Tired of living in a cage? You’d like to see the light at the end of the tunnel?
So am I. Join me and start digging your tunnel to freedom!
I want to retire early. As soon as my passive income will cover my expenses, I’ll run for freedom. This is not a get rich quick plan. It’s going to take some time. But, knowing that one day I’ll be free fills me of joy and keeps me motivated!
My plan is simple. It’s in 6 easy steps.
1. Clear my debts including my mortgage. I plan to be done with that by 2020. My mortgage is my biggest expense!
2. Cut my expenses and learn to live (more) frugally! (While keeping a “normal” lifestyle – restaurants, trips etc…)
3. Save a lot… I plan on saving at least 10k in 2014 and index my savings every years with inflation. When my mortgage will be fully paid, I plan on saving a lot more.
4. Invest with intelligence (dividend growth and value investing)
5. Create other streams of passive income (intellectual property)
6. Since I don’t want to live in a cave with 2 or 3 of my guy friends (frugallity, yes… but not at any price!) I set myself the aim to earn at least 100,000$ a year to be able to save more and retire earlier
Though this might change, I plan on retiring with a 15000-20000$ stream of passive income (in present value). This doesn’t mean that I would stop earning income by other means. I’m a very creative person and I also learn faster and I’m usually more efficient than the mean average… So I’m sure I’ll find other ways of making income by then (consultant in my field maybe or teaching people how to make money or whatever else… teaching is one of my passions! Who knows?! 😉 …)
How I plan to clear my debts?
I use two different approaches to clear my debts. But, the first and most important thing to do is to stop adding to them.
For my personal debts, I’m applying the snowball technique which consists of paying the minimum on my biggest debts and maximizing the reimbursement of my lowest outstanding debt balance. It’s much easier to win the war one battle at a time than to fight everywhere on every land. This technique helps me to stay motivated and to see things evolving. When one debt is paid then I can fight to pay another.
It’s going to take me some time to clear it all off and I don’t want to invest all my eggs in the same basket. No one knows when there could be a house market crash here in Canada. So, I’m splitting my money between paying personal debts, investing and paying out my mortgage balance.
While the interests rates are historically low, it’s not time to buy a bigger house. It’s time to maximize the payment of your balance. To achieve that, I have recently decreased my amortization from 25 years to 18 years. I have also decided to make accelerated payments and pay every two weeks instead of once a month. It does not make a huge difference on my budget but over the years it makes me save a lot! Finally, I’m making extra payments of a 100$ every two weeks. If things go as planned. I should be mortgage free in less than 12 years!!!
But, it may be paid off a lot sooner than that. I’m working hard to explain to my wife the advantages of the lifestyle I propose. I recently suggested her that we should double our mortgage payments. That way, would could be done by 2020!!!
When this mortgage will be paid off, it will also means that I will need a lot less of income to cover my expenses since the biggest expense I have will be cleared.
We all buy things we don’t really need. We think we need them, but in fact we don’t. They usually end up in a closet, in the shed, the basement or the garage…
A good thing to do would be to first clean up that mess and sell or give all those unnecessary things to people who would need them more than you. That money could then be added to your savings or applied on the refund of your personal debts.
My strategy to reduce my expenses is to wait at least 48 hours before buying something. If i still want it after 48 hours, then it might be that I really need it. Maybe it sounds bizarre said like that, but most of the unnecessary expenses are made without thinking. Add them all and you’ll see that you’re spending a lot of money on impulsive purchases.
The second part of my strategy is to limit the use of my credit or debit cards. They give you the impression that your wallet is limitless! That’s very dangerous. I prefer the cold hard cash. When the wallet is empty, you have no choice but stop spending.
I won’t be saving 85% of my income like Jacob Lund Fisker from early retirement extreme. Though I’d like to retire as soon as possible, I also want to enjoy my life and enjoy some comfort. But I plan on saving at least 20% of my net income every year. I’m also going to transfer my bonuses in my tax-free or deferred tax account every year. Here in Canada, we can save 5500$ every year in a tax-free saving account plus 18% of our salary in a retirement deferred tax account (RRSP)
With that strategy, I should be able to retire reasonably within 15 to 20 years from now… I know. It’s a long run. But without a plan, I would be set to retire in 40 years. But, my dream is to retire by 45 years old maximum. We’ll see how things evolves.
One of the foundation of my freedom plan is to use the leverage of compounded interest. It’s magic. But you have to be patient to see the real magic of compounded interest in action.
I’d like to be able to save more. And I definitely could. But I live in a very cold country and I have to spend half of the year inside my house. I wouldn’t be able to live in a small apartment. Also, I have a wife and I might have kids very soon and I want them to enjoy a life in a suburb.
Fortunately, I’m an intellectual guy but I’m also very manual which is great because I save a lot of money by doing things by myself. I make furniture, I can repair anything in my house… This is a way of cutting my expenses too and it also makes me very proud of myself when I build or repair something.
Save! Save! Save!
The earliest you’re going to understand that there is no quick money and that wealth must be built on sacrifice and also needs time to compound, the sooner you’re going to be able to retire.
Everybody should try to save 100 000$ before 30 years old. Because saving it for your 35th or 40th anniversary will drastically change the age at which you’ll be able to retire. You could try to save more later in your life, but with compounded interest, the true magic comes from the time part more than from the amount saved.
I truly admire guys like Jacob Lund Fisker from www.earlyretirementextreme.com or Jason Fieber from www.dividendmantra.com. These guys have been saving up to 85% of their salary months after months for years in the pursuit of their dreams.
They are true gladiators. They want to be free more than anything else.
But, they also both live in places where the weather is more clement than mine. It’s true that I could move or even live with friends and share the rent or the mortgage. But I too like freedom and even though I want to be financially free, I also need my space and some freedom until then. I also want to live a “normal” life and provide a “normal” upbringing to my future kids.
My own goal is to save at least 10000$ per year (indexed by inflation) in a tax deferred or tax-free account while paying off my mortgage as fast as possible. Once my mortgage will be cleared, I’m going to try to save more. But 10k is still a great chunk and it’s a goal that is pretty hard to achieve already.
What is intelligent investing?
I’m always shocked when I see people “investing” their hard-earned money in volatile and very speculative stocks. They buy shares like they would buy a very expensive lottery ticket, in hope of touching the jackpot.
I could have invested in real estate, but it takes a lot of money to find really interesting investments and also, real estate is too much of a headache for me. I already have a house to take care of. I don’t feel like spending more time maintaining buildings.
Benjamin Graham, the father of the value investing concept said that a long time ago and I will always remember it :
Investing is most intelligent when it’s most businesslike.
I love investing in stocks. And this simple affirmation from B. Graham simply meant that I should put the same degree of analysis to buy one stock that I would if I had to buy the entire company and operate it.
I consider myself a follower of the great Warren Buffett and Benjamin Graham. They are my mentors and they could also be yours if you’d wish!
My investing strategy is to buy stocks of great companies who pay growing dividends year after year when their market share price are undervalued.
This strategy is called the dividend growth investing strategy.
It’s going to take quite some time to build a great portfolio that could provide enough dividend to cover my expenses, but I think it is a great strategy!
The only thing I regret in life is not to have known sooner about it. I have lost 10-15 years of compounding magic. But at least, I’m still young enough to be able to set for a great future and to build wealth for my future kids.
My other streams of passive income
I love writing. I love helping others around me. I own several blogs already. They are all less than 1 years old but I’m confident that they will grow.
Blog posts and pages are intellectual properties. I wrote them, I own them. They drive traffic to my websites and sometime, this traffic is converted into book purchases with Amazon or clicks on Google ads.
I currently don’t make much out of it but I know that some folks out there like Bob from www.christianpf.com make quite a living out of them. Who knows where it might leads me in the future.
While I don’t write to make money but really because it’s a passion of mine, making some money out of it could be quite rewarding and could help me retire earlier than I thought… Who knows?
I also wrote a couple of books that I plan on selling with Amazon eventually but I’ll see. Taxes can become very complicated when you don’t live in the US but receive some income from there. Unfortunately there no such thing as the Kindle self-publishing program in Canada.
Life is already complicated on its own. I don’t want to add any extra complications like having to deal with tax agents from a foreign country to my already complicated life.
Earn 100,000$ per year
I don’t know why but 100k per year sounds just great. It’s like a cornerstone. I’m almost at it already. It’s been a long and bumpy ride but things went a lot better than I thought.
I first started setting an income goal in 2005. I was making 26,000$ per year with a university diploma. I wasn’t working in my field and I remember that I was very sad back in the days. I used to feel stupid. My parents were looking at me like if I was a piece of shit. They couldn’t believe that I was only making 26,000$ a year with all my potential (I was always in the top 5 to 10 during all my school time).
My mom was making more than me as a clerk in a supermarket.
Honestly, I couldn’t believe it myself.
My father had told me not to study in human sciences, but I decided to do what I wanted. I guess I wanted to show him that I was a man able to make his own decisions.
I know that a lot of people are living and raising kids with 26,000$ per year. But seriously… It’s not enough and I think they deserve more.
Anyway. So, I was working in a call center, struggling to make my way in a field I knew nothing about (insurance). I knew it was possible. I knew that some folks were making a lot of money out there.
I started studying how they were doing it, what courses I would need, what skills I should improve.
I realized that it was possible to make my way if I would be able to change some of my habits. That’s what I did. And then, things started to go very well.
Since 2007, I have had 7 promotions! That’s one promotion per year! And, with each promotion, I got an increase.
It’s getting harder and harder to increase my income now. Competition is getting fierce and honestly, I don’t want to take too much responsibilities on my shoulders. It wouldn’t worth it.
I plan on reaching 100,000$ per year, but not at any costs.
This is my freedom plan. I truly believe in it. I’m all excited when I receive dividend income in my brokerage account. It gives me more money to reinvest in high quality dividend growth stocks. It’s very fun to see that money flowing without having to actually work to earn it. The work has been made once, the income will come forever!
I have started with a single tree and I know that I could own a forest in several years from now if I stick to my plan.
This blog is my commitment to it.