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.
Home = $252K
Farms = $325K
Liquid investments (Including Retirement Accounts) = $161K
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.
Home = $270K
Farms = $436K
Liquid investments (Including Retirement Accounts) = $400K
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. 🙂
However many things can happen over the next 5 years. In order for my freedom 35 plan to work, the following 2 criteria must be met.
- Interest rate increases slower than 1.25% per year over the next 5 years so I have enough time to pay down my debt.
- My farmland and liquid portfolio have to be worth at least their market value today in April 2017.
I can’t really control interest rates. But if they increase 1.25% a year, then by 2022 a typical mortgage would cost 9%. I highly doubt the Bank of Canada would go to such extreme measures given the debt load Canadians have today. So assuming rates won’t climb that high that fast, I should have no problem paying down $18,000 of debt a year. I also can’t control the value of my farmland.
But I can control to some extent what my stock portfolio will be worth in 2022. Since this is the only factor that I can change, I will be focused on maintaining and growing my liquid portfolio. 🙂
That’s my strategy for now. But if my living condition changes I will need to change my expectations accordingly. Jeff Bezos is correct. It’s rather difficult to achieve major goals by thinking one year at a time. I stand a much better chance with my 12 year plan. Thinking long term really does work. In any case I will continue to revise my plan as we approach 2022.
Random Useless Fact:
A Gallup Poll shows that 56% of women in the U.S. with children would prefer to stay home over going to work.