A couple of days ago, Dividend Mantra wrote a fascinating article about financial independence and freedom in general. As opposed to getting a promotion or buying a house, reaching financial independence doesn’t change anything overnight. Yesterday, you weren’t financially independent and tomorrow, you finally reach this stage in life. You simply continue going forward with the very same process and the overall goal doesn’t really stop there. This article got me thinking about my whole perception of freedom and how I’ve changed my ways of managing my finances over time.
The Young Savvy Mike
Funny enough, I started my life in a very savvy way. I started working at the age of 14, piling up my cash to buy my first car with no debts at the age of 16. In fact, I bought my car 4 months before getting my driver’s licence. It was a 1981 BMW 320i. I was so proud!
I kept working 35 hrs/week while doing my bachelor’s degree with two majors (finance-marketing) full time. At the age of 22, I bought my first plot of land and at the age of 24, bought my first house with a 25% down payment (all coming from trading). I had the ability to save $800 per month plus my pension plan, plus my RRSP contribution. I paid for my wedding in full, no debts and already had my first child. I worked 6 days a week for about 8 years to keep saving as much as I could to avoid any consumer debts.
There was a limit to the freedom enjoyed during this period of my life. I was working my tail off day and night, combined with school at the same time. Already at the age of 21, I was already fully financially independent from my parents, living in a nice apartment in Montreal and driving a brand new car… right after selling my old bmer! I was my own money making machine and never stopped working. I didn’t have much debt (mortgage and a car loan) and my month end wasn’t a worry for me. However, I had limited fun since I was always working.
The Young Reckless Mike
You would think that getting married and having a kid so young would invite me to keep the savvy way and continue saving. The opposite happened. At the age of 28, I had my fourth promotion at work since I started at the age of 23. I was now taking care of a portfolio of clients worth $40M. This is when I started to get reckless and my lifestyle inflated big time.
Making between 100K and 150K per year at a young age opened the doors of spending. I was working less hours than I was when I was younger but I was making a lot more money. This led me to spend it whenever I wanted. The good thing when you have a solid budget and an increase in your income is that you feel like you are invincible. Vacations, fancy restaurants… even a sports car! It was cliché, but it was darn fun!
While I had stopped my savings habits at that time to spend more, I don’t regret it. This is another type of freedom; you don’t have to mind money, there is always plenty everywhere! I grew my debts and didn’t care; I was going to make more money the year after. The best part is that it worked! This type of freedom is truly awesome as you never feel frustrated that you can’t buy something or have to wait to get it. You simply buy it and enjoy right away.
The Dividend Guy Mike
In 2010, my partner and I bought this blog. I was 29 at that time, right in the middle of my spending crisis. At first, it was just another site we bought to make even more money. This part went very well for us. However, something started to change in me. Slowly, but surely. In 2012, I started to feel the weight of debt on my shoulders. I went too far at one point and realized I would feel better if I could pay off my debts. I didn’t only have a mortgage at that time, I had started piling up some consumer debts as well. At one point, I had about 35K split between loans and credit card balance transfer. This wasn’t freedom anymore. I was able to make all my payments easily, but it just didn’t make sense to continue this way.
It took me a full year before I did anything to change my situation. I was aware that I couldn’t continue this way, but it doesn’t mean I was ready to shut down my freedom for a better budget. I worked on my personal finances in 2013 and put a plan in place. I sold my sport car, dropped a few expenses and made sure I focused on paying down debts.
Two years later, I’m now consumer debt free again. My remaining debts are my car & RV loan and my mortgage. But this is part of a bigger plan that will be explained later in this post.
The Dividend Guy changed my way of seeing things. By focusing on sound companies generating cash flow, I started to apply this principle to my own life: having a sound budget generating solid cash flow. I started reading more about passive income generation through dividend investing (guys such as Dividend Mantra are doing an amazing job). It kind of got into my skin and I started to dream about real financial independence again.
At first, my plan was quite simple and straight forward: live with my day job salary and use my year-end bonus to pay off my debts. Using this simply strategy, I would be completely debt free at the age of 45 (I’m currently 33). Add another 5 years to build a solid nest egg and you get by the age of 50, with a big pension fund and probably 300K in RRSP. Enough to stop working enjoy life and be financially independent.
You probably already know about my RV plan if you read this blog on a regular basis; I plan on selling everything in 2016 to live in an RV for a year with my family. It just seems that working another 17 years is too long and life is too short to wait that long to fully enjoy it! This is why I am looking at a whole different approach; minimalism. I currently live in a 3,600 sq ft house and will soon move into a 25 foot long RV. We will sell almost everything we own simply to buy ourselves a piece of freedom. Unfortunately, I know that this is only a piece of freedom and not the whole package deal.
I will arrive back to my hometown 12-14 months after leaving and I’ll have to adapt once again. But my goal is to make enough money with my site that I can continue to live simply but never have to work for somebody else again. I’ve already dreamed of being my own boss but have yet to achieve it. After all, how can you quit your job and start a business that will generate over 100K in salary in the same year? This is impossible. However, now that I’ll be living in a RV, my business is only required to generate 30K the first year and I can live with 50k the year after once I come back. By adapting my lifestyle, I will reach financial independence, I will reach freedom.
The funny thing is that I know that I won’t be fully happy with such a limited budget. This is also why I’ve started to work days and nights on my site now so I can generate a decent income in 2017 from my business. This is what freedom looks like for me; being my own boss and not having to restrain my spending. I finally found a way to make it happen.