How to stop working after 12 years in a full time job
How would it feels like to know that you would never have to wake up early again to grab a fast coffee, run into your car to hit traffic jams until you reach your work post and act like a zombie repeating the same tasks over and over again day after day?
It would feel great huh?!
Well that’s my goal. I want to retire early from the rat race and I want to do that within a 12 years time frame. I call my plan the 12 years of slave plan! Why? Simply because during these 12 years, I plan to sell most of my time to a corporation in exchange of a salary and do whatever they ask me to do… you know what I mean? Being a salaried worker…
Then, I’ll have the opportunity to either fully retire or at least choose to be a part-time worker or a freelancer. I want to own my time by my 45th birthday. It’s a luxury I want to buy myself and I’ll do everything that’s needed to make my goal come true.
But how can I do that?
Nope! I didn’t win lottery and don’t plan to. No, I don’t have a rich uncle who might die pretty soon. No, I won’t create any app or invest in Tesla or Twitter to get rich. No I won’t be involved in immoral or illegal activities.
What I’m doing is simply focusing on things that work and that have worked since the night of times.
I’m simply investing in income producing assets and I’m reinvesting that income to create a snowball effect. Because if you don’t want to work, it’s unfortunate but someone or something must do it for you. I’m simply putting my money at work and aiming at switching from worker to retired.
I consider my technique as a get-rich quick system. But not in the traditional sense we have given to this expression. Getting rich can take a lifetime or even several generations. I’m aiming at getting rich enough to stop working within 12 years. In that sense, I consider this technique as a get-rich quick but slowly, one brick at the time technique.
It’s a four parts plan that is based on hard cold common sense. Because no one needs to be a genius to reach financial independence. It’s only a matter of doing the right things, avoiding common mistakes and repeating again and again. We’ve been raised to do just that… but for someone else as a salaried worker. What I’m going to show you today is how to do it for yourself without quitting your day job… until you’ll be able to afford quitting it!
Here’s how to do it :
1. Spend less
Government, corporations, it seems that everybody is currently looking to cut expenses. Why they do that? Because not a lot of people know how and are also able to efficiently increase income. So if you want some liquidity to put at work for you, the easiest thing to do it to cut costs.
Cutting costs is really a matter of habits. Before buying anything you should always ask yourself “do I really need to buy that or is it a luxury?”. Every dollar spent is a dollar that won’t work for you.
There are many movements on the net about anti-consumerism and minimalist living. I’m far from being an extremist but I’ve decided, even though I could afford a BMW, that I would drive a used basic Toyota. I have also decided to buy a small bungalow outside of town instead of a high-end condo downtown even though most of my colleagues think I’m stupid.
Eating lunches 4 times a week can make you save tons of money. Renegotiating fees or rates on your credit card, insurance bills and cable can help too.
Some live almost like monks and have been able to cut costs to the point that they were able to save 85% of their net salary for years. If you’re able to do that, you could reach financial freedom at the speed of light.
Cutting costs serves two purposes. First, it helps you “find” money to invest and second, if you’re able to live on less than it also means that you will need to save less in order to reach financial independence. This also means that you might be able to quit your day job a lot faster than you thought possible. Some folks like Jacob Lund Fisker have been able to reach financial independence within 5 years by being minimalist!
Check out his blog! This guy is a legend!
2. Save a lot
If you spend less than you earn then you have excess capital. The more you save and the sooner you do it, the better it is because you will be able to profit from the most important ingredient in the equation of compounding interest : time!
In 2014 I’ve been able to save +/- 2,500$ per month. But I make almost 100,000$ (before tax) per year. Most of these savings have been transferred to my RRSP brokerage account.
You obviously don’t need to save that much or even make that much but every dollar saved puts you closer to quitting your day job. You’ll soon get addicted and if you’re like me, you’ll find ways to save more and more and more.
An healthy saving rate should be around 30 to 50% of your net income if you want to reach early retirement. Hey!!! Don’t leave my blog… most people start small and if you wish you could even start with less than 20$ per week to get things rolling. If you live in the US, there are several options you could look at like Sharebuilder or Loyal3 for example. Loyal3 can even let you buy stocks with your credit card and in very small increments.
Reaching early retirement is like getting a karate black belt. You have to start somewhere with a white belt…
3. Pay debts
I wouldn’t quit my day job with huge debts… I personally plan to clear my mortgage balance within 7 years and my personal debts within 3 years.
Being debt free is already being rich. Imagine how free you’d be without debts! Saving would also be a lot easier!
Just calculate how much you spend every month to refund borrowed money you used to buy clothes that you don’t wear anymore, trips you barely remember, food at that new restaurant that was not that great… Now imagine if all those monthly payments you make were made toward your financial freedom.
At the beginning of 2014, I had a huge debt load of 34,000$. I decided it was enough and I sold some assets and stuff lying around in my house and dedicated all that money to clearing my debts. Now I only own a decent 12,000$ balance on my car loan. I could sell the car but I would have a 4000$ loss… and still need to buy another car. So I’ll keep the car for now.
I also decided to freeze my credit card in my freezer to make sure I couldn’t use it to buy things I can’t afford!
There are always ways to change our bad habits! 🙂
4. Invest wisely
This is the funniest part of this plan. All the extra capital I earn every month is put toward my financial freedom. But, to make sure I would increase my wealth I had to find wise things to do with my money.
In our society, we have to pay taxes. I live in Canada and I can tell you that I pay more than my share of taxes given the salary I make. In fact, more than 50% of my income goes to taxes (income, property and consumption taxes). Investments are also taxable every year unless held in tax free saving accounts and retirement tax deferred saving accounts.
Inflation : the most pernicious tax
There is another tax we don’t often talk about. Inflation! And I believe this tax is the worst because we don’t really know how much it is. The government like to tell us it is near 2% per year but if you’re like me, most of my money goes to housing, food, transport. And we all know that prices in these fields are growing a lot faster than “bullshit” inflation that they publish to make us believe things are under control.
My electricity bill has seen an increase of 4,6% this year. School taxes 11%. Property prices have been growing at 6-8% per year in Canada in recent years. Food… well we pay the same price for the same package except that the content is shrinking every year. You could have a 500g package of good Canadian bacon for 4-5$ not so long ago. Now you get 350g for the same price… don’t even get me started on cereal and meat!
Now, as an investor aware of that hidden tax, I had to find a way to make sure that the income I could get from my investments would at least keep up with inflation!
This was a though one.
Investing vs speculating
Most people mix “invest” with “speculate”. It is a common mistake made by almost everyone and banks and broker will never tell you. They make a lot more money with speculators than they do with investors. Why would they educate you?!
What you need to seek for is income producing assets. Why? First, because speculation is too risky and using the buy/sell technique means you’ll have to be right almost on every buy/sell call you’ll make which is impossible. Over the long-term, this strategy is like flipping a coin. You’ll have one chance out of two to be right. Second, because income producing assets can usually transfer the hidden cost of inflation to customers! And this gives you a real protection against inflation!
Business and real estate offers a better protection against inflation
While there are many possibilities here, there are two that have worked since the beginning of civilisation : business and real estate.
People will always need a shelter and they will always need to consume at least food, water, energy…
Investing in real estate can be a lot rewarding. But I personally think it is risky and that it takes too much capital tied in a single investment. Some love it. I don’t. It’s really a matter of preferences. I know a lot of folks out there who have made a fortune with real estate. But one bad investment in a leaky property and you could be ruined. Also, you shouldn’t consider investing in real estate if you don’t have at least a 100,000$ net worth and a lot of liquid assets for emergencies.
Real estate is also less passive; you’ll have to deal with tenants, leaky toilets, maintenance, collecting rents etc…
Dividend growth investing : Saint-Graal of capitalism
What I like though is to own pieces of great businesses who pay me a quarterly dividend that rise every years. I can buy small amounts at a time, I can get a good diversification among all business sectors and even countries to reduce my risk.
This strategy is called dividend growth investing. If you had fun playing Monopoly back in the days, I’m sure you’ll find that strategy pretty cool.
Two years ago I didn’t know that many great companies like McDonald’s, Wal Mart, Exxon, Procter & Gamble, Coke… had not only paid dividend every year for decades but had also increased them at a rate a lot higher than inflation every year!
There are tons of companies like that!
Buy every month
Every month, I buy a couple of shares of a great company paying growing dividends. My goal is to be diversified among 40-50 companies to reduce the risk. Each of these companies is like a little soldier working for me and giving me all of his paycheck every quarter. It’s like building slowly but surely a cash printing machine! Every year each of my “soldiers” get a huge raise averaging 8%! When was the last time you got that kind of raise???
To be smart, I use their paychecks to buy more “soldiers” and grow my machine. Eventually this machine will yield me enough income to give me the opportunity to quit my day job.
This strategy is sound. It is simple. It does not involve speculation because who would like to sell such an asset? It gives income every year and it gets a great raise every year! It is at my arms length because even though I needed to read a lot of books to make sure I knew what I was doing, most companies I end up buying shares of are no brainer…
People need a shelter, they need to drink, eat, communicate, play… I simply try to pick the greatest companies out there. I make sure they have the policy to reward shareholders with consistent rising dividends, I make sure their balance sheet is strong, that I think that they will most probably still be in operation and able to get and keep market shares for the next 5-10 years and voila!
I currently have a portfolio yielding me more than 1000$ in forward yearly dividends. I’ve been able to achieve that in less than a year. Within 12 years I plan to earn enough to consider quitting my day job.
Wish me luck!
If you want to know more about the strategy or about stocks paying growing dividends consider reading these posts :
Image courtesy of sakhorn38 & stuart miles & MisterGC & ddpavumba & renjith krishnan & Victor Habbick/ FreeDigitalPhotos.net