Since high school graduation, I have not kept up with many high school friends. So you can imagine how surprised I was to see a high school friend sending me a Facebook message about financial independence a few weeks ago. Turned out he recognized me from a FinCon picture Kristy & Bryce posted on their Millennial Revolution blog front page… I guess I haven’t changed that much since high school!
What’s even cooler is that during our message exchanges, he told me it he is financially independent and plans to retire next year. He was super excited that he found out that we can talk about FIRE. It’s not every day that you find out a high school friend eats and breathes FIRE! I figured this would be a great opportunity to do an interview with him. Take it away S!
Q1. You were telling me that you stumbled into the whole financial independence (FI) thing accidentally. You were saving aggressively despite not knowing anything about FI. What got you started with keeping your expenses low and saving aggressively?
After university I started a business. At first it didn’t make very much money – I was making less than minimum wage for quite a few years. But I loved the work and I didn’t want to quit. The only way to survive was to keep my expenses extremely low. I wasn’t saving much at that point because my income was so low.
Eventually my business started doing better, but the income was still very unpredictable. I was always afraid that the business would falter in the next year and I would have to go work for “the man”. So I kept my expenses low and saved money – that gave me insurance that I could keep going even if the business had a few bad years.
Fortunately, the business had some really good years, so I was able to keep saving even more. Just when I was at the point where I was thinking, “I should spend some of this money”, I found out about the FI movement. And I was already pretty much there!
So basically my desire for financial stability, while running a financially unstable business led me to save way more than I needed to.
Had I taken a regular job out of university, I doubt that I’d be even close to FI right now. As a salaried employee I would have made a lot more money, so I would have felt financially secure. Not knowing about FI, and with nothing specific to save for, lifestyle creep would have set in. I’m very frugal so I would have done fine, but I would not have saved nearly as much.
Q2. I have to say, it is really cool that you recognized me from Millennial Revolution’s FinCon picture. It is neat to know that a high school friend has reached financial independence. You reached financial independence at 32, what is your secret? Or was it as simple as avoid lifestyle inflation and building your net worth?
Fortunately the photo was high resolution, so I could zoom in and just make out your name tag – I was quite surprised it was you!
Tawcan: Oh yeah, I guess my name was on the name tag!
I don’t think there is a secret. It’s just a lot of hard work, keeping your expenses low, and raising your income. One advantage that I had was that my family paid for my university education, so I was able to finish without debt. That helped a lot at the beginning, without it my journey might have been a couple years longer.
Q3. How did you get your wife on the same page as you financially? Did you discuss with her about money while you were dating?
We were on the same page from the start. We are both frugal and naturally good savers. We met in university so neither of us had much money at the time. We talked a little bit about money, but mostly it was obvious through our actions that we were compatible financially. I can’t imagine getting to FI with a spendthrift spouse.
Tawcan: Marrying a partner on the same wavelength as you when it comes to saving is so important! I have been fortunate that Mrs. T is frugal like me as well.
Q4. What is your current main source of passive income? Investment portfolio? Rental properties? Or something else?
Some of my business income could be considered passive. That is pretty large right now. However, it won’t last forever after I stop working on the business.
Other than that, the bulk of my money is in low cost index funds. My target allocation is 75% equity and 25% fixed income. Equity is split evenly between Canada, USA, and international. On the fixed income side I have Canadian preferred shares, bonds, and cash. All of these investments pay out some form of dividends or interest, but in the long term the bulk of my income will be in the form of capital gains.
I don’t own any real estate. I missed the boat on that one. I’ve been waiting for Canadian real estate to crash for 10 years. I’m very patient.
Q5. You are still working although you are financially independent. Has the meaning of work changed since FI?
I don’t think the meaning of work has changed very much, it has always been a balance between money and passion for me – but right now money is still a big motivator. I have noticed that it’s harder to work on things that I don’t enjoy. I’m still getting through it, but it’s harder when I know that I don’t have to do it. The real change is going to happen after I “retire” – at that point I’ll only work on projects that I want to, without consideration for the money.
Q6. Are you taking advantage of tax-sheltered accounts like TFSA and RRSP? Do you plan to withdraw early from RRSP before age 71? If so, do you have any early withdrawal strategies?
Yes, I max out my TFSA and RRSP. My business also has a lot of cash in it, so that acts similarly to an RRSP. My plan is to draw down the business first, since it is not as tax efficient as an RRSP and comes with extra administration burden. It might be a decade before the business is completely emptied.
I’ll probably start drawing my RRSP down in my 60s. That way it can grown tax free for quite a while, but then I can spread the income over more years, rather than waiting until my 70s to take it when my income will be higher due to CPP, OAS, and higher passive income (a result of compounding net worth and potential inheritances). Avoiding OAS claw backs is another benefit of drawing RRSP a bit early.
So the calculations might get a bit complicated, but the draw down order is going to be business first, then RRSP, then TFSA if I ever need it.
Q7. You mentioned that your annual expense is around $40,000. How you do keep the living expenses so low while living a fulfilling life? Do you ever feel that you are “missing out” when you talk to your friends who are spending way more than you?
Being self-employed probably really helped me here. I never had a peer group making the same amount of money as me, pressuring me into upgrading my standard of living. I was able to determine on my own what is and isn’t important to me. I spend freely on things that are important to me. It comes naturally to me and I don’t understand many of the choices that friends and family make.
I don’t ever feel like I’m “missing out”. The most fulfilling things in life are usually free or very cheap.
I believe in the marginal utility of money. That’s the idea that every dollar you spend brings you less happiness than the dollar before. We lived for a number of years on $20,000 – that was difficult because it was barely enough for rent and groceries. Going from $20,000 to $30,000 was a big increase in happiness – suddenly we could afford hobbies and travel to see family. Going from $30,000 to $40,000 was a smaller increase in happiness, but still noticeable – we could travel a bit more, spend money a bit more freely. I know any increase beyond $40,000 will be an even smaller increase in happiness.
I have close family members who spend $160,000 per year – the marginal utility of each dollar they spend at that level is tiny. They just buy more luxurious versions of what I buy – a more luxurious car, a more luxurious house, more expensive wine, more luxurious hotels… But we do all the same things, they just spend four times as much to feel a bit more luxurious. I would have to work until I’m 70 to afford that level of spending. The choice is easy.
Tawcan: Great point on happiness doesn’t increase linearly with amount of money you spend! Since 2012, we have been spending between $47,500 to slightly over $44,000 . Good to know that we are spending similar amount.
Q8. Do you have any plans once you finally stop working?
Yes, we’re going to sell a lot of our possessions and put the rest in storage to go traveling. Probably starting in Southeast Asia in the winter. I’m kind of sick of our rainy winters. I’m not sure if we’ll become permanent travelers, but that’s a possibility. We might decide that we need a home base. We could spend summers in Canada and winters traveling. Early retiree snowbirds.
Tawcan: Maybe round the world travel for a year is an option for you?
Q9. What would you tell someone like me who is trying to achieve financial independence? Do you have any advice for financial independence retire early?
There are so many important topics in FI, but I’ll pick the easiest “big win” that you can have. Most of your readers probably already know this – but don’t go into the bank for financial advice. They will lie to you and put your money in objectively horrible investments. Learn about investing yourself, it’s not hard. There, I just saved you hundreds of thousands or even million of dollars over your life.
Aside from that, read up on all aspects of FI. The details matter and it’s the thousand little things that you do in your life that will all add up to achieving FI.
Q10. Do you have anything else you would like to share with me and my readers?
Most people are doing finances wrong. Really, really wrong. My whole life I’ve been surrounded by these people. I was starting to wonder if I was crazy. That’s why finding the FI movement was so amazing for me, it was like, “These people get it! This is what I’ve been talking about all along!” I was able to double down on my frugal ways and avoid lifestyle inflation. So thank you to everyone who is part of the FI movement. I hope it keeps growing so more people can learn about it early in life.
Wow that’s a lot of great info from S. Now the both of us have come out from the “FIRE” closet, I’m sure we can talk more FIRE related topics when we run into each other. Thank you S for sharing your story and all the advice.