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Hey guys! I got a special Reader Case for you today. This so-to-be Australian reader has LOTS of head winds like immigration hurdles, debt, one kid’s college costs, another’s school costs, and wants to know if early retirement is even in the cards. Let’s see if we can make that happen:
“Hi FIRECracker and Wanderer!
I discovered you guys through the ChooseFi podcast. I’ve been reading and thinking about financial independence the past couple of years but don’t feel I’ve really gained any traction.
For some reason I’ve also been holding back from engaging with and asking for advice from the FI community. When you mentioned in the ChooseFi podcast that you did case studies my brain decided that this was the time for me to finally suck it up and get some help. (And reading through the blog it looks like I’ve come to the right place!)
Why We Want FI
There are a few reasons why we want FI to be more than just an idle daydream. The first is that we’ve been hit with medical issues in the past and I don’t want the family’s well-being dependent on our ability to work into our 60s or 70s. Another is I want to be able to give back my time, money, and effort to help people in our home country. Specifically I think I can help by teaching financial and computer skills and donating to effective charities. And of course I would love to be able to spend more time with my family.
My family and I recently moved to Sydney, Australia from a Third-World country. I’m 39, and my wife is 41. We have one college-age kid and one in primary school. We are here on temporary visas but plan to apply for permanent residency soon. That’s going to cost around 15k AUD. We’d also like to figure out paying for tertiary education for our oldest child. We haven’t done much research but it seems that starts at 20k a year. I’ve read through the reader case studies you’ve done and I realize that most of them are in the US or Canada. I thought you might find doing one on Australia interesting.
Finances (all figures in AUD)
Gross income: 90467
Net income: 72995
health insurance: 403.08
eating out: 100
primary education: 450*
Total monthly spending 3734.75
Annual spending: 44817
• non-permanent residents have to pay an annual fee of 5200 plus miscellaneous expenses throughout the year, we got a fee waiver this year, which means this is free until October 2018
15600 owed to my parents to be paid over the next 12 months
Fixed assets: none
Investments and savings in Australia:
superannuation: 2200 (can’t touch until 65 or we leave Australia)
Investments and savings overseas:
equity mutual funds: ~5100
fixed-income securities mutual fund: ~1270
We’ve been here about half a year so the figures above may be slightly too optimistic. For example it doesn’t include emergencies nor trips to our home country to see family.
How do we make this work? So our questions are:
• How can we improve our savings rate?
• Is there a way to afford tertiary education for our older child (and set aside money for the younger one ~11 years) without giving up on early retirement?
• I know geoarbitrage is an option but is it possible for us to save enough to retire in 10-15 years in Australia?
I’m both nervous and excited to see what you guys’ll say. Thanks for reading and more power to you!
Well, AFM, how could I say no to someone who wants to help his home country by “teaching financial and computer skills”? You sir, are a saint. This is exactly what I was talking about when I said your path to FI should be based on what’s important, not what’s fun.
So, let’s see if we can help AFM get to FI so he and his family can do the important work to help others, shall we?
|Net Income:||$72,995 AU/year|
|Investable Assets:||$20,200 + $2200 + $1900 + $5100 + $1270 = $30,670AU|
As it stands right now, If you were pay off the debt you owe your parents + the $15K to apply for permanent residency, you’ll end up using up ALL of your savings. So with an expenditure of $44,817 and net income of $72,995, you currently have a savings rate of 38.60%. That’s quite good, considering you JUST recently moved there from a 3rd world country AND you have 2 kids. I know people who’ve worked for decades with much lower savings rate, despite having a head start. So kudos on that!
If you were to tack on the college costs of $20,000 for your 2nd kid, that would drop your savings rate all the down to 11.80%, which is not great, but it would only be for 4 years. Let’s come back to this situation in a bit.
Without paying your kids college costs, you have a savings rate of 38.60%. So after you pay off your debts and PR application costs with your savings, you would be able to retire in:
21 years, at the age of 60. Still 5 years ahead of the normal age of 65, but not great.
BUT, when I look at your monthly expenses, the two categories stick out at me:
Health insurance: 403.08
Primary education: 450
Since, AFM is planning to apply for PR now, in 2 years they shouldn’t have to pay for private insurance and education costs anymore. So that would remove $403.08 + $450 = $853/month from their expenses. So in two years, their expenses drop to $2881.75/month or $34,581/year. This increase their savings rate goes up from 38.60% to 52.63%. And we know, reducing expenses has the double-whammy effect of shortening the distance to the finish line while ALSO helping you run FASTER.
So his case, their TTR gets reduced from 21 years to:
|Year||Starting Balance||Annual Contribution||Return||Total|
Slightly over 15 years! And that’s assuming no promotions, no extra side income, etc. If just one of them increases their salary during this time, they’ll shorten their time period even more!
So to answer AFM’s question, you don’t need to decrease your spending farther, as it’s already really efficient. The temporary costs that are inflating your expenses are the private insurance and education. Once you become a PR (assuming that it’s successful), you’ll be able to automatically cut those costs from your expenses and raise your savings rate to 53%.
Which leads me to your next question. Can you retire in 10-15 years. Assuming that your PR is approved in 2 years, after paying off debt, your PR application cost, and no longer have to pay for private insurance and education, yes you will be able to retire in 15 years! And if one of you picks up a side gig or gets a promotion, you’ll be able to get their even faster (assuming you don’t inflate you cost of living to match your raise)
Paying for Kids Tuition
You also asked me if you can cover your kid’s college costs of $20K/year. Assuming you’ll only need to cover this cost while they’re in college for 4 years, let’s see what that does to your TTR:
|Year||Starting Balance||Annual Contribution||Return||Total|
So instead of retiring in slightly over 15 years, you’re looking at slightly over 17 years. So paying for your kid’s college costs of $20,000/year for 4 years causes you to push back your retirement by 2 years. That’s assuming that after 2 years, your costs drop because you get your PR and you STOP paying the tuition costs after 4 years.
So there you have it! Despite having 2 kids, debt, and being an new immigrant, AFM is STILL just 15 years from retirement! The secret? This family is great at keeping their expenses low, especially considering two of those expenses are temporary and will go away once they get their PR. And if they decide to help their kid out with college expenses for 4 years, they’ll still on track to retire in 17 years.
Well done, AFM!
What do you guys think? Is AFM on track to retire? Any Australian readers want to weigh in?
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