Category: FIRE

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Late Starter to FI Series #24 – Passive Income Generators

Snake River, Idaho | Passive Income

Welcome to the Late Starter to FI series!

I am a Late Starter – I did not discover FIRE (Financial Independence Retire Early) concept until I was 47. This was way later, I thought than others who seem to have it all together in their 20s and 30s.

Since I started to write about my own journey, I have discovered there are many more Late Starters like me, yay! It is such a relief knowing I am not alone. 

I want to share our stories, our unique perspectives and show that it is absolutely not too late for us.

So in this series, I particularly highlight those of us who start our FI journeys in our 40s, 50s and 60s. And explore questions such as ‘where do we start’, ‘can we still retire early(ish)’, ‘what are the specific challenges for us late starters’. We look at our past, not to castigate ourselves but so that you can learn from us.

Please join in the conversation in the comments below. I encourage you to share your story if you fit the profile of a late starter. You absolutely don’t have to be a blogger or podcaster to share your story. 

Please email me at info@latestarterfire.com or connect with me on Twitter or Facebook or Instagram.

And if you’ve missed any of the previous stories, you can catch up here – Late Starter to FI series

Todd with his wife and children
Todd with his family

Today, I’d like to introduce you to late starter, Todd from 50PlusOnFIRE.com

Todd writes about his journey to Financial Independence with his wife, using a different strategy instead of investing in the stock market. And about their motivation to put generosity first.

Todd can also be contacted on social media via @50PlusOnFIRE on Facebook, Twitter or Pinterest.

 

A little about us

Wendy and I live in beautiful Meridian, Idaho where our children are fourth generation students in the school district, going back to their great grandmother. I, on the other hand, like many residents of Idaho, grew up in California although I have not lived there since the summer of my sophomore year of college back in the late ’80s.

I am in my mid 50s and am known as ’50+’ on my blog, while my wife goes by and will forever be ’50-‘.

We married back in 2003, each bringing a 5 year old child from previous marriages, and we’ve had two children together.

I’ve worked in management since college – despite my original master’s degree in French and intention to teach. And have been a financial educator and education manager with a nonprofit credit counseling agency since 2004. We have been fortunate that Wendy has chosen and been able to be at home full-time to raise our family, mostly thanks to her thrift and savvy shopping.

Our favorite things to do together include spending time on the windy and rainy Oregon Coast, watching Harry Potter movies, and visiting any Disney or University Studios theme park.

COVID really cleaned out our social schedules. Our evenings are spent with our two boys at home rather than at activities or social events.

Just before spring break 2020, my employer sent all employees home to work. Those six weeks left a delicious taste in my mouth for financial independence and working from home.

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Lightbulb moment

 

As a financial educator and blogger for my non profit credit counseling employer, I had been hearing about FinCon and the FIRE movement since 2016 or 2017 or so. I have attempted many times since 2002 to start and run my own business and earn side income.

My moment finally came when I started reading several FIRE blogs that shared their journey experiences, including the income they were earning from their blogs. I realized there were two differences between these FIRE bloggers and me: first, I had far greater experience with writing and financial principles, and second, they were earning far more money and were in a far stronger financial position than I was.

I had always lacked discipline in my finances growing up, maxing out my first $2,000 credit card in 36 hours at age 21. I overshot my first $500 gas card credit limit the next year by $300.

In the fall of 2019, just as I was coming to these realizations, I spoke with a friend in my church about what he does. He was the volunteer scout leader and always seemed to be available for every event and activity. I learned that he and a friend had started a website that teaches bloggers to take their idea from conception to income replacement within 24 months – incomeschool.com  With his mentorship, I launched my first niche blog on the type of dogs we own that few have heard of: ShihpooCentral.com

Finally, as a person of faith, I was ready to change my relationship with money from one of earning and entitlement to one of appreciating my blessings and sharing them with others in need. One particularly meaningful passage from our holy text refers to seeking riches with the intent to do good. That is when I committed to giving at least half of all revenues generated by my FIRE efforts.

The whole idea of FIRE fit well with our vision of what we want to achieve in our remaining decades. In order to volunteer for service and humanitarian missions for our church, to spend time with our adult children and their families, and to do good now in our communities and neighborhood, we needed to create Financial Independence sooner than later.

Our financial situation

I was nearly 40 by the time I opened my first IRA, and we have always justified not maxing out our contributions because of needing things for our four kids. We had twice the retirement fund average in the US, but it was not near enough to support ourselves in retirement, even with Social Security.

Now in my 50s, I sense much more strongly the finite nature of time and know that we do not have enough saved for retirement and will not, even if we maxed out both my 403(b) and our IRAs (which would basically leave us homeless and in need of food pantry assistance).

I post our FIRE Journey progress monthly on my blog. It’s early, but after a major impulse purchase set us back in June, we corrected and have made some good progress on our debt. Our main focus is building what I call our PIGs, or Passive Income Generators. For now, these include our two blogs that will eventually grow to replace our full time income and will last well into retirement.

Other than a propensity to take our kids to Disneyland or Disney World every four or five years, we live pretty frugally. Wendy has worked wonders over the years, putting food on the table for a family of six with a $400 monthly grocery budget.

First steps on the path to FI

Honestly, the very first step on our FIRE journey was to accept that any income we generated for our financial independence would not belong to us but to God, to do as much good as we could. We’ve been very blessed in our lives and want to empower others.

Once we accepted that principle, we needed to decide how much we needed to live on long-term. Finally, creating our PIGs to cover those needs was the third step.

 

Snake River, Idaho | Passive Income
Image by skeeze from Pixabay

How far along the path to FI are we now?

We are barely 12 months into this journey. Our first blog is on track to replace 5% of our full-time income within the next year with minimal ongoing attention, and our second blog has exponentially greater potential.
 
I feel hopeful now, more hopeful than I have ever been with our future. Our progress is small, but we now have a vision for what financial independence will look like for us.

Specific challenges or advantages of starting late

Compared to those who start in their 20s and 30s, those of us starting later have much more drastic options to choose from. We can choose to max out our investments (401k/403b, IRAs), create one or more long-term PIGs, or both.

Personally, I was not ready to consider FIRE earlier. Before marriage and family, I was too self-centered, living too much by a consumer driven Carpe Diem. With young children, we tried to focus on providing a loving home and experiences rather than just material things.

Now, in my 50s, I’ve authored several books and have much greater confidence in my abilities to focus on our goals and achieve them. Having earned a second masters degree in 2017 (International Management), I am much better prepared to run my own business and am by far a better writer than I was even 10 years ago.

 

Will we reach FI?

Yes, I am both hopeful and confident.

Originally, our goal is for me to retire from my full-time job at age 60. For a little while, I wavered because by doing so, I would miss out on any sort of social security. However, our goals for our PIGs are such that they will far outweigh any Social Security benefits we would receive at 62 or even 67 years old.

Still, I really do love my job as a financial educator. I could easily picture myself stepping into a part-time role after 60, even taking a sabbatical before returning.

The only reason we would really want to retire early (6-7 years early) would be to spend six to eighteen months at a time on humanitarian and service missions through our church. Our youngest will have graduated high school by then and will be in college.

Six years of working on my PIG for two hours each weekday morning before heading to my job plus one or two nights a week writing blog posts and developing my PIGs will get us there.

 

What's next?

I’m working on my first FIRE book, after which I will develop and begin offering corresponding eCourses and digital downloads.

Back to Latestarterfire

Thank you, Todd for sharing your FIRE journey and story with us.

Creating passive income streams in retirement is the holy grail, isn’t it? I have been thinking about this a lot lately too, wondering if it is safe to rely on Australian shares continuing to reward investors with good dividends in the future. Having another source of passive income is prudent, especially when starting late on the investing journey.

And your spirit of generosity is so inspiring – giving half of your income earned from passive income generators to your church.

I look forward to following your progress on the path to financial independence and eventual retirement :)

What are your passive income streams in retirement? Do you have any now?

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Why I Prefer To Own My Home Despite the Ongoing Costs of Home Ownership

Image by Comfreak from Pixabay

The debate between what is ‘better’ – owning your home or renting – is ongoing and fierce in the FIRE community. It seems that we are passionately in either camp, no matter which camp it is 🙂 

I have previously written about why I do not invest in real estate to help me achieve Financial Independence. However, I will declare here that I am firmly in the camp of owning my home.

But I do not believe in buying a house at all costs. I bought a house that I could afford, having saved 40% of the purchase price. And I could afford the mortgage repayment, at less than 25% of my wage. I also did not move around – I have lived in my house for 18 years now. Buying and selling incur many fees.

My indoctrination (?) about the importance of home ownership

As I grow older, I realise that a lot of my money values are influenced by my parents, my mother in particular.

All throughout my childhood, I lived in ‘company’ houses ie houses provided by the oil company that my parents worked for. Working and living in an oil town was not secure as it was always dependent on work contracts being renewed. 

For my mum, security signified having your own home. She was always conscious of the fact that we lived a temporary life in the oil town, that one day it would all come to an end. And when it does, she wants a house to call her own. 

I remember my mum extolling the benefits of owning your own home from a very young age. My parents built a house in their home town and rented it out while working and living in the oil town. Every time we visited my grandparents, it involved a drive past our house – it was almost like a pilgrimage. Mum would point to it and tell us – that is our house. She was so proud of having her own home.

I understand where that yearning came from. She grew up as a family of four renting a room in someone else’s house. My grandmother took in ironing to make ends meet. My grandfather drove a bus, among other jobs. Eventually, they were able to buy a shophouse to live in during their retirement, living upstairs while renting the shop out downstairs. That shophouse is still in the family despite both grand parents passing on many many years ago.

My Renting 'Season'

I love the concept of looking at my life in terms of ‘seasons’. And knowing that whatever season I am in right now, it will pass, just as surely as winter will pass into spring.

When I first came to Australia, I was an overseas student. I went to a boarding school in a regional town. (Less distractions, according to my parents!) 

After boarding school,  I got into university in Melbourne. While I did not hate boarding school life, I also didn’t want to repeat the experience. I was determined not to live in residential colleges – I wanted freedom and no one to tell me when to turn my lights out. So together with a friend from boarding school, we looked for a flat to rent.

It was all very exciting and grown up. We were responsible for paying our rent on time, cooking for ourselves and doing our own laundry. We had to figure out the best route to university via walking or public transport.

But looking for potential flats to rent was a major pain in the backside. This was before the internet – so we had to scour newspapers in the ‘To Let’ section, circle the appropriate ones and attend ‘open for inspections’. Sometimes we had to get keys from real estate offices and go out to the flats for an inspection. Sometimes we met the real estate agents at the potential flats. We often did all this in between attending lectures.

I moved three times in three years of university.

Living this lifestyle is fine in my twenties. But in my seventies? No, thank you. 

I don’t want to worry or feel anxious that the roof over my head is not secure, that I would be forced to look for another place to rent at my landlord’s whim.

I hope to be fit and healthy in my seventies but good health is not guaranteed. What if I have health issues, needing to be in and out of hospital … worrying about my home or lack thereof, will distract me from focusing on recovery.

Not to mention the packing and unpacking involved with moving house. Ugh!

So my very first major grown up financial goal when I graduated from university was to buy a house. To be fair, I was not thinking about old and doddery me at that time. I only wanted security and an asset whose value would hopefully have increased by the time I sell it.

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Staycation during Lockdown

I am grateful to have a job during this pandemic, very aware that many are not so fortunate. But I must admit that going to work every day has exacted a toll on me and my colleagues. Our workload has increased not because we are dealing with more people but because our processes are now so much more complicated.

Many of us have delayed taking time off as planned holidays were cancelled. Most do not want to spend their hard earned annual leave ‘to be just at home’, preferring to wait out the virus.

I decided I would take two weeks off even though I could not travel, as I really needed a break. Like everyone else, my travel plans have not come to fruition – I was supposed to be in London then Toronto.

I cannot remember the last time I was home by myself for a two week
holiday. Usually, if I weren’t travelling then I’d be busy with overseas
family visiting and running around like a chook without its head.

These two weeks in mid July coincided with Melbourne’s second lockdown, just before curfew and the 5km restriction was imposed. I stayed home for the full 2 weeks – it was blissful.

I appreciated my space, both inside and outside the house. I fell in love with my home all over again. It’s a space, a sanctuary I created and it’s where I feel safe. A place where I can rest and relax, keep the world at bay or invite it in. And I am ever more grateful to have this space now, where I can retreat to at the end of a crazy day at work, or fully enjoy during a staycation.

Ongoing costs of owning my home

I remember the day I bought my house at auction. This wasn’t my first auction – I had attended numerous auctions in the past, as research. I had also asked my Dad to bid for me on two previous occasions as I didn’t feel confident bidding myself. And on both occasions he did absolutely nothing as prices just rocketed away.

But this auction day was different. I told my Dad I would bid myself. I was so nervous but in the end, the house was mine.

Entering the house afterwards and signing the biggest cheque I’d ever written – for the 10% deposit – was nerve wracking.

But that was only the beginning of more costs – stamp duty, conveyancing, mortgage loan application fee … I needed another $20k on top of the purchase price.(This is not counting the costs of buying furniture and stuff)

While those costs are associated with the purchase of a home, there are ongoing costs of owning a home. For me, they fall into four categories:

1. Local council rates

2. Home and contents insurance

3. Utility bills

4. Maintenance

I do not mention a mortgage here as I no longer have one. Yay!

Local Council Rates

I just paid my local council rates. This is the bill every homeowner loves to moan about. Probably because it is based on how much the council thinks your house is worth. Obviously, you haven’t sold your house yet so you haven’t profited from any speculation that your house’s value has increased significantly. But all the same, you have to pay the rates based on that assessment.

Perhaps speculation is a strong word. The Victorian Government prescribes the method of calculating our rates so it’s not as if my local council can just decide to raise rates.

Their formula for calculating the annual rates are as follows:

Rate in the dollar x your property value

1. Rate in the dollar is the amount they need to raise ($94 million in my council) divided by the value of all properties in the municipality ($57.2 billion) which equals to 0.00164164 in 2020/21

2. Property value – this is where it gets interesting …

The Victorian Valuer-General oversees property valuations for the State Government and for the purpose of calculating local council rates. These valuations are calculated annually as at 1st January each year. Therefore this year, it was done before COVID 19’s impact on house value was felt.

The local council must use the Valuer-General’s assessment of Capital Improved Value (CIV) of your property ie this is the market value of the land, buildings and any other improvements you made.

I have found it to be generally lower than what property apps value. For example, Commbank property app values my property at $186k higher than the CIV listed on my rates invoice.

My rates have increased every year, regardless of what my property value is. And is my biggest fixed cost. I set aside $2000 every year to cover this cost in my ‘annual costs’ sinking fund.

Home and Contents Insurance

This is a non negotiable cost for me.

I have worked very hard over the years to pay for my house. I don’t want some disaster to befall the house eg a fire and having to start from scratch again.

In saying that, I do review my home and contents insurance annually to make sure that the sum insured is still appropriate. I never used to do this and the yearly premium would just increase every year without me noticing. I have also switched insurance companies and now pay less premium than I did a few years ago.

This is also an annual cost covered by my sinking fund.

 

Utility Bills

There are 3 utility bills I pay – electricity, water and gas.
 
1. Electricity
Tenants and homeowners pay for electricity. But as a homeowner, I can install solar panels, for example, to offset my electricity usage from the grid and therefore lower my electricity bill. Not many landlords would install solar panels on rental properties to help lower tenants’ electricity bills.
 
2. Water
This is where being a tenant is more advantageous – tenants only pay for water usage. Homeowners, on the other hand, have to foot the bill for system charges such as water supply and sewerage disposal, parks levy etc which make up the bulk of my water bill.
 
These are fixed charges; I can only reduce my water usage which is a tiny portion of my bill but still worth doing for the environment. My water usage has dropped to below 155L per day since I made an effort back in February to conserve water.
 
3. Gas

I am still trying to do something about my gas bill. An energy audit of my house found that there is hardly any insulation in the ceiling which explains why my heating costs are so high. As a homeowner, I can choose to rectify this by installing more insulation. Unfortunately COVID restrictions set in before I could install the extra insulation.

 
 
solar panels on roof of house
Photo by Vivint Solar on Unsplash

Maintenance

Houses deteriorate over time. And if you want to sell your asset later, you’d need to maintain it in a good condition so as to attract a decent price, rather than sell it as a renovator’s dream.

Of course, the original condition of the property is a factor. If you are starting from a renovator’s dream, then your expenses will be higher than someone who bought a brand new property.

I loosely divide ‘Maintenance’ into 3 categories:

– Improvements to home to increase comfort or liveability

– Repairs of things that have broken down

– ongoing upkeep of existing infrastructure

Home Improvement

For me, home improvements are made to improve my comfort and in the case of solar panels, reduce my electricity bills and increase my sustainability efforts. I am aware of not over spending on improvement projects – there is no point in over capitilising ie I spend so much that I cannot recoup my costs should I decide to sell the property.

Over the last 18 years I have installed:

– air conditioner units

– fly screens to all windows

– gutter guards (so I don’t have to climb up and clean my gutters or hire someone to do so)

– solar panels

Future projects include improving the ceiling insulation so I can reduce my heating costs, which is the main contribution to my gas bill.

Repairs to Stuff that Break Down

Then there are things that just break down from wear and tear over the years.

 

In the same time period, I have replaced:

– fences on two sides of the property

– the hot water service when it died

– garage ceiling after it collapsed

– a few window blinds

– the garage door after the motor died

Of course, all of the home improvements mentioned above will also deteriorate in their own right over time and sooner or later, will need to be replaced or repaired too.

 

Recently, I made a claim on my Home and Contents insurance to repair my porch ceiling which suffered some water damage. During this process, we discovered that we need to seal some bricks as part of the maintenance which is not covered by my insurance.

These repairs don’t include replacing the fridge that stopped working or repairs to the washing machine. My dish washer is now 20 years old and the washing machine 18 so they will be the next major appliances to need replacing.

Ongoing Upkeep of Existing Infrastructure

In my case, this is mainly the outdoors.

Removal of trees on my property and removal of huge overhanging branches of neighbour’s tree were the major one off costs over the years.

My ongoing cost here is a gardener who visits every 6-8 weeks. I struggle with this cost all the time, especially since discovering FIRE. In the first few years after I moved in, I tried doing the work myself. But it soon got overwhelming when I didn’t have much time over the weekends. So I engaged a gardener who have done a wonderful job of keeping my plants alive and ensuring my garden does not resemble a neglected and derelict property.

This is an area where I can definitely save some money. I have a lot to learn about gardening although since last year, I’ve enjoyed planting and harvesting my own vegetables. The vegetable garden is my baby – the gardener doesn’t touch it at all.
 
Future projects in this category include painting the exterior and interior of the house, something that needs to be done before I retire.

Funding the Ongoing Costs of Home Ownership

Utility bills are budgeted for under normal living expenses. Local council rates and home and contents insurance are taken care of in my ‘Annual Costs’ sinking fund.

Out of my 4 categories of ongoing costs of home ownership, maintenance is the biggest unknown. It varies from year to year – I never know what needs replacing. In the past, when I had a mortgage, I would redraw my excess payments to cover any home improvement / repair costs. 

But now that I no longer have a loan, I depend on my emergency fund. Which makes me nervous as home maintenance is kind of predictable, not in what may break down but that it is certain that things WILL break down and need replacing. And should not be considered as an emergency as such.

So I started another sinking fund specifically for home maintenance a few months ago with minimum amounts automated from my weekly wage.

And guess what? I’ve had to use it this week – because my front door lock completely broke and while the locksmith was here, I got him to repair another lock before that one too dies.

If I don’t have to use my emergency fund for urgent home maintenance issues, then it will last longer than my 6 months of expenses. When I first started saving for my emergency fund, I merely looked at how much I spent in a year which includes travel and some home maintenance expenses. I feel more secure now knowing that my emergency fund can stretch further.

But how much is enough to set aside for home maintenance? There seems to be accepted wisdom, especially for rental property investors, that 1% of house value is set aside for maintenance. But I am confused as to which house value to base it on – the original purchase price or the current market value. Because in my case, it is a significant difference – my house value has increased by two and a half times the original purchase price.

So right now, I will just continue saving a little each week towards home maintenance. I will review it when the fund hits $10k. But I have a feeling it won’t have a chance to hit 10k for a very long time. Because as my house ages, there are lots of bits and pieces that may need attention.h

Final Thoughts

While there are definitely lots of ongoing costs to owning a home, costs such as maintenance can be mitigated if you are good with DIY. Unfortunately I am not, so saving for repairs / improvements is my only option.

Costs can also be kept to a minimum if you monitor your usage of electricity, water and gas and review your home and contents insurance. In sourcing ie not depending on outside help is another great way to reduce costs.

But despite all these costs, I much much prefer to own my home. I value having a space where I am free to do whatever I like, without asking anyone’s permission. The peace and security I feel is priceless. I know that no one can kick me out of this house because I own every inch of it.

 

Which camp do you belong to - owning your home or renting?

Ongoing costs of home ownership | is owning better than renting

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