I guess my FIRE lessons all started when I had finally landed my first job. It was at a startup and I was one of three developers in a barebones building on the outskirts of the Adelaide CBD. I had just completed a double degree at the University of Adelaide and was now earning okay money, so I had to try to work out what to do with it. I knew I probably should start investing in some way.
When you start talking to people about investing, there is a lot of noise – and a lot of contradiction, a lot of fear and a lot of greed. To work out what was correct and what wasn’t, I knew that I needed good financial literacy. I started reading all the classics of the time: Rich Dad, Poor Dad and all the other Kiyosaki books; The 7 Habits of Highly Effective People, How to Win Friends and Influence People; and a myriad of other books about starting your own business or self wealth. I even listened to their audiobooks on my long walks to work.
I was in the right headspace to start my journey, but I had to learn a few important lessons on the way.
FIRE Lesson 1: Analysis Paralysis
One of my dreams had always been to buy a property. It is what is colloquially known as “The Great Australian Dream”. There was a time when Australia awash with property spruikers spruiking courses on how to buy multiple properties – they were all over TV and all over the news sites. Like thousands of other Australians of the time, I signed up to one of their courses. The course itself was reasonably practical in hindsight, touching upon the technical aspects of property purchase, the mathematics involved and how to set yourself SMART goals.
Unfortunately, I had a lot of inertia at that time and was suffering from a huge case of analysis paralysis. The property spruiker mentioned how he had made his fortune in Geelong, but now Geelong was overpriced and it was time to try to find another area. This just confirmed my beliefs that it was all just too hard. Even though I had spent over $1,000 on the course, I never did anything with it.
I was too scared of making a mistake, losing money, not knowing if the house I was buying into was right, or the area was right, or whatever doubt I had in my mind at the time. That was a mistake and it is mine to own but it was a sign of the headspace I was in. Obviously, if I had bought at that time, I probably would have reached FIRE much earlier… but hindsight is 20/20.
In my eagerness to just do something, I decided to buy some stock instead. Stock was the easy way out. You buy stock for a small brokerage and you forget about it. There are no contracts, no real estate agents, no inspections. You do your research and you click the button. The risk also is much lower – when you first start out, you are not risking hundreds of thousands of dollars. like you would for a property.
After a while, I thought I knew the ins and outs of stock. I was comfortable with the amount I was risking and comfortable with my knowledge in the subject. You, yourself, have ultimate control over your risk appetite and your growth potential. Financial planners charge you a fortune to assess what kind of investor you are in terms of how much risk you are willing to take. You just need to understand your risks and mitigate the risks with knowledge and planning.
FIRE Lesson
Action can be difficult. Sometimes a small step in the right direction is better than none when tackling what seems like an insurmountable goal.
FIRE Lesson 2: The value of good advice
Sydney hosts a few financial expos every year and one time, I passed a stall where they were offering a raffle to win some gold bullion. People who know me know I love a bit of a freebie, so I put my card in the bucket.
I didn’t win the gold but I won a bottle of wine – actually a bicentennial wine created to celebrate Australia’s Bicentenary. It consisted of wine from 200 of Australia’s wine regions. Anyway, to collect the wine, I had to undertake a free financial planning session.
I was quite willing to do this since I had left my old accountant, and I hadn’t done my tax returns for a few years. In the chaos of moving to Sydney, I had quite a few savings and transaction accounts (some with fees), and I wanted to get rid of these and inject some clarity into the mess of accounts. This is all really minor stuff that people could do on their own, but l was still suffering from some inertia and motivation issues. I was earning a reasonable amount of money from my Macquarie Bank FX position, so getting all of this sorted wasn’t a huge priority.
The financial planner asked me what my goals were. “I just want my accounts sorted, my taxes done… oh, and I’ve always dreamed of owning a property.” That one offhand comment changed everything. They introduced me to a property broker who showed me a few properties and I bought one. The financial planner outfit themselves were a bit of a one-stop shop with property, loans, tax departments etc, so this was all quite seamless. If this hadn’t been the case, I probably would not have made the purchase.
Within months, I owned one. I’d taken on a big loan, but for the first time I was leveraging “other people’s money” – a foundational step in building wealth. Unless you are earning huge salaries, you need to use “other people’s money” to get ahead.
I had conquered a huge hurdle of owning a home, I was using other people’s money to build my wealth and I had a nice stock portfolio. I was ahead of the game compared to most Australians.
FIRE Lesson
Advice can be beneficial in many ways. It can make sense of your current, financial situation. Another set of eyes can see opportunities which you cannot. It can make yourself more accountable, by having someone clear the way and push you into action. And action may be one of the hardest things to implement.
FIRE Lesson 3: The Tax Epiphany
During these early years, I realised I needed to know more about tax – tax deductions and tax minimisation. Minimising your tax is actually a no-brainer. Why wouldn’t you want to keep
more of the money that you already have? It is yours anyway. Keeping money you already have is easier than going out to earn more money. Note that tax minimisation is something everyone should do. This is different to tax avoidance – tax avoidance is a huge no-no.
You can learn a reasonable amount about tax minimisation online but there is nothing like getting a good accountant or financial advisor. A lot of people are quite reluctant to get financial advice. They don’t want to pay for someone telling them what to do or for something that they may already know. But in reality, financial advice is invaluable and in a majority of cases, pays for itself. With an advisor by my side, I asked every question under the sun about tax.
From those small beginnings, I grew to know the tax implications of everything I did. Whenever I earnt a dollar – be it from salary, from stock or superannuation/pension fund – I knew the tax I needed to pay. If I sold anything, I knew the tax and how to minimise it. If I received rent from a rental property, again I knew the tax implications and how to minimise it.
FIRE Lesson
It is worth knowing about tax. You’ve earned this money, you have every right to keep as much of it as legally possible.
Read the next blog entry in My FIRE Timeline: How I Reached Financial Independence through 5 Lessons. Part 2.
