I thought it was time to right that wrong. The first thing you need to know is that - despite the title, this book really isn’t about only working 4 hours per week. In fact nowhere in it does Tim say that’s all he does, and indeed I’ve read interviews with him where he fully acknowledges that he works more hours than that. So don’t read this book if that is your sole goal. The sub-title – Escape the 9-5, Live Anywhere, and Join the New Rich, is actually much more what The 4 Hour Work Week is all about. The other thing, which is where I got the wrong impression when it was released, is that it’s not all about outsourcing everything to India. Sure, that’s an important element, but it’s not the whole book I was really pleased to find that The 4 Hour Work Week is a really well written and engaging book. An extremely common frustration I find with many thought-leader type books is that the Big Idea could have been summarised in a 5 page essay, but since you can't make money with a 5 page essay, they've padded it out into a book. That is certainly not the case here - the book is well structured, and the ideas are consistent throughout. I didn’t feel like there was any padding. There were elements in the middle where I felt he wasn’t talking my language, but I continued anyway and found value in latter chapters. It’s probably worth explaining the basic structure of the book. There are 4 key elements, broken up into steps: Definition Elimination Automation Liberation The first, Definition is where he explains his New Rich concept and challenges some common assumptions. Elimination is essentially about productivity – getting more done in less time. Automation explores how you might generate income with minimal personal effort – unquestionably the section I had the most difficulty with. And finally Liberation – mini-retirement, travel, and flexibility – very much in our Financial Autonomy wheelhouse. If you think in terms of a Venn diagram, you know, where there are the two circles that overlap in the middle, and one circle is the things Tim espouses in this book, and the other circle contains the ideas and dreams of the Financial Autonomy community, there is definitely significant overlap. The idea of “wealth” not being defined purely by your balance sheet, but rather with reference to the life you can lead, certainly aligned. Where 4 Hour Work Week didn’t resonate for me though was in 2 primary elements: It seemed a recipe for a single person. Success in the approach espoused equalled lots of living abroad, nomadic style. Now I love to travel and am a keen learner, but as someone with kids, first I have an obligation to ensure they get a good education and upbringing. And whilst travel can be an important element of that, professional teachers laying solid foundations are irreplaceable. I also take the view that there’s 15-20 years in my life where I get to enjoy their growing up, and hopefully provide a positive influence in their lives. Traveling to Buenos Aires to learn Latin dancing doesn’t fit into this picture. My kids want to catch-up with friends, play sport and engage in their other interests. The definition of success in 4 Hour Work Week didn’t really seem to allow for that. The other element that jarred for me was that the suggested enabler was building a business that largely runs on auto-pilot with the use of outsourcing staff from India and the likes. If only building a successful business was that easy! I know from the emails that I receive from you guys, that many of you are entrepreneurially inclined. I also know that finding that viable business idea and making it work is really hard. To then overlay on that the ability to outsource its operation, is something that I would think few could pull off successfully. It’s possible, no doubt about it, but as a template for others to follow, I’m just not convinced. Indeed the very fact this concept has been around for so long, and yet so few people do it successfully, would seem to prove this point. I also think it fails to recognise that many of us enjoy the income producing work that we do. Whether it’s working as part of a team, developing creative solutions, helping people live better lives, or the challenge of beating a competitor – our work provides purpose, satisfaction, and yes, enjoyment. Who hasn’t had a glass of wine or a beer at the end of big week and felt, “yeah, I kicked some goals this week”? This idea that all paid work is horrible is a falsehood. So that’s the issues I had with 4 Hour Work Week. But did that mean reading this book was a waste of my time? Not at all. Was it life changing? No. But have I taken action as a result of reading it (since after all, if no action is taken, what’s the point)? Yes. The immediate action I’ve taken is to better manage my emails which have been consuming a lot of my day, and getting unjustified priority at times. I’ve automated a lot of what happens with my incoming emails, and set-up a few templates to speed up some responses. I’m also experimenting with only actioning emails at certain times of day. I haven’t perfected things, but Tim’s book certainly caused me to pause, reflect, and make changes. The version I bought was the expanded and updated edition published in 2009. The elements that I gather have been added are certainly good, and if you have the choice, I’d certainly encourage you to get this version over the original. There’s a section towards the end titled “Living the 4 hour work week” - case studies, tips, and hacks which I thought was great. You may even want to read that first, then decide if you want to invest the time into consuming the whole book. I also thought the blog post section contained some really useful thoughts. I’m no fan-boy of Tim Ferriss, so I have no idea if he’s living a happy and fulfilled life. But the little I do know suggests he’s succeeded in gaining choice in his life, and so for that I admire him, and I thank him for writing The 4 Hour Work Week – I certainly think this book makes a positive contribution to the potential that exists for all of us in the 21st century.   I’m sure many in the Financial Autonomy community have read 4 Hour Work Week – what did you think? Let me know on the Financial Autonomy Facebook page, or via email from our web site. Also, if you’re a Twitter user, my Twitter handle is @Paul_Benson11 so feel free to connect their.   Click here for the Mini Retirement Planning Checklist

Episode 56 – Are you playing offence or defence? Today in the episode, we talk to Tim Lavrey’s career change story from being a bank manager to a preschool teacher. All sports have elements of offensive and defensive play. And whether you play Netball, soccer, cricket or basketball, your team must constantly strike a balance between the two. In pursuing your Financial Autonomy goal, you too must find a balance that will see your goals achieved in an acceptable time frame, whilst also enabling you to sleep at night, and not put you and your family at risk of living on the street. But whilst in sport the distinction between offence and defence if fairly clear, in the financial world, it may be less so. So in today’s episode where going to explore your options, so that as you develop your Financial Autonomy strategy, you’re considering both offence and defence, and finding a balance that makes sense for you. Offensive moves are typically attacking type moves. They’re trying to make something happen in your favour. They’re pro-active decisions or tactics that you are employing to make progress towards your goal. Defensive moves are concerned with protecting what you’ve got, not going backwards or giving up ground. Playing offence is often more glamorous, and for sporting spectators, more spectacular. But any coach will know that a solid defence is essential if your team is to experience sustained success. Your strategy to achieve Financial Autonomy will require both offensive and defensive tactics. You need to take pro-active steps – offence – if your goals are to be met. But that doesn’t mean it’s wise to ignore the important defensive measures to protect on the downside. Without defence, all that you gain in offence could be given up. Let’s start by considering what playing offence might look like in a financial sense. A good starting point would be to have an emergency fund set-up to cover unexpected expenses like the fridge deciding it’s had enough, or unplanned medical expenses. For most people, having something like $5,000 stashed away would tick this box. The alternative, that leads all too many people towards financial peril, is that when these type of events crop up, they hit the credit card, with no plan on how this will be quickly cleared. Your next offensive play is to educate yourself on investment and money. Now given you’re consuming this post right now, I appreciate I’m preaching to the converted here. You don’t need to become an expert, but having a basic understanding of investment options, from term deposits to shares, property and funds, and a sense of the risk in each, will arm you well when developing your strategy. It sounds obvious and is perhaps a bit of a cliché, but a foundational offensive play in a financial autonomy context is to spend less than you earn. This requires management of your cash flow and knowledge of what is affordable. I’ve come across several instances in recent years where people have signed up to rent a home, without appreciating that once they pay that rent, they simply won’t have enough money left to live off. They just don’t seem to have done the numbers and realised that the rent is perhaps 50% of their take home pay, a level that would be unsustainable for pretty much anybody. Let’s start to stretch the legs a bit now – it’s time to start building some wealth. We all need a roof over our head and food to eat. And since the days of living in a cave and hunting for your dinner are well behind us, you’re going to need money. You’re currently earning money through your skills and knowledge, and whilst your ability to generate income is unquestionably of enormous value, it has its vulnerabilities and limitations – for one you have to get the work done in order to earn the income, but also there is the risk of your skills becoming obsolete or just less valued, you suffer an injury, or simply old age slowing you down to the point where income generation is no longer possible. Owning a home and/or owning income generating assets is essential for you to achieve financial autonomy and gain the sort of life choices that you seek. And the starting point to building wealth is to save. You don’t wake up one morning and have $100,000 in your investment portfolio – it starts with that first $100 saved and invested. So play offence with your money and invest. It needn’t be huge amounts to being with, but make a start. Improving your income generating skills is also a great offensive play. Deeping or widening your professional knowledge can see your income rise, enabling a higher rate of saving and investment to build wealth. Improved skills also make you more employable, enhancing your overall financial resiliency. So think about what sort of training or experiences you could undertake that would increase your value to an employer, or if self-employed, enable you to increase your hourly rate. And my final financial offensive move is to make an active choice as to how your superannuation is invested. I’m not talking about which super fund so much, but more which investment option. There will be a default, and that may well be the right option for you. But don’t just assume that it is. Look into it, consider your time frame to retirement, and your comfort with volatility. (A hint here, if retirement is a long way off, volatility is your friend). Make an active choice that fits with your plans. Now I do like the theory that the best form of defence is a good offence. But that doesn’t mean there’s not room for a couple of sound financial defensive tactics. The first is to pay down debt. Debt is not a bad thing when used to buy assets that grow in value, but there’s no question that debt makes you vulnerable. Compare the scenario of two people who are made redundant. The first has a $500,000 mortgage over their home, whilst the other has paid off their home and owns it outright. Neither person is likely to be pleased about being made redundant, but it's a fair bet that the person with the mortgage is a lot more stressed than the person who owns their home. Start with your most expensive debt and work your way down. Tax deductable debt, such as that used to buy an investment, may be the final debt that you tackle, but of course you’d need to run the numbers there. When it comes to defensive moves, the other fundamental element is insurance. Now I fully appreciate that it’s hard to get excited about paying an insurance premium for a benefit that you hope you’ll never need. But having your house destroyed in a fire, or generating no income for 12 months whilst you recover from chemo, are going to set you back a long way financially. Insurance premiums are known and can be planned for. Having insurance in place ensures that the hard work that got you to where you are today, is not undone by one instance of bad luck.   Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Episode 50 – Tim's big jump - from bank manager to primary school teacher Today in the episode, we talk to Tim Lavrey’s career change story from being a bank manager to a preschool teacher In this interview we cover: Tim’s love for football The story of Tim’s career change and how he made his move and decision to leave the bank and teach His redundancy and how it contributed to his career change Going through self-doubt during the process Their 6-month period of planning for his career shift, finances, income and budget and their 3-month trial period before the big change How Tim prepared for university and teaching and the struggles he went through Examples of how he created opportunities for himself while studying and after graduation His feelings about his new profession as a teacher His thoughts about the things he’d do differently How good planning, structure, and discipline can help with your financial stability The story of how Tim’s wife, Mary Anne, made a big change in her career recently How teamwork contributed to successfully making the changes in their lives    Links mentioned in the show Mini Retirement Planning Checklist

Episode 54 – Pay off the mortgage or invest? A shout out here to Christine Calnan who emailed me about this dilemma – whether it is best to put your savings towards extra mortgage repayments, or should you instead be investing? This is one that does come up a lot when I’m working with clients, and it’s certainly not a question with a simple one size fits all answer. So let’s take a look at the factors you should consider to find the answer that’s right for you. Christine observed that whilst the question of whether savings should be put to extra mortgage repayments or investment is something faced by plenty of people, there’s not a lot written about it when you do a bit of Googling. And there’s a good reason for that – the real answer is “it depends”, and no one likes to give, or receive that answer. Arriving at the answer that’s right for you is very dependent on 2 key assumptions – what will future home loan interest rates be, and what will the return be on your investment. Boil it down and the question is really, “will I earn more on an investment than I’ll pay on the mortgage?” Mortgage rates are at historical lows at the moment, typically around 4.5%. Both the US and Australian share markets have averaged returns of a little under 10% over the long term. Now there is tax to pay on your share investment, and this is one key reason why there is no one size fits all answer – we live in a marginal tax world where different people pay different rates of tax. To further complicate matters, Australian shares throw off franking credits, which offset some and potentially all of your tax liability on these holdings. To lean on the conservative side, let’s assume that a third of your investment return goes to the tax man. Your 10% total return becomes 6.6%, still comfortably ahead of the mortgage rate. So on this simple analysis, the preferred strategy would seem to be to priorities investment in shares over additional mortgage repayments. The tricky bit though is considering whether current mortgage interest rates will continue into the future. If you send your savings to an investment, what happens if in 5 years’ time mortgage rates rise to 8%? At this sort of level it would be very tough for an investment to provide an after tax return that would exceed this. Then there’s the question of share market returns and a topic I’ve raised before – sequencing risk. It’s all very well to say the average share market return is 9 point something percent, but it varies a lot year to year. Will you actually experience the average return? So with the investment option, you have uncertainty as to the result you will get, whereas under the extra mortgage repayments scenario, you have certainty, you have definitely saved the home loan interest rate. The value of that certainty should not be under estimated. Paying off your home loan is effectively a guaranteed outcome. To help address the uncertainty of your investment return, you should ensure that when planning your strategy, you’re thinking of a minimum time frame of 5 years, and ideally 10 years plus. The longer you invest for, the more likely it is that your outcome will come in at around the long term average Perhaps it’s worth considering whether this mortgage vs invest question need be so binary. Could you do both? At its simplest, if you can save $400 per month you could quite easily put half off that to your mortgage and invest the other half. Hedge your bets. You could spice things up though. Maybe you direct your savings to investments, but then have all the income those investments produce paid off your home loan. Or maybe you even use some equity in your home to buy investments, potentially creating a negative gearing scenario. You’re savings go towards servicing this new investment loan, and once again the investment income is used to make extra mortgage repayments. Because you’ve borrowed to kick things off, your investment portfolio will be bigger, meaning your investment income will be larger, which means more money to pay off your home loan. Another way you could go is to focus initially on paying down the home loan with all of your savings, and then once this is done, using the equity in your home to borrow and buy an investment portfolio. So a sequential, rather than parallel approach. The attraction of this is that you’ve achieved the certain saving of having paid off your mortgage, and then once you re-borrow to invest, the interest expense will be tax deductable given the investments will produce taxable income. And because you’re borrowing against your home, the interest rate will be low compared to the alternatives, which will help make the strategy profitable. The only downside with this approach is the opportunity cost of having no market exposure during the loan repayment phase. It’s worth addressing the fact that I’ve talked here about share market investments and not property investments. There’s a couple of reasons for this, but it mainly boils down to risk. A well-diversified portfolio of Australian and International shares is far less risky than a single residential investment property, relying on one tenant to pay on time and look after the place. There are also a lot more transaction costs associated with property – stamp duty, agent’s fees, maintenance costs, council rates, and on it goes. Plus, an investment property is a big chunky investment. You can’t do it for $200 a month, and you can’t quickly liquidate it if your circumstances change.   To answer Christine’s question, on balance, whilst interest rates remain at historic lows, it is likely that investment is a better option than additional mortgage repayments. But you would want a well diversified investment portfolio of 100% growth assets, and keep a close eye on the interest rate on your home loan. If it started to creep up, the answer might flip, at which point you could sell your shares and pay the proceeds off your mortgage in one lump sum. It’s also essential that you appreciate that there is some risk and a positive outcome cannot be guaranteed. This is very general advice, and I’d strongly urge you to sit down with someone and run the numbers that are specific to you. Your tax circumstances, time frame, job security, and broader financial position are all relevant factors in determining what is right for you. A reminder that there’s a free toolkit for you to download that provides a simple checklist of the things you should consider when evaluating whether you should be focused on paying down the mortgage or investing.  So visit the financialautonomy.com.au web site to grab your copy. I hope you’ve found today’s post interesting. If you’ve got a question that you think others in the Financial Autonomy community might also face, drop me an email, I’d love to hear from you. My name’s Paul Benson and thanks for listening to the Financial Autonomy podcast, where we help you gain the choices that you seek. Until next week, bye for now.   Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Episode 53 – Investment Power-Ups I was binge watching a fictional Netflix series last week about a group of 4 guys who had made an app that had become a huge hit, Angry Birds style. Each of the 4 guys had particular skills, and there was a scene where one of the guys was feeling pretty lost. He bemoaned to his friend how such and such was great at art, another coding, and the 3rd guy, the one he was speaking to, was great at game design. But he asked, what was he in the group for? His friend considered this for a moment and said, “you know what you are in the team for? You’re the power-ups. When we were just about to run out of money, you went out and found more. When Johnny went off the rails, you brought him back. You hired some key people without whom, none of this success would have happened. And you made us all rich when you found a buyer willing buy our business. So, yeah, you’re the power-ups”. It was a great scene and it really stuck with me. It also made me think about what the power-ups are in the investment world. What are those things that really accelerate your investment plans? Well, I believe there are 3, and that’s what we’ll be exploring in today’s episode. A great way you can keep up with what’s happening here at Financial Autonomy is to sign up to our monthly email update “Gaining Choice”. You can do that by clicking on the Updates tab, which, depending on the device your using will be either at the bottom or right hand side of the page. As well as sharing the episodes released in the previous month, I share a Financial Autonomy experience or observation that’ve I’ve come across, news about what we’ve got coming up, and a podcast tip of the month. Importantly, it is only monthly, so we won’t be filling your in-box with more content than you could ever consume – as you will hopefully have noticed with these fairly short podcast episodes – quality over quantity is our mantra. Wikipedia describes power-ups as “objects that instantly benefit or add extra abilities to the game character as a game mechanic.” If you’re old enough to remember Pac-Man, the power-up of eating the power dots in the corners let you chase the ghosts, or in Sonic the Hedgehog, the most common power-up made you go much faster. From Super Mario Bros to modern day Clash of Clans, power-ups are an integral part of most video games. Whilst all of these games can be played without the power-ups, the core objective of the game is either impossible or at least extremely difficult to achieve without using them. And so when thinking about the achievement of your Financial Autonomy goal, whether that be a 6 month mini retirement at age 40, a career change next year, or a move to a regional town, what are the investment equivalents of a power-up, that can bring your goals within reach. I have identified 3 investment power-ups. They are: Regular savings and dollar cost averaging Gearing Dividend reinvestment and compounding Let’s take a look at each in some detail.    Regular savings and dollar cost averaging If you want to build up wealth to gain the choices in life that you deserve, then you need to save. And there is no better way to save than to commit to a regular savings plan. By this, I mean you have an automated process whereby a certain amount of money is transferred out of your normal living bank account and into investments. There are two reasons why this strategy brings success. For one, it bakes in discipline. The investment just happens. No chance for you to spend the money on some other non-essential item, or use the cash to book a flight to Hawaii. Part of the discipline benefit is also that it ensures you live to your budget – the money just comes straight out of your account, so you can only live off what remains. Savings discipline is far from an easy thing, so don’t under-estimate this benefit. The second reason an automated regular savings plan works is because of dollar cost averaging. Now I realise this is a bit of jargon, which is something I usually try to avoid, but in this case it’s not a tough concept to get your head around. Dollar cost averaging deals with the fact that there is never a perfect time to invest. It reminds me of something a keen fishing friend of mine once told me – “the best time to go fishing is whenever you can”. So rather than picking one moment in time and hoping that it proves to be a great entry point for your investment, you invest regularly, typically monthly. The price that you pay for your investment will vary month to month. Some months you pay a little more, some a little less. But over time what you get is the average price. Sure you don’t get the lowest price, but you also don’t get the highest either. A great example of how effective this process can be was seen during the 2008 period where share markets declined considerably. Many people who invest discretionarily, put things on hold during that period and sat on their cash. But for those with automated regular savings plans, they bought every month, and when markets recovered from 2009 onwards, the prices they paid for their investments during that period looked really attractive. There was no way to know during 2008 when the market would reach the bottom. So holding off and trying to pick that point is a mugs game. But through the discipline of investing regularly, you continue to buy during the dips, and you get the dollar cost average benefits of averaging out your purchase price. In fact assuming you are an employee, you are already engaged in an automated savings plan that utilises dollar cost averaging – it’s your superannuation contributions.   Gearing The second investment power-up is Gearing, and this is probably the most impactful. Gearing means borrowing for investment purposes, and like gears in an engine, the purpose is to magnify outcomes. As a simple illustration, if you have $10,000 invested and it grew by 8%, at the end of the year you would have $10,800. But had you matched that $10,000 with another $10,000 or borrowed money, your total investment would have grown to $21,600. Once you paid back the $10,000 that you borrowed, you’d be left with $11,600, so double the gain, or growth of $1,600, compared to the original $800. Now of course no-one will lend you the money for free, so you will need to pay some interest on the money that you borrowed, and that will reduce your gain. Indeed if the cost of borrowing were high enough you would reach a point where it would wipe out all of the gain. But the point is that for the same investment return, your gain is greater as a consequence of having geared. Now of course when thinking about gearing it is always important to remember that gearing magnifies both positive and negative outcomes. So in the earlier example, had the original investment lost 8%, then under the geared scenario the outcome would have been even worse. So gearing isn’t a free hit. It needs to be considered thoroughly. In particular your investment time frame is important. You need to be able to wait out an investment market downturn. In my work with clients I wouldn’t consider a gearing strategy unless the investor had a time frame of at least 5 years. Property investment is perhaps the best known form of geared investment. There aren’t many people who pay cash for a property. Back in episode 25 I highlighted the significant impact that gearing had on my first property purchase, so if you haven’t already consumed that one, check it out Episode 25 – My 68% return. The power of gearing – how smart borrowing can accelerate your journey to financial autonomy.   Dividend reinvestment and compounding I’ve written and spoken a lot about the power of compounding, most recently in the Settlers of Catan / Early Retirement episode, number 43. Sometimes described as the 8th wonder of the world, the idea of earning interest on your interest is compelling, and certainly qualifies as an investment power-up. The best use of compounding is reinvesting dividends on share and ETF investments. I’ve had several clients over the years who bought Commonwealth Bank shares back when they floated all those years ago. They bought a few thousand dollars’ worth, and ticked the box to have the dividends reinvested. That means that each 6 months when a dividend is paid, instead of the investor receiving the cash, the money is used to buy more shares. Roll forward 20+ years, they’re retired and are thinking about a new car or a big European holiday. Those CBA shares that they haven’t given much thought to are now worth $80,000, and they’ve got some great options. Sure, the share price has gone up, but that alone would have only gotten them to about $25,000. The rest of the growth is the power of compounding. And let’s face it, if they had have taken the cash with each dividend payment, it would have just got absorbed into the normal spending. A new pair of shoes, or the electricity bill. There’d be nothing to show for it now. Again, your super fund will be doing a form of this. All the earnings go back into the fund to fuel further growth. It explains why, early on in your working life your balance doesn’t seem to grow a lot, but 20 years into your career you tend to see more rapid gains – this is your past earnings generating new earnings. So there you have it, my 3 investment power-ups – Regular Savings and Dollar Cost Averaging, Gearing, and Dividend Reinvestment and Compounding. Hopefully you can use some or all of these to power-up your journey to Financial Autonomy. Until next week, bye for now.   Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.  

Episode 52 – Mini-retirements In several previous posts we’ve looked at strategies to help you achieve early retirement. I’ve often spoken about the fact that early retirement in our Financial Autonomy context doesn’t mean spending all day sitting on the couch watching the Simpsons. Our objective is gaining the flexibility and choice to pursue the things that we’re interested in, and not have our life dictated by the need to earn money. An alternate way to gain flexibility and choice is through the concept of mini-retirements. Rather than work, work, work until a particular age, and then give things away totally, the idea of mini-retirements is that during your working life you step away and take meaningful breaks, to refresh, recharge, and explore life and the world. A mini-retirement might be 3 months long or it might be 3 years, but the idea is that you will take this time, and then return back to the income generating world. Often people planning around this approach will target several mini-retirements in their working life. For instance I know of a person whose goal is to take 6 months off every 5 years. I think the concept of mini-retirements aligns really well with Financial Autonomy and the idea of gaining choice. So let’s jump into today’s episode and explore how you might make mini-retirements a part of your life plan.   When researching for this post one of the first pieces that I read was by Ric Kelly – How a mini-retirement brought meaning to my life. Ric certainly didn’t mess around. He quit his job and spent the next 5 years, living across 10 different cities studying, researching, writing, and having the time of his life. One particularly interesting observations that Ric made was to not think doors will close because you’ve had an employment gap. When he was ready to return to work, the first person to offer him a job was his old boss. With that in mind a great suggestion he had was to have some fun, but also set some goals. What will you do during your mini-retirement? What new skills will you learn? If travel is part of your plan, perhaps learning a new language is a piece of the puzzle. Maybe you have a go at an entrepreneurial idea that’s been rolling around in your head. Or perhaps you’ll master the piano. One of my clients took time out to do a Masters in a topic totally unrelated to the work he had been doing, but in an area he had a passion for. He’s got 6 months to go, and the future certainly looks interesting for him. He’ll probably go back into project management, which is where he worked before the studies, but will use the cash flow from this work to develop an environmental project that he’s formulated as part of his Masters thesis. Tim Ferriss in The 4 Hour Work Week also wrote about the concept of mini-retirements. Tim’s definition of a mini-retirement is closer to an unpaid vacation than Ric Kelly’s 5 year break, but the objective is the same – refresh, recharge, and grow as a person. One interesting way that Tim and others have brought this to life is through volunteering in a developing country. When I was in Cambodia a few years back I came across several people doing exactly that. I met an Australian who worked in IT, who was volunteering at a school for orphans teaching them all sorts of computer skills, from basic typing and data entry, to graphic design and web site development. It’s these sort of skills that will enable Cambodians to participate in the global economy and raise living standards. I also met an American couple who were volunteering with a program to build houses for people. The organisation provided labour and I believe contributed to the cost of materials. What a fantastic leg-up this must provide to the people they help. I’ve met people who have worked in animal rescue shelters in the Amazon rain forests of Peru, and others who have volunteered at school camps in Ecuador. There are plenty of opportunities that you could explore, and the personal development that you could gain would be just immeasurable. In many of the articles on mini-retirements it appears to be something of a single person’s game. Yet mini-retirements for families makes a huge amount of sense. Your kids grow up so fast, and your opportunity to participate in their growth is a specific window in your life. So how would a mini-retirement look for someone with children? Well I guess the first observation is that people, most often women, taking time out of the paid work force to raise children is not something new. But that’s a long way from “retirement”, so that certainly doesn’t count. Increasingly common though is both parents working, and simultaneously parenting and doing all the exciting normal household stuff like cleaning and laundry. With this sort of load, mini-retirements for families are possibly an even greater need than for the kid-free set. A popular mini-retirement for Australian families is the big road trip either around or through this huge country of ours. Whether it’s with caravan or tent, there’s plenty to be explored, you’ll capture memories that will never be forgotten, and the whole family will learn an enormous amount about our environment, history, and one another. But why stop at Australia for this type of adventure? I know of Australians who have done much the same thing in the United States (though there it’s an “RV” rather than a caravan), and I’m sure it would be equally possible in Canada, Europe and Britain. A popular way for families and individuals to make a mini-retirement possible is to rent out their home. Rent your Brisbane home out for 3 months while you live in Thailand, and the rental income will cover the bulk of your expenses in Thailand provided you don’t stay in a hotel or resort. The likes of Airbnb make this so viable now. Mini-retirements in a family context, in comparison to an early retirement goal, also have the distinct advantage that you can better time the mini-retirement to the life stage that makes the most sense for your family. Often, when we do the maths on when people can achieve early retirement, it arrives too late – once the kids have flown the nest.   Before we wrap this one up, I think it’s also worth reflecting on a likely key difference between early retirement and mini-retirements. If you chose the mini-retirement path, it’s likely that you will be in the paid work force for longer than had you stuck with the traditional life path of retirement at somewhere between age 60 and 65. This is of course the opposite of the outcome sought by those with an early retirement goal. So if you are going to adopt a mini-retirement plan, just give some thought to that. Will you still be able to work perhaps through until 70 or beyond? Now if you’re a desk worker like me, then the answer is hopefully yes. But if you work in a more physically demanding job, then perhaps this isn’t so realistic. I guess the key here is just to really think things through and plan thoroughly. Get some financial modelling done to ensure you fully understand the long term impact of taking the next year off. So could a mini-retirement form part of your future plans?

Episode 51 – Can you pass the financial literacy test Want to minimise the chance of living off nothing but a meagre age pension in later life?   There’s a great proverb that I heard many years ago and have never forgotten “a fool and his money are easily separated”. So how do you ensure you’re not the fool? The solution is to have at least a basic understanding of the financial world. We call this Financial Literacy. That doesn’t mean you need to become an expert – you can hire people for that. But you need to know enough to be able to sniff out a bad deal, and to avoid those big missteps. You need to be able to understand the risks you are taking, and gauge whether the likely return adequately compensates for that risk. So, today’s post takes on a question and answer format. Let’s see how you fare when it comes to financial literacy.     Question 1 You log onto your internet banking and your credit card shows an available balance of $7,400 and an account balance of $2,600. Should you make any repayments on this account? The answer is YES. The account balance is the key element here – this is what you owe, and if you don’t repay it, you will pay significant interest. Many, many people look at the available balance and think in terms of “well I’ve got that much still to spend”. I very much suspect banks present this figure hoping you will do exactly that. This available balance mentality is what traps a lot of people when it comes to credit cards. Focus on what you owe, and get this down.   Question 2 Let’s stick with credit cards for a moment longer. Say you have a credit card where you owe $2,000, with an interest rate of 18% and you pay only the minimum repayments each month. Assuming you don’t spend any more on that card, how long will it take you to fully pay it off: less than 5 years, between 5 and 10 years, or more than 10 years? The answer is that it will take you over 15 years to pay off your credit card if all that you do is make the minimum repayments each month. You’ll pay a fortune in interest too. Just like with the available balance mind tricks, the banks requirement for a minimum repayment is not because they are your friend. They want you paying as much interest as possible for as long as possible. Ideally you would repay your credit card every month in full so that you avoid paying any interest. If you aren’t able to do that, then certainly ensure you pay considerably more than the minimum suggested by your bank. And of course if you find credit card debt to be a problem, have your limit reduced to minimise the potential damage. You could have the limit reduced to $1,000 for instance – enough capacity to buy some concert tickets online, or deal with a short term emergency, but not so much room that you could dig yourself into a really deep hole. You could go the whole hog and do without a credit card altogether, though in the modern online world I would certainly find that challenging.   Question 3 Your Gross salary last month was $6,000 and your Net salary was $4,500 - how much was paid into your bank account? The answer is $4,500. I find a lot of people get confused between gross and net salary, and I guess they are quite jargon sounding terms. Your gross salary is what you employer pays out. If you’re sitting down for a pay review and your boss talks about giving you a pay rise, they’ll be talking about your gross salary – how much they pay to have you on the team. But what is more interesting to you is your Net salary – how much actually goes into your bank account. The difference between Gross and Net salary is mainly deductions for tax and superannuation, though you may have other deductions as well, which leads nicely into the next few questions on the most common other form of deduction from your gross income – Salary Sacrifice.   Question 4 You catch the train to work in your office job. You have a 3 year old car which you own debt free, and it’s meeting your needs. One lunch break you listen to a presentation about how you could salary sacrifice to buy a brand new car. They suggest you will save tax. Should you take up this opportunity? Whilst there will be circumstances where salary sacrificing to buy a car might make sense, this is certainly not one of them. For starters, you don’t need another car! When you salary sacrifice to buy a car you are borrowing money to finance the deal, and then paying it back through your normal pay each fortnight. That means you’re paying interest on a loan – a cost to you. Also, because they always focus on new cars, the amount tends to be a lot, usually far more than you would spend if you were just going out to buy a car on the weekend. I’ve seen so many times where people buy a car via salary sacrifice for say $60,000, when if they were just out shopping for a car with their savings, they’d never spend that much. Cars are really bad investments, in fact they’re not investments at all. They cost you money to keep, and they decline in value from the moment you take ownership. Whatever marginal tax benefit you might get is well and truly swamped by the interest you’ve paid for a car that you didn’t need, and will be worth a fraction of what you paid for it in 5 years time.   Question 5 You work full time as a veterinary nurse, and have recently paid off your home loan resulting in you having some money available to save. You’re 50 years old and are wondering if you should work on adding to your super given you’d hope to retire in 10 years at age 60. Should you look into salary sacrificing into super? The answer here is a clear Yes. Now superannuation in Australia is complex. There are limits as to how much you can contribute, limits on how much you can convert to a pension in retirement, and of course whatever money you put in their can’t be accessed until you satisfy a condition of release – typically over age 60 and retired. So adding to your super is something to think through thoroughly, and I would suggest, get some professional advice on. But for many people, salary sacrificing to super in the scenario presented would be a great idea. When you salary sacrifice, the money is coming out of your gross salary. So remember, this is the higher amount, before any tax has been deducted. Now it’s not a total tax free situation, because when your contribution hits your super fund it is taxed at 15%, and more if you earn over $250,000. But paying 15% is likely to be less than the tax you would have paid had you not salary sacrificed and simply taken the money as cash. So salary sacrificing to super is typically a financially sensible thing, whereas salary sacrificing for a brand new car that you don’t need is typically not financially wise.   Question 6 Which of these is an investment asset? A new leather jacket, a new Mercedes SUV, an $8,000 carbon fibre road bike, or an ETF? Whilst the first 3 options here may well give you pleasure, and of course that has value in its own right, none of these should be considered an investment asset. Only the ETF – Exchange Traded Fund is an investment asset. So what is an investment asset and why should we care? The core distinction is that investments are expected to either increase in value over time, or produce income that you can use. Often investments will do both. The jacket, the new car, and the bike will achieve neither of these. I find some people, especially when buying very expensive items like luxury cars, try and justify that it is an investment and not an expense. And whilst I’m sure there are some cars that are truly collectable and will rise in value over time, these are not the type of vehicle most people are talking about. They’re making a lifestyle purchase and trying to fool themselves into thinking it is financially sensible. If you want the luxury car, fine. The goal isn’t to be the richest person in the cemetery, and so if that makes you happy, and you can afford it, go for it. But do recognise that you are buying something that is losing value all the time, and costs money in insurance, registration, fuel, and maintenance, during its life time. In a financial literacy context, recognise the difference between an investment asset, and something that is really an expense.   Question 7 If you bought a share for $2.00 and it rose in value to $2.50, is it true to say it has risen 50%? Sorry to stress your brain with a little maths here, but one of the most common ways that people get taken for a financial ride is that they don’t understand percentages. The answer here is no. The share has risen by 50cents, which given an initial purchase price of $2.00 means it has risen 25%. We’ve all got calculators in our phone so there’s no need to be a maths wiz. If someone is putting a financial proposition to you in percentage terms, and you can’t easily turn that into dollars and cents in your head, then pull out the calculator and do the numbers. Let’s say you were listing your home with a real estate agent and expected to get $700,000. One agent quotes you a flat $10,000 to sell your property and the other quotes 1.9%. Now the less financially literate will think “gee $10,000, that’s a lot of money. But only 1.9%, that’s not very much, I’ll go with that guy.” Yet actually the percentage option will result in a cost of $13,300, more than the flat fee. So recognise that percentages can deceive and don’t hesitate to pull out the calculator if you’re unsure.   I think that’s enough of me being quiz master for today. Financial literacy can include a whole lot more – budgeting, being able to calculate your net worth, understanding compound interest, and having appropriate insurance in place to name a few. The Money Smart web site is a great resource and I’d highly recommend checking that out to further educate yourself on the basics of financial literacy.   Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Episode 50 – Mini Retirements, 3 day work week, self employment and more - Stuart Barry's Financial Autonomy success Today in the episode, we talk to Stuart Barry about his life story, his love for travel, his published book, his business and how he values his time. In this interview we cover: Stuart’s 35-year career journey in the finance industry How he started his current career as a financial planner Countries and places he has worked in Breaks and adventures or “mini-retirements” that Stuart has done The fears he faced about taking mini retirements How he managed to bring himself to take a break and travel The reason why he didn’t need much financial preparation during his 1st break The 2nd break he took with his wife and their financial state at that time The experience he had coming back from his first break to finding a new job Advantages of maintaining a good relationship with your employers The things that drew him to owning his own business and why he says building a business isn’t for everyone Coping with living in Hobart and the challenges you may encounter with such a change The importance of having a job that suits your skillset and gives meaning to your life Things that surprised him about moving to a regional area How his weekly schedule looks like Valuing part-time work His published book - The Rich Greenie Prioritizing the time we give ourselves   Links mentioned in the show The Rich Greenie

Episode 49 – Bike paths, Bitcoin, and Risk Budgets I go for a bike ride most Sundays. Wherever I can, I ride on a bike path. Often there is a road running parallel to the bike path. Very often, cyclists are on the road when they could just as easily be on the bike path. Now I understand why they do this. It’s because you can go faster on the road than on the bike path. But the thing for me is, you don’t get killed on a bike path. No cars to get under the wheel of. I know it doesn’t happen often on the road, but cyclist definitely get hit, and occasionally killed by cars. So why would anyone choose to ride on the road when there is a perfectly good bike track option? I ask because I often see the same thing with investing. People could use a low risk option and achieve their objectives. Yet they chase higher risk options. So that’s what we’ll be exploring in today’s post - high risk and low risk investment options, and when it makes sense to use each. Because I suspect that when investing, some people ride on the road, not realising that there’s a perfectly safe bike path only meters away. A good place to start is the concept of a Risk Budget. This is a term used by professional money managers, and can certainly have an application in investment planning for normal people like us too. Institutional investors have a myriad of analysis tools that allow them to optimise their portfolios for their risk budget, but for the rest of us, it’s enough to just understand the concept and reflect on whether we’re behaving logically in this context. The idea is that a given investor has a certain amount of risk that they’re prepared to stomach. Most typically in this context risk is referring to the volatility of potential outcomes. So a low risk investment might say produce returns in the +9% to -3% range, while a higher risk investment might have a range of returns between +15% and -%10. So the higher risk option has a broader range of potential outcomes, and therefore greater uncertainty. Let’s say that given your time frame and general temperament you’re after an investment in that low risk range. One way to approach your investment planning would be to think in terms of having a certain amount of risk that you’re prepared to take on – to spend if you like. Now one extreme way you could spend your risk budget would be to use a small amount of investment money to buy lottery tickets, and leave the remainder as cash in the bank. Most likely the lottery tickets will prove worthless and so you’ll lose money there, but your bank deposits will earn a small amount of interest, and so in combination your outcome will be within an acceptable range. Another way you might deploy the same risk budget is to put 30% of your investment amount into international shares, and the remaining 70% in term deposits. Or perhaps you put 20% into a really aggressive investment, perhaps that includes borrowings, and place the other 80% in a bond fund. The point is, there are all sorts of ways that you could structure your portfolio whilst still retaining the same total amount of risk. This is the concept of a risk budget. You have a certain amount of risk to “spend”, and as an investor, you want to try and find the most efficient way to spend it – get the most bang for your buck I guess. Generally, a key way investors try to optimise within a given risk budget (even if they’ve never heard of the concept) is to diversify. So in the examples I gave earlier, none of the potential solutions involved a single investment. Diversification is really important when thinking about risk, because another important consideration when planning an investment portfolio in a risk budget context is that you are trying to find the most efficient use for that level of risk. So if you’re prepared to take on a certain level of risk, what you don’t want to do is chose an investment option that delivers a lower likely return compared an alternative with the same level of risk. Let’s say two investments were presented to you. Their range of returns each year was expected to be between +10% and -5%. But one option had an average expected return of 8%, whilst the other had 6%. Same level of risk for each, but one is likely to produce a higher return on average. Which one are you going to choose? Pretty easy isn’t it – you’ll go for the one with the higher return. Let’s flip it and consider instead two new investments. Both have an expected 5 year return of 8% per annum. Option A however has an expected range of returns year to year far more diverse than option B. So with option A, your yearly return might be +20%, followed by -12%, followed by +14%. Whereas option B is much more steady as she goes – 7% one year, 8.5% the next, etc. So each investment has the same average return over a 5 year period, but option A has a more volatile path to get you there. Again, which investment would you choose? There’s probably a few thrill seekers listening who would say option A, but hopefully most of you would say option B – they should both get the same result in 5 years’ time, but just in case your plans took an unexpected turn and you needed to get your money out in year 3, option B provides a surer bet.     So to summarise, a rational investor is either trying to get the highest return they can for a given level of risk, or, if their goal is to achieve a certain level of return, then do that whilst incurring the lowest amount of risk possible. So why does someone invest in Bitcoin or one of the other crypto currencies? These are volatile investments, and so should certainly be considered high risk. I have clients with whom I’m working on long term financial plans, and who are on track to meet their objectives. Yet when Bitcoin mania was sweeping the planet a few months back, they were asking me if I thought they should buy some. I even had one lady in her 70’s who only ever invests in term deposits because the share market is too risky, give me a phone call to ask this question. No question the trusty FOMO reflex is on display here – Fear Of Missing Out. But if your goal is say, to semi-retire at age 50, and we’ve determined that, given your savings rate, employer super contributions etc., you need to earn 7% per year, then why take on a high risk investment like Bitcoin, when you could get to your desired destination with a regular balanced portfolio? Circling back to my bike rider’s observation earlier, why ride on the road, where there’s the chance of getting squashed by a car, when you could ride on a bike path? So what’s the equivalent of a bike path for Financial Autonomy investors? Well, diversification is really the focal point. You want to diversify across asset classes, currencies, sectors and perhaps investment approaches. Exchange traded funds and managed funds are a good place to start. Sure, with these investments you won’t get the occasional excitement of an individual share doubling or quadrupling, but nor will you see them drop sharply in value overnight. It’s very much hare and tortoise, with the funds providing the slow and steady outcomes of our hard shelled friend. You also want to think about your allocation to capital stable investments such as term deposits. If your goals can be achieved by earning say 5%, then there’s no point holding a large portion of your savings in volatile assets. Essentially, why take risk if you don’t need to? So for someone in this situation, perhaps they hold 40 or 50% of their portfolio in term deposits, and the remainder in assets with exposure to long term growth such as shares and property. I hope you found that useful. If you’re a rider let me know what you chose on a typical outing – road or bike track. Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Episode 48 – the 10 worst things you can do to prepare for retiring early So your financial autonomy goal is to retire early. For some that might mean retiring at age 35 and for others age 58. Often, especially for those looking to retire at the younger end of the spectrum, it will mean ceasing their current role, but still engaging in some income producing activities. So retiring early looks different for each of us. We usually talk about what you should do to achieve your financial autonomy goal, but today I thought I’d flip it and instead look at what you should avoid.     Want to ensure your early retirement plans never come to fruition? A good place to start would be to have no handle on your cash flow. Achieving any sort of retirement goal is a dollars and cents equation. If you boil it down, you need to solve how you will have enough money to meet your living costs. Now if you don’t know what your living costs are, how can you possibly know whether retirement is possible, how much you need to save, and whether you have enough saved to last the rest of your life? So to ensure failure, don’t have a budget, and don’t in any way monitor what you spend. Next, since you aren’t paying any attention to what you spend, just put it all on the credit card. It’s easier now than ever before, just tap and go. Come on, you need those purple Converse runners. And why have last night’s left overs for lunch when you could have a burger bigger than your head, with fries on the side? Just keep slapping that credit card down and if the bank that gave it to you starts making life difficult by asking you to actually pay it off, well just go to the next bank and ask for another card – what could go wrong? If only it was as easy to pay off a credit card as it was to build up a credit card debt! The next thing you could do to help ensure your early retirement dream never becomes a reality is to not save. Spend every cent you earn. Saving? Isn’t that something my grandparents did? So don’t put aside money in a bills account. Don’t put money aside for emergencies or a holiday. And certainly don’t even think about building up enough money to make any investments. Which leads nicely into number 4 on the list of the worst things you can do to prepare for retiring early – don’t invest. Compounding? That’s got something to do with chocolate hasn’t it? What a foolish idea it would be to have your money actually earn new money without you having to even get out of bed. But let’s say you’ve overcome this mental barrier. The next thing you can do to help torpedo your chances of early retirement success would be to invest too conservatively. Just leave all of your savings in the bank, or maybe you really stretch yourself and take it up a notch with a term deposit. To illustrate just how bad a decision that would be, if you had $20,000 saved and you left it in the bank at call earning 1.5% interest – which is actually a pretty good rate on at call money at the moment – in 20 years that $20,000 would grow to $26,937. If instead you used that $20,000 to purchase a growth investment such as an exchange traded fund or managed fund, and it earned 8% per year, your $20,000 would become $93,219. So your decision to “play it safe”, cost you over $66,000. Armed with this knowledge then another good way to lock in early retirement failure is to ignore your superannuation. Now it may be that in your mind super has nothing to do with early retirement because you can’t access it until you’re old anyway. If you think that way I can only assume you’re planning on dying before age 60. Because if your hope is to live long and prosper, then Australia’s superannuation system is too generous to ignore. Zero tax on earnings and drawings, plus enormous flexibility as to how much you take out, when you take it out, and how your savings are invested. If you need convincing, click on the image below and download the Early Retirement for Australians – the multi-phase solution white paper that we’ve produced that maps out how superannuation fits into a viable early retirement plan. An important part of ignoring your super relates back to investing too conservatively. If damaging your long term financial future is your aim, consider your time frame until age 60, and particularly if it’s more than 7 or 8 years away, don’t put it in the High Growth or Aggressive investment options. Who wants those extra returns anyway? Having said that ignoring your super is a mistake, an alternate approach to sabotaging your financial well-being is to check your account balances every day or two. Even once a month is likely too frequent. This is because investment markets are volatile day to day, something often referred to as “noise”, like that static on a radio when it’s not quite on the channel. If you’re checking your balance too frequently you can get caught up in that noise and make knee jerk decisions that are not in your best interests in the long term. Most often this translates to selling investments when markets are down and buying only when markets are up – the exact opposite of what a sensible person would hope for. The next thing you could do to help you never achieve early retirement is spend hours reading FIRE forums. For the uninitiated, the FIRE acronym stands for Financial Independence Retire Early. It’s an American idea and many Australians follow it too. The idea of FIRE is great, and certainly aligns with what we’re exploring here at Financial Autonomy. But these forums can be like stepping into an alternate universe. Now don’t get me wrong, self education is a good thing, and these forums can provide some good ideas. But realistically, spend an hour reading one and you’ve got all you need. It’s just the same story on repeat, with one person simply echoing another with perhaps the only differentiator being that the next person takes it a little more to the extreme – what retire at 30, no way! I’m retiring at 24 years of age. $20,000 per year of income is all I’ll ever need – yeah right! The other problem is that a lot of the discussion is US specific, and their retirement system is very different to ours, plus housing costs vary really widely. On the home stretch now, the 9th worst thing you can do to prepare for retiring early has nothing to do with money. If your dream upon reaching early retirement is to sit in your lounge room and look at the wall, then certainly what you want to in the lead up to retiring early is to have absolutely no hobbies or interests outside of your paid employment. When people ask you about yourself, you explain you’re a CIRUS technical expert, or whatever it is that you do to earn a dollar, and the conversation is complete. There’s nothing else in your life. And along very similar lines, the final thing you could do to ensure your early retirement is a disaster is to focus so much on retiring as early as possible, that you ignore your important relationships. It’s no good saying I’m going to work 6 and a half days a week for the next 7 years so that I can then retire, if during that 7 years your kids grow up without you, or your partner divorces you. Maybe both! You need some balance. Your children only grow up once – don’t miss it. So you have to stay in your job an extra year or two. Being involved and engaged with the people you love is far far more important. So let’s summaries my 10 worst things you can do to prepare to retire early: No budget or sense of cash flows Live on a credit card Not save Don’t invest Invest too conservatively Ignore your superannuation Check your account balance every few days Spend hours reading FIRE forums Have no hobbies or interests outside of work Focus so much on retiring as early as possible that you ignore your important relationships.     And of course if you need any help achieving your early retirement dreams – that’s what we do! So check out the Work With Me page to learn how that works.  

In this episode, we interview Sean Callanan, a podcasting guru, and owner of Sports Geek. After 15 years of working for IT, Sean started his company, Sports Geek, out of his passion for sports and his expertise for technology in 2009. He eventually started his own podcast in 2014 under the same brand. In this interview we cover: Background on Sports Geek and the podcast The start of Sports Geek The mentality Sean took to make 9 months without income work for him Overcoming the imposter syndrome The case study on Collingwood Football Club doubling their following on Facebook Goal setting and how it has helped him achieve his plans Managing variability in income from being an employee to owning a business and how he managed to make it work especially with a family Handling income when he doesn’t hit his monthly targets Inventing different ways and motivation of hitting your goals and targets Looking back, what Sean would have done differently? How adding personnel has helped his business Sports Geek in 5 to 10 years   Links mentioned in the show The Miracle Morning - Hal Elrol Sports Geek Linked In - Sports Geek

 Whether it’s a stall at a local market selling hand knitted beanies for dogs, running an online store via Amazon selling rainbow coloured shoelaces, or designing the occasional band logo on 99 designs, I believe EVERYONE should have a Side Hustle. We’re here after all to find ways for you to gain choice in your life – that’s what Financial Autonomy is all about. And if it’s choice that you want, there are few greater enablers than a Side Hustle. So in today’s post, we’re going to explore the reasons why I believe everyone should have a Side Hustle in their life. I’ve come up with 6 reasons why I believe we should all have a Side Hustle. I’m sure there’s many more, but hopefully these ones will give you the kick along needed to start something of your own.    1.  The learning As I mentioned at the top, a Side Hustle can take all sorts of forms, and the one that’s right for you needs to align with your personal interests and skills. But let’s take as an example a simple online store. Maybe you sell through Amazon, Ebay, Etsy, or whatever makes sense for you. Hopefully it’s successful and you get the financial rewards that you are seeking. But there is so much more to be gained than just the financial benefits. You have to think about marketing. Will you promote on social media, or Google? Will you embark on a paid advertising strategy, or go for organic word of mouth? If it’s social media, which platform will you focus on, how will you source the images, and on and on. You’ll learn a tonne just working through that. But of course if you’re running an online store there’s a lot more than just the marketing. Where will you source your product? How will you get it to customers? And how will you determine your price? You’ve got book-keeping, tax, and all sorts. Now I’m not trying to put you off here – far from it. You’ll be starting on a small scale, and because it’s not your full time source of income, you can take things at a pace that works for you. But I’m sure you can get a sense of just how many different things you’ll learn as a result of your Side Hustle adventure. So how will that help you? Well imagine if you’re in a meeting at your day job a few months from now and a manager is bemoaning the fact that targets aren’t being met. Perhaps someone throws out an idea of a new approach, which meets with no enthusiasm within the room. But you pipe up and say something like, “I think that’s worth giving a shot. I could run a small campaign on Facebook to that target market, allocate $10 a day for 3 weeks, and we could see if there’s any interest”. Your colleagues all rock back in their set like a bomb just went off in the middle of the room, and you’re ranking on the internal totem pole just moved up several places in management’s eyes. I could stop just here, because I believe the learning gained from giving a Side Hustle a crack is reason enough that everyone should have a Side Hustle. But I won’t stop here.   2.  Resilience Resilience is something we consider a lot when developing financial autonomy strategies for our clients. Life isn’t always chocolates and roses. Unexpected things happen, and often you wished they didn’t. One of the biggest set-backs many of us could face is losing our job. But if you have been working away on a little Side Hustle, perhaps this set-back actually provides an opportunity to see where this little side project can go. Instead of spending 5 hours a week, now you can spend 40 or 50. Maybe the business develops into something to replace your former wages. Or perhaps it gets to a size where it’s sellable, as happened with Sharon in episode 41. Maybe, with what you’ve learned in your side hustle, you can apply for jobs that previously you would have dismissed because you lacked the pre-requisite knowledge or skills. I know of someone who worked in the automotive industry and of course got made redundant. Now his skills from that old job weren’t especially useful once he’d left, and for the few jobs that could use those skills, there were hundreds of potential candidates to compete against. But he’d always had an interest in automation, and whilst still working had done a course on security systems and the technical aspects behind these systems. When he left the car industry, it took him no time at all to get the necessary licenses and start working under someone installing sophisticated security systems. Now in this example his Side Hustle hadn’t developed into a money making proposition at the time he lost his job, but the mere fact that he was learning new skills meant that his resilience in a time of adversity was enormously enhanced.   3.  The compounding effect of some extra cash Albert Einstein apparently said “compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t, pays it”. Let’s say you’ve got a $300,000 mortgage. And with the current repayments that you’re making, you’re on-track to have it repaid in a little under 19 years. If your Side Hustle could generate enough so that you could increase your loan repayments by just $200 per month – only $200!, $50 dollars per week! , you’d cut 2 and a half years of your loan term and save almost $22,000 in interest. If you’re Side Hustle enabled you to put an extra $500 a month into your loan, your loan is repaid 5 years quicker, and about $44,000 is saved in interest. So your small little Side Hustle that only throws off $6,000 a year could save you $44,000 in interest – have I convinced you yet? But wait, there’s more.   4.  Expand your network This podcast is my Side Hustle. I can’t quite recall how I came across it now, but I stumbled into a meet-up group of Melbourne podcasters, and through that I’ve gotten to know several people who I never would have met otherwise. Most interestingly, they’re from totally different walks of life. The astute podcast listeners amongst you will have noticed that a little while back the disclaimer item that we play in each episode changed a little. The original version was recorded by my wife in our wardrobe – really high-tech stuff! The newer version though is by a friend I meet through the meet-up group who produces the Dating Upside Down podcast. She’s got all the gear and so could help out and give the newer version much better audio quality. Expanding your network can have all sorts of benefits, from new job opportunities, friendships, and support.   5.  More options As mentioned at the beginning, we’re pursuing Financial Autonomy to gain choice. Closely linked to choice is having options, and a Side Hustle helps deliver you options. If you’ve got a commercially viable Side Hustle up and running you become empowered. Current boss treating you poorly? Perhaps your Side Hustle gives you the financial safety net to wave him goodbye. Full time hours not letting you be the parent that you want to be? Maybe your Side Hustle provides the extra income to make it viable to cut back to part time hours. Bored in your current job and want to try something different? As already touched on, your Side Hustle could help facilitate your career change in all sorts of ways. So yet another reason why everyone should have a Side Hustle is that it gives you so many options. And my final reason why everyone, and especially you, should have a Side Hustle is…   6.  Extra cash helps Now I know, money doesn’t buy happiness, and we only need to look at the recent apparent breakdown of Jamie Packer, one of the richest Australian’s there is, to confirm that. But a lack of money certainly causes its own stresses and limitations, and this is where your Side Hustle might come to the rescue. If there are 2 people, both facing the prospect of losing their job, and one has a Side Hustle earning $2,000 a month and the other doesn’t, which do you think is likely to be less stressed? The school holidays are coming up. Your neighbour and her kids are staying home, but your Side Hustle has paid for a week interstate to see the sights. Lots of smiles all around. Or maybe part of the way that you find time for your Side Hustle is that you pay someone else to clean your house - maybe that’s their Side Hustle even!   In summary, most of us could find some good uses for a little extra cash. Well, there you have it, my 6 reasons why I believe everyone should have a Side Hustle – I hope I’ve convinced you. If you’re interested in this topic, be sure to grab our 50 Side Hustle Opportunities for Australians free download. No doubt you have many other great reasons why you’ve started your Side Hustle, or maybe you’re stuck on something that’s keeping you from making a start – jump on the Financial Autonomy Facebook page and let me know your thoughts.

Financial Autonomy is all about gaining choice, and very often, attainment of that choice goal results in a career or life change. In past posts we’ve explored numerous ways that you might be able to get yourself into a position to gain the choices that you deserve. In today's post I thought it might be worthwhile stepping through a brief checklist of the things you'd want to plan for immediately before you take the big step. If making big changes in your life were easy, you’d have already done them. In fact I guess if they were easy, they wouldn’t be considered BIG changes. The parts that make these changes difficult, are precisely the reason why some good planning is essential. This is not a post on what your career or life change will be. I'm going to assume here that you've done plenty of introspection and have decided what it is that you want in your future. I'm also assuming you've done all the training, networking etc, and you're now at the point of making your change. So, let’s look at some key things that I’d suggest you turn your mind to before making the leap. Define success Often overlooked, but absolutely essential is the need to define what success looks like in your career or life change. Is the aim to get a better work/life balance, increase income, take on a new challenge, or be able to start a family? This might be a bit old school, but for my big goals, I have them written on a piece of paper and bluetac’d to the inside my wardrobe. I don’t read them every day, but I certainly notice them enough to keep me from getting waylaid. So take out a piece of paper and write “success =” and then write what your definition of success in this big change project of yours is. Then stick that somewhere prominent for you. This will become your North, your bearing point as you navigate your career or life change. Identify obstacles Significant changes are never simple, and so it is inevitable that you will have to overcome obstacles on your journey to the change you are after. Not all of these obstacles are foreseeable, but plenty are. So why not plan for them? Create a simple 2 column table – one column lists the obstacles that you can foresee, the other, what you might do in response. So for instance let’s say your big change is that you’re quitting your current job to start a new business. You might have an expectation that it will take 3 months before any revenue starts coming in. But what if it takes 6 months? List this as an obstacle, and then note down a solution – perhaps you redraw on your home loan for instance. Maybe, in thinking this problem through you realise that it would be worth getting an extension on your home loan, so that if this problem arose, you would have funds available. The bank is likely to look much more favourably on you applying for an extension when you’re still in your current job, then after you’ve quit and things in your new business aren’t going quite to plan. This process will also have the effect of reducing your stress levels. If you’ve thought through the most obvious obstacles in your path, and have solutions ready to deploy as needed, your stress levels will go way down. Income Whether you derive happiness from nice clothes and eating out, or living simply and frugally, you can’t get around the fact that it costs money to live. Hopefully you will already have in place some form of Income Protection insurance. This cover replaces typically 75% of your normal income if you become unable to work due to illness or injury. It would be well worth your time reviewing your cover before you make your change. As an example a friend and client of mine recently told me that he planned on resigning from his current job, and going in with 2 other guys to start a business. He’d continue doing the same type of work, but now for a business of which he was a part owner. As part of their business plan, none of the 3 were to take any wages for the first year of business operation. Now he had Income Protection in place – I know because I arranged it. But it was a style of policy where the amount payable at claim time is determined by what you were earning immediately prior to you becoming unable to work. So I pointed out to my friend that at least during the initial 1 year period of the new business, his Income Protection cover was worthless. We determined that this coverage was important in the broader context of his financial position, and so prior to him leaving his employer, we were able to get the policy changed to an Agreed Value type, which meant the payout amount was agreed in advance, irrespective of what he was earning at the time of claim. Now most policies aren’t Agreed Value, certainly not those within super, but I suspect most people bounce along totally in the dark on this, only to be disappointed when the unexpected happens. So I’d very much encourage you to review your Income Protection insurance, and perhaps all of your personal insurances, well in advance of you making you big career or life change. You might also be interested in a past post – When bad luck strikes- how cancer impacted Jenny’s life and the financial lessons learned. Superannuation If your change is going to affect your income, then it will inevitably also impact on your retirement savings. Now if you’re embarking on a career change where your income drops for a year or two immediately upon the change, but then recovers and maybe even is higher than what you had been earning, then perhaps the impact here is not significant. But in many other scenarios, the impact would be meaningful. So in pursuing this big change, how will you ensure that you won’t be living on beans and rice in your later years? Perhaps you plan on making no or minimal contributions for 3 years whilst your new endeavour develops, but then make extra contributions from year 4 onwards to catch up. Or maybe the plan is to downsize your home upon retirement to free up cash that way. The answer will of course be different for everyone but what’s important is that you’ve given this consideration Budgeting Finally, I know it’s not a fun word, but do you have a budget? Do you know that you can afford to make this change? I doubt anyone on the Financial Autonomy community would make this mistake, so I apologies for stating the obvious, but as observed earlier, it costs to live. Food, rent or mortgage payments, transport etc. Before you make you career or life change, work out what you spend now, and plan for how these expenses will be met after you’ve transitioned to the next phase of your life. If you’re planning on starting a business, I’d encourage you to go all the way back to episode 1 – how to be financially ready to start a business. Perhaps episode 5 – how to be financially ready to start a family might also be of interest to some of you.   Well, there you have my 5 things that I think are essential considerations when making a career or life change. I hope they help you in making your change and gaining the choices in life that you so very much deserve.

What a wonderful era that we live in where holidays and travel are a regular feature in our lives. I don’t imagine that through the bulk of human history there was enough surplus of time, food, and resources to allow you to just take time off to explore the world or relax, unless you were super rich. Even as recently as my grandparent’s era the only international travel done was to fight in World War 2. So we’re in an incredibly privileged time, where a return flight to one of our Asian neighbours costs less than your annual car rego. For the adventurous or curious, opportunities certainly abound. But there’s two key ingredients you need to truly satisfy that travel bug within you. One is money and the other is time. And that’s where financial autonomy becomes relevant because the choices it enables, can be the solution to both. My hopefully fairly uncontroversial observation is that people who listen to podcasts and read blog posts are those who like to learn - they're hungry for knowledge. And for many people with that trait, a curiosity of the wider world fits hand in glove. Many people that I speak to with ambitions to achieve financial autonomy have a goal of regular overseas travel. So what’s needed to make that happen? Well the first is the flexibility to be able to take the time to travel. If you’re an employee you’ll have your normal 4 weeks leave entitlement, but is that enough, especially if you’re in a role where at least 1 week of that is gobbled up with compulsory Christmas shutdowns? The second requirement is of course money. Sure, there are parts of the world where you can travel quite cheaply. But you still need to get there, and cheap living doesn’t mean costless living – you still need money for food and shelter no matter where you are. So what could you do to realise your travel bug dreams, and how could a financial autonomy mindset help you succeed? Well, here’s a few ideas for you. Rent out your place while traveling Of course anyone with the slightest travel bug inclination will have considered using AirBnB to solve their accommodation needs when on the road. But have you thought of flipping the equation and using AirBnB (or one of their many competitors), to rent out your house while traveling? The income generated through renting your place out could cover many a night on foreign shores. Could a Side Hustle help? Regular readers and listeners will know that very rarely can I get through a post without mentioning Side Hustles. So how could they help you achieve your travel goals? Well, for one you could direct all earnings from your side hustle to your holiday account, so your normal day gig can continue to be devoted to things like paying off the mortgage or saving a deposit for a home. Your side hustle could perhaps also provide you with the flexibility needed to travel. Imagine if you built up a drop-shipping internet business that generated $2,000 per month in income for you for instance. You could run that business whilst travelling, and while $2,000 a month would barely get a roof over your head in the capital cities of Australia, in much of the world it would be enough to live a frugal but totally satisfying and fun life. If you haven’t already done so, download my 50 Side Hustle Opportunities for Australians pdf to find a Side Hustle with your name on it. Credit card points Now I know credit cards are playing with fire, but we’re grown-ups here so I’m going to make the assumption that readers and listeners of Financial Autonomy are smart enough to manage a credit card without winding up bankrupt. Maximising, or perhaps gaming credit card points schemes seems to be big in the US, but I'm sure it's possible in Australia too. Depending on whether your goal is domestic or international travel, find a credit card that provides Qantas points for instance, and then put all of your spending through that card. Just ensure you clear the debt each month, as the savings generated through using the points would be nowhere near enough to cover the interest the credit card company will charge if you run up a debt. Always remember, the bank giving you this card is not your friend. Delay your retirement Now I’m using the word retirement here in a broad context. Your pursuit of financial autonomy might mean you aim to retire at age 45, so please don’t think I’m talking about working into your 80’s or something unless that’s something that you really want to do. But let’s say it is an age 45 goal. Maybe to satisfy the travel bug gnawing away at you, you push that back a few years and do some travel in your 30’s and 40’s. I read an interesting article recently from someone who had retired early, and he noted that his need for holidays reduced once he retired. When he was working he was stressed and under pressure. So some travel was an important and well looked forward to release valve. But once he’d escaped that corporate pressure, the need evaporated. So maybe it’s worth considering whether you can chew gum and walk at the same time by building your savings for retirement, whilst at the same time diverting some of your savings capacity to allow for travel during your working years. Take fewer but longer trips From Australia, just getting to your destination is expensive. We're lucky to get 4 weeks off a year, many in the world get less. But most people can't take that in a single go and so holidays for those under 60 are often 1-2 weeks. But for someone who's achieved financial autonomy - 1-2 months or even more might be possible. The important consequence of longer trips is that it brings the cost per day down, because your flight costs are spread over more days. It’s likely to also mean that you can visit neighbouring countries in the same trip. So for instance rather than flying to France one year for a holiday, and then a few years later flying to Italy, perhaps you could cover both destinations in a single trip and save on one lot of fights. When you’re not so rushed, I’ve found you’re also more likely to book accommodation with facilities like kitchens and laundries. By self-catering, at least for breakfast, and doing your own laundry (an often overlooked necessity of travel), once again you’re bringing your costs down. Longer trips also means you’re not trying to fit a million things into just a few days - who hasn't come back from a holiday and felt they needed another break to recover? Well they’re my best ideas for how you could scratch your travel bug itch whilst pursuing financial autonomy. But I’m sure you’ve got other clever ideas, so jump on the Financial Autonomy Facebook page and fire them at me.

As a kid, family holidays meant board and card games. Canasta was very popular, as was Monopoly, Cluedo, Squatter, and various other games. As an adult my love of games has continued and fortunately I’ve been able to convince my home tribe to join me (and usually crush me). Of the various games that we play, Settlers of Catan has to be my favourite, and I know I’m not alone. So today’s episode, is a bit of a nerdy self-indulgence, but I hope you’ll enjoy it. For those fellow Settlers of Catan lovers, hopefully these musings help bring your early retirement dreams closer to reality, and for those who’ve never had the pleasure of a great game of Catan, I hope this inspires you to put the word out amongst a few friends, and give it a go. One of the hottest trends circulating around the globe at present is board and card games in cafes and bars. Perhaps we've started to reach a tipping point with social media and screen time, where the appeal of getting out of the house, not a screen in sight, holds enormous appeal. The opportunity to talk and have fun with actual people in the same room as you satisfies a deeply entrenched need for connectedness. The game in a café also solves another potential social obstacle – what to do if we run out of things to talk about. I’m not in the dating phase of my life, but if I were, I think I’d go with a game in a café pretty early as a really low-stress ice breaker. You’d certainly get to know someone a whole lot better than sitting next to them at a movie. Settlers of Catan, the German game released in 1995 has undoubtedly been an essential element of this rise in board game popularity. Some refer to Settlers of Catan as the modern day Monopoly, though whilst I enjoyed many hours playing Monopoly as a child, now that I've experienced Catan, Monopoly just wouldn't get a look in. Reid Hoffman, LinkedIn's founder, Microsoft board member, and a board-game aficionado, says that Settlers of Catan is "the board game of entrepreneurship". So how does Settlers of Catan help with your early retirement aspirations? I believe many of the game elements have parallels in the planning and investment process. Let’s start with Settlements. To have success in Catan, you need a) to have settlements in good locations, and b) to have as many settlements (and cities) as possible. The order of those two factors is not by accident. Broadly speaking, the more settlements you have the better, but as with investing, quality matters. For the uninitiated, Settlers of Catan requires players to gain resources in order to build or buy things. You gain resources either through the placement of your Settlements, or through trade. In some cases claiming a particular port that links to a resource you are well endowed with provides you with a solid path to victory. So when thinking about planning your Early Retirement, before you make any investments, think about what your broader goal is, and as with the placement of your settlements, remember that quality, especially early on, is more important than quantity. Another really important aspect of building wealth to enable early retirement is recognition of the importance of compounding returns. All of us, when we start investing, start small. And sometimes it can feel like progress is glacial because the incremental gains month to month are perhaps only in the single or low double digits. But reinvest those earnings, and you start to get earnings on those initial earnings, and like a snowball rolling down a hill, as time progresses your investments get larger and larger. The magic of compounding! It’s important therefore to not be put off by the early slow progress. We see the parallel of this in Settlers of Catan. Early on we have only two settlements, and so the accumulation of resources can be a little slow. But as the game progresses, we eventually build extra settlements, and ultimately cities, and so we gain from the benefits of compounding – with each turn in the latter part of the game, we tend to get more and more resources. You can’t win at Catan without trading, and that means you can’t win in isolation. If you are to realise your early retirement goal, you similarly need to involve others. The most obvious is your significant other if that is the circumstance you are in. It is extremely common, when I sit down with a couple for an initial meeting, to find that they’ve never discussed their long term plans with one another. One might be thinking that she’d like to retire as early as possible, whilst her partner might be worried about being bored, or losing the social interaction of being in the workplace, and want to work as long as possible. Stepping outside your immediate household circumstance, a relationship with a trusted advisor is very likely to be wise. We can’t all be excellent at everything, so consider where your knowledge and interest gaps are, and find people who can plug those holes for you. When investing, we often talk of the need to diversify. Never put all your eggs in the one basket is the common refrain, and it has a lot of wisdom. Different investments have their day in the sun at different times. They also have different income, growth and liquidity profiles. Therefore a sensible person, when working towards early retirement, will build up assets across a mix of areas, such as shares, property, bonds and cash. The equivalent in Settlers of Catan is your resources. Have too much of a particular resource and you’ll become desperate for others to enable you to build and progress. That’s a recipe for some very lop-sided trades and falling a long way behind, especially in the early game. As anyone who’s played Settlers of Catan knows, the robber is a frustrating yet essential element of the game. The robber tends to pull back on the leader of the game, enabling others to catch-up and in so doing, making the game much more enjoyable for all. Indeed the lack of a similar mechanism in Monopoly and other traditional games is a key reason for their declining popularity. In the real world the robber essentially stands for bad luck. In life, things don’t always go your way, but there are actions you can take to recognise this potential and plan for it. One tool is diversification as mentioned earlier. This means that if share markets experience a drop, your investment property is without a tenant for a while, or interest rates move in an unfavourable direction for you, your plans aren’t torpedoed. Another is insurance. Ensuring your income is a good place to start. Home, car and health insurance likely all have a role to play. Insurance isn’t free, and you hope you’ll never need it, but the idea is that you can plan for the cost of insurance, whereas you can’t necessarily plan for an illness that means you can’t work for 8 months. In Catan, you can buy insurance too. It’s called a Knight. Your knight can move that robber along when he’s troubling your citizens. Holding that insurance becomes very valuable, particularly later in the game if you find yourself in the lead, and with all of your opponents trying to slow you down. In Settlers of Catan your knight not only solves your robber problem, but it then inflicts that pain on one of your opponents. Fortunately this is not an element of modern day insurance. Finally, when thinking about the parallels between early retirement and Settlers of Catan success, I think it’s worth reflecting on the time frame involved. Whilst Catan isn’t a long game, it’s certainly not one that can be won in a few moves. To succeed you need a plan, and you then need to be flexible enough to adjust the plan in response to the actions of your opponents, and the luck of the dice. Succeeding with an early retirement goal requires much the same approach. Think long term, have a plan, but recognise that things happen that can’t be foreseen, and so be prepared to adapt and adjust your plan as needed. Well, that’s it for my slightly self-indulgent Settlers of Catan / Early Retirement post. I hope you’ve enjoyed it. There’s no toolkit for this post, but if you haven’t already grabbed your copy, be sure to download our Early Retirement for Australians – the multi phase approach paper and learn how you could gain choice in your life.

On the off-chance that you’re one of the few people who read the information sent out by their superannuation fund, you might have noticed that in recent years they’ve added an Ethical Investment option. Now the exact labelling of that option will vary – it might be called Socially Responsible, Sustainable, or just Responsible, all of which are interchangeable terms for ethical investment options. So given these options are popping up like mushrooms in a wet cow paddock, what do they mean, what’s happening under the hood that makes then different to other investment options, and bottom line – should you care? Each year the Responsible Investment Association of Australasia (RIAA) produces a Benchmark Report which tracks the adoption of ethical investment options, and their performance. In their most recent report (2017) they found that funds adopting a “core” responsible investment approach outperformed their peers over the longer term, both in the Australian share and International share space. That superior performance doesn’t happen every year, but the RIAA data has found fairly consistently over the years that when measured over the medium to long term, an adoption of an ethical investment approach has delivered improved returns for investors. And so it is for this reason primarily that ethical investment options, once an extremely niche offering that was expensive and little understood, has broken into the mainstream. In fact RIAA found that 44% of all of Australia’s assets under management are now being invested through some form of responsible investment strategy. Now there’s two interesting paths to wander down at this point. The first is what does it mean to invest “responsibly”, and the second is, why is the adoption of this approach leading to improved returns. What does Ethical Investment mean? As you might guess from the number of inter-changeable terms used to describe this investment process, there is no single definition of what makes an investment an Ethical one. This is hardly surprising, since ethics is something formed by an individual, and whilst in society there is likely to be much commonality on what is “ethical”, there will also be considerable room for disagreement. In a broad sense, ethical investment means considering “ESG” factors when contemplating an investment. ESG stands for Environmental, Social, and Governance. So in considering these factors, fund managers or investors are thinking about a business in a broader context than just the profit and loss statement and balance sheet. The adoption of the consideration of ESG factors by professional investors has been where the bulk of the growth in this space has occurred. But of course, just because you’ve considered these factors, doesn’t necessarily mean that you won’t still decide to invest in a coal mine or a weapons manufacturer. The next tier up is what RIAA defines as “Core” responsible investment funds. They define this subset as: “Core responsible investment approaches apply at least one of the following primary strategies: negative, positive or norms-based screening; sustainability themed investing; impact investing, community finance; or corporate engagement.” I’d suggest that if you’re someone who finds the idea of ethical investment interesting, then this definition and the fund managers that fall within it, are what you are seeking. So let’s unpack that definition a little because there’s plenty of jargon in there. Negative screening means that the fund might have certain industries that they undertake never to invest in. The most common are fossil fuel mining, tobacco, and weapons manufacture. Here’s an example from one of the more stringent local listed funds: (Companies invested in) can’t be materially associated with a range of activities that could be deemed inconsistent with responsible or ethical investing.  These activities include, among others, the production or financing of fossil fuels, gambling, junk food, tobacco, pornography, armaments, alcohol and animal cruelty. So if you chose to invest your money with that fund manager, you can have confidence that your investment will never have holdings in those sectors. Many ethical funds stop at that negative screen point. Some go on to apply positive screens as well though, so they look especially favourably for example, on companies that develop medical solutions to improve people’s lives, or are creating solutions to improve the environment. Other funds don’t use screens at all, but instead have an overarching investment philosophy around investing for the long term and considering sustainability as a primary factor when evaluating a business. There have been some global share funds that have adopted this approach that have generated outstanding returns for their investors in recent years. You might also be interested in a short piece I wrote some time back “What do Ethical fund managers do?”. Given the different “flavours” of ethical investment, there is a definite challenge around “green washing”. That is, the practice of promoting an investment as ethical, sustainable, or whatever, for the positive connotations that those words hint at, but then when you look under the hood at what they invest in, it’s little different to a standard investment fund. The worst case of this that I’ve seen was a fund created for the Australian share market that had the word “ethical” in its name. When you looked at the fund description, it informed investors that it would invest in companies in the ASX200 (an index of the top 200 companies on the Australian stock exchange), excluding those involved in the production of armaments and tobacco products. The problem was, no companies in the ASX200 are involved in these industries! So in practice, the fund was no different to a regular, non-ethical investment. But they charged a higher fee! Why the outperformance? The next thing worth exploring is why has the research found that ethical investment tends to out-perform over the medium to longer term? One simple explanation could be that the funds operating in this space tend to have more of a weighting to the mid-cap sector, ie. not the largest companies, and not the really small companies either. There is some research that points to this area being a bit of a sweet spot for investors – the companies in this space tend to have lots of room to grow, perhaps unlike some of the really large companies, and yet they’re not so small that they lack quality management and oversight. Another explanation is that the adoption of considering factors beyond the financial statements has a strong basis in logic. Take a tobacco manufacturer for instance. The numbers might tell an analyst that this is a profitable business. But pulling your head out of the numbers, and thinking a bit more broadly, do you really want to be investing in a product known to kill people? Even if you don’t have a moral issue with that, do you want to be in a business where governments are working hard to dissuade people from buying your products, such as Australia’s very successful plain packaging legislation? Mining companies are another sector often excluded by ethical investment funds, and in Australia, these businesses form a significant part of our investment universe. Ethical investment advocates would argue that these are not sustainable businesses – you can only dig the resource out of the ground once. On that basis alone, they make a poor investment. Add to that the damage done to the surrounding environment, and the knock effects of then using the extracted resource, such as the carbon dioxide released when burning fossil fuels, and many, myself included, would consider these companies to be unattractive investment options. If enough people come to the same conclusion, then price appreciation of their shares won’t occur, or at least won’t occur to the same extent, and businesses may even become starved of capital. Compare that to a business developing a vaccine for a common, serious disease. If they’re successful, governments around the world may buy or subsidise the sale of their product. In total contrast to the tobacco industry, governments and the community will put “wind in the sails” and propel the business towards success. Doesn’t that sound like an investment you’d want to be in? So next time you’re considering investment options, whether in your super fund, or your ordinary savings, give some thought to whether an ethical investment option might be suitable for you. Just be sure to have a read of what they interpret that to mean and ensure it aligns with your expectations. This may well be an area where some expert advice is warranted. A great resource is RIAA’s find a planner tool . Another resource that you might find of value is a book recently published by a good friend of mine Stuart Barry called The Rich Greenie.   Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Today I am joined by Sharon Gourlay from Digital Nomad Wannabe about how to gain financial independence through Blogging. Sharon Gourlay is passionate about working online and helping others to follow in her footsteps. She left Australia with her young family at the end of 2014 determined to grow an online business. She succeeded and now supports her family of 5 to live their dream lifestyle. In this interview we cover: Her blogging journey from a hobby to a full time blogging business How she was able to sell her travel blog, even with her name on it Whether it is still viable to have an online business now or is it too crowded The difference between a hobby blog and having a financially successful blog How to get started with a blogging strategy Traffic generation strategies she now focuses on to build successful niche and authority  sites How affiliate marketing works Key skills when starting out to be a commercially successful blogger The importance of treating your blog like a business The small investment you need to make when starting your blog The biggest commitment to building a profitable blog is time The number 1 tip when starting out The importance of clear goals so you know what to chase Understand your traffic and what key metrics you need to measure The importance of rankings and SEO for building a successful blog Knowing the engagement of your readers and understanding what behaviours they do on your side What programs she uses to track your blog engagement and activities of her readers What would she do differently if starting out again and her changing definition of success How she balances her family and work life The non monetary benefits of what blogging can do for you   Links mentioned in the show Digital Nomad Wannabe DNW Facebook group!

Are you tired of the insecurity that comes from constant corporate restructures and the politics of a large work place?  Way back in episode 11, I explored the Security Illusion. This looked at the idea that most of us are brainwashed into believing that financial security comes from working for a large corporate, or perhaps even a government body. In reality, these organisations are constantly the subject of restructures and redundancies. They are pyramids, with fewer and fewer roles the closer you get to the top, so people need to be constantly shed to make room for those below to progress. So this post is for those who have reached the point of thinking about life beyond the corporate world, and what they see in their future is some form of self-employment. I’m particularly excited to explore this topic, because this is a path that I’ve walked, and I know it’s been the experience of many in the Financial Autonomy community too. So as I mentioned, transitioning from the corporate world to self-employment has been part of my life experience. I worked for one of Australia’s largest banks for 16 years. I’ve got plenty to be thankful for during that time. I learnt a heck of a lot, worked in several different areas to gain a diversity of skills, and got a start in financial planning. In hindsight I perhaps wish I’d tried to accelerate my path a bit, but that was really about my own lack of maturity rather than a fault of my employer. As a foundation stone for my working life, I have no regrets about my time spent in the corporate world. But I did reach a point back in 2006 where I’d found the thing I was passionate about – Financial Planning - I had another 20+ years of working life ahead of me, and I just couldn’t see my life plan aligning with that of my employer – I knew at some point I’d get shifted, or downsized, or worse, made a team leader, the ultimate kiss of death. My story is far from unique, with perhaps the only wrinkle being that my banking career had lead me to a budding profession that I could continue with in the outside world. Plan So how could you successfully transition from the corporate world to self-employment? I’d suggest the first step is to develop a plan. Start with a 1 page business plan, of which there are plenty of templates available for free on the web. Whatever you will do next, if you’ve chosen the self-employment route it’s highly unlikely you’ll be managing a team of 100’s. So if you can’t explain your business plan on a single page, you’ve gone wrong somewhere. Another step, which I didn’t do when I planned my transition, but I really wish I had, is to draw a diagram of your business model. Just on a piece of paper or a white board, show the various sources where your customers will come from, and how they will go through your funnel to become revenue generating. Here’s an example for my financial planning business: Just as with the 1 page business plan, your business model should also be 1 page and answer the core question, how will your business make money? Cash flow The next port of call is to think through how you will manage cash flow. Cash flow in your post corporate world life will be very different. No more approving the invoice and sending it to accounts for payment. Cash flow is king. From personal experience I advocate developing a Survival Strategy and a Capital Strategy. The Survival Strategy addresses how you will survive financially whilst you get this business off the ground. The Capital Strategy then considers your new enterprise – how will you fund the start-up costs, marketing etc. For a deeper dive on this, take a look at How to be financially ready to start a business. It will also be helpful to you in making this transition a success, if you’re in a good financial position – that is you live within your means and you have minimal debt. Also, whatever your business plan, assume things will go wrong. If you forecast initial cash flow coming in at month 3, have a plan for if first cash flow doesn’t arrive until month 6. Most business plans don’t survive their initial interaction with the real world, so always adopt the mantra – Hope for the best but plan for the worst. Can you test? Assuming you’re not leaving corporate unexpectedly as a result of a redundancy, as part of your planning for this transition think about whether there are ways that you can test your idea with minimum risk. Let’s say for example that your plan for the next phase in your life is to start up a florist in your local area. Could you run a stall at a local market to learn what types of flowers people like to buy, who are the most reliable suppliers, and even just if you like dealing with flowers. The main thing you want to try and test is whether people will part with real money to purchase your product or service. You’ll have no shortage of friends and family giving encouraging words, but it’s not until total strangers put their hand in their pocket that you know you have something that’s viable. The book Lean Start-Up explores this quite a bit. It focuses mainly on tech start-ups, so you might be best just reading a few summaries on-line rather than investing the time in the entire book. Like most business books, the key useful information could have been written in a 3-5 page essay, but as that’s not commercially viable they find a way to pad it out into a book. It’s worth remembering here to ensure what you are testing isn’t in conflict with what you do for your current employer. Buying a business Another way you could consider making this transition is to buy an existing business. Like sports people, most business owners don’t get out at the top. Nearly every business that you look at will have had its best years a few years back. So look for a business where you have some expertise, and where you could apply some fresh ideas. The great thing about buying a business is that you have cash flow and customers from day 1. Sure it won’t be exactly as you would have built it, but that can be changed in time. Just don’t rush the changes though. Sit in the business for a few months and get an understanding of why things are the way they are. Talk to your newly acquired customers and check that what they value from your business is what you thought. As an example you might have bought a printing business, and thought that the most important thing to customers was fast turnaround. But once you get into the business and talk to your customers, you might learn that actually what they like is dealing with someone local so they can discuss their needs and fine tune their designs. Had you jumped straight into implementation phase on your assumption that turnaround time was the key, you might have invested in a flash new web site so customers could just jump online and order with you. But by slowing down a bit and speaking to your customers, you learn that actually there’s plenty of printers already doing that, and many cheaper than you would be. You’d be better off investing the money in customer service functions instead to provide help and support. Skills development In making your transition to self-employment, think about what skills you’ll need to give you the greatest chance of success. Often in the corporate world there is opportunities for training. What courses could you do to help in the next phase of your life? Even if these courses need to be done outside of your current working life, if you can at least gain these skills while still bringing in a regular wage, you’re improving your chances of ultimate success. The other way to build up skills while still being a productive employee is to put your hand up for special projects, or even promotions into areas of interest. Nurture your network Never before you will have so much need for the support of others than when you make the leap to self-employment. You’ll be moving from having lots of colleagues around to bounce ideas off, to possibly flying solo, or at best having only a few staff members. No-one knows everything and starting a business can be lonely. You likely have an extensive business network, but perhaps you don’t give it a lot of thought. Reach out to people who you respect and cement those relationships. Connect on LinkedIn so you have a way to stay in touch after you leave, and if appropriate, grab a coffee or lunch with them sometime to dig a bit deeper into what drives them. Knowing someone that you can call or email when you’re stuck on something is incredibly valuable. Of course relationships work in two directions, so make sure you support the people in your network too. Generous people get rewarded. Paul Higgins, founder of the BLG community, a resource for people escaping the corporate world to start their own business observed “Escaping corporate is one of the most exhilarating experiences. You learn by doing, and having the right support group is essential”. Leave well And a final tip for planning your successful transition from the corporate world to self-employment is to leave on a good note. The financial services industry is huge in Australia, yet I still bump into people from when I worked at the bank. Burning bridges is definitely unwise, even if you’re moving to a completely different industry – who knows, some of your former colleagues could become your first customers.  

Regular listeners and readers know by now that Financial Autonomy is about gaining choice. Maybe that choice is retiring early (eg. the FIRE goal that’s popular in the US), but it could just as easily be the choice to work in a different career, start your own business, work fewer hours or days, or the choice to take a job closer to home, even though that means taking a paying cut. So whatever your Financial Autonomy goals is, what are the common strategy options that you could use to make progress from where you are today, to where you want to be in the future? I should mention at the outset that there's no need to take mental or physical notes, you can grab that checklist by clicking on the image below. If you are to gain choice in life, a prerequisite is that you not be under financial stress. The more easily you can meet your and your families living costs, the more options you have. 1  Pay down debt A good strategy option to start with is to pay down debt, and avoid most new debt. Start with your most expensive debt – perhaps a credit card or a personal loan, and focus your energy on getting this cleared. Then move onto the next. If you have a home loan, this is not likely to be something you can have paid off in a year or two. But if you have paid off your other debts, it does make a lot of sense to then focus on reducing this debt as quickly as you are able to. This will result in you building up equity in your home, which then gives you several options that will help in pursuing your Financial Autonomy goal. For instance let’s say you want to re-train in a new career and need to go back to school for a year. If you’re well ahead on your mortgage repayments, you may be able to reduce repayments to the minimum for 12 months, or go interest only, to reduce your ongoing expenses. You may even have re-draw capacity that you could live off if need be. Or what about if your Financial Autonomy goal is to start your own business? Through a focus on paying down your home loan, and building up equity in your home, you have financing options to get your new business off the ground. 2  Can you reduce your housing costs? In most households, putting a roof over your head is the largest expense. Whether you are renting or paying off a mortgage, it’s not uncommon for 30% of income to go towards housing, and I’ve had people come into the office who spend over 50% of their income just on having somewhere to live. Given the size of this expense, even minor savings here are likely to be more impactful than many other savings measures that are more in the “penny pinching” realm. With an awareness that housing is a major expense item, can you think of any way to bring this cost down? When I bought my first home, a small 2 bedroom flat, I rented out the spare room. That rent was really helpful for me in being able to make the budget work, and it came with the bonus of having someone around to talk to. I heard of someone just recently who was able to buy a fairly low cost house that was in need of some love. He spent a few months fixing it up, then moved into the smallest room and rented out the other 2 rooms. The rent he received from his two housemates was almost enough to cover his mortgage repayments, and so the cost of putting a roof over his head with close to zero. Plus he could share the utility bills with his housemates, further reducing his expenses. If you’re renting, could you move to a lower cost option? Could you share with others? 3  Could you reduce your transport costs? If housing is the biggest expense, transport costs often come in at number 2 or 3. The last car I bought was a year old and still had 4 years of warranty left on it. In comparison to buying the same car new, I saved a third, about $10,000, of the new car price. So as a starting point I’d suggest you never buy a brand new car. Most of your transport expense is getting to and from work. Is there any ability to negotiate with your employer to work from home some times? I know that won’t work for a nurse and many other professions, but there are some roles where that is possible. Could you change to a role closer to home? Or if you’re renting or about to buy, is it possible to live closer to work? Maybe you could get close enough to walk or ride your bike to work and do away with a car altogether. For the annual cost of registration, insurance, fuel, maintenance, and depreciation, you could afford to pay for plenty of Uber trips. 4   Save and invest – generate passive income The first three strategy options are I guess the foundations for you gaining Financial Autonomy. Now let’s assume you’ve done all that you can on those fronts, what next? It’s time to build some passive income. Passive income is income to flows to you without you having to get out of bed. There are 3 typical sources – interest on your bank deposits, dividends from your shares, and rental income from an investment property. Now it’d be great to have a bit of all 3, but I’d suggest initially you focus on the second option – share dividends, and then perhaps move to property investment as your financial position strengthens. I talked about my thoughts on shares vs property back in episode 35, so I won’t repeat myself here. Suffice to say property investment involves bigger numbers and bigger risk. In order to invest you need savings and that’s where the first 3 strategy options are so important. The lower your living costs, the more potential that you have to save. To explore this area more, I recommend you take a look at: The Sharemarket – a beginner’s guide – ep 15 Early Retirement – the multi-phase approach – ep 23 I can’t buy a home, am I financially doomed? – ep 19 5  Develop a Side Hustle into something that can support you So if one strategy option to achieve Financial Autonomy is to build up passive income through investment, an alternative way to go is to build up a business on the side that generates additional income in the first instance, and perhaps in the medium to long term delivers your Financial Autonomy dream. For instance if your Financial Autonomy goal is to be able spend the bulk of you time involved in music, something that you are passionate about, then if you could start up a small side hustle business in this space, perhaps in time you could develop that into a full time gig that gives you the life you seek and deserve. Even if that isn’t where your Side Hustle leads, it could produce the extra income to pay down debt or build passive income through investments, and it could be something that is saleable down the track to provide you with more options. Check out episode 21 – The side Hustle – your ticket to Financial Autonomy? for a deeper look at this strategy option. 6  Re-train Perhaps the choice in life that you seek requires a change in occupation. Think about what re-training you could do to position yourself for a new phase in your working life. In some cases there might be training with your current employer that you can undertake to make this possible. In other cases a clean break is needed. I caught up with some friends last week who have both made significant career changes. Tony had worked in a bank in a 2IC type role for many years and was deeply unhappy. But with 3 children and a mortgage, simply pulling the pin wasn’t an option. So he stuck at it until eventually an opportunity came to get a redundancy package. That redundancy money, in combination with his wife’s income, made it possible for him to go back to school and study to become a primary school teacher, a role he was perfect for. He graduated last year and did some fill in work. This year he has his first permanent class, and whilst he’s finding it exhausting, he’s the happiest I’ve ever seen him. Then I spoke to his wife, Jane, who, after seeing the change in her husband, decided she’d leave her role in the defence force and move into the police force instead. She’s currently going through all the basic training and starting right back as a junior – a big drop in pay. But they were able to do it because they’d done things like paying down debt in past years, and I’ve no doubt she’ll have an incredibly successful and impactful career in the police force in phase 2 of her working life. Along these line, you might also be interested in episode 10 – Is your ladder against the wrong wall. And before I wrap this one up, just a final thought – get clear on your goals. What prevents most people from achieving Financial Autonomy is buying the Jet Ski, the $300 pair of shoes, or the brand new car. If you have clarity around where you’re trying to get to in the medium to longer term, you can avoid these missteps and keep your eye on the prize.

Whether you’re planning for a traditional retirement at age 60+, or working towards an early retirement goal, thoughts of “will my money run out?” will no doubt have crossed your mind. There is a lot written about safe withdrawal rates. This refers to the rate you can afford to draw down on your savings, so that there’s no risk of your savings being depleted during your life time. The most common rule of thumb guide here is 4%, and that’s certainly a useful starting point. The answer for you though will depend on how you invest your savings, and also at what age you retire. So for instance if you retire at 75, you could probably draw at 8% per year and face no real prospect of your money running out before you do. Whereas someone hoping to retire at 45 would need to be much more conservative with the draw down rate. Similarly, if your preference is to invest very conservatively, mostly in cash and term deposits for instance, then your safe drawdown rate might need to be 2% for instance. But today’s post isn’t about safe draw down rates. Instead, when thinking about the “will my money run out” question, a key determinant is a concept called Sequencing Risk. It’s a jargon sounding term I know, but understand this, and manage for it, and the chances of your money running out in retirement will be dramatically reduced. In my role as a financial planner, clients often want me to find them the best return each year. But actually a far more important role for me to play is to manage their asset allocation so as to minimise the chance that their money runs out during their lifetime. A key way we do this is to plan for sequencing risk. So what is sequencing risk? Well, it refers to the importance of the order in which your returns occur – the sequence. So let’s say you typically invest in a Growth type asset allocation – so you’ve a good weighting towards shares and property, but still keep something like 20% of your savings in cash and bonds to smooth out volatility a little. With this asset allocation it might be reasonable to assume the average return over 30 years will be 8% per year. Armed with this assumed return, you can then project forward what your savings will grow to, and when thinking about how much you can afford to draw down each year in retirement, you could work back and say for instance “well if I earn 8% and draw 5% each year, that leaves 3% to combat inflation – I’ll be sweet”. The problem with this is that in almost no individual year will you actually earn 8%. Year 1 the return could be 11%, 2%, or even -6%. Year 2 the same and so forth. So the average return number may well be correct, but that doesn’t mean that in the first 3 years of your retirement you don’t earn 1% or 12%. And it turns out, those returns in the early years matter a lot! A good quote from commentator Michael Kitces sums the issue up well, “It’s not enough for returns to average out in the long run, if the portfolio could be completely depleted before the good returns finally show up.” Another way to think of this is that an asset can only be sold once. If you are forced to sell a share at $10 because you needed the cash, the fact that 2 years down the track it rises to $20 is not at all helpful. Interestingly, further analysis by Kitces found that a sharp drop, followed by a fairly rapid recovery, was actually less damaging than a protracted period of below average returns. It’s worth highlighting here too that overspending in those early years is essentially the same as having a protracted period of below average returns. It dramatically increases the chances that your money will run out. So what’s the plan? Want to minimise the chance that your money will run out in your retirement? Here’s what you should do: Use conservative assumptions when running projections. So if you’ve structured your portfolio so it should average an 8% return over the long run, perhaps run your projections assuming 6%. If you build in a bit of fat here, then if returns are poor early, it only eats into that fat, and doesn’t torpedo your entire plans. Reduce the level of risk in your portfolio in the 2-3 years leading up to retirement, and keep that risk fairly low for the first 3-5 years of retirement. So this might mean, instead of being invested 80% in shares and property and 20% in cash and bonds, you drop that down to 50/50 3 years out from retirement. And leave it that way for at least the first 3 years of retirement. In this way your savings will be less exposed to any large drops in investment markets, reducing the likelihood of a negative or even just poor return. Now of course there’s a cost here in that a 50/50 asset allocation will on average earn less than an 80/20 allocation. So this gets back to my earlier observation that sometimes, trying to get the highest return every year should not be priority number 1. The objective is to generate income for you for the rest of your life. Whilst maximising returns is important, an understanding of sequencing risk will enable you to recognise that in fact it’s not the most important consideration in the years immediately before and after you retire. Have at least your first years drawing requirements, and ideally more, in cash, so that if investment markets drop, you are not forced to sell at depressed prices. This is something I discuss with clients a lot. The price of an asset, be that a share or property (and perhaps even bonds), matters when you buy it, and matters when you sell it. But in between those two points, the price is at best mildly interesting. So in managing for sequencing risk, what we’re trying to do is avoid having to sell assets when prices are down. That’s why, in developing your plans to minimise the risk of your money running out, you need to have at least your first years drawings, and ideally your first several years, sitting in cash or similar (for example a term deposit). Then, if you are unlucky enough to have share prices say, fall in the first year of your retirement, it’s okay, because you didn’t need to sell any shares then anyhow. Well I hope you’ve found that useful in answering the question most of us have contemplated at some point – “Will my money run out?”. In the Toolkit for this episode I’ve created a quick cheat sheet of those 3 strategy solutions to help you manage sequencing risk, so be sure to click below to download your copy. Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Today we have two interviews for the price-of-1 with sisters Tracey and Joanne from Sistermixin.  Their online business is about educating everyone (especially their own families) on exactly what they are eating, what is in your food and some of the harmful effects this can have on your health. And they have become sought after thought-leaders in living an additive-free lifestyle.   In this interview we cover: Why they started The Whole Circle podcast and how they now repurpose the content into their blog posts The impact over 100 podcasts episodes has had on their business and how it has positioned them as thought leaders in the additive-free industry How Sistermixin got started and its growth journey to now employing three family members as well as additional staff in their warehouse and offshore. The different income streams generated from their online business The importance of reinvesting any profits and revenue you have when starting out How they have built their business up without any capital investment or business loans What they are most proud of with their business success The hard work and self-belief needed when they first started out How they have successfully been able to work together as sisters/family members The point when you need a business coach and what you need to look for in the right coach for your business The importance of paying and rewarding yourself when starting out Tips for those thinking of starting an online business around their passion Why you shouldn't wait until its perfect as it never will be Being comfortable with the uncomfortable to move forward The importance of being yourself and to stop comparing yourself to others The future for Sistermixin including a major rebrand to Addictive Free Lifestyle Overcoming the struggling of losing their entire website without a backup in place   Links mentioned in the show https://www.sistermixin.com The Whole Circle podcast Instagram Facebook

The goal for many in the Financial Autonomy community is to retire early. Early retirement means different things to different people, but as I always talk about, Financial Autonomy is about gaining choice. So whether you’re early retirement consists of lying on the beach in Fiji at age 40, or traveling around Australia with your caravan when you’re 55 and picking up odd jobs as they crop up, this post is for you. I haven’t gone into a tonne of detail on any of these 6 ideas, because to my mind, a hack means a short cut, and so that’s what I’m delivering here today. 1.  Work out your expenses Start by determining what you spend now. The banks are coming up with good tools to help you in this area. There’s also a good tool at the MoneySmart web site. Once you’ve figured that out, create a second version with what you would expect that to become once you retire. Will you travel more? Will you go down to one car in the household. Perhaps the kids will be off your hands and so food costs will decline. Maybe you’re planning on a tree change which will see your mortgage wiped out. The point is, when they wanted to put a man on the moon, they didn’t just shot rockets up randomly and see what landed where. They had a clear goal and then they worked towards that. For you, your equivalent of the moon landing is being able to meet your expenses for the life that you want to lead. Unless you quantify what that number is, how can you possibly take steps that will deliver success? For a more detailed look at this topic, check out episode 31 – What’s your number. 2.  Figure out a debt plan Sure, it may not be essential to be debt free when you retire, but in my mind, if you still have debt, then you can’t afford to retire yet. So the next early retirement hack is to figure out how you will be debt free by the time you pull the plug on your current day to day way of paying the bills? That could be as simple as working to a schedule of paying money off each month until the debt is cleared. That’s the most typical way debt is paid after all. If you’ve got high interest debt, such as credit card debt that you’re not clearing regularly, then perhaps your debt plan is to refinance that into a lower interest loan and then pay that off as quickly as possible. Or perhaps your debt plan is a bit bolder. Maybe it is to sell the inner city home and buy something out of town for a fraction of the cost, with the difference between the 2 prices providing funds for debt clearance and maybe also income in retirement. A tree or sea change may not even be necessary, perhaps you simply downsize. If you’re in a large family home, there’s likely a time in your life, when the kids are off on their own journeys, that a smaller home or unit might be better suited to your needs. So there’s all sorts of ways you can be debt free at your early retirement – figure out your plan.   3.  Invest aggressively In bringing your early retirement aspiration to life, it’s highly likely that you will build up some investments that will provide passive income when you enter your early retirement phase. Now you could build up these investments in your bank account but you will have to do all of the heavy lifting through contributions. A better option is to invest in growth assets such as shares and property to gain the benefits of higher compounding returns. Now of course these assets have volatility and risk, as discussed in episode 35 Investing - how to get started, but that can be managed through appropriate time frames and asset allocation mixes. As I explored way back in episode 7, if you wanted to build up savings of $500,000 and could afford to save $2,000 per month, you could deposit your savings in a bank account and it would take about 21 years to reach your goal. If instead you invested it in such a way that it earnt 7% each year, your goal would instead be reached in 14 years. In short, you can retire earlier if you invest aggressively, by which I mean holding a mix of growth assets, not only investing in cash. 4.  Don’t ignore your super I know it’s tempting, when thinking about early retirement, to dismiss superannuation as something only people on the traditional work path need worry about. You want to retire EARLY, and Australia’s superannuation system isn’t built for that. But that thinking is wrong headed. Regardless of what age you retire, you need to generate income to meet your expenses throughout your life. The less tax you pay on that income, the more money that is available to meet your expenses. Australia’s superannuation system provides a way for you to generate tax free income after age 60. Your early retirement plan needs to contemplate how your income needs will be meet after age 60, and I’d suggest you’d need your head read if you didn’t consider superannuation as at least part of this solution. If you haven’t already downloaded it, grab our Early Retirement for Australians – the multi phase solution PDF where we have glide path diagrams illustrating how superannuation can be an integral element of your early retirement plans. Click her to download the Early Retirement eBook 5.  Plan other income sources You’re working towards escaping your current cubicle captivity and so perhaps the thought of earning employment income in your early retirement appears to be an oxymoron. But earning income doing something because you have to is very different from earning income doing something that you want to do. Let’s say you determined that for you to achieve early retirement you need to meet expenses of $50,000 per year. Now to do that through passive investment income alone, you’d need investment assets of something like $1.25million. For most of us, that’s going to take a long time to save. But what if you could be a ski instructor 3 months of the year, something you love doing anyway, and pick up a handy $20k towards your expenses? It could be driving a school bus, doing some consulting, or serving on a company board. If you could cover some of your expenditure from earnt income, you will be able to retire so much earlier. It may also make your life more fulfilling and purposeful. 6.  Understand sequencing risk This final early retirement hack is a bit technical, but it’s well worth a mention here. Typically, when you run projections thinking about how long your investments will last, you assume a certain rate of return. Maybe it’s 4% maybe 8% - it depends on how much risk you will take with your investments and how conservative you want to be with your projections. But the often overlooked reality is that real life returns aren’t steady year to year. Your average estimate may well be right. It could even be conservative, but if the sequence of your returns is such that you have bad outcomes in the first few years of your retirement, those projections could be totally blown up, even if it ultimately proves that your long term estimates are right because there are high return later on that balance things up. The problem here is that if you have to sell down investments to meet your expenses when valuations are down, the fact those values later rise doesn’t help you – you already sold. Armed with an understanding of this risk, you can plan to hold enough cash or similar investments to get you through those early years of your early retirement. Perhaps, if share markets were having a really terrible time you could cut back your expenditure for a year or two. Maybe you could pick up some extra paid work. The key is, you want to be able to avoid having to sell down your investments at an unfavourable time. Well there you have it, 6 powerful early retirement hacks for you. I’d love to hear your thoughts – leave a comment on the Financial Autonomy Facebook page, or contact me through the contact page. Click her to download the Early Retirement eBook Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Research from the Australian Stock Exchange found that in 2014, 36% of adult Australians owned investments listed on the share market. Combined results from RP Data and Census data found 7.9% of the Australian population own an investment property. Now there would be some cross-over here with people holding both shares and investment property, but we can safely conclude that at least 55% of the adult Australian population holds no investments outside of their superannuation. Click here to download the toolkit Back in episode 27 we explored what was required to achieve financial independence. In a nut shell, determining what your living costs are for the lifestyle that you want, and then finding a way to generate that sum of money each year is the solution. So let’s say you’ve done your numbers, and you know that for you to achieve financial independence, to gain the choice that is the goal of Financial Autonomy, you require X dollars per year. How do you then go about generating that? Now of course regular listeners and readers will know of my passion for the Side Hustle as an important element in anyone’s financial independence aspiration, and so that may well provide part and perhaps all of the solution. Gig economy type freelancing work could also contribute. Or it could just be as simple as a regular employed role that you enjoy. Another common way to meet income needs for those seeking financial independence is to build up income producing investments. That might be property that throws off rent to the owner, or it might be shares that generate dividends. Your investment income might meet some, or perhaps even all of your expense needs. Whilst the desired destination of achieving financial autonomy is not to be able to spend day upon day sitting on the couch in your underpants, if your expense needs are meet through investment income, this is at least an option for you from time to time. I’m a pretty driven person, but even I like the odd afternoon, remote control in hand and Netflix to burn. So in today’s post, we’re going to explore how you might get started on your investment journey. It’s easier than you think! Let’s start with the shares vs property question. It’s a bit like asking whether you’re a dog or a cat person, most people pick a camp and will explain to anyone who will listen that their chosen camp is the right one. The truth is shares and property both work as a way to build wealth and generate income to enable you to achieve financial independence. Each have pro’s and con’s. But I need to nail my sail to the mast here at the outset and say I’m a shares guy. With my wife, we own both shares and a property other than our home (we have a cat and a dog too, so we’re obviously serial fence sitters). But my preference investment wise is shares, and I’d suggest that if you’re looking at getting started in investing, shares is where you should be looking too. The great things about owning investment property is that you can borrow fairly easily, and that means returns are magnified via the power of gearing. Many people also like to invest in property because it’s a physical asset, something they can see and touch, and that gives them comfort. But as anyone who’s owned or even simply lived in a property knows, properties wear out. They need maintenance. We own a small office in our super fund, and whilst commercial property is less involved that residential, even so we have to deal with body corporate issues, ongoing expenses like council rates and insurance, and tenants. Just yesterday I had the tenant tell me that there was an annoying vibration type sound coming through the roof, and so could I please get the air conditioner unit that sits up there serviced because maybe that’s the cause. With shares, you never have these issues. Buy them, tell the registry where you want your dividends to go, and they require no further input from you. Now I know that when I suggest that shares are a good investment option I always get someone email me and say that I didn’t talk about the huge risk associated with investing in shares. “What about the GFC” they say, “my neighbour lost everything”. So let’s tackle the shares are hugely risky myth head on. As an investor, you want some risk. No risk means no investment return. Risk and return are opposite sides of the same coin. What you need to decide is what level of risk you are comfortable with. If you are only comfortable taking on the risk of not keeping pace with inflation, then cash in the bank is the investment for you. If you want to earn more like 5%, then you need to take on only a small amount of investments that have any volatility associated with them, but in the current interest rate climate at least, you do need to take on some risk. If you seek a 20% return, then you’re going to need to take on a whole heap of risk, probably including borrowing to leverage your outcome. So risk is not bad, but understanding the level of risk and what you are comfortable with is very important. Click here to download the toolkit Next, what does “risk” actually mean? Technically it means volatility. To most people, risk means the chance of them losing their money. The more stable the value of an asset is, the less risky it is considered. An asset whose value changes a lot is considered more risky. This is because you may need to sell your investment, and if you’re unlucky enough to sell at a point when the price is down, you may have a bad outcome, perhaps even get back less than the amount you spent buying the asset in the first place. Because shares are constantly bought and sold, prices are always known. They go up and down as a business’s fortunes rise and fall, and as external factors weigh on the price people are prepared to pay for the company’s shares. This leads to the view that shares are a volatile asset and therefore they are risky. The thing is though, all the price is telling you is that, if you wanted to sell right now, here’s what you could get for your share. If you have no intention of selling, the price really doesn’t matter. Rather than being a negative, the fact that you could sell almost instantly if you wanted to should be viewed as a positive. Something unexpected comes up and you need cash fast. You could sell your shares and have your cash in the bank in 3 days. That’s faster than breaking the term on a low risk term deposit. And so onto the “lose all my money” claim that always comes up, though it’s always the friend or neighbour this has happened to, never the person themselves. Firstly, shares are cheap. Most quality shares cost between $10 and $50 each. So even if you only have a few thousand dollars to invest, you can afford to buy shares in a few different companies, ie diversify. Now I would suggest that you don’t even buy individual companies, but rather exchange traded funds that give you even more diversification, but that’s a discussion for another day. The point is, you never have your entire share investment in a single company. Now 10 years ago, in 2008, the period we now know as the GFC, the share price of most companies fell. But they didn’t go to zero. For an investor to have lost all their money, as the claim often goes, that’s what’s needed. But that is incredibly rare. And even if you’re unlucky enough to buy into a company that suffers that fate, you will have invested in several different companies, and they won’t all have succumbed to that fate. Now if you were forced to sell when the price of your shares were down, you will get back less than what you originally invested. But almost everyone who suffers loses on their share market investment doesn’t sell because they actually have to, they sell because they feel they have to. I’ve seen it so many times and yet it still makes me feel sick in the stomach. The number of people who for instance don’t need their superannuation savings for 10 or 20 years, yet when share markets go down, they feel they have to sell. It just boggles the mind. Please, please, please Financial Autonomy listeners and readers, if you take absolutely nothing else from what we put out, please don’t sell your share market investments when prices are down just because of fear or panic. If your shares are in a good company that’s continuing to pay regular dividends, don’t give your shares away to some bargain hunter at a discount. I could go on, but here’s the key things you need to be aware of when thinking about investment risk, and this applies to both shares and property: Time is your friend. Plan your investment strategy so if the price goes down, you don’t need to sell. You can wait it out. Some risk, or volatility, is good. It’s why you get a return better than cash. You want some investment risk. Diversify – it’s a well-worn cliché, but don’t put all of your eggs in one basket. Be wary when borrowing to invest. Borrowing magnifies outcomes, both positive and negative. I believe borrowing is essential for most people in achieving financial independence, but recognise that you are playing with fire and so it needs to be managed well. Apologies, this post is supposed to be about getting started in investing and I’ve waffled on about risk. I hope you’ve found some value. So let’s get into the meat. Gaining some experience and confidence is a really good place to start. Open up a share trading account online with one the reputable players. I suggest you buy 1 exchange traded fund (ETF). Check out the likes of the iShares and Vanguard websites for their Australian listed ETF’s and choose one that speaks to you. Then also buy 2 or 3 individual stocks. Ideally companies that you recognise, maybe even that you’re a customer of. Don’t spend big, maybe as little as $500 to each of these investments. Then see how they go for the next several months. Experience what it’s like when prices go up and down. Does it stress you? Early on you’ll probably check the prices everyday, but hopefully that will get boring quick, and you’ll move to only checking in every month or so. You’ll start to see some dividends come in, and a bit like barracking for your footy team, you might start to take a bit more notice when your companies are mentioned in the press, and cheer them on a bit. This is the training wheel step.  Hopefully the shares you buy rise in value with time, and also generate some dividends along the way, but the primary gain to made in this stage is just to de-mystify share market investing and overcome the shares are risky myth. To help your investment portfolio grow, you’ll want to add to it. One simple way to do that is to have the dividend income reinvested back into more shares. Not all shares offer this, but where this is provided as an option, it could be a good way to go. The next step is to add more of your surplus income, your savings, into your portfolio. Now perhaps that’s buying more shares at regular intervals, but just keep an eye on the brokerage costs, they could add up. It may be more cost effective to invest in a managed fund that makes sense to you, as these typically offer regular monthly savings plans at little or no cost. Like an ETF, managed funds offer you a one stop shop to have your money invested across usually hundreds of different company shares, so they’re a great way to diversify and manage risk. Managed funds have fees of course, (as do ETF’s for that matter), so just do some research to see that the one or ones you are choosing aren’t charging above market rates. From here, it’s really about time. The longer you hold your investments, the greater the likely growth. This means: The sooner you get started the better. Don’t fool yourself into believing you can make money as a short term trader of shares. You won’t beat the computers. Buy and hold is the way to go. Think long term. Click here to download the toolkit Just before I wrap up I should also give a plug for my profession. What I’ve outlined here is the DIY way to get started in investing. At some point you will likely gain from some professional input. Even Roger Federer has a coach. Think about finding a financial planner that you can form a long term professional relationship with.

Today we chat with Co-founder and consultant with Tara Lucke from View Legal about the importance of Estate planning. Though it is not something we like to talk about, it is so important for protecting your assets and loved ones, no matter what stage of life you are at. In this interview we cover: Making sure your hard earned money goes to the right place with a good estate plan What happens to your money if you don't have an estate plan Why you need consider having a Power of Attorney no matter what your age Why you may have more assets than you think How to avoid lawyers taking advantage of your estate The two important factors to consider in your estate planning once you have children Case studies of poor estate planning situations The problem of the "I love you" wills Why you need to consider Testamentary Trusts as part of your estate planning for asset protection and tax benefits The different roles of the Power of Attorney Conversations you need to have with family members Considerations for estate planning for Small Business owners   Links mentioned in the show Tara - LinkedIn Tara - Instagram

We all know that property prices in Australia have gone stupid in recent years.  One significant consequence of that has been that first home buyers have found it increasingly difficult to enter the property market.  Banks like to see at least a 10% deposit, and in the ideal world you’d have a 20% deposit to avoid mortgage insurance costs.  But when a first home can often cost north of half a million dollars, saving a deposit of that size can be really challenging, especially if you have rent to pay, and perhaps a HECS-HELP debt that sucks away a portion of your income. Fortunately there has been recognition of this problem by both sides of politics, and the solution that has been legislated in recent months is the First Home Super Saver Scheme. So what is it, and should the First Home Super Saver Scheme be on your radar as a strategy to enter the housing market?  In short, should you care about this new initiative? Click here to get the toolkit  It’s always good to start at the beginning, so before we dive in, let’s just consider the objective of the First Home Super Saver Scheme. Home ownership is considered a good thing for the nation.  Now as regular listeners and readers will recall, in episode 19 I looked at whether people who simply can’t enter the property market are financially doomed, and the conclusion that we found is certainly not.  However for those that do wish to own their own home, and that is most of us, the rationale is sound. Owning the roof over your head gives you long term financial security.  Sure, you’ll have a mortgage to repay for many years, but one day this will be paid off, and so in your later years, you’ll have your housing needs covered for relatively little ongoing expense.  This makes retirement that much more affordable, and also provides you with the security of knowing you can remain in your community without disruption. Building equity in your home may also enable you to finance things like starting a business, and provide funds for Aged Care needs towards the end of your life if needed. Home ownership also tends to align with a sense of equality.  I enjoy reading about the period around the French Revolution, in the late 1700’s.  In that era (and it was much the same throughout Europe and England), the wealthy few owned everything, and the vast majority eked out a living as best they could.  In that type of society, the average person had little control over their life, and got blown about by the whims of the wealthy elite, with their wars and ridiculous extravagances.  Australians have always resisted a society like this.  The concept of a fair go is ingrained in us.  And whilst in recent years it feels like perhaps we’ve headed a bit more towards the wealth of the nation become concentrated in fewer hands, the ability to access home ownership for all Australians is a really important foundation stone of our society. So the First Home Super Saver Scheme exists to help ensure that entry into the housing market remains possible. So how does it work?  Now I need to give a jargon alert here.  I always try very hard to not use financial jargon when I write pieces for Financial Autonomy. But because the First Home Super Saver Scheme feeds into the superannuation system, and because Australia’s superannuation system is almost a language all of its own, I won’t be able to avoid having some jargon in this post.  I’ll do my best to explain things in what I hope are easily understood terms, but if anything is unclear, don’t hesitate to drop me an email to clarify. Click here to get the toolkit The First Home Super Saver Scheme enables you to make extra contributions into your superannuation account, and then withdraw them, plus the earnings, for the purposes of a first home deposit.  It’s rational because you are likely to save on tax, and typically the earnings on savings in a super fund will be better than what you would generate with a bank deposit. From 1 July 2018 it is possible to apply to withdraw voluntary contributions made to super after 1 July 2017 for a first home deposit. Voluntary contributions includes both pre-tax (salary sacrifice) and after tax contributions. Your normal superannuation contributions made by your employer are not relevant here – they remain preserved until your retirement.  The First Home Super Saver Scheme only applies to extra contributions that you make. The primary benefit exists for pre-tax contributions, so for the remainder of this post, I’m going to focus on these.  Now the jargon term here is “concessional contributions”.  They are concessional because these type of contributions receive special discounted tax rates.  For most people, concessional contributions occur via salary sacrificing to super.  That is, you arrange with your employer to have an amount taken out of your wage before tax is calculated, and that money is sent to your super fund, on top of the normal employer contribution that they would be making. Now if you’re self-employed, it’s even easier, as it’s probable that any contribution to super that you make will be concessional.  If your taxable income is quite low, this may not be the case, so get some advice here if that’s applicable. Because the money you’re sending to super comes out before tax, you’ll find that the impact on your pay packet is less than you would expect.  So for instance if you were on a wage of $70,000, and you salary sacrificed $500 to super, your take home pay would reduce by around $350, not the full $500 amount. This points to why the First Home Super Saver Scheme makes sense.  It’s all about the tax! When your salary sacrifice contribution arrives at your super fund, it will be taxed at 15%.  So taking the $500 example earlier, after tax is deducted $425 hits your super fund.  But as mentioned earlier, had you instead taken this money as normal take home pay, you would have only got $350 in your pocket, so $425 going into your super fund is a good win. Let’s look at some of the parameters around the scheme. Firstly, the maximum that you can withdraw from the scheme is $30,000 plus the earnings on those funds. The maximum amount that you can have released from a single years contributions is $15,000.  So in other words, in order to get the maximum out, you’d need to contribute for at least 2 years. Also, the normal superannuation contributions limits apply.  The most anyone can contribute to super in pre-tax/concessional contributions is $25,000, and this includes what your employer puts in.  So you might want to save $15,000 in a particular year into super to use in this new scheme, but if your employer already puts in more than $10,000, then you simply don’t have the head room within the contribution caps to be able to do this. When you then withdraw these savings, they will be taxed at your marginal tax rate, less a 30% tax offset.  This bit is confusing at first blush and will catch some people by surprise.  It exists to provide equity in the scheme.  Most people with access to this scheme will pay tax at around 30%, and so any tax applicable at withdrawal will be pretty minimal.  But of course the scheme is open to anyone, even someone earnings several hundred thousand dollars a year, so this mechanism is designed to ensure that higher income earners don’t get a disproportionate benefit from the scheme. I guess the takeaway is just to recognise that when you withdraw, it may be that some tax is deducted.  Rest assured though that where this is the case, you will still have been better off than had you saved the equivalent amount outside of the scheme, assuming earnings rates were the same. It’s also worth noting that you don’t need a new or separate super account for this scheme, nor do you need to tell your super fund that the contributions you are making are for this purpose. The actual mechanism for withdrawing your funds is a little unclear at this point as it hasn’t happened yet.  The tax office is responsible for approving the withdrawal. So either you will apply to the ATO to withdraw the funds, and then when they are satisfied that you are eligible, they will send instructions to your super fund to release the money, OR you will apply to your super fund, who will then go to the ATO for approval to release the money.  The process will become clear later this year once it becomes relevant. The contribution limits apply to an individual, so couples will be able to get twice the benefit if they have the capacity to contribute. Also, it’s probably stating the obvious, but this scheme works by saving you tax.  If you don’t pay any tax, or very little, then there’s likely to be little benefit in the First Home Super Saver Scheme for you.  As a rough guide, I’d imagine it would only be relevant for those earning at least $30,000 per year. So should you care about the First Home Super Saver Scheme?  Well if you’re trying to save a deposit for a home, and earn more than $30,000 per year, then I would say yes. You will save on tax, relative to building up your savings in a normal bank account or investment, and that means more funds available for your first home deposit. The government estimates the scheme will cost the budget $250million in forgone tax revenue over 4 years.  So for those who can use it, why not claim your fair share of that booty?   Click here to get the toolkit   In the toolkit for this episode, we’ve summarised the key elements of the First Home Super Saver Scheme and we have a link to a great calculator that will tell you the gain to be made depending on what your income is, and how much you salary sacrifice.  It tells you the per year benefit and the result over 3 years of saving.  It’s really easy to use and it’s great to really quantify the value of this strategy, so go to the financialautonomy.com.au web site, go to the toolkits page, and download that. Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Networking marketing has changed since the days of Tupperware and Amway.  Today I am joined by Lloyd Ross who talks through how our online behaviours and advances in technology have revolutionised the world of network marketing, making it an easier side hustle than ever before.  In this episode we cover: What network marketing is and why you need to consider this as a viable side hustle How social media has evolved the industry The skills and attributes to be a successful network marketer The ease of getting started with just a few hundred dollars How to fit in a Hour of Power for your side hustle while working full time The evolution of network marketing due to changes in shopping habits, technology and online networking How to find a product and company that aligns with you and your values Links mentioned in this Episode Lloyd on Facebook Lloyd on Linkedin Lloyd on Instagram  

The goal when working towards Financial Autonomy is to gain choice.  Choice in how you support yourself and perhaps your family financially, be that the type of work you do, the hours you spend doing that work, or whether you earn that income as an employee, or as a self-employed person. In developing an actionable plan to get you from where you are now, to your Financial Autonomy position, there are several foundational elements that you need to decide upon.  Perhaps the most fundamental of these is how much income do you need to generate to support your lifestyle?  What is your number? In today’s episode, we’ll be exploring how you might go about determining what your number is.  And with this nailed down, consider what’s next in your Financial Autonomy planning. So you’ve recognised that the standard working life treadmill is not for you and you’ve decided to gain choice via a Financial Autonomy strategy. You’ve probably got some ides as to how you could earn income once in Financial Autonomy, and perhaps some thoughts as to what steps you might take to get their – things like extra education or career development (check out episode 29 – the 5 most impactful ways to invest in yourself). But to set time frames and make genuine progress, you will need to quantify your Financial Autonomy goal, and that means determining how much income you will need to make this a reality. A good starting point is to determine how much you spend now. If you’re someone with a detailed budget, that’s fantastic.  But having worked with people on these goals for over 17 years now, my observation is that such people are as common as a sports person who retires at their peak – it happens occasionally, but it’s a long way from the norm. So if you’re like the majority and can’t easily answer the question of how much you currently spend, one quick method I use a lot is just to work backwards. Start with your gross yearly income.  Subtract the tax.  Then subtract any savings that you made over the past year – this may include extra repayments to your home loan if that’s the space that you’re in. Whatever’s left must be what you spent. Now it will come as no surprise to you that the lower your spending, the easier it is for you to achieve Financial Autonomy.  Much of your expenses depend on your lifestyle, so you have plenty of levers that you can pull here. Choices need to be made.  Speaking for myself, I don’t want to live like a monk.  I enjoy travel and want to be able to afford that.  I also want to ensure my kids can participate in all sorts of sports and activities that interest them, and provide them with a good education. So setting a spending goal of say $30,000 per year, isn’t where I want to be.  That doesn’t deliver the life that I and my family want.  Sure Financial Autonomy might be far more easily obtainable, but that’s a level of sacrifice that I’m not prepared to make. But on the flip side, if you need $150,000 or $200,000 per year to live your life, then depending on your occupation, Financial Autonomy is likely to be some way off.  Now maybe that’s okay – that’s your goal and we are all unique.  But for many people, if the desire for Financial Autonomy is strong, they will consider how they might be able to reduce their expenditure, so that they can gain the choices that they seek sooner. How might you get your expenses down?  The cost to put a roof over your head is likely to be a significant element of your expenses.  So maybe a key milestone in you achieving your Financial Autonomy goal is paying off your mortgage.  If that’s not realistic in the time frame that you seek, perhaps you need to move to a cheaper area.  I’ve worked with people who have moved out of town, often down along the coast somewhere.  They’ve traded a large city mortgage to either become debt free with a lovely home, or if they still need a mortgage, it’s at least far smaller and more easily managed. There are investment strategies that can be used to help pay down your mortgage too.  It may be possible to use equity in your home to establish an investment portfolio, and then use the income from that portfolio, plus perhaps capital gains, to accelerate clearance of your home loan.  We’ve used this strategy for several clients with great effect. Beyond having a close look at your housing costs, the most common other way that people rein in their expenditure is to get a better handle on where their money is going.  Many of the bank apps now offer some good tracking tools to help you in this regard.  We’ll also be rolling out a cash flow and budgeting solution within the next couple of months too which brings all your financial matters into a single app or web site – bank accounts, super, mortgage, cars, investments etc.  For those of you that have used Xero or MYOB recently, our new package operates in a  very similar way for personal finances – it gets data feeds and then categorises your items, so you can quickly see how much you’re spending on groceries, or eating out, or your car.  It allows you to set goals too – gamification for the nerds amongst us – which can be really helpful in making progress towards financial goals.  It just gets all of your financial matters into the one place.  I’ve been trailing it for the past couple of month, as have my team, and we’ve found it really useful – one of my staff Lee, has got her 20 something sons using it too. Hopefully you’re already on our mailing list to receive our regular monthly updates, but if not, visit the financialautonomy.com.au web site and there’s a tab on the right.  When our new solution is up and running we’ll certainly get the details out to all of the Financial Autonomy community. Okay, so you’ve determined your number.  You’ve worked out what you’re spending now, you’ve thought about how that might change in the future, and you’ve determined how much income you would need to generate in order to achieve your Financial Autonomy goal.  Maybe it’s $40,000, maybe it’s $90,000.  The figure is less important than actually having a number, because from here we can work back to how we get you from today to Financial Autonomy. Now of course the strategies to get you there are numerous, and I can’t give you a one size fits all solution here.  Finding workable solutions is what we do with clients all the time. But a useful starting point for you might be to think about the Early Retirement glide path diagrams that came out of episode 23.  If you haven’t already downloaded this free document, be sure to visit our web site and grab a copy. In the example used in that download, the person initially generated their Financial Autonomy number through some consulting work combined with income from an investment portfolio.  A bit further on their life journey, the consulting work lessened, and they relied more on investment income as a rental property was paid off, and so the rental income was now available for expenditure.  They also started to sell down some shares. Then when they reached 60, their Financial Autonomy number was achieved through a combination of superannuation drawings, rental income, and selling down the remains of their share portfolio. And much later in life, the rental property is sold, and those proceeds plus any remaining super, ensure you live out your life very comfortably. Now this path to Financial Autonomy is not right for everyone, but it illustrates how your goal could become a reality. But the starting point must be to know how much income you’ll need to generate.  You need to know what your number is.  I hope this post has helped you get there.

In this episode, I talk to Joanna Maxwell all about career change.  Joanna has worked in a wide variety of jobs throughout her career and she helps a lot of other people change careers as well. She's now taken all that experience and recently gained a position with the Australian Human Rights Commission in the Age Discrimination Team. Joanna is the author of the book Rethink Your Career in your 40s, 50s & 60s.  In this episode we cover: Why Joanna has had a such a varied career How her love of travel impacted career choices and led to her interest in career change The challenges of identity with career change  How men & women deal with their sense of identity How Joanna took her interests and satisfy those through her career choices Planning financially when running your own business Finding strategies to create a working life that is sustainable How the book came about and what's included Joanna's tips to make career choices work Links mentioned in this Episode Joanna Maxwell's Website  Joanna on Linkedin Rethink Your Career in your 40s, 50s & 60s

Right now you’re listening to this podcast, or reading the blog article. Why? You’re curious, and have a thirst for knowledge.  You want to learn new things.  You want to improve yourself. We usually think of investment as being a financial thing.  But investing in yourself - your skills, knowledge, and health, can be just as important and impactful.  And just like a financial investment, diversification pays. Download the cheat sheet here In past Financial Autonomy episodes we’ve looked at investing in the share market, buying or starting a business, getting debt under control, and various other topics that tend to have dollars and cents as a core element. And whilst the money side of things is unquestionably important in you attaining Financial Autonomy, there are other essential ingredients required for you to achieve success.  Motivation, health, happiness, self-awareness, creativity. There is a lot on the net about self-improvement and investing in yourself – I’ve spent hours reading it to research for this article.  So what I’m going to share with you today is the 5 ideas I’ve been able to identify that will have the greatest impact in you reaching your Financial Autonomy goals. 1. The starting point must be your health. It’s no good achieving Financial Autonomy at age 50 say, only to drop dead 6 months later. There’s 2 elements to investing in your health – activity and food. On the activity front, the important thing is to start.  If you’re currently doing very little physical activity, start by taking regular walks.  Build up the distance over time.  Perhaps you could extend that to jogging.  There are podcasts available based on the couch to 5k approach that I know people have found useful. If you already have some level of fitness, think about setting yourself a new challenge.  Last summer I set myself the challenge of completing a triathlon.  Swimming has never been my thing, so I had to put quite a bit of time into training for that component of the event.  The funny thing was, when the tri season ended and I focused back on running, I found my running had improved, even though I hadn’t given it much focus over the summer. When thinking about the activity component of health, just remember the “R” in the SMART goals acronym – realistic.  The surest way to side-step success in this area is to set some crazy high goal, that you quickly become discouraged by, and you defeat yourself before you make any progress.  Start small. The second component to investing in your health is food.  As important as activity and exercise is, if you head down to KFC for a post work-out feast, you’re probably not going to maximise the health benefits of your exercise.  I’m not a nutritionist, so I can’t give you any particular guidance on what you should and shouldn’t be eating, but just reflect on your eating habits and consider whether this is an area worthy of investing some of your time to research and improve. 2. Get your creative juices flowing! For many of us, creativity seems to die when we leave primary school.  But it doesn’t have to.  Indeed as technology like self-driving vehicles and AI eliminate many of the traditional jobs in our economy, the ability to think creatively takes on far more value and importance. Pick up some blank paper and a grey lead pencil and have a go at drawing that tree in your back yard.  Is there a musical instrument floating around the house that you could teach yourself to play.  If there isn’t a YouTube video showing you how, I’ll eat my shoe. How about expanding your cooking repertoire?  There’s no shortage of cooking shows to give you ideas.  Many years ago my wife and I made a new year’s pledge to cook something we’d never cooked before, once a week.  We subscribed to one of the monthly cooking magazines, and so that was the main source of inspiration each week.  There were 2 or 3 weeks during the year where we didn’t achieve our goal, mainly due to the very reasonable excuse of our first child being born.  But there were several other weeks where we tried 2 new recipes, so over the course of the year we felt we’d ticked the goal well and truly off.  And it’s paid long term dividends.  Once you learn basic cooking skills, and what goes with what, you gain the ability to ad-lib.  Substitute what you have in the cupboard for what the recipe is asking for.  Cooking skills can also help with your health goals, and be good for the household budget. How about learning a new language?  There are great podcasts around.  I’m currently having a go (pretty unsuccessfully so far) at Coffee Break French, interestingly enough taught by two Scottish people. Perhaps writing is your thing.  Short stories, a novel, or poetry. Worst case, no one reads it but you.  Make a start, have a go.  Only good things can flow. 3. Expand your knowledge in an area you are already good at. Professionally we operate in a competitive world.  I make my living providing financial planning advice.  But there are many financial planners in the world.  So just being competent isn’t enough.  I need to be an expert.  Over the 17 years that I’ve been providing advice to clients I’ve become an expert in Self Managed Super – I even wrote a text book on it.  And in recent years I’ve pulled the treads together to become an expert on Financial Autonomy.  The reason I’m able to get articles published in quality brands like the Sydney Morning Herald and The Age, is because of that expertise.  It’s also the reason I was nominated as 1 of the top 3 Certified Financial Planners in Australia this year. So when we’re talking about the most impactful ways that you can invest in yourself, moving up the ladder from competent to an expert must to be right up the list. So what professional development opportunities are there for you?  If you’re an employee, many employers will have staff development budgets.  Make sure you get your share.  Is there a conference you could attend, any short courses you could enrol in, webinars or books to read?  Maybe you even take it up a notch and go for a Masters or Phd, though this a significant investment not to be taken lightly. How much could your income rise if you became the expert in your sector? 4. Build your team. I heard a great quote last week from Dr Susan Carland, most well-known as being the wife of TV host Waleed Aly, though unquestionably an intellectual powerhouse in her own right.  She observed “you can do anything, but you can’t do everything”.   What are your key strengths?  What are you really good at?  How can you focus more of your time and energy on those things, and get others to do things that a) you’re not strong on, b) don’t especially enjoy, and c) someone else could do better or more quickly than you? Whether it’s a business coach if you are self-employed, a personal trainer for a fitness goal, a cleaner or a gardener for your home, or a financial planner to maximise your financial opportunities.  Sure, you could try and do it all yourself, but is that really going to deliver the best result?   6. Perhaps linked to building your team, is finding time for yourself. Value your time.  You’ll only live this day once.  Your kids will only be this age once.  Busy does not equal success.  Find time to read a book or listen to a podcast.  And not just about topics in your professional life.  Use your time to broaden your perspectives, get fresh ideas, and take on new knowledge. Take a break and relax.  Our mental health is so easy to overlook, yet so fundamental our well-being.  Go for a walk, watch some TV, or go to the footy.  You’re not slacking off – you’re achieving balance in your life that will enable you to be far more effective when you then devote your time and energy your income generating activities. Finally try to incorporate some travel into your life.  It could be as simple as a camping trip a few hours drive from home.  Travel recharges your batteries, expands your perspective, and deepens your relationships with your travel companions.  It provides life long memories that are impossible to attach a financial value to. Well, that’s it for the top 5 most impactful ways to invest in yourself.  Investing in yourself can definitely help you make progress in your Financial Autonomy goals.  It can also make you happier – you’re more challenged, more fulfilled, and more connected with those around you.   Download the cheat sheet here

With Amazon now in Australia, we talk to John Candivish from FBA Frontiers on how to make a side hustle by becoming an Amazon seller. Before starting his Amazon Europe journey, John had zero experience with running an online business. After university, he joined the corporate world in London but rapidly realized that it was not for him. After launching his first Amazon brand in 2014, John was soon able to quit his job to travel the world and network with other successful Amazon sellers from around the globe. Today, he's generating 6 figures of revenue per month from over a dozen products in Europe. John's experience led him to develop a specific, step-by-step system to find success with every product launched. John developed FBA Frontiers because so many sellers he met had great businesses on Amazon.com, but had completely dismissed Europe. He's since made it his mission to help sellers overcome the barriers to entry in the EU and find success by bringing their products into Europe.   In this episode we cover: What is Fulfillment by Amazon (FBS)? The territories in which Amazon operate and how the fees are calculated Getting started as an Amazon seller The low risk business model as an Amazon Seller How to find the right products The profit margin you need to The importance of having an ad spend on Amazon when launching How Amazon ranks products The lifecycle of the product The benefits of doing a niche product What you need to for branding when getting you The minimum quantities you need to get started Things to consider when FBA starts in Australia and the first mover advantage locals have What the future holds for Amazon   Links mentioned in this Episode FBA Frontiers Course Jungle Scout  

In the interview I did with Adam Murray in episode 20, he spoke about how he reduced his expenses in a significant way when he worked through his employment transition and gap year.  And you might recall, he found living on less made him more happy, not less. Another key element in your financial independence plan is to have a financial buffer, an emergency fund, to get you through the unexpected.  Perhaps you already have this, but if not, you want to build this up.  Everyone’s needs are different, but you’re likely to need $2,000 to $10,000 in there to make you secure.  This assumes you’ve got appropriate insurances in place. Once you have that emergency fund in place, savings can go towards investment.  We’re not going to get into potential investment strategies in this episode, but the key point here is that the goal is to build up some investments, so that in future they can generate passive income for you, to help cover your expenses.  It might be rental property, shares, or if you’re real risk averse, term deposits.  But the key is that whether it’s rent, dividends, or interest, they will all throw off income for you to use, without you having to lift a finger. Envisage that you determine that you need $40,000 per year to cover expenses.  If you could build up an investment that was capable of throwing off half that each year, then you only need to work in some form of paid employment to earn the other half - $20,000.  You might be able to do that working a few days per week, or doing jobs in the gig economy.  The key is, you’ve gained choice.  You’ve gained financial autonomy at that point. Expenses are one thing but income is the other side of the ledger.  Your income earning capacity is crucial to achieving financial independence.  In the previous example, where you needed to earn $20,000 to achieve your goal, if you are a well-qualified GP, you could probably earn that working once a fortnight.  Whereas if you are in a low skilled job, you may need to work 3 days per week to get the same result. So nurture your professional skills and invest in yourself.  This will help you enormously in attaining financial independence. Whilst thinking about income, is there anything else that you could do to boost your income?  Push hard for a raise.  A side hustle perhaps.  Or chasing a job at a competitor that might pay more. We’ve spoken about side hustles quite a bit in previous episodes (21 and 22 especially).  This could potentially be a great path towards financial independence.  You are generating income doing something you’re passionate about.  And you can put in as much time and effort as works for you. What other things might form part of your plan to reach financial independence?  Avoiding credit card and other non-productive debt is likely to be wise.  I’m not someone who believes credit cards are always evil.  For those who can manage them, the consumer protection and rewards benefits they offer can be really valuable.  But if you don’t pay them off each month, the interest you will pay will very quickly outweigh any of the other benefits.  So think about whether your credit card is working for you, or whether you need a change of approach on that front. Similarly, loans for holidays, furniture, and the like are likely to be costly, and drive you away from reaching financial independence.  If you have these already, then an early focus of your plan might be to clear these debts. How else could you trim your expenses to make your financial independence goal more attainable?  Usually it’s about simplifying your life.  Maybe changing some habits.  Could you become a better cook so you eat out less?  Would a housemate be a possibility?  On a larger scale, could you downsize or make a tree change?  Perhaps this would reduce your rent or mortgage.  If you’ve got an inner city home with a mortgage, perhaps a move out of town might leave you with a debt free home even, which would make the achievement of financial independence for you that much more reachable.  Episode 6 – Nish’s success story had an example along these lines. It feels a bit harsh to say, but do you need new friends?  If you surround yourself with people who spend money like it's water, it's going to be very tough to rein in your own spending and gain the flexibility and independence that you are trying to achieve.  The type of car you feel the need to own is often a function of the social network that you're in.  Our friendships and social networks are of course a foundation of our happiness, so I don’t raise this lightly.  But it is certainly worth reflecting on whether you have certain friendships that are detrimental to you achieving your goals and dreams. Well, I hope that’s given you a kicking off point on your goal to attaining financial independence.  Determine your why, consciously own the goal and commit to it, and develop a plan to get you there over time. Of course if you want help in developing your plan to achieve financial independence - that’s what I do every day for people.  So visit the Work With Me page on the financialautonomy.com.au web site to learn how we can work together. Attaining financial independence doesn’t need to be hard.  But you need to take action.  Hopefully today’s episode has started you on that journey. Don’t forget to grab the free toolkit for this episode.  We’ve got the Budget Tool in there to help you get across your cash flow, the Dream Planner template, 9 tips to combat procrastination, and a piece on how to use the SMART goals methodology. Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Following on from Episode 23 on Multi-Phase solutions for Retirement  we are joined today by Shaun Farrugia from Optimised Accounting & Finance to talk all things Trusts. Check out our free download  Multi-Phase solution for Early Retirement In this episode we cover: The dummies guide to what exactly a Trust is How it can work as a funnel and the tax flexibility that it allows The two types of people that generally use Trust structures What are franking credits Three case studies of how Shaun clients are using Trust for tax flexibility Case Studies as mentioned in this episode Scenario 1:  Couple approaching retirement / early retirement.  (Dramatically reduce tax) Distribute investment / business income to a 'bucket company' Allows for tax to be paid at the company tax rate - accrues as franking credits Funds pile up and are invested within the company Upon 'retirement' dividends can be streamed out with franking credits attached Draw down $13,000 each financial year to remain below the tax free threshold with a tax refund of $5,572 - effectively a zero tax rate Draw down $26,000 each financial year and receive a refund of around $6,800 back - 11% tax rate. Scenario 2: Young Couple - DINKS / Side Business  (flexibility) Couple both working full time on incomes > $90,000  Have a side business and investments Currently there isn't much of a tax benefit however couple is looking at having kids in the medium term Wife will take a year off work, and then in the 2nd year the husband will take a year working part-time Trust allows the couple to distribute the income from the side business and investments to whichever member of the couple has the lowest income at the time. Scenario 3: High Income Earner with a property Client is on the highest tax bracket Purchased a rental property at the coast Client is looking for a tax-break whilst being able to achieve capital growth Wife is entrepreneurial and keen to run an AirBNB Client is time poor and not interested in having a bar of it Property is leased at proper market level rates to a family trust setup by the wife Client receives rent as normal Wife runs business Kicker is adult son in Uni - profit from the Air BNB is effectively tax free. Links mentioned in this Episode Optimised Accounting & Finance Multi-Phase solution for Early Retirement

Way back in 1996 I bought my first home.  It was a two bedroom flat in a very ugly brown brick building, probably built in the 70’s with nothing done since.  It wasn’t flash but it was within my budget and in a good location close to town – Kew for the Melbournites.  I paid $107,000. Now I know that for those looking to buy their first home, $107,000 is probably pretty sickening right now, but 20 odd years ago that was the going rate. 4 years later and I’d meet my now wife, and it was time to move from a flat to a house.  We were starting to think about having a family.  So I sold the flat for $189,000. Now those straight numbers - $107,000 purchase price, $189,000 sale price, look pretty good right?  And they were.  It equates to 15% per year growth.  I wish I could say that I got that return due to a whole lot of research and planning, but the truth is it was pure luck.  I bought when I could afford to buy, and I sold when I needed to sell. But that 15% does not tell the true picture, and that’s what I want to explore in today’s episode.  My actual return was just over 68% per annum.  Yep you heard that right – 68%!   Gearing.  Borrowing to invest.  It’s about magnifying outcomes.  Gears are used in engines and other mechanical devices so that one small turn over here can lead to a really big or fast turn somewhere else. This magnification of outcomes may be the key to you reaching your financial autonomy goals in the time frame you want.  It’s an accelerant.  But as with all accelerants, gearing also has risks.  It’s a tool you can definitely use to gain the choice you desire.  But it’s one to use as part of a well thought out strategy, with the potential downsides considered and mitigated against where possible. Property investment is the most common area where we see gearing, but it can just as easily be done with shares, exchange traded funds, or managed funds.  Given the interest costs associated with borrowing, gearing only makes sense into investments that are likely to grow, and where the expected return after tax is greater than the interest cost.  So for instance it wouldn’t make sense to gear into a term deposit investment – the return on the term deposit would be less than the interest expense. So let’s get back to my 68% per annum return.  I’d be disappointed if you weren’t a bit sceptical.  The Financial Autonomy community is a savvy bunch and you know the old saying, if it sounds too good to be true, it probably is.  But stick with me, in this instance it really did happen. When I bought my first home, I put down a 10% deposit.  So that meant I put in $10,700 and the bank funded the rest.  Of course there was some stamp duty but it wasn’t a lot at that price point, and I had a friend help me with the conveyancing so that cost me next to nothing. Over the 4 years that I owned it, for much of the time I had a flat mate in the spare room, and her rent helped with the loan repayments.  I didn’t really make much of a dent on the loan during that 4 years, but it went down a little, and I had a roof over my head. So I sold for $189,000.  The first thing to happen was that the associated loan needed to be repaid.  With that done I had around $93,000 in my bank account.  Now of course I had to pay a real estate agent for the sale, and some legal costs.  I can’t recall exactly how much they were, but being conservative, let’s say I was left with $87,000. I bought my flat for $107,000, and sold it 4 years latter for $189,000, a gain of about 15% per year.  But the real story here, the one relevant to me, is that I put down almost $11,000 of my savings, and 4 years later, that had become $87,000 – my savings had multiplied by a factor of 8! Now as I said at the start, whilst I’d love to say that I got this amazing return because I was some sort of property investment genius, the truth is it was pure luck.  But you make your own luck.  I wasn’t to know the property value was going to increase that much, but by saving a deposit, finding something in my budget (even though it was a long way from my dream home), and making a start, I enabled that luck to happen. And the power of gearing significantly magnified my outcome. So how could you use gearing to magnify your investment outcomes and get to your Financial Autonomy goals quicker? A popular strategy that we use with clients a lot is regular gearing.  You might put $1,000 per month into an investment, and we arrange a lender to lend a matching $1,000 so that each month you are buying $2,000.  Your investment exposure is therefore doubled, and by doing this monthly, you are averaging out your entry price – dollar cost averaging is the jargon, which serves to reduce risk. There are also products that will allow you to buy a parcel of shares or funds, and put down a deposit in the same way you would buy a property.  You then make monthly repayments on the loan in the usual way.  This enables you to have a potentially large exposure to the market right from day 1. There are also some offerings that have protection built into them, typically created via options contracts.  With these, there will be a set term, say 5 years, and at the end of that term, if any of the shares are worth less than what you bought them for, you are not up for the loss.  Now of course you have to pay for the protection, but some people appreciate the peace of mind. And then of course there is the traditional investment gearing avenue – property.  Banks have always been very comfortable lending against property, so your ability to magnify outcomes is quite high – in my example I only put down 10% and the bank provided the other 90%.  The less you put in, and the more that is financed, the stronger is the gearing impact.   Now it’s appropriate at this point to talk about risk.  All through this piece I’ve talked about magnifying outcomes.  Outcomes can be good and bad.  If the numbers in my flat example had gone the other way, and I had turned $87,000 of savings into less than $11,000 in 4 years, I’d have been a very unhappy person. So gearing magnifies outcomes – both good, and bad.  So what can you do to reduce the risk of a bad outcome? The primary tool is time.  The longer you hold the investment, the greater the chance of a positive outcome.  Buy some shares or a property and sell it a year or two later, and the chances of a negative outcome are quite high.  But hold those investments for 10 years, and the likelihood that the value of the asset will have declined since purchase, is fairly low. As a rough rule of thumb I would suggest not going into a geared investment strategy unless you felt it was likely to be able to remain undisturbed for at least 5 years. Of course in contemplating commencing a gearing strategy you need to have a good handle on your cash flow – can you afford the loan repayments?  Should you fix the interest rate to provide greater certainty?  If you’re investing in property, how would you go if there was no tenant for a few weeks or months? It would also be wise to check that your Income Protection cover is adequate.  Given the importance of investment time frame to your gearing strategy, you don’t want a period where you are off work due to illness or injury to force you to sell your investment at an unfavourable time. If you are investing into property, things like landlords insurance may also be of value to reduce your risk. Before I wrap this post up, I thought it was worth touching on a question I get quite a bit – what is negative gearing? With any gearing strategy you have money going out – primarily the interest expense on the loan, but in the case of a property, also expenses like council rates and insurance.  You also have money coming in – rent or dividends. Negative gearing refers to a scenario where the money going out, is more than the money coming back in.  So for instance an investment where there was $20,000 going out each year, and $15,000 coming in.  There is a loss here each year of $5,000.  This investment would be term negatively geared. Were the scenario reversed and there $5,000 more coming in than going it, it would be called positively geared. So a negatively geared investment is losing money each year in a cash flow sense.  Yet negative gearing is usually described in the media as some sort of investment secret of the wealthy or well informed.  What’s going on? There’s two elements.  One is that in the case of shares and property, the return isn’t just the income they produce.  There is also the expected growth in the value of the investment over time. The second element is that the loss amount in a negatively geared scenario can be tax deductable. So an investor entering into a negatively geared strategy will be hoping that over time, the value of the tax deductions, plus the growth in the value of the investment, will make the whole exercise worthwhile. It’s worth highlighting here that whilst the tax deductions are helpful, in isolation they aren’t enough to make a negative gearing strategy sensible.  Growth in the value of the underlying investment is a must if this strategy to produce a successful outcome for you. Well thanks very much for using some of your precious time to consume this post.  I hope you got something useful from it.  As always, we have a toolkit made up to help you take action. I’ve summarised the key ways to manage risk when embarking on a gearing strategy, which I hope will empower you to take action.  I’ve got some other bonus items in their too so check it out.   Download the toolkit here

In this episode we are joined by ICT professional and cryptocurrency expert Ivan Jasenovic, who describes himself as having his head in the cloud, his soul on the Blockchain, and his heart in decentralized Healthcare. In this interview we cover: The benefits of Blockchain technology and whether you truly need to understand how Blockchains The different types of cryptocurrency and examples of when you would look to use each one How bitcoin works and has the same value per unit no matter where you live Whether different cryptocurrency would merge together and their future specialised uses Why reputation is the most valuable thing in this space How cryptocurrency could be used in health and other industries A case studies of Shaun and Jimmy and their experience investing into blockchains How getting hacked increased their blockchain investment The concept of a wallet in the cryptocurrency world How you need to act like ‘the bank of you’ The importance of back-ups and password security How a lost hard drive located in landfill is now worth millions The question of regulation and the future of Governments in cryptocurrency The battle between white and black hats   Links mentioned in the show Email - [email protected] Sunshine Coast Blockchain  Meetup dhealthnetwork.io

The goal of early retirement is one many Australians aspire too.  And certainly, when thinking about achieving Financial Autonomy, retiring early is very often baked into those goals. But what is the best way to bring that goal to reality, given the uniqueness of our system – superannuation, franking credits, negative gearing, and means tested Aged Pensions, just to get you started. The approach I’m going to take you through today is a multi-phase approach that I’ve built specifically for the Australian early retirement landscape.  Its aim is to use the opportunities we have, such as franking credits and superannuation, to get you to early retirement as quickly as possible. We’ve actually built a special PDF just for this post. I’ve put all of the diagrams in there for you.  You know what they say – a picture tells a thousand words.  And I certainly think visualising this approach is helpful.  So ideally have that in front of you as you consume this episode, but if that’s not practical, then at least download it latter. Early Retirement for Australians Download Early retirement in Australia – an overview To survive in our modern world, you need income.  Long gone are the days where we grew all our own food, hunted for our meat, and lived a subsistence life.  So retiring early necessitates solving the problem of how will you generate the income you need to meet your expenses, if you cease being in your current paid employment role. Let’s start with the helicopter high up in the air. We all know that in Australia we have the superannuation system to assist in funding our retirement.  Considerable tax concessions are provided to encourage us to build up saving within superannuation.  And then when we retire, we are able to convert our superannuation savings into an income stream, and receive even more generous tax concessions. Income drawn from superannuation is tax free from age 60 for the majority of people.  Given the tax favoured status superannuation receives, you’d likely be wise to utilise this system to the maximum extent possible to generate your retirement income after you reach age 60. But what do you do before age 60?  Well if early retirement is your goal, you need to have built up other investments, likely shares and property.  In this pre-60 early retirement phase, you can rely on the income these investments produce, and you perhaps also sell them down progressively to live of the gains and proceeds of the investments, remembering that when you hit 60, you gain access to a new pool of savings – your superannuation. Okay, so that’s the overview – pre 60 you’re living off investment income, and perhaps also some employment income, and I use that term loosely – it could mean as an employee, but it’s just as likely to be some freelancing work, a short term contract, or as an advisor or consultant.  Even if you’ve left your normal job, there’s a good chance that whatever you find to do with your time, you’ll pick up some income along the way. Then after age 60, superannuation is the primary solution for your income needs. The sub phases Let’s bring the helicopter down a bit lower now.  Within these pre and post 60 phases, I believe you can break things down further.  In the pre-60 phase, I’ve termed these two sub phases the Transition phase and the Investment Income phase.  And in the post 60 phase, that can be split into the Active Retirement phase, and the Feet-up phase. Imagine that perhaps in your 30’s you’ve decided that early retirement is something that you aspire to.  You crunch your numbers and determine the amount of income that you’d need to afford the early retirement lifestyle that you want.  You could wait until you have enough investments and superannuation that you can live a total life of luxury.  But most people I work with prefer instead to retire earlier, but still earn some income.  I call this the transition phase.  Maybe you back off from 5 days per week to 3.  Remember episode 20 where I interviewed Adam Murray.  He’d cut back to 3 days per week as a paid employee, and actually spread those hours across 4 days.  Then he had time to pursue other projects, and be the father that he wanted to be for his 2 boys. So during the transition phase, you’re still earning some income, just less than pre-early retirement, and perhaps you’re also earning some investment income. As you get closer to 60, your investments have grown.  In particular it’s highly likely that you’ve used some borrowings to build the wealth, for example borrowing to buy an investment property, and hopefully somewhere in this pre-60 phase, the debt gets repaid, meaning the rent which was going to loan repayments is now freed up for you to live off. So the second sub-phase in the pre-age 60 segment is the Investment Income phase. In the Investment income phase you’ve scaled any paid employment right back, possibly given it away altogether.  You’re primarily living off your dividend and rental income, and perhaps even selling down investments in the knowledge you’ll be turning on the superannuation tap come age 60. Franking credits will keep your tax down here, and you can plan any capital gains tax events to get you the best possible outcome.  Not anti tax Now let’s look at the post age 60 sub phases – Active Retirement and Feet-up.  The Active Retirement phase is likely to be from 60 to 70 or 75.  During this phase you’ve slowed down a little but still remain active – traveling and participating fully in your recreation activities like golf or yoga.  As a result your income needs are likely the same as pre 60. Because you’ve turned age 60 and are retired from the work force, you can now access your super.  And it’s likely that you will turn on an income stream from these savings, given this is the most tax advantageous element of the entire superannuation system. Thus the bulk of your income in the Active Retirement phase will come from superannuation.  But it’s likely you will still have some investment income coming in as a bit of a top-up.  Perhaps this can pay for the annual overseas trip. This Active Retirement phase could be an excellent time to realise any significant capital gains liabilities, for example selling a rental property, as your superannuation is a tax free income source so your total taxable income is likely negligible. The final post age 6o phase is the feet-up phase.  At some point later in life you’re going to have done all of your traveling, and the realities of getting older mean that you slow down.  Expenses tend to reduce, and medical appointments rise. During this phase the bulk of your investment have been used up, and you’re now living on your superannuation.  Depending on your circumstances, an Age Pension may also come into the frame at some point, which will help in prolonging the life of your superannuation savings. Early Retirement for Australians Download An early retirement example So let’s play an early retirement scenario out, so that you can see the how your income need might be meet in each phase. Imagine we first sit down and develop an early retirement plan for you when you are 34.  We work to that plan, refining as we go along, and by age 45, you’ve built up enough assets to be able to quit the high pressure career that has got you to the position you are now in. The first phase is the Transition phase.  You’ve still got great contacts in your profession, and so whilst you want to step back from all the stress and travel of your corporate career, you’ve got an opportunity to do some consulting work for one client for a day a week, and another long-time professional friend has asked if you could do some overflow work for them as it comes up. Your income in the transition phase is therefore generated perhaps 2/3rds from these employment type earnings, and 1/3rd from the dividends from your share portfolio, which until now had been reinvesting all its income. You have an investment property too, but at the moment there is still debt on this, so the rental income goes entirely towards paying down this debt, and meeting the other bills like council rates and maintenance. Further on into your early retirement now and you enter the Investment Income phase.  The rental property has been paid off, freeing up the rental income to further meet your expenses.  The 1 day per week consulting gig has finished, but you’re still getting occasional overflow work from your friend.  Your income split perhaps now flips, to be 1/3rd or perhaps even less from employment type income, and the bulk of your income comes from investments – share dividends, rental property income, and the occasional share sale when a lump sum expense comes up. You reach 60.  You’re in the Active Retirement phase.  You’ve told your friend you don’t wish to do any more overflow work – you don’t have the time!  What with golf 2 days a week, volunteering as the treasurer of the local Rotary club, keeping up with the family, and regular holidays, you’ve got more than enough on your plate. So now you turn on the superannuation income stream.  You’ve sold down most of your share portfolio by now but you still have the rental property so you have income from that in addition to your super. You have a great time during this phase, but by age 74, you’ve had a few health issues and are starting to slow down.  You’re still playing seniors golf on a Friday, but you don’t fancy overseas travel any more and are happy to live a bit quieter life.  You’re in the Feet-up phase. Maybe you sell the investment property around now.  The maintenance is getting a bit of a bother and it’d be nice to have the cash available. Between the proceeds from the sale of the rental property, and your super, you see out your days without a financial worry in the world. So what do you think?  A plan you could work towards.  Early Retirement in Australia is possible and I think many people could imagine living out a scenario something like what I’ve just gone through. The reason most people don’t live that life though is because they never TAKE ACTION.  Don’t let that be you. Don’t forget to visit the financialautonomy.com.au web site to grab the toolkit for this episode, because the glide path diagrams I’ve put together I think will be super useful to you in seeing how you might be able to retire early in Australia. Early Retirement for Australians Download   Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

In this next interview episode on the Financial Autonomy Podcast we chat to Ruby Lee the founder of The Careers Emporium and head of HR at Cogent. In this interview we cover: The benefits of a side hustle in achieving your financial goals The 18 month journey Ruby when through when changing careers Identifying your strengths and knowing when the time is right for a career change How daily journaling helped Ruby gain clarity when dealing with financial and career issues How she turned a new blog of helping people with their careers into a money making side hustle while on maternity leave Why job seekers are now seeking personal branding help The importance of understanding a position gets made redundant, not the person.  Listen to Ep 2 Redundancy - What a Great Opportunity episode Ruby’s tips for starting a blog and building an online community for your side hustle How she juggles balancing her full time job, being a mother and building a successful side hustle.   How automation and programs such as Hootsuite  help her build The Careers Emporium while working full time How a business coach helped her to gain clarity and change her mindset amount monetising The Careers Emporium Current trends in employment and the rise of the contractor/freelance and ‘gig’ economy The rise of partnering between employers and employees How employers are now understanding the need for employees to build personal brands and how that can help both parties. Links mentioned in the podcast 50 Side Hustle Opportunities for Australians Ruby Lee LinkedIn profile The Careers Emporium Cogent

What do Apple, Nike, Under Armour, Instagram, and Groupon all have in common? It’s not just that they’re hugely successful, multibillion dollar companies.  They also share a common birth – they all started life as side projects of their founders.  I’ve been reading Nike founder Phil Knight’s autobiography Shoe Dog recently, and I highly recommend it – very readable and interesting.  He was working as an accountant at Price Waterhouse whilst establishing what we now know as Nike, and when he needed to spend more time on the business, he switched to become an accounting professor at his local university.  It was several years into the business before he quit his day job and devoted himself full time to his enterprise. So if businesses as enormously successful as these can spring from a side hustle, perhaps you can attain your Financial Autonomy goal by using the same approach.  Let’s take a look at what a side hustle is, and how you might be able to use this approach to gain the choices in life that you’re yearning for.  Download Side Hustle toolkit NBN Co commissioned some research earlier in the year looking at how Australian’s were using the internet to generate additional income.   The report found that the majority of Australians (80%) are looking to this as a way of finding fulfilment outside of work, and 1 in 4 are already earning additional income online.  A similar study in the US found that 28% of those aged between 18 and 26 were working on their own, on the side.  Of those almost all (96%) worked in the side hustle at least once per month, and 25% said they earned more the USD500 per month. Certainly the increased comfort and normality of internet commerce is a key enabler in the rise of the side hustle trend around the world. And whilst online businesses are perhaps the most popular of side hustle options, plenty of other opportunities exist too, from running a food stall at a local market, to teaching yoga classes of an evening, or pet sitting for people when they go on holidays. Perhaps before we go too much further, let’s just define what a side hustle is to ensure everyone is on the same page.  What we are talking about here is something that you do outside of your normal method of earning an income, that produces additional income.  So in the Phil Knight example I mentioned earlier, by day he worked as an accountant, and then in the evening and on weekends, he built this little running shoe business. Now in the Nike example this ultimately became his full time job, but that doesn’t have to be the objective.  Maybe your side hustle is just a way to build up some savings, or pay down the mortgage quicker.  There are all sorts of ways that you could use a side hustle to achieve your Financial Autonomy dream. I used to work with a guy who hired out inflatable jumping castles for kids parties on the weekend.  He ended up employing his daughter in the business full time. Research undertaken by Manpower Group also highlighted how the side hustle concept linked to the idea of the “gig economy”, finding that 40% of Australian millennials preferred to work a number of part time jobs, rather a single, Monday to Friday, 9-5 job. One aspect of the side hustle concept that I really like is that it enables you to give things a try, to experiment.  To test ideas and see if real people are willing to part with their hard earned cash for your idea. I’ve spoken in the past about the Lean Start Up methodology.  A key concept in there is how many cycles can you go through of putting an idea out in the world, obtaining real customer feedback, tweaking your offer based on that feedback, and going back out to market again.  The more times you can run through that cycle, the greater the likelihood you will find a sustainable business that you can grow.  Working through those iterations as a side hustle can be fantastic, because you’re not relying on the new venture to put food on the table or a roof over your head.  You can experiment and discover, and if those experiments don’t play out as you’d hope, you can live to fight another day. A side hustle may also give you increased financial security.  As I explored in The Security Illusion post (episode 11), being a full time employee feels like the low risk, secure option, but the reality can be the exact opposite.  I was only listening to an interview with someone this morning who had worked as an architect at Mirvac in Brisbane, and in the space of 14 months that team went from 100 people to 4. So having a side hustle might give you that safety net.  A second source of income to help keep the household afloat until you find you next job.  Or maybe it’s something you feel can be scaled up now that you have more time to devote to it.  How great would it be to have a running start in this new chapter of your life – being self-employed? So how might you get started on your side hustle journey?  As you know, I’m a keen podcast consumer, so I’d suggest you check out the Side Hustle Nation show.  He’s got over 250 episodes online, so scroll through and pick a few that jump out at you. In the downloadable toolkit for this episode we’ve compiled a list of the 50 most popular side hustle ideas we’ve come across on the web.  We’ve done the research leg-work for you here, so make sure you visit the financialautonomy.com.au website and grab yourself a copy of that. Download Side Hustle toolkit It seems to me there are two mostly likely paths you could go down to find a side hustle that works for you.  One is to think about your hobbies and passions.  Is there scope to turn a dollar doing something in that space?  The other avenue is to consider what skills you have, and weather you can monetise those skills outside of your regular job. So on the hobbies front, let’s say you love playing the guitar.  Could you pick up some work in a cover band on the weekend?  Or do guitar lessons.  Maybe you could create an online course on learning the guitar, or tuning a guitar, or whatever.  Perhaps you could import guitars and sell them on Ebay or Amazon. There’s a cliché that if you love what you do, you’ll never work a day in your life.  And whilst it is a cliché, I think it does hold some truth.  Earning some money in a space that you love and are passionate about might be fantastically liberating.  Chances are you have a community already around you who share your interest, which could be an incredibly useful sounding board for your plans, and perhaps even customers one day. Then what about turning your skills into some extra cash.  This is perhaps where the internet has provided the most liberation.  If you’ve got design skills for instance, you could pick up work at 99 designs, AirTasker, Freelancer and no doubt plenty more.  Of course in the case of AirTasker and Freelancer, there are opportunities for those with plenty of other skills too – from cleaning to web site design, there will be an avenue for you turn those skills you’ve acquired into extra money in your pocket. Perhaps your skills point to selling a particular product that you know a lot about.  Market places like Amazon and Ebay can open up enormous opportunities.  Fulfilment by Amazon is an opportunity of enormous magnitude.  I know of someone who designed a bag to hold medical items for children, such as epi-pens for instance.  These bags could then be put in their school bag, or wherever they needed to go, and the parent could be confident everything that was needed was there, and there were instructions for carers if required. She gets these manufactured in China and ships them to the Amazon warehouse in the UK.  She can then market the product throughout Europe on Amazon, over 300 million potential customers, and anytime someone orders, Amazon takes care of the process from that point forward – picking the item, packaging it, and getting it delivered.  And she can manage the entire thing from her study at home in Melbourne.  What an incredible age we live in! So what else to consider when exploring the side hustle route?  It might be wise to consider whether what you are planning to do could conflict with your current employment.  Many employment contracts will have conflict-of-interest polices, so be sure to have a read of that and get expert advice if you’re in any doubt.  Even if you don’t work under a contract with any restrictions, things like poaching clients from your day job, or being involved in something that could cause reputational damage, are not likely to be a wise moves. It may be a good idea to simply ask your employer “do you see any problems with what I’m planning to do?”  Who knows, they may even be able to flick some opportunities your way. If your side shuttle starts generating some consistent earnings it would be worth also having a chat with your accountant.  Once turnover reaches $75,000, you are required to register for GST, and in some circumstances there can be value in registering even before you reach this threshold.  Software like Xero can make your book-keeping really pretty simple, so don’t let those sort of things get out of control. Download Side Hustle toolkit Well, that’s it for this episode, don’t forget to grab the toolkit for this episode that has a list of 50 side hustles you could try.  Let’s get you another step closer to reaching your Financial Autonomy goals. Also, we’ll have an interview episode out next week which will feature someone who has built a side hustle business in the past year.  We’ll find out how she’s gone about it, and how she’s had to change and adapt as things have progressed.  It’s a really energetic interview that I’m sure you’ll enjoy, so look out for that one.

In my next interview episode on the Financial Autonomy Podcast we chat to Adam Murray from the Subtle Disruptors Podcast. In this interview we cover: How a difficult personal time highlighted the need for Adam to take some leave from his career and reevaluate his life How the Good Life Project gave him a framework to take a gap year How identifying four key priorities during that gap year has now impacted his life The power of being present in the moment The focus on his health and how it impacted on his four key priorities How he managed financially to take a gap year How living frugally changed him and how it helped to develop a better understanding of what makes him happy How structuring his work around 4 days a week has allowed him to retain focus on his priorities after going back to work His journey towards self employment and his desire to make an impact The importance of designing a life on your own terms and creating a true work life balance Why you can only sacrifice part of your life only for a period of limited time The guests that have made the biggest impact on him as a host of the Subtle Disruptors podcast   Links mentioned in the podcast Subtle Disruptors Podcast Roy Mint Co Cogent Adam Murray LinkedIn Profile

There’s a template that all Australian’s are meant to follow. Study, enter the workforce, buy a house, raise kids, pay off a mortgage, retire. It’s served us pretty well for the past 100 years or so, so you know the saying about if it ain’t broke… But for an increasing number of Australian’s this model is broken. The original spark that started me on this Financial Autonomy journey was the realisation that the path from studying until around your early 20’s, then working in paid employment for the next 40 odd years, then retirement – the traditional path – was becoming less relevant, and a serious re-think was needed. Home ownership is an unspoken overlay applied to that traditional life path.  And whilst I certainly don’t believe that owning a home is a bad thing, in re-thinking how our life’s journey might unfold, I certainly think it’s worth questioning the place of home ownership as a core belief in one’s financial life. And it’s not even just the core assumption that we will buy a house, it’s the assumption that this should happen in our 20’s, or perhaps early 30’s if you’ve been really wild.  It’s really quite a rigid prescription for life. So in today’s audio blog we’re going to explore alternatives to the traditional home ownership path.  How can you achieve the Financial Autonomy goal of having choices in life, but chose the life path that makes sense for you. Download the toolkit here You’d have to have been living on Mars for the past decade to not be aware that house prices, especially in Melbourne and Sydney, have risen sharply.  The combination of extremely low interest rates, a growing population, and in some cases a lack of supply of new homes, has resulted in existing home owners becoming wealthy, at least on paper, and those outside the home ownership club wondering how they will ever break in. Reflecting this challenge, between 2002 and 2014, home ownership rates for 25 to 34-year-olds dropped nearly 10 points, to under 30 percent.  HECS/HELP debts certainly don't help. Now those facing this home ownership challenge could rail against the unfairness of it all, but in truth that’s likely to have as much impact as putting up an umbrella during a cyclone. How about instead, focusing on a Plan B?  Sure Plan A, the traditional path, worked for your parents, but so did smoking and Saturday afternoons at the TAB.  Things change. So how could you re-imagine your life journey, where the purchase of a home in your late 20’s or early 30’s, probably with a partner, is not in the plan? For the purposes of this episode I'm going to assume you've already looked into moving further out of town, going smaller etc.  You're at the point where buying a home is just not possible right now, or in the foreseeable future. If we’re to find an alternate path that works for you, it might be useful to consider why buying a home has been seen as such a cornerstone of financial security.  Home ownership is attractive because: It provides a guaranteed roof over our head – shelter is a basic human need, and if you own your home, no-one can kick you out. When you retire and have less income coming in, you have a roof over your head at little cost. Let me know if you can think of other reasons. So in finding an alternate path, we need to consider how we can solve for those two objectives. If you don’t own your home, then you’re renting.  And if you’re renting, then there is always the chance that the landlord could ask you to leave.  Now, if you pay your rent on time, and look after the property well, this isn’t a risk with an enormous probability of arising.  It does happen, but I think it’s a risk that is over estimated. Put yourself in the landlord’s shoes.  They’ve bought this property, and almost certainly borrowed to do so.  They want nice regular rent and no headaches.  They don’t want turnover of tenants, because then they have periods with no rent coming in, and they usually have to pay the managing agent to find a new tenant.  Landlords are vulnerable.  No rent coming in for a month, or damage to a property, and they’re likely to be hurting.  Smart landlords value a good tenant. So pay your rent on time and take care of the place, and the risk of you being asked to move becomes really quite small.  Not zero, for sure, but not highly probable.  Be the tenant a landlord wants to have in their property. Longer term financial security is certainly the stronger argument for becoming a home owner.  Finding money to pay rent when retired may well be a challenge unless it is well planned for.  So if it is the case that buying in the area where you want to live isn’t feasible, it becomes really important that you build financial wealth in other areas. So what might that look like? To start with you need a savings capacity.  If all your income goes back out the door in rent and living costs, then clearly there is no ability to build wealth and create a position of Financial Autonomy. I worked with a client recently who will be a long term tenant.  She was having trouble making the monthly finances work.  We explored various ways to solve this, but what it really boiled down to was that she was just paying too much rent given her take home pay.  We ascertained that rent was gobbling up 42% of her take home pay.  And then when she paid other housing related bills such as gas and electricity, half her income was gone. This wasn’t sustainable. So as a starting point, aim to have your rent at no more 30% of your take home (ie. after tax) income.  Of course the lower the better.  That may require some compromise as to location, or size of the place you rent, but it’s absolutely critical. With less than 30% of your income going towards putting a roof over your head, you will have enough money to live, and also have funds available to save and invest. Okay, so now you have a savings capacity, a foundation stone to you gaining choice through Financial Autonomy.  Initially that will build up in the bank, ideally in a separate account specifically for savings.  But with interest rates of next to nothing, the growth of your savings will be limited to how much you can tip-in. If you’re to really maximise your ability to build financial wealth, those savings need to be invested.  You need to develop an investment strategy that works for you on all levels – risk, time frame, and ethics.  Educate yourself and/or get professional help.  Check out episode 15 – The sharemarket – a beginner’s guide, and also the 3 part series on Common investment mistakes – episodes 12 to 14, to get you started - episode 12; episode 13; episode 14. You could set-up a strategy where you invest a regular amount every month, no different to paying a mortgage.  Unlike a mortgage though, it’s changeable as your circumstances change. Need to suspend contributions for a while whilst on maternity leave say?  No problem.  Get a pay rise and want to increase your contribution.  Easy. Over time your investment will grow to a very handy nest egg. For the person perusing the alternate path of non-home ownership, superannuation is likely to take on increased importance.   When (if?) you retire, either you will want to buy a home, or you’ll need sufficient income to continue to pay rent.  Either way, your super can help. A larger balance enables a large sustainable income to be withdrawn, covering rental costs.  Or, perhaps you withdraw a lump sum from your super to buy a home. Now of course the primary purpose of your superannuation savings is to provide income in retirement, so it’s no good taking out so much of your balance, such that the remainder won’t produce the sustainable income that you need.  So this is certainly something you’d want to think through carefully, and I’d strongly urge you to get some expert help. But the key takeaway for now, is that your super definitely provides a potential solution to the challenge of having an affordable roof over your head in later life. Share-houses are not a new concept.  Co-working spaces are a rising trend.  Whilst most of us like having some private space in our lives, going it alone in a housing sense is expensive.  Is there scope to team up with others to solve your housing need? This could play out two ways.  One would be to buy a place with someone else if that was affordable.  The traditional way is to do this with a life partner, but could you do it with friends or siblings?  Maybe 3 or 4 of you could go in together to buy a property, whether it be something you live in, or something you rent out. Alternatively you go for the share-house model whilst renting, as a way to bring down your housing costs and have more money available for savings and investment. Earlier I mentioned the increased importance of building wealth if you are to achieve Financial Autonomy without owning the home that you live in.  Just because it’s not viable to buy a home in the area that you wish to live, doesn’t mean you are prohibited from having a stake in the residential real estate market.  Could you afford to buy a property in another more affordable city, and rent that property out?  You may be able to use the negative gearing provisions to help with affordability.  In brief, negative gearing means that, where the interest expense on your loan each month is more than the rental income that you receive, you can claim that difference - that loss, to reduce the tax you would have ordinarily paid. Hopefully over time the value of the property grows, and perhaps you pay down the debt.  One day, you’ll own a home that either produces income for you later in life, or is perhaps an option to retire into. It’s not something that you want to build your life around, but receiving an inheritance from parents is a reality for many of us later in life.  Indeed, the rising price of housing that may have priced you out of the market, may have an upside in also inflating the inheritance you one day receive. Perhaps then the long term solution to your housing is that you rent until the inheritance occurs, and those funds provide you with the capital to buy something of your own. As mentioned, I wouldn’t encourage this as your primary strategy.  Your parents might spend all of their money, or simply chose to send their estate elsewhere.  I also find it just a bit distasteful to absolve yourself of doing anything towards your own financial security and rely on the work of those before you to provide. But with that caveat stated, when thinking through how you will achieve the security of owning a roof over your head in later life, perhaps an inheritance is an important component of the solution. The solution that’s right for you may well be a combination of these different strategy options – perhaps you buy a rental property and negative gear in your 30’s and 40’s, contribute a bit extra into super throughout your working life, and when an inheritance comes through, sell the rental property and buy a home for yourself. Regardless of the approach that’s right for you, I think a key change is that, if you do ultimately become a home owner one day, it will be later in life than may have once been assumed. So rather than beating yourself up about not owning a home, or paying down a mortgage, perhaps there just needs to be an adjustment in time frame. Perhaps it suits you to live inner city and rent during your peak earning years.  Sure, properties cost more in Melbourne or Sydney, but wages are also higher than most other parts of the country, so there may well be a robust argument to be made that your long term financial position is improved through you renting in the vicinity of the highest paying work. Then later in life you move out to a rural area, or a city where you can afford to buy.  Maybe the goal should be to own a home by the time you're 60 say.  The reality is that whilst in recent memory, Australian's have always worked to a formula of buy a home asap, that doesn't have to be the only way.    You can achieve Financial Autonomy without buying a home in your 20’s or 30’s.  With good planning, you won’t be financially doomed. In this week’s toolkit I’ve created a document called “7 Strategy options for non-home owners”, which dot points the various strategy options I’ve mentioned here.  There’s also the Budget tool, a piece on Risk vs Reward, and a summary of Sharemarket basics to get you started in learning about investments. Download the toolkit here

In our first interview episode on the Financial Autonomy Podcast with talk with Felicity Loughrey. She shares her career transition journey from journalism to advertising that spanned across two continents. In this interview we cover: How this Australian freelance journalist ended up working in New York Why she finds Americans are good to work with How she handled the transition away from the dying industry of journalism into writing advertising copy The interesting journey of getting better at her craft but getting paid less for the work The subculture of freelance creatives in the US The importance of consistency pitching for work to maintain constant cash flow Overcoming the hurdle of getting paid for your work as a creative The need to be constantly learning when entering a new industry Her time at VaynerMedia and what it is like working for digital thought leader Gary Vaynerchuk The role a Digital Creative Running an autonomously team in a HR focused digital agency Hiring from outside your industry to create a dynamic team The difference between the use of social media between the Australia and the US Advice for those currently working in declining industries Understanding your core skills and how you can adapt them into a new career and industry Links mentioned in the podcast Head Ovary Heels podcast Confessions of an Advertising Man VaynerMedia Gary Vaynerchuk

How hard is it to get started?  I’m sure we’ve all had things that either need to be done, or that we’d like to do, but we put them off – shift them to the bottom of the pile or check out our Facebook feed instead. Procrastination is evil, and it afflicts us all at some point or another.  When it comes to Financial Autonomy dreams, I think procrastination is quite possibly the number 1 impediment to you moving forward.  So with this in mind, I’ve done some research on strategies to overcome procrastination woes, and today I’m going to share with you the key things I’ve learnt. When it comes to achieving something great, something worthwhile, taking the first step is often the hardest part.  Perhaps it’s not knowing where to begin.  Or a sense of overwhelm – the goal feels like this huge inflatable ball – impossible to get your arms around and difficult to know where to grab it. Procrastination does not equal lazy.  It's likely driven more by fear of uncertainty or failure, or anxiety, which is often closely associated with overwhelm. But if you’re to make progress on your Financial Autonomy goals, then making a start is essential I've seen quotes and interviews from incredibly successful authors Stephen King and Jodi Piccoult, who both have routines that require them to just sit down and write.  It can always be edited latter, but waiting for the inspiration lightning bolt to strike is not the way achieve anything - just make a start! A common strategy deployed to overcome procrastination is to break down the thing – the goal, task or whatever - into smaller tasks, and then work through these small tasks one at a time.  I find Trello really helpful for this so you might like to check that out – it’s free for individual users. Create one column titled “Things to do” and create cards in there for all the components you can think of that need to be done to reach your goal.  Then you create two other columns, one titled “Doing”, and the other “Done”.  Work on one card at a time from the “things to do column, and progressively move them across into the “Done” column.  It really helps clarify your thinking and overcome the sense of overwhelm, and also self reinforces as your see the “Done” column start to fill up – you feel like you’re making progress. Tip 1 to overcoming procrastination – break the goal down into smaller components and deal with one of them at a time. Making a start is hard, but let’s say you’ve taken action on the first tip and broken your goals into small actionable pieces.  Another thing you might want to include is a time frame.  When will you get these done?  I personally wouldn’t set time frames for each small item you’ve identified, because before you start working on them, it’s tough to judge how long it will take – inevitably some tasks will take on the fraction of the time you would have guessed, whilst others are like an old woollen jumper your grandma made you – what starts of a as a single lose thread ends up going on and on the more you pull on it. So don’t set time frames at the individual task level would be my advice, but I think there is value in setting yourself times frames to achieve broader milestones. Let’s say your goal is to start up a side line business online.  Something to generate some extra income, and potentially even develop into your primary source of income one day if it really took off. So you break that down into lots of different things that you need to do – register a business name, buy the website address, get a logo designed, etc.  It might be helpful to set yourself a deadline that by the 1st of March, I’ll have my idea to a point where I can start showing people and getting realistic feedback.  A deadline like that provides flexibility around the individual components, but helps you stay the course, and push on when the energy levels flag a bit. I should add here too that what you don’t want to do is set unrealistic deadlines.  They will just create disappointment and frustration and potentially make you give up on your goal. Tip 2 – is set realistic time frames to get things done. Who hasn’t sat at the dinner table as a kids and seem something on the plate that made you want to run and hide – brussel sprouts, parsnip, fish – we’ve all got something.  And what did our wise elder folk advise?  Eat the things you don’t like first – don’t leave it to last. The same can definitely apply here to you overcoming your procrastination.  What is the ugliest bit that needs to get done if you are to make progress on your Financial Autonomy goals?  Can you tackle that first? I’ve certainly had instances, and I’d imagine you have too, where there’s some task you’ve been dreading, and so you’ve taken every opportunity to put it off.  But the day comes where it just has to get done.  So I grudgingly get started, and after 10 minutes realise, this isn’t nearly as ugly as I thought it would be. And with that ugly bit out the way, it’s downhill from here.  You’ve got momentum now. Tip 3 – can you tackle the worst bit first? Perfection.  A good thing right?  When it comes to overcoming procrastination, no.  A statement I know is often used in software development, but has broader application, is that perfection is the enemy of progress. We all want to produce the best that we can, but sometimes striving for perfection can mean nothing gets produced.  Much better to do the best you can within a reasonable time frame, and then improve from their - it's certainly an approach I've taken with this podcast.  I'm always thinking about how I can improve the audio quality, the structure of the program, how I speak - it goes on and on.  The point is, if I didn't release a single episode until I thought I had these things perfect, there'd never be a Financial Autonomy podcast. This train of thought aligns with the Lean Start Up methodology that I’ve mentioned in the past around Minimum Viable Product and the Build Measure Learn development cycle.  Rather than procrastinate in not launching your idea because you’re worried it’s not perfect, think instead about how you can get your idea out into the world and test whether it works – then improve from there.  Perfection is perhaps something to be achieved over time, or at least perhaps aspired to over time, rather than a hurdle that needs to be strided over before you can move forward. And this can be applied quite broadly.  We’re not just thinking about launching a new business idea here.  Perhaps it’s doing your household budget, or planning for early retirement.  Do the best you can, make a start, and then adjust and improve as you go. Tip 4 – don’t let the aim of achieving perfection prevent you from making a start, rather, aim to adjust and perfect over time. Ever write yourself up a to-do list either at the start of the day or the night before?  Perhaps you’ve felt a bit frustrated that you didn’t achieve what you’d hope to achieve the day before and so you’ve given yourself a good taking to and today you’re going to kick some gaols. As you achieve those things on your list, do you cross them out?  I certainly do.  It makes you feel good.  You’re getting somewhere. This is measuring progress and is a really helpful way to overcome procrastination and make progress on your goals. Ticking off a list makes you feel good.  It provides a positive feedback loop. Tip 5 in overcoming your procrastination – measure progress. Could your environment be holding you back?  When you wre at school, studying for end of year exams, was it better to do it in a quiet place, like perhaps your bedroom, or in the family room with the TV going and people talking all around you? When you’re looking to put off doing something – procrastinating - distractions are your enemy.  Distractions are an enabler. “I really need to get my paperwork together to lodge my tax return, but, hang on, what’s that coming up next on TV?  The latest David Attenbourgh documentary of the life cycle of the African dung beetle? Sounds like something important. Perhaps I’ll just give that a watch and then I’ll do the tax stuff afterwards”. If you spend a good portion of your day in front of a computer, this can be an enormous distraction source.  Pop-ups that you’ve receive yet another spam email are not helpful – perhaps you could turn those notifications off.  Is social media your Achilles heel.  Maybe make a rule with yourself that you won’t check it between 9am and 5pm. We’re all susceptible to distractions, so if this is a factor in your procrastination, think about how you could escape them. Tip 6 – is your environment enabling your procrastination? As I mentioned at the start, in preparing for this piece, I did quite a bit of research.  One cause of procrastination that I’d never previously considered was the situation where you feel you need to ask someone else for their wisdom or help. But you feel uncomfortable asking. Perhaps you’re worried about interrupting them, and feeling like you’ll look stupid or weak in asking. So you don’t ask, and that gives you the excuse to put it off – make no progress. If this is your procrastination road block, then either you need to push past that concern and just ask, or, perhaps more helpfully, figure it out for yourself.  If you get onto Youtube and type “how do I …”, chances are you’ll find 300 videos showing you step by step instructions on whatever it is that you need to know.  If that doesn’t do it, then you could start Googling.  Or perhaps there is someone else you could ask. Tip 7 in overcoming procrastination is – figure it out for yourself. If you’ve played a game on your smart phone recently, chances are that in the course of the game you will have been given some sort of badge, or token, or coin.  These are valueless outside of the game, but game makers include them because we humans like rewards.  We like recognition that we are making progress or we have achieved something. So how about using that same approach to develop your procrastination beating strategy? Recognise progress and reward yourself.  So for instance, your motivating reward might be "if I can get 3 months in a row where I live within my budget and build up my savings account as planned, I'm going to have a weekend away down at the beach to celebrate”.  Awesome. Perhaps even you tell someone about the deal you’ve made with yourself, or maybe even invite them along – that would really up the ante.  I’m pretty confident it would help you push past your procrastination barrier. Tip 8 therefore is, recognise progress and reward yourself. Finally, if procrastination is something that impacts you, do some self-reflection on what impact procrastination is having on your life, and the circumstances that often lead to procrastination.  This insight might point to a strategy or combination of strategies that can enable you to move forward on your Financial Autonomy dream. I think I’m more susceptible to procrastination in the afternoon than in the morning.  I’m fresher in the morning, more energy, and therefore possess more of a willingness to push through. So by having an awareness of this, when I know there’s something I need to work on that I think will be difficult, and where therefore there’s a chance I might be inclined to put it to the bottom of the pile for another day, I’ll make that the first thing I do in the morning.  For me that’s a strategy that works. I used to have a housemate who had a routine that whenever she got on the phone to have a chat to a friend, she’d light up a cigarette and sit on the back step.  Like most smokers, she had a desire to quit smoking, but of course she procrastinated, in no small part no doubt due to the addictive qualities of nicotine.  But when she did finally decide to quit, she realised that she needed to change her phone catch-up with friends routine. Tip 9 – think about the circumstances that often lead to you procrastinating.  What can you do to prevent those circumstances from disrupting forward progress? Well, hopefully that gives you some good ideas to enable you to push through your procrastination barriers.  As always I’ve put together a toolkit for this episode and in that I’ve included a simple list of the 9 tips shared here.  I’ve also included the Dream Planner template, and listing of useful books that includes info on the Lean Start Up that I mentioned earlier, useful websites that includes a link to the Trello software that I also mentioned, and a piece on SMART goals.  So be sure to download that.  Our toolkits are free and hopefully really helpful in you taking impactful actions. Here’s the 9 tips to help you overcome your procrastination demons: Break the goal down into smaller components and deal with one of them at a time Set realistic time frames to get things done Can you tackle the worst bit first? Don’t let the aim of achieving perfection prevent you from making a start. Rather, aim to adjust and perfect over time. Measure progress. Is your environment enabling your procrastination? Figure it out for yourself Recognise progress and reward yourself Think about the circumstances that often lead to you procrastinating. What can you do to prevent those circumstances from disrupting forward progress?

How good would life be if you were debt free? No mortgage payments, or car loans.  No credit cards.  Imagine the weight off your shoulders.  The financial freedom you would gain.  The financial autonomy. Of course many people, probably most people, achieve debt free status over their working life.  This episode is not for those who have already achieved this milestone. This episode is for those of you on the journey.  For whom debt obligations comprise a significant portion of your regular income. We’re going to look at some strategies you might be able to use to get to debt free status quicker.  And that acceleration in clearing your debt brings you closer to whatever your financial autonomy goal is. For the purposes of this article, I’m going to assume you, the listener or reader has debt, and debt you’d love to see the back of.  Given the title of this post, I’d imagine self-selection should deliver us this outcome. In the modern era, establishing yourself financially without taking on debt is near impossible.  The only way I could imagine this happening is either if you were fortunate to be born into a wealthy family who bought you a home, or else you never owned anything, perhaps rented your whole life. Most people I meet will have a mortgage, or if not a mortgage, then at least a loan for a car, with the hope or intention of having a mortgage one day.  Very often there are credit cards as well.  Sometimes there are debts for whitegoods or a holiday. Debt is not evil.  Borrowing to buy your house is likely to have been a smart investment.  Over time the home’s value rises and you hopefully reduce your debt, so that you build up equity in your home.  One day you will pay off the debt entirely and will have a roof over your head without having to find mortgage or rent payments each month – incredibly liberating. Debt to fund consumption on the other hand is not so wise, but who hasn’t done it?  Financed the brand new car when a 2 or 3 year old vehicle would have been significantly cheaper and still done the job.  Or come back from holidays with a credit card bill you couldn’t pole vault over.   I’ve been there and I’m assuming you have too. So how can we get these debts under control and fast forward your journey towards financial autonomy? Let’s say you decided you needed to lose a few kilo’s.  What’s the first thing you would do?  Would you jump on the bathroom scales and weigh yourself?  That would seem to be a sensible first step.  You need to know your starting point to understand the task ahead – do you need to lose 5 kilograms or 20?  You also want to measure progress.  You want to know if the actions that you are taking, say increasing your exercise, is paying dividends. So in planning to get your debt under control the first step is to establish where you are now.  I’ll put in the tool-kit for this episode a table you can fill in to help make sure you don’t miss anything. In putting this together, you’ll get an accurate picture of how much income you need to generate each month to cover your debt repayments, the different interest rates on each loan, and your total loan balance. It’s also helpful when putting together your list of debts, to establish whether they’re tax deductable or not.  Later, we want to decide which debt to focus on clearing first.  Typically you’d focus on the debt with the highest interest rate, but if it were tax deductable, that could alter the thinking, so it’s useful to know the tax status of each debt. If you have any debt that is tax deductable, you’ll probably already know about it, but to clarify, tax deductable debt arises when the thing you bought with the money you borrowed, generates taxable income.  The most common example is an investment property.  You borrow to buy the property, and the property then brings in rent.  The rent is taxable, and the interest on the debt associated with buying the property is tax deductable. Tax deductable debt could just as easily be for buying shares, a business, and in some cases a vehicle where you use it to generate income. Something that comes up from time to time when ascertaining whether a debt is tax deductable, is which asset the debt is secured against, versus the thing you bought with the money from that debt. The debt on your home is not tax deductable – your home doesn’t generate any income.  But what if you buy another home, and keep your old place as a rental.  You will borrow against you previous home and use the money to buy the new home.  Now people will often assume that given the debt is against the property that is now a rental, it would be tax deductable, but that is wrong.  Tax deductibility has nothing to do with what asset is used as security.  Tax deductibility is determined by how the money that you borrowed was used.  In this case the money was used buy your new home, something that won’t generate any taxable income, and so the interest on that debt is not tax deductable. If you’ve got any uncertainty as to whether a debt is tax deductable or not, best to give your accountant a call to clarify. Anyhow, back to your list of debts and their details.  You’ve now got your starting point.  If you want, you could also write down a list of your assets and their values, and then subtract the total debt value from the total asset value to determine your Net Worth.  For some people, tracking Net Worth can be an empowering way to reinforce the positive progression they are making towards financial independence. So which debt to focus on first?  Well logic would dictate that you’d start with the most expensive debt.  Let’s assume for the illustration that is a credit card debt. For the time being we’re going to leave the other debts as they are – just keep paying the repayments as you are.  Our focus will be clearing this credit card. So the low hanging fruit is to pay more off this debt.  A tax return, a bonus, pay rise or gift. Next, could this debt be refinanced at a lower interest rate?  This is often termed debt consolidation.  Now approach this with caution.  Debt consolidation can certainly lower your debt costs.  But some people simply use it as a way to take on more debt, so don’t head down this path unless you’re serious about getting your debt under control. The other potential trap with debt consolidation is the length of the new loan. Check out this example: Loan amount for both is $20,000 Loan 1 is at an interest rate of 10%, with a repayment term of 3 years. Loan 2 has a lower interest rate of 5%, and with a loan term of 10 years. So which loan results in you paying the least interest? Loan 1: $6,620 of interest paid by the time the loan is paid off in 3 years. Loan 2: $12,577 of interest paid by the time the loan is paid off in 10 years. So the key message here is consider debt consolidation, but be wary of solutions where the loan term is stretched out significantly.  The banks or lenders aren’t your friend.  They survive by making money from you, so if you’re considering debt consolidation, make sure you understand your numbers – get some outside help if you need it. With credit cards, something you could look for is deals where you can transfer your card from one provider to another where they offer an interest free period on balance transfers, often for 6 or 12 months.  Now again, the credit card provider isn’t your friend.  They’re offering this in the hope you don’t pay off this debt, and they’ll make lots of interest from you at the end of the interest free period.  So be sure to really knuckle down on reducing the debt during the interest free period, and when that period ceases, look around to see if you could shift to another credit card provider with a similar deal. Okay, so you have your debts listed, and you’ve prioritised them from most expensive to least expensive.  You’re keeping then all up to date, but focusing any extra repayments on the most expensive one first.  Awesome. Progress too slow for you though? The steps so far have been fairly painless.  But if you really want to make an impact on your debt, there’s one more thing you’d need to do. No lasting progress will be made unless you get your budget under control.  The hard reality is that if your debt challenges relate to personal debts like credit cards and car loans, you're in debt because you’ve been spending more than you're earning. You need to recognise and acknowledge that, and then take steps to rectify the situation.  What non-essential expenses can you cut?  Subscriptions for magazines, pay TV, or software.  Memberships to the gym or sporting club – would it be cheaper to just pay when you use the facilities?  Clothing.  Eating out. After housing, food is likely to be your next largest expense item.  Reducing what you spend eating out is the most obvious way to reduce expenses - bring your lunch from home and just eat at home whenever you can.  When buying your groceries, is there any branded products that could be replaced by no-name equivalents.  Think of other ways to play it smart - you feel like some beef for dinner, but do you really need that Eye Fillet steak?  Rump steak is about half the price and mince around a quarter.  Whole chickens are much cheaper by the kilo than chicken pieces.  Just watch a 3 minute video on Youtube on how to break down a chicken and you’re away. Think how you could save some extra dollars and then send that money towards your debt.  The more you reduce your debt, the less interest you pay to the bank, which means even more of what you pay each month goes towards reducing the debt, and so your loan reduction strategy just snowballs until one day …. YOU’RE DEBT FREE!!!! I hope this content has been helpful in getting your debt under control.  Be in touch if you need any assistance.  As with all of the Financial Autonomy posts, there is a free toolkit for you to download to help you take action.  In this one I’ve got the debt table that I mentioned earlier so you can get on top of things debt wise, our Budget Tool and also some useful books and web sites. Next episode we will be looking at Procrastination, so be sure to subscribe to the podcast to ensure you don’t miss out.

If you catch a snippet of the radio in the morning on your way to work, you’re likely to hear what happened to the Dow Jones overnight. If you read your news online or watch the news on TV it’s likely you’ll hear about the All Ords or maybe the ASX200.  You might even come across acronyms like the NASDAQ and the FTSE. Probably, you know this is something to do with share markets. If you turn your mind to it a bit more, you probably know that the share market is where people buy and sell shares in companies like Telstra or BHP. Maybe you have in mind that the share market is risky and people lose their money sometimes. Well, if this is about the extent of your share market knowledge, you’re not alone, and this episode’s for you. I think it’s fair to assume that you have an interest in achieving financial independence.  That is what we’re all about here. In working towards that goal, building wealth is likely to be an important feature. With wealth you can generate investment income with which you can then live on. Or perhaps you can use that wealth to buy a business, or invest in starting a new business if that’s where your Financial Autonomy goal points you. Or perhaps Financial Autonomy for you means remaining as an employee in a business with a team of people that you enjoy being around, but with the financial resources to resign if ever management changed or something else happened that meant you no longer enjoyed coming in each day. The goal of this audio blog is to provide you with choice in life, and that sort of goal is a common one I see with many of my clients.  Being in a position to say no.  It’s very empowering, and very liberating. One avenue towards financial independence is to build wealth via investment in the share market.  I should make it clear here that what I’m talking about is investing, not trading.  If you’ve listened to the common investment mistakes series you will recall I covered off on the dangers of trying to be a share market trader.  In short, it’s an almost guaranteed way to get poorer. So we’re talking about investing.  Buying shares that you intend to hold for at least a year, and profiting from both the dividend income, and growth in the value or price of the share over time. There are different ways you can gain exposure to the share market.  Your super fund likely has at least some exposure right now.  Later I’ll look at a couple of options for your non-superannuation money, but let’s start by explaining a few of the terms and elements you will come across when you take an interest in investing the share market. There a multiple markets We refer to the share market like it’s one thing, but that’s not true.  All developed countries have their own share market, and some such as the US have multiple markets. There are 60 major stock markets around the world.  There’s a good infographic on world share markets here. Technology is gradually bringing these markets together in a practical sense for investors, but for the moment at least, as an Australian, if you want to buy shares in Apple let’s say, it’s not easy.  Why?  Because Apple isn’t listed on the Australian share market, and it’s not straight forward for an Australian investor to invest in the US share market (where Apple is listed) directly. Our local market is called the ASX. The Australian Stock Exchange.  Should be ASE really shouldn’t it, but presumably someone felt the X looked trendier. On the ASX you’ll find lots of companies you’re familiar with – the banks, the big miners, Woolworths, Telstra, etc.  Of course there’s also plenty there you’ve never heard of too.  About 2,000 companies all up I believe. In the United States the main market is the New York Stock Exchange.  This is the largest share market in the world. On the NYSE you’ll find companies like Johnson & Johnson, Exxon Mobil, AT&T, VISA, and Pfizer. The second largest share market in the world is also in the US – the Nasdaq.  This market tends to be more technology focused, so Apple, Amazon and Microsoft are listed here. There’s also the London Stock Exchange and on and on it goes – typically one per country. You’re buying a piece of a company The next thing to recognise is that when you buy a share, you are buying a small piece of a company. Let’s say you buy a share in JB HiFi.  You are now a part owner of that business. If that business performs well, you will get a share of the profits.  If it grows and becomes worth more, the value of what you own will also rise.  Of course if things go badly – maybe Amazon enters Australia and JB HiFi loses a whole lot of customers, then the business might decline, and so the value of your little piece of the company will do the same. As a part owner you have the right to attend the company’s annual meeting and vote on issues like who should sit on the board of the company. I sometimes have clients tell me that they prefer property investment to share market investment because they can touch a property.  It’s a physical thing.  They don’t feel that with shares. Whilst I can understand that, if you think of the share you bought as a small piece of a company, then you can generally find something physical to attach to that.  Walk into the JB HiFi store.  You own a little bit of this.   Blue chip If you start to take even a passing interest in share market investing you will soon come across the term “blue chip”.  So what does it mean? A blue chip share is a large, high value company.  The expression is usually meant to infer that it’s a company that is so big it will never go broke.  In Australia, the big 4 banks, BHP, RIO, Telstra, Woolworths, Wesfarmers - these are all businesses that would typically be described as blue chip. There is no formal definition of a blue chip company, and you won’t see that as a descriptor on the ASX anywhere. Interestingly, the term blue chip apparently comes from poker, where the most valuable chip was traditionally blue. What to buy So let’s say you’ve decided to dip your toe in the water and buy some shares.  How do you decide what to buy?  Well of course you could come to us for advice, but perhaps initially you just want to have a small go yourself to gain some experience – a great idea. Some important numbers you might come across in your research are the dividend yield and the price earnings ratio.  You’ll come across these numbers in the newspaper and on most share trading websites.  So let’s take a quick look at what these mean. Dividend yield – this is the income rate of return from the share and can be compared against bank interest rates to make it meaningful. Resources companies such as BHP typically pay quite low dividend yields of around 2%, because they tend to pour a lot of their profits into expansion of the business, rather than paying out dividends. The banks on the other hand are more generous, usually paying 5-6%. And then there’s franking credits on top, but that’s for another day. Price Earnings ratio – Commonly abbreviated to the PE, this is a ratio of the price of the share, divided by the earnings per share. So if company XYZ was trading at $10, and in its last earnings notice it declared earnings of $1 per share, then the PE would be 10. That is, its price is 10 times its earnings. Most companies trade on PE’s of between 10 and 20 times. I find PE’s are most useful when comparing companies in the same industry, e.g. the banks, to see which banks the market is rating more highly than their peers. A high PE often reflects an expectation that earnings will grow strongly in the future. In contrast a PE under 10 typically suggests that the market anticipates earnings will decline in future. As an investor you can consider whether you believe the market assessment is correct. Importantly both these statistics relate to the share price on that day. If you already own the shares, and purchased them at some other price, it has no relevance, I guess unless you are thinking of selling. It is also important when considering both of these measures to remember that the earnings numbers they are working off are historical, backward looking – nothing is certain in the future. How else to get started with investing the share market So you’re keen to invest, but don’t really want to get into the nitty gritty of choosing and monitoring shares yourself.  Or maybe you’ve done a bit of that already and decided it wasn’t for you. Fortunately for you, most investors who build wealth in the share market don’t personally do the research, buying and selling.  As happens within your super fund, most people invest via a pooled fund where your money is combined with others and a process is used to spread your investment over many shares to reduce your risk. The most common way to achieve this is through either a Managed Fund or an Exchange Traded Fund (ETF). The difference between the two is that with a managed fund you apply to invest directly with the fund manager, quite possibly through an adviser.  And when you want to take your money out, you similarly apply to the fund manager for a redemption. Exchange Traded Funds however are bought and sold on the stock exchange.  This means you can buy and sell more quickly, but it also means you will need to pay some brokerage to your stock broker each time you do so. Another difference is that typically an Exchange Traded Fund is replicating a particular index, such as for instance the ASX200 – the largest 200 companies on the Australian Stock Exchange.  The composition of the portfolio within an Exchange Traded Fund is therefore determined by some sort of mechanical, computerised type process. Whilst some Managed Funds have this investment style too, more often Managed Funds will have a team of people doing research, and making buy and sell decisions based on this research.  Within the industry this is known as Active investing, whereas the approach used by most ETF’s is Passive investing. There is much debate within the investment industry as to whether Active or Passive approaches are best, and in my view each have their place.  But an important thing for you to understand at this point is that ETF’s are usually cheaper than Managed Funds with respect to the management costs associated with running them, and this is because their process for selecting which shares to buy doesn’t require research and analysts. The ETF market is growing increasingly popular, leading to considerable new product development.  Given ETF’s are usually cheaper than their managed fund counterparts, this development is likely to be a positive for share market investors.  

Today’s episode is the 3rd and final look at the most common financial mistakes I come across when advising clients.  Thanks for your comments and feedback on the previous 2 posts, it seems that many of you have battled with some of these issues yourselves, and there were a few other mistakes that you’ve managed to make that, whilst being proud of them is perhaps not quite right, they are certainly something good for a laugh well after the fact. I’ve got 5 more for you today, so let’s dive in and help you avoid the most common financial mistakes. In episode 9 we looked at Jenny’s story, where her husband suffered pancreatic cancer and was without any personal insurance.  They had looked into obtaining personal insurance, and indeed Jenny had done so, but he took the “I’m tough as nails, it’ll never happen to me” attitude, to the detriment of their family. So the next common financial mistake I see is people not having appropriate personal insurance.  There are 4 types of personal insurance, and I’ve got explanations for what they each do in the Toolkit for this episode, so be sure to go to the financial autonomy web site and download that. But in summary, the 4 types of insurance available are Life insurance, Total & Permanent Disability, Income Protection, and Trauma. Now if money was no object you would ideally have a package that includes all 4 of these.  But for most people, there is a need to balance the ideal with the realities of their budget.   The crucial thing though is to review your needs, and make a conscious decision as to what cover you will hold.   Personal insurance is very customisable, so there is usually a solution available that can manage your risk, whilst also fitting within your budget. Too often, people get some default life cover within their super fund, and give no thought to whether it is actually fit for purpose.  And they just never even look into Income Protection and Trauma cover. Personal insurance is applicable to us all during our working lives, but especially if you have a mortgage and children, it’s just so crucial that you sit down with someone and put together a package that makes sense for you and your family.  Remember, as we saw in Jenny’s case, the implications of you not having insurance are far broader than just you. Another common financial mistake that I see is not having goals.  In episode 10 – is your ladder against the wrong wall? , we looked at the popular SMART goals acronym as a process to flesh out your goals. Once again, I’ve included detail on this process in the free downloadable toolkit. Sir Edmund Hillary, the great Kiwi, didn’t get to the top of Everest with Tenzing Norgay by just going out for a stroll and happening to find himself at the summit. He set himself a goal, and then went about planning how he would achieve it.  I really like this quote from him: You don't have to be a fantastic hero to do certain things -- to compete. You can be just an ordinary chap, sufficiently motivated to reach challenging goals. You don’t have to be a hero to reach your Financial Autonomy dreams either.  You just need to set your goals, develop a plan that will get you there, and then get started. If you’re a home owner, you likely have equity in that home.  This represents the portion of the asset that is yours, once the mortgage is cleared.  So for instance if your home was worth $1 million, and you had a mortgage on it of $600,000, then your equity is $400,000.  If the house was sold, and the debt paid off, you’d have $400,000 in your pocket in very simple terms. Over time, as you pay-off your mortgage, and as hopefully the value of your property rises, your level of equity rises.  In a balance sheet sense, you are becoming wealthier.  The end game is to eventually pay off your home loan entirely, and own your home outright.  That way, later in life when you no longer have any wages coming in, you know you’ll always have a roof over your head, and you have an asset there that could potentially be sold, to get you into a retirement village or in some other way look after you in your final years. A common mistake I often come across is people viewing this equity as their personal piggy bank.  Banks make this easy with things like re-draw and Lines of Credit, because there business is charging you interest on debt, and so they don’t really want you to pay your home off. This is where regular monitoring of progress towards achieving your goals is important.  Is your debt going down from one year to the next?  All too often I sit down with clients and we find that despite having made home loan repayments all year, their loan balance is about the same as it was when we last reviewed things 12 months ago.  The culprit will usually be the family holiday or the new car. Now housing your savings in or against your mortgage may well be a very sensible strategy, but be really wary of taking back out not just what you’ve saved, but also the repayments that were intended to bring that debt down. Remember, by the end of your working life, and ideally much earlier, you need to own the roof over your head if you are to achieve financial independence and security. I think most Australians are aware that superannuation is important.  But it’s also kind of boring.  It’s easy therefore to pay it little attention, at least whilst in your 20’s and 30’s, and perhaps even into your 40’s.  Hopefully by the time you get to your 50’s, retirement is close enough, and your superannuation balance large enough, that you’ve started to pay some interest. But ignoring your super in those early years is a mistake.  Let’s talk about wonders of compounding for a moment. Let’s say you put $1,000 into an investment, and it earned 10%.  At the end of the year, you’d have $1,100 – the original amount invested, plus the 10% interest you earned.  Now if you left those earnings in the investment, the next year, instead of earning $100, it would earn $110, because not only have you earned 10% on your original $1,000 invested, but you also earned 10% on last years earnings. Go another year and you earn $121 and your balance is now $1,331. This is the principal of compounding in action – you are earning interest on the past interest that you were paid. For compounding to work, you need time.  The longer your money is invested the greater impact compounding will have.  To illustrate the impact, let’s say you wanted to have $1million when you retired, and that was 30 years away. You could figure 30 years is a long way away, I’ll worry about it closer to the time.  Or, if you were able to get your hands on $132,000, and earn 7% a year over that 30 years, you could sip pina colda’s on the beach for the next 30 years because compounding will do your work for you. Now you might say, yeah, but where am I going to come up with $132,000.  But if you’re figuring on retiring at age 65 say, then 30 years out is age 35, and you could very easily have that much in your super fund after 10-15 years of working and earning. The levers you can pull superannuation wise are how your money is invested.  Investing conservatively might seem prudent, but it’s coming at a huge cost in what compounding can do for you.  $10,000 invested and earning 5% over 10 years grows to $16,289.  Had it earned 10% instead it would be almost $26,000.  That’s a big difference. Fund costs are another lever you can pull.  Is the insurance in their appropriate for your particular circumstances?  Are the costs reasonable for what the fund is offering?  The cheapest isn’t always the best, but it’s unlikely the most expensive is either. And then of course you can control any top-up contributions that you make.  Your employer will put in the standard 9.5%, but could you put in a little more? Compounding is extraordinarily powerful, and it’s at its most potent for investments held for a long time.  Your superannuation savings are therefore perfectly positioned to exploit this financial gift. And the final common financial mistake that I see people make is listening to the wrong people.  Now I’ve left this one to last because, as someone who provides financial advice as a profession, I of course have a bias here – you should be listening to me clearly! But in all seriousness, the number of people I’ve come across over the years who go down a financial path because their uncle told them it was a winner, or someone on the radio said the world was coming to an end, would shock you. Just for a moment, let’s assume that the person giving you this advice does actually know what they’re talking about.  You will have noticed that at the start of each episode we have a warning that the information we provide is general information only and you should seek advice that is specific to your circumstances.  Now that’s there because legally it has to be, but it’s not just fluff, it’s a really, really important message. The uncle who tells you that property in woop woop is a really good buy may well be right in so far as he’s looking for an investment that provides a good income return.  But perhaps that’s not what you want. Maybe what would be right for you is a negatively geared investment with strong capital growth.  Perhaps you already have a lot of debt, and borrowing to buy another property would put you under significant strain.  Maybe just paying off your mortgage or salary sacrificing to super would deliver a better outcome for you. Without understanding your complete financial position, these often well-meaning sages have the potential to steer you towards disaster. In 2008 when the share market halved during the GFC, there was no shortage of headline seekers happy to jump on the radio and profess that the world was broken and we’re staring into a bottomless chasm.  This lead plenty of people to conclude that they had better change the way their superannuation savings were invested, moving out of shares and property, and across to cash and bonds. Now perhaps for some people who were quite close to retirement, this may have been prudent.  But for people with plenty of years still to go, this was a terrible decision.  Shares and listed property were cheap at the time, so buying in these sectors via your regular superannuation contributions was really smart and impactful on your balance.  And whilst the value of your existing holdings went down, you weren’t selling so it didn’t matter. Your financial affairs can have such an enormous impact on your life.  Get professional advice.  And with web video calls so good now, you’re not restricted to only getting advice from whoever is local to you.  I deal with clients all around Australia, and when we have a video call on Skype or Zoom, it’s like we’re in the same room.  It’s the modern day equivalent of a home visit. So there you have it, the 12 most common financial mistakes that I see.  Keep those comments coming – what mistakes have you made or come across? Don’t forget to download the free toolkit for this series of episodes – I’m keen to help you take action on the ideas that I share, and the toolkit is a really critical piece in delivering on that. As mentioned previously, I’ve put together something of a bumper toolkit, covering all 3 parts of this series on common financial mistakes.  I have the 12 most common financial mistakes listed so you can tick them off as you’re confident you’ve worked through or around those. I’ve also included the Budget tool to help you get your cash flow under control, a piece on risk vs. reward, useful books, personal insurance options so you can cut through the jargon in this area, and a piece on SMART Goals. So there should be tonnes of useful info in there, so be sure to visit the financialautonomy.com.au website and grab your copy.  

Welcome back.  In the last episode we explored common investment mistakes people make.  It’s not really essential that you listen to Part 1 before giving this one a listen, but if you haven’t listened to that one yet, perhaps make that the next episode you grab. Today we’re going to explore common cash flow mistakes that I see people make. I mentioned in the first episode that when I was first planning this post, I jotted down 12 ideas – financial mistakes I’d seen regularly over my 18 years as a financial planner.  Last episode we covered the three that I grouped together as investment related – procrastination, being too conservative, and trying to be a share trader.  In this episode I’m going to start with three more, that all have cash flow as a common theme. Hopefully you’ve listened to a few Financial Autonomy episodes by now, and if so you’ll know that a common pre-cursor to making progress on your Financial Autonomy goal is having a good handle on your household’s cash flow.  How much comes in, and how much goes back out.  In the Toolkit for the episode I’ll make sure that our Budget Tool is included.  I know the “B” word strikes fear into many, which is why I typically focus on cash flow instead. The thing is, getting on top of your Cash Flow is much easier now than it used to be.  That’s courtesy of internet banking. Our Budget Planner template has Expenditure first and income second, but if you want to get some quick progress, fill in the income figures as they’re the easiest to get.  You want the after tax number here – how much actually goes into your bank. Now go back to the top and work through your expenses, referring to your bank statements in your internet banking to get the numbers.  Focus on the bills first because they are easily identifiable.  For things like your phone bill, they’re pretty stable month to month, so you should be able to just check a couple of months’ worth and then get a good estimate of what they will cost you over the year. Bills like Electricity and Gas can vary quite a bit between summer and winter, so you might need to go back and get the whole years figures for these ones. Once you’ve filled in the clearly defined expenses, then go back and perhaps focus in on 2 months’ worth of figures and tally up what you spend on food, clothes, and the like.  Things that you will always spend money on, but for which it varies a bit, and drips out over the course of a month. I would print out the 2 months worth of bank statements and tick items off as I allocate them to a group such as food.  Perhaps you could use a few different coloured highlighters – one for food, one for entertainment, etc.  The end game is that once you’ve completed this exercise, everything you’ve spent money on in the past 2 months has been put into a category in your budget. So now you total up your expenses, compare that to your income, and hopefully you like the answer.  If the answer is that you should be saving $x per year, reflect on whether that has been your actual experience over the past year.  If not, why not? One key element of the exercise, probably the most important, is for you to see what you spend your money on, and whether that’s really bringing you the greatest happiness.  Is the way you are currently running your finances bringing you closer to your Financial Autonomy goal?  In know that money and finances can be a point of stress in some relationships too.  Perhaps going through this exercise together might help you both have a deeper conversation about where you are currently going, and whether that is taking you to the destination you both want to arrive at. So not having an understanding of your cash flow is common financial mistake number 1 this episode. Very much related to this, common mistake number 2 is spending more than you earn. You don’t need the mental powers of Einstein to figure out that this can’t work, yet it is an easy trap to fall into.  The most common ways I see this unfold is through credit cards, and the generosity of well-meaning but ill guided parents. Credit cards, and I guess general consumer debt like interest free periods on white-goods, is the most common way of spending more than you earn.  If this is you, you’ll know it.  So do the budget exercise mentioned earlier, understand why your expenses exceed your income, and devise a plan to do something about it.  Perhaps you can come up with a way to increase income.  Most likely there will need to be some strategy to reduce expenditure.  As with the investment problem identified in part one of the post, the key is don’t procrastinate.  Identify the problem and take steps to resolve.  You may not come up with the perfect solution straight away, but make a start in changing things, and refine as you learn more. The less well recognised way that people fall into the habit of spending more that they earn is through the generosity of well-meaning parents.  I’ve had retired clients over the years whose retirement savings have been drained by adult children constantly putting their hand out for financial help, or just where the parents say “oh well, poor Tina’s doing it a bit tough so we paid her credit card off for her”.  These parents are well meaning, they love their kids.  But by “helping” in this way, their children, who are adults, never get on top of things financially.  They never get to the point of standing on their own two feet. I’ve dealt with one family where mum and dad provided the daughter with quite a bit of financial help in her 20’s, enabling her to drive a Mercedes and live a really high material standard of life.  She met a lovely guy and they got married.  Her expectations of what life should be like were really high though, and as a couple, that lifestyle just couldn’t be maintained.  The husband felt like a failure because he couldn’t support his wife in the lifestyle she had become accustomed, and ultimately they separated.  It was sad story because they are both lovely young people, but her parents, with the best intentions in the world, effectively sabotaged that marriage by not making their daughter at an early age understand the fundamental need to live within your means and spend less than you earn.  Unrealistic expectation were baked in at an early age. In contrast to this, I saw an article recently that criticised the celebrity chef Gordon Ramsay for flying in first class, whilst his kids flew in economy.  Now I have no idea if this story is true, or, if it is, what the back story was.  But if his thinking was that he doesn’t want them to have an expectation that every time you fly in an aircraft, it will be in the first class section, then I think he’s doing his kids an enormous favour.  If his kids enjoy success later in life and can buy their own ticket in first class, then good luck to them, they will have earnt it.  But if dad just shells out and they think nothing of it, then surely, roll forward 5 or 10 years and you’ve got a train wreck of a life waiting to unfold. Continuing on with the cash flow type common financial mistakes that people make, feeling the need to keep up with the Jones is my third offering for you.  Back in Episode 7 – How to retire early, I touched on the interesting findings from the authors of The Millionaire Next Door.  You’ll recall the two authors studied households whose net-worth (ie. assets minus debts) exceeded one million US dollars.  One really interesting finding was that millionaire households were disproportionately clustered in blue collar and middle class suburbs, and not in the higher income, white collar, more affluent suburbs that you would assume.  Digging into why this was the case, the authors found that the higher income earners devoted more of their income to luxury items and status symbols, often funded with debt.  These people tended to neglect savings and investment. This finding delivers the double whammy of linking the problem and the consequence.  Feeling the need to keep up in a material sense with friends, neighbours, or whoever, results in you being less wealthy.  And in the context of what we’re trying to achieve – your Financial Autonomy, your financial independence, gaining choices in life - less wealth directly pushes against you achieving your goals. Let’s finish off today’s episode with another financial mistake that I commonly see, and that is often really quite sad.  That is the scenario where one member of a couple handles all the finances, and the other is totally ignorant of all things money in the household.  I say it’s really sad, because I’ve seen this scenario unfold in a number of ways. One is where the person who controls the finances dies, and the surviving partner is completely ill-equipped to manage their affairs.  Sometime they don’t even know what assets the couple owns. A variation on this is where a relationship ends in divorce.  The person who took no interest in the finances (or perhaps wasn’t given an opportunity to be involved) is now rudderless.  I can think of one instance where, post-divorce, the wife, who had previously just left everything to the husband, was utterly shocked when she did learn of the state of their finances and how money was being spent. On the flip side, I’ve had clients in total despair, because they are trying to manage the household finances, but their partner just whips out the credit card at a moment’s notice and buys something that they simply can’t afford.  Sometimes the person in despair feels like a failure because they can’t support the lifestyle that their partner seems to feel is the norm. So if you’re in a relationship, I really encourage you to ensure that both of you have a working understanding of your finances.  Sure, one of you might do more of the tracking – you’ve got to play to your strengths.  But you need to be able to discuss things as a couple.  Finances are a potential point of stress in any relationship.  Openness is the best medicine. Well, I think that’s enough for this episode.  That’s 4 more of my original 12 common financial mistakes that I see people make.  I’ve got 5 left, so look out for part 3 in a fortnights time. A reminder too, don’t forget to download the free toolkit for this episode – I’m keen to help you take action on the ideas that I share, and the toolkit is a really critical piece in delivering on that.  There’s no “fluff” here at Financial Autonomy. I’ve put together something of a bumper toolkit, covering all 3 parts of this series on common financial mistakes.  I have the 12 most common financial mistakes listed so you tick them off as you’re confident you’ve worked through or around those. I’ve also included the Budget tool to help you get your cash flow under control, a piece on risk vs. reward, useful books, personal insurance options so you can cut through the jargon in this area, and a piece on SMART Goals. So hopefully tonnes of usefulness in there, so be sure to visit the financialautonomy.com.au website and grab your copy.