This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
As long as nothing changes between my wife’s and my finances, our house will have been paid off in around 3 years (taking 5 years total). Until then, our financial plan is a fairly monotonous process, paying off as much as we can from each of our paycheques, while balancing this with having as much fun with the money left over. Currently, I have a fairly robust savings/emergency fund, no debt and really nothing I can see in the near future that would make my personal finance life all that much more exciting.
I have chosen a very linear plan because it is more important to me to have no debt to reduce my monthly expenses, rather than it is to gain the benefit of 5 years of compounding. Once our house is paid off, my wife and I will gain some sense of financial freedom, as half of our monthly fixed expenses will be eliminated – hopefully forever. Once step 1 is complete (house repayment), it is our intention to invest until we have enough cash coming in annually to live off, which will hopefully be by the time we turn 45 (and if we’re lucky, sooner).
Until our house is paid off though, I have time to practice. Time to get used to investigating stocks, paper-trading, to read books, blogs and other sources of information so that when the time comes that the majority of my income is going to investments, the task will not seem so daunting. I am hoping that over the next few years I can possibly learn enough to eliminate a good percentage of “rookie” mistakes that I have read so much about on starting investors.
The problem I see is that three years is a very small window to learn, using Economic terms it is very much the short run – so I will still have a lot to learn in the ensuing (hopefully) 50+ years I’m going to be around and have to worry about my investments. It’s a starting point however and I figure it’s better to be somewhat prepared rather than just diving in and investing 10% of our household’s retirement savings in the first year (if I want to retire at 45, I will have about 10 years to invest).
I realize that I will probably learn more in the first 6 months of “real” investing than I will in 3 years of studying, but at least I may not freak out when I start investing.
So, that’s my plan for the next few years – what would you do if you were me?