- How Self-Isolation Taught Me About Happiness - July 6, 2020
- Holy crap, there’s a FIRE dating app! - June 29, 2020
- How Has Covid-19 Affected Your FIRE Journey? Part 5 - June 26, 2020
Singing: “It’s Friday Friday, gotta get down on Friday…”
Rebecca Black’s lyrics aside, I actually had no idea it was Friday until I got pinged from my asana to write a Friday post. That is one downside to early retirement—it’s really hard to figure out what day of the week it is!
But now that we know it’s Friday, you know what that means? Time for a reader case!
We get a lot of reader cases and this one really popped out at me because I was so impressed with what this couple has accomplished in just 10 months! You’ll see what I mean in a minute
Here we go:
Hi Wanderer and FIRECracker!
Thank you for creating the Millennial Revolution blog and inspiring so many people to take control of their finances and learn to invest to get more out of life!
My husband and I discovered Millennial Revolution about 2.5 years ago, which was just after we committed to crush our $76,000 of student loan and car loan debt over 12 months. We started obsessively tracking every expense and set a budget, and <10 months later we were debt free! We were so happy with our accomplishment and were more motivated than ever to achieve financial independence. Following the investment workshop blog, we both opened Questrade accounts and have been faithfully contributing for the past 20 months… well the last 6 months we haven’t maximized our contributions due to increased travel but are contributing nonetheless. Oh, and did I mention that we live in Vancouver, East Vancouver to be exact, and we pay $1900 rent for a 1 bedroom apartment. Yes, we could live further outside the city but we have lived in the neighbourhood for 10+ years and love it, so we give up other luxuries to compensate the expensive rent.
But here’s our biggest challenge – we love travelling and feel there is so much more to life than our day-to-day lives in Vancouver. Without sounding too whiny, we both don’t care for our jobs, the commute, or the “me first” Vancouverite attitude, and it is getting more and more challenging to continue. So why do we stay? We make OK money and are able to contribute to our portfolios.
We have reached the point where we either 1) suck it up and live it out until FI; 2) Move away from Vancouver to decrease living expenses and potentially our income (and risk being more unhappy due to location…we tried this for 3 months already and it didn’t work out so well); or 3) sell all our possessions and buy a van to explore the America’s followed by Asia, India, Eastern Europe… you get the idea (note: we would not touch our portfolio money, instead save $50K and estimate 18+ months of travel). Obviously, the logical option is to continue down the FI path but how does one rationalize the portfolio over sanity? We are both less happy than we use to be… back when we carelessly spent money on travel and whatever we wanted in the moment. Surely you have felt similar at some point in your journey to FI, so I am hoping you could comment on the following to help bring us clarity one way or another:
1) How did you manage the urge to drop everything and travel?
2) Should we just go travel and worry about the portfolio when we return? I mean, who knows what could happen to either of us in the time it could take to reach FI and we have many more years to work.
3) Could you calculate roughly how much we would set ourselves back if we travelled for 18 months on $50,000 (that we would save over the next 10-12 months). I did create my own retirement calculator and would like to calibrate it against yours 🙂
The breakdown (luckily, I have expense data for the last 30 months):
Gross/net annual family income: $147,000 / $105,500 (this increases if we travel for work)
Monthly family spending: $3,900 Includes minimal travel, rent, utilities, life insurance, car insurance, rental insurance, and $1200/month budget for groceries, gas, clothes, miscellaneous items.
Debt: Debt Free!
The interest rate: N/A
Your minimum monthly payment: N/A
The outstanding balance: N/A
Fixed assets you have (house, car, etc.): Car: $25,000, motorcycle: $4000
Investments / savings:
Combined ETF’s: $131,000
Nomads in the Rat Race
Okay, before we get into the numbers, I just want to say, WOW, fantastic job on paying off that much debt in such a short amount of time! You should be extremely proud of that, and we here at Millennial Revolution are humbled to know we played a small role in that. It still weirds us out to learn that our silly little blog actually changes people’s lives.
Now I must confess, not all of MR’s impact is entirely positive. Sometimes, people look at our lives globetrotting the world and doing whatever the Hell we want and conclude (correctly) that it looks pretty rad and they want to do it too, but like NOW.
One of the couples we met in Chautauqua is in this situation. After a sauna-based one-on-one, one of them now really really Really REALLY wants to quit their miserable job, throw everything into a van, and start travelling RIGHT THE HELL NOW, while the other one’s like “Whoa whoa whoa maybe we should work just a liiiitle bit longer.” Sorry guys, that was our bad.
To be fair though, that Chautauqua couple’s numbers looked pretty damned close, and with a couple minor tweaks we could with a clear conscious tell them “Go for it. You may FIRE when ready.”
The couple in this reader case, though, are still quite far off. Remember that we worked and saved for almost a decade before we pulled the trigger. This couple is still near the beginning of their FIRE journey. How long will it take them? Well, let’s see…
Math Shit Up!
So to summarize NomadsInTheRatRace’s numbers…
|Income||$147,000 (gross), $105,500 (net)|
|Expenses||$3,900 monthly, $46,800 annually|
At that spend rate, they would need $46,800 x 25 = $1,170,000. And at their current savings rate of $105,500 – $46,800 = $58,700, combined with their existing $132,000 net worth, they’d reach their FI target in…
12 years. So that’s fantastic, obviously, as the default working career for most people is around 40 years. So not only has this couple successfully murdered their debt, they are now barrelling towards their FI target at break-neck speed.
So can they quit their job yet? The short answer is no. If you were to pack and travel for 18 months, it would extend your retirement date by about 2.5 years, since that’s about a years’ worth of savings you’d spend, plus another 1.5 years you wouldn’t be working. Sorry, you have to suck it up, buttercup and row like the rest of us until you hit your FI number. There’s no way to skip that part.
But that being said, there are ways of making that journey shorter.
First of all, let me just say something about Vancouver. To our non-Canadian readers, Vancouver is THE most expensive city to live in Canada. It’s where you can spend $1M on a falling-over crack-shack, where everyone is regularly in millions of dollars in mortgage debt with shady alt-lenders, and the city where every economist is saying will be the epicentre of a housing crash.
This is because despite the fact that housing is so expensive, there’s really no high-paying industries to support it. Our friend and fellow finance blogger Financial Samurai took one look at the Vancouver housing market and almost threw up. The housing prices, he noted, were similar to Silicon Valley, but without the Silicon Valley part that paid entry-level programmers six figures right out school.
The median housing price in Vancouver as of 2018 is $1.23 million. The median income? $38,449. That means for the average family, the cost of housing (including mortgage, utilities, property taxes, maintenance, etc.) is actually MORE than their after-tax pay. Which means that the average family in Vancouver is cash-flow-negative and going into debt every month they live there. That’s why almost everyone who writes in from Vancouver is stressed out of their minds.
And yet, Vancouver has this strange appeal that I quite frankly don’t get. I’ve been there, it’s nice, kinda rainy, and has lots of nature and hiking trails. Does it seem like a nice place to live? Sure. Would I kill myself and put myself into debt every month for the privilege? Hell no!
Maybe NomadsInTheRatRace can help me understand why, but for some reason people who live in Vancouver have this “Vancouver is the absolute best city in the world. I cannot be happy in literally any other city” attitude that I just don’t get. People in Toronto also have that attitude, but at least they have the high-paying finance and high-tech jobs to support it. Vancouver has rain, a lot of nature, and according to NomadsInTheRatRace a “me first Vancouverite attitude”. Am I missing something?
OK enough Vancouver bashing. What can we do to help our couple get out of the rat race faster?
Are you using your RRSPs?
At a gross/net incomes of $147,000/$105,000, your tax rate seems oddly high. Assuming your incomes are relatively evenly split, I put these numbers into a tax calculator and it seems to indicate that you’re not using your RRSPs at all.
If that’s true, open up an RRSP and start shovelling money into it. Like, now. If you max out your RRSPs going forward, your after-tax income will jump to about $121,000, and if we take that extra tax savings and shovel it into your retirement fund, here’s what it does to the math…
11 years. So by simply opening up an extra account with Questrade, you will shave a year off your working career. And if your employer has any RRSP matching program, it’ll help even more. Not bad for 5 minutes of work eh?
As for the question “Can I travel now?” the answer is actually yes, but maybe not for 18 months at a time. I’m a firm believer in rewarding yourself when you hit a big milestone, and paying off $76,000 of debt is definietly a big milestone. See if your work will let you take some unpaid leave, take a month and travel!
My only advice on that is to make it not just a vacation, but a scouting mission. Don’t just go to the Bahamas and live it up on a resort, but take your time travelling and really explore. Pick a few cities that you could see yourself living in long-term, grab an Airbnb, and actually try living there for a week! Hit up Portland, or Lisbon, or Tulum, Mexico. Really go off the typical vacationer’s path and look for those hidden gems we write about in our Travel Series, because you’ll be surprised how many great cities there are out there that you can live in for a fraction of what you’re spending now.
And this is something I suggest for anyone who’s stuck in a “I-have-to-live-in-my-city-and-nowhere-else” attitude. Because…
Geographic Arbitrage Is Your Friend
The biggest knob you can turn in your retirement plan is to not retire in a high-cost city. Most cities cost a lot to live in because that’s where the jobs are. When you retire, you could live anywhere.
If you can find a place that you’d enjoy retiring to that costs a lot less, it can have a dramatic impact on your retirement date because your FI target will drop considerably. Remember, your FI target is not your current expenses x 25, it’s your retirement expenses x 25. Most people confuse the two and think they’re the same.
Let me tell you of another success story I’m quite proud of. There was this couple we met at a Chautauqua a few years ago. They both lived and worked in Silicon Valley in high-paying high-tech jobs, but being in Silicon Valley they were worried they’d never be able to retire and travel because the cost of everything was so high.
During our one-on-one, we discussed their retirement plan, and during our conversation they mentioned that their job was one of these startups that didn’t actually have a physical office. Everybody worked remotely, and used tools like Slack and Asana and whatever to collaborate.
A light bulb clicked on in my head.
“You realize you could just pick up and move somewhere else and they’d never even notice, right?”
Blink blink. “What do you mean?” they asked.
Their work was completely remote! There’s no reason to be physically located in San Francisco. I pulled up a map on my phone and drew a vertical line along the West Coast. As long as they were in the same time zone, their company wouldn’t be able to tell the difference, so they didn’t even need to ask permission.
A few weeks after they got back, they messages us and told us they had packed up everything and relocated to Mexico and, as a result, their cost of living dropped significantly. They were still saving money, and because their cost of living was no longer tied to a high-cost city, their FI target was now only a few years away.
Since then, they keep popping up in our Facebook feed with messages like “Hi! We’re in Montreal!” “Now, we’re in Oaxaca!” They were having a blast living it up, while one of them continued working remotely. You can read all about their adventures and cost of living on their blog: NomadNumbers.
I mention this because if there’s any possiblity of working remotely for NomadsInTheRatRace, or to switch to a job that does allow you to work remotely, then the nomadic travel can start immediately. I don’t know what kind of job they both work in, but from the line “Move away from Vancouver…we tried this for 3 months already and it didn’t work out so well…” it seems like there’s some location flexibility in their job.
But if you do this, the trick is not to just move to some crappier version of Vancouver, but to really mix things up and move to Costa Rica or something.
And We’re Done
Anyway, this post went long so I’m going to go lie down. What do y’all think? Let’s hear it in the comments.
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