I once attempted to make my fortune writing a Personal Finance blog… I learned that as far as financial plans go it was about as reliable as attempting to fund retirement via purchasing lottery tickets and hoping to get lucky!
On a more serious note @financiallymint, a couple of years ago I realised my net worth should have been sufficient for me to be FI, however I regularly felt cash poor.
In part this was due to the uneven earnings profile often associated with operating a business, and in part because I’d locked away capital in cash flow neutral investments (to minimise tax). The investments were achieving capital growth, but not throwing off streams of cash.
I looked at how I had structured my portfolio and did some experiments to see if I could engineer a way to restructure the portfolio and financing such that it would throw off sufficient cash to cover my living costs, and in doing so make me comfortably FI without needing to sell down capital to support myself.
With varying degrees of success that worked out pretty well. As each recurring cash flow stream was established/restored I was able to tick off my regular bills one at a time… never needing to worry about how I was going to pay the gas bill or buy groceries again.
A few lessons:
- Letting the tax tail wag the investment dog is not a recipe for happiness, contentment or financial success.
- It is capital growth makes you rich, but it is free cash flow makes you feel rich. There is a big difference between the two.
- Pensions are great for supporting people later in life, but anyone wanting to dial back the pace a bit or even retire early needs to have a sustainably viable way to make ends meet outside of age restricted pension accounts.
- Getting leverage levels right on investments requires careful running of the numbers, including factoring in interest rate rises. What we’ve experienced over the last couple of years is so different from historical norms that it is easy to forget that mortgage rates used to be 18% not so long ago.
- Diversification across asset classes is hugely important for many reasons, not least of which is the government can (and often does) change the rules which can at times adversely impact the performance or desirability of a given asset class. For example in the UK a couple of years ago borrowing costs for investment properties ceased to be tax deductible. More recently the new government in New Zealand is proposing to outlaw property ownership by foreign nationals.