Apr 142013
 

It’s almost been 5 years since I started this journey to financial freedom. How am I doing so far? As shown on the right side bar I’m making about $5,100 of dividend income a year 🙂 Which is only about 20% of my annual living expenses. So it appears I still have a long way to go but I feel good about the future 😀 One thing I could do to reach financial independence sooner is downgrade my lifestyle just a little bit. Right now I live in a large two bedroom apartment, and drive a pretty sweet car. But I realize I don’t need these things to be happy. So I thought to myself what if I lived a more modest lifestyle? Let’s see what this alternative life for me would look like.

Passive Income: $6,500

In order to make life simpler I plan to pay off all my debts. I don’t have enough cash in the bank to do this. Big surprise lol 😉 So I’m going to sell my home, car, Saskatchewan farm, gold and silver, and all other financial assets, except my stocks. After fees, commission, and taxes, the total amount resulting from a complete liquidation of these assets should be about $425,000. So after paying off all my $390,000 of debt I will have $35,000 left over 😀 If I put this all into a diversified portfolio of dividing growth stocks with an average yield of 4% I’ll be making an additional $1,400 a year. Combined with my existing $5,100 mentioned earlier, my total passive income would be $6,500. 

Expense: $12,000

So where am I going to live if I sell my apartment? Thankfully there are many affordable places for rent in the Greater Vancouver area. I don’t mind living in a smaller place. It’s not like I’m using the entire 800+ sqft space in my current apartment anyway. Since I have no car anymore I’ll be taking public transit to get around. It’s more green anyway 😉 Here’s what my new spending would look like.

 13_04_modestlifestyle

Conclusion: $6,500  / $12,000 = 54%

And just like that, if I were to do this today I would already be half way to financial freedom. Woot! Big jump from 20% eh. Who knew just changing a couple of things can have such a big impact on expenses. Besides housing and transportation there wouldn’t be any noticeable downgrades compared to what I have today 🙂 Holy hamburgers, $6,500 of annual dividend income by investing for the last 5 years means in 5 more years I can probably make $13,000 of passive income and actually retire for real.  What an exciting thought! 5 more years. Instead of freedom 35, I can probably get there by 30 🙂 All I have to do for now is liquidate my assets, pay off all my debt, and downsize a bit. It’s almost hard to believe that people can spend just 10 years of their lives in the rat race and then retire forever by diversifying their investments and living with low expectations, yet the math totally works out. Does that mean I’ll aim for freedom 30 now?

net worth, freedom 35

Of course NOT 🙂 Although I would certainly enjoy the simple lifestyle of living on a modest income with no debt to worry about, the reality is not so simple. I want to get married some day so a 1 bedroom basement suite probably won’t be enough eventually. There’s also the possibility of having children, and caring for aging parents. I have to look past my selfish desires for freedom and plan for loved ones to be included in my future life beyond financial independence. So selling my apartment, farm, etc right now is probably not the wisest plan to build long term wealth eh? 😉

Nevertheless it’s very reassuring to know that if I became unemployed tomorrow I should have a pretty good financial cushion to fall back on. This sense of security is more important to me than going on extravagant vacations or leasing a new Lexus, and is also why I will continue to invest my savings and use financial leverage to build up even more passive income! I was talking with my realtor last week and he said the farm I bought last year with $20,000 of my own money has appreciated by $10,000 already, which makes for a 50% return on investment so far (゜∀゜) Check back later this month as I’ll update the official numbers on my blog when the FCC publishes their semi-annual farmland value report. This is why investing rules! Luckily the kinds of assets that I’m heavily invested in like stocks, housing, and rural land, have all performed relatively well over the last 5 years especially in North America 😀 But how will my luck fair in the next 5 years? We’ll just have to wait and see 😉