I wrote The 7 Phases of Retirement in 2013 and encouraged readers to submit their plans. You need a road map to find your way to early retirement because you probably won’t get there by accident. Today’s post is from one of my favorite blogger – The Passive Income Earner. He aims to achieve financial independence and retire through dividend investing. I have been following The Passive Income Earner for a couple of years now and it’s great to see the progress he made on his dividend portfolio. Check out his plan and tell him what you think.
I found the 7 phases of retirement series very inspiring and it had me reflect on the changes I made and why I made them. We all make mistakes and it’s important we learn from them. Above all, I believe its important to define ourselves and our goals. It makes it much easier to focus on what’s important and gives us opportunities to achieve our goals.
I am on autopilot now when it comes to investing. All I need is to save as much as I can to benefit from ‘time’ effect. Time is your biggest ally in investing and retirement in my opinion.
1. Wake Up Call
The layoffs at my company were a wake up call. At any point, I could now lose my job and have financial challenges. The company did 3 years of layoffs which I survived but the last one in 2010 was when I realized I needed a strong plan. I always saved money and had savings but our spending had increased following my pay raises. It needed to change for a one income family of 4 with 2 growing kids.
2. Define an Investing Strategy
As I mentioned, I was saving but my investing trials weren’t so good. I made money on Apple with the iPhone release but I also lost money on Crox. I had no strategy and it was not working out. My parents were already retired and living from investment income. I knew it was a plan and even though I had some mutual funds for dividend income, it was not the case for my stock investments and it was time to change that. I read The Lazy Investor during the Wake Up Call phase and started focusing on dividend investing and DRIP for accelerated compound growth.
3. Pay Off my Mortgage
I don’t want to have any debt that requires me to ‘have to’ work. I am fine with good debt against appreciating assets but not against other assets. You can argue that a house is on the good side but then again, I think it’s in between good and bad … You obviously need a place to stay but I don’t want to be tied down and be house poor either.
It goes back to my first point though. If I lose my job, as a one income family, I don’t want to be in the corner and stuck. It’s not about emergency fund either … It’s about having the flexibility of adjusting my amortization to match the realities of the next income. The more I have paid on my home, the easier it is if something happens. As such, since 2010, any extra income from raises goes right on the mortgage and not towards new toys or fancy trips.
4. Save Before Spending
Before 2010, I have to admit that we fell into the keeping up with Joneses trap … I was so disappointed when I realized that. I thought I had all the proper upbringing as a young adult and I always was good with money. I had to put a stop to that. Any trips we decided to do, we had to save the money first. The same goes for all the renovations on the house.
5. Always Invest
Invest small amounts with Computershare or any other transfer agent. While I was putting in place the regiment outlined above, I had to save weekly and monthly with $50 or $100. I was always investing through the company plan but I wanted to accelerate that. At the end of the year, I probably invest 18% of my gross and I still feel it’s not enough.
Since my automated savings are in percentages, any raises automatically increase my core investments. For those that follow me, I am big on dividend investing but my automated investments are all index funds through the company plan. I can’t do anything else otherwise I lose the matching contribution so I have to work hard to have money invested in my dividend accounts.
6. Findependence Day
This term was coined by Jonathan Chevreau in his book Findependence Day which represent the day that you reach your financial freedom. It doesn’t mean retirement. It means that you do not have to work to make ends meet. I have set my Financial Freedom at 45 but it’s going to be tough. I mean really tough as I have 7 years left on the mortgage. I think 50 will be more realistic. I had chosen 45 since that’s when my parents retired. I was 10 at the time and played golf with my dad all summer.
Dividend income is all about reaching my Findependence day. I currently generate just over $6K per year in income and I need much more. Blogging has provided extra income but it’s nowhere near as passive as dividend investing. Don’t let anyone fool you …
The big day. By this time, I should not have any kids at home anymore and hopefully it’s before the grand kids 🙂 All education should be covered for my kids as well.
I am 39 now and would like to reach financial independence by 45. It’s really a stretch goal. What I know I can achieve is being done with our mortgage by 45 and then see what the gap is for my financial independence. I probably would not stop working but I would take more vacation 🙂
Thank you for sharing your plan with us. It was really timely because I need some help this week. I have been so busy with RB40 Jr. that I didn’t have much time to write. Wow, I didn’t know your parents retired at 45. That must have been very unusual back then.
I really like The Passive Income Investor’s 7 phases because it is so personal. Everyone has a unique experience and you have to craft your own plan. I do have a couple of questions though.
1. What’s your target for dividend income before reaching Findependence Day?
2. Would you consider combining dividend income and online income to reach that day faster?
I would love more guest posts on this subject. Please make your own 7 phases to retirement and send it to me for publication.