• Australian (ASX) Stock Market Forum

My idea with $30k/year, am I way off?

Discussion in 'Beginner's Lounge' started by rough60, May 6, 2016.

  1. rough60

    rough60 Member

    Likes Received:
    Aug 11, 2009
    Hi all

    Okay, I'm going to write this post backwards, starting with the conclusion I've come up with, and for those interested after that I'll describe how I got to it. Extra info, duel income, 3 kids, in early 40's, have a home loan and are refinancing to move to larger house. No credit card debt, no car/personal loan, we have 6 months of wages sitting on our home loan we can redraw if needed.

    Note, I am booked in to see a financial advisor, I would just like to hear others opinions.

    Currently I'm looking to invest $30k/year, $15k into salary sacrifice super, $15k into the stock market, heres why.
    $15k into super to save on tax, bring us down a tier in the medicare levy.
    $15k into stock market, I don't want all my money locked away until I retire, more than $15k into super would go over the super contribution cap.

    I initially thought to put the $15k for the stock market on the home loan but the interest rates are too low at the moment.

    The super fund:
    Move my super to a fund at the bank I'll be refinancing the home loan with, they offer discounted home loan rates if you hold other accounts with them. The fund I'm looking at is an aggressive/growth index fund.

    The stocks:
    Currently I hold a few different stocks, WBC, COH, BHP and a few other blue chips, I bought these a while back and never have really had the time to follow them, they sit there and I get dividends, that's about it.
    I know I haven't got the time so with the $15k I was thinking ETFs would be a good option, I looked at actively managed funds but won't be putting lots of little investments in so won't save on fees for addition contributions and after a little research, managed funds rarely out perform the index anyway. I looked at mFunds and may go down that route after a while but I think ETFs are a good start for almost set and forget. Some thing like ASX200 and S&P500 for starters.

    Does this sound reasonable?

    Okay so now for those that are interested, how did we all of a sudden, in our early 40's have this money to invest.

    Just after midnight, January 1st 2015, "Hey kids, who wants to spend new years in Europe next year?". After way too much Grange and shots of brandy at about $600 a bottle, I asked the kids that question after watching the Sydney fireworks from a friends apartment.

    Later the next day at lunch my youngest asks, "When we are in Europe can we go to the Eiffel Tower?". I look at her and ask her, "What are you talking about?". Then the eldest says "Last night you asked if we want to go to Europe, we said yes and you promised you'd take us.". What could I say? I had promised them I'd take them, my wife is sitting there laughing at me saying "I'd like to see you get out of this one!". So maybe there was still a bit of brandy in the system but I stand up and announce to the entire cafe, "Europe here we come!", I just couldn't say no to the kids puppy dog eyes.

    That evening when the kids are asleep, my wife rips into me about how stupid I am for getting them all excited, we eventual come to an agreement that I take over the finances for 6 months and if I can save enough for airfares by the end of june we buy the tickets and commit to go.

    My wife was the financial hub for the 20+ years we've been together. Apart from a couple of car loans when just hitting the work force, we've never had a credit card debt or any other kind of debt. We upgrade our cars every few years when warranties expire, we eat at fantastic restaurants, and drink amazing brandies.

    The first week of January 2015 was a big learning curve for me as I took over our finances, we each had multiple super funds, and she had different bank accounts for different things, and with 6 months wages sitting on our mortgage to reduce interest as emergency money. My wife did a great job budgeting to make sure we lived within our means but we were both guilty of enjoying every last dollar that was left over.

    The first thing I did was roll over our super into one fund each, that wasn't getting us to Europe but it was saving us on fees. I went through our bank statements and built a spread sheet that actually tracked every dollar we spent over the previous 3 years, I decided to look at alternatives to things that we'd just blow money on, even simple things like taking a 6 pack to where we were staying instead of drinking the beer in the mini bar, I shut down most of the bank accounts and just put the balance on the home loan redraw account. I stopped 'upgrade' purchases, which are just purchases that we did because a new model came out with some fancy extra features and we had the cash to buy it.

    On April 30 I invited the mother in-law for dinner, instead of serving up the spag bol I had cooked, I bought out bowls with everyones plane ticket in it, including the mother in-laws. She was born and grew up in Italy so I needed a translator. It took me 4 months to reduce our wasted money, we still ate out each week, and the kids didn't go to school barefoot, but we didn't go berserk like we used to either, and I'd done it in 4 months instead of 6. The next 8 months was planning and booking everything, as well as saving. One thing I did make sure of was I didn't stop us doing what we normally would do, we just did it less extravagantly.

    So we made it to Europe on the 23rd December as I'd promised, we stayed with relos the first week and then spent 3 weeks snowboarding the Dolomites, Chamonix and Zermatt, with a short stop in Venice. During our last week while sitting on the balcony overlooking the Aosta Valley my wife resides to the fact that I should take over looking after the finances and every few years we could do a trip like this. Then the money saving light bulb goes off "You know we could save heaps on a snowboarding trip if we head to Japan instead, the kids have seen their relos, invest the money we'd save and in 15 years when the kids are gone we come back here for 6 months". That sounded good enough for her.

    So now it's been almost 18 months since I took over the finance reigns for a 6 month test, we still do all we did before, just not as stupidly. I did go a bit 'over frugal' ay one stage, standing at Bakers Delight I asked for a white loaf sandwich sliced. The wife pipes up, "Why do you buy that? No-one likes it, it's too thin". "Well sweetie, you get more sandwiches out of it that way". That's when I realised I might have a saving problem, but in a good way.

  2. Donkhorsepower

    Donkhorsepower Member

    Likes Received:
    Feb 29, 2016
    Thanks for the story. That is just gold. What I would recommend is to roll your sleeves up and start doing your homework. Here are a series of short clips that should get you asking some questions and getting your head around some 'Management Principles' before you spend a cent in the market.

    1. A broad overview

    2. Something more specific

    3. A whole lot of basic relating to TA trading

    A couple of notes. I am not endorsing any of these traders and you need to settle on your own personal strategy. Also, this takes time. So make a note of that somewhere before you go placing any trades tomorrow.

    And finally good luck with it all. I hope that you find the journey rewarding for you and your family.
  3. Knobby22

    Knobby22 Mmmmmm 2nd breakfast

    Likes Received:
    Oct 13, 2004
    Great story. Livin the dream!
    I essentially agree with your strategy.
    My only difference is that managed funds have lots of fees so watch out with who you are going to talk to about this. Also don't let them con you with Super. All the best funds are Industry funds. Performance and fees wise. Look it up if you don't believe me.
  4. skc

    skc Well-Known Member

    Likes Received:
    Aug 12, 2008
    Nice story. Thanks for sharing.

    One thing I will add is that, given you have a mortgage on your PPOR which is not tax deductible, you should try to repay that loan while borrowing to invest. So essentially you are substituting non-deductible loan with deductible loan... which is going to help your course significantly.

    It's probably as simple as repaying the mortgage, and redraw the amount for investment purchases. However, you should speak to your financial advisor / tax consultant to confirm this, and understand what documentation is required.
  5. Smurf1976

    Smurf1976 Well-Known Member

    Likes Received:
    Feb 14, 2005
    So far as the spending side is concerned, if you can keep that sensible then you win in two ways.

    Assuming the ultimate goal is achieving financial independence at some point (eg to retire or at least have the option to do so) then by reducing spending you:

    1. Increase the rate at which your investments grow. This is particularly important in the early years when new capital (savings) will contribute more actual $ to the value of your investments than any realistic return on the capital you already have. If there's $30K in the account and you add another $30K each year, well that's definitely going to be the most important factor pushing the balance up since you're not going to be making 100% or even 50% on the money you've already got.

    2. If you're spending less and can sustain that comfortably then the amount you need to have in order to reach the goal of financial independence is reduced accordingly.

    So you're growing faster and with a lower target. That makes a huge difference to how long it takes to get there.

    So far as spending is concerned, I'm not "cheap" but I always seek value and I've never been one to keep up with things for the sake of it. My 8 year old washing machine washes clothes just fine and I sure don't need to keep up with whatever the latest fashion is with washing machines. It washes clothes, what else is it supposed to do? I don't need it to send me a text message to tell me it's rinsing or play music. If it breaks and isn't economic to repair then I'll buy a new one but until that happens I see no benefit in getting a new one. Same concept with everything.

    I'll happily spend on experiences indeed I'm planning a trip to Europe at the moment. And if there's a live show I want to see then sure, I'll spend the $ and go and see it (and that gets expensive pretty quickly when you have to fly interstate just to get to where the performance is). But 3 star hotels are fine, I'm going to London to see London, I'm not going there to admire the gold plated taps in a fancy hotel. As long as the hotel's in a good location and doesn't have rats running around the room then that's all I need, it's just a place to sleep after all. Etc.

    You can go too far of course. There's few things sillier than seeing someone with a $50K+ car that they've put cheap and nasty tyres on and turned into an accident waiting to happen as soon as it rains. That's just dumb in my view, better to have a cheaper car and maintain it properly. Suffice to say that I'm more than happy with my old car that isn't worth much and have no plans to replace it but I'm very sure it's properly maintained and I won't be putting dodgy tyres on it that's for sure. There's "value" and there's "cheap" and the two are not the same. :)
  6. rough60

    rough60 Member

    Likes Received:
    Aug 11, 2009
    Thanks for the feedback and vid links guys, also for the extra info and ideas.

    Much appreciated
  7. webbrowan

    webbrowan Member

    Likes Received:
    Mar 10, 2016
    Sounds pretty realistic to achieve. It does seem workable and your comprehensive breakdown goes to show that you must have done your prior research and background checks on the entire saving and investment concept. Having a 50-50 division on the super and stocks is pretty risky but builds a safe line in between the two at the same time.
  8. InsvestoBoy

    InsvestoBoy Member

    Likes Received:
    Sep 6, 2016

    Great story!

    My thoughts as I was reading it:

    1. I hope you realise that when you're investing in super, a lot of that (maybe all if you're investing in Aggressive Growth strategies) will be invested into equities.

    2. You should take a look through this blog, especially the popular posts, it is right up your alley! http://www.mrmoneymustache.com/

    3. Spreadsheet to track is good but you should spend an evening learning about double entry bookkeeping and start recording your accounts in an accounting program. I use one called "GNU Cash" it is free and full featured. I used to track my money in a spreadsheet but learning about double entry bookkeeping and tracking all my transactions in GNU Cash completely changed how I think about my personal finances.

    4. Don't take advice from people off the internet, and maybe even be careful of the advice you get from a financial planner (are they looking out for you or just trying to generate some fees?). Do your own thinking and research!

    That said, I do think the most salient advice on this thread is from Smurf1976! Unless you're an investing or trading wizard, your savings rate is going to have a much bigger impact on the eventual outcome than your investing returns. Just use any compounding interest calculator (like this one https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator) which shows the end amounts from contributions vs compounded returns to see that for yourself.

    As Cicero once said, "Cannot people realise how large an income is thrift?" ...

    I'm in a similar position to yourself, and I do invest some money in index ETFs, the Vanguard series of ETFs seem to be the cheapest in terms of fees and have good corporate structure. But I also do invest in some of those LICs that have cheap fees and good management team like AFI, MLT, AUI, ARG, etc. They give you some exposure to equities but unlike index ETF which is "systematic" (I.e. rules based), the LIC investments are analysed by humans regularly to decide whether or not they remain a good investment. I know AFI has been in the business since the 1920s, so they have a pretty good track record I think and enjoy reading their annual reports.

    If I was just starting out in your shoes knowing what I know now, I would tell myself to be very wary of "information overload", and getting lured into the trap of speculating (they will say it's "trading") in the market without experience and capability to do so.

Share This Page