This post is based on an interview we conducted with Laura in September 2021.
Real Money Talk is our series where we interview Australians from all walks of life about their personal finances. The views expressed are those of the interviewees, based on their experiences with money, and as such are not necessarily representative of Spaceship's views.
We have changed the name of the interviewee for their privacy.
Overview
Name: Laura
Age: 41
Where do you live? Melbourne, Australia
Please tell us a bit about yourself.
I'm a 41-year-old project manager and mother of two. I live intergenerationally with my partner, my mother, and our children.
What's your current net worth?
$1,500,000 or so.
How does it break down?
- $500,000 in superannuation as a couple.
- $430,000 in index fund investments.
- $530,000 in investment real estate.
- $860,000 in the house we live in.
- $3,000 or so in a Spaceship Origin Portfolio.
Do you have any debts?
I have a $760k mortgage.
How did you build your net worth?
My parents divorced when I was 11, and my father died when I was 17. I got my first job and hated it, which made me debt finance university so I could get something less menial.
I didn't know anything about money – my parents were so awful with it. By the time I was 24, I was following their financial patterns. I spent what I earned immediately.
I got a credit card in university, and between it and tuition, I graduated with about $150,000 in debt.
Being painfully, constantly broke, I bought my first self help book: The Richest Man in Babylon. I also read tips online, which promoted me to open multiple bank accounts that I could name with various bills so I'd split my pay visibly. I cut up my credit card, and got a job in financial services thinking it suited my major and would get me a financial education.
Around 24, I started salary sacrificing 5% of my pay into superannuation, and I spent the first 10 years after graduation digging myself out of debt.
As my salary increased, I kept our lifestyle about the same and increased our focus on salary sacrificing and paying off debt. I married at 26, and my partner was good with money, though we were both paid about average until our thirties.
At 30, we bought our first house, which I paid off quickly because my salary had risen from my initial $38,000 to about $80,000 by then. My partner's job was near mine in salary, and we planned together. We used employer pay splitting to automate key payments.
Once I was out of debt, I switched focus to investing with the money I'd been putting into debt. Now I salary sacrifice to the fully allowed $27,500 cap per annum and invest 44% of my income. Also, my salary is the highest it has ever been. I could probably retire if I wanted to. I like my work though, and am waiting for the kids to graduate before I decide.
Earn
Tell us a bit about your career.
I started at 14 working under the table at a flower shop making flower arrangements for $5 per hour. At 16, I got a summer job as a cashier at a supermarket. At 18 I started work in a call center for an insurance company, but left the job to move to another state. The move fell through and I went home to start working at the concession stand at a cinema.
At 19, I went to uni, and I graduated at 25. My first job was a marketing/admin role at a small technology company. I left them when negotiations for a raise fell through, and I got a temporary job with a bank with the help of a recruiter using my hobby web development skills. I moved from that temp job into a permanent role as a junior business analyst (entry level).
Two years later, I ran my first project, then switched focus to project management. I've been a project manager in financial services/technology pretty much ever since.
Do you have any income sources outside your job? How much do you earn from each and how did you develop them?
I earn between 5% and 22% growth on my investments pretty much every year. Beyond that, after we paid the mortgage off our first house, we rented it out and bought another. My partner also works.
What advice do you have for other people who want to earn more money?
Earning more money did help generate our wealth, but it wasn't key to our financial success. Setting up systems and paying attention to our habits is what helps build your wealth. Fundamentally, it's just math and a LOT of patience. Start with goals you're passionate about. For me, it was "get out of debt" then "save 3 months of salary" then "25x the amount I want to live on invested for retirement".
Once you know where you're going, use automation tools like employer pay splitting, salary sacrifice, and investment schedules to make your plan happen before you even need to decide if you're going to 'be disciplined' that pay. Basically, pay yourself first. Right now, I'm using Spaceship Voyager for that and just treating it like any other monthly bill – but it's a 'bill' that helps build wealth by investing for the long term.
Also, think about eliminating spending that drains your assets. For example, paying rent is usually paying someone else's mortgage. If you replace it with a mortgage that builds equity, you can sell that property later. Use this treatment on anything that drains your pockets. Sometimes it's just stopping certain habits, sometimes it's substituting for cheaper ways to do the same things.
Finally, control your lifestyle. As you advance in earnings, the number of things you need in your life to be happy doesn't really change. It's usually family, friends, food, and a roof over your head. So, if you learn to be content with serving your needs rather than your wants, and doing it in smaller, more affordable ways, you will rapidly accumulate wealth.
Save
What's your savings rate? How has it changed over time?
From entering into the job market around 14 to around 24, my savings rate was zero. At 27, I started saving 5% via salary sacrifice. With each new job every two-to-four years or so, I increased both salary and savings rate. Around 35, I finally maxed what I could with super, and had to supplement outside of super. This is when I started looking at things like Raiz, Spaceship, and more traditional things like CommSec and NAB Trade. Right now I save 44% of my income into various accounts.
Do you have a budget?
Yes, I use Google Sheets.
How much do you spend per year?
$103,000 was my actual expenditure last year.
Do you make purchase decisions carefully, or are you loose with your money?
We are somewhere in-between. Unallocated cash in the joint expense account goes quick, which is why we allocate money quickly and automate as much as we can.
Purchases over $250 or so tend to have heaps of deliberation. For example, our refrigerator had no door handles for about 8 years before we replaced it. That said, we almost never spend over our budget. I do a lot of online window shopping, see my cart is $500+ and walk away. If I'm still dreaming of something a month later, I'll ask my partner what they think about the purchase. Usually I get it at that stage. If I don't think about it again, I've saved myself $500+!
How is your work-life balance?
I work about 40-48 hours per week.
What's your favourite thing to spend money on?
My kids, probably.
Invest
How do you invest?
Automatically and often. $27,500 per annum to super. $750 per month to Spaceship. Reinvest dividends with Computershare.
What's been your best investment?
I reconcile once per year. Numerically, it's probably my long term index funds, but my favourite was my old house.
What's been your worst investment?
Worst performing was employee shares from a bank I used to work with. Real estate investment is also a lot of work, so that may be a close second. I've been contemplating looking at REITs instead of buying another investment property, but need to do more research.
What's been your overall return?
I'm not entirely sure. It's definitely more than 5% per annum, and I've had some shockingly stunning years at 22%+... Overall I suspect somewhere around 8%, accounting for markets being super high at the moment.
How are you building wealth?
Automatic monthly payments.
What are your main roadblocks to building wealth? How are you addressing them?
My spending habits and a tendency to want bigger or better things. Our new house is probably bigger than we should have gone, even for a large family with intergenerational living.
Do you have a target net worth you want?
$3 million.
Behaviour
When did you make your first significant behavioural shift towards wealth building?
24-years-old.
If you could start again, what would you do differently? What advice would you give your younger self?
Start earlier, avoid intermingling your finances with people who don't agree with your financial outlook. Figure out where your weaknesses are, be honest about it, then look for ways to plug those gaps quickly.
What mistakes have you made along the way that others can learn from?
Living paycheck to paycheck. Thinking that rich people were somehow fundamentally different to me and it was unattainable, so why try. I am not sure if I would have gone to uni. Paying off that debt was a huge part of my life for so long... but somehow, that led to the behaviours I ultimately needed, so maybe the other path wouldn't have been better. Delayed gratification is a pretty big one, but I am still pretty poor at that.
Do you have any worries about retirement? If so, how are you planning to address them?
Worried that I don't have enough diversification, so may be exposed to certain types of investments losing value rapidly. Also worried about being bored and how to shift from accumulation to a pension setup. It's more education, luckily I have time to research.
How are you learning about building wealth?
Started with books, then YouTube, eventually I did financial advisor training, but didn't stick with it. Still watch YouTube and read blogs.
Do you give to charity? If so, what percentage of your time/money do you give?
I don't give a lot to charity, but I support a few Patreons and give ad-hoc to charities. I volunteer my time more than give money. As for what %... In cash, less than $1,000 per annum. In time, prior to the pandemic, most weekends I'd do something for a few hours every Saturday.
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