In early 2019, I interviewed a Perth reader (now a good friend of mine) who had just reached Financial Independence at age 32.
At the time, he’d not long left his job and was settling into his new life with his wife and kids.
From the comments and feedback, you guys loved hearing Michael’s story. And some of you could resonate with his struggles against the strong cultural pressure (due to his Chinese background) for him to keep working and pursue more money for its own sake.
(If you haven’t already, go and read our first interview together.)
Well, Michael has been ‘retired’ for a couple of years now, and he agreed to this follow-up interview to share how things are going. So that’s exactly what you’ll find out today!
Even though Michael and I both reached FI at a young age, his story and life situation is very different to mine. I hope you enjoy our conversation 🙂
My readers loved hearing your story last time. So, the big question is, how is early retirement?
Michael: It’s been great since quitting work. I can now spend more time with my kids, send them to school, make lunches for them and take them out to places.
I can also spend more time on reading and exercising, which I really enjoy and never had time to do before. As long as you are healthy enough and invest wisely, your wealth should increase over the long term, so money shouldn’t be such an issue.
Since leaving the job, I feel more energetic and healthier; I exercise more and feel less stressed.
How else have you been spending your time since our initial interview? I hear you have a new hobby?
Michael: Yep, been doing some youtubing on cooking, making cakes and different types of cuisines. It’s amazing how the internet has changed how people live and learn, the amount of information available to people today is unimaginable compared to 10 years ago.
Okay, here’s the famous question everyone gets curious about: Do you get bored?
Michael: I don’t really get bored at this stage because I’m always occupied with kids. But I think when they attend full time schooling, I may indeed become bored.
I have been thinking about different options, maybe start a business? Work casual or just random jobs here and there or maybe get a job in financial counselling or planning? I don’t know – FI gives you time and options I guess.
Do you miss work? And have you started anything work-related, or any plans to?
Michael: No, I don’t miss work at all.
After I quit work, I completed a diploma in financial planning and have been thinking of maybe getting a job as a financial planner or something like that later down the track, as I have a keen interest in investing and also helping people understand investing and achieving FI.
I really don’t have a plan at this stage; maybe I will have one in a couple of years.
As mentioned, you have three young kids. So, what’s it like having all this extra time with your kids that other parents don’t get?
Michael: This is the time that they need you the most and actually want to spend time with you…the experience is invaluable. The amount of time that you spend with your family and kids is actually very limited. This is especially true after your kids move out and start their own family and as you age, your quality time with kids diminishes.
I’ve learnt to start appreciating simple things in life. There are a lot of things we take for granted and assume that’s the way it should be. But a lot of times, you only realise they’re valuable when you lose them.
Have you been affected by the virus and economic shutdowns this year, in terms of your lifestyle or any plans you had?
Michael: Well, no more travelling for this year at the least, otherwise, not much change. We are lucky being in WA, places such as Victoria has been like a different world to us.
Investment wise, we have always lived quite modestly and had a high savings rate. We also retired with more than we need, which means even with a steep dividend cut, we’ll still be ok.
Luckily most of my investments didn’t cut dividends or only cut modestly, so it’s quite tolerable. Buying LICs such as Milton for $3 back in March/April also meant you are getting a very high yield even if dividends are cut, we are ok with that. When you buy things cheap, even if it’s not the highest quality, you will probably do ok over the long term.
Our holiday plans will get deferred for another year or two, which is good as we can save more and further compound those earnings.
So you’re not concerned about your investments? How have things been going in that area since you retired?
Michael: Our property portfolio is not very impacted at this point. The income from them is still the same as pre-Covid.
The LICs and index fund in my share portfolio is obviously down from last year due to the recent market crash, but individual share holdings are doing quite well. I have been lucky to be able to purchase Nearmap (NEA) at 38c, A2 Milk (A2M) under $1, and Magellan Financial Group (MFG) at around $20.
In terms of income from shares, overall dividends have dropped by around 5%. Some of my holdings have cut dividends such as VAS and Milton. Others such as QVE remained stable while Brickworks (BKW) and Soul Pattinson (SOL) all increased dividends.
You own both property and shares in your portfolio. Have you made any changes to this since we last spoke? Or changes planned in the future?
Michael: My main core holdings are still LICs and an index fund, also a selected few companies that I hold. I’ve sold a property since last time we spoke and deployed the cash into shares (just before the crash), so the timing wasn’t great.
Luckily, I didn’t deploy all the money at once and still had some money left which meant I was able to add to my holdings during the crash. I was hoping the recovery would take longer and such a sudden unexpected recovery is not ideal, however, the market is and always will be unpredictable. I’ve learnt to accept that.
I’m not too concerned about market price and dividend fluctuation; I believe over the long term, we will do ok. I never aim to achieve Warren Buffett type returns; just something in the vicinity of market return is sufficient for me.
My philosophy of lessening our property portfolio and increasing my exposure to shares remains the same. Properties are just not attractive enough and I don’t really see how I will ever buy another investment property again.
There is just too much unexpected and uncontrollable expenses associated with property and liquidity is generally poor. After I sold my property, it felt great, no more unexpected expenses and cash flow improved greatly.
Sometimes I question who really owns the property – it must be the government as they take an annual land tax levy and various rates regardless of the status of your property, and if you don’t pay they can take legal action against you or repossess your property.
Worse yet, you don’t have any control over how much they want to take. I had a look at my council rates for the past 5 years, the value of my property has probably decreased by 20-30% but the council rate is 20-30% higher than 5 years ago.
The rate is based on your property’s GRV (gross rental value). Councils didn’t change your GRV valuation but they increase the % that they take from your GRV. When they make the rules, how can you ever win against them?
It’s great that you’re still in a position to keep adding to your investments. So, what have you been buying this year and why?
As I said, the majority of my holdings are still in LICs and index (so mostly these), and I only buy individual companies if I think I really understand them and if they seemed undervalued.
For future buys, I will buy more international index funds such as VGS. Australia is such a small part of world economy and buying VGS makes more sense to me. You are holding the largest companies in the world, the stock picking process is mechanical and unemotional. It will do well over the long term. It’s almost like an insurance policy on our share portfolio which is 95% Australian equities.
Last time we spoke about the cultural pressure on you to keep working to make more money. Is that still an issue? And what are conversations like with people who know you’re financially independent?
Michael: No doubt this is the greatest obstacle to overcome and I have to admit I still cannot 100% overcome it.
It seems that pursuing endless wealth and status is a must in today’s world. If you retire early and do “nothing” it is considered a sin and a waste of life or time. I’m still learning to think independently and care less about what others say, but it’s not easy.
People ask what I do and I just tell them I’m a full time dad. That’s the end of the conversation.
Have you tried to encourage others to think about their finances and investing? What do you think are the main issues preventing people from starting down this path?
Michael: It’s still my view that shares are the best way to build wealth and I don’t mind sharing this idea with people. I wish someone shared this with me 10 years earlier as I’d be so much better off now.
However, I still find it extremely hard to convince others, even the ones closest to me. Especially when our strategy is so easy. If I made it sound more complicated and throw in some big words, that might convince them.
Most people I speak to all share the same view that shares are risky and if you buy shares then it better double in the next month or make a 1000% gain within a year to make it worthwhile. No one wants boring old wealth accumulation, but that is the surest way to wealth.
With what’s going on in the world today and over the past year – pandemic, global trade tension, foreign relationship with our biggest trading partner, huge deficit and also unlimited quantitative easing – it would be easy to think we are in for doom and gloom.
However, throughout history, we have “end of the world” headlines every year and the market just marches higher and higher over time. We can never underestimate the progress of human civilization. There will be hurdles and bumps along the way, but we will get there in the end.
I watched a few documentaries since I have more time on my hands now. There was a documentary on Alpha Go in which an AI (artificial intelligence) program designed by Alphabet (Google) beat the best GO player in the world.
What’s amazing about AI is that it can learn and self-improve over time. So as it plays more games, it learns from experience and becomes better. If a machine has the ability to learn and become better over time, the potential is limitless.
Also, Apple just announced their latest A14 chip manufactured with the 5nm technology. This allowed them to pack 11.8 billion transistors into a tiny chip and has processing power greater than most home computers.
Just 60 years ago, when the first computer was manufactured, it’s the size of a room with only 800 transistors, and if we go back a further 50 years, it was at the turn of the century that Einstein formulated the famous E = mc2 which laid the foundation for the modern physics including Lasers etc.
The world was essentially built on ruins after 1945, but look at it today! So never underestimate human endeavour, and stay positive, it never pays to be negative.
As you’ve settled into your new life, did you find any part of FI hard to adjust to?
Michael: Not at the moment as I’m quite occupied with kids. I can enjoy weekends instead of dreading Sundays because I will be thinking “Monday I need to go into work again.” I can wake up naturally instead of needing an alarm. It’s very enjoyable to say the least.
Has your spending changed in retirement compared to what you expected?
Michael: We are probably spending the same or less. We hardly eat out, do a lot of cooking at home and we drive less. I used to spend around $100 a week on public transport and driving/parking at train stations, now that’s not necessary.
We also buy annual passes to places like Scitech and AQWA and take the kids there whenever we like, just some ways to keep the kids entertained and save money.
Do you have new goals that you’re working towards? Or are you taking each day as it comes?
Michael: I don’t think too much at the moment, just trying to enjoy each day as it comes. Might have new goals in a few years’ time when kids attend full time schooling.
Sometimes I like to keep my mind blank, I think it doesn’t pay to think too much a lot of times. Some things if it’s meant to be, then it will eventuate. I’m not saying you shouldn’t think at all and hope money will come showering at you. But there are stages in your life when you realise that maybe trying too hard or forcefully wanting something might not be such a good idea.
Some people become financially independent but find it hard to leave work, due to fears around boredom, money, missing work, etc. Any advice for them?
Michael: Work part time or casual and see how that feels. If I loved my work or if the people I worked with were just a little more tolerable then I’d be happy to work casual instead of fully FIRE.
It’s often the people that you work with that are more important than the work itself. My view is Financial Independence (FI) is a must but Retiring Early (RE) is a choice. For me, quitting that job and spending time with the kids is a must for now.
What about those on the journey, what should people consider now before they reach the end point?
Michael: What is the end point? Achieving FIRE is not just about reaching a number but also changing your behaviour and thinking. Just keep on working hard, save hard and invest regularly. When that day comes, you will know.
I think you should still work hard and aim to make as much money as you can and save as much as you can before you reach that arbitrary number. I mean, let’s be honest, it’s not possible to achieve FI on minimum wages.
(Dave: It wouldn’t be easy, but I do believe it’s still possible as I wrote about here – Can You Achieve Financial Independence On A Low Income?) 😉
And just for fun, what do you see as the biggest waste in people’s spending? Where are we blowing money for little-to-no meaningful benefit?
Michael: Having a car for work and then buying another car for play, eg. big 4 WD for the weekend.
Also never sitting down and looking at their income/expenses. Just changing banks, insurance companies and Super fund can save you thousands of dollars a year.
Finally, what’s something you’ve learned since reaching FI? About life, finance, anything.
Michael: I guess it’s that you need to listen to your inner self and know what is truly important to you. What others say, whether they’re friends, strangers or even relatives, is just not that important. Having independent opinions and not being influenced by others is important.
Don’t let people tell you what you should or shouldn’t do. I admit it’s hard and I still get influenced, but I’m slowly changing. To be truly free, you need to think independently. If you follow the crowd, then you’ll just be one of them.
Anything else you’d like to add?
Michael: Appreciate the things around you and how lucky we are to be surrounded by families, friends and live in Australia. Be thankful for what you’ve got.
Learn to stay positive and optimistic. At the end of the day, I’d rather be optimistic and wrong than pessimistic and correct.
I’d like to thank Michael for coming back for this follow-up. I trust you enjoyed this interview with my fellow early retiree, and hearing what life is like ‘on the other side’ when you have a young family.
Sounds like Michael has been filling his days with lots of great activities and soaking up the freedom. I also get the vibe that he’s becoming more philosophical about life, now that his mind has the space to think and contemplate without the stresses of high-pressure work getting in the way.
If you have any comments or questions for Michael, please leave them below. With any luck, he’ll stop by and answer them for you. (Keep in mind, we covered a lot in our first interview, so check there first in case your question has already been asked).
As always, thanks for reading!
In other news, I was recently interviewed on the Captain FI podcast. We had a great chat and a few laughs – it was like catching up with an old mate for a beer! Check out the podcast interview here.