If you’re like me, you’ve heard a lot of stories about young individuals and couples who have become financially independent well before traditional retirement age. If you’re following the FIRE (Financial Independence Retire Early) blog community or podcasts, there’s a few great ones out there that showcase early retirees and share a bit of their stories (these are a few of my personal favorites: ChooseFI, Afford Anything, Bigger Pockets Money, Mad Fientist, Stacking Benjamins, to name a few).
If you’re like me you’re asking yourself “how we’re they able to do that”? And secondly, “Can I do the same thing”? Often, we hear of these stories as if they’re characters made up in a far away land, but the reality is that they’re people just like you and I. At some point in their life they decided that the status quo wasn’t good enough, and they got locked in to their FIRE mindset. They made up their mind that they would endure the necessary means to become financially independent at their early stage in life!!
“If you keep doing the same things you’ve always done, you’ll keep getting the same results you’ve always got”!
Scouring the internet for information and strategies on early retirement can be difficult. Over the next few weeks, I’ll cover the fundamental principles required for YOU to reach financial independence in a series I’ve titled: “Rich and Retired”.
In each separate blog I will cover the steps required in order for you to be able to successfully retire at ages 30, 40, 50, and 60. (Disclaimer: If you are one of my loyal followers that live outside of Canada, any reference to real estate, healthcare, and investments may not be available in the US or overseas, but the same general principles will apply!) As a disclaimer, this series is intended to give you clarity and guidance to help you on your financial independence journey. Each individual situation will be different for everyone, so seek professional advise if you are ever unsure of something or require additional advice.
The information that I share over the next few weeks is intended for everyone at any age! If you’re reading this and you’re middle aged or near the end of your working career, I want you to know that it’s never too late to start!! Many of the principles around financial independence revolve around behaviors and attitudes towards money and spending. As long as you are prepared to align your thoughts and actions towards financial well being, you will indeed see tremendous impact on your current situation, regardless of your age! Once you’re committed to practicing the principles of sound spending, saving, and investing, you will experience an acceleration towards financial independence the same way I did.
Let’s get started……
The first step to becoming Rich and Retired is: Always Have A Goal/Vision!
Regardless of your age, you should have a good idea of what being rich and retired means to you! Hopefully being rich means that your life is full of joy, and that you have the time to pursue passions that bring more joy into your life and others! Being rich means something different for everyone, but richness comes with being able to decide how you spend your time and where!
Retirement is a hot topic for many people and means something totally different to everyone. In a traditional sense, retirement may mean that you no longer have to work for a living after committing the past 40+ years of your life in the workforce. There’s nothing wrong with this, but there are many people who have retired that are still not financially independent and are struggling. Many of them are dependent on social assistance, or family to help them meet their needs.
My goal is to share with you ways that you can become totally financially independent so that you can retire into a life that you’ve always dreamed of! Retirement doesn’t necessarily mean that you never work again! Rather, it can mean that you now have the time and ability to focus on projects and pursuits that truly bring you joy! It just happens that some of these passions can provide an income as well!
What does this look like for you? Really spend the time to vision your life at retirement because this is what you’re working and planning towards today!
The second step to becoming Rich and Retired is: Have a strong budget (Build a Foundation)!
IMPORTANT: With regards to your retirement goal, always try to define it using your current circumstances as your baseline. This means that it’s important for you to already be somewhat budgeted, and have clear spending, saving, and investing habits! If you don’t, go back and read my previous post on budgeting (here), then proceed. Email me and I’ll gladly send you a free copy of the budget that I use every month for me and my family.
*CAUTION: If you are not currently following a structured budget and financial plan, establishing a healthy financial foundation is crucial in order to build a rich retirement later. Your number one priority should be getting on a budget, and becoming debt free if you aren’t already! Having dreams and goals for your future is important but more important is having a good platform to build wealth on.
If you are on a budget, maybe you’re having trouble balancing this budget. Working on ways to become more efficient in your spending, or increasing your income might be your short term goals. Having a budget that works for you gives you the clarity and means to propel yourself forward! The more clear your financial situation today, the better off you will be to plan for your future! Taking what you know from your budget allows you to project into your future a year from now, and even 10 or more years from now!!! Also, being financially disciplined and having predictable expenses allows you to forecast what your future expenses and cost of living will look like.
With this kind of focus, now you can determine when you would like to retire and how much you will need, and plan it backwards! I encourage you to ask yourself questions like: “where would we like to live in the future? What do we enjoy doing most? What things can we do that make us happy that are either free or very inexpensive?” There’s a host of things to consider that can make your retirement both enjoyable and meaningful! Asking these questions will also allow you to determine if you’re retirement goal is realistic and can be accomplished. You can also plan ways to reach your goal sooner such as decreasing your cost of living by moving to a lower cost area and investing more each month! Or maybe you’re feeling a little tight month to month and would like a little wiggle room. Then factoring this into your current plan may mean adding more joy to your life today but stretching out your retirement plan a few more years! Whatever you want to do is completely up to you!
Remember that becoming rich and retired requires a big commitment to your vision, goals, and future hopes and dreams. It doesn’t mean that you’re totally deprived of any enjoyment today while you’re moving towards retirement. In fact it’s the opposite! Having a sound financial plan with a budget should get you excited and allow you to have the fun that you desire, because you’re planning your life not just for the future, but for today! While the majority of people are massing major amounts of debt and just living for the moment, you’re in control of your day to day, focused on accumulation and piling up your nest egg. When you’re in control, you have a lot more power to make decisions and build more joy into your life! Not having control of your finances deprives you of many basic means that give us joy and satisfaction.
The third step to becoming Rich and Retired is: Start as early as possible!
The number one factor besides your saving rate, is time. The earlier you start to save and invest, the more flips your money will have, therefore doubling, quadrupling, etc! Albert Einstein claimed that compound interest is the eighth wonder of the world! The rule of 72 tells us how long it will take for us to double our investment. This is a simple calculation where you take 72 and divide it by the return on your investment, which will give you the number of years that it will take for your money to double!
For example: 72/ 8% = 9 Years
72/10% = 7.2 Years
72/ 12% = 6 Years
From these examples above, it would take 7.2 years for a $100,000 investment to become $200,000, 14.4 years to become $400,000, 21.6 years to become $800,000, 28.8 years to become $1,600,000 and so on.. Assuming that you get an annual return of 10%, this initial investment of $100,000 would become $1.6M in just under 30 years! That’s why it’s important to start as early as possible!
By starting early, and investing regularly, you put your money to work for you! Over time, the savings you’ve invested creates a snowball affect and your original principal becomes a substantial amount! The longer it takes you to start is likely going to cost you many years, and hundreds of the thousands of dollars maybe even millions in savings. You essentially miss 1-2 “doubles” the longer you wait in life to get started!
Another reason to start as early as possible is because you’re likely going to make some mistakes. Having time to recover from “learning lessons” allows you to re-focus and reapply yourself in a way that’s more effective the second (or third) time around!
The fourth step to becoming Rich and Retired is: Stay away from debt!
Be allergic to it!!!
Take this for example…. You go out and finance the purchase of a brand new SUV. It suits your family perfectly, and has all the latest technology and gadgets! It’s only $50,000, and helps you fit in with the surrounding accouterments in your neighborhood. You put $15,000 towards the down payment and finance the rest. Your monthly payments are $500/month ($6,000/year) for the next 7 years. In three years you’ve decided to sell the SUV because you discover my blog and become enlightened!! You decide to pay cash for a sensible SUV that is only a few years old and in good working condition. You find that your SUV is now only worth half and all you get for it is $25,000.
This means that the total cost for you to own this vehicle for the past three years was $33,000!!! ($6,000 x 3 yrs =$18,000, + $15,000 down payment). This means that it actually cost you $11,000 per year to drive, or $917/month!!!
If that’s not bad enough, had you purchased a lightly used second hand vehicle instead for say… $10,000, and invested the difference of $23,000, at 10%, in 30 years that money would be worth OVER $400,000!!!!
If your return was only 6%, your money would still be have been worth over $130,000!!! That’s how much that vehicle cost you!
How much has debt cost you over the course of your working years?? The more money you keep to yourself, and use it to build towards your future, the less likely you’ll have to make up for lost time later on. Avoiding debt is a superb way to maximize your savings potential and see those compounding returns. Today, $10,000, $20,000 etc. may not seem like much but in time it becomes a staggering amount!
The fifth step to becoming Rich and Retired is: Keep it simple!
Don’t take risks with the majority of your portfolio! Align at least 80% of your assets (including index funds/mutual funds, real estate, businesses) towards steady growth and income producing investments, and avoid making unnecessary risky bets! Hoping to make quick returns and substantial windfalls over short periods of time is not realistic and will be extremely stressful! There’s no doubt that eventually making risky investment decisions will cause you to lose valuable time and money! It’s practically impossible to time the market, or real estate. (Disclaimer: Every now and then you can expect that you will see larger than normal returns on your investment!) But always allocate the majority of your finances towards sound growth and income producing assets.
We’ve all heard about people who have made large gains over a short period of time. This could be in real estate, business, or the stock market. For every success story we’ve heard, there are hundreds of stories of people who have tried and failed! The only difference is that these stories typically aren’t shared or attract as much attention. The proper investing approach is investing smart, and investing regularly!
Remember that the tortoise won the race! It may not seem sexy but having a marathon approach with regards to your financial well being is the right approach! Racing towards financial independence can be exhilarating at times but you should know that making steady progress towards financial success seems to be a slow process at the beginning, but once momentum kicks in, you’ll start to see large leaps and bounds!
Is it easy, no! Does it require discipline? YES!! Is it worth it? ABSOLUTELY!!!
The series is to be continued in part 2…..
