The sure-FIRE way to financial independence

The sure-FIRE way to financial independence

Fans of this site will know I’m not one of these FIRE (Financial Independence, Retire Early) zealots.

Sure, the concept is interesting but let’s be honest – what 30- or 40-something truly believes they are retired when they continue to work for a living?

…when they are pumping a book, or a blog, or a podcast.  Get real.

With that rant out of the way, the principles behind the FIRE movement have some merit.  Following them, in some shape or form, can allow you to gain more financial security over time.  You can do this by:

  • Living below your means.
  • Disaster-proofing your life.
  • Killing debt.
  • Thinking, acting and investing long-term.
  • Rinsing and repeating the above until “financially free” or something like that!

In a recent post, I highlighted 10 great ways to master your money right now.

I’ve also written various blogposts related to FIRE:

Is FIRE even right for you?

How to achieve FIRE.

Here is a very Practical Guide to Financial Independence by Graeme Falco.

Given I continue to read a boatload of personal finance and investing articles within any given month, it’s amazing to see the traction this FIRE movement has.

  • Are you working hard now to have what some experts call: “F__K you, money”?
  • What does financial independence even mean to you?
  • At the end of the day, is it really worth comparing your finances to anyone else – anyhow?

I’m of the mindset that anyone seeking any sort of financial freedom/semi-retirement/victory-lap retirement or other has to carve their own path – do it on their terms.

I recently caught up with a fellow blogger who is very much on the FIRE path – for his own reasons.

In our interview below we talked about the concept of FIRE, why FIRE usually requires a high savings rate, and how he intends to stash more cash for an early retirement.

Here are 5 easy ways I think you can stash more cash.

Bob, welcome back to the site!  

Happy to be back Mark – after this post on your site about living off dividends.

For your readers, I run a personal finance blog called tawcan.com.   A bit about me…my family and I immigrated from Taiwan to Canada when I was a teenager about 25 years ago and I have been living in Metro Vancouver ever since. Now in my late 30’s, I am married to a Danish woman and we have two young children together. Since graduating from university with an engineering degree 12 years ago, I have been working in the fast-paced high-tech field.

Sounds like a busy life at work and at home.  So, this FIRE stuff, what is that in your layman’s terms?

Technically, to be financially independent it means your net worth is ~ 25 times or greater than your annual expenses. So, if your annual expenses are $50,000 per year, you’ll need about $1,250,000 to be financially independent.

When you are FI (Financially Independent) you can decide whether you want to retire early (RE) or continue to work.  At least the choice is yours.

Now, for me, the key to FIRE, or FI rather, is the shift in power. When you are financially independent, you are no longer relying on that pay cheque every 2 weeks. You are working because you choose to, not because you have to. Being FI means you can “work” on something you are passionate about and receive little to no income without having to worry about money.

Fair points.  I really dislike the FIRE community being all rah-rah about being independent when they are relying on their blog income to sustain the lifestyle – another post for another day!

A high savings rate seems to be the biggest factor in realizing many FIRE dreams.  How are you realizing yours?

We don’t set a specific amount of money that we must save and invest each month. We have been using a budget system for the past 8 years where we allocate a certain percentage of income toward retirement saving (i.e., pay yourself). In addition to that, we then save as much money as we can each month while making sure we aren’t depriving ourselves. So how much money we save and invest fluctuates month to month.

At this point in our FIRE journey, we are happy to spend some money to enjoy our lives. After 8 years of pursuing FIRE, my wife and I realized that we need to find the right personal balance between saving for the future and enjoying the present moment.  Earlier this year we went to Maui for a family vacation. Even with travel hacking and saving thousands on this trip, it was still money well spent.

When it comes to investing, I deploy a hybrid approach like you use Mark – very similar anyhow.

I invest in both dividend growth stocks and index ETFs.

To be as tax efficient as possible, we maximize our TFSAs first then maximize our RRSPs.

(Mark – I’ll continue to maximize my TFSA over RRSP thanks)

We then invest $5,000 toward the two kids’ RESPs every year for their post-secondary education. After that, we then invest in taxable accounts.

To avoid any withholding taxes, like you Mark, we only invest in U.S. dividend paying stocks in our RRSPs.

We invest in Real Estate Investment Trusts (REITs) and income trusts in our TFSAs and RRSPs. For our taxable accounts, we hold Canadian stocks that either pay no dividends or pay eligible dividends for favorable tax treatment.

For 2018, we are on target to receive over $18,000 (or over $1,500 per month) in dividend income from the different accounts.  In our FI assumptions, we think we need anywhere from $40,000 to $50,000 in dividend income to call ourselves financially independent.

Most FIRE enthusiasts strive to keep a high savings rate AND keep their daily expenses low.  How do you achieve that? 

Before I get into this question, let me quickly introduce you to the budget system that we use.

There are 6 categories that we allocate different percentages of our income each month. The categories are Necessities, Education, Play, Give, Long Term Savings for Spending, and Financial Freedom Account.

  • The Necessities account is for essential expenses like rent, mortgage payments, food, insurance, utilities, clothing, gas, etc.
  • The Education account is for further enhancing yourself as a human being.
  • The Play account is to nurture yourself.
  • The Give account is pretty self-explanatory.
  • The Long Term Savings for Spending account is money you set aside for future big item purchases like a vacation, a car, etc.
  • The Financial Freedom Account is used to create your golden goose for retirement.

Here is our yearly spend: 

Year Total Necessities Spending Core Necessities Spending per Month Total Annual Spending Total Spending per Month
2012 $26,210.52 $2,184.21 $44,603.76 $3,716.98
2013 $26,343.00 $2,195.25 $45,260.88 $3,771.74
2014 $29,058.96 $2,421.58 $47,391.96 $3,949.33
2015 $31,256.88 $2,604.74 $47,270.16 $3,939.18
2016 $29,831.40 $2,485.95 $47,566.96 $3,963.91
2017 $33,887.68 $2,823.97 $51,144.77 $4,262.06

We’re pretty frugal really.  We save by:

  • Consuming less including meat; more vegetables. We have a backyard garden.
  • We don’t have TVs at home.
  • My work pays for my cell plan.
  • My wife has a voice and text only plan for her cell phone.
  • We negotiate our internet service provider fees.
  • While I drive to work, I avoid sudden accelerations and adopt other good driving practices.

Basically, we do a lot of little things throughout the month to really reduce our expenses.

Any other advice for investors who are aspiring to achieve some sort of FIRE?

If you are aspiring to achieve FIRE, start now!

But FIRE is not a finish line – as least for us.

Rather, I/we see FIRE as a journey that is part of your life and work on improving yourself as a human being along the way.

Lastly, come by my blog and say hi.  I’d love to get to know you.  Thanks for the interview Mark – good to chat.

Summary

In my early 40s now (I’ve got a few years on you Bob!) I’m valuing and appreciating my health and time more.

I know – too bad it took me this long!

FIRE is something I’ll continue to read up on but it’s hardly a destination for us as well.

What’s your take on FIRE?  Thanks to Bob for sharing his journey.

Mark Seed is the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $500,000 - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

12 Responses to "The sure-FIRE way to financial independence"

  1. I personally don’t see many downsides of pursuing FIRE. I actively encourage and nudge my own kids in that direction. To varying degrees, all three have made changes in their budgeting, spending and saving habits. I don’t push the real extremes of some in the FIRE community, such as dumpster diving, and I suggest they aim to be financially able.to retire at age 50. More of a smouldering FIRE than a raging FIRE.

    Reply
    1. Nice Bob.

      I definitely see the benefits of:
      -Living below your means. Not too extreme that you destroy some fun though!
      -Disaster-proofing your life.
      -Killing debt. See point one.
      -Thinking, acting and investing long-term.
      -Rinsing and repeating the above until “financially free” or something like that!

      Dumpster diving I could not do and I highly doubt Bob Lai does that 🙂 He appears to live very frugally for a family of 4 and has a very high savings rate.

      Reply
    2. Yea, we don’t practice extreme frugality. We believe living on the extremes isn’t healthy. It’s finding the right balance between saving for the future and enjoying life today.

      Reply
      1. Nice to read your profile here, Tawcan. I am a regular reader of your blog too. It’s very impressive how you manage to control your expense in very expensive metro Vancouver area.

        Reply
  2. Do you buy US based stocks / ETFs in your TFSA (such as XAW or VXC) or do you do that within your RRSP? I’m new to index investing and I’m looking to max out my TFSA, but I wondered if I should save any of the US based ETFs for my RRSP? Thank you!

    Reply
    1. Great question Connie.

      I buy U.S. based ETFs in my RRSP only actually. Just my preference. You can read more about why I do that here:
      Scroll down to “what do I hold where”:
      https://www.myownadvisor.ca/dividends/

      That said, to avoid currency conversion headaches, etc. I know a number of investors who are very comfortable in using VXC and XAW in their TFSA and RRSP. They largely want to “set and forget” their investments and simply let them do their thing. That is rather smart.

      You can see how to diversify your TFSA in this article here:
      https://www.myownadvisor.ca/how-to-diversify-my-tfsa-using-etfs/

      In the end, it’s your decision – pros and cons abound!

      I hope those links helped and let me know if you have more questions. Not advice, just sharing information and showing folks what I do and why.

      Cheers.
      Mark

      Reply

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