Apr 172017
 

A Present To Yourself

If you like to receive presents, and let’s be honest – who doesn’t? then consider giving yourself the gift of long term planning. That simply means making a plan today that will pay off dividends for you later on. Your future self will thank you for this priceless gift that you have given him or her. And best of all, making this gift doesn’t cost you any money today. 🙂

Last month, Amazon.com founder Jeff Bezos surpassed Warren Buffett to become the 2nd richest person in the world! How did he do it? Maybe a letter he wrote to shareholders in 1997 can reveal some secrets. 😀 In it Jeff writes that we can’t realize our true potential as people or as companies unless we plan for the long term. “If everything you do needs to work on a 3-year time horizon, then you’re competing against a lot of people,” Bezos told Wired in 2011. “But if you’re willing to invest on a 7-year time horizon, you’re now competing against a fraction of those people, because very few are willing to do that.”

Year 7 of the 12 Year Journey

I started this blog in 2010 with a 12 year plan to reach financial independence. It’s now been 7 years and things are progressing very well. 🙂 Back in 2013, my net worth was only $200K. And my financial details looked like the following.

Assets:
Home = $252K
Farms = $325K
Liquid investments (Including Retirement Accounts) = $161K

Liabilities
Total debts = $535K

At that time I wrote about my plans and my course of action to reach financial freedom. Without a solid plan back then, I wouldn’t be where I am today. Developing a strategy years ago was the best present I could have given my current self.

Speaking of the present, we are now only 5 years away from 2022. My net worth is currently about $610K, and here is an update of my financial details today.

Assets: 
Home = $270K
Farms = $436K
Liquid investments (Including Retirement Accounts) = $400K

Liabilities
Total debts = $495K

It appears I’m farther ahead that I initially planned for. This means I have to adjust my original plan made a few years ago. Not that I’m complaining. 😀 So here is my new revised plan for Freedom 35:

Step 1: Pay down $18K of debt per year. After 5 years my total debt should be $400K.
Step 2: Sell all farmland in 2022 for $436K. After agent fees and tax, I would keep $400K in my pocket.
Step 3: Use the $400K from selling farmland to pay off my $400K of debt. This would make me debt free.
Step 4: Re-balance my $400K liquid portfolio to earn $15,000 per year of dividend income.
Step 5: Live on passive income for the foreseeable future.

That’s pretty much it. 🙂 A $15,000 income from a $400,000 portfolio represents a sustainable 3.75% withdrawal rate.

Here is a look at my projected monthly expenses after I reach financial independence in 2022, assuming 2% annual inflation rate from today.

  • 300 – strata fee
  • 30 – gasoline for car
  • 100 – car insurance
  • 30 – home insurance
  • 100 – property tax
  • 70 – internet
  • 40 – cell phone
  • 300 – food
  • 30 – electricity
  • 250 – discretionary

Total monthly spending = $1,250

Discretionary spending will be clothing, entertainment, and other things like that. I won’t have to pay into the MSP healthcare system anymore because I wouldn’t be making enough income to be charged the monthly insurance premium. I also don’t have to move to a small city or change my lifestyle. I can stay in YVR. 🙂

Continue reading »

Dec 292013
 

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.

Assets: 
Home = $252K
Farms = $325K
Stocks (Inc Retirement Funds) = $161K

Liabilities
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 🙂

13-12-debtcurve

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?

Continue reading »

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 😉

Jul 232012
 

Perusing through some of my older posts I found three mini entries where I talk about how we must go through 3 increasingly difficult milestones to reach the pinnacle of financial freedom. I think it’s worth posting again to remind anyone who wants to be financially free some day to ask themselves what freedom really means to them, and then create a plan to make it happen. I’ve combined the contents of all three posts into this one entry here for easy navigation.

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To me, financial independence can be broken down into 3 stages.

Initial Stage:
You can quit your main job (primary source of income,) but still have to do some other kind of work, albeit less demanding, to make the same as you spend.
Example: A school teacher spends $30K/year. His rental income, part-time blogging, and investment income, adds up to $30K/year. He can quit his full time teaching job and not have to change his spending habits for the foreseeable future, assuming he continues to blog, maintains his rental property, and not sell any of his investments. Some people call this stage soft-retirement.
True Stage:
You literally don’t have to do ANYTHING to make money and still get to enjoy your current lifestyle.
Example: A school teacher spends $30K/year. His rental income from his apartment is collected by a property management company and, after fees, is directly deposited to his bank account every month. Combine this with his investment income from a balanced portfolio of high quality funds, he gets $30K/year. He can quit his teaching job and be free of any money making responsibilities.

Perpetual Stage:
Like the True Stage, except you have extra wiggle room to deal with emergencies, inflation, and unforeseen future expenses.
Example: A school teacher spends $30K/year. He has a $2,000,000 income fund portfolio giving him a 5% return every year. However, he will only use 2% of this income for spending, and put the remaining 3% back into his portfolio to counter the effects of price inflation and lifestyle inflation. The 2% income he can spend is $40K ($30K for his expenses plus an extra $10K for emergencies if he needs it, or it goes back into his investments if he doesn’t.) He is now truly financially independent and can ride the ups and downs of the market and theoretically should never run out of money for as long as he lives.

note:
-assume all numbers are after tax.

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Original entries from March 2011
http://www.freedomthirtyfiveblog.com/2011/03/3-stages-of-financial-freedom-part-1.html
http://www.freedomthirtyfiveblog.com/2011/03/3-stages-of-financial-freedom-part-2.html
http://www.freedomthirtyfiveblog.com/2011/03/3-stages-of-financial-freedom-part-3.html