PODCAST

Podcast: Play in new window | Download

Show Notes

• We equate financial independence (FI) with early retirement.
• We examine our experience from the non-financial and the financial perspectives.
• The financial perspective follow 5 of the 6 practices for achieving FI from episode 14.

The Non-financial Factors of Pursuing Financial Independence

• Pursuing financial independence requires making changes to your lifestyle which isn’t necessarily easy. So it requires commitment.
• We live below our means because we have a frugal mindset. However, it didn’t come naturally to Claire. It was how she was raised. It’s an idea she bought into it. Her parents taught her how to approach money.
• We practiced delayed gratification, weren’t impulse spenders and saved up for things.
• Satisfy your needs first and save for your wants.
• We set goals and worked towards achieving them.
• Ted always writes down his goals because it’s a way of making a commitment which increases the probability of achieving them.
• Communications and transparency are essential in order to control finances and shape a retirement plan.
• Communicating is important to confirm that you’re both still committed to the goal you’re trying to achieve.
• We conduct our affairs similar to how a business operates. At the start of the year we talk about our short term and long term goals. It provides a framework and common ground for having conversations.
• Claire wanted to retire early because work didn’t give her life meaning. It’s creative projects that she enjoys.
• For Ted, he became more interested in retiring when he saw friend’s retirement plans get derailed by health issues.
• Claire believes avoiding work-related stress has helped us enjoy good health in retirement.
• We didn’t fall into the “one more year syndrome”. While it’s true we could have accumulated more wealth, we view our early retirement years as priceless.
• We retired together and Claire would never agree to one more year.

The Financial Factors of Pursuing Financial Independence

• Turning to the financial practices with number 2 – examine your financial health.
• We track our expenses, calculate our net worth, monitor asset allocations and have a detailed retirement plan.
• The practice of tracking expenses, knowing how we spent by category, was very useful when we retired. It helped us understand how we were going to draw down our savings.
• We purchased affordable cars and held onto them for a long time (7 – 10 years).
• Monitoring our financial health enables us to manage things proactively.
• Number 3 of the 6 practices to achieve FI is control spending. We budget, compare actual spending to the budget and forecast.
• Number 4 is avoid debt. We kept our mortgage cost down because we purchased a house we could manage on one income.
• We avoid credit card debt by paying off the balance every month.
• Credit cards have their place. They’re easy to use, more secure and offer benefits such as airline miles, extended warranty and dispute resolution.
• We purchased our cars and drove them for a minimum of 7 years. We never had to deal with car payments so we were able to save that money.
• Maximize savings (#5). Ted took advantage of every money-related benefit offered to him: 401k, HAS and ESPP.
• He made every catch up contribution when he became eligible.
• Ted was able to maximize savings because they kept their living expenses in check.
• Claire early on focused on building up her brokerage account. She didn’t want to lock up that money because she anticipated early retirement.
• Practice 6 is invest efficiently which means keep taxes and investment fees.
• Put investments into the right account and buy securities (and derivatives) with low management fees.
• Regardless of what account you put your money into, stocks are the best way to grow your assets.
• Ted produced a video explaining the pros and cons of mutual funds and ETFs
• In summary, first comes the mental side and then the practice side of striving to achieve FI.