Could you and your family live on $25,000 per year? Before I met this week’s guests, the idea seemed fairly unrealistic to me but the number may be more achievable than I realized. Whether your goal is retiring early (like my guest) or something entirely different, there are huge advantages to living on less. This week, I’m joined by Court, who blogs over at Modern FImily. In 2018, Court and her partner, Nic, achieved financial independence, meaning they had saved enough money to live off the income generated by their investments.

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. This week’s episode is brought to you by EQ Bank. Did you know you can now transfer money overseas with transfer directly from an EQ bank Savings Plus account? Not only will you benefit from 2 percent interest on your savings, you’ll pay far less for international money transfers. While other banks have a habit of sneaking in markups and extra charges, that’s not something you have to worry about with EQ Bank. Visit maplemoney.com/eqbank to start saving money today. Now, let’s chat with Court…

Tom: Hi Court. Welcome to the Maple Money Show.

Court: Thanks. Thanks for having me on, Tom. I’m excited to be here.

Tom: I met you in person not too long ago in Calgary and one of the things that really surprised me is that you live on $25,000 a year, which (to me) sounds impossible. I’ve done the frugality thing. I’ve never been able to go that far with it. I save a few bucks on my utilities because I put my thermostat down a degree or two. But I honestly can’t imagine how this works so I want to run through this with you. But first, can we hop back to the beginning of this? You’ve lived throughout the US. What was that like then and what led you to come to Canada?

Court: I was born and raised in the US, in Florida. My dad was born in Canada so I had dual citizenship through him. I was not planning to leave the US, to be honest, until I met my partner, Nicole (Nic) who is from Canada. She was down in the States for school—on a school Visa, essentially. That’s when we met. She was finishing her first degree and going into her second degree down there. She had been living with me in Florida on a work visa for a couple years and she was just not a fan of Florida—the heat, humidity, hurricanes, the people, you name it. It all kind of culminated into her wanting to move back up to Canada. She’s originally from Saskatchewan. A lot of her extended family, brother, sister, aunts, uncles, cousins, are all in the Calgary area. When we came up for a visit—a wedding for her cousin in Canmore and that was it for me. I said, “Oh, yes, I could live here.” Now, Canmore was a bit more expensive. Jobs, in general, offer much more opportunity in Calgary so we kind of had our mind set on Calgary but we wanted to live on the outskirts. We ended up on a town in the outskirts of Calgary. And that’s what eventually brought us here. That was back in 2015. We’ve now been here for almost five years.

Tom: How big of a culture shock was it financially to move from 401ks to RSPs? Did you have to learn everything from scratch?

Court: Oh, yeah, 100 percent from scratch. I was a bit clueless. I guess, naive. I don’t know what the right word is. I did not do the proper research I probably should have beforehand. It was all kind of learning as I went. So, between TFSAs, RSPs, RESPs, now that we have a child, all of that was learning as we go. I have to file both my US and Canadian taxes since I’m still a U.S. citizen. Even though I don’t live in the US anymore, Uncle Sam requires me to file my taxes every year. All of these were things I didn’t realize I had to do before moving up here. It was, “Oh, I have to do this,” or “Oh, we need to learn about that.” It was a lot of learning as we went. But to be honest, in terms of investments, they’re pretty similar. RSP is similar in terms to a 401k and a TFSA is similar to a Roth IRA. So I’ve been able to figure it out but it’s just terms you have to learn about.

Tom: How do you find the cost of living difference? The way I see it is, yes, we get health care but we probably pay more taxes. Are those the pros and cons for you?

Court: Yes, that was definitely my thought prior to moving up here. I figured my taxes were going to be way higher. And in reality, they’re a couple percentages higher. It’s not zero taxes to 50 percent taxes. It’s low 20s and low 20s. It’s comparable. You might pay one, two or three percent depending where you fall in the tax bracket in marginal tax rates. But it’s really not that much more considering you have universal health care. There is no cost to it. You cannot put a price tag to it. I think that’s what makes being able to even think about retiring early so much more feasible in Canada. That’s one of the biggest concerns in the States—health care, health care, health care. And here it’s not that big of a concern. You have your primary doctor. You can go to the E.R. You can be seen for a hospital visit but you only pay for parking. You don’t have to worry. In the States there are co-pays, deductions, and all of that. Plus the 80/20—whatever you end up having to pay out of pocket is unknown. There are just so many more unknowns in the States when it comes to health care. That, honestly, you cannot put a price tag on. That peace of mind that you get up here. From a cost of living standpoint, it’s pretty similar. Food costs a little bit more here. Housing is a bit more here. I find with my income (at least that I can speak to) and when my wife was working hers. She actually was making a bit more in Canada as a nurse. My job, salary-wise is pretty comparable to what I was making in the States. I think the biggest thing is a real estate piece, especially for people in Toronto and Vancouver who have it out of control. At least here in the Calgary area, it’s maintained to a sense in comparison. I think that’s the biggest difference. But for us, we haven’t really noticed that big of a difference in terms of cost of living.

Tom: The other interesting thing is you’re financially independent. When did that happen? Was that when you were still in the States or is that when you came to Canada?

Court: It happened in 2018, once we were up here which aligns with when our daughter was born. It was essentially when our daughter was born, my wife went on parental leave and decided not to go back at that point because we had reached financial independence. A lot of my earnings had been while I was still in the US. I was maxing out all my retirement accounts up there and we had a house-hack down there, which really played a role in all of this. It started in 2009 when I started my first “big girl job” after my Masters until 2018 which is when we reach FI (Financial Independence) for our family of three. We are hopeful to become a family of four in the future so I am still working part time with that in mind—to have a higher FI number because we’re hoping to increase our family by another person.

Tom: Another big part of why your FI is because of your spending. Let’s get back to that. How do you do that? It’s roughly $25,000. What steps did you take to get down to this? And what makes this up? That’s a very loaded question but we’ll unpack it.

Court: I’ll focus on the top three. The three main categories that most people spend their money on are housing, transportation and food. For us, for housing, we house-hacked back in 2012. What I mean by that is we bought a 2,000 square foot townhouse. It was three bedrooms and had what I’ll call a basement, in Florida. There are no such things as basements in Florida but the first level was essentially a basement and then you walked upstairs to the main level. Then you walked up another set of stairs to the bedrooms. I rented out the two other bedrooms on the top floor and that basement as a bedroom. So I had three roommates living with me for two and a half years. And essentially, by having that, it basically sent our mortgage from a 30-year mortgage to a 4-year mortgage—just by having those three roommates for two and a half years. Then we super charged and were paying above our mortgage amount for that two and a half year timeframe. Nic had moved in when she was done with her school and got a job closer to me. And so the two of us were contributing and adding more so we were actually able to pay off our mortgage in two and a half years. That supercharged everything. We then moved to Canada. We continued to rent that place out to a family for two years. We netted about $900 US after all was said and done with all the expenses. We eventually sold it in 2017. We bought it for $169,000 US during the crazy foreclosure mayhem. We got in on the good side of things. And we sold it for $270,000 US. It was about $240,000 after closing costs. So between the gains we made from selling it, the gains we made from renting it out while we moved up here, and from having their roommates in two and a half years that we were living there, those proceeds essentially covered the costs of our brand new townhouse when we moved up here. We don’t have a house mortgage that we need to worry about. So from a housing standpoint, we spent about $735 a month between insurance, property taxes, HOA and all the utilities. That’s cheap. We don’t have a mortgage to deal with. Again, this happened in 2012 right after I finished my Masters. I was used to living with roommates for years so it was like a no brainer for me. I was living in an apartment for a couple years and then the foreclosures happened and it just made sense for us to jump in and buy. And I know if that’s a one off, although who knows, the way the economy is now, there might be opportunities like this in the future. It was unique and we jumped in on that.

Tom: Well, I just want to say, too, I like that you were renting these spaces out because a lot of people look at people that paid off their mortgage quickly and so often the answer is, “Well, we’re engineers and we’re making $200,000 a year.” But like you said, the rent they were paying, paid your mortgage and then some. It accelerated it. That’s something anyone can do. They’re giving something up. By all means, you’re losing some privacy and all that but it’s something that doable. And your job really had nothing to do with that. It’s encouraging that that’s actually an option for people. And it’s not always that you need this huge job pay off your mortgage in under five years.

Court: Exactly, yeah. Between the three roommates we were getting about $2,250 in rental income—just between the three of them. That’s not us contributing anything on top of that. Anyone can get a roommate. If you have the space, of course you can decide to turn it into a roommate situation. That’s definitely something that anyone can do. And again, this was two and a half years of roommates that moved our mortgage from 30 years to four year. It was a no brainer to us. Then the next big thing that tends to be the main expense is transportation. We’ve only ever driven used, low mileage, reliable cars. We’ve paid for our cars. We have two cars right now. We paid for them in cash, up front and have not really spent much on maintenance over the years. They’ve been pretty reliable for us. We spend about $280 a month between gas, car insurance, and a miscellaneous car expenses like oil changes or anything that comes up. That’s our car or transportation related expenses. Then the next biggest thing tends to be food. We spend a little over $400 between the two of us. Now that we have a little human that eats a ton, we spend about $75 a month on her. We spend under $500 between the three of us, per month, on food. And typically we are shopping at No-frills. We don’t have a superstore near us so we tend to shop at No-frills. We’ll buy in bulk. We have a deep freezer. We’ll buy bulk chicken breasts or chicken thighs or whatever and separate it and put in the freezer. If anything goes on sale that’s something we typically use, we have no problem buying a lot of it because we know it’s something we’re going to use. We spend probably a majority of our meals—I want to say maybe 70 to 80 percent of our meals, most breakfasts, most lunches are vegetarian. We’re not vegetarians but we just happen to not eat a ton of meat during those meals. Maybe half of our suppers are meat, maybe more. It’s not that we’re eating a plant-based diet although we are trying to incorporate more plant-based eating into our meals just from the health side. But it’s not because of that. When we get the newspaper, we immediately just go to flyer section to see what we can buy for the week. That’s how we base our spending on food for the month. Those are the three main things. If you can eliminate some excessive spending there (in my mind) your golden. The other thing that adds to food is we only go out to eat maybe once or twice a month. When we do it’s not an expensive meal. It’s maybe $20 for all of us. Maybe we’ll get something and bring it home because it doesn’t make sense for us to pay tips or whatever the case may be. But we tend to get things that we aren’t very good at making ourselves, so we view it as a treat. And that’s kind of our big thing in general; we consider ourselves as valuists in that we spend things that we value and we cut out the fluff—we don’t spend on other stuff. Otherwise, we value travel. We spend about $125 a month, which comes out to about $1,500 a year on travel which seems really low, but we’re really big into travel hacking. So we’re able to do multiple trips a year but just at very low costs. That definitely lowers our yearly expenses a lot. And then our daughter, we’re maxing out her RESP accounts. We put in $2,500 a year (about $208 a month) to get the $500 government match. And besides that, we spend about $80 dollars on everything else child related; diapers, wipes, clothes, toys, books, you name it. She’s almost two and we’ve spent just under $2,000 on her on everything. Kids don’t need a lot. You don’t need to spend a lot. There are so many parents out there that are just dying to clean out all the stuff in their house from their kids. Literally, we have gotten so many clothes, so many toys, so many books for free, from people we don’t know. Or just from apps online. It’s not like we have this huge network of friends and family with kids the same age. It’s random people. We use an app called, Varage Sale, for example. That’s big in our town. Parents are always posting things on there. It’s like a cycle. We’ll use it and over the next couple weeks or months (once we’re done with it) we’ll post it for free and get it out of our house. That way it goes on to the next home. We view it as a positive for everyone. We’re able to eliminate needing to buy things that are only going to end up in the landfill. Instead, we’re using someone else’s and then passing it on to another parent who can use it for free too. We haven’t spent a lot on our daughter. You can. I think you can spend that much on a stroller alone if you want to. But our stroller was free. We have no problems with it. We love it. It’s a jogger’s stroller. We got it for free on there. There are so many things out there you think you need—top quality things you think your kids need to be the “best of the best.” But they just want your time and attention and your love. All of that is free. Besides that, the only other thing that is really in our spending is a miscellaneous category that is about $130 a month. That could be anything from new glasses we may need, clothes, stamps, gifts or passes to the sports center, skiing, or speeding tickets. Everything else kind of gets lumped into this miscellaneous category that’s about $130 a month. So, yeah, that brings us right under $25,000 a year which is what we are currently spending.

Tom: Wow, that’s great. I’d like to go back to a few things I found interesting. One, you mentioned buying used vehicles. You had shared a post with me about how “used” you should get. I thought I was doing a good job. I was I was getting about vehicles about two years old where there was maybe a year of warranty left. I was getting a good deal and though I was doing okay. I don’t buy new. But the post you shared with me recommended it was at least six years, I think. Is that the range you’re in? When you say used, how old are we talking and how much mileage?

Court: This is a post that Frugal Heads had posted a little while ago, a couple months ago. She basically did this analysis that said a six to seven year old car was a sweet spot of the used car market. That’s essentially where we’d fallen into. Last year in 2019, we purchased one of our cars, which was a 2013 Subaru Legacy. At that point, it was a six year old car. Then a couple years ago we had purchased our other car that we drive which is a 2009 Toyota Corolla. I think we bought that maybe in 2016 or 2017. It was maybe a seven or eight year old car at that point. That seems to be the sweet spot for us. The Corolla had very little mileage on it. I think it had 70,000 kilometers on it. Considering it was an older car, that’s nothing. If you ask my wife, this is her hobby, research. She’s buying these deals. They’re out there. If you are willing to take some time to look, you can find really good deals out there. And like these cars will last. We know the brands are going to last us for a long time. So even if they are 10, 15, 20 years old cars, to me, that’s no concern. Our Corolla, I actually love that it has manual windows—the the old school crank. That’s my favorite feature of the car. I love it. I don’t like all the new technology that’s in cars. If you are into that, this may be a deterrent for you. I personally love like the lack of technology in the older car. So for me, I think it’s amazing. I show off the fact it has the crank.

Tom: Well, I do like technology in cars. I like all the little bells and whistles. But my car is 2012 now. And while it was pretty new when I bought it, it still runs perfectly. Today, if I were to buy a 2012 vehicle, why would it not run? It’s got a lot of the good stuff. Everything’s electronic. If someone were buying a car today that is six, seven years old, certainly they can get all the features. It’s going to cost them a little more but the features are there.

Court: Yeah, exactly. Our Subaru we just bought has heated seats, remote start and all the niceties so that’s like our luxury car. The Corolla is our commuter car. However, you want to think of it.

Tom: Now, with food, the stat that I’ve seen in a few different situations is that a family of four in Canada spends about $1,000 a month on food. You’re a family of two and a half, let’s say, and you’re only doing $500?

Court: Yeah, just under $500.

Tom: I think you’re well on your way to doing fine. When you say you look for sales and everything, are you still pretty much sticking to your store or do you obsess and start going to five different stores?

Court: No, we pretty much stick to one, maybe two stores. There are certain things that we can’t get at No-Frills that we enjoy so we will go to another store for those specific items. Like, we love Safeway buns, for example so we’ll go there and get their buns and bread or whatever. But for the most part, we stick to No-Frills. We can usually find everything we need pretty much on sale. But again, if we see that butter is on sale, for example, we’ll get three sticks of butter. We’re not using those within the same week, but they last. It’s just buying on sale, in bulk, on items that will last. When we do that weekly or however frequently we go to the store, we find we’re able to really stick to this budget without having to jump from five different groceries just to get this one item because it’s on sale there. We’re not that crazy about it. We don’t coupon. We’re not that obsessive about it. We just find that whenever there is something we really do, we have no problem access of it and throwing it in the deep freezer.

Tom: Yeah, there’s definitely a cycle to it. To be really Canadian, if there’s Kraft Dinner on sale, it’ll literally be on sale once a month at any store. If you’re just kind of buying on a cycle… With this whole Coronavirus thing my wife was wondering if we had enough food or if we needed to get some. I looked in the pantry, in the freezer, and told her, “I think we’re good for three months,” because we do stock up while things are on sale. So, we’ll be fine for a while just based on what we’ve bought. The other side of this is, if you’re reducing your expenses, what do your investments look like? I don’t need to get too personal with it but how does this support your financial independence?

Court: During our wealth accumulation phase, we are pretty much in 90 to 100 percent stocks within index funds. We’re big index fund investors. So, 90 to 100 percent was in stocks. And then about a year or two ago when we reached our FI number for a family of three but still planning for this larger number to become a family four, we have slowly shifted it into more bonds and cash. Now we’re sitting closer to about 60 percent stocks and 40 percent in either bonds or cash, whether it’s passionate checking account or in a high interest savings account. Seeing what the feds are doing with interest rates, who knows what that high interest will actually be but that’s why 40 percent is between bonds and cash. The other 60 percent is basically within stocks. That’s kind of our strategy. Once I do actually retire early myself, my wife already has, our plan is to do a glide path over the 5 to 10 years of our early retirement to bring us back to 90 to 100 percent stocks down the road. We’ve done this adjustment down out of stocks and then slowly we’ll glide back into more stocks over time.

Tom: What’s the benefit of doing that? It sounds backwards to what you hear from a lot of people. You go more toward bonds as you get older and older.

Court: Yeah, I think this is mostly for early retirees. This is a strategy. So Early Retirement Now—Big ERN, made this huge 30 some-odd posts on safe withdrawal rates. Part of it talks about this glide path. He can go into a lot more detail in that but essentially, you’re basically trying to hedge yourself from sequence of return risk over that initial first few years while you are retired. You don’t want to be too heavily allocated in stocks in case something like what’s going on right now, happens. It’s so we have enough cash that we can just touch our cash, maybe have to touch our bonds without having to touch our stock portfolio at all. We’re not selling. There still no paper loss for our stocks at this point with the idea that it can rebound. Then five or 10 years from now, we’ll still only be in our 40s. Our life expectancy is still quite long so the idea is you want your portfolio to be able to keep up with whatever your safe withdrawal rate is. So for us, where using closer to a 2 percent withdrawal rate. Although, there’s a lot of talk about the 4 percent safe withdrawal rate. We’re much more conservative and want to have our portfolio grow. The chance of it succeeding more than 30 years is based on a high allocation of it being higher in stocks and more of a 50/50 split. That’s the goal of bringing it back into more stocks. That way when we’re, say 70, 80, 90, our portfolio is still intact, essentially.

Tom: Exactly. I think there’s still this old advice about moving into bonds when you retire. Even that advice still goes back to when people would be retired for five years and then they’re dead. Now that they’re living to 90, you’re looking at like a 30 year investment timeframe which is a lot of time. Why would you want to be too heavy in bonds? I like that and the fact you are 20 percent in bonds and cash now. It’s probably going to look like an awesome move considering the current market as we record this. Is there anything else I’ve missed here? Anything we’re missing in the numbers that we haven’t covered?

Court: I don’t think so. The only thing I would mention is, once we do plan to retire our FI number is going to be higher than our current $25,000 spend. We’re currently estimating we’re going to spend somewhere between $35,000 to $37,000 as a family of four. We’ll have two kids, two RESPs, more food, more kid related activities, home repairs. We’re including that because right now our home is relative new but over time we’ll have to include that. An additional phone—my work currently pays for my phone but my wife uses public mobile and we’re not expecting that to be very high. But we’re adding that into the buffer as well as supplemental health insurance. Once again, right now through my part time job, it’s covered. But once I leave we’ll need dental, vision, prescription. And then we’re also including inflation between now and when we actually do pull the plug. We’re adding inflation to all of our current expenses to say, “Okay, everything’s basically going to go up a couple percentages each year,” so that’s what’s bringing us to the higher amount of passive income we’re striving for.

Tom: It sounds like you’re doing a great job of planning ahead with this. I agree that the kids will be the biggest portion going forward because not only are they going to start to eat all the food that you’ve got, but there are so many different school fees, field trips, music classes and everything else. It can get out of control. And judging by the way you’re spending, I think you’ll keep it in control but it’s good you’re planning for the fact that you are looking at an increase in the in the coming years. You said it like you have it all planned out. Are you spread-sheeting this? How are you looking at the future?

Court: Oh, yeah, I’m a crazy spread-sheeter. I’m all about numbers. You know what? I’m like very in tune with our numbers. I don’t obsess about it the way I think some people do. I started our blog and our Instagram account a little over a year ago. And before that, I was only checking our net worth maybe once or twice a year. I was not obsessive about it. As long as we have our savings rate of 70, 80 percent, wherever it was, somewhere in that range, I know we’re doing good. Again, it was like mostly allocated in stock index funds. I wasn’t really rebalancing. There was no need for me to obsess over it. Now that we’re getting closer and closer, I’ve become more in tune with everything. But to that point, we’re also very, very flexible. We have designed our life now to be so incredibly happy that even though I’m working, I have no problem if our numbers don’t work out to be this exact timeframe—whatever the estimate is in my mind but ideally, I’m hoping it matches up with when baby two is born. That way I can go on parental leave. That will be our hedge for the first year where it won’t be bringing in income, but we’ll be getting benefits by being on parental leave. But if it doesn’t work out for whatever reason, we’re A-okay with it because my wife is already retired early. We don’t have daycare or childcare costs that we’ll need to corporate. That’s already taken care of. And I’m working part time now. The way I’ve designed my shifts is I work two shifts on and then I have eight shifts off. I feel like I’m already retired but we’re still able to maintain a 50 percent savings rate with my part time income. It’s just a very calm, Zen, point where if I end up doing this for five years instead of one year, we are okay with that because with those eight days off, I’m completely off. We are living our “retired life” during those eight days. Then I go to work for two days and bring in an income. So it’s really, really a nice transition, I guess you can say. I would encourage anyone who’s looking to retire early to look into coming up with whatever creative way they can to do a transition like this. That way you can test it out and see if on your days off are you incredibly bored or really enjoying it? You don’t really know until you’re in it. You have to design this life along the way so that it’s not this, grind, grind, grind, grind, grind. Then you reach this number and— halt. Then you can go live the life you imagined. It shouldn’t be like that. It should be that along the way you’re doing things you enjoy and incorporating that into your everyday life. Then you finally reach this number and now the work side of it becomes optional. That’s the only difference. I think that’s the biggest thing I am trying to portray and tell people; it’s really the mindset about this all. It’s understanding what makes you happy and focusing on that, and living that life while you’re still working and making sure it’s not the complete polar opposite of the grind to this imagined dream. That’s probably not going to live up to your expectations.

Tom: Thanks for digging into this because it came up so much more practical than I thought at the time; from how you paid off the house to how you keep the spending in check. It seems quite doable for anybody that really wants to do this. Can you let people know where they can find you?

Court: Yes. So we blog over at modernFImily. It’s a spin on Modern Family, the TV show. But FI because we’ve reached financial independence. So modernFImily.com. Or we are on Instagram which is also @modernFImily.

Tom: Great. Thanks for being on the show.

Court: Thanks, Tom.

Thank you, Court, for sharing the many benefits of financial independence and that living on $25,000 a year is not as far-fetched as it might sound. You can find the show notes for this episode at maplemoney.com/courtmodernFImily. Or, check out all the episodes at maplemoney.com/show. Are you a member of the Maple Money Show Facebook community? If not, I’d love to connect with you there. It’s a great place to ask a question or share a recent money win to encourage others. To join, head over to maplemoney.com/community to share with the group. Next week, Alan Whitton joins us to discuss the Disability Tax Credit and RDSP. See you back here next week.