So, this is the beginning…well not quite.
Reflecting on what I know now, the best advice I could give someone is to start tracking their net worth. Personally, I’ve found it the single greatest motivator for my finances. I just wish I had started sooner — I could’ve understood and appreciated, earlier, Where does all my money go? and The real cost of spending an extra dollar, to start capitalising on my investing time horizon.
The chart below illustrates the steady trajectory I’ve been tracking since 2012. I consider myself fortunate to be in the position I am now, that said it wasn’t all rainbows and unicorns — it’s taken hard work, sacrifice and discipline. It’s a marathon, not a sprint describes the journey so far, one that started with considerable credit card debt ($32k) following a gap year of travelling. This was enough motivation for me to get back into the black — enter the ‘earn more, burn less and invest (save) the rest’ mentality, even though I didn’t know it at the time. For a somewhat impatient person, it really is, all about being patient, consistently disciplined but most importantly enjoying the journey! There is no shortcut to building wealth, it’s truly a marathon…
get rich slowly
I started to track my net worth in September 2018 but was able to back date a year earlier. This provided me some context of where I’ve come from and what I’ve achieved so far — bit of self-motivation.
The chart below breakdowns the tracked components of my net worth. Contrast to the previous chart it includes superannuation. Why? Because even though I cannot access super until my perseveration age (60) it is still part of my strategy. I prefer to think of it as if I am in a position to retire (in the traditional sense) before my preservation age, then investments outside of super can fund this period, while super can fund after my preservation age. Additionally, super is an effective tax structure that I want to take advantage of and allow the compounding machine to work its magic over the long term.
Over the past year I’ve redirected some cash into shares instead of my mortgage offset, in line with my financial objectives (refer Start Here) — effectively:
- Superannuation – maximise contributions
- Investment bond – consistent monthly contributions
- Property equity – balance of cash flow on to my mortgage offset account
The table below provides a summary of this month’s contributions and returns. I’ve included the loan interest rate as an equivalent return – because it is! It’s often overlooked or forgotten, that not paying interest is effectively earning the equivalent interest rate. But don’t forget the tax – investment returns are subject to tax whereby interest paid on debt is not, therefore the interest should more accurately be grossed up! Depending on your investment goals, stockpiling all of your cash in your mortgage offset is a very effective strategy for a guaranteed return. That said, this is not always practical when managing people’s spending habits.
|Mortgage Loan Offset||Balance||+ 0.26% (un-grossed)|
|Investment bond||$2,500||+ 0.71%|
|Individual shares||Nil||+ 4.83%|
*Net of contributions
The monthly super and investment bond contributions are quite healthy. I’ve put myself in a position to be able to afford these, but more importantly it forces me to invest. Working off the rule — pay yourself first — then live off the balance. This means I focus on keeping that burn rate down and minimising lifestyle creep.
This dollar-cost averaging strategy (each month) means…I invest in both the highs and the lows.
It’s time in the market, not timing the market.
Now, I generally don’t get hung up on the share market returns as I’m playing the long game, with the majority of my money in index funds, both inside and outside super. That said, let’s see how I react to the next market crash! The logical side of my brain says strap in, plough more money in and ride the rollercoaster, but it’s the emotional side that can play games. The fact that I cannot access super for decades and my investment bond for another 9 years means there’s enough friction to standby my investing convictions.
What does interest me is what’s behind the market movements. I enjoy listening to podcasts, watching and reading news on what makes the global and local economies and markets tick.
Performance in October saw both my super and investment bond nudge up for another month. These investments are heavily weighted in Australian and international shares which even though have been quite volatile lately due to the never-ending China-US trade war negotiations, they are still near or at their peaks. On the other hand, my individual shares were initially bought as punts, and no longer my core strategy — there are a couple of individual shares I’m interested in, but for the right price.
I plan to write a future post dissecting my burn rate, how I landed on it, what it includes and how it motivates me. But to summarise here, the common terminology used is savings rate, however I prefer to flip the equation and focus on my spendings rate or burn rate. Why? Because, I find it more logical to focus on reducing my expenses (i.e. what I burn), than what I save. It keeps me in the moment, whenever I’m at a checkout.
As you can appreciate, expenses are not evenly dispersed throughout the year, and the chart above illustrates this lumpy and bumpy ride (blue line). The Mt. Everest that was May 2018, was a month trip to Europe – (you can…but) you can’t put a price on travelling experiences and memories! I’ve added in the annual rolling average curve (red line) to more accurately compare to the 40% target. Another key point to note is that I use August 2018’s pay check as my baseline (this particular month because I started net worth tracking in September 2018). Since my income can sometimes be variable (e.g. overtime, bonus, dividends, side hustles, selling stuff etc) having a baseline reference normalises the burn rate to prevent lifestyle creep – it keeps me honest!
Burn rate was slightly above target (43 vs 40%) this month, mainly contributed to by furnishing my new apartment. I recently moved out of my principal place of residency (PPOR) into a rental apartment i.e. rentvest. There was also a last-minute weekend in Melbourne to see some friends.
With a strong focus to keep downward pressure on my burn rate, I’m always looking to gamify expenses — googling the best price, searching gumtree for second hand goods, using reward program discount gift cards, using loyalty points programs or reviewing existing services and subscriptions for better offers, just to name a few.
For those interested here’s some nitty gritty detail on where I hacked some costs this month:
|Appliances||JB Hifi||5% off e-gift cards|
|Whitegoods||The Good Guys||5% off e-gift cards|
|Kitchenware||Kmart & Target||5% off e-gift cards|
|Groceries||Woolworths||5% off e-gift cards|
|Flights (interstate)||Qantas||Frequent Flyer Points|
|Rideshare to/from Airport||Ola||20% off|
Next month is already stacking up to look a bit painful with personal insurances, car registration, utility bills and installing a carport door on my (now) investment property. All before Xmas, hiho!
Enjoy – Joey.