ONWARD AND UPWARD

The great rush of relief after leaving such a stressful job in
1988 gave me the confidence to keep striving for early
retirement. Although I needed another job, I had money saved,
no debts, and a substantial increase in net worth, due mostly
to the rapid rise in condominium prices. My outstanding mortgage
of $35,000 on the new condo value of $140,000 amounted
to only 25% debt, whereas the proportion of debt on the prior
condo value of $74,000 came to 47%. The boost to my net
worth provided the motivation to eliminate the remaining
mortgage balance and gain the entire difference (less costs) as
profit. Finding the funds to discharge the mortgage by the
next anniversary date was my first priority. I had ten months.
I received a retroactive pay increase from my previous government
job, and I used the money to double my mortgage
payment each month. As well, my RRSP got a boost when I
left work since the pension amounts deducted from rny paycheques
were rolled over into my existing RRSP. I asked for a
pension booklet before I quit and used it to figure out the
exact amount I'd receive. My figures showed that I should have
received more, so I called the pension department, collect, of
course. The government clerk did the calculations again and
called back to confirm that my figures were right. At the end
of our conversation, she asked how I'd found the error. I told
her, "I just did the math."
Then, in the summer of 1988, I was offered the first fun
job I'd ever had,, A friend asked if I would like to work during
the shows at the city convention centre and live theatre hall.
She convinced rne to take the job by mentioning that I'd enjoy
the shows for free. There were also complimentary tickets to
shows for friends and family and food to take home after various
catered events. I could walk to work, and it was fun to
be both behind the scenes and in the audience. The public,
though, regarded the city staff as "lower life forms" and treated
us accordingly. While my quality of life improved by working
at a pleasurable job, it was difficult to contend with this bias,
which permeated not only consumer shopping locales and
types of acquisitions but also types of employment. When I
chose to leave that job, the city personnel office mailed the
separation certificate to me. Although I hadn't indicated why
I quit, a government clerk had fabricated the reason as "personal
betterment" and handwritten it on the document.
In the fall of 1988, however, I took another hard look at
my financial position. A recent evaluation priced my condo
at about $150,000, and the real estate market was booming. I
was happy with the assets on my balance sheet, but I still
wanted to be rid of my only liability, the mortgage. I deterONWARD
AND UPWARD
mined which assets I could use for funds and analysed my
expenses once again, keeping in mind the value I received for
the money I spent. I'd reduced all costs except housing from
33% to about 25% of total expenditures, so I didn't think I
could make any more changes there.
Next I considered housing, now at 75% compared with
the other expenses. It seemed to be too expensive and out of
balance for what I was receiving in return. After doing a little
research, I discovered that property taxes for a house in a better
area were less than what I was paying at the condo. Houses
on huge lots in a nicer area were taxed $1,200 a year, whereas
my condo taxes were just under $1,600. In comparing my
condo with a house, I listed the following. I had only one view
from my unit, and it was of another building. I didn't have a
yard to enjoy Insurance costs were about the same for either
type of dwelling. Condo maintenance fees, at $175 per month,
seemed to be exceptionally high versus monthly house expenses.
I could gladly give up the indoor pool for the freedom of retirement.
Without the government job, I didn't need to stay
downtown, and I'd enjoy breathing fresher air away from the
core of the city. As well, a new problem arose when a group
home sprang up in the neighbourhood. I'd been approached a
few times by what looked to me like "anger management" residents.
But the main factor in deciding to move was that I
could buy a house the same size as my condo in a desirable
area on a large lot, with lower taxes, and at a lower price! I
decided the condo was overvalued and ripe for selling.
Since the real estate market was so overheated, I thought
I could sell my unit myself. In January 1989, I set the price
at $149,900 and advertised the condo in the local newspaper.
The response was encouraging, and a local real estate agent
called to ask if she could bring some people to see it. We
agreed that if I accepted their offer I'd pay her a selling commission
of three percent but not the listing commission (an
additional three percent). At the time, this was considered a
normal arrangement by area realtors. After showing my home,
the agent called and said the couple loved it and wanted to
make an offer. 1 was pleased but restated our agreement about
paying only the selling commission if I accepted their offer.
She then said she wanted both commissions and, if I didn't
agree, would simply tell the couple there was something wrong
with the condo and advise them to buy elsewhere. I reminded
her that wasn't the agreement, but she didn't care. Perhaps I
should have made our arrangement in writing, but if that was
how she conducted business before I even saw an offer I didn't
want any continuing association with her. As it turned out, I
made a better profit on my own. In March, I sold my home
for $147,000, commission free.
By then, the mortgage anniversary date in April was less
than a month away and, unfortunately, four months before
the closing of the sale. I arranged for a loan of $13,000 to
bridge the months to closing, used all my savings, withdrew
part of my RRSP, and discharged my mortgage! I had just
turned 29, and I was mortgage free.
The property value had increased by just under 100% over
three years. Interestingly, the units in my previous condo complex
had risen by only about 85%. Perhaps the difference was
due to the real estate mantra of location, location, location.
ONWARD AND UPWARD 75
In calculating the return on my down payment for the second
condo, I considered renovation costs, advertising expenses,
lawyer's fees, and the difference between housing costs if I'd
remained a tenant. In total, my return on investment (original
down payment + reno costs) over the three years was just
under 325%, as illustrated below.
Proceeds from sale: $ 147,000
Less bridge financing: (13,128)
Total proceeds: $133,872
Costs: renovations $998
advertising 115
legal fees 500
(1.613)
Balance: $132,259
Less difference in housing costs
if I had rented: (5.160)
Balance: $127,099
Less original investment: (30,000)
It's important to note that the only time I saw my home
as an investment was when I thought the price had risen too
high in relation to the condo's value as housing. The primary
function of a home is to provide shelter; as an asset with
inherent value, though, a home has investment potential. A
profit (or loss) is realized only at the time of sale, and, since
I was aware of my condo's market value, I chose to capitalize
on what I thought was an overvaluation within its asset class
Tola! return: $ 97,099
and improve my standard of living from both the profit and
the intrinsic benefits of alternative housing. If I hadn't discharged
the mortgage, or sold at the peak of the real estate
boom, or bought another home for less money, I wouldn't have
made such a good profit. I still needed shelter, and I believe
it's because I treated housing as a value-rated lifestyle choice,
and not as an investment, that I did so well financially.
But now I had to decide where I wanted to live next, and
within a month I found a cute house near the city's university.
It needed work, but that didn't deter me. My ever-practical
father told me, "You can't look after a house on your own,"
but given my "Sure! Why not?" inheritance I was positive that
I could. Besides, buying a house was a necessary step in my
plan. I was getting closer to my goal all the time, acquiring
basic assets for cash and building wealth along the way. This
house, which cost less than the proceeds of the condo sale,
would greatly improve my quality of life and allow me to live
mortgage free.
My money philosophy remains as a result of my vision of
a quality lifestyle: hedonism paired with gratitude. Pleasing surroundings,
no money worries, enjoyable activities alone and
with others, these are my priorities. Even greater happiness
comes from having the time to do the things I enjoy. So I use
money as an exchange of value for goods and services only after
determining how much of my time and effort I must give up
to get the money. Put another way, the value of any desire is
determined by the amount of time and effort required to satisfy
it. For example, I bought a used lawn mower to cut the
grass at my house. I could have paid someone else to cut it,
but it was cheaper to spend my time and effort on the grass
than to hire someone else, because I would have had to work
for an employer for three hours to earn the net income required
to pay another person to do a 3O-minute job. It was work either
way: whether I cut the grass or earned the money to pay for
a lawn service. Considering that my employment income was
limited to 35 hours a week maximum, the money was better
spent elsewhere. And the lawn mower was an asset with inherent
value — that is, I could have sold it at some point.
My money philosophy also includes the necessity of delayed
gratification and tolerable employment to produce my ideal
lifestyle. Ironically, if I'd allowed instant gratification financed
by debt, and pursued a profession after years of expensive education
to achieve an acceptable standing, it's unlikely that I
would have had the quality lifestyle by the time I reached my
405 or even 505 that I was already enjoying by age 30.
When my father realized he couldn't change my mind about
buying a house, he tried to convince me to look in the most
prestigious area first for one that didn't need work and take a
small mortgage to cover the higher price. But that would have
been a step backward in my scheme and a waste of my time.
I would have needed to work many more years to pay off
another mortgage. My goal now was to retire within the next
four years, by the time I was 33. If I continued to work to build
my RRSP and nonregistered savings, and I had a home free
and clear, I would be right on schedule. I followed my money
philosophy and bought that tired little house, close to the university
campus, for $132,500. I moved into it in July, with a
plan to take care of the most urgent repairs over the next month
and rent the basement room to a student in September.
Fortunately, my father had compassion for his determined
daughter, and my mother used the excuse that I didn't have a
husband to help me, when they arrived with electrical supplies
and mop and pail. The hazardous wiring was quickly replaced,
and a shower head was added to the old three-piece bathroom.
A friend helped me pull up the smelly broadloom, revealing
oak flooring underneath. Then I tore off old wallpaper,
patched, sanded, painted, and scrubbed the whole house.
When I moved in, the decor was gloomy. But even as I
redecorated, the walls seemed to close in at night, and I couldn't
sleep in the house the first month. When I finally forced myself
to stay overnight, the dark house felt oppressive. Then, when
the eerie noises began, I got up and opened the front and
back doors, leaving only the screens locked, allowing me a
hasty escape if needed. I was afraid of the inside, not the outside,
but could recognize the absurdity of this fear only in the
morning — after the sun came up.
I was looking forward to a tenant for the income and for
the company, because it would be easier to get some sleep if
another person was in the house. My home was almost ready,
and the roof was the next priority. It had just started to leak,
and I didn't want to wait for ceiling damage. There was a
completely finished basement already, a modernized kitchen
upstairs, and scenic views of the mature treed lot from three
sides. The living room had a large bay window, and I could
lie on the sofa and gaze up at birds nesting in the old maple
tree on the front lawn. The house was on a corner lot, 40
feet wide by 140 feet deep, with a white split-rail fence and
ancient tall trees lining the perimeter. It was picturesque
country living, with the conveniences of the city.
When the roof was fixed, I took applications from prospective
students, but this time I was much more careful with my
selection. I listened to sage advice from my parents, who were
experienced with student tenants. "See if they take their shoes
off when they come in," and "Choose someone who comes
with their parents," they said. I used my mother's list of tenant
rules and discussed it with both the potential students and
their parents. Since I'd be living upstairs, we needed to have
the same idea of what a good home environment would be.
Many people thought it was odd that a young woman wanted
to rent her basement to a male student, but I'd already had a
bad experience with a female student. The one I finally chose
had come with his European father and sister. I knew that
many people of his father's generation had started out with
boarders in their homes, and I think this family was as relieved
and as comfortable as I was with the arrangement. The student
turned out to be an exceptional tenant. For a small
reduction in rent, he cut the grass, shovelled the snow, and
took out the garbage for me. I finally slept well at night knowing
that he was just downstairs.
He was so responsible that I decided to take a winter holiday
in Florida. When I came back, I asked him how he'd
managed. He hesitated, then said, "Fine, except it's a pretty
spooky house." I thought back to those episodes of evening
angst before he moved in. I waited apprehensively for him to
tell me about the "happenings" he'd experienced while I'd been
away, and I was relieved when we ended up laughing about
them. Apparently, ever since he'd been living there, we were
both attributing those strange noises in the night to each other.
By the end of 1989, I had a temporary full-time contract
in a real estate office. Housing prices had peaked in the area
and then stagnated into 1990. I was thankful I'd sold my
condo. As long as my house expenses could be covered, the
valuation didn't matter, because the house wasn't on the market
(for sale), and its purpose wasn't to provide an investment
return — only shelter.
Now I had to take the next steps in my plan to afford
retirement in three years. My cash flow with employment and
rental income was good, but I had an RRSP of less than $5,000.
I'd need much more.
Since I didn't have to concentrate on mortgage costs anymore,
I changed the way I recorded expenses to reflect my
new focus on grouping costs in order of necessity. I wanted
to channel as much income as possible into a nest egg, so I
needed an easy way to review my costs of living. I ranked the
remaining expenses according to necessity and categorized them
based on their potential for reduction. The most necessary and
unchangeable expenses represented 60% to 80% of total costs,
while 20% to 40% was spent on unnecessary but fun purchases.
The breakdown was much like my previous 67% for
housing and savings (primary importance) and 33% for other
expenses (secondary importance). I kept costs to a minimum
without feeling deprived (quality over quantity). The difference
between all earnings and all expenditures then
accumulated as savings for my approaching financial freedom.
I'd been tracking, prioritizing, and apportioning expenses
for almost 10 years, so I felt capable of projecting total yearly
expenses. Those numbers would provide an estimate of the
cash flow I'd need to live comfortably in retirement. Then I
could calculate the capital required in a nonregistered portfolio
for the early retirement period from 33 to 65 and the
amount needed in an RRSP for conventional retirement at age
65. After three years of tallying total yearly expenditures, I
could determine my average cost of living per year and use
that figure as a close estimate of the sum needed to finance
each stage. If I had a good idea of what I'd be spending (based
on what I'd been spending), then I'd have a better idea of how
much I'd need. The capital in each portfolio would be supplied
by the difference between net incoming cash and total
outgoing expenses. Maximizing the difference to create capital
was my goal. Being so close to my early retirement date provided
the motivation for finding more sources of income.
I had employment earnings from both a full-time job and
occasional evenings and weekend work at the convention centre.
I also had rental income. And since the late 19805, different
family members had been holding garage sales periodically.
While I didn't have much to sell, I could count on $75 to
$200 per sale. I sold items previous tenants and homeowners
had left behind, fixtures I'd replaced in renovations, unwanted
donations from family and friends, and kind but unsuitable
gifts I'd received. I donated a leaky dishwasher that came with
the house to a charity and used the $90 receipt against my
income taxes. Similarly, I donated unsold garage sale items to
another charity for the tax receipts. I sold a ceiling fan and
chandelier through a local "buy and sell" radio program and
an old gas stove in the area newspapers free ad section. One
time, a neighbour was throwing out a wicker bookshelf that
leaned to one side. I took it into my backyard, soaked it with
water, and bent it straight again, weighing it down with a
couple of bricks. The wicker dried in the sun, and that evening
I sprayed the bookshelf white with some leftover paint. I used
another free ad and sold it for $25. Individually, these means
of increasing cash flow were negligible, but combined they
eventually came to a sizeable sum.
By September 1990, my costs of living had amounted to
only $3,600 for the previous eight months. I was happy with
my cash flow, which had provided about $13,000 net income,
leaving $9,400 for savings, $2,300 of which I added to my
RRSP. I'd become used to my mysteriously eerie house, and I
wanted to do more extensive renovations, so I decided not to
have another tenant that fall. Unfortunately, general economic
conditions were slowing down. My work contract covering a
maternity leave was over, and I was out looking for another
full-time job. Then an opportunity came along that changed
the date of my financial freedom.
Although my father was working as an industrial systems
specialist, he kept his real estate broker's licence and followed
the local housing market. He noticed a house for sale that
was a "diamond in the rough" only a few blocks from my
home but in a more prestigious area. He made an appointment,
and after viewing it he thought it was priced very well
for a renovation project that he could work on in his spare
time. My father bought it for $131,000 — less money than
what I'd paid for my house six months earlier. My family
went to the preclosing inspection to see his project and voice
our opinions. The house did need work, but it was solid
brick and stone and had a paved driveway, central air conditioning,
an underground lawn sprinkler system, and a
fireplace. And it was larger than my house. I wanted it.
It was a serious dilemma. I wanted to retire soon, yet I
wanted to buy that house. I was practical enough to know I
couldn't do both, and I was impractical enough to try. Oh,
those unlimited wants! I also knew that, with my father as the
vendor, it would complicate matters.
When I was growing up, my parents decided what was
best for me. When I became an adult, they gradually accepted
whatever I decided was best for me. They've always had a
propensity to give, but they've respected my fiercely independent
nature and desire to "do it myself." That being the case,
I've rarely asked them for anything, but after seeing the house
my resolve was shattered.
After the inspection, I invited my family over for coffee.
They excitedly discussed my father's purchase, but I was unusually
silent. When they all left, I waited about 20 minutes for
my parents to drive home. Then I called my father and asked
him, "Will you sell your house to me?"
After many long discussions, my father and I made some
plans. He would renovate the house and sell it to me. I had
just received a small accident insurance settlement that would
partially cover the utilities, taxes, insurance, and remodelling
costs while the tradesmen and my father worked on the house.
The balance would be paid from my savings for early retirement
and from proceeds from the sale of my existing house.
Any decorating and outside upgrades would be left up to me
to finish and pay for. My retirement would have to be delayed.
In early 1991, I started working for another real estate company.
It was a small business where I ran the office while the
broker concentrated on sales. Although I wasn't an agent, I
kept up to date on the real estate market by being immersed
in listings and deals on a daily basis. Generally, the market
was not doing well.
But my personal finances were improving. Total expenses
at the end of 1990 were only $5,500, and at the end of 1991
they were $8,600. Considering my net income for that year
was $20,100, I had about $11,500 left over: $1,700 allowable
for my RRSP and $9,800 for my nonregistered savings.
I had a great deal of financial responsibility in my job. I
regularly handled banking, accounts payable and receivable,
rent collection, and bookkeeping. Although my boss knew I
was completely capable of those duties, due to the poor market
conditions at the time, he would often ask me, "How are we
doing? Are there any deals coming in? Are we going to be
okay?" My concern, naturally, was that he could meet payroll
(it was never a problem), but he wanted to know the business's
daily cash position. Since I knew the average monthly
office expenses and had records of pending sales, I devised
cash flow statements that detailed money coming in and going
out in chronological order for 90 days in advance. At any
time, he could see the company's cash flow position. The office's
bookkeeping wasn't computerized, so I manually had to make
adjustments for changes and make completely new statements
frequently. But these statements served their purpose: he didn't
want computer graphics, he wanted information. As I became
adept at creating cash flow projections for the small business,
I decided to do the same for my home finances to forecast my
personal cash flow. That way, I could invest regularly by
knowing when and how much cash was coming in, when and
how much was required for expenses, and when and how much
would be available for savings. I would be controlling my
money efficiently, like a well-run business.
In 1992, I contributed $4,000 to my RRSP, and I had
expenses of $7,800 for the year, which left $12,000 for early
retirement savings. My cash situation was good. My housing
circumstances were not. The renovations were nearly completed,
and my house was up for sale, but I hadn't received
any offers. Values were plummeting. From 1992 to 1995, I
stopped recording net worth statements because I was so discouraged
over the decline due to real estate prices. I wondered
if my house was ever going to sell. Even though I didn't consider
my home to be an investment, it was hard to watch the
value go down. Other house values were decreasing relatively,
but I would be suffering a loss simply because I had to sell,
and the sale price after costs would be less than what I'd originally
paid for the house. It was disheartening when I finally
sold my home in the spring of 1993 for $127,000.
Still, it would have been much worse if I'd had a mortgage
and watched it become a far greater proportion of debt as the
value of the property decreased. I saw many homes come
through the real estate office under forced "power of sale,"
where homeowners lost all their equity, and some properties
even had debts exceeding their new market values. As well,
considering I'd started with a $10,000 down payment and 10
years later had $122,700 cash (after costs) for housing, I had
nothing to complain about. Also, if I hadn't owned a home
during that time, it's doubtful I would have accumulated the
same amount from the savings in rent versus mortgage, maintenance,
and taxes. While I viewed housing in my plan as a
basic cost-of-living expense that had to be reduced to as little
as possible, my father always stressed that owning a home is
a forced savings plan. It is much more difficult to access equity
in a home than savings in investments, and monthly mortgage
payments are much more likely to be adhered to than
a savings plan. I'm sure that I would have made regular savings,
but it's unlikely that I would have deposited or invested
anywhere near the amount I'd paid monthly for shelter. And
I don't think I would have accumulated nearly as much after
10 years.
By the time I turned 33, I'd reached my early retirement
target date, but I was still working. I had a much nicer house,
but it put financial freedom ahead a few years. As did the car
I bought that spring.
For a couple of years after I moved into my first house, I
thought about buying some kind of vehicle. That house was
farther from public transportation and shopping than my
condo was, ancl I didn't like the taxi experience. As well, getting
all the supplies for the renovations from the store to my
home was difficult. A car or truck was becoming more of a
need than a want.
I referred to the book Save Tax in Canada and Retire at
45 for inspiration and guidance. I'd already weighed the alter
natives to owning a car and made the decision to buy one.
The book suggested shopping for a bargain and buying an
economical car. I only needed it for inconvenient trips (groceries
and building supplies for the next house), and I didn't
want to handle any mechanical problems that might arise. I
decided to buy a cheap new car.
I began my research at the public library, looking at books
that showed car reliability, repair and recall history, safety
records, and general recommendations. I made a short list of
the inexpensive models. Then I set about test-driving the list
of cars. I explained to the salespeople that I didn't like driving
and wanted to drive the cars in a familiar area. New car
sales were not doing well in January 1993, so I found the dealerships
very accommodating. Since I didn't already have a car
to drive to the sales lots, I had the sales reps bring one to my
workplace as I was finishing for the day. I asked them to take
me to my home neighbourhood, where I changed seats for
the test drive, which I finished in front of my house. Each
rep looked a little surprised when I got out and said, "Thank
you. I have a few more to try yet, so I'll let you know." But
it wasn't that I'd just arranged a free ride home. I really did
buy one of those cars.
It was a '93 Dodge Shadow hatchback with an automatic
transmission, an upgraded engine, air conditioning, and a
three-year, bumper-to-bumper warranty. It was larger than a
similar Toyota model, and it suited my needs perfectly. After
all the costs and taxes, I paid $12,000 cash for it, and the
dealer delivered it to my home.
With the hatchback trunk and back seat pushed down, I
was able to move half my household belongings to the new
house over a number of short trips, which saved on eventual
moving costs. I could now buy food staples in bulk, also saving
money that way. And I didn't take the car to work, so I saved
on insurance. But it was still an expense that prolonged my
working life.
Now I planned to retire within the next two years, by the
time I was 35. At the end of 1993, my net income was $19,500,
of which $3,900 went into my RRSP at the beginning of the
year, based on my own calculations on my earnings in 1992.
Expenses for the year were $8,000, not including the purchase
of the car, leaving a balance of $7,600 for savings.
My cost of living was low in 1991 and virtually the same
in 1992 and 1993, so I estimated expenses to continue at about
$8,000 per year. (In five years of retirement, the actual figures
have been in the $7,000 to $9,000 range.) Of a gross average
income of $20,000 per year, my retirement income needs were
about 40%, not the general "expert" financial planners' advice
of 6o%-8o%. The amount in my nonregistered portfolio
would have to supply $8,000 a year in current dollars for the
30 years until I reached 65. Since my RRSP would provide
income after that, the early retirement amount could be used
up by the time I reached conventional retirement age. Payments
before age 65 would be made up of a portion of the accumulated
capital as well as returns (gains) made on that
portfolio. In retirement, my level of consumption would be
only for daily living and not for any substantial acquisition of
consumer goods since I already owned all the major lifestyle
goods I wanted. My spending habits still reflected needs versus
wants, make it or do it myself, get it free, pay the least amount,
and pay cash, so the consumer price index would have little
effect on me. If I wasn't buying much, then increasing product
prices wouldn't matter much. Even so, I used a financial planning
and insurance industry guideline to determine the amount
needed: my annual income needs multiplied by a factor of 10,
equalling $80,000 for my nonregistered portfolio.
To calculate the amount that I'd need in my RRSP at age
35, I used a bank's financial planning worksheet that assumed
the current Canada Pension Plan (GPP) benefits would be in
place and that the return on my RRSP would outpace inflation
by four percent. By the time I reached retirement age,
GPP benefits of some sort would be likely since I'd be considered
a low-income Canadian. I allowed for a higher
retirement income of $15,000 yearly, as expressed in present
dollars, and I would not make another contribution to the
RRSP. The calculations showed that at 35 I'd require $20,000
in rny RRSP.
I knew the amount was only an estimate, since future rates
of return, inflation, and income requirements can't be known
with any degree of certainty ahead of time. But if this amount
turned out to be grossly deficient, I still had many options to
avoid any future financial constraints. I didn't need to live in
such an expensive area or even within the city. I had a range
of assets that could be converted to cash. I'd be young enough
to work full time, if needed, during the next 30 years, I also
expected to receive some part-time earnings from employment
or my own business in the future, but they'd come from a
fun job of my own choosing or from a hobby. That way, as
well, I could keep contributing to my RRSP. And, of course,
I already owned everything outright that I needed to enjoy
my present lifestyle. So retirement at 35 was not only possible
but also reasonably secure. I already had close to $20,000 in
my RRSP. The only thing I really needed to do was build up
my nonregistered portfolio.
During 1993,1 began investing in bank funds. I was looking
for a better return than the cash instruments were paying.
Although I still kept half my money in GIGS and government
bonds, I ventured into a combination of total equity, balanced,
and bond mutual funds. In my first foray into equity-type
investments, I felt safer buying bank funds because to me
banks were part of a solid, conservative institution, and I
thought that would be reflected in the makeup of their fund
families. I believed better diversification for a relatively small
investment was also a good idea.
But I got caught on a bond fund. The stated rates on all
the separate bonds within the fund were higher than what I
could have received buying bonds on my own. I thought that,
since the fund invested in interest-bearing instruments, I could
count on a return generally based on the average of these rates.
I asked the bank representative if my thinking was logical, and
she agreed, but she added there was another dimension to the
fund. If interest rates went down, the unit value of the fund
would increase, and if interest rates went up, the unit value
would decrease. I told her I thought rates were increasing, so
didn't that mean I shouldn't be buying that bond fund? She
looked down at all the paperwork we had just gone through
and didn't answer. Then I said, "But I should be able to count
on the higher rates of return within the fund to keep the value
up, right?" She nodded her head in agreement and said, "But
the funds will fluctuate." I should have done more research
until I really understood bond funds. Instead, I purchased the
fund and watched the value go down. I was right that interest
rates were going up, but that was no consolation. I cut my
losses and got out of the fund.
This loss reminded me of a time in the early 19805 when
I read some doomsday money books warning of impending
world financial chaos. Those "experts" advised buying gold to
survive the coming triple-digit inflation and monetary collapse.
I thought owning a few gold coins and bars, just in case,
couldn't hurt. I was wrong. Although I purchased the gold
well after its 1979 high of over $950 an ounce, I still paid
about $400 per ounce and held on to that security blanket
far too long, earning no return whatsoever. When I finally
smartened up and sold it all, I suffered a loss of $1,800. The
fact that 75% of the loss could be used to offset a capital gain
was no consolation either.
I was investing $1,000 a month in 1994 just before leaving
my job with the realtor. Real estate was still in a slump, and
that office was a stressful place to be, so I left the job as
summer approached.
My next job was in the accounts department of a local
hospital. Although I found the working conditions intolerable,
I stayed there to build up my freedom fund. My coworkers
said that, whenever there was a vacancy posted for their department,
it was always filled by someone from outside the
hospital. I wasn't surprised. I left after nine months, graciously
creating an opening for some other poor fool.
Although the goal of financial freedom was uppermost in
my mind, I fell into the trap of rewarding myself while I
stayed in that horrible job. But it wasn't in the form of easily
identified consumer luxury goods such as jewellery, clothes,
vacations, or entertainment. For me, it was in the form of
spending money on home improvements.
There was a massive old tree, much too close to the house,
that I paid about $1,000 to have cut down and removed. Then
I had three dozen new trees and a handful of bushes brought
in to give my backyard some creative form and privacy. I hired
students to help me tear out the grass, dig up new beds, and
plant the various flowering bushes, cedars, and willows. I
bought a new stove and a new dishwasher. Then I had a central
vacuum and a burglar alarm installed.
So I kept working. I loved the house and the upgrades,
and it was the first time I decorated for my pleasure, not for
resale. I had one bedroom turned into a library for my extensive
collection of old books, which continued to grow.
Beautifully bound volumes lined the wall-to-wall shelving, but
I'd bought most of the books for a dollar each from garage
sales, library book sales, or flea markets. I had a completely
new kitchen, a new bathroom, and new broadloom throughout
— everything looked new. Work might have been hellish, but
my home was heavenly.
It wasn't only the compensation or "I deserve it" trap that
kept me from earlier financial freedom. I think that, as I got
closer to my early retirement deadline, I became apprehensive
about taking that big step. I truly wanted to be free, but I'd
ONWARD AND UPWARD 93
never done it before. Or maybe I was just on a final spending
spree trying to buy everything I thought I wouldn't be able
to purchase after I left regular employment. I also think that
cultural conditioning made it difficult to plunge into an alternative
lifestyle. I didn't know any 35-year-old retirees to call
on to calm my anxieties.
As I reached my 35th birthday, I was still on the fence. After
a bad winter, my driveway and front porch needed major repairs,
so I hired a contractor to fix both and decided to work a little
longer. I also rented out one room in my home to another student
for the 1995—96 term to supplement my savings.
After my job at the hospital, I found work with an insurance
broker. This turned out to be a good education in the
area of consumer insurance products. I also gained an inside
perspective on the claims process when my house was robbed
and my car stolen. Those experiences along with on-the-job
knowledge led me to confidently bypass the insurance broker
and choose future policies with a discount insurer instead.
By 1996, my financial picture was looking good. I added
a canvas awning to the front of the house but couldn't think
of any other improvements to make. There would be more
yard and gardening work to do, but landscaping was a hobby
of mine and something to look forward to when I was retired.
The housing market was recovering, and I watched the value
of my home gradually increase. My net worth was $225,000,
but I continued to work. Finally, a very sad event nudged me
into retirement.
For most of my life, I've lived near my family. Part of the
reason I made an offer on my first house was that it sat across
the street from my aunt's home. It was comforting to know
that if anything went wrong I could just run across the road.
In fact, when I initially couldn't sleep in my spooky house, I
spent the nights on her sofa bed. Even though my aunt was
self-supporting all her life, there were problems with her various
jobs, and in later years she was miserable at work. When
she turned 65 and retired, the change in her personality was
remarkable. She was cheerful all the time. She happily went
on outings with friends, participated in many volunteer activities,
was quick to help our family, and enjoyed new hobbies.
She loved being retired! Sadly, her health failed, and, after only
a few years of joyful freedom, she died.
Her death made me realize that life really is too short. I
felt so sad that she spent most of her life working long and
hard for the reward of a happy retirement, which in the end
was simply too little, too late.
After 15 years of working, I quit and retired at 36.
FREEDOM FACTORS
Eliminate the mortgage and don't take on any new
debt.
Determine cash flow and income needs for both
phases of retirement: before and after age 65.
Contribute to an RRSP in January for that
calendar year.
Build a substantial and diversified net worth.
Look for income from all sources.
Research alternatives in all areas: investment
products, regular expenditures, assets for net worth,
major purchases.
Gather as many "expert" opinions as possible for
any financial plan or transaction, then do your own
research and make your own decisions.
Don't use fleeting rewards or fear of freedom to
keep you in the rat race.
Spend less time making a living and more time
making a life.