Where did our wealth come from ? Part one

I was reading this recent MMM blog http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/ and it got me thinking... Where did our stash actually come from?

Of course, I have a fair idea that a large chunk came from salaries, out of which some was spent. And then we have had lots of investment primarily in property, which has made money over the years. While I have a good handle on our balance sheet, net worth and asset allocation today, I couldn’t definitively tell you where it came from, or answer questions raised in this post e.g. what was our savings rate?

In some ways it’s an academic question, but I’m kind of curious and I guess some readers will be too. Also I’m wondering to what extent I have practiced what I preach, about controlling spending and maximizing earning as being the two most important pillars to focus on. So this is the background to the following series, which will be in three parts.

1.      Our financial story

2.      Backcasting Net Worth into FF buckets

3.      Accelerated wealth strategies

Financial chronology

Here’s a brief summary of our main financial milestones over the past 17-18 years. Sorry I’m not including all the gory details of salaries, property prices, etc – they are private and I don’t think they’re required details for the basic questions I’m trying to answer here.

Year(s)	Milestone / Activity
0	Graduated Uni debt free. Used savings to buy new car. Moved cities to start work.
1	First year of work. Mrs FFA still studying. Company pays rent. Saving for house deposit
2	Bought property 1 (20% deposit) and moved in. Mrs FFA now working
4 to 10	Bought investment properties 2, 3 and 4. Roughly paid off each mortgage before buying next
4 to 6	Started some small share trading/investment, without huge success (or failure)
6	Expatriated overseas. Rent out property 1.
6-16	Regular monthly investment in retail actively managed funds (CFS, MLC, Perpetual etc)
10	Relocated to different country, still overseas
12	Paid off all mortgages properties 1-4. Switched from expat to local terms, paying rent again!
14	Bought property 5(overseas) and moved in
15	Parenthood ! Demolished property 4 and built new house (our intended post FIRE home). Mrs FFA becomes a SAHM.
17	Belatedly discovered ETF’s. Switched all mgd funds (2% fees) into low cost ETF’s and direct ASX blue chips
18	Quit job to return “home” to Australia!

 

Hopefully the above time-line gives you a good enough impression of our trajectory towards FF. A few key points to highlight :

·        We invested heavily in properties, but with moderate gearing and aggressive loan repayments. We did not cascade mortgages on top of each other. (Note : Just to make sure you have the right idea, these properties are villas or small houses, not McMansions !)

·        We enjoyed a lengthy period of expatriate living with company allowances for housing, etc

·        We invested consistently in shares over the long-term but at small scale and using high cost actively managed funds. At the end, our share portfolio was roughly equivalent in size to having another Australian property.

Data keeping

It has been an eye opener for me since reading FIRE blogs to see the extent to which people track living expenses. We have never really budgeted, let alone track how much we spend. Fortunately we are not big consumers or materialists, so I doubt the lack of these habits has dented our wealth too badly, but it is hard to say how much more effective we might have been over the years. One thing is for sure, the lack of such data makes it difficult to approach a task like this and figure out where the money came from. I will have to do my best to estimate and fill in the gaps.

Back in the early days, I did use to track Net Worth in a book. Initially I did it every month, but then after some years I regret I also fell out of this habit. I am trying to track down that book now, but it will take some more searching through boxes. Certainly it would be very handy for this exercise to have a timeline of our NW progress.

Coming up next

So that set’s the scene. In the next post I will analyse from our current NW all the way back to the beginning. While I don’t have records of how much we’ve spent over the past 17 years, I can estimate how much we’ve earned in salaries and the returns on our investments. From this data, I will infer spending and savings rate, as well as shed some light on what proportion of the NW was generated from active versus passive income.