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My life revolves around numbers. You can even say math is my religion. But sometimes you find a reader case in which number and logic, though revealing, doesn’t actually solve the problem. What do you do in this case? Let’s find out:
I am in my 30s and I came across you guys when I was researching FIRE. And guess what, I went to the same university as you did and on Christmas 2017 I gobbled up your website and have been a big fan/advocate ever since. I even read your “Quit like a Millionaire” book. Loved it and shared it with so many of my friends.
Immigrated to Canada from India along with my family (wife and now two young kids). I have a masters in Business and had 10 years work experience before coming to Canada. I was working for two Fortune 100 companies in Sales/Business Development Roles. Spent all my 10 years life savings on getting a $50K Canadian degree to realize I will be considered a novice (typical squeeze of us immigrants) and given a salary of $60K /year in 2019. Your website and book gave more real-life practical knowledge than my 35+years legendary Finance & Accounting Professor. (You guys should consider teaching at the university as guest lecturers)
I got a $60K/year job in Jan 2019 and got laid off during the pandemic. Thanks to EI and my wife working full time keeping me afloat, I found a job almost a year later during the pandemic.
We regretted coming to Canada and just as we were ready to pack our bags and go back home, I found a full-time job (a good one) and I think we are bracing our self for a new life for our self and our two kids.
Let me confess a Big Mistake, which I made during Pandemic:
We had $68K of savings and I was unemployed and stocks were going through the roof so I thought I would day trade to make up what I lost in my salary. I made lots of mistakes, (emotional mistakes, over panic from watching too many Youtube videos of market Crash). I lost $40K over one year!!!!! I even registered a company to trade under. We have decided to close the company for good and withdraw what’s left : $28K.
This might sound like a typical immigrant who is trying everything to somehow survive and make it in this country.
After all this mistake now I am ready to follow your FIRE guidelines. I am coming full circle. I started with your website and thought I could beat the market and day trade and lost.
Now could you please guide me and other fellow immigrants ( millions of us) who are trying to make it for themselves and their family.
I want to stick to the 60/40 plan and Vanguard S&P 500 + Bonds until we hit $1 million for our financial independence.
I came up with $1 million based on the 4% rule as our current family expense is $36K per year.
My wife thinks we should buy a home for ourselves first and avoid the stock market all together as real estate is a less risky bet. She just doesn’t trust me with the stock market any more.
Could you Math Shit Up and let us know what is the best way to reach our $1 mil goal for our family. Real estate or Index investing.
Gross Income Mine: $84,000 Fixed + $34K Sales Incentive = $118K
Gross Income Wife: $64,000
Total Family Income: $182,000
Net Family Income: $127K
· Your monthly family spending
Groceries, Vehicle Insurance and Miscellaneous: $800
Entertainment and send money back home: $800
Total expense per month: $3000/month
· For any debts you have, please include:
No Student loan
Only Credit Card debt: $2K ( 21% interest rate)
· Any fixed assets you have : Have a used Car. No car loan.
· And investments or savings you have (cash, bonds, stocks, etc.): $58k Cash ( includes $28k from the company account)
I’m a sucker for immigrant stories so this story immediately caught my attention. Watching my parents struggle when we first came to Canada, not knowing the language, having to adjust to the customs and then stressing about finding a job to support their family, I know exactly how you feel.
I’m also sorry to hear that it took 10 years of your life savings to get this entry-level position, only to lose it to the pandemic. Yes, it was impulsive to day trade and lose $40,000 in one year, especially after losing your job, but honestly, it’s not the worst thing in the world. Given that readers write in telling us about their $200K student debt, getting into $1 Million of debt for property, or losing $150,000 on a house, this is not the worst thing in the world. You can recover from this mistake.
That being said, I’m concerned about your ability to invest long term and not let emotions take over logic. Normally, I roll my eyes as soon as a spouse suggests real estate as the solution to your financial problems, but in this case, I can see where she’s coming from. She supported you by being the bread winner when you were laid off and you broke her trust by losing the family money on speculation and gambling on stocks. That’s the opposite of a safe, diversified long-term indexing approach.
So in this situation, I don’t think the issue is how to work towards financially independence, it’s gaining your wife’s trust back. After all, you can’t have people rowing the boat in opposite directions when trying to achieve financial independence. As I said before, becoming FI is simple but it isn’t easy. You need to have all hands on deck for years before you can reap the rewards. So, if you don’t have your wife onboard, forget about your plan to become FI.
Looking at your numbers, given that you earn $182,000 gross, a net family income of $127,000 seems low. I think you’re either not maximizing your RRSP contributions or forgetting to include it as part of your net worth.
Using this tax calculator, a gross family salary of $118,000 (him) + 64,000 (wife) with RRSPs maxed out, should yield a net salary of $92,236 (him) + $51,981 (her) = $144,217/year. There’s around $17K missing from your after-tax salary in your estimate.
Also, you have low monthly expenses but a $2000 credit card debt with a 21% interest rate? Why? You have $58,000! Use that to pay off the credit card debt immediately. There’s no point in investing if you’re paying 21% interest rate. Kill that debt! Kill it now!
With a yearly expenditure of $36,120, net worth of $58,000, and debt of $2000, you’ll need a portfolio of $903,000 to become financially independent.
After you pay off your credit card, you’ll have a net worth of $56,000. and putting away $144,217- $36,120 = $108,097/year going forward, you’ll reach FI in:
Only 6.5 years!
But that’s only if you keep your expenses at $36,120/year, keep your new high salary, and neither of you get laid off or experience a pay cut.
If your wife wants you to buy a house, given that the average home costs $748,439 in Canada, you’ll need to set aside $49,844 to $149,687.80 for a 6-20% down payment depending on whether you use CMHC insurance. You’ll also need to include all the additional costs of home ownership such as mortgage interest, maintenance, property taxes, insurance, etc. You’ll be able to save the $1410 in rent but given that just the monthly mortgage will cost you $2739, plus another $600/month (property taxes), $600 maintenance, $100 (insurance), etc, that’s another $1300 for additional ownership costs. So just the throw away costs that don’t contribute to equity at all are almost the same amount as your rent.
If you buy the average $700K home, you will be increasing your accommodation costs from $1410/month to $4000/month, plus need to save extra money for the $150K down payment. You’ll also be able to save $31K/year less and increase your FI number from $900K to $1.68 Million. This will push your time to FI to:
Almost 14 years! Plus, an additional year to save the money you need for the rest of the down payment, so more realistically, 15 years. And again, that’s if you don’t get laid off or get a pay cut.
You’ve more than doubled your time to FI. If your wife wants you to buy a house, you’ll need to account for the increase in housing costs.
Unfortunately, in this case, I don’t think it’s a logical argument. You’ve scared your wife away from the stock market because you’ve confused day trading with long term index investing and it will take a while to gain her trust back. You’ll need to prove that you can successfully build a portfolio without dancing in and out of the market or day trading before you talk about becoming financially independent.
At the end of the day, this is a relationship issue rather than a mathematical one. All the math and logistics in the world can’t win someone’s trust if they don’t believe in what you’re doing.
Instead of hamstringing her into letting you invest in index funds to retire early, have a conversation about your values and see if they align first. Sit down and write down your top 10 priorities separately from each other. Then compare to see if they line up. If your priority is to retire early, travel, and world school but she prefers to settle down, buy a house, and work, you’ll have to find a middle ground that works you both. You don’t reach FI together if you don’t both agree on it as a priority or if you envision different lives.
What do you guys think? Should RegretfulDayTrader listen to his wife and buy real estate instead? Or learn how to index invest towards financial independence? Do you have any advice on how they can discuss their wants and needs together?
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