Aussie Firebug: Welcome to the Ozzy Firebug podcast. The financial independence podcast for Australia. Hey guys. Welcome back to the Ozzie Firebug podcast. The financial independence podcast for Aussies, where I interview clever people who’ve already reached or on their way to financial independence. Before we get into the pod today, I’ve got to let you guys know that the annual Australian fire survey is currently open and will be left open for probably another two to three weeks.

I’m a huge data nerd. And I think one of the greatest strengths of this community is that we are willing to share and talk about what is normally considered to Boosie subjects. If we assume that there are a hundred thousand people pursuing fire in Australia, Probably a lot less if I’m being honest, but let’s just go with the a hundred thousand.

We need to have 1056 submissions for this dataset to provide a 95% confidence level, which is the industry standard with a 3% margin of error of the community. So 1056 is the target for this year. The full analysis and data set will be published on Ozzy firebug.com. Of course. So a big thank you to everyone who has already participated, and if you haven’t participated, but want to fill in this survey, head over to Ali firebug.com forward slash survey.

Now onto the pod for today, we have one of my favorite Ali five bloggers on the podcast, and that’s none other than Aussie high fire himself. Some of the topics that we cover are who is Aussie high fire, and what’s the all about. What is high fire and how does it different from regular fire? The role that bonds can play in a portfolio and income insurance during the accumulation phase.

Hey guys, welcome back to another episode of the Ozzie Firebug podcast. Today. I’m chatting with one of my favorite Aussie bloggers and that is none other then Ozzy high fire. Welcome to the show, mate. Good to be here. Thanks for having me. Now I’ll be reading your stuff for many years now, and I actually think I’ve had it on my to-do list to get you on the pod for roundabout to two or so years.

But because I take forever to actually do any Ozzy Firebag related stuff, it has taken a pandemic and being locked down in London in order for me to catch up with my emails and to get you on the show. But I’m glad you’re on now. Speaking of London, actually, you used to live here once upon a time.

Isn’t that 

Aussie HIFIRE: right? Yeah. So I lived there for about, I don’t know, 10 years or so. Back when I was year, probably about the same sort of age as you, I suppose.  Yeah, I had ideas there working in finance, lots and lots of travel really enjoyable. 

Aussie Firebug: It’s a fun thing to do. Isn’t it? If you don’t mind me asking were about when you lived in London, did you did you live.

Aussie HIFIRE: Yeah. So mostly around the olive dogs East London sort of area. So I spent a lot of my time working in finance over there. I always liked to live fairly close to work. So it kind of made sense to deliver around that sort of area. Amen. 

Aussie Firebug: Clap, clapping myself. And I understand how, how common that is for most Aussies to come to Clapton.

And I was actually in. Well, when I had Peter Thornhill on the other month or so he was, he was living in Claremont many, many decades ago, which, which I found funny. And I was almost going to be like, I wonder evils. He high fire lived in Clapham as well. But yeah, I love dogs. That’s yeah, it’s easier said I actually don’t know too many people out in the East.

I don’t think. Well, you said you lived here at what? Nine or so years ago. I don’t know how, how many ex-pats lived in the ACE, but pretty much everyone that I know is either South or. Like on the North of the river, but not so much East. Yeah. I haven’t really traveled around the East too much. I’m sure it’s enjoyable though, but yeah, it’s definitely closer to the finance sector, which was good for you.

Yeah, definitely. Definitely. For those out there who don’t know who you are, can you give an overview of who you are and where you’re from? 

Aussie HIFIRE: So I’m originally from Queensland spent 25 odd years ago living up there and then Dad of two, obviously very happily married and spent most of my life working in finance and still working in Naria finance at the moment.

So yeah, I keep pretty busy. 

Aussie Firebug: Yeah. And you are Aussie high fire, which is an interesting name. Now I know what Hi-Fi means, but for those out there listening, what is high fire and what does it mean to you and how does it differentiate itself from the standard. Fire acronym that we see in this space and in this community.

Aussie HIFIRE: So high fire is stands for the high income financial independence retire early. So I think probably the, you know, the big sort of differences that you have, the various sort of fires you have, you know, regular fire, you have lean fire where, you know, you’re living on not a whole lot keeping your expenses to an absolute minimum, regular fire where, you know, you’re probably not doing a huge amount of.

Not necessarily the luxury sort of stuff, but you’re not necessarily going out a lot. You’re not going on big trips or anything like that. Hi fire. I know it’s some times called fat fire or more regularly called backfire. It just, it’s not a healthy sort of sound. I think, you know, you, you, you associate fat generally with you know, not necessarily desirable sort of things.

So I thought, okay, well, let’s, let’s have something which is a little bit more. Desirable, which sounds a bit better. 

Aussie Firebug: You changing the Wi-Fi, you changing the image of the fat fire. 

Aussie HIFIRE: Exactly. Exactly. So, yeah, I just thought, you know, for me, what I want is not to retire and not be able to go out and do this things that I like.

So a big part of that for me, is travel and travel is, you know, as you well know, it can be pretty expensive. Like it doesn’t have to be hugely expensive, but if you want to do a two month long trip, we’ll. You’re not doing that for 500 bucks or something like that. It’s, it’s going to cost you a fair amount of money.

And if you don’t want to stay in, it, doesn’t have to be the nicest hotels. You know, you don’t need to be staying in the Marriott or the Hilton or something like that. But if you want to stay in a, in something better than a backpackers, will, you know, that’s going to cost you more money. All those sort of things basically add up.

So for me, it’s, it’s a case of going, okay, well, if I’m going to. Want to retire and I’m going to spend the next 30 or 40 years of my life traveling around. I’m going to need more money to do that. And that’s, that’s where high fire comes in. 

Aussie Firebug: Yeah. So traditionally we see most of the bloggers out there. I would say you see anywhere between like at the very low end of the scale.

I’ve seen a few people looking to aim on retiring on like 35, even $30,000 a year, which is that’s really pushing the limits of how, how frugal you can be and still live a really great life. And I understand everyone’s different and also circumstances are different. So what would Hi-Fi in your circumstances?

What’s sort of the angle and what is a high fire retirement income to you? Yeah. 

Aussie HIFIRE: So for me, I think it’s hard to break all the different sort of brackets down because it’s different for everyone depending on, you know, are they, are they single? Are they married? Do they have kids? So for me, I sort of think, you know, if you’re going for a lane sort of fires, pretty much anyone under say about $40,000 for a single person, maybe a bit more for it, for a married couple or, you know, whatever sort of couple For regular sort of far, I’d say, you know, the 40 up to 60, 70 sort of range and then high fire to me is pretty much anything above that.

So, you know, I’m aiming for around about $80,000 a year for my family. So for my wife and I and the kids are at least part of that when I retired. 

Aussie Firebug: And is that factory in a house paid 

off? 

Aussie HIFIRE: We’ve already got pied off house. So, so it’s $80,000 on top of that. You know, if you’re renting there’s another 20,000 bucks a year that you’ve got to come up with pretty 

Aussie Firebug: much.

Absolutely. Because that’s a key distinction. It’s hard to compare numbers without knowing the full picture of someone like someone could say we’re aiming to retire on $40,000 a year versus someone that has a house paid off. That wants to retire on like 50,000. It’s a, it’s a huge difference between factoring in the house paid off and you’re not paying any living expenses like maintenance around the house rates, whatever for someone that’s renting and you’re going to have to cover those rental costs for the foreseeable future.

And then you’re going to have your spending on top of that. So it is a key distinction there. And I would say definitely, you know, 80,000 with a house paid off. That that is definitely what I would consider high fire myself. Because if you think about it, there, there’s plenty of families out there that are only have one income to support the family and who don’t even make $80,000 a year and potentially don’t even have a house paid off.

So. Yeah, I, I would, I would definitely put that in, in the high flyer category. So when did you, when did you discover find w what’s the story behind you stumbling across fly? And when did you say this? I like this concept and this is what I’m going to be aiming for. I 

Aussie HIFIRE: think probably like I’ve always thought about, you know, retiring early.

And then maybe in the early 2010 to mid 2010. And started seeing a few blogs out there. I think the first one that I saw was the frugal woods. And then maybe Mr. Money mustache. And I thought, okay, well, that sounds pretty cool, but I want a bit more money than that. You know, I don’t want to be sitting around and, and penny pinching the whole time and you know, just a porridge for breakfast every morning and all that sort of stuff I want to have, you know, I want to be traveling.

I want to be not necessarily, you know, eating out all the time or anything like that, but I want there to be more to it than I just sit at home most of the time. And then I think I started looking at, okay, well, what’s. What’s the same look like in Australia. And at the time I’m pretty sure you were the only one blogging was you were certainly the first one who I discovered.

So in some small part you’ve, you’ve been an inspiration for me in terms of all this. And then the more I looked into it. You know, there was, there was other sort of bloggers out there. You know, Pat life-long shovel and David Strong money and the FII explore and, you know, there’s certainly a lot more out there now.

But I think for me, it was just, you know, it’s always something I’ve been interested in that really sort of switched on probably about five to seven years ago. And then started reading a lot more about it at that sort of time. And then. As well as that are sort of, you looked at the U S scene and there’s so many different bloggers out there and there’s all the, here’s the mathematical breakdown of it.

And I think when I looked at the Aussie sea and there was probably less of the data driven sort of stuff, like, you know, what are the numbers look like? Does this, you know, w we all talk about the 4% rule and that’s great. It’s all based off us data and you’re going okay, well, If that’s where it is going to be based off.

That’s great though. I don’t live in the U S you know, I want to run the numbers myself. So some of, some of the first sort of stuff, which I put out there was about. Okay, well, would it actually work in Australia? 

Aussie Firebug: It’s awesome to hear that, you know, you read my blog so, so many years ago and it had some sort of inspiration on you.

That’s awesome for me to hear that. Was there like a burning desire for something that fire would enable you, like maybe more time with your kids or something like that, that, you know, when, when you started riding and when you started pursuing fire, that was a major region or reason, or was it just sort of you like what everyone was doing in the community and.

You thought this is like, that’s achievable for me and I’m going to pursue 

Aussie HIFIRE: it both. So, you know, some of it is just, you know, these are what other people are doing and you’re always going to, to some extent base what your goals are, what other people are doing. Like if nobody else is talking about, you know, doing it from this sort of perspective, will maybe you’re not going to think about it from that perspective either.

And you know, it might just be okay, what’d you can only do this. If you you know, Part of a couple, you know, no kids, both high income, all that sort of stuff. And if you, if that’s all that you see in the scene, well, that’s probably you’re going to go, okay, well, yeah, it’s easy for those guys, but you know, it’s, it’s impossible for other sort of people.

So that was part of it. And then, you know, but obviously my own goals were, you know, more time with the kids, as you say, lot more travel. Yeah. Just, just not having to work. I think, you know, having more time to not just with the kids, but more time for yourself as well, because some of the time when you have kids, it’s, you know, you’re spending all the time on the kids than at work and there’s, it’s sometimes it feels like there’s not necessarily a whole lot of time for yourself either.

Whereas if you’re going know, okay, well the kids are at school and I can just, you know, if I want, I can go out for a run, you know, just things like that. Whereas, you know, on the weekends, you’re going okay, well, you know, The priority has to be the kids that are, it should be the kids to my mind until you spending as much time with them as possible.

And it’s harder to, to do your own sort of stuff. So, yeah. You know, being able to travel, but also just being able to spend time with the kids, but having your own time as well, I think was a big part of it 

Aussie Firebug: too. Yeah, absolutely. I can. You know, coming from someone, we are in a, a dink couple, my cell phone, Mrs.

Firebug or she’s actually not working at the moment, but she usually is working. So w we’re both usually working full time without any kids. And I can definitely say even now without kids, how much of my time is eaten up by work and I’ve got Ozzy Firebug, which I do on the side and everything like that.

But I found that very on very early in my career that. There was hardly any time for myself. And I couldn’t even imagine how leave you threw kids into that situation, where there would be not a lot of time, but just a decent amount of time to dedicate. To not only looking after yourself and spending time on things that are important to you, but also just having that creativity time to make things that you just would never, ever do.

Like, I don’t know. My mom, she, she, during the lockdown and started to draw again and create, I don’t know if she’s painting at the moment, but. Little things like that. You never ever get to explore if you’re working full time. I believe with kids because when I first started working, full-time I just, my mind, my time was getting sucked from all over the place with sporting commitments as well.

And yeah, I feel like I realized that very early on in the piece that I need to, I need to get some, my time back ASAP and I don’t want to do this for the next 30 or 40 years. So let’s talk about what you actually will be doing in retirement. And when you achieve the financial independence, is there any, anything specific that you look forward to when you get to retirement?

Aussie HIFIRE: Just learning how to do new things and spending more time doing the things that I want. So, you know, I’ve. Lived in Australia for a fair sort of chunk of time. And as you’d know, when you go overseas, everybody goes are, you know, do you surf? Yeah. And when you say no, I’m like what? That’s something that all you guys done.

It’s 

Aussie Firebug: like, you’re not, you’re not, yeah. It kills me as well because it’s such a cool thing to do. And it is, I would love to learn how to serve properly and actually go on holidays to be, you know, go on surfing destination holidays. I go to Bali or somewhere where they’ve got some, some surf to actually take advantage of it.

So yeah, I’m totally with you on that. 

Aussie HIFIRE: Yeah. And then just things like, you know, I want to get out and I want to go for. I live near some great sort of trials and I’m into trail running, but realistically you get to do it, you know, once or twice a month sort of thing. If you could just go out and hit the trails, you know, a couple of times a week, geez, that would be brilliant.

Things like that. And then, you know, travel, I want to be able to do, you know, we were lucky enough. When we left Hong Kong that we had a lot of spare time and we did a two month road trip around the U S and it was. Absolutely fantastic. Like there’s just so much to see it’s such an amazing place. But it’s kind of you know, if you don’t have that time or if you don’t, if you’re not setting yourself up for fire, it’s a once in a lifetime time trip.

And I don’t want that to be the once in a lifetime trip. I want to be there once a year. So, but I think I think you last year, did you mind sort of going around Europe? I want to be able to do that. 

Aussie Firebug: Yeah, pretty regularly. Would you say, because the things that you’re saying so far, like surfing and like trail running doesn’t really cost any money or doesn’t cost a lot of money.

So it, would it be, I have to say that that the traveling is really the, the big luxury in your mind that you’re not willing to give up in pursuit of fire. And you want to actually build that into fire. Hence the high fire. Would that be fair to say. 

Aussie HIFIRE: Yeah, I think it’s probably more of a, when I retire, I want to be able to do it.

So along the way, yes, there is going to be, you know, a reasonable sort of amount of travel. It’s not as I’m going to give it up entirely, but I think when I get to retirement, it’s going to be, you know, here’s a, here’s a two months long trip, whereas while I’m still working well, I’ve got kids, who’ve got to be in school and things like that.

It’s, it’s a two-week long 

Aussie Firebug: trip. Fair enough. Now let’s Let’s pivot now and talk about how you are going to achieve financial independence. So if I may ask, what do you currently invest in? What is your portfolio portfolio look like? 

Aussie HIFIRE: Yeah, it’s a feral mix out there. It’s basically roughly speaking, actually.

I’ve got it here in front of me. If I actually want to look at the numbers on it at the moment, excluding the house. It’s about 80% in shares. It’s about 15%. Contain bonds cash, all that sort of stuff. And then the rest of the 10 property alternatives, like infrastructure, stuff like that. So it’s basically mostly in, you know, chairs.

And then within that to about 40% in Ozzy shares and roughly 60% in international shares, right. 

Aussie Firebug: And with the property exposure, are you just using Rhett’s to get that property exposure? Yeah. So that’s all in rates. Yep. Right, right. Cool. And I’m interested because you wrote a great article about bonds and bonds are a very interesting topic in the fire community, because if you look at the Ozzie five bloggers and even I think the U S fire bloggers are more, there’s more of.

There’s more us five bloggers that incorporate bonds into their portfolio. But most of the Ozzy five bloggers that I follow in that I’ve seen are sort of a hundred percent equities and they don’t really have bonds in their portfolio, myself included. So can you explain the role of bonds in your portfolio and why you have them in there?

Aussie HIFIRE: Yeah, sure. So bonds are pretty much in there as a diversifier. They’re there to when their share market goes down, either hold their value or ideally go up in value. And it’s just a bit of a cushion really. I don’t expect that they’re ever going to necessarily give me a huge returns, particularly given where rates are at the moment, but it’s also, well, these aren’t going to disappear.

If something goes wrong, you know, you’re not going to see the shoes sort of falls in bond values or not the type of bonds, which I own anyway, that you might inequities. You’re not going to have those shoes sort of swings. So, you know, you, you talked before about the importance of, of behavior and the psychology of fire.

A lot of people just can’t handle it. You know, here’s a 40% swing in the value of your portfolio. It’s just going to be now I’m out of this. This was insane. What was I doing? Everything’s gone to cash stuff. This for a joke. If you’ve got some bonds in there, then you can certainly reduce how much you afford.

You’re going to have. Now the flip side of that is you’re probably not going to see it run up as much or run up as quickly, but you’re probably going to see a smoother return out of it. And you sort of mentioned, you know, most of the Aussie bloggers who you follow don’t necessarily have bonds in there.

That’s probably also a function of age as well. So the older you get, generally speaking, the more likely you are to have more secure or you want more security in there. When you’re younger, you can just go, right. Well, everything’s air curries, you know, I’ve got a long career left. Well, you’ve got a long time working.

Yeah. Do you want to, hopefully you don’t have a long career. 

Aussie Firebug: Hopefully not 

Aussie HIFIRE: one sort of thing, but, but you know what I mean? In the U S community. I think you’ve got a lot more people who are potentially a little bit older and then it’s also just a much bigger investment class in the us then. Pretty much everywhere, really, to be honest.

In Australia, the bond market is just, it’s an afterthought at best. Asia, similar Europe, it’s bigger, but it’s nowhere near as important as what it is in the U S so a typical us investment portfolio will be 60, 40, basically 60% in equities, 40% in bonds. Whereas you come to Australia and you look at your default super and it’s supposed to be 70, 30.

In theory, in reality, most of them anywhere between 80 to 20 or a hundred zero sort of percentage wise, but. There’s just not the exposure to it in Australia. Like people, people haven’t heard of them in a lot of cases, it’s like, Oh, okay. What’s that? Whereas shares, everybody’s heard of shares. So Australia has got, and I think this is in part because, you know, we had to Telstra flight, there was a CSL float.

There’s a CommBank float, all the sort of retail ones that people got into and they sort of. It’s not necessarily that they understand shares, but they’re comfortable with them. And so when you talk about bonds and it’s like, okay, well, all you get is, you know, a coupon it’s never going to go up, usually in value.

If the company triples, then you still get the same old interest payments and Tucker. What I want that for. 

Aussie Firebug: And, and for those out there listening, because I really haven’t spoken about bonds ever on this podcast or in my blog for those, I, I know how they work, but maybe it’d be handy to just explain what, what are bonds and how do they work briefly?

Aussie HIFIRE: Yeah, sure. So bonds are pretty much you’re lending money to either a government or a corporation. And in return they say, right, well, we’re going to give you a specific rate of interest. We’ll give you this coupon payment on it. And in five years time, we’ll give you back however much money you put in there’s there’s exceptions to all those sorts of rules, but that’s basically the way it works, but because interest rates change because the value of, you know, the, the likelihood of the company.

Paying able to pay back its bonds. All those sorts of things can change. The price of the bond itself will fluctuate in value. So, you know, when interest rates go down, as they have been, the bond actually becomes more valuable. When interest rates go up, the bond becomes less valuable due to a variety of factors.

Aussie Firebug: Yeah. Do you buy and sell bonds on the ASX or is there another market for that? 

Aussie HIFIRE: I’d just buy them through an ETF. So there’s about there’s a whole bunch of different bond ETFs, which you can buy buy on the exchange. So Vanguard’s got on my shares. I’ve got Peter shares. I’ve got them. It means 

Aussie Firebug: that a basket of bonds from different companies and different government organizations.

Yeah. 

Aussie HIFIRE: Yep. So it’s pretty much the same as, or is it it’s an equivalent for bonds? Yeah. When you buy, you know, a vis or an 8,200 or Isaiah or whatever the case may be, in fact, they’ll actually probably be more bonds in there and they will be shares for, for most of the indexes. Yup. 

Aussie Firebug: So the key difference, I think from my limited understanding is when you buy shares, you’re buying ownership or part ownership of that company.

But the bonds is really just you’re lending money to either a company or a government entity. And they’re saying, you know, w w we’re taking 10 grand off. Yeah. And we’re going to pay you a fixed interest rate of whatever it is. Three and a half percent. I I’m not too sure what, what the rates are these days, but there’s some sort of rate and then they will pay you that rate.

And then once it reaches maturity at the end of like the five-year deal or something, then they give you, they give you your capital back to you. Is that sort of how, how it works? Did I get it right? Yep. All right. Cool. That’s 

Aussie HIFIRE: that’s pretty much exactly. So, yeah, 

Aussie Firebug: so it was a lot. Yeah, it’s risky. And it it’s that defensive asset in your portfolio, because like you said, people get to a point in their life.

And this won’t happen to me, you know, I’m not sure I’m still what I want. I like to consider very young in the investment game and everything like that. I’ve got to many decades of compounding to go, but I think you do get to a point where it’s not so much about making more money. You’ve already got that F-you money.

You’ve got the financial independence. It’s more about preserving that capital and preserving your wealth. And you’re not really, you can’t really be asked to. Fight tooth and nail for that, you know, five basis points, extra return or that 20 basis points, extra return. You’re more concerned about, is it safe?

Is it there? Can I rely on it? And I’ve, I’ve seen as it being a few stories about, you know, wealthy individuals not investing optimally, we, and this is back to the numbers and psychology debate, but they’re more just. Preserving their wealth and keeping it in really defensive asset classes, because that’s just, that helps them sleep at night.

And that’s how they feel comfortable investing, which is I find is really interesting as well. 

Aussie HIFIRE: Yeah. I think that’s, you’ve hit the nail on the head there. I mean, when you get to, you know, if your money or whatever you want to call it, you basically going okay. Well, do you really want to keep on letting it ride?

You know, do you want to say, okay, well, I’ve got, I don’t know, call it 2 million bucks invested and that’s enough. Maybe. So, you know, any x-ray you make or whatever the case may be, maybe you just go, okay, well, let’s put it into safer sort of stuff now. So, you know, if we have another big crash. Okay, well it’s still going to be all right.

Aussie Firebug: There’s a point of diminishing returns. Definitely. Like I think there’s my life. I could never see a difference between if we had, let’s say I’m just going to go like super, super high fire, just because, you know, I never know what we were aspiring to have kids one day, so I never know how much that’s gonna cost and everything, but let’s say we had 5 million invested in the markets.

I don’t really think my life would change at all between 5 million and 50 million. Like my lifestyle changes. Wouldn’t be different because I know, I know the important things in my life and it potentially, I like to think my spending habits wouldn’t change. And that’s probably been a little bit optimistic because I think as you do get more wealthier, there is a little bit of lifestyle creep and you can’t, it’s hard to avoid that, but even crazy luxuries for me is still relatively conservative for most people.

So yeah, the difference between five mil and 50 mil. Isn’t that much of a difference in my eyes. Like it’s a huge difference in terms of money, but the lifestyle that those two sums would grant me would be, would be very similar. Like I’d have to have a, I’d have to have a major mindset shift for, for those two songs to sort of create two different lines.

Yeah. 

Aussie HIFIRE: I can see what you’re going for there. I mean, Yeah, I guess it depends on, is it a case of you won the lotto and you’ve got 5 million versus 50 million, because if you win a lot on, you’ve got five 50 million. Well, you’re just going to go ahead and spend it, you know, like, I’m not saying you’re going to blow it a lot of it, but you’re going to go, okay.

Well here’s what my lifestyle is now. Whereas if it’s a case of, okay, well you’ve got 5 million. You want to get to 50 million. There’s going to be a lot more sacrifice along the way. True. That makes sense. It’s a lot longer 

Aussie Firebug: and it might not be worth it. That’s a good point. I think it, it depends really.

Yeah. Good point. Like if you were gifted that extra money, well, then you’ve got it. Like, cause I always look it up, look at it. And I think a lot of people look at it like. And am I willing to sacrifice so much of my youth and my life to get to a net worth of like, let’s say $10 million, which is like, most people will never get to that.

But if I work my ass off and I, you know, get to the CEO position or whatever it is, I could potentially get there. But then at what cost and that isn’t when I look at the numbers, it’s not worth me spending all my time and energy purely just so I can be wealthy. I’ve got to live a great life. During my working careers and during my thirties, forties and fifties.

So yeah. Yeah, I get what you’re saying. That’s a good point. Now, speaking of living a great life and just all the differences in the fire bloggers out there, I really pole polarizing topic recently has been children and the road to fire. Now you currently have two kids. How has that changed your mindset?

And is there anything that people need to, or people that are. On the journey to fire, which is me and Mrs. Firebug at the moment. Is there anything you would say to people that want to have kids in the future and also want to pursue their fire dream? 

Aussie HIFIRE: I think the first message has got to be look it’s doable.

It’s absolutely doable to have kids and still pursue fire, but it is, you know, th th the message is pretty clear on it. It’s going to be harder, right. Because kids are an additional cost. And I, and I know you, you know, one of the. The recent podcast, which you had with Dave and Pat, you know, there’s a, there’s a bit of talk about, you know, how much does it really cost to have kids?

Aussie Firebug: I think I know

on, on Facebook, not a shit storm, but it was a massive topic on the Facebook group. It had like over 250 comments because someone brought up the fact that, that I think, I think Pat said on that podcast summit, like You can even make money by having kids because the government incentives that they pay you money to have kids or something like that.

And I think, yeah, a few parents, your parents in the, in the group disagreed heavily with him. But yeah, I’m interested to hear what you kind of say. 

Aussie HIFIRE: I mean, the thing is like, it probably is actually possible to do that. It’s just that if you’re doing that well, you’re not going to be pursuing fire because, well, you’re not earning anything almost certainly because the government’s paying all the expenses.

But yeah, it’s, you’re not going to get far if you’re doing that sort of stuff. I can tell you that right now. I think the biggest cost, cause, you know, we always spend a lot of time or, you know, one of the first things that always comes up when you, when people talk about it and I’m planning up post on all this, but you know, people talk about, Oh, you know, the prayer it’s in the car seats and you know, it costs you this much.

And you know, I can’t believe people spend. It was 

only 

Aussie Firebug: me. That was definitely me.

Aussie HIFIRE: But the thing is like, it’s a one-off cost. Like, let, let’s say you spend, we spend, I’ll be honest here. We spend a grand on our prem. And it is an awesome prayer marking too. We’ve got it’s called a baby’s in yo-yo and it falls up to like the size of a desktop computer, I guess like a tower. So to case you can take it on prem.

It’s sorry. You can take it on. Applying fits really easily in the car. Solid as hell. You know, I love this thing. I go running with it. It’s that good? But it’s only a grant. And you spending at once, like, it doesn’t really make that much difference to you. And it’s the same sort of thing with the car seats.

It’s like, yeah, they’re expensive. Everybody buys them new because you know, you don’t know if something’s happened to the other car seat. If they’ve, once they’ve been in a crash, then they’re useless. So you go, okay, well it’s 200 bucks. It’s 300 bucks. It’s five. A hundred bucks. If you want to get one, that’s going to go for longer, but it doesn’t really make much difference.

The big things, which makes a difference in terms of the cost of kids are number one. What’s, who’s looking after the kids is somebody giving up their job. Are they going part time? Cause if they are well, you know, if you’re giving up. Good job entirely. Even if you’re working minimum wage here in August, that’s roughly $40,000 a year.

If $40,000 a year, isn’t going to put a hole in, you know, when you’re going to hit firewall, I want to know what the other person didn’t come in is because that’s pretty amazing. So I think that’s one of the big things there and if you’re not doing that, so that’s what we do. My wife is is a stay at home mum.

And I can tell you it’s harder work than what I do. By a long way. But yeah, if she was working, if we didn’t have, have kids, well, you wouldn’t have the ongoing cost for a start, but then on top of that as well, you know, you’d have that extra money, which is coming in. So you might be talking about, you know, even if you’re talking know minimum wage sort of job.

Okay, well, you’ve lost $35,000 after tax there. And then you’ve got ongoing costs of. You know, I’m writing the numbers at the moment. As I said, I think it’s around about $4,000, $5,000 for each of our kids, roughly speaking per year and they’re young. So yeah. No, it’s mostly just food things. Like we’ve got swimming, lessons, clothes, all that sort of stuff.

And it’s not a huge one, but it all adds up. Right. So yes, Joe told me a $40,000 swing between those things. Well, that that’s, that’s pretty huge. That’s that’s going to delay when you’re hitting it by a long way. If you’re saying said, okay, well, You’re going part time. Well, okay. Yeah. Then you’re doing childcare or after-school care or whatever it is, all those sort of things add up as well.

No matter which way you do it, like it’s going to cost you a fair amount just in that cost, which you’re not necessarily seeing to some extent 

Aussie Firebug: yeah. That, that, that opportunity loss that doesn’t actually show in the expense column, but is costing you a lot of money without you knowing it. Yep. Yep.

Aussie HIFIRE: Exactly. So know it’s a lot easier if you’re both working full time, you don’t have any extra costs. I don’t think at the age that our kids are out at the moment, I can’t really speak for what it’s like as they get older. I think it gets a hell of a lot more expensive just in the food bill, apart from anything else.

Then, you know, it’s. It’s going to add up pretty quick, you know, is that, that, that amount of money that you’re missing out on is just huge. 

Aussie Firebug: Yeah, that’s, that’s sort of cost it’s fair point. And I think, well, a major reason, you know, we’re on this journey and I’ve spoken about this many times is to have the time to spend with kids when, when we do have them, which isn’t too far away, hopefully touch wood.

And. I think the power of fire and the power of having a passive income, especially when you’re in your thirties, is that ability to have that secondary income or have that how that income, that isn’t reliant on someone working. So, you know, we invest through a trust and the plan will be when Mrs.

Firebug finishes work and. W she’s gives birth and I was on maternity leave and all that good stuff. A lot of, pretty much all the income from the portfolio portfolio will flow into, into her. And that will be a huge tax advantage because she will be under the, what is it, 18 and a half thousand dollars a tax-free threshold.

And any extra money will be taxed at a really low rate that comes in from the portfolio. Now I understand that not everyone will be in that situation, but I think it is. A great thing to aim for, if you want to have kids and you do want to fire to have that portfolio build up to a, to a certain level that you can take advantage of stuff like that when someone isn’t working.

And it was really interesting to read the comments on that post, that how expensive kids are in the fire group, the Facebook group. And I am interested because we have spoken a lot about. All the expensive things that can happen and all the costs that are associated with kids. But do you find like, is there surely there’s areas of having kids where you see other parents spend ridiculous amounts of money and.

There’s there’s some low hanging fruits that can save you thousands of dollars a year, that people that are free will, can take advantage of and not sort of just succumb to the norm and spend all this money on their kids. Like, is there examples of that? And I’d love to hear them. If there are. 

Aussie HIFIRE: I think a lot of it is just probably the stuff which you’re doing already.

Like, you know, if you’re being smart with your shopping and your, you know, you’re shopping the specials at Coles and Woolies and Aldi and all that sort of stuff where you’re saving a lot of money there. When it comes to clothes, like I know that there’s a lot of people out there who don’t like secondhand clothes.

I don’t like to get them from charity shops and stuff like that. Yeah, look, it’s personal preference, whatever sort of suits. We tend to buy a lot of our stuff out of season. So, you know, we wait until, okay, summer’s over. Everything goes on sale at target, came out, whatever it is. And you’re buying stuff for a couple of bucks that, you know, if you bought it in six months time, it’d be pretty much exactly the same or near enough to it.

It costs you a hell of a lot more, you know, it could be 20 bucks, it could be 30 bucks. So to start, so just buying stuff. No two seasons ahead effectively. So that’s something which really sort of factors into it. I’ve been to some bios day parties, which are better than any birthday party I’ve ever had.

I’ll tell you that there’s there’s the cake and you look at the cake and you go, well, I bet you that cost, you know, 50 bucks, a hundred bucks, and then you look it up online. Cause I was looking at cakes for some work stuff. It’s like 250 bucks. I’m just like jewel drop. Yeah. I mean, I think we baked ours from a packet mix or something like that, but nobody is flying dried.

I mean, nobody. Okay. Don’t get me wrong. This cake looked awesome. And I’ve seen a few cakes like this and great. Okay. It didn’t look quite so flesh. So what delighted the parents delighted didn’t didn’t matter, you know, birthday parties, one of those things where you just see people spending. What I would call the ridiculous sort of amount of money in, and we’re just sitting there going okay.

As costs like a hundred bucks for food for everyone, you know, she lost 

Aussie Firebug: that. The thing, like that’s the thing that I find, I find that the people that spend a whole bunch of money on their kids, is it really for the kids or is it too. Make yourself look like the best parent at the party or something like that.

Like honestly, they get it. They, there comes an age where like cool brands and clothes and stuff sort of matters for like a social status. And that’s a whole nother debate about children, you know, getting teased because they’re were in like, not the best brands or something like that. That’s a whole nother debate, but when they’re really young, like, do they really care if they’re dressed in.

A secondhand shirt or, you know, a brand new nice shirt for a kid that costs like 20 bucks or something like that. I dunno. Like, it just seems crazy to me. And it’s almost, that’s 

Aussie HIFIRE: where you’re pointing it. That’s a pocket. Oh, I 

Aussie Firebug: don’t know. I deal with kids’ clothes. Kids’ clothes were cheaper, but obviously not, but yeah, I feel like it’s a, it’s a bit of a pissing contest between the parents at a lot of these events and even just with.

A lot of these purchases and it’s going to be really interesting for me when we have kids to see that firsthand, because we’re not in that circle when we haven’t, we’re not in that stage of life yet, but we’re very close. I actually want to get someone on the podcast specifically talking about this, so that is coming up.

Cause I know it’s such an interesting topic and a lot of people want to hear about it, but yeah, it’s, it’s very, it’s very interesting and. I it’s hard for me to know, like the specific numbers for children, because we haven’t had them. And I, I love to dig in to the specifics of how much everything costs and from what area they’re in and stuff like that.

But I feel like that’s another podcast, but it needs coming up. Very pole polarizing topic amongst the community. That’s for sure though. Now tell us about, you’ve got, you’ve got a blog, Ozzie Hi-Fi dot com. Tell us a bit about that. How did that start? And what’s it all about? 

Aussie HIFIRE: So the blog is sort of, it pretty much tells my story and then it pretty much just comes up, whatever, whatever sort of hits my mind at any sort of given time.

I mean, for a while there, I had a series on sequencing risk and just talking about you know, It has it all work out because, you know, whenever you see all these compound interest calculators and things like that, it always just says, you know, you have a smoother return at 7% per year and whatever it is everything goes along and then 11.13, nine years, then you’ll hit your fine number.

And. The reality is it doesn’t sort of work like that. You know, markets don’t give you smooth returns. They give you really lumpy sorta one. So, you know, I did a whole sort of series on that. And then, you know, after that, it’s, it’s pretty much whatever sort of works for me. So a lot of it, as, as we talked about is data driven.

So. Yeah, I think one of the, one of my posts, which you very kindly re blogged or retweeted or whatever the terminology is, was on imputation credits back when seems like a lifetime ago, I think it was probably about a year ago now really when label was proposing to change that. So, you know, I wanted to look at what the numbers are.

Around that. And then yeah, just, just wanting those sort of vein. Another one I had was, you know, what’s the difference between, you know, you see it on Reddit all the time on, on the FIS Australia, sub Reddit, people are talking about, Oh, you know, I should, should I have 8,200 or should I have vests?

Or should I have iOS ed? Or, you know, w which of these, these low cost funds should I have? And yeah. Yeah. When I crunch the numbers on it doesn’t matter. I could really, any of them is fine. They’re all coming out with almost exactly the same result. Once you get down to, you know, we’re talking about a couple of basis.

This point’s different. It’s irrelevant. Really isn’t and people are spending huge amounts of time talking about, and you’re just going, I just got sick of it. And I was actually talking to that other fire blogger because I was working on a post and it’s just like, I had a 4,000 word monstrosity and I didn’t feel like I’d actually said any.

Yeah. And you just go and nobody’s going to read this. Like, I can’t even read it myself at this point in time. He said, well, why don’t you break it into two? And I thought, yeah, I guess, I guess that could work. Eh, and it sort of  out of that is, okay, well, what are the main sort of points? And one was about, you know, cutting costs on, on your living costs and the other one was cutting costs in your investment.

And, you know, we sort of came to, okay, well, He’s the big one that everyone’s always talking about. What’s it look like in terms of that? And the post just sort of blew up it’s by far my most popular post out 

Aussie Firebug: there. Yeah. It’s a really great post. I’ll put that in the show notes as well. It’s it’s the 8,200 verse VAs and what’s my weapon debate.

It’s a brilliant post I’ll. I’ll put it in the show notes for people that want to read cause it’s really good. 

Aussie HIFIRE: Yeah. And then sometimes I’ll just talk about, you know, whatever sort of is on my mind. Reviews of what I’m up to, you know, how things are going in terms of my saving all that sort of stuff.

And I mean, as you, as you said earlier in the show, look, a lot of this is behavioral as well. You know, for me, the numbers side of it is the easy part and the investment side is easy part. I’ve been doing this for 20 odd years in terms of investment, like I’ve been in the market for I’ve owned shares for nearly 30 years now.

I think the, you know, I worked in, in this on the institutional side where you’re talking to hedge funds, you’re talking to asset managers, all those sort of guys, and I feel like I’ve career really, really good sort of grasp on it. Most people don’t Unfortunately, because you know, I’d look, it’s not what they do.

This is what I did for a living. I don’t know anything about, you know, God, if you handed me a ranch, I don’t know what sort of damage I do, but you don’t want to be doing that. That’s for sure. So I just took, you know, for me, that sort of part of things is easy. For a lot of people it’s not, but. I think a lot of it, as well as just talking about the behavioral sort of side of, okay, well, what are the things which are important?

What are the things which aren’t important? What is it that’s going to help you, you know, stay the course. And so some of the posts might be about, you know, the importance of diversification, because if your, you know, if you’re going to, as we talked about earlier that you see the, the value of your investment fall by 40%.

Well, Some people just, aren’t going to be able to handle that. And there’s just, there’s nothing wrong with that. I mean, Jesus, it’s, it’s not necessarily even. It’s very understandable. Okay. Well, you know, something just fell by 40%. What’s to say that can’t go to zero necessarily, you know, your primal fear takes over at that point.

But then also I’ll talk about, you know, these are the things which I think are important that not necessarily everybody is talking about. So emergency funds, you know, is probably, to me, probably one of the first things which people should be looking at, it should be instead of RK. Well, I’ve managed to save up $10,000.

What do I do with it? It’s like, well, you need to put that into your emergency fund. First of all, because if something goes wrong, well, what do you do? It is staffed pretty much. And then, you know, personal insurance, cause again, the same sort of thing, you know, if you can’t work again for most of us know, particularly for you, you’ve got another, well, you don’t have, hopefully you don’t have another 20 or 30 years, but if you were the average sort of person out there, you’re going, okay, well, I need to have this income coming in, you know, and if I’m not protected, then what am I going to do?

And everyone goes, Oh, well, you know, I’m in the fire. It’s not a big deal. And it’s like, yeah, but you’re starting. Like, it’s not a big deal when you get to the end. Yeah. You know, if you box in the bank and it’s going to provide that, you know, 70,000, 80,000 bucks worth of income, whatever it is, great, happy days you’re set.

But if you all, you’ve got $20,000 saved up and all of a sudden you can’t work again for whatever reason, then what are you going to do? Like, you’re just going to leave off settling for the rest of your life because you can’t work. Like it’s not, it’s not your fault necessarily that you can’t work, but what, what’s your plan?

Yeah. 

Aussie Firebug: It’s about protecting probably your most important asset, which is the ability to have a. Income and compare it comparable to the returns of your portfolio, especially when you’re starting out. It’s your income is everything, you know, it’s, it’s the one that’s driving the whole ship or pairing the whole ship.

And it’s not until you get to the very end that you can really switch, switch pilots and change to the portfolio. And I have to admit that’s something that I. Probably have neglected during my journey, which is seriously looking at income protection and stuff like that during the journey. Cause we don’t have anything whatever’s in our super is sort of everything that we have and we don’t invest in any sort of insurances other than house, house insurance and car insurance outside of what’s in super.

But it’s very. Very interesting topic and something that probably isn’t talked enough about in the fire community. Yeah. 

Aussie HIFIRE: It’s just one of those things where everybody, you know, there are either I don’t need it and you go, well, yeah, you kind of do or . Yeah, exactly. Well, it’s like any insurance, right?

Like. The crazy thing to me is, you know, everybody goes, Oh, you know, as he current short. Oh yeah, of course it is. You know, this is your house in short. Okay. Yeah, of course it is, you know. Okay. How much is your house worth? 500,000 bucks. Okay. And how much is your future income worth? I dunno, I will. You earn a hundred thousand bucks a year?

You’re going to be working 40 years. It’s worth 4 million bucks. 

Aussie Firebug: Isn’t that funny? When you say it, when you say it like that, it sounds like it makes a lot of sense, but it’s just. I dunno what it is. There’s some sort of psychological thing about not like maybe it will never happen to me. Like, I don’t know the statistics about how often you, how, how many people crashed their car in their lifetime versus how many people will potentially have a major.

Accident that will impact their income. Severely I’d love to see the numbers like speaking to data-driven because I’m like, I’m going to be like that 

Aussie HIFIRE: myself. When I looked at it, like one of the insurance companies was basically saying you’ve got a one in three chance of being out of work due to illness, injury, whatever it is for more than three months.

During your working life. And then I was looking at something else and it was something along the lines of roughly 20% of the population is actually disabled. 

Aussie Firebug: Really? 

Aussie HIFIRE: Yeah. A lot of those are going to be old people, right. It like it, sorry, not the working age population, the whole population. So a lot of that’s going to be in that, but if you go, okay, well, Well, that’s three quarters of it.

It’s still 5% of the rest of the population yourself. 

Aussie Firebug: Way more than I thought 

Aussie HIFIRE: so. And, and you just don’t see it, right? Because you know, when you’re at work, you would, everybody else is obviously capable of working. So it’s, self-selecting to a large extent, the ones who, who can’t work anymore, when you’re not seeing them at work, you’re not seeing them at 40, you know, you’re not seeing them at.

No, they’re probably not necessarily going out off a whole lot. And I just become invisible and you don’t see them because, well, they’re not there. 

Aussie Firebug: Mm. Yeah. It’s not, not at the forefront of your mind. Is it? Whereas like you might say, you know, car accidents happen every day, it’s on the news. It’s in the papers.

No, it’s rarely. Yeah. And even when people see someone losing their income, it’s, it’s sort of that. You know, invincible attitude when you’re young, it’s never gonna happen to me sort of thing. Yeah. 

Aussie HIFIRE: And there’s a great Ozzy, you know, she’ll be right, mate sort of had a tutor as well, which doesn’t really help, whereas that guys.

So now it’s interesting because you see this huge difference between, you know, because when I was writing the blog, I sort of looked at, you know, what’s it look like for the U S versus Australia and it’s just night and day. Like, it really is, you know, lots of countries are just so much, you know, it’s just.

Here’s one of the things that you do. Whereas in Australia it’s like, no, why would I need to add, or, you know, it’s in my super and you’re going okay, well what’s, how much is it? I don’t know. Well, how it enough then? Yeah, yeah, 

Aussie Firebug: yeah, yeah, absolutely. It is. It’s an interesting topic, probably a whole whole nother debate.

A bit about that and you know, what’s right. What’s wrong. And how much, you know, a lot of people do say it’s in their super, but you know, how, how good is it? What sort of coverage is it? Stuff like that it’s probably worth something. You know, to look up I encourage anyone listening to check it out, what they’re covered for and to see if they’re happy enough with that coverage wrap, wrapping things up, mate.

Cause we really coming on to an hour. Now what’s one piece of advice that you’d give to any Ozzie out there that is pursuing high fire. 

Aussie HIFIRE: Just one, you just got a little it to the middle one here. 

Aussie Firebug: You can say me, you want but I usually say one because. Well, I was gonna say usually there’s, there’s a, a really important thing to have, but, you know, surprise me if you’ve 

Aussie HIFIRE: got multiple.

I think that protect yourself on that we’ve just talked about is probably one of the more important ones. Like that’s huge, just making sure that, you know, if something goes wrong, you’re going to be a ride. It is a massive sort of thing on top of that, I guess, just knowing what you’re actually spending your money on.

If you don’t know what you’re spending your money on and like, it’s great. If okay. If you’re going okay, I’m saving 50 grand a year, no problems, you know, then, okay. You don’t need to worry about it for most people when they actually do the real sort of numbers, when they, you know, Download the bank statement or, you know, they use whatever sort of app it is that, that does all this stuff.

I think most of the banks will now tell you, you know, this is what you’re spending the money on. And all of a sudden, there’s this eye-opener of Holy hell. I’m spending 10,000 bucks a year on eating out or something like that. I think somebody was telling me that had Brendan for Vola that the IFL player, X IFL player, he ordered something like a thousand different Uber eats meals over the course of the year.

And you get on individually individual meals. Like, I don’t need that many meals over the course 

Aussie Firebug: of a year. I’m pretty sure Molly. That’s like more than that, that’s like, Oh, it could be 

Aussie HIFIRE: numbers there, but it was yeah. 

Aussie Firebug: Three meals a day or just under or something like that. And 

Aussie HIFIRE: you get away. People are obviously like, it’s not to that sort of extent for, you know, everybody goes higher.

We just, we don’t add how much, you know, once a week sort of thing. And you go. Well, hold on. Yeah, you ate out for lunch every day and then you ate out three times. It’s not once a week. There’s always something like that. It might be, you know, the people just don’t think about you do this every single day or.

You know, you do it a bunch of times a week, but you think you’d do it a lot less, or you just don’t sort of look at what those numbers add up to. It’s like the classic example is always the, you know, the cup of coffee and you go, okay, well you have this cup of coffee and you don’t have the course, you it’s a thousand bucks or whatever.

A cup of coffee doesn’t really make that much difference. But you know, there’s always some sort of expense out there or, you know, buying clothes or shoes or sporting equipment or computer games or whatever it is. There’s always know what you’re spending. It’s probably the big thing there. It’s very 

Aussie Firebug: important.

Yeah, no, the, you never know your financial independence number, unless you can accurately gauge how much you spend to maintain your current lifestyle. So that’s always, yeah. Huge, hugely important. Couldn’t agree anymore. Well, mate, it was an absolute pleasure having you on the pod. Thank you so much for making the time and Yeah, I really enjoyed it.

Thanks 

Aussie HIFIRE: for having me. 

Aussie Firebug: Well, there you go guys. Aussie high fire himself talking about the high fire lifestyle. I’d be interested to know what you guys think. Does the high fire lifestyle appeal to you? Maybe you’re the opposite. Maybe you want to pursue lean fire or barista fire, regardless. I think it’s an interesting topic and I hope you guys enjoyed that one as much as I did making it.

As always Eve gloss like these podcasts, one of the best things you can do to help me out is give me a review on iTunes. I checked the other day and we’re up to over 300 reviews, which is awesome. I appreciate all of them so much and it helps to bump up the podcasts in the algorithms are much appreciated.

That’s it for today? Hope you guys enjoyed it. I’ll see you on the next episode. Thanks guys for listening to another episode of the Ozzy Firebag podcast for links to all of the resources, plus an entire transcript of this episode, head over to Aussie fireboat.com. Make sure you never miss out on another episode by subscribing now on iTunes or SoundCloud.

Coming soon

Aussie Firebug: Hi, Dev, welcome to the podcast. Thank you so much for coming on.

Dev: Thank you for having me.

Aussie Firebug: For those out there who don’t know who you are, Dev, why don’t you give an overview of who you are and where you’re from?

Dev: Yeah, sure. I rise. So my name is Dev. I’m based in Melbourne in Australia. And a bit of background about myself. I’m a medical professional. I’m actually a practising doctor. We arrived as a child in 1990 from India with my family. And this was this was at the time I the start of Australia’s recession. So I was basically a 90s kid. And since then, you know, my patients, which I see are actually born in the 90s, which is pretty scary, given that, you know, technically I’m a millenial.So I work full time in the field of field of medicine. A part from medicine, my passion really is finances and teaching since I’ve been in medical school. So  this sort of is a sort of a part time gig, which which I’m really interested in.

Aussie Firebug:Yeah, nice. Now to your doctor from Melbourne, which is really interesting because there’s a bit of a stereotype that doctors are bad with money. So I have to ask you, first of all, is that stereotype true in your opinion?

Dev: Yeah, it’s interesting, look, doctors do struggle with the concept of money and finances, and I do get a lot of questions from doctors who can get quite easily confused with saving or investing or debt reduction or financial principles on a guess which which can be quite a surprising thing to find because when you think about it, most doctors did reasonably well at school and then went to medical school, which wasn’t generally easy to get into, and then went on to become specialists. They are Generally quite a bright bunch, but a lot of them also don’t have the slightest clue about finances or money. So I think the general stereotype, although sounds a little bit extreme, but in my sort of personal experience from the questions and the types of questions that I get from doctors and sometimes nurses, yeah, a lot of them don’t have much of an idea about money or finances.

Aussie Firebug: It’s really interesting because like you said, everyone knows how much schooling you have to go through to become a doctor and yeah, it’s usually the bright, the brightest people go and get the right sccores do the exams and become doctors. So it’s yeah, it’s very, very weird that there is that stereotype that seems to be a true that doctors are perhaps not interesting in finance maybe. Is that something that you’ve come across?

Dev:  I think if you look at a life of a doctor or how you become a doctor, for example, is a fair bit of temptation for doctors to, you know, as soon as a graduate, you know, by the fancy cars or big homes. I guess thinking about my sort of medical career, it was six years of medical school. Then you kind of become a doctor, called an intern. You haven’t really seen any money until then. So there’s a fair bit of temptation to spend money and buy things you probably don’t really need. And one of the things that I find interesting is when I became a doctor, the skills as a doc doctor or even as an academic doctor are not easily transferable to the world of finances. So the assumption that being smart to get into medicine automatically equals being smart with money is quite incorrect.And, you know, many doctors get into the habit of really focusing on their career and subsequently sort of leave their finances on the back end, on the back track and not really think about it actively.

Aussie Firebug: Yeah. And I guess that’s true for a lot of professions, not just doctors. What my sort of confusion there and I think a lot of people just assume, yeah, like you said, they’re usually the smartest people or the brightest bunch of people. So you would just put two and two together and think really smart people are good with money, but it doesn’t necessarily work out that way, which is really interesting.

Dev: One of the things that I get asked a lot, actually, you know, even in it when your consulalting patients, is there is quite a misconception with patients sometimes sayin “oh, you’re a doctor, you must make a lot of money. You must not even think about money because there’s so much money around”. And that’s a sort of general conception that patients of the general public have in terms of doctors, you know, big houses, fancy cars, happy family, all that sort of stuff. In a lot of cases, from certainly from a financial point of view, that’s that’s actually not true. I’ve had some doctors have contacted me who are in financial strife just and sometimes I wonder about how did you go so wrong or how did you get the basics so difficult?

Aussie Firebug:Do you think there’s a bit of keeping up with the Jones amongst the medical professionals?

Dev: I think there is some element of that, but I think a lot of the element is just the doctors just not concentrating on on money per say. It is a bit of a taboo topic in the medical profession to discuss finances and money. The vast majority of doctors don’t do medicine to make a lot of money despite what a lot of people might think. That’s actually not true. A vast majority of doctors do it for the right reasons. But this byproduct of that is if you are a great doctor, then you will get a lot of patients. If you see a lot of patients, you will make a lot of money. Then you become a great doctor because you’ve seen a lot of patients. You’ve far more experience and the average doctor. And of course, you see a lot of patients and you make a lot of money. It’s a bit of a cycle. And I think that’s where you can get quite busy and quite engrossed in your profession and not really focus on your finances. And I think to your point, there is a bit of keeping up with the Joneses, but there’s also a fair bit of, look, I’m not very good at finances, I’m very good at medicine. So therefore, I’m going to go out and let my accountant deal with it or let myAdvisor  Deal with it and not really spending the time to learn about finances themselves. And I think that’s a real issue. And of course, in any medical school finances is not taught. And I think in any Australian university degree, finances are not taught. And I think the first time a doctor may have some sort of inkling about learning about finances is when they actually become a consultant, which is, you know, six years in medical school, maybe up to sort of six to 10 years of postgraduate training.You’ve done all that training. And eventually there’s probably a, you know, two or three hour seminar about how to set up your private practice. And they’re talking about finances and trust accounts and all that sort of stuff. And that’s sort of gets squeezed in when perhaps that should have been discussed quite early in the career.

Aussie Firebug: You know, that’s super interesting for me to hear. I’ve I’ve actually had a few friends that have gone on to be doctors, but they weren’t really close friends. So I’d like to get the information from a doctor. How does it work? If you want to become a doctor, you go to university, how many years or how long does it take from you?Study uni to actually become a doctor? And what is sort of the salary progression like? Because people do think as soon as you become a doctor that you must be minted earning hundreds of thousands of dollars, which assuming that you do eventually. but what sort of the how many years is it take to get to the big bucks, 

Dev:It’s a good question. So certainly in Australia there are two pathways for medicine. One is the undergraduate pathway, which is fast evaporating. I think a lot of the medical schools are converting to the American style post-graduate pathway. So for ease of ease of clarity and future proofing this podcast episode, perhaps we’ll talk about the postgraduate pathway. I went through the undergraduate pathway but not many universities offer that anymore. There are some who do say if if you if you took the postgraduate pathway, you know, after year 12, you get into pre-med and sciences, which is usually three to four years. Then you’ve got to sit an entrance exam called the GAMSAT or and and sit an interview panel. And if you’ve got in the first attempt, then medical school is generally about four years after your first degree. So you’re already looking at the earliest if you did a three year science degree. You’re looking at the earliest finishing up medical school is about seven years or so. Now, if you took the old undergraduate degrees, which I did, which is around six years. So you’re sort of on par with that. Once you’ve done the seven years of training, you need to do what’s called internship, which is kind of your apprenticeship really, where you get assessed every sort of three months or so. And subsequent to that, you become a resident medical officer or hospital medical officer, depending on which part of the country you’re from.So then you become a doctor without having to have active supervision so that when you’ve finished your internship. So now we’re probably about sort of eight, nine years down the track.And then you’ve got to start thinking about what specialty you want to do. Now, the shortest specialty in Australia. If you’re lucky to get in first attempt is general practice. You still need to do a post-graduate training for that, which is at the very least three years. So the shortest pathway to becoming a specialist in Australia would be eight plus another three years equalling about 11 years or so. Now, if you were looking at other specialties like surgery, opthamologist, a gastroenterology and all this sort of subspecialties you’re probably looking at about sort of 14 to 16 years, at least sometimes even longer. Now, the difficulty about medicine is that you’re constantly having to sit exams. So even if you get into a postgraduate training programs, you need to sit an exam to get in. You will get assessed every six months.And after you finish your training, whether it be general practice or other super specialty programs, you will need to sit exams during your training, but also sit exams at the end of your training and then go on to exit exam. So a lot of special specialist colleagues have that. I guess one of the what we are sort of called the bottleneck and what tends to happen is that either you either never get into a program or you get into a program, then you kind of sit these exams, which hopefully you’ll pass the first attempt.Now, most people probably will pass the first attempt depending on the specialty, but a lot of them won’t. So if you got through medical school, got through internship, got through residency, got through registrarship all in one hit without having to restart anything, you’re looking at at least 11 to 16 years depending on what specialty you choose.

Aussie Firebug: Well, that it is. That is mind boggling. At what point are you actually earning money? Is it that when you get into the the officer stage?

Dev: You start earning money as an intern. So they’re asked basic salaries for interns across Australia depending on the state.So you’d find that the populous states like Victoria and New South Wales with a lot of interns tend to get paid the lowest. Whereas if you went to South Australia or Northern Territory, your internship salary is higher because they want to attract doctors to those areas. So you do get paid as an intern and that’s all set wage. Then as a resident, your salary increases and this is all in public health. So you can’t privately practise in Australia unless you’re a fellow, unless you’ve fully completed all of your training. So you must stick around in the public system and then you start earning some money in residency. Then if you get onto the program in in surgery or general practice or physician training, then you earn a little bit more. And of course, each year the hourly rate increases depending on your experience. And that’s all governed by the enterprise bargaining agreement. So you don’t have any bargaining power on that. So it’s a little bit different to IT, where every job has a different. Hey, you can sort of negotiate. Whereas if I was a registrar in surgery at the Royal Melbourne based on year three, I will be getting paid roughly the same as St Vincent’s Hospital or Monash Health. You know, it’s all sort of governed by the public health LBA. So you do make money. But in terms of, you know, serious money, I would argue you’re probably making serious money midway through your registrarship, which is your specialty training and possibly when you’re a consultant.

Aussie Firebug: And what are we talking here like for the interns? And then the I forgot the second one.What would an intern start on? That’s about six years to get to an internship. Is that right?

Dev: I fondly look upon my internship and I think my base salary was like nineteen and a half bucks an hour or something like that. I’m not particularly sure what the hourly rate is these days, but I would say as an intern, if you’re making less than sixty thousand dollars as a starting salary, I’d be pretty surprised. And of course interns are very protective and they’re really not allowed to work more hours in what’s scheduled. Whereas when I was an intern, it’s free for all. It work, you know, 60, 70 hours a week if you wanted to. So residency probably looking at about sort of, you know, 80 to 100 thousand, depending on how much extra work you want to do. And of course, that sort of increases. And registrarsship you probably looking at, you know, sort of between sort of eighty five and and, you know, potentially, you know Hundred thirty one hundred and forty thousand, depending on the specialty that you do.To give me an example, if you’re a registrar in surgery, you’d make a fair amount of money as a registrar in surgery. But of course, with that is a fair amount of work as well as you constantly on call and having to work extra hours. So you do. You do make money, but on a per hourly rate, it probably doesn’t work out as much.

Aussie Firebug:Yeah, definitely. Like, you know, as you said, sixty thousand, even 80 to 100. That’s that’s good money. Definitely. By any profession. I think the median income in Australia for a household is is something like seventy or eighty thousand. And that, you know, most of the time includes two people. I don’t know how they work that out, be it household to me. Yeah, two people maybe once not working, but that’s still good money anyway you look at it. But I guess when people think of doctors, they think, you know, if you know a couple of hundreds of thousands of dollars, which you eventually do get to in the end.But it’s interesting, very interesting to hear you speak about the process and how long it actually takes to build up to that. The other question I had as well, how much does a medical degree roughly cost? What is typical, hexed debt at the end of a 11, 12, 13 year degree.

Dev: Yeah. So in Australia, we’re very lucky, unlike our North American colleagues, where medical school can cost in excess of three hundred thousand dollars for six years.it’s an absolute rort in America. In Australia, we’re very lucky to have Hecs or help.Essentially, if you get the marks, you get into medical school under what’s called a merit system and hecs and help debt I think nowadays is, between sort of 7-8000 per year. I don’t know exactly how much it is nowadays, but certainly when I when I graduated, I graduated with a Hecs debt of less than 40 grand over 6 years. So and the beauty of that is you dont have to pay any of that upfront. Your your cost to study is basically your living expenses. For me, it was, you know, living in Tasmania had to pay for my water, my rent and all that sort of stuff. But I had a scholarship and a stipend from the government that helped me. Butyou dont need to foot that bill up front, which is I think is a fantastic system because otherwise people like myself would not have been able to afford to study medicine in Australia. There is another way to do it. I think there is something called a full fee paying student. Now, I think you still need to get the marks to get in. There are some universities that also full fee paying students. That’s for Australian citizens in addition to international students. And of course, if you go through that pathway, you’re you’re looking at at least sort of 30, 40 grand a year in terms of tuition costs. But most people in Australia wouldn’t be at all for that. And that is not the majority of students that go to medical school. And I think I think even in my class, the class of 2006, (if you’re listening. Hello) most of them came from average families and all of them were merit based.

Aussie Firebug: Very interested. Yeah. I sort of I just had in my head that it was like, yeah, roughly like close to $100000. I dont know why I thought that. But to hear that you graduated with such a small hecs debt, that’s I think that’s a good thing. Australia needs more doctors and if we make it like the American system or it eventually does become like the American system would make a career like medicine offputting. Like if I have children one day and they aspire to be a doctor and if it costs three hundred thousand US dollars to become a doctor I’d be like, well if you really like it, go for it. But then that’s such an off putting figure and such a hurdle that you gotta get over, especially if you don’t come from affluent family that has a lot of money to help you pay for it.

Dev: Absolutely, I mean, I always sort of view debt as not a great thing. I know there’s technically good debt and bad debt, but I always imagined debt to be trying to swim a lap of, you know, 50, meet a lap pool with an anchor basically weighing in on your feet. If you’re graduating from medical school with a debt of $300000. You can imagine why the North American health system. The American health system is so expensive because then the fees and charges and the procedures mean doctors will have to jack up their bills because they need to pay their student loans off. Medical care in America is so much more expensive than what it is in Australia. I think fortunate we are very, very fortunate in Australia to have a great public health system. And I’m spruiking it a little bit, but I’m very fortunate to get to work in a health care system that’s fairly equitable and also very fortunate to live in a country where you don’t need to be a millionaire to become a doctor. I think that’s that’s fundamentally still achievable today in Australia.

Aussie Firebug: Yeah, for sure. That’s very good points. And I’m in London at the moment and I live with the nurse who is working in the medical system here, the NHS.  Australia does have that reputation to have it of having a really good health system Even here, she said that the nurses and medical professionals do recognise it as one of the best in the world. So that gives me a bit of pride, you know, coming from Australia, knowing that we’ve got such a good health system. So, yeah, that’s a good thing. Definitely.

Dev: But I think that just your run knowledge is if there if if a UK citizen walked through an Australian hospital and certainly at the hospitals that I work at, they get free health care here, too. We have reciprocal rights. 

Aussie Firebug: I like the Commonwealth connection there. I think that’s a good thing. So why don’t we transition and Why don’t you tell us how you become interested in the world of finance and fire? And was there a light bulb moment or did you just stumble across it?

Dev: Yeah. So, look, I’ve been I’ve been frugal all my life. I wasn’t as I explained before, I wasn’t born into a wealthy family. You know, I come from come from an immigrant family, arrived here in 1990. One of the things that my parents instilled in me is in fact one of the reasons why we came to Australia was we wanted a fairer system and Australia offered that. My parents always instilled the value of hard work and also the value of not not wasting money because we didn’t have much money to waste when we came in and that sort of translated all my life in high school. When I did get into medical school, I was fortunate enough to get a scholarship and a stipend from the Australian government. I used to study for six years and I had to learn to be very careful with my money. So there was only, you know, set amount of money coming every month. And I had to be very, very careful. Now, I’m not sure whether you’ve been to Tasmania any of. When I lived in Hobart, one of the things that I found really interesting was the electricity bills were quite expensive. And I was well known to turn off my hot water system overnight so that I can save on electrcity bills, So I was a bit of a stingy bugger. That sort of carried through  medical school. I applied basic financial principles and I said I have to say 50 per cent of my scholarship and stop and money every month. That was my goal. And by the time I finished medical school after six years, already learnt the importance of saving and I had a sizeable lump saved, ready to buy a house pretty after 2007. So that sort of principle continued throughout my internship and residency, which I finished in 2008. And in 2009 I started investing outside of super and this sort of started off as a research experiment, to be honest. And then I thought about retirement and how to maintain the lifestyle in the long term. I didn’t have any formal plan back then, and I initially started off in the top 20 stocks of Australia, the ASX 20, and branched out to index investing. In 2009 I bought my first home, which is that was part of my saving because I’ve saved a lot of money for medical school. So I didn’t really know anything about fire when I was doing all this. And the irony behind by my first time was I thought I’d paid too much for it. Never in my wildest dreams did I imagine the property market to end up where it is today. And subsequently, between 2009 and 2013, when I started doing research about investing, saving debt, et cetera. Two names kept coming up. One was Jack Bogle, the founder of Vanguard, and the other one was J.L. Collins. And I started listening to another American podcast called Dave Ramsey. His American based. I’m not sure whether you’ve heard of Dave Ramsey. There have been out there that. And then then by 2013, now we’re looking at sort of, you know, how many years now? Sort of six years after I finished medical school, I’d consistently invested money outside of my super, super into the index funds. And I noticed one of two things. And again, but until then, I had no idea about fire. And I noticed one of two things. One was the investments happened behind the scenes because I’d set up an automatic system by BPay which is very similar to super contributions. And the second thing I noticed was I’d received dividends the entire time. Now, I wasn’t really aware about dividends And despite my core value of investments rising just a little bit over those years, when I took the dividends into account, this is what made the difference. And I think at about 2013, perhaps you could call it that was my light bulb moment when I said, well, hang on, I’ve just consistent invested small amounts of money. And the actual core value hadn’t really risen too much, but the dividends made it all worthwhile. That started off what started off as a hobby, really. And an experiment ended up being a light bulb moment in 2013. I think that was when I sort of went, wow, this this can actually end up in a really, really nice place some 30, 40 years down the track. And since then, I’ve just been playing money into index funds as much I possibly can.

Dev: Well, that is that’s a great story, Dev.. A lot to unpack there. First thing I want to say is I feel like there has to be some sort of connection between immigrant mentality and being good financially or having strong foundations for financial health. Because I’ve I speak on my blog about my dad, who he’s Australian, but he has Italian parents.And I and he I feel like he had that immigrant mentality. His parents were immigrants and he brought that into my childhood. And a lot of the values he taught me, I feel that those immigrant mentalities. I just actually we’re still running the annual fire survey that’s running through the month of April this year. But I feel like I should have added it added in a question about some sort of. Are you from an immigrant family or were your grandparents from Australia? Because I feel like this, that there has to be some sort of connection there between the bulk of people in fire with sort of that save money, tuck it away for a rainy day mentality and having some sort of heritage from from an immigrant family, which is it’s funny that you mentioned that, but it’s so true, I feel. Secondly, so I’ve mentioned earlier in this podcast. Well, I’ve had a few friends that went on to be doctors and from my limited experience, there seems to be a driver for someone to want to be a doctor, whether that be wanting to help people after losing a loved one, the status symbol or another reason after all that schooling. The idea of retiring early might might seem crazy. So I have to ask you, what are your plans in the context of retire early and how’s that going to work? And why did you even start to think about having a comfortable retirement? Because, as I said, most people that that I know of and there’s only a few going to medicine with the idea of sort of helping people for the rest of their life and sort of never retiring per say.

Dev: Yeah, great question. And just to win back a little bit about your sort of immigrant mentality point, I think I think you’re spot on in the sense that, you know, I come from India and there is no social safety net there. You have to, you know, work hard and you have to save money. You have to invest for yourself and your family. I think people that immigrate out of countries in the subcontinent, Asia and some of the poorer countries are probably a bit more careful with their money because they’re understand that they’re coming from a country where there is no social safety net. So and that’s probably that’s probably the biggest factor when you come to Australia. Yes, there is a social safety net, but often it’s considered not in good light to be under the social safety net program, particularly in Indian culture. So there’s always this sort of drive to have a job. I mean, the first thing people ask you in India is what do you do for a living? And if you said, I’m not doing anything, then that’s that’s not a great look.So that’s probably where that sort of immigrant mentality comes from.

Aussie Firebug: There’s so much poverty. If people who haven’t travelled outside of Australia or if only, you know, go to New Zealand or I guess rich first world countries like it’s crazy how much poverty there is in the world and how lucky we are to live in Australia.Unless you see it, I guess you can’t you don’t realise how how hard some people are willing to work. And it doesn’t matter that they’re earning fifteen, you know, $10 an hour, whatever it is, they are just really happy that they’re in a job in the first place because where they’ve come from, any sort of life that they’re living in Australia, you seem to be, you know, like they’re they’re a paradise, which is just crazy to think about.

Dev: Absolutely. I think, you know, we are very, very lucky and very fortunate to live in Australia. Just to highlight your other point about, okay, well, you’ve done all this training for medicine and you become a doctor and become a consultant. Then why would you want to retire? I think for me personally, I don’t think I will retire. Really? So the RE component of fire is probably not going to be applicable. What I would want to do personally is to achieve financial independence early so that I have the option of reducing my hours. So I’ll still be a practising doctor.But I would like to, you know, not work full time, perhaps maybe just work sort of two or three days a week as I become older. So that’s really my plan. if you’re doing medicine to retire after 10 years, then then it’s probably not going to be worth it. Going through 14 years of training to work just for and then retire.Although some doctors this thing saying I’d love to retire tomorrow, but in reality, I think I will just be too bored.

Aussie Firebug: How many hours does or how many hours do you work?Because that’s one that’s another sort of stereotype that I always hear that doctors were crazy hours, 70, 80 hours a week. How many hours do you usually work a week?

Dev: Yes,so I’ve just recently reduced my hours actually prior to that. It would not be unusual for me to work 70, 80 hours a week, not would be unusual.

Aussie Firebug: Goodness gracious. Yeah. I can understand you wanting to reduce that. 

Dev: Yeah. So it’s not unusual. And look, to be honest. That’s that’s that’s not the most that I’ve ever worked in my life.And when I was doing surgery, it would not be unusual to work longer hours.I mean, you could resident medical officers or house surgeons for a reason because you kind of have to live and work in the hospital. SO the hours are quite grueling depending on the specialty.Now that I’m achieved coniltancy so I’ve got the option of reducing my hours, which I’ve done actually just before Covid struck. I actually reduced my hours. I usually finish up at about 9:00 p.m. at night, but I finished early. So I have that option to try and reduce my hours. And that would be my plan moving forward in terms of, you know, quote unquote, retiring early.And one of the things that I want to really want to be involved in more and more in the future is teaching.I’ve always been involved in medical education, even in medical school. I’m currently employed as a lecturer at a university. I love medical education. I’m well-known to just randomly start doodling on pieces of paper to nurse and medical students. So that’s something I really want to do more and more of that and reduced my clinical time, of course, depending on where this financial thing takes me I really want to provide principles and knowledge to younger doctors that are graduating medical school and younger doctors, interns and residents very early on in their career to make sure that they don’t get trapped and they don’t fall for these traps in terms of financial products and and try and instill some basic principles for those young junior doctors to make sure that they get their finances in order. I want to explain to them that it’s not particularly complicated. A lot of doctors think finances are very complicated. We put so much effort into our careers, but you don’t really need to put that much effort into learning about finances. So that’s where I want to see myself in the next sort of 10 or 15 years in the future.

Aussie Firebug: Awesome. Awesome. Yeah. I feel like you can pass exams to be a doctor. You can learn about index funds. Its Really not that hard. It’s probably a hell of a lot easier than what it takes to become a doctor. You speaking about those crazy hours and it sort of makes sense to me now why a lot of doctors aren’t necessarily great at finance. Because if you are working those sort of hours and you’re living in the hospital or wherever you’re practicing, then yeah if you get out or you have a weekend free or whatever it is, then you do like you’re earning all this money. Eventually you do want to sort of make the most of it. It reminds me of my mates that flew out west and did the FIFO work and were making all this money. Some of them would know just finish their trades. They’re making over 200 grand a year. It’s crazy sort of money. But they were working on an oil rig or on a mine site for four weeks and they were coming back home for one week and sometimes you would take a day to fly home on a day to fly out. So they’re only there, only at home for like five days. So in that five days, they got all this money.They’re being pent up. They’ve got to have fun. They’ve got to do absolutely everything. So in the span of five days, you know, they’ll go out to the pub four out of five days,shout everyone drinks. They’ll buy a new set of golf clubs because they go on golf and on the weekend and they’ll never use them ever again. Like they just blown all this money. Not saying doctors do the same thing, but I think it’s like a similar situation where you’re just burning all these hours at your job and you’re earning all this money. Then when you do get your leisure time, you probably know you’re probably not going to go for the, you know, conservative option. You’re probably going to do something really grand and maybe buy a new car or do something crazy like that because you feel like you’ve earned it. I don’t know about if that’s how you look at it, but that’s sort of reminds me of my mates that earned all that money in th FIFO work.

Dev: Absolutely, I mean, there’s always that risk of, you know, rewarding yourself. I deseserve a Mercedes or I deserve a luxury home and I deserve a huge mortgage that I probably shouldn’t or couldn’t afford. And I think you’re spot on. I think the other thing is a lot of doctors, if they don’t, you know, if if they work sort of long hours last week, the last thing you want to do after a 24 hour call is to come home and learn about finances So I think one of the one of the things that I’m really trying to target is I’m targeting those interns and residents who don’t, you know, who probably work, you know, 40 to 60 hours a week, you know, before they become registrars and consultants and they’re working crazy hours. Really targeting them to sort of explain to them that you need to set up your finances in such a way that it’s uncomplicated and make sure that it just automatically happens in the background because you will get busy and you also get to do things  and that’s where mistakes can happen. I think that’s one of the things that I learned in medical school, is that if I had a system in place, if I can set it up in such a way that I don’t have to think about it and it just happens automatically, then hopefully one day, 40 years later, when I’m about to retire fully to open up my portfolio and say, wow, you know, it’s a bit of a snowball that’s that’s become quite large in that time. And I think that’s that’s really critical.

Aussie Firebug: I couldn’t agree with you any more. And that’s that’s such a great point. You bring up because I think about my situation, I started Aussie firebug the website and learning about finance everything when I was working in local government and it’s a bit of a cliché, but it sort of is true. I had a lot of spare time at the job so my mind would wander and I did have time to like research stuff and I clocked out of work at. So I started work back then at like seven. I was an early starter because it was flexi time and I had the clock out at four and then I’d go straight to the gym after work and I’d had dinner and I’d sort of have like close to four and a half hours free every single night to do whatever I wanted, which is really like not not many people have that, especially as you progressed through your career and everything and the kids come on the scene, you sort of your time is sucked up everywhere. So I had all these spare time. And you do you learn when you have spare time, like it was really hard, like you said when you got that meant mental fatigue after working 50, 60, 70, 80 hours a week from work you’re not going to be in the state to absorb anything or want to learn anything new. And I’m dealing with that right now, working in the private industry in London. It’s so. Go, go, go. Busy, busy, busy. And I’m enjoying it. It’s fun. It’s a different it’s a different change of pace.But I don’t have hardly any time to do my AFB stuff. Like we’re recording now. But I think about how long it took me to get the website up to like to make the content at the very start to get all the processes in place at the very start. Took hours every night. I was working on it and I was learning about index investing. Everything like that just took so long because I was in a position to be able to do it. So when my life did get really busy like it has been for the last 18 months or so, I already had stuff in in place and already had processes of how to record a podcast like we’re doing now, how to edit all all that sort of stuff was already in my head. I’d already learnt it. So it wasn’t as hard to do, but I’d already built up the knowledge beforehand. So I think that’s a really key point that you mentioned there. It’s less easy to absorb this information if your if your brain is too busy in your career doing 80 hours a week, it’s just crazy to expect people to learn new concepts. So yeah, I think absolutely a good.

Dev: common themes that I find with with doctors is that, you know, like like all things like all other professions, actually, to be honest, is that they put it off. And of course, you’re an intern. You’re really keen to learn medicine. See, putting it off. You’re a resident. You really came to get into a training program. So you’re putting finances on. You’re a registrar now. You accountable for your training. So you’re putting that off because of exams. Then you become a consultant. Then you got to start your public and private practice and you’re putting that off as well, see, putting finances up. And eventually you find that you’ve done you know, you’ve done so much training in medicine, you put the financial side of it. Often, often, often often off. And guess what? You know, what is the most important thing in finances is the power of compounding. The irony is you end up making a lot of money when you’re a consultant. You know, some consultants make 506 out of seventeen thousand dollars. But if you haven’t started investing and haven’t set up the processes early in your career, it’s gonna be very difficult to catch up. You know, it’s not impossible because you’ve got a huge amount of income, but it’s gonna be that much harder. And of course, now you’re ten years older as well. So your ability to absorb information outside of medicine is a lot less.

Aussie Firebug: Yeah, it’s great point. And it goes through all facets of life, like building good health habits at an early age will serve you well throughout the rest of your life. good financial habits of building good relation habits is so important at a young age or at the start of your relationship or whatever, wherever, whatever area it’s in is good to start. Start young.But you almost get trapped. It’s like a it is sort of the rat race, isn’t it? If you go into the career and then you block out everything, you might come out of the career 30, 40 years later, having neglected what’s really important in life but you’re making a whole bunch of money. It might almost be too late, which is yeah, it’s like the whole hamster wheel thing, isn’t it?

Dev: Absolutely.

Aussie Firebug: Okay. Let’s, um, let’s talk about what you actually invest in. And being a doctor, I’m interested. Do you actually invest in a trust or do. Do you do it in your own name?

Dev: Look, I just do it all in my own name only because I’m a public health employee. I think if you have a private practice, a business ownership or a sole trader, it may be beneficial to create family trust so you can put our assets within those trusts.And that’s that’s basically taxed, effective, but also protects those assets. But I’ve I’ve left my private practice some years ago. I just didn’t enjoy it. I’ve actually found it quite stressful, to be honest. And I’m now entirely in the public system. So I just get paid a wage and I just invest in index funds.I’ve just kept it as simple as possible. In addition to my super

Aussie Firebug: And is it just the standard like Vanguard index funds? You do like some beta shares?

Dev: No, I just use Vanguard ASX 300 Index Fund. I don’t. I don’t do ETF use because I invest sometimes multiple times a week through Bpay. If you if you log into my net bank, all you see is recurrent BP payments into the Vanguard Fund.And if I have extra money, then I invest that as well. But basically, the the the the investments that I do is if I get paid at, say, on Tuesday, I know how much I’m gonna get paid.I’m sort of, you know, lucky because, you know, being a public health employee, you kind of know exactly how many hours you’re doing and you get paid a wage, 20 percent of that after tax income. Just go straight into the straight into the Vanguard Fund. So, you know, if you log into my Netbank, all you see is that 20 percent goes straight in every single week. And I also invest a little bit extra every fortnight because I have a couple of jobs. So the other job that pays me pays me the alternate fortnights. So and that’s basically what I’ve been doing for many, many years. I’ve I’ve sort of stopped, you know, my separately managed accounts and ASX 20, I’d just get the vanguard ASX 300. I subscribe to the wholesale fund and money just goes in.

Aussie Firebug: Yeah, great. That’s timeless, timeless wisdom. Just automating those investments. I do wish that it’s such a powerful feature that automatic BPAY. The only thing is, well, it depends on how much you’re investing, but usually for most people, the ETF option has a slightly lower management fee. But I do wonder like my mind has sort of shifted over the years between lowest management fee is the way to go 100 percent. Nothing else matters. But I’ve come to realize that if something helps you build a good financial habit like doing that automatic BPAY option and setting up that automation, that is probably worth a lot more to you mentally and probably financially in the long run, because you might have not even bothered to set up the ETF option. So I do wish the vanguard lower lowered its fees on the the fund through investing directly through them to be more in line with the ETF option. And I think there’s a whole bunch of reasons why they don’t do that. But still, it is such a good feature that I wish I could do even through the ETF. Just set up that automatic payment where I didn’t have to log into my broker account and actually make that trade.

Dev: So yeah, I’ve found Vanguard. Very easy to use. They don’t have a very sophisticated online sort of system to be on. And I still think that just launched these personal investing platform. It’s called the Personal Investor Service, where they are suggesting Vanguard ETF support through that services brokerage free. I haven’t really looked into it in detail, but so I think I think they’re trying to reduce the fees and I think they’re trying to get rid of retail index funds as well. So basically offering old customers wholesale management fee rates. So I think my my management fees 0.16 percent, which which is slightly higher than ETF, but I don’t think there’s any brokerage. But yeah, you’re right. I mean, you know, if I get paid on a Tuesday by Tuesday at midnight, 20 percent is gone. So I can’t spend money that I don’t have.

Aussie Firebug: Yeah, powerful stuff, powerful stuff. Yes, I did. I did see that product, by the way, the Vanguard brokerage product, which is a bit weird because it is free if there’s no brokerage costs, but there’s a there’s a subscription or like management fee associated with it, which I think is like 20 basis points, which is really it’s a bit of a hidden fee. 

Dev: I think the fees cap out at 600 bucks or something. So if you’ve got a portfolio greater than 300000, everything after that, it’s technically free is my basic understanding, but I need to look into it in a bit more indem.

Aussie Firebug: If the previous 10 years or so has taught us anything, the fees are just coming down and I’ve been hearing about zero management fees on a few funds for a few years now.So it is good that more competition is good for us investors at the end of the day. And it’s just crazy how low the fees are compared to some of these managed funds that are not index trackers. So, you know, we can’t complain too much. 

Dev: I say to doctors in general are just people that listen to my podcast. I say keep your keep your fees in total less than 1 percent now. In the scheme of things, to me, one per cent sounds like a huge, huge fee. Yes, but there are some and it’s fees, as you suggest, is, you know, 1 to 3 percent even.Some of the some of the people that contact me my jaw drops when I say, you know, 3 percent management fee. I mean, are you telling me that you’re getting 30 times the return is what I’m getting, you know, for those fees? The irony is that probably getting less.

Aussie Firebug: Yeah, I know. It’s absolutely crazy. Although the education about index investing and how much fees do cut into your total return is so much better now. The amount of exposure that has gotten over the last couple years and I think a fair bit thanks to the FIRE movement like I know a lot of people have yet written to me as well, and they’ve looked at their investments with a few managed funds and they like this, you know, 2.5 percent. That’s that’s a bit high. Yeah, that’s that’s like ridiculously high. You know, unless they’re giving you that extra return, which, by the way, it’s sort of impossible to know which funds are going to outperform in the future. Past performance is not a indicator of future performance. So yeah, it’s nuts how how much they’ve been running it. But I feel like the index investing is growing at a crazy rate. So it just means that those managed funds, if they’re going to be going to be still charging those exorbitant fees, you know, they’re going to have to back up with results. And I think in the grand scheme of things, with the rise of index investing, it should weed out those managed funds that are performing well and in the future will only get some of the cream of the crop of the managed funds. So if you want to go down that route, which you know, I don’t, but if people do, it should be a better product in the end. Now you run the dev ragged podcast over at Dev Ragga dot com. How long have you been creating content and what can someone expect when they have a listen?

Dev: Yeah. So I first started podcasting way back in July 2018. So it’s about sort of almost two years now.And currently it’s available via the website, but also various podcasting apps and also have a Facebook page associated with it where I’ll post articles and thoughts of interest and people can contact me or comment on it.Facebook seems to be the primary medium in which questions come through. Matt, not my intention was never to podcast with the general public. My intention was actually to leave a blueprint for my children. So I needed a way for them to learn about finances so that, you know, one day, you know, touchwood, I’m still here in 10, 20 years time, But if I’m not, they can listen to dad. You know and in a strange way, talking to them by podcast medium. And I started to put together 10 episodes and I did it via voice and did it via podcasting because I’m a terrible writer. I mean, I could have started a blog, but my my writing skills are much to be designed for. And subsequently, I put together a 10 episode series covering the basics of personal finance as everything from, you know, the power of compounding to pay your self-concept to who are listened to. Wills to personal insurance, to investing, to debt repaid, debt reduction, etc.. And basically, I came up with five relatively simple concepts that I wanted to instill into my children, and that’s one of the reasons why I started podcasting. And, you know, if if if I can have a couple of minutes, I’ll just go through that and I talk. Repeatedly in each episode. And that is I wanted my children to take a set amount of money and pay it to themselves, and that set amount of money is 20 percent of after tax income. I wanted them to invest it. I wanted them to always reinvest dividends and I wanted them to do it for the long term. For me, long term is at least 20, 30 or 40 years plus. And finally, my favorite ways to automate it. Which is the five core principles that I’ve used in my life over the last 10 years of investing. And the aim was to provide these concepts to my kids, the boom times over recessions, etc., which they can implement in their own lives. Then I floated it to some family and friends, medic’s and non-Medics, and I said, Well, don’t you have a listen to this? See what you think, you know, because I’ve never podcast it before. I don’t know anything about podcasting. I’m very bad at technology. So then they listened to it and they suggested that they know I should keep going because they actually found it relatively useful in their lives. So that’s how it all got started. Then a few of my medical colleagues jumped on board because they found it quite interesting. Then I contacted one of the administrators of a very large medical Facebook group, predominately targeting doctors, and they were keen for me to publish them on their Facebook group.So if the administrator of that group is listening and all the members. Thank you very much for allowing me to publish it on that Facebook group. And it kind of spread from there. And now I’ve got a few thousand downloads per episode, which is quite satisfying and and content wise is very much directed at personal finance, debt saving and investing and more focusing on the concepts of these topics rather than individual personalized advice which I can’t do over the podcast. So what started off as a way for me to provide a blueprint for my two very young children who are very young, One of them is in primary school, the other one’s in kindie, turned out into a more of a serious sort of podcasting episode by episode release online. And and for the people that do listen to my episodes, it’s very much me talking. I don’t have any guests. You don’t need to be a doctor or a health care worker to listen to it. It’s designed for anyone. In fact, it’s actually designed I think for kids above sort of 13, 14 years of age. Some of my business families and kids listen to it. And basically it’s me discussing about financial concepts and trying to relate it to the individual personal finance situation. And that’s the story. So it all sort of started off as a blueprint for my kids and now it’s sort of slowly growing.

Aussie Firebug: But what a great concept. If I will put a link to the podcast in the show notes for anyone out there that wants to have a listen, highly recommend. I couldn’t let it go, Dave. You are a doctor, so I couldn’t let you go without some sort of question about the pandemic that is gripping the world at the moment.. The Corona virus, what is because you hear so much information from this media outlet, from this article, from this president. And, you know, probably we shouldn’t be injecting bleach, but that’s that’s a whole nother topic.But it’s hard to know what is actually happening on the ground. So from your opinion, you’re a doctor. You’re in the hospitals. I’m assuming that you’re seeing Corona in your work.What is going on in Australia? Is it getting better? Do you have any predictions or when do you think these restrictions should lift in your professional opinion? And when do you think maybe they will lift in a political sense?

Dev: Yeah, good question. So, look, I’ve actually learnt a lot about public health policy during this pandemic and and how important public health policy is. You know, people people say, you know, doctors and nurses, we save lives, et cetera. You know, we’re as health care workers are heroes of the world. But strangely enough, the real heroes, I feel are you know, I know it’s gonna sound a bit politically incorrect, but the politicians and the young chief medical officers and the public policy makers who make policies for us to abide by and and what was interesting about this pandemic, which we all thought in Australia was never going to come, let’s face it. I mean, January 1st, 2020, I woke up. I didn’t think a virus in China was going to impact the entire globe, let alone Australia. And what’s interesting is, you know, the concept of social distancing, you know, the concept of staying that 1.5 metres apart and the concept of not leaving the house unless it’s essential duty such as going to work or, you know, grocery shopping. And following those rules, how important. It is because had we not instituted those measures as a country, had we not instituted those measures, measures as an individual and as a family and as Australians, then we would potentially be in a very, very difficult scenario today. So I always think about it this way, right? I mean, the Grand Prix. I remember. I think it’s mid-March was the Grand Prix in Victoria. I remember I was worried that the Grand Prix was going to go ahead and Victoria very and very close.And if I’m not mistaken, just prior to that, eighty thousand people got together at the MCG for the Women’s Twenty20 World Cup. If I’m not mistaken. So, you know, that literally was, you know, six weeks ago. six weeks down the track nowhere in my slightest imagination did I ever think that we would be in such a great position as a country in terms of trying to defeat this pandemic. I guess one of the concerns that I have is now that we’ve done so well, we can get quite lax. So, you know, we just need to  slowly let you know the foot off the accelerator and slowly ease into these restrictions being eased because, you know, it’s it’s not it’s not a situation where we can just flick the light switch on and every everyone goes back to normal. I just don’t think we will achieve normal for some months yet. And I guess What’s the way out of this? I mean, I’m no public policy expert, but the first thing we probably need to do is keep our international borders shut because most of this virus and most of the patients that I’ve called up for positive results and most of the patients are in Australian hospitals and most of the transmission is coming from overseas visitors or some sort of contact with overseas visitors. So I think that’s got to be kept for a while. Of course, it won’t affect you because, you know, if you’re in australian citizen, you can still come back to Australia. It’s more the tourists and the visitors. And the second thing is got to be a little bit calm. It’s all about what are we going to do for non-essential businesses? I mean, Matt, this is taking a huge economic hit around the world, especially in Australia. People are suffering. Many patients have lost their jobs. It’s very distressing for them. And it’s it’s an incredibly difficult time for Australians. But I think we’re on the right track. I think I was a bit nervous when the Grand Prix was going to go ahead. And but I have a lot more faith now in the government of a lot more faith in our chief medical officers and the public policy experts. And I’ve a lot more faith in Australians because I think we’ve we’ve all banded together. We’ve all supported each other. We just gotta go a little bit more, perhaps another couple of weeks. I think in Victoria, they’re going to try and ease restrictions in mid-May, if I’m not mistaken, and go from there. Just please don’t inject yourself with disinfectant. I think what I have several colleagues in the United States, some of them in the west west of us in California, some of them in the east in New York City. And I’ve got relatives in other states that I’m very concerned about in Texas and other states and you know, the Texas governor has recently said He really keen on opening the state. I’m actually very fortunate we’re very fortunate to live in Australia where, you know, politicians actually listen to medical experts and public health policy experts rather than say random stuff. So I think we’re very fortunate here and Australians are looking on in horror what’s happening in the United States where things are very difficult.

Aussie Firebug: Yeah, it’s very it’s such a polarizing topic like one because the whole world is shut down. But it’s it’s almost the social experiment of a lifetime in, you know, for better or for worse. The United States, like I think there’s a picture of a beach that opened up in Florida or something that everyone was just at the beach and, you know, just going about their business. And even actually the one country that I don’t feel enough people are talking about is Sweden. Sweden is actually using the herd mentality approach as opposed to the social distancing approach as well. So it’s going to be, you know, give it another 18, 24 months, which, you know, if you’re a policymaker, you’re not going to risk killing more people than necessary or not necessary, but killing more people than what who otherwise could have been saved by experimenting like this. But it’s going to be super interesting to see what happens between the two different approaches. I know everyone is saying the social distancing one is working the best bit. I’ve been reading a bit about Sweden and how they’re having success over there. I don’t know what America is doing, but it’s it’s definitely interesting to to see the fallout of all this.

Dev: Yes. So that has got me thinking as well in terms of, you know, the surge hasn’t really happened in Australia. But is it going to happen three months, six months down the line when restrictions are basically eased? It’ll be interesting to see. And I would hope that the government and, you know, based on their policies, have some sort of game plan on how to do it. And I guess because one advantage of that is we’re far more prepared now and even every single hospital is far more prepared now than we were just two, three weeks ago and I think weeks ago had been hit by a surge of covid 19 cases in Australia I can categorically say that, you know, apart from what some of the bigger hospitals, I think a lot of the mid-sized to smaller hospitals would have been absolutely stuffed. And so at least if a surge does come in three, six months time, we’d be more prepared. We know a lot more about the virus now than we did six weeks ago. And you’re right. I think I am a little bit nervous. I’m sort of expecting if things go haywire, it’s probably gonna go haywire in about sort of six to twelve weeks time. But but personally, in terms of my knowledge about the virus, the way I’d be managing sick patients, the way that I’d be resuscitating them if needed, The way that I’d be transferring them out because of a work in a very small sort of public health hospital, a few hospitals that I work at. You know, we’re far more prepared now than what we were, you know, just, you know, four to six weeks ago when all of this started happening.

Aussie Firebug: Well, that’s that’s excellent to hear Dev now wrapping things up. Last question for you, Do you have any advice out there to other Aussies who are in the medical industry who are on the road to financial independence?

Dev: Yeah. So, look,my advice, the number one thing is, you know, I’m a firm believer in keeping things structured and as simple as possible. I found that the more complex an investment is, the likelihood of it returning better than average returns is lower. And I think it’s probably something difficult to get your head around, because a lot of people think, oh, you know, the more complex things are, the better it is. Right. Because when you think about it, you know, when you go buy a car, the more expensive car that you buy, the better product you get, but in finances that may not be true. In fact, that might be inversely true. So that’s one thing. And generally, I believe in the Australian economy. I believe in humanity in general, even though we’re in a bit of a pandemic. But I think humans will aim to do better for themselves in the long term. So I guess, you know, in terms of basic principles, here they are, right. So you don’t need a huge amount of money to get started in investing. And please don’t keep huge amounts of cash if you want to lose money that’s the best way to lose money to hoard money under your bed or in the bank account because cashes of depreciating over time due to inflation, the value of money just erodes.And as a general rule, stay away from consumer debt and ideally debt in general.But I understand you manage to borrow money to invest or buy a home and make sure you always borrow less than what you can afford. I think that’s one of the timeless principles that Peter Thornhill talks about not the maximum amount of money that you can afford. Always pay yourself first. I use the 20 per cent rule if you can’t afford 20 per cent and start with 5 per cent, start with 10 percent. It doesn’t matter. But start early. Don’t wait until you graduate out of uni or don’t wait until you become a intern or Don’t wait until you become a consultant. Because, you know, even if you have a part time job during medical school or a university, take that money and start investing with that income because the power of compounding is absolutely epic. And now try to understand finance, make an attempt. Who knows? Might actually enjoy it. And lastly, share ideas and keep an open mind and try and find Like-Minded People. I mean, it was a great feeling, Matt, to find your podcast. I think you’ve got a bit of a fan base, by the way. You probably don’t know, but you’ve got a fan base amongst the medical community. I mean, your pod cast channel is widely circulated in in doctors Facebook groups around Australia. So because in Australia. And correct me if I’m wrong, talking about money is a bit of a taboo. What do you think? We don’t openly.

Aussie Firebug: Yeah. Now that’s it’s one of the biggest. It’s why everyone talked about how much they were paying for their bills, how much their home loan was, and everything that we spend money on. We’d all save a bunch of money I could was all open out on the table and we discussed it. Everyone would be richer for it.

Dev: Absolutely. I think I’ve always found that a bit strange compared to other countries, particularly in North America and even in India. People are far more open to talking, talking about money and sharing ideas, talking about it and learning, because at the end of the day, we’re here to learn. And, you know, I’m really happy that I found your podcast because, you know, strangely enough, you are one of the first podcasts that I started listening to when I was, you know, looking up this concept of fire because I was kind of doing it, but I kind of didn’t really know what I was doing until I was able to consolidate what I was doing. So I think what you’re doing is fantastic for the fire community. What you’re doing to the medical community is fantastic. You’ve got a favorite of listeners there. Keep things as simple as possible. I think the more complex things get, it may not be, the higher the returns. The complexity may not actually be the best thing for you. May actually cost a lot of money to have complex investments.

Aussie Firebug: Wise words there Dev. Thank you so much for the kind words as well. It’s nice to hear that I do have some fancy out there in the medical industry. So that is that is nice. If anyone wants to get in contact with you, did they be listening? They may do it maybe in the medical industry themselves. What is the best place to contact you?

 

Dev: Yes. So DevRaga.Com or if you Google me and just type in personal finance, I’m all over Google and there’s Facebook page associated with that and contact me via Facebook as well. Most of my followers contact me either via the podcast itself, which is cast box or the Web site or most of them actually contact me via Facebook 

 

Aussie Firebug: It’s been an absolute pleasure chatting to you. Thank you so much for coming on the show.

 

Dev: It’s an absolute honor. And thank you for having me, Matt. And stay safe and really looking forward to catch up with you when you get back to Melbourne.

 

Aussie Firebug: Yeah, that that’s if I make it back or if they open up the borders for me, hopefully I get back. Hopefully it’s or will not blown over, but hopefully a bit more relaxed come January next year. It’ll be lovely to meet you, mate. And yeah. Looking forward to it. Fingers crossed. Thanks, Matt.

[00:00:00] Aussie Firebug: Welcome to the Aussie Firebug podcast, the financial independence podcast for Australia.

Hey guys, welcome back to another episode of the Aussie Firebug podcast. The financial independence podcast for is where I interview clever people who’ve already reached her on their way to financial independence.

Today on chatting to Sam, a financial planner from around the B Bay area, who had a really interesting path before he landed in finance. Sam reached out to me after my super podcast with James from early on in the year and explained that there was so much more to cover when it come to super and fire for Aussies, which was shocking to me because that first podcast at the start of the year about super was a massive one.

It was close to an hour and a half long. One of the most interesting topics from a financial point of view that has come about from this global pandemic we’re all in, is the early access to super this become available for a lot of people who meet the criteria. We’re going to be chatting about the circumstances where it makes financial sense to withdraw the money and use it in your journey towards fire.

We also go into a deeper dive into the first home super saver scheme. That’s a, that’s a tongue twister. That one and I really cool conversation about why everyone, whether or not you’re aiming for fire or not, should really aim to have 1.6 million in their super account when they hit their preservation age.

It’s a really cool [00:01:30] strategy. Sam talks about, I’ve never had someone explain it exactly how he explains it, so I’m sure you guys are gonna love that one.

So let’s jump into it.

 

Hi, Sam, welcome to the podcast. Thank you so much for coming on.

Sam Thanks, Matt. It’s good to be here.

Aussie Firebug: Now let’s start with you, mate. How did you get involved with the financial industry?

Sam: so I got into financial advice four years ago. came out of a farming background and before that, a, sort of community service, actually working for my church for about seven years in the U S.

And before that, just backpacking around the, the, European, North Africa for 18 months. So I’m sort of on my [00:03:00] fourth career now. loving this one, loves working with people and yeah, that’s, that’s where I’m at now.

Aussie Firebug: That’s an interesting story there, Sam, and, and an interesting path to get to the financial industry.

I’m curious what, what sort of farming, what background in farming is, did you

Sam: have.  well, I grew up on an American quarter horse stud. We always had about 50 horses around. We had cattle as well. And then when I came back from the U S was really interested in sustainable agriculture, did some permaculture courses, holistic management, which is sort of broad acre grazing management stuff.

and yeah, ended up setting up some properties here in the Northern rivers of new South Wales, sort of Byron Bay area. sustainable type self-sufficiency farms for people. And, anyway, there was just sort of a limited scope for growth in that always working for, for others.  got given an opportunity to move across into financial advice by a friend who had been in it for about 30 years.

And I knew a little bit about the depth of relationship that he had with his clients and sort of the trust that they had in him. And I thought that was probably a good, good industry to be in, you know, being part of people’s lives, helping them out, and yeah, going deep with people. So that really drew me to it.

And I’m, I’m enjoying it.

Aussie Firebug: I, you an American citizen as well. You sound like your accent sounds Australian to me.

Sam: Yeah. And not yet born and grew up in Australia. Left when I was 18, met and ended up marrying, Austrian American girl.

we met at the Bible college that I went to the U S [00:04:30] for. And then, Yeah. We moved back here, in the second year of being married.

Aussie Firebug: So what an interesting story. Now, I don’t know if you’ve had, this is sort of going off on a tangent already where we’re only two minutes in, but, I wonder if you’ve ever had a look at the us system, like the financial system and the tax laws there?

Because from what I’ve heard, and I’ve had actually a few. American citizens, you know, message me about if they’ve come to Australia and, you know, the whole bunch of really complicated tax questions that I have. No, absolutely no idea how to answer. But, have you ever looked at the American system and just thank your lucky stars that you’re working in the financial industry in Australia?

Sam: Well. Yeah, the pros and cons. I mean, when I was living in the U S I wasn’t making any money, so I didn’t really pay attention to the money system. I was sorta over there for, it was about seven years on a volunteer basis. So didn’t really have reason to pay much attention to it, especially as a, immigrant.

the rules were different for me, but I do have a brother living in Canada. And, so to talk to him and compare notes about what their opportunities are for, you know, fast tracking, their wealth creation. And yeah. Now I’ve got us friends that I’m sort of talking to about it. There’s pros and cons both ways.

you know, to, to both systems. Hmm.

Aussie Firebug: I’ve just shared it. It’s a bit of a nightmare of you move out of the U S you’ve gotta like keep paying taxes even though you’re leaving and stuff

Sam: like that. That side of it is a disaster if you’re a us citizen and you [00:06:00] leave. Yeah, absolutely. Yeah.

Aussie Firebug: No, it’s all good.

It’s a weird, it’s a weird cyst. I don’t know it like. I thought, I don’t really want to know it, but, yeah, it seems a bizarre way to do things. Anyway. Yeah, we’ll jump back on topic. So there is a very hot topic amongst the fire community at the moment and probably the larger just the Australian finance community, and that is the covert 19 early release of super that the government proposed the other month.

So I did a super podcast with James at the start of this year, which was an absolute monster, and I thought it would be good to discuss a few other things in regards to super and fire that maybe wasn’t covered as in depth as we would have liked to in that first podcast. So. With another super expert, coming on being yourself, I thought it’d be good to touch on the hot topic of the `early release two or the early access to super.

And also just a few other things about super that we may have missed in that first one. So let’s begin. Early access to super, what is it? How does it work.

Sam: . So, early access to super is a short term opportunity in response to the Covid 19. And the financial pressure that people are feeling is to be able to withdraw up to $10,000.

In the current financial year. So prior to June 30 and then a further $10,000, or up to $10,000 in the next financial year. So post July one of this year. and [00:07:30] the, obviously the spirit of the, The thing is to help people that are under financial hardship, unable to pay bills, unable to put food on the table.

I’m guessing that. Does not cover a lot of the people that listen to your podcasts and follow, you know, fire blogs and are on the fire journey. Because if, you know, if you’ve been on it for any period of time, you’ve got an emergency account, hopefully with a bit of cash there to get you through, at least until you get onto some of the other government.

the subsidies at the moment, whether it’s job keeper or job seeker, but we won’t go into those for now. We’ll just stick to this. so if, you’re in financial hardship, you can get that money. I think one of the best things about the early access to super is that it’s getting a lot of people to sit up and actually take a look at their super account.

because a lot of non-fire people just ignore it completely. They don’t know what insurances they’re paying there. They don’t know what it’s invested in. They don’t know what their balance is. That didn’t even have their log in set up to be able to check it. So I think that is a secondary benefit. But in my line of work, it’s a good thing.

A lot of people are starting to pay attention. unfortunately a lot of people that are under financial hardship and pull that $10,000 out. we’ll spend it and probably don’t have the intention of repaying, or topping this super [00:09:00] backer, which, , anyone that knows anything about compounding, it’s going to hurt at retirement.

Some of the figures that have been thrown around are obviously on the high side by the superfunds. Because they like to keep as much money under their management as possible because they charge a management fee and there are more realistic numbers as to how much someone’s retirement savings actually going to be affected.

But either way, you know, you’re robbing your future self if you pull that 10 or $20,000 out and don’t top it back up.

Aussie Firebug: , so first of all, I guess I want to make clear that.

This, , early release to super there, there are stipulations and rules, to get access to super. So there is , eligibility testing. I believe that it’s happening. So if you are not eligible to have to do early access to super, you shouldn’t be doing it. That is breaking the law. and you shouldn’t do it.

But for the people that are able to access this early access to super, like you said. $10,000 for this financial year, which we’re recording in, on the 2nd of May 20, 20. So the 19 to 20 financial year and the 20 to 21 financial year, so potentially up to $20,000 out of your super. So just, I don’t want to make it clear the  algebra eligibility rules, having trouble saying that.

so they, I did have it up here, so it’s

Sam: easier. I would just stick to the Australian New Zealand citizen one. Otherwise, you podcast is going to be quite long. There’s different rules for temporary visa holders, [00:10:30] et cetera, but your Australian ones are pretty simple. if you’re unemployed, and that’s whether you were unemployed before the 1st of January, 2020 or after just flat blanket rule.

If you’re unemployed, if you’re eligible to receive job seeker. Youth allowance, parenting payment, or other special benefits like farm household allowances, like drought related type things. and then if you have been made redundant after the 1st of January this year, or your working hours were reduced by 20% or more.

After the 1st of January this year, or you’re a sole trader and your business was suspended, or there was a reduction in your turnover of 20% or more since the 1st of January. So the eligibility rules are pretty, pretty straightforward, pretty simple. And the easiest way for people, I think, to pull it up and look at their own situation, see if they are eligible, is just Google early release of super fact sheet treasury.

And that’ll take you straight to the horse’s mouth and you can see the rules there.

Aussie Firebug: Yeah, I’ll, I’ll put a link in the show notes for everyone listening out `there, if they want to go to the website to see the, the rules of , who and who can not get access. Access to this early release. Now these rules, you know, reading through the last couple, if you’re made redundant, if you’re unemployed or the big one, to me, if your working hours were reduced by 20% or [00:12:00] more, like that is a lot of people, especially, it’s a lot of people and that’s, it’s almost a bit hard to.

To quantify, like there’s going to be a few gray areas. I would assume that the government are going to be auditing, but, but regardless, it’s going to be a lot of potential people that have access to to the super. So, or this early release. So a few questions that I have, it’s tax-free. Correct. So when you, if you apply for it and you can get the $10,000 yeah.

You don’t pay any tax on

Sam: that. Correct. Now, usually if you pull super out before you reach preservation age, and especially before you reach age 60 it just, it’s silly to do it. You’re shooting yourself in the foot in a major way, but because this is for, you know, financial hardship release, it’ll come out to you.

You withdraw 10,000. And 10,000 will come into your account and it will not show up as part of your taxable income for the financial year.

Aussie Firebug: Yes. Now, this is the big, I guess this is the big question amongst the community. Now let’s say, and this is, it’s personal for me as well, because mrs FIBark has lost her job, so I believe reading the rules that she would be eligible to have early release of the 10,000 offer.

Super. If she was to take out that $10,000 tax free. And put it into the ETFs that we, that we invested in, that she invests in. Although I understand that it’s now that that money has moved from a [00:13:30] low tax environment to a higher tax environment. But other than that, is there anything else I’m missing here for the downside of,  doing that?

Eve, you’re eligible to do that to top up your money outside super. That was previously inside super.

Sam: Yeah. Look, if you’re moving it from being invested inside of SU to being invested outside of super as long, you know, this is making the assumption that it’s an intelligent investment. It’s not highly speculative and likely to disappear, but sticking to the script of what, what you cover with your community.

yeah, the only downside on it, as long as it’s legal and you qualify, obviously. Is that you’re moving from a tax concessional environment that exists inside of super to a regular tax environment. That obviously depends on what your, your work situation has been prior to losing your job or having your hours reduced this financial year, and then obviously into the future.

there’s tax implications, but the other thing that I don’t know if you planning to go there, Matt, You could do both in that. and we’re going to talk about this a bit more later.  , the pros or cons of growing your, your super as part of your fire number or just trying to do that exclusively or primarily outside of super.

But if you, if you did have a double strategy where you’re trying to grow both you, you’re falling number in ordinary money [00:15:00] and you’re your fire. number for 60, age 60 and beyond. Inside of super, you could technically, and this is a loop hole that isn’t in the spirit of  the,  early access to super, I’ll be honest, but it, it’s, it’s, it’s playing by the rules of,  superannuation.

You could pull $10,000 out. You could re contribute that $10,000 and if you’re, let’s say you’re earning under $90,000 a year, you could save yourself 19 and a half cents in tax on the way in. and then just reinvest it back inside of super so you could actually end up in front by pulling it out, putting it back in, reducing your taxable income for this financial year, and then keep plodding along with your, you know, your fire strategy.

Aussie Firebug: yeah. That is very interesting.

Sam: Does that make sense?

Aussie Firebug: Yeah, it does make sense. I did hear that strategy. It’s very interesting. I wonder,

cause like you said, it isn’t

in the spirit of the law, but it is playing by the rule book, that it can be done and saving tax. And to be honest, if, if you’re playing while the rule book, this is, I guess this is my personal opinion and, a lot of people, like you got, I’m young, there’s gotta be a lot of different opinions about this, but.

If you  reducing your tax, legally, I don’t have any issues with that. obviously tax evasion [00:16:30] is illegal and you shouldn’t do that, but tax minimalization is perfectly legal. I do wonder this, this taking it out and putting it back in. I wonder if they like, that seems too obvious to me. Like a lot of people are gonna abuse that, and I wonder if they’re going to somehow, audit that or, or do something with that.

But I guess we’ll wait and see, if anything changes by the time this is recorded, and any, any laws or updated or anything, I will, I’ll make an edit. but that is super interesting. So you pull it out. Tax-free, and then you make a contribution to your super, so you reduce your taxable income and you save the difference in tax.

That’s sort of how it works.

Sam: Yeah. Now, obviously this is not personal advice, I’m sure you say, of course. and you’ve gotta be spot on with the timing of how you do that. And if it is you, generally, if you make a contribution to super, a concessional contribution to super through your employer, so salary sacrifice, then you don’t need to do any extra paperwork.

But if you make a, A personal concessional lump sum contribution. Then there’s extra hoops that you’ve got to jump through, which is shorter. And so you have to submit a notice of intent to claim form, and you don’t want to miss that. Otherwise, the whole point of doing it is, is lost. and you’ve essentially pulled 10 grand out, put it back into super and paid 15.

[00:18:00] No, sorry. If you put it back in, you won’t without doing the notice of intent. It will have just pulled money out, put it back in with no advantage to it. Right. You’ve got to submit the notice of intent to claim form to, to secure the advantage.

Aussie Firebug: Okay. And is there any cutoff date, and, and speaking of this early access to super, I guess this is a good question as well, when, what’s the latest someone can do this?

We’re recording this on the 2nd of May and hopefully I’m going to have this published relatively soon. is there any deadlines or something that people should be keeping an eye on?

Sam: Yeah. Look on the, on the fact sheet, there’s some explanation of timing, but it’s very brief. All it says is that you need to pull it.

You need, you’re able to make the request, sorry, from the 20th of April onwards. Now. Like super funds are, are taking their say about five days to get the money out to you. So I’m guessing though, the timing on this would be, as long as the request is made before the 30th of June, this financial year, then that would tick the box for your, your first part.

And then obviously at the timing for the next financial year, one is you’ve got a lot more room to breathe, cause you’ve got a full 12 months to do it. But if I was doing it, I wouldn’t be leaving it until the last week of June. I’d be doing it sort of first week of June, so that this time for the request to go in the money to come out.

[00:19:30] and then if you, that’s if you needed it for financial hardship. If you were putting it back in, yeah, I’d give yourself a bit more breathing room because you’ve, you’ve only got to get that notice of intent to claim form in before your tax return is done for this financial year or before you roll that superannuation to a different account.

So you wouldn’t want to go changing super funds in the middle of this. Re contribution strategy.

Aussie Firebug: Right? And that’s actually just reminded me of something else that’s happening, as a indirect result of this early access to super, and this isn’t, isn’t a question that, I’ll show you before the podcast.

So if you don’t know the answer to that, like don’t feel free to just pass on it. I didn’t give you any time to prepare for it, but there is a lot of news in the media  about super funds. Having issues or having trouble with people wanting access to $10,000 cash because of unlisted investments in the super funds.

And the big one that’s getting a lot of press at the moment is the, the  host plus industry super fund, which, Scott pap, the barefoot investor, he promotes heavily the heat. Now he doesn’t promote. The, the option of the unlisted investments, he’s always said that the, the index fund one, like the, the low fee option within that super fund is the one he would go for.

So it’s not like he’s, he’s promoting , the, the product that’s. I’m not going to say failing or that’s [00:21:00] causing a lot of issues at the moment. do you have any opinions or any, anything that you can tell us about why that’s happening? what you think might happen in that space and just general, I’m just generally just interested to hear what you would say in regards to that topic.

Sam: Yeah, so obviously if people have made an investment choice to be invested in an unlisted asset class. or an unlisted asset, if, you know, I’ve just looked at it here, that news news is saying that 360,000 Australians have applied for an early release of super. So we’re not talking lunch money here.

It’s a lot of money that some of the superfunds are having to, to release cough up. And yeah, a lot of the, especially industry super funds have invested in infrastructure, projects. You know, roads, tunnels, you know, big, big office buildings in the city. They sorts of things that you can’t sell one of the offices down the bottom overnight in order to free up some cash to give to members who want to pull it out for one reason or another.

So, yeah, it’s just, it’s a rush on, those assets that would certainly have a cash allocation. Yeah, but not enough cash sitting there to be able to honor. All of the redemption requests that are being made.

Aussie Firebug: Yeah. It’s low

Sam: liquidity, right? That’s like

Aussie Firebug: the crux of the issue, that they’ve invested in a lot of assets of, of low liquidity and [00:22:30] it’s not really their fault to be honest.

Like if the government makes a flips a switch, like , who knew that a pandemic would grip the world in 2020 like, no one knew this was happening. So like, it’s easy to criticize these super funds, but in reality, It’s not like they knew that this was coming and when the government just click their fingers and it’s like, Oh, we’re just going to pass this law really quickly.

Like we can’t think too hard about what’s going to happen and the repercussions like it is, they’re put in a tight situation. But it is, it’s interesting too. You know that this has come out. And I do wonder if there’s going to be some sort of, Royal commission or something, about this. And, you know, some rules are going to be put in place after this all goes down to say that they can’t invest in unlisted funds or something like

Sam: that.

Yeah. I’d be surprised if that happened because, I mean, if you went and checked their product disclosure statements, it would, it would address liquidity issues. And you know, it’s a two edged sword. Unlisted assets at the moment haven’t dropped 30%. because they’re not listed on the stock exchange.

They can’t be valued every minute of the day between 10:00 AM and 4:00 PM. They’re valued generally every quarter by certified property valuers or assesses. and that’s why they’re, they’re an investment option that has a lot lower volatility. But part of that is because they’ve got lower liquidity.

And, you know, it’s not, no one plans for a [00:24:00] mass Exodus like this. So I think there’s a lot of, lot of grace is going to be given across, you know, lots of different areas.

Aussie Firebug: , if someone is in. Host plus, I’m pretty sure it’s host. Plus someone is in host plus super and they’re looking to get out.

Like are you seeing in your experience, many people moving super funds or transitioning from one fund to another because of this reason or other media overblowing the issue here.

Sam: Are, look, I mean, bad news sells. so I’m sure they’re overblowing it. I haven’t followed it super close.

We don’t have a lot of people in industry funds. and. Yeah. I just haven’t had my finger on the pulse with that one.

Aussie Firebug: Okay. Fair enough. all right. We’ll move on to the next topic then. And that is the first home super scheme. I think it’s, that’s, the name of it. The FH S. S

Sam: yeah. We spoke. First time Supersaver scheme.

Aussie Firebug: FH SSS. It is a tongue twister. Yeah. Now, I spoke a little bit with James about that in the first podcast, but we really didn’t do a deep dive into it. So I’m keen to chat to you, Sam, about what is it, how it works in, can people chasing fire uses to their advantage on their journey?

Sam: Yeah. So obviously, depends on what people’s circumstances are.

For instance, if you’ve owned property. In your own name before then. It’s a no go zone [00:25:30] because the eligibility criteria is that you cannot have held property in your personal name before. What happens

Aussie Firebug: if your video partner has just, sorry to interrupt that. A real quick question. If you’re

Sam: no good question, they can go.

They can do it themselves. Even if they’re going to buy a property. With someone else who has held property before interest. So you are treated as an individual, not as a couple on it. So I’ll walk you through it as a hypothetical. Let’s say you have owned a property before. mrs Firebug has not, mrs Firebug can put up to $30,000 into super.

an EMR market as being related to the first home super saver scheme. That’s $30,000 is broken down into a maximum of $15,000 per financial year. And so over two years, they could add, mrs Firebug could put $30,000 total in. The advantages of doing that is that. That $15,000 each year would reduce her taxable income.

So let’s say she’s owning that below $90,000 for the $15,000 that she puts in, she’s going to save 19 and a half cents for every dollar. [00:27:00] And her tax return will be larger in both of those financial years. And if you keep track of the difference, you can put that extra texture stone aside towards your home deposit or paying off that mortgage or putting it into whatever investments you’ve got going.

When the time comes to purchase the property, that money is pulled out, and needs to be spent on your first home. You need to live in the property. For six months of the first 12 months of owning it. So if you’re someone that’s looking to rent best, buy an investment property in a good growth area, but you’re living somewhere else because of work or lifestyle, whatever it is, it’s probably not for you because you do have to satisfy the requirement of living in it.

As your first home for six of the first 12 months. but one of the other advantages to it, and I think this is a big one at the moment, when you’ve got term deposits, you know, under 2%. which is generally a sensible place for people to start stockpiling a a house deposit. You certainly don’t want to go putting it into the markets in case something like what we’re in the middle of now happens and it pushes your home purchase plans back, you know, a couple of years, depending on what happens going forward.

Instead of putting your home deposit savings into a term, deposit it to less than 2%. [00:28:30] If, if mrs Firebug puts $15,000 into super tomorrow and pulls it out in two years time, the deemed right of return that will be given to mrs Firebug when she tries to pull that $15,000 out, is around 4%. So even if the Superfund value goes down, when that money is pulled out.

It will be the amount that was put in minus the 15% tax plus a deemed right of return of about 4%. So guaranteed rate of return tax concession. It’s a pretty sensible strategy. I was helped to, you know, a good number of couples through it. But you gotta, you know, by the time you look at has anyone owned property before?

Do you have the money, to do it? All those sorts of things. It doesn’t fit everyone, but it’s certainly worth exploring if people have known property and and want to pick up a bit more tax

Aussie Firebug: short. Now there’s a bit to unpack there so that the 4% guaranteed return, w what is that based on? Is that based on the tax that you save by doing this strategy?

Sam: No. So that’s totally separate. So the tax that you save is based on your taxable income. So, you know, let’s say someone’s in the 45 cent tax bracket, there’s strategies and [00:30:00] absolute goldmine for them because, you know, they’re saving 30%. in tax by putting the money in, and then that obviously comes back to them in their tax returns.

So that’s one part of it. Yeah. The 4%, and I’m using 4% as around figure it’s roughly 4%. That, this is a same sort of equation that the government uses for, retirees, and people on. Yeah. Pensions with a look at their assets and it would be a compliance nightmare to try and keep track of. Okay. Sam’s retirement account returned 7% but Matt’s returns 6.3% and so the income from that for the income test for is.

His government benefit is 6.3 of what he’s got invested, but Sam’s rate of return was seven instead of getting into that level of complexity, they just say, if Sam has a hundred thousand in investible assets and Matt has 200,000 in investible assets, we are going to assume that the right of return on those investments is.

It’s about 4% that deeming is the process. That is the name that’s given to that process.

Aussie Firebug: Interesting.

Sam: And so the money that, [00:31:30] the money that goes into super for the first home super saver scheme, once you apply for the release through the ATO website, you go on there, you say, okay, I’m ready to buy a house.

How much am I allowed to pull out? They look backwards and see the date that the money was added to super. Then they do a calculation of, an annual rate of return of about 4% while that money was in there. They add that to the money that you put in, and then that’s what you can pull out.

Aussie Firebug: That is very interesting.

I’m not too sure many people know that that’s how that works. That’s, that’s, that’s super interesting. So even if, and I think you spoke on it a little a little bit before, but I just want to clarify. Even if the market drops, you’re guaranteed a 4% rate of return.

Sam: Yeah, and just on that point, that’s one of the risks with it is it’s a safe option for buying your first home.

It can be a bad option for growing your time and savings within super, because. Let’s say someone put in $15,000 on the 30th of June before the 30th of June last year, they put $15,000 in in the first week of July this year, they put $30,000 into the markets. They’ve got a deemed rate of return of 4% for the six months that it’s been in there, but if they want to buy a house next week, they’re [00:33:00] pulling $30,000.

Out of their super account after it’s dropped 20% so it’s stunting the growth of their retirement savings inside of super, but it’s helping them get towards their house deposit.

Aussie Firebug: Interesting. Okay.  so , when, when the money goes into, I don’t know, is it separated or that they just, they just.

Bookmark it to say

Sam: you could put it in and just earmark it in a cash account. so that.

It’s not effected that way. Yeah. and then you would just get the tax risk. You’d get the tax saving, you’d get the deemed rate of return, and then you’d pull it out. It can be done, but you’d have to get into your super fund , and nominate that that portion of your investment pool stays in cash.

Aussie Firebug: Right. Okay. Okay. Very interesting. So, so it’s a, and this is sort of super basics that I’m hoping for getting, but it’s not, sorry, it is tax when it goes in, but then it’s not tax when it comes out.

Is that right? Or is it tax both ways.

Sam: Yes, no, no, no. It’s not text when it comes out.

Aussie Firebug: Yeah. I guess what I thought. So 15% going in and then you get that you lower your taxable income and then it’s not taxed when you want to bring it out. And the, the really important bit there, which I never knew is a guaranteed rate of 4% when it’s in there.

which is very cool. It can vary. It can definitely help out. So, yeah. Awesome. That’s [00:34:30] definitely, that’s a big one. that I’ve learned and mrs Firebug actually hasn’t bought a house for herself. Now. She’s not eligible for the first home buyers grant because we’re a de facto relationship. We’re getting married soon, so that makes her ineligible for that part.

But this one, what you’re saying is she actually is eligible for this one, even though I’ve used the first home buyers grant and I’ve already bought a home. Which is very interesting.

Sam: Yeah. Yeah. And then if you wanted to double back on our first part of our conversation, if you wanted to sort of start, start to layer your strategies.

If, if you fit into the unique sort of demographic that ticked all the boxes on both the early release of super as well as the first home super saver scheme, you can potentially pull 10 out, put it in. Get the tax deduction and then pull it out in the future for your first home super saver scheme after getting a deemed rate of return of 4% but that’s for people that want to be real tricky.

Aussie Firebug: Yeah, that’s definitely something cause I believe. she will be eligible for both of those things, but yeah, I’ll have to do my research, but it’s very good to know. So, yeah, very, very interesting.

Sam: But again, on, on that one, just a real encouragement to people there. There are more, so to tick boxes that you’ve got to go through with the first time super savers games.

So go straight to the horse’s mouth, Google, you know, first home, super saver scheme, ATO [00:36:00] and read it all there. And that, the most frustrating thing about that is the timeframes on release. Generally when people go to buy a house, it’s like, you know, they find a dream property. They want it tomorrow. There is a bit of a lead time on getting that money released from super, it ends up being about a month if everything goes smooth.

So if you’re going to go house shopping in, say October, start the process 1st of July. Take care. Give yourself plenty of time of requesting the determination from the ATO, and then they do the calculations until your super fund to release that money to you. And there’s some lag times that sort of build up there that you want to be cautious of.

Aussie Firebug: Yeah, right. Oh, that’s very interesting. Anyway, I’ll, we’ll put a link in the show notes too. go to the FHS, link on the ATO website for people to check that out. I will definitely be checking it out. So, yeah, very good to know. let’s shift gears for a second here and chat about the pension balance cap of 1.6 million and why that should be a target for people in the fly community.

Sam: . So superannuation is, divided into two phases. The first phase that anyone under preservation age. and for most of your audience, I’m assuming, you know, we’re sort of younger, our preservation age at the moment is, is going to be 60, so let’s just talk about [00:37:30] 60. Sure. up, up to 60, you’re going to be in accumulation phase.

post 60, you have the option of moving that money. It stays inside the superannuation environment, but it moves across the half way line from accumulation phase to pension phase. The difference of those two is, A regular withdrawal amount can be set up from a pension account and account based pension inside of super, and the money that is paid out from there is tax free because you’re over 60 and the investment earnings on money’s invested inside of the pension phase are tax free.

Whereas in accumulation phase, the rate of tax on investment earnings is still 15%. So let’s imagine that you’ve got, 1.6, in super, well, let’s call it two mil. If you’ve got 400,000, Over that 1.6 cap, then it’s going to be sitting in an environment where it’s taxed at 15%. and the advantage of having it there versus outside of super is maybe questionable [00:39:00] depending on your taxable income that you’re drawing.

Keeping in mind that if you’ve got 1.6 in pension, when you pull it out, it’s tax free. So. You’re not really probably gonna have a tax problem and having it inside in an environment where it’s going to be taxed at 15% you might be worse off.

Aussie Firebug: So, so that 1.6 is really the, the gravy boat. Like everyone should be taking advantage of the tax free environment of that 1.6 it’s, it should be the target.

Regardless of where you’re at in your journey. You should be a preservation age. You want to have at least 1.6 mil in super.

Sam: No, I wouldn’t say, at least I would just say. The benefit of having more than 1.6 diminishes significantly. Sure.

Aussie Firebug: Yeah. Yeah, yeah.

Sam: I wouldn’t say it’s a minimum target. It’s a maximum target.

Aussie Firebug: Yeah. Okay. That’s a good point. Yes. Because especially in the fly crowd, if you’re going to be leaving off such a low amount of income from your investments, that you have the potential to be paying more. If you have all your investments in super, right. Then if you have it outside.

Sam: Yeah. And the reason, I think the 1.6 balance cap as it’s called, is helpful to the fire community is, you know, the debate of do we grow our fire savings outside of super or inside of super?

my personal [00:40:30] sort of approach to it is it doesn’t have to be either or. It should be both.  If you start early and make, let’s say the first year or two of your employment while you’re still living at home, or you know, you’re able to really keep your, your expenses down. If you could put.

The, the maximum concessional amount into super each year, which is $25,000 at the moment per year, which includes the nine and a half percent that your employer has to put in. If you max that out and ended up with $50,000 in super in your first two or three years of your career. You pretty much wouldn’t have to do any other contributions between then and age 60.

obviously this depends on your, your, wage and, or whether or not you’re getting a wage. Like if you’re a contractor, you’re responsible for paying your own super. Yeah. But let’s assume that someone’s just making 50 grand a year, the average Australian wage, and they’re getting nine and a half percent of that put into super.

Well, if, if, if a young fire bug gets themselves off to a great start by putting, say 50 grand into super in the first couple of years, you can sort of set and forget that. And because of the power of compounding in a tax concessional environment, you’re not going to be far off that 1.6 [00:42:00] cap. If you choose your investments correctly and make sure your fees are kept low and all of those basics, and then, then you would turn your attention to focusing on your savings outside of super,

Aussie Firebug: the power of compound interest,

Sam: right?

Yeah. But if, if I’ve got 50 grand in super and I’m 25 then. I don’t really need to be having the debate. Should I put more into super or should I save money outside of super? Well, if your projections show that you’re going to hit the 1.6 cap, by the time you reach age 60, then there’s not really, there’s not as much advantage to putting more into super versus putting it into your, You’ll ordinary money investments.

Aussie Firebug: That’s, that’s a really interesting point Sam. Cause we spoke a bit  before this podcast started recording about the fly calculator that I’ve got on my website and. I speak about that as well, and a lot of people, a lot of people ask me the same question over and over again.

You know, what is the most optimal way to reach a fire? Should I be investing in inside or outside? Super. And I don’t think I’ve ever heard that phrase like you just phrase it there, Sam. It’s, it was very, very interesting to hear, like, we all know, if you invest in super at an early age, the power of compound interest, you know, you’re almost.

Like you [00:43:30] said, that the math shows that you only have to invest so much at the very start of your career and then that will grow over time, but I actually never thought about it like that. If you get to that maximum amount, by the time you hit your preservation age of 1.6 then anything on top of that isn’t necessarily going to help you out that much and you can really focus on building the snowball outside super.

so that’s a, that’s a great, great way to look at it. Just do maybe do the hard yards at the very start and get a decent snowball rolling down that Hill, and then let the power of. Four decades of compound interest do its thing, and the snowball’s going to get to the magical 1.6. Hopefully, fingers crossed.

It doesn’t change by the time we get there. 1.6 mil, by the time you hit your preservation age and then you can focus on building your snowball outside super and you don’t have to worry, you don’t have to have that conversation with yourself. I like it.

Sam: Yeah. Interesting.

Everyone’s situation is different. So there might be different factors. You know, you’re saving, you know, maybe property is your, your gig, and you really believe in the power of leverage and you’re happy with a lot of debt. And you say, look, you know, that 50 grand that I could put into super. I can leverage that into $300,000 in an investment unit, and that’s going to have me better off, go for it.

But for those that are, that are always having that debate, or should I, shouldn’t I, and this is probably something that comes out of the financial advice sort of [00:45:00] track record so far, is when someone walks into the office and they say, Oh, what should I do? It’s up. There’s a thousand things you could do.

Tell me what you want to achieve and we’ll reverse engineer it. I think if you, if you solve that eternal debate of inside or outside of super by reverse engineering your super account balance to that 1.6 mil cap, you realize how easy it is to hit that target. If you know the markets do what the markets have always done, and you get an early start on your contributions.

And the fact that the, the snowball rolls down the Hill so much faster when you’re only paying 15% tax on those investment earnings.

Aussie Firebug: Good. Yeah, it’s a very good point. And it’s something that my calculator,

Sam: it’s on compounding on, it’s on compounding, on steroids because of the tax environment. And if you get an early enough start.

You can have your cake and eat it too. You can have enough money outside of super that you finish it. Say, you know, 33 you’ve hit your fire number that will help you coast until you hit 60 and then that, that money is going to come. And I’d probably just make a comment. I mean, everyone will have their opinion on this too, but I think especially when we’re young, it’s.

It’s a antiestablishment. It’s cool [00:46:30] to be skeptical, and sort of down on the government. But I think if we just think of what motivates governments votes, what’s the fastest way to lose votes? Tell people they can’t access their money. Like. That I think the financial situation would have to be the least of our concern.

If it gets to a point where the government isn’t going to give, , a whole generation of retiring people access to their money at 60

Aussie Firebug: I see what you’re saying. Stuff.

Sam: I’m just not as skeptical on that.

Aussie Firebug: Fair. Fair enough as well. But wouldn’t you agree that. The government hasn’t done themselves any , favors, how they’ve, how they’ve already tinkered with the rules of super in the last decade or two.

Sam: I think a lot of that tinkering falls into the category of, it affects very few people. The tinkering, I think that has been done. And look, full disclosure, I’m new to this. You know, I’ve been paying attention to this, you know, at an increase level over the last four years. Before that, I didn’t have any super because I had volunteered overseas and I just wasn’t paying attention to money.

but a lot of the tinkering that has gone [00:48:00] on has to. To reduce the lucrative nature of the superannuation environment for wealthy people who don’t need tax concessions. That’s what a lot of it has been. And the other part of it, like you think of the increasing preservation age, the people that were allowed to access their money at 55 did not have 40 years.

Of nine and a half percent of their paycheck going into super. So there, there was a strategy and there is a strategy called a transition to retirement strategy where people, once they reach preservation age, they can pull money out of super to allow them to put more money into super to save tax and therefore boost their retirement savings.

Well, someone that’s 30 years of age now does not need. That extra help to get their retirement savings on track by the time they’re 60 but someone who was 55 and had only had, you know, what would it be 1520 years in the superannuation environment. They needed that little bit of extra help to get there and the preservation age has been increased as people don’t need that extra help.

Fed sort of tinkering to cater for the, it’s [00:49:30] tinkering to cater for the, the generational changes of, you know, the different waves of people that are coming through and the opportunities that they’ve had to save for their retirement.

Aussie Firebug: Fair enough, Sam. And that’s a, it’s a good way to look at. And you know what?

I hope, I hope you are right. And maybe I have been, I guess more skeptical of the government than most, but I do hope that, it doesn’t change too much and they keep the, they keep the rules relatively consistent over the next couple of decades when. you and me can finally get access to it. So, yeah, I’m definitely hoping, but either way, you look at it, what you’ve, what you’ve discussed is super interesting.

And you know, I’ve got my calculator on my website that does the whole, how much should you need inside? Super. How much should you need outside for like, optimal, tax optimization, but it still doesn’t factor in the, Maximum you can contribute to super the 25 K a year, because that depends on your tax rate.

And it was just too confusing. And I think I’ve got a disclaimer in the calculator that says, I just can’t be bothered putting it in. Like it’s, it’s too hard to, to, To factoring everyone circumstances, like this is the blanket general rule that I’ve got, but it’s very hard to factor it in. But yeah, I really liked the way you look at it, that 1.6 as a target, as a max that you want to reach in just doing the hard yards at the start and having this snowball, as you said, on steroids rolling down that Hill to get to that point.

So

Sam: interesting. Either way. I think it could moderate not to hop on the [00:51:00] skepticism thing because I like to have views about the future, but, The skepticism can be moderated a little bit when you look at, okay, so I put 20 grand a year in, in my first two years of employment, and that gets me on the road to the 1.6 cap.

Well, if they move the goalposts a little bit, it’s not like I was putting 20 grand every year. Yeah, too. Like I wasn’t robbing my ordinary money investments or I wasn’t depriving myself of that second investment property because I was focusing on super, and now they’ve moved the goalposts on me. So that was two years of surplus income.

And then you forget about it and if they move the goalposts, it’s like, well, that sucks, but

Aussie Firebug: you know, we’ll live,

Sam: I’m going to hit the 1.6 cap.

Aussie Firebug: Yeah, yeah, it is. It is. You know, even I, I wrote a big article about like, when they label, we’re thinking about changing the Frank and credit refunds, and at the end of the day, it’s, you know, we will leave.

We will, we’ll get through it. there’s plenty of ways to get around it anyway, but, it just is. I guess it’s a, it is frustrating for some people that plan their retirement on certain rules and then the government want to change it and it can affect some people in certain circumstances greatly. And the majority of the population probably not as much.

Like you said, it goes back to votes, right? They, they make these changes. They try to get the best bang for their buck. Whilst also being empowered. They don’t want to lose the [00:52:30] vote. That’s like the number one focus, but they try to do everything in their power to shift, to shift the money around, to like do, more projects to get them more votes and keep them in power longer.

Anyway, we could go, that could be a whole

Sam: nother podcast where the first home super saver scheme came from. It was to get some votes. Of, you know, younger people that were struggling to get into the house market. That’s why we’ve got this opportunity with the first home super saver.

 

 

Aussie Firebug: I’m sure some people will be interested for sure.

Sam: Yeah. No worries.

Aussie Firebug: that is it. That is it. Sam, we’ve come to the end of the podcast. thank you so much for coming on and spending, spending time with us and offering us your expertise.

It’s been an absolute pleasure.

Sam: Hi, thanks for having Matt. I hope I’ve been helpful and yeah, love what you do and just keep people learning and it’s, that’s good. That’s

Aussie Firebug: good. Cheers mate. Appreciate it.

See ya.

Sam: Catch up.

 

Aussie Firebug: I hope you guys enjoyed that one. I love Sam’s thinking behind, maxing out your super for the first few years of your employment and then lending the power of compound interest, do its thing in a low tax environment. I’ve never really thought about it like that before, but I think it’s brilliant. Now check this out.

I did some quick mass and let’s say you’re able to max out your super contributions for just over two years. When you first start working and say you have a roundabout 50 K in super by the time you’re 22 let’s say you’re. A tradie. You might’ve been earning a little bit more money earlier on in the piece, and people that went to uni or something like that, you would have over 1.7 million in super by the [00:54:00] time you hit 60 without ever having to add anything extra yourself, assuming that your employer is contributing at least 5k year during that time.

Now, obviously there’s a few factors at play there. But let’s say that you get to that number in that situation, you could focus solely on your snowball outside of super, completely after the first initial two years that you’ve done the salary sacrificing, and you would still end up with a super balance around that really important 1.6 mil Mark.

Really cool to think about. There’s been a lot of coverage out there about the early access to super from very credible people basically saying, don’t do it. But the thing about all that general advice is it’s targeted towards every everyday normal people who won’t have the financial discipline to stick to a strategy.

Ask fire bugs are different. Accessing your super early can have financial benefits, especially if your goal is to retire early. We’re still getting confirmation on mrs firebox eligibility, but if she is eligible, she will be taking out the 10 K this financial year and the 10 K next financial year because our strategy is to build up our financial independence number outside of super.

And the only downside of doing this. Is the potential that that money will be sitting in a higher tax environment. However, there is also the possibility that we can save money on tax because retiring young puts you in a very unique position of an even [00:55:30] lower tax environment. Then super in some circumstances.

So for our situation, it actually makes financial sense. Make sure you read the show notes and fully understand the eligibility testing before considering this strategy though, and I want to make one last point about this topic because there’s been a lot of chatter on Facebook groups, online forums, and comment sections of news articles.

I’m not sure if everyone realizes, but super is actually your own money. It’s not a handout from the government, and people that qualify for the early release can spend their own money however they see fit. I’m constantly seeing comments from people judging others on how they spend their own money and somehow justifying this judgmental behavior with the fact that they’re going to have to pay for these people’s welfare checks.

Well, I hate to break it to anyone out there that thinks like this, but. That’s how welfare works. You don’t get to dictate how people spend their own money just because you don’t want to support them when they run out of money in retirement. Also, there’s nothing stopping them from taking a lump sum when they hit their preservation age anyway.

I’ve already spoken enough about how the government wastes billions of taxpayers dollars, and that’s billions with a B. But at the end of the day, I’m more than happy to pay my fair share of taxes because the overall positives far outweigh the negatives. But I’m not campaigning anytime soon to pay more tax, but [00:57:00] that’s enough ranting for me.

I hope you guys enjoy that one and I’ll catch you on the next episode. Peace. Thanks guys for listening to another episode of the Aussie Firebug podcast for links to all of the resources plus an entire transcript of this episode. Head over to  dot com make sure you never miss out on another episode by subscribing now on iTunes or SoundCloud.