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Summer series: FIRE - Financial Independence, Retire Early - Could you do it? · The Money Puzzle

0:00
Speaker 1: Hello, James Kirby. Here, just a quick note before we begin.
0:04
Speaker 1: We're taking a short break over the holiday period and
0:07
Speaker 1: we'll be back with the first new episode of The
0:09
Speaker 1: Money Puzzle for the new year on Wednesday, January fourtheenth
0:14
Speaker 1: in the meantime here was one of the shows that
0:17
Speaker 1: you absolutely loved last year. It's Lionel Lee and he's
0:21
Speaker 1: talking about fire movement. That's the financial Independence retire Early movement.
0:28
Speaker 1: It's an enduring and appealing concept for so many investors.
0:33
Speaker 1: I'm sure you'll enjoy it on behalf of the Money
0:35
Speaker 1: Puzzle team, especially my producer Leah Sammaglu, who's been so.
0:39
Speaker 2: Good this year.
0:41
Speaker 1: I'd like to wish you all and merry Christmas and
0:43
Speaker 1: a happy new Year. Hello and welcome to the Australians
0:56
Speaker 1: Money Puzzle podcast. I'm James Kirby, the Worth Editor the Australian,
1:00
Speaker 1: and welcome aboard everybody. I hope you're having a good
1:03
Speaker 1: break and I wish you a good holiday season and
1:08
Speaker 1: a prosperous new year. And speaking of prosperity, there's a
1:13
Speaker 1: show I've wanted to do all year. It's about the
1:17
Speaker 1: Fire movement FIOR in this case that means financial independence
1:22
Speaker 1: retire early. We did some coverage of it during the
1:26
Speaker 1: year midyear on the Money Puzzle podcast, and we were,
1:33
Speaker 1: I suppose, more skeptical and enthusiastic about the concept, and
1:40
Speaker 1: for a variety of reasons, but the core reason was
1:43
Speaker 1: that we were of the opinion that it's just not
1:46
Speaker 1: that easy to do that. And some of the pitches,
1:50
Speaker 1: if you like, on the Fire movement, though, people are
1:53
Speaker 1: so interested in it and so enthusiastic about it, But
1:56
Speaker 1: some of the pitches that I had come across about
1:59
Speaker 1: the presentation I just thought were a little bit making
2:02
Speaker 1: it sound too easy and perhaps could to some extent
2:05
Speaker 1: exploit naivety. Now I wanted to get someone to come on.
2:09
Speaker 1: Now the thing on the show, we'll talk about it.
2:11
Speaker 1: The thing about Fire movement is, it's a movement. It
2:15
Speaker 1: is a set of principles. There is no fire I
2:19
Speaker 1: can't go downtown and take you to the local branch
2:21
Speaker 1: of the local office. There's no headquarters in Geneva or Washington.
2:26
Speaker 1: It's a concept, it's a set of principles. But I
2:28
Speaker 1: did want to get someone to talk about it who
2:31
Speaker 1: to whom it had made a difference to someone who
2:34
Speaker 1: was also to some extent and financial educator and could
2:37
Speaker 1: articulate its main ideas. And I have found the very
2:40
Speaker 1: person for the exercise. His name is Lionel Lee. He
2:44
Speaker 1: is a international investment operator. He works with a group
2:49
Speaker 1: called invest Unite and they are asset managers here and
2:53
Speaker 1: across Asia. I'm speaking to him actually in Seoul. He
2:58
Speaker 1: lives part of the year in Melbourne, and delighted to
3:00
Speaker 1: have him on the show. Lion Lee, how are you.
3:03
Speaker 2: I find thank you thanks for having me on the
3:05
Speaker 2: Australian Money Puzzle, James. It's an honor to actually be
3:09
Speaker 2: on your show.
3:10
Speaker 1: You're very welcome, delighted to have you, Delighted to find
3:13
Speaker 1: you after some efforts to try and get what I
3:16
Speaker 1: thought would be the ideal gift. So so I explained
3:20
Speaker 1: there about how our listeners were very interested in the
3:23
Speaker 1: fire movement. But when I was talking to you earlier,
3:28
Speaker 1: and I was struggling even still to try and grab
3:31
Speaker 1: this because I'm the sort of person who wants I
3:33
Speaker 1: want to see this sort of tangible evidence that it exists.
3:38
Speaker 1: I want to see its charter and its rules, and
3:40
Speaker 1: I want to see a sort of hierarchy. But that
3:44
Speaker 1: doesn't really exist, does it. It's a concept.
3:47
Speaker 2: Yes, I'm very similar to yourself, you know. I like
3:50
Speaker 2: information that's practical and that's useful, you know, especially if
3:54
Speaker 2: we're addressing listeners who are just to some extent depending
3:59
Speaker 2: on your podcast to understand what's really happening in the
4:03
Speaker 2: Australian economy, financial markets as well as in their personal
4:08
Speaker 2: financial world. So to keep it simple for listeners, Fire
4:12
Speaker 2: basically just focuses on extreme savings and investing, which a
4:18
Speaker 2: goal to retire much earlier than usual. So I'm just
4:21
Speaker 2: summarizing everything that's talked about Fire, you know, in the
4:26
Speaker 2: world Wide Web and also in Australia. Essentially, it is
4:30
Speaker 2: a movement, has no headquarters, there's no branch, there's no chapter,
4:34
Speaker 2: and it was popularized by a book that's called Your Money,
4:39
Speaker 2: All Your Life, back in nineteen ninety two. The other
4:43
Speaker 2: thing to note is Fire doesn't originate from Australia, so
4:46
Speaker 2: it's not ausy concept. It originated in the US. The
4:50
Speaker 2: book is an American book, the authors are American, and
4:54
Speaker 2: over there I guess over the years and also in summation,
4:58
Speaker 2: some traits of here that you might come across in
5:02
Speaker 2: your conversation with our Australian listeners. Is that typically those
5:06
Speaker 2: who subscribe to the Fire movement, they say between fifty
5:10
Speaker 2: to seventy five percent of their income, that's what they're
5:13
Speaker 2: aiming to do. They might pick up extra jobs. Some
5:16
Speaker 2: might talk about, you know, laying major spending events in
5:20
Speaker 2: order to be able to save and invest with the
5:24
Speaker 2: goal of retiring earlier than usual. So earlier than usual
5:27
Speaker 2: here to me, we just mean before the statutory retirement age.
5:32
Speaker 1: So you tuned into this pretty early, right, because your money,
5:35
Speaker 1: your life which is still out there of course needs
5:37
Speaker 1: to say revised and updated. Endasy. It's by Vicki Robin
5:40
Speaker 1: and Joe Denis, published in the UK, was a best
5:43
Speaker 1: seller at the time and remains always available. Tell me
5:47
Speaker 1: you tuned into this quite a long time ago. It
5:49
Speaker 1: was pretty fresh idea at that time in the nineteen nineties.
5:52
Speaker 1: When you first came upon the idea? What was it?
5:54
Speaker 1: What tell us they talk about nine steps to transforming
5:59
Speaker 1: your relationship with money? What were the key aspects of fire?
6:06
Speaker 1: The principle is the fire that attracted you.
6:09
Speaker 2: So I came across Fire actually many years after it
6:14
Speaker 2: was published nine ney two. So my engagement I guess
6:17
Speaker 2: with the principles was in the late nineteen nineties when
6:21
Speaker 2: I was working with the US market, So that's actually
6:24
Speaker 2: where I came across the whole concept of fire. The
6:27
Speaker 2: community of the fire committee wasn't really there yet, but
6:30
Speaker 2: you know, it was building up steam. So again, for
6:34
Speaker 2: the benefit of listeners who are new to fire and
6:37
Speaker 2: without trying to confuse them with the many permutations of
6:42
Speaker 2: fire that have taken place over the years, there are
6:45
Speaker 2: four basic principles that I've extracted from all of that.
6:51
Speaker 2: So the number one is what they call the fire number. Essentially,
6:56
Speaker 2: that number is just an estimate of how much you'll
6:59
Speaker 2: need to retire, and the way in which the fire
7:03
Speaker 2: community derives that number is by multiplying your annual expense
7:08
Speaker 2: by twenty five. So let's say if our annual expense
7:12
Speaker 2: is eighty thousand dollars, you know, as a couple, then
7:15
Speaker 2: your fire number is just simply two million. It's just
7:18
Speaker 2: eighty thousand times twenty five. The second principle I took
7:23
Speaker 2: away is the four percent role states simply how much
7:29
Speaker 2: you can withdraw from your retirement fund in the first year,
7:34
Speaker 2: and then every subsequent year that amount is adjusted for inflation.
7:39
Speaker 2: So if we use the couple that has two million
7:42
Speaker 2: dollars again, in the first year of retirement, the couple
7:46
Speaker 2: would be able to only withdraw a maximum of eighty K.
7:51
Speaker 2: That I extracted from the principles and the concept and
7:57
Speaker 2: the movement that felt was practical to some ext then,
8:00
Speaker 2: is that the Fire movement and Fire followers prioritize setting
8:05
Speaker 2: up your emergency fund before focusing on investing, and that
8:10
Speaker 2: fund should be three the six months worth of savings.
8:13
Speaker 1: You're going through. The tape there is very useful, but
8:16
Speaker 1: I think I have to say it seems to me
8:19
Speaker 1: that's the hardest thing. Yes, but people have very little
8:22
Speaker 1: money and they want to think about investing. The last
8:25
Speaker 1: thing they're going to be able to do was put
8:27
Speaker 1: away a few months worth of money.
8:28
Speaker 2: Yes, And I agree as well. It's it is challenging
8:32
Speaker 2: because you're trying to save and I want to say invest,
8:36
Speaker 2: you're probably trying to safe and pay down some of
8:39
Speaker 2: your big expenditure at the same time. I think that's
8:42
Speaker 2: what a lot of listeners are probably finding themselves in,
8:46
Speaker 2: especially more so today with you know, higher cost of living, inflation,
8:51
Speaker 2: though all the variety of woes that are making it
8:53
Speaker 2: tough to be an Australian today, but there are ways
8:57
Speaker 2: to actually, I guess, get around or find a balance,
9:03
Speaker 2: and I guess before going to the fourth principle. One
9:07
Speaker 2: recent example was a conversation I had with an individual
9:12
Speaker 2: in Ballarat, Victoria, and he was trying to actually build
9:17
Speaker 2: his emergency fund while trying to pay down his mortgage
9:21
Speaker 2: at the same time. Like that's a really tough thing
9:24
Speaker 2: to do, right, but that is the reality. So what
9:28
Speaker 2: we came up with as a solution was, look, if
9:31
Speaker 2: we combine the emergency fund together with an account that
9:37
Speaker 2: actually allowed him to pay down his mortgage, he would
9:40
Speaker 2: get the best of both walls combined into one. So
9:44
Speaker 2: we found that solution using a offset account and a
9:48
Speaker 2: redraw facility, so his emergency fund would still be intact.
9:54
Speaker 2: He would still be build that fund, but as he
9:56
Speaker 2: is adding more money to that emergency fund, is a
10:00
Speaker 2: is actually actively being down his principal on his mortgage.
10:05
Speaker 1: Okay, so now what we will do. We're going to
10:08
Speaker 1: let you to continue those principles. We'll take a short
10:10
Speaker 1: break and I'll let you roll on where you were
10:12
Speaker 1: getting to there. You had four I think you've given
10:15
Speaker 1: us four and you can give us the rest after
10:16
Speaker 1: the break. I'm sure people would be very keen to
10:18
Speaker 1: hear what they are one moment. Hello, Welcome back to
10:30
Speaker 1: the Australians Money Puzzle podcast, our special podcast on the
10:35
Speaker 1: fire movement fio E Financial Independence Retire Early. It's a concept,
10:41
Speaker 1: it's a movement around the world. It captures the imagination
10:44
Speaker 1: of many people there are. One of the reasons I
10:47
Speaker 1: wanted to do this show, especially at during the Christmas break,
10:51
Speaker 1: was because it's something that you kind of stand back
10:54
Speaker 1: from the day to day and think about and I
10:56
Speaker 1: think it's captures, as I say, the imagination of many Australians.
11:00
Speaker 1: It's a little bit harder to grasp. It's even harder
11:03
Speaker 1: to get a handle on who and who's in it
11:05
Speaker 1: and how it works. There are meetings around the country,
11:08
Speaker 1: from Cooler roy to Melbourne's CBD. I've come upon on
11:12
Speaker 1: the internet. There are many different organizations. No one owns
11:15
Speaker 1: it and there is no one person who can say
11:20
Speaker 1: they are in charge of it or the chief spokesman
11:23
Speaker 1: for it. But today's guest on the show is Lionel Lee.
11:27
Speaker 1: In the first segment, he was just starting to outline
11:29
Speaker 1: some of the key principles. You might just tell us
11:33
Speaker 1: the rest of the key principles of the Fire movement.
11:36
Speaker 2: No problem. Yeah, I'll just leave our listeners with the fourth.
11:40
Speaker 2: And essentially, the fourth principle is just that you're considered
11:45
Speaker 2: financially independent and you can retire early if you wish,
11:49
Speaker 2: once your passive income generates enough to cover your basic
11:54
Speaker 2: living expenses. So that's the fourth principle that I took
11:56
Speaker 2: away from the Fire Movement that I've out was useful
12:00
Speaker 2: and practical for my personal financial needs.
12:04
Speaker 1: Now, the other thing with the last one, which sounds
12:09
Speaker 1: you know, sounds so sensible, Well, you know, you get
12:12
Speaker 1: to the point where your passive income covers your expenses. Yes,
12:16
Speaker 1: that is a lot harder than it sounds.
12:19
Speaker 2: Yes, and I totally agree with you.
12:21
Speaker 1: What do people in the Australian market generally use for
12:28
Speaker 1: passive income to cover their expenses? Is it property? Is
12:31
Speaker 1: it share market investing? What is it ETFs? What do
12:35
Speaker 1: they use?
12:36
Speaker 2: The Australian market is fairly narrow in its use of
12:42
Speaker 2: a variety of financial instruments to create passive income. So
12:45
Speaker 2: I would have to say that majority of moms and pops,
12:48
Speaker 2: you know, even the young adults who are listening in
12:52
Speaker 2: generally hit towards roast, so roastate becomes the common passive
12:58
Speaker 2: income tall shru want not generator that. Then, of course
13:02
Speaker 2: there are those that are invested in the ESX so
13:06
Speaker 2: those drum stock exchange and market and folks of course
13:10
Speaker 2: having fixed income as well that would include some cash,
13:14
Speaker 2: maybe bonds, some deposits. Generally those are the treaming asset classes.
13:19
Speaker 2: I'm not going to show in things like you know,
13:21
Speaker 2: the digital assets like crypto and stuff like that, but
13:24
Speaker 2: traditionally those are the three asset classes that majority of
13:29
Speaker 2: our Austrian listeners have the moneies in and are using
13:33
Speaker 2: to gerate passive income.
13:35
Speaker 1: Okay, now, can I just say to you that the
13:37
Speaker 1: challenge to me is that this goes really slowly. If
13:41
Speaker 1: I have it in cash, it's three or four percent.
13:44
Speaker 1: If I have it in property, the yields are two
13:47
Speaker 1: or three percent. In net. If I have it on
13:49
Speaker 1: the share market, the Australian share market, the dividend is
13:51
Speaker 1: about four and a half. It's going to be a
13:53
Speaker 1: long time before that passive income. This is why I'm
13:57
Speaker 1: so skeptical, not that I completely admire the individual listeners
14:03
Speaker 1: aspiration to achieve this, but I need to be I
14:07
Speaker 1: feel we need to sober up on how long and
14:10
Speaker 1: how hard it is to achieve this. Is there anything
14:12
Speaker 1: you know that I don't know that makes it easier
14:15
Speaker 1: than it sounds.
14:16
Speaker 2: I agree with you, James, it's not easier than it sounds.
14:18
Speaker 2: Even I wouldn't even as a I'm as not finance educator,
14:23
Speaker 2: you know, and I teach in the universities, not just
14:25
Speaker 2: in Australia but also Alsode Australia. I've been a guest
14:28
Speaker 2: speaker at private client events you know that are organized
14:33
Speaker 2: by banks, financial institutions, wealth managers. I always tell the
14:37
Speaker 2: audience it is not easy, even though I'm being used
14:41
Speaker 2: as a reference. So I'm sure that in your Google
14:45
Speaker 2: search or background search of myself it probably pops up
14:48
Speaker 2: that I'm one of those individuals who went from being
14:51
Speaker 2: an employee to an ultra high network and therefore managed
14:56
Speaker 2: to fire by h forty.
15:00
Speaker 1: Ever had a fixed salary. You didn't do it on
15:01
Speaker 1: a fix I did.
15:02
Speaker 2: It partly on a fixed I's I was an employee
15:05
Speaker 2: and when I started, like most of the other folks,
15:08
Speaker 2: I didn't come from a wealthy family I didn't have
15:11
Speaker 2: any inheritance, so it's purely hard work. So I totally
15:15
Speaker 2: agree and I support you, James in your statement to
15:18
Speaker 2: listeners that it is not a quick fix, is not
15:22
Speaker 2: an easy thing to do. It requires time and commitment.
15:27
Speaker 1: So that's and lifetime commitment.
15:29
Speaker 2: Yes, that's right, and that's something that I had to
15:31
Speaker 2: do for myself. So you know, there's a couple of
15:34
Speaker 2: things that even though I encountered the fire movement, as
15:37
Speaker 2: I said early so in the late nineteen nineties, I
15:40
Speaker 2: didn't think that everything that I picked up was useful,
15:44
Speaker 2: practical and I could actually implement because there were things
15:48
Speaker 2: that were missing. So what was missing was what I
15:52
Speaker 2: actually picked up in my course of work. So I
15:54
Speaker 2: work in an investment holdings company, I have to travel
15:58
Speaker 2: the international market, so I worked in twenty plus markets.
16:02
Speaker 2: I worked with ten more than ten industries. And what
16:06
Speaker 2: I've learned in engaging with those corporations, family enterprises, family
16:11
Speaker 2: offices as well as the ultra high network individuals is
16:15
Speaker 2: how they manage and drew their wealth. So for them,
16:18
Speaker 2: it wasn't about fire, because they didn't need to talk
16:21
Speaker 2: about fire. It was more of how they were actively
16:26
Speaker 2: getting wealthy. So I combined what I learned with fire
16:29
Speaker 2: and what I learned from interacting with the individuals that
16:34
Speaker 2: had a much larger wealth base what the journey need
16:39
Speaker 2: to look like. So I realized that Number one, I
16:41
Speaker 2: had to up my earnings. So if I had if
16:44
Speaker 2: my earnings didn't go up and I was just looking
16:47
Speaker 2: to save more and invest more, I wouldn't have a
16:51
Speaker 2: compounding effect. So I need to up my savings after
16:55
Speaker 2: up my earnings. So the more I earned, the more
16:57
Speaker 2: I could sive. So when I started working, you know,
17:00
Speaker 2: I only had one thousand eight are dollars a month.
17:03
Speaker 2: That was my salary where I started working back in
17:07
Speaker 2: the late nineteen ninety So I started working nineteen ninety
17:10
Speaker 2: five one thousand and eight. I was a bit more
17:13
Speaker 2: fortunate because I was traveling extensively. I could save a
17:17
Speaker 2: lot of my income. So I made a safe at
17:20
Speaker 2: best seventy percent of that monthly income, and I.
17:25
Speaker 1: Would sorry, sorry.
17:28
Speaker 2: Seventeen So I managed to save seventeen seven zero.
17:31
Speaker 1: You were have to save seven zero of your income, Okay, But.
17:34
Speaker 2: I need to disclaim to our listeners that I was
17:36
Speaker 2: fortunate because I was traveling extensively, So I didn't have
17:40
Speaker 2: a lot of expenses, right, and also I was working
17:43
Speaker 2: seventeen hours a day, seven days a week, so I
17:46
Speaker 2: had no time to go, you know, to the pub,
17:49
Speaker 2: yeah at night, for example, So I had very little
17:52
Speaker 2: social life as well. So that allowed me to save
17:55
Speaker 2: seventy percent. But what I did with the seventy percent,
17:58
Speaker 2: The first thing I did was to actually find any
18:03
Speaker 2: kind of savings instrument that would give me the highest
18:07
Speaker 2: interest rate and I would actually put it in. So
18:10
Speaker 2: I just went for them deposits. I went firm deposit hunting,
18:13
Speaker 2: you know. Every time I had free time between well,
18:16
Speaker 2: I would go look for them deposits, and I would
18:19
Speaker 2: just keep kept I just kept putting money in there.
18:22
Speaker 2: Because at that stage of life, I was not in
18:25
Speaker 2: present doing this. I couldn't afford to use the small,
18:28
Speaker 2: meager amounts ahead.
18:30
Speaker 1: Okay, and the certifire principle that you start, I suppose
18:34
Speaker 1: in terms of getting that emergency money at the start,
18:36
Speaker 1: you have to say you can't gamble that you have
18:38
Speaker 1: to save it. Yeah, okay, that's right.
18:42
Speaker 2: Yeah, So I applied Prince one number tree, right, I
18:45
Speaker 2: applied Prince one number three without just look at it
18:48
Speaker 2: as a emergency fund. I looked at it also as
18:50
Speaker 2: a fund that would grow that savings. Right, So many
18:54
Speaker 2: of the times when you did my emergency fund, we
18:56
Speaker 2: just opened the bank account and just kept keep putting
18:58
Speaker 2: money in there. But it doesn't row at a high
19:01
Speaker 2: interest rate, so I had to look for the high
19:03
Speaker 2: interest rate accounts. In this case, when I was doing it,
19:06
Speaker 2: there weren't high yel savings accounts, So the best thing
19:09
Speaker 2: I could find was turmb deposits. So I just went
19:12
Speaker 2: from tomb deposit the tomb deposit every time interest rate
19:17
Speaker 2: increased from the issue. So I did that for a
19:21
Speaker 2: while and then that actually up my savings. So that
19:26
Speaker 2: also gave me a buffer to start thinking about investing.
19:29
Speaker 1: I know you're just a sample of one, but when
19:32
Speaker 1: you did begin investing as someone to which the adherence
19:36
Speaker 1: to the Fire movement and its principles has really worked,
19:39
Speaker 1: and beyond the term deposits, then what was your first
19:43
Speaker 1: sort of foray into an investment beyond saving?
19:48
Speaker 2: Yep, So I did actually what every other I guess
19:51
Speaker 2: the average ossie would do, which is go buy home.
19:55
Speaker 2: So my first investment was actually using the tumb deposits
20:00
Speaker 2: to save enough to actually put a down payment on
20:04
Speaker 2: a property. So that's what I did. So it's not
20:06
Speaker 2: you know, sexy stuff, it's not rocket science. Everyone else
20:09
Speaker 2: does the same thing. So I did that, and so
20:13
Speaker 2: that actually started my investing I guess journey. And also
20:18
Speaker 2: I started looking at the stock market as well, so
20:22
Speaker 2: public equities being another asset class that I encountered during
20:26
Speaker 2: my work, so I get the chance to learn more
20:29
Speaker 2: about it and also then edit some of that money
20:32
Speaker 2: to buying stocks as well. But I'm not a trader,
20:35
Speaker 2: so essentially I'm looking to build my investment returns over time,
20:41
Speaker 2: and I want to make sure that those investment returns
20:44
Speaker 2: do not get half along the way, so it builds
20:47
Speaker 2: up stately. So I don't go after high risk, high
20:50
Speaker 2: return stuff. I look for stocks and shares that allowed
20:54
Speaker 2: me to get a certain level of dividend. At the
20:57
Speaker 2: same time, it also has capital gains over a long
21:00
Speaker 2: period of time, So unfold stables or staples with my
21:03
Speaker 2: stocks and shares, and of course with the travel I
21:08
Speaker 2: engage with different markets, so that also allowed me to
21:11
Speaker 2: think about diversifying my stocks into different exchanges versus just
21:16
Speaker 2: one stock market.
21:18
Speaker 1: Do you did any individuals in exchange not not exchange
21:23
Speaker 1: traded funds. No, I mean ETFs. Is that part of your.
21:29
Speaker 2: Yeah, we're talking about the Yeah, so I wasn't. I
21:32
Speaker 2: wasn't using ETFs. I still don't personally have ETFs because
21:36
Speaker 2: I based on the stock portfolio that I've worked on
21:41
Speaker 2: myself over time, it's behaved like an ETF. So I
21:44
Speaker 2: created my own ETF before ETFs were available. I'm not
21:48
Speaker 2: saying I'm smart.
21:49
Speaker 1: I understand the concept and it's a very strong concept.
21:52
Speaker 1: But I imagine that it was very much a blue
21:55
Speaker 1: chip portfolio.
21:56
Speaker 2: Yes, if you're looking.
21:57
Speaker 1: For dividends as well as each time. Okay, very good.
22:01
Speaker 1: So interesting, first of all the emergency fund, then the savings,
22:07
Speaker 1: then the home then this sort of slow but gradual
22:13
Speaker 1: opening out of your investment for the trio into investment markets,
22:17
Speaker 1: including the share market. Very interesting. Okay, Now I'll take
22:20
Speaker 1: a break and I want to sort of stress test
22:22
Speaker 1: the whole concept with you in the final segment. Back
22:25
Speaker 1: in a moment, folks, Hello and welcome back to The
22:39
Speaker 1: Australian's Money Puzzle podcast. I'm James Kirby and I'm talking
22:42
Speaker 1: to Lione Lee and we're talking about the fire movement.
22:45
Speaker 1: Fior Financial Independence retire early something that really captured our
22:50
Speaker 1: listeners imaginations during the year, and I wanted to do
22:53
Speaker 1: a special episode on it. Lionel Is is in the
22:57
Speaker 1: investment markets. He's also a financial as you cater he's done.
23:01
Speaker 1: He also does some work in education, financial education in
23:05
Speaker 1: universities and schools. As you can have heard from the
23:09
Speaker 1: first segments, he's a very articulate advocate. And look, I
23:14
Speaker 1: just wanted to throw one or two things at you.
23:17
Speaker 1: I'm sure you're gonna I'm sure you're gonna have good
23:19
Speaker 1: answers for all this, But there's two or three things
23:21
Speaker 1: I want to ask about. First of all, in our
23:24
Speaker 1: own market in Australia, everybody has to put eleven and
23:29
Speaker 1: a half percent of their savings into super by law mandatory,
23:34
Speaker 1: which is good, but it's also a problem in some fashion.
23:39
Speaker 1: One of those ways is that if money is tight,
23:41
Speaker 1: as it is for many people, and you already have
23:44
Speaker 1: to put eleven and a half percent into your retirement,
23:48
Speaker 1: whether you like it or not, right by law you
23:50
Speaker 1: must do. It's mandatory superinnuation guarantee charge. Does that dilute
23:56
Speaker 1: or in some way sidestep needs to follow the fire movement.
24:04
Speaker 2: I don't think there's actually it doesn't really side step
24:07
Speaker 2: the need to follow the fire movement. I think one
24:10
Speaker 2: point of clarification is we are not encouraging listeners to
24:15
Speaker 2: follow the fire movement. I think my opinion is you
24:19
Speaker 2: should use what you understand about the fire movement as
24:24
Speaker 2: a guiding light and then apply what you feel works
24:28
Speaker 2: for you to actually achieve your personal financial goals, whatever
24:33
Speaker 2: those goals might be. Some people are not looking to
24:35
Speaker 2: retire early. They just want financial independence. They just want
24:39
Speaker 2: the fire side, but not the reside, right, So it's
24:42
Speaker 2: really up to the individual. But coming back to superinnuation,
24:46
Speaker 2: I am a fan of supernuation because there are many
24:50
Speaker 2: Fellows Stilens out there who are not in the habit
24:53
Speaker 2: of saving. Superneration to me is a form of forced savings.
24:58
Speaker 2: And I know that eleven saying is, you know it's
25:01
Speaker 2: a tough fee, but it is still a benefit for
25:06
Speaker 2: those who are not in a habit of doing so,
25:09
Speaker 2: and that helps with such definement. But that helps with
25:13
Speaker 2: their retirement because at least we know that at some
25:17
Speaker 2: point in time, what whenever they decide to retire, whether
25:20
Speaker 2: it's before after the statutory retirement age, they do have
25:25
Speaker 2: some funds they're waiting for them to live off and
25:29
Speaker 2: to enjoy life with. I think that the issue I
25:32
Speaker 2: have with the superannuation is more of the fat name
25:36
Speaker 2: because it is seen as passive. You know, every you know,
25:40
Speaker 2: my eleventh percent goes there, it takes care of itself.
25:43
Speaker 2: The answer is it doesn't. So you have to. And
25:47
Speaker 2: again I just repeating myself to listeners. You have to
25:49
Speaker 2: because it's your money, pay attention to a super and
25:53
Speaker 2: look for just like I've done with you know, my
25:56
Speaker 2: meager salaries when I started looking for hiyo returns from
26:00
Speaker 2: savings and some deposits, you should approach the super returns
26:04
Speaker 2: in the same way. Look for ways to actually up
26:07
Speaker 2: your super returns because every percentage counts due to compounding,
26:15
Speaker 2: and over time that small percentage increase compounds to a
26:19
Speaker 2: large dollar number at the end of twenty twenty five
26:23
Speaker 2: or thirty years or even thirty five years for many
26:26
Speaker 2: young and middle age Australian.
26:29
Speaker 1: We shouldn't underestimate the power compoundings. And it's a key
26:32
Speaker 1: thing obviously in the fire movement, that whole thing that
26:34
Speaker 1: basically time in the market rather than timing the market,
26:37
Speaker 1: which is so important. Can I ask you about that?
26:40
Speaker 1: Of course, more part of fire is, as you say,
26:42
Speaker 1: the second part of it. The first part is financial independence.
26:45
Speaker 1: The second part is retired early. Super doesn't allow you
26:48
Speaker 1: to retire early. You can't get your hands on your
26:50
Speaker 1: super until you retire, So to that extent, it's not
26:52
Speaker 1: very good from that perspective. What about borrowing? What's the
26:58
Speaker 1: approach in relation to borrowing? Because borrowing at its best,
27:04
Speaker 1: obviously it can magnify and accelerate wealth building.
27:07
Speaker 2: Yes, so I think the word borrowing and the other
27:10
Speaker 2: word that comes to mind will be leverage. So boring
27:14
Speaker 2: and leverage they are. They might sound similar, but they're
27:18
Speaker 2: not the same. So I think when we use the
27:20
Speaker 2: word borrowing, most people are actually borrowing to get into debt.
27:27
Speaker 2: So boring and debt I mean a car like good Buddies,
27:32
Speaker 2: which is not good for the individual. So I cannot
27:36
Speaker 2: use the word borrowing because it paints the picture of
27:40
Speaker 2: you know, you borrow our consequences. It's like buy now,
27:43
Speaker 2: pay later, right, so it's a car borrowing. I prefer
27:46
Speaker 2: to use the word leverage that I prefer listeners that
27:48
Speaker 2: think about leverage, because liverage means that there's an active
27:52
Speaker 2: positive approach that you're taking to the borrowing. So if
27:57
Speaker 2: you are liveraging assets, you know you're liverting your cash
28:03
Speaker 2: to actually then acquire more income generating gains generating assets,
28:10
Speaker 2: then yes, I would say, you know there's something you
28:12
Speaker 2: should do, which is what I did.
28:15
Speaker 1: So, for example, you're talking about active tax deductible investment
28:20
Speaker 1: only investment focused borrowing, I e. Leverage. Is there any
28:26
Speaker 1: guidelines as to how much or how little someone should
28:29
Speaker 1: engage in that.
28:31
Speaker 2: I don't really have a prescription. I would say that
28:34
Speaker 2: really depends on your circumstances. So the way I will
28:39
Speaker 2: look at it just to provide some kind of guide
28:42
Speaker 2: to listeners who are thinking about this and I don't
28:44
Speaker 2: want them to actually start doing it and get into,
28:47
Speaker 2: you know, a fix I become debt ridden, is that firstly,
28:52
Speaker 2: look at how much cash base you have. The cash
28:55
Speaker 2: base is essentially your protection against liberty. Too much that
29:00
Speaker 2: means that you are able to repay down some of
29:03
Speaker 2: that liverage to be in a position whereby you are
29:07
Speaker 2: actually not bleeding your financially. Then also look at the
29:12
Speaker 2: cost of liverage. For example, if I were to borrow
29:17
Speaker 2: you know. Let's sorry, let me let's go back to
29:19
Speaker 2: I own a property, right, so I properly has a
29:22
Speaker 2: lot of equity over maybe the ten, fifteen, twenty years,
29:25
Speaker 2: I'm looking to borrow on that equity. That borrowing is
29:28
Speaker 2: not free. It is leverage, but it's not free. So
29:31
Speaker 2: if you are actually taking equity out at a high interest,
29:36
Speaker 2: then your liverage becomes really costly. So the cost of
29:39
Speaker 2: liverage is important because if you are safe, for example,
29:43
Speaker 2: taking equity out and it costs you six percent, but
29:48
Speaker 2: you're putting into something else that only gets you five percent,
29:51
Speaker 2: you're losing one percent. So you have to live rich. Yes,
29:56
Speaker 2: So the other thing you think about the cost working.
29:59
Speaker 1: Okay, so do your numbers carefully and the numbers.
30:02
Speaker 2: Move exactly exactly. That's right, And so you have to
30:05
Speaker 2: pay attention. Right, You can't just sit back and think, Okay,
30:08
Speaker 2: the banks, you know, the financial institutions, my my gro
30:11
Speaker 2: go will take care of everything. They don't. So if
30:14
Speaker 2: you've got money in you know, any kind of assets, well,
30:19
Speaker 2: you've got money. You need to take care of your money.
30:21
Speaker 2: You need to pay attention. You need to find ways
30:22
Speaker 2: to get that money. However, little or much you have
30:26
Speaker 2: to work better for you.
30:29
Speaker 1: It sounds like the idea of set and forget is
30:32
Speaker 1: not your idea.
30:33
Speaker 3: No, do not ever set and for Yeah, yeah, I
30:37
Speaker 3: like that. I like that don't set and forget. I
30:39
Speaker 3: completely agree with you. Okay, it's very interesting. I really
30:43
Speaker 3: like how you've presented all this. Just one last thing
30:46
Speaker 3: about fire and the Fire movement, and I wanted to ask,
30:50
Speaker 3: what if things go wrong?
30:51
Speaker 1: So somebody has a plan they and they really are
30:56
Speaker 1: serious and they start and they say, Okay, I'm going
30:59
Speaker 1: to do this. I'm going to really do this. I'm
31:01
Speaker 1: going to adhere to this, and it's not my New
31:04
Speaker 1: Year's resolution. I'm going to do this for years. I'm
31:07
Speaker 1: got to follow the basic I'm going to get my
31:08
Speaker 1: emergency funds started so that I can cover emergencies of
31:12
Speaker 1: whatever they may be. It might be a surprise health bill,
31:16
Speaker 1: it might be that the interest rates went up and
31:19
Speaker 1: I have to pay more per month. But they've covered that,
31:22
Speaker 1: and they've got there, they've got their plans, and they
31:25
Speaker 1: have their age in mind that they'd like to achieve
31:29
Speaker 1: financial independence. What do you say to people when things
31:33
Speaker 1: really go wrong they buy a bomb property. It was
31:36
Speaker 1: asbestos in the building, or they were in the share market.
31:40
Speaker 1: They'd never been in the share market. And guess what
31:42
Speaker 1: there was a crash, you know, six months after they start.
31:45
Speaker 1: How did people get through those hurdles.
31:49
Speaker 2: To answer that question, I guess two hours satisfaction and
31:52
Speaker 2: making it back to go. For a listeners, I would say, foste,
31:56
Speaker 2: we need to think about two things. Number one, it
31:59
Speaker 2: is possible to fire. I'm like I said, I'm not
32:03
Speaker 2: advocate for fire. The way I approach it is I
32:06
Speaker 2: look at fire and wealth management as a combination. So
32:11
Speaker 2: I like to use with fire wealthy. That's what I
32:13
Speaker 2: share with my students. And I know it's possible because
32:19
Speaker 2: I've done it and the many other people who have
32:22
Speaker 2: done it. That's why we've got so many high network
32:24
Speaker 2: individuals and ultra high networth individuals in Australian. The other
32:28
Speaker 2: thing that's important to think about fire is networth. So
32:33
Speaker 2: that's how I approach fire. I approach file from building
32:37
Speaker 2: my networth. And the reason why I use that word
32:39
Speaker 2: and I repeat the word networth, is because building networth,
32:43
Speaker 2: or getting our listeners to be in the mindset of
32:45
Speaker 2: building networth, means that they are looking at actively taking
32:51
Speaker 2: steps and those steps are positive to actually save to invest,
32:56
Speaker 2: you know. And also it's not just saving any investing,
32:58
Speaker 2: which is what Fire talks about, but it forgets that
33:02
Speaker 2: you have to work better, you have to earn better,
33:05
Speaker 2: you also have to spend better in order to meet
33:08
Speaker 2: your savings and investment grow. Whcause it's all what's hand
33:13
Speaker 2: in hand. You're all good friends, right, it's having It's
33:15
Speaker 2: like having a platter, a beer platter, right, So instead
33:18
Speaker 2: of just enjoying an ale or it's out, you've got
33:21
Speaker 2: the you've got the best alos. And at the same time,
33:24
Speaker 2: you need to understand how the world money works. So
33:27
Speaker 2: what I term the money verse, because cocuar fire independent
33:31
Speaker 2: of the money verse is actually something that that doesn't work.
33:35
Speaker 2: It has to be together. So that's what our listeners
33:40
Speaker 2: may lack. And and that's a comprehensive understanding. So why
33:43
Speaker 2: did I Why am I saying this is because when
33:46
Speaker 2: they do this, the chances of them actually failing will
33:50
Speaker 2: be much lesser. So that's the first. So that's the
33:53
Speaker 2: first to seconds. What happens when you know we've done
33:56
Speaker 2: everything right and the universe is against us, and it
33:58
Speaker 2: happens I've literally the Asian financial crisis. So you know
34:03
Speaker 2: that I'm not that young. I've experienced sas before, I
34:07
Speaker 2: experienced go financial crisis. You know, all these were major
34:12
Speaker 2: slaghammers on my portfolio. What I did, when I was
34:19
Speaker 2: thinking about my journey, my own personal finance journey and
34:22
Speaker 2: building my network, was that what if these things happened?
34:25
Speaker 2: And I pre the markets going down? So when I
34:30
Speaker 2: looked at the suppose that I shared, what I did
34:33
Speaker 2: practically was to actually change the principles to adjust for
34:40
Speaker 2: these unfortunate circumstances. So when I mentioned about the retirement amount,
34:47
Speaker 2: you know, your annual expertus, I'm twenty five, I actually
34:51
Speaker 2: used a much higher number. I used more than twenty five.
34:54
Speaker 2: I achieve, applied more than four percent in my calculation.
34:57
Speaker 2: And not only that, I actually added in inflation and
35:00
Speaker 2: I added in hyperinflation in my own calculations as well.
35:04
Speaker 2: So the final number that I adjusted for myself in a
35:07
Speaker 2: day was much higher. So she meant I had to
35:10
Speaker 2: work harder, I had to work better, I had to
35:12
Speaker 2: earn better, you know, up my earnings. So all of
35:15
Speaker 2: that provided me with the ability to buffer all the
35:18
Speaker 2: different I just kickups in the financial markets. But also
35:21
Speaker 2: the other thing I remember is everything in the universe
35:25
Speaker 2: is psychical, meaning that when the financial markets go down,
35:29
Speaker 2: they will rebound as well, because just like the elevators, right,
35:32
Speaker 2: what goes up comes down, what goes down goes up.
35:35
Speaker 2: So the important thing is to be able to be
35:38
Speaker 2: in a position. I'll make sure that you're in a
35:41
Speaker 2: financial position to actually sit tight right and to they're
35:46
Speaker 2: trying to sit out, and and don't go jumping around
35:50
Speaker 2: doing crazy things. Where is it crazy things? I mean,
35:52
Speaker 2: you know, start you know, liquidating there, selling that, and
35:56
Speaker 2: put yourself in a more challenged financial position. When the
36:01
Speaker 2: markets recover, then you are actually even more backward than
36:05
Speaker 2: you were.
36:07
Speaker 1: Okay, all right, I like your approach. You've you've certainly
36:11
Speaker 1: convinced me much more than I had been.
36:14
Speaker 2: Like my people got to convince you, but it was
36:18
Speaker 2: just a miche listeners.
36:20
Speaker 1: Well you have, you have, you have, And I think
36:23
Speaker 1: what we needed to do we needed to get a
36:25
Speaker 1: show where we spelled it out and which stress tested
36:27
Speaker 1: it and we really laid it out, and I think
36:30
Speaker 1: you've done that very well. So thank you very much
36:32
Speaker 1: for coming on the show. Line le great to hear
36:34
Speaker 1: from you.
36:34
Speaker 2: It's my pleasure, James, Yeah, thanks for having me. You know,
36:37
Speaker 2: it's great to be able to chat with one of
36:39
Speaker 2: Australia's most experienced financial journalists. You know, I also contribute
36:44
Speaker 2: to articles through various news media, you know, in around
36:47
Speaker 2: the world. But I must see that I do not
36:49
Speaker 2: have the wealth of journalism that you have. So you're
36:52
Speaker 2: definitely a role model for me.
36:55
Speaker 1: There you go, Well, there's a career. There's a career
36:57
Speaker 1: for you. There's a career for you journalism should you
36:59
Speaker 1: ever wish to do so. Okay, folks, that was not
37:02
Speaker 1: only great to hear from him, great to hear from you.
37:04
Speaker 1: I hope you're enjoying your break. Be ready for our
37:07
Speaker 1: season coming up, Our special season of the Outlook for
37:10
Speaker 1: twenty twenty five coming up soon. Keep the emails coming
37:14
Speaker 1: in the money puzzle at the Australian dot com dot au.
37:18
Speaker 1: Don't you soon