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part six: steps to financial freedom

Oct. 13, 2009 - Shal Grant makes brownies as her husband Ross and daughter Kala look on at their home in Scarborough, Ont. Oct. 13/2009. Photo by Kevin Van Paassen/The Globe and Mail Oct. 13/2009Kevin Van Paassen/The Globe and Mail

When people ask Ross Grant how he managed to semi-retire in his 40s, they're usually surprised by his answer. No, he didn't win the lottery or have a secret formula for discovering 10-baggers on the stock market. He just did a lot of little things right.

Mr. Grant paid off his mortgage as quickly as possible. He maximized his RRSP contributions. He stayed out of credit-card debt. "I paid MasterCard $10 in interest once and that was because I missed a payment when I was on my honeymoon," he says.

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When Mr. Grant needed a new car, he saved up the cash first. If he and his wife found a deal at a discount grocer like No Frills, they stocked up their freezer. They tracked their income and expenses meticulously, so they knew exactly how much money would be left over every month.

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After 41 years of work, he recycles bottles for extra cash

Then they plowed the savings into a portfolio of dividend-paying stocks that has grown to the point that the income can support them and their two daughters, despite the setbacks their investments have been dealt in the recession.

Two years ago, Mr. Grant took a buyout package and quit his engineering job in Toronto, following his wife, who had left the same company a year earlier. Although they could get by without the extra money, both choose to do part-time contract work - that is, when they aren't skiing, mountain biking or travelling.

"People ask me, 'How did I do it?' I'd have to give you a list with 2,000 things on it, but every one of them are just basic things, a lot of which my parents taught me," says Mr. Grant, 46. "It's the boring stuff that really gets you ahead."

With pension plans hitting the wall and workers delaying retirement because they can no longer afford it, people like Mr. Grant are in the minority. But his story, and others like it, illustrates that it's possible to achieve financial freedom by living frugally, saving diligently and investing wisely. These are the very things many Canadians are not doing, which is one reason their retirements are in jeopardy.

In a society that encourages consumers to borrow and spend, in which the pressure to upgrade homes, cars and gadgets never stops, living within one's means and staying out of debt is a challenge. But for people who make a middle-class salary, the "boring" approach may be the surest route to building wealth and achieving financial security, say those who have done it.

The early retirees - and aspiring retirees - interviewed for this article have several things in common: Most started saving early, usually in their 20s, and were inspired by a parent or friend who taught them about money management. They had a strong aversion to debt, which motivated them to pay off student loans and mortgages and avoid carrying a credit-card balance. They also took a keen interest in managing their own money, rather than turning it over to an adviser who charges for the service. This last step is crucial, they say.

"You can invest yourself. In fact, you must learn to invest yourself," says Tom Connolly, a retired teacher who publishes an investment newsletter in Kingston. "It's your money. You alone are motivated to manage it best."

Consider an extreme - but illuminating - case like Andrew Hallam, a 39-year-old teacher who parlayed a frugal lifestyle and knack for investing into a portfolio that would make most people envious.

When he was in his 20s and teaching on Vancouver Island, he would cycle 55 kilometres to work towing a trailer filled with laundry, which he would load into the school's washing machine. He could afford a car and a washing machine of his own, but was so focused on retiring by 45 that saving money took precedence.

Now an English teacher in Singapore, Mr. Hallam has amassed a portfolio worth "roughly" $1-million, split about 60-40 between equities and bonds. He doesn't scrimp as religiously as he used to, but he and his wife still sock away about $125,000 annually, thanks in part to Singapore's low taxes.

"I made some early sacrifices to pay off my student loans aggressively, and I continued to live like a student for years, even after I started teaching full-time," he says. "It allowed me to invest more money and not get caught up materially, buying things I didn't really need."

Mr. Hallam read voraciously about personal finance and investing. He also learned to tune out the talking heads on television, which he realized were there to excite viewers and improve ratings rather than impart solid investment advice.

"Taking prudent control of my own money, and not blindly allowing someone else to do it was one of the best things I did," he says.

"I'm really glad I did that because investing isn't taught very well in most schools. I think that the average person can read just two or three great investment books, learn the material well, and then know more than 95 per cent of financial planners - whose primary job is to sell investment products that benefit themselves and their firms, first, with the investor a distant second."

Even people who don't get around to saving and investing until later in life needn't feel deprived in their golden years, says Malcolm Hamilton, an actuary at Mercer Human Resource Consulting Ltd. and an expert on Canadian retirement saving.

"As I tell anybody under the age of 50, you shouldn't be giving up hope. There's almost always some combination of living frugally and saving and investing wisely that can give you a viable retirement income as long as you've got 15 years to work on it," he says.

But even when people do everything right, they sometimes discover that early retirement isn't necessarily a ticket to happiness. Indeed, all of the people interviewed for this article are still working in some fashion.

For Henry Dembicki and his wife Diana Salomaa, debt was always a four-letter word. They drove an old car and did without frills such as cable TV. Vacations meant camping, not hotels. They even wrote a book, Why Swim with the Sharks?, that outlined their early-retirement strategy.

Seven years ago, Ms. Salomaa retired from a career as a policy analyst and city planner. A few years later, Mr. Dembicki quit his job as a privacy adviser with the Alberta government. The couple moved to the rugged Kootenay region of British Columbia, where they planned to indulge their passions for kayaking, hiking and mountain biking.

They lasted two years before the isolation got to them.

They've moved to Victoria, where Ms. Salomaa, now 57, works part-time as a medical transcriptionist and Mr. Dembicki, 60, puts in a few days a month as a consultant to his old employer. They enjoy the shopping, libraries and other amenities a city has to offer, and both volunteer at local festivals.

"You have to find something that is going to give you some purpose," Ms. Salomaa says.

Retiring early and absolutely may not be for everyone, agrees Mr. Grant. But almost anyone can achieve financial freedom if they're prepared to stick to a plan, he says.

"As long as you basically live below your means, and don't get caught up in the 'I need to spend more, I need a fancier car, I need a bigger house, I need a cottage, I need a deluxe vacation' … it's really obtainable for the average person making an average amount of money," he says. "We all have the ability to do quite well."

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