The FIRE movement is getting a lot of buzz lately, especially with millennials.
Our guests today, Kristy Shen and Bryce Leung are leaders in the millennial revolution for FIRE.
Kristy and Bryce are Canada's youngest retirees. They used to live in one of the most expensive cities in Canada, but instead of drowning in debt, they rejected home ownership. And what resulted was a 7-figure portfolio, which has allowed them to retire in their 30s and travel the world.
Their story has been featured in the New York Times, Forbes, Huffington Post, amongst many other publications. They've written a book on FIRE called Quit Like a Millionaire and it's out this month.
Andy Hill: Did you both work 9 to 5 jobs before you retired early?
Kristy Shen: We were both computer engineers living in one of the most expensive places in Toronto, doing what everyone else was doing: Get a job, work until you're 65, get a mortgage… that whole adulting path that all millennials are supposed to follow.
Then I had this wake wakeup that I was like, “You know what? Maybe the path that our parents have written for us all these years doesn't make sense anymore.”
What changes did you make to achieve financial independence?
Kristy Shen: We decided to learn how to invest. So that was the first step towards FIRE. How do we make this money generate passive income so that we don't ever have to work again rather than constantly feed a house that prevents us from ever being free and tied to our jobs forever?
Bryce Leung: At the time, we had been saving up money for a while. We were really good at saving money because we kept living frugally for the purposes of saving up money for the down payment on a house. In 2012, it was worth about $500,000.
But even then with that amount of money, it would still result in another $500,000 of debt because the house would have cost $1 million or more.
We started learning how the math works for FIRE and with $500,000 and given how much we were spending just living in Toronto, which was about $40,000, as for the 4% rule, we needed $1 million to retire.
I realized if we bought a house, we'd be paying that debt off for another 5 or 10 years or we could be retired in 3. At that point it was like, “Ah, I think I'd much rather do this.”
When we gave our notice, we were still 31. When we left, we realized that we'd become the youngest people in Canada to have retired. It was all because we didn't buy a house.
That became really crazy in the media because the idea that home ownership is what adults do and home ownership is the best way to build wealth. Our experience flew directly in the face of all of that.
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Where did you keep the money when you were building up your savings?
Bryce: The short answer is it was in a savings account for most of the time. I started investing somewhat in the stock market in 2007 and 2008 using crappy mutual funds. But into 2008, there was a huge crash.
When we got out of that, we moved the rest of that money into cash and preparation to buy a house. Then in 2012, when we decided to do the FIRE thing, we shifted the money back towards investing.
But this time we did it properly using an index portfolio with ETFs and all the kind of stuff that we advocate on the site now.
What was your strategy when you made that switch over to investing and saving for FIRE?
Bryce: When we realized we were going to go back into investing, we calculated and realized we were about 3 years away from hitting our targets.
We created an index portfolio that's about 60% equity, 40% fixed income. It's still pretty much the portfolio that we use today. For us in Canada, we took the equity portion of it and split it equally between Canada, US, and the international indexes.
For Americans, you would probably want to go U.S. international indexes. And then the rest of it is put into bonds and fixed income instruments just to reduce the volatility and smooth out the ride.
It really isn't anything complicated, and I teach people how to do this on our site. I ran this whole thing for a year called The Investment Workshop where I taught people how to actually build a portfolio from scratch, and exactly what to buy and exactly how to build a portfolio and exactly how to rebalance and all this kind of stuff.
Kristy: I grew up in rural China. I didn't actually grow up in Canada.
I always had that scarcity mindset. Initially, I was attracted to housing because the stock market was terrifying to someone who has that background. The only thing that really got me out of that terrifying mindset was the fact that we were investing in index funds.
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I realized with index funds, your portfolio cannot go to zero because you're buying the entire market, you're not betting on individual stocks.
So being very pragmatic about it and understanding how indexing works was actually really helpful in getting that mindset away from housing and towards investing.
How much money did it take for you to retire?
Bryce: One of the major kind of insights about the FIRE movement is that your retirement date is not based on your age. It's based on how much money you have.
So based on retirement research, traditional retirement planners have this thing called the 4% rule. However much money you have, you can afford to safely withdraw and spend 4% of it each year – and adjust it for inflation each year.
Statistically over a long enough time, like 30 years or something like that, you have a 95% chance of not running out of money.
As a guideline, if you take how much money you spend, and you multiply by 25, which is the same as dividing by 4%, that's how much your target portfolio needs to be before you are safe to retire.
For us, we were spending about $40,000 and $40,000 times 25 is a million. Once we hit that target, at that point we kind of went, “Okay, I think we're done.” Then we started trying to figure out, “Okay, how do we wind down our careers and pack up all our boxes and all that kind of stuff.”
That's when we mentally made the decision to say, “Okay, career number one is now officially over. Now, let's figure out what the next step is.”
When did the two of you come together in this whole journey?
Kristy: We actually met and started dating in a computer lab. So I like to joke that it was total nerd love level 1000.
In the university that we went to, which is the University of Waterloo, supposedly the MIT of Canada but that's debatable.
Basically, when we met, we came from pretty different backgrounds in terms of how we think about money. My mindset with money is really more of the hoarding mindset, which is more of the scarcity mindset.
I think Bryce was more like a normal, non-crazy person. He was more like a regular person who was more comfortable with investing and taking risks.
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Bryce: Yeah, I wouldn't call it normal or not normal. But Kristy's background, she alluded earlier that she grew up in rural China, but it wasn't just rural China. It was abject poverty in rural China.
So when you grow up in that, money becomes a very, very important part of your life. It's not just about you become very good at counting it, saving it, knowing how much to spend on things.
But on the other hand, it's a double edged sword because while she is very, very, very good at saving money. It's very hard for her to invest in anything that could be volatile.
The idea of having the stock market drop … like during 2008 when we first started investing, I would literally put in $1,000 into the stock market and the next day there'd be 1000 point drop on the Dow and then my holdings would be down by $1,000.
That mindset is something I'm a lot more comfortable with because I know how all the business side of it works, and I know how the investment side of it works, and I know that it'll never go to zero, and it will always come back up.
Why did you decide to retire early and not buy a house?
Kristy: Well, one was actually doing the math and figuring out that a lot of the times when you actually look at bank account calculators online, they actually only show you the mortgage.
They don't really show you all the additional costs that come with it, which is the insurance and the property tax and the maintenance and all of that could add 50% of your costs on top of what you're already paying for the mortgage.
So we do the math and then we look at the evidence around us and then we decided, “You know what, everybody's just playing a game of FOMO – fear of missing out.”
So that mentality, we did not want to be part of that. That's not to say every single home purchase is wrong. I mean, we have friends who live in inexpensive places in the U.S. and home ownership makes perfect sense for them.
Bryce: People in the media keeps saying we're anti-houses. We're not actually anti-house, we're anti-debt.
If you can buy a house with cash, and it costs $150,000, yeah, go for it because it's not going to take up a big part of your net worth. It's not going to put you into mass amounts of debt.
There's this whole thing of “there's good debt and bad debt”. And I was like, “I don't think there really is any good debt.” Because debt traps you.
That's why we started doing this whole revolution thing. Because it's just like the old rules don't work anymore because the whole situation doesn't exist. We don't have jobs that are that stable.
The media keeps yelling at us and be like, “Oh, millennials are flighty, and they keep changing jobs.” We don't do that because we want to. We have to do that because the jobs aren't stable anymore.
But if you have a million dollar portfolio versus $1 million house, one helps you retire, the other one doesn't because you can't spend a shingle off of your house to pay for your living expenses. But you can with a portfolio.
So it's a very, very different situation when you have all your money is stuck in a dead asset, like real estate versus a liquid asset, like a portfolio. One helps you become free. The other one just gets trapped.
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What about the people who already have a mortgage? What should they do?
Kristy: I would say, for people who are really uncomfortable with debt, they want to just buy the house outright in order to be able to sleep at night and not have to worry about it. That's perfectly fine.
For people who are more mathematically inclined, and they're thinking, “Okay, if the market is going to return, let's say 6% after inflation, and my mortgage is only 3% then maybe it makes sense for me to not pay off the mortgage and invest the money in the stock market.”
So it depends on the personality.
For someone who is really, really uncomfortable with debt, I would not recommend them to invest in the stock market and not pay off the mortgage, even if their mortgage rate is really low. Because that is going to affect your health to have to worry about the stock market being volatile but at the same time you have a mortgage hanging over your head.
It doesn't work for every single person, but like an overall rule of thumb is if your mortgage rate is let's say below 4%, then maybe you can actually beat the returns in the market and not keep a mortgage while investing in the stock market.
But it really varies from person to person.
What does life look for you now as retired 30-somethings?
Bryce: For various timing related reasons, we needed to stay at work for 6 months. So as a result, we saved up more money than we thought we would need.
We never did that gap year thing. You know that annoying thing that millennials do where they go around and backpack across Europe and find themselves and it's like, “We want that.”
We spent a year backpacking across Europe, Southeast Asia, Japan, and then all over the states. It was a lot of fun.
Then at the end of the year, we wrapped back around and flew back to Canada.
That's the point where we added up all the money that we spent during that gap year and then realized it costs a lot less to travel the world than to just stay in one place in a high-cost city.
Because when you travel like that, you live like a local. You don't stay in hotels and you don't take cruise ships. Instead, you grab a rental, you cook your own food and you live like you normally would just in a different location.
So we've been traveling ever since then. It's just been amazing.
Every month we kind of go, “Alright, where do we want to go next? Let's go to Italy. Let's go to France, let's go to like all these kinds of places.”
That's our life now, which is pretty awesome.
What personal goals or financial goals do you have right now?
Bryce: We've been teaching people how to do this. We become leaders in the FIRE community because I think people are really excited about the lifestyle that we lead, and this whole retire early and then travel the world thing is really appealing to a lot of people.
That's why I wrote the book. That's why I wrote the blog. So, that's what we've been devoting ourselves to.
We're probably going to be doing that for a while because the whole FIRE space, it just seems to be like, as you noticed, blowing up a little bit.
What would you recommend for parents who want to travel the world but need to make sure their kids get to school?
Kristy: That is actually a really good question, and as a result of traveling, we ended up meeting this woman and her son. She was in Mexico at the time. She was into Tulum and we were in the same Airbnb.
Then I noticed that it wasn't summer, and she had taken her son out during the school year and been traveling for a couple of months. So I asked her, I was like, “Is that allowed? “
But she’s part of something called World Schooling.
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We discovered that there is a Facebook community of over 40,000 people that are part of this new idea that you can use the world as your classroom to educate your children.
They started this whole community about how to educate kids on the road and using the world to teach their kids about currency conversion, teach them about history.
Why learn about the Vietnam war in a classroom when you can just go to Vietnam and actually find out exactly what happened?
Then a lot of their children can speak multiple different languages because they actually grew up speaking to locals in different areas. So we have been doing quite a bit of research and talking to the leaders of this community. That's in the book.
There's a lot of resources that we've been given that this is not only a community that's quite large and growing, but they've also actually had a lot of methods for teaching their kids, depending on how old their children are, depending on the type of education method that's appropriate for their child.
You can actually buy kits online. There are teachers online that are willing to work with you to provide a curriculum for your children.
And some of them send their kids to corresponding schools or international schools while they're abroad and living like expats.
There are actually multiple different ways to educate your children. So that's one of the paths that we would like to go down if we actually decide to have a child in the future.
Bryce: So there are lots of actual options out there, and it's amazing when you think about all these different kinds of ways of living your life.
One of the coolest things that we have discovered as we started traveling is you start meeting people who are living in these weird nonstandard lives and then you start going like, “Wow, I didn't even know that that was possible.”
But with FIRE, now you have this weird synergy thing going on, which is you don't have to work, you don't have to stop traveling, you can travel with your kids and educate them on the road, and it all just kind of works.