If you asked many Canadians what their ultimate dream is, I bet a lot would say early retirement.
The best part about retiring 10, 15, or even 20 years before your peers is the flexibility it creates. Imagine a day filled with golf, gardening, reading, or simply lounging around the house. Compare that the the daily grind of going to work, the impossibly long commute, and your least favorite co-worker. Which would you rather experience each day?
Although it seems all but impossible in today’s world, it really isn’t that hard to retire early — assuming you’re willing to make some sacrifices. Here are four ideas to get you started.
Cut expenses drastically
For those looking for a more conventional retirement, saving 10% of their income is sufficient. To retire early, you’re going to need to save a lot more — around 50% of your income.
For the young and single, this isn’t so hard. In most cities across Canada, it’s pretty easy to rent a bedroom with shared kitchen and bathroom for $500 per month. Add in riding a bike or taking transit rather than driving and using a combination of sales, coupons, and bulk-buying to get your grocery bill under control, and we’ve already gotten many of your biggest potential expenses considerably lower.
Increase income
I often see young people do things like switch banks to get an extra 0.1% on a savings account that only pays 0.9% interest in the first place. While there’s a case for making every cent count, I’ve always thought that energy would be put to better use increasing your earnings potential.
Whether it’s taking classes at night, keeping abreast of the industry’s newest trends, or using the evenings to apply for jobs that offer a $10,000 per year raise, most people would be better off investing their excess time in becoming a better employee.
Working just 40 hours per week isn’t recommended either, at least for someone looking to leave the rat race early. Many jobs have opportunities to work overtime, while others reading this can leverage their existing skills and education into a lucrative side hustle.
Consider moving
As much fun as it is living in Downtown Toronto or Vancouver, they’re awfully expensive.
Many occupations will require someone to live in the city, but there are countless more than can be done just about anywhere in the country. If you’re one of those people with skills that are in demand just about everywhere, look at leaving the hustle and bustle of the city for a more relaxed life in one of Canada’s smaller centers.
Depending on the location, you can rent a two-bedroom apartment for $600-$800 per month, cutting your living costs down to just a fraction of what they are in the city. Plus, everything from car insurance to entertainment is cheaper in small towns, not to mention lower crime rates as well.
It might not be the most exciting existence, but if you’re serious about retiring early you’ll be spending most of your time working anyway.
Buy (and hold) high-quality stocks
Many of the best investors I know follow a simple rule. They buy high-quality stocks when they’re cheap and then hold forever, reinvesting dividends along the way.
Consider Husky Energy Inc. (TSX:HSE), one of Canada’s largest oil and gas producers. The company has a diverse set of assets including oil sands production, natural gas assets in Asia, several refineries spread across North America, and more than 500 retail locations across the west.
The company is suffering just like the rest in the oil sector, but it isn’t going anywhere. It has a strong balance sheet, and is continuing to invest in future production. Plus, it pays investors a dividend of 4.6% annually just to hold it. There’s little doubt in my mind this stock will be higher in a few years once oil recovers.
Another great stock that’s temporarily beaten up is Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), which is down 20% from its recent high. The company offers a strong financial services brand, a great retail and investment banking division, and exposure to high-growth economies in Latin America. It also pays investors a 4.3% dividend yield and trades at just 10.8x earnings. It’s another great stock that’s just temporarily down.
