Hello, and welcome to the Australians Money Puzzle Podcast. I'm James Kirkby, the Wealth editor at The Australian, and welcome aboard everybody. I hope you're having a good break and I wish you a good holiday season and a prosperous new year. And speaking of prosperity, there's a show I've wanted to do all year. It's about the Fire Movement FIOR in this case that means financial independence, retire early.
We did some coverage of it during the year midyear on the Money Puzzle Podcast and we were, I suppose more skeptical and enthusiastic about the concept, and for a variety of reasons, but the core reason was that we were of the opinion that it's just not that easy
to do that. And some of the pitches, if you like, on the Fire movement, though people are so interested in it and so enthusiastic about it, but some of the pitches that I had come across about it, the presentations I just thought were a little bit making it sound too easy and perhaps could to some extent exploit naivety. Now I wanted to get someone to come on. Now. The thing on the show we'll talk about it. The thing about fire movement is it's a movement. It is
a set of principles. There is no fire. I can't go downtown and take you to the local branch of the local office. There's no headquarters in Geneva or Washington. It's a concept, it's a set of principles. But I did want to get someone to talk about it, who to whom it had made a difference, someone who was also to some extent and financial educator and could articulate its main ideas. And I have found the very person for the exercise. His name is Lyone Lee. He is
a intern national investment operator. He works with a group called invest Unite and they are asset managers here and across Asia. I'm speaking to him actually in Soul. He lives part of the year in Melbourne and delighted to have him on the show. Lion Lee, how are you?
I fine, Thank you, thanks for having me on the Australian Money Puzzle, James. It's an honor to actually be on your show.
You're very welcome, Delighted to have you. Delighted to find you after some efforts to try and get what I thought would be the ideal gift. So I explained there about how our listeners were very interested in the Fire movement. But when I was talking to you earlier, and I was struggling even still to try and grab this because I'm the sort of person who wants I want to see this sort of tangible evidence that it exists. I want to see its charter and its rules, and I
want to see a sort of hierarchy. But that doesn't really exist. Does that's a concept?
Yes, I'm very similar to yourself, you know. I like information that's practical and that's useful, you know, especially if we're addressing listeners who are just to some extent depending on your podcast to understand what's really happening in the Australian economy, financial markets as well as in their personal financial world. So to keep it simple for listeners, Fire basically just focuses on extreme savings and investing, which a
goal to retire much earlier than usual. So I'm just summarizing everything that's talked about Fire, you know, in the World Wide Web and also in Australia.
Essentially it is.
A movement, has no headquarters, there's no branch, there's no chapter, and it was popularized by a book that's called Your Money, All Your Life back in nineteen ninety two.
The other thing to know is fire.
Doesn't originate from Australia, so it's not aussy concept. It originated in the US. The book is an American book, the authors are American and over there, I guess over the years and also in some nation. Some traits of fire that you might come across in your conversation with our Australian listeners is that typically those who subscribe to the Fire movement, they say between fifty to seventy five percent of their income, that's what they're aiming to do.
They might tick up extra jobs. Some might talk about, you.
Know, delaying major spending events in order to be able to save and invest with the goal of retiring earlier than usual. So earlier than usual here to me, we just mean before the statutory retirement age.
So you tuned into this pretty early, right, because Your Money, Your Life, which is sit out there, of course needs to say revised and updated dasy. It's by Vicki Robin and Joe Denis, published in the UK, was a best seller at the time and remains always available. Tell me you tuned into this quite a long time ago. It was pretty fresh idea at that time, in the nineteen nineties. When you first came upon the idea, what was it? What tell us they talk about nine steps to transforming
your relationship with money? What were the key aspects of fire? The principal is the fire that attracted you.
So I came across Fire actually many years after it was published ninety two. So my engagement, I guess with the principles was in the late nineteen nineties when I was working with the US market. So that's actually where I came across the whole concept of fire. The community of the Fire Committee wasn't really there yet, but you know,
it was building up steam. So again for the benefit of listeners who are new to fire, and without trying to confuse them with the many permutations of fire that have taken place over the years, that four basic principles that I've extracted from all of that. So the number one is what they call the fire number. Essentially, that number is just an estimate of how much you'll need to retire, and the way in which the fire community derives that number is by multiplying your annual expense by
twenty five. So let's say if our annual expense is eighty thousand dollars, you know, as a couple, then your fire number is just simply two million. It's is eighty thousand times twenty five. The second principle I took away is the four percent role states simply how much you can withdraw from your retirement fund in the first year, and then every subsequent year that amount is.
Adjusted for inflation.
So if we use the couple that has two million dollars again in the first year of retirement, that cup or we'll be able to only withdraw a maximum of edy K. That I extracted from the principles and the concept and the movement that I felt was practical to some extent is that the Fire movement and fire followers prioritize setting up your emergency fund before focusing on investing, and that fund should be three to six months worth of savings.
You're going through the tape there is very useful, but I think I have to say it seems to me that's the hardest thing. Yes, where people have very little money and they want to think about investing, the last thing they're going to be able to do was put away a few months worth of money.
Yes, and I agree as well.
It is challenging because you're trying to save and I want to say invest, you're probably trying to save and pay down some of.
Your big expenditure at the same time.
I think that's what a lot of listeners are probably finding them, especially more so today with you know, higher cost of living, inflation, all the variety of wolves that are making it tough to be an Australian today. But there are ways to actually, I guess, get around or find a balance, and.
I guess before going to the fourth principle.
One recent example was a conversation I had with an individual in Ballarat, Victoria, and he was trying to actually build his emergency fund while trying to pay down his mortgage at the same time. Like that's a really tough thing to do, right, but that is the reality.
So what we came up.
With as a solution was, look, if we combine the emergency fund together with an account that actually allowed him to pay down his mortgage, he would get the best of both wolves combined into one. So we found that solution and using a offset account and a redraw facility, so she's emergency fund would still be intact. He would still be built that fund, but as he is adding more money to that emergency fund, he said, it is actually actively being down his principal on his mortgage.
Okay, so now what we will do. We'll go let you to continue those principles. We'll take a short break and I'll let you roll on where you were getting to. There. You had four. I think us You've given us four and you can give us the rest after the break. I'm sure people will be very keen to hear what they are one moment. Hello, Welcome back to The Australian's Money Puzzle podcast, our special podcast on the fire movement fior E Financial Independence, Retire Early. It's a concept, it's
a movement around the world. It captures the imagination of many people there are. One of the reasons I wanted to do this show, especially at during the Christmas break, was because it's something that you kind of stand back from the day to day and think about and I think it captures, as I say, the imagination of many Australians. It's a little bit hard to grasp. It's even harder to get a handle on who and who's in it and how it works. There are meetings around the country
from Cooler roy to Melbourne, CBD. I've come upon on the internet. There are many different organizations. No one owns it and there is no one person who can say they are in charge of it or the chief spokesman for it. But today's guest on the show is Lionel Lee. In the first segment, he was just starting to outline some of the key principles. You might just tell us the rest of the key principles of the Fire movement.
No problem, Yeah, I'll just leave our listeners with the fourth. And essentially the fourth principle is just that you're considered finding independent and you can retire early if you wish, once your passive income generates enough to cover your basic living expenses. So that's the fourth principle that I took away from the Fire Movement that I felt was useful and practical for my personal financial needs.
Now, the other thing, the last one, which sounds you know, sounds so sensible, where you know you get to the point where your passive income covers your expenses. Yes, that is a lot harder than it sounds.
Yes, and I totally agree with you.
What do people in the Australian market generally use for passive income to cover their expenses. Is it property? Is it share market investing? What is it ETFs? What do they use?
The Australian market is fairly narrow.
In its use of a variety of financial instruments to create passive income. So I would have to say that majority of moms and pubs, you know, even the young adults who are listening in generally head towards roastate, So roal state becomes the common passive income tall instrument or generator.
That then, of course there are those that are invested in the ESSEX so those drum stock, exchange and market, and folks of course having fixed income as well that would include you know, some cash, maybe bonds, term deposits.
Generally those are the treaming asset classes.
I'm not going to show in things like you know, digital assets like crypto and stuff like that, but traditionally those are the three asset classes that majority of our Austrian listeners have ther moneies in and are using to generate passive income.
Okay, now, can I just say to you the challenge to me is that this goes really slowly. If I have it in cash, it's three or four percent. If I have it in property, the yields are two or three percent net. If I have it on the share market, the Australian share market, the dividend y is about four and a half. It's going to be a long time before that passive income. This is why I'm so skeptical.
Not that I completely admire the individual listeners aspiration to achieve this, but I need to be I feel we need to sober up on how long and how hard it is to achieve this. Is there anything you know that I don't know that makes it easier than it sounds.
I agree with you, James, it's not easier than it sounds, given I wouldn't even as a it's not finance educator, you know, and I teaching USDs not just in Australia but also also in Australia. I've been a guest speaker at private client events you know that are organized by banks, financial institutions, wealth managers.
I always tell the audience it is not easy, even though I'm being used at a reference.
So I'm sure that in your Google search background search of myself, it probably pops up that I'm one of those individuals who went from being an employee to an ultra high network and therefore managed to fire by age fourt.
You never had a fixed salary. You didn't do it on a fix.
I did it partly on a fix.
I I was an employee, and when I started, like most of the other folks, I didn't come from a wealthy family. I didn't have any inheritance, so it's purely hard work. So I totally agree and I support you, James in your statement to listeners that it is not a quick fix. Is not that an easy thing to do.
It requires time and commitment.
So that's and lifetime commitment.
Yes, that's right, and that's something that I had to do for myself. So you know, there's a couple of things that even though I encountered the fire movements, I said early so in the late nineteen nineties, I didn't think that everything that I picked up was useful, practical and I could actually implement because there were things that were missing. So what was missing was what I actually picked up in my course of work. So I worked
in an investment holdings company. I actually have to travel the international market, so I worked in twenty class markets.
I worked with.
Ten more than ten industries, and what I've learned in engaging with those corporations, family enterprises, family officers, as well as the ultra high network individuals is how they manage and drew their wealth. So for them, it wasn't about fire because they didn't need to talk about fire.
It was more of how they were actively getting wealthy.
So I combined what I learned with fire and what I learned from interacting with the individuals that had a much larger wealth base what the journey need to look like. So I realized and number one, I had to up my earnings. So if I had if my earnies didn't go out and I was just looking to save more and invest more, I wouldn't have a compounding effect. So I need to up my savings after my earning. So the more I earned, the more I could see. So when I started working, you know, I only had one
thousand eight dollars a month. That was my salary where I started working back in the late nineteen ninety So I started working nineteen ninety five one thousand and eight. I was a bit more fortunate because I was traveling extensively. I could save a lot of my income. So I maysed a safe at best seventy percent of that monthly income and I.
Would sorry, sorry, seventeen.
So I managed to save seventeen seven zero.
You were able to save seven zero of your income, Okay, But.
I need to disclaim to our listeners that I was fortunate because I was traveling extensively, so I didn't have a lot of expenses, right, And also I was working seventeen hours a day, seven days of week, so I had no time to go, you know, to the pub yeah at night, for example, So I had very little social life as well. So that allowed me to save
seventy percent. But what I did with the seventy percent, The first thing I did was to actually find any kind of savings instrument that would give me the highest interest rate and I would actually put it in. So
I just went for therm deposits. I went firm deposit hunting, you know, every time I had three time between well, I would go look for therm deposits and I would just keep kept I just kept putting money in there because at that stage of life, I was not in a present doingvest I couldn't afford to lose the small meager amounts ahead.
Okay, and is that a fire principle that you start. I suppose in terms of getting that emergency money at the start, you have to say you can't gamble that you have to save it. Yeah, okay, that's right.
Yeah. So I applied Prince one on a tree.
Right, I applied princes one of the three without just look at it as a mergency fund. I looked at it also as a fund that would grow that savings.
Right.
So many of the times when you did my emergency fund, we just opened a bank account and just kept keep putting money in there. But it doesn't grow at a high interest rate. So I had to look for the high interest rate accounts. In this case, when I was doing it, there weren't high yel savings accounts. So the best thing I could find was turn deposits. So I just went from M deposit the TM deposit every time
interests read increased from the issue. So I did that for a while and then that actually up my savings. So that also gave me a buffer to start thinking about investing.
I know you're just a sample of one, but when you did begin investing, as someone to which the adherence to the Fire movement and its principles has really worked. And beyond the term deposits, then what was your first sort of foray into an investment meant beyond saving?
Yep, So I did actually what every other I guess the average Aussie would do, which is go buy home. So my first investment was actually using the term deposits to save enough to actually put a down payment on a property. So that's what I did. So it's not you know, sexy stuff, it's not rocket science. Everyone else does the same thing. So I did that, and so
that actually started my investing I guess journey. And also I started looking at the stock market as well, so public equities being another asset class that I encountered during my work, so I get the chance to learn more about it, and also then added some of that money to buying stops as well. But I'm not a trader, so essentially I'm looking to build my investment returns over time, and I want to make sure that those investment returns do not get half along the way so it builds
up steady. So I don't go after the high risk, high return stuff. I look for stocks and shares that allowed me to get a certain level of dividend at the same time, it also has capital gains over a long period of time, so unforced stables or staples with my stocks and shares, and of course with the travel, I engage with different markets, so that also allowed me to think about diversifying my stocks.
Into different exchanges versus just one stock market.
Do you did any individuals in exchange not not exchange traded funds? No, I mean ETFs? Is that part of your.
Yeah, we're talking about the Yeah, so I wasn't. I wasn't using ETFs.
I still don't personally have ETFs because I based on the stock portfolio that I've worked on myself over time. It's behavior like an ETFs. So I created my own et before ETFs were available. I'm not saying that I'm smart.
You know, I understand the concept and it's a very strong concept, but I imagine that it was very much a blue chip portfolio.
Yes, if you're looking.
For dividends as well as each time. Okay, very good, So interesting. First of all, the emergency fund, then the savings, then the home then this sort of slow but gradual opening out of your investment. For the trio into investment markets, including the share market. Very interesting. Okay, now I'll take a break and I want to sort of stress test the whole concept with you in the final segment. Back in a moment, folks, Hello and welcome back to The
Australian's Money Puzzle podcast. I'm James Kirby and I'm talking to Lyon Lee and we're talking about the fire movement. I already financial independence retire early something that really captured our listeners imaginations during the year and I wanted to do a special episode on it. Lionel Is is in the investment markets. He's also a financial educator. He's done. He also does some work in education, financial education in universities and schools. As you can have heard from the
first segments, it's a very articulate advocate. And look, Lionel I just wanted to throw one or two things at you. I'm sure you're gonna I'm sure you're gonna have good answers for all this. But there's two or three things
I want to ask about. First of all, in our own market in Australia, everybody has to put eleven and a half percent of their savings into super by law mandatory, which is good, but it's also a problem in some fashion of those One of those ways is that if money is tight, as it is for many people, and you already have to put eleven and a half percent into your retirement, whether you like it or not, right by law you must do. It's mandatory. Superinnovation guarantee charge.
Does that dieluse or in some way side step the needs to follow the fire movement.
I don't think there's actually it doesn't really side step the need to follow the fire movement. I think one point of clarification is we are not encouraging listeners to follow the fire movement. I think my opinion is you should use what you understand about the fire movement as a guiding light and then apply what you feel works for you to actually achieve your personal financial goals, whatever those goals might be. Some people are not looking to
retire early. They just want to financial independence. They just want the fire side, but not the resuide, right, So it's really up to the individual. But coming back to super anyway, I am a fan of superannuation because there are many fellow of students out there who are not in a habit of saving superneration to me, is a
form of forced savings. And I know that eleven percent is you know, it's a tough fee, but it is still a benefit for those who are not in a habit of doing so, and that helps with not so much definement, but that helps with their retirement because at least we know that at some point in time, what whenever they decide to retire, whether it's before after the statutory retirement age, they do have some funds they're.
Waiting for them to live off and to enjoy life with.
I think that the issue I have with the super annuation is more of the fact because it is seen as passive. You know, every you know, my eleven percent goes there, it takes care of itself. The answer is it doesn't, so you have have to. And again I just repeat myself to listeners. You have to because it's
your money. Pay attention to a super and look for just like I've done with you know, my meager salaries when I started looking for hi yo returns from savings and term deposits, you should approach the super returns in
the same way. Look for ways to actually up your super returns because every percentage counts due to compounding, and over time, that small percentage increase compounds to a large dollar number at the end of twenty twenty five or thirty years or even thirty five years for many young and middle age Australian.
We shouldn't underestimate the power compoundings. And it's a key thing obviously in the Fire movement, that whole thing that basically time in the market, rather than timing the market, which is so important. Can I ask you about that? Of course, more part of fire is, as you say, the second part of it. The first part is financial independence. The second artists retire early. Super doesn't allow you to
retire early. You can't get your hands on your super until you retire, So to that extent, it's not very good from that perspective. What about borrowing? What's the approach in relation to borrowing, because borrowing at its best obviously can magnify and accelerate wealth building.
Yes, so I think the word borrowing and the other word.
That comes to mind would be leverage. So boring and leverage they are. They might sound similar, but they're not the same. So I think when we use the word borrowing, most people are actually boring to get into debt.
So boring and.
Debt I mean like good buddies, which is not good for the individual. So I cannot use the word borrowing because it paints the picture of you know, you borrow our consequences. It's like buy now, pay later, right, so it's a car borrowing. Prefer to use the word leverage. I prefer listeners that think about leverage because liverage means that there's an active, positive approach that you're taking to
the borrowing. So if you are liveraging assets, you know you're liveraging your cash to actually then acquire more income, generating gains generating assets, then yes, I would say, you know there's something you should do, which is what I did.
So for example, you're talking about active tax deductible investment only investment focused if borrowing, I e. Leverage. Is there any guidelines as to how much or how little someone should engage in that?
I don't really have a prescription. I would say that really depends on your circumstances. So the way I want to look at it just to provide some kind of guide to listeners who are thinking about this, and I don't want them to actually start doing it and get into you know, a fix I become debt ridden is that firstly, look at how much cash base you has. The cash base is essentially your protection against leveraging too much.
That means that you are able to repay down some of that liverage to be in a position whereby you are actually not bleeding your financially. Then also look at the cost of liverage. For example, if I were to borrow, you know, let's sorry, let me let's go back to I own it properly, right, So I properly has a lot of equity over maybe the ten, fifteen, twenty years, I'm looking to borrow on that equity. That boring is not free. It is leverage, but it's not free.
So if you.
Are actually taking equity out at a high interest, then your liverage becomes really costly. So the cost of liverage is important because if you are safe, for example, taking equity out and lost you six percent, but you're putting it into something else that only gets you five percent, you're losing one percent, So you have to be rich. So the other thing you think about is.
The cost working. Okay, yeah, so do your numbers carefully, and the numbers.
Move exactly exactly that's right, and so you have to pay attention. Right, You can't just sit back and think, Okay, the banks, you know, the financial institutions, my my grocal will take care of everything.
They don't.
So if you've got money, and you know any kind of assets, well.
So you've got money. You need to take care of your money.
You need to pay attention. You need to find ways to get that money. However little or much you have to work better for you.
It sounds like the idea of set and for guests is not your idea.
No, do not ever set and for Yeah, yeah, I like that.
I like that don't set and forget. I completely agree with you. Okay, it's very interesting. I really like how you've presented all this. Just one last thing about fire and the fire movement, and I wanted to ask, what if things go wrong? So somebody has a plan and they really are serious and they start and they say, Okay, I'm going to do this. I'm going to really do this. I'm going to adhere to this and it's not my New Year's resolution. I'm going to do this for years.
I'm going to follow the basically, I'm going to get my emergency funds started so that I can cover emergencies of whatever they may be. It might be a surprise health bill, it might be that the interest rates went up and I have to pay more per month. But they've covered that and they've got there, They've got their plans, and they have their age in mind that they'd like to achieve financial independence. What do you say to people
when things really go wrong? They buy a bomb property it was asbestos in the building, or they were in the share market. They'd never been in the share market, and guess what, there was a crash, you know, six months after they start. How do people get through those hurdles.
To answer that question, I guess to our satisfaction and making it practical for listeners, I would say, first see, we need to think about two things. Number one, it is possible to fire. I'm like I said, I'm not advocated for fire. The way I approach it is I look at fire and wealth management as a combination. So I like to use with fire wealthy. That's what I share with my students. And I know it's possible because I've done it, and there many other people who have
done it. That's why we've got so many high network individuals and ultra high networth individuals in Australian. The other thing that's important to think about fire is networth. So that's how I approach fire. I approach file from building
my networth. And the reason why I use that word and I repeat the word networth is because building networth, or getting our listeners to be in the mindset of building networth, means that they are looking at actively taking steps and those steps are positive to actually save to invest,
you know. And also it's not just saving an investing, which is what fire talks about, but it forgets that you have to work better, you have to earn better, you also have to spend better in order to meet your savings and investment grow because it all what's hand in hand. They're all good friends, right, it's having It's like having a platter, a beer platter, right, So instead of just enjoying an ale or it's out, you've got the you've got the best alos. And at the same time,
you need to understand how the world money works. So what I term the money verse because procular fire independent of the money verse is actually something that that doesn't work. It has to be together. So that's what our listeners they lack. And that's a comprehensive understanding. So why did I Why am I saying this is because when they do this, the chances of them actually failing will be much lesser. So that's the first So that's the first seconds.
What happens when you know we've done everything right and the universe is against us, and it happens. I've livedal the Asian financial crisis, so you know, I'm not that young. I've experienced sas before I experienced the financial crisis. You know, all these were major slaschhammers on my portfolio.
What I did.
When I was thinking about my journey, my own personal finance journey and building my network, was that what if these things happened and I predd the markets going down? So when I looked at the fourth suppose that I shared, what I did practically was to actually change the principles to to adjust for these unfortunate circumstances. So when I mentioned about the retirement amount, you know your annual expertsis time twenty five, I actually used a much higher number.
I used more than twenty five. I actually applied more than four percent in my calculation and not only that, I actually added in inflation, and I added in hyperinflation in my own calculations as well, So the final number that I adjusted for myself a day was much higher. Source meant I had to work harder, I had to work better, I had to earn better, you know, up my earnings. So all of that provided me with the ability to buffer all the different I just pecups in
the financial markets. But also the other thing I remember is everything in the universe is psychical, meaning that when the financial markets go down, they will rebound as wells just like the elevators. Right, what goes up comes down, what goes down goes up. So the important thing is to be able to be in a position. I'll make sure that you're in a financial position to actually sit tight, right and they're trying to sit out, and.
Don't go jumping around doing crazy things. What is it crazy things?
I mean, you know, start you know, liquid eating there, selling there, and put yourself in a more challenged financial position. When the markets recover, then you are actually even more backward than you were.
Okay, all right, I like your approach. You've you've certainly convinced me much more than I had been like.
My obtele doctor to convince you, but it was just a Michelle listeners.
Well you have, you have, you have, And I think what we needed to do we needed to get a show where we spelled it out and we've stress tested it and we really laid it out and I think you've done that very well. So thank you very much for coming on the show. Line Lee. Great to hear from you.
It's my pleasure. James, Yeah, thanks for having me.
You know, it's great to be able to chat with one of Australia's most experienced financial journalists. You know, I also contribute to articles to various news media you know, in around the world, but I must see that I do not have the wealth of journalism that you have.
So you're definitely a role model for me.
There you go, Well, there's a career. There's a career for you. There's a career for you journalism should you ever wish to do so. Okay, folks, that was not only great to hear from him, great to hear from you. I hope you're enjoying your break to be ready for our season coming up, our special season of the Outlook for twenty twenty five coming up, soon keep the emails coming in the money puzzle at the Australian dot com dot au Talk to you soon.