The first day’s talks for the 2023 Canadian Financial Summit are now live. These videos (and the videos from subsequent days) will be free for a couple of days, and then available for purchase.
I checked a couple out this morning, and one in particular that I found useful was the talk by Jason Heath from Objective Financial Planners. Take a look, and if you find anything useful please share it in the comments.
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.
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.
| 2022 | 2021 | 2020 | 2019 | |
| 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) |
| USD | CAD | |
| 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.
| All values in USD | ||||
| Jan 1, 2023 | Jan 1, 2022 | Jan 1, 2021 | Jan 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.
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.
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.
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.
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.
| 2021 | 2020 | 2019 | |
| Me | $123680 (CAD) | $84652 (USD) | $73599 (USD) |
| My wife | $35341 (CAD) | $20418 (USD) | $41581 (USD) |
| 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.
| All values in USD | |||
| Jan 1, 2022 | Jan 1, 2021 | Jan 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 |
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.
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.
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.
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?
This is always kind of a tricky question for me to answer. Personally, I am frugal by nature (or nurture) so saving money comes pretty easily. That isn’t a helpful answer, though. The real question is what changes can someone make in their life to save more money? Here, I certainly have some suggestions.
Fundamentally, though, the big thing is mindset — you’ll never stick with it if it feels like deprivation. There are a few antidotes to this. For one thing, I’m always aware of the larger goal (i.e. financial independence) that I am saving towards. For another, I’m also very much aware that many of the “conveniences” that we spend our money on actually lower my quality of life. To put it another way, I find there is usually some synergy around saving money. For example, the more frugal choices are also often better for my health and / or better for the environment.
Take today, for example. I had the day off. We had our usual breakfast (oatmeal with peanut butter and fruit) and I noticed the drawer in the kitchen cabinet was tilted. I pulled it out and found that both rear brackets had broken so the rails were loose. I am not particularly handy, but this seemed pretty straightforward, so after taking my daughter to the bus stop, I took the bracket off and prepared to head to the hardware store.
(Already, there are a couple of little choices there — oatmeal with peanut butter and fruit is cheap, healthy, convenient and reasonably good for the environment. Deciding to fix the cabinet both saves money and gives me a chance to learn something new. Finally, having my daughter take the bus to school is both more frugal and better for the environmental. Plus, we get to share a daily walk to the bus stop, and conversation once we get there.)
As I was getting ready to leave, I remembered that the spring loaded tub plug upstairs was also not working. I brought it downstairs so I could take it with me as well to try to buy a replacement, but my wife suggested trying to lube it first. Again, I’m no DIY expert, but I know that WD-40 can be a good cleaner for these types of things, so I sprayed that in first, then I used a lube I had previously bought for my garage door, and it worked perfectly, so I just re-installed it into the tub.
(Obvious one — deciding to try cleaning and lubing this both saves money and prevented the current plug from ending up in the landfill.)
I brought a small backpack with me, and put in a bag of almonds and a reusable water bottle. I walked to the hardware store in about 15 minutes and found what I needed in about 2 minutes. A set of two shelf brackets cost $5 CAD. I also bought a vase and a rose bowl at the thrift store for a total of $4 CAD — we have a ton of flowers at our house, and our primary vase had recently blown over on the deck. And then I started walking home, and I got a call regarding a credit card application. I’d applied for a new card the day before, mostly in order to get free roadside assistance. I answered their questions on my way home, and then I installed the new brackets in about 15 minutes.
(OK, there are a lot of examples in this paragraph. First of all, I brought almonds and water with me so I’d be less tempted to buy a snack or a drink that would be more expensive, less healthy, and worse for the environment. Similarly, deciding to walk rather than drive was both better for my health and better for the environment. If I were in a hurry, I would have biked. And, of course, this choice was informed by the much earlier (and bigger) choice to buy a house where we could walk into town. Again, repairing the brackets ended up being much cheaper than hiring someone, plus I got to learn something and experience the satisfaction of taking care of something myself. And buying the vases secondhand was both cheaper and better for the environment. Finally, we’re using a no annual fee credit card to get free roadside assistance. I’ll do a future post about how we approach credit card rewards.)
Hopefully, by this description of a very ordinary day, you get a sense of the type of mindset behind the many small choices we make each day that enable us to save 30-40% of our income. I hope you can also see that, for us, being frugal does not mean deprivation. We take care of the things we need to take care of, and buy the things we need, we just try to do so in a way that doesn’t cost very much money. And by doing this, we find that we are often also adding benefits in terms of making healthier choices and / or choices that are better for the environment. Plus, we get to learn new things and experience the satisfaction of taking care of things ourselves. And, just to be clear, we absolutely hire professionals for bigger projects. At the same time, each experience of doing something ourselves raises the bar for “bigger” a little bit higher.
Finally, I want to emphasize the point that being on the path to early financial independence doesn’t necessarily look dramatically different. From the outside, there’s nothing particularly unusual about any of the choices I made in that day. To our neighbors, I think we appear more or less similar to everyone else. The accumulation of these choices, though, is what enables us to have the savings rate we do, which is one of the key elements of our journey to financial independence.
What about you? What are some of the little things that you do regularly to help save money?
