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What becoming a dad taught me about wealth creation

This post was originally published on this site

Frugality is not so lame

Despite my job title, I must admit I have never been an adherent of the “financial independence, retire early” (FIRE) movement.

While I’m all for people taking control of their financial lives and making positive purchasing and investing decisions, the kinds of tactics espoused by the more extreme frugalistas – such as re-using a tea bag multiple times – have always struck me as just sad. To adopt the generational maxim, You Only Live Once, after all.

Much to the chagrin of some financial planner mates and sources, I’m a big believer in the idea that wealth is not just for hoarding in a perpetually expanding nest egg, but for deploying in experiences, products and services that enhance our lives in line with our goals and values.

AFR wealth editor Aleks Vickovich and newborn daughter, Eva.  

In my 20s, this quite new-age money philosophy – known in the industry as financial life management, as opposed to more traditional wealth management – was writ large as I continued to travel the world using high-interest credit cards long after my savings had run out.

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Looking back, it was hardly a sound financial decision and has taken me a decade to eliminate that debt. But equally, it would be a lie to say I regret it, having amassed a trove of yarns, contacts and experiences that I hope will enrich, not hinder, my parenting ability.

But my long-held proclivity to live beyond my means now appears to have been rapidly replaced by a deep desire to start bolstering the emergency fund and growing that nest egg.

Naturally, I’ll still treat myself to the occasional wagyu or pinot, but the thought of taking a debt-fuelled holiday – or even splurging on an Uber to a destination well-serviced by public transport – seems, well, irresponsible with all those nasty childcare and school fees on the horizon.

In practice, that might mean finally writing up and sticking to a household budget and enjoying some of the less fine things in life. I might even start re-using tea bags.

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Bonds are not just for Boomers

In recent years, the asset allocation of my fledgling investment portfolio could definitely be described as aggressive. Bullish on local and global sharemarkets and conscious that I have many years of paid work ahead of me, I have been all-in on equities and – at the risk of inviting a flood of inbox love and hate – even a small allocation to cryptocurrency.

I want to spend my limited spare time in coming years running baths and reading bedtime stories, not doing due diligence on lithium miners.

Not only have I traditionally eschewed fixed income, but I have been known to ask pointed questions of bond fund managers targeting young investors, and super funds defaulting members into so-called “balanced” options. An overly conservative strategy can rob you of crucial gains over a lifetime.

But, during those early mornings precariously clutching a softly sleeping newborn, I suddenly found myself looking at the very same asset allocation I was smugly comfortable with just weeks ago and starting to panic.

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For the first time I really wanted some portfolio padding and started to see what all those marketing materials meant by “peace of mind”.

I upped my allocation to gold, via a commodity-backed exchange-traded fund, and took my first position in commercial and government bonds, via a reputable, actively managed fund with relatively moderate fees. Maybe it was hasty, but frankly I’ve been sleeping better.

I also upped my allocation to equities, ETFs and managed funds. While I don’t accept the industry’s proposition that punters have no place picking stocks, I want to spend my limited spare time in coming years running baths and reading bedtime stories, not doing due diligence on lithium miners. It’s a strategy I will likely revisit in years to come.

Accepting advice

These about-turns might be met with understandable humour from industry types with whom I have debated in the past, or mentors and colleagues who have witnessed my youthful lavish spending with a knowing look. Fair enough.

But really it is just putting into practice what a decent financial adviser will tell you – that your strategy should change as your life changes, not with the gyrations of the market.

And having stumbled upon these conclusions naturally, that will definitely be the next port of call, going to get some sound advice on insurance and investments from a professional.

Call me a lecturing dad, but you might want to do the same.