Posted by Dave on May 25, 2011
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
Tim regularly provides updates with regards to his net worth. I find these posts interesting as a reader because we are essentially watching his “march” to early retirement. I generally don’t provide updates because what I’m doing is really pretty boring. I thought however, it may be interesting for people to see where I am spending my money right now in my own trip to early retirement, as well as where I am heading over the next few years. I thought I would list the major areas of my current budget as well as a percentage of my income that this makes up.
1.) Paying down the mortgage (~70% of my paycheque) – This is where the vast majority of my money is and will continue to go over the next 3 years (at which point we are hoping this part of our budget will disappear).
2.) A substantial savings account (~60% of my wife’s paycheque) – My wife and I wiped out our savings buying a car in early March. Ideally, I would like to have around a year’s essential living expenses for our house (around $10,000). This amount is somewhat arbitrary, but to me would afford a level of security that I am comfortable with.
3.) Living expenses (~20% of each of our paycheques) – Our main expense is insurance – between car, life and condo content insurance this makes up the biggest “continual” expense. Other than insurance, my wife and I split up food, gas, electricity, and cable.
4.) “Stuff” (The rest) – This makes up the rest of the money that we spend. It could be really anything, right now I’m saving up for the golf that I will be playing over the summer, and have a small amount of savings set aside for future car repairs, while my wife is saving money for a new wardrobe (she has been losing a significant amount of weight in the last few months and needs to replace some of her “big” clothes). We talk about what we’re going to spend the money on, but really it’s up to each of us where it goes.
Once we have a savings account built up (sometime this fall) – my wife’s money will shift over to paying down our mortgage with the intention of capping out our allowable prepayments for the next few years.
After the mortgage is paid off, all the money that was going towards paying down the sizable debt will go towards income-producing assets, which will hopefully at some point add up to enough money to live off of and allow us to retire, me at 45 and my wife at 42.
As you can see, this point in my journey to retirement is pretty boring. The somewhat more exciting time (for me anyways) of investing and making more money is still some time away. But for now, that’s what I’m working on. How does this compare with what you’re doing?
Posted by Robert on May 24, 2011
This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
Retiring young seems to be an attractive dream. I don’t believe that it’s necessarily accessible to everyone. In part, the ability to retire young depends on a person’s environment, their ability to earn a very good income and live on much less than they earn. But everyone has opportunities that come their way, and everyone makes decisions in relation to their opportunities.
In Calgary, the environment has been especially helpful until recently. Until 2006, house prices were modest compared to Vancouver and Toronto, and compared to present-day prices in Calgary. Buying a house was possible without shackling oneself with 35 or 40 years worth of debt. Employment was plentiful and jobs paid very well. Working a professional job and saving 1/3 to 1/2 of my income, I was able to pay off my house in seven years (my goal had been eight).
A couple I know sold their house in Calgary about a year ago for $600,000. He had an income well over $100,000 per year, but they never allowed “lifestyle inflation” to expand their budget beyond about $3,500 per month. That left enough income to pay down debt and invest. But the decision they made that had the greatest impact on their ability to retire at 53 wasn’t about smart investments. When they sold their home in Calgary, they bought a bungalow in Phoenix for $150,000 just down the street from their daughter.
That left them with $450,000 to deposit to their investment account, more than they had saved while working and raising kids. They decided to retire and go on a humanitarian mission for two years in Southeast Asia. They were fortunate that there was a large differential in real estate prices between Calgary and Phoenix, but they took that opportunity when they saw it.
Although the job market became very difficult over the last two or three years, house prices remained elevated. At this time, I’m not sure that a young couple could benefit from buying a home in Calgary the way this couple did. But that’s not to say there aren’t other opportunities. Here are some examples.
Buy a home in a less expensive city. If you’re going to buy, it may be wise to consider a more affordable market. It seems unlikely we’ll experience much more price appreciation in Vancouver, Calgary or Toronto, but what about other Canadian cities? What about moving out of the country?
Plan to retire in a less expensive city. There are many countries that are popular retirement destinations, in places such as Latin America and Southeast Asia. But even within North America, there’s a large variation in cost of living. When moving between countries, there may even be an opportunity to take advantage of differences in interest rates and fluctuations in foreign exchange rates.
Live in a working-class neighbourhood. The authors of The Millionaire Next Door point out that living in an upper middle class neighbourhood exacerbates the effort to “keep up with the Joneses”. Living in a more humble neighbourhood may allow a person to more easily spend less and save more. It may even make financial sense to rent instead of own, especially if you’re planning to move within a year or two.
Be willing to explore a variety of options when making lifestyle decisions, in order to take advantage of opportunities and move yourself toward your retirement goal. What lifestyle choice have you made that’s helped you jump toward your goal? Have there been drawbacks as well as benefits?
Posted by Canadian Dream on May 19, 2011
So after almost a year now of working only 80% time at my day job I can firmly say that one of the oddest things that I have noticed has changed is long weekends are now effectively meaningless to me most of the time. You see when you have every Friday off already, having another day off after that doesn’t seem as important anymore.
In some regards I’m drifting a little bit towards the concept that many retirees have of long weekends…they only realize they exist if someone reminds them since the concept have often ceased to have the same meaning anymore. When you have every day ‘off’ the point of a long weekend is really lost.
I think my transition has more to do with the fact that a two weekend doesn’t give you much time to really get a lot done, yet three does. At least to me it always seemed to be after your required chores around the house, errands and other ‘to do’ items you would lose most of one day. That then leaves you really only one day to relax and perhaps do something fun or go visiting some friends or family. So when you already had three days for a long period of time, you don’t have the same backlog of things to do as if you were working a full time job. The result is I don’t really look forward to long weekends the same way anymore, despite the fact it means a four day weekend for me.
It’s not to say I’ve gotten everything I would like to get done during my three day weekends, as I often use them to balance off work that come up from my other jobs (school board and freelance writing). Yet I have to be honest that even if my other jobs are ‘work’ I do enjoy it so much for the most part it really doesn’t feel like the regular job at all. I think that is really the difference between doing work you like versus doing work you love. Doing work you love on your ‘day off’ doesn’t really bother you since it is more like play than work. That is in essence the reason I’m working towards financial independence, I don’t want to stop working, but I certain want more control over what I choose to work on.
Has anyone else who worked part time for a while run into a similar issue with long weekends? Or if you have never worked part time, would you like to try a four day week?
