The journey to Financial Independence, Retire Early (FIRE) often starts from a less-than-ideal place: debt. Many Canadians leave school with a heavy financial burden. According to Statistics Canada, the average student debt in 2020 at graduation was $16,700 for college grads, $30,600 for those with a bachelor’s degree, and over $38,000 for PhD holders.
Sound familiar? Don’t worry — debt doesn’t disqualify you from FIRE. In fact, many people who achieve financial freedom start from exactly where you are. The key lies in creating a clear plan and taking consistent steps forward.
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Step 1: Reset your mindset and slay high-interest debt
Before you even touch an investment account, start by reprogramming how you view money. Practice delayed gratification — differentiate between needs and wants, and ruthlessly cut back on non-essential spending. Every dollar you keep is a dollar that can be used to destroy high-interest debt, especially from credit cards or payday loans.
Why prioritize this? Because every month that debt lingers, it eats away at your financial future. Paying off high-interest debt is like earning a guaranteed return of 18-20% — an impossible figure to consistently match in the stock market.
Step 2: Build a safety net and start investing early
Once your consumer debt is wiped out, it’s time to build your emergency fund — ideally three to six months’ worth of living expenses. This gives you breathing room in case life throws a curveball, and it keeps you from slipping back into debt.
Next, begin investing consistently, even if it’s just $50 a month. A great option for beginners is a low-cost, diversified exchange traded fund (ETF) like the iShares Core Growth ETF Portfolio (TSX: XGRO). It offers 80% equity and 20% fixed income, rebalances automatically, and has a low management fee of just 0.20%. With a 10-year average return of about 7.3% annually and global exposure (including 39% in the U.S. and 35% in Canada), it’s a solid one-stop shop for long-term investing.
Dollar-cost averaging into such a fund keeps your investing simple and steady, even during market dips.
Step 3: Maximize your tax-advantaged accounts and boost your income
To supercharge your FIRE journey, make the most of Canada’s Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP).
- TFSA: Investments grow and can be withdrawn tax-free at any time.
- RRSP: Contributions reduce your taxable income, and the investments grow tax-deferred until you withdraw them — ideally in retirement when you may be in a lower tax bracket.
Generally, TFSAs are great for flexible, long-term saving and investing, while RRSPs are more beneficial when you’re earning a higher income.
As your career progresses, increase your investment contributions. Look for opportunities to boost your income, whether it’s through promotions, job changes, or launching a side hustle. Every extra dollar can help fuel your FIRE plan.
Track progress, celebrate milestones, stay the course
Use budgeting and investing tools like Mint, Wealthica, or a simple spreadsheet to monitor your journey. Revisit your goals regularly, and adjust your strategies as needed.
Celebrate key moments — becoming debt-free, building your first emergency fund, hitting your first $100,000 portfolio milestone. These victories will keep you motivated on the long road to FIRE.
The takeaway
FIRE isn’t about perfection — it’s about progress. Even if you’re currently buried in debt, your path to financial independence starts with one intentional step. Stay focused, stay consistent, and over time, you’ll trade your debt for financial freedom.
