If you have been a time reader, you may recall that I started a financial independence retire early interview series a while ago where I interviewed Canadians who are either financially independent, retired early, or close to these key financial milestones. The reason for the series is to bring more Canadian perspective as I feel there are many American financial independence retire early (FIRE) stories out there but there are not as many Canadian FIRE stories.
If you are reading this and you are financially independent, retired early, or getting close to these major financial milestones and you are a Canadian, I would love to hear from you.
For this post, I am happy to welcome D who hit his financial independence number last year at age 32.
Q1. That’s fantastic that you hit your financial independence number last year at 32. What sparked your interest in personal finance and realizing that financial independence is possible?
I was always interested in personal finance from the time I left university and started working at age 22. My wife and I naturally were saving around 30% of our income when I stumbled across an MMM article a friend had posted on Facebook around 2015. I had been going through a period at work where I wasn’t too happy with the Monday to Friday schedule and was looking for ways to get out. The article grabbed my attention and I then consumed most of the MMM blog archives over the next few months. It was around this time that I started talking to my wife about trying to become financially independent so we could have more options in life.
Q2. You have a relatively high income despite being a single income family. One of the biggest complaints people have regarding the financial independence retire early movement is that FIRE is only possible for high-income earners. Do you think this is true? Or this is a fallacy?
It’s a bit hard for me to say. According to the math, FIRE can work for anyone if they are saving a portion of their income, it’ll just take longer if the portion is smaller. I’ve been blessed to have a high income, which has made it easier for us to get our FI number relatively soon. I’d say the answer is somewhere in between; it would be hard to stay motivated for decades if your savings were growing super slow (e.g. saving 10% of a $30k income is only $3k per year). So, it’s not a fallacy that only high income earners can do it, but I think the mental path gets more difficult for lower earners.
Q3. How did you convince your wife to start the FIRE journey with you? Are you both involved in the household financial planning? Do you have a joint account, or do you keep your finances separately?
It was pretty easy to convince my wife. We are both similarly minded financially – which is part of the reason we ended up getting married! Again, I had read some of the blog posts on MMM and other blogs about how to get your partner on board, particularly using the “What’s in it for me” approach. For her, it was more time as a family, taking small trips together and being able to visit extended family more, so that’s how I approached it.
All of our banking is joint – everything I earn goes into our household fund and becomes “our” money. It’s super important to me that my wife doesn’t feel “less than” since she doesn’t get a T4 for what she does (stays home and raises kids).
We set our budget and goals together. I run the math and handle the investing aspects and she does most of the administering of the monthly household spending. She keeps us on track and manages to what’s in the bank account after we take out our savings amount. She does a great job at this.
Q4. People always say that kids are expensive. Do you believe this is true? Why and why not?
I’m a big believer that kids are as expensive as you let them be! There is a lot of “keeping up with the Jones’” mentality around giving your kids everything; sports, music lessons, i-pads, toys, fancy name-brand clothing, etc. We believe that it’s more important to spend time with our kids and build relationships than some of those other things.
I can see how child-related costs could run away on somebody. We tend to limit our kids to a few main activities or sports and don’t indulge their every whim when it comes to the latest and greatest on toys, technology and things like that. We live in a resort destination town, so we want our kids to be able to access the things like skiing, biking and hiking that are readily available. We have made those things available to them but have found cost effective ways of doing it. Used kids gear is often 20-30% of the price, but not even close to worn out. The kids don’t care as long as they are having fun with us or their friends.
Q5. Sounds like maintaining the same lifestyle (i.e. avoid lifestyle inflation) is one of the key factors to reach FI for you. Explain how you achieve this with four kids.
Oh man! I feel like there is a lot to unpack here. I’ll try and break it out into categories;
- Paula Pant’s “Afford Anything” mantra rings true for me. I spend big on what I care about (for me, it’s recreating) and spend very little on anything else. Similar for my wife (eating well)
- Everything that falls outside of those categories, we just refuse to dump lots of money into. For example, we drive vehicles that are typically 5-10 years old and cost about 20-30% of what they would have new.
- Discretionary spending is kept to a minimum. We don’t believe that happiness will come from consumption (barring the two categories above).
- Our budget was mostly made from a focus to get our savings rate to 50% and then spending the rest till it was gone. This sort of budgeting works well for us because it helps you prioritize. I recall reading “The Wealthy Barber” soon after finishing university and he introduced the concept of paying yourself first. That stuck with me and our savings for retirement have always come out of our accounts first. In this way, we’ve managed life-style inflation since university and I don’t think I really know what it would be like to spend thousands of dollars a month more than we currently do..
Q6. What is your investment style? Do you invest in mutual funds, index ETFs, dividend growth stocks, or rental properties? How are you diversifying your investments?
My investing style can be summarized as follows:
- I’m a big believer in low-cost, hands-off, steady-as-she-goes investing. I.e. pick a strategy, stick with it and don’t deviate despite temptations. I discovered the “Canadian Couch Potato” investing philosophy in 2014 and have stuck with an ETF based strategy since then.
- I typically hold 80-90% in equities based ETFs and the remainder in cash. Generally, I try not to time the market, but I do want to be able to deploy cash into the market when it dips more than 15-20% (like late 2018)
- Our investments are diversified geographically (equal parts Canada, US and international). Although as I think about it more, it doesn’t make sense to be so exposed to Canada but am reticent to change it given my first point.
- We don’t do rental properties mostly due to preference and my desire to have a hands-off strategy.
- I like to think I’m relatively okay with high risk, but this could be a blind spot. I graduated from university in 2008 and have only really seen a steady run up in the market. I’m worried I may overreact if a major correction happens again. However, in late 2018, when things dropped 20% in the last quarter, I can honestly say that I wasn’t too concerned, and we even used some of our cash to buy more equities at this time. Things could be different at 30-40% losses – I guess time will tell!
Q7. You continue to work despite reaching financial independence. What’s your next plan? Are you looking to retire in the next few years?
Once we reached financial independence, I approached my employer about going part-time (3 days per week, the minimum amount to retain benefits). While this isn’t typical in the environment I work in, I believe part of the reason I was able to move to part-time was because it was clear I would leave if I didn’t get the reduction in hours that I wanted. Basically, my wife and I liked the idea of slowing down a bit to have more family time, but keep some income coming in and the good health and dental benefits due to the number of kids we have.
In terms of “retiring” in the next few years, I don’t have a strong desire to stop entirely. I just want to do it a bit less and enjoy life outside of work while the kids are young and we are forming memories as a family. At this point we are in a “wait and see” spot. We have the luxury now to take things as they come. I am enjoying work and there are some cool projects happening right now. I would like to stick around and see them through.
When the kids get older (currently ages range between 3-9), we would like to do some more extended travel abroad, which could trigger a more permanent change. While my current situation is nice, due to steady pay/benefits, it doesn’t give us the ability to take 2-3 months off at once and travel, so that may end up triggering a change as well.
I would like to stay working to let our investments “double” at least once, but that’s not a hard rule. Obviously, it depends on the market, but I suspect it’ll take 5-10 years to double. We continue to save around 20% of my income due to RRSP matching and some other programs that would be foolish to not take advantage of.
My biggest mistake is not starting sooner. I wish I had taken the time to understand the personal finance world when I was younger and embrace it sooner. Time is the biggest asset that we have when it comes to our investing lives. Compound interest and long-term investment growth are wonderful things.
MMM wrote a post where he referred to dollars as little workers you send out each day and that really clicked with me in a way that helped me prioritize saving. Now I have an army of little workers going out each day who potentially can earn more than I do!
This has changed how I treat relationships with those around me that I care about. I try and not push FI values on those around me, but with my work schedule changing, family and coworkers have been asking questions and those who are interested have been coming up to me afterwards seeking more information. It’s important to me to help anyone who wants help figure out their path forward, especially younger people who I don’t want to have the same regret that I do.
Q9. Why is financial independence so powerful for you?
To me it represents ultimate flexibility and removes fear from decision making. I don’t think enough people in society realize how many of their decisions are made under the umbrella of financial constraints. Being FI really does give us the liberty to make radical life choices if we want to.
Q10. Do you take advantage of TFSA and RRSP? Do you maximize both of these tax-advantage accounts each year? Do you plan to withdraw early from RRSP before age 71? If so, what are you early withdrawal strategies to minimize tax penalties?
Yes, we maximize RRSP and TFSA contribution room each year and have some extra funds in a non-registered account under my wife’s name. We take advantage of a spousal RRSP account for my wife, where I get the tax benefit on the contribution, but the withdrawal will be taxed as income under name. Since she is a stay at home mom and doesn’t have any taxable income, it’s good to have a spousal RRSP in her name and any non-registered funds (money that is taxed at 50% of capital gains)
If I stop working, the plan to get funds for living expenses will be to utilize our RRSP funds near the federal exemption amount and supplement from our TFSA’s. Currently our annual expenses are around $45k. If we both withdrawal $15k from our RRSP’s and $7.5k from our TFSA’s (that’s $22.5k each, so $45k total), we will pay very little tax.
Any withdrawals from our RRSP’s would be timed to December so withholding tax would be recouped fairly soon in March when we file our taxes. Under this strategy I think we can pay very little in taxes.
Q11. What do you see yourself in 5 years and 10 years from now? What are the top 3 things you are looking forward to?
Here are some things I see myself in 5 years and 10 years from now:
- As a family, we will take smaller (a few weeks at a time) trips throughout western Canada/USA as our kids get older and can do more hiking/sightseeing
- I look forward to spending more time with my kids and getting them more involved in local community events.
- More time to take care of myself mentally, physically and spiritually.
- As we get older, I’ve noticed that what we want changes and I suspect it’ll continue to do so in the next 5-10 years. My wife and I will keep an open mind to what we want.
Q12. How are you teaching your kids about money? Are you giving them allowances? Do you get them involved in household financial decisions?
We do not do an allowance. We look for opportunities for our kids to earn money. For example, doing jobs for us that are outside normal family duties (cleaning & vacuuming the car for example), or selling old toys they no longer play with.
When each of our kids hit age 5, we open a bank account for them. Any money they get from birthdays, Christmas, etc we use to teach them basic saving principles. We are Christians, so we are teaching them to tithe 10%, then split the remainder; half for spending and half for saving. We talk about the “why” behind this, so it doesn’t feel like they’re being punished when we force them to save. So far, it seems to be working.
In general, we are open about money. I think my parents did a good job talking about finances around me and my siblings when we were younger, and it was never weird for us. We do the same with our kids and talk about general things; why we’ve chosen not to buy certain things. Now that I’m working part-time, we’re able to draw the connection between forgoing those items and me getting to stay home 4 days a week.
In terms of family; I had read some good advice on a personal finance blog (I think it was Our Next Life) about letting your family know ahead of time so they could adjust mentally. We made a point of telling our families about a year before we thought we would be FI that things might change for us. At this time, I thought I would be quitting work to do consulting, since I never thought my current employer would go for a part time gig. Luckily, most of our immediate family is quite supportive. Many of my siblings have since started asking for financial advice and direction – it’s been awesome to see their growth.
As for work, it was pretty much impossible to keep it a secret when I went part-time! Everyone at work knew my wife stayed home with the kids and couldn’t figure out we could afford to go part-time. I got lots of questions and since I don’t mind sharing financial info (never exact numbers, more just general ideas), people figured things out quick. Lots of folks came to my office within the first week and asked tons of questions about what I did and how I did it, etc. I’ve really enjoyed helping people figure out what their goals are and some basic guidance on how to approach setting things up.
I think some co-workers felt uncomfortable. A few were a bit weird for a week or so but then things went back to normal.
Why its taboo is probably a very complicated thing, but I think it’s at least partly due to shame. Lots of people when they talk to me feel bad about their finances and it’s largely because they feel embarrassed for not knowing what they feel they should already know. They simply lack the education to set things up correctly. For example, even something as simple as the term “RRSP” confuses them; do I buy RRSP’s? Where do I buy them? Lot’s of the investing world is based on some abstract concepts, which is partly why I think people struggle to grasp what’s going on. Also, our public schools don’t seem to teach much about finances either.
Q14. What would you tell someone like me who is trying to achieve financial independence? Do you have any advice for financial independence retire early in Canada?
First, I always tell people the biggest thing is to first identify what it is that they truly want in life. What are your goals, dreams, ambitions, and vision of a perfect life? Then figure out how much money that will take and set up a plan that will get you there. If you don’t know how, get help from a professional.
Second, I challenge them to align their actions with their goals. It’s one thing to have lofty goals, like FI. But if you keep going out for dinner and buying the latest iPhone or pick-up truck, you’re likely going to take a long time to reach your financial goals. Pick what’s more important and sacrifice the other stuff!
Nope! Think I’ve rambled on quite enough. Points for anyone who made it here.
Thank you very much D for participating in the financial independence interview! You sure shared lots of great info with me and my readers.
Dear readers, are you enjoying the Canadian FI 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