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What if you could retire in your mid-30s and never get back to a 9-to-5 job? To most people, the prospect seems like a fantasy – there is a mortgage to be paid, debt on student loan accruals, childcare costs, and a monthly payment for auto insurance. If you are a millennial and yours social insurance you will have to wait until you are 60 to receive the monthly checks.

All of these factors make early retirement unbelievable to most people. For a small fraction of those following the “financial independence, early retirement” or FIRE movement, retirement at 30 is a goal made possible through cost-cutting and aggressively saving and investing more than half of their annual income.

Kristy Shen and Bryce Leung, Authors of Millennial Revolution, are such a couple. In 2015, Shen and Leung retired from their careers as computer engineers when they were in their early 30s. Before the pandemic, they retired nomadically around the world in countries like Vietnam, Portugal, Germany, Malaysia and Hungary.

Discover FIRE

Shen and Leung first discovered FIRE in 2012 through blogs like Mr Money Mustache, one of the movement’s pioneers, who retired at the age of 30 after working as an engineer.

The couple had saved up a down payment on a Toronto home in 2012. After doing the calculation, they realized that early retirement was possible if they gave up the traditional dream of owning a home. They used the $ 500,000 they had saved on the house and retired instead.

“So to me, the discovery of financial independence was really a wake-up call that the old rules no longer apply, and this is the new rule of life, and I will find it,” Shen said.

Shen stresses that the FIRE movement is open to all people, regardless of race or socioeconomic status, although she notes that it is easier to join when you have a high salary. Shen is a Chinese immigrant who came to Canada when she was eight years old. She says her experience of growing up in poverty influenced her desire for financial independence.

“But there is a misunderstanding that FIRE consists only of white privileged men who work in technology. I’m not really subscribing to that definition, ”Shen said. “At some point I was living on 44 cents a day in China and one of the reasons the FIRE movement appealed to me so much was that I never wanted to be poor again.”

Invest and save for retirement

Three years after discovering the movement, they managed to collectively save a million dollars in cash and investments, including money previously donated to buy a home. The year prior to retirement, they saved approximately 70% on their annual after-tax income of $ 150,000. Before that, her target savings rate was 50 to 60% of her annual income.

To build a $ 1 million nest egg, Shen and Leung took steps like cutting certain costs of living – they stopped eating out and didn’t buy a car, but opted for the subway and a Car sharing service instead of this. They never stopped taking vacations, but instead capped the amount of money they would spend on travel annually. And with the money they saved, they invested in index funds.

Most FIRE supporters invest some of their money in an index fund with low fees. A Index funds is a portfolio of stocks and / or bonds designed to mimic the performance of an index such as the Dow Jones Industrial Average or the S&P 500. This means that investors don’t have to choose individual stocks.

Index investing was easy for Shen and Leung – they could sit back and watch their money grow without timing the market or relying on the performance of a few companies. They chose index funds whose annual returns mimick the performance of the global economy.

When you invest in index funds, a trading platform is a good option as there are no commissions charged for executing the trade. Free commission trading platforms may still charge expense ratios and management fees, but there are many index funds with low expense ratios.

Another option is to avoid market fluctuations or volatility associated with investing in the stock market there is money in one high yield savings accountalthough this will make long-term wealth accumulation more difficult.

The 4% rule

The general rule of thumb that FIRE supporters follow is: 4% rule. The rule is that retirees should not spend more than 4% of their retirement savings annually, adjusted annually for the inflation rate. That means if your retirement investments are worth $ 1.25 million, you should try to keep your annual cost of living below $ 50,000.

Leung and Shen’s goal was to make a total of about $ 40,000 a year for a living. To do this, they had to save and invest a significant portion of their income before retiring.

They also made sure they have a backup plan to live in lower cost cities in case the market experiences a downturn and the value of their savings drops. By dividing their time in countries between high cost of living countries like Switzerland and low cost of living countries like Thailand, they can keep their average cost of living down.

“It [geographic arbitrage] is a concept that you make the money in a strong currency. For example money in Canadian dollars or American dollars or euros, you actually spend the money in a place with a very weak currency, for example in Thailand …

While international travel is expensive for most people, Shen and Leung keep their entire cost of living around around $ 40,000 even with regular trips.

They stay frugal and choose by choosing Airbnbs, Apartments and host families to chic resorts and hotels. Even when you travel, you cook at home instead of eating out most of the time.

Keep travel costs low with points and miles

Use points and miles from Travel credit cards can help keep travel costs down. Many credit cards offer them valuable welcome bonuses that can be worth thousands of dollars in travel.

Using travel credit card points can also help keep travel expenses down.

While Shen and Leung have taken a break from travel due to Covid-19, they would like to start traveling as soon as Canada relaxes international travel restrictions. In the meantime, they have stayed in Toronto and made domestic trips to Vancouver and Nova Scotia looking forward to their next adventure on a shoestring.

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