August 2024 | Our Journey to Semi-Financial Independence: Income, Expenses, Net Worth, and Investments
Welcome to the first Financial Independence (FI) update! In this post, I'll walk you through our income, expenses, investments, net worth, and our roadmap to semi-FI.
Income and Expenses
The Barefoot Investor advocates reducing your expenses to just 60% of your income to maximise your savings (smile account,) while popular FI bloggers like Mr. Money Mustache, Strong Money Australia, and Captain FI push for an ambitious 80% savings rate. For us, as a family with children, this is a tall order. Not an excuse, but unless our income skyrockets, it’s simply not realistic at this stage.
Before we moved, we were managing to save 20% of my total income. For a family with two kids, we were on the right track and getting comfortable with our progress. Then came the move. We bought land, and while we’re currently renting as we figure out our building plans, our expenses have ballooned. Adding school fees for both kids pushed our expenses up to 90% of our income.
While I spend very little on myself, the bulk of our remaining income is going into savings. I’m working on rebalancing how my wife and I contribute to our expenses to stem this outflow and bring our savings back in line. I’ll dive deeper into our expenses in a future post, which will give you a clearer picture of our financial situation. For now, our emergency fund (which we call our "fire account") sits in our mortgage offset account at $8,000, but it’s been gradually shrinking as we juggle both rent and a mortgage. We’re making adjustments to get back to spending less than we earn.
Net Worth
Net worth is a common metric in the FI community, but I’m a bit hesitant about it. My goal is semi-FI by age 50, and while net worth is part of that equation, it can sometimes feel like a vanity metric. What truly matters are the fundamentals: assets that generate income and avoiding bad debt that drains your finances.
I’ve tracked our net worth before starting this blog, recently adding our external share portfolio with NAB Trade, cash holdings, and the updated value of our land versus our mortgage. Right now, cash makes up a significant portion of our net worth as we wait to build our house. However, I’m open to reducing this balance if there’s a significant drop in the share market or to kickstart the debt recycling process. Both options would mean increasing our mortgage with the hope that the share market outperforms the interest rate on our mortgage.
Investments: The Road to Semi-FI
Our goal is to build a $650,000 share portfolio by the time I’m 50. We’re currently 20.7% of the way there. August was a quiet month, with only small increases in capital gains and dividends. While I currently hold five investments, the plan is to consolidate down to three:
VESG Vanguard Ethically Conscious International Shares Index ETF
VAS Vanguard Australian Shares Index ETF
NDQ Betashares Nasdaq 100 ETF
The aim is to have a 60/40 split, with 60% in international shares (40% in VESG and 20% in NDQ) and the remaining 40% in Australian shares through VAS.
I also hold AFI (Australian Foundation Investment Company), a recommendation from the Barefoot Investor. While this holding is currently down by $550, it has paid $1,263 in dividends since purchase. I reinvest all dividend payments to keep the momentum going.
Additionally, I made a small investment in Telstra (TLS), putting in $500 at a low price. This has since doubled, yielding 100% returns in capital gains and dividends.
As we head overseas at the end of September, I don’t anticipate any significant changes, apart from market movements and dividends.
What’s Next?
For context, I plan to share more details in upcoming posts:
A breakdown of our expenses and service providers (electricity, gas, technology, mortgage, etc.)
How my wife and I manage our money
A complete plan outlining how we’ll achieve semi-FI by age 50
Images for expenses, net worth and investments is from Pearler.com. Use LUKE62560 is you wish to sign up.
Images for AFI and TLS share holding is from Sharesight.