Do you ever dream of not having to
wake up early on a Monday morning
and drag your body to work?
Or Do you feel stuck working your 9 to 5 job,
when you could be spending your time
on something more meaningful to you,
something that you are more passionate about?
If you answer yes to any of these questions,
then you are in the right place.
because in this video,
I want to share 7 simple steps you need to take
in order to retire early in Canada
Hey, this is Thomas!
here to help Canadians to make better choices
on Retirement, Wealth, and Insurance
my goal is to make sure
you can take 1 or 2 ideas home and
start making smarter financial decisions today
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When it comes to the topic of retiring early,
a lot of people tend to ask this question:
what on earth am I going to do if I retire early?
First of all,
retiring early does not mean that you are just
going to sit at home all day and not do anything,
this is a very common misconception.
If you ask a lot of early retirees,
retiring early simply means that they don’t have
to get stuck at a 9 to 5 job that they don’t love,
and instead they will be spending their time
on things that interest them,
things that matter to them.
Using a real life example,
one of my friends,
Joey,
used to be an accountant that made 6 figure income.
When he quit his job at the age of 39,
a lot of people said to him
you must be out of your mind to quit such
a high paying and stable job.
To Joey though,
he still thinks this had been one of the
best decisions he made in his life.
He used to always work well into
the late evenings during tax seasons,
and sometimes even on the weekends;
he never was able to attend his son’s soccer practice,
or his daughter’s ballet class.
Now that he saved enough to be retired,
not only can he spend more time with his kids,
he even has time to pursue his true passion
in culinary art.
You might be wondering
how was Joey able to do this before 40,
while you are still stuck at your 9 to 5 job?
It’s actually not as complicated as you think,
if you follow the right steps that
I am going to talk about shortly.
Before I go over the seven steps you need to take
to achieve financial independent,
I want to share where I get the ideas from.
I was inspired by a guy name Dave Ramsey.
Dave is an American radio show host and businessman.
In the last 25 years,
he transformed from someone that
declared bankruptcy into a multi-millionaire
with a net worth estimated at 200 million.
In Dave Ramsey’s book,
the Total Money Makeover,
he went over how he used the 7 baby steps to turn
himself from broke to debt free to financial independent
to even becoming financial abundance.
So base on those ideas and i add my own thoughts to it.
Step 1: Save for your emergency fund.
This first step shouldn’t be too hard
to reach for most people,
but don’t underestimate the importance of this first step,
because it would give you the most basic protection
in case anything unexpected happens.
I usually recommend,
you should have at least 3 to 6 months of your expense
save aside as your emergency fund.
And if you are really tight on your budget,
at least get a pre approved line of credit.
But you do not,
I repeat
DO NOT borrow from your credit card
as your source of emergency fund.
If you already have this emergency fund saved up,
you can jump right to step 2,
which is to clear all your bad debts.
A lot of young adults start off their careers
with a bunch of loans like credit card bills,
car loans, max out their line of credit.
What Dave recommends is to use a strategy called
the debt snowball method to clear your debts.
In this debt snowball method,
your goal is to pay off your smallest debts first,
while you are paying only
the minimum balance on the larger debts.
This way,
you can clear your debts one by one
starting from the smallest ones to the biggest ones.
Once you clear all your debts,
you should have some extra money for this next step,
which is to get a life insurance and sickness insurance.
This will protect you against life’s bigger surprises,
such as accident & sickness,
without slipping back into debt.
For a term life insurance,
It probably costs less than $30 a month
for a young adult
Now that all your debts are clear
and you have a safety net set up,
congratulations,
you are almost half way there!
In step 4,
invest 15% of your household income in retirement.
It’s never too early to start your retirement planning,
no matter your age.
If you want to retire early,
you need to start planning for this even sooner!
There are multiple investment vehicles
for retirement in Canada,
with the most common ones being RRSP and TFSA.
I am not gonna go into the details of how to use
each of the retirement investment vehicles here,
but if you are interested in learning more about them,
you can go to my previous videos.
Depending on how risk tolerant you are,
you can either invest into GICs, bonds, mutual funds,
ETFs, stocks, or a combination of these.
No matter what you decide to invest in,
the main point here is,
take 15% of your household income
and start investing it into your retirement.
My advice is you can invest this money long term,
try to invest places that gives you
at least 6% and above in average.
If you are not a very disciplined person or
you don’t think you can put 15% right of the bat,
I highly recommend you to open
a dedicated bank account for this,
and set up auto-deposit such that
every time you get paid,
whether it’s weekly, bi-weekly, or monthly,
a portion of your pay cheque will get
auto-deposited into that account.
By doing this,
you don’t even have to worry about
if you have anything left at the end of the month to
contribute towards your emergency fund account.
Remember it’s not how much you saved,
it’s how early and how frequent you saved.
If you don’t have any investment experience
or you are not exactly sure what you are doing,
I would be more than happy to help.
Next step is an optional step I would say,
because it really depends on whether you have kids,
and whether you want to
provide this for your kids or not,
and that is to save up
for your children’s’ education fund.
I often heard my clients said
Hey Thomas,
I don’t think I will save for my kid’s college tuition,
because once my kids turn 18,
they are grown-ups and
they can choose to attend college or not,
and if they choose to attend college,
they can either work to fund themselves
or ask for a student loan.
It’s true that parents should not be obligated to
save for their children’s education.
But imagined,
When you are almost going to retired,
your kids are still at your basement because they
cannot afford to move out because of the student loan.
And I see so many people who are retired,
their kids are at 40s and they just finish
paying off the student loans and
slowly saving up for other financial goals.
So imagine who they going to turn to
if they have financial difficulty.
So yes it’s quite ironic that,
when you are planning to retire early,
you also need to think of your dependents too.
Utilize the RESP,
not only the government give you the extra 20% bonus,
if the kids don’t go to school,
you can transfer the principle plus interest
to your rrsp anyway.
Now that you’ve saved up an emergency fund,
built up an investment portfolio,
and saved up an education fund for your kids,
the only thing that stands in the way between you
and financial freedom is your mortgage.
Can you imagine what your life would be like
without a mortgage payment?
Any extra money you can put towards
your mortgage every year could save
you tens of thousands of dollars in interest.
Most banks allow you to pay a lump sum of money up
to a certain percentage of your mortgage every year,
so if you have any extra money lying around,
you should definitely consider taking advantage of this
to help you pay off your mortgage faster.
This is also where the concept of
passive income is important,
Examples of passive income include dividend paying stocks,
the rent minus all the costs from a rental property,
or businesses that require very little of your time to manage.
Most wealthy people and early retirees
have multiple sources of passive income.
Once you pay off your mortgage,
guess what?
Congratulations!
You’ve finally made it to the last step,
and that’s to live your life like a baller!
I am kidding.
The last step to financial freedom is to
keep building wealth and give back.
When you ask most of the early retirees,
reaching financial freedom doesn’t mean they’ll live lavishly,
but it’s actually quite the opposite,
they’ll continue to live frugally.
You might have heard that some lucky individuals
won a lottery and got rich overnight,
but chances are these individuals
could not retain their wealth because they lived like a baller,
and hadn’t done any proper wealth management
and retirement planning.
Don’t worry though, this won’t happen to you,
because you just went through this video
and you have the knowledge now
Now it’s time for you to take action so that you can be
financially literate at the time you are desired.
It’s totally achievable if you have the right mindset,
follow the right steps,
and be persistent about it.
If retiring early is your goal,
or if you’ve already reached that stage
or know someone that’s successfully done it,
please leave me a comment down below,
I would love to know what you guys think about this topic!
This is Thomas and I’ll see you guys next week!