If you’re a property owner, investor or looking to get into the market The Rentvesting Podcast will help cut through the hype, look at the facts and draw on decades of experience to help you make smarter property decisions.
Jun 24, 2017
This week we've got Matt the Aussie FIREbug (Financial Independents Retire Early) teaching us a few things about his road to financial independence. He's going to take us through rapid saving strategies, his financial independence journey and ETFs and break down these in further detail.
My name is Matt - the Aussie Firebug, I've got a website AussieFireBug.com which is dedicated to my journey of financial independence which stands for Financial Independents Retire Early. I'm currently 28 years old and I work in IT. I started working when I was 22 after finishing university and growing up I had an Italian father, who was very thrifty and I was always very good with my money.
I struggled as I'd save all this money for no reason, then I'd blow it on something like clothes. Then I got a full-time job, and it was then that I realised there should be more to life. I was out of the house for about 10 - 12 hours a day working Monday to Friday each week and I wasn't used to that. I thought is this going to be my life for the next 40 years with four weeks off and a couple of sick days? I liked my job but I really struggled to adopt this lifestyle. So I worked that year, and then I bought an investment property right before the first home buyers grant finished. But I didn't really want it, I just did it because it's what you do. It wasn't until after a couple of years when I discovered the whole financial independence. I bought the property in 2012, and in 2013, I was thinking - I've got this asset, a lot of debt to my name, I better figure out what I'm doing. My initial path to lead me to financial
I liked my job but I really struggled to adopt this lifestyle. So I worked that year, and then I bought an investment property right before the first home buyers grant finished. But I didn't really want it, I just did it because it's what you do. It wasn't until after a couple of years when I discovered the whole financial independence. I bought the property in 2012, and in 2013, I was thinking - I've got this asset, a lot of debt to my name, I better figure out what I'm doing. My initial path to lead me to financial
My initial path to lead me to financial independence was through property investing. I realised you can buy an asset and generate income from it.
I read a lot of finance books and then I stumbled across Mr Money Moustache about a guy who's an engineer and retired from full-time work at 29.
His post - the formula to financial independence is a really good post and he goes through ETFs and what he invests in. I ended up buying my third property and I was slowing understanding diversification.
I realised I was heavily weighted in just Australian property and if there ever was a bust, it'd go badly for me. This last year I've been concentrating on exchange-traded funds - a blend of shares wrapped in a package. I've been investing heavily in ETF's lately, there are pros and cons in each asset class.
I hope to get to a point where I track my expenses religiously. I think that's the most important part of the whole journey. You have to know. I post my net worth every month and when I get to a certain number hopefully my assets are generating an income.
Aim to save 25% but with the fire piece generally, it's trying to strive to save more than 50% of your income.
The main reason I could do 74% was due to living with my parents in the last half of that financial year. I was only paying rent for 6 months of that time. I'm about to release my new post, about how much I spent in this financial year and it won't be anything near that good. There's no rule. It's all about how quickly you want to escape the rat race. I always tell people, track your expenses! If you track them and look and how much money you're spending on things and you'll start to realise how much money you're wasting. You need to start plugging the holes.
Track your expenses and this will help you improve. It takes discipline and you've really got to want it to do it. Especially if you're on the path of independence you've got to want it bad!
I always think about whenever I want something I always mull it over for a few days at least. If we want to buy something we weigh it up and look at it as this purchase will delay the date for when we can quit our jobs.
So basically, you need a broker. You cannot get around not using a broker and this cost is what funds the whole system. The cheapest you can find is $10 for every 20,000. How it works is that you buy packs of ETFs of around about $5 - $10k at a time. You could buy low-cost ETFs but then you'd be hit with a brokerage fee. So it's best to buy them in big amounts so that the percentage of the brokerage cost is an acceptable amount.
I run a three ETF split, so I buy VAS which are the top 300 companies on the ASX, and the best thing about these is that they're all Australian companies and you get franked dividends where basically when you're distributed dividends you get more. In the global share market, Australia only makes up 2% while America makes up almost half of it. Due to this, the whole reason and power behind ETFs is diversification for not a lot of money. If you wanted to diversify them same in property it would cost you a lot and you'd need a lot of properties. But then an ETF you can easily diversify and spread your money across a bunch of asset classes and businesses, which is sort of what your super does. Some supers invest in ETF's themselves.
Then I do VTFs which is the US market - top 300 biggest companies again. Then the other one is the VEU which is the entire world excluding the US. So between those three ETFs I've got most of the markets and countries covered. The theory behind it is if you buy stock in a few different companies, then you're safer. Property is one asset in one location, whether ETFs are reaching so many markets.
If you would like to learn more about Matt, read his blog here.