What does financial freedom mean to you? To me it means “findependence,” a term short for “financial independence”, coined by veteran personal finance columnist Jonathan Chevreau. I really enjoyed Chevreau’s book, Findependence Day: How to Achieve Financial Independence: While You’re Still Young Enough to Enjoy It, and it got me thinking about my findependence.
Here’s my three-step plan to achieving financial independence:
1. Paying Off My Mortgage
August 1, 2012 will forever be a date etched in my memory. On that momentous day I became a first-time homebuyer and landlord on one fell swoop. I purchased a beautifully-renovated three bedroom bungalow in Toronto. Despite a down payment of $170,000, I was left with a mortgage of $255,000. That’s a lot of debt, especially for a single guy.
Fast forward to October 2014 and I only have $85,000 left on my mortgage. With mortgage freedom in sight, I plan to have my mortgage paid off in less than four years – by the end of 2015. When I moved into my house, I never thought I’d be able to pay down my mortgage so quickly.
Each year I’ve been able to maximize my mortgage prepayment privileges. My mortgage lender First National has generous prepayments – not only am I able to double up my mortgage payment, I can make lump sum payments up to 15 per cent of my mortgage, and increase my mortgage payment by 15 per cent. These prepayments are applied directly to my mortgage principal, greatly reducing my outstanding balance and saving me thousands in interest.
2. Streams of Income
As a young, single guy I have a lot of free time on my hands. Instead of watching TV or surfing the Internet, I thought I’d put my spare time to good use by making extra money. During the day I work as a pension analyst at a global pension and benefits consulting firm. At night I work as a financial journalist.
The number one rule in investing is diversification – don’t put all your eggs in one basket. The same rule goes for your livelihood. If you’re employed full-time and you lose your job, you lose 100 per cent of income. However, if you earn income from other sources like part-time and freelance work, at least you’ll have something to fall back on.
Besides my full-time job, I write for several websites. This reduces my risk because if I lose one writing gig, at least I only lose 20 per cent of my income instead of 100 per cent. I’m still able to pay my mortgage. I also work part-time at supermarket – if I needed to, I could bump up my hours.
Rental income is another stream of income. Not only does rental income help subsidize my mortgage, I can claim half my mortgage interest. Instead of living upstairs, I was inspired by Scott McGillivray of HGTV’s Income Property to live in the basement and rent out the upstairs. Instead of only earning $800 by renting out the basement, I’m able to earn nearly double that– $1,500.
3. Frugal Lifestyle
While many financial advisors say you’ll need 60 to 70 per cent of your pre-retirement income in retirement, I’ve been able to get by on a lot less. Transportation and food are the two most costly household expenses for most families. I’ve been able to reduce both dramatically.
Instead of owning a car, I cycle and take the transit to work. The average annual cost of driving a car is a whopping $10,456, according the Canadian Automobile Association (CAA), so I figure I save at least $9,000.
In an average month, I spend only $100 on groceries. How am I able to spend so little? I shop at discount supermarkets and price match. I buy in bulk when my favourite non-perishable foods are on sale. Even though I work 80 hours a week, I avoid fast food by preparing my meals in advance on the weekend when I’m less busy.
I don’t have a mobile phone or cable TV. Instead I stream my favourite shows online and borrow books and DVDs from the library.
Reaching Financial Independence
The journey towards financial independence hasn’t always been easy, but it will be well worth it. Reaching financial independence means I’ll work because I want to, not because I have to. I’ll no longer be saddled with six-figures of debt and I’ll have the freedom to pursue my lifelong dreams like writing a book on personal finance and cycling across Europe. Best of all, I’ll be able to enjoy financial freedom while I’m still young and full of energy. Achieving financial independence all comes down to goal setting and motivation. If you’re willing to work hard and make financial sacrifices, you too can achieve financial freedom.