Retired At 32? How We Achieved Financial Independence
The FIRE (Financial Independence / Retire Early) movement is picking up steam, and I’m proud to say we are amongst its newest members.
Three years ago, at the age of 29, we hit our first financial goal of being mortgage free. It was without-a-doubt a happy moment, but it didn’t take long for the realization to set in that by focusing exclusively on paying off the mortgage, we consequently really fell behind on investing for our retirement.
That was the big trade-off we made years ago (and one of our larger mistakes): We were young and fresh out of university when the 2008 financial crisis happened. We saw our older colleagues panic, lose fortunes, and were constantly hearing stories on how they “lost” tens of thousands of dollars over such a short time frame.
Being a young, impressionable, new graduate at the time, that was enough for me to run to the warm embrace of paying off our mortgage debt; a nice stable sum, with a guaranteed rate of return of whatever our mortgage interest rate was.
Sure, the interest rate (our guaranteed rate of return) was a joke compared to what some previous generations were used to paying, but that was good enough for us (or so we mistakenly thought at the time).
We simply hid our heads in the sand when it came to the stock market, and only lifted them out after becoming mortgage free. Definitely not the most efficient and profitable way to retire early, but at least it’s encouraging to know that even if you do make investing mistakes over your lifetime, you can still recover and still retire early if you correct course.
Little did I know then how markets actually work, the historical returns, and the predictable recovery that followed the 2008 crash.
Instead, we sunk our disposable income into paying down the mortgage quicker. We arranged a target that my wife’s salary would pay for our day-to-day expenses, and my salary would be used almost exclusively to pay off the mortgage faster.
In other words, our target was a savings rate of 50%. I used mint.com to automatically track our spending, and we would have a “family meeting” every time that we deviated from saving 50% of our after-tax income, to figure out what happened, and how we can get back on track going forward.
Fast forward a bit and in less than 6 years we owned the home free and clear. A good start. Now it was time to catch-up on our retirement savings.
What’s funny is that when we first decided to pay off our mortgage early, my primary motivation was that I saw how much money was leaving our bank account every month in the form of mortgage payments and I just fantasized about all the things that we could do with that money once that expense wasn’t there anymore. I kept thinking about all the extra vacations we could take, and all the new tech toys that I could buy.
Eventually, however, when we actually did become mortgage free, we were so used to the lifestyle of living on one salary, that we actually didn’t feel the need to spend the extra cash-flow that we now had after paying off the mortgage.
It’s funny how our brain adapts to our circumstances. In our case, we simply adapted to that lifestyle and didn’t crave more material goods. We essentially formed a savings habit by having that goal of saving 50% of our income, and consequently a side benefit of that was that we reduced our consumerism mentality, and got conditioned to not seek happiness by constantly buying the newest shiniest objects with the erroneous assumption that they will actually make us happy.
We instead used the 50% that we were used to saving, plus the mortgage payments that we no longer had to pay, to invest as much as possible every month.
I spent countless hours reading any reputable source that I could get my hands on to learn how to invest properly. I read every good book that I could find on the subject, and even started a personal finance and investing podcast. This allowed me to interview the sharpest investing minds here in Canada and learn their strategies, tactics, and ultimately apply those best practices to my own investments (while at the same time helping out thousands of Canadians in the process by sharing the findings for free on the podcast and blog).
After enough reading and interviews, I was ready to begin. There was no playing around. The stage was set, I knew what needed to be done, and now it was time to execute on the hundreds of hours that I spent learning from all the experts.
We invested over 50% of our household income directly into low cost broad market ETFs for a bit over 3 years (and we continue to do so today). We also had a rental property and a primary residence so we were not only riding the growth in the stock market, but also on 2 houses in the real estate market.
During all this and with all the money coming in from work, side hustles, rental income, investment income, and capital growth, we still only spent around $25,000 per year on living expenses (not including baby-sitting expenses which I exclude because my wife is now fully retired and can watch the kids).
At the end of the day, it wasn’t some magical penny stock that we got lucky on, and it wasn’t some company that I started that sold for millions. Instead, it was simply lowering our expenses so that we can live on one salary, and using the entire second salary (at least) to invest in simple, low-cost investments.
To help you do the same and achieve early retirement so that you can spend more time with family and friends, or just so that you can quit the job you hate and do something that you’re actually passionate about, here are some lessons that have helped us get there. My wish is that they will help you get there too:
1. It’s actually not that complicated:
Most of the financial services industry is actually very keen on making investing seem complicated and as something that you can’t do yourself.
From a marketing perspective, this makes total sense: The more complicated it all sounds, the more likely you are to hand your money over to a “professional” who “knows what they’re doing” and can do it all for you. Sure you can do this, but obviously these professionals don’t work for free. In fact, Canada has some of the highest fees in the world, so good luck achieving financial independence early if you’re paying massive fees on all your investments.
Tip: Is your financial planner or advisor “free”? If so, you are likely overpaying in hidden fees that you don’t even know about. Nobody in the financial services industry works for free, and financial planners and banks aren’t a non-profit charity that is there just to help Canadians for free, out of the goodness of their heart, while not earning any money to feed their kids. Think about this long and hard. It can literally save you hundreds of thousands of dollars over your investing lifetime if you figure this out early enough.
For example, a 2.5% fee (which is a typical fee on Canadian mutual funds) on a $100,000 portfolio is $2,500 in fees per year that you’re paying. What are you getting for $2,500 per year from your advisor?
If you’re currently using a “free” advisor, there’s a good chance you’re paying around this 2.5% fee. Hopefully they’re beating the index by a lot for you to offset these fees, or at least giving you some high quality one on one financial planning and tax saving strategies to help justify such high fees.
2. Look out for conflicts and well wishing people that you shouldnít listen to:
Would you ask your plumber for legal advice? Would you go to your lawyer for all your plumbing questions? Of course not. So why would you depend on answers from your friends, family and co-workers on investing and financial planning if they don’t do this for a living and aren’t actual professionals at this?
As an aside, if they actually do this for a living, make sure that they aren’t just trying to sell you investments that they earn commissions/fees from.
Most people really don’t like saying “I don’t know”, especially when it comes to money and investment matters. Perhaps it’s because admitting not knowing is indirectly admitting that that’s an area in their life that they don’t fully understand or have full control over. What parent wants to admit to their grown son/daughter that their returns are underperforming the market, and that they don’t have a plan on how they are going to be able to retire by their desired date? Nobody.
So remember that you’ll definitely get answers, just keep in mind that just because you got an answer to your question from someone that you like/love and trust, that doesn’t mean that their answer to you is the correct one. There is an abundance of good, well wishing people that will gladly give you an answer in a sincere effort to help, but should really be telling you that they don’t know enough about it, and that you should do more research yourself or hire someone that actually does this for a living.
WARNING:
Just because you’ve hired someone that is a professional in the field doesn’t automatically mean that they have no conflict of interest when giving you advice. Are they telling you to buy the investment or insurance because that is actually the best thing for you? Or are they recommending you a fund or insurance product because they earn a commission or bonus from selling it to you? Be careful, and do your due diligence! This is actually why I started the podcast years ago because not only is there a lot of conflict of interest in the industry, but it’s also a good idea to get a second opinion by listening to several different professional opinions/interviews about a subject, so that you can make a fully informed decisions before moving forward.
3. It won't make you happy:
What do you value more: Your time, or some nice material good like a fancy car or granite countertops?
Are you willing to work in a cubicle for an extra year or two to get that car? or would you have more happiness by having that entire year or two free to yourself, with the ability to do whatever you want?
For me, the choice was easy. But hey, some people like their fancy houses and cars and are willing to be chained to a desk and working overtime for years in return for those shiny objects. I’m not saying that this lifestyle is wrong per se. Do what makes you happy, but keep in mind that there are loads of studies which prove that luxurious material objects actually won’t make you happy long term. There are two great TED talks on this subject here:
- "What makes a good life? Lessons from the longest study on happiness" by Robert Waldinger:
https://www.ted.com/talk /robert_waldinger_what_makes_a_good_life_lessons_from_the_longest_study_on_happiness#t-748884
- "The surprising science of happiness" by Dan Gilbert:
https://www.ted.com/talks/dan_gilbert_asks_why_are_we_happy#t-561874
Well that’s it. Hopefully you found that useful, and that it gets you one step closer to not only achieving early retirement yourself, but also having a fulfilling life throughout. I hope our story shows that while you don’t have to get everything right to pull this off, there are some key levers that you can pull to drastically impact your ability to become financially independent, at a much earlier age than you ever thought possible.
Kornel Szrejber is a financial planner who helps Canadians retire early, and is the host of the Build Wealth Canada Show (A top personal finance and investing podcast for Canadians). BuildWealthCanada.ca