Reader Interview: Financially Independent at 32!

Family Man FI at 32I’ve got a special treat for you this week – an interview with a reader.

But not just any reader.  Someone who many of you can relate to.

A family man.  A passionate investor.  And someone who also questioned the non-stop 50 year career path and decided that freedom was more important than climbing the corporate ladder for the sake of it.

Our reader’s name is Michael.  Like me, he’s also from Perth.  And as the title says, he reached Financial Independence last year at the age of 32!

Just to show I’m not a freak outlier and this early retirement stuff is for real, I thought this interview was a great idea.  Especially since Michael’s circumstances are different from my own.

 

Who is this guy?

Michael first contacted me through this blog to chat about the prospect of leaving his job.

But he wasn’t too worried about the numbers.  He didn’t go into details but knew there was enough wealth and investment income to cover his family’s expenses.

Instead, he was more unsure of the lifestyle shift, and the cultural expectation to keep working.

We got to chatting and decided to meet up.  During the meeting it was clear we had a lot in common – I think most FIRE focused people do.  We shared similar experiences, priorities and mindsets.

Shortly afterwards, Michael left his job.  Maybe I convinced him that this FI lifestyle ain’t so bad?

Nowadays, we’re good friends and catch up semi-regularly to talk about life, investing and a bunch of other stuff.

Despite the FIRE movement growing, there aren’t many examples of young people actually reaching financial independence.  And that brings us here.

Michael is a private guy, but I managed to convince him to do this semi-anonymous* interview if we keep the numbers obscure.  I understand and respect that, since the numbers I’ve provided about our own journey and net worth are also pretty imprecise.

So let’s get started – I hope you enjoy our chat!

 

Living Situation

Dave (Strong Money):  Firstly, Can you share a bit about yourself?

Michael:  My parents migrated from China to Australia when I was a kid and spoke no English when we arrived here.

I’ve lived in Perth all my life.  Now I’m in my early 30s, financially independent, with a wife and 3 kids.

 

Dave:  When did you discover the concept of Financial Independence?  Or when did you decide that the traditional lifelong career thing was not for you?

Michael:  I have been interested in FI since a very young age.  I want my money to work for me, instead of me working for money.

When I was working in the office, I often looked out the window at the blue sky outside, and wondered why I’m sitting here all day doing a job I don’t like.

Then I’d think, do I want to do this for the next 40 years?

You pretty much spend the best years of your life looking at a screen and dealing with people you don’t like.

 

Dave:  Was your wife on board and happy with your focus on Financial Independence?

Michael:  Absolutely.  She loves the fact that we don’t need to worry about bills or money and can focus on more important things in life.  She wants to work (but doesn’t currently), and if you are FI, you can choose jobs that have more meaning to you and also work very flexible hours.

If you’re not happy with your boss, you can always fire him first.  It surely does take a lot of stress out of life.

With investing, she is still a property person and I’m trying to change that.  All I can say is, I‘m still trying lol!

Sometimes results speak louder than words.  And I’m confident 10 years from now, we will look back and be glad at our decision to invest more in shares, rather than keep buying properties (more on that later).

 

The Road to FI

Dave:  Can you share what your journey looked like?  And how long did it take?

Michael:  It took about 15 years.  I started working from high school and saved aggressively.  My parents also helped with my first house deposit, but I always worked hard and saved quite a lot of money.

I could truly see financial independence when I started investing in LICs – I love the predictability of income from LICs.  Because I knew if I keep on doing this (buying shares), my income can only grow year after year.  It’s like buying an annuity.

Whereas before, if I kept buying properties, my asset base is growing but my income is very uncertain, as I know there are countless problems and unforeseeable expenses associated with properties.  To put it simply, I cannot rely on that income.

I also hold Soul Patts – Washington H. Soul Pattinson, an old investment conglomerate – which has been around for over 100 years, survived 2 World Wars, the Great depression, and numerous crises.  Yet it never failed to pay a dividend and has increased its dividend every year for 18 consecutive years.  We are confident that it can at least maintain its dividend for the foreseeable future.

To most people (including many members of my family) that love property and hate shares, I encourage them to find a property that requires no maintenance, no dealing with tenants or property managers, no expenses, 100% occupancy and paid its rent on time for over 100 years plus a very enviable capital growth record.

 

Dave:  What was your spending and savings rate like?

Michael:  I would say our savings rate was probably around 70%.  We don’t like eating out very much and since our kids are so small, its very troublesome to travel, so our holiday cost is almost nil.

Our expenses are mostly household rates, utilities and groceries, plus private health insurance.  We are able to keep saving now and we’re looking to invest more into the sharemarket over the foreseeable future.

With shares, I can more or less accurately predict my income and the compounding effect for the foreseeable future.  This is not possible with properties as there are so many unforeseeable expenses and uncertainties.  Property might be okay for ultra long term wealth building but if you want to be financially independent at a young age, I wouldn’t recommend it.

 

Dave:  And how about today, do you have a mortgage?  And what’s your annual spending?

Michael:  We have a mortgage that has been paid off, but the debt we refinanced for other properties – the rental income more than pays the interest, so no financial stress at the moment.

I would estimate our annual spending at around $45k.

 

Investing Strategy – Property and Shares

Dave:  What kind of stuff were you reading back then to educate yourself about investing?

Michael:  I always like to read books on investing and subscribe to various newsletters.  I also read books on Warren Buffet etc.  I used to think to be successful in investing, you need to have a high IQ and need to know when to buy or sell shares.

Over the following years, I realised EQ (emotional intelligence) is much more important than IQ when it comes to building wealth.  However, the book that changed my view completely was Peter Thornhill’s ‘Motivated Money’.

This book changed my views on the stockmarket.  I realised you don’t need to be an investment specialist and the sharemarket is not a casino like many people claim.

Of course there are many successful property investors out there too.  But the sharemarket is how I want to invest for the following reasons:

1. Liquid investment.
2. Stable or ever increasing dividends.
3. Diversification.
4. No or very little transaction cost.
5. Predictable and high cashflow.
6. No need to deal with tradies, property managers or tenant specific risks.

With shares, I can go and live overseas for a few years and have cashflow coming in.  With property, I still need to communicate with property managers and if you get a bad tenant/manager or catastrophic event occurs, you still need to put in effort in doing a lot of things.

If you are really into property, you can always buy REITs (Real Estate Investment Trusts).

For example, BWP (Bunnings Warehouse Property Trust), owns tons of Bunnings Warehouses.  Or VVR (Viva Energy) owns hundreds of petrol stations.  Both have long leases, no maintenance costs, blue chip tenants and rent linked to CPI.

 

Dave:  What was your investment strategy during your journey? 

Michael:  My investment strategy 10 years ago is completely different to my investment strategy now.

Back then, it was all about properties for me.  My goal strategy was to buy as many properties as possible and borrow as much as you can.

 

Dave:  Man, I can definitely relate to that.  I too was convinced that leveraged property was pretty much the best path to financial freedom.

Michael:  A common theory is properties double every 7-10 years.  So eventually you can just sell off half of your portfolio and pay off your loans.

Unfortunately, I didn’t buy in Melbourne or Sydney, otherwise I might have stayed with that strategy.  But in hindsight, I think it’s a good thing that I experienced the Perth downturn for the past 10 years.  Otherwise I’d still be in the property game and probably leveraged to my head.

And I believe what happened in Perth, will happen to Melbourne or Sydney sometime in the future.  People always say “you can’t go wrong with property over the long term as they will always go up in value.”

This is true, provided you can hold onto property for the ultra long term.  This is not always possible, because there are so many variables and expenses associated with property.  Even if its 100% occupied, the yield is still extremely low and you still often need to put money in to keep it.

What I’ve learned is, large initial capital outlay, large transaction costs and low income return does not sound like a good investment to me, and is the reason why good businesses don’t usually own a lot of
property.

 

Dave:  And how do you invest today?  Your plans going forward?

Michael:  My investment strategy changed around 5 years ago and I’ve allocated all my earnings to shares since then.  Mainly into LICs.  And this is my strategy going forward, for the foreseeable future.

The change was triggered partly because of the Perth property downturn and I could no longer see how property could help me achieve Financial Independence.  Also partly because of reading Peter Thornhill’s book and then getting introduced to LICs.

Some people will argue the tax benefits of property, as you can negative gear and get depreciation benefits.  You can negative gear because you are losing money (losing $1 to get 30 cents back doesn’t sound very clever to me) and depreciation is a very real expense, as you will need to refurbish the building over time.

With shares, if my dividend increases, I pay more tax – that’s fair.  With property, your rent can actually decrease but your expenses and tax can still go up, i.e. land tax, rates, insurance.  A decrease in income and an increase in tax and expenses?  That sounds pretty crap to me.

With shares, you are relying on the cashflow.  With properties, you are relying on capital growth.  So if my share portfolio doesn’t have any capital growth for 10 years, but dividends increase during this time, I can accept that and make decent money without needing to sell.

However, if my properties don’t have any capital growth for 10 years and due to the various expenses, I need to keep on putting money in, then I might be forced to sell.  So you are reliant on capital growth over a relative short period of time to make money (10 years is short in terms of investment horizon).

You can argue that it is OK since you are on high income and can always negative gear.  But that is assuming you want to keep on working and don’t want to be FI while you’re young.  I know what I’d rather be.

 

Dave:  And I hear you plan to be completely debt free in a few years by selling off other properties, is that right?

Michael:  Correct.  People focus too much on tax and prefer to do interest only payments.

I prefer to pay off my debt ASAP, or get it down to a negligible level – say 10% of total assets.  It’s true that inflation eats away at the purchasing power of money over time.  But having no debt means you have the freedom to pursue whatever you want.

In the olden days, people would buy things without a credit card and pay off their house ASAP.  Why is it becoming a norm these days to buy everything on credit and have a 30 year mortgage?

I don’t see people living a happier life.

 

Dave:  What does your share portfolio look like at the moment, roughly?

Michael:  My portfolio mainly consists of LICs and some other companies that I like.

In the LIC space, I invest in Milton, Argo, Whitefield, BKI.  I also own QVE for more diversification into mid-cap shares, and some WAM for yield.

Moving forward, I will most likely invest more in the traditional low fee LICs.  I don’t like WAM’s fees and it has key personnel risks.

As for individual shares, I have holdings in Soul Patts and UOS (United Overseas Australia – a real estate development company based in Malaysia). 

Both Soul Patts and UOS are excellent companies with enviable records, and they are probably some of the best allocators of capital on the ASX.  That’s not to say they’re bulletproof.  But they’re probably better than 90% of the companies on the ASX.

Investing is always a probability game.  The only thing you can control is putting risks in your favour.  This includes examining various factors to tilt the probability of success to your favour.  Again, nothing is 100%, but the chance of a reasonable return is high over a long period of time.

 

Dave:  Did your investing target or FI number change at all along the way?

Michael:  Not really.  I’ve always used the average Australian wage as a number I work towards.  So if my family can achieve that number, I’m pretty happy. 

 

Dave:  So do your dividends and rental income actually cover your living expenses right now?  Or are you half way in between like me, so need to keep selling property?  

Michael:  Yes, they do.  It will improve as we sell off low cash-generating assets such as properties.  Our biggest worry is we have to pay more tax in the future.  But I guess that’s a good worry to have.

 

Dave:  Was there anything you struggled with during your journey?  Working itself, or perhaps actually pulling the pin and leaving work was your struggle? 

Michael:  Absolutely.  Even though I hated my work, quitting wasn’t easy.  If you are out of the mining industry for too long, you won’t be able to get back in.  But the stress and the working environment are really soul-killing.

I used to hate weekends because I know one more day then I have to go back to work.  That’s not a healthy way of living.  It may be company specific (as I really hated that company).  But now I have the option to not work… so why not?

The corporation that I worked for was also a catalyst for me to quit.  On the outside, they promote work/life balance and you are supposed to work 38 hours a week.  But the most common message from your manager is to “sacrifice for the team and be a team player.” 

Or another way to put it, work 50+ hours and get paid 38!

All the time that I was there, I never saw anyone work 38 hours.  There are people replying to emails at midnight.  Remember, we’re on a fixed salary, so effectively working 10+ hours for free each week.  Plus, (with Perth traffic) 2 hours travel time each day is quite stressful.

I really couldn’t see myself doing that for 30 years.  Even if you could make millions doing it – what’s the point of making tons of money if you are working in a job you hate, with people you don’t like and extremely long hours?

When you are 70, would you regret not doing more overtime at work?  Or would you regret not spending more time with family?

 

Life After Reaching FI

Dave:  How long have you been retired now?  And how’s it all going?  Has anything surprised you about early retirement?

Michael:  I officially quit my job about a year ago, and it’s been great!

I don’t like to interact with people too much – so hanging out with the kids, doing some reading and learning how to cook and bake cakes is becoming a hobby of mine.

The kids keep me occupied for now which is great.  And it’s also a wonderful feeling seeing them grow up.  Over the next few years, we’ll do a lot of travelling with the kids as we would like to show them the world.

I think after the kids are older and go to school, (plus my finances become simpler to manage, as I’ll slowly get rid of properties and move into shares) then I might become bored and will most likely do something.

Maybe work 1 or 2 days a week?  Start a business and build that up slowly?

No idea.  But it’s great when you are not forced into making a decision.  When you’re FI, you can do whatever, whenever you like.

 

Dave:   What’s the best part of Financial Independence so far?

Michael: 

1.  Don’t need to wake up in the winter cold.

2.  Get to spend time with kids and family.  This is invaluable – you can always make more money later, but you can never see your kids grow up again.

3.  I used to think on Saturday that “damn, one more day and I need to go back to work.”  Well, this doesn’t happen now.

4.  Pretty much I don’t need to work in a soul-draining/killing job.  I have the freedom to pursue what I think is important, and at this stage of my life, kids are more important.

 

Dave:  Is there anything that’s not so great about FI?

Michael:  

1.  All my friends are working, so it’s all just time with family which is great.  But sometimes you can feel a bit down, hearing them moving up the corporate ladder and seemingly achieving goals in life.

Conformity is a big obstacle to overcome and I think I’m still trying to overcome it.

2.  Sometimes I think, how will my kids see me when they grow up?

If they have a parent that works 12 hours a day, 7 days a week – that might teach them to work hard.  But if they see their parents retired early, they might think money falls from the trees and be lazy.

 

Dave:  What do you enjoy spending your time on these days?

Michael:  As I said, I spend a lot of time with my young kids – taking them shopping and out to various places etc.

I also spend a lot time trying to refine my retirement strategy and simplifying it.

For example, Labor’s recent plan of taxing Trusts at 30% and removing cash refunds for franking credits, got me thinking about home country risk and that having investments in a single structure can be quite risky as policies will change over time.

 

Struggles and Social Pressure

Dave:  We’ve discussed this before and I found it really interesting.  You’ve had to deal with cultural expectations that I didn’t.  Can you tell me a bit about that?

Michael:  My background is Chinese.  The country has been poor for so long, and because they’re lacking in social security in the country, the only security you can have is to make as much money as possible.

Hence the culture is to work extremely hard and think of any way possible to make money.  So there is never enough.  The more you have, the more you are expected to make.

 

Dave:  And can you share your personal experience around this issue?

Michael:  My family culture and expectation is to work hard, save hard… then work even harder.

Most people see Asians being rich without knowing how much sacrifice they’ve made.  Most people I know hardly take holidays, work 12 hours a day, 7 days a week for many many years to become wealthy.

So if you tell people you are financially independent or retired in your 30s and may not go back to work for the rest of your life, then they’ll probably form a view that you’ve lost motivation and hence have no goals in life.

You are expected to conform.  Being independent or different is harder than most people think.  It can lead to isolation or other forms of stress.

If you work until 65 in a job you don’t like, and have no time for your kids, you are said to be hardworking and you sacrificed for the family.

But if you are said to be retired in your 30s, they’ll think you should work harder and provide an even better future for your family.

Why live in a million-dollar house, if you can work harder and afford a $2 million house?

Why send your kids to public school, when you can work harder and send them to a prestigious private
school?

But in my view, a better future cannot simply be measured in terms of money or material things.  They are important, but there are other things that are also important.

 

Dave:  So what made you overcome that and forge your own path, rather than just follow the standard and more accepted approach to life and money?

Michael:  It’s hard to be an independent thinker and not conform to society.  I’m still adjusting to that.

But the extremely long hours staring at a screen, typing reports and doing that for 30 years is soul-killing.  You are constantly tired and have no time for anything else.

Sometimes you just have to “not give a shit” about what other people think.  You live for yourself, not someone else.

Also, I like the feeling and freedom that FI brings.  I can do things I like, whenever I like.

I believe in my investing strategy and have done my research.  There will always be people out there to doubt you or try and convince you to follow their ways.  You just need to tread your own path and believe in what you’re doing.

Two quotes:

  1.  Worry is like a rocking chair; it gives you something to do but gets you nowhere.

2.  Truth always rests with the minority, and the minority is always stronger than the majority, because the minority is generally formed by those who really have an opinion, while the strength of a majority is illusory, formed by the masses who have no opinion.

 

What’s Next?

Dave:  Do you have any desire to return to work soon?  Or any idea of what you might do in the future?

Michael: No desire to return to work anytime soon.  I want to spend as much time as possible with the kids.

When they go to school and don’t need me as much, I will probably do some part-time or casual work, but the risk is if you’re out of the mining industry for so long, you might not be able to find a job.  Thankfully, that’s not a concern for me.

One of my friends (a couple) are both doctors and they make tons of money.  They will retire in their 40s to spend more time with their kids.  This friend once said to me, “what’s the point of making all this money if you have no time with your kids and they grow up hating you.”

This had a big influence on me.

I’ll most likely spend all my time with family until the kids attend primary school, which is still a few years away.  After that, I will see if there are any opportunities to start a business.  Otherwise we’ll just wait and see.  No plans so far.

 

Tips & Guidance

Dave:  What do you think helped you the most in reaching FI?  Maybe savings habits or continual learning about investing or having a high paid job etc?

Michael:  A lot of factors combined, including working hard and making as much income as you can, whilst spending little and living a frugal lifestyle – especially during the early stages to build up your portfolio.

But ultimately, I believe the most crucial factor in reaching FI is changing your mindset and the way you view risk.  Most people believe property is safe and shares are risky.

Nothing could be further from the truth.  What I find hard to believe is, most people just assume that and aren’t even willing to listen to another opinion.

 

Dave:  And what do you see as the main financial traps for the average Aussie family?

Michael:  

1.  Living beyond your means and taking on too much debt.

2.  No goals or desire for FI.  Most people don’t believe you can retire early, hence don’t even want to spend time looking into this topic.  If you don’t believe in something, how can you plan for it?

3.  Lack of understanding of risk/return.  I have friends that lost money on properties, yet, when I try to share with them the idea of investing in shares and how good the everlasting income can be, they don’t even want to listen.

Their first reaction is always “Shares are risky, you can lose it all.”  Ignorance is a key barrier to FI.

4.  Listening to too many so-called experts and people on TV etc.  For example, I heard on the radio the other day, now you can move into your own home without any savings and no guarantors!

If you can’t even bloody save for a deposit, what makes you think you have the discipline to pay off the house?

5.  Thinking that eating out twice a week, 2 holidays a year and a 5 bedroom house is the basic necessities of life.  As well as 2 brand new cars and a 4WD for the weekend.

6.  Will spend 10 hours researching where to buy the latest gadget but will not spend 10 minutes thinking about their finances or plan for their future.

 

Dave:  Any last words of advice?  From stuff you’ve learned along the way, about FI life, saving or investing?  Or anything else you’d like to share with people?

Michael:  Being financially independent is such a good feeling.  And especially so at a relatively young age.  I think I have the following advice:

1.  Save more than you spend.  And don’t just save 10%, aim for 70%.

2.  Knowledge about investing and ability to accept other opinions is key.  My own investment strategy will also change, but the argument needs to be valid and acceptable to me.

3.  Don’t over-leverage.  The only thing that can make smart people or good companies go broke is too much debt.

4.  Keep investing and stick to your strategy, but open to changes.  To be successful in investing means you need to ignore the noises and focus on the fundamentals.

The market will keep on throwing things at you.  Today it might be another crisis looming, and tomorrow it might be a change in policy.  But the human race and the capital markets will thrive and adapt over time.  This is the key factor of investing in the share market.

You will need to find a strategy that suits you.  But for me, I like the share market for its predictability, cashflow and good fundamentals.  That to me is sufficient.

5.  People always talk about what things money can buy.  But I truly believe that nothing beats the feeling of Financial Freedom.  The ultimate gift that money can buy is “time and freedom.”  

So don’t envy your neighbour for their new BMW or boat, you should envy people with freedom and options.

 

Final Thoughts

I hope you all enjoyed this interview and it gave you some food for thought.

Like me, Michael questioned whether spending most of his life at work was really such a good idea and instinctively knew there had to be another option.

And as you can see, Michael was glad to break free from his highly demanding career.  This has allowed him to live more in line with his values – with family being the primary focus right now.

Saving and investing might seem like a slow and boring process at times.  But every time you sock away some money into income producing assets, it boosts your financial strength, decreases your reliance on a job and increases your future options in life.

And you do it one chunk at a time.  Until one day, you’re able to step back and re-focus your time and energy on what’s most important to you, just like Michael.

If you have any questions for Michael, or about this interview, just leave them in the comments section and we’ll both answer as best we can (while respecting Michael’s desire for privacy around the numbers).

As always, thanks for reading!

*I say semi-anonymous, because his name isn’t really Michael and the numbers are kept private 🙂

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78 comments

  1. Loved this interview.
    At the school I teach at we have a lot of Asian students. The stereotypical ‘Tiger Mum’ isn’t a myth – most of our kids have to deal with high parental expectations to get into the ‘Asian 5’ subjects (the Maths and Sciences) and become doctors/lawyers or accountants.
    I can appreciate how hard it must have been for Michael to buck the trend.
    You make retirement sound really appealing…

    1. That’s interesting – thanks for sharing. I’ve never even heard that term before (Tiger Mum). That’s pretty sad when you think about it. The reality is that high school dropouts with little skills (like myself) can still earn good money in Australia – certainly enough to be financially independent in 10 years. How incredible is that!? What a country 🙂

      1. My wife is a self-confessed Tiger Mum and the difficulties I sometimes mention about my burning desire for FIRE (wink at Frogdancer) relate back to this. She considers FIRE as being lazy, and when I told her we already have enough she said we should keep working so we have more. Pretty sure her goal is to earn infinity dollars and any less than that will be considered failure.

        Not sure of Michael’s wife’s background (and I probably don’t need to), but well done on breaking your own programming because I’m still working on it and not having a lot of success. Pretty sure all I’ve done so far is plant seeds of doubt in my wife’s mind about how well she selected her life partner!

        1. My wife is also Chinese, she never forces you to do anything which I’m very grateful.

          I used to believe more money will make you happier, this is true to an extent, of course if you need to worry about putting food on your table or how to pay your next bill….then you cannot be happy, its simply too difficult.

          But once you have worked hard, made that sacrifice, then more money does not necessarily mean more happiness……… If 1Mil makes you happy, 2Mil does not bring double happiness…

          To put it frankly, you only ever sleep on one bed and drive one car and live in one house….and you can never take that money with you when you are dead…..

          FI does not mean I will ever stop working, actually, I might go back to work in the future, but FI means I have the freedom to pursue more meaningful things….. I don’t need to be forced into a little office box and spend 10 hours a day in front of a screen and getting told by your boss that “budget is tight and you need to sacrifice for the company”………… we have colleagues that had to come into work, book time to their long service leave and work for free….If you don’t do that, then you are not a team player and will simply be fired…… he has to comply because he does not have a choice….

          FI means you can pursue another career or start something on the side, or simply take many years off and focus on more important things…….. what is the meaning of life if you do something you hate for 40 years ?………. Most people I met either don’t like their job or “convince themselves” that they do……they have no choice…..

          Ferrari/2 Mil house Vs freedom …… your choice…..

          1. Thanks for your reply Michael. Sounds like your former company needs a few good HR people!

            You speak of choice at the end there and while I’ve made my choice and my wife’s made hers (or at least she thinks she has — I actually think they’re her mum’s / ingrained culture’s choice)… they’re different choices and working through that is my next challenge. Then after that comes developing a persuasive argument other than “after 25 years I’m sick of corporate BS”.

            Life’s too short and when you really stop and think about it, it makes no sense at all to slave away for as long as we do.

    2. At some stage of your life, you have to choose which path to pursue and what is more important for you.
      I think the critical question is “what will make you happier?”……. If it is working harder, longer hours and earning more money to buy that BMW or 2Mil house…then it will be fine to continue that path…..no one should be criticised for wanting to work hard and provide for their family.

      But if its about FI and having time/options to pursue more important things in life, then you should set your goals and change your lifestyle habits to achieving that goal.

      Lets be clear, Working hard, saving hard and investing wisely are critical to FI. You cannot expect to work part time and be FI in your 30s or 40s. It requires a lot of sacrifice and commitment.

      It is extremely difficult to be independent but true happiness can only be found when you are independent, if you just blindly follow what society throws at you and follow the crowd, then you can never find that inner peace and true happiness.
      I’m still adjusting and cannot say that I have achieved complete independent thinking, but I’m working on it and I think I’m becoming a better person as a result.

      1. I reckon working part time and being FI in your 40s or late 30s is possible. Most people won’t find it ideal though.

  2. Great interview and thanks for sharing Michael!

    As a brand new father who quit the corporate rat race 1.5 years ago I gotta say you’ve definitely got your priorities right! Family time is so important and you’ll never get it back.

    This is why I love the FIRE movement. Refocusing on what’s really important in life.

    1. Absolutely Jack! For those uninterested in FI/RE, that’s fine, but the nature of the movement is overwhelmingly positive.

  3. Loved the interview but would have like a better understanding of the portfolio that made this possible. I saw a lot about the share market but a few mentions of properties made me think real estate was the first step.

    I actually agree with him about being skeptical of property when this nation has a love affair so if you can provide more detail that would be great.

    1. Thanks Hiltron. I think you’ll find, like most who achieve FI, it’s not actually ‘the portfolio’ that made the difference, it’s the savings rate that does the hard work.

      Real estate was the first step as Michael mentioned, and from around 5 years ago he started investing more into shares. Being a Perth property investor, owning real estate has probably hurt more than helped his journey (same as me) unfortunately 🙂

      1. I respect your point about a strong savings point being important but the numbers don’t make much sense. FIRE like this requires over a million dollars in assets at a four percent withdrawel rate. To achieve that in your early thirties would require an after tax saving of over 100k every year. I doubt many graduates are pulling that kind of pay so either there were some good property gains, a bumper run in the share market in the last five years or a very large salary later the journey to make up for the earlier years?

        1. Hmm, not quite true. The missing element is what your invested money earns each year. It’s not a straight $100k times 10 years = $1m.

          The numbers are quite simple. Get a good old fashioned compound interest calculator like this one – https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator and let’s plug in some assumptions.

          Using our own personal numbers, together we made combined gross income of approx $150k per year, or $115k per year after tax – this is 2 people with no qualifications except a forklift ticket.

          A reasonable level of spending for a couple like us is around $45k per year. This means annual cashflow to invest of $70k per year. Put that in the calculator at a 7% return and that gives $970k after 10 years, and $1.25m in 12 years.

          So a couple can start saving at age 20 or 21 (and that’s what I did) and generate over a million dollars in a little over 10 years.

          If you’re single it’s harder but then you can optimise housing costs more and rent rooms out in your house or live in a share house for longer, enabling an even higher savings rate.

          Bottom line: The numbers make perfect sense. No need for crazy investment returns or insanely high incomes. Just decent Aussie incomes and sensible spending which creates a strong savings rate and that’ll get you there in 8-15 years.

          You can find more on our own journey here if you haven’t seen it already – My Journey to Financial Freedom and Our Journey in Numbers and Our Adventures in Leveraged Property.

          The sharemarket has actually been pretty average over the last 5 years, so that wouldn’t have made much difference. And I wouldn’t bother with property starting today. The most reliable progress is made through investing in shares for income, reinvesting that income, and pumping ever more money into the portfolio. This way your investment cashflow never stops growing and your progress is quite predictable – again no abnormal returns needed. A spurt of capital growth isn’t going to help anyway since the fastest approach in my eyes is through building dividend income – so strong capital growth from your shares will actually slow you down because yields are lower, meaning less value for money.

          Hope that helps Hiltron.

          1. Thanks for that. The numbers work well except for the part about owning your own home but that wasn’t your point. Good job.

          2. There’s no need to own your own home. We currently rent and that’s included in our $45k spending, which you can see here.

        2. To make it even simpler, this calculator is pretty much all you need. Plug in your income and spending and it’ll tell you how long to retire.

          Plugging in $40k per year spending and needing $1m, it’ll take roughly 12 years on an income of $100k per annum. That sounds pretty reasonable to me.

  4. Very interesting story and I can relate. I’m in WA in mining industry.

    I also was highly leveraged with PPOR and two IP in WA which I have cut my losses on and sold to go back to basics and pay off PPOR before investing into shares.

    Aiming for 50% savings rate one single income family.

    Looking forward to the day I can quit the mining life!

    1. Appreciate you sharing that Mr FMT (I know we’ve chatted before about it). Definitely sounds like you’re in a pretty good spot going forward!

  5. Great interview and really respect the intelligent way that both of you put forward the basic thoughts and steps to reach FIRE, I never managed it until age 52 and that was nearly 4 years ago now and would never look back so I take my hat off to you again. The blog is excellent Dave keep up the good work.

    1. Thanks very much Tripmasters, I appreciate that.

      Well done on your own financial independence by the way – awesome! And still far, far better than most!

  6. Great interview Dave it is always motivating to read success stories, I’m just learning about Fire but I’ve always been interested in what I now know to be the concept of fire so blogs like yours and a few others give me hope I can do it too.

    1. Cheers Tim, you certainly can!

      Hopefully the number of success stories only grows over the next few years, and I expect it to. And great to have someone like Michael who’s done it with a young family and dealing with different cultural expectations than myself. The more diverse stories we can get, we can show it’s possible for broad swathes of people. As a community (FIRE), our job is to take away the excuses 😉

  7. What a great interview. Down to Earth and focused on fundamental basics. That’s how more people should think. I fortunately didn’t hate the job that helped me become financially independent and I didn’t sacrifice anything yet. One thing to add: there are places in the world where rental yields are good and there is capital gains. I tend to invest there to have the double whammy: cash flow and capital gains. Fastest way to increase the net worth with least risk in my view. Not a fan of equities at all, albeit amazed reading that you can pull 6% dividends in Australia – will be looking into this now. Thanks!!!

    1. Thanks for reading FG, glad you liked it!

      Appreciate your thoughts on overseas rentals. It’s probably just in the too-hard basket for most of us – easier to keep it simple with investments in local currency that provide decent income.

  8. Great interview and well done Michael on achieving FI so early on, particularly with such a young family. If you do a follow-up at some stage I’d love to hear how he plans on talking to his kids about money and work.

    1. Thanks AHF 🙂

      That’s an interesting topic – I’ll have to speak with Michael about that and see if we can do a follow up in a few years time!

  9. Nice interview Dave. I definitely appreciate Michael’s outlook on life and FI, especially coming from a chinese background and the cultural pressures he must have faced. Western Society faces similar pressures, but it’s more about working hard, so you can have more stuff you don’t really need (Lifestyle creep and brainwashing). Hopefully his story reaches more of the Chinese Society.

    1. Good comment Fergy, thanks!

      Peer pressure gets to most people, but would be harder for Michael than the average Aussie I’d say. He’s done a great job of going his own way and deciding what he believes is the right way to live his life.

      I hope his story also reaches more like him, because it seems sad some people are living this life of ‘keep up with the Joneses’ but on steroids, and with a scarcity mindset too.

    2. Hi Fergy

      unfortunately, most people don’t agree and don’t want to listen in my culture… I’m finding it hard to even convince family members so I don’t bother anymore.

      If you are willing to listen then I will share, if you don’t then you don’t.

      I have a friend that hates their job and want to retire, he makes good money, has lost money on properties and owns 2 new cars, a bike and a new 4WD. When I told him about investing in shares, his reply was “shares are only good when it goes up, until it crashes”. I then proceed to tell him that even if he does not agree with my view, at least take some time to have a look.

      He is simply not interested.
      To those that don’t want to listen, I don’t even bother trying these days.

  10. Great interview. Can you clarify the average australian household expense?
    Michale mention living on $45k, when i thought that $75k was the Australian average for a family (not sure if this is Perth specific or not).
    Thanks and great work!

    1. Thanks for reading Isabelle!

      $75k is the average Australian wage you’re probably referring to – not the average Australian family’s expenses. That was his ultimate goal for investment income as I understand it. Michael’s spending is $45k as stated in the article and they’re still able to save, even after leaving work. Hope that helps.

  11. Great blog, I enjoy reading it a lot.

    Financial independence can be achieved, but I think the problem with so many young people these days is that they’ve grown up in an era of falling & consistently low interest rates, which has reinforced the “realestate only goes up” attitude, but they also have a “must have it now” attitude, which doesn’t lend itself to long term saving.

    Hard work in the early years is the key, I consider myself lucky to have had a steady, reliable job for the first 20 years of my life as well as being lucky with real estate deals. Last year I sold my last Sydney property and made over $1m profit. I think the days of huge property price increases have now gone. I ‘retired’ at 36, that is when I decided I would not work for anyone again. I have actually had a couple of jobs, but nothing I didn’t enjoy, and when I didn’t any longer enjoy what I was doing, I quit.

    I have been a long-time fan of the stock market. I made and lost quite a bit until I discovered the key to the market; Index tracking and high-yield products, ETFs & now LICs. I made an awful lot of mistakes until I doscovered those. I also took a risk on a single US stock purchase 8 years ago. I’m up over a million on that deal alone. So now I am 56, and will be able to draw approx $150k per annum from my investments. The only worry now is Labor getting in, as they appear to love class warfare against self funded retirees. Good luck to all.

    1. Thanks for sharing your story and lessons learned Sam, much appreciated.

      You’re right that people’s expectations are likely inflated, around lifestyle and property price growth as well.

      And well done for getting yourself in such a good financial position, quite incredible!

      The Labor policy isn’t great, but someone in your position will still be getting well over $100k in income from investments if the plans go through – I’m sure that’s enough to get by on 😉

  12. Thanks for the great interview and post Dave. I am your new reader but have read most of your posts re- investing and shares and have just started investing in LICs. Hope to learn more from you and community.

  13. Inspiring Inspiring Inspiring! Thanks for this interview.

    It’s a great boost of energy on a Sunday and in preparation for a new work week tomorrow. I loved how much he emphasised Time and Freedom.

    Reading this makes me believe even more that this is doable. I’m single and have no kids so I have a lot control on my lifestyle, will keep levering that!

    My dad recently got very ill, even today the doctors found his condition is even worse. He lives overseas and I need to stay here working and making money to send over. Financial freedom I guess gives not only freedom to do hobbies but also the option to go and see family when they need you there. I’m using this circumstance as a driving force to reach FI, I only started recently but it’s not late.

    Thanks for writing this blog for us.

    1. Cheers Plutarch, glad you enjoyed it and it gave you a boost to start your week!

      I’m sorry to hear about your Dad. All the best with your efforts to help him and also reach FI 🙂

  14. Hello David, fantastic article! I always say that about your stuff.

    It would be nice to know a little more detail on:
    – 45k spend PA: seems a little small for three kids IMO (yet possible just be nice to know how thats achieved)
    – Asset base: how much head room did “Michael” provide himself – is it 25 * 45 = 1.125M + House
    – Any thoughts on Super?

    1. Hey mate. Thanks again!

      He’s shared in the article that they do very little travel right now and don’t have much expenses. Keep in mind, his $45k per annum is helped by the fact they don’t have a personal mortgage anymore. Sounds like that’s plenty of money to live on (our non-housing spending is $25k per year, so $45k per year with 3 small kids sounds like plenty).

      He’s not comfortable sharing his numbers (which I respect), but it’s clearly more than enough given currently income exceeds expenses and his income will be much higher in the future as he sells off some property to buy stronger income paying shares.

      Not sure of his Super strategy – I’d guess it’s not a big factor in his strategy given he’s living on his assets right now and still has almost 30 years until he can access Super 🙂

  15. Excellent, intelligent, interview and interviewee. Michael’s story could form a ‘Case Studies’ Chapter in your new book Dave 😉. I would love to read more cases like Michael’s; people who have scaled FIRE Mountain and are willing to share their experiences.
    Great stuff Dave; keep it coming!
    Jeff

    1. Thanks very much Jeff! Haha you might be right about that – will have to note that down for later 😉

  16. Hi, $45000 spend with small kids is completely doable. We spend $50000 with 4 pre-teens/teenagers. Travel is additional. We have been FIRE for 9 years now, living off rental property. What I’d like to know is how Family Payment factors in to this for FIRE families. No one ever seems to mention it. The rules are quite generous – With 4 children combined adjusted taxable income of under $53000 gets an additional $24000pa in family payment. That’s a lot of extra money!

    1. Thanks for sharing HappyDays – awesome work on your own early retirement!

      I can’t shine any light on this topic as I have no knowledge in that area. Are you sure those benefits still apply for young FI families with substantial assets?

    2. WOW!!

      Am I misunderstanding something or do you seriously get given $24,000 a year by the government just because you have 4 children?

      Here I was thinking welfare was a safety net for the needy!!

  17. Whoa! HappyDays – are you saying that if you have 4 kids, the government gives you $24K in welfare? Truly incredible!

  18. To all those people who are considering starting a business in something they are passionate about after reaching their FI number, I would say don’t wait! I know in my experience having started a business at a young age that you will be pleasantly surprised by the income you can generate when you are working on something you give all of your energy toward! With the added bonus of jumping out of bed in the morning to work on something you love!
    Clearly it helps to have a strong buffer prior to ‘taking the leap’, but I would hate to see the world miss out on all of these passion projects by people waiting 10 or 15yrs to do what they love.
    Working for yourself also allows some added freedom around family time!

    The property vs shares debate does seem endless, I think there is no doubt that purchasing high yielding assets (i.e. LICs) combined with a strong savings rate is the fastest route to FI, this all coming from a lifelong property investor. That said, either way you will reach your goal if you maintain that high savings rate, I just know that in my experience there is around a 3-4yr lag in reaching the FI number when using leveraged property vs the projected outcome of using high yielding shares. Not all bad when you love what you are doing, but regardless these are the facts!

    Great interview mate!

    1. Thanks for your thoughts James – great stuff!

      Should give those with a more entrepreneurial mindset a bit more to think about. As you say the financial backing can help build courage to go out on your own, but also there’s a danger that it gets put off longer and longer as you say.

      If you find work you really love that pays less, that’s a form of freedom already, so becoming 100% FI is less necessary – though it’s still extremely prudent to build a large pool of savings/investments as a backup plan and to provide further optionality and flexibility.

      Also, we’ve come to roughly the same conclusion regarding property vs shares. Great comment, thanks again!

  19. Hi Dave,

    Great interview. I have just finished reading Peter Thornhill’s book and still digesting its content and I am an noob when it comes to this sort of things hence the question. He reccommended to invest in Industrial Index. Are LICs like AFI, ARG etc. can be considered as industrial index? and secondly how can we diversity our investment when it comes to investing in LICs as we know there are overlapping shares that these LICs are investing too.

    1. Hi MHK. You might find more info in my interview with Peter Thornhill here.

      The old LICs that you mention invest mostly in Industrial shares. They do own some mining shares, but only the larger ones which pay decent dividends.

      There’s a decent amount of diversification in those LICs already – Argo owns 100 companies for example. But if you want more than that you could buy an index fund like VAS which has the top 300 companies. Or you could invest in international shares by buying something like VGS which has something like 1500 shares from developed countries across the world including the US, UK, Japan etc. Hope that helps.

  20. Great, in-depth interview! I’m of the same mindset as Michael when it comes to a preference for investing in shares over property. Despite what those ignorant of the stock market say about risks, I appreciate the “predictability of income from LICs” and their close equivalents I invest in, being Australian index fund ETFs through Vanguard. The quarterly ‘distributions’ in those Vanguard ETFs are pretty consistent, given that they are comprised of the dividends of many different corporations, so any fluctuations in individual business dividends tend to get smoothed out by others.

    I also don’t like the hassle of maintaining property and dealing with tenants. My financial independence philosophies are all about taking a simple approach and minimising stress around money. I want to enjoy both having enough funds to live on without worry, as well as not having hassle involved in holding/maintaining those assets – so index funds tick these boxes for me!

  21. Great interview Dave. Thanks!

    Not sure if Michael is still answering questions here but I’m wondering what strategy he used when investing in his LICs over the past 5 years. Did he make monthly deposits regardless of stock price? Or did he ever attempt to lower his cost base when the market dropped and plough more $$$ in during those times?

    1. Hi Scott

      I have a selection process that I use to buy shares, at the same time, I’m also aware of my limited ability as I’m not a great stock picker.

      Hence, I have always try to dollar average every month regardless of the price but always set money aside for opportunities. When there is a sudden “crash” in the market, I will buy aggressively. For Example, in the past few years, we had some “mini crashes” like Greek debt crisis, China manufacturing data showing slow down which made the market drop like 5% in one day. I have no idea how a Greek debt crisis can cause Lics to make less money but the price did drop and I see that as a buying opportunity.

      I always participate in SPP of Lics.

      I have been lucky in that I was able to purchase the likes of SOL at $12 and A2M at $1. It might seem expensive at the time but the quality more than justifies the price.

      So to summarise:
      1. I have my own stock picking process to buy non-lic companies ( I have achieved way more % return using this method, but I guess I have been lucky, the market only rewards those that are humble)
      2. I do buy every month regardless of price, mostly into Lic but recently have been looking at some alternatives such as high-quality AREIT.
      3. I will buy aggressively when there are opportunities (i.e. mini crashes)
      4. I participate in all SPP

      Hope this helps

      1. Thanks for your reply Michael.

        Your approach is pretty much what I’ve been doing as well. I hold too many stock picks for my liking right now and will be selling a few off when they reach a price I am happy with. I think it’s well worth having a stock pile of cash ready when such “flash crashes” occur to lower cost base if possible on LICs. I also have four ETFs (VAS, VTS, VEU, VAP) that I have pretty much left alone for quite a while now as I focus more on LICs.

        $12 for SOL is a brilliant price. I got in slightly later at $15.30. Cheers

  22. “But ultimately, I believe the most crucial factor in reaching FI is changing your mindset and the way you view risk. Most people believe property is safe and shares are risky. Nothing could be further from the truth. What I find hard to believe is most people just assume that and aren’t even willing to listen to another opinion.”

    I have a friend exactly like this. No matter what you tell them, they have already formed an opinion that the share market is a “casino”. No amount of discussion seems to change it either. It’s high risk to them, whereas property is perceived as low risk. For them property is like the second coming of Christ yet I have yet to see any of them make much progress financially. It’s all armchair criticism.

  23. Great read,

    There seems to be a general consensus that buying shares > IP for the purpose of reaching FI. Do you think there is an advantage of buying your PPOR and taking advantage of the FHOG and then purchasing shares after your first property purchase?

    1. Cheers David. I don’t think there’s a huge advantage of using the FHOG.. But instead, I’d base my home buying decision on whether it’s going to work out okay from a cashflow perspective vs renting – remembering to include all costs like rates, repairs, long term maintenance, interest rate increases, eventual selling costs and stamp duty again when moving later on.

      But there are emotional benefits with home ownership as well of course, so it’s more of a lifestyle decision than anything. If buying makes sense to you and you’re able to still have a solid savings rate afterwards then by all means go for it I reckon 🙂

  24. Stumbled on this post as a noob looking for FI. Michael’s journey and cultural background really resonates with me – also Chinese background, with young kids and full-time job. I want to spend more time with them while they are young rather than giving the best years of my life to the corporate rat race. I’m so inspired and want to read up on all the recommended LIC’s, Thornhill’s book and google all the acronyms that are still foreign to me!
    Keep up the great work on this blog, Dave. These stories are a huge motivator for ordinary people like us who thought retiring early was just for the rich.

    1. Awesome, thanks Zen! I love hearing people reading something and being motivated by it!

      Sorry about the acronyms by the way – if anything doesn’t make sense, just ask and I’ll get back to you. The main message of this blog is that Financial Independence is very possible for anyone who can manage to save a good portion of their wage and invest into income producing assets. And that turns out to be a lot of people – it’s just that for some reason we decide to blow our money or assume it can’t be done.

      Welcome to the community Zen 🙂

  25. Hi Mr SMA,
    Are you looking at a follow up with Michael soon.
    Loved the story wondering how he is going with investments and life/

    Regards
    Len

    1. I talk to Michael regularly 🙂
      He’s going well, still enjoying time with his wife and kids and focusing on his investments. Anything you’d like me to ask him?

    2. I ditto this comment. I came on here to ask if there would be a follow with Micheal as well. I really enjoyed this interview.
      I was wondering how early retirement is going for him and his family?
      Does he have the same investments/ investment strategy?
      Does he add to his investments to increase his passive income?
      Has he added any additional interests and hobbies from having more free time?

      1. Cheers mate. I’m not sure if there’s enough questions for a follow-up post, but I can ask him if he’d like to come and answer these queries for you guys 🙂

      2. Hi

        It’s been great so far. The biggest challenge for me so far is not financially but sometimes question myself am I wasting my life away. Financially we’ve actually moved ahead since the market has performed great for the last couple of years. so our net wealth has actually increased on paper.

        It can be hard sometimes coz your friends are all working and seem to achieve great things in career and life in general. Also, when you are working, you are always interacting with people/colleagues and now all of a sudden, you are just interacting with kids. Takes a while to get over this feeling.

        Besides that, life’s been great, recently bought yearly passes to AQWA/Underwater world and Scitech and we go there quite often now with kids. highly recommended if you have young kids and have plenty of time.

        Wife still supportive but we have conversations now about perhaps starting a new career or do some part-time/casual work once kids all go to primary school, which is still many years away.
        Dont really know, but guess the lucky thing is we don’t need to know…. FIRE gives you options…

        In terms of investment strategy, it hasn’t changed one bit, I still believe shares will deliver a far superior return over the long term, we still buy shares regularly using money from offset account whenever I see the opportunity (even tho the price is not as attractive compared to a year ago). But my rules are:
        1) Invest regularly
        2) Lics and Index are the ideal investments
        3) If Lics are trading at discount, I will usually buy Lics, otherwise index is the way to go
        4) I still hold some individual companies, but have started trimming some big winners such as A2M and put money into Lics to bring more income

        Out of Lics, I see QVE as an attractive option and have been adding QVE because of the following
        1) Managed by a reputable investment manager and a reasonable fee
        2) they have been hammered due to out of favour Value strategy used by QVE, hence trading at a significant discount
        3) The discount to NTA indicates to me that the market is expecting QVE to underperform in the foreseeable future, which is likely but the discount gives us a good margin of safety, I see potential upside but limited downside to QVE
        4) Dividend looks sustainable
        5) Very often in markets, good quality decisions does not equal to favourable outcomes, and rational decisions certainly do not equal to rewards, but over the long term, it will do reasonably well, this is the case with QVE, so over the long term, I believe it will do OK.

        Property is still a no no for me, Perth might be the bottom of the cycle but no one knows how long it will stay at the bottom, a 3-4% increase PA over the next decade does not mean its a good investment and to be honest, I couldn’t care less. The fundamental issues with properties really put me off. Poor and unpredictable cashflow, high transaction cost, ridiculous yield, regulatory risks, constant and never-ending maintenance issues etc…

        Besides spending time with kids, I also read more and also spend more time on healthier diets and exercise, my goal is to lose 10Kg this year. Also been thinking of starting a blog, maybe a bilingual one, since most Chinese are property obsessed and think of shares as a casino. But let me guarantee you, Once you get over the fact that shares are not a gamble and share market is not a casino, you will never look back.

        lastly, investing is simple but not easy, read this article this morning…..

        https://www.businessinsider.com.au/this-asset-manager-thinks-an-australian-property-calamity-is-coming-so-he-sold-all-the-firms-shares-2017-5

        He just missed out on a potential 30% gain, you only need to miss a few 30% gain in your investing life and your return will deteriorate significantly.

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