How to make money with Amazon – Episode 28

With Amazon now in Australia, we talk to John Cavandivish from FBA Frontiers on how to make a side hustle by becoming an Amazon seller.

Before starting his Amazon Europe journey, John had zero experience with running an online business. After university, he joined the corporate world in London but rapidly realized that it was not for him.

After launching his first Amazon brand in 2014, John was soon able to quit his job to travel the world and network with other successful Amazon sellers from around the globe. Today, he’s generating 6 figures of revenue per month from over a dozen products in Europe. John’s experience led him to develop a specific, step-by-step system to find success with every product launched.

John developed FBA Frontiers because so many sellers he met had great businesses on Amazon.com, but had completely dismissed Europe. He’s since made it his mission to help sellers overcome the barriers to entry in the EU and find success by bringing their products into Europe.

In this episode we cover:

  • What is Fulfillment by Amazon (FBA)?
  • The territories in which Amazon operate and how the fees are calculated
  • Getting started as an Amazon seller
  • The low risk business model as an Amazon Seller
  • How to find the right products
  • The profit margin you need to
  • The importance of having an ad spend on Amazon when launching
  • How Amazon ranks products
  • The lifecycle of the product
  • The benefits of doing a niche product
  • What you need to for branding when getting you
  • The minimum quantities you need to get started
  • Things to consider when FBA starts in Australia and the first mover advantage locals have
  • What the future holds for Amazon

Links mentioned in this Episode

FBA Frontiers Course

Jungle Scout

Shaun Farrugia – Could a trust structure turbo charge your wealth creation? Episode 26

Following on from Episode 23 on Multi-Phase solutions for Retirement  we are joined today by Shaun Farrugia from Optimised Accounting & Finance to talk all things Trusts.

Check out our free download  Multi-Phase solution for Early Retirement

In this episode we cover:

  • The dummies guide to what exactly a Trust is
  • How it can work as a funnel and the tax flexibility that it allows
  • The two types of people that generally use Trust structures
  • What are franking credits
  • Three case studies of how Shaun clients are using Trust for tax flexibility

Case Studies as mentioned in this episode

Scenario 1:  Couple approaching retirement / early retirement.  (Dramatically reduce tax)

  • Distribute investment / business income to a ‘bucket company’
  • Allows for tax to be paid at the company tax rate – accrues as franking credits
  • Funds pile up and are invested within the company
  • Upon ‘retirement’ dividends can be streamed out with franking credits attached
  • Draw down $13,000 each financial year to remain below the tax free threshold with a tax refund of $5,572 – effectively a zero tax rate
  • Draw down $26,000 each financial year and receive a refund of around $6,800 back – 11% tax rate.

Scenario 2: Young Couple – DINKS / Side Business  (flexibility)

  • Couple both working full time on incomes > $90,000
  •  Have a side business and investments
  • Currently there isn’t much of a tax benefit however couple is looking at having kids in the medium term
  • Wife will take a year off work, and then in the 2nd year the husband will take a year working part-time
  • Trust allows the couple to distribute the income from the side business and investments to whichever member of the couple has the lowest income at the time.

Scenario 3: High Income Earner with a property

  • Client is on the highest tax bracket
  • Purchased a rental property at the coast
  • Client is looking for a tax-break whilst being able to achieve capital growth
  • Wife is entrepreneurial and keen to run an AirBNB
  • Client is time poor and not interested in having a bar of it
  • Property is leased at proper market level rates to a family trust setup by the wife
  • Client receives rent as normal
  • Wife runs business
  • Kicker is adult son in Uni – profit from the Air BNB is effectively tax free.

Links mentioned in this Episode

Optimised Accounting & Finance

Multi-Phase solution for Early Retirement

My 68% return. The power of gearing – how smart borrowing can accelerate your journey to financial autonomy – Episode 25

Way back in 1996 I bought my first home.  It was a two bedroom flat in a very ugly brown brick building, probably built in the 70’s with nothing done since.  It wasn’t flash but it was within my budget and in a good location close to town – Kew for the Melbournites.  I paid $107,000.

Now I know that for those looking to buy their first home, $107,000 is probably pretty sickening right now, but 20 odd years ago that was the going rate.

4 years later and I’d meet my now wife, and it was time to move from a flat to a house.  We were starting to think about having a family.  So I sold the flat for $189,000.

Now those straight numbers – $107,000 purchase price, $189,000 sale price, look pretty good right?  And they were.  It equates to 15% per year growth.  I wish I could say that I got that return due to a whole lot of research and planning, but the truth is it was pure luck.  I bought when I could afford to buy, and I sold when I needed to sell.

But that 15% does not tell the true picture, and that’s what I want to explore in today’s episode.  My actual return was just over 68% per annum.  Yep you heard that right – 68%!

Gearing.  Borrowing to invest.  It’s about magnifying outcomes.  Gears are used in engines and other mechanical devices so that one small turn over here can lead to a really big or fast turn somewhere else.

This magnification of outcomes may be the key to you reaching your financial autonomy goals in the time frame you want.  It’s an accelerant.  But as with all accelerants, gearing also has risks.  It’s a tool you can definitely use to gain the choice you desire.  But it’s one to use as part of a well thought out strategy, with the potential downsides considered and mitigated against where possible.

Property investment is the most common area where we see gearing, but it can just as easily be done with shares, exchange traded funds, or managed funds.  Given the interest costs associated with borrowing, gearing only makes sense into investments that are likely to grow, and where the expected return after tax is greater than the interest cost.  So for instance it wouldn’t make sense to gear into a term deposit investment – the return on the term deposit would be less than the interest expense.

So let’s get back to my 68% per annum return.  I’d be disappointed if you weren’t a bit sceptical.  The Financial Autonomy community is a savvy bunch and you know the old saying, if it sounds too good to be true, it probably is.  But stick with me, in this instance it really did happen.

When I bought my first home, I put down a 10% deposit.  So that meant I put in $10,700 and the bank funded the rest.  Of course there was some stamp duty but it wasn’t a lot at that price point, and I had a friend help me with the conveyancing so that cost me next to nothing.

Over the 4 years that I owned it, for much of the time I had a flat mate in the spare room, and her rent helped with the loan repayments.  I didn’t really make much of a dent on the loan during that 4 years, but it went down a little, and I had a roof over my head.

So I sold for $189,000.  The first thing to happen was that the associated loan needed to be repaid.  With that done I had around $93,000 in my bank account.  Now of course I had to pay a real estate agent for the sale, and some legal costs.  I can’t recall exactly how much they were, but being conservative, let’s say I was left with $87,000.

I bought my flat for $107,000, and sold it 4 years latter for $189,000, a gain of about 15% per year.  But the real story here, the one relevant to me, is that I put down almost $11,000 of my savings, and 4 years later, that had become $87,000 – my savings had multiplied by a factor of 8!

Now as I said at the start, whilst I’d love to say that I got this amazing return because I was some sort of property investment genius, the truth is it was pure luck.  But you make your own luck.  I wasn’t to know the property value was going to increase that much, but by saving a deposit, finding something in my budget (even though it was a long way from my dream home), and making a start, I enabled that luck to happen.

And the power of gearing significantly magnified my outcome.

So how could you use gearing to magnify your investment outcomes and get to your Financial Autonomy goals quicker?

A popular strategy that we use with clients a lot is regular gearing.  You might put $1,000 per month into an investment, and we arrange a lender to lend a matching $1,000 so that each month you are buying $2,000.  Your investment exposure is therefore doubled, and by doing this monthly, you are averaging out your entry price – dollar cost averaging is the jargon, which serves to reduce risk.

There are also products that will allow you to buy a parcel of shares or funds, and put down a deposit in the same way you would buy a property.  You then make monthly repayments on the loan in the usual way.  This enables you to have a potentially large exposure to the market right from day 1.

There are also some offerings that have protection built into them, typically created via options contracts.  With these, there will be a set term, say 5 years, and at the end of that term, if any of the shares are worth less than what you bought them for, you are not up for the loss.  Now of course you have to pay for the protection, but some people appreciate the peace of mind.

And then of course there is the traditional investment gearing avenue – property.  Banks have always been very comfortable lending against property, so your ability to magnify outcomes is quite high – in my example I only put down 10% and the bank provided the other 90%.  The less you put in, and the more that is financed, the stronger is the gearing impact.

Now it’s appropriate at this point to talk about risk.  All through this piece I’ve talked about magnifying outcomes.  Outcomes can be good and bad.  If the numbers in my flat example had gone the other way, and I had turned $87,000 of savings into less than $11,000 in 4 years, I’d have been a very unhappy person.

So gearing magnifies outcomes – both good, and bad.  So what can you do to reduce the risk of a bad outcome?

The primary tool is time.  The longer you hold the investment, the greater the chance of a positive outcome.  Buy some shares or a property and sell it a year or two later, and the chances of a negative outcome are quite high.  But hold those investments for 10 years, and the likelihood that the value of the asset will have declined since purchase, is fairly low.

As a rough rule of thumb I would suggest not going into a geared investment strategy unless you felt it was likely to be able to remain undisturbed for at least 5 years.

Of course in contemplating commencing a gearing strategy you need to have a good handle on your cash flow – can you afford the loan repayments?  Should you fix the interest rate to provide greater certainty?  If you’re investing in property, how would you go if there was no tenant for a few weeks or months?

It would also be wise to check that your Income Protection cover is adequate.  Given the importance of investment time frame to your gearing strategy, you don’t want a period where you are off work due to illness or injury to force you to sell your investment at an unfavourable time.

If you are investing into property, things like landlords insurance may also be of value to reduce your risk.

Before I wrap this post up, I thought it was worth touching on a question I get quite a bit – what is negative gearing?

With any gearing strategy you have money going out – primarily the interest expense on the loan, but in the case of a property, also expenses like council rates and insurance.  You also have money coming in – rent or dividends.

Negative gearing refers to a scenario where the money going out, is more than the money coming back in.  So for instance an investment where there was $20,000 going out each year, and $15,000 coming in.  There is a loss here each year of $5,000.  This investment would be term negatively geared.

Were the scenario reversed and there $5,000 more coming in than going it, it would be called positively geared.

So a negatively geared investment is losing money each year in a cash flow sense.  Yet negative gearing is usually described in the media as some sort of investment secret of the wealthy or well informed.  What’s going on?

There’s two elements.  One is that in the case of shares and property, the return isn’t just the income they produce.  There is also the expected growth in the value of the investment over time.

The second element is that the loss amount in a negatively geared scenario can be tax deductable.

So an investor entering into a negatively geared strategy will be hoping that over time, the value of the tax deductions, plus the growth in the value of the investment, will make the whole exercise worthwhile.

It’s worth highlighting here that whilst the tax deductions are helpful, in isolation they aren’t enough to make a negative gearing strategy sensible.  Growth in the value of the underlying investment is a must if this strategy to produce a successful outcome for you.

Well thanks very much for using some of your precious time to consume this post.  I hope you got something useful from it.  As always, we have a toolkit made up to help you take action. I’ve summarised the key ways to manage risk when embarking on a gearing strategy, which I hope will empower you to take action.  I’ve got some other bonus items in their too so check it out.

Important Information:

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Ruby Lee – Side Hustler and Career Guru – Episode 22

In this next interview episode on the Financial Autonomy Podcast we chat to Ruby Lee the founder of The Careers Emporium and head of HR at Cogent.

In this interview we cover:

  • The benefits of a side hustle in achieving your financial goals
  • The 18 month journey Ruby when through when changing careers
  • Identifying your strengths and knowing when the time is right for a career change
  • How daily journaling helped Ruby gain clarity when dealing with financial and career issues
  • How she turned a new blog of helping people with their careers into a money making side hustle while on maternity leave
  • Why job seekers are now seeking personal branding help
  • The importance of understanding a position gets made redundant, not the person.  Listen to Ep 2 Redundancy – What a Great Opportunity episode
  • Ruby’s tips for starting a blog and building an online community for your side hustle
  • How she juggles balancing her full time job, being a mother and building a successful side hustle.  
  • How automation and programs such as Hootsuite  help her build The Careers Emporium while working full time
  • How a business coach helped her to gain clarity and change her mindset amount monetising The Careers Emporium
  • Current trends in employment and the rise of the contractor/freelance and ‘gig’ economy
  • The rise of partnering between employers and employees
  • How employers are now understanding the need for employees to build personal brands and how that can help both parties.

Links mentioned in the podcast

The side hustle – your ticket to Financial Autonomy? Episode 21


What do Apple, Nike, Under Armour, Instagram, and Groupon all have in common?

It’s not just that they’re hugely successful, multibillion dollar companies.  They also share a common birth – they all started life as side projects of their founders.

I’ve been reading Nike founder Phil Knight’s autobiography Shoe Dog recently, and I highly recommend it – very readable and interesting.  He was working as an accountant at Price Waterhouse whilst establishing what we now know as Nike, and when he needed to spend more time on the business, he switched to become an accounting professor at his local university.  It was several years into the business before he quit his day job and devoted himself full time to his enterprise.

So if businesses as enormously successful as these can spring from a side hustle, perhaps you can attain your Financial Autonomy goal by using the same approach.  Let’s take a look at what a side hustle is, and how you might be able to use this approach to gain the choices in life that you’re yearning for.

NBN Co commissioned some research earlier in the year looking at how Australian’s were using the internet to generate additional income.   The report found that the majority of Australians (80%) are looking to this as a way of finding fulfilment outside of work, and 1 in 4 are already earning additional income online.  A similar study in the US found that 28% of those aged between 18 and 26 were working on their own, on the side.  Of those almost all (96%) worked in the side hustle at least once per month, and 25% said they earned more the USD500 per month.

Certainly the increased comfort and normality of internet commerce is a key enabler in the rise of the side hustle trend around the world.

And whilst online businesses are perhaps the most popular of side hustle options, plenty of other opportunities exist too, from running a food stall at a local market, to teaching yoga classes of an evening, or pet sitting for people when they go on holidays.

Perhaps before we go too much further, let’s just define what a side hustle is to ensure everyone is on the same page.  What we are talking about here is something that you do outside of your normal method of earning an income, that produces additional income.  So in the Phil Knight example I mentioned earlier, by day he worked as an accountant, and then in the evening and on weekends, he built this little running shoe business.

Now in the Nike example this ultimately became his full time job, but that doesn’t have to be the objective.  Maybe your side hustle is just a way to build up some savings, or pay down the mortgage quicker.  There are all sorts of ways that you could use a side hustle to achieve your Financial Autonomy dream.

I used to work with a guy who hired out inflatable jumping castles for kids parties on the weekend.  He ended up employing his daughter in the business full time.

Research undertaken by Manpower Group also highlighted how the side hustle concept linked to the idea of the “gig economy”, finding that 40% of Australian millennials preferred to work a number of part time jobs, rather a single, Monday to Friday, 9-5 job.

One aspect of the side hustle concept that I really like is that it enables you to give things a try, to experiment.  To test ideas and see if real people are willing to part with their hard earned cash for your idea.

I’ve spoken in the past about the Lean Start Up methodology.  A key concept in there is how many cycles can you go through of putting an idea out in the world, obtaining real customer feedback, tweaking your offer based on that feedback, and going back out to market again.  The more times you can run through that cycle, the greater the likelihood you will find a sustainable business that you can grow.  Working through those iterations as a side hustle can be fantastic, because you’re not relying on the new venture to put food on the table or a roof over your head.  You can experiment and discover, and if those experiments don’t play out as you’d hope, you can live to fight another day.

A side hustle may also give you increased financial security.  As I explored in The Security Illusion post (episode 11), being a full time employee feels like the low risk, secure option, but the reality can be the exact opposite.  I was only listening to an interview with someone this morning who had worked as an architect at Mirvac in Brisbane, and in the space of 14 months that team went from 100 people to 4.

So having a side hustle might give you that safety net.  A second source of income to help keep the household afloat until you find you next job.  Or maybe it’s something you feel can be scaled up now that you have more time to devote to it.  How great would it be to have a running start in this new chapter of your life – being self-employed?

So how might you get started on your side hustle journey?  As you know, I’m a keen podcast consumer, so I’d suggest you check out the Side Hustle Nation show.  He’s got over 250 episodes online, so scroll through and pick a few that jump out at you.

In the downloadable toolkit for this episode we’ve compiled a list of the 50 most popular side hustle ideas we’ve come across on the web.  We’ve done the research leg-work for you here, so make sure you visit the financialautonomy.com.au website and grab yourself a copy of that.

It seems to me there are two mostly likely paths you could go down to find a side hustle that works for you.  One is to think about your hobbies and passions.  Is there scope to turn a dollar doing something in that space?

The other avenue is to consider what skills you have, and weather you can monetise those skills outside of your regular job.

So on the hobbies front, let’s say you love playing the guitar.  Could you pick up some work in a cover band on the weekend?  Or do guitar lessons.  Maybe you could create an online course on learning the guitar, or tuning a guitar, or whatever.  Perhaps you could import guitars and sell them on Ebay or Amazon.

There’s a cliché that if you love what you do, you’ll never work a day in your life.  And whilst it is a cliché, I think it does hold some truth.  Earning some money in a space that you love and are passionate about might be fantastically liberating.  Chances are you have a community already around you who share your interest, which could be an incredibly useful sounding board for your plans, and perhaps even customers one day.

Then what about turning your skills into some extra cash.  This is perhaps where the internet has provided the most liberation.  If you’ve got design skills for instance, you could pick up work at 99 designs, AirTasker, Freelancer and no doubt plenty more.  Of course in the case of AirTasker and Freelancer, there are opportunities for those with plenty of other skills too – from cleaning to web site design, there will be an avenue for you turn those skills you’ve acquired into extra money in your pocket.

Perhaps your skills point to selling a particular product that you know a lot about.  Market places like Amazon and Ebay can open up enormous opportunities.  Fulfilment by Amazon is an opportunity of enormous magnitude.  I know of someone who designed a bag to hold medical items for children, such as epi-pens for instance.  These bags could then be put in their school bag, or wherever they needed to go, and the parent could be confident everything that was needed was there, and there were instructions for carers if required.

She gets these manufactured in China and ships them to the Amazon warehouse in the UK.  She can then market the product throughout Europe on Amazon, over 300 million potential customers, and anytime someone orders, Amazon takes care of the process from that point forward – picking the item, packaging it, and getting it delivered.  And she can manage the entire thing from her study at home in Melbourne.  What an incredible age we live in!

So what else to consider when exploring the side hustle route?  It might be wise to consider whether what you are planning to do could conflict with your current employment.  Many employment contracts will have conflict-of-interest polices, so be sure to have a read of that and get expert advice if you’re in any doubt.  Even if you don’t work under a contract with any restrictions, things like poaching clients from your day job, or being involved in something that could cause reputational damage, are not likely to be a wise moves.

It may be a good idea to simply ask your employer “do you see any problems with what I’m planning to do?”  Who knows, they may even be able to flick some opportunities your way.

If your side shuttle starts generating some consistent earnings it would be worth also having a chat with your accountant.  Once turnover reaches $75,000, you are required to register for GST, and in some circumstances there can be value in registering even before you reach this threshold.  Software like Xero can make your book-keeping really pretty simple, so don’t let those sort of things get out of control.

Well, that’s it for this episode, don’t forget to grab the toolkit for this episode that has a list of 50 side hustles you could try.  Let’s get you another step closer to reaching your Financial Autonomy goals.

Also, we’ll have an interview episode out next week which will feature someone who has built a side hustle business in the past year.  We’ll find out how she’s gone about it, and how she’s had to change and adapt as things have progressed.  It’s a really energetic interview that I’m sure you’ll enjoy, so look out for that one.

Adam Murray of Subtle Disruptors – taking control of his life – Episode 20

In my next interview episode on the Financial Autonomy Podcast we chat to Adam Murray from the Subtle Disruptors Podcast.

In this interview we cover:

  • How a difficult personal time highlighted the need for Adam to take some leave from his career and reevaluate his life
  • How the Good Life Project gave him a framework to take a gap year
  • How identifying four key priorities during that gap year has now impacted his life
  • The power of being present in the moment
  • The focus on his health and how it impacted on his four key priorities
  • How he managed financially to take a gap year
  • How living frugally changed him and how it helped to develop a better understanding of what makes him happy
  • How structuring his work around 4 days a week has allowed him to retain focus on his priorities after going back to work
  • His journey towards self employment and his desire to make an impact
  • The importance of designing a life on your own terms and creating a true work life balance
  • Why you can only sacrifice part of your life only for a period of limited time
  • The guests that have made the biggest impact on him as a host of the Subtle Disruptors podcast

Links mentioned in the podcast

I can’t buy a home, am I financially doomed? Episode 19

There’s a template that all Australian’s are meant to follow.

  • Study,
  • enter the workforce,
  • buy a house,
  • raise kids,
  • pay off a mortgage,
  • retire.

It’s served us pretty well for the past 100 years or so, so you know the saying about if it ain’t broke…

But for an increasing number of Australian’s this model is broken.

The original spark that started me on this Financial Autonomy journey was the realisation that the path from studying until around your early 20’s, then working in paid employment for the next 40 odd years, then retirement – the traditional path – was becoming less relevant, and a serious re-think was needed.

Home ownership is an unspoken overlay applied to that traditional life path.  And whilst I certainly don’t believe that owning a home is a bad thing, in re-thinking how our life’s journey might unfold, I certainly think it’s worth questioning the place of home ownership as a core belief in one’s financial life.

And it’s not even just the core assumption that we will buy a house, it’s the assumption that this should happen in our 20’s, or perhaps early 30’s if you’ve been really wild.  It’s really quite a rigid prescription for life.

So in today’s audio blog we’re going to explore alternatives to the traditional home ownership path.  How can you achieve the Financial Autonomy goal of having choices in life, but chose the life path that makes sense for you.

You’d have to have been living on Mars for the past decade to not be aware that house prices, especially in Melbourne and Sydney, have risen sharply.  The combination of extremely low interest rates, a growing population, and in some cases a lack of supply of new homes, has resulted in existing home owners becoming wealthy, at least on paper, and those outside the home ownership club wondering how they will ever break in.

Reflecting this challenge, between 2002 and 2014, home ownership rates for 25 to 34-year-olds dropped nearly 10 points, to under 30 percent.  HECS/HELP debts certainly don’t help.

Now those facing this home ownership challenge could rail against the unfairness of it all, but in truth that’s likely to have as much impact as putting up an umbrella during a cyclone.

How about instead, focusing on a Plan B?  Sure Plan A, the traditional path, worked for your parents, but so did smoking and Saturday afternoons at the TAB.  Things change.

So how could you re-imagine your life journey, where the purchase of a home in your late 20’s or early 30’s, probably with a partner, is not in the plan?

For the purposes of this episode I’m going to assume you’ve already looked into moving further out of town, going smaller etc.  You’re at the point where buying a home is just not possible right now, or in the foreseeable future.

If we’re to find an alternate path that works for you, it might be useful to consider why buying a home has been seen as such a cornerstone of financial security.  Home ownership is attractive because:

  1. It provides a guaranteed roof over our head – shelter is a basic human need, and if you own your home, no-one can kick you out.
  2. When you retire and have less income coming in, you have a roof over your head at little cost.

Let me know if you can think of other reasons.

So in finding an alternate path, we need to consider how we can solve for those two objectives.

If you don’t own your home, then you’re renting.  And if you’re renting, then there is always the chance that the landlord could ask you to leave.  Now, if you pay your rent on time, and look after the property well, this isn’t a risk with an enormous probability of arising.  It does happen, but I think it’s a risk that is over estimated.

Put yourself in the landlord’s shoes.  They’ve bought this property, and almost certainly borrowed to do so.  They want nice regular rent and no headaches.  They don’t want turnover of tenants, because then they have periods with no rent coming in, and they usually have to pay the managing agent to find a new tenant.  Landlords are vulnerable.  No rent coming in for a month, or damage to a property, and they’re likely to be hurting.  Smart landlords value a good tenant.

So pay your rent on time and take care of the place, and the risk of you being asked to move becomes really quite small.  Not zero, for sure, but not highly probable.  Be the tenant a landlord wants to have in their property.

Longer term financial security is certainly the stronger argument for becoming a home owner.  Finding money to pay rent when retired may well be a challenge unless it is well planned for.  So if it is the case that buying in the area where you want to live isn’t feasible, it becomes really important that you build financial wealth in other areas.

So what might that look like?

To start with you need a savings capacity.  If all your income goes back out the door in rent and living costs, then clearly there is no ability to build wealth and create a position of Financial Autonomy.

I worked with a client recently who will be a long term tenant.  She was having trouble making the monthly finances work.  We explored various ways to solve this, but what it really boiled down to was that she was just paying too much rent given her take home pay.  We ascertained that rent was gobbling up 42% of her take home pay.  And then when she paid other housing related bills such as gas and electricity, half her income was gone.

This wasn’t sustainable.

So as a starting point, aim to have your rent at no more 30% of your take home (ie. after tax) income.  Of course the lower the better.  That may require some compromise as to location, or size of the place you rent, but it’s absolutely critical.

With less than 30% of your income going towards putting a roof over your head, you will have enough money to live, and also have funds available to save and invest.

Okay, so now you have a savings capacity, a foundation stone to you gaining choice through Financial Autonomy.  Initially that will build up in the bank, ideally in a separate account specifically for savings.  But with interest rates of next to nothing, the growth of your savings will be limited to how much you can tip-in.

If you’re to really maximise your ability to build financial wealth, those savings need to be invested.  You need to develop an investment strategy that works for you on all levels – risk, time frame, and ethics.  Educate yourself and/or get professional help.  Check out episode 15 – The sharemarket – a beginner’s guide, and also the 3 part series on Common investment mistakes – episodes 12 to 14, to get you started – episode 12; episode 13; episode 14.

You could set-up a strategy where you invest a regular amount every month, no different to paying a mortgage.  Unlike a mortgage though, it’s changeable as your circumstances change.

Need to suspend contributions for a while whilst on maternity leave say?  No problem.  Get a pay rise and want to increase your contribution.  Easy.

Over time your investment will grow to a very handy nest egg.

For the person perusing the alternate path of non-home ownership, superannuation is likely to take on increased importance.   When (if?) you retire, either you will want to buy a home, or you’ll need sufficient income to continue to pay rent.  Either way, your super can help.

A larger balance enables a large sustainable income to be withdrawn, covering rental costs.  Or, perhaps you withdraw a lump sum from your super to buy a home.

Now of course the primary purpose of your superannuation savings is to provide income in retirement, so it’s no good taking out so much of your balance, such that the remainder won’t produce the sustainable income that you need.  So this is certainly something you’d want to think through carefully, and I’d strongly urge you to get some expert help. But the key takeaway for now, is that your super definitely provides a potential solution to the challenge of having an affordable roof over your head in later life.

Share-houses are not a new concept.  Co-working spaces are a rising trend.  Whilst most of us like having some private space in our lives, going it alone in a housing sense is expensive.  Is there scope to team up with others to solve your housing need?

This could play out two ways.  One would be to buy a place with someone else if that was affordable.  The traditional way is to do this with a life partner, but could you do it with friends or siblings?  Maybe 3 or 4 of you could go in together to buy a property, whether it be something you live in, or something you rent out.

Alternatively you go for the share-house model whilst renting, as a way to bring down your housing costs and have more money available for savings and investment.

Earlier I mentioned the increased importance of building wealth if you are to achieve Financial Autonomy without owning the home that you live in.  Just because it’s not viable to buy a home in the area that you wish to live, doesn’t mean you are prohibited from having a stake in the residential real estate market.  Could you afford to buy a property in another more affordable city, and rent that property out?  You may be able to use the negative gearing provisions to help with affordability.  In brief, negative gearing means that, where the interest expense on your loan each month is more than the rental income that you receive, you can claim that difference – that loss, to reduce the tax you would have ordinarily paid.

Hopefully over time the value of the property grows, and perhaps you pay down the debt.  One day, you’ll own a home that either produces income for you later in life, or is perhaps an option to retire into.

It’s not something that you want to build your life around, but receiving an inheritance from parents is a reality for many of us later in life.  Indeed, the rising price of housing that may have priced you out of the market, may have an upside in also inflating the inheritance you one day receive.

Perhaps then the long term solution to your housing is that you rent until the inheritance occurs, and those funds provide you with the capital to buy something of your own.

As mentioned, I wouldn’t encourage this as your primary strategy.  Your parents might spend all of their money, or simply chose to send their estate elsewhere.  I also find it just a bit distasteful to absolve yourself of doing anything towards your own financial security and rely on the work of those before you to provide.

But with that caveat stated, when thinking through how you will achieve the security of owning a roof over your head in later life, perhaps an inheritance is an important component of the solution.

The solution that’s right for you may well be a combination of these different strategy options – perhaps you buy a rental property and negative gear in your 30’s and 40’s, contribute a bit extra into super throughout your working life, and when an inheritance comes through, sell the rental property and buy a home for yourself.

Regardless of the approach that’s right for you, I think a key change is that, if you do ultimately become a home owner one day, it will be later in life than may have once been assumed.

So rather than beating yourself up about not owning a home, or paying down a mortgage, perhaps there just needs to be an adjustment in time frame.

Perhaps it suits you to live inner city and rent during your peak earning years.  Sure, properties cost more in Melbourne or Sydney, but wages are also higher than most other parts of the country, so there may well be a robust argument to be made that your long term financial position is improved through you renting in the vicinity of the highest paying work.

Then later in life you move out to a rural area, or a city where you can afford to buy.  Maybe the goal should be to own a home by the time you’re 60 say.  The reality is that whilst in recent memory, Australian’s have always worked to a formula of buy a home asap, that doesn’t have to be the only way.    You can achieve Financial Autonomy without buying a home in your 20’s or 30’s.  With good planning, you won’t be financially doomed.

In this week’s toolkit I’ve created a document called “7 Strategy options for non-home owners”, which dot points the various strategy options I’ve mentioned here.  There’s also the Budget tool, a piece on Risk vs Reward, and a summary of Sharemarket basics to get you started in learning about investments.

Felicity’s transformation from New York Fashion Journalist to Digital Creative Director – Episode 18

In our first interview episode on the Financial Autonomy Podcast with talk with Felicity Loughrey. She shares her career transition journey from journalism to advertising that spanned across two continents.

In this interview we cover:

  • How this Australian freelance journalist ended up working in New York
  • Why she finds Americans are good to work with
  • How she handled the transition away from the dying industry of journalism into writing advertising copy
  • The interesting journey of getting better at her craft but getting paid less for the work
  • The subculture of freelance creatives in the US
  • The importance of consistency pitching for work to maintain constant cash flow
  • Overcoming the hurdle of getting paid for your work as a creative
  • The need to be constantly learning when entering a new industry
  • Her time at VaynerMedia and what it is like working for digital thought leader Gary Vaynerchuk
  • The role a Digital Creative
  • Running an autonomously team in a HR focused digital agency
  • Hiring from outside your industry to create a dynamic team
  • The difference between the use of social media between the Australia and the US
  • Advice for those currently working in declining industries
  • Understanding your core skills and how you can adapt them into a new career and industry

Links mentioned in the podcast

How to avoid the most common financial mistakes – Part 1 – Episode 12



Enough people have hit their thumb with a hammer for you to know that it hurts quite a lot. You don’t need to do the experiment yourself.

I’ve been helping people as a Financial Planner now for almost 18 years, and I’ve meet many, many wonderful people. Often people put off seeing a financial planner until they’re at some sort of cross roads – they’ve been made redundant, or retirement is rapidly looming, or they’ve separated from their partner. So prospective new clients often come in to see me with some baggage. Something that’s not working, or that they’ve put off dealing with, and that’s why they need our help.

Of course over that time you see some common challenges that people face. Issues that repeat again and again. So today I’m going to share some of those with you, the product of my 18 years of helping people, so hopefully you can skip over these common financial mistakes, and reach your goals sooner.

We’ve talked a lot so far in past episodes about strategies you can use to help get you to your goals and dreams. Getting a handle on your cash flow, the Survival and Capital strategy mix in moving to self employment, and things like side hustles.

Equally helpful though in getting to whatever goal you’ve set, has to be avoiding financial mistakes that don’t need to be made.  Now don’t get me wrong, there are some things we have a go at, and they don’t quite work out as planned.  But we get really valuable learning from them.  I think you can often learn a whole lot more from things that don’t work out as you’d expected, than when things do just fall into place.

But what we’re talking about today are mistakes that have been made by people over and over  again, and for which you can get the learning without having to repeat the exercise.   As I said at the top, enough people have hit their thumb with a hammer for you to know that it hurts quite a lot without you needing to do the experiment yourself.

When I started planning for this episode, I wrote down a simple dot point list of the common financial mistakes that I see, and I came up with 12.  I’ll try to group them together a bit for ease of absorption.

Let’s start with investing, because several of the most common financial mistakes fall into that broad category.  Number one is Procrastination.  Not starting.  I appreciate this can be a broader life problem, but for now I just want to focus on procrastination in an investment context. Whatever your Financial Autonomy goals are, having some wealth behind you is likely to make it easier to succeed.  The stronger your financial position, the more options you’re likely to have.

Now building up some savings in a bank account is a really great start, and an essential foundation, but at some point those savings need to be put to work.  The problem is we fear the unknown, and even more so when the unknown involves money that we’ve worked really hard to save.

But at some point you need to invest.  Buy some shares, or Exchange Traded Fund (ETF), or invest in a managed fund.  It doesn’t need to be enormous amounts to start with, more important is the learning.

An element of the initial discussions we have with new clients is to discuss their risk tolerance or risk profile.  There is no exact science to this.  We have a series of questions we often go through with clients, but sometimes we just have a discussion about their past experiences.  The interesting thing is how people’s thoughts around risk vary depending on what they’ve experienced in the past.

So for instance I spoke with a client recently who initially told me they were a fairly conservative investor.  Now in a Financial Planning context, a text book conservative investor would have somewhere less than half of their investment portfolio in shares and property, and somewhere north of half the portfolio in low risk things like bonds and term deposits.

So this guy tells me he’s a conservative investor, but we then get into how he has invested his super and it’s 95% in shares.  So we have a discussion around that and he tells me that he just focuses on the dividends, he doesn’t worry much about the prices going up and down.  So when he says conservative, he means he only invests in shares that pay nice steady dividends.  To him, having a portfolio that is 95% in shares is conservative, whereas most people would consider that very aggressive.

So why is he comfortable having such a large exposure to investments that fluctuate in value.  Well it’s because he’s invested in shares for over 20 years.  Has dabbled in things here and there.  Some have worked out, and some haven’t.  But over time he’s found what is comfortable for him, and what works for him.  So when markets had a tough time through 2008, he didn’t love it, but he didn’t get particularly distressed, and importantly he didn’t sell anything.  He could do that because he had experience investing, was familiar with the up and downs, and knew that his dividends wouldn’t change much, even if prices did.

He’s a better investor now, because he has experience, and he has experience in investing because one day he made his first investment.  He made a start.  He got past procrastination.  So common financial mistake number one is, avoid procrastination – make a start.

Mistakes 2 and 3 are opposite sides of the same coin.  Either investing too conservatively, or trying to be a share trader.  Of the two, I’d say the share trader approach is the one with the potential for the most damage in the short term, whilst investing too conservatively is more of a slow burn.  You don’t notice the damage initially, but 5 or 10 years out from retirement, you look at your super and realise it’s not going to get you to the lifestyle that you want.

Let’s start with investing too conservatively.  The mindset goes, I don’t want to lose any moneyTherefore I can’t invest my money in risky things likes shares and property.  I need to keep my money in term deposits, or the low risk options in my super fund.  At the extreme end, maybe I keep it all in cash.

Now whilst you think you’re protecting your capital from the potential for loss, in fact what you’re doing is baking in disappointment in the future.

Some research done by annuity provider Challenger a few years back highlighted this really well.

They focused on the risk that your savings will run out during your life time – ie. you run out of money.  They used historical return data from 1900-2013, so it covered a wide variety of economic conditions.  They then analysed portfolio’s with different compositions and considered the results based on drawing down at different rates.  They found:

  • If you planned on drawing down on your retirement savings at the rate of 5%pa. a level we would typically suggest, and you wanted your retirement savings to last 25 years (retire at 65, money lasts through to age 90), were you to invest in the “low risk” option of 100% bonds and cash (ie. no shares), there is only a 34% chance of success.  That is, a 34% chance that your money will not run out during the 25 year period.
  • If instead you were invested in a typical “Balanced” option, with 50% in growth assets such as shares, and 50% in defensive assets such as bonds and cash, the likelihood of success jumps to 69%.
  • Still not certain enough?  Move up to 75% growth assets and the success rate rises further to 90%.  Interestingly though, move to 100% growth assets, and the success only increases 1% to 91%.

These figures illustrate really well that investing too conservatively, in the traditional sense of minimal exposure to shares and property, is actually the most risky option from the perspective of having your money last throughout your retirement.  The same would apply to building assets to enable the achievement of your Financial Autonomy goals.

In the downloadable Toolkit for this episode, I’ve include a piece on risk vs reward that I think you might find really useful, so be sure to visit the financialautonomy.com.au web site to grab that.

But as mentioned, there is another side to this coin, and that is the day trader.  If you bump into one of these people socially, run a mile.  There are all sorts of books and bits of software that claim to teach you how to make your fortune trading shares, or sometimes things like foreign currencies or futures contracts.  At the heart of this approach is a belief that you are smarter than the market as a whole (or can be taught some secret formula to make you smarter than the market), and so you can buy shares in the morning, sell then in the afternoon, and make money.  Some people might hold their shares for multiple days, some even weeks.  But the process is the same – they are not buying the share because they have a belief in the prospects for the company, but rather it’s just a trading item.

What people who embark on this common financial mistake fail to appreciate is that every time they buy or sell, there is someone else on the other side of the transaction doing the opposite thing.  So for you to win at this game, you need to know something that the person on the other side of the trade doesn’t know.  And because every time you trade, you will have to pay some sort of transaction cost, usually brokerage but also the buy/sell spread, you need to be right a lot.  By chance you’d hope to be right 50% of the time.  To recover your transaction costs and make the whole enterprise financially sensible, you’d need to get that up to 60% as a minimum I would think.

So who are the dummy’s on the other side of your trade?  Well increasingly they are super-fast computers that identify opportunities to buy and sell in 100th’s of a second.  Are you going to beat them consistently?

If it’s not a computer on the other side of your trade, then the next most likely person on the other side will be a trader acting for a professional investor like a super fund.  Here the fund manager has determined that the appropriate action is to buy or sell a particular stock, and then a professional trader is engaged to carry this out at the best possible price.  Fancy beating that combination on a consistent basis?  Amazingly, day traders think they can.

When investing, get started, but don’t be too conservative, and don’t be duped into believing you can be a millionaire overnight by share trading.  These are our first 3 common financial mistakes, and with that I think we’ll leave the investment bucket.

In the 2nd part of How to avoid the most common financial mistakes, I’ll share with you another 4 common mistakes, focusing mainly cash flow mistakes people make.

I’ve put together something of a bumper toolkit for this and the next 2 podcasts, covering all 3 parts of this series on common financial mistakes.  I have the 12 most common financial mistakes listed so you can tick them off as you’re confident you’ve worked through or around them. I’ve also included the Budget tool to help you get your cash flow under control, a piece on risk vs. reward, useful books, personal insurance options so you can cut through the jargon in this area, and a piece on SMART Goals.  So hopefully tonnes of usefulness in there.  It’s the biggest toolkit I’ve ever produced.  So be sure to visit the financialautonomy.com.au website and grab your copy.

There’s another great article on this topic that I highly recommend you check out. It’s by Daniel Wesley of the CreditLoan blog.  Some of it is specific to US readers, but there’s enough that has broader application to make it a worthwhile read.  12 Common Investment Mistakes (And How to Avoid Them).

And finally, a quick note to let you know that from here on we’ll be getting new episodes out to you each fortnight.  We’ve had an initial flurry since our launch – so many ideas I wanted to share with you, but I need to get a bit more disciplined and of course I don’t want to compromise on quality, so from here on, expect a new episode to drop into your podcast app every two weeks.

The security illusion – Episode 11



Having a job and a regular wage is comforting and secure, except if you lose that job.   UK stats say that 45% of workers will be made redundant at least once in their working life.  I’d expect the Australian numbers would be much the same.

In that sense, being a full time employee is very binary.  Very secure and reliable whilst you’re employed, but when you’re not, there’s nothing.

If Financial Autonomy is about having choices in life, then how does that align with being fully reliant on an employer to provide you with the income that you need to keep all the balls in the air?

Most of us do work for an employer, and that suits us very well, so how can we align the desire for financial independence, with the financial dependence associated with being a full time employee?

I’ve called today’s episode The Security Illusion, because I think for many people, they overestimate the level of financial security provided by their employer.  So what steps can you take to truly be financially secure?  Well, that’s what we’ll be looking at today.

Financial security.  Who wouldn’t want that?  I often talk about financial independence, using it fairly interchangeably with financial autonomy as I think the difference between the two is fairly minimal.

Could financial security be another interchangeable term?

To me, the difference is in the mindset.  Someone whose goal is financial security is thinking about controlling the down side risk.  The risk that things will go bad.  And that’s no bad thing.  The old “hope for the best, but plan for the worst” is certainly something we try to incorporate into our client’s financial plans.

But can you really control poor management decisions made by your employer, or industry changes that render your area of expertise redundant?

When I think about the goal of Financial Autonomy, I think of it as something more proactive.  Unlike financial security, where the goal is to find somewhere safe, Financial Autonomy is about consciously building a situation where you have control, and where you’re not reliant on others.

Financial security, in the form of full time employment alone, is I think an illusion.  But that doesn’t mean that you can’t be a full time employee and achieve Financial Autonomy.  Indeed that’s how most people would achieve their Financial Autonomy goal.

So how can you transition from valuing your job for the illusion of financial security that it brings, to valuing it for the potential it provides you to achieve Financial Autonomy, a far more useful aspiration.

Here’s a few ideas I’ve come up with.  I’d welcome your feedback as to other options you can think of.

Broaden your skills – always learning

To me the most obvious way to reduce the risk of being out of work for a sustained period is to have more strings to your bow.  If your desirability to an employer is built around your skill with a particular software package for instance, then what happens when the industry moves on and a new software solution becomes the norm?

This is an exercise in seeing the forest for the trees.  You need to take a step back for your day to day activities and think about where your industry or profession is heading.  Are you building the skills now that will be relevant in 5 or 10 years?

Very often employers have budgets for staff development and training, so if you see an area where you think you should develop your skills, hit up the boss to support you.

The other good thing about undertaking some learning is that it highlights to your management that you are someone with aspirations.  You don’t plan on sitting in the current role forever.  You want new challenges, and if they don’t find them for you, they run the risk of losing you to a competitor.

It may be that you take that helicopter view of your industry or career path and find that the road ahead isn’t paved with gold.  In fact what you need to do is plan for a shift altogether, to an area with better long term prospects.  This is something we looked at in the last episode – Is Your Ladder Against the Wrong Wall?  So check that one out if you haven’t already given it a listen.

The side hustle

Another way you could improve your financial security is to be less reliant on that one employer.  Is there a second gig you could be doing to earn a few extra dollars?  I only came across the term side hustle in the past year, but I love it, and it’s certainly a viable way towards Financial Autonomy.

Let’s say you have an office job Monday to Friday, but have always enjoyed photography.  Perhaps you could develop a little business photographing weddings or children’s portraits after hours.  That way, if ever you where to find yourself out of your regular work, you have some money coming in from the side gig, which you could potentially even ramp up some more with some spare time.

A side hustle could be a good way to try out an idea you’ve had and see if you can find a market.  If you get some traction it could even become your full time gig.  I was listening to a pod cast this week where they interviewed the comedian Wil Anderson.  He did 6 stand-up shows whilst working in a regular day job, before deciding to throw it in with the Herald Sun and devote himself full time to comedy.

Creating an online course, app development, registering with Airtasker, building niche websites, an eBay store, pet sitting, freelancing on freelancer.com.au or fiverr.com  , Uber driver – there’s just so many things you could potentially do on the side to reduce your dependence on a single employer.

One good resource you might like to check out is the web site Side Hustle Nation, and their podcast The Side Hustle Show.  There’s lots of good ideas and downloads there.

Closer to home, Rock Star Empires would also be worth some of your time.  The principal there, Troy Dean, speaks with great clarity and frankness.  They’ve got a Facebook group that’s fairly active too.

Build wealth

The stronger your financial position, the less reliant you are on your employer.  If you’ve got debt up to your eye-balls, then a few weeks with no wages coming in and you’re in big trouble.  But if instead you had little or no debt, and several thousand dollars in the bank, then the pressure’s off, at least for a while.

One way you could frame this is financial resilience.  How long could you support yourself and your family if you found yourself out of work?

Hopefully your job gives you a sense of purpose and satisfaction.  But even assuming that were so, I doubt you’d do it without getting paid.

So the great thing about your job is that it throws off money.  Now of course you need that money to live, but hopefully you can manage your budget so that you can also save.  Your full time job then, provides you with the fuel to create financial independence – money.

One path to escaping the insecurity of a full time job is to have a plan to build independent wealth, using the income your job throws off to do so.  Now the strategy appropriate to achieve this differs for everyone, but the key is to have a plan.  Pay down debts, build up assets, and in time you can put yourself in a financial position where if the boss stuffs up, the business declines, and you find yourself out of work, you can smile inwardly with the knowledge “you might be broke mate, but thanks to you, I’m in good shape, I’ll be fine, whatever happens”.

Become self employed

I guess the ultimate way to escape the insecurity of full time employment is to not be employed, but instead run your own show.

Now, as anyone who has ever run their own business will tell you, being self-employed is far from stress or risk free.  Not everyone should run their own business.  Most people who move from being an employee to being their own boss find they put in more hours, not less, and success is certainly not guaranteed.

But having provided that important caveat, shifting to self-employment is certainly an option that you should weighed up.

A successful business will have multiple clients, and perhaps multiple products or services, so your risk attached to any one party can be dramatically reduced.

It could be that you can do a few different things, possibly even some as an employee.  For instance if your background was in sales and marketing, perhaps you could consult to several different small to medium size businesses, whilst also having a regular 2 day per week job running the marketing arm of a small retail chain.

If moving to self employment holds appeal to you, go back and listen to Episode 1 – how to be financially ready to start your own business.

Perhaps true financial security comes from deriving your income from several sources, be they different clients, different things that you do, or investment assets that you own.   One thing’s for sure though; whilst you can use your job to create financial security, without conscious effort and planning, your job won’t generously grant you that security.  Indeed it may provide you with the false confidence to put you into an extremely insecure position.

As always, we have a free toolkit to go with this episode so be sure to visit financialautonomy.com.au.  In this episode’s toolkit we’ve got a few of the key messages from this post, plus our Budget Tool, Useful websites list – and I’ve included the links to a couple of sites I mentioned earlier, and also the Freelancing resource.

I hope you’ve gotten some useful information out of today’s episode.  Be in touch with any feedback.

 

Important Information:
This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.