Posted by Dave on November 3, 2009
To me 45 was an arbitrary number to be financially independent. Ideally, I would like to be financially independent today and be able to choose what to do with my time every morning, but I don’t have near enough money saved or invested to achieve this goal. What my goal really comes down to is time, which wealthy or poor is all everyone really has.
I figured out the rough math: in a conventional career I would work from the time I’m 20 until I’m 65. Over those 45 years, I would work for an average of 8 hours a day for 200 days a year or 72,000 hours. These numbers seem fairly overwhelming after a while which gave me an incentive to look for alternatives. This is not to say that I dislike my job, which in fact is the exact opposite. I enjoy the work I do, and for the vast majority of mornings don’t regret the time I give up to do it. Yet at some point though, there is probably something else that will interest me more that doesn’t involve my work.
Up until the last few years, I hadn’t really put a lot of thought into my saving or spending habits. I generally bought what I wanted and saved the rest either through RRSPs or high interest savings accounts, with no real end goal in mind. But when I started looking at what I was trading my time at work for and found that I wasn’t really getting anything back. I had a few cool toys and a car, but really I wasn’t really getting much return given the amount of time I was working. Essentially giving up about 60% of my waking hours 5 days per week and getting very little in return. So I decided to try to achieve financial freedom early rather than later.
So what am I doing to get there?
1) I lowered my expenses (a lot)
By a lot, I mean by approximately 40%. Everything that wasn’t needed to survive was examined and a good chunk of expenses were removed. For example, the grocery bill was cut in half, our cable television was cancelled (instead we stream shows off of the internet), I changed phone companies and pared down our cell phone plans. Essentially any expense that could be lowered, was lowered.
2) I bought a house and intend to pay it off within six years
This may be a controversial point, as there is a great debate on the internet and books whether it is more cost effective to rent or buy. The way I look at it, if there is no mortgage or rent payment, that is free cash to be used in savings/investing and it results in lower overall expenses. I realize the money spent on the house could be used to invest, but at the same time, I’m going to need somewhere to live in the future. Also living at nearly zero cost is better than the rising cost of rent that would have to be dealt with living in an apartment or rented house.
3) Invest like crazy
While the house is being paid off, the majority of investing I had been doing will be put on hold (down to approximately 10% of my net income). After the house is paid off, basically any free money will be invested, with the intention of getting a large enough nest egg to pay for the expenses we incur (probably closer to 70% of net income).
A question I received from my significant other is: “How do I know this will work?” The fact is, is I don’t know if it will work or not. I may get to 45 (15 years from now) and find out that I need more money saved, or (hopefully) get to 42 or 43 and find out that I’m already there. There aren’t many books out there telling you how to go about doing this, leaving sites like this one to provide the majority of reference. I guess my reason for attempting to achieve financial independence is for peace of mind. I don’t like to be essentially chained to a paycheque, and although I like my job, I would like to choose to do it, not have to do it.
One thing I’ll mention here is that I do have a backup plan to my early retirement goal. On top of the simplified plan outlined above, I have a company defined benefits pension plan that I’m not really including in any calculations. Which if included with CPP and OAS should provide more than enough to survive on even if my investing doesn’t work out (I will outline my strategy in the coming weeks).
So that’s my simplified plan. So what’s your goal and how do you plan to achieve it? If you are on an early retirement path, what do your friends and family say?