Strategy: Take a Wage Haircut and Move to a cheaper area
If you moved to a cheaper area to live and took a haircut on your wage, it might not be as bad as you think. This is can speed up financial independence and reduce stress and give you a better quality life.
Example of a $20,000 wage reduction
After tax income on $100,000 would be $73,883 (2018-19 tax year)
After tax income on $80,000 would be $61,383
So, a $20,000 reduction in gross income means only a $12,500 reduction in real terms
Try working it out yourself at https://www.taxcalc.com.au/
But the real benefit may be the savings with home ownership.
An equivalent house costing say $1mil in Sydney v $600,000 in Adelaide (for example)
Repayments on $1mil at 4% pa are
- $4,774 per month for 30 years with Total interest payable $718,695
Repayments on $600k at 4% pa are
- $2,864 per month for 30 years with Total interest payable $431,217
The repayments on the smaller loan mean a cash flow saving of $22,920 per year – which more than makes up for the lower wage income.
Furthermore, if you consider commuting times – you might be saving 1 or 2 hours per day living outside of Sydney.
Living costs may also be generally cheaper. Consumer prices are supposedly about 12.75% higher in Sydney than Adelaide:
Consider also the quality of life.
It can be worth moving out of Sydney and living elsewhere and this can be the case even if you were to take a substantial haircut on your income.