Author: Latestarterfire

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What is holding you back from starting your FIRE journey?

What is stopping you from taking action today?

Today. Not tomorrow. Not next week. Today.

Does any of the following sound familiar?

“I am too old.”

“I am shit scared I’ll make a mistake I cannot recover from.”

“I don’t have enough time.”

“I love my lifestyle – I cannot possibly cut back on any expenses, as suggested by the FIRE experts.”

The word ‘frugal’ conjures up an image of Scrooge counting his coins in a dingy basement with no friends.

The word ‘budget’ brings up feelings of restriction and suffocation.

“Investing is too complicated. I can never understand the jargon and terms.”

“I can’t make any more money in my job.”

“I am already too stressed out trying to juggle everything in my life – I just don’t have the energy or space in my brain to learn anything new, especially something so complicated as being better with money.”

“It is too overwhelming. I have no idea where to start.”

I know because I have had EVERY ONE of those thoughts.

And yet, despite all those limiting beliefs plus starting late to the FIRE journey (at 47 years old) and not earning 6 figures, I celebrated a major milestone a few weeks ago when I arrived at Coast FI.

For a bit of context, it took me 3 years.

 

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Taking action

I was so excited when I realised that the balance in my retirement account (superannuation) is at a point where it will grow over the next ten years to a figure that will support me for eternity.

It will just compound away unobtrusively in the background without me being able to get my grubby hands on it and without me adding a single cent to it. For the next ten years until I can get my grubby hands on it.

Just to be clear here – I am not special. I am not better or smarter or more knowledgeable than anybody else.

But as I reflect on the past three years since I stumbled upon FIRE while googling “How much I need to retire”, the ONE thing I am most proud of is that I took action.

Just that.

I took action.

Was I scared? Yes

Was I paralysed by all the analysis and inaction? Yes

Did I think it would be too difficult? Yes

Did I take a perfect route or the ‘best’ actions? Nope

Did I know I would reach Coast FI? Heck, no, no, no, not at all.

And yet, here I am three years later. At Coast FI.

You may not think it’s a big deal. But it is a humongous deal for me. When I think back to the me 3 years ago, petrified and stressed that I wouldn’t be able to retire at the traditional age. And the me now, feeling relieved and liberated that traditional retirement is taken care of.

 

Taking action is a habit

What I learned over the past 3 years is that taking action is a habit.

The more you do it, the easier it gets.

And that taking action in one part of my life – getting my finances in order – leads me to taking action in other parts of my life eg transitioning to a less stressful role at work and working 38 hours instead of 50, 60, 70 hours a week.

I started to value my time and long to have more of it doing what I want to do.

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Start small

What was my very first step after waking up in a cold sweat?

I found my retirement account numbers and registered for online log ins. Yes, that small.

Then I looked at my balances.

And started about consolidating superannuation accounts. So I did that.

Eventually I read about the importance of having low management fees and optimised the funds my account was investing in. But that was many, many steps later.

When I discovered FIRE and despaired over my savings rate, I cut out takeaway coffee. Again, the smallest expense. And yes, maybe such a small expense won’t make a dint in my savings rate.

But it gave me confidence that I could survive without takeaway coffee (something I mindlessly bought each day) and that I was capable of making good quality coffee at home. I discovered that I enjoyed making it and drinking it in peace at home before rushing off to work.

And if I can cut out takeaway coffee, I can cut out Friday takeaway meals which were unhealthy for me anyway.

I start looking at other areas of my life.

I start asking myself what I value in life, what my priorities are, what I enjoy and what I don’t care about.

This helps me decide where to spend my money and where not to spend it. Why am I paying for Netflix when I never have time to watch it? Why not just pay for it when I have several shows that I ‘must’ watch?

One action invariably leads to another. And soon it becomes a habit.

Fear of making a mistake

This is a big one for me.

I don’t like to fail. At anything.

Initially, I was so scared of making the wrong decisions, leading me to be paralysed. What worried me most was that I didn’t have time to correct any mistakes.

The what ifs were driving me crazy.

When I consolidated my superannuation accounts, I rolled over my smaller balance at AMP (a retail fund) to my larger balance at REST (an industry fund with lower fees). I lost $3000 in this transaction.

Unbeknownst to me at the time, the Government would legislate several months later, that rollovers should not incur a fee. I could have saved $3000 if I had waited a few months.

But I am still glad that I acted when I did.

Because I had felt empowered when I did it. Me, who had never interacted with the superannuation companies. Me, who had never cared about my balances or what the funds were invested in or how much the fees were or what I was paying for insurance within the fund.

I could see the new me – the one who was brave enough to make decisions on where to invest my money.

And it snowballed from there.

Once I began, I found that I was capable of learning and understanding the concepts. It doesn’t matter if I make a mistake here and there. Things will work out in the long run. What is the worst case scenario? I can’t fully retire at 55 but hey, I can most likely work part time. If I continue to take action.

 

Final thoughts

What is holding you back from starting your FIRE journey today?

Taking action can be scary especially as late starters, when time is already not on our side.

But you can start by making small changes or decisions and it will snow ball. Taking action will become a habit.

I can’t promise that you’ll be a millionaire or that you’ll retire early by taking action today.

But I can promise you that your progress is inevitable – you just have to start. Today.

What is stopping you from taking action today? What is holding you back from pursuing FIRE today?

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Coast FI as a Late Starter to FIRE

Image by pasja1000 from Pixabay

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When I first came across the term “Coast FI”, I assumed that it meant living a FIRE lifestyle somewhere along the coast, perhaps near a beach. What a dream!

It is one of the many terms in the FIRE community, signifying the different levels of FIRE you can aim for – Lean FI, Fat FI, Slow FI, Barista FI, Flamingo FI and so on.

Me? I was just aiming for ordinary FIRE, or as close to FIRE as someone starting late could hope for!

What is Coast FI?

Four Pillar Freedom explains it as “having enough money invested at an early enough age that you no longer need to invest any more to achieve financial independence by age 65 (or whatever age you define as a retirement age)”

That is, you coast to financial independence once you’ve saved up enough money for it to grow by compound interest to the sum you need at traditional retirement. In the meantime, you just need enough income to support your current lifestyle without worrying about saving for your retirement.

Pretty neat, huh?

Except the bit about invested at an early enough age …

Well, that rules me out.

I am a late starter at all this investing and pursuing FIRE as I didn’t discover FIRE until my late forties.

So I dismissed the idea as interesting but unachievable.

Then Professor FIRE shared his story on the Late Starter to FI series, explaining that he is essentially at Coast FI despite starting late. Again, I dismissed it as a possibility for myself because I wasn’t earning a big enough salary.

Now, a couple of years after reading Four Pillar Freedom’s post on Coast FI, I think I’ve achieved this very milestone!

I’ve arrived at Coast FI as a late starter, woohoo!!!

How, you ask?

Super, baby, super! Or superannuation, Australia’s retirement account.

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Superannuation in a nutshell

The government mandates the minimum percentage of your gross salary that your employer must pay into your superannuation account. This is known as the Superannuation Guarantee and is set at 9.5% currently. There is considerable debate at the moment about whether it should be raised to 12% or whether employees would be better off with an increase in wages.

This contribution is taxed at 15% instead of your marginal income tax rate. Any investment returns is also taxed at 15%.

The current income tax rates in Australia are:

Up to $18200              Nil

$18201 – $45000        19%

$45001 – $120000      32%

$120001 – $180000    37%

$180001 upwards       45%

Therefore, the government has made it attractive for you to contribute to superannuation and save for retirement.

But wait, there’s more!

Once you are able to access your money in retirement, it can be withdrawn tax free and any investment returns in this pension mode is also tax free. There is a limit of $1.7 million ($1.6 million before 1 July 2021) that can be converted to this pension mode.

Of course there is a catch! And the catch is that … you can’t access your super until you are 60 (if you are born after 1 July 1964).

And because of this inaccessibility plus the automatic employer contribution, many forget that the money sitting in superannuation is YOUR money (ahem, I fell into this category!) And that investing it well is an important retirement strategy, whether you retire earlyish or not.

Back to my story

When I first started working nearly thirty years ago, superannuation was a new concept in Australia. Compulsory employer contribution had just been legislated. I knew nothing about it.

A family friend nagged me to open a second account (with AMP) ie an account that is not connected to my employer. I remember asking only one question – can I stop contributing if I don’t have the spare cash? Yes, he said, it’s up to you. So I agreed to open an account, knowing I have an escape hatch.

Every year I would contribute about $2000 after tax to this account. I never read the annual statements or cared abut how the money was invested. I just remember that I always resented forking over $2000 or so (it increased by inflation) every year.

All I cared about in my early twenties was saving enough money to go on overseas holidays and eventually buy a house. Retirement was an eternity away.

And yes, I eventually bought a house and had a mortgage. My intention was to pay off my mortgage as quickly as I can. So I stopped contributing to this extra superannuation account. After all, I needed every cent.

But I kind of got used to having debt. Everyone (except my parents) told me that having debt was normal, that some people never paid off their debt until they retire. So it is perfectly ok to travel and live a fine life while paying off your mortgage.

This is exactly what I did. I bought nice things for my house. And travelled overseas. I enjoyed my life. And stopped investing. Duh! This is one of my biggest money mistakes.

Are you READY to TAKE ACTION today?

🔥 practical tips & strategies

🔥 step by step guide

🔥 cut the overwhelm, second guessing & paralysis by analysis

I WANT THE ACTION PLAN

Fast forward to my 40s ...

The year I turned 47, to be exact.

I still remember vividly that morning in January 2018 when I woke up in a cold sweat … I was terrified that retirement was suddenly on the horizon and that I probably hadn’t saved enough to retire at the traditional retirement age. My job was so stressful at the time that the thought of working another 20 years was truly out of the question.

I scrambled out of bed and searched through folders of annual statements to find my account numbers. And set up online log ins. My combined balance from the two accounts was … disappointing. I did not have anywhere near enough to what the retirement experts say you need in retirement.

Fortunately I had just paid off my mortgage. That was the only plus in my favour. Because it meant I have cash to invest in something.

A friend gave me The Barefoor Investor by Scott Pape. In one of the steps, he advised contributing extra to superannuation, up to 15% – ie a top up of 5.5% if your employer contributes 9.5%.

So I decided to ‘do something’ with my super.

Optimising my superannuation

Having two super accounts meant paying two lots of administration fees. So I closed the AMP account and rolled over the balance (minus a hefty penalty) to my main account, REST.

After more reading about industry funds, I chose to roll over to yet another fund (Hostplus) with lower administration fees and the ability to choose index funds to invest in, which lowers management fees even more.

The lower the fees, the more of the investment returns I get to keep.

My next step was to salary sacrifice. That is, I contribute pre taxed dollars to the maximum of $25000 (which also includes my employer’s contribution).

I didn’t have enough time in the 2017-18 financial year to fully achieve this but I did it for the following two years. Because the pandemic affected my returns dramatically, I continued salary sacrificing for the first six months of the 2020-21 financial year.

However this meant that I didn’t have as much as I’d like to invest outside of super.

If I want to retire at 55 (and I really, really, really want to, believe me!), I need to build my ‘bridge the gap’ fund that will support me from age 55 to 60, until I can access my superannuation.

It is a delicate balance between having enough in super to cater for my sunset years (60 years old onwards) and having enough to survive in the five years before I can access super while retired.

Image by kordula vahle from Pixabay

Rule of 72

The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return – Investopaedia

I utililised the rule of 72 initially to estimate when I can stop salary sacrificing so much into super.

My reasoning is as follows.

I have 10 years before I can access super. I have an end figure in mind that will support me for the rest of my life from 60 onwards, based on the 4% rule and my expenses.

In order for my balance to double in 10 years, my annual rate of return need to be 7.2% (after fees and taxes).

Is that feasible? I think so.

Despite the tumultuous year of 2020, when my balance plummeted by 30% in March, it has since climbed back up and exceeded all expectations.

The three funds that my super is invested in all returned more than 7% per annum since inception (including 2020). And while past performance doesn’t guarantee future performance, it is a good indication.
 
Therefore I need my super balance to reach the half way mark, with 10 years to reach preservation age. That is, even if I didn’t invest another cent, as long as the average annual growth is 7.2% for the next 10 years, it will grow to my desired final balance.
 
And isn’t that the definition of Coast FI?

 

What ifs?

I’ve done the calculations a million times.

But just in case I got it wrong or the stock market does not cooperate, there are contingencies.

Since I plan to work for the next five years, my employer will be contributing at least 9.5% of my gross salary into my super.

And I am also still salary sacrificing but only less than a third of what I did when trying to contribute the maximum.

I will continue to monitor and review its progress. If the balance is not growing according to plan, I will increase my salary sacrificing again.

The worst case scenario is that I work a couple of shifts a week and not fully retire at 55, contributing all earnings to shore up my super balance.

Or I delay withdrawing from super for a couple of years, if I can survive on funds outside super. The next three years will be crucial in building this ‘bridge the gap’ fund.

So what contributed to my arrival at Coast FI, even as a late starter to FIRE?

(a) That second superannuation account

While I was initially disappointed by the combined value of my super balance, I should be happy with my younger self, on further review.

I calculated at best, I would have contributed around $20k – $25k to this AMP account before I bought my house. I then stopped contributing for at least 15 years. When I checked the balance in 2018, it was a whopping $80k! This was not an industry fund so fees would have been high. And the Global Financial Crisis was smack bang in the middle of it all.

While $80k is nowhere near what I need in retirement, it is good ‘seed’ money and I am grateful to my younger self.

(b) Boosting contributions

Salary sacrificing was tough at times but I am so glad I did it. Those two and a half years boosted my balance so it was totally worth it. There really is no other choice as a late starter. With a shortened time frame, all I can do is throw in as much as I can.

 (c) Investing in low cost funds within super

Looking at my most recent super statement, I paid 0.04% in fees (indirect costs, other fees and administration fees). This means I get to keep more of the investment returns instead of paying others.

(d) The stock market cooperated

While this was totally out of my control, I am grateful that the share market has cooperated! Investing in shares in the long term will pay off one day.

Final thoughts

I wasn’t aiming for Coast FI specifically. And I certainly never believed that Coast FI was possible as a late starter.

But I can tell you that despite all that, arriving at Coast FI is liberating!

I can relax a little, knowing that one phase of my retirement plan has been taken care of.

Now, I’m off to build that ‘bridge the gap’ fund.

And oh, trust in the math!

Have you arrived at Coast FI yet? Did you or will you do anything differently when you achieve(d) the milestone?

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