Reader Profile: JN

The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Also, please leave constructive comments, questions, and so forth. Simply telling someone what a mess they have, how they have made poor decisions, and so forth is not helpful. There is a way to say, "That was a mistake, but here's what you can do to correct it" that both acknowledges the problem and offers a solution. It's this sort of feedback that this series is intended to solicit.

Next in the series is FMF reader JW. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.
 
My name is Julie, I’m 29 years old and I live in beautiful Ottawa, Canada.  I live with my husband (my high school sweetheart) Nick, aged 32, and our 13 year old cat.  I’m a clerk at a medical legal organization, and Nick is a statistician with the federal government.
 
Nick and I both moved to Ottawa to attend university – and we never left.  In 2004 Nick earned his Bachelors degree in Geography, with a minor in history.  In 2007 I graduated with a degree in Criminology and a minor in Psychology.  Oddly enough – neither of us uses our degree now!
 
We do however have a passion for saving and investing, and we have big plans to retire at the age of 48.  We’re documenting every step of our journey towards early retirement at www.freedom48.net
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.)
 
We both work full time Mon-Fri.  I earn $40,000 per year, and Nick earns $52,000.  Thankfully, we also have $30,000 in rental income each year.  In total, our take home income is about $7,500 per month.
 
Our expenses run about $4,000 per month.  The breakdown is as follows:

• Mortgage/property tax (income property): $800
• Mortgage/property tax (our house): $1,320
• Condo fees (income property): $331
• Electricity (our house): $100
• Natural gas (our house): $80
• Water (our house): $60
• Cable & Internet: $95
• Vehicle Gas: $150
• All Variable Expenses: $1,065

Overall, we have a pretty comfortable standard of living.  We do spend money on traveling and house renovations, but we tend to minimize expenses in most other areas.  We don’t have cell phones, or gym memberships, or buy name-brand clothing.  We share a vehicle and carpool to work.  We love to take the “DIY” route when it comes to doing things, and we’re always looking for the most affordable way to get a job done.

What are the current financial issues you're facing (saving, paying off debt, etc.)?
 
We’re working hard to save as much as we can so that we can retire early.  We’re paying down two mortgages right now.  One will be paid off in seven years, and the other in about fifteen.  We hope to be able to purchase a third house either this year or next – in an effort to increase our rental income and ultimately our real estate equity. 
 
What are your plans for the future. (retire early, build your career, etc.)?
 
We’re hoping to start our family in the near future and continue to enjoy life – through recreation, travel and appreciating all the “little things”.  We plan to retire when I’m 45 and Nick’s 48… in just sixteen years. 
 
While we are focused on saving money and retiring early… we definitely “work to live” rather than “live to work”.  We enjoy our simple life, and our cozy home... we have no desire to live that “privileged life” that money can buy.
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
 
I’m sure you’ve heard it a million times… but multiple sources of income (especially passive income), and diversification of investments is the key to financial success. Getting a head start and investing at a young age will also work wonders!

Comments

[My Financial Independence Journey]

I'm curious about your rental property.

Do you do all the property management and maintenance yourself? If so, how much time does this take per month?

Or do you use a property management company? If so, how did you select them? And how has their performance been?

[Carole]

I wonder if it's realistic to plan to retire before the hoped for children finish college.

[Luis]

If you want to talk seriously about early retirement then you must put your net worth on the table.

30k per year in rental income, seriously? Please do tell us how you accomplished that with one property.

[FMF]

MFIJ --

Check out my real estate posts for background info:

http://www.freemoneyfinance.com/real-estate-2011/

[elb]

I think MFIJ was addressing the OP.

[FMF]

elb --

Ha! I think you are right. Serves me right for reading comments on 10 posts at a time!!! :)

[Noah]

I'm with Luis. The rental property mortgage is $800/month, but you manage to make $30K per year off of it. This means you charge $3300/month? I also would like to see your net worth. Retiring in 16 years is a very short amount of time. There are a lot of hidden facts here that make giving advice very difficult.

I'm curious how you get by in this day and age without a cell phone. They aren't that expensive and can help make yourself more accessible for problems/issues with your rental property (and future properties).

I would also caution you about setting your sights on retiring at age 48 if you want a family. Even one child, if both parents are working will cost around $1k/month in childcare.

[Old Limey]

I didn't see any data on your savings and investments other than the one rental property.

My wife and I emigrated to Toronto, Canada in 1956 and stayed there for 2 years until AVRO Aircraft was forced to close down when the government terminated the Avro Arrow Mach 2 Interceptor program and we moved to Denver CO, then 2 years later to California where we have been ever since.
Ottawa is indeed a very beautiful city and we enjoyed visiting it on a vacation we spent in Quebec. I also thoroughly enjoyed my many "Portage" trips to Algonquin Park where, with two friends, we would canoe for miles and miles, portaging from one lake to the next, enjoying fabulous trout fishing. Other weekends six of us would rent a cabin up in the Muskoka Lakes in Northern Ontario and have a great time swimming, canoeing, and fishing by day, and living it up with dancing in the evenings.

By retiring at 48 in the USA, it would be a long wait for Medicare eligibility at 65. I don't have any idea how your National Health Service in Canada provides for 48 year old retirees but it would need to be better than it is in the USA. In December my wife recently spent 2 weeks in the hospital after abdominal surgery and since we are on Medicare and still members of my former company's group insurance plan we have yet to see a single bill. The only bill I'm expecting is $1,000 for a $250/day co-pay for the first 4 days in the hospital.

Personally I think 48 is far too young to retire. We retired at 58, raised 3 children, had a wonderful life prior to retiring and have had 20+ years of wonderful retirement. We both thoroughly enjoyed our working life and were able to retire with a fairly large investment portfolio, most of which was tax deferred until at age 70 1/2 we are forced to start moving a portion out each year into taxable investments.

One factor that is probably not even on your radar, but should be, is CLIMATE. I realize that lots of people live in places where the climate can be very inhospitable but you have no idea how nice it is to live in a fantastic and almost bug free climate like Northern California, sandwiched between the Pacific Ocean on one side and San Francisco Bay on the other. The climate factor makes a huge difference to your overall quality of life and health. I'll never forget the mosquitoes and horse flies in the Muskoka Lakes and the June bugs in Toronto, to say nothing of the interminable humidity that made sleeping a problem on many nights.

[matt]

Went through her blog a bit. Looks like they have a townhome that is the rental, and then their own home has a basement rental. So 2 mortgages, covering their home and 2 rentals.

[retirebyforty]

Great job with the rental property. I think that's a great way to get ahead. Good luck with the next one.

[Old Limey]

Like Matt, I also skimmed through the blog. One thing I noticed was that part of the website name is "Freedom48" signifying freedom from work at the age of 48.

I guess the opposite of Freedom is Captivity. My wife and I must have been two very lucky people because we never thought of our working life as being "Captivity". I used to actually look forward to going to work every day. My work entailed interacting with a group of wonderful guys on very creative software projects that made life easier and more pleasurable for all of the engineers that used them in their analytical tasks. In fact my old group held a reunion last year, 20 years after many of us took a Golden Handshake in 1992 that was offered us after the defense contracts started to slow down because of the ending of the Cold War. Likewise my wife really enjoyed her work working with young children as a teacher.

If you don't enjoy your work I believe you need to start looking around for some creative work that will give you lots of satisfaction.

[Rick Francis]

It's great that your expenses are much less than your take home income, but as others have mentioned there are a few holes in the profile.

The $30,000 in rental income- the income property mortgage seems unusually low for that much income- was it a fixer upper? Do you have other properties without mortgages? Retiring at 48 is a pretty tall order- without some information on your current net worth it is impossible to judge if that is a reasonable goal.

If you are going the real estate investing route you should think twice about paying down the mortgages- you need to put as much capitol to work as possible and that means borrowing as much as you can and putting any extra money into down payments on a new property. Read Apex's guest posts on Financing for details.

-Rick Francis

[My Financial Independence Journey]

@FMF,

I was addressing the OP. But I've been following your real estate posts as well. I'm really envious of the places you just bought.

[Julie @ Freedom 48]

Thanks for the feedback everyone! I really appreciate it.
I wanted to take the time to respond to a few questions/concerns you guys have raised...

MFIJ - We do all of the house maintenance ourselves. With the income property being a condo, lawn care and snow removal are taken care of, but we're there on a regular basis doing maintenance and repairs, trimming hedges and trees, washing exterior windows etc. When no problems arise we may spend an average of an hour or two a month working there, but if something comes up that needs attention (a broken hot water tank, a broken door etc) we might spend 10 hours working to fix it. It varies for sure.

Carole - We plan to max out RESPs for our children. We can contribute up to 50k total, and the government will contribute up to 7k I believe. Those contributions, along with gains over the years should take care of their university expenses (or the vast majority of it anyhow)

Luis - As Matt mentioned, we have one townhouse that is fully rented, and our house has a 2 bedroom apartment that is rented. The 30k yearly rental income comes from those two sources. We're comfortable divulging our monthly savings, but not the total amount of investments we have. I will say that our net worth is about 550k (including house equity and investments).

Noah - Our tenants have our home and work phone numbers so they can reach us any time. My brother also lives in Ottawa and has agreed to "oversee" the houses whenever we're out of town. The tenants have his contact info as well.

Old Limey - Canada's health care coverage pays 100% for doctors visits, hospital stays, surgeries etc. The only thing we'd be paying out of pocket after age 48 is dentist visits and prescription medications. Once we're 65 prescriptions will also be taken care of.

Matt - Correct you are!

Retirebyforty - Thanks =) And we can't help but admire you for your even loftier goals! Good job!

Old Limey - We do love our jobs. We also think it would be nice to not be "tied to the desk" Mon-Fri, and have the freedom to be able to do what we want with our days. If we want to travel, or do volunteer work, or help out at our children's schools we can. We'll also have the time to do maintenance work on our properties during the day... and be available to spend time with our children in the evenings. Our goal isn't about being freed from our jobs, but rather having the freedom to do what we want when we want, without needing to worry about our income.

Rick - we like the idea of paying down the mortgages only because we'd like to have these 2 houses paid off by the time we retire. While we do plan to live off of investment income after we retire, the extra rental income would allow us to continue to save. The fewer mortgages we have to pay, the lower our monthly expenses will be! Plus, I'm sure eventually we'll get tired of being in the rental business, and we'd like to sell the houses... at a decent profit.

As I said before, thanks for your feedback everyone! Your thought provoking questions are great =)

[Meg]

Great job with your planning! I don't see anything wrong with aiming to retire at 48. You can always change your mind later in any event. After all 20 years is a long time from now. But if you aim for 48 you will probably still hit a comfortable early retirement so I say plan away! Plus often people encounter medical issues which force a retirement in their early 50s or sometimes sooner. Better to have planned for it and have the option rather than not to plan for it and be caught unprepared.