Speaker 1: Hello, and welcome to the Australians Money Puzzle Podcast. I'm
Speaker 1: James Kirkby, the Wealth editor at The Australian, and welcome
Speaker 1: aboard everybody. I hope you're having a good break and
Speaker 1: I wish you a good holiday season and a prosperous
Speaker 1: new year. And speaking of prosperity, there's a show I've
Speaker 1: wanted to do all year. It's about the Fire Movement
Speaker 1: FIOR in this case that means financial independence, retire early.
Speaker 1: We did some coverage of it during the year midyear
Speaker 1: on the Money Puzzle Podcast and we were, I suppose
Speaker 1: more skeptical and enthusiastic about the concept, and for a
Speaker 1: variety of reasons, but the core reason was that we
Speaker 1: were of the opinion that it's just not that easy
Speaker 1: to do that. And some of the pitches, if you like,
Speaker 1: on the Fire movement, though people are so interested in
Speaker 1: it and so enthusiastic about it, but some of the
Speaker 1: pitches that I had come across about it, the presentations
Speaker 1: I just thought were a little bit making it sound
Speaker 1: too easy and perhaps could to some extent exploit naivety.
Speaker 1: Now I wanted to get someone to come on. Now.
Speaker 1: The thing on the show we'll talk about it. The
Speaker 1: thing about fire movement is it's a movement. It is
Speaker 1: a set of principles. There is no fire. I can't
Speaker 1: go downtown and take you to the local branch of
Speaker 1: the local office. There's no headquarters in Geneva or Washington.
Speaker 1: It's a concept, it's a set of principles. But I
Speaker 1: did want to get someone to talk about it, who
Speaker 1: to whom it had made a difference, someone who was
Speaker 1: also to some extent and financial educator and could articulate
Speaker 1: its main ideas. And I have found the very person
Speaker 1: for the exercise. His name is Lyone Lee. He is
Speaker 1: a intern national investment operator. He works with a group
Speaker 1: called invest Unite and they are asset managers here and
Speaker 1: across Asia. I'm speaking to him actually in Soul. He
Speaker 1: lives part of the year in Melbourne and delighted to
Speaker 1: have him on the show. Lion Lee, how are you?
Speaker 2: I fine, Thank you, thanks for having me on the
Speaker 2: Australian Money Puzzle, James. It's an honor to actually be
Speaker 2: on your show.
Speaker 1: You're very welcome, Delighted to have you. Delighted to find
Speaker 1: you after some efforts to try and get what I
Speaker 1: thought would be the ideal gift. So I explained there
Speaker 1: about how our listeners were very interested in the Fire movement.
Speaker 1: But when I was talking to you earlier, and I
Speaker 1: was struggling even still to try and grab this because
Speaker 1: I'm the sort of person who wants I want to
Speaker 1: see this sort of tangible evidence that it exists. I
Speaker 1: want to see its charter and its rules, and I
Speaker 1: want to see a sort of hierarchy. But that doesn't
Speaker 1: really exist. Does that's a concept?
Speaker 2: Yes, I'm very similar to yourself, you know. I like
Speaker 2: information that's practical and that's useful, you know, especially if
Speaker 2: we're addressing listeners who are just to some extent depending
Speaker 2: on your podcast to understand what's really happening in the
Speaker 2: Australian economy, financial markets as well as in their personal
Speaker 2: financial world. So to keep it simple for listeners, Fire
Speaker 2: basically just focuses on extreme savings and investing, which a
Speaker 2: goal to retire much earlier than usual. So I'm just
Speaker 2: summarizing everything that's talked about Fire, you know, in the
Speaker 2: World Wide Web and also in Australia.
Speaker 3: Essentially it is.
Speaker 2: A movement, has no headquarters, there's no branch, there's no chapter,
Speaker 2: and it was popularized by a book that's called Your Money,
Speaker 2: All Your Life back in nineteen ninety two.
Speaker 3: The other thing to know is fire.
Speaker 2: Doesn't originate from Australia, so it's not aussy concept. It
Speaker 2: originated in the US. The book is an American book,
Speaker 2: the authors are American and over there, I guess over
Speaker 2: the years and also in some nation. Some traits of
Speaker 2: fire that you might come across in your conversation with
Speaker 2: our Australian listeners is that typically those who subscribe to
Speaker 2: the Fire movement, they say between fifty to seventy five
Speaker 2: percent of their income, that's what they're aiming to do.
Speaker 3: They might tick up extra jobs. Some might talk about, you.
Speaker 2: Know, delaying major spending events in order to be able
Speaker 2: to save and invest with the goal of retiring earlier
Speaker 2: than usual. So earlier than usual here to me, we
Speaker 2: just mean before the statutory retirement age.
Speaker 1: So you tuned into this pretty early, right, because Your Money,
Speaker 1: Your Life, which is sit out there, of course needs
Speaker 1: to say revised and updated dasy. It's by Vicki Robin
Speaker 1: and Joe Denis, published in the UK, was a best
Speaker 1: seller at the time and remains always available. Tell me
Speaker 1: you tuned into this quite a long time ago. It
Speaker 1: was pretty fresh idea at that time, in the nineteen nineties.
Speaker 1: When you first came upon the idea, what was it?
Speaker 1: What tell us they talk about nine steps to transforming
Speaker 1: your relationship with money? What were the key aspects of fire?
Speaker 1: The principal is the fire that attracted you.
Speaker 2: So I came across Fire actually many years after it
Speaker 2: was published ninety two. So my engagement, I guess with
Speaker 2: the principles was in the late nineteen nineties when I
Speaker 2: was working with the US market. So that's actually where
Speaker 2: I came across the whole concept of fire. The community
Speaker 2: of the Fire Committee wasn't really there yet, but you know,
Speaker 2: it was building up steam. So again for the benefit
Speaker 2: of listeners who are new to fire, and without trying
Speaker 2: to confuse them with the many permutations of fire that
Speaker 2: have taken place over the years, that four basic principles
Speaker 2: that I've extracted from all of that. So the number
Speaker 2: one is what they call the fire number. Essentially, that
Speaker 2: number is just an estimate of how much you'll need
Speaker 2: to retire, and the way in which the fire community
Speaker 2: derives that number is by multiplying your annual expense by
Speaker 2: twenty five. So let's say if our annual expense is
Speaker 2: eighty thousand dollars, you know, as a couple, then your
Speaker 2: fire number is just simply two million. It's is eighty
Speaker 2: thousand times twenty five. The second principle I took away
Speaker 2: is the four percent role states simply how much you
Speaker 2: can withdraw from your retirement fund in the first year,
Speaker 2: and then every subsequent year that amount is.
Speaker 3: Adjusted for inflation.
Speaker 2: So if we use the couple that has two million
Speaker 2: dollars again in the first year of retirement, that cup
Speaker 2: or we'll be able to only withdraw a maximum of
Speaker 2: edy K. That I extracted from the principles and the
Speaker 2: concept and the movement that I felt was practical to
Speaker 2: some extent is that the Fire movement and fire followers
Speaker 2: prioritize setting up your emergency fund before focusing on investing,
Speaker 2: and that fund should be three to six months worth
Speaker 2: of savings.
Speaker 1: You're going through the tape there is very useful, but
Speaker 1: I think I have to say it seems to me
Speaker 1: that's the hardest thing. Yes, where people have very little
Speaker 1: money and they want to think about investing, the last
Speaker 1: thing they're going to be able to do was put
Speaker 1: away a few months worth of money.
Speaker 3: Yes, and I agree as well.
Speaker 2: It is challenging because you're trying to save and I
Speaker 2: want to say invest, you're probably trying to save and
Speaker 2: pay down some of.
Speaker 3: Your big expenditure at the same time.
Speaker 2: I think that's what a lot of listeners are probably
Speaker 2: finding them, especially more so today with you know, higher
Speaker 2: cost of living, inflation, all the variety of wolves that
Speaker 2: are making it tough to be an Australian today. But
Speaker 2: there are ways to actually, I guess, get around or
Speaker 2: find a balance, and.
Speaker 3: I guess before going to the fourth principle.
Speaker 2: One recent example was a conversation I had with an
Speaker 2: individual in Ballarat, Victoria, and he was trying to actually
Speaker 2: build his emergency fund while trying to pay down his
Speaker 2: mortgage at the same time. Like that's a really tough
Speaker 2: thing to do, right, but that is the reality.
Speaker 3: So what we came up.
Speaker 2: With as a solution was, look, if we combine the
Speaker 2: emergency fund together with an account that actually allowed him
Speaker 2: to pay down his mortgage, he would get the best
Speaker 2: of both wolves combined into one. So we found that
Speaker 2: solution and using a offset account and a redraw facility,
Speaker 2: so she's emergency fund would still be intact. He would
Speaker 2: still be built that fund, but as he is adding
Speaker 2: more money to that emergency fund, he said, it is
Speaker 2: actually actively being down his principal on his mortgage.
Speaker 1: Okay, so now what we will do. We'll go let
Speaker 1: you to continue those principles. We'll take a short break
Speaker 1: and I'll let you roll on where you were getting to. There.
Speaker 1: You had four. I think us You've given us four
Speaker 1: and you can give us the rest after the break.
Speaker 1: I'm sure people will be very keen to hear what
Speaker 1: they are one moment. Hello, Welcome back to The Australian's
Speaker 1: Money Puzzle podcast, our special podcast on the fire movement
Speaker 1: fior E Financial Independence, Retire Early. It's a concept, it's
Speaker 1: a movement around the world. It captures the imagination of
Speaker 1: many people there are. One of the reasons I wanted
Speaker 1: to do this show, especially at during the Christmas break,
Speaker 1: was because it's something that you kind of stand back
Speaker 1: from the day to day and think about and I
Speaker 1: think it captures, as I say, the imagination of many Australians.
Speaker 1: It's a little bit hard to grasp. It's even harder
Speaker 1: to get a handle on who and who's in it
Speaker 1: and how it works. There are meetings around the country
Speaker 1: from Cooler roy to Melbourne, CBD. I've come upon on
Speaker 1: the internet. There are many different organizations. No one owns
Speaker 1: it and there is no one person who can say
Speaker 1: they are in charge of it or the chief spokesman
Speaker 1: for it. But today's guest on the show is Lionel Lee.
Speaker 1: In the first segment, he was just starting to outline
Speaker 1: some of the key principles. You might just tell us
Speaker 1: the rest of the key principles of the Fire movement.
Speaker 2: No problem, Yeah, I'll just leave our listeners with the fourth.
Speaker 2: And essentially the fourth principle is just that you're considered
Speaker 2: finding independent and you can retire early if you wish,
Speaker 2: once your passive income generates enough to cover your basic
Speaker 2: living expenses. So that's the fourth principle that I took
Speaker 2: away from the Fire Movement that I felt was useful
Speaker 2: and practical for my personal financial needs.
Speaker 1: Now, the other thing, the last one, which sounds you know,
Speaker 1: sounds so sensible, where you know you get to the
Speaker 1: point where your passive income covers your expenses. Yes, that
Speaker 1: is a lot harder than it sounds.
Speaker 3: Yes, and I totally agree with you.
Speaker 1: What do people in the Australian market generally use for
Speaker 1: passive income to cover their expenses. Is it property? Is
Speaker 1: it share market investing? What is it ETFs? What do
Speaker 1: they use?
Speaker 3: The Australian market is fairly narrow.
Speaker 2: In its use of a variety of financial instruments to
Speaker 2: create passive income. So I would have to say that
Speaker 2: majority of moms and pubs, you know, even the young
Speaker 2: adults who are listening in generally head towards roastate, So
Speaker 2: roal state becomes the common passive income tall instrument or generator.
Speaker 2: That then, of course there are those that are invested
Speaker 2: in the ESSEX so those drum stock, exchange and market,
Speaker 2: and folks of course having fixed income as well that
Speaker 2: would include you know, some cash, maybe bonds, term deposits.
Speaker 3: Generally those are the treaming asset classes.
Speaker 2: I'm not going to show in things like you know,
Speaker 2: digital assets like crypto and stuff like that, but traditionally
Speaker 2: those are the three asset classes that majority of our
Speaker 2: Austrian listeners have ther moneies in and are using to
Speaker 2: generate passive income.
Speaker 1: Okay, now, can I just say to you the challenge
Speaker 1: to me is that this goes really slowly. If I
Speaker 1: have it in cash, it's three or four percent. If
Speaker 1: I have it in property, the yields are two or
Speaker 1: three percent net. If I have it on the share market,
Speaker 1: the Australian share market, the dividend y is about four
Speaker 1: and a half. It's going to be a long time
Speaker 1: before that passive income. This is why I'm so skeptical.
Speaker 1: Not that I completely admire the individual listeners aspiration to
Speaker 1: achieve this, but I need to be I feel we
Speaker 1: need to sober up on how long and how hard
Speaker 1: it is to achieve this. Is there anything you know
Speaker 1: that I don't know that makes it easier than it sounds.
Speaker 2: I agree with you, James, it's not easier than it sounds,
Speaker 2: given I wouldn't even as a it's not finance educator,
Speaker 2: you know, and I teaching USDs not just in Australia
Speaker 2: but also also in Australia. I've been a guest speaker
Speaker 2: at private client events you know that are organized by banks,
Speaker 2: financial institutions, wealth managers.
Speaker 3: I always tell the audience it is not easy, even
Speaker 3: though I'm being used at a reference.
Speaker 2: So I'm sure that in your Google search background search
Speaker 2: of myself, it probably pops up that I'm one of
Speaker 2: those individuals who went from being an employee to an
Speaker 2: ultra high network and therefore managed to fire by age fourt.
Speaker 1: You never had a fixed salary. You didn't do it
Speaker 1: on a fix.
Speaker 3: I did it partly on a fix.
Speaker 2: I I was an employee, and when I started, like
Speaker 2: most of the other folks, I didn't come from a
Speaker 2: wealthy family. I didn't have any inheritance, so it's purely
Speaker 2: hard work. So I totally agree and I support you,
Speaker 2: James in your statement to listeners that it is not
Speaker 2: a quick fix. Is not that an easy thing to do.
Speaker 3: It requires time and commitment.
Speaker 1: So that's and lifetime commitment.
Speaker 2: Yes, that's right, and that's something that I had to
Speaker 2: do for myself. So you know, there's a couple of
Speaker 2: things that even though I encountered the fire movements, I
Speaker 2: said early so in the late nineteen nineties, I didn't
Speaker 2: think that everything that I picked up was useful, practical
Speaker 2: and I could actually implement because there were things that
Speaker 2: were missing. So what was missing was what I actually
Speaker 2: picked up in my course of work. So I worked
Speaker 2: in an investment holdings company. I actually have to travel
Speaker 2: the international market, so I worked in twenty class markets.
Speaker 3: I worked with.
Speaker 2: Ten more than ten industries, and what I've learned in
Speaker 2: engaging with those corporations, family enterprises, family officers, as well
Speaker 2: as the ultra high network individuals is how they manage
Speaker 2: and drew their wealth. So for them, it wasn't about
Speaker 2: fire because they didn't need to talk about fire.
Speaker 3: It was more of how they were actively getting wealthy.
Speaker 2: So I combined what I learned with fire and what
Speaker 2: I learned from interacting with the individuals that had a
Speaker 2: much larger wealth base what the journey need to look like.
Speaker 2: So I realized and number one, I had to up
Speaker 2: my earnings. So if I had if my earnies didn't
Speaker 2: go out and I was just looking to save more
Speaker 2: and invest more, I wouldn't have a compounding effect. So
Speaker 2: I need to up my savings after my earning. So
Speaker 2: the more I earned, the more I could see. So
Speaker 2: when I started working, you know, I only had one
Speaker 2: thousand eight dollars a month. That was my salary where
Speaker 2: I started working back in the late nineteen ninety So
Speaker 2: I started working nineteen ninety five one thousand and eight.
Speaker 2: I was a bit more fortunate because I was traveling extensively.
Speaker 2: I could save a lot of my income. So I
Speaker 2: maysed a safe at best seventy percent of that monthly
Speaker 2: income and I.
Speaker 1: Would sorry, sorry, seventeen.
Speaker 3: So I managed to save seventeen seven zero.
Speaker 1: You were able to save seven zero of your income, Okay, But.
Speaker 2: I need to disclaim to our listeners that I was
Speaker 2: fortunate because I was traveling extensively, so I didn't have
Speaker 2: a lot of expenses, right, And also I was working
Speaker 2: seventeen hours a day, seven days of week, so I
Speaker 2: had no time to go, you know, to the pub
Speaker 2: yeah at night, for example, So I had very little
Speaker 2: social life as well. So that allowed me to save
Speaker 2: seventy percent. But what I did with the seventy percent,
Speaker 2: The first thing I did was to actually find any
Speaker 2: kind of savings instrument that would give me the highest
Speaker 2: interest rate and I would actually put it in. So
Speaker 2: I just went for therm deposits. I went firm deposit hunting,
Speaker 2: you know, every time I had three time between well,
Speaker 2: I would go look for therm deposits and I would
Speaker 2: just keep kept I just kept putting money in there
Speaker 2: because at that stage of life, I was not in
Speaker 2: a present doingvest I couldn't afford to lose the small
Speaker 2: meager amounts ahead.
Speaker 1: Okay, and is that a fire principle that you start.
Speaker 1: I suppose in terms of getting that emergency money at
Speaker 1: the start, you have to say you can't gamble that
Speaker 1: you have to save it. Yeah, okay, that's right.
Speaker 3: Yeah. So I applied Prince one on a tree.
Speaker 2: Right, I applied princes one of the three without just
Speaker 2: look at it as a mergency fund. I looked at
Speaker 2: it also as a fund that would grow that savings.
Speaker 3: Right.
Speaker 2: So many of the times when you did my emergency fund,
Speaker 2: we just opened a bank account and just kept keep
Speaker 2: putting money in there. But it doesn't grow at a
Speaker 2: high interest rate. So I had to look for the
Speaker 2: high interest rate accounts. In this case, when I was
Speaker 2: doing it, there weren't high yel savings accounts. So the
Speaker 2: best thing I could find was turn deposits. So I
Speaker 2: just went from M deposit the TM deposit every time
Speaker 2: interests read increased from the issue. So I did that
Speaker 2: for a while and then that actually up my savings.
Speaker 2: So that also gave me a buffer to start thinking
Speaker 2: about investing.
Speaker 1: I know you're just a sample of one, but when
Speaker 1: you did begin investing, as someone to which the adherence
Speaker 1: to the Fire movement and its principles has really worked.
Speaker 1: And beyond the term deposits, then what was your first
Speaker 1: sort of foray into an investment meant beyond saving?
Speaker 2: Yep, So I did actually what every other I guess
Speaker 2: the average Aussie would do, which is go buy home.
Speaker 2: So my first investment was actually using the term deposits
Speaker 2: to save enough to actually put a down payment on
Speaker 2: a property. So that's what I did. So it's not
Speaker 2: you know, sexy stuff, it's not rocket science. Everyone else
Speaker 2: does the same thing. So I did that, and so
Speaker 2: that actually started my investing I guess journey. And also
Speaker 2: I started looking at the stock market as well, so
Speaker 2: public equities being another asset class that I encountered during
Speaker 2: my work, so I get the chance to learn more
Speaker 2: about it, and also then added some of that money
Speaker 2: to buying stops as well. But I'm not a trader,
Speaker 2: so essentially I'm looking to build my investment returns over time,
Speaker 2: and I want to make sure that those investment returns
Speaker 2: do not get half along the way so it builds
Speaker 2: up steady. So I don't go after the high risk,
Speaker 2: high return stuff. I look for stocks and shares that
Speaker 2: allowed me to get a certain level of dividend at
Speaker 2: the same time, it also has capital gains over a
Speaker 2: long period of time, so unforced stables or staples with
Speaker 2: my stocks and shares, and of course with the travel,
Speaker 2: I engage with different markets, so that also allowed me
Speaker 2: to think about diversifying my stocks.
Speaker 3: Into different exchanges versus just one stock market.
Speaker 1: Do you did any individuals in exchange not not exchange
Speaker 1: traded funds? No, I mean ETFs? Is that part of your.
Speaker 3: Yeah, we're talking about the Yeah, so I wasn't. I
Speaker 3: wasn't using ETFs.
Speaker 2: I still don't personally have ETFs because I based on
Speaker 2: the stock portfolio that I've worked on myself over time.
Speaker 2: It's behavior like an ETFs. So I created my own
Speaker 2: et before ETFs were available. I'm not saying that I'm smart.
Speaker 1: You know, I understand the concept and it's a very
Speaker 1: strong concept, but I imagine that it was very much a
Speaker 1: blue chip portfolio.
Speaker 3: Yes, if you're looking.
Speaker 1: For dividends as well as each time. Okay, very good,
Speaker 1: So interesting. First of all, the emergency fund, then the savings,
Speaker 1: then the home then this sort of slow but gradual
Speaker 1: opening out of your investment. For the trio into investment markets,
Speaker 1: including the share market. Very interesting. Okay, now I'll take
Speaker 1: a break and I want to sort of stress test
Speaker 1: the whole concept with you in the final segment. Back
Speaker 1: in a moment, folks, Hello and welcome back to The
Speaker 1: Australian's Money Puzzle podcast. I'm James Kirby and I'm talking
Speaker 1: to Lyon Lee and we're talking about the fire movement.
Speaker 1: I already financial independence retire early something that really captured
Speaker 1: our listeners imaginations during the year and I wanted to
Speaker 1: do a special episode on it. Lionel Is is in
Speaker 1: the investment markets. He's also a financial educator. He's done.
Speaker 1: He also does some work in education, financial education in
Speaker 1: universities and schools. As you can have heard from the
Speaker 1: first segments, it's a very articulate advocate. And look, Lionel
Speaker 1: I just wanted to throw one or two things at you.
Speaker 1: I'm sure you're gonna I'm sure you're gonna have good
Speaker 1: answers for all this. But there's two or three things
Speaker 1: I want to ask about. First of all, in our
Speaker 1: own market in Australia, everybody has to put eleven and
Speaker 1: a half percent of their savings into super by law mandatory,
Speaker 1: which is good, but it's also a problem in some
Speaker 1: fashion of those One of those ways is that if
Speaker 1: money is tight, as it is for many people, and
Speaker 1: you already have to put eleven and a half percent
Speaker 1: into your retirement, whether you like it or not, right
Speaker 1: by law you must do. It's mandatory. Superinnovation guarantee charge.
Speaker 1: Does that dieluse or in some way side step the
Speaker 1: needs to follow the fire movement.
Speaker 2: I don't think there's actually it doesn't really side step
Speaker 2: the need to follow the fire movement. I think one
Speaker 2: point of clarification is we are not encouraging listeners to
Speaker 2: follow the fire movement. I think my opinion is you
Speaker 2: should use what you understand about the fire movement as
Speaker 2: a guiding light and then apply what you feel works
Speaker 2: for you to actually achieve your personal financial goals, whatever
Speaker 2: those goals might be. Some people are not looking to
Speaker 2: retire early. They just want to financial independence. They just
Speaker 2: want the fire side, but not the resuide, right, So
Speaker 2: it's really up to the individual. But coming back to
Speaker 2: super anyway, I am a fan of superannuation because there
Speaker 2: are many fellow of students out there who are not
Speaker 2: in a habit of saving superneration to me, is a
Speaker 2: form of forced savings. And I know that eleven percent
Speaker 2: is you know, it's a tough fee, but it is
Speaker 2: still a benefit for those who are not in a
Speaker 2: habit of doing so, and that helps with not so
Speaker 2: much definement, but that helps with their retirement because at
Speaker 2: least we know that at some point in time, what
Speaker 2: whenever they decide to retire, whether it's before after the
Speaker 2: statutory retirement age, they do have some funds they're.
Speaker 3: Waiting for them to live off and to enjoy life with.
Speaker 2: I think that the issue I have with the super
Speaker 2: annuation is more of the fact because it is seen
Speaker 2: as passive. You know, every you know, my eleven percent
Speaker 2: goes there, it takes care of itself. The answer is
Speaker 2: it doesn't, so you have have to. And again I
Speaker 2: just repeat myself to listeners. You have to because it's
Speaker 2: your money. Pay attention to a super and look for
Speaker 2: just like I've done with you know, my meager salaries
Speaker 2: when I started looking for hi yo returns from savings
Speaker 2: and term deposits, you should approach the super returns in
Speaker 2: the same way. Look for ways to actually up your
Speaker 2: super returns because every percentage counts due to compounding, and
Speaker 2: over time, that small percentage increase compounds to a large
Speaker 2: dollar number at the end of twenty twenty five or
Speaker 2: thirty years or even thirty five years for many young
Speaker 2: and middle age Australian.
Speaker 1: We shouldn't underestimate the power compoundings. And it's a key
Speaker 1: thing obviously in the Fire movement, that whole thing that
Speaker 1: basically time in the market, rather than timing the market,
Speaker 1: which is so important. Can I ask you about that?
Speaker 1: Of course, more part of fire is, as you say,
Speaker 1: the second part of it. The first part is financial independence.
Speaker 1: The second artists retire early. Super doesn't allow you to
Speaker 1: retire early. You can't get your hands on your super
Speaker 1: until you retire, So to that extent, it's not very
Speaker 1: good from that perspective. What about borrowing? What's the approach
Speaker 1: in relation to borrowing, because borrowing at its best obviously
Speaker 1: can magnify and accelerate wealth building.
Speaker 3: Yes, so I think the word borrowing and the other word.
Speaker 2: That comes to mind would be leverage. So boring and
Speaker 2: leverage they are. They might sound similar, but they're not
Speaker 2: the same. So I think when we use the word borrowing,
Speaker 2: most people are actually boring to get into debt.
Speaker 3: So boring and.
Speaker 2: Debt I mean like good buddies, which is not good
Speaker 2: for the individual. So I cannot use the word borrowing
Speaker 2: because it paints the picture of you know, you borrow
Speaker 2: our consequences. It's like buy now, pay later, right, so
Speaker 2: it's a car borrowing. Prefer to use the word leverage.
Speaker 2: I prefer listeners that think about leverage because liverage means
Speaker 2: that there's an active, positive approach that you're taking to
Speaker 2: the borrowing. So if you are liveraging assets, you know
Speaker 2: you're liveraging your cash to actually then acquire more income,
Speaker 2: generating gains generating assets, then yes, I would say, you
Speaker 2: know there's something you should do, which is what I did.
Speaker 1: So for example, you're talking about active tax deductible investment
Speaker 1: only investment focused if borrowing, I e. Leverage. Is there
Speaker 1: any guidelines as to how much or how little someone
Speaker 1: should engage in that?
Speaker 2: I don't really have a prescription. I would say that
Speaker 2: really depends on your circumstances. So the way I want
Speaker 2: to look at it just to provide some kind of
Speaker 2: guide to listeners who are thinking about this, and I
Speaker 2: don't want them to actually start doing it and get
Speaker 2: into you know, a fix I become debt ridden is
Speaker 2: that firstly, look at how much cash base you has.
Speaker 2: The cash base is essentially your protection against leveraging too much.
Speaker 2: That means that you are able to repay down some
Speaker 2: of that liverage to be in a position whereby you
Speaker 2: are actually not bleeding your financially. Then also look at
Speaker 2: the cost of liverage. For example, if I were to borrow,
Speaker 2: you know, let's sorry, let me let's go back to
Speaker 2: I own it properly, right, So I properly has a
Speaker 2: lot of equity over maybe the ten, fifteen, twenty years,
Speaker 2: I'm looking to borrow on that equity. That boring is
Speaker 2: not free. It is leverage, but it's not free.
Speaker 3: So if you.
Speaker 2: Are actually taking equity out at a high interest, then
Speaker 2: your liverage becomes really costly. So the cost of liverage
Speaker 2: is important because if you are safe, for example, taking
Speaker 2: equity out and lost you six percent, but you're putting
Speaker 2: it into something else that only gets you five percent,
Speaker 2: you're losing one percent, So you have to be rich.
Speaker 2: So the other thing you think about is.
Speaker 1: The cost working. Okay, yeah, so do your numbers carefully,
Speaker 1: and the numbers.
Speaker 2: Move exactly exactly that's right, and so you have to
Speaker 2: pay attention. Right, You can't just sit back and think, Okay,
Speaker 2: the banks, you know, the financial institutions, my my grocal
Speaker 2: will take care of everything.
Speaker 3: They don't.
Speaker 2: So if you've got money, and you know any kind
Speaker 2: of assets, well.
Speaker 3: So you've got money. You need to take care of
Speaker 3: your money.
Speaker 2: You need to pay attention. You need to find ways
Speaker 2: to get that money. However little or much you have
Speaker 2: to work better for you.
Speaker 1: It sounds like the idea of set and for guests
Speaker 1: is not your idea.
Speaker 3: No, do not ever set and for Yeah, yeah, I
Speaker 3: like that.
Speaker 1: I like that don't set and forget. I completely agree
Speaker 1: with you. Okay, it's very interesting. I really like how
Speaker 1: you've presented all this. Just one last thing about fire
Speaker 1: and the fire movement, and I wanted to ask, what
Speaker 1: if things go wrong? So somebody has a plan and
Speaker 1: they really are serious and they start and they say, Okay,
Speaker 1: I'm going to do this. I'm going to really do this.
Speaker 1: I'm going to adhere to this and it's not my
Speaker 1: New Year's resolution. I'm going to do this for years.
Speaker 1: I'm going to follow the basically, I'm going to get
Speaker 1: my emergency funds started so that I can cover emergencies
Speaker 1: of whatever they may be. It might be a surprise
Speaker 1: health bill, it might be that the interest rates went
Speaker 1: up and I have to pay more per month. But
Speaker 1: they've covered that and they've got there, They've got their plans,
Speaker 1: and they have their age in mind that they'd like
Speaker 1: to achieve financial independence. What do you say to people
Speaker 1: when things really go wrong? They buy a bomb property
Speaker 1: it was asbestos in the building, or they were in
Speaker 1: the share market. They'd never been in the share market,
Speaker 1: and guess what, there was a crash, you know, six
Speaker 1: months after they start. How do people get through those hurdles.
Speaker 2: To answer that question, I guess to our satisfaction and
Speaker 2: making it practical for listeners, I would say, first see,
Speaker 2: we need to think about two things. Number one, it
Speaker 2: is possible to fire. I'm like I said, I'm not
Speaker 2: advocated for fire. The way I approach it is I
Speaker 2: look at fire and wealth management as a combination. So
Speaker 2: I like to use with fire wealthy. That's what I
Speaker 2: share with my students. And I know it's possible because
Speaker 2: I've done it, and there many other people who have
Speaker 2: done it. That's why we've got so many high network
Speaker 2: individuals and ultra high networth individuals in Australian. The other
Speaker 2: thing that's important to think about fire is networth. So
Speaker 2: that's how I approach fire. I approach file from building
Speaker 2: my networth. And the reason why I use that word
Speaker 2: and I repeat the word networth is because building networth,
Speaker 2: or getting our listeners to be in the mindset of
Speaker 2: building networth, means that they are looking at actively taking
Speaker 2: steps and those steps are positive to actually save to invest,
Speaker 2: you know. And also it's not just saving an investing,
Speaker 2: which is what fire talks about, but it forgets that
Speaker 2: you have to work better, you have to earn better,
Speaker 2: you also have to spend better in order to meet
Speaker 2: your savings and investment grow because it all what's hand
Speaker 2: in hand. They're all good friends, right, it's having It's
Speaker 2: like having a platter, a beer platter, right, So instead
Speaker 2: of just enjoying an ale or it's out, you've got
Speaker 2: the you've got the best alos. And at the same time,
Speaker 2: you need to understand how the world money works. So
Speaker 2: what I term the money verse because procular fire independent
Speaker 2: of the money verse is actually something that that doesn't work.
Speaker 2: It has to be together. So that's what our listeners
Speaker 2: they lack. And that's a comprehensive understanding. So why did
Speaker 2: I Why am I saying this is because when they
Speaker 2: do this, the chances of them actually failing will be
Speaker 2: much lesser. So that's the first So that's the first seconds.
Speaker 2: What happens when you know we've done everything right and
Speaker 2: the universe is against us, and it happens. I've livedal
Speaker 2: the Asian financial crisis, so you know, I'm not that young.
Speaker 2: I've experienced sas before I experienced the financial crisis. You know,
Speaker 2: all these were major slaschhammers on my portfolio.
Speaker 3: What I did.
Speaker 2: When I was thinking about my journey, my own personal
Speaker 2: finance journey and building my network, was that what if
Speaker 2: these things happened and I predd the markets going down?
Speaker 2: So when I looked at the fourth suppose that I shared,
Speaker 2: what I did practically was to actually change the principles
Speaker 2: to to adjust for these unfortunate circumstances. So when I
Speaker 2: mentioned about the retirement amount, you know your annual expertsis
Speaker 2: time twenty five, I actually used a much higher number.
Speaker 2: I used more than twenty five. I actually applied more
Speaker 2: than four percent in my calculation and not only that,
Speaker 2: I actually added in inflation, and I added in hyperinflation
Speaker 2: in my own calculations as well, So the final number
Speaker 2: that I adjusted for myself a day was much higher.
Speaker 2: Source meant I had to work harder, I had to
Speaker 2: work better, I had to earn better, you know, up
Speaker 2: my earnings. So all of that provided me with the
Speaker 2: ability to buffer all the different I just pecups in
Speaker 2: the financial markets. But also the other thing I remember
Speaker 2: is everything in the universe is psychical, meaning that when
Speaker 2: the financial markets go down, they will rebound as wells
Speaker 2: just like the elevators. Right, what goes up comes down,
Speaker 2: what goes down goes up. So the important thing is
Speaker 2: to be able to be in a position. I'll make
Speaker 2: sure that you're in a financial position to actually sit tight,
Speaker 2: right and they're trying to sit out, and.
Speaker 3: Don't go jumping around doing crazy things. What is it
Speaker 3: crazy things?
Speaker 2: I mean, you know, start you know, liquid eating there,
Speaker 2: selling there, and put yourself in a more challenged financial position.
Speaker 2: When the markets recover, then you are actually even more
Speaker 2: backward than you were.
Speaker 1: Okay, all right, I like your approach. You've you've certainly
Speaker 1: convinced me much more than I had been like.
Speaker 2: My obtele doctor to convince you, but it was just
Speaker 2: a Michelle listeners.
Speaker 1: Well you have, you have, you have, And I think
Speaker 1: what we needed to do we needed to get a
Speaker 1: show where we spelled it out and we've stress tested
Speaker 1: it and we really laid it out and I think
Speaker 1: you've done that very well. So thank you very much
Speaker 1: for coming on the show. Line Lee. Great to hear
Speaker 1: from you.
Speaker 3: It's my pleasure. James, Yeah, thanks for having me.
Speaker 2: You know, it's great to be able to chat with
Speaker 2: one of Australia's most experienced financial journalists. You know, I
Speaker 2: also contribute to articles to various news media you know,
Speaker 2: in around the world, but I must see that I
Speaker 2: do not have the wealth of journalism that you have.
Speaker 3: So you're definitely a role model for me.
Speaker 1: There you go, Well, there's a career. There's a career
Speaker 1: for you. There's a career for you journalism should you
Speaker 1: ever wish to do so. Okay, folks, that was not
Speaker 1: only great to hear from him, great to hear from you.
Speaker 1: I hope you're enjoying your break to be ready for
Speaker 1: our season coming up, our special season of the Outlook
Speaker 1: for twenty twenty five coming up, soon keep the emails
Speaker 1: coming in the money puzzle at the Australian dot com
Speaker 1: dot au Talk to you soon.