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2022 Annual Review

As I said in our 2021 Annual Review, I write with post with some trepidation. In the interest in helping financial independence seem more attainable, I want to be very open about the math behind it. At the same time, comparison is a real source of suffering, and I don’t want to contribute to that. I’m also not a passionate tracker of these things, so our numbers are inherently rough. Regardless, in the hopes that this will do more good than harm, here’s how our finances played out in 2022.

Salary

I still work full-time and my wife still works part-time. This year was our first “clean” year in the sense that we were both working for Canadian employers. You’ll note that both our salaries are lower. For me, that’s because I got a lump sum payout on my vacation time when I left my US employer in 2021. For my wife, that’s because her US employer paid more. Now that our income situations are cleaner, I’m considering taking over our Canadian tax filing. For now, I’m planning to do it alongside our tax accountant and see if I get the same results.

And note that this is just salary — it excludes things like the Canada Child Benefit, re-imbursements, and credit card benefits.

2022202120202019
Me$98,871 (CAD)$123,680 (CAD)$84,652 (USD)$73,599 (USD)
My wife$24,672 (CAD)$35,341 (CAD)$20,418 (USD)$41,581 (USD)

Spending (minus taxes)

USDCAD
Monthly Average$4,913$6,466
Annual Total$58,953$77,699

This year, I shifted to tracking our spending in a much simpler way. Itemizing it simply took too long. Also, I’m not trying to cut our spending, so knowing where it goes (e.g. groceries vs home repair) isn’t important. And I’m leaving out taxes because we’re now having them pulled from our paychecks. Thus, when I pull our spending from our bank accounts I’m not getting them. I’m OK with that, though, as I need to figure them in manually for our post-work phase as we’ll have significantly less taxable income then.

All-in-all, I’m happy with this spending. Would I like it to be lower, sure, but that says as much about me as it does about our spending. Using the 4% rule as a rough estimate, this would mean we’d need ~$1.5M USD / ~$1.95M CAD to retire, with the caveat that we’d need to account for taxes. We’re close to these numbers, but not quite there as our net worth dropped last year.

Net Worth

All values in USD
Jan 1, 2023Jan 1, 2022Jan 1, 2021Jan 1, 2020
Cash$64,611$69,113$124,913$33,132
Taxable$247,552$269,830$134,469$78,060
457(b)s $167,360$184,711$154,718$131,036
Roth IRAs$229,437$279,360$237,008$201,669
403(b)s and RSPs$529,604$645,266$548,075$469,428
TOTAL$1,238,564$1,448,280$1,199,184$913,325

Our net worth went down by 14% in 2022, which isn’t too bad considering the market performance. We’re continuing to hold more cash than we usually would, along with ~$42K in iBonds, with an eye towards paying down a chunk of our mortgage when it comes due in 2025. After we top off our RRSP contributions for 2022, I’m planning to put the bulk of this cash into a 2 year GIC.

Housing

We don’t count home equity as part of our net worth. We purchased our house in July 2020 for $254,000 CAD (~$200,000 USD). The value has definitely increased from there based on comps. I’d guess, if we were to sell it today, we’d be close to (if not over) $350K CAD, which is nuts. When our mortgage comes due in 2.5 years, we’ll owe ~$178K. We’ll likely pay it off (or at least down significantly) if interest rates are high then. If not, we may do another 5 year mortgage.

Conclusion

Even with the market downturn in 2022, we’re still in the ball park of FI. At the same time, I’m not currently considering shifting to part-time work. This is partly because my company is going through a rough patch and I don’t want to make myself appear expendable. In addition, I’ve really come to appreciate the work-life balance that my job provides, along with a salary which would be very difficult (if not impossible) to find locally in semi-rural Nova Scotia. For now, my plan is to stay as a full-time employee for the next couple of years, then re-assess.

In addition, I’ve really come to realize that full retirement isn’t my goal. It does me good to have structure and purpose, and to have projects that make me engage with other people on a regular basis. Ultimately, I’d like to create this type of structure myself through part-time work and volunteering but, for now, I’m appreciating the security of a good salary with good work life balance. At the same time, I’ve started working with someone locally on some IT consulting that could eventually become a part-time replacement for my current job. We shall see.

2021 Annual Review

I have mixed feelings about putting these numbers down on the page. On the one hand, I think bringing more transparency and openness to personal finance is a good thing. At the same time, I think that our tendency to compare ourselves to other people is a lousy thing, and I certainly don’t want to encourage that. Fortunately, there are many people out there who have more money than we do, and there are lots of folks in the personal finance space who spend less that we do, so I don’t think our numbers should stir up too much suffering.

I’m also a bit hesitant to do this as I’m not a zealous tracker of every dollar that passes through our lives, and I realize that this isn’t a popular approach in the personal finance space. Until we moved to Canada, for example, I never tracked our spending or wrote out a budget. I’ve always felt that one of the perks of living well within your means is NOT having to track things religiously.

The combination of the international move and closing in on our FIRE number, though, made me more interested in knowing our actual spending. So I’ve been tracking that since we moved to Canada in the summer of 2020. I’ve also been tracking our net worth for about 9 years.

Salary

Currently, I work full-time and my wife works part-time. For most of 2021, we were both employed by US employers, switching over to Canadian employers in the fall. I got a bonus as I received a lump sum payout for my banked vacation time when I left my US employer. Next year, both of our salaries will likely be somewhat lower. And I’m only tracking our earnings from our jobs. In other words, I’m not counting things like the Canadian Child Benefit or investment earnings (which were all re-invested). We also received a small inheritance (~$15K USD) in 2021.

202120202019
Me$123680 (CAD)$84652 (USD)$73599 (USD)
My wife$35341 (CAD)$20418 (USD)$41581 (USD)

Spending

All expenses listed in CAD
Taxes$39,801
Mortgage$13,711
Groceries$12,152
Home Repair / Maintenance$9,754
Household$6,642
Utilities$3,042
Spiritual Health$2,519
Other$20,448
TOTAL$108,069 CAD
~$85,000 USD

The utilities number is actually a bit higher, as the pellets that we buy for our primary heat source are counted under “home repair / maintenance” (as that’s where everything from a hardware store goes. We probably spend about ~$750 CAD per year on pellets. Finally, spiritual health is a combination of meditation retreats and classes that we do.

Net Worth

All values in USD
Jan 1, 2022Jan 1, 2021Jan 1, 2020
Cash$69,113$124,913$33,132
Taxable$269,830$134,469$78,060
457(b)s $184,711$154,718$131,036
Roth IRAs$279,360$237,008$201,669
403(b)s and RSPs$645,266$548,075$469,428
TOTAL$1,448,280$1,199,184$913,325
Net worth over the years, in USD

We moved in July 2020, selling our house in Tampa, and clearing ~$100,000. That’s part of both the jump in our taxable account, and also the jump in cash for January 2021 — I was dollar cost averaging into our taxable account at the time. The tremendous growth by January 2022 is primarily market gains. We’ve contributed a bit to our RRSPs up here, but I only had a little room.

Housing

I don’t consider our house as part of our net worth. We purchased our house in July 2020 for $254,000 CAD (~$200,000 USD). Crazily, based on the price per square foot of several recent sales in our neighborhood, I suspect it has already appreciated to close to $300,000 CAD. We have a mortgage of ~$195,000 CAD, with a monthly payment of ~$1100 CAD. I’m currently leaning towards paying it off (or at least down significantly) when the mortgage matures in about 3.5 years.

Conclusion

I suspect our future spending will be a bit lower, as we were still getting established in Canada this year. At the same time, we didn’t have any major one off expenses (we replaced our ERV, but that wasn’t too bad) so it may not be too far off. And I feel like the tax portion of our spending will drop significantly in retirement, as some of the money that we’re spending each year won’t be income. In other words, it will come from our taxable account or (eventually) our Roth IRAs.

If we take $65,000 USD as our target for annual spending, the 4% rule would give us a FIRE number of $1,625,000. At $1,448,280, that puts as about 90% of the way there. And neither my wife nor I plan to fully retire in the near future. I’m thinking I’ll go down to part-time in the next year or so, but at the same time with the combination of working from home and generous leave, I’m also thinking I might just stay full time until I’m ready to pull the plug. Regardless, I feel like we’re in great shape.

What we’re watching on CBC Gem (January 2022)

We really like the CBC Gem app. It’s free, and many of the shows have few (or no) advertisements. We stream it from our phones to our TV via a Chromestick. The streaming itself is excellent, and the app is pretty good. My main complaint is that it would be nice to be able to save a list of future shows to watch. Also, the app periodically will sign us out for no reason, but that’s a minor inconvenience.

Periodically, I’ll share some of what we’re watching. For better or worse, I tend to be pretty judgemental about pretty much everything, so I’m kind of hard to please when it comes to media. As a couple, we tend to like things that are “good hearted” — we don’t really watch anything scary or violent or based on people behaving badly. Here are the few of the things we’ve enjoyed watching recently.

Upright – Honestly, I think this might be one of my favorite shows of all time. It tells the story of a down-on-his-luck musician and a teenage runaway as they transport a piano across the Australia. Very well-written and well-acted, and unlike anything I’d ever seen. My wife and I both really enjoyed it. The pacing is excellent in terms of how you gradually learn about the characters. We both cried in the last episode (which, for me, is very unusual). In the US, I *think* it’s available on Amazon Prime.

The Misadventures of Romesh Ranganathan – This is a UK travel show and the premise is that a comedian (Romesh Ranganathan) visits countries with dangerous or otherwise bad reputations. In the first series, he visits Haiti, Ethopia, Albania and the Arctic. The places he visits are interesting, and we really enjoy the tone of the show — he doesn’t make fun of the places he visits, nor does he view them through rose-colored glasses. It’s also been interesting to see some of the conversations around colonialism and racism, particularly with him being a person of color from a former colonial power. Each episode is about an hour long, too, which allows for more depth than some other travel shows (like Travel Man, for example, which is fine but kind of superficial in my opinion and also on CBC Gem).

Ghosts (BBC version) – The premise of this show is simple enough — a couple live in a house haunted by a bunch of ghosts from different time periods. It’s quite funny, and the team behind it is a group of improvisers who basically created the show so that they could all be in something together. It’s gets a little over the top for my tastes at times (there’s a Top Gun inspired montage in one of the later episodes that is pretty cringey) but we still like it. The first two seasons are on Gem.

Hot Docs – There’s a collection of “Hot Docs” that has recently been added to CBC Gem. My sense is that this might be an annual virtual festival, but I’m not sure. We watched Made You Look which tells the story of a long-term art fraud in NYC and found it to be very interesting. I’d like to watch Portrayal as well. Apparently, I’m interested in documentaries about art mysteries. Who knew?

Do you use CBC Gem? And, if so, what are you watching? Are there other free streaming services out there that you like?

Estate Planning

When our daughter was born, my wife and I had wills drawn up that used revocable trusts in the event that we both were to pass away. Control of the trusts would pass first to my brother and then to my sister, paralleling the guardianship of our daughter. Our goal is for the assets to follow her to her new family, with no strings attached.

Once we moved to Canada, though, we were told that having a US executors and US trustees would be problematic. At the same time, we didn’t really want to do a full re-working of everything, because our intention is that our daughter (aged 6) would return to the US if we both were to die. Thus, having a US estate plan still makes sense for us.

The solution we’ve arrived at is two-fold. First, we’re continuing to keep our US wills and US estates in place for our US assets (which is the larger share of our assets). Second, for our Canadian assets, we are having wills drawn up that, in the event of both of us passing away, use a trust services company (our bank) to enable my brother or sister to manage our estate remotely. We’ve made it clear to the trust services company that the goal is just to liquidate everything and move it back to the states.

I must confess — I’m no expert on estate planning and I’m not convinced that this is the ideal solution. I’m sure that there are things we could do, for example, to improve the tax efficiency of things. That being said, it meets our needs better than just having a US will, and because our intention (for now) is that our daughter would go back to the States if we both were to die, I think for the time being it makes sense to keep the US will in effect. Once our daughter is older (in say 10 years time) the plan will likely change to one that would keep her in Canada, at which point we’ll re-do everything with that in mind.

One downside to having the US trusts, though, is that Canada requires a tax filing for these trusts every year (even though they are empty). This isn’t a big deal, but it will add a couple of hundred bucks to our tax bill each year. My plan is to start doing our taxes ourselves in the next year or two, so I’m not hugely worried about this. Plus, since our goal right now would be for our daughter to return to the US, it makes sense to keep them even with the additional cost.

Finally, we took a similar approach with our power of attorney documents. If we both were to be incapacitated, we’re using a trust services company as co-attorney with my brother. That way, he can effectively direct things while remaining a US resident.

It was a little tricky to find a lawyer who could handle this. We worked with one lawyer initially, but it was clear that she didn’t really know what she was doing in terms of the crossborder aspects. We ended up with someone, though, that really seems to know her stuff. I don’t have any particular recommendations for trust services companies. I just went with the banks that we have our mortgage and checking account with. When we revisit our wills in 5-10 years, I suspect will get rid of the trust services company in favor of a local friend. If the goal is for our assets and daughter to remain in Canada, though, I could see us continuing to use a trust in some capacity until she reaches a certain age.

If you have any questions about estate planning, please feel free to ask, with the caveat that it’s entirely possible I will not have an answer for you. 🙂 And if you have any experience with your own version of a crossborder estate plan, I’d love to hear it!

Mortgages

In March 2020, we were planning to come to Nova Scotia to go house-hunting ahead of our anticipated May or June 2020 move. Needless to say, our plans changed. Fortunately, we were still able to find a house (via FaceTime) and ended up moving just a bit later than planned (in July 2020). Because of this, though, we ended up buying a house (and getting a mortgage) without ever having set foot in it. We had visited the town that we settled in for about 4 hours in October of 2019, and that’s it.

It worked out great (we’ve been here 18 months and counting and we love it) but it certainly wasn’t what we’d planned. I’d like to share what I’ve learned about the differences between Canadian and American mortgages. And just to be clear — I’ve had one mortgage in each country, so there are undoubtedly some aspects of mortgages that I’m not familiar with. Please feel free to let me know about other differences, or ask questions, in the comments below.

Amortization Period

The amortization period is the length of time it would take to pay off a mortgage making just the regular payments. For American mortgages, this will be the same as the duration (or term) of the mortgage, but not for Canadian mortgages (more on that below). In the US, the most typical amortization period is 30 years, versus 25 years in Canada. Amortizations periods of 15 or 20 years are also common in the US. I’m not sure how common shorter amortization periods are in Canada, but I may be investigating this our mortgage matures in about 3.5 years.

Term / Duration

The term of a mortgage (Canada only) refers to how long the contract is good for. This contract specifies things like interest rate, prepayment terms, etc. In Canada, this is different from the amortization period. For example, we have a 5-year fixed rate mortgage here in Canada, amortized over 25 years. In other words, we’re locked into the current mortgage contract for the first 5 years, and then we’ll renegotiate when that matures. Typical terms in Canada are 5, 7 or 10 years. The good thing about these short terms is that you can typically get a very low interest rate with a 5-year term. The bad thing (obviously) is that this rate is just guaranteed for 5 years and could go up. We went with the 5-year because we wanted the lower rate and we didn’t want to lock ourselves into anything longer because of the limited prepayment terms.

Prepayment (aka open or closed mortgages)

In my experience in the US, you can typically prepay as much as you want, whenever you want. If you pay more than your required payment each month, it gets applied directly to the principle. And you can pay it off in full whenever you’d like without penalty.

In Canada, on the other hand, many mortgages are “closed”. That means there is a penalty for prepayment before the end of the mortgage term. In other words, if we were to pay our mortgage off before the 5 years is up (remembering that the amortization period is actually 25 years) we’d have to pay a penalty. This penalty is typically a percentage of the remaining interest in the mortgage term, interest that you’d be avoiding by paying it off early. There are also open mortgages that allow prepayment without penalty, but those typically have higher interest rates.

Closed mortgages typically allow some prepayment without penalty (ours allows 10% annually) but you can’t pay the whole thing off whenever you want. If you move before the mortgage matures, you typically wouldn’t have a penalty because the mortgages are portable (meaning you can apply it to your new house) but I imagine you could run into this problem if you left Canada. Our mortgage is closed. Honestly, that made me uncomfortable at first, but the short term and the very low interest rate (2.44%) helped allay my concerns.

Insurance

I’m not sure how typical this is, but our mortgage in Canada does NOT include our homeowners insurance payment. Perhaps there is some behind the scenes communication going on, but it isn’t clear to me how my bank guarantees that I have insurance. We found insurance ourselves, and paid for it ourselves, for the first year. Then we changed companies the second year. I notified the bank of all of this, but they weren’t particularly bothered by it. In the US (at least, in Florida) the bank made our insurance payments (so they knew we had insurance) and even dictated some coverage terms. In Canada, the bank just asked to be listed as the first payee. So our mortgage payment is just principal, interest and taxes in Canada, whereas in the US it has been principal, interest, taxes and insurance.

Conclusion

I don’t have a strong preference for one mortgage situation or the other. I was initially put off by the “closed” nature of Canadian mortgages, but because I’m not a monthly prepayer I don’t really mind. Our plan is to see how things are doing in 3.5 years and possibly pay off our mortgage then. We’ll owe ~$175K Canadian at that point. If the market is up (in other words, if we aren’t in the midst of a correction), I suspect we’ll just pay it off from a combination of our cash on hand, some I-Bonds, and some of our taxable account. On the other hand, if the market is down and the interest rates are low, we’ll probably just get another 5-year mortgage, likely having invested our cash on hand when the market fell. If interest rates are high, though, and the market is down, I think we’ll pay off a chunk, using whatever cash on hand we have (and probably the I-Bonds as well) but leaving our taxable account alone. I love the idea of not having a mortgage in early retirement, but I’m not wedded to it.

Are there any other differences that you’re aware of between Canadian and US mortgages? Are there any questions that you have?

FI-losophy: Don’t expect results.

One of my favorite Buddhist teachings is a collection of pithy slogans called the Lojong (meaning “mind trainings”). The idea with short slogans like these is that you reflect on them over and over again so that they come to mind when you find yourself heading in the wrong mental direction. One slogan in particular that I find very useful is: “Give up all hope of results.”

The idea behind this slogan is that we spend so much time and energy trying to manufacture certain results, rather than enjoying and being present to what is directly in front of us. This causes us to suffer. For me, this often manifests as “I’ll be happy when…” thoughts. As persistent as these thoughts are, they are a lie. There is no arrangement of external circumstances that will provide lasting happiness. That isn’t how things work. For one thing, nothing lasts. For another, my mood is only tangentially connected to what is going on outside of me. Observing my moods over time has absolutely convinced me of this.

While I certainly see a lot of value in taking a FIRE approach to work and finance, it is challenging to do so while not getting overly attached to results. We have our FI number which, if we’re not careful, can easily become an “I’ll be happy when…” number. We predict rates of return and calculate safe withdrawal rates. All of this is, inevitably, a form of expecting results.

Does that mean we shouldn’t do these things? To me, no. As a layperson (i.e. not a monk), my goal is to be in this world but not of this world. What I mean by this is that I recognize that I’m living in the “worldly” world — I have a job, expenses and retirement savings. To not do any planning in these areas would be incompatible with trying to live an intentional life. At the same time, I need to remember that these things are not, ultimately, a source of lasting happiness. They are not the point.

What does this mean, in practical terms? For me, it means (as best I’m able) trying to hold onto all of these target numbers loosely. It means accepting the fundamentally uncertainty of predicting the future. It also means not sacrificing my quality of life today for hypothetical results tomorrow.

To put it another way, it means remembering that the numbers are not the goal. I need to remember that the purpose of financial planning isn’t hitting our FI number as quickly as possible, or getting a 99% success rate on cFIREsim, or whatever. The point is having the freedom to live the life we want, both in the future AND right now.

In concrete terms, one of the things that means for me is no side gigs. I’ve never wanted to work any more than 40 hours a week, even though that would have enabled us to save more, faster. Focusing on the journey rather than on the destination also meant that my wife took two years of unpaid leave (in addition to a semester of paid leave) when our daughter was born. We would have made more money if she had gone back to teaching immediately after her paid leave was up, but that wasn’t the point. And, finally, it meant that we were free to move to Canada, even though it meant my wife would be quitting her job at a time when my own job had become a bit more precarious. We want to set our family up for the best life now, as well as we can, while also preparing for the future.

Thus, as usual, the answer is trying to find the middle way. How can I plan and prepare for retirement (even an early one) without obsessing over it? For me, the answer is often that I do obsess over it, and I have to very intentionally (and repeatedly) remind myself to let it go, that it is ultimately out of my control. I have to accept that I am doing my best with the information I have at hand today, that it won’t be perfect, and that’s OK. And then I have to turn off my computer and go play with my kid.

What about you? How do you balance the tension between preparing for retirement and enjoying the present moment?

Reading recommendation: If you’re interested in learning more about the Lojong slogans, two books I really like are The Practice of Lojong by Traleg Kyabgon and The Great Path of Awakening by Jamgon Kongtrul.

What does your spending look like? (Nov 2021)

I must confess — before we moved to Canada (in July 2020) I never tracked our spending. I used Mint to aggregate our investments, and I usually added credit cards there as well, but I never cleaned up or looked at the data. I’ve always felt that one of the perks of living within well within your means is not having to track expenses or make a budget.

I changed my tune when we moved because I thought we were near our FI number. To be sure, though, I had to pin down what our spending was. I had a rough idea of our spending in the US, but since we were in a new country I decided to bite the bullet and track it.

I’m using a tool called GnuCash. I’m only using a fraction of it’s functionality — it’s a full accounting suite, but I’m only using it to track spending. I chose it for a few reasons.

  1. It’s free.
  2. It’s located on my PC (rather than cloud-based). I’ve increasingly moved away from “free” apps or websites where I’m providing them with a lot of personal data.
  3. It learns — as I classify expenses each month, it makes better guesses as to how to classify them in future months.

I thought, when I started doing this, that handling multiple currency (CAD and USD) was going to be a priority for me (which GnuCash can also do) but to get the results I want (a single view of my expenses) it’s easier to just convert my few USD expenses into CAD each month.

Here’s how our average monthly expenses broke down for the last 13 months. This is all in Canadian dollars.

Mortgage$1,142principal and interest
Home Repair / Maintenance$931having house (interior) painted
having the garage / attic finished with aspenite
service for our pellet stove and HVAC
every trip to the hardware store
Taxes$857
Groceries$775vegetarian, mostly whole foods, CSA / farmer’s markets, decent amount of organic
Household$716another catchall — if I was looking to cut expenses I might dig into this one
Auto (gas, parking, insurance)$215doesn’t include the purchase price of our used Subaru Outback
Utilities$195doesn’t include pellets (which appear under home repair / maintenance).
Clothes$190mostly winter, shoes / boots, and skates / sporting goods
Spiritual Health$188retreats and classes w/ our meditation group in Florida
Phone$133currently 2 US, 1 Canada.
Gifts$126
Education (school lunches and summer camp)$125
Dining$104
Insurance (home)$81
Dental$66
Professional Expenses$65
Entertainment$59
Other / Miscellaneous$590
TOTAL$6558

There are undoubtedly places we could trim our spending. I also suspect that this first year in Canada will be a bit higher than subsequent years. My goal in this exercise, though, is to understand our spending, in order to get a sense of where we stand in terms of financial independence. And, based on these numbers, we look to be in pretty good shape.

Our current portfolio sits at about $1.3 million USD. Using the 4% rule (an imperfect but reasonable quick and dirty estimate), that should enable spending at about $52,000 USD (or $65,000 CAD) per year. Our current spending is just under $78,700 CAD (or ~$62,000 USD). This is very similar to what we were spending in the US.

If we were to fully retire, some of these expenses (including our taxes) would reduce, and we’d get an increase in some benefits (like the Canadian Child Benefit) as well. If, for example, we were drawing down so that my wife and I both had $20,000 CAD in income, we’d pay less in taxes and get almost $6000 in CCB, which would put us very close to the ~$65,000 CAD spending target.

Regardless, my wife is currently working part time (and really likes her job) and my plan is to go down to part-time next year (I think). We’ll do that for a few years and see where things stand. Plus, I’d like to pay off our mortgage when it opens up in a little under 4 years, which would significantly reduce our monthly spend.

All in all, I was happy to see, after this first year, that our spending in Canada wasn’t too far off our spending in the US. What about you? How carefully do you track your spending? And what tools do you use?

What are you doing with your short term savings? (Oct. 2021, Jan. 2022 update)

Ever since we moved to Canada, we’ve been keeping a lot more cash. This is due to a combination of factors.

  • I changed jobs to facilitate our move (my new job allowed me to work from home in Canada) and my new job is less stable than my previous one. Plus, it is in a very COVID-impacted industry, and there were lots of layoffs in my company.
  • My wife quit her job when we moved, although she ended up being able to work remotely in her old job for a while because of COVID.
  • Initially, I was being paid in USD and wanted a bit of a cash cushion to avoid having to exchange currency at inopportune times.

As we transition to part-time work / coastFIRE, this larger cash holding likely will continue. My current plan is to keep about 2 years worth of cash (mostly in CAD) in order to avoid having to sell investments when things are really low, or to convert currency when the rates are bad.

Finally, I’m increasingly leaning towards paying off our house when our mortgage comes up for renewal in summer 2025, so I’m accumulating a bit more cash than usual with that in mind. We have a 5-year fixed-rate mortgage that’s amortized for 25 years. We can pay off an extra 10%, but it’s a closed mortgage, which means there is a penalty if we want to pay it off completely ahead of schedule. (For the Americans out there, all of this is normal in Canada.) Thus, I’m thinking we’ll pay it off when we hit that 5 year maturity mark in a little under 4 years. This would knock 20-25% off our spending, which I really like the sound of.

EQ Bank

I’m currently using two places for these 2-4 year cash holdings. The first is EQ Bank (referral link). EQ Bank is an online only bank here in Canada that has “high” interest savings accounts for both CAD and USD. As of October 2021, the interest rate for CAD is 1.25%, and 1.00% for USD. To transfer in USD, I have to first move it to a US dollar account at a Canadian bank (I use TD for that) but it has been very fast and easy to move money around.

I-Bonds

The second thing I’m doing is buying US Series I Bonds via TreasuryDirect. The current rate is 3.54%, and it’s going up to 7.12% next month (November, for at least 6 months).  I’ve never held I-Bonds before, but they’re tied to inflation and the rates are set for 6 months at a time.  You can’t withdraw for a year, and if you withdraw within the first 5 years you lose 3 months of interest.  You’re limited to $10K per person per calendar year, so I’ve done $20K (for my wife and I) and I’ll do another $20K in January. Depending on where rates are in January 2023, I might do another $20K then as well. This won’t be enough to pay off our house (we’ll owe ~$179K CAD if we don’t make early payments) but it will put a dent in it.

If, like me, you aren’t familiar with I-bonds, here is a good article on how to buy them.

January ’22 update: We’ve added $20K apiece. Our first $10K (each) is currently earning 3.54% (through April 2022), and will jump to 7.12% once that initial 6 months is up. The second $10K (each) is earning 7.12% for 6 months (through June 2022), with the next 6 months TBD. Because we’re intending to use this money to pay down our mortgage in the next few years, I’ll likely leave it in as long as the interest rate is above what I can get from EQ Bank for USD.

What about you? Where are you currently keeping money you’ll need in the not-too-distant future?

How much optimization should you do?

It’s tempting, of course, to say “as much as possible”. Optimization comes with costs, though. Time, if nothing else. And, for me, it often costs in mood and anxiety as well. If I obsess about optimizing something, it doesn’t make me happy, regardless of the ultimate results of my optimization. Furthermore, in most if not all areas, optimization is a process of diminishing returns.

I tend to be a big believer in the Pareto Principle – namely that you get 80% of the results for 20% of the work. And I think this applies to optimization many times as well. I can get 80% of the way to optimized in a given area with 20% of the work. And to get that last 20%, it can take a lot more work. I have a clear memory of a moment of realization after a particularly grueling bout of middle school perfectionism — I could do like 10% of the work and aim for B+’s and A-‘s, or I could keep killing myself trying to get 100% on everything and never look back. For better or worse, I kept that philosophy all the way through my schooling, a consistent 3.6 student who didn’t work very hard at all.

Three Types of Millionaires

In Quit Like a Millionaire, Kristy Chen proposes that there are three types of millionaires – hustlers (who focus on increasing their income), investors (who focus on maximizing their investment performance), and optimizers (who focus on maximizing their savings). Another way of articulating this would be to say that millionaires tend to try to optimize either their income, their investments, or their savings / expenses. And, in her model, each of these types of people tends to neglect the other two financial areas — so hustlers tend to pay little attention to investment performance and savings, etc. While I recognize that all models are imperfect, I do find this to be a useful approximation of the dominant schools of thought I’ve encountered in the world of personal finance. It also got me thinking about where I fit on this.

What I’m NOT is easy. I am definitely not a hustler. I bristle when dealing with salespeople, and find entrepreneurs unrelatable. Early in my adult life, while teaching English in Taiwan, many of my friends opened schools or taught lots of (high-priced) private lessons. I did neither — I taught my classes, and earned plenty of money, but certainly not as much as I could have. And I knew that, if I were the business owner, I’d be thinking about that business all the time, and I didn’t want that. I wanted to clock in and clock out, and that hasn’t changed. And as my career progressed, I certainly did not always make the choices that would lead to the highest salary. I chose majoring in English over majoring in computer science, and then got into education on top of that. I’ve taken some opportunities over the years, and earn good money (relative to where I started, certainly) but I’ve also turned down opportunities because they felt like they weren’t a good fit, even though they paid better.

I’m also not so focused on investment performance, although I do have a bit of experience with that. In my early investing days I tried picking stocks, and also picking actively managed funds, but I ultimately came to believe the research that says that this is very hard to do reliably. Once my focus had shifted to index funds, I certainly tried to get my fees to be as low as possible. I have also kept an aggressive asset allocation (90/10) throughout. And, over the years, I’ve flirted with taking a more aggressive factor-based approach (which I’ve so far resisted). So, while I wouldn’t describe myself as someone who spends a lot of time researching investments to maximize performance, I do try to optimize my investments in a few simple ways: use tax-sheltered space, minimize fees, and focus on equities rather than bonds. I think this simple approach falls well within a Pareto approach to investment optimization.

Similarly, I don’t know that I’m super-focused on optimizing my savings. My wife might disagree on this one, but one of the biggest arguments against my being a big savings optimizer is that, until we moved to Canada, I have never tracked our spending. Not even a little bit. And I only started after we moved because I had a sense that we were very close to our FI number and I wanted to check. All along, though, one of the big benefits of living well within our means is not having to track where every single dollar goes. This is not how optimizers think. At the same time, I will confess that I am a very reluctant shopper and will spend a lot of time hemming and hawing over purchases. I’m also very willing to spend time travel hacking. Again, I think this falls within the 20% work for 80% reward portion of savings optimization, although the truth is probably more like 50% work for 85% reward.

The Pareto Millionaire

So perhaps there’s a fourth type of millionaire — a Pareto millionaire, who does 20% of the work in all three of these areas (income, investment, savings) which, at least in certain countries nowadays, is enough to get you there. To be clear, I’m not coming out against optimization. If it makes you happy, do it. I definitely get much more joy out of collecting credit card bonuses or re-balancing our investments than many other people would. At the same time, though, when it doesn’t bring you joy, recognize that perfect optimization is impossible, and that good enough is good enough.

What is geoarbitrage?

In brief, geoarbitrage is the practice of living somewhere cheaper in order to accelerate your journey to financial independence. It can be done in the accumulation phase, for example by living in employer provided housing or in a low tax country while earning, or in the decumulation phase, moving somewhere that allows for a lower cost of living.

In terms of my personal experience, I’ve never practiced geoarbitrage specifically for financial reasons, but I have certainly seen the impact that living in different places can have on spending and saving. I lived in Taiwan for 5 years in my 20’s. During this time, I earned about $24,000 USD per year, and I saved about half. At the same time, I lived quite well, traveling around South East Asia, eating out every lunch and dinner at restaurants, and so forth. I didn’t pick Taiwan for economic reasons, but it is kind of in the sweet spot as far as earning potential vs. cost of living.

Later, I lived in China for a year. I was working in a smallish city in central China, and my salary was quite low. I earned about $5500 USD per year. Still, because my employer provided housing and some food, I managed to save about $3000 USD, and that’s with taking two month-long biking and camping trips. Again, my goal in China was not primarily to earn money, but clearly the cost of living there can be dramatically lower. At the same time, I returned to China a few years later for a business trip while working for a US university. I was put up in hotels costing $200 USD per night. It was a side of China I hadn’t even known existed. It really drove home to me that, even within a particular country, there can be a tremendous range of both costs and earning potential.

And then, in 2020, we moved from the US to Canada. Again, this wasn’t a financial decision, but it still had financial impacts. Our taxes went up, but our house was a bit cheaper. I was able to take my job with me, so my salary didn’t change, but when my wife found work in Canada her salary was slightly lower. However, as we transition to part-time work or full retirement, we won’t need to worry about paying for health insurance, which can be quite expensive in the US.

In the future, I think it’s possible that we might live overseas again. I suspect we’ll wait until our daughter is in college (which will be a while) but considering both my wife and I have backgrounds as English language teachers, it wouldn’t surprise me if we spent some of our early retirement living in different countries. I don’t anticipate these decisions to be primarily financially motivated, but it’s good to know that if something unexpected happens and our savings are dramatically reduced, there are plenty of nice places around the world where we would still be able to meet the costs of living. Some places I’m personally particularly interested in are Bhutan, Thailand, Chile and Croatia.

What experience do you have with geoarbitrage? What are some of your favorite places to live?