FIRE Canada Interview #14 – Lifeunscripted

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.

For Financial Independence Retire Early Canada Interview #13, Mike and Sandra from Lifeunscripted happily contacted me to be interviewed. I was very pleased to hear that they both retired at age 35 and are planning to travel around the world for the next 3.5 years. Amazing stuff!

Q1. That is amazing that you and your wife both retired at age 35 in July 2019. What originally sparked your interest in personal finance? Who discovered the idea of financial independence retire early (FIRE)?

• Personal finance has always been something that is important to us, instilled in us by our parents at a young age.  We were each taught the importance of saving, investing and minimizing debt. 
• Mike discovered the FIRE movement through various finance blogs that he was reading such as Millennial Revolution, GoCurryCracker, Million Dollar Journey and, of course, Tawcan. 
• We had actually unknowingly been following the FIRE principles already, so we were way ahead of the game.  This is why we went from learning about it to achieving it so quickly.

Q2. You mentioned that you purchased your first house at age 25 and rented part of the property. You then proceeded to purchase a total of five rental properties over the years. What made you decide on rental properties as an investment vehicle? Do you use a property manager for the rental properties? Or do you manage them yourself? 

• Mike was introduced to the idea of investment properties through his grandparents, who had owned many properties themselves.  He was motivated to purchase his first property after starting his first job at the age of 25. At that time, the recession had just happened and the housing market was great for buyers.  We decided to capitalize on this over the next few years while the market was still recovering.  The plan for the investment properties was to act as an alternative retirement strategy beyond our work pensions.
• We currently have a property manager for the rental properties as we don’t live near them.  In the past, when we have rented out units in our own homes, we managed them ourselves.  We have found that having a good property manager has been a key to owning a successful rental property.
• As a piece of advice from experience, buying a multi-unit property and living in one of the units is a great way to get into rental properties.  You learn about what it is all about, can control costs very well and typically get a subsidized place to live.

Q3. Did you have to convince each other about FIRE? Or were the both of you onboard right away? When did you realize that financial independence is possible?

• We were both interested in FIRE when we first read about it, but we definitely had to do our due diligence before we could get on board.  After our son was born we really began crunching the numbers to see what steps we needed to take to bring our plan into fruition. Around that time we realized we were actually quite close to FIRE, but the main thing that would catapult us into retirement would be to give up our home in Toronto. This was a major dilemma for us as we really loved life in the city – we had many friends, were close to family and loved Toronto life (the culture, diversity, etc.). As we previously mentioned, we were lucky to have purchased our home before the housing prices really took off in Toronto.  Our house essentially doubled in value in just a few short years, but without selling it, we couldn’t take advantage of the equity in a way that would allow us to retire. Our home wasn’t the “perfect home” or a “dream home” by any means, but a simple place that fit our needs in a city that we loved.  After much deliberation, we decided it was just a place to live, but we could have a much more fulfilling life if we sold it to truly live out our dreams. It wasn’t worth working another 20 years just to keep living in a very expensive city.
• If you think about it, where you work can dictate a large portion of the expenses in your life. Working in Toronto meant a higher cost of living for us (housing, groceries, daycare, etc).  Yes, we could have moved to another city where housing may have been less (but then you may also be paid less…), but in the end we would still be missing out on seeing our son grow up while we went to work to pay the bills – this was the biggest motivation for us to quit our jobs. Also, because we had already been working towards early retirement, selling our house, versus moving to a less expensive city, was a more logical choice for us.

Q4. You mentioned that you got very interested in dividend growth investing and starting this investment strategy with your TFSA’s. What got you hooked on dividend growth investing? How did you start?

• We like dividend stocks because they are a stable income with no other expenses attached to them (versus our rental properties, which have ongoing costs, many of which may be unpredictable or can fluctuate over the years)
• We used online portfolio simulators to analyze the history of the stock portfolio and map out long term gains and dividend income. Dividend investing is not a “get rich quick” scheme, but the continual compounding growth represents a very stable strategy.

Q5. What kind of dividend stocks do you hold? How do you make sure you are diversified? 

• We mainly hold blue chip billion dollar plus market cap companies.
• To make sure we are diversified, we try to ensure that we are investing in a variety of industries. We try to hold American stocks in RRSPs, income and bond funds in TFSAs and dividend stocks in a cash account to maximize tax efficiencies. We also will use various ETFs to help diversify our portfolio even more.

Q6. Tell me some of your financial mistakes. What have you learned from these mistakes?

We can think of three different mistakes we made when it comes to our investments.  Luckily, none were financially devastating and taught us valuable lessons.

1. One large mistake we made was investing with a smaller investment firm which was eventually put into receivership by the securities commission. A friend had worked at an investment company which focused mostly on loan markets such as mortgages and business loans. The profits were consistent and all look good. Unfortunately unbeknownst to us and our friend, the owner of the company was reporting false profits. Luckily we had not invested vast sums so we did not lose out too much, but it has been over two years and we are still waiting to get our money back. However the positive from this was that we became much more focused on complete self-management of our money, which has led to us being much more informed and logical with our investments.
2. We had been using the first property manager we had ever found to manage all our properties for some time. When we decided to buy another property, we figured we would give an alternative property manager a try. Our current property manager was good, but had some flaws. The new property manager we hired seemed to do a good job at first, renting the new property for much more than the average market rent. However that is where the positives ended. Tenants started to complain of inaction, rent was very slow to make its way to us and the property manager was unresponsive to our calls. In the end we found out one of the units in the triplex had not even been rented for months and the manager had lost the key. We made a quick switch back to the current property manager and they quickly rectified the situation. Our current property manager has grown and ironed out any flaws, so we are very happy.  We learned how important a good property manager can be for successful rental properties.
3. Mike originally got started in self managed investments via a TFSA trading account.  He started trying his hand at day trading with the allure of quick cash. Although no major losses were suffered, nothing was really gained either. He found that he was investing on emotion instead of with his logic. Day trading was not for him, but during this time he did purchase some safe stocks like Canadian banks and started to understand the power of dividends. So in the end this is likely were the dividend investing all began.

Q7. You and your wife originally had the target to retire at 45 but changed your target when your son was born in 2017. What was the main driving force to change your retirement target from 45 to 35?

• The birth of our son was a huge motivator to retire early. We wanted to experience his early years and for him to spend that time with us, versus spending it at daycare all day while we were at work.
• We also realized that if we retired at 45, our son would still be school-aged (pre-teen/teenager) and he may not want to hang out with us anymore when he is that age. We also wanted to travel, but if he is in school he would not be able to do extensive travelling with us at that point. That is why we wanted to take advantage of travelling while he is young, before he started school and while he still wants to spend all his time with us.
• Having jobs in the city resulted in a generally higher cost of living. As much as we loved the city life, we didn’t feel that it was worth working another 20+ years to continue living in the city.

Q8. How did you manage to accelerate your passive income stream so you and your wife can retire at age 35?

• The major accelerator was selling our home in Toronto, as well as one of our rental properties in London, Ontario. The housing market had exploded since we had purchased those homes and we felt like this was the perfect time to capitalize on it. The money from those sales, in addition to our previous savings was more than enough to allow us to retire at 35.

Q9. Outside of rental properties and dividend stocks, do you have any other investments like mutual funds, index ETFs, individual stocks, or other investments?

• Our main investments are four rental properties and our self managed portfolio consisting of dividend stocks and ETFs.
• We do have some RRSPs in mutual funds but we plan to bring them over to a self-managed account in the near future.
• We have a small amount of speculation stocks, but they make up less than 1% of our portfolio.

Q10. You said you invested a large HELOC (Home equity line of credit) into dividend stocks. What made you decide to use HELOC? What are the risks associated with HELOC?

• As a result of the huge growth in the housing market, we had built up a lot of equity and wanted to capitalize on it. This is why we decided to use the HELOC. It was also helpful that interest rates were quite low and the dividends alone were more than the interest. When investing in dividend or interest funds, interest on the HELOC is tax-deductible.
• Risks – If the value of the stocks drop, you owe more than you have. Interest rates could also rise, so your dividends may not cover your interest costs. Using a HELOC is not for the faint of heart – you definitely need to do your research to ensure you are investing logically.

Q11. Do you take advantage of RRSP? Do you plan to withdraw early from RRSP before age 71? If so, what are you early withdrawal strategies to minimize RRSP tax penalties?

• Yes, we do have RRSPs. With our main source of income being dividend income, the tax burden is practically zero, so RRSPs will not be useful moving forward. In Ontario, you can earn up to $58,000 per person and only pay $750 in tax.
• Due to this situation, we can withdraw RRSPs and pay an incredibly low tax rate on our withdrawals. We will withdraw money at strategic times when we will not have any large capital gains. Our rental income does impact this, but we do plan on selling off some of the properties over time.

• The Millennial’s Ultimate TFSA Guide
• The Millennial’s Ultimate RRSP guide

Q12. That is amazing that you are travelling around the world for the next 3.5 years before your son starts grade one. What’s your travel plan? I can only assume that you are doing slow travel. Where are you now and where are you off to next?

• Yes, we are definitely traveling slowly. Currently we are spending 3 months in Croatia.  We typically stay in a place for anywhere from 1 week to 1 month. 
• We will be back in Canada for the month of December to spend the holidays with our friends and family. After that we will head off to Spain for 3 months. Essentially our ongoing travel plans are to spend 3 months abroad and then come back to Canada for a month to see family and friends.

Q13. Is cost of full time travel really lower than how much you’d spend if you were still living in Ontario?

• Yes, it really is! We are staying in Airbnbs as we travel. This is cost efficient for many reasons. First, we typically rent places with a kitchen so that we can cook a majority of our meals at home. Also, many places offer a discount the longer you stay. For example, an Airbnb can be discounted up to 25% for a week or up to 50% if you stay one month or longer.
• Many of the countries we are planning on visiting also have a much lower cost of living than Canada (especially Toronto). For example, currently in Croatia our family of three can easily go out to eat at a restaurant for $40 or less. Groceries are also 45% less than in Toronto.
• We often use online cost of living comparison to see which countries may give us the best bang for our buck.
• We also don’t have any ongoing expenses at home (e.g. mortgage, auto, utilities, phone bills, etc)

Q14. What is your withdrawing strategy once you are living off your investment? Do you plan to tab into your principal in the first five years? Or do you plan to utilize distributions/dividends?

• At this point, our portfolio generates enough dividend income to cover all of our current expenses with some to spare. Anything we don’t use gets reinvested to increase our income even further. We also have locked in accounts, such as RRSPs and LIRAs, which we do not draw from at all. 
• We do receive a small amount of income from our rental properties, but it is not a major income source as most of the rent goes towards covering the expenses/mortgage of the properties.

Q15. What do you see yourself in 5 years and 10 years from now? What are the top three things you are looking forward to?

• In the future we plan on settling down a bit as we want our son to attend school. We are looking forward to taking advantage of that time to explore some personal hobbies that we currently aren’t able to do (traveling and caring for a toddler 24/7 is quite time consuming!). Travel has always been something that we have prioritized in our lives, so we expect to continue exploring for years to come, but it will likely be less frequent once our son is school-aged.
• In the future we may look to get back into the working world or start a business ourselves.  If we do decide to work again, we want to do something that we truly love to do, and not because we have to.  However at this point we are leaving it pretty wide open and living in the moment. Part of the benefit of being financially independent is the ability to have flexibility in your life!

Q16. Do you keep it a secret to co-workers, friends, and family that you are close to be financially independence? Do they feel uncomfortable whenever you share your financial success with them? Why do you think money is such a taboo subject in society?

• Once we realized FIRE was a possibility for us, we shared the idea with our family.  We didn’t share it with our friends or co-workers until we got our affairs in order and were essentially ready to retire (i.e. we were about to put our house up for sale)
• For the most part, everyone was very supportive of our decision and our plans. There was a bit of concern (mainly from some very traditional parents) about whether our plans were too risky, but they were fairly open to discussion.  Overall, we felt that no one was uncomfortable when we shared our plans.  However, our feeling is that most people don’t fully comprehend what we are doing, and they probably think we are taking on a huge risk.
• We both believe that personal finance should be taught in the school systems starting at an early age.  It is one of the most important life skills, yet we are left to learn it on our own, with very little standardized guidance.
• We could really go on and on about this subject, but essentially there are two main reasons for the taboos in our minds:
  • People are afraid to discuss wages because of years corporate culture creating this taboo. In reality, if more people are open about their income, pay equity between people doing the same jobs would also improve (something that many companies are trying to prevent).
  • People are also afraid to discuss their own finances because a lot of people don’t want to look like they are less successful than others. People should definitely be open about their finances, it is the best way to learn and improve their own situation.
• Also, as an aside, since we announced we were retiring, practically no one has asked us for any financial advice or information on how they could achieve FIRE. So these financial taboos are very entrenched in our society.

Q17. What would you tell someone like me who is trying to achieve financial independence? Do you have any advice for financial independence retire early?

• Our advice would be to re-evaluate what is truly important in your life. We feel that many people get caught up in material objects, which tends to distract from financial success.  The idea of working towards financial independence may seem like an overwhelming and impossible task, but small changes can make a big difference over time.
• If you are already working towards financial independence, you are unlikely to start living recklessly once you have retired. You can be confident that you plans will work out.

Q18. Do you have anything else you would like to share with me and my readers?

• Life is too short to spend it doing something you don’t want to do.
• Financial independence is not some pipe dream, it is a very achievable goal. We never made over $150,000 in combined income over our years of work. Not everyone can retire at 35, but maybe 45 or 50. Even if you don’t plan to retire early, taking control of your finances will always lead to a brighter future at any age!
• You can follow our journey on instagram @lifeunscripted.   We are always willing to answer questions and give advice!  We also love sharing our travel experiences.

Thank you Mike and Sandra for participating in the interview. I am totally inspired to travel around the world and reach FIRE via goe-arbitrage.

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