Back in 2010 when I started this blog I set out a goal to reach financial freedom by the year I turn 35 years old 😉 I didn’t know exactly how I was going to do it but I knew I had 12 years to figure it out. Fast forward to today and I’m 26 years old with only 9 more years to reach financial independence 🙂 According to my latest net worth statement from last month, here is a simplified look at my current balance sheet.
Home = $252K
Farms = $325K
Stocks (Inc Retirement Funds) = $161K
Total debts = $535K
So how do I plan to reach financial freedom by 2022? It’s simple. Invest $5,000 a year into my stock portfolio for the next 9 years. In 2022 sell my farms and use that money to pay off all my outstanding debts. Live off dividend income forever 😀
Pretty straight forward eh 🙂 If Canadian farmland appreciates by 4% a year for the next 9 years, then my farms should be worth about $463K by the year 2022. After commission and capital gains tax I can expect to keep about $420K for myself.
Right now in 2013 I have about $535K of total debt. Next year I expect to pay down $10K of it simply by making the minimum payments on my mortgage, farm loans, etc. And the year after that my debt should be down another $11K as more of my payments will go towards the principle. I’m sure you’re all familiar with a loan repayment curve 🙂
After the entire 9 years I should only have roughly $420K of debt left without having to make any additional lump sum or accelerated mortgage repayments. I will use the proceeds from selling my farms ($420K) to completely pay off this remaining debt. Hey that worked out pretty well! This also answers the question people often ask me, “Liquid, how do you plan to pay off all your debt?”
Without a mortgage or any other debts my total living expenses today would drop to just $10K a year which includes fun money 🙂 If inflation averages 2.5% annually then I’ll need $12,500 of income to sustain my current lifestyle by 2022. This money shall come from my dividend paying stocks.
My stock portfolio today is worth $161K. By contributing $5K a year, and assuming a 5% annual return, in 9 years it should be worth about $305K. I can rebalance this portfolio and have a mix of stocks and bonds to act as a long term income fund for myself with an annual distribution of $12,500, or about 4%. The entire stock portion of the portfolio will be made from a selection of dividend aristocrats so my dividend income should at least match inflation going forward from there (^_^)
So as long as I save $5,000 every year to invest, and hope for a conservative rate of capital appreciation on my assets, I will be financially free by 35 🙂 Wow, it sounds almost too good to be true 😎
Some say the average working citizen is getting poorer because of stagnant wages and higher taxes. But let us think outside the box 😀 Instead of counting on wage increases alone, why not also use investments to grow our wealth? Long term returns in a diversified portfolio will almost always beat wage inflation 😀 And instead of paying higher income taxes we can make better use of capital gains tax or use tax efficient vehicles. For example, any profits we make from Canadian stocks in a TFSA is completely tax free 😀 And the 2 stock purchases I blogged about last week was bought in an RRSP which has tax deferring benefits.
If I can afford to purchase a condo, invest in growing companies, and buy high quality farms, then so can other middle class households 🙂 We all have access to the same information on the internet, to the same financial markets, and to bank loans. We all know how to make wise financial decisions because I often blog about my investment strategies 😉 So the only difference between retiring at 35 and 65, is having the confidence to take action (^_-)
Random Useless Fact: This is how investors see the world (click image to largify.)