Thursday, January 18

Financial Independence, or, How to Retire Young (my version)

Canadian Dream's post about being financially independent and the links to Violent Acres on the same topic got me thinking...

If someone asked me (which they rarely do) I would certainly say that it is my dream to be financially independent. To go one step further, I believe that I am getting very close to acheiving that dream. Since I'm still very far from whatever number of millions that retirement experts would suggest I need to retire in my early 30's this may seem like a very brash claim. And perhaps it is. But here is my blueprint for retiring young...

1. Cover housing costs with rental income.
I already can rent out my basement to pay for 80-90% of my mortgage. I still need to cover utilities and property taxes but that is a much smaller burden. Within 5 years I believe that I will be able to rent it to cover 100% of my mortgage and within 10 years I am targeting the rent to cover property taxes as well. If rents increase faster I may be covering my utilities within this time as well.

2. Reduce expenses to live very modestly.
In some ways I already do this, but I know that I can do much more. Having time to budget and track will help as well, and I will also be able to shop more carefully. I would like to keep my non-housing expenses approximately equal to my housing expenses (which I will not be paying myself, see #1). Then when my mortgage is over, the rental income will cover them.

3. Find creative ways to fill my retirement with interesting pursuits at a low (or zero) cost.
I'm thinking about ideas like taking up volunteering as a way to get out and do things without incurring costs (wonder if I can travel this way - volunteer to work on humanitarian projects abroad?), finding free ways to pursue hobbies (my local university has a french centre where you can visit for free - cheaper and more convenient than a conventional class) and using my leisure time to do things that I enjoy that save me money (thrift store hunting and garage sales perhaps?).

4. Make a little bit of part time income.
Now some may say that this isn't retirement, but for me it would certainly be. I am picturing something very low stress, probably temporary and perhaps ultra short term as in once or once in a while only jobs. The purpose of this would be to provide me with interesting things to do and just bring in a little cash to supplement or stretch my money occasionally.

5. Work on my portfolio.
Find income producing investments, minimize transaction costs, monitor performance and whatever else is needed to allow my little pile of money to last a very long time.

So that's my plan. I know that it's a bit short on hard numbers but I'm quite convinced that I could do it, and the main reason I haven't is that my business is a bit harder to quit than a conventional job. I am certainly aiming to cut back, but there are still jobs that come along that I want to take, so I guess that I'm not really ready to retire yet from that perspective either. In the meantime, while I am still working I can build my net worth and make my finances as strong as possible to be ready for that day!