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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:
“Hello!
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):
Income
Gross Income $ 188,000
Net Income $ 138,000
Monthly Expenditures
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.
Debts
None
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.
Fixed Assets
Car 1 $ 2,000
Car 2 $ 15,000
Other Assets
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!
Sincerely,
LMJ
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:
| Summary | |
|---|---|
| Net Income: | $138,000 |
| Expenses: | $5195 or $5195*12= $62340/year |
| Debt: | 0 |
| Investible Assets: | $297,500 |
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 |
|---|---|---|---|---|
| 1 | 297,500 | 75,660.00 | 17,850.00 | 391,010.00 |
| 2 | 391,010.00 | 75,660.00 | 23,460.60 | 490,130.60 |
| 3 | 490,130.60 | 75,660.00 | 29,407.84 | 595,198.44 |
| 4 | 595,198.44 | 75,660.00 | 35,711.91 | 706,570.34 |
| 5 | 706,570.34 | 75,660.00 | 42,394.22 | 824,624.56 |
| 6 | 824,624.56 | 75,660.00 | 49,477.47 | 949,762.04 |
| 7 | 949,762.04 | 75,660.00 | 56,985.72 | 1,082,407.76 |
| 8 | 1,082,407.76 | 75,660.00 | 64,944.47 | 1,223,012.22 |
| 9 | 1,223,012.22 | 75,660.00 | 73,380.73 | 1,372,052.96 |
| 10 | 1,372,052.96 | 75,660.00 | 82,323.18 | 1,530,036.14 |
| 11 | 1,530,036.14 | 75,660.00 | 91,802.17 | 1,697,498.30 |
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?
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I think they should absolutely save for FIRE. You never know what could change in your employment. A new boss comes in and makes life miserable. You get a coworker who doesn’t jive with the team and makes going to work a chore. Policies change and you have to work 45 hours a week instead of 33 hours. You never know what’s going to change in the future so it’s better to save now when you don’t need to. Being trapped in a less than ideal situation sucks!
This is the true reality check scenario!
So true. While it’s great to have a job you love, that doesn’t mean the job will never change. My job started out pretty great too–it didn’t take long for it to go downhill…
I’ve been a researcher for the Canadian government for almost 23 years. When I was LMJ’s age, I absolutely adored my job and did so for most of my career. Unfortunately the world doesn’t stand still. In my case, things started going downhill when the Conservatives got a majority government in 2011 and seriously messed up Canadian science.
FI allows you to rapidly deal with these changing situations.
We were not FI at the time but we took a very serious look at our finances and cranked up our savings. While I’m now 3 months away from retiring at the age of 52, I wish I could have had more options 7 years ago.
I hear you. Jobs can always change, you have no control over that. What you do have control over is how much FU money you have. Thanks for sharing your story!
And congrats on your upcoming retirement! Especially since you’ll be doing it 13 years before everyone else 🙂
So what are you plans for retirement? Would love to hear about them.
Home base will be in Magog, an awesome village in Quebec that lies between a large lake and a mountain with sky slopes. Had to buy a house though, no long-term rentals are available since owners can make so much more money with Airbnd. That’s fine, it’s nicer than our Montreal house and at least $50k cheaper, and it will be easy to rent if we want to run around SE Asia for a year.
Sounds like great plan! Enjoy skiing and possibly visiting SE Asia!
Congrats Andre, I hear you on making sure you start building your FI as early as possible. Awesome job! I just had to write as we have very similar stories. I just turned 50 and am ready for a change very soon. Am already FI but different issues holds me where I am for a little while longer.
I grew up in Montreal as well and spent amazing times in Magog as a child. If you haven’t been to SE Asia make sure you do! It’s as amazing as Wanderer and FIRECracker say it is in their posts.
Congrats again and enjoy FI and retirement!
I think they should think about what their ideal life looks like after FI. Then make that happen before FI. They may make a little less, or take a little longer to get to 25X, but they will be living fulfilling lives. If they do that, they may not want to retire ever. And that’s ok!
You’re right. It’s never too early to think about what life looks like after FI! I’m so glad we started writing before we retired…gives you an idea of what passion projects you can work on after retirement. Great advice!
I enjoyed my job for over 30 years. It did take a sudden change of course to more stress and less fun the last two years. Because I was FI I made the decision going on three years ago to retire ten years earlier than I originally planned. And it was a great decision! And only possible because of FI. Just make sure you don’t retire from problems but retire to meaningful purpose!
Wow, that’s amazing and exceptional that you had an enjoyable job for 30 years! Almost unheard of! Very smart of you to become FI so you have the option to retire early, because as you said, you never know when the job’s going to change–even if it takes 30 years 😀
The work environment can change in a heartbeat, and good times never last. FI gives you the freedom to be able to leave one job without having another job lined up.
Also, what happens if your health suddenly isn’t good, or you get into a car crash? FI gives you independance.
You make a good point about health. We have no control over whether our jobs will change OR whether our health could take a turn for the worse. It’s always better to have FU money in case you need to step back, rather than rely on something you have no control over.
In The 4-Hour Work Week, Timothy Ferriss said “Options – the ability to choose – is real power.” That line has always stuck with me and has become my mantra. When you’re limited to a single source of income, you ARE vulnerable. Even if you don’t want to attain FI, having a second (or more!) source of income puts you in a stronger financial position. Or put another way, think of cultivating multiple streams of income as an insurance policy for your financial well being.
Even if you do love your job/career and you have a large degree of job security, you can still experience unexpected expenses (medical care for example). Dig your well now before you are thirsty.
“Options – the ability to choose – is real power”
Love this TF quote! It’s so true. Having options is the key to happiness. When we do a job because we choose to rather than HAVE to, it makes all the difference in the world.
Yes… Throw in 10+ years in the same job, a kid or two, aging parents, a house, vacations, more stress, and you might not like that job so much. I loved my job when I started working too. It didn’t last 40 years. FI gives you more options.
Ditto. I enjoyed my job in the beginning too–that didn’t last. Those are things are have no control over, but having FU money is something we can control.
These guys are doing great for being in their 20’s. But things are easy when you’re in your 20’s. “Life” does eventually happen —
Kids might happen, bosses change, perhaps they’ll buy a house, or have health problems. There’s dozens of scenarios that could send shockwaves through these finances.
Having and enjoying those jobs for 10 years is NOT a given either. My advice to them? Don’t let off the gas. Keep saving, if possible find ways to bump that savings rate ABOVE 50%.
They could very well be at the 50% already, since I’m being conservative and not including additional money they’re putting into tax sheltering vehicles. But you’re right, it’s better to plan for the worst–what if the job stops being enjoyable? What if they have kids? Saving towards FI is a goal that gives you choices.
I agree with the multitude of comments above: keep pushing towards FI. Like LMJ, I loved my job at first, but then needed a change after 5 years. Thankfully my company is big enough to provide those options, and I’m still at the same place and yet again in a new role that I really enjoy.
Furthermore, if kids are in the picture at some point, don’t be afraid to take a lengthy joint parental leave. Having a solid ‘stache with no debt and no mortgage will make that far easier! We did that several years ago, and although it pushed back retirement by about a year, it was one of the best decisions we’ve ever made. I would encourage almost everybody to do the same if at all possible 🙂
Nice! Glad you you found another role in the same company that you enjoy. Sometimes you just need to move around when the job gets bad, but it definitely helps to have some FU money so you can take the risk.
And kudos for having a solid ‘stach so you can take the parental leave! “I regret spending extra time with my kids”–said nobody ever!
Happy Lunar New Year!!!
The numbers look good for FI and that’s not factoring in promotions and pay raises if they continue working and building their careers. I’ve made my biggest salary increases by promotions and changing jobs. Also, remember that if a work situation changes with additional stress, etc .., you always have options to search. Nothing is permanent. It may seem that way, temporarily.
Btw, I recently changed jobs for more responsibilities (vertical growth opportunity), salary, and exciting work!
Thank you! I can’t believe I forgot it was Chinese New Year until you reminded me–need to have my Chinese Canadian badge revoked!
And you’re right, they’re numbers will likely be even better if promotions are factored in. So could take less than 10 years.
Congrats on your new job! Sounds fantastic!
I actually came home from Shanghai (for work) yesterday. Was disappointed to just barely miss the new year.
You were in Shanghai? Nice! Did you eat ALL THE THINGS?!
I did the best I could for the 24 hours (and 13 hour time difference) that I was there. Went out with coworkers to a restaurant for dinner, where we ordered all the things and shared them. The next morning I just took advantage of the excellent breakfast buffet at the hotel. Last time I did the lunch buffet, and that was great, too. I wish I’d have more time to do more, but work calls. I did at least have a chance to take the ferry over to the Bund and walked along the riverbank, where weirdly two different people asked me (in passable English) whether they could take a picture with me. I’m still not sure whether that was a scam or if there really are people in Shanghai who see white people as a novelty. Maybe I’m just really good-looking.
It’s always better to have the option of not needing to work anymore just in case things go south and you loose your loved job or things change and you stop liking so much what you do.
FIRE all the way guys!
WORD! FIRE all the way!
Great advice FIRECracker! Looks like this couple has a great future ahead of them. They’re in their 20’s so it should be a wait and see approach for them. They should give themselves another 10 years at least to see if by that time they still feel the same towards their jobs. Like the old saying goes ” You’ll know when you’re ready”. I’d still suggest that they shoot for early retirement.
They do have a bright future, don’t they? 🙂 But you’re right, they’re only in their 20s, and their perspective could change in 10 years. Jobs and attitudes could change a lot in that time.
It’s pretty obvious at least to me that regardless whether you love your job or not FIRE should still be a goal because that job you happen to love can change over time.
Maybe it’s due to your employer deciding to restructure moving you to a new team, role or project that you hate.
Maybe your employer decides to cut down on costs deciding to make you redundant.
Maybe the market is not fairing well and the above happens and even if the job market is good enough for you it will be difficult finding work in a recession.
Maybe your priorities change, you have a kid and want to spend more time with your child instead of paying ludicrious amounts on child care where you child spends more time with a stranger than yourself.
Maybe you just get bored of that amazing job you used to like so much as it’s no longer challenging anymore.
Maybe the industry has changed and your job just isn’t as lucrative anymore making you struggle to keep up with the bills.
Maybe your new boss is a jack***
Or maybe you just want to do something that doesn’t involve spending the majority of your waking hours on work.
I could go on 🙂
Well said, Richard! Anything could change and you just never know 😀
Notice they had over contributed to their TFSA by $25k. Should they be worried that CRA would come knockin for a penalty ? Speaking of which, not sure if I were to open 2 TFSA in 2 separate bank and contribute $40k each, would CRA able to find out ?
it’s likely not a TFSA overcontribution but a result of investing in equities and the growth that happened.
Thanks, Janet! I was just about to say that but you beat me to it.
With that healthy a salary, the very significant savings, and a 45% savings ratio, this couple is doing awesome! If they’re happy with their lifestyle as-is, they really should just keep right on going. Eventually, something is bound to change – a desire for a new career, an opportunity to buy the right house, kids, desire to travel, or who knows what else? At that point they’ll be glad to have the savings to cruise through whatever comes their way. If not, the option to retire early is always nice to have, even if they don’t take it.
As much as I know that the goal for many on this blog is to retire extremely early, that’s not what everyone wants. With a theoretical 10 year timeline to retirement (at which point they won’t even be 40 yet) and a savings rate 9+ times the Canadian average, this couple can afford to enjoy life a bit if they want. For example, that $2,000 car won’t remain reliable forever, so they could easily replace it with another reasonable one once the time comes.
Enjoy life, guys, things are going great for you.
Agree with you, TalkingPie. They’re doing great!
GTA and Vancouver are hot RE markets, every indication of softening in the spring is here now, stress test, interest rates going up, etc. Your rent seems reasonable, if you are happy where you are, there’s no need to make a change.
Just be warned, we are 9 years into a market cycle, have a plan for when the market corrects, we are closer than you might want to believe. Its very hard to watch your life savings decrease 25-40% with only the hope that one day it will come back. One of my investments dropped 70%, and took 18 year to come back.
Yup. Diversification is the key, and not panic selling during bear markets. Good news is they’re still young and they have a long runway, so time is on their side.
I agree, FI is important, RE is optional. My “Job” is my passion, my calling. Even when not working, I imagine I will still be volunteering in some capacity in my “job”.
As others have said, Financial Independence is freedom to choose, freedom from stress. The options to be there for your family, as you choose. That’s why I read FIRE blogs when I can’t imagine retiring early.
FI is important, RE is optional. Yup, so true. You don’t HAVE to retire, it’s just giving yourself options that’s the important part.
I absolutely love this case because it’s so nice to hear about more young couples who have truly got their shit together! It’s inspiring. Over the last year or two, one might say I’ve become obsessed with FIRE and have even brainwashed my fiance into getting on board. Much like LMJ, he loves his job, and wants to work until the day he dies. This is totally fine with me, because I want him to be happy. After explaining the FI part in more detail so that he wouldn’t see it as just “two twenty-somethings traveling around the world doing nothing” he got on board. Tbh it works out that he wants to keep working and I don’t because we can continue taking advantage of company-sponsored healthcare, 401k/TSP (yea, he can “double-fist” which is AWESOME), and housing allowance. Later on down the line, if we decide to buy a house we can pay in cash. It’s a win-win.
Thanks for this case FIRECracker! I loved it. Sending it to my fiancé now!
HA HA, you made a “double-fisting” reference! *high-five*
I also love how you were able to “even brainwashed my fiance into getting on board.” That is deliciously devious 🙂 I LOVE it!
Hope your fiance likes this reader case. As you’ve explained, only the FI part is mandatory, RE is optional!
Haha yea I figured you’d like the “double-fisting” reference ?. It’s just more proof that I stalk this blog!
Become financially independent. Keep working if the job is something you like, better to have FU Money than not.
With the current savings rate they just need to stay the course and they’ll get there. Their current financial set up has already given them the flexibility to get aggressive and save more or dip into cash funds if an emergency requires.
To use a different analogy – if LMJ had written in and said ‘I’m in good shape and am happy with my current gym routine but with a few small adjustments I could be fitter, stronger and faster’ I’d say yes, yes, yes you absolutely have to pursue that. Just a different approach – some are happy as they are others of us are always trying to max out in every area of life (financial or otherwise).
HH
Love the gym analogy! That’s exactly it. They’re already in good shape, just need to stay the course and continue having a reason to save and invest.
Hi all,
This couple are in great circumstance. I think that they should continue to save and invest for rainy days. As mentioned by many of you, the good time in work may not last forever. Having FU money will give them the option whilst they continue their work. They should increase their saving rate if possible and reduce their expense by identifying the wants and eliminating them accordingly.
They may want to consider upping the challenge by moving to another high-paying jobs. This will increase their cash stash. However, there is a possibility that their work condition may not be as rosy as their current situation. I guess that this is something like a trade-off for them. On the other side, there is also a possibility that their work condition is better than the current one. Things change quickly and it might be not be advisable to stay put at the current role. The only constant is change.
Ben
“The only constant is change.” That’s exactly it, Ben! I think since they’re already saving almost half of their income, they’re doing great and they like their jobs, so no need to change. BUT if those jobs get worse, than it might make sense to bump up the salary–if you have a miserable job, might as well get paid for it. And having FU money will give you the courage to make changes.
Why did you use the annual expenses to come up with the savings rate?
Because they gave me the expenses in yearly pay. It doesn’t matter. You could also take their pay, divide by 12, then use that and monthly expenses to get the savings rate. Same thing.
You used the monthly expenses number and not the savings number. She said she saves 6300 a month not 5195. Just trying to see if im missing something.
When it comes to money, it is better to have it and not need it than to need it and not have it.
Well said!
They seem to forgot another important benefice that FI could give them : being better at the job they love.
FI will give them:
1. Less stress, which will allow them to focus more in their life and their career.
2. The ability to take more risk, which will make them stand out in a crowd of people who can’t afford to lose their job.
A very valid point! One of the reasons why I was able to get 2 promotions quickly while I was working was because I had FU money and no mortgage to tie me down so I could take on riskier projects. You definitely end up having a leg on on others who can’t.
Reading others success’ very inspirational. I kinda wish I knew about FIRE movement when I moved to Canada 10 years ago. I would have done things so differently. Im glad I know better now and hopefully one day become FI.
“The best time to plant a tree was 20 years ago…and right now” 🙂 It’s not too late. Remember, if you don’t do it, “the time will pass anyway”
Based upon their numbers it certainly seems like it. I would encourage them, if this hasn’t been mentioned already, Mad Money Monster’s post on Financially Independent, Optional Retirement or FIOR. That is what I am going for and what I want the most. I want FIOR, not FIRE. The FIOR will hopefully happen by my early 50s (wish it was sooner but I got a late start on this whole FIRE/saving for retirement thing when I started at 33). Good luck to them.
FIOR, that’s a good one! Thanks, I’ll remember that going forward.
Priorities do change. It would be good to be FI-ish by the time they have kids. If they choose they can take as much time off as they want.
Coming back from mat leave was quite hard for the first 3-6 months due to lack of sleep, emotional transition for my son and the hectic schedule of drop offs and pick ups with daily commute (or a mad rush when he was sick and had to stay home).
Additionally, we spent 3 weeks in the hospital when my son was 15 months old. Our jobs were flexible or understanding enough to go on a reduced work schedule but it was still inconvenient. Then stressing out about whether we should go back to our childcare centre or to get a nanny. If I was on the FI train, I would have loved the option to just stay at home.
Now, with a more FI (FU) attitude, I was able to move to a different city (lower cost) and work from home. This really helped slow down my pace from when I was in Toronto. Not caring that my career would suffer, I was actually promoted after and am able to have a better work life balance.
That’s so true. If they do start a family, becoming FI would help a ton in terms of taking time off for the kids, etc.
I think they’ll likely hit FI sooner but who knows about the RE part. The hard part is knowing what your views on work and life will be that far in the future. We all change, companies change, our views on a field or our current position do, too. It’s just so hard to really map out our lives going forward on a long time horizon (and this applies to people working or in RE, too).
For us, we won’t pull the trigger on the RE part until we’re really sure what our expenses will be like and that we have a good deal of cushion. If it turns out we want to increase spending (or that circumstances dictate it) we don’t want to be hamstrung by a decision years earlier that assumed we’d be fine spending X indefinitely.
On the other hand, there’s obviously a cost to that approach: one of time spent working.
Right, the good news for them is that they like their jobs so the RE is optional. But the FI part is what gives them the choice.
Correct me if I’m wrong, Wouldn’t their savings rate be 55%? $62,340/$138,000 *100 = 45% is how much they are spending from their income.
I was trying to figure out why my savings rate was lower, when my expenses were lower and income was higher, and then realized that number is not my savings rate, but my spending rate.
Being FI gives you options! You can choose to work as long as you want or, if you are enjoying the work move to part time or even quit all together and try something new! FIRE all the way!