A few months ago, a reader from Vancouver left a comment on this blog, stating that he has reached financial independence at 38 years of age. He also mentioned that he decided to continue working despite being financially independent. Intrigued by his story, I reached out to him via email. After a few email exchanges, I decided I had to get him to do an interview and answering some questions I have.
Please allow me to introduce you a fellow Vancouverite D.
Q1. Wow, it is amazing to hear someone that lives in Vancouver that is financially independent at age 38. When did you become aware of the term financial independence?
It was Mr. Money Mustache who introduced me to the term. In April of 2014, the Globe and Mail published an article about some guy who retired at 30. Intrigued, I visited his blog and was relieved to finally find someone who shared my philosophy of how lucky we are to live where and when we do, how much we waste as a society, and how little it takes to focus the “firehose of wealth” towards a goal of FI. I was riding my bike to work the next week.
My push to FI started there, but I had been living a simple life since moving out from my parents’ house. I was unintentionally already close to the finish line when I read the article, but MMM pointed me to the tools I needed to cross it.
Q2. You mentioned that you asked about RRSP at the bank when you were 13. Did this event kick-start your interests in personal finance and investing at a young age?
I wouldn’t say that particular moment started anything except confusion. The teller laughed me out of the bank while I was trying to be smart with savings from my summer job.
It’s my mom who I credit for my interest in personal finance. We opened my first bank account at 6 or so, and she told me about interest and compound interest. Free money seemed amazing to me! And she had a ledger that she would write in 25 cents every week into the credit column for me, my pocket money.
Soon after, I used many weeks of savings to buy a crappy robot that was garbage. That taught me that money in hand, the anticipation of what you can buy, is often better than the reality of having bought something.
Tawcan: I can’t believe that the teller laughed at you, that’s so cruel! That’s cool your mom taught you about interest and compound interest, I was taught about the power of compound interest at a young age too.
Q3. You were introduced to a financial advisor when you graduated from high school. Was the advisor helpful? Looking back, are there things you wish you would have done differently? Given the options available today, would you have used a robo advisor instead if you are given the choice?
Yeah, my high school graduation gift from my dad was $1,000 invested with a financial advisor (smarter gift than a car!). The advisor was amazing: he taught me about setting financial goals, what investment product classes there were, and had me consider ideas like automating investing. I remember hours sitting with him at a whiteboard explaining this magical world to me.
I’ve never used a robo advisor, so I can’t say whether I’d go that route instead of an advisor. It certainly wasn’t an option 20 years ago! Looking back, my returns were certainly eroded by the expensive fees on the funds I carried with that advisor, but I needed that initial conversation to get things started right, and I have spent probably over 40 hours with him. At some point, the fees exceeded the value of the advice, and that would have been a good time to move on.
If I were to change anything, it would be taking the time to learn about investing and have more responsibility for my investing choices sooner. To set up a simple online brokerage account with low fee funds would have “paid” me an hourly rate more than my regular work does (investment return increase divided by hours of research).
I imagine that an advisor or mentor is still a great first step for a new investor, as long as they have your goals and best interests in mind. Although perhaps online research now would be enough to start without an advisor, considering the easy access to ETFs, and good investing blogs.
Tawcan: Here are a bunch good invested related articles I have written.
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?
I only “hit my number” a few months ago so I’m still adapting. My career as a freelancer has the advantage of allowing me to have some control over when I’m working and when I’m not, and I’ve worked much less this year than those previous, but it’s very hard to do that.
On the good side, I am able to pick and choose the projects I work on and the people I work with, and so I will no longer need to choose projects for how I perceive they’ll affect my future career, I can just enjoy the process of working. Thus the working environment is better.
However, there’s a bunch of new challenges. Learning to say no to projects is a skill that I’m working on, but old fears die hard; fears around needing money, and ego, and validation. It’s an alien feeling to recognize that success at work doesn’t define me as a person, and that I need to work on valuing myself more for other things, like helping others. I’m working on a new mission statement for myself.
I can say that I work with an odd assortment of wonderful, unusual people and I tend to value my time with them more. There are a lot of times that work still feels like a grind, but I think that’s true of everything, no matter whether you’re getting paid or not.
I started in my field because I enjoyed the work, and did it for free for a while to learn. I feel a bit like I’m in that scary but fun part again, when everything is new while I learn this new phase.
Q5. Do you think you will continue working for the next 10 years?
Very likely. My girlfriend won’t be FI for about that long anyway, so it makes sense to balance my time with several things: interesting paid projects, volunteer work, travel, and whatever else I find myself doing. There is a bit of a luxury being a freelance worker, in that I can taper off the work as I choose. Ideally, work will slowly take less of an important role as I incorporate other projects.
If I stop enjoying my work, then I’d be open to something drastic like selling up and travelling full time.
I’ll admit that there’s an illogical part of me that has trouble believing that FI will actually work. Even with a detailed spreadsheet that shows expenses over the last few years compared against investment income, it’s hard to actually make the transition to relying on that. That’s where the “one more year syndrome” manifests for me, I think.
Tawcan: Having a FIRE calculator is useful but we need to remember that it is s just for simulation.
Q6. What is in your investment portfolio? Are you still using the financial advisor from high school for investing?
I am kind of mixing a dividend appreciation strategy with a couch potato strategy. I have a lot of Vanguard funds, both Canadian and some US. The new “active” Vanguard Value fund is very interesting to me (VVL), but I have a lot of the passive funds as well (VTI, VCN, VIU, etc, as well as bond ETFs). I have bought a lot of individual Canadian stocks for dividend appreciation, but in the US I have only the Vanguard ETF that works on the principle (VIG). Your blog has been a source for information on good individual stock choices. I also have a small amount left with my advisor, which adds a layer of diversity and investment protection by being in multiple insured institutions.
I’ll be shifting to a focus on income over the next few years, but with no hurry.
Q7. Since you are FI but working, are you spending 100% of the working income on expenses? Or are you saving still to increase your retirement margin of safety?
I don’t spend much so it’s easy to keep saving. I’m not even sure what I would do to spend 100% of my working income. The added savings do increase my safety margin, and also opens up room for more luxury things like fancier trips (but I’d probably have as much fun doing a cheaper bike tour with a tent anyway).
Q8. What are your biggest secrets for becoming financially independent at age 38? Having a high savings rate? Gambling on investments? Winning $50 million Lotto Max? Please share!
As everybody respectable in FI literature will tell you, savings rate and time are the keys. It was true for me, too: I had no insider tips, no secret sauce, no magic beans.
Even before knowing what FI was, I always tried to keep my overhead low, so that if I had trouble finding more freelance work, I’d be okay. I’d try to make it so that if I could work four days a month my bills would be covered. Another week of work would pay for the next month with some left over. I just stuck with that spending model as my income grew. That made for a very high savings rate: before discovering FI my savings rate was probably about 50%, which ramped to about 80% when I was saving aggressively.
Something that helped with this was starting my own company. By having the money I earned stay in the corporation, I pretended that the money wasn’t mine to spend. I still pay myself a very low monthly salary, and that’s what I live on. If all my investments and company burned, a minimum wage job would keep me afloat.
The road to FI for me started with fear, being worried that I wouldn’t get another gig for too long and putting money away for rent. But the feeling of months, then years, of spending in the bank was a security that I loved, and kept increasing. It was only 19 months from learning about FI from Mr. Money Mustache to becoming FI, when the years of security became self-sustaining through investment returns.
I did win the lottery: the lottery of being born in Canada to a nice, reasonably well-off family in the late 70s.
Tawcan: Living in Canada and not having to worry about health care is very beneficial compared to our friends down south.
Q9. 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?
Yep, maxed RSPs and TFSA for sure. My company has a bunch of investments at a favourable tax rate, too. Since I haven’t started drawing down yet, I’m still learning about what the best tax setup is for me. I haven’t found a lot of literature on how to organize a corporation for FI! But I like the idea that the company earns dividends through investments, pays me a salary, and then I invest what salary I don’t spend in tax-advantaged accounts. That can keep going as long as I work a bit each year.
Considering my low annual spending, I haven’t read about any huge penalty for using RSPs, so once I’m no longer working I’d consider withdrawing some.
I’m happy to hear from your readers if they know of any good resources on tax strategies for corporations with FI minded owners!
Tawcan: I made some assumptions previously. We are seriously considering withdrawing from RRSP early.
Q10. 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?
I do feel uncomfortable telling people about my financial status. There’s a huge stigma against both being “rich”, and being “frugal”. Only a couple of friends have an inkling of where I’m at financially, and it seems to make them uncomfortable. I’ve tried to show them that FI is possible for almost everybody in our amazing circumstances (the majority of Canadians), but I’ve only been able to encourage small changes. At worst, being FI seems to make others resentful or depressed. I think a lot of people have trouble seeing that they are in control of their financial decisions and can work towards FI too.
My mom recently told me she is proud of me, even though I’m not successful financially. That took me by surprise, since I feel very financially successful! But she doesn’t know, she just sees me driving the same car, living in the same condo in my old clothes. And I realize that most people would see me the same way. As a society, I think it’s assumed we’re spending almost all we earn, so our value is shown by the price of our lifestyle. So we spend more than we earn to look more valuable. Thus, the taboo: most of us are faking wealth, and we don’t want others to catch on.
Tawcan: It really isn’t a surprise to me that so many FI’ers don’t look “successful financially.” This is mostly due to them focusing on purchasing things that would provide the most values to them, rather than purchasing things to show off.
Q11. You mentioned that you live simply but not to be frugal. Why is it so important to find that personal balance between saving and spending?
I think, for most people, personal balance is important. My girlfriend did a sort of personal frugal-challenge to see how low she could get her spending. It was really empowering for a couple of years but, in the end, she likened it to a long fast where she pulled out her credit card sighing “Oh thank God, ice cream!” and ate the whole tub. Luckily, she’s found a better balance now. During that time her FI goal was a lot closer but we learned you can’t base your financial future on spending habits that aren’t going to hold true.
For me there’s not a lot of balance required, it comes very naturally to not spend very much. I’ve always equated money with the effort required to obtain it, and so have thought through every purchase as a value transaction. Every purchase, even a chocolate bar. I’ll usually not buy the chocolate bar, but have no problem going on a trip somewhere.
From a young age, I saw the cost of things as a cost of time, not money: going to a movie would cost two hours of work (about a 1:1 ratio of entertainment to work), while a video game would cost almost a whole day (but the many hours of play could provide a ratio of 20:1). I don’t think of things as a ratio anymore, but there’s a reflex to think about the actual act of working for money when I’m looking at a purchase. And if I spend my money on crap, then the work I did to earn that money was for nothing.
It means most of my possessions last for a long time. I’ll look at buying something new, but often decide that the thing I’ve got will last another few years. My furniture is mostly from when I first moved out 20 years ago; I try to only drive when I need to go beyond the city; I prefer eating at home.
Simple living is just a reflection of what I enjoy. A perfect day is a bike ride, a picnic, some time with friends, a perfect pot of tea at home, that sort of thing. It just so happens that what I enjoy tends to be very cheap.
Q12. What would you tell someone like me who is trying to achieve financial independence?
I’d say, “Congrats! Enjoy the journey!”
I have found FI to be more of a philosophical pursuit than a financial one. The success is from learning to be happy without spending, to appreciate the important things that are free, to understand that swaddling your ego with stuff won’t fix your insecurities. I think it would be very difficult to achieve FI without learning to be grateful for what you have.
You can be independent by reducing your need for money. For example, I had a friend in my 20s who worked 5 hours a week and lived on $300/ month in Winnipeg. To me, she was already free without saving anything. She was happy, with plenty of time to be an active member of several great communities. She wasn’t trying to be FI, but her low spending made her independent anyway: she could live her life on her terms. She got the philosophy long before I understood it; she had “enough”.
We’re still wonderful humans even without stuff, perhaps even better because we’re not distracted by how impressive our new phone is.
Working on the philosophy has a better happiness outcome than being FI.
Being FI doesn’t change your happiness directly. If you have a savings rate that will allow you to become FI, then the financial stresses should already be gone… you’re already saving enough to protect against future problems. And there will always be things that limit you, whether you’re working or FI. The key is to be able to enjoy what you’re doing within those limitations.
So take care not to find yourself miserably saving for the mythical Nirvana of FI. The good stuff is already within reach.
Tawcan: Love it! I mentioned some of these points in this controversial post.
Q13. Do you have anything else you would like to share with me and my readers?
I really enjoy games, so I made a game of the process of becoming FI. There’s plenty of examples out there (budget trimming challenges, minimalism challenges, etc), but I love working on my FI spreadsheet and watching the numbers change in my favour. I also enjoy trying to find new ways to think about the core concepts. One example would be imagining FI as a currency, which I call Perma$. Every $25 buys you one Perma$: a dollar that regenerates itself every year, forever. This is just a twist on the 4% rule, but helps put little purchases into perspective. That dinner cost three Perma$, darn.
Regardless of the method you have for achieving FI, you’ve got to enjoy the process. It’s going to take years of discipline to become FI, so why waste those years?
Also, thanks for reading, and a salute to all who are working towards their own financial goals!
Thanks D, some excellent insights you have provided to me and my readers! Dear readers, did you enjoy this interview? Please also check out the other FI interviews I did with fellow Vancouverites.