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How did we get here?
So it’s 2003, we were 23 years old and we just received our University degrees. My girlfriend (now wife) and I had about $40k in student loan debt, a brand new $25k car loan (shiver), and a brand new $100k mortgage to boot. In addition, I was planning on buying an engagement ring in the near future. To top it all off, we didn’t even have spectacular starting salaries with a combined income of $85000/year. OK Ok, this was a pretty good starting point but well behind the curve compared to our classmates starting in the same fields.
I guess some of you are wondering how we’ve built our net worth to a respectable size at a young age (I’m 27) with all that debt at graduation (negative net worth). No, we’re not doctors or lawyers, and we surely didn’t have an inheritance to kick start us. The secret, I believe, is in the spending and work ethic that I developed at a very young age. I started a part time job while I was in Junior High school and continued throughout University. Although I did party on occasion, I didn’t waste all my money on partying and booze like most of my friends did. :) I was a super saver which was a trait I developed from my parents. I saved most of my income (salary/gst cheques etc) which went into a bank account or a mutual fund. Most of my University tuition was covered by my work terms that went along with my university program, the student debt was from my wifes degree (paid off in late 2005).
As our careers advanced over the last few years, our combined salaries have raised to around the $105k/year mark (still behind the curve). We continue to live the same lifestyle as when we were making $85k so a lot more goes into savings. I would estimate that we save around 15%-20% of our gross income. Our savings rate may decrease in the near future as we plan to have kids and perhaps move to a bigger home. The savings thus far has gone towards my wifes pension (not included in the net worth statement), my RRSP, my non-registered investment account, and a high interest savings account (for emergencies etc).
How do we save so much? The secret is “Paying Yourself First“. This concept was first introduced to me by the book “The Wealthy Barber” when I read it back in high school. I’m sure most of you have heard of this before, but this simple technique is incredibly powerful. As the concept explains, you put a portion of your income into a savings account automatically. When I say automatically, you either program your online bank account to do an automatic electronic transfer on payday, or get your employer to do an automatic transfer out of your paycheck. You would be surprised how fast your savings nest egg can grow, I know that I am every time that I review my savings.
Another saving technique that works exceptionally well is separating your “needs” and your “wants”. As the Wealthy Barber says, if you can only buy what you “need” and not what you “want”, you will come out ahead. We try to use this technique daily.
Since graduating from University, stock market investing has peaked my interest and has taken up most of my spare time. I’ve learned to do basic stock analysis, both fundamental/value and technical. Stock investing is out of the scope of this post but I have no doubt that I will be posting about it often.
For those young readers out there who dream about financial freedom (like I did), I hope that some of the information from this blog can help you get started. It’s all about setting a goal and committing to it. We still have a long way to go before we get to financial freedom, but I believe that we’re well on our way.
19 Comments, Comment or Ping
1. Peter
I would love to hear more details, such as how much you pay yourself, your frugal techniques, and what you consider needs vs. wants.
Dec 10th, 2006 @ 8:39 pm
2. FrugalTrader
Hey Peter
I will be posting more on my frugal techniques/investing and a bunch of misc personal finance topics. Stay tuned!
FrugalTrader
Dec 11th, 2006 @ 7:08 am
4. Q Cash
“As our careers advanced over the last few years, our combined salaries have raised to around the $105k/year mark (still behind the curve). We continue to live the same lifestyle as when we were making $85k so a lot more goes into savings. I would estimate that we save around 15%-20% of our gross income”
That, above all else, is the secret to success.
Good job.
Q
Dec 15th, 2006 @ 11:01 am
5. FrugalTrader
Q Cash!
What an honour it is to have an very early retiree commenting on my articles. :)
For those of you who don’t know Q Cash, he’s a 36 year old who is officially retiring this month with a networth of around $1.5 million. He achieved this through saving and starting early with his investments.
Sorry, your stats are worth bragging about.
FrugalTrader
Dec 15th, 2006 @ 11:19 am
6. tim brown
impressive. just to put things in perspective i’m 27 myself. I started out the year of 2006 at
42,520. After saving about 1600 a month in 2006 and aggressively investing, I’ve accumulated $72,360.
Year over year net worth increase of 70%. Pretty good. My goal isn’t quite as lofty this year. I’m hoping to continue saving 20K a year!!
Jan 6th, 2007 @ 12:49 am
7. FrugalTrader
Tim!
You saved $1600/month on your own? That’s very impressive! If you don’t mind, would you mind posting your situation? Are you single/married? What is your household income? What are your strategies moving forward?
FT
Jan 6th, 2007 @ 8:03 am
8. tim brown
single. household income 75K. owner of a 250K condo that I live in. strategy is to continue overweight in blue chip equities. i’m looking to invest more into europe going forward as their P/Es are more attractive than the s&P 500. howa bout yours?
Jan 6th, 2007 @ 2:18 pm
9. FrugalTrader
Hi Tim!
I’m very impressed that you are able to save $1600/month on a 75k/year income (25% of gross!). Congrats!
I’m also overweight on blue chip equities that pay increasing dividends, but i’m also dabbling in the swing trading side of things.
How do you go about buying European stocks? Do you buy Mutual funds that have European stocks within them? Or do you buy them directly from European exchanges?
FT
Jan 6th, 2007 @ 4:20 pm
10. tim brown
i’m buying ETFs and european stocks that trade on the nyse or nasdaq. that’s the easiest way to get my exposure :D
Jan 6th, 2007 @ 11:43 pm
11. i have no money
i did something similar i have luck to have
group rrsp and maching funds at work put some of my money every week grows quick and best thing is that tax portion goes there too
Jan 7th, 2007 @ 4:48 am
13. forex trader
impressive. I’ve just found your blogs. Will keep reading your blog often.
Jan 20th, 2008 @ 4:58 pm
14. Duncan
Inspiring! I’m a 30 year old father myself and am in the process of setting up my own blog sharing what I’ve learned over the last several years. I’ve built my own net worth from a negative amount to over $350,000.00 in the last 4 years (mostly in real estate but also have saved $80,000.00 in my RRSP) I own my own townhouse in Steveston BC, and manage a self directed RRSP and invest in mostly stocks (heavy Canadian financials since the big TSX sell off) I’ll keep following your story and feel free to check out my blog as well!
Best,
Duncan
Mar 24th, 2008 @ 7:46 pm
16. Bruno D
Ha, very cool. I’m not as disciplined or motivated to get rich as you guys, I’m more in the “get rich slowly” class. For a few reasons, one of them being that I don’t want to work my *ss off, am a part time musician (formerly full time, so having a “normal person salary” is already a great thing in my case ;-)) and have not found a way to invest in real estate yet (don’t have a wife or girlfriend to share costs and am not very good with these things so I will wait for that).
But I’m really into stock investing. It took me a while to figure out my style and strategy. I tend to be an “investrader” meaning I actively trade stocks that are fundamentally poised to go up, hence a mix of these two approaches. The SINGLE BEST IDEA for me (and I’m sure for you via this blog too here) I’ve had so far is to really take the time and TRACK MY PERFORMANCE. I keep a scoresheet of my investments, update it weekly and track various metrics. It is amazing how the simple fact of consciously tracking down your progress really helps you improve.
My plan is to get rich by the time I’m 40, I’m 32 right now. Actually my “real” goal is to simply be financially free, which for me would be to just trade as my main source of income. My goal is to achieve a 30% return via trading activities on a consistent basis. Once that is done, I simply need to accumulate enough capital to be able to live on that income. For the moment I work full time but plan to “phase out” my work towards trading as I accumulate more & more money. I remain very frugal and would be happy to keep the level of quality of life I have now (e.g. not to have a huge house, expensive car, etc etc). Things != Hapiness.
With what I said above, given that capital gains (=investment income) are only taxed 50%, that I would likely not have to “save” as much money as I currently do and that I think I will be able to achieve 30% returns on a consistent basis, I think I need to accumulate 150-200k in a taxable investing account (not RRSP) to be able to achieve the same “employee” income as I have now. I’m about 10% there ;-)
Another part of my plan is to find a nice sunny location where I can go live and pay less taxes. Once I’m steadily successful with trading nothing prevents me from going to live anywhere I want in the world, as the only thing I need is a computer with internet to make money :-). I’m sure there are plenty of places to live where I will pay next to nothing in taxes. I can always do a little bit of work on the sidelines if times get rough.
Anyways I’d be happy to share some thoughts about investing in the market. On the other hand I really need to get into the “other parts” about getting rich (real estate, etc), I think that would help me a lot. The single biggest hurdle for me right now is real estate, as I am renting and hence all that money is leaving my pockets…
Apr 7th, 2008 @ 1:57 pm
17. Susan R
Bruno, I love your ideas about how to cash out and live your life. You are right that you should get into real estate. Can you own a rental building/house that you can also live in? Is there anybody who can co-sign for you if neccessary? I’ve done well by purchasing in crappy neighbourhoods with fantastic locations. These places do float to the top eventually and now I actually say, hey, thanks Mr. Crack Dealer for keeping this place affordable until I had a chance to buy in! Well, there’s my little piece of advice.
I’m 41 and at the wealth management stage. I have about 1.3 million in assets but they are pretty out of control. The big thing for me now is to figure out taxes and how to hold on to my money, how to structure my assets and expenses and all that so I can remain supposedly retired. I do not work per se but I do earn my own money and have never been on UI or welfare. I do deals and pay myself as neccessary.
I am impressed with this Journey. You will definately reach your goals, probably a lot sooner than you think. And unlike me, you will know as you are approaching them and will be in control of them. My assets kind of snuck up on me and now I’m trying to smarten up so I don’t lose a whole pile to taxes and eroding my capital through spending. In fact, I’m quite sure that the people who’s posts I have read will leapfrog right past me when they hit my age. That’s okay with me! You deserve it.
I have a corporation right now that holds cash and realestate, though the biggest portion of the realestate is about to be sold. Dividends on a capital gain in a corporation are taxed at 50%, subject to a few rules. I just learned that at the KPMG and Reader’s Digest sites.
So I will be taking a capital dividend this year I guess, and will turn the money I’ve already taken out of the corp. into a loan, which I will repay within 2 years or it will become income. (that’s how it works as I just found out at the KPMG site.)
Wealth management comes next for all you people! Onward with your goals and dreams - some of you may become the next big time financiers. I’ve seen a few things and I can tell you that you are a lot more together than I was 15 years ago. (Well, and right now for that matter.) I’ll be reading your ideas to do a better job of making an earning from my assets.
Thanks all, Susan
Apr 9th, 2008 @ 3:32 am
18. CJ
I get a kick out of your comment about not being doctors or lawyers to explain your large net worth at age 27.
Show me a doctor at age 27 with a positive net worth. Considering most people graduate college at age 22, then medical school at age 26, then must spend at least 3 years in residency (which pays beans), no doctor is capable of making a decent income until at least age 29, and that doesn’t include those who spend more time in various specialty training. The typical med school dept is well into 6 figures - that kind of hurts the net worth, too.
There’s even a section in the Millionaire Next Door that illustrates this concept, that doctors have a very late start at setting aside retirement funds because they don’t make any money until much later in life.
May 4th, 2008 @ 9:17 am
19. Anshirk
Dear FT, Your articles are amazing and your introduction is inspiring. I’m another person closer to your age (25), passionate about investments and willing to dedicate my life for the Million Dollar Journey. I never talk about the markets or investments in my blog however I talk about my life. My goal is to be able to express myself and be good with my passion and excel in performance. I like the concept of learning by experiencing and I’m sure you are in the same process and I see the passion and dedication. I wish you luck and hoping to party with you (if you are interested) when I reach my goal.
Jun 6th, 2008 @ 10:00 pm
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