Posted by Canadian Dream on August 25, 2009
Perhaps one of the most terrifying concepts about retirement is living on your investments rather than your job income. It takes a bit of adjusting to the concept and there is the obvious fear of did I get this wrong. Did I get the taxes right? Or did I forget the car insurance? Did I leave enough for food?
So to help get over this fear I’m going to suggest the year before you retire you do a little two fold experiment. First track every penny you spend for the year before you retire. I know it’s a pain in the ass, but it will be highly useful to prove to yourself you have saved enough.
Then second track all of your investment income for the year. Every dime of it. Then when you file your taxes do a test run for that year. This is ideal if you use tax software. Do your regular return and then do a test run with your job income at zero.
Now adjust your spending for the year to match your projected retirement lifestyle. Strip out parking and any job related expenses and add in an real cost estimate of any trips you would have taken if you were retired or hobbies. Then compare your income test run to your modified spending. Is the income higher? If so, great you are ready to go. If not, you likely forgot something or you need to look at your numbers again to satisfied yourself you know what happened and you are not worried about it. Remember this is all about putting your mind at ease so be honest with yourself.
The other great concept about the test year if you can also build up a nice cash reserve to help cover any unexpected expenses or be your first years income when you pull the plug. The cash reserve gives you the option of delaying taking money out of your investments if you hit a down market.
So what do you think? Would the test year be useful for you or not? Or do you have a better idea? If so, please share with a comment.
Posted by Canadian Dream on July 15, 2009
The most important things for those dreaming of financial independence (FI) is manage your cashflow. In the beginning people often get too bogged down in worries about if they have invested right or tax considerations or how much money they need, when in reality managing your cashflow is much more important.
You see in the beginning you likely have a small amount of investments so optimization of your investments and related taxes is a minor issue. A 1% lower rate of return on $50,000 is a mere $500 a year or equal to about $42/month. So you could either do a ton of research and self learning on taxes and investments to get that extra 1% return or just stop buying a coffee everyday on the way to work. Guess which one is much easier to do?
So that’s why I’m suggesting don’t worry about everything else in the beginning. Your first priority is to start using frugal ideas and reduce your spending to increase your amount of money for debt repayment and future savings. You start with the big stuff of paying off your credit card debt and work you way down to $2/month savings here and $5/month there. Every dollar counts so look at everything and ask yourself does this make me happy for the dollars I’m spending on it or do I require this. Not “would like” or “kindda enjoy it” but rather “I love doing this” and “I need to eat something to keep breathing” kind of thing.
In the beginning you will likely go over kill and cut back too much. That is fine, once you find those areas you really miss spending on go back and put some cashflow back in. Afterall FI is a nice goal, but no one should be misrible on the way to getting there. Life is a once through processes so you might as well enjoy the ride.
In the end you will find out how much you really need to spend to make you happy which then you can use to build a real estimate of how much you need to get to FI. Also after this much time you would have likely had some time to slowly learn a bit more about investments and taxes so now you can go back and investigate doing better there. Just don’t try to take on too much all at once, it is recipe to fail to get anything done.
That’s my thoughts on what’s most important when starting towards FI. What did you focus on in the start and did it work for you?
Posted by Canadian Dream on July 10, 2009
Let’s face it organic products cost more and on a net environment basis they may not be all that useful. After all is it better to eat something organic that traveled 1500 km to get to your plate or go to the farmer’s market and buy local food that is organic in everything but name?
I tend to follow the second route and buy local nearly organic products. To date I’ve switched most of my fresh veggies over to nearly organic over the summer, we eat free range chicken eggs most of the time and I’m currently trying some nearly organic beef. This is what I’ve learned from our experience to date.
- Eggs. We noticed a significant improvement in the free range eggs over our regular ones at the store. Much more flavour and the price premium is less than $0.50 per dozen eggs. I highly recommend switching if you can find a supplier.
- Veggies. To be honest I consider the nearly organic nature of our veggies a nice bonus, I really buy the stuff because of the freshness. After all it is hard to beat the taste when the food been out of the ground for at most two days when I get it.
- Meat. I’ve often heard that buying organic meat is a good choice, but so far I’ve yet to notice much of a difference other than the extra cost. Yet to be honest this is a rather new choice for us, so I’m giving it a bit more time before making a final judgment.
To date I’ve not done much for organic fruit so I don’t really have an opinion yet on that. In general I tend to support local over organic, because of the relationship issues. I get to know my farmer and I feel good supporting his farm as it grows.
