Mr. Tako recently wrote a great article called Those Special Snowflakes. He asked whether early retirees like Mr. 1500, Root of Good, Millennial Revolution, Mr. Money Mustache, Go Curry Cracker, Jim Collins, and he himself are special snowflakes in society.
He then stated that these early retirees are not special.
The beauty of the whole financial independence movement is that they’re NOT special snowflakes. These are regular guys (and gals) who “made it” without any special abilities or superior investing skills.
Upon further analysis, Mr. Tako believes the secret of accumulating a large sum of money, having high net worth, and being able to reach financial independence/retire early comes down to efficiency.
Strive for high efficiency
I am not an early retiree (yet) but I did do some pretty weird things to save tons of money in my 20’s. Due to low income while working in Germany as a Co-op student, I was forced to learn how to survive and travel all over Europe on an extreme budget. With an engineering background, I absolutely love trying to figure out how to be as efficient as possible.
Fast forward by 10 years or so. Now married and a dad to 2 kids, I still strive for high efficiency. This is an on-going effort that Mrs. T and I continuously work on together.
How do we strive for high efficiency? Here are a few ways.
- Air dry clothes – Since air dry clothes feel a bit “crispy”, we typically put cloth diapers and towels in the dryer and run it on medium/low temperature for 5 minutes.
- Using mostly LED lights at home.
- Keeping thermostat at lower temperature during winter. Turn the heat down when we are out or sleeping.
- Reduce water consumption – If it’s yellow, let it mellow. If it’s brown, flush it down. Yea, it’s maybe not for everyone.
- Drive at constant speeds, avoid sudden accelerations, coast to stops.
- Walk to places whenever possible.
- Shop around for house and car insurance.
As you can see, majority of these are about doing various little things to reduce our energy consumption. Because lowering your energy consumption can prevent catastrophic disruptions of life on earth.
Consumption Data Analysis
We try to reduce our energy consumption whenever possible. How efficient are we compared to the average household? Thanks to BC Hydro’s comparison tool, we can compare our electricity usage with similar homes nearby with the same heating type.
Note: our home is ~2800 sqft has central heating for the 1st floor and baseboard heating for the 2nd floor.
I don’t know how realistic the “nearby” home data are. If the data are realistic, then we are certainly using way less electricity than our neighbors.
Since we use natural gas for stove, water, and central heating, what’s our natural gas consumption rate?
Unfortunately, Fortis BC does not offer a “similar” homes comparison option so we cannot compare our consumption with our neighbours. I can only assume that our natural gas consumption is lower than the average household in BC.
We have also been increasing efficiency when it comes to car fuel consumption. Below are our car fuel consumption numbers since gotten our Volkswagen Passat at beginning of 2016.
According to Volkswagen’s website, Passat has a gas mileage of 9.41 L/100km or 25 MPG in city and 6.5 L/100km or 36 on highway. So we have been quite efficient when it comes to fuel consumption.
Do you have any energy consumption data you can share? I would love to hear about your experience.
Efficient Asset Builders
By being efficient on energy consumption, we have been able to save quite a bit of money over the past few years. The savings can then be used for purchasing assets to increase our net worth.
This is exactly what Mr. Tako mentioned in his post – that early retirees are efficient asset builders. Although we are not quite financially independent yet, we did manage to increase our net worth by 250% in 5 years and grew our net worth by 34.4% in 2016. We just need to continue to grow our net worth in the foreseeable future.
Our net worth numbers are skewed a bit by the hot Vancouver real estate market. But if we exclude our housing value and only look at liquid assets, our liquid assets grew by 29.4% in 2016.
Considering that we are a one income family with kids, I think we can pat ourselves on the back as efficient asset builders. Can we do better? Probably, we certainly can cut back on certain expenses to save even more money. But as I stated many times on this blog, it is not about deploying an extreme saving strategy and end up depriving ourselves. It is about finding the right personal balance between saving and enjoying life today. This is exactly what we are practicing on a daily basis.
Average Net Worth
What should the average net worth at different stages of people’s lives? To understand this, we need to look at data from a few different sources.
According to the Globe and Mail, the net worth milestones for the average Canadian are as below.
Meanwhile, in MoneySense’s All Canadian Wealth Test, net worth by age was broken by unattached individuals and families of two or more.
Without disclosing any specific numbers, our net worth is higher than the average 35-year-old Canadian specified by the Globe and Mail and MoneySense. This shouldn’t come as a surprise thought, since data above are for the average Canadians. For someone that is aiming to achieve financial independence, the net worth milestones will be quite different.
How different? Let’s take a look at the extreme case. Sam at Financial Samurai came up with the top 1% net worth breakdown by age.
Sam has also provided numbers for media net worth of families by age in America, which I believe are more realistic (as most of us aren’t the 1% in society).
So by age 35, someone that is aiming for financial independence should have between $100,000 and $1,000,000 in net worth. For sake of simplicity, let’s ignore the USD and CAD exchange rate.
Your level of income definitely comes into play when we talk about net worth. However, having a high income does not automatically mean a high net worth. If you spend most of your income, you will never manage to build up significant amount of net worth. This is why it is so important to have a relatively high savings rate. The bigger the delta between your income and your expenses is, the faster you can achieve financial independence.
The key, regardless of your income, is to build your asset empire. Purchasing appreciating assets and not depreciating assets. For most of the early retirees mentioned at beginning of this post, they hold a large portion of appreciating assets like real estate and stocks. Although most of these early retirees are withdrawing from their portfolio, their net worth have actually been increasing during the long bull market run.
Simply because they are holding appreciating assets rather than depreciating assets.
So next time you are debating whether to purchase something of significant value, ask yourself, is it an appreciating asset or a depreciating asset?
If it’s a depreciating asset, 99.9% of the time you should probably just forget it and keep your money.
How to build high net worth? It’s pretty simple actually – strive for high financial efficiency and build your asset empire.
Simple in concept but certainly more challenging to do in real life.
But if you are reading this post, I believe you can achieve it.
What your mind can conceive and believe, your body can achieve.