Over the last year, I have the chance to interview a number of Canadians that have reached financial independence. These interviewees have all provided great insight into how they managed to become financially independent at a young age and the path they took to reach this important financial milestone. What I really enjoyed are all the unique Canadian perspectives these interviewees provided.
So I intend to turn the interviews into a series where I interview Canadians that have reached financial independence and/or retired early.
I came across today’s interviewee on Reddit. I was so impressed by his response to a Reddit thread that I couldn’t help but reach out to him and asked for an interview. It was a surprise that he told me that he reads this blog.
Without further ado, let’s get the interview started!
Q1. It is amazing to hear that you have reached financial independence at age 44 while living in Toronto, one of the most expensive cities in Canada. When did you become interested in personal finance and realized that financial independence is possible?
The Millionaire Next Door was published in the same year I started University. Around the same time, I discovered the Motley Fool’s Living Below Your Means message board.
Between, this and my finance and accounting classes in business school, I started learning about saving and investing.
It was in my Finance 100 class that I first learned about the magic of compound interest and realized that FI is possible.
The Time Value of Money equation is the E=mc2 of FI.
Q2. You mentioned that you are making a 6-figure salary while your dividend portfolio is generating more passive income than your take-home pay. How does this make you feel knowing that you make more money than some of your company’s executives?
It’s been less than a year since I achieved this milestone so I’m still taking it all in and thinking through what it means.
Growing up, I was taught a very specific life path to “success” (this may sound familiar):
- Study hard to get good grades in school
- Get a good job
- Work hard to get promoted
It’s a path that rarely gets questioned and when I achieved it, I asked what’s next and there really wasn’t an answer, except to get more promotions. Yet I didn’t feel very successful.
I realized that underlying this standard model of success is the implication that one’s identity and self-worth are tied to the company one works for and the title one holds. So a VP is “better” than a Director is “better” than a Manager. This puts one’s life and sense of self in the hands of something outside of ourselves.
When I realized that I could achieve financial success outside of my job, I also realized, why see yourself as [Name], [Title] at [Company], when you could be the CEO of your life. This is a far more noble and worthwhile position, and there is no one more qualified for the job than you.
It’s not easy to change to this way of thinking but there is an advantage: If an executive at work loses their job, they lose their income. I’m going to have an income regardless of whether I have a job or not.
This certainly re-frames the Employer/Employee relationship. Late last year I started a new job and it soon turned out to be a really toxic environment, so I quit without another job in hand. Everyone at the company was shocked, because in the traditional model, one would ever do that, but I did. And within a month I had a new and higher paying job.
Finally, there is a story that comes to mind:
The ancient Greeks told of a philosopher eating bread and lentils for dinner. He was approached by another man, who lived sumptuously by flattering the king. Said the flatterer, “If you would learn to be subservient to the king, you would not have to live on lentils.” The philosopher replied, “If you would learn to live on lentils, you would not have to be subservient to the king.”
Tawcan: I love you brought up the question as [Name], [Title] at [Company], when you could be the CEO of your life. Is it really your life ambition to climb the corporate ladder? Or is it better to be the CEO of your life and find something that will make you content and happy? I think being the CEO of your life is a way better way to approach life.
Q3. Can you tell me about your career path and what are some of the obstacles that you have faced during your financial independence journey?
Sure. Originally, I planned to go into a career in finance but due to the stock market crash in the early 2000’s, I ended up in traditional marketing in a company with a very well-loved brand. From there I realized early on the future potential of digital marketing and over the course of time, shifted my work in that direction and built a strong track record of success for a number of large, well-known companies.
In terms of obstacles, I grew up in a first-generation immigrant family that started out poor, living near Jane and Finch (the area of Toronto with the highest crime and poverty rates). My parents never advanced beyond blue collar jobs and divorced in my early teens. I went to 6 different high schools and graduated University right into a stock market crash and recession. This translated into precarious employment and dead-end jobs. It took until age 28 before I finally had my first “career” job, so I have a lot of empathy for the Millennials struggling to get established, because I lived through it.
But it’s not all bad. I was fortunate that my parents chose Canada, I was born with good intelligence, good health, an innate curiosity and love of learning.
If there is one takeaway for your readers, it’s this: I started my FI journey relatively late in life (at 28) and despite the fact that I made a lot of costly career and financial mistakes, I still managed to FI in 15 years. If I had the knowledge that is available today, I’m sure I could have achieved this in under 10 years. It’s not too late to start and the knowledge available now can shorten your path.
Tawcan: Both of our families came to Canada as immigrants. Immigrants sure face a number of challenges in a new country, but many of them are also very driven to create a new life.
Q4. You are still working although you are financially independent. Has the meaning of work changed since FI? Do you find yourself enjoy work more?
When I was younger, my identity and self-worth were wrapped up in my career. I worked as if I was the “owner” of the company, and this was a double-edged sword. On one hand, it made me very invested in achieving success for the company but on the other hand, such efforts are not necessarily recognized or rewarded.
I once built a system for a company on my own initiative that every year in perpetuity would generate $300K of value. For that, I didn’t get a thank you, I received a $2,000 raise that year (this did not even match inflation), and later that year I was unceremoniously laid off.
These days, I am very aware that I am the CEO of my life, and that comes first. While I do earn a good salary, I am capable of operating at a higher level, but from a cost/benefit point of view, I will no longer let my job be my life. If I’m going to build something that is going to generate significant value, it will be for me, not for someone else.
Q5. Do you think you will continue working for the next 10 years?
If I were to answer mathematically, no. My RRSP (the US equivalent is the 401k) has already reached a level where at some point, I will have to stop working for tax reasons in order to melt it down. Also, while I have achieved FI, I haven’t hit my target number yet. This will be achieved in the next 3-4 years.
If were to answer emotionally, I have a Type A personality and I’m still in the process of understanding my point of Enough.
Q6. What is your investing style? Sounds like you are investing in dividend growth stocks like us. Can you explain your methodology in terms of picking dividend stocks? What is your investment philosophy?
I think what we do is very similar, though I would call what I do Dividend Cash Flow. This differs from Dividend Growth in that instead of buying a company and hoping/waiting for the dividend to grow, I buy companies that already pay out strong dividend cash flow, even if the growth rate is lower.
Why? Doing some back-of-the-napkin math, if you had a choice between Stock A that had a 3% yield with a dividend growth rate of 7% vs. Stock B with a 7.5% yield and a 0% growth rate, it would take almost 20 years for Stock A to start paying the same level of dividends as Stock B, and during that time you would have collected over 40% more cash flow from Stock B.
Cash flow is the oxygen of FI.
In terms of picking companies, I ask myself the question, “In 20 years, will people still be doing [X]?”
For example, if I think in 20 years people will still be renting apartments to live in, I would buy residential REITs. If I think in 20 years people will still be eating pizza, I may buy a pizza company. Or if in 20 years I think less people will work in offices, I would avoid office REITs.
I also avoid certain industries completely such as energy and mining, as their stock price is based on spot pricing of commodities, something that the company itself has zero control over.
In short, I’m looking for companies with strong cash flow in a durable industry, and I collect dividends the way a landlord collects rent.
Tawcan: Interesting. We are buying a mix of low yield high growth and high yield low growth stocks. I really like your question of “in 20 years, will people still be doing [X]?” That’s the similar question I ask myself when I build my dividend city.
Q7. Do you rent or did you buy a property in Toronto? What was your rationale behind your decision? If you performed any calculations, please share with us.
I rent a modern bachelor condo right in the downtown core of Toronto that’s less than 3 years old. I’ve been in this condo for 2.5 years now and the market rents have gone up a lot during this time. Fortunately, my landlady has not raised my rent by very much.
The rent vs. buy decision was easy. The numbers were so out of line that doing the math wasn’t even necessary but out of curiosity, I went through the exercise:
Right now, to buy the same condo I rent would cost $425K CAD.
If I took out $425K from my portfolio to pay for the condo with cash (let’s assume no tax implications), the opportunity cost is the yield-on-cost of my dividends on that money.
Let’s use a 7.5% dividend yield-on-cost in the calculations (my actual is higher).
$425K x 7.5% divided by 12 months = $2,656 per month in dividends.
My current rent is $1,270 per month.
So without even factoring the negative cash flow of maintenance fees and property taxes, the math is strongly in favour of renting.
Q8. What are your thoughts on cannabis stocks and cryptocurrency? Have you invested money in them? If not, do you ever you feel that you have left money on the table?
My theory on any given currency is that there are 3 components that make up its value:
- The productive capacity of the country of origin (as measured by GDP)
- The taxing power of its government
- Confidence in the currency itself
The first two components are the intrinsic value of a currency, of which in the case of cryptos, there is none. And the third component is emotion driven. IMO investing based purely on emotions is not a sustainable investing model.
As for cannabis stocks, while it could be argued that people will still be using cannabis in 20 years, there are currently no companies that generate strong cash flow at a reasonable value. When there are, I will certainly take a look. This could very well be the next Phillip Morris (one of the best-performing stocks of all time), but I’m not going to pay Pets.com prices for it.
When I first started investing, I was seduced by the huge capital gains potential of dotcom stocks and on the other side of the coin, the crushing volatility. I made and lost a lot of money (mostly lost). At some point, I found a way of investing that matched my temperament and was successful for me.
I now collect more in dividends in a year than someone bringing home a 6-figure income. So the desire for the mirage of quick uncertain gains at high risk has been replaced by the joy of buying great companies and watching certain cash flows come in like clockwork every month.
Q9. Since you are FI but working, are you spending 100% of the working income on expenses? Or are you still saving and purchasing dividend stocks to increase your retirement margin of safety?
I spend less than 50% of my income on expenses, so my savings rate is over 50%. I use the savings to purchase more dividend stocks and I re-invest all dividends. Because I have not spent any of this money before, this money still feels theoretical, like numbers in a video game, rather than real dollars that one works for. This is something I am still in the process of coming to terms with.
Q10. Are you taking advantage of tax-sheltered accounts like RRSP and TFSA? Do you plan to withdraw early from RRSP before age 71? If so, do you have any early withdrawal strategies?
I’m enrolled in my company RRSP because of the matching plan so that’s free money. Plus I max out my RRSP to bring down my taxes.
I plan to do an RRSP meltdown at some point, and will need to quit working in order to do so.
Q11. Do you keep it a secret to co-workers and friends that you are financially independent? Do they feel uncomfortable whenever you share with them about your financial success? If so, why do you think money is such a taboo subject in society?
Only a few very close friends know. When I want to tell someone, what I try to do is start with more easily relatable subjects such as getting out of debt, living below one’s means and maxing out one’s TFSA or RRSP, and scale up from there. I soon realized most people couldn’t even handle these subjects so I knew talking about FI is not a good idea.
Right now I have a friend who was also on a similar FI path, but in the past year he got married, bought a house and is about to have a baby. It’s not the situation itself but the choices he has made in reaction to his situation that has put his FI path on indefinite hold. He has verbally expressed his unhappiness about this and I noticed recently that he backs away when we talk about FI so I have dropped the subject from our conversations completely in order to preserve our friendship.
I think that money is a taboo subject because for most people, there is a strong connection between money to one’s status and self-worth. So to reveal one’s money situation is to also reveal one’s true place in the status hierarchy and true sense of self-worth. Especially in a city like Toronto that is so status and success driven, it’s no surprise why one’s money situation would be a closely guarded secret.
Tawcan: That’s a shame to hear. It’s too bad that money is a taboo subject to many people. My aim for this blog is to remove this taboo somehow.
Q12. Do you ever plan to leave Toronto and move somewhere else in Canada? Or travel and explore the world?
Most of my closest friends for various reasons have moved out of Toronto, and even out of Canada.
My travel plan is to start local and expand my radius from there.
One of the top things on my bucket list is to do a road trip across Canada. My brother lives in Vancouver and I plan to visit him this summer. A friend moved to Poland and has invited me to visit. Also, a lot of people I know and bloggers I read have congregated in Thailand. Basically, I travel to see people rather than places.
Tawcan: Hit me up if you ever to come for a visit in Vancouver.
Q13. What would you tell someone like me who is trying to achieve financial independence?
In my perception, every single person who has ever achieved self-made wealth has followed a variation of the same core formula, from the Millionaire Next Door to Steve Jobs to Warren Buffett:
- Raise capital (usually through saving)
- Use capital to build or acquire assets that generate money
- Take that money along with more capital to build or acquire more assets
- Repeat until rich
There are variations on this formula such as leveraging other peoples’ money, or creating assets vs. buying assets, or being a better allocator of capital but for the most part, I think this is the basic core formula.
Q14. Do you have anything else you would like to share with me and my readers?
Thank you for the opportunity to share my story. I’m a very private person but while going through my journey, I had to figure out a lot of things for myself the hard way. So if I can help shorten the path for someone, then it was worth it.
Also I am still trying to make sense of where I am, so writing this has helped to crystalize my thought process.
One last thing: Money is an amplifier of who you are, both the good and bad. Which is why so many people who have a dramatic windfall end up losing it all. While building up your wealth, remember to build yourself up as well.
Tawcan: Love that, gotta remember to improve yourself as a human being at the same time!
Dear readers, are you enjoying the Canadian FI Interview Series? Are you a Canadian that is financially independent or retired early from your career? If so, I would love to have a chat with you.