Summary: The purpose of this blog is to provide practical steps on how to achieve financial freedom in Australia. While dozens of individual posts are needed to provide the details on each topic, it is also desirable to try and condense the entire blog into a single post.
So this post is intended to be a single page index of all of the steps I recommend for achieving financial freedom in Australia. This will form a checklist which anyone can use and measure their progress against. Another advantage is that I can rapidly list all of the steps concisely, add external links, and only cover them myself in detail as time permits and if really worthwhile.
The most practical aspect of compiling a single page guide is to provide just a bullet point and link to the best solutions, service providers or explanations.
This blog post will be a work in progress for awhile as compiling the index of all useful steps takes time. Nevertheless, I've published it early as the most useful information for most readers to compare against are my figures in the Spending, Earning and Investing tables - particularly the Spending table.
Details:
The fundamental truth to building wealth and achieving financial freedom is so simple it can be captured by one sentence:
Spend less than you earn and invest the difference wisely.
See:
> Everything You Need To Build Wealth.. In One Sentence
> Get Rich Slowly - Spend less than you earn
Almost everything else is details. Consequently, virtually all personal finance advice can be categorised as being about Spending (or saving), Earning and Investing.
My blog posts are primarily specific actions for Australians to implement, especially in the Spending and Investing categories. So, below, I have grouped every single one of my steps into just these three categories. For the Spending category, I even use a table format to make comparison and totals easy to see.
In Section 2 below, I will collate a comprehensive list of universal (not country-specific) steps in a more structured order. These include the bigger picture principles, lessons and overall context, as well as deal with topics I don't cover myself on this blog such as getting out of debt and earning more income.
1a. Spending / Saving:
My Monthly Expenses:
Notes:
- The monthly expenses below are for a single individual. I've separated them into needs vs wants (discretionary expenses) to make the minimum cost of living (needs only) even clearer. You can double this needs amount to estimate our total minimum household expenses (i.e. 2 adults, 1 child).
- Shared expenses (rent, utilities, groceries, child-related, etc) are listed at 50% of the cost as they are split.
- My personal expenses (clothing, shoes, electronics, hobbies, etc) are listed at 100% of the cost.
| Expense Type | Monthly Cost | |
|---|---|---|
Needs | ||
| Shelter (50%) | $1,192/month ($550/week total) - 50% of private rental of 2 bedroom terrace in Fitzroy North - Long-term renting with the tenants keeping landlord costs (e.g. maintenance) to a minimum results in yearly rent increases of ~$10/week and paying significantly less than the average rent - We pay around half the cost of buying our house with an interest-only mortgage (i.e. renting is currently much cheaper than buying in the most desireable parts of Melbourne) - If buying makes financial sense in the future we will buy a small house with access to the things we value rather than trying to own them (e.g. walking access to great local park rather than a big backyard). - No matter the family size, one bathroom is fine. There would never be things like entertainment rooms. Blog Posts: > See the housing tag on this blog | |
| Local Transport (100%) | $60/month made up of transit fares and occasional Car Next Door trips - $40/month transit fares for trips with my toddler, usually longer-distance train trips - By living in an area where all of the things we need to do regularly are short trips (mostly walkable), we can rely almost solely on walking and cycling. See: www.betterbybicyle.com - We genuinely love walking and walk fast on longer trips. 4km each way is nothing if the walk is enjoyable. Walking efficiently and enjoying it make public transport much easier too - you can often avoid waiting for connections for the shorter legs of the trip and walk instead - Heavy or bulky shopping needs are obtained via online orders and home delivery - Public transport trips can be planned efficiently if you use transit sites, apps and maps. E.g. Transit, PTV website, PTV apps, Melbourne By Bus, Google Maps - Transit - Public transport in Melbourne has ways to save including free weekday travel if you finish your journey by 7:15am, unlimited travel between 6pm and 3am for the cost of a 2hr fare, and weekend daily caps ~20% cheaper than weekdays. - When we really need a car we use CarNextDoor to minimise more cars being bought and benefit neighbours not hire firms. (Referral link will give you $30 free credit) - If I absolutely had to buy a car it would be a second-hand, reliable one. I would follow the best advice (Link2) and arrange an independent inspection from a reputable organisation that provided the best guarantee. RACV offers 30 day mechanical guarantees to members. Blog Posts: > See the transport tag on this blog | |
| Groceries, bakery, etc (50%) | $300/month - Money is saved by buying on special, doing some shopping at Aldi and because we don't eat meat. Plus most of the other tips you'll find here: Frugal and Thriving - How to stick to a grocery budget of $130 a week | |
| Eating & Drinking Out (50%) | $80/month - Location provides access to cheap but quality takeaway food - Eat out for brunch or lunch about once a week but don't overspend - Often take advantage of cheaper nights, specials, happy hour. E.g. The Happiest Hour | |
| Electricity (50%) | $35/month - Momentum Energy Smile Power Exclusive 36 month contract 2016 rates inc GST: Daily Supply Charge: 0.98582 c/day First 6.57524 kWh/day: 0.15565 c/kWh Remaining: 0.16225 c/kWh - In 2016 or household electricity bill will be less than $850. This includes use of a reverse cycle air conditioner for cooling and heating. A similar household would spend at least $1300 due to higher rates and less conservation - Australians in any state can use Energy Made Easy to find the cheapest electricity and gas offers in their location. Victorians will be redirected to the Switch On website to compare offers. - We don't heat overnight as the bedrooms aren't too big and blankets are sufficient. Exception is an oil column heater which is set to keep our child's bedroom over 14C. Blog Posts: > See the energy tag on this blog If Momentum Energy is available and the cheapest you can get $50 for signing up by using this referral page and an existing customer's details. (Mine are Adrian / loboadrian @ gmail.com - you can email me for the phone and referral code) | |
| Gas (50%) | $30/month - Origin Energy Rate Freeze (Rate Freeze appears not currently available but can ring and ask) 2017 rates inc GST Signup date: 28 June 2017 Price change terms: Fixed for 24 months Supply: 70.543 c/day First 65.75Mj: 2.2 c/Mj Next 131.51Mj: 1.969 c/Mj Remainder: 1.694 c/Mj - I use the Energy Made Easy website to switch to the reliably-cheapest energy retailers. We dress warmly inside in winter to minimise heating temperature to ~18C. As gas heating is more expensive, we use our reverse cycle air conditioner in the living room (no need to heat the whole house). Blog Posts: > See the energy tag on this blog | |
| Water (50%) | $30/month - City West Water We conserve water and use about half as much as the average household our size. Our water bills are less than half as usage and sewerage disposal costs increase progressively. There are dozens of ways to save water. See: Waterwise - 365 Water Saving Tips (pdf) | |
| Internet (50%) | $35/month $70 Aussie Broadband NBN plan: 50/20 MBit speed with 200GB/month data. - If choosing where to live and fast internet is important then check NBN Co to find out if your suburb is connected to the NBN yet. NBN-connected areas have access to the cheapest high-speed plans as there are some low-cost retailers that only offer plans in NBN areas. Even if only on ADSL2, if speed is essential, try to minimise distance to your exchange using ADSL2Exchanges - Consider $50-70/month NBN or ADSL2 plans using WhistleOut - Compare NBN and also check Aussie Broadband | |
| Mobile Phone (100%) | $17/month for Kogan Mobile Medium plan (365 day) + $5/month for phone Xiaomi Redmi 4 smartphone bought for $210 with ~4 year lifespan Blog Posts: > See the technology tag on this blog | |
| Baby: One-off costs (50%) | $15/month - Most items acquired for free (family, friends, Streetbank) or at very low cost second hand (colleagues, Op Shops, School fetes, eBay, Gumtree) - We follow most of the same methods as noted here: > Saving money when having a baby - Feeding > Saving money when having a baby - The other end > Saving money when having a baby - Asleep and on the go > Saving money when having a baby - Clothing, toys and miscellaneous | |
| Baby: Recurring costs (50%) | $15/month - Cloth nappies. Prepare food rather than buy baby food. Favour value-for-money products (Aldi). Rarely use disposable or single-use products. | |
| Household furnishings (50%) | $20/month - Second hand fridge and value-for-money new products (e.g. $550 Haier washing machine). Blog Posts: > Start using price comparison sites and price matching efficiently | |
| Household improvements (50%) | $10/month - We rent so there are few improvements worthwhile. - Organised for reverse cycle aircon which we arranged to pay $240/yr over 10 years - Organised for networking connection to improve internet access. We paid 50% of cost which equals $165. | |
| Private Health Insurance Hospital (100%) | $0/month - Income below Medicare Levy Surcharge Blog Posts: > See the health tag on this blog | |
| Private Health Insurance Extras e.g. Dental, Optical, Physio (100%) | $15-20/month ($180/year) for HCF Bronze Plus Extras or HCF Silver Plus Extras (~$250/year) temporarily when using major dental The best Extras providers have no-gap services for teeth, eyes, hearing and other treatments Blog Posts: > See the health tag on this blog | |
| Out of pocket health expenses (100%) | $10 - Gap for optical (contact lenses) plus occasional dental repair | |
| Pharmacy (100%) | $1 - Generic paracetemol and contact lens fluid | |
| Clothing & Shoes (100%) | $20 - Once I had specialised skills and my employers needed me more than I needed them, I dressed in semi-casual or casual clothes. In the last few years of my paid employment my clothing and shoe costs for work were zero. - Based on concern for people, animals and the planet, I think pointless consumption should be eliminated which certainly includes buying new stuff for fashion, status or variety reasons. I'd be delighted if my clothes and shoes didn't wear out and I could reduce my ongoing consumption to nothing. | |
| Needs Total: (for 1 person, double it for household) | ~$1,900/month ($22,800) | |
| Wants | ||
| Pets | $120 | |
| Local holidays in Australia | $130 | |
| Charity (100%) | $50 | |
| Alcohol (100%) | $50 - Various ways to pay much less include using promotions or specials, buying wine in mixed cases, and buying from the cheapest stores like Dan Murphys (including Members specials). | |
| Electronics (laptop, tv, audio, etc) (100%) | $40 - Most generic electronics equipment can be had from overseas online retailers at less than 10% of the price in Australian retail stores. | |
| Software, games & internet subscriptions (100%) | $25 | |
| Events e.g. Sport, music, etc (100%) | $25 - Can find inexpensive ways to attend sporting events. E.g. Using Crownbet Rewards to attend AFL matches at the MCG for $10. | |
| Hobbies/Sports - Cycling, Cricket, Snooker, (100%) | $30 - For hobbies like cycling, I get satisfaction from being self-sufficient: having the skills and tools to do everything myself. And also from finding just the most essential, value-for-money equipment or solutions such that I don't need to continually buy new stuff or upgrade. See: > Better By Bicycle: "Saving money" category - Sport (e.g. indoor cricket) costs around $10 per game. Equipment can be sourced second hand or is often supplied at the venue. - Recreational activities (e.g. snooker) can often be undertaken at cheaper off-peak times. E.g. I play snooker on weekdays before 6pm when the rate is half price. | |
| Gifts (100%) | $20 - My simple living and environmental values mean I forbid, discourage or don't participate in wasteful present buying. Home-made or genuinely-worthwhile presents are fine. | |
| Books, Magazines, Media (100%) | $10 - Hardly anyone knows this but most common books can be read for free by using your State library network(s) to their fullest extent. A local library nearby will likely be part of a full-service network like Swift. And if you still can't find a book you can try your whole-of-State borrowing options like Library Link Victoria - Various sites offer time-limited deals of around 80% off normal price for ebooks for discounted books are BookBub, Goodreads Deals (must change your location to US), Riffle - Various other sites list free or very cheap ebooks (e.g. Link1, Link2) - Amazon offers $14/month Kindle Unlimited subscription access to thousands of books as well as regular Kindle purchase deals (e.g. Monthly Deals) - Amazon and Kindle users can leverage extra ways to save money such as KindReader.com (e.g. Link1) - For hard copy books use sites like Booktopia (code: HCFBKT10 ) | |
| Gambling (100%) | $10 - I proactively manage my gambling habit as an entertainment expense. I generally only gamble on Betfair (5% commission) and only use the higher-take bookies temporarily to take advantage of promotions (e,g, Link1, Link2) and free competitions like CrownBet Rewards competitions and worthwhile tipping competitions like Ladbrokes Perfect Round Blog Posts: > Start sensibly managing your gambling habit | |
| Netflix & Spotify-type subscriptions (100%) | $15 - NBA League Pass. Use a VPN and you can get this for around $110/year. | |
| Takeaway drinks e.g. Coffee (100%) | $10 - For health reasons I mostly drink water when out not takeaway or vending machine drinks. The exception are occasional coffees when socialising. | |
| Education (100%) | $0 - There are hundreds of places to learn for free online | |
| Cinema (100%) | $7. Once every month on cheap Mondays at Cinema Nova ($7 before 4pm, $10 after 4pm) - I often wait till movies come out on TV or free or very low-cost streaming sites like SBS On Demand - You can use inter-library loans to access many DVDs of movies and TV series for free | |
| Wants Total: | $515/month ($6,180/year) | |
| Needs + Wants Total: | $2,315/month ($27,780/year) | |
Common expenses I don't have:
| Monthly Expense | Simple Living (Adrian) |
|---|---|
| Childcare | $0 |
| Children's private education | $0 |
| Fast food & vending machines | $0 |
| Cigarettes & drugs | $0 |
| Gym & fitness | $0 |
| House cleaner | $0 |
| Gardener | $0 |
| General shopping (not essentials like food) | $0 |
| Wedding, rings, honeymoon, etc | $0 |
| Car & bike insurance | $0 |
| Home insurance | $0 |
| Home contents insurance | $0 |
| Pet insurance | $0 |
| Life & disability insurance | $0 |
| Income protection insurance | $0 |
| Funeral insurance | $0 |
| Credit card fees & interest | $0 |
| Personal & other loans | $0 |
| Bank fees | $0 |
| Accountant & tax fees | $0 |
| Company fees or Professional indemnity & Public liability insurance | $0 |
| Investment fees | $0 |
| Work expenses - Clothes, shoes, lunches, drinks, etc. | $0 |
| Renovations & maintenance | $0 |
| Personal care | $0 |
| Parking, tolls & fines | $0 |
| Car lease and finance | $0 |
| Gambling losses | $0 |
| Child support | $0 |
| Total: | $0 |
Expenditure Savings:
| Saving method | Simple Living (Adrian) |
|---|---|
| Researching value for money, fit for purpose, reliability, energy efficency | ~$500/year |
| Finding lowest price, special offers, promotion codes | ~$1,000/year |
| Price matching (most value-for-money stores do this) | ~$150/year |
| Repair, reuse and buying secondhand | ~$350/year |
| Proactively asking for pro rata refunds, suspensions, discounts, etc | ~$250/year |
| Total: | ~$2,000 |
Value-for-Money Products:
- I buy Dell latops using their regular laptop deals or discount coupons. You can also get 3.5% cashback by visiting the site from Cashrewards.
- Kogan.com for cheaper versions of some needed products. E.g. We bought a portable reverse cycle air conditioner for $399. The alternative consideration was a Delonghi model for $795. Kogan offers 14 day free "change of mind" return which is useful for evaluating their cheap versions. And if you will be using a product heavily then their 5 year extended warranties may be worthwhile if less than 25% of the purchase price. (A 5 year warranty for the $399 air conditioner was $84).
- Appliances Online price matching plus free delivery, installation and removal of the old appliance.
- Researching energy efficiency and effectiveness is critical to determining the best value-for-money products. For example, major appliances like air conditioners. I use free data (e.g. Canstar Blue) and also paid consumer research sites (e.g. choice.com.au which I have free subscriber access to via prior work).
- By far the most efficient and effective cooling solutions are split-system (outdoor compressor) reverse cycle air conditioners (single indoor unit not ducted). And the hands down winner in efficiency and value-for-money is the Daikin 2.5kW US7 (7 star energy efficiency) which can be had for around $2,000 plus installation.
- If a localised cooling solution is feasible to just cool you and not a room then consider the Close Comfort model.
- The most efficient hot water system available in Australia is the Sanden heat pump. The Eco Plus Heat Pump + 160L Small Tank will cost around $3,500 (after around $1,200 from the renewable energy subsidy). It's around 80% more energy efficient than similar capacity gas systems so will pay itself off in well under its expected life.
- Android smartphones are Xiaomi models bought via Aliexpress.
See: > Stop wasting money on expensive phones and monthly usage costs
1b. Earning:
As of October 2015, I am not in paid work, so this category won't be maintained with earned income details, "side hustles" or ways to use "sharing economy" apps. All of my income will be detailed in the Investing category.
However, well-paid employment for several years, or average-paid employment you enjoy for a couple of decades, is the most straightforward approach to building up sufficient savings. Those with genuine entrepreneurial skills and passion may find it more rewarding to build a business. And, in the right locations and the right time, those best suited to real estate, may find it a worthwhile activity.
I will be collating the most useful links on an optimal approach to earnings in this section.
- The best advice on figuring out whether multiple income streams really makes sense comes from the Financial Mentor blog in articles like these:
> Multiple Streams Of Income – Truth Revealed
- You can use "sharing economy" websites/apps to earn extra income including renting out your car (Car Next Door), bike, surfboard or skis (Spinlister), residence/room (Airbnb), storage space (Spacer), parking space (Parkhound). You can also use "gig economy" apps to do flexible work in free time such as Airtasker, Uber or Freelancer.
See:
> RateCity - How to make money from the sharing economy
> Spacer - 15 ways to save money using the sharing economy
- Australian market research firms will pay around $50-90/hour for in-person attendance (1 to 2.5 hours which is also available after 5:30pm on weekdays). And some firms will pay what amounts to around $40/hr for online tasks.
See: > Mummy Hearts Money - Market Research Opportunities (also Ava Research)
1c. Investing:
Over 95% of my savings up to October 2015 (when I achieved financial independence) were built very safely via 5 year term deposits (mostly paying between 6 and 7.1%) and online savings accounts (primarily UBank which varied from 6.5% down to about 3.3%).
Since I quit work, I have become more active in investigating investing opportunities, optimising where I allocate money, and, in particular, actively spending some time managing a portfolio of LIC shares. My active LIC trading returns around 10-25% which puts annual investment returns up to around 9%. Details on my current investment portfolio can be found in this post:
> Start maintaining a more effective investment portfolio
As of November 2017, my savings are currently:
~40% in RateSetter Australia, mostly in the 5 year market earning ~9% (most of this invested in 2016 as my term deposits expired)
~0% in 5 year term deposits. My 5 year TDs paying 6-7% all expired by 2017. I will re-enter 5 year TDs when rates offered are over 4%.
~18% in AustralianSuper's balanced super option (low fees, tax-efficient exposute to shares, infrastructure, unlisted property and other unlisted assets)
~12% in UBank USaver (2.87% interest with bonus)
~30% in LIC shares (actively managed funds typically invested in 20-70 stocks) like MFF, PGF, PAF, CVF, AQF, MA1, MEC, EAI, EGI, GC1, BTI.
We've previously used Stockspot for a small savings fund for our daughter. If you don't know enough to invest in LICs then of the passive ETF roboadvisors I recommend this one. If you want to save on fees for 12 months use an existing user's referral code (mine is: ADRIAL8H)
Note: I try out other investments occasionally to assess them (e.g. roboadvisors) or for research purposes (e.g. Marketlend which I don't use anymore) but often tend to exit them within 12 months.
The above investment proportions are not recommended for others and are constantly changing based on relative value (e.g. when I was getting 6-7% in TDs I had 80% of my savings in them).
The major investment type that will be added in future are ultra low-cost passive ETFs. But this will only be when the relative value is attractive and typically when I don't have the time or interest to invest in actively-managed alternatives (i.e. LICs). E.g. There is a place for Vanguard index-tracking ETFs in a portfolio, but I would only choose to enter when the relevant stock market has a major pullback.
2. A comprehensive, structured list of steps for achieving financial freedom
On the About page of this blog I provided a top 10 list of practical steps. Here, I'll aim to expand on it and provide a structured list of the top 100 principles or steps, and try and incorporate the best external links for each one.
Understand how money should relate to your life and happiness
> Money Boss 101
> It's more important to be happy than rich
Understand that money is a means (tool) not an end in itself
> Why You Need a Balance Sheet for Your Soul
Understand what early retirement looks like and whether it's what you are really seeking
> What Does “Early Retirement” Mean Anyway?
> Are You Making This Early Retirement Mistake?
Understand the reasons for frugality that are more meaningful than building wealth
> Getting Started #2 – The Higher Cause
The primary obstacles to building wealth are mindsets which virtually everyone can overcome
> The Minimalist Guide To Financial Planning
> Money is More About Mind Than It Is About Math
Procrastination and making the perfect the enemy of the good are constant challenges
> The perfect is the enemy of the good
> Action beats inaction
Failure is ok but fail forward
> Failure is OK
Having short, medium and long-term goals is essential
> Goals Are the Gateway to Financial Success
Pay yourself first
> Get Rich Slowly - Pay yourself first
Automate your payments, savings and spending money
> Getting Started #1 – What am I Supposed to Do With All This Money?
Eliminate all unnecessary debt
> Financial Mentor - How To Get Out Of Debt – The Complete Guide
Understand how to think about the full, long-term costs of purchases
> Getting Started #3 – Eliminate Short-Termitis, the Bankruptcy Disease
Small amounts matter
> Get Rich Slowly - Small amounts matter
Large amounts matter
> Get Rich Slowly - Large amounts matter too
Do what works for you but make sure that it works well
> Do what works for you
Slow and steady wins the race
> Get Rich Slowly - Slow and steady wins the race
Financial balance lets you enjoy tomorrow and today
> Get Rich Slowly - Financial balance lets you enjoy tomorrow and today
Nobody cares more about your money than you do
> Get Rich Slowly - Nobody cares more about your money than you do
> Financial Mentor - 10 Commandments of Investment Strategy
How to figure out whether to pay off your mortgage or invest
> Financial Mentor - Pay Off Mortgage Early Or Invest- The Complete Guide
Why asset allocation and market/sector risk matter more than picking individual stocks or investment products
> Financial Mentor - Three Criteria For Picking Winning Stocks
Corrections about safe withdrawal rates, robo-advisors, emergency funds, bonds in portfolios
> Early Retirement Now - My top 7 disagreements with personal finance experts
Some types of active investing are worthwhile for everyone (withdrawal rates based on equity valuations, equity allocations at different life stages)
> Early Retirement Now - Active Investing: Opportunity vs. Futility
To be continued...
Further Info:
Financial Mentor
> A Ridiculously Simple Way To Build Wealth
Get Rich Slowly
> The one-page guide to financial independence
MoneySmart
> Australian spending habits
> Budget planner
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