July, 2024 - Millionaire on the Prairie

Financial Independence – Make It Your Goal!

Over the past few months, I’ve been seeing many articles about the death of FIRE. For those that don’t know, FIRE is an acronym for Financial Independence, Retire Early. Its popularity as an idea really took off before March 2020. Since the return of inflation, not as many people have been preaching about it.

For my part, I’ve always wanted to retire early – ideally in my 30s and 40s. Believe me when I say that ship has sailed! To be fair, I’ll retire before the traditional age of 65, but I definitely won’t be considered a super-early retiree. And if we’re being honest with each other, I’ll admit that I’m a bit sad that I can’t retire right now. So while I’ve always been a big fan of FIRE, the second half of the acronym was intriguing but I was never able to be fully wedded to it.

The first part of the acronym is a completely different story. Financial independence? Yes, please!

Achieving financial independence is one of my foundational beliefs about the purpose of having money. In my opinion, everyone should be striving for financial independence. Nobody should be financially dependent on someone else their entire life. As a single person, I’ve always known that I didn’t have the luxury of another person’s paycheque coming into my household. I’m the only one responsible for ensuring that there’s enough money to pay for the life I want to live. To that end, I’ve made financial independence one of my life’s goals because I know that one day, I won’t be able to work anymore. When that day comes, I need to ensure that I have enough money to pay for my life’s expenses when my employer and I part ways.

I have always been enamored with the idea of having sufficient passive income to live comfortably without having to go to work. This was my Holy Grail. And the best way I knew how to achieve this was to invest a portion of every single paycheque into the stock market. What do I mean by a portion? I’d describe it as a decent chunk – maybe not half but certainly more than a measly 10%.

A long time ago, I decided to invest and that decision has paid off handsomely. I started slowly, with $50 bi-weekly. As my income grew, so did my bi-weekly contribution amount. The habit of investing was made much easier by the power of automation. I didn’t have to decide to invest every 2 weeks. The automatic transfer whisked the money out of my chequing account and into my investment account without my participation. Today, I’m very happy that my stock portfolio kicks off an ever-increasing amount of passive income every single year.

So how did I get to this point with my money? And is it something others can do too?

When I was 21 years old, I knew nothing about investing. I started anyway.

My parents’ accountant told me I wasn’t making the wisest choice by contributing to my RRSP. I ignored him and put money into my RRSP. He had suggested that I save for my first house. Looking back, I can appreciate his advice and, with the benefit of hindsight, I’ll admit that it made the most sense. I was a 21 year old student, therefore in the lowest tax bracket, so contributing to an RRSP might not have been ideal for my circumstances. That said, the fact remains that I was headstrong and so I did what I wanted. After all, I knew what an RRSP was and I’d been influenced by the Freedom 55 commercials that were popular at the time.

So for a few years, all I did was invest money into mutual funds within my RRSP. Remember, I knew next to nothing about investing. I didn’t let my lack of knowledge stop me. I consumed books about personal finance. When the internet allowed, I started to consume websites and blogposts about money, investing, and personal finance. Eventually, I graduated and got my first adult job, so I set up that life-changing automatic transfer from my paycheque to my investment accounts.

I moved out of my parents’ house and really had to pay attention to where my money was going. At some point, I started an emergency fund. It took a very, very long time but eventually my emergency fund grew to where it is today. I can easily cover 6 months’ of expenses, if I have to.

In 2009, the TFSA came into existence. I decided to stuff my TFSA to the max every January. When I learned that ETFs were cheaper than mutual funds, even though they do the exact same thing, I switched the securities inside my RRSP and TFSA from mutual funds to ETFs. That was the second smartest money move I’ve ever made.

Again, it took a very long time but eventually my RRSP and TFSA were both maxed out. I still wanted to invest a portion of my paycheque, but where? And that’s when I remembered my brokerage account. (My parents had bought me a few bank shares when I was a baby, so I’d been holding them in my brokerage account.) By this point, I knew that money earned in the form of dividends and capital gains would be taxed less harshly than money earned from my job.

And while the RRSP and TFSA had contribution limits, my personal brokerage account allowed for unlimited contributions. In theory, I could invest so much money that income from dividends and capital gains would be enough to pay for all of my life’s expensive. Stated in a different way, I could live on passive income and pay less taxes at the same time! Once I’d had that realization, I was hooked. Every time I got a raise at work, I increased the contributions to my brokerage account.

By now, I’d heard of FIRE. I thanked Younger Me for putting me on the path to financial independence. Of course, Younger Me made some very big mistakes. For example, I was investing in dividend-paying ETFs instead of equity-focused ETFs for way too long. As a result, I didn’t benefit as much as I should have from the stock market bull-run between 2009-2020. Had I invested in equity-based ETFs from Day 1, I would probably be retired right now and my portfolio would probably be twice as large. No sense crying about it. I’ve since corrected my investment strategy and my portfolio is doing much better.

Financial independence was my goal, and I’m well on my way to meeting achieving it.

And the longer I strive for it, the more I believe that everyone owes it to themselves to be financially independent too. I’ve watched colleagues get trapped into jobs they hate by their debts. So many people live off their credit cards and lines of credit, which makes them slaves to their creditors. Living in debt equals sacrificing your financial future. It also means that your employer has more control over you life’s choices than you would otherwise want to give them.

Can you imagine the options you would have if you had a portfolio that covered your basic needs?

Such a portfolio would give you the power to walk away from any employer at any time. You wouldn’t need the paycheque! Your portfolio would be paying for your food, shelter, clothing, transportation, and communication needs. You could live without a job. How awesome would that be? No more Sunday-scaries!

Alternatively, if there was a job you loved and it paid peanuts, you could happily take that job and still not worry about how to pay for your life’s expenses. Think about it! The money from the love-job would be your fun money. Passive income would ensure your survival and you could join that exalted group of People-Who-Love-What-They-Do-For-A-Living! Those are truly some of the luckiest people in the world.

This is why I believe that everyone should be striving for the first part of FIRE – financial independence. And if you want to retire early, then go for it. Not everyone wants to retire ASAP and that’s fine. When to retire should be your choice. If you want to keep working after having accumulated a nice, fat cash cushion of investments, then you can do so… with the added comfort of knowing that it’s truly a choice, rather than a necessity.

So, is the idea of FIRE really dead? No. I think it’s still alive and well for many people. What I think has changed is the sentiment that it’s okay to talk about FIRE in the current economic climate. Many, many, many people are suffering due to the impacts of the high inflation we experienced in 2022-2023. Prices skyrocketed while wages and salaries remained the same. Many people were squeezed and continue to feel the pinch of their money not going as far as it used to.

Talking about FIRE would be crass. People who are struggling financially, yet also want FIRE, do not need to be reminded that it will be harder for them to become financially independent and that retirement is further away. Instead, the pursuit of FIRE has returned to the shadow and those of us who are still pursuing it are simply doing so very quietly and very discreetly.

I’ve Hit a New Money Milestone!

Indulge me for a moment as I pat myself on the back for hitting a pretty significant-to-me money milestone! When I was updating my various spreadsheets, I realized that I had done something I’ve only ever read about. In the first six months of 2024, the amount of dividend income that I’ve received exceeds the amount of dividend income I earned for the entire year of 2019! This means that, within the space of only 5 years, I’m on track to double my annual dividend income.

Not too shabby at all…

As long-time readers know, I’ve made many money mistakes. I’m a DIY-investor and I didn’t have the benefit of blogs, podcasts, and websites about money when I started. It took me a long time to course correct. Even still, the one thing I did absolutely right for the past 16 years of my investing journey was to invest money from every paycheque. (I will admit that I started investing in 2004, but then the stock market crashed in 2008 and I stopped investing for 6 months. While I didn’t sell anything, the fact remains that I completely missed the fantastic buying opportunity. I still think about what could’ve been had I not acted like a dummy…sigh…)

As my debts got paid off, I re-directed the lion’s share of those former payments to my investment account. As a teenager, I started down this path by investing $50 from my bi-weekly paycheque. By the time I had my first adult job, that amount was a few hundred dollars every two weeks. When my mortgage and SUV loans were paid off, those amounts meant I could invest atleast $1,000 every two weeks. I was still living below my means, instead of allowing money to burn a hole in my pocket. Trust me – there was still money being saved for short-term goals like travel, renovations, and annual insurance payments. Bottom line, I invested first and lived on what was leftover.

And I’ve always used a DRIP for all of my dividends. DRIP stands for dividend re-investment program. I’m nearly at the point where my dividend income matches the amount of money I contribute to my portfolio every year. If all goes according to plan, I’ll hit that particular money milestone in 2026. Until then, I will continue to revel in the fact that my DRIP is causing my portfolio to grow exponentially faster than it would if I were relying solely on my contributions to increase its value. At this point, I earn returns on my contributions and my DRIP units. This is so much better than only earning returns on my contributions.

Today, my choices are paying off. This year, I’m on track to have my dividend income exceed my planned spending. This is another spectacularly fantastic money milestone! According to the wisdom of the internet, I’m financially independent because my portfolio is covering all my costs. At this point, I can live off my dividends and I don’t have to work anymore, so long as nothing goes sideways. Is that amazing or what?

On some level, I knew I would hit this target eventually but seeing it on my spreadsheet has made it very, very real. In the first 6 months of 2024, my portfolio has covered every single purchase that I’ve made.

So what changes?

Not much. I’m going to bask in the joy of this accomplishment, then go back to my regularly scheduled life. I’m content with how I spend my money. There’s very little more that I want. And while I’m technically financially independent, the fact remains that I’m “only” Lean FIRE. I want a little more margin before I hang up my gloves. I’d like for my dividend income to exceed my expenses by atleast 20%. That way, whatever’s not spent can pile up and pay for those inconvenient and irregular expenses. In short, my cash cushion needs a little more padding before my employer and I part ways.

My plan was very simple, but it was never, ever easy. It took me along time to get here, mainly because of some mistakes I made along the way. When I learned better, I did better. On top of that, there were always temptations to spend my money on something. I remained laser-focused on my priorities and did what needed to be done to ensure that my money only went to that which was most important to me.

Now, my portfolio is paying me more money every year. Five years ago, I wouldn’t have imagined that I’d earn an entire year’s worth of dividends in only 6 months. Yet, here I am – hitting my goals way sooner than I’d thought I would and still sticking to my plan. This is a day to celebrate. Yay, me!

Making good choices is always better!

Making good choices isn’t always easy or convenient, but it almost always pays off.

I’ll be frank. I love eating out. I go out for meals with friends regularly, usually twice a week. It’s part of my social life and I don’t apologize for it. There are other things I don’t buy so that I have money to spend time with my nearest and dearest. Sharing a meal is one of my favourite things to do.

That said, I get very vexed with myself when I have to eat out because I was too lazy to cook something beforehand. Leftovers are a fundamental requirement to me living my best life, since I’m not a fan of grocery shopping and I’m not too eager to cook every single day. That said, I hate being forced to to buy something – anything – just because I’m hungry. It’s a reminder that I’ve made a bad choice with my time, my diet, and my money.

On Sunday afternoon, I was out with a family member running errands when I realized that I was very hungry. My stomach was rumbling and all I could think about was a drive-through. I briefly considered going to a sit-down restaurant for lunch, then remembered that I have food at home. Good food – healthy food – the kind of food that I want to be putting into my body on a regular basis!

We had only completed two errands. The major to-do left on my list was grocery shopping, but I know better than to go to the grocery store while hungry! That’s a recipe for an unnecessarily large bill for things that I may or may not eat in the future.

Instead of finding a restaurant, I went home and made myself a tasty lunch. It was simple – marble cheese on whole grain toast with a gala apple. It was both delicious and gentle on my wallet. You see, if I’d gone to a restaurant as per my initial whim, I would’ve spent atleast $30. That’s $30 that I hadn’t planned to spend. The meal likely would’ve been too many calories, to many carbs, and too big of a portion. My choice to come home and feed myself out of my own kitchen saved me money, kept my food intake aligned with my nutritional goals, and was another teensy little step towards fulfilling my financial dreams of early retirement. (That $30 can go towards my short term goals and my retirement fund.)

Coming home for lunch in the middle of my errands might not have been ideal, but it was the right choice for me.

Now, it’s not always an option to come home when I’m hungry. For example, when I’m at work, I can’t simply visit my own kitchen when it’s time for lunch. Also, my office is located in a not-so-nice part of downtown so I don’t have great food options. My choices are crappy fast food or expensive slow food. Neither options appeal to me. So what’s my alternative?

I’ve chosen to batch cook on the weekend and take something tasty to the office with me. This week, I’ll be dining on sweet potatoes, baked chicken breast in a lightly-sweetened glaze, and a medley of mushrooms and brussels sprouts. For snack, I’ll be taking some nuts or some fruit. My lunches will be delicious, filling, and inexpensive.

As I’ve said before, there’s a fortune to be found in your kitchen. Cooking most of your meals at home means that more of your money can be directed towards the things that matter most to you. I’m not suggesting that you never eat out. Rather, I’m putting it out there that you might want to spend a little more time in your kitchen. Eating out is a luxury! Somehow as a society, we have forgotten this. Having an app to order our food is a very new idea. The financially better option is to buy your own food and cook for yourself. Make enough to have some leftovers for the next day, or to freeze for those days when time gets away from you but you still need to eat when you get home.

I’m not immune to the lure of the app. There have been many nights when I’ve wanted to order a pizza or something else on my phone. You know what stops me? It’s not the cost of the food item. It’s the cost of the add-on’s. There’s a service fee, a delivery fee, taxes, the day-ending-in-y fee, and a tip. After it’s all added up, the medium pizza that I’d planned to buy is somehow $40!!! I’m not yet at a stage in my life where $40 for one pizza makes any kind of sense. So instead of entering my credit card information, I close the app and go to my kitchen where I can always get a peanut butter and jelly sandwich, or cheese and crackers with an apple, or a bowl of oatmeal. I would rather have an un-glamourous, not-Instagramable dinner than spend $40 on a single pizza.

The other benefit of cooking my own food is that I don’t have my credit card on too many servers, waiting to be found by hackers. I’m not a tech-bro, nor do I have any background in the security features of apps. However, there are far too many stories of big companies being hacked and Bad Guys getting their hands on customers’ credit card information. This is something I don’t have to worry about too, too much when I don’t use apps and websites to order my food.

Making good choices is always better. It might not be convenient or easy, but it’s optimal. Cooking at home and taking food with you when you’re on the go is an all-around benefit. You control what goes into your body. Your skills in the kitchen mean that you can feed yourself as needed. And it should go without saying that your wallet stays a little heavier since money isn’t flying out as fast.

So if you’re looking for some extra cash to put towards your financial dreams, I suggest that you start by looking in your kitchen. A little extra time with your stove could result in a big boost to your budget. Take it from me and make good choices!