- Does Gen Z Have it Harder Than Millennials? - November 20, 2023
- When To Pay Off Your Low-Interest Mortgage - November 6, 2023
- Reader Case: Can’t Work Because of Health Issues and Worried - October 23, 2023
It’s Friday, so you know what that means: Reader case time!
When we started doing Reader Cases a little over 2 years ago, we simply thought it would be a great educational experience to see some real life examples and get feedback from the MR community to help each other out. We had no idea the impact this would have on individual readers, as some of them have written in and updated us on their amazing progress.
And recently, we had the biggest shock of our lifetime when read this e-mail detailing the complete 180 degree turn around in this reader’s life.
Especially given the particular tough situation, STB (Stop the Bleeding) was in, as the reader case was aptly titled. “How Do I Stop the Bleeding.”
To give you a brief recap: this particularly unfortunate reader got stuck with a condo in the middle of the oil rout that gutted the housing market in Edmonton. Every month, the condo was costing him money since he couldn’t rent it out for enough to cover the costs, yet if he sold he would have locked in a loss of $30k.
Try as we might, we couldn’t find any way to make that condo make sense, and at the end we were forced to conclude that ripping the bandaid off and selling it was the only thing that made sense.
And now, two years later, here’s STB again:
Hey FIRECracker, it’s been almost two years since you posted my case study – thought it was about time I gave you an update – and ask for your help again!
Part 1: The Update
After considering your analysis and that of your readers (thanks Mr. Collins and everyone else!) I decided to bite the bullet and sell the condo. To minimize costs, I used a commission-free service and in early December 2016 the place finally sold. After the dust settled, I owed “just” $5k (was bracing for $30k). Foregoing the realtor saved me about $10k; I also sold for $10k higher than what the realtors had estimated, and a few AirBnB guests covered some of the mortgage while it was on the market.
What I didn’t mention back then was that my real estate woes were just a tiny part of a much larger problem. For me, 2016 was a Category 5 Financial Shitstorm. While trying to sort out my condo situation, I was also in the midst of a divorce that had been dragging on for two years, I was living paycheque to paycheque, and generally not making great decisions. Examples? I bought a brand-new $45,000 truck for the daily office commute despite owning a sensible and economical hatchback, perfect for my city commute but parked 6000km away, literally on an island in the middle of nowhere. Oh yeah, I also bought an RV and parked it on the same remote island with the car. Although I’d begun devouring FIRE blogs and podcasts shortly after the truck purchase, their wisdom hadn’t quite taken hold. There was room for improvement, to put it mildly.
But this is where it gets really interesting.
Remember my girlfriend? Not only did she introduce me to the concept of FIRE, but through her perspective, encouragement, and frequent but lovingly-applied Mustachian Face Punches, she got my head screwed on straight again. For reasons I still can’t fully comprehend, she decided to hitch herself to a financial train wreck – with fully loaded baggage cars. She staged the condo with a charm that my black-leather-couch-and-big-screen-tv male-decorating skills couldn’t achieve, and got the place sold. She gave me advice and kicked my ass until I got the divorce sorted out. She respected my right to make my own (terrible) decisions, but also pointed out alternatives that might work out better for me. I shudder to think where I’d be now if she wasn’t in my life.
Through her help, the FIRE community, and some crazy good luck, things are quite different two years later. Car and trailer four time zones away? Sold. Big Stupid Commuter Truck? Traded it in for an efficient little diesel hatchback. Which got written off in an accident; insurance money paid off my divorce debt. G/F and I rent an amazing apartment and we bike/walk to work year round; my monthly living expenses are now less than what my monthly vehicle costs were in 2016. We share her cheap and paid-off car for grocery runs and the occasional road trip. And in an incredible stroke of good luck, the efficient little hatchback turned out to be one of those “dirty” diesels you may have heard about: I ended up getting a settlement that paid off the condo debt!
When I wrote you two years ago I had no savings, and a negative net worth. By getting rid of the stupid shit (condo, vehicles) and keeping the good stuff (G/F, intact defined benefits pension, horseshoe that is evidently buried deep in my arse), I’ve gone from financial train wreck to FIRE bullet train! I now save 70% of my income, mostly in VCN and XAW, and I’m expecting to reach FI in less than 7 years!
A huge thanks to you and your readers for the great advice!
Part 2: Help!
G/F is optimizing her finances and needs some advice because a) she wants to retire early, b) she’s a frugality master but an investing novice, and c) we can’t endure many more years at this latitude – it’s been snowing here all week (mid-September blizzard as I write this) But first, her numbers:
Your gross/net annual family income: Gross: $90k / Net: $52k
Your monthly family spending: $2K
For any debts you have, please include: N/A
The interest rate: N/A
Your minimum monthly payment: N/A
The outstanding balance: N/A
Any fixed assets you have (house, car, etc.): Car $2500
And investments or savings you have (cash, bonds, stocks, etc.):
TFSA 1: $27k (VCN)
TFSA 2: $32.5k (Cash at 1.25% interest, originally intended for down payment)
RRSP 1: $30k (XAW)
RRSP 2: $91k (Big Bank Mutual Fund, 2% MER)
Savings Account 1: $28.5k (Cash at 1.25% interest, also originally for down payment)
Chequing Account 1: $3k (No Interest)
Chequing Account 2: $13k (No Interest)
Defined Benefits Pension: $ Unknown, only 2 years in.
Since we’re going to keep renting, G/F wants to invest her down payment. Obviously there’s an insane amount of cash rotting away in chequing/savings accounts, and the Big Bank Mutual Fund is a huge rip-off. Since her RRSP/TFSAs are already maxed out, the cash has to go into a taxable account, but she wants to keep some of it in the bank for emergencies.
Our questions:
- How should the cash be invested? Lump Sum usually outperforms Dollar Cost Averaging, but this is a big chunk of her portfolio so she’s reluctant to throw it into the markets all at once.
- Any thoughts on Asset Allocation, and does her pension factor into the equation?
- How much cash is reasonable for an Emergency Fund? Would it be smarter to have a Line of Credit for (hopefully rare) emergencies, and invest all her cash?
- How does one estimate the value of a Defined Benefits Pension – is there a rule of thumb? Assuming she retires early, what should she do with the DBP – leave it in the fund, or take it out as a LIRA?
- Where’s the best place to keep the taxable account – maybe Questrade?
- When does it make more sense to not contribute to an RRSP if you have a pension?
- And finally, when can she retire so we can get the hell out of the frozen North?!
Thanks!
STB (Stop the Bleeding)
First of all, WOW! I remember when we first saw your case we thought “Wow, this guy’s in trouble.” I had no idea how much trouble you were in with the divorce and all, but your turnaround is crazy! You went from bleeding your financial guts out to retiring in just 7 years! That’s insane! I’m proud of you! Hell, FIRECracker’s proud of you, and she’s crazy hard to impress.
Second, how in the Hell did you find this FI girlfriend of yours? No, seriously, tell us. There’s this running problem in the FI community where people can’t pick out the FI people versus the “normies” when it comes to dating, and nobody knows how to solve it. Because if there’s one lesson to get out of your story, it’s this:
Date an FI person and they will fix all your financial problems.
So if you did something clever to find her, please let us know. We all need to know!
Anyway, on to her numbers. I already like the cut of her jib, in case you can’t tell, so I’m guessing this is going to go well. So without further ado, let’s MATH SHIT UP.
| Category | Amount |
|---|---|
| Income | $90k gross, $52k + $16,200 RRSP contributions = $68,200 net |
| Expenses | $2k monthly, $24k annually |
| Debt | $0 |
| Assets | $27k + $32.5k + $30k + $91k + $28.5k + $3k + $13k = $225k |
Just a note here, you wrote $90k gross, $52k net. I’m assuming you forgot to include her RRSP contributions in that number. Otherwise, her average tax rate would be way too high. Canada may be a socialist paradise, but we aren’t NORWAY.
OK so where do we start? With a $24k annual spend, her FI target would be $24k x 25 = $600k, as per the 4% rule.
And given the numbers you gave me, she should be saving $68.2k – $24k = $44.2k annually, for an impressive 65% after-tax savings rate. How soon will it take for her to get to FI?
| Year | Balance | Savings | ROI | Total |
|---|---|---|---|---|
| 1 | $225,000.00 | $44,200.00 | $13,500.00 | $282,700.00 |
| 2 | $282,700.00 | $44,200.00 | $16,962.00 | $343,862.00 |
| 3 | $343,862.00 | $44,200.00 | $20,631.72 | $408,693.72 |
| 4 | $408,693.72 | $44,200.00 | $24,521.62 | $477,415.34 |
| 5 | $477,415.34 | $44,200.00 | $28,644.92 | $550,260.26 |
| 6 | $550,260.26 | $44,200.00 | $33,015.62 | $627,475.88 |
Just 6 years! Fantastic! And given that you yourself are projected to hit FI in 7 years, that means she will glide to retirement riiiight around the same time as you!
This is exactly where you want to be. Arguably it doesn’t make much sense for her to up her savings rate any further, since if she retires too soon she’ll just be sitting around twiddling her thumbs waiting for you to catch up. So that means that somehow, this magical FI girl has instinctively made all the right moves.
See what I mean about FI girls? They solve ALL YOUR PROBLEMS!
OK now let’s get to the questions:
How should the cash be invested? Lump Sum or Dollar Cost Averaging?
DCA. If you try to time the market with a lump sum buy, you’re going to sit around forever terrified to pull the trigger. Once her accounts are set up, do 4 buys over the next year, once a quarter.
Any thoughts on Asset Allocation, and does her pension factor into the equation?
With only a 6 year runway, I wouldn’t go more aggressive than 60% equity/40% fixed. As for the pension, see answer a few bullet points down.
How much cash is reasonable for an Emergency Fund? Would it be smarter to have a Line of Credit for (hopefully rare) emergencies, and invest all her cash?
I’d set aside 6 months of cash in a HISA, so for her that’s $12k. I’ve heard the argument of using a LOC instead of a cash cushion, but back when I was working, I didn’t want to run the risk of getting laid off, having the bank find out and closing the LOC right when I need it. I likes my cash.
How does one estimate the value of a Defined Benefits Pension – is there a rule of thumb? Assuming she retires early, what should she do with the DBP – leave it in the fund, or take it out as a LIRA?
You have to ask your pension administrator for the present-value or commuted-value of her pension benefit. Calculating it is complicated and involves actuarial tables and shit, so you generally can’t do it yourself.
And if she ends up retiring early, take the commuted value out as a LIRA. That way you don’t have to worry about the company screwing something up decades later when you need it, or as we like to say in finance circles “Pulling an Enron.”
When she turns 55, it can be converted into an RRSP.
Where’s the best place to keep the taxable account – maybe Questrade?
I like Questrade, that’s what I use. If you end up going for it, sign up with this link and you’ll get $50 in free trades!
When does it make more sense to not contribute to an RRSP if you have a pension?
For her, max it up. The only time it doesn’t make sense is if she’s in her 60’s and the pension payment would push your retirement income into a high tax bracket, but if you’re going to retire early and take the pension as a LIRA, she’s not going to be in this sitation.
And finally…
when can she retire so we can get the hell out of the frozen North?!
6 years for her, 7 years for you.
So there we have it.
Financial train wreck + FI girl = OMG SO MUCH MONEY!
All joking aside, you also really turned things around on your end too, so major props on that, buddy. Good job! High fives all around!
But anyway, back to my question to you, any tips on finding FI girls to date?
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Lol there are many signs of a FI girl…. Asian is a pretty good indicator, driving an import such as a used corrolla, not having much of a social media presence/ caring what other strangers think of her, compare her lifestyle with her estamated income and if they don’t match you have a FI girl.
Interesting, interesting. Are you describing anyone in particular?
I too found an amazing FI girl (high school sweetheart) who happens to be Asian & drove a sensible import while saving more than avg & not giving an F what people think of her! She was always frugal – as some say here in Hawaii: “pākē.” Common denominators??? I happened to be the 1st between us to stumble upon FIRE on a slow night shift, agonizing “how can I retire earlier?” But as soon as I told her she ran with it so hard it seemed to be in her genes all along. Naturally the search led to MMM, JLC, MadFientist & yourselves among many others. Mahalo nui loa for your hard work & spreading good sense!
lol I’m an asian girl who’s going to retire in 7 years (give or take) and I have a huge presence on social media. People say I look like an ABG but I drive a 1995 tercel (green, of course). Anyways, looks can be deceiving.
Also, maybe it would be better to date someone that doesn’t understand FIRE yet so that you can bring them up. Consider dating a “Financial train wreck.” Everyone who’s reading this blog is probably on the road to FIRE so maybe it’s your chance to be “FI girl.”
Great job turning things around. You still have a long way to go, but you’re on the path now. Just keep at it. 6 years is really optimistic. I’d mentally add a few more years just in case.
What at turn around! Nice work and good luck with reaching your FI goals. 6-7 years is going to FLY BY!
Yup. When you’re heading towards FI, every year gets more and more exciting. When you’re bleeding your financial guts out, every year just gets more and more depressing.
I highly recomment the former.
that’s a nice job on the required maneuvers. it’s easier with 2 people rowing the same direction, that’s for sure.
She definitely needs to get out of that high-fee mutual fund like it’s a house on fire! It’s pilfering almost $2k per year right now, and much more in lost compounding gains. Vanguard’s website breaks down how 2% per year on a $100k investment ends up costing $170k over 25 years!
https://investor.vanguard.com/investing/how-to-invest/impact-of-costs
Also, since it’s over $25k, if you do go with Questrade they’ll cover up to $150 in transferring fees. https://my.questrade.com/Clients/en/terms_conditions/terms_conditions.aspx?OfferCode=FREE2Q
I definitely feel you on the weather front, I’ve been asking myself why anyone would want to live this far north all month!
Jeez, is it really that bad over there? In Toronto it was 15 degrees today!
Why are you so keen on the FI girls Wanderer? Did FireCracker dump you or something?
Seriously good turnaround for this guy though! Impressive. Hope she’s able to keep him on the straight and narrow.
I’ve been heckling Wanderer for a FI dating app for a while now, as long as it’s free =)
I am asking for the community! The community!
Stop The Bleeding here – thanks for the great advice Wanderer! And good catch on the Gross to Net ratio, I omitted her pension contribution.
Now stop hitting on my G/F – you’re a married man
I was lucky to find my Magical FI girl, but when I met her I hadn’t even heard of all this FIRE business – I’m surprised she didn’t run away screaming when she learned what a mess my finances were in!
It should be noted that like any dating advice, you need to talk about the deal breakers up front. After a weekend getaway in the Big Stupid Truck early in the relationship, I told her what the damages were to split the costs. She lost her shit and made it clear any more trips would be taken only in her sensible fuel efficient car. She told me her views on money and her expectations, and sent me the FI links I got hooked on.
G/F showed me the solution, but I took it and ran with it. If I hadn’t, she’d have dumped my ass long ago.
The good news is that you don’t have to find a ready-made FI partner – you have to find a partner who is open and receptive to FI and willing to do the work. Talk about money as early as possible so you don’t waste your time. If you can find an open-minded and hard-working partner, you’re already halfway there. Don’t give up!
PS: G/F isn’t Asian but she does own a sassy Japanese import. It’s 13 years old and makes a Corolla look like a Rolls-Royce.
PPS: Yes, the weather is that bad here.
A question on the FI calculations. The $24K are after tax expenses, so applying the 4% rule to it results in a lower number than actually needed since the subsequent withdrawals will need to cover income taxes, no? I.e., I think the calculations should be grossed up for taxes, which would extend the time estimate somewhat, 1-2 years?
If you structure your investment portfolio properly, you can take your withdrawals tax-free.
https://www.millennial-revolution.com/invest/workshop-invest/making-investments-tax-free/
If you want to be happy for the rest of your life, get an FI lady and make her your wife. Because in my personal point of view, get an FI lady to marry you!
Great update! Thanks for sharing. It’s inspiring me to want to do one. 🙂
Or FI guy. I guess I should have been more gender-neutral.
Ya, but that doesn’t fit with the awesome song I was quoting.
https://www.youtube.com/watch?v=Qh9ZZgDqzAg
I like your version waaaaay better than Jimmy Soul’s. ?
Interesting turnaround. I tried to become FI in the past 10 years but made all the wrong choices and am further away then ever before. I would welcome a FI woman like yours in my life.
Are there any other reasons than psychological that you’re recommending the DCA approach with the $30K? Wondering if there’s a mathematical basis since I have a similar chunk of money that I’m planning to put into the market.
Mathematically, lump sum makes the most sense but in practice it just makes people freeze up and never invest. Plus if you DCA over a relatively short period of time (1 year tops), the end results come out to be the same over the long term (10+ years). So DCA gets you most of the benefit of lump sum, while increasing the chances of it actually happening.
It’s a shame the “Playing with FIRE” documentary will only portrait the USA reality and not the worldwide FIRE community ! 🙁
We don’t know that. All we’ve seen is the trailer so far.
Hi Wanderer,
Nice post. I have achieved FI and have the option of RE. I am single and still in search of FI girl who share the common views as me.
To me, it does not matter whether such lady appears in my life. If she appears, it will be great if she is willing to join me in my journey like you and FC. If she does not appear, it is alright and I can continue my journey alone. Love cannot be forced.
WTK
What a great story to kick-off the weekend! And I’m not just saying that because you used the phrase “cut of her jib” (also snorted at the Norway line). Halfway to my FI goal, I need all of the encouragement I can get – thanks for sharing!
-A Jersey (for now) FI Girl
Ooh a real life FI girl!
Incidentally, there goes Matt’s theory of needing to be an Asian Corrola-driving girl with no social media presence…
Great turn around story! I think I have been the FI guy for my wife. We are also in Edmonton and are also counting the years to reaching FI. We are unable similar trajectory. Would be great to meet other fellow FIers in Edmonton!!
I’m curious, too about the DCA advice. Seems his FI girlfriend is willing to take the path that makes best financial sense, so won’t be terrified to pull the trigger.
Hey from Brazil. 🙂
Trust me, it’s not exactly easy to find a FI guy as well… In my experience every guy I’ve ever dated was intimidated by my independence and would rather be with a girl that reeeeally needed them. But who knows, maybe I’m just unlucky in love lol.
Interesting. Do guys find girls who are financial train wrecks attractive? If so, that’s INCREDIBLY short sighted…
In my experience they like a girl to make less than them. In the beginning they think it’s so nice that I’m so good with money, but after some time they start saying things like “my ex who was a housewife always did this and that for me”. My ex (who always spent more than he made and refused to believe that if you saved a little you could travel the world like I do), felt so insecure that he asked me to put all our salaries in a joint account so he didn’t feel “less of a man”. 2018, I know, but this is what us FI girls have to face every day, so maybe you’ve met many of us, but we don’t usually mention this in our groups…
Ps: I’m not asian and I do have a social media account (though I don’t really post much)
Hi Tainah,
I am of view that it is better to be yourself. Choose the partner which you feel comfortable with and of course there is a similar reciprocation from the other party. On the request of putting the salary into the joint account, I feel that this is not advisable. I think that it is better to keep the accounts separate with the joint account being used for common expense.
My two cents worth of views.
WTK
Thanks for the great advice Wanderer! And good catch on the Gross to Net ratio, I omitted her pension contribution.
Now stop hitting on my G/F – you’re a married man
I was lucky to find my Magical FI girl, but when I met her I hadn’t even heard of all this FIRE business – I’m surprised she didn’t run away screaming when she learned what a mess my finances were in!
It should be noted that like any dating advice, you need to talk about the deal breakers up front. After a weekend getaway in the Big Stupid Truck early in the relationship, I told her what the damages were to split the costs. She lost her shit and made it clear any more trips would be taken only in her sensible fuel efficient car. She told me her views on money and her expectations, and sent me the FI links I got hooked on.
G/F showed me the solution, but I took it and ran with it. If I hadn’t, she’d have dumped my ass long ago.
The good news is that you don’t have to find a ready-made FI partner – you have to find a partner who is open and receptive to FI and willing to do the work. Talk about money as early as possible so you don’t waste your time. If you can find an open-minded and hard-working partner, you’re already halfway there. Don’t give up!
PS: G/F isn’t Asian but she does own a sassy Japanese import. It’s 13 years old and makes a Corolla look like a Rolls-Royce.
PPS: Yes, the weather is that bad here.
I think you’re on to something: FIRE rating site would be a hit!
Congrats on the turnaround. It’s similar to me, all I needed was a divorce, and things started turning around for me. With my husband #2 we are now 53 months away from FIRE. It’s so important to have a vision and a reason to stick to it!
@stop the bleeding Is your gf driving my 2 door ’05 accent with a mismatched hood while I’m out of town?? No AC, ABS, or even a cabin air filter in my ride. Congrats on your epic 180
-A fellow Edmontonian
Hi Wanderer! I was curious when you said “…with only a 6-year runway, I wouldn’t go more aggressive than 60% equity/40% fixed” if there’s like a generally standard on how much-fixed income/bonds do I need to have the closer I get to retirement.
Here’s our situation, I’m from Australia, 38 years old, married with a 2-year-old toddler and thanks to you (and Mr Money Mustache’s blog) we are set to retire in 7 years time. Currently, we own outside our superannuation (401k equivalent in the U.S. I think) 30% Australian Index ETF (VAS), 30% U.S. Index ETF (VTS) and 40% International ETF(VEU). So we are 100% in equities at the moment. Are there some general guidelines on how much bonds you need to have as you near retirement as a percentage of the portfolio?
I’m a long time reader, but have never commented. This post made me feel like I must! I’m an FI girl, single, and looking for that FI guy! Most guys I meet usually have no idea what I’m talking about, but do tend to end up interested once I inform them (of course). So opposite day over here. I think we’re still an elusive species in general, so maybe that’s why it’s not so easy to find each other.
“Elusive species”! Lol love it and totally share that sentiment. FI girl here as well, dating has certainly been interesting once the life goals/money talk comes up.
I’m a bit puzzled as to why saving is such a hard concept to grasp for some people. One guy recently asked, “do you ever have fun”, after sharing with him my savings plan and my view on consumerism. Granted, I don’t need to justify myself to anyone, but the ignorance! Those people can work till their old age and be forever trapped by money.
On a side note, my previous car was a Corolla and I happen to be Asian (no coincidence at all, lol).
Great point! A lot of guys are impressed at first, but then go “…nahhh, sounds like torture.” Our culture is so firmly fixed on things=happiness. It’s going to take a while to change the status quo.
Thanks for responding! Nice to know I’m not the only single FI girl out there. Well, I’m going to drive my used Prius hatchback into the glorious retirement sunset while they’re stuck at their desks. Go us!
Hi KikiFI,
I am FI guy. I encounter the same situation as you. Keep trying and you will eventually find Mr Right who share the same mindset as you.
WTK
I think you need to invest in global equity index funds and simply drip feed it in over time. I think 6 years to retirement is more than enough time for some volatility. If things went south would you need to retire right there and then or could you wait out the volatility?
Hey Wanderer,
Just want to point out a small error. A LIRA is not automatically converted to an RRSP at age 55. At 55, the you are allowed to withdraw funds, but not the entire thing. You can convert the LIRA to a LIF and at that point you can withdraw an amount as calculated by Questrade or wherever the LIF is held. There is a minimum and maximum to withdraw yearly, and this yearly amount can be withdrawn directly into an RRSP; but that has to be done manually each year.
The only way you can convert the LIRA to a RRSP is if the value of the account is under a certain threshold – usually about $20k or so.
Would I be wrong to mention that if their relationship together lasts and their money was put together then they would both be getting out of the frozen waste a lot sooner then 6-7 years. Or was the calculation done using combined money? If it wasn’t then doing the calculations with combined income would have been interesting to how much sooner they would reach FIRE.