'The thing holding us back from travelling as a family was a leather lounge'
If you believe retirement only happens when you reach your 60s - and you want to retire earlier - then read on.
We've interviewed seven Aussies who are working towards financial independence, early retirement.
Welcome to the FIRE movement.
Alisha, 29, Leo, 31 and baby Dom*
Aim: retire in 2021
Income needed: $80,000
Investment strategy: shares, particularly A-REITs; Vanguard index funds; managed funds that align with their principles; fund managers EGP Capital and Packer & Co; ETFs; 20% of their wealth to be held in Sunsuper and REST super funds.
When Alisha and Leo go shopping, every purchase has to pass the happiness test.
"What gives us the most happiness for our dollar?" they ask. "I would love designer clothes but I don't think they will give me that much happiness," says Alisha.
The strategy has worked. They are married with a baby boy and are on track to retire in 2021, aged 32 and 34. They are targeting a passive income of $80,000 a year based on their understanding of what they need when they have more kids and the higher travel costs that come with a family.
They have studied research from groups such as the National Centre for Social and Economic Modelling on the living costs for different life stages.
They've used early retirement tools like cFIREsim to work out how big their retirement portfolio needs to be to support that level of income and not go bust when the market crashes. cFIREsim lets aspirational early retirees see how their portfolio would have fared historically. For example, would it have survived in 1929, right before the market crash?
Before Dom arrived they were living off Alisha's low salary from working for a small charity and saving all of Leo's income. He has been getting better-paid jobs over time in the resources area.
"My work income has gone up significantly over the last five years," he says. "However, we were already targeting early retirement before this happened and this has simply brought the date forward."
Alisha could afford to stop work when Dom was born and they are still saving about 70% of Leo's salary. "It is quite a luxury to stay at home with your children," she says.
They live frugally but Leo says not overly so.
"We are a nomadic family with three suitcases, a backpack and a pram. No house, no car, no debt. We live wherever I'm sent for work."
Not being too attached to their possessions has been liberating but hard at times. Leo recalls a favourite leather couch that almost split the family.
"The biggest thing that was holding us back from travelling as a family was the leather lounge," he says, noting how ridiculous it sounds. He would travel for work and Alisha would stay in the house with their furniture and possessions, seeing Leo on the weekends.
But they decided to sell everything and travel together as a family. They were surprised that people didn't want to buy their perfectly good furniture, whitegoods and deluxe coffee machine.
"It was a little tough. We ended up giving most of it away for free. We realised that once it is secondhand it doesn't have a lot of value," says Leo.
They spend $100 a month on clothing. Alisha cuts Leo's hair. They have a grooming budget that includes cosmetics. "We dropped back the alcohol budget. A beer is fine not a $15 cocktail."
They have been industrious and entrepreneurial all their adult life. Leo paid his uni fees by being a DJ while studying. Alisha decorated cakes. They love their jobs and get caught up in them, often working nights and on the weekends.
They hold most of their portfolio in shares. Most of their funds are invested with small active fund managers with "skin in the game" like EGP Capital and Packer & Co. The rest is in Vanguard index funds.
They plan to hold 20% of their net worth in tax-effective superannuation to cover the second phase of their retirement. They plan to rent when their kids start school and they settle down.
In retirement they aim to spend more time together as a family and pursue whatever interests them without having to consider whether it works financially.
"It is doing simple things like what you do on a Saturday or Sunday - having breakfast with the family and reading the newspaper and getting fresh produce that day to cook. As well as exploring interests such as craft and having a healthy life with time to exercise," says Alisha.
Leo would like to help people with financial literacy and perhaps volunteer as a financial counsellor.
- You Need a Budget (YNAB) app - an envelope approach to budgeting.
- National Centre for Social and Economic Modelling research.
- cFireSim retirement calculator.
- GoCurryCracker, another nomadic family's blog.
- Mr Money Mustache.
* Not their real names.