My Plan

[thecoach]

I'm working on a plan that will make me financially free by age 40 (12 years from now) so I have the option to retire if I want, but be 100% retired by age 50 if I do keep working past age 40. It's a combination of a few different strategies I've come across.

I'm wondering if you can give me some feedback (especially from any fellow Canadians here) on the rough idea of the plan I've devised and whether there are any potential flaws, etc. I'm open to any critisims about the plan but it's my first crack at a real plan like this so be gentle.

Just as some background, I'm 28, single, no dependents, own my home (working on refinance to take care of some debt, will be roughly 60K open mortgage, valued at around $100K), am self employed in the investment/insurance industry for about a year. Current investment assets: $25,000 in RRSP's (invested in mutual funds), and roughly $1,000 in common shares in DRiP plans from previous employers share purchase plans. Live in Saskatchewan, Canada, so there a reasonably low cost of living (comparable to North Dakota I would assume for those in the states).

Here's my plan:

Goal: Total financial Freedom by Age 40 (12 years) with a passive after tax income of at least $35,000/year

Defensive plan. Goal: provide a defensive wall around my finances in the event of serious illness, disability or death. I am self employed so I have no group disability plan and I am not eligible for Employment insurance, so if I am disabled or seriously ill and not able to work, my financial plan in shot.

$100,000 in life insurance (paid up at age 47) – will pay out dividends eventually providing residual income even after it is paid up. Benefit amount will be used for final expenses.
$100,000 Critical Illness insurance – Return of Premium on death and at age 65 will provide a lump sum in the form of ROP, or benefit if diagnosed, later in life to keep income stream in place or to preserve savings in the earlier years.
$50,000 in Long Term Care (paid up at age 55) – goal is to use as an income stream in later years or to preserve savings if used earlier in life.

Offensive plan. Goal: Build net worth and passive residual income.
Pay out Mortgage as fast as possible. Use Re-advancing Mortgage so the Line of Credit can be used for investment purposes keeping the debt tax deductible (mortgages in Canada are not Tax deductible, so I need a way of converting my debt from non-deductible to deductible). Capitalize the interest so no payments need to be made. Life insurance will pay out loan upon death.

Build a well-diversified DRIP portfolio. Use DRiP into new shares until retirement age. Upon retirement dividends are paid in cash to provide residual passive income. Dividends will be taxed lower than earned income from revenue properties so this provides a more tax efficient income stream.

Use value of DRIP portfolio and cash values of insurances as security on another investment loan to purchase commercial/revenue property. Borrow as a loan instead of a mortgage so interest in tax deductible. Capitalize interest so no payments need to be made. Secured insurance benefits go towards paying out loan.

Business Plans. Build successful businesses to add to net worth and passive income.

Financial Business: Builds residual/passive income from trailer fees to service block of business.

2008 (All dates are "at the latest")- Hire a part time assistant. Main focus would be to do prospecting, cold calling and arranging appointments. As business grows more admin work is done
Establish solid relationship with Property & Casualty issuer (home/auto/travel insurance).
2013 - Hire at least one associate advisor.
2017 – I move to management role - Start independent office (X Financial) that offers comprehensive insurance and investment planning services (property & casualty insurance, individual and corporate life and health insurances, and investments). 8-10 employees including fulltime admin person, 2-3 associate advisors, 2-3 P&C advisors, 4 part time customer service desk help for motor issue/renewals. Potential expansions could include a real estate division and/or a mortgage/loan broker division to have a ‘one stop shop for all financial needs.
2019 – I move to business owner role. Hire manager to run X Financial. I continue as agent of record for business so residual income (trailer fees) continue.

Property Management Company: Provides residual/passive income from rent paid by tenents.
Feb. 2008 - Completion renovations to finish basement suite at Property A (current residence). Get suite renter to provide passive residual income of $200-$300/month to put towards paying off mortgage faster.
2015 - Mortgage Paid out. purchase a second property. Live in Property B when renovating. Property A now used as full rental unit for $700/month. Revenue from property A used to pay out new mortgage on Property B. Repeat as often as possible. As assets grow move up to apartments and larger commercial properties. When 10 properties are accumulated create a holding company and hire a property manager. Move to business owner position.
2020 - Write a book about how awesome I am. Sales from book will provide more residual income.
2029 – Age 50 fully retired. Become strictly an investor…no work or direct link to the businesses, just providing private equity to companies.

 

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[snowbank]

I will give more detailed thoughts when I get a chance(packing for LA), but fresh off reading it, it seems like you are setting goals that are easy for yourself to reach. By that I mean- take for example in 2015 you set a goal that you would like to purchase your 1st investment property. Why not a lot sooner? You mention you'd like to repeat this process until you have 10 houses. So if you are 28 now, and at age 36 you buy house #2, and let's say you've had your current home for a year or 2, so you are waiting 10 years to buy your 2nd home. At this pace you will be 116 years old by the time you have 10 houses and will be able to hire the property manager you mentioned. IMO you are short changing yourself by setting your goals so low so that they will be easy to achieve.

Similar with business goals. Your goal is to wait 10 years to move to manager's role. Why not 6 years? or 4, or 2?

I think you will be a lot more motivated to achieve your goals if you set the bar higher.

I think it's better to set your goals high and fail, then to set them low and guarantee yourself success.(me personally, i often set goals where i know i will struggle to hit them, and sometimes surprise myself when i push myself and am able to achieve them, which makes me set the bar higher for next time)

 

[yveskleinsky]

A weird (and eerily accurate) strategy that I use is to envision the possibility of making $10k a month, or $100k...whatever amount seems high to you, then double it. Same goes with properties or businesses you want to run. If you think that reasonably you can own 10 homes in 10 years, envision owning 100. When you brain rejects the idea, think of someone who owns 100 homes- just to prove your brain wrong. For me, I get almost sick to my stomach because it is so far fetched- but once your brain stretches to envision what is possible it won't snap back- which is great! The larger you can practice thinking, the larger you can stretch your potential- and the more fulfilled you will become!

 

[Peter2]

After reading your plan, I have come to the conclusion that you are definitely in the SLOW lane with a flat tire and overheating engine during rush hour with several accidents and rubber neckers.

Before I start giving advice, I would like to know the reason for waiting 8 years before buying a second property and the reason you would take 6 years to hire 2 people for your business.

 

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[MJ DeMarco]

I wish my book was done because it'd be nice to have something to reference. As alluded by Peter, what you are describing is Slowlane. Sounds like you are a victim of slowlane books like "The Millionaire Next Door" and "Smart Couples Finish Rich" diarrhea.

My initial comments would be to forget the DRIPs, well diversified portfolios, paying off your mortgage early -- all are slowlane concepts. Massive wealth is generated quickly by asset building and then selling off those assets. Put all available monies into building assets that cash flow -- then sell. <<< Fastlane

 

[thecoach]

Wow thanks for the feedback guys. I've posted this on a couple other websites and I've gotten no where near the feedback I've gotten here!

To answer your questions about why it's taking so long. With my business my niche market is young proffessionals. Many aren't mature enough to understand the importance of the work I do. Within a couple of years these people will be ripe for the pickin's as they start families, etc. Plus, the area I live in is very laid back when it comes to accomplishing things. Most look for the government job and are satisfied with living a normal existance making $40,000 a yeah and retiring on a pension, so it's tough finding people that actually want to improve their finances. I have been looking for ways to get into an older more mature market that will help move my business along, but I can't seem to find anyways of getting there right now. I have recently started some things that should get me into that older market, but it just hasn't come yet. I guess I have my goals set far back becuase I seem to be a little stuck at this pace for the moment.

As far as hiring people sooner and buying a second property sooner, my current cashflow is keeping that at a slow pace. I just don't want to be in a position where I've got a bunch of people hired and not be able to pay them on a slow month. I'm trying to build up enough reserves where I've got somethign to fall back on if a really bad month happens.

 

[Peter2]

To answer your questions about why it's taking so long. With my business my niche market is young proffessionals. Many aren't mature enough to understand the importance of the work I do. Within a couple of years these people will be ripe for the pickin's as they start families, etc.

As far as hiring people sooner and buying a second property sooner, my current cashflow is keeping that at a slow pace. I just don't want to be in a position where I've got a bunch of people hired and not be able to pay them on a slow month. I'm trying to build up enough reserves where I've got somethign to fall back on if a really bad month happens.

Are you telling me that in the city/town you live in everyone stopped having children during a period of 10 years, and that's the reason that there are no people fitting your demographics? The demographics where you live will not change significantly in the next couple of years.

Your current cashflow is keeping you from expanding your business and increasing your real estate holdings. Guess what? Ten years from now you will be saying the same thing.

In order for you to be successful, you have to change your thinking. The time will never be right for anything in life, but if you wait for all the lights to turn green before you are heading to town, you will be staying home the rest of your life.

I'm pretty sure I know why you are setting your goals so far out in the future. You are terrified of failing. You are 28 years old with no dependents and pretty much no assets. You have NOTHING to lose. Change your thinking, and start taking action TODAY. There is no such thing as failure, just results that you did not intend to get. If you fall, you can get up again. There is no such thing as three strikes and you are out in life. You can try, try and try UNTIL you succeed.

Get in the FASTLANE. !!!! :fastlane:

 

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[MJ DeMarco]

Are you telling me that in the city/town you live in everyone stopped having children during a period of 10 years, and that's the reason that there are no people fitting your demographics? The demographics where you live will not change significantly in the next couple of years.

Your current cashflow is keeping you from expanding your business and increasing your real estate holdings. Guess what? Ten years from now you will be saying the same thing.

In order for you to be successful, you have to change your thinking. The time will never be right for anything in life, but if you wait for all the lights to turn green before you are heading to town, you will be staying home the rest of your life.

I'm pretty sure I know why you are setting your goals so far out in the future. You are terrified of failing. You are 28 years old with no dependents and pretty much no assets. You have NOTHING to lose. Change your thinking, and start taking action TODAY. There is no such thing as failure, just results that you did not intend to get. If you fall, you can get up again. There is no such thing as three strikes and you are out in life. You can try, try and try UNTIL you succeed.

Get in the FASTLANE. !!!! :fastlane:

Legendary ... Speed+++

 

[thecoach]

Thanks Peter. It's definately not that I'm scared of failing. I don't beleive in failing. I've never failed at anything that I've done. I've learned a lot from decisions that didn't have favorable outcomes, but I've never failed. That's why I took the leap of faith from a guaranteed paycheque to no gaurantees with my business. I've been working on changing my thinking for some time now. I suppose I just haven't learned the ways of speeding up the proccess yet.

 

[S928]

Are you telling me that in the city/town you live in everyone stopped having children during a period of 10 years, and that's the reason that there are no people fitting your demographics? The demographics where you live will not change significantly in the next couple of years.

Your current cashflow is keeping you from expanding your business and increasing your real estate holdings. Guess what? Ten years from now you will be saying the same thing.

In order for you to be successful, you have to change your thinking. The time will never be right for anything in life, but if you wait for all the lights to turn green before you are heading to town, you will be staying home the rest of your life.

I'm pretty sure I know why you are setting your goals so far out in the future. You are terrified of failing. You are 28 years old with no dependents and pretty much no assets. You have NOTHING to lose. Change your thinking, and start taking action TODAY. There is no such thing as failure, just results that you did not intend to get. If you fall, you can get up again. There is no such thing as three strikes and you are out in life. You can try, try and try UNTIL you succeed.

Get in the FASTLANE. !!!! :fastlane:

Great post Pete. Your message hit a high note for me, and I wasn't even being addressed - too many good points. :smx9:

 

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[8 SNAKE]

It's definately not that I'm scared of failing. I don't beleive in failing. I've never failed at anything that I've done.

I can completely relate, yet I can also see why we've both been in the slow lane. Neither of us has failed because we're both playing it safe and we're not venturing out into the unchartered waters that we aren't comfortable in.

People in the fast lane fail. They know it, they're comfortable with it, and they embrace it. Very, very few jump right in and run along with the other successful people. The successful ones just keep trying until they make it. The rest jump back in the slow lane and watch the world go by.

You and I have never experienced failure, so we're reluctant to jump out into that lane because failure has never been an option for us. Until we're able to change our way of thinking and accept failure as a learning tool rather than a handicap, we're destined to watch others go speeding by.

Best of luck to you. I'm working on changing lanes, too.

 

[RAiMA]

Thanks Peter. It's definately not that I'm scared of failing. I don't beleive in failing. I've never failed at anything that I've done. I've learned a lot from decisions that didn't have favorable outcomes, but I've never failed. That's why I took the leap of faith from a guaranteed paycheque to no gaurantees with my business. I've been working on changing my thinking for some time now. I suppose I just haven't learned the ways of speeding up the proccess yet.

The only thing I can suggest is to invest in yourself. There's plenty of opportunity around the world, even in the toughest times, during the depression, it was an era that created the huge number of millionaires. The most they had ever seen at the time.

The difference is building up the awareness of the opportunities and being at the right place at the right time. You must be prepared to have your savings and capital ready at hand to take advantage of the opportunities. As Warren Buffet say, Noah didn't start building the ark when the rains started.

I'm currently working out a plan where I start from nothing and the goal is to be retired and out of my job in 6-7 months time earning a passive income of $5-7k. The opportunities are out there. Just don't limit yourself with the beliefs that you have to do things a certain way. Be creative and find new ways of doing things better, and don't ever give up. Check your goals on a daily basis and ensure you're moving towards closer day by day.

Cheers,
Aaron

 

[thecoach]

I'm always continually looking for ways to push myself in the right directions and I know I've made some mistakes that have set me back. In fact, the higher ups have all told me flat out that most people would not have lasted as long as I did going through what I have so far. I suppose this last year has been the first time I've really been pushed this far out of my comfort zone, so I just didn't want to fall off the deep end quite yet.

Thanks for all the insight from all of you! Back to the drawing board with the plan!

 

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[thecoach]

Thanks for the kick in the a$$ so to speak. All weekend, I've been working away at things that will help get things accomplished a little faster. In fact, I got a ton of work done on my house, so that should speed up the proccess and maybe get a renter in here 3 months earlier.

Last night in a totally unexpected twist, a friend and former colleague of mine practically offered me a J.O.B. at her work (saying that as soon as the opening came up I was the first person that popped into her head that would be good for the job). It would more or less be the exact same thing as I'm doing in my current insurance and investment business, only I would be salaried and not have to pay expenses (rent, marketing , etc). I know getting a J.O.B. is moving backwards from S to E, but what this would do is increase my cashflow from about 20k to 40k + commission a year and go from barely making ends meet becuase of debts on top of business expenses to having a substantial increase in my income and would remove roughly $800/month of business expense. This would also now be the 3rd financial institution I would be wokring at so it would give me another 'angle' that I can learn from as far as how they run their business to give me ideas for mine. The extra cashflow would give me a substantial amount more that I can put towards my property management plan, paying off current debts, etc. The only downside is it would almost completely kill the Financial Business plan. I could try starting the financial business down the road when I'm in a little better financial shape and I could be a lot more prepared for it so it doesn't completely close that door, but I would be starting completely from scratch if I re-open that door. I have become very frugal over the last 8 months, so the extra income will definately not be wasted and will be applied directly to improving my financial situation and towards business ventures. I am guessing I would have my debts (including my mortgage) paid off within 3 years max if I do this as opposed to 5-7 years. I have a couple other very small business ideas that will provide passive income immediately (not much to start, but within a couple years it would be enough to suppliment the low income of starting a business) that I can get going as well with the extra cashflow I would get.

I don't have all the details on this job so I don't know if it's even going to pan out, but what I'm thinking is taking one step backwards to establish a couple forms of passive income (rental units, other small business ventures) so when I come back to starting my own financial business in a couple years (if I decide to), I will be in a much more stable position financially, so I can handle the lower income in the beginning.

Keeping in mind that I'm only 28 with no spouse to provide income during my current business start up and have lots of time to make my millions, would taking one step backwards from S to E for a couple years to better position myself financially be a bad decision? I'm going to be meeting with her sometime this week about the details of the job, so any insight before then would be great.