Consistency - Millionaire on the Prairie

Ideal is the goal. Consistency is for real life.

Earlier today, I watched an reel from someone who has followed the FIRE principles to become a millionaire at 40. This person listed several rules that she followed to meet this goal. The first rule was to start saving 50% of earned income as soon as humanly possible. The math says that when you start from $0 and invest 50% of your salary in an equity-based index fund, it’s very possible to hit $1,000,000 in 17 years.

My personal experience neither verifies not refutes this statement. I’m going to take it as mathematical fact. It took me 28 years to acquire a liquid net worth of $1,000,000.

I readily admit that I never hit the venerated target of saving 50% of my salary. When I started investing in the last millennium, graphs showing the number of years it takes until you have $1,000,000 at various savings rates didn’t appear on every other FIRE blog like they do today. Instead, I simply stuck to the path of investing roughly one third of my net income and I hoped for the best. To my inexperienced DIY-mind, this seemed like a feasible amount to put towards my future, while still enjoying my day-to-day in the way that I wanted.

Here’s the thing though. As I look back, now that I’ve reached retirement, I realize that I could’ve invested 50% of my salary. In all honesty, I simply didn’t want to… despite the fact that one of my life’s goals was to retire early.

Speaking only for myself, and not for others who choose differently, I happily paid for certain expenses along the journey to early retirement. I chose to defer early retirement by a few years so that I could do the following:

travel to Europe several times (Italy, Spain, Ireland, and Amsterdam);
attend concerts & festivals with my friends;
go to destination weddings in Mexico & Antigua;
renovate my house (driveway, landscaping, eavestroughs, furnace, hot water tank, sod, exterior siding, carpet, bathrooms, basement, windows);
replace my vehicle (twice in 22 years; extravagant, I know!);
buy lots and lots of books before the novelty wore off (I’ve since become an ardent fan of my public library);
buy new furniture for my house.

The Ideal World vs. The Real World

In an ideal world, I could’ve saved 50% of my salary and retired earlier than 53. If the graphs are right, and I have no reason to believe they aren’t, I could’ve retired at 45 had I done everything “perfectly”. I would’ve had to invest 50% of my salary into well-diversified, equity-based ETFs. I would’ve had to continue investing through the 2008 market crash. (That financial event scared less-experienced me so badly that I actually stopped investing for 6 months until the market recovered!) Most distressingly, I would’ve had to sacrifice building cherished memories with family & friends! Same goes for taking trips and modifying my home into a space I enjoy.

If I hadn’t spent a little bit more over the years, my memory bank would be so much emptier. I wouldn’t have nearly as many good memories of times spent with loved ones as I do now. I look at photos of people I love and they bring me joy. My overseas travels were absolutely amazing! I’m still thrilled by the memories of things that I saw, food that I ate, and experiences that I got to have because I chose to delay my retirement date a little bit.

Now that I’m retired, I’m experiencing knee problems so overseas travel is off the table until those problems get rectified. How sad would I be if I’d retired and my travel plans were forever curtailed? God willing, I can improve my health situation. I look at the elders in my family and I see a future of joint replacement surgeries. Maybe I get to the end with all of my own parts, but maybe not. The bottom line is that I don’t regret travelling when I did, nor as much as I did.

Travelling to Europe 4 times was not inexpensive in any way, shape, or form but I do not regret any of those trips. Am I glad that I spent a little more money along the way instead of waiting until retirement to take those trips? Yes, I am!

Your choices only need to work for you.

It most definitely took me longer than 17 years to hit my retirement target but I can’t really complain. I enjoyed the journey along the way. Time spent with family and friends is precious. My sojourns to other countries broadened my view of the world in ways that books and movies simply could not. I don’t regret the choices I made along the way. They worked for me, but I’m not suggesting that my choices will work for you.

I’m an ardent proponent of investing a good chunk of your income today so that you have money for the Care & Feeding of Future You tomorrow. Simultaneously, I also recognize that life is meant to be lived in the present. No one is promised tomorrow. We can make all the plans we want, but all we really have is today. So while I maintain that it’s important to save & invest for the future, I’m equally convinced that it’s in your best interest to be present in the now so that every day is as good as it can possibly be. There’s a balance between living life today and investing for tomorrow. It’s different for everyone.

My top savings allotment during my working years was 36%. Yours might be more, or it might be less. Whatever percentage allows you to attain your life’s goals is the right percentage for you. You’re best-positioned to know what’s optimal for your own life. Each of us has our own unique circumstances, which necessarily influence the balance between money spent today vs. money invested for tomorrow.

So long as you’re investing something, you will have money waiting for you at retirement. The number you need to determine is how much you need to invest today to take care of Future You’s monetary needs tomorrow, while still fully living in the present & building the life you want to live.

Happiness is attainable.

I have very few regrets about how I spent my money. In fact, investing less than 50% of my money was one of the smarter choices I’ve made in my life. I’m grateful that I chose spending more during my younger years.

I’ve seen some of the wonders of Italy with my own eyes – the Trevi Fountain, the Vatican, and the Leaning Tower of Pisa ;
I’ve walked through Galway & Dublin, visited a wonderful museum in Cobh, and stood of the edge of the Cliffs of Moher;
I’ve created hand-made chocolate treats in Amsterdam and passed through the incredible lock system of its rivers; and
I’ve visited a family-owned olive farm in Spain, explored toured the magnificent Prado Museum in Madrid, and toured the incomparable Sagrada Familia in Barcelona.

I made the right choice to travel when I was healthy enough to enjoy those trips. I’m thankful that Younger Me chose to stay in the saddle a little bit longer. That decision allowed me to see/visit/taste/smell/experience a sliver of the world beyond my own backyard. For that, I’m truly grateful.

Allow me to be perfectly honest with you. I still saved & invested a nice chunk of my salary along the journey to early retirement. Consistency played a huge role in my financial journey. For every $3 I earned, I invested $1 and lived on the other $2. Though I made many investing mistakes along the way, the consistent contributions to my investment account saved me. My automatic transfers eliminated the bi-weekly task of both deciding to and remembering to invest money for my future. Instead, transfers happened without any mental effort from me.

Relying on automation meant that money was always ready to be deployed in the stock market via my ETFs. First I filled my registered accounts, i.e. my TFSA and my RRSP, then I invested in my non-registered account, aka: my brokerage account or my taxable account. Other than those six months in 2008, I invested from every paycheque for my whole working life. Earn – invest – learn – repeat. This 4-step plan allowed me to retire early while allowing me to enjoy my life along the way.

Looking back, no one would ever describe my choices as perfect or ideal. They didn’t have to be. But did they make me happy? You’d better believe they did!

Money Should Work Harder Than You Do

One of things that I’ve always understood about investing is that money works harder than people are able to. Money never gets tired, sick, distracted, or unmotivated. It literally works around the clock once it has been invested. People can’t do that. People need food, rejuvenation, sleep and time with loved ones. Those items are vitally important to being a healthy person and to living a good life. They also take people away from doing their jobs.

The trick to being healthy, living a good life and earning lots of money is to send your money out to work. Go back to the title of this post and believe what it says. Money should work harder than you do.

There are a few ways around this particular fact, but most of us have to do the initial work to get money. We exchange our labour (aka: life energy) for a paycheque. The paycheque may be from an employer, from our clients, or from our own business. It doesn’t really matter. We give away our life energy and receive money for our efforts.

The purpose of this post is to remind you that you can work towards a situation where you still earn an income to support your lifestyle without having to earn a paycheque. I’ve written before about how your income and your salary are not the same thing. Your salary is part of your income, but it’s not the only element. There are ways to fund your lifestyle without having to earn a paycheque. One of the ways to do this is by increasing your dividend and capital gains income. Dividend income and capital gains income are what I like to call passive income. As far as I’m concerned, passive income is wonderful.

Dividends and capital gains are monies paid to shareholders when companies make a profit. Your goal, should you wish to increase your income, is to invest in companies that pay dividends and capital gains. There are a number of ways to do so, but I strongly recommend exchange-traded funds and index funds. If you want to do individual stock-picking, then more power to you. That’s not my cup of tea because I don’t know how to do it.

Sadly, there is no way around the fact that you likely won’t earn life-changing amounts of dividends and capital gains at the start of your investment journey. Let me be clear. Your invested money will earn passive income. However, it will take some time before your passive income is enough for you to live on. This is one of the reasons why it’s important that you consistently invest each and every time you get paid. Secondly, you should aim to increase the amount you invest. Start with whatever amount you can commit and increase that amount over time.

You have to invest your money in order for it to work for you. The simple idea of investing has never generated a single nickel for anyone. Ask me how I know this. One of my biggest money mistakes was to not start investing my former mortgage payments as soon as that particular debt was gone. Instead, I spent years thinking about starting a dividend-heavy portfolio. I earned nothing while I was, in effect, procrastinating. The month after I stopped thinking and actually started doing, I earned my first dividend. I haven’t looked back since.

Remember how I said that your money should work around the clock? I wasn’t kidding. I set up a dividend re-investment plan, often called a DRIP. This way, my dividends are automatically re-invested into more units of my chosen ETFs and index funds. The dividends don’t sit in my bank account, and I’m not tempted to spend them. They are immediately put to work for the sole purpose of making even more passive income for me. It’s a highly lucrative feedback loop.

If you wanted, you could do the same thing.

Now, even though I’m a big fan of the Financial Independence Retire Early (F.I.R.E.) movement, I’m a super-huge fan of the FI part. I firmly believe that everyone who earns a paycheque should be working towards financial independence. If you part ways from your employer, or are otherwise unable to earn your keep, having a cushion of cash that’s funded by passive income is your safety net. The passive income can replace your earned income, if you choose to go back to work, or it can fund your retirement if you decide that working for a living no longer turns your crank.

Early retirement is not everyone’s goal. Some people love their jobs. There is no reason why they should stop doing what they love. The same cannot be said for financial independence. The best of both worlds is loving what you do and having financial independence. Most of us won’t have the former but all of us can work towards achieving the latter.

However, the money won’t start working for you, nor be there when you need it, unless you start investing part of your paycheque today. So start today – stay consistent – increase the amount you invest as you’re able to – achieve financial independence – live life & be happy!

Consistency is One of the Keys

This week, I listened to a story that blew my mind! It was a testament to the power of consistency in investing, through good times and bad. Diane was her name – a lady in her 60s who’d survived divorce from an alcoholic, while raising 4 kids, taking 8 years to get her electrical engineering degree, and starting her professional life at age 42. By the time she’d retired, Diane was worth $5,500,000…. and did I mention that she never earned more than $82,000 per year?

Check out episode 99 on Millionaires Unveiled to hear the rest of her story, a podcast that has recently caught my attention. They focus on interviewing millionaires and the stories are fascinating.

The Financial Independence Retire Early (FIRE) community loves to tell stories about people who figured out who to make a lot of money quickly in order to retire in their 30s and 40s. And to those who can do it, I say “More power to you!”

I would have loved to have retired in my 30s too, but that wasn’t the way that my cookie crumbled. I learned about the FIRE community in my 30s, though the regular channels – Mr. Money Mustache – and went from there. However, no one has been able to teach me how to turn back time so I’ll be retiring in my 50s.

What I loved about Diane’s story is that she had challenges in her life, including cash-flowing college for her children. I mentioned that she had 4 children, but did I tell you that there was a 16-year spread from the oldest to the youngest? Diane was paying for college for 16 years straight and she still wound up debt-free with over $5Million in her kitty.

How in the hell did she do it?

Consistency is the key. Throughout her podcast, Diane emphasized that she and her husband saved atleast 10% of their income throughout their working lives.

Single People, please don’t roll your eyes at this point. Kindly avoid the trap of believing that it’s-easier-if-you’re-married-because-there-are-two-incomes! Diane was very clear that she kept her money separate from her husband’s.

In other words, the money that she has not is solely Diane’s money. Being single is not an impediment to becoming wealthy. It’s possible to become a millionaire even if you don’t become a spouse.

Diane committed to saving 10% of her income from the time she started working in her 20s. At the time of the interview, she was in her 60s. That’s 40 years of investing in the stock market! Diane mentioned that she’s been told to allocate her funds into a 60%-equity & 40%-bond portfolio, but she prefers to keep 70% in equity and 30% in bonds.

That’s two lessons we can take from her story. She chose to save something every payday by living below her means and she invested her savings in the stock market. Time in the stock market helped her investments to grow.

The third lesson from Diane’s story is that you don’t need to make a six-figure income to do what she did. Diane never earned more than $82,000 while she was working. I’ll agree that she earned more than the median income for the average bear, but keep in mind that she was raising children on this income. It’s reasonable to assume that the costs of childrearing ate into whatever was left of her income after she’d set aside her savings.

Creating Wealth for her Family

Diane has also set an example for her children, one that they will hopefully pass down to her grandchildren. Through her actions, Dians has shown her children that consistency is one of the keys to building wealth and that saving money has to happen no matter what. If I understood her correctly, Diane already had children by the time she returned to school at age 34 to study electrical engineering. She worked full-time while studying, and she graduated at age 42. Throughout those 8 years, Diane continued to save and invest from every paycheque like clockwork. At the age of 50, Diane was divorced…and she was worth a cool million dollars. The rest of her money came from the compounding over the next 15 years!

Creating a multi-million dollar nest egg was the first step towards ensuring an intergenerational transfer of wealth within her family. If she chooses, Diane can pay for the post-secondary educations of her grandchildren. By alleviating this financial burden, Diane would effectively be helping two generations of her family. Her children could invest their money towards their financial security and her grandchildren could study and graduate without the burden of student loans. If they are wise, Diane’s children will then use their money to pay for the educations of Diane’s great-grandchildren when the time comes so that the grandchildren can build their wealth.

Do you see how beneficial this cycle of intergenerational wealth can be? Diane’s example of consistently saving and investing for decades is a gift to her children, if they choose to follow it.

Save. Invest. Learn. Repeat.

Just like the rest of us, Diane won’t live forever. It’s time for her to enjoy some of her money while the bulk of it continues to compound and grow. According to the podcast, she is using her money to fulfill her dreams of travelling with her family and creating lasting memories. Good for her!

If you haven’t already started to save and invest, then start today. Open a savings account – set up an automatic transfer so that you save something from each paycheque – invest in the stock market through a broad-based index fund or exchange-traded fund. Live below your means so that you have the money to invest. Save – invest – learn – repeat.

There’s nothing to suggest that Diane had the ability to spend all of her money on her own personal priorities for her whole working life… I’m looking at your Single People Without Children. If you’re a Singleton, then you’re the only person making decisions about where your money should go, which of your dreams to fund, how much you’re willing to invest so that you can create a retirement nest egg for yourself.

Ignore the talking heads in the media. They deliver nothing but a steady stream of hype-and-fear in order to drive ratings. “It’s time to buy! It’s time to sell! It’s time to buy! It’s time to sell!” They have no personal stake in whether you achieve your goals or not, so ignore them.

Saving a little bit of money at a time and investing that money in the stock market will lead to more than a million dollars after a few decades. While your money is working hard for you in the background, you go about the business of living.