It’s almost been 5 years since I started this journey to financial freedom. How am I doing so far? As shown on the right side bar I’m making about $5,100 of dividend income a year 🙂 Which is only about 20% of my annual living expenses. So it appears I still have a long way to go but I feel good about the future 😀 One thing I could do to reach financial independence sooner is downgrade my lifestyle just a little bit. Right now I live in a large two bedroom apartment, and drive a pretty sweet car. But I realize I don’t need these things to be happy. So I thought to myself what if I lived a more modest lifestyle? Let’s see what this alternative life for me would look like.
Passive Income: $6,500
In order to make life simpler I plan to pay off all my debts. I don’t have enough cash in the bank to do this. Big surprise lol 😉 So I’m going to sell my home, car, Saskatchewan farm, gold and silver, and all other financial assets, except my stocks. After fees, commission, and taxes, the total amount resulting from a complete liquidation of these assets should be about $425,000. So after paying off all my $390,000 of debt I will have $35,000 left over 😀 If I put this all into a diversified portfolio of dividing growth stocks with an average yield of 4% I’ll be making an additional $1,400 a year. Combined with my existing $5,100 mentioned earlier, my total passive income would be $6,500.
Expense: $12,000
So where am I going to live if I sell my apartment? Thankfully there are many affordable places for rent in the Greater Vancouver area. I don’t mind living in a smaller place. It’s not like I’m using the entire 800+ sqft space in my current apartment anyway. Since I have no car anymore I’ll be taking public transit to get around. It’s more green anyway 😉 Here’s what my new spending would look like.
Conclusion: $6,500 / $12,000 = 54%
And just like that, if I were to do this today I would already be half way to financial freedom. Woot! Big jump from 20% eh. Who knew just changing a couple of things can have such a big impact on expenses. Besides housing and transportation there wouldn’t be any noticeable downgrades compared to what I have today 🙂 Holy hamburgers, $6,500 of annual dividend income by investing for the last 5 years means in 5 more years I can probably make $13,000 of passive income and actually retire for real. What an exciting thought! 5 more years. Instead of freedom 35, I can probably get there by 30. 🙂 All I have to do for now is liquidate my assets, pay off all my debt, and downsize a bit. It’s almost hard to believe that people can spend just 10 years of their lives in the rat race and then retire forever by diversifying their investments and living with low expectations, yet the math totally works out. Does that mean I’ll aim for freedom 30 now?
Of course NOT. 🙂 Although I would certainly enjoy the simple lifestyle of living on a modest income with no debt to worry about, the reality is not so simple. I want to get married some day so a 1 bedroom basement suite probably won’t be enough eventually. There’s also the possibility of having children, and caring for aging parents. I have to look past my selfish desires for freedom and plan for loved ones to be included in my future life beyond financial independence. So selling my apartment, farm, etc right now is probably not the wisest plan to build long term wealth eh? 😉
Nevertheless it’s very reassuring to know that if I became unemployed tomorrow I should have a pretty good financial cushion to fall back on. This sense of security is more important to me than going on extravagant vacations or leasing a new Lexus, and is also why I will continue to invest my savings and use financial leverage to build up even more passive income! I was talking with my realtor last week and he said the farm I bought last year with $20,000 of my own money has appreciated by $10,000 already, which makes for a 50% return on investment so far. Check back later this month as I’ll update the official numbers on my blog when the FCC publishes their semi-annual farmland value report. This is why investing rules! Luckily the kinds of assets that I’m heavily invested in like stocks, housing, and rural land, have all performed relatively well over the last 5 years especially in North America 😀 But how will my luck fair in the next 5 years? We’ll just have to wait and see 😉
That’s a huge decision! Are you really going to sell off property? It is an investment! Don’t let the thought of cash seduce you! You are doing great!
Don’t worry, I plan to keep all my property for now. I’m too leveraged and in too good of a place to sell it all now lol.
Yes and the markets are just picking back up! You have time on your side dont take that for granted like i did! These are your best earning years! Whew you scared me! 🙂
looks on track! i’d probably save/invest a few extra years so you have some discretionary income. after all, whats the point of financial freedom if all you do is sit around inside your $600/month basement suite doing nothing all day, cuz you have no money to travel, or go anywhere outside of GVA, since you have no car or expenditure allocation for travel =P it would also help cushion against any economical downturn that might affect dividends in some of the more riskier stuff
what about effect of inflation on your expenses? since they are usually in the dividend growth expectations. would make sense to me to either ignore inflation in both (using real dividend income growth vs fixed expenses), or account for it in both. 5 yrs would prob change expenses by at least 10%
That’s like the first time I’ve seen someone outside of the GVA mention the GVA as GVA lol. I was thinking a strategy of holding onto dividend growth stocks, like the ones who grow dividends almost every year for the past 25+ years would be a good hedge against inflation, but may not always work all the time, like for example against hyper inflation. Yes, that’s why working a few extra years even after I reach financial freedom would not be a bad idea :0)
right. its a hedge against inflation after income > expenses, and the divs will likely outpace inflation, but if your goal is to retire once your dividend income exceeds expenses, you should still be projecting outwards with the assumption that expenses will increase at rate inflation, no? it doesnt affect whether your out year will have enough income, but it does affect when year 1 of retirement would be,
expense (fixed) vs dividends (with inflation, 15% growth)
year 1: $1 vs $0.5
y2: 1 vs 0.58
y3: 1 vs 0.66
etc
eventually
y6: 1 vs 1.01 (yay you can retire, dividends > expenses)
compared with:
expense (with 3% inflation) vs dividends (with inflation, 15% growth)
y1: 1 vs 0.5
y2: 1.03 vs 0.58
etc
y6: 1.16 vs 1.01 (cant actually retire yet…)
y8: 1.23 vs 1.23 (yay now you can retire)
I see what you mean. There is a time gap between now and financial freedom, and inflation is a double edged sword 🙂
Wow, talk about putting your money where your mouth is. I think it’s great that you’re going after your goals with such fervor. I wish you luck with your dividend income.
Thanks for the support. I’m all about the goals and the fervors 😉
Cozy? Those places are basically hotel rooms with a stove. I always think of downsizing for financial freedom and early retirement like this. “Okay so if I move into that tiny apartment, that’s where I’ll be every hour of every day after I retire. I think I’d go stir crazy.”
Lol, I’ve seen residents in other parts around the world like Hong Kong where multiple people share a small 300 sq ft room and have to ask myself, how can those people live like that? There’s hardly any space, let alone personal space >.<
Money is not the be all and end all for the one life we have to live, and good on ya to realize that. I have a friend who is excellent at starting up businesses and selling them,at nice profits. He lives “the lifestyle”. Has ALLl the toys, no debt, piles of cash, travels the world… netwoth of $5+M… BUT, last year over beer on his dock next to his toys he has no one to share them with, he confessed he envys my life, as I have a loving family to share life with… which he has given up in order to live “the life”. He actually had a tear in his eye while talking about “missing” parts of life. At 44 he is unattached, regularly has eye candy off his arm, but none he would consider a partner, is a sole child of rapidly aging parents that resent not having grand children… Money does not equal life, as there needs to be a balance. So next time you think what if I had more, think about what you might be giving up in exchange for that finacial freedom. – Cheers and loved the post!
Grass is greener on the other side they say. Maybe he can find himself a curvy Colombian girl like Jay did from Modern Family :0) He might have missed a few boats but at 44 maybe he still has time to find someone. Best of luck to him, but it just goes to show no one can have everything they want in life. When I see my friends who are dating or married I often think, aww that must be nice having a companion. But when I hear them fight sometimes I think, hmm maybe being single has its benefits too lol.
the appreciation on the farm is awesome! I completely agree with you about leveraging money to build more wealth. I would take a roommate though, or rent via Airbnb while I am single. An extra $500/month goes a long way.
Funny you should mention about leveraging on farmland. I’ve already written a post about it for later this week. The FCC report was published earlier today. Farmland value in Canada on average has increased by 18.6% in 2012 😀 More than I expected.
Like Justin said, you’re really putting your money where your mouth is. Best of luck sir, I think it’s great you’re going about this with such tenacity.
Thanks. If I’m going to be excited about something it might as well be personal finance heheh 🙂
Ok, every time you mention your farm makes me really want to buy a farm of my own. That’s amazing it already appreciated by that much!
I’m going to update the value of my farm in a post later this week. If you think it’s the right kind of investment for you then I would definitely encourage you to get in on some farmland. If you don’t want to put down $20K like I did, the company called AgCapita recently started a Ag Fund 4 that you can look into. I think the minimum investment is $5K or $10K, and you can even put it in an RRSP if you want. The only thing is you don’t have direct control of the farm itself because it’s a fund, like a mutual fund, but it might be a great way to get some exposure.
Don’t forget you could sell your blog and probably make an extra $10K! 🙂
This is a pretty big declaration! I do wonder: Is all your money in taxable accounts, or do you also have some in some kind of tax sheltered plan?
Most of my assets and gains are tax sheltered or exempt. But I will pay taxes on my non registered portfolio. You think my blog is worth $10K? Wow I had no idea since I’ve never thought about selling it before, but I guess it could be an option later on down the road 😀
Well done, sounds to me like you have a clear path of where you are and where you want to be. Not many people can say they do. keep up the good work.
Thanks Mr. CBB ^_^ Time waits for no one, so we might as well make use of it while we’re in the present while preparing for our time in the future :0) The year 2020 will eventually come to pass. It’s our actions today that will determine if we’re rich or poor when it gets here.
How about potential income from blogging or online marketing? If you master this you may add to your income.
Yes living simply can bring more contentment and happiness.
Those sound like potential opportunities I could see myself getting in to. I don’t really know much about online market at the moment but maybe skills like that can develop over time 🙂
You look like you are doing great! You’ve got a great plan going and you seem like you’ll have the flexibility to change when needed. Keep up the good work!
One of the great things about reaching financial freedom is having that flexibility in your life (^_-)
An extra $1,500 if you liquidated everything except your portfolio, nice! I keep track of this on a monthly basis using my liquid net worth (non-retirement accounts) and as if it’s invested in the 30 year US treasury bond. Every month it rises and now that I just crossed $100k for my FI portfolio it should hopefully grow even more. As they say the first $100k is the hardest, and then the first $1mill is the hardest. I know have a really good chunk of money that is working much harder than I ever could. It works 24/7 with no breaks, can’t beat an employee like that.
I know what you mean about the first $100K being the hardest. Good thing it should only get easier from here :0) Yup, I like it when my money works for me too. It does whatever I tell it to and never complains lol.
Retiring “early” is a dream for most people, but even if you scrimp and save and all your might… you’ll still be tied down to the 9-5 job unless you find an alternative way to generate sufficient income to sustain your lifestyle. And why would you wanna downsize just for the sake of not working. Do you really want to eat instant noodles and kraft dinners for the rest of your life? Eating those things won’t extend your life… Life is about a balance, have some fun while you’re young… before it diminishes before your eyes.
Yeah balance is key 😀 Too much of anything, no matter if it’s work or play is not healthy in the long run. I won’t be quitting my job just yet. Speaking of which, I’m still waiting for human resources at McDonald’s to get back to me. Haven’t heard back from them yet since my interview last week. Lol I use to eat KD a lot as a teenager. Great with ketchup and pickles 😀
Hey!! Can you hook me up with a job there? I’ve always wanted to work at the MCDs!!
Personally, I think you’re setting the bar way too low. $12,000 in spending sounds like a poverty level to me with no leeway of any kind. It might be just fine for now, but think if one day you want to move, or get married, or have kids.
$12K definitely won’t cut it if I have a family one day, lol. Maybe I can convince the wife to keep working while I take care of the kids at home.
Congra for your progress so far. I’m especially impressed that you paid your ~$14,000 student loans and accumulated around 100,000 worth of additional investments.
Same as the last person who comment, I also think you’re setting the bar way too low and that they key would be to increase your passive income. Have you played with online businesses? This is how I built my own financial freedom.
I may suggest a free eBook on the topic: beginwithablog.com which is free to download. I think it could benefit your readers. Feel free to remove the link if not. Cheers and keep doing grea! Tal Gur
Online business is something I\’ve been looking to get into.
Instead of liquidating everything:
Still downsize your car, but rent out one of the rooms in your two bedrooms for a few hundred a month.
Good idea. I can probably get at least $600 a month. 🙂
[…] and give it everything we have to make it come true. For example, my personal dream is to become a millionaire in my 30s without relying on inheritance. I have seen others do it before me so I know it’s possible. […]
Don’t know if you still reply to these old threads but i’m just wondering if you have plan on getting married/starting a family? if the answer is yes, how do you plan on implementing that (immense) financial burden to your plan?
Regards,
Tom
Hi Tom. I do plan to get married some day. The financial dynamics of a relationship can vary widely. If I get married 5 years from now with someone else and we both bring an equal amount of assets into the marriage then we could retire on the spot. I’ll be financially independent a couple of years before age 35. We could have up to 2 children without having to work for money again. On the other hand if I get married 2 years from now and my wife is still attending school full time, or otherwise doesn’t plan to work, and would like to have children in a few more years and asks to be a stay at home mom, then my plan for financial freedom would likely be pushed back by 5 years or so. But if my wife is very career driven then I will probably stay home and look after the kids while she works full time. We can both retire early, or she can work for a few years longer than me, or vice versa. Or maybe, my wife doesn’t want kids at all. I’m still open to that idea. For now all I can… Read more »
Thanks for the reply Liquid, looks like you have thought this through from quite a few angles. i’ve been actively reading your blog since mid summer and quite enjoy your postings. the one that got me hooked was the post about TransCanada corp and your idea of “stable leveraging”. i read it at a time when i was fairly new to investing and it really got me thinking outside of the box.
Keep it up and good luck in the future!