The 5 SECRET STEPS To Achieve Financial Independence & Retire Early (FIRE) in Australia 2024 #Finance

in this CashNews.co I’m going to show you five simple steps to follow if you like to Achieve Financial Independence and retire early in Australia most of the fire content you see on the internet are very American based so this one will be more relatable to Everyday Aussies like

yourself so if you’re interested let’s get started so firstly what is fire fire stands for financial Independence retire early it was a term first introduced in this book in 1992 but the fire movement only started getting really popular in the last 5 to 10 years the whole concept of

fire is to work hard when you are younger to save enough money to invest into incom producing Assets like Shares then once you’ve accumulated a large enough Portfolio you can withdraw about 4% from your Portfolio every year

to cover all your living expenses this will allow you to retire early completely or gives you the option to only work on projects that are meaningful to you without having to worry about money so basically the fire movement will help you escape the rat race that is the 9 to5 grind and live life on

your own terms doing more of what you want to do so here are the five simple steps to achieve fire in Australia step one calculate your fire number the first thing you need to do is calculate the total amount you need to retire early this is your fire number to calculate this we use the 25 rule the

general rule of thumb is to multiply your annual expenses by 25 it’s easiest to break this down per month so go ahead and write down all your monthly expenses that you’ll need like housing transport groceries utility bills and other expenses let’s go through an example together

according to this article the average Australian spends $2,835 per month so if we multiply that by 12 we get around $34,000 so let’s just round that up to $35,000 so this is our annual expense for this example let’s multiply this by 25 which gives us $875,000 this is your fire number

this is how much you need to to save up we can now apply another rule which is the 4% rule say you have a $875,000 Portfolio in Shares you can withdraw 4% of it every year to cover all your expenses the idea is your remaining Portfolio will

continue to grow enough on average every year so you never run out of money for the rest of your life so 4% of 875,000 is 35,000 which is the annual expense that we previously calculated now please note this is a very simplified calculation I’m just using the average Australian expense for

your own situation this number may be too low to live on but I guess it depends on where you live in Australia obviously a major City will be more expensive than a regional town or who knows maybe you want to move to a cheaper country like Thailand or the Philippines but still be funded by the

strong Aussie dollar this way you don’t need as much money also in the calculation I am not taking into account Taxes Inflation or other unforeseen emergency expenses please feel free to play around with the numbers and include a margin of safety to protect

yourself from any hidden cost like Taxes Inflation and emergency expenses that are out of your control also you can just use a bit of common sense for example if the Stock Market is going through a recession during one of your retirement years you

can adjust your expenses accordingly or pick up a casual job or side hustle to make up the difference please remember life is unpredictable but there is always something you can do to adapt to a bad situation so use your common sense guys step two save and earn money so this is where the fun begins

now that you know your fire number you just need to get there sounds simple enough right so how are you going to get there the principle of fire is very easy to understand is applying it that’s the hard part your main goal in this step is to increase your Savings so you can

invest as much and as quick as possible to reach your fire number you can increase your Savings in two ways one reduce your expenses and two increase your your Income now this may be a controversial take but I think increasing your Income is way

more effective than reducing your expenses you simply can’t save your way to retirement I know it’s a bit of a taboo thing to say because I’m sure growing up most of us were taught to save save save I come from an Asian immigrant family so this was instilled into my brain from a

young age the problem is there is a cap on how much you can save but there is no cap on how much you can earn getting a 10K salary increase is more impactful than saving your $5 takeway coffees every day say you sacrifice your $5 coffee every day for a year what a horrible thought right but stay

with me that is $1,825 that you saved whereas if you got a 10K pay rise that is 10K you just saved $817 more and you got to enjoy your takeaway coffee every day that’s a win-win you might be thinking Brian that’s an easy thing to say but how do I get a 10K pay rise well here’s a

secret that you probably already know your employer will most likely never give you a big pay rise if you don’t ask them for one you may get a small increase here and there to match Inflation but nothing more than that so at your annual performance review list down all the

things you have achieved this year and ask for a rise the worst they can say is no and if they do say no then you ask ask them what will it take for me to get a 10K raise if they do not respond in an encouraging way then look at other jobs in the market in fact studies show that it’s easier

to get a raise by moving to a new job then to get a pay rise from your current one so know your worth if you’re not getting properly compensated then don’t be afraid to move to another place for a higher salary there is no loyalty in the workplace they wouldn’t hesitate to let you

go if the rules were reversed and they don’t need you anymore but of course you need to continue to upskill yourself so that you valuable to a company and they will hire you so consider any courses you can take to improve your CV to make yourself more desirable to employers another way to

increase your Income is to start a side hustle when I say side hustle I don’t mean a second job where you report to an employer I mean you could do that too and that will certainly help you to reach your fire number however with a side hustle you earn 100% of it and you get

100% of the commission ideally it will be something that you are passionate about because in the beginning you probably won’t be paid much but as your reputation grows your Income will increase exponentially for example if you’re good at graphic design you can become a

freelancer and create thumbnails for a content creator or you can become a CashNews.co editor or you could become a content creator yourself you could start a YouTube channel like me or if you’re a bit shy to show show your face you could start a blog or a faceless channel in this beautiful

digital age of Internet there are so many side hustles you could do that can make you a lot of extra money there are so many opportunities to make money out there guys you just have to be willing to find it if an online side hustle isn’t your thing and you want to be more Hands-On you could

start something like a window cleaning business walk around your neighborhood and knock on some doors and ask if they need their windows cleaned or if they want you to mow their lawn you will be surprised how much people are willing to pay for services that they don’t enjoy doing themselves

and who knows maybe your side hustle will one day become your main hustle that’s a dream right and this could be your golden ticket to early retirement having said all this about earning more money it’s not a free pass for you to spend whatever you want reducing your expenses is still

important you need to be reasonable guys sure you could enjoy your $5 coffees but do you really need 10 different TV subscriptions and do you really need to buy that brand new car to impress your neighbor when you can buy a perfectly fine secondhand Toyota Corola that serves the same purpose and do

you really need all four bedrooms in your house when you could rent out the remaining rooms and potentially live there for free if you want to achieve fire quicker why not increase your Income and reduce your expenses I would encourage you to sit down and go through your bank and

Credit card statements then write down all all your current expenses and put them into a needs versus wants column then really question yourself if you really want all the items on the wants column you would be surprised how much crap you pay for that you hardly ever use if

you’re paying for something that’s not serving a purpose or bringing you happiness then out the window it goes and after you finish all this set up an appropriate budget and follow it life is about choices guys the more disciplined you are the faster you’ll achieve fire step three

invest in Income reducing Assets your Investment Portfolio is the key to retiring early the faster your Portfolio hits your fire number the sooner you can retire so what should you invest in well the most popular choice in the fire

Community is Shares and ETFs you could also achieve fire through investing in Real Estate but for this CashNews.co I’ll focus on Shares

and usually dividend Shares or ETFs are the most popular investment for fire because you can use the annual Dividends that you receive to fund your expenses to

invest in Shares you will need to open an online Brokerage account these days we Aussies are spoiled with a lot of choices when it comes to online Brokers I’ll put some of the most popular ones on the screen here and I’ll leave it up to

you to select the one that suits you best in the end it doesn’t really matter which one you pick they all do similar jobs it usually comes down to who’s offering the best fees at the time for example I’m currently using steak because they have the best fees at the time to invest

in Aussie ETFs and I’ve done multiple reviews on some of these Brokers and I’ll leave a link Down Below in the description if you’re interested to know more

after you select a Broker you’ll need to decide what Shares to invest in now there are a few choices here I’m not going to tell you exactly what to invest in but I’ll show you some of the popular combinations that other Australians in the fire

Community are investing in it seems the most popular choice is the vas versus vgs combination if you want to keep it super simple in one ETF you can look at vdhg which is an all-in-one ETF that basically covers everything that vas and vgs offers and by the way you don’t have to stick to just

Vanguard there are other Alternatives like A200 ivv and dhhf which have different ETF providers but track very similar things so please research all the available options out there and pick the one that best suits your strategy another popular option for the fire Community are lic’s like Fe

and Argo these particular lics were mentioned by Scott Pape in his famous book the bareford investor lic’s are similar to ETFs in that they invest in similar companies the main difference

is lic’s are actively managed so the waiting or the selection of some of the companies may be a bit different and the unique thing about LC’s is that they usually pay out Dividends that are 100% franked so you may receive a tax Credit during tax time

franking Credits are unique to Australia as the companies paying the Dividends are tax differently so as Aussie investors we can enjoy this small tax advantage and just a quick disclaimer I am not a financial advisor and the information in this CashNews.co is not

Financial advice I am not recommending you to buy these ETFs I’m just showing you what other people in the fire Community are doing so you can do your own research if you would like

Financial advice that is CED to your situation then please see a financial adviser having said all that let’s move on step four use Australian tax laws to your advantage in Australia the government encourages investing and there are a few Aussie tax laws that you can take advantage of to

achieve fire faster the first one is the first home Super Saver scheme otherwise known as the fhss scheme for short if you want to achieve fire then having your own home will go a long way to helping you get there this scheme allows you to save money for your first home through your supera which

you can later withdraw to buy a house you can make up to 15K of voluntary contributions every year then when you are ready to buy a house you can withdraw up to 50K for your house deposit so it’s better to make contributions for at least 3 years before withdrawing to enjoy en the full benefit

let me show you an example of how this will work Eric earns 70k a year and he wants to buy his first house option one he can save his money outside of super let’s say he saves 15K in a year by keeping it in a bank account since he is in the third tax bracket he has to pay his marginal tax

rate of 34.5% which is $5,7563 250 when he goes to draw this 15% the tax will be the usual 34.5% minus the 30% offset so he would be only taxed at 4.5% which is $675 so overall he saves $2,250 by using the first home Super Saver scheme and if he saves the maximum 50k using the fhss scheme he will

save $7,500 overall so the advantages of using this scheme is that one you save on tax and two you save faster on a house deposit which will help you achieve fire faster please note you can only use the voluntary contributions you made into your supera for your house deposit you won’t be able

to access access the normal super that your employer pays you as part of your salary also don’t forget to use the first homeowner Grant when you buy your first home this is a one-off grant by the government that helps new home buyers so you will receive around 10K or more depending on which

state you live in the next tax rule you can use is Debt recycling Debt recycling is a strategy where you turn your non-tax deductible Debt into tax deductible Debt so you’re essentially turning bad Debt into

good Debt according to the ATO if you borrow money to buy Shares or related Investments from which you earn Dividends or other accessible Income you can claim a deduction for the interest you pay having a home

Loan allows you to use the Equity or any excess money you have to save on tax when you invest in Income producing Assets you can use the existing Equity you have in your principal place of residence to borrow more

money from the bank then use that money to invest in Income producing Assets like dividend Shares then use the Dividends you receed to pay off your original non- tax deductible home Loan then you can redraw your

money and repeat the cycle again until all your non- tax deductible Debt becomes tax deductible Debt so until you turn all your bad Debt into good Debt so you are recycling the bad Debt into good

Debt hence the name this helps you pay off your home Loan faster while also allowing you to claim a tax deduction you could also use any excess money you have to Debt recycle for example say you have a 500K home Loan and 20K cash

which you plan to use to invest in Shares so here are your two options option one you don’t Debt recycle you go ahead and invest that 20K into some dividend Shares you’ll have to pay your marginal tax rate whenever you get paid

Dividends option two use a Debt recycling strategy you ask your bank to reFinance your current home Loan into two portions

Loan one is 480k and Loan 2 is 20K you then pay off Loan 2 completely with your 20K in cash then immediately rraw it you have now borrowed money from the Loan you then use that 20K to buy dividend Shares or

href="https://cashnews.co/etfs" style="font-weight: bold; color: #1a73e8; text-decoration: none;">ETFs you will still pay your marginal tax rate on the Dividends however you can now claim the interest on the amount borrowed to invest in Income producing

Assets so if your interest rate for Loan 2 was 5% during tax time you could claim a 5% tax deduction on the 20K then you use the Dividends to pay off Loan one which is your bad Debt and ideally you keep your

Loan two as an interest only Loan to maximize your tax deduction you want to focus all your energy into paying off the bad Debt AKA Loan one think of Loan two as good depbt since it’s your tax deductible

portion this will potentially help you save thousands in tax and pay off your home Loan faster again the quicker your home is paid off the faster you can achieve fire and if you want to learn more about Debt recycling I have made a previous CashNews.co about it

which I’ll link in the description the next tax rule you can take advantage of is salary sacrifice salary sacrifice means you make voluntary extra contributions into your super in addition to the supera already being paid by your employer Now using salary sacrifice to achieve fire is a bit

controversial because on paper it will seem kind of intuitive by making extra payments into your super you’re essentially locking up your money until preservation age which is about 60 some people argue how does Super help with retiring early when you can’t even access it until your 60

others argue that super is still the most optimal way to invest for retirement due to the tax Savings and my opinion is somewhere in the middle as it depends on what type of fire lifestyle you’re after if it’s lean fire where you plan to live a minimalistic life on a

small budget and the absolute priority is to retire as early as possible then salary sacrifice may not be the best option since you could have used extra payments to invest outside of super to reach your fire number quicker however if you want to achieve something like coose fire with the

retirement age is a bit more flexible and you want to maximize your returns to be as comfortable as possible when you retire then it makes sense to salary sacrifice the main advantage of salary sacrifice is the tax Savings if you make voluntary contributions into your super you are

taxed at 15% compared to the higher marginal rate you would be taxed if you use the same money to invest outside of super let me use an example Ben earns 75k per year he’s deciding whether the salary sacrifice $5,000 or use the money to buy some

style="font-weight: bold; color: #1a73e8; text-decoration: none;">ETFs outside of super in column one Ben does not salary sacrifice in column two Ben does salary sacrifice as you can see from the table Ben is charged a higher tax rate on his Income in option one due to being

charged his marginal tax rate of 34.5% for his full taxable Income of 75k he will then use the 5K to invest in ETFs outside of super in option two he has charged the same

marginal rate of 34.5% for 70k however he has only charged 15% on the remaining 5K that he has chosen to salary sacrifice so he would save $975 per year if he chooses the salary sacrifice the more he contributes into Super the more tax he will save you can make up to $27,500 in concessional

contributions per year without going over the limit and this already includes the super that your employer is paying so if you are thinking of salary sacrificing have a chat with your your payroll officer and make sure you calculate your maximum contribution without going over the limit and if

you’re interested to know more I have made a full CashNews.co about salary sacrificing which I’ll link in the description in FYI the main difference between fi in Australia and the US is the retirement accounts in the US you able to access your retirement accounts early if you pay a fee

so your overall Portfolio is not restricted to your age while in Australia our retirement accounts cannot be accessed until we reach preservation age which is 60 for most people so if you’re Australian it makes it a more difficult Choice do you choose to retire at an early

age where you are healthy enough to travel and do more physical activities or do you choose to maximize your money and wait until you’re a bit older but with a less Able Body to fully enjoy everything it’s a choice that you’ll have to make you’re either sacrificing more time

in your youth or more money to enjoy overall it’s kind of hard to enjoy one without the other if you can’t make up your mind you could do a bit of both which is basically coose fire you could concentrate on maxing out your supera and once you have enough you can leave it there to

compound so even without additional contributions your super Portfolio will continue to grow to support your retirement then you save and invest enough outside your super to last you until you reach preservation age at 60 there are other types of fire you can try depending on your

situation which I’ll leave on the screen here so just pause the screen if you want to have a look step five retire early congratulations it was a long slug but you have reached your fire number and now you can choose to retire you can choose to spend more time with family focus on your

hobbies or maybe go backpacking in Asia you basically enjoy your life without having to think about work however what normally happens is people start to get bored of their new found free time sure sipping umbrella drinks on a beach in Thailand sounds great but after a few months it will get boring

naturally humans will Thrive when they have a purpose in life humans are usually more happy when they have a purpose in life so after an extended period of doing nothing you may choose to voluntarily go back to work but this time is for a job or cause that you are passionate about the difference is

this time is your choice enjoy your new stress-free life so to summarize achieving fire is not easy the concept is easy to understand but you need a lot of discipline and hard work to achieve it for the average Australian achieving fire before 30 is not realistic not unless you’re willing to

live on a super lean budget and eat instant noodle for every meal that sounds pretty good actually the few that will achieve fire this early are those who started their own successful business have an extremely high salary got really lucky in the Stock Market or won the lottery

probably less than 5% of Australians can achieve these things however it is very much possible for most Aussies to achieve fire in their mid-30s or early 40s if you are Frugal with your money invest regularly and have found ways to make additional Income outside your full-time job

by the way if you’re enjoying this CashNews.co comment the word avocado down below so I know you’re one of the Legends who made it this far and if you’re new around here what are you waiting for mate subscribe to the channel and join the community I have plenty more CashNews.cos

like this coming out in the future and you don’t want to miss them and if you’d like to learn more about how to invest in Australia so you can begin your Journey check out this CashNews.co on screen where I show you a beginner’s guide on how to invest in Australian Stock

Market and as always I appreciate you and I’ll see you in the next CashNews.co