- How Not To Lose Yourself in Retirement - April 12, 2021
- Are Most Degrees Useless? - March 22, 2021
- Let’s Go Exploring! Stockholm, Sweden: Dark, Twisted, and Beautiful - March 12, 2021
One of our favourite things about writing a book and blog is getting reader e-mail. And one of our favourite type of reader mail is the reader cases. Sometimes I wish we could clone ourselves so we can answer each and every one of the reader cases, but between the book promotion, blog, and hanging out with our Chautauquan friends all over the world, we no longer have the time time to answer every single e-mail. We have to choose wisely. This latest one stood out to me because of a question that’s plagued many readers and Chautauquans, and after our latest Chautauqua, it’s made me wonder whether optimizing for money rather than optimizing for happiness just to get to FI is worth it. I’m also interested to hear all of your perspectives on this, so let’s get started:
Dear Kristy & Bryce,
I was recommended your book by my friend. Your book is amazing and inspirational.
We both live in Calgary, Alberta. My girlfriend and I were both born in Canada and both of Asian descent. My gf shared a video of you both being interviewed by CBC and we were very inspired.
My current job is not too hard and really flexible, yet I earn much less than my last job. I kept this job as on the side I’m running my online business as it is easier and the flexibility, I can spend my lunch hour working on my business. Do you suggest I get back to a 6-figure job or keep my $60,480/yr CAD (gross) job and building my online business or go back to applying for a higher paying job to save more?
Here’s our financial situation:
- Your gross/net annual family income:
- Gross: $132,480 =$60,480 (me) + $72,000 (her)
- Net: $98,688.64= $47,126.64 (me) + $51,562 (her, after pension deduction every pay cheque)
- Your monthly family spending:
- For any debts you have, please include: Only debt is the mortgage
- Car paid off and no Student loans/credit card/consume debt
- The interest rate 2.95% variable (40 year terms started 2008)
- Your minimum monthly payment $1,106.61
- The outstanding balance $259,074.95
- Any fixed assets you have (house, car, etc.)
- House Market Value: $310,000 (Purchased place in Calgary 2008 for $345,000 at the high)
- Any investments or savings you have (cash, bonds, stocks, etc.)
- Cash (me): $2800, Stocks: $630, Mutual Funds: $9,000
- Cash (her): $100,000: 90 % in mutual funds/RRPS/TFSA, 10% stocks.
|Income||Combined gross: $132,480; Combined Net: $98,688.64|
|Expenses||$3000 / month x 12 = 36,000 / year|
|Equity||$310,000 x 0.95 (after real-estate fees) – $259,074.95 (mortgage) = $35,425.05|
|Liquid Assets||$2800 + $100,000 + $630 + $9,000 = $112,430|
Now, on first glance, the two things that jumped out at me were
- Their expenses are incredibly low and…
- They lost money on their home purchase
I was a bit skeptical about their monthly expense but seeing that their mortgage interest is less than 3% and they pay only $1,106.61 per month for housing, it’s conceivable that their expenses could really be this low. But that being said, in the absence of any other information, I’m going to take their claim of an overall $3000 a month spending at face value as their total spend, including their mortgage and other home ownership costs. If this isn’t true, they will need to redo my analysis with updated numbers themselves.
Assuming these numbers are correct, based on their current family spending, then by the 4% rule they will need $36,000 / year x 25 = $900,000 to become financially independent.
They have a savings rate of ($98,688.64 – $36,000)/$98,688.64 = 63.5%. That’s pretty close to our savings rate of 50-70% while we were working!
At a conservative 6% long term return, this will take:
|Year||Starting Balance||Annual Contribution||Return (6%)||Total|
Note that for simplicity, we will assume that inflation will be offset by a 2% raise a year in their jobs.
So InspiredAlbertan can retire in…9 years!
Not too shabby! One of them also has a pension which, if she chooses to leave her job and taken as a cumulative lump sum, will add to their net worth. Here’s a post they can use to figure how to factor the pension into their FI number.
Now on to the house. With so many Home Boners out there flaunting their housing gains and saying shit like “you can’t afford not to buy a house”, this is proof that houses do not, in fact “always go up”.
But does that mean they should immediately dump this money pit?
I dunno! Let’s MATH SHIT UP to find out!
What would happen if they unlock the equity they have in the house? That would add another $35,425.05 to their net worth. According to Numbeo, the average rent for a 1BR apartment in Calgary is around $1248, so we have to take that into account and update our annual savings number.
So how would that affect their time to FI?
|Year||Starting Balance||Annual Contribution||Return (6%)||Total|
We’re still at 9 years, so their time to FI doesn’t change. Why? They wouldn’t be reducing their housing costs all that much since the mortgage and the rental costs are similar, and they wouldn’t unlock that much equity since they actually lost money in the Calgary housing market.
Given the low interest rate of 2.95% and their low monthly payment, I would continue paying down the mortgage and keep their monthly expenses consistent. Plus going through all the trouble of listing their place, finding a new apartment, moving, etc. for no real difference in their FI date just isn’t worth the hassle.
So financially, they’re doing quite well, despite the downturn in the Calgary housing market.
That’s all fine and good but what about their original question?
“Do you suggest I get back to a 6-figure job or keep my $60,480/yr CAD (gross) job and building my online business or go back to applying for a higher paying job to save more?”
I recently spoke to a friend who’s contemplating taking a high stress/high pay job to get to FI faster, despite knowing that they’re going to be stressed out of their mind and their health will likely be compromised.
I get it. Once you discover FIRE, you go down the rabbit hole of FIRE books and blogs, and all you want to do is hold down the gas pedal to get FI faster. After all, if you get that 6-figure job, couldn’t you cut your time FI down by ½? Wouldn’t it be amazing to be able to flip your boss off in the next 5 years, instead of waiting for 10 years?
And you know what? Five years ago, I probably would’ve told you to go for it! After all, become FI and quitting job was life changing for me. So why wouldn’t I want you to get there faster?
But now, having been retired for the past 4 years, I’ve realized that money isn’t the most important thing. Hell, time isn’t even the most important thing. After all, if you are sick and bed-ridden, all the extra time in the world wouldn’t help you. As I get older and (hopefully) wiser, I’ve realized that the most important thing in life isn’t money, or even time. It’s health.
We only have a limited amount of time on this earth to be healthy. Switching to a job you like to a soul-sucking one just to make more money and destroy your health makes no sense because you might be trading healthy time for sick time, and that’s actually not a great trade. Especially since this couple doesn’t have student or credit card debt (which have the highest interest rates) and they’re already at a 64% savings rate.
Since InspiredAlbertan enjoys their easy-going (albeit lower paying) job and it gives them extra time and space to work on their online business, which could generate income in retirement, I would stay in their current position. Why destroy your health to earn more money when you don’t need to?
A word of caution I’d give to this couple is to also do the finances separately using the analysis I just did. Since they’re not married, it’s a good idea figure out their individual FI numbers as well.
I know that the FIRE community tends to be super optimistic, and that’s one of the reasons why I love being part of this community. That being said, when it comes to relationships, if you’re not married it’s a good idea to do two calculations, one with combined finances, one separately, just so you both know you can stand on your two feet just in case it doesn’t work out.
What do you think? Should InspiredAlbertan stay at their current job? And should they sell or keep their house?
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