Could you achieve "financial freedom" without the use of debt?

[Melbournian]

The proviso of course is that the residential properties or portfolio is CF neutral or positive, or at worst very slightly CF negative.

Otherwise they become a noose around your neck and take away your freedom by chaining you to your job/business!

So the lesson for me, after being very aggressive with borrowings over the last 7 years is to now use leverage more modestly.

Borrowing more and more won't necessarily take you closer to financial freedom.

I'm in the process of selling two RIPs this year.

One that has had only modest growth over 5 years and has been a relative under-performer, and another I have held for 7 years with excellent growth but chronic maintenance issues.

This will give me a more CF neutral portfolio after tax and make the wealth accumulation process less restrictive, and give more flexibility and freedom in how it is done for me.

agree with this statement - accumulating so many properties especially now and also for the sake of saying hey i have 20 properties or 30 properties is risky.

if you accumulate cheaper 20 properties while generating only 50-60K net per annum better off having 3 more expensive properties with lower leverage generating that same amount or more. Unless you're saying you have 20 properties and generating net 400K or something that would be a different story. otherwise it is just more effort and time.

 

[Dazz]

I reckon it could be done on a high salary without debt, but it would take enormous discipline and a frugal lifestyle for many years to achieve.

If you have a medium income or a low income, forget it....life's normal expenses would prevent it.

I remember as a young fella, thinking that with a fully paid off roof over my head, then $ 100 a day would suffice. 36.5K pa after tax.

I was into shares back then, and figured that with a rough 5% yield, a $ 1,000 would yield $ 50 per year, or about $ 1 per week.

My goal was then easily broken down to getting $ 700 per week, and I knew I would need to have 700K in my pocket to get there. It seemed very achievable at the time.

Of course, that was before complications like wives, kids, school fees, upgraded houses, medical bills for women and children and everything else life throws at you.

The goal was completely blown out of the water, and new targets were set which made the task an order of magnitude more difficult.

To overcome that wall....debt is essential.

 

[travelbug]

Yep. Not a problem. I have an above average wage( not huge) and the wife below.
Our current super contributions will see us living on $70,000 pa at 62 in todays money.

Thats financial freedom. just need to adjust your expectations.

property investing for me is just trying to add a little more on the top.

$70,000 in todays money is good if you are in your 50's. If you're younger not so much.
How have you calculated that BTW.

 

[devo76]

$70,000 in todays money is good if you are in your 50's. If you're younger not so much.
How have you calculated that BTW.

I have no intention of retiring until late 50's to 60's
Love my job. Paid well. Travel heaps and I can take my family where ever I go for free.plus we have just won a 14+2 year contract starting in two years so this puts me in a comfortable position .

Figure was worked out with both our super amounts ATM. Average market and drawn at 62.
I live in a regional city and I would be very happy to spend my retirement days fishing. Tinkering in a shed. Gold fossicking. Camping.
Plus a couple of club meals each week.all can be done close to where I want to retire.
Not glamorous but still a happy financially free retirement.
I am aiming higher but.

 

[china]

I have no intention of retiring until late 50's to 60's
Love my job. Paid well. Travel heaps and I can take my family where ever I go for free.plus we have just won a 14+2 year contract starting in two years so this puts me in a comfortable position .

Figure was worked out with both our super amounts ATM. Average market and drawn at 62.
I live in a regional city and I would be very happy to spend my retirement days fishing. Tinkering in a shed. Gold fossicking. Camping.
Plus a couple of club meals each week.all can be done close to where I want to retire.
Not glamorous but still a happy financially free retirement.
I am aiming higher but.

What about flying business class to Europe? Driving a mercedes benz convertible? Launching your yacht from your own private jetty of your waterfront home? Do you not need to do these things before you depart this earthly life or at least allow your wife to do so? Otherwise, what is there to show for 62 years of work?

 

[Graemsay]

Spanx was founded with $5000 of seed capital, and no VC funding. It's now worth a billion dollars. It's probable that they used debt to fund expansion at some point though.

JK Rowling wrote the Harry Potter books, and aside from time, living costs and a word processor or notebook, there wasn't a huge amount of funding required. And she's also worth around a billion.

So it is possible.

If you can bootstrap a venture, and have sufficient luck for it to pay off, then you can achieve financial freedom. Or if you have a particular, in-demand talent and you're a superstar in a profession in the media, sports, business, finance, or possibly medicine, then you can probably build enough savings for a comfortable retirement.

 

[devo76]

What about flying business class to Europe? Driving a mercedes benz convertible? Launching your yacht from your own private jetty of your waterfront home? Do you not need to do these things before you depart this earthly life or at least allow your wife to do so? Otherwise, what is there to show for 62 years of work?

We are doing all that stuff now. with some variation

beachfront no.
but 1400 sqm riverfront with boatramp 200 meters away.

Buisness class No
but my job puts me in a learjet everyother day with family on board. Gets boring actually.But no other passengers is a good thing. Hawaii in two weeks time is the next trip.

Mercedes No
not interested. I like my old muscle cars. the ones i lose no money on unlike a Merc.

Yacht No
I like my fishing so 6.4 fishing boat for me. No yellowfin so far this year which is a bit of a drag.

Wife wants for nothing. the trick is to not want the " keeping up with the joneses kind a stuff"

Whatever floats your boat but we are enjoying life the whole way through and we are aiming for a comfortable retirement. We dont expect to keep the same pace thats for sure.

 

[devank]

How about using loopholes
Here is an example when I had plenty of time (before kids). Initially I deposited into online betting sites who gave matching bonus. For example, if I deposited $100 then they would add $100 too. I think the only condition was that I had to bet the whole $200.00 to withdraw the money and also I can do this only once with a particular company. Then I backed two opposing teams with two different betting companies such a way I don’t lose any money regardless of whoever wins. At the end I had 100% profit!

At the end of above process I had money with about 3 UK companies and two Australian companies. Then I noticed that UK companies were giving better odds for Aus teams when we play against them. It is the opposite in Aus. So I developed an Excel work sheet (using the ‘solver’ analysis pack) to work out the exact amount I need to place on each company so that I would make money regardless of whoever wins. I don’t do this anymore because the returns are crap and also I don’t get to watch those games any more either

 

[daniellee]

Hi,

Have to use debt as it takes too long to save up the amount needed to purchase a property. That said, it is important to understand how to use debt effectively.

Regards,

 

[jhobo]

Hi,

Have to use debt as it takes too long to save up the amount needed to purchase a property. That said, it is important to understand how to use debt effectively.

Regards,

I agree with this statement. But understanding the nature of debt, servicing debt, risk management, resource management and exit strategy is paramount if you don't want to be eaten by debt.

It is like using a kitchen knife, if you know how to use it, you are a fruit ninja, if you don't then get ready to lose an arm and toes.

 

[Fifth]

What about flying business class to Europe? Driving a mercedes benz convertible? Launching your yacht from your own private jetty of your waterfront home? Do you not need to do these things before you depart this earthly life or at least allow your wife to do so? Otherwise, what is there to show for 62 years of work?

It's a bit sad that a life can be deemed wasted if the above aren't ticked off the bucket list. My husband and I have no desire to do any of these things.

Different people have different goals. For some people, working until 62 or older is a choice, for others it's simple survival, but this doesn't equate to a life wasted.

Likewise, some people get more enjoyment out of gardening or model train sets than driving a Merc or travelling business class.

 

[Deltaberry]

I've never used debt to invest and was "financial free" (around 50k passive income in today's dollars I guess?) around my late 20's. but I inherited 4 properties and a decent share portfolio in my early 20's and have had a high, but lumpy income over the years, and until recently invested most of what I earned.

I have been lucky, if I had not inherited a portfolio, but still had a high income I guess I would still 'have' to work till my mid 40's at a guess.

I do recognise that if I had used debt to invest over the years then my net wealth would probably be double, triple or quadruple what it is. But I may have lost it all in those years where I did not earn much.

I think it's doable at an early stage if your salary is sufficiently high.

I haven't inherited anything (yet), just passed my mid-20s mark and am financially free (ie definitely in excess of 50k passive net income to use your definition). I was also a late comer to the property market and didn't enjoy the early 2000s boom (since I was still in Year 9 or 10) like many here did.

Definitely no need to work til 40s.

Now I did use debt in the property purchases, but in all honesty and in hindsight I didn't use a lot of debt and I think I could've achieved similar returns doing other things or buying less properties (therefore use even less to no debt).

And because I wasn't around for the bulk of the boom, this reminds me of what Dazz always says, his residential properties helped him save money. And it did the same for me. But since I have good saving habits I would've been able to achieve that without the properties any way. As for the yield and capital growth, I could've gotten it if I had bought Telstra shares at $2.80 at a 10% fully franked dividend last year.

And right now I can buy, for example, PDN at 5-year lows and at 5-year low uranium prices where PDN is barely profitable. And when the world moves to nuclear, then maybe I'll make 400% return because every US$1/lb gain in uranium prices is instant profit before tax for the company. Might not happen, but it just might. No leverage. But one thing I know for sure is that a simple buy and hold strategy is going to do that for me in property without leverage.

 

[Peter_Tersteeg]

It's a bit sad that a life can be deemed wasted if the above aren't ticked off the bucket list. My husband and I have no desire to do any of these things.

Different people have different goals. For some people, working until 62 or older is a choice, for others it's simple survival, but this doesn't equate to a life wasted.

Likewise, some people get more enjoyment out of gardening or model train sets than driving a Merc or travelling business class.

I'm taking a holiday overseas in a few months. Business class upgrades are only $350 extra, so why not I say!

I wouldn't blow $10k on upgrading flights though, although I might if I earned $10k per day.

 

[travelbug]

I have no intention of retiring until late 50's to 60's
Love my job. Paid well. Travel heaps and I can take my family where ever I go for free.plus we have just won a 14+2 year contract starting in two years so this puts me in a comfortable position .

Figure was worked out with both our super amounts ATM. Average market and drawn at 62.
I live in a regional city and I would be very happy to spend my retirement days fishing. Tinkering in a shed. Gold fossicking. Camping.
Plus a couple of club meals each week.all can be done close to where I want to retire.
Not glamorous but still a happy financially free retirement.
I am aiming higher but.

I think you missunderstood what I meant. I mean if you are in your 50's now then retirement is 10 years away. So $70K is good. But if you are in your 30's in 30 years time $70K won't be much to retire on.

 

[Melbournian]

I'm taking a holiday overseas in a few months. Business class upgrades are only $350 extra, so why not I say!

I wouldn't blow $10k on upgrading flights though, although I might if I earned $10k per day.

upgrades are only $350? which airlines are this? pls dun tell me airasia.

 

[Oscar]

Interesting question JIT.

in my younger days with lower incomes I borrowed to the hilt into basic IP and the leverage of OPM and capital gain set me off. Made my first million that way and it all seemed so easy.

These days I have a very high income and don't want to risk my wealth by over leveraging into a poor investment. I therefore have the luxury of investing by paying cash for high yielding investments such as US property, shares and plain old cold hard cash in a high interest account.

Starting young on low income without borrowing will take eons to build any real wealth, but slow and sure is better than crash and burn.

 

[Aaron_C]

upgrades are only $350? which airlines are this? pls dun tell me airasia.

Never. Ever. Again. AirAsia.

 

[Melbournian]

For sure man.

I never heard which airlines would upgrade u to business for only $350. I travel business regularly on emirates and Malaysia airlines and it is def not $350.

 

[china]

If you can bootstrap a venture, and have sufficient luck for it to pay off, then you can achieve financial freedom. Or if you have a particular, in-demand talent and you're a superstar in a profession in the media, sports, business, finance, or possibly medicine, then you can probably build enough savings for a comfortable retirement.

Do most doctors earn big bucks? I see a lot of them still working in their 60s.

 

[china]

It's a bit sad that a life can be deemed wasted if the above aren't ticked off the bucket list. My husband and I have no desire to do any of these things.

Different people have different goals. For some people, working until 62 or older is a choice, for others it's simple survival, but this doesn't equate to a life wasted.

Likewise, some people get more enjoyment out of gardening or model train sets than driving a Merc or travelling business class.

I think that a lot of people say that they are not interested in driving a Porsche or travelling first class when they have never experienced these things or they cannot afford to. If there was sufficient financial freedom/resources, meaning no debt incurred and plenty of money left over, I doubt that anyone would knock back a first class flight to Europe in favour of roughing it in economy for a 26 hour journey. Similarly no one would knock back living in a waterfront in favour of housing commission.