The financial independence retire early movement is getting a lot of attention lately. While it’s nice to see the movement gaining traction, I feel most of the major media coverage has been very early retirement focus. I think this is paints a very bad picture of what financial independence retire early (FIRE) is about. Furthermore, most of these FIRE stories are US-related. As a Canadian, I want to hear more Canadian financial independence retire early stories. Therefore, I started an interview series with a focus on financial independence retire early in Canada.
If you are reading this and are Canadian, financially independent, retired early, or getting close to these major financial milestones, I would love to hear from you.
A few weeks ago, Joe and Jane reached out to me via email. After a few email exchanges, Joe mentioned that they own 87 rental properties and a handle of corporations. They are in their mid-40’s and are already financially independent. I thought it’d be a great idea to interview them and question them how they built up a net worth of over $12 million!
Q1. It’s amazing to hear that you and you wife, in your mid 40’s, are already financially independent and can retire anytime. What originally sparked your interest in personal finance?
Growing up at a young age our families did not have a lot of money (either of us). There was always food on the table and the basic necessities, but at times not much else. Then when I was older as a teenager my parents got into real estate and I saw the large sums of money they could make off this type of investment. As a young man I read a bunch of books on how to make money looking at real estate and stocks. I never knew anything about stocks or compound interest, returns and what this can do for you while you sleep.
I was determined that I wanted to have enough money to live, travel and spend how I wanted to. I wanted “FLEXIBILTY”. The spending part is not easy and not sure it ever will be, but we love to travel.
Q2. The concept of financial independence retire early (FIRE) is spreading quickly here in Canada. What do you think about the fast growing FIRE community?
This is fantastic, I feel anyone can do this, not always easy, but saving 18% of your income in a RRSP is a great vehicle for a T4 employee (in fact less after the refund). I have done this from the first year of coming to Canada including when I earned $20,000 a year and starting out. I feel in the long run OAS will go away and CPP is not enough to live on for most people. The baby boomers are going to eat into what there is for the rest of us, so we need to save and live life.
I will say I did not know of this FIRE until like a year and half ago…. I have always wanted to retire early as my wife has also and when we married, we pushed to do this together more. My wife gives me direction compared to my shot gun approach.
Q3. You immigrated to Canada in your early 20’s and purchased your first house at 27. Over the next 6 years you purchased rental properties and built up your rental investment portfolio. Why did you decide to invest in real estate rather than invest in equities?
Honestly, I did not know any better. Our school systems are lacking both in Canada and Australia. In terms of stocks, I was at first doing mutual funds inside my RRSP but felt I could get better returns in real estate. I did not know about the back-end loading or the MER taken off mutual funds.
With real estate, I could buy, renovate, increase the rents, re-borrow and do it all over again. In short, I did not pay tax doing this strategy and in my 20’s any investment outside my RRSP’s I paid tax.
Q4. You got divorced in your mid 30’s and lived off your RRSP’s for four years. What did the divorce do to your financial life? How has that changed your outlook about marriage? How did you structure your RRSP withdrawals for tax efficiency over that four-year period?
Financially, divorce is a killer. I handed over $1 million (that I built) to my ex-wife and pay support every month. I still respect marriage, I remarried. I did not think I ever would again but my equal came along and she is amazing, I’m almost 4 years remarried. My mistake with marriage the first time was marrying at a very young age at 21. In my opinion is too young to know yourself or your partner.
Once divorced I restructured myself financially, I was an incorporated consultant before and so I decided to live off my RRSP for 4 years as I figured I would pay more tax in retirement than now. I left my earnings inside my corporation paying 12% tax (higher at the time) and by the use of a trust moved money over to an investment Holdco that I used to purchase both stocks and real estate inside my corporation to grow from 11 units (after divorce) to over 70 units. RRSP is too limiting for me. With stocks inside a corporation, I can use them to leverage to buy other assets like a business and real estate. I then pay off the loan and do it all over again.
Q5. What is the breakdown of your investments? For example, RRSP, TFSA, taxable, real estate, etc.
- RRSP $500,000 mainly my wife
- TFSA $180,000
- Taxable $270,000
- Corporation taxable $3,600,000, margin $1,000,000 net $2,600,000 (over 50% in USD), the margin is used to buy properties.
- Corporation business assets $500,000
- Corporate real estate $10,800,000 less mortgages $5,200,000 net $5,600,000
- Real estate outside Corporation that earn income $1,550,000
- This does not include, house, cottage, land, or cars around $1,200,000 less $100,000 LOC
Net Worth $12,300,000.
Q6. Holy smokes, $12M net worth! Congratulations. How do you plan to fund your annual expenses from your passive income streams?
My wife and I still do a budget and will continue to do so. It is a great means to know where your money goes no matter how much you make. We review our budget monthly and our 5-year financial plan year, once per year. Always extending out for 5 years. You will think we are nuts, but we also do a VERY high level 15 year plan.
Our tentative plan is to retire in 5-7 years after most of our children are through school. If we decided too, we could sell off a building pay down the remaining mortgages and retire today… we have chosen not to mainly due to our kids and getting them to the end of grade 12.
While we are choosing not to retire early at this point, our net worth and passive income gave me the confidence and opportunity to change careers this year to one that aligns better with my interests. My wife was very supportive of this change and there is the opportunity to make as much or more money but there is more risk and I could earn less but our financial security allows us to do what makes us happy rather than chasing money.
In terms of funding these expenses in 7 years the expenses related to kids will substantially go away (tuition is saved for) and the child support will end saving us $39,000 per year.
Our current dividends and interest income are approximately $106,000 per year and growing as we add to this yearly. Our rental properties are currently neutral but in 12 years all are paid for except one. We pay $410,000 per year between interest and principal and in 12 years this is free cash flow. We also keep our real estate current and improve units every year, as we are not slump landlords.
Tawcan: If you’re looking for an easier way to track your net worth, I’ve found Wealthica is a great way to track our net worth and portfolio. This is a great tool for people that do not want to track net worth using a spreadsheet.
Q7. You mentioned that you have 87 rental properties and looking for more. That is a lot of rental properties! Do you mange them all yourself? Or do you have someone to manage for you?
I learned a long time ago that that I personally am too nice to deal with tenants and needed a manager. My wife and I are great at picking them and seeing through what is needed to increase value (we buy together and have done so this year to get to that number). Managing the properties is not the best use of my time so we have a property manager that looks after them including paying the bills etc. He is part of our team; I cannot say enough good things about him.
I am always looking for more to increase value, to increase wealth but primarily because it is a passion. I don’t know when I will stop but I also realize we have enough.
I am a firm believer in having both rentals and stocks.
Q8. Tell me some of your financial mistakes. What have you learned from these mistakes?
Some are small with regards to not buying properties that I knew I could make money on but truly it is going into mutual funds and not focusing on stocks. I used to be with a stock broker, who did mutual funds, then went to a big time investment house but soon realized he put us into the same thing as all his clients and charges a large fee to do so and then my wife said we should do it on our own and stop paying the investment fees. We researched together and now trade together. We do not buy or sell without talking to each other and agreeing.
I feel it is VERY important to do this with your partner and be on the same page, it keeps both of you focused.
Q9. You have four kids between your wife and yourself. How are you teaching them about money such that they can grow up as financially responsible adults? Are you and your wife giving them an allowance? If so, how does allowance work in your household? Are allowance tied to household chores somehow? Do you have any advice to me and my wife and how we should teach our 6 year and 4 year old kids about money?
Yes, we give our kids and allowance starting age 8, it is based on their age and get it weekly, we set up a bank account and deposit it in there once a month. When they turn 16, one of their presents is we cut it off (lol). We determine by then they can work part-time and do so. We have them do small jobs around the house to earn their allowance, but we are not very good at this. My wife experimented with various options for allowance and found that for her children and their personalities an allowance tied to chores made them always want money to do things in the household so switched to an allowance not tied to chores but require them to do age appropriate chores because they are members of the household. We adopted the same method for my children as they are younger. Their allowances are used for the kids to pay for items that we see as wants vs. needs, like extra hockey sticks (3 boys), etc.
My wife believes that the key is to have ongoing, age-appropriate conversations with all the kids about financial matters and work to foster an understanding of the value of money, the 17 year old knows our wealth and income, it helps him learn. We will teach each child once they hit an age that they keep this confidential and understand what we are doing.
At the age of 12 we open a trading account and if the kids put $1,000 in, we will add $250 plus the trading fee and start buying US ETF’s is to get them started. The oldest (17) now has $8,000 in the ETF and another $4,500 in his bank account and wants to transfer another $4,000 over to his investments. All the kids now have trading accounts with their own money.
When he started learning to drive, he had to pay 25% of the driving course, and insurance. He pays all his own gas and works 10-15 hours a week. But he knows school comes first.
I believe you have to give your kids money and let them learn but show them about the stock market otherwise they will be in their 20’s before they learn.
I put the kids in US ETF’s as the US market is stronger and our market has been flat under the current government and can’t beat the US market.
We have (or had before markets dropped) $160,000 in RESP, mainly stocks with some ETF’s which will likely get to over $200,000. We don’t expect this to fully pay for 3 tuitions including residence. Only 3 of our kids will go onto some sort of higher education (one is special needs). A number of years ago, the oldest son began questioning how he would be able to afford university and my wife and I began to discuss a way we hoped would both motivate them to contribute to their education but also given them security that they will have the support to do what they want for education. We developed a system, that is somewhat complex, but we put a lot of thought into. We may tweak it as time goes on but felt it was a good start.
We have broken the schooling into tuition/books and residence/meal plan. We expect the cost per year will be $25,000 (for a local school).
Tuition/books cost is approx. $12,000. We have told our kids they must save $2,500 to go to university and we will pay the rest. They know they need to get a job and save for this when they are first able to get a job, around grade 10.
Residence/meal plan is based on marks. If they get over 85%, we pay 100% with a declining sliding scale. We have told them we will give them a loan to fund their part with the expectation they repay this over 4 years starting the year after they graduate.
Now saying this we have some kids who are very gifted with school and the 85% will not be an issue, whiles others will need help. We will likely adjust on a case by case basis.
Q11. What’s preventing you from retiring when you are already financially independent? What do you see yourself in 5 years and 10 years from now? What are the top three things you are looking forward to?
Honestly, kids are stopping us. We want our kids to see our work ethic. My wife and I both work hard and have successful careers. We have been given nothing for what we have. We also work to have balance in our lives and are present for our children and so all we can to love and support them. We are both lucky we found each other and now work towards a collective goal.
In 5 years, my wife will be retired if not earlier. I now (very recently) work in real estate as it is my passion. I want to do small developments and find buildings to fix up and sell. I hope that in 5-10 years I stop before I am 55. It scares me a little to be retired. My wife doesn’t like the goal of “retiring” necessarily but prefers the thought of having freedom to pursue passions with more flexibility.
Top 3 things are as follows:
- Mission trips, we want to give back. In some cases, we want to help charities with their finances and accounting, both locally and internationally, (both accountants).
- The ability to do what we want when we want. I want to explore everything with my wife.
Q12. What would you tell someone like me who is trying to achieve financial independence? Do you have any advice for financial independence retire early?
Yes there are a few things.
- Firstly, work as a team, you and your partner must be on the same page. (learned that the hard way)
- Do a budget monthly, don’t be too hard on yourself if you overspend but learn from it
- Invest 18% of your income
- Every time you get a pay increase put 50% to the mortgage, 25% investments, spend 25%, this stops lifestyle creeping and keeping up with the Jones
- You don’t need a new car every 3-4 years.
- Read The Wealthy Barber (great book for me)
- Read any articles about investments and do DRIP’s
- Buy stocks you use and believe in
- Spend less then you earn, see point 6
- If you can live off one income, do so.
- Learn about tax, this can save you a bunch of money
- This is long-term, don’t go looking for the quick stock pick and buy quality stocks.
- Be careful with consumer debt and use leverage wisely
- Cash flow can be very different than net worth. Do not be overconfident in net worth if you don’t have cash flow
Likely shared more with you then I have with anyone else, but one thing.
I have followed your alternatives to early retirement and want to add the following:
- Find something you truly love, hence why I changed jobs this year to do what I really enjoy and is a passion for me.
- What do you want life to look like? In my 20’s and 30’s I took a bunch of risks, now this paid off at the time, buy now about to turn 45 I have changed. Every year my wife and I increase our charity giving, we set a plan every December and list out who we will give to and then at the end of the year before Christmas beat that target, we have so much and don’t want to forget where we came from.
- What would I do for the rest of my life if money weren’t a factor……Live a life of purpose and enjoyment along the way, this is something my wife has really taught me.
Thank you, Joe and Jane, for doing the Financial Independence Retire Early (FIRE) Canada interview. It sure was interesting to interview a very high net worth family. I really liked your idea of opening a trading account when the kids are old enough and let them learn how to build their portfolio themselves.
Dear readers, are you enjoying the Canadian Financial Independence Interview Series? Are you a Canadian that is financially independent or retired early from your career? Or close to reaching this key financial milestone? If so, I would love to have a chat with you. Give me a shout!
And in case you want to read the other interview series.
- FIRE Canada Interview #1 – Vancouver reader J
- FIRE Canada Interview #2 – How I became financially independent at age 32
- FIRE Canada Interview #3 – Why I decided to keep working despite reaching FI at 38
- FIRE Canada Interview #4 – Cash flow is the oxygen of financial independence
- FIRE Canada Interview #5 – Creating a long term plan
- FIRE Canada Interview #6 – Create a net worth statement
- FIRE Canada Interview #7 – Do Absolutely everything and never sacrifice or struggle at all
- FIRE Canada Interview #8 – Building a rental property empire
- FIRE Canada Interview #9 – Relocating to Spain
- FIRE Canada Interview #10 – Kids are as expensive as you let them be
- FIRE Canada Interview #11 – Vancouverites retired in their 30’s
- FIRE Canada Interview #12 – Being a valuist
- FIRE Canada Interview #13 – Always live a rich full life for today
- FIRE Canada Interview #14 – Lifeunscripted
- FIRE Canada Interview #15 – The first million is the hardest
- FIRE Canada Interview #16 – Lean FIRE
- FIRE Canada Interview #17 – Anyone can retire within 20 years
- FIRE Canada Interview #18 – Dividend Powerhouse
- FIRE Canada Interview #19 – Mini-Retirements
- FIRE Canada Interview #20 – Mindful Explorer