MONEY SCHOOL

Become financially independent andreclaim your life

LACEYFILIPICH

Untitled-2 1 30/7/19 3:59 pm

Your FI SupplyAustralians have an affinity with water. We’re surrounded by it, and often at its mercy during floods and droughts. A water-based metaphor seems fitting for money flowing through our lives. Your FI supply is your opportunity to collect, store and use water (i.e. money) in the most effective way you can.

2

Saving

rate

4%

return

5%

return

6%

return

7%

return

8%

return

5% 76 65 57 51 47

10% 60 52 46 42 38

15% 51 44 40 36 33

20% 44 39 35 32 30

25% 40 35 32 29 27

30% 36 32 29 27 25

35% 33 30 27 25 23

40% 31 28 25 24 22

45% 29 26 24 22 21

50% 27 24 23 21 20

55% 25 23 21 20 19

60% 24 22 20 19 18

65% 23 21 19 18 17

70% 22 20 18 17 16

75% 21 19 18 17 16

80% 20 18 17 16 15

85% 19 17 16 15 15

90% 18 17 16 15 14

SO . . . HOW LONG WILL FI TAKE TO ACHIEVE AT VARIOUS SAVING RATES?

3

Your TurnReady to get on the way to FI? Start by setting your saving goals.

ItemCalc. (if any) Unit Your numbers

A Saving rate as a percentage

%

B After-tax pay $/monthC Saving rate as $ per

monthA x B $/month

D Current buffer fund balance

$

E Current living costs $/monthF Target buffer fund size MonthsG Target buffer fund balance E x F $H Gap to target G – D $I Time to reach target H ÷ C MonthsJ Month when you’ll reach

targetToday +

K Celebrate by . . .

4

Your after-tax APIT

1. Find the value of your after-tax APIT at the bottom of the graph.

2. Move up vertically till you hit the trending line on the chart.3. Move to the left till you hit the vertical axis: that’s the approximate

effective tax rate to use in this calculation.

10%

$30

000

$40

000

$50

000

$60

000

$70

000

$80

000

$90

000

$100

000

15%

20%

Effective Tax Rate, Australia, Financial Years 2020 to 2022(Source: https://www.budget.gov.au)

35%

30%

25%

After-tax APIT1

2

3

After-tax APIT ($/yr) ÷ (1 – ETR (%)) = Before-tax APIT ($/yr)

Before-tax APIT ($/yr) ÷ Yield (%) = Target FI Fund Size (TFIFS) ($)

Constructing Your FI Fund

5

2

3

4

You can use the following chart to estimate how long it will take you to reach a full FI fund (assuming you’re starting from zero equity with a full buffer fund):

Years to reach Target FI Fund $40

35

30

25

20

15

10200 300 400 500 600 700 800 900 1000

TFIFS ÷ Monthly Saving Rate ($)

Yield = 4%Yield = 5%Yield = 6%Yield = 7%Yield = 8%

To use the chart:

1. Divide your TFIFS by your monthly saving rate,e.g. $1 000 000 divided by $2000 per month = 500.

2. Find that number on the horizontal (x) axis.3. Move up the vertical line till you hit the yield assumption

you’re using.4. Read the number that coincides from the vertical (y) axis:

that’s the number of years till you’ve compounded up to afull FI fund.

6

Ref Item Calc. (if any)

Unit Your #

A After-tax APIT $/yrB Effective tax rate %C Before-tax APIT A ÷ (1 – B) $/yrD Cash interest rate

(assumption)%

E Yield (assumption) %F TFIFS C ÷ E $G Current asset value (total) $H Current asset-related debt

value (total)$

I Current equity G – H $J Gap to TFIFS F – I $K Time to reach TFIFS From chart years

How long will it take to fill your FI fund?If you haven’t already, here’s your chance to record your calculations:

7

You can find the online FI calculator here: https://moneyschool.org.au/books

Recommended Reading

On Personal Finance:• The Richest Man in Babylon by George S. Clason• Rich Dad, Poor Dad by Robert Kiyosaki• Kitchen Table Economics and Investing by Damian Lillicrap• Money: Master the Game by Tony Robbins

On Personal Finance and Lifestyle:• The Four-Hour Work Week by Tim Ferriss• Your Money or Your Life by Vicki Robin & Joe Dominguez• The blogs of the FIRE adherents I’ve mentioned (Mr Money

Mustache, the Frugalwoods, Mike Rosehart and Pat theShuffler are good examples).

8