Hi peeps! It’s Friday again, which means…time for another Reader case!
This reader writes to us from the GTA, and is wondering whether FIRE is right for them since they enjoy their jobs, and don’t see the point of retiring. Now, I’m glad they mentioned this, as I’ve said before, Financially Independence isn’t about retiring. It’s about freedom. You get to CHOOSE whether you want to work or not. Love your job? Keep working. Love your job but want more free time, work part-time or switch to a contract. The choice is completely up to you.
But before you can have those choices, you need to get your finances in order. So the “RE of FIRE is not a given but the FI part is. Let’s see if these guys have what it takes:
Stumbled upon your blog a bit ago, and it has been a very compelling read!
I would definitely appreciate some commentary on our situation, as my partner and I try to decide which path to follow in our lives. We feel like we’re on the right track, but aren’t really sure what we want to do next!
I’ll start with the numbers (rounded for simplicity):
Gross Income $ 188,000
Net Income $ 138,000
Savings $ 6,300
Rent $ 2,100
Groceries $ 400
Utilities $ 400
Travel $ 400
Restaurants $ 300
Other entertainment $ 300
Gas (vehicles) $ 250
Insurance $ 220
Car repair $ 200
Gifts $ 160
Pets $ 120
Clothing $ 100
Cell phones $ 90
Hair cuts $ 80
Misc. expenses $ 75
Some of these expenses are truly monthly expenditures (rent, groceries). Others are less frequent expenses that we amortize over the year (travel, car repairs). Finally, some of the expenses, we rarely come close to using up our budget on; for example, I don’t remember the last time we spent $300 on restaurants or entertainment in a month.
Our savings rate is also probably slightly higher than this figure indicates. When we get our tax refunds (maximized through RRSP contributions) we usually wind up funnelling all of it to our savings. If we’ve kept below our budget for a few months running, and our chequing accounts are swelling, we’ll also divert the extra cash to savings. Realistically, our annual savings amount is probably closer to $85,000, if not more, after accounting for these adjustments.
We put many of our expenses on our credit cards, but religiously pay them off every month. We have never carried a balance or been charged interest on our credit cards.
Car 1 $ 2,000
Car 2 $ 15,000
Chequing Accounts $ 3,500 Cash
Savings Accounts $ 8,000 Cash
My TFSA $ 78,000 US/Intl Equity
My RRSP $ 71,000 US/Intl Equity
My Non-Reg $ 47,000 CDN Equity and Bonds
Partner TFSA $ 62,000 US/Intl Equity
Partner RRSP $ 28,000 CDN Equity and Bonds
Our asset allocation is roughly 85% equities, 15% bonds/cash.
We’re in our late 20’s, and live and work in the Greater Toronto Area. While we both like the FI part, we’re not so sure about the RE part! We enjoy our jobs, have a good quality of life, each have work weeks around 33 hours with a healthy amount of time off. It would be nice to be financially independent, and use that to pursue more time off (even at the expense of higher income), but neither of us can see ourselves retiring within the near future.
I guess we’re just not sure where we go from here! We’ve thought about buying a house at some point, but, well, you know how things are in the GTA. We don’t want to stretch ourselves thin, put all our eggs in one basket, and become house poor. But we also don’t want to buy something cheaper that we don’t really like, just for the sake of being homeowners. While everyone is busy talking about “getting on the property ladder” and “buying a starter home” we keep thinking about the astronomical transactional costs of real estate, and it seems to make more sense to just rent, save the difference, and then maybe one day down the line buy a place we truly love. Buying a place and moving up every 5 to 10 years just sounds like a lot of money lost to real estate agents, land transfer taxes, lawyers, etc.
Kids are another uncertainty. We both think we’d like them eventually, but it will probably be at least five more years for that.
Anyways, appreciate any thoughts, suggestions, insights you can offer. Let me know if you need any other information!
Well, LMJ, at first glance, it looks like you have a pretty sweet after-tax combined salary of $138,000! Nice! And $297,500 of savings, which is nothing to sneeze at, and no debt. I have a good feeling about this case, but in order to be sure, we’d have to look at the most important number that will determine when you’ll become FI, your expenses.
Okay, let’s summarize:
|Expenses:||$5195 or $5195*12= $62340/year|
At expenses of $62,340/year, they have a savings rate of $62,340/$138,000 *100 = 45%! That’s great! Given the average Canadian savings rate of 5%, your are better than most of your fellow Canadians.
By the 4% rule, you will need $62,340 *25 = $1,558,500 to become fully financially independent.
However, since you already have $297,500 of investible assets, and are saving Assuming an average 6% return/year and savings of $75,660/year, you should be Financially Independent in:
|Year||Starting Balance||Annual Contribution||Return||Total|
Just over 10 years! Nice.
If you want to buy a house later on or have kids, that will likely extend your timeline, but the actual amount of a time will vary depending on how spendy of a parent you want to be and how much house you want to buy.
But at it stands right now, you are in great shape! You also love your jobs, which is a huge bonus as well.
So give each other high-fives guys! You’re doing great and You didn’t need 6-figure salaries to get here. You’re doing way better than most of your peers out there.
Okay, so now to turn it over to the readers. What do you guys think? Are you confident that LMJ will become FI in 10 years? For those who have kids, they decided to have kids down the road, how much should they set aside?
Want to learn how to replicate our retirement portfolio? Check out our FREE Investment Workshop!
Join our Chautauqua family in Greece:
Want a once-in-a-lifetime experience with a group of exceptional people who get you? Click here to learn more. UPDATE: Chautauqua is 100% SOLD OUT! Click here to sign up for the waiting list! Click here to sign up for next year's mailing list!