Wednesday 26 October 2016

Tips to achieving Financial Independence /Early Retirement (FIRE)

I am a big fan of reading early retirement blogs. Since there are too many great ones to talk about, I will let you use your investigative skills to find them, or you can drop me a line at  razorback2628@gmail.com and I can direct you further.

What is even more fascinating about reading these blogs is the majority had achieved financial independence/early retirement (or “FIRE”) at a relatively young age (under 40 in most cases). Who says you have to be aged 65 to retire?  The tradition of slogging away at a job that you hate for 40 years so that you can collect a “pension” (only exist in the public sector these days) at the end has been broken.

Hindsight is always 20/20. Huh, If only I had the courage to do what these kids had done! It is not too late, people. The journey of a thousand miles begins with the first step.   You do not have to be born a millionaire’s child to retire early.  Nor do you have to win the lottery.  Or perhaps hit a ten-bagger by investing in Facebook, Amazon, Netflix when they were at bargain basement prices.  Or the  lucky few who worked in high-tech Silicon Valley were able to retire when they cashed in their lucrative stock options.  Fortunately, many did not achieve early retirement through the above means.  They shared their following  “secrets.”

Save,  and save early. Target saving at least 25% to 30% of your gross pay. The power or savings over time and compounding interest do wonders to your accumulated savings. For instance, saving just $200 per month for 30 years results in a $166,000 nest egg at the end.

Frugalism and minimalism are very much in trend these days. You don’t have to be the first one to own the latest gadget or parade around in the latest fashion.  It is estimated that the average North American consumer throws away at least fifty pound of clothing a year. Think about the environmental impact. Think about how much cotton and precious water is required to grow the cotton.

Car is a depreciating asset.   Get a good late model reliable car.  Maintain and drive it to the ground. The approximate cost of owning an average car is at least $6,000. The figure includes insurance, maintenance, gasoline and depreciation.  The amount is much higher if you own a new or high end car.

Eat out less often. Not only it is expensive, but it is also less healthy as restaurant food is typically laden with high levels of sodium, fats and sugar.

Take advantage of company matching programmes on RRSP, pension and other benefits.  It is the only ‘free lunch’ in town.

Invest in yourself and your children through education.  On average, a person with a university degree makes twice as much as someone with only a high school diploma. 

Read inspirational books such as The Millionaire Next  Door. Your typical millionaire does not brag about living in a big McMansion or drive a fancy car, but is instead a down-to-earth person. 

Invest in low-cost ETFs or through company offerings. On average, the market has appreciated at least 4%-5% on an annual basis, net of inflation. 

Avoid getting into debt like the plague with the exception of mortgage debt. Still, it makes sense to own and use credit cards to build your credit. One trick I learned is to auto pay a set amount from your bank account to your credit card account each month.

Plan to own your own home. May be tough in certain markets such as Toronto or Vancouver, but you have to start somewhere.  As mentioned before, real estate is a good hedge against inflation. On average, real estate prices have appreciated at least 5% annual or house prices have doubled in prices every 14.4 years.

Marry someone with the same inspirational habits as you. After all, it takes two to tango.

Develop healthy eating habits and take care of your health by joining a gym. They will pay dividends in your retirement life as you would be spending less money on prescription drugs.

Be charitable! What goes around comes around. You may never know when you would need a helping hand.

Live a less stressful life. You can never solve all the problems in the world.  When the going gets tough, the tough gets going.


I am sure there are many more tips that you can share. Would appreciate your constructive comments!

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