Ditching home ownership and becoming a millionaire instead
You might already know from the recent posts on my site, I’m more interested in FIRE – which stands for Financial Independence Retire Early in the personal financial community.
Here is a recent article on this subject:
In the latter article, Aussie investor Martin achieved his financial independence through real estate investing initiated from home equity leverage. Those decisions are not for the faint of heart. However, by all accounts he worked hard, had some luck and realized his dream.
Today’s post is the antithesis of what Martin did, and this couple was equally successful all the same. Meet FIRECracker from Millennial Revolution. She and her husband outright rejected home ownership, and invested their money instead, diligently. In doing so they amassed a seven figure portfolio throughout their 20s to formally retire from their 9-to-5 jobs at the age of….get this…31.
FIRECracker is now one of Canada’s youngest retirees. I reached out to her to learn about how they invest now, how they are going to sustain their wealth, and what advice they have for Canadians in general.
FIRECracker, welcome to the blog. Thanks for the time.
Oh my God, I’m actually being interviewed by My Own Advisor! Seriously, I read your site a lot and I actually learned a lot about how to invest from you, so thank YOU for being you. 🙂
Kind words – thanks! So let me get this straight. You built a seven figure portfolio with your husband to retire at age 31? This sounds like science-fiction.
Yeah, it still seems a bit weird when I say it out loud, but that’s what happened. A million bucks seems like SO much money that most people will never get there, but for us it just happened naturally as we just lived our lives. We never sat around eating beans, we went on fancy vacations, we went out to restaurants and bars. The biggest thing we did was refuse to buy an overpriced house. Everybody thought we were crazy not to get in because “houses always go up,” but now here we are travelling the world while they’re still stuck paying their mortgage.
Who’s crazy now huh? *laughs maniacally*
That seems very smart in hindsight, so let’s back-up. How did you get started with investing to amass so much wealth? You must have had an incredibly high savings rate.
Yeah, about 60-70%. Both of us are computer engineers from Waterloo, so we made pretty good money, but not INSANE doctor or lawyer money. We broke down our year-by-year spending/savings in the article series “How We Got Here”. A lot of our readers went over the numbers and said “Hey, that doesn’t seem so crazy! I make just as much, why aren’t I a millionaire?”
And the answer to that lies not in the little stuff: like cutting coffees or never going out. The answer comes from making the really BIG financial decisions in your life correctly.
We lived in the second floor of a townhouse renting for $800 a month instead of plunging headfirst into massive debt like all of our friends, and we took the subway everywhere instead of buying a car. Those two decisions were probably the biggest factors in getting to where we are today.
OK, so when did you have the epiphany that investing (well) could provide financial independence – you could live off the income generated by your capital?
How are you investing now, what products do you use?
I first heard about financial independence from Mr. Money Mustache (www.mrmoneymustache.com), and then the ideas became fleshed out as I read more from other FI (Financial Independence) bloggers like Jim Collins (www.jlcollinsnh.com), Jeremy from www.gocurrycracker.com, Justin from www.rootofgood.com, and Brandon from www.madfientist.com.
The idea of retiring from our job and living off passive income seemed so weird and foreign to us, so at first we dismissed it as an idea that only tech entrepreneurs or trust fund babies could pull off. Then we woke up and realized our savings had hit half a million bucks, and we were like “Hey, why not us?”
So we learned how to invest using passive, low-cost Index Exchange Traded Funds (ETFs) and the rest is history.
What makes a great Exchange Traded Fund?
Other than never buying a home (in Toronto), what are your philosophies or guidelines when it comes to living, saving, and/or investing?
Besides the obvious (debt is toxic, track your spending, etc.), I think the biggest philosophy I have when it comes to this stuff is that investing isn’t that complicated. So many people buy overpriced houses simply because they don’t understand the stock market, but they understand a house. And that’s never a good reason to do anything (i.e., “because I don’t understand the alternative”).
Investing isn’t difficult. But it can be overwhelming.
We’ve been teaching people how to invest for a while now, and the biggest barrier I find is when they get blasted with too much information at once. They get confused and shut down or run back to something simple like a house. But the truth is buying and owning a house is way more complicated (and expensive!) than people realize. Investing outside real estate is actually a lot simpler (and profitable!) than most people realize. That’s what we try to do on our blog. Make investing simple.
That’s not to say if you own a home, you can’t reach FIRE. For those who own responsibly (like Justin from RootofGood, whose home is only 6-10% of his portfolio), it’s perfectly fine. When you are well diversified and only a small portion of your net worth is in your house, owning a home won’t screw up your finances. Just make sure you do the math (or as we like to say on Millennial-Revolution “math that shit up!”).
There are never ending debates in the personal finance community about the TFSA vs. RRSP vs. paying down debt. What’s your take on investing within the TFSA vs. RRSP? What’s your take on debt?
If you have to make that choice, you’re in trouble. As a Canadian especially…
While our American friends have huge debt issues when it comes to the cost of university and health care, we here in the Frozen North don’t typically graduate with that much debt. Houses are the only reason people up here get into that much debt, and if you have to ask that question “Should I fund my TFSA/RRSP or pay down debt?” for more than a couple years in a row, you have FAR TOO MUCH debt.
Every Canadian should be maxing out their RRSP and TFSA every year. The fact that MOST can’t, should ring an alarm bell.
How are you going to sustain your wealth? You’re only in your early 30s. Do you have plans to spend the capital? If so, when? What might be your drawdown plans?
In retirement, you remain invested and take a certain percentage of your portfolio every year to fund your living expenses. 4% of your initial portfolio, adjusted annually for inflation, is a general rule. This gives you a 95% chance of success, meaning you won’t run out of money for the duration of your retirement, 95% of the time.
In addition to the 4% rule, we added a twist, which mitigates our risk even further. By building a portfolio that generates 3-3.5% in dividend income and fixed income, if markets were to tank (and they will from time to time), we could completely live off the dividend/fixed income without touching the capital. That way we never have to sell at a loss.
Consider The Crossover Point for investors
Why living off your dividends or distributions works
One of the most surprising things we discovered in retirement is that the cost of living in countries outside of North America is much lower. After spending one whole year travelling around the world, bouncing around the UK and Europe, the Netherlands, Denmark, Germany, Belgium, Greece, Japan, South Korea and South East Asia, our total cost of living was only around $40k for the entire year for the two of us! This is actually LOWER than living in Toronto. So then we asked, why the Hell would we stop travelling?
So now we travel and live nomadically. And now that we’re experienced travellers and know the best countries to go to, our costs have fallen BELOW $40k (or 4% of our $1M portfolio), which has caused our net worth to go UP. So shockingly, not only did we not run out of money (like our haters predicted) we actually MADE money in retirement.
What advice do you have for anyone seeking to achieve FIRE? What money advice do you have for young Canadians in general?
Learn about your money. Money absolutely CAN buy happiness, but you have to understand how it works first.
And secondly, saving and investing unlike some people would have you believe is NOT that complicated. But unfortunately, there’s a whole industry out there whose jobs depend on making investing seem complicated while making housing and real estate seem simple. The opposite is true. If you want a house, fine. Go for it. But if you don’t and would rather be free from your job instead, check out our blog. We’ll show you how.
No doubt there are haters and fans of your journey but the biggest takeaway for me is, you had a plan and stuck to it – to realize what you and your husband wanted. Good on you. I want to thank FIRECracker for sharing her investing journey to date and avoiding the f-bomb on my site for my PG-friendly audience. You can check out more of Millennial Revolution here.
Got comments or questions for FIRECracker and her story? What do you make of some 30- and 40-somethings being “retired”?
You can find more retirement essays from folks that have successfully “been there, done that” on this Retirement page here.
I’ve been following this issue on Garth’s blog for a while and I do find him a bit too black and white. He discounts the emotional aspect of being homeowners. On the other hand I would advise a young couple that they don’t necessarily need to buy especially if they are good savers. Rent for 10 years “retire” and move somewhere cheaper where you can buy a house cash without draining your investment account.
…and that’s the thing eh Rob? “Rent for 10 years “retire” and move somewhere cheaper where you can buy a house cash without draining your investment account.” Easy to say when you consider no emotions. But we’re human. Emotions are part of what makes us, well, human. Money is tied to that whether we like it or not. Just need to find a balance (I think) that works for you.
You’re correct when you incorporate all the costs of home ownership in renting is often cheaper. But it requires a strong constitution. Tell people you’re renting and the first comment is often about paying the landlords mortgage. Secondly a lot of landlords are quick to boot tenants out and few are willing to fight an eviction order. For a lot of people this is the real put off to renting. It seems to be unstable. Seen many comments on Garth’s blog about that very issue. It’s hard for many people to go from paid for house to 3 grand a month in rent.
Regarding the housing bubble, I suspect what we’ll see is a long term melt rather than a short term drop in prices. House prices will remain flat or decline slowly while inflation slowly eats away at the value of the debt.
Mark for your self how would renting vs owning work out? Especially as you are moving to a Condo
“It’s hard for many people to go from paid for house to 3 grand a month in rent.”
Funny enough, I was talking to my wife about this last night.
We’re selling our house, moving into a condo, and the proceeds from this house sale should net us hundreds of thousands of dollars – we could use for rent and basically retire tomorrow. However, our financial goals are the following:
1. own our condo AND,
2. own a $1 M portfolio to retire with so…we’ll be paying a mortgage for a little while yet.
Owning the condo is within reach within the next 5 years as is the portfolio goal so sticking with our plan I’m confident we’ll get to where we want to be.
We’re moving this week 🙂
I’m not 100% sold on not buying house, but with today’s house prices….. I would actually be paying more in rent than I do for my mortgage + property taxes. My house price has more than doubled in the last 7 years.
I’ve been contemplating buying a bigger house but with the current housing market the way it is really turns me off real estate. I can afford a bigger house but with that same money I put into a bigger house I could invest it and get a better return.
I’ve considered renting my existing property and buying something maybe a little bit nicer.
They’ve been saying Ontario is in a housing bubble for a long time now, when is it going to burst?
p.s. Love your site Mark
Renting is more than your mortgage + property taxes + home maintenance (a few $$ per year)? If so, you made the right choice! I know for us, if we added up all those costs for this house renting would be cheaper in Ottawa. So, for us, it was more of a lifestyle choice we were willing to pay for.
Yeah, I hear ya with the bubble! The reality is, the “experts” can’t predict the future better than anyone else can 🙂
Not sure I agree with the idea that most Canadians should be maximizing both their RRSP and TFSA. The median family income in Canada is around $80,000. If a family is maxing out both their RRSP and TFSA thats over $25,000 per year in savings. That’s a 31% savings rate (on gross income).
That savings rate puts them on a track to retire in less than 30 years, age 55 if they start at 25. Even earlier when accounting for CCP and OAS. Most Canadian families would prefer to spend a bit more now and push out retirement just a bit.
It’s definitely possible to save too much. It’s a balance and early retirement is definitely not for everyone.
Fair point Owen. I mean, few families have enough funds for TFSAs, or RESPs, let alone RRSPs and other savings. At the end of the day, I think if most families save their 10% net income (and live off the other 90%) they will be just fine long-term.
Early “retirement” is not for everyone. Thanks for reading.
I agree Mark, saving 10% would be a great place to start for most families, some may even reach a 20-30% savings rate but definitely not all.
For sure Owen. Thanks for being a fan.
I suspect the reason people struggle to save is that payments can add up very fast. Mortgage, property taxes, house insurance, car payments insurance etc etc! Secondly I suspect many people when they look at their CC statement they shake their heads in wonder where all those charges came from.
To maintain the savings rate that Mark does requires not just a good income but some real focus and discipline!
Thanks Rob. I do have a good paying job but I also don’t drive fancy cars nor spend money frivolously. That’s just my DNA. I hope that hard-wiring will help me semi-retire in 5-10 years, maybe sooner.
I’m not sure if you will fully agree with your own statement when you are actually 55. You will wish you maybe just put a little more away to give you more independent options. It think using the term early retirement is misleading, getting “Findependant” as early as you can has a unique appeal.
At 55 you most likely can still enjoy trips that include sports and younger activities. At 65 I’m not sure most people would want to hike a mountain anymore to see a volcano. Maybe you are OK to do so, but your partner is not able to then? Life has twists.You may even tend to see what I see a lot, “Homebodyism” and kind of waste your whole plan of long term traveling elsewhere at 65+. You just won’t want to do that anymore. Also The job market will undergo massive changes in the next years. Automation may totally throw you plans off, and your job most likely will change or disappear so you may just have had enough of it. Work to get out early, stay longer if you don’t mind, but plan to have the “choice”, not the need.
Personally I would like to spend half year in Canada and up to a half year elsewhere warm in the winter months. I’m going to need enough income to do that comfortably. The more I save early, the faster that can occur. If I change my mind, hey I will have the chance to be a little better off then required. Not a bad place to be.
Ahhhh, so many naysayers. I say “good on ya guys” for figuring out what works best for you and going for it. As some have said, maybe you’re not ‘average’, maybe you did earn higher than average salaries and could make that high saving rate. But if the others want to do the same, once you’ve figured out what your goal is, either get off your arse and make it happen, or don’t. But lay off those that do.
I own property in a city with crazy, almost Toronto-style prices but live and rent in another city (in another country) which has virtually no property gains and cheap rents. Makes sense to me to rent and not buy property here. In fact, buying the property I live in would cost double what I pay in rent with virtually no cap gains. Why would ya?
And plans are being made to move to SE Asia in the next few years. One of the benefits is the much lower cost of living.
I’m retired early and living off the returns from my investments and choose to live on a safe withdrawal rate of around 3.5% which gives me plenty of headroom should there be a market downturn. According to my calculations, my investments should outlive me if I want them to.
Thanks for sharing your story and I’m now heading over to your website for a read.
The way I see it, they had high salaries, they figured out what they wanted to do with their money, they had a goal, they worked towards it and for them, they realized what they wanted. All good.
It is what others would do? No. Does it make them happy and they are not hurting anyone? Yes. Live on 🙂
“…live and rent in another city (in another country) which has virtually no property gains and cheap rents…And plans are being made to move to SE Asia in the next few years. One of the benefits is the much lower cost of living.”
That’s called exporting inflation. A trend embodied by almost every company in the world to offshore production to slave-wage developing countries, thus boosting profits. I have my own thoughts about conducting personal life as such.
Again SST, you’re completely missed the point. Are you suggesting that people living in countries with a high cost of living should not be able to move to a country with a much lower cost of living because the locals earn much lower wages? What a crock. And what has our plans to move and learn a new about living in a diversely different culture got to do with corporates who take advantage of lower production costs of other countries? Phttttt!
Thanks for sharing your success and tips with us. 🙂 When I lived in the UK I owned a house and still travelled up to 9 weeks a year to different destinations. I miss those 9 weeks and cheap holidays to Spain, Portugal, India, Iceland etc. If I could do what you’re doing, I would. Travelling rejuvenates the soul and opens the mind. Well done.
Nothing wrong with experiences 🙂
I commend Firecracker for saving most of her income.
However, their wealth is not tied at all to the fact that they rented instead of buying. If you delve a little deeper, you’ll find this couple both had $60,000 salaries when they were first hired, and then managed to grow those incomes to well over $125,000 in very short order. Again, this is very commendable, but the implication in her blog is that “anyone can do this”. In fact, No – not anyone can do this. 90% of people do not get entry level jobs at $60,000, and 99.99% do not double their salaries in 3 years. Good for Kristy and Bryce for having done so, and for being responsible savers, but to say “you can do it too” is far-fetched.
And as someone pointed out on Christie’s blog, based on the timing of their story, if they would have bought a house right off the bat, they would have had even more money today!
I’m not suggesting one should or should not buy a house – just saying Kristy’s wealth is in no way tied to the fact that she rented.
I would say that they are also benefiting from “self marketing” their 15 minutes of fame. They are like a FI version of the Kardashians. Do they track + disclose their profits from their site ads + clicks and appearances and promos of their website? Do you not think they are maximizing trip expenses and whatever other expenses they can relating to their ” business”? They are obviously intelligent and will take advantage of tax advantage they can utilize. The average person can’t do that.
Again, this “super saving” lifestyle is not for everyone and I agree with Joe above. Add a kid, or living in 300 square feet eating beans and ramen, is not for everyone. It’s also never quite as simple as bloggers claim it is. Like Joe at “Retire at 40”, never really retired, or Jason formerly of Dividend Mantra, selling out on all his loyal followers, there is always this hidden byline of “other income” not always disclosed.
Hallelujah! – others who see the emperor’s new clothes – yes they have done a fine job but not everyone can follow that path.
Self-aggrandisation only goes so far. A little humility would go a long way.
ps. doing the travel the world thing eventually gets a little stale – I speak from experience – still love to travel but full time? no.
I like travel myself but I couldn’t do what they did…travel for a year. Then again, I have never tried it so maybe I would enjoy it?
travelled for 2.5 years RTW (round the world) at roughly the same age (29-31) with my wife
-wouldn’t trade the experience for anything and do not regret it one bit but honestly it got to be very tiring – primarily the “no place to call home” part – no place to hang my hat:)
we both still love to travel and do so frequently (3-4 times /year ) but find it is always good come home.
Wow. Impressive. We love a home base and (only?) travel internationally x2 per year. In the past couple of years we’ve been fortunate to travel to Costa Rica, Scotland and do a “local” trip from Ottawa to Vancouver for 8-9 days. We love travel, but we need time and money for that. Hence, let the dividend income grow!
Well, to be fair, I reached out to them. I wanted to see what their answers were. They were happy to respond.
Absolutely, their journey is not for everyone. Far from it. They did however achieve their goal and I do respect that.
You are 100% correct about people claiming they are “retired”. There are many bloggers who claim this. Some are, some aren’t. It can be very misleading Paul. FWIW, a) not retired at all here (working on it though) and b) I don’t even make minimum wage from this site. I do it because I enjoy it.
Very true Joe. They had great jobs and saved a good portion of it. Not anyone can do this.
As for the house, given price appreciation in hindsight, yes…they would have likely come out ahead but for them it looks like they made the right decision. Thanks for reading.
Funny thing is many of the FI bloggers I (used to) follow all earned very average middle class wages. Root of Good for example mentions that never earned more than about 60,000 (or there abouts) a year yet managed to build up a 3 million dollar portfolio. Much has to do with making smart decisions in your 20s and a bit of luck.
I have followed Kristy and Bryce’s blog for a while, and have enjoyed reading about their journey. It is admirable to find someone who had the discipline to save a high amount of their incomes in their 20s, so that they have the flexibility to do what they want for the rest of their lives.
I also have a soft spot for people who live off dividends and interest income in retirement.
A savings rate of 60-70% in your 20s is really off the charts kinda stuff. No way I was doing that then. I’m in my early 40s and we strive to have 20% net savings (outside mortgage). Kudos to them.
I also have a soft spot for dividend income…we’re almost halfway to our goal.
“So now we travel and live nomadically.”
Where do their kids go to school when they are travelling so much?
no kids !
That was an enabler!
No kids as far as I know.
Wow! That’s all I can say.
Interesting eh? Cheers Maureen.