Financially independent at 32. How he did it. Part 2 of 2
For years I’ve considered investing a “get wealthy eventually” strategy – at least for us it is. Some people get there sooner than most. So when I hear about those stories I want to learn about them.
That post drew considerable criticism from some readers and they demanded details. You know what? Good on the readers. Although the post was not designed to explore every single detail about this investor I can appreciate some readers got rankled when reading this article without a few.
So, I asked, and Kornel responded to many comments on the site. He shared the ETFs he owns, how he and his wife grew their assets; he responded about his rental income, and ultimately shared the main reason how he arrived at his destination. They are frugal. They live on a meager $25,000 per year.
In Part 2 of this interview below I asked him about my own investing approach (what advice he has for me), and what advice he has for others by the decade.
I’m a hybrid investor Kornel – I own dividend paying stocks for increasing passive income and I own a few broad market, low cost U.S. Exchange Traded Funds (ETFs) for U.S. and international diversification. What’s your take on that?
It’s a very interesting investing strategy and it definitely has some significant benefits. As with any strategy there are pros and cons to it. In particular, here are some key things that I like about it:
- If you’re going for an early retirement, then you’re likely maxing out your TFSA and RRSP. (Editor’s note: we are). Once those are maxed out, it can be beneficial to hold Canadian dividend paying stocks in your non-registered account(s) due to the massive dividend tax credit that we Canadians receive (this can especially help in retirement when your taxable income is low). (Editor’s note: this is also what we do). Ultimately, you can keep your Canadians investments in your non-registered accounts due to the preferential tax treatment, and keep your U.S. and international index ETFs in your registered accounts (TFSA and RRSP). In particular, the tax treaty between US and Canada also makes it tax efficient to hold your U.S. index ETFs in your RRSP (assuming you’re buying the properly structured investments).
- If you’re actually good at picking the right dividend stocks (or are getting help from someone like 5i Research (partnership), then not only might you outperform dividend focused ETFs like the Canadian Dividend Aristocrat ETF (CDZ), but you can also bypass the fees that those ETFs charge.Long term this can make a big difference, so ultimately this comes down to are you willing to invest the time and energy to get good at this? You might be better off investing in a few ETFs and focus your time and energy elsewhere.
Editor’s note: Kornel currently holds the following ETFs: XIC, VUN/VFV, XEF and XEC. Some of these made my list of my favourite ETFs here.
You recently told me you’re in ‘pretty good financial shape’. Can you expand on that?
When I mentioned that it was shortly after crunching the numbers and finding out that we were financially independent (i.e., the returns from our investable assets are enough to cover our day-to-day expenses). Ultimately what got us there wasn’t really high salaries, or building a company and selling it for millions, or even having some good stock picks that flew to the moon.
All-in-all, it helped a lot that we were dual-income right from the start. (We lived together immediately after university.) We lived as if we were only living from one income and invested all the savings. Living from one income isn’t bad at all, bachelors and bachelorettes do it all the time. We just did it even though we didn’t have to.
If you don’t have a significant other to move-in with, definitely consider roommates as you then get to take advantage of many of the benefits that dual incomes couples/families receive.
Our concrete goal of a 50% savings rate was also critical. Every time that we had a month we didn’t hit that rate, we would have a “family meeting” to discuss what happened, and what we can do to fix it. Ultimately, we stuck to it (even though my frugality drove my wife crazy at times). The end result is that we were able to retire after working less than ten years.
Being frugal played a big role but it wasn’t that extreme. It was fine to spend as long as we fit within that 50% savings rate. We occasionally took a vacation where for that month our savings rate declined below 50%. But, for the most part, we kept it at 50% or more.
Doing side hustles like creating the personal finance podcast and creating other online courses helped too, along with really minimizing the fees that we were paying by buying low cost investments like ETFs where we could cheaply invest in the indexes.
What financial advice would you have for these age brackets?
Don’t buy a house just because it’s something that “everybody” does. There are lots of pros and cons to renting vs buying. Renting doesn’t necessarily mean you’re throwing money away. There are lots of caveats so study this hard, learn all the details, and then make an informed decision.
You can check out the Should You Rent or Buy a House? Episode on my site for a comprehensive guide.
When you’re young, learn to invest ASAP. The earlier you start, the longer you have for the money to compound, and the earlier you can generally retire (if you want to). You’re going to need to learn this anyway eventually, so might as well start now so you can reap all the benefits for as long as possible.
Also, if you’re paying prime (on your mortgage for example) but can earn 8% or so on your investments then maybe investing is the better option for you.
Life is too short to do something you don’t enjoy doing. In retrospect, I should have switched careers much earlier. If you dislike your job, I think you should devote significant time to discover what you actually enjoy doing.
Notice how some of the most financially successfully people continue to work even though they don’t need to? Why is that? It’s because they consider the work they do to be a hobby instead of a job.
Devote your time to figure out what type of “job” is actually a hobby for you. Once you find this, you’ll no longer be slaving away to eventually reach that retirement dream that you have in your head. Instead you’ll be getting paid to do something you enjoy.
It’s hard to find this sometimes (it was for me), but it’s worth searching for.
At this point make sure that you actually have a financial plan, and that it’s updated. It’s much easier to correct course now, as opposed to your mid-50s and getting ready for retirement.
You’re probably earning a fair bit of money at this point in your career so make sure your investing fees are minimized, you’ve optimized your investments from a tax perspective, and ideally you have that financial to work from. If you need help with creating a plan, get a fee-only financial planner to create a plan for you to ensure you’re on track to retire while hitting all your lifestyle goals.
You don’t want to be forced to invest in aggressive investments that are beyond your comfort zone, or to work longer in a job you don’t like just because you didn’t start planning early enough.
- Ages 50+?
At this point you should be monitoring your financial plan closely, and updating it once a year. You’re getting really close to the traditional retirement age now – there’s no room to mess around. Your portfolio at this point is likely pretty large, and you’re probably making a pretty decent salary, so make sure that your investment fees are minimized (if they aren’t already) and again you have a solid tax minimization strategy in place.
Remember that waiting until you’re 65 to live and do all the things you’ve wanted to do in life is very risky. Unfortunately, you may realistically not live that long, or your health might not be good enough to do all the things you’ve always wanted to cross off your bucket list. Like Mark says on his site often: life is for the living – including travelling to Portugal right?
Remember you need to live. What if you develop a heart condition and can no longer scuba dive in the coral reefs for example? I would rather experience all the things while I’m young, healthy and full of energy rather than risk it by waiting until I’m 65; just hoping I’m healthy enough let alone have enough energy to travel, try different activities, etc.
You may also consider having an advisor at this point ensure all your bases are covered as far as worst-case scenarios go. For example, what if you have to be put in a home for around the clock care? What if you develop Alzheimer’s? You ultimately want to make sure you have the necessary financial cushions built-in so that you can handle such unfortunate and expensive events as opposed to putting that financial strain on your kids, family, etc.
What are your financial plans for the future?
Well I’m definitely going to keep running the Build Wealth Canada Podcast which has now become one of the top personal finance and investing podcasts in Canada. I’ll continue to interview the top experts on the show so we can all learn from each other and optimize our investing and finances.
I also do financial planning and coaching for Canadians that want to retire early too. Having achieved a good amount of financial independence at the age of 32, it’s rewarding to help others retire early as well, or at the very least set Canadians up financially to allow them to pursue the things they’ve always wanted to do, instead of being forced to work in a job they dislike until that traditional retirement age of 65.
Lastly, I’ll continue to work part-time at 5i Research (partnership) for now where we help Canadians who are interested in investing in individual stocks for dividend or growth purposes, and investing in ETFs. Their research and analysis team is also able to answer investment questions about specific stocks and ETFs which is great because they are actually unbiased.
Thanks for this Kornel. I can appreciate your story and financial path may be rather polarizing for many readers.
Readers on this site demanded some details from you and you know what, I don’t blame them. That said, I wanted to share your story for the very same reason I share other retirement or financial independence stories – so people can think for themselves, question things, learn and therefore act – to tailor their own financial path. If you happened to cause some controversy on this site – in the name of provoking some people to think for themselves and challenge you then mission accomplished I guess. That includes what folks might not do if they were in your shoes.
Best wishes to you.
Readers, what further questions do you have for Kornel? Maybe better asked – what won’t you do as it applies to your financial journey? Thanks for reading.