December 2018 Update | FIRE Journals
A few months ago I decided to start doing something about my finances. I used to have a high paying job in a sales management role but had since opted for a lesser paying job so that I could focus on building my business as a Personal Development Coach for men.
I knew that it would be tough but over the last year it got a lot tougher than I was expecting. It seems that I had stripped down my budget to bare bones and I’ve had an increasing sense of feeling ‘choked’ by my finances. Although I had been contributing money into investments, I had ZERO dollars in emergency cash savings, and this was causing a high level of financial anxiety.
Finally, after been hit with an unexpected tax bill plus two traffic fines for $400 each, I realised I had to do something otherwise I’d never escape the rate race and be able to focus on what I love doing.
Learning About FIRE (Financially Independent, Retired Early)
After doing some research on Reddit, I stumbled across the FIRE movement. It gave me a renewed sense of enthusiasm to get my finances sorted. Perhaps the most famous example is the MR. Money Moustache blog.
I happened to come across this introduction to Mr. Money Moustache in this PBS Newshour interview with the man himself, as he talks about his journey to retiring early and becoming financially independent. I highly recommend you watch it when you get the chance:
Another resource I found was The Barefoot Investor. Working in a bank, I’d constantly hear customers talking about this book as if it were their bible, but after reading it I can kind of understand why. It’s an extremely practical book for people wanting to move towards being financially free.
I’ve decided to do a video about this book when I get the chance.
Why I’ve decided to create the FIRE Journals.
I’ve decided to document my journey to FIRE. The main reason for this is that one of the reasons it feels like the dream of financial independence seems so far away, is because it’s so hard to see the journey people take to get there. Sure, we read the book by the guy who made it, but it’s also easy to dismiss their achievements because of luck, or because they already had money to begin with. We don’t really see the journey from being heavily in debt to being financially free.
This is what I want to share with other men who want to be financially free and live life on their own terms. And what’s more I’ll be sharing my financial progress every step of the way, warts and all.
You see, although I’ve been a high income earner previously, I’ve taken a few steps backwards financially and I want to prove to myself and others that it’s possible to push forward after set backs.
For the time being, I’m earning a below average income, so if I can save and invest money to become financially free, then you can probably do it too.
Taking stock of where I’m at.
Okay, so first thing I needed to do was focus on building a cash savings reserve. I made the mistake of focusing on building on my investments without any cash savings, relying on my high pay check to see me through most emergencies.
There’s draw backs of cash savings of course. For one, the returns are typically a lot lower than if you were investing in an index fund (particularly when you also factor in inflation), however the big benefit of cash savings is that unless you spend it, it’s very hard to lose it. Every month, I get interest paid into my account, and as I continue saving, those interest payouts increase.
Another huge benefit of having a cash savings reserve is LIQUIDITY. If I have an emergency come up, and I have a cash savings reserve, then I have easy access to those emergency funds. On the other hand, if all I have are my mutual fund investments, I first have to email my broker, wait for his assistant to email me the authority form, fill it out and email it back, then wait the 2 week turn around time for them to liquidate some of my investments and transfer it to my bank account. On top of this I have to pay a processing fee and also be penalised short-term capital gains tax from any gains I might have made from my investments.
This is not a good way to handle emergencies.
When I started saving about 3 months ago, I had ZERO dollars in cash reserve. It’s been difficult to save as my current rent is incredibly expensive, although this will change when my partner moves in with me in a couple months (taking that next step with her is just as much exciting as it is nerve wracking).
I also have a fair bit of debt left over from when I was earning much more. It started out at $17,327 in June of 2017, now it’s down to $15,167. I have a ridiculously high interest rate of 16.9% but unfortunately haven’t been able to refinance it to a cheaper lender yet due to the tightening of lending regulations in Australia following the Royal Commission into banking. But this is okay for now as I’ve never fallen behind and I intend to start really ramping up my repayments once my girlfriend moves in and my living expenses decrease.
So here’s the snapshot of my finances over the last 3 months:
The account I’m using here is the Rams Saver, with an interest rate of 2.80%. Now, this isn’t necessarily the highest rate I found for savings accounts, however, what I like about this account is that the conditions for high rate are simple; All I am required to do is deposit at least $200 per month, and not make any withdrawals. This gives me clear incentive to save and a dis-incentive to withdraw on my savings.
Other savings accounts out there offer slightly higher rates but generally have stupid hoops you have to jump through and don’t have any penalties for withdrawals, which is not what I’m looking for just at this moment.
Mutual Fund Investments.
Okay, so next up is my mutual fund investments. I didn’t make any contributions to my account over the past 3 months as I am focusing on building my cash savings, however I’ve included the below tracking sheet to show the variance in value over time. It has been a savage few months in the stock market, so the value of my investments has decreased since I started this challenge.
But that’s not an issue for me, I’m using this as an opportunity to detach myself for short term results and focus on the long term goal of FIRE.
Finally, there’s my debt reduction, which itself is a form of savings.
Other debts outstanding:
December Net-Worth (excl. superannuation)
Final Thoughts for Dec & Goodbye to 2018
One thing I’ve noticed is that since I now have a small emergency cash savings, when unplanned expenses arise (like my traffic fines) I feel better equipped to deal with them, and I’m not drowning in financial anxiety any more.
Looking forward to what 2019 brings. I’m confident that although I have some challenges ahead, I’ll be able to rise to those challenges, and I hope that these journals inspire others to take up the challenge of becoming Financially Independent and Retiring Early.