Featured Blog: Debts To Riches

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A few months ago, I decided to connect with my local mustachian community in Vancouver, BC. The plan was simple and appropriately frugal: Get to a nearby lake, hike, and meet personal finance nerds. That was it. No fancy drinks at a bar, and no unnecessary spending. Since I certainly don’t save >50% of my income like these guys, I was out of my depth. They all brought food from home. I had bottled water. Some of them were already retired. I never intend to retire. Some were almost millionaires. I still have debt! It was quite the shakeup. And yet, I knew I needed to meet them to reorganize my life. Though I’ve been writing about personal finance for two years now, I’m actually quite lazy and complacent, and I often have trouble following my own advice. Then, on this trip, I met Veronika.

Her story scared the crap out of me at the time. Her tuition and past living expenses resulted in a rewarding job, but she graduated in May 2015 with a staggering $130,455 in debt. Remember how $22,535 in debt led me to make a bunch of bullshit justifications about it? This news damn near killed me! And yet, Veronika didn’t seem too bothered. Quietly confident, she seemed as calm and relaxed as our retired new friends. HOW?!?

Well, I just blazed through her entire blog Debts To Riches, and I’ve gotta hand it to her. She’s executing her debt repayment plan with such laserlike efficiency, her debt-free and financial independence targets are boldly laid out in her intro: “DF: 2019 | FI: 2031”. If this doesn’t seem possible to you, I think it’s time you read her blog! It’s more than possible. She’s doing it.

Debts To Riches is peppered with money insights I haven’t seen anywhere else. She believes that “psychology > math” when it comes to saving, and this led her to write the most actionable personal finance articles I’ve read. Math is great, but what about maintaining motivation? If that doesn’t interest you, the numbers should. She started with $130,455 in debt just two years ago! As I write this now in November 2017, she’s crushed that down to $93,400 – a $37,000+ difference! Debt-free by 2019? Financial independence by 2031? I believe it. If you want insightful, eloquently written personal finance advice for real humans and not savings robots, look no further. Stop reading this.

Read Debts To Riches now.

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Let’s Start a HouseFIRE!

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You already know about FIRE (Financial Independence, Retiring Early). Heck, you might even know about LeanFIRE and FatFIRE — retiring with the expectation of spending <$40,000/year or >$100,000/year, respectively. You probably even know about CoastFIRE! Well, allow me to add more fuel to the FIRE! This post is all about “HouseFIRE”, and why you should care.

So what is HouseFIRE? Simply defined, it’s the stage you reach when you can retire from work just by utilizing your available real estate for money. That link has loads of tips, but if you’re a Vancouverite, you might have to get more extreme. Since I wrote this post, Vancouver’s average rent for a 2-bedroom unit has ballooned to $3,130, and landing even 1,000 square feet for that is near impossible! If you want to attempt HouseFIRE, you’ll need actual space. For that to happen, high-cost-of-living areas won’t work great, but nearby neighbourhoods might. You may find yourself with lots of space for the same housing cost just one town over! Here’s how I do it.

My $170,000 99-year leasehold is paid off, and it’s mere minutes from Vancouver. I have it until 2087, and the total from strata fees and property taxes amounts to $650/month (which I know is high). It’s a 3-bedroom condo, but one bedroom is currently an office for my photography business. I have the master bedroom, and a roommate lives in the remaining room. His rent covers the $650 I mentioned. My plan now is to relocate my office to our underutilized living room, and I’m turning the old office back into a bedroom I can rent out. When that’s finalized in March, I’ll be collecting $600/month on both rooms for $1,200 total. My strata obligations will most likely be near $700 by then, but I’m still looking at $500+ in profit! If I could live like “A” did, I’d be HouseFIREd! (“A” was living on $700/month, and paying $200 for rent. $500 for her other expenses covered it all!)

There are even people in my family who could be HouseFIREd. Mom, for instance, lives alone in a 4-bedroom townhome. If she took the master room for herself and rented the other three rooms to students, that could mean $1,800/month! If they chip in for utilities, that reduces her expenses even more! I think $1,800/month is perfect to live on. That’s about in line with what I spend now!

This is a great strategy for empty nesters. Instead of downsizing, they can maintain the value in their appreciating property, and have a source of extra income. Instead of thinking about retirement in just dollars, consider HouseFIRE! Can you retire on square footage alone? I bet some of you already can. Do it.

Working Forever Might Not Be So Bad

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Taken from a previous post:

FIRE [Financially Independent, Retired Early] is generally defined as the stage a person reaches when the return on their investments is enough to cover their living expenses. A quick bit of math you can do to figure out your FIRE number is to take your annual expenses and multiply by 25. (If you spend $25,000/year for example, your FIRE number is $625,000. Start saving.)”

You can read the rest of that post here, though my description of FIRE isn’t as accurate as it could’ve been. For one, since this is such a huge topic, I didn’t exactly account for inflation. The truth is if you’re 30 now, you want to aim for $1M by 65 if you want to Retire For Good (RFG). This is because $1M in 35 years only amounts to $500,000 of today’s spending power, or $20,000/year in returns based on the 4% rule. This also assumes you can live off $20,000/year. Some people can’t. From this point forward, please note I’ll be using a tilde (~) to denote future value, and no tilde to denote today’s value. Here’s a post to help you math out your saving goals now, based on ~$1M/$500K/$20K. Read those links, and the math should all make sense.

In any case, I now advocate working in some capacity forever. Here’s some of the reasoning as to why, but this little bit of math should convince you that working forever might just be the way to go. (Trust me, it’s not as bad as it sounds.)

If $20,000/year is the goal, it’s very possible that someone at 65 could make that without too much effort at all. Remember, that’s only $1,667/month. In Canada now, what you can receive from Old Age Security ranges from $526-$874. Let’s aim for the low figure of $526, and subtract that from $1,667. (OAS is considered taxable income, so keep that in mind. Also, not everyone qualifies, so read this.) You’re now left with $1,141. Let’s also assume you have some savings. Let’s say you missed ~$1M by a wide margin and only landed at ~$400,000, or $200,000 of today’s value. Going by the 4% rule which spits out $667/month, that takes you down to $474. Now, I don’t know about you, but making $474/month, even in old age, seems entirely manageable to me. When retirees somehow watch 6.2 hours of TV a day now, making $474 per month working is a better use of time and will help you retain your health. This would only mean 31.6 hours per month at $15/hour. If that sounds bleak, it shouldn’t. At $20/hour, that number’s 23.7, or only 3% of your month! That’s only if you’ve completely messed up your retirement savings! If you’ve saved ~$1M, you’re done! You can coast! But if you’re like the rest of us and see yourself only reaching ~$400,000, you should understand you can work after 65 in a way that will actually be flexible, easy, and good for you, and you’ll still be perfectly fine!

Obviously, planning for old age can be kinda scary. There’s always the possibility poor health makes it impossible for you to work. This is why you should aim for ~$1M.

Society teaches us retirement is black-and-white. It’s not. Loads of retirees continue working to supplement their income. If you save properly now, you won’t have to work at 65, but you’ll probably want to anyway. I know I will. And even if you fuck up and don’t save ~$1M in this lifetime, a little bit of work after 65 can go a long way.

6.2 hours of TV time a day is 186 hours per month. Can you use <24 hours to plan yourself a more secure retirement, or are we crazy?

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