Tag Archives: saving

The Long Road to FIRE

I’ll be honest after getting to FIRE myself I’ve backed away from reading most blogs on the topic.  My interest has shifted from ‘getting to FIRE’ to ‘living in FIRE’ which changes what I read.  But the other day I decided to skim some blogs and Reddit forums on getting there again and I fully admit I was a bit shocked by some of the ideas out there on FIRE.

Some people are like obsessed with the concept and saving as much as humanly possible, which from a old timer like me (I’ve been writing about this since 2006) is bloody stupid!

Saving a small fortune and then managing your investments is not a sprint which you can see how much you can save for as long as possible.  It is in fact a VERY long journey.  I had higher than average income, little debt and it still took my a decade to pull off.  So the only sane way to really survive the long road to FIRE is enjoy the ride.

What?!?! That’s your advice?  I know not very dramatic but I should perhaps tell a story of my own path getting to FIRE.  At one point I was like those obsessed people,  I had cut everywhere I could and was saving as much as possible but then something went wrong and all my plans blew up in my face. I couldn’t maintain that level of savings for very long because there was next to no slack.  Then it occurred to me to really do this well on the long haul I had to back off on my savings rate.  So we added spending back into the plan which gave us a bit more cushion and add some things back into our lives that we enjoyed.  And honestly the amount of spending we put back in was less than 5% of our savings rate…it didn’t really change that plan all the much (I can’t recall the exact change but it was under a year more of working).

But you know what? It was a world of difference to my life.  I enjoyed the world again.  I mean I was literally a more happy person by just spending a little bit more.  I had found that mythic thing called enough.  Then as a added bonus when something went wrong I didn’t freak out because we had some cushion for those weird things that come up like a car accident.  And then the irony started to kick in…I was beating my new lower goals anyway.  I had aimed to leave work prior to my 45 birthday and I exceed that goal by leaving before my 40th birthday because I didn’t depend on getting a raise for my plan to work.  So every raise at my job over those ten years accelerated the plan.

But the most important thing of all those long years of savings was this: I could literally ignore my savings for months at a time and just live my life.  My life was not only about FIRE…I had a much more healthy and interesting life because I firmly put FIRE on the back burner.  It could just simmer away with a few good habits and so when I was not interested in FIRE I could just forget about it and still make progress.  Thus I never had a full burn out and never entirely gave up on the idea.  I, of course, had moments of thinking: why bother? But I kept saving until I got interested in it again because I was spending enough that I didn’t feel deprived or left out.  I still took vacations, we still ate out and I still made my own wine and beer but yes I also bought some as well.  My kids never felt like we were poor but at the same time I never gave them everything they asked for either.  They grew up loved and with enough things that they didn’t feel left out at school.

In short, I lived the middle life.  Not saving too much and not saving too little but rather saving enough for us.  And here is the fine print: that level of enough spending is different for everyone.  So yes, try to cut back your spending until it hurts, but then back up 5% or so to find your ‘enough spending’ level.  And realize that amount will shift over time.  You won’t always be there but it is worth the effort to try and find your way back because getting to FIRE is a long road.  It is totally worth it but only if you don’t give up your life to get there.  You should be a fully developed person with lots of interests and hobbies otherwise you can find yourself bored in FIRE because you gave up too much of you life and now don’t have anything to do.

So the irony is this: the most successful people at FIRE isn’t those with the highest savings rate but rather those with the most happy lives.  So live life, spend some of your money and stop being a cheap bastard.

Okay, your turn.  How do you keep savings for the long haul?

How Compounding Really Works

It is interesting to me that while people sort of understand how compounding works with their investments.  They have been told they should start early and by reinvesting it will grow all by itself. Yet they really don’t get it on some level.  The reality is your first $100,000 in investments will feel like a climbing the biggest mountain in existence and then after that it gets significantly easier to build up your investments.  But rather than discuss this in a broad point of view, I thought it might be useful to go over my investment net worth and point out the time it took to grow between each $100,000 mark.

In the beginning, we have nothing.  Actually with student debt we have less than nothing.  After leaving university and getting married at age 22, my wife and I had debts around the $60,000 mark.  Yet we managed to get some jobs and start paying down our debt and also when I had the option of getting some free money at work via a RRSP matching program I took it.

Now guess how long it took us to save a house down payment, pay off our student loans and save our first $100,000 in investments?  Five years? Nope. Eight years? Nope, keep going.  In fact, I was 32 years old when we managed to hit that threshold.  It took us 10 years  (or 120 months) to save that much money and the thing was we were trying a big harder than the average person.  Now if that sounds like a prison sentence because in some ways it was.  THAT is the difficulty with saving your first $100,000. So when people talk about starting early, this is exactly what they mean.

Depressed yet?  Good, because now we get into the good news.  It gets easier after that first hurdle.  I mean a LOT easier and it just keeps getting easier from there.  Case in point it only took 3 years (or 36 months) to reach $200,000.  Or putting that in context it took 70% less time than the first $100,000.

Then it just kept getting easier.  Hitting $300,000 only took 16 months, so that would be 86% less time than the first $100,000.  Basically that one happened so fast it was like getting investing whiplash as compared to the glacial slow pace of the first $100,000.

Ironically getting to $400,000 took even longer at 19 months, but that did include the collapse of oil prices so somewhat understandable that it would take a bit longer, but still roughly about a 1.5 years.

Finally, while I’m not there yet, my current projection would be to hit $500,000 around Feb of 2017, so that would be only 13 months long, which if correct would be about 90% less time than the first $100,000.  And of course if you keep going it just keeps getting more and more easier to add wealth (no wonder the idea of working just one more year is so popular for people that are almost retired).

The point of all of this is when people give you some well meaning advice to start earlier even with a little bit of savings: PLEASE FOLLOW IT! You will be further ahead in the end and guess what, you don’t even need to consider retiring early when you start out.  Oddly enough you will have lots of time to make the decision in the future and guess what, the worse thing that happens is you have a large amount of savings to make other choices in life.  Some flexibility isn’t a bad thing, after all you never know where you are going to end up so some extra cash to consider starting a business, buying a cottage or taking a unpaid leave from work.  Do what ever you want, just please consider saving something to start climbing that mountain now.  Good luck on your climb.

Stop Blaming the Rich

Okay, are you sick of this never ending federal election campaign in Canada?  Goodness knows I am already.  Yet perhaps the single thing that is pissing me off the most during this campaign is the idea of ‘let’s blame the rich’ theme. Or really more actually I’m not terribly impressed that a few of the proposals out there are to roll back the latest TFSA limit increase since ‘only the rich can use them’.

I okay with general idea of fairness.  After all no one likes to be screwed over in life and it does make entirely sense to me to have progress tax brackets that increase as income goes up.  After all if I am earning more I can easily pay a bit more to help out those that don’t earn much.  I don’t consider that unfair, but rather practical.

Yet rolling back the TFSA limit increase because only the rich can use is a damn crappy reason.  Um, news flash people…those how have built business, got high paying jobs and actually save some money to get rich…the system wasn’t fair to begin with.

For example, RRSP contributions are based on last years income up to 18% (to a given maximum), so the reality is that is actually worse for lower income people.  Since the more you earn beyond perhaps $40,000 a year it gets easier to save that amount.  Meanwhile the TFSA limit is equally to everyone over 18.  Even when it means the lower income people can potentially save a MUCH higher percentage of their income as compared to a person making $100,000/year.  Case in point the $10,000 limit of $40,000 is 25% of their income, which is WAY higher than the RRSP percentage.  Yet for the $100,000 income person the $10,000 TFSA limit is only 10%.

Then when we get to investment gains those that save also get some extra breaks, capital gains are only taxed at half of your marginal tax rate and Canadian dividends also benefit from a significant tax break.  The dividends are such a good break that if you earn less than $44,000/year they actually end up being tax free.

The system is built around encouraging people to save and invest, so those that do are rewarded by paying less tax.  Fairly simple right?  Yet it amazes me that people want to blame the rich.  Did you ever consider the fact the ‘rich’ may have started off just like you but rather than spend their money they decided to save it instead.  They learned a bit about investing and made ever more money.  It was often a hard long road, but after a number of years and the miracle of compound interest they are doing well.

Compared to those at my age and savings I’m likely considered rich or top 20% at least.  Yet the money just didn’t appear in my accounts in a puff of smoke…I got a degree and then a good job.  Then I saved for a decade straight likely spending less money than you did last year…that is why I have a net worth of over $750,000.  So go ahead and take away the TFSA limit increase for all I care…just stop blaming me for your problems and perhaps start to save something yourself.