5 Keys To Becoming Financially Free

We want to be financially free by the time I reach 45. That freedom will allow us to pursue our passions much earlier than traditional retirement age. To get there we’ll need to be debt-free and have sufficient assets and other income producing endeavours to allow me to leave full-time employment behind.

Unlike some early retirement success stories, mine won’t be all that extraordinary. We spent most of our 20s in debt. I’ve never earned a six-figure salary. I don’t have a high-earning spouse. We don’t have a crazy-high savings rate. We didn’t pay off our home in three years. We didn’t make hundreds of thousands in the stock market. We don’t flip houses or have a real estate empire.

No, instead we’ve taken a simple and boring approach to our finances, trying to find an appropriate balance between earning more, spending less, and saving where we can. We want to smooth out our consumption (and happiness) throughout our lives. Why deprive your present self happiness just to reward your future self (or vice-versa)?

Still, becoming financially free by 45 is a great accomplishment and here are the five key reasons why we’ll get there sooner than most.

5 keys to becoming financially free

Keys To Becoming Financially Free

Buying our forever home

My wife and I lived in a two-bedroom, one-bathroom starter home for nearly a decade before we built our ‘forever home’, in which we’ve lived for the past six years. It’s the exact size, layout, design, and location that will keep our family of four functioning in for at least the next two decades.

Our house is located in one of the fastest growing neighbourhoods in the city, within walking distance to a bunch of amenities, including groceries, gas, dining, and recreation facilities. Our girls will attend a brand-new elementary school this fall, which is located just down the street from us – no more than a five minute walk away.

We stretched our finances a bit to make sure that the home was perfect for us both now and for many years in the future. Ironically, we probably ended up savings tens of thousands of dollars by skipping the next-size-up home and going right to our forever home.

The average Canadian will own 4.5 to 5.5 homes in their lifetime. Three out of 10 homeowners get the urge to move every five years, and 14 percent actually want to move every year. Acting on that urge to move every few years could easily cost you $100,000 or more in real estate commissions, lawyer fees, and moving expenses throughout your life.

Many seniors now carry mortgage debt into retirement. Our mortgage will be paid off in the next 5-6 years and, if we continue to resist the urge to move or ‘trade-up, we’ll be financially free in our 40s.

Living close to work

A long commute to work can be damaging in a number of ways. Spending an extra hour or two on the road each day takes away from time with family and friends, not to mention the added cost of gas and wear & tear on your vehicle.

I get that living close to work is not an option for many Canadians. Not when the jobs are downtown and the homes in that area start at $1 million and up.

But in my city of 100,000 people I’m fortunate that I can buy a home close to where I work. My morning commute to the university takes five minutes by car and another seven minutes to walk (I park in a free lot off-campus). I’m close enough to come home for lunch every day and be home before 5:00pm most days.

What does that mean for financial freedom? Well, it means we spend less than $200 per month on gas. It also means I drive less than 100 kilometres a week, which keeps my 10-year-old vehicle in good enough shape to hopefully last another five-to-10 years. Over the years that adds up to serious savings.

Two paid-off vehicles

We have a 2007 Hyundai Tucson and a 2013 Hyundai Sante Fe. Both vehicles are paid off. The Tucson has just over 100,000 kilometres on it and the Sante Fe just crossed the 70,000 kilometre mark. We take care of these vehicles and hope to have many payment-free years of car ownership.

A recent report by the Canadian Automobile Association says car ownership costs Canadians $9,000 a year per vehicle (including depreciation). Add a trailer or RV into the mix and Canadians have a lot of money tied up in their wheels.

We don’t own an RV, but our two vehicles still cost us a combined $4,500 per year for insurance, gas, maintenance, and registration. The longer we can keep our paid-off vehicles on the road and in good shape, the more money we keep in our savings on our road to becoming financially free.

Starting a business on the side

This past weekend I wrote three freelance articles and billed out $1,650. Indeed, writing about personal finance and investing has proven to be good use of my spare time. What began seven years ago as a hobby has turned into a fairly lucrative side hustle that includes two blogs, several freelance writing gigs, and a financial planning service.

We incorporated this business in 2012 and utilize the current ‘income sprinkling’ rules to stream dividends to my stay-at-home wife.

Starting a successful side business has opened up all kinds of options for us, financially. For one, the extra income means we can afford to have my wife stay home full time and look after our kids. This is extremely important for our family and something we try not to take for granted.

The steady income acts as an emergency fund, of sorts. We know we can count on earning a few thousand dollars each month, plus more if we put in the extra time and effort.

I haven’t seen a raise in four years at my day job, but with my side business there are endless opportunities to earn more money. It’s also one of those passions I mentioned earlier – something I can continue to pursue long after becoming financially free.

High savings rate

It’s not how much you make, it’s how much you keep.

We naturally have a high savings rate because we pay close attention to our day-to-day finances, we’re careful not to overspend on things that aren’t really important to us, we save on big items that matter, like housing and cars, we look for ways to earn more money, and, quite frankly, we treat retirement savings like a fixed expense.

We don’t have a crazy high savings rate like some early retirement extreme bloggers. You won’t find us saving 75 percent of our income, but we do save about one-third of our income. That number will likely increase to half our income once our mortgage is paid off.

It was our high savings rate, not high investment returns, that built a $150,000 RRSP portfolio over the last 10 years. And it’s our high savings rate that will fill our RRSPs, TFSAs, and RESPs every year as we strive to become financially free.

Final thoughts

These are the five keys for us to become financially free by the time I turn 45. Your mileage may vary, depending on your age and stage, plus where you live in Canada.

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  1. Valerie on September 4, 2017 at 6:15 am

    Well done Robb and family!! You are an inspiration to your age group. I love your newsletter, keep up the good work. I did many of the suggestions you talk about and at 73 am fianacially free!

    • Echo on September 4, 2017 at 3:38 pm

      Hi Valerie, thanks so much for the kind words! And congratulations to you, as well!

  2. SteveO on September 4, 2017 at 7:37 am

    I just sold my 11 year old 2006 Tucson that had 278,000 km. Didn’t need to sell it. I replaced with a 2012 Tucson with 71,000 km. My intention is to keep it 5 years or more. At age 60, we live in our second house but we find it too big now. Could have put up with the first little bungalow as that’s what we need with our 2 kids gone now. We stay-cation most of the time which saves us thousands. Lots of great community festivals and parks to enjoy nearby. Still on a $50 cell phone plan. Soon I’ll be a minimalist for tv and data at home. Who really needs data? Walk once a day to the library and use it for free.

    • Echo on September 4, 2017 at 3:40 pm

      Great stuff, SteveO! Spend the money on things that matter to you and find ways to save in other areas (house, car, tv, cell phone) like you mentioned. We love the library, too!

  3. Marian on September 4, 2017 at 7:59 am

    Congrats on your success to date!

    While not everything on your list is possible, your tips suggest common sense. I unexpectedly took an early retirement at 55. I’m not particularly good at finances (makes my eyes roll back) but I have lots of common sense. We still live in our 1st semi-detached home in a really expensive city. We have always lived within our means. That meant DIY renos, limited eating out and vacations, buying things on sale, used cars, etc and generally a “think before you buy” mentality. Plus saving as much as possible for rainy days and other big item expenditures like university for the kids.
    My friends have made fun of my frugality but I never felt like I was “suffering” in any way. Today, I am enjoying the fruits of that contained lifestyle and can breathe easier as I look toward the future.

    • Echo on September 4, 2017 at 3:42 pm

      Hi Marian, definitely common sense advice that just doesn’t seem to be so common these days. Thanks for sharing!

  4. GYM on September 4, 2017 at 8:53 am

    Great job on striving for and likely achieving freedom 45! That’s wonderful you’re able to drive home from work for lunch since your commute is so short. Do you plan to quit your day job once you reach FI?

    • Echo on September 4, 2017 at 3:47 pm

      @GYM – Thanks so much. I love being able to come home for lunch, or just to be so close to home in case anything comes up.

      No concrete plans to quit my job once I reach financial freedom but the option will be there. Truth be told, the option is there now if I were to ramp up my online efforts. But I’m in a good place right now and enjoy juggling both jobs for the time being, so we’ll see what happens.

      How’s that for a non-answer? 🙂

  5. Rhonda on September 4, 2017 at 10:39 am

    You briefly mentioned “sprinkling”….I was led to understand that this concept will no longer be available.Is this true?

    • Echo on September 4, 2017 at 3:54 pm

      Hi Rhonda, you’re right – income sprinkling is currently under review with the new proposed tax changes coming to private corporations.

      In our case, my wife is becoming more involved in the business now with both kids in school full time and so she’ll handle the bookkeeping and other administrative duties. Hopefully that will be enough to meet any new criteria and allow us to maintain our current income-splitting arrangement.

  6. Alan on September 6, 2017 at 5:10 pm

    Robb, you are definitely on the right track and I’m sure you’ll achieve your financial goals. One of the easiest ways to achieve them, as you’ve discovered, is to start early. I never earned a 6 figure salary and never had a company or government pension, but I maximized my RRSP contributions starting in my late twenties, and now my wife and I are living very comfortably off our RRIFs through the magic of compounding and stock market returns over time. Getting out of debt early is also key.

    • Echo on September 10, 2017 at 4:25 pm

      Hi Alan, thanks for the kind words. I feel like we didn’t get our finances in order until our late twenties, early thirties. But we did make significant strides right away, paying off all of our non-mortgage debt and getting a jump on our retirement savings. Now everything is going according to plan and it’ll only be a matter of time before we reach our financial freedom goals.

      Thanks for sharing your words of advice!

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