Reflections of COVID-19

This week, we started going back into the office two days a week. It does put us on the path of returning to ‘normal’ again, but I must say I like the balance right now of having a few days from home and a few days in the office.

The downside is having to commute to work again. To avoid public transport, I’ve been alternating cycling and running in (it’s about 7km). Both have been great in the mornings, but I haven’t quite figured out what to do at night. I’m a bit of a wuss and don’t like cycling in the dark. So most evenings, I end up wheeling my bike onto the train, just so I don’t have to ride home in the dark.

So it’s been three months of working from home in a COVID-19 environment. I thought I would do a reflections post on how it has / hasn’t impacted our lives so far..

Jobs and employment

We’ve been really lucky to not have lost our jobs or have our hours reduced. COVID-19 has meant working from home for me, but business as usual for my husband who is in health. For a while, it was extra hectic having a toddler at home..but we survived (thank god) and childcares are back to normal again.

Zoom meetings with a Toddler

Spending

At the end of April when I did our month end expenses I was BLOWN AWAY. We had spent way less than our budget – which rarely happens. Sure groceries were up (and no, we weren’t even hoarding toilet paper), but there were no more coffees, no eating out, zero entertainment and no public transport. It’s funny reflecting on spending habits throughout the outbreak:

Phase 1: Initial Panic – masks, hand sanitisers and disinfecting wipes

Phase 2: Hoarding: toilet paper, flour, rice, pasta and longlife milks

Phase 3: Iso: Home office, fitness equipment, webcams, home crafts (sewing machines were selling out at Big W)

Thankfully everything has returned to normal now. We’re no longer rationing toilet paper or trying multiple supermarkets for soy milk (our little one has a dairy allergy)

Finances

What a wild, rollercoaster ride it has been. The share markets bottomed out on March 23rd and at the time of writing they have rebounded almost 30%.

There was a lot of panic selling at the time, but I’m not a believer of timing the market. We tried not to check our account balances and ride it out.

Is it over yet?

Our long term goals remain the same, even during a pandemic and recession – a small allocation into ETF’s every month, paying down our mortgages and remaining frugal in our spending.

It has made me appreciate the importance of having an Emergency Fund. While we didn’t use need it, it gave us a great sense of security knowing that should one of us lose our jobs or we lose rental income, we have enough there to keep going.

It now looks like the economy is slowly opening up, even if there are still some restrictions still in place. It certainly feels like we’re past the worst of it all, barring any second wave which might send us all into lockdown again.

Year in Review 2019

Net Worth as at 31 December 2019: $1,074,776

Side hustles

Side Hustle #1 At the end of 2018 I set up an Etsy shop and initially listed a few items I’d designed. Had zero expectations (at least financially) about where it would go. I still remember putting up a bunch of listings feeling pretty silly and filled with self doubt (thinking – who would want to buy this? is this even going to show up in the listings?). Well it’s been a year exactly since my first sale to a guy called Hans in Germany. I still remember hearing a notification on my phone at 2am and leaping out of bed in excitement. A sale! They kept coming after that. My etsy side hustle is a low value, low margin business, even if volumes are high at times. I don’t see myself quitting my day job and replacing it with Full Time Etsy Selling, but it gives me great satisfaction to sell things that I’ve designed and made.

Side Hustle #2 hasn’t gone so well. I tried to import some goods and set up an online website to sell of a product that I thought would sell pretty well after some testing but alas, the boxes are piled up at home and not a sale has been made.

Side Hustle #3 is we started renting out a room on Airbnb, which I’ve written a separate post about. It is passive in the sense that people stay and you get paid via AirBnb. It’s not passive in the sense that we have to do cleaning and tidying between guests, and manage guests checking in. It has paid nicely, to date, we’ve made a total of $6,500 in Airbnb stays before costs.

Total Side Hustle Income: $4,000 + $0 + $6,500 = $10,500

Overall though I’d give this area an 8/10 because of Side Hustle 1 and 3, and will work on #2 in 2020.

Property

Valuations across our three Investment Properties have fallen relative to the start of the year, which has reduced our overall equity. Also, one property lost a tenant in October and owing to a number of high rise blocks that were newly developed, it was pretty hard to find a new tenant. Not only that, we ended up having to drop weekly rent by $75 in order to finally get a new tenant in.

We did do a refinance of our PPOR in October and got a much lower rate PLUS a cash bonus of $3,500 into the offset. It really does pay to shop around to look for a better deal.

I would rate this area 6/10

Real Estate Equity (Market Values less Mortgages Owed): $715,000

Cash

There’s less and less incentive to hold on to cash given how low interest rates have gone. But we do like to have a large emergency fund so we’ve left it as is. We would look to move more into Shares for 2020.

Cash holdings as at 31 December 2019: $141,000

Shares

We switched out of expensive managed funds and really started to move into ETF’s this year. Not all of this money was invested back into ETFs, but overall our share portfolio increased $35,000 during the year. This excludes dividends paid out and not reinvested.

Value of Shares held: $216,000

Expenses

Last week I spent about 4 hours reconciling expenses for the year. During the first half of 2019, I was very diligent in tracking expenses at the end of each month, and putting them into categories. When I opened the excel last week, it was on August and so I had to go through five months of bank statements to get the rest done. God that was torturous but it is FINALLY done. It was actually quite insightful to see all of our expenses laid out for the year. Here it is *drumroll*

NOTE that Housing is misleading because I counted only the interest repayment whereas going forward it will be the full mortgage repayment.

I was surprised by a few things and I can see areas we can improve on for 2020…

1/ Eating out – this includes morning coffees and I like to get a toast as well, so on a typical morning I’ve spent $10 before even starting work. We also tend to go out for brunch on weekends and living in Sydney, usually spending anywhere between $50-70 per meal.

2/ Having a cleaner once a fortnight does seem wasteful but it has kept us sane especially when we’ve been really busy at work and baby that makes a mess everywhere. I’m in two minds whether to keep this for 2020.

3/ Holidays – we didn’t go on an overseas trip this year. The prospect of an 8+ hour flight with a screaming baby was kind of daunting. Plus our little one has allergies which makes eating out (especially in a foreign country) really difficult.

4/ Insurance – on top of our private health insurance (hospital cover), we added extras in early 2019 in order to go to the dentist. We then FORGOT to cancel it and so paid an extra $100 a month for a few months. We’re paying $224 a month now for hospital only (2 people, 1 child). Neither of us need an optometrist or physio, so we’ve decided to self-insure for dental going forward.

5/ Groceries – We’ve been pretty good this year and shopping at Aldi most of the time unless there’s special items we need from Woolworths and Coles. I’ve also found that going to the local fruit and vege shop has done wonders for our grocery budget. There’s less plastic wrapping and waste generally too.

6/ Gym. We’re on good gym deal for two people, which charges us $44 a fortnight but with unlimited access to gyms and pools nearby. I hardly go to the gym ever since the gym near my work closed down, and I’m not a fan of using cardio equipment (it’s so boring). We do use pools in summer but $44 seems pretty expensive just for that. On top of that there’s team sport registration fees and some other fitness / yoga 10 class passes in this category.

Overall I’d give this area a 5/10. There’s HEAPS of excess in this spending that could be cut for the coming year.

Work Life (the grind)

I went from 3 days a week this year after a career break to 4 days. It was my first experience of being a part timer. Initially I was really looking forward to having a ‘long weekend’ every single weekend. But in reality, Thursday evenings are a bit crazy as I try to finish off things I’ve been procrastinating over the course of the week. And on Mondays I’m trying to catch up on Friday (day off) emails. So yeah…at times it felt like I was doing five days worth of work but only getting paid for 3 or 4. Plus I wasn’t exactly sitting on a beach on the Fridays either. I was mostly doing laundry, chores, running errands, chilld minding. Work life balance wasn’t great in the second half of 2019, work got really busy and the added stress meant I wasn’t exercising and also eating poorly. So overall, this area gets a 6/10.

SO I guess the things to ‘work on’ in 2020 would be

1/ Reducing our discretionary spending

2/ Continue growing our side hustles in profitability

3/ Build on our Share portfolios

4/ Improve our savings rate by reducing spending

Earning Income on Airbnb

A while ago we booked an Airbnb studio on a trip. It ended up being a granny flat in someone’s backyard. That particular host had built a 3 bedroom unit above the 1 bedroom studio we were staying in. It was peak snow season and we were paying almost $300 a night. The 3 bedder next to us was listed for $665 a night. $1K a day for not doing all that much…

So I set out brainstorming ways in which we could do the same.

Idea 1: convert the Garage into a studio. This was inspired by a show I’d seen on tiny homes in the US, and the example of a 25 sqm home they used to have (and maybe still have?) in Ikea. I quickly realised it wouldn’t work because the floor of our garage had no foundation, it’d be miserably cold at night, and I suspected it was against council or some development rules.

Idea 2 build a granny flat out the back. This was quickly scrapped because we have a tiny backyard and the cost of a granny flat or studio is $100K or thereabouts.

The easiest way turned out to be simply renting out a spare room. It also required the biggest compromise in terms of privacy.

The layout of our home had a few things going for it. Firstly, a renovated bathroom near the back of the home, close to the room we had earmarked for renting out. Second, there was potential for side access.

So we spent the next few weekends preparing our ‘AIRBNB PLAN’. It was hard work. There was a lot of decluttering and reshuffling furniture to clear out what was effectively a study and turn it into an AirBnb worthy room.

There were a few upfront costs involved – we purchased a double bed and a mattress from Fantastic Furniture, side accessories and linen.

It has worked out pretty well so far. We’ve managed to get a few 2 week / 1 week and even month long stays.

Some tips for renting out rooms and earning income through Airbnb

Make your photos amazing: Photos sell, think about how you yourself search for hotels and shop online. I am usually guilty of flicking through photos and making my mind up quickly. I’ve seen so many crappy photos on Airbnb. Poor lighting, too cluttered. Bathrooms too zoomed in, or angled down at the toilet bowl. Most phones nowadays have photo editing tools, or you can use an app called Lightroom. You’d be amazed what turning up Brightness, Contract and Highlights can do.

Test your own listing by switching to travel mode in the Airbnb App and searching for your listing. I have mine as a saved search so I can review the text from the perspective of a traveller. You can also test a few different dates to get an idea of what sort of payout out you would get for a stay, remembering that Airbnb takes out fees.

Make several sets of keys so you have spare copies and backups if your guests lose theirs. We have two sets of keys for our guests but only provide 1 (the other is upon request), then a set each for ourselves.

Be well stocked with the things you’ll provide like toilet paper, toiletries etc. There’s nothing worse than having to rush out for supplies because your guests have run out. Keep spares of linen too in case of stains. We had a guest with a spray tan make all of our sheets orange.

Be responsive. Airbnb recommends responding to questions and reservation requests within 24 hours. I try to reply within the hour and have all notifications pushing to my phone. The most common question we get is how close is your home to the airport or nearest station. Takes 30 seconds to send a response. If you took 24 hours your guest might have booked with someone else.

Maximise privacy: You can create screens or hang an extra door between your living area and theirs. Clearly state in your listing or house rules which areas are theirs and which are for your private use so it’s abundantly clear to guests.

Make check in easy: Rather than waiting around during your check in window, why not write a really clear set of check in instructions then set up a lock box system so guests can check in by themselves? It saves you the hassle of waiting, and saves them the stress of attempting to make contact upon arrival.

Be clever with your pricing: Do your research on surrounding homes. You don’t want to be the cheapest because it might seem like your place is inferior. But you don’t want to overcharge either. Airbnb has smart pricing too which auto sets pricing. We use a mix of both – auto pricing for general periods with a minimum floor. Then on long weekends we set our own pricing. If you would rather long term stays, Airbnb has a discount feature for week long and month long stays. That way you’ll be changing the sheets less / doing less cleaning with longer term guests.

August 2019 Net Worth Update

A bit of a late post. We had a really busy month with a heap of work related travel.

I remember just out of university the prospect of travel for work was so exciting. Free flights, nice hotels, a daily food allowance. The chance to explore new places.

Then the reality set in. Flights were exhausting and a day out of the office inevitably meant a barrage of emails to catch up on upon return.

The hotels were nice yes, but usually any free time was spent hunkered over the laptop on a tiny work table and feeling frustrated at a slow Wifi connection. Sometimes I rarely left the confines of the hotel let alone explore a new city.

But August wasn’t that bad. We got to explore two warm locations and escape the Sydney winter which was nice. It also meant a lot of spending – eating out and a portion of R&R that wasn’t reimbursed by work.

Net worth Summary – I’ve changed the table to include the past month. The main change this month was a rejigging of our share portfolio, where we sold out of $50K of managed funds to lower fees. The proceeds went into a mix of offset and eventually the plan is to move these back into ETF’s. I still think maybe we hold too much cash but always worried about a redundancy or rainy day event that will mean we need the savings to pay the mortgage and bills.

Switching out of Managed Funds

We recently sold out $50k of investments in managed funds with a Financial planner. It was not because were didn’t like our planner or thought the investment was underperforming. It was the fees which finally made us bite the bullet and switch out. We’ve still left some in there, however will be gradually moving it out over time.

How it all started…

I went to see a Financial Planner back in 2012. With the promise of a financial expert managing our money and the allure of higher returns, I agreed to put $1,000 direct debit every month into their choice of 3 – 4 actively managed funds.

I didn’t hear from them for the rest of the year, but could see that we were earning dividends and the investment growing steadily through a mix of capital gains and our disciplined input each month.

Every March, I would sit down for an ‘annual review’ with the FP, which lasted one hour with the planner. He would show me some pie charts of how the portfolio was doing, recommend some switches to new funds, and make me sign a bunch of documents. For this, he earnt 1% as a percentage of the funds I had investment with them.

Fast forward to 2019

We now have $120K invested across a bunch of random managed funds.

Fees to the financial planner: so for the one hour Annual Review, the financial planner charges 1% on funds managed. 120K x 1% is $1,200. To me, that seems like a lot of money for not a lot of value. I am not saying all planners would be like this – maybe some are very active in managing their client’s investment. But this was our experience.

Fees on the managed funds: our funds were invested in underlying ‘active equity’ funds with an investment manager. On top of the financial planner fee, there would then be another 1.2%-1.5% ‘management fee’. Plus if they outperformed the benchmark, there is a Performance Fee which is equal to 15% on the outperformance above that benchmark.

A simple example is say with 100K invested.

100K x 1.2% management fee = $1,200.

If the 100K grew to 150K, but the benchmark stayed flat, their ‘outperformance’ is $50K and so they earn 15% of that 50% ($7500)

Again, that seems like a lot of money, but then again these are star stock pickers and experts in the market, so you’re paying for that expertise.

Fees for the platform: Our funds were invested through some fancy investment accumulator platform which had its own app and website. Which isn’t too different from a Commsec or IG brokerage account however having that platform means you have access to these managed funds. The fees for the platform were $600 for the financial year.

The combination of the above is $1200 + $1200 + 600 so a whopping $3K in fees.

Now, compare to this to if we put our money into an ETF. The fees would be the $10 to $20 ONE OFF brokerage fee to get into VAS ot VGS. That’s it, no ongoing annual fees, or management fees, or fees taken out for performance in good years.

July 2019 Net Worth Update

Early July was a heavier than usual spending period for us as we embarked on a mini trip involving 5 nights in Canberra’s city centre and 3 nights in Jindabyne (Baby’s first snow trip!)

Canberra was our first stop via the Big Merino in Goulburn.

The purpose of the trip was part work – a health conference. That meant for me – child minding and exploring Canberra’s parks, cafes and driving around a lot of big roundabouts all day.

Image result for canberra big roundabout
Why Though? A Big Roundabout – Source Buzzfeed

We visited the Monet exhibition at the National Art Gallery and contemplated our FIRE goals while gazing at the Water Lillies. Well, it was more like I held a squirming 1 year old who was making a lot of noise while cashed up retirees looked at us disapprovingly

Where was I, oh right the net worth update.

Shares were up, both our managed funds portion and ETFs as markets continue to rally. By the way, every month we have a direct debit of $1k going straight into a mix of funds. It means that I am not tempted to go out and splurge on something random with money sitting in my account, ready to PayWave.

Real Estate – valuations continue to slide due a weak property market in our city. But we continue to pay down the debt, the rental income is coming in from tenants across our three investment properties and it has been smooth sailing generally.

Cash – we’ve probably been a bit risk averse and kept an emergency fund of $100K. With the interest rate cut and rather dismal high interest savings rates, it was time to move some of this to the mortgage. So a small reduction in cash but really just shuffling money from one account to another.

One of the questions I have been grappling with is whether to include the PPOR into the Net Worth? I do because while it is not an income generating asset, any equity could be realised upon a sale (market conditions dependent). If we were to sell and redeploy that capital into ETFs then it could generate income. We would then need to rent to have a roof over our heads, however I have factored rent costs into the FIRE figure.

Marie Kondo-ing

For various reasons, we have moved house a few times in recent years. With each move, we gained an extra bedroom and more storage space, and hoarded more and more stuff.

After finishing Marie Kond’s book The Life Changing Magic of Tidying Up, we were very inspired to embark on our once in a lifetime tidy.

How did we end up with so much crap in the first place? The centre aisle of Aldi seems to have been the main culprit for this. Also a number of once off camping / snow / cycling trips which meant we bought more gear than we would need in our every day lives.

Long story short, it took us a week to declutter our wardrobe and fold everything ‘Marie Kondo’ style.

Selling things on Ebay and Gumtree has been an ongoing process. At some point we will likely realised some items will never sell no matter how long or cheap they’ve been listed for. These items will sadly be donated to Vinnies or go into the bin.

We made a few hundred bucks selling unwanted stuff, yes. But that’s a once off and hardly makes a dent on long term FIRE goals. It was more that, when confronted with a mountain of our past purchases, my mindset towards shopping shifted.

I’ve never been a big shopper. I don’t covet designer things. But I do have a habit of buying things for one off events. Snow holiday coming up? I’ll go and buy thermals, socks and new gear. It has made us think long and hard before making any bulky purchase that might sit at home after its initial, once-off use.

With a 1 + year old toddler we are now faced with a whole bunch of outgrown baby things. Initially the thought was to keep it (in case we have number 2) but that will mean EVEN MORE hoarding. Finally we made the decision to start selling that too.

It’s an ongoing process, a lot of trips to the post office (for larger items), a lot of bulk buying of 500g satchels, a lot of flaky Gumtree pick ups that never eventuate. But I would say it has been rewarding. To know that things are going to a new home instead of straight to landfill.

And I am proud to say it has helped keep our discretionary spend within our $500 (now reduced to $300) a month limit (this includes eating out by the way).

Uber Side hustle

I was in Perth this week and caught an Uber for four trips to and from the airport. In the early hours of the morning it beats waiting around anxiously for a cab, or catching an AirportLink train with luggage.

On one trip, my friendly driver told me at 6am I was his third trip to the airport and he had made 70 bucks. At that point I was actually juust starting to doze off so I was initially struggling to make sense of what he was on about in my dream like state.

Guess how much I made last year, driving Ubers part time? Guess!

Um..I mumbled sleepily

$40,000! He announced triumphantly.

That kind of woke me up. He wasn’t a full time Uber driver. He had a second, albeit casual job at a hospital. He would drive 5am to 8am then head to work his day job.

Was there a catch?

With any side hustle there is an opportunity cost involved, what else could I be doing in that time. Well, sleeping for one.

There is the depreciation on your car too, given you are running down your own asset. Another driver (remember I had 4 trips to casually probe lol) told me he would easily clock up 200 to 300km a day driving around. Thats a lot of kms over the norm. But on the flip side, all of a sudden all your car expenses can be tax deductible. Which helps given the ATO recently reduced the extent to which the work car can be deducted. So all of a sudden, petrol, car servicing, rego, could perhaps all be, at least on a pro rata basis, tax deductible.

Another driver told me it is getting more and more competitive. Unless it’s peak hour or a Friday night there isnt as much Uber business durimg the day. He switches between Uber and another new ride share service, Ola, in order to get enough business.

As a test, I flicked open my app at random times to see the competition and sure enough, even in my sleepy inner west suburb, there were always 4 or 5 ubers lurking in the vicinity. My colleague thinks that it’s just a gif to give you a positive impression of how many Ubers are available…I’m not sure.

FIRE with a Baby

Today is my day off and I am on the couch writing this on my phone while my 1 year old is tearing up tissues on the floor.

We started our FIRE journey prior to starting a family. I guess we had a vague notion of the costs involved but it only really hit us once we started to shop for baby stuff. I.e. we walked into a Baby Bunting store and realised how expensive everything was.

Having a baby be like

We didn’t want to blow the budget or splurge on things which would only last a few months or years, so we made it our objective to always be frugal where we could.

Having now purchased most of the big ticket items, I’ve realised that a lot of baby items are available in great condition despite being second hand.

  1. Pram: The pram market is pretty ridiculous these days. There are prams that are the cost of a small car. Pram shopping is overwhelming. And as with all baby things, it’s a constant mental battle of wanting to get the best for your baby versus not breaking the bank. Despite being on a budget we wanted to get a quality pram and didn’t want to compromise on this, so settled for the Bugaboo Cameleon. We found a second hand one on Gumtree – the only compromise was that it was bright RED which isn’t really my colour. Oh well.
    Cost: $300
    Retail: $1,600 new.
    Saving: $1,300.
  2. Cot: a hand me down. We did however buy a good mattress for it for hygiene reasons.
    Cost: Free plus a mattress that was given to us as a gift.
    Saving: c.$200
  3. Car seat: We found a Britax Safe and Sound carseat on Gumtree for $300. The only risk of getting second hand was if it had been in an accident. We did ask the seller, so I guess in this instance we were relying on the honesty of fellow gumtreeians.
    Cost: $300
    Retail: $500
    Saving: $200
  4. Change table: Freebie on Gumtree. The seller even threw in a change mat and covers too! It was a dark wooden one which didn’t quite fit with the decor of our home, but it was sturdy, much more so than brand new plastic versions.
    Cost: Free
    Retail: $250 (for a similar wooden one)
    Saving: $250
  5. Bassinet: It was initially news to me that babies needed both cots AND bassinets. But eventually we found it to be very convenient, to be able to wheel the bassinet around the house. We found ours by the side of the road. At first I was a bit paranoid, I must admit. What if it wasn’t clean? What if it wasn’t compliant with xxx safety standards? However we pulled it apart and cleaned all the parts. I also googled and found it was a legit model sold at Baby Bunting. We used our bassinet for about 4 months before changing to a cot.
    Cost: Free
    Retail: $100
    Saving: $100
  6. High chair: There’s so many high chairs the choice is overwhelming but babies are so messy when they start solids, so the simpler and easier to clean the better. We opted for a basic Ikea model. Found a second hand one for $5 on Gumtree.
    Cost: $5
    Retails $25.
    Saving $20.
  7. Baby carrier: I did start off with a cloth wrap carrier but after wearing baby in it for a day, my back was sore. So we eventually caved and bought an Ergobaby Omni 360. There is a liquid Ebay market for these things! I ended up in a bidding war unfortunately and probably paid $20-30 more than I should have. The carrier also arrived covered in cat fur! I’d forgotten to ask if it had come from a pet free household. Dang.
    Cost: $168 (incl postage)
    Retails: $300 (approx)
    Saving: $130
  8. Breast pump: a Medela Swing, brand new but purchased off Gumtree for $100. It was in its packaging and obviously new. About a year in the pump broke down and unfortunately since we hadn’t bought it from a store, we pretty much dusted $100 bucks.
    Cost: $100
    Retail: $180
    Saving: $80.
  9. Second pram: we are outdoorsy and go running every week and it soon became apparent that the Bugaboo wasn’t going to cut it. The tiny front wheels seem to catch if you go faster than a jog. We found a free Mountain Buggy Urban Jungle on Gumtree. It was faded and the sun shade at times slipped back when going fast. It got really annoying, so we eventually got ANOTHER running pram, which was a Mountain Buggy Terrain, second hand off Gumtree. Love this pram and it has actually at times replaced the Bugaboo.
    Cost: $150
    Retail: $899
    Saving: $750
  10. Last but not least, Nappies. We bought Pea Pod cloth nappies and used them for a few months. Yes it was a bitch to wash at times, and sometimes it was pretty gross I admit, trying to peel off the poopy liners and chuck them into the wash. But our baby pooped about 10+ times a day at the start (that’s within the range of normal….apparently), so we really did save a lot in those early months going reusable cloth. Mind you, we still used disposables such as 1) when we were on holidays 2) when we were really busy and couldn’t get the pea pods washed in time.
    Cost: $200 (for about 22 nappies)
    Retail: $200 (we bought these new)
    Saving: probably 1K? compared to if we had used disposables.