Monthly Archives: July 2014

How to become financially independent

Fighting for financial independence
Fighting for financial independence

All my life I have wanted to be financially independent – a goal that I still have not achieved. But what does it mean to be financially independent. For me, it means not to be burdened by the day to day minutiae of having to work in order to be able to pay for food and shelter.

You are financially independent when you have enough wealth to live without having to work or when you have assets that produce revenues bigger than your expenses. For example, let’s say that you own a home that you have rented out. Your net income from that home is about $2,000 per month and let’s say that you can live with less than $1800 per month, then you are financially independent.

After reading many books and after many years of reflection I have come up with this summary of how to become financially independent:

1. Financial independence is a lifestyle. People can make small gradual changes to their lives which will bring them closer to the goal of financial independence. These small changes could be things like not buying things on credit, driving a bicycle instead of a car, cutting cable tv, not buying designer clothes, etc. Each little contribution can make a big impact in the long run.

2. Become debt free. Other than my mortgage, I don’t remember the last time that I owed money. I have lived all my life debt free, no matter how broke I have been. Every car I have ever owned, I have paid with cash, the last car that I had cost me $3K and it lasted over 5 years. I am what credit card companies call a “dead beat.” By being debt free, you are living within your means and you avoid this horrible expense called “interest expense.”

3. Create some assets. To become financially independent, you have to create some assets. Mr Money Moustache shares the story of how he saved 66% of his income and under 10 years he was financially independent. You don’t have to have any special talent or be super smart, just live frugally, put all your savings away and in about 10 years you can be free. Austin Netzley retired at age 27 from a regular job. These two people saved most of their money and then bought some assets that allowed them to be financial independent. As soon as you buy some assets, then money begins to work for you, the magic of compounding starts working, your asset pool gets bigger which in return produces even more money for you.

4. Make money work for you. The most common ways to make money work for you are real estate and the stock market. I own two rental properties and those properties are helping me achieve financial independence. I recently got started putting money  in Tax Free Savings Accounts and I buy shares of the Canadian Market Index every month. Occasionally I get a check from affiliate sales of Amazon, Google and my web hosting company Bluehost. In your case, you can also buy some index funds, or buy rental property. I am not an expert in either one of those investment vehicles, but they have worked fine for me.

5. Start something of your own. Having a job is fine, but when you own your own business, you are in better control of your future. When I arrived to Canada, I worked as a waiter, as a janitor and a few other low paying jobs, but eventually I decided to take control of my income and my hours so I created my own jobs. I became a Spanish tutor, a tax preparer, a dance teacher and now I invest in real estate. I feel like I have better control of my life. Being self employed is not for everyone but if you become self employed, most likely, you will never go back to a 9 to 5 job.

Being financially independent can be scary but not being financially independent can be even more scary. Nowadays, there is no job security. If your job can be replicated by someone else, it will be the person willing to accept the lowest paycheck who will own that job. Many jobs are being transferred to China and to India and even the Chinese are outsourcing their work to Ethiopia.

The best way to be financially secure is by creating your own assets. When you adopt this mindset, this will be the beginning of your journey to financial independence.

Should You Invest In Real Estate?

Condominium in Le Plateau
Condominium in Le Plateau

One of the most common investments that people make is buying their own residence. If the amount that you would pay in rent and the amount that you would pay in mortgage is about the same, and if you are planning to stay at the same place for more than 5 years, then buying a property should be a no brainer.

Assuming that you take care of your property and the neighborhood does not deteriorate, your property will probably go up in value at the rate of the inflation (let’s say 2%). In addition, every time you pay your mortgage, you are building equity.

But let’s say that you would like to consider real estate as an investment, then there are different scenarios which would allow you to make some money. I will mention the two that I know, but the list is much bigger than that.

1. The landlord.

Here, the objective is to buy a property and rent it out. A bit of work needs to be done to put this plan into practice. You need to find a property, buy it and rent it at a price that will cover all your expense. The way to calculate this is to imagine that the bank is giving you a loan without you having to put down any down payment. Add to the cost of the property any additional expenses related to the purchase, such costs could be inspection, notary and taxes. Once you figure out your total cost, calculate a 25 year mortgage at the present interest rate, then add the regular monthly expenses, such as city taxes, insurance, maintenance costs and allowance for vacancies. On top of all that, add the net cash flow that you would like to have, let’s say $100 per month. Then you have to get a tenant whose rent would pay for all of these costs.

2. The flipper

This model is simple to understand but I don’t know how simple it is to implement. The idea is to buy a property at a discount and sell it at market price or slightly below. Let’s say that your best friend gets a job in China and she has to move by the end the week. She is in a hurry to sell her house and to sell it fast she decides to sell it 20% below market value. You believe you can sell the house at a higher price if you had some time. You buy the house from your friend and put it for sale at 5% below market value, and you sell the house within one month. There, you just made a ton of money.

People who do flipping professionally don’t rely on their best friends moving away. They market themselves all the time, they make business cards, send thousands of letter by mail, and create websites offering to buy houses. They offer fast cash whenever they see a deal and make the process as easy as possible. This kind of investing is not for me. I don’t see it as investing but as a full time job. Certainly I don’t consider this passive income.

People invest in real estate for a few reasons:

1. It is easy to understand. You do the math; if what you collect in rent is enough to pay all your expenses, then you are doing good. If the rent doesn’t cover your expenses, then you are doing bad.

2. It gives you a lot time off. As a real estate investor, you have to be available when something goes wrong with your property, but a property could go for many years without having any problems. A tenant might call you in the middle of the night to let you know that something is wrong but other than those rare moments, you have a lot of time off.

3. You decide your income. In the corporate world, your income depends 100% on your employer. If your employer doesn’t like you, then you will have a hard time getting a raise. On the other hand, as a real estate investor, if you want to have more income, all you have to do is to buy another property and put it for rent. It is as easy as that.

4. Automatic retirement plan. Every month when you pay your mortgage you are actually putting away money towards your retirement. One day that property will be totally paid for. From then on each additional rent payment you receive will be mostly profit. Assuming that you have four properties, each one valued at about $250K, in 25 years, that will be one million dollars-completely yours.

5. You are helping people. As a real estate investor, you can take pride in helping people finding a place to live.

Investing in real estate has changed my life completely. I have a lot of time to read, to study, to develop other dreams. All of that while saving for my retirement.

Happy investing.

You Should Have a Serious Conversation With Your Money

Money RelationshipHave you ever had a serious talk with your boyfriend/girlfriend to assess where you are in the relationship? to assess if your relationship is fulfilling you or if you are just hanging on to an unhappy relationship for fear of change?

I encourage you to have the same conversation with your money. Is the money you’re earning fulfilling all your needs? Are you saving enough? Are you saving too much?

I challenge you to ask yourself this question: How much do I need to live?

To encourage the conversation, I will go first. My name is Alain Guillot. I am single, I live in a one bedroom apartment in the coolest neighborhood of Montreal. I own a Dell Computer which I bought second hand two years ago; I have an Android phone which cost me about $100; I go to restaurants every day; I use a car sharing network, public transportation and a bicycle to get around; and I travel overseas once a year for vacation. Overall, I can live on $2000/month or less. Since I make a bit more than $2000, anything extra goes to my retirement account. That is my relationship with money. What is yours?

The ideal scenario would be to spend less than you earn, but not so little that you neglect to live in the present and not so much that you will have no savings for retirement. When you reach this delicate balance, your relationship with money will be like an eternal honeymoon.

Money is a tool of exchange and a way to accumulate value. The first priority of money is to buy food and shelter. Then after that you have to create a list of priorities for each dollar that you earn, living for today but preparing for the future at the same time.

Here is another question: How much money do you need to retire?

Once again, I will go first. If I accumulate one million dollars and I get 5% return on my money, that will be $50000 per year, for the rest of my life. In my case, it would be cool to have one million, but I would be satisfied with half a million. Now it’s your turn.

Here are some tips that will help you have a healthy relationship with your money:

1. Knowledge is power

Since money is a tool that allows you to accumulate wealth, you have to know how much you need for your everyday living expenses and how much you need to retire. Knowing how much you need for your everyday needs is easy, you can figure that within half an hour just by taking a look at your bank account and making some adjustments. But knowing how much you will need for retirement is a bit more difficult because you need to guest how long you will live and guess how much return you will make from your investment.

2. Build a plan with the members of your family

Once you have determined how much money you will spend in your everyday life and how much you will save, then you have to build a family plan. It would be useless if one family member is a saver and the other one is a spender. If your partner is not on board with you then you need to find a common ground. At the same time don’t try to impose your goals on your partner. Cooperation is the key to success.

3. Get the ball rolling

Once you have all the information available, you have determined how much you can spend and how much you will save, you have the opt-in of your partner, then the next part is to build a plan. You should set up a series of long term goals and short term goal and evaluate your progress once per month. Personally, I do a balance sheet of my financial life on the first of the month. This helps me keep on track.


These ideas are simple to understand but difficult to implement. Future blogs will be pieces of the puzzle, and the more pieces we put together, the clearer we will see the picture of our financial lives.

Stop Dumb Spending

My father used to own this baby, then he lost all his money, the baby included.
My father used to own this baby, then he lost all his money.

The formula for financial success is: spend less than you earn and invest the rest.

This means that you have to be aware of where you are spending your money and you have to ask yourself if this is the spending that will give the most happiness.

You have to go deep into your subconscious and try to understand whether your desires and pleasure are truly your own or whether they have been implanted in your mind by your family, friends and advertisers.

I bought this vehicle when he was already 9 years old. I paid $3000 cash and drove it for a good 5 years. That is good value.
I bought this vehicle when he was already 9 years old. I paid $3000 cash and drove it for a good 5 years. That is good value.

I’ll give you an example. When I was a little kid my father used to own a red Mercedes Benz convertible. From that moment on, I was sold on the idea that, me too, I should have a Mercedes Benz. But does this idea goes with my principles? No, it doesn’t. I have been sold and programmed to believe that in order to be recognized and respected in society, I should have a Mercedes, but this is a bunch of crap. Btw, later on my father lost all his money, his Mercedes Benz included. I still loved him for what he was, my father, not because at one time he had a Mercedes.

Most people buy a laptop to do Google searches, write emails, watch YouTube videos and waste time in Facebook. They rather do this in a $2000 Apple laptop than a $500 PC. Really?
Most people buy a laptop to do Google searches, write emails, watch YouTube videos and waste time in Facebook. They rather do this in a $2000 Apple laptop than a $500 PC. Really?

What do I need in a vehicle?

  • I need it to take me safely from place A to place B;
  • I need it to be gas efficient;
  • I need it to be small so that I can park it easily;
  • I need it to be dependable;
  • and I need it to be the best value for my money.

Using this rationale any 5 year subcompact vehicle will do. Then, the question arises: why would I spend $40,000 -60,000 buying a vehicle when I can get one that satisfies my needs for $5000 or less? My last vehicle was a 9 year old Hyundai which cost me $3000 and lasted me a good 5 years. I gave it up not because of any mechanical problem, but because with all the car sharing networks in my neighborhood, it didn’t make sense to own a vehicle any more.

These headphones cost $379. The average price of Beats headphones is about $200. Their equivalent competitor cost about $20. The ironic thing is that Beats are not better than their competitors. What am I missing?
These headphones cost $379. The average price of Beats headphones is about $200. Their equivalent competitor cost about $20. The ironic thing is that Beats are not better than their competitors. What am I missing?

If you have been brainwashed into believing that you need a brand new vehicle every 4 years, then don’t complain if you are not meeting your others financial objectives. My mother buys a new car every 4 years because she has been sold on the idea that an older car will let her down. Those kinds of fears were valid in the 80s when Detroit was producing crap, but with today’s technological improvements, that is no longer a concern. My mother might be able to afford having her new vehicle every 4 years, but I see her struggling financially in many other areas. Too bad that my mother doesn’t read this blog.

I love talking about Apple products. Basically, most of us have a computer to do Google searches, write emails, watch YouTube videos and waste time in Facebook. As far as I know all of these Internet activities are exactly the same whether you use an Apple or a PC. So why would someone spend $2000 on a Mac when they can spend $250 on a PC? It blows my mind. The same rationale goes for iphones vs. Android phones. An iphone costs about $800 while an Android phone costs about $100. Both of them do practically the same thing. Are all Apple users victims of advertisers to such an extent?

One recent example of dumb spending is the Beats headphones. The average price of Beats headphones is $200 (some are over $300) and they DO NOT sound better than a pair of $20 headphones from their closest competitor. People are paying this high premium for wearing the logo “b” on their ears. Is this ignorance or effective marketing manipulation? I believe that Seth Godin calls it “the placebo effect” where the story has more value than the product.

The list goes on an on. The bottom line is that if you want to spend less than you earn, and if you don’t earn much, then you have to be conscious about your spending. You have to examine your purchasing behavior, eliminate all unnecessary expending and then invest what’s left over.  We will talk more about earning  and investing in future blogs.

Am I cheap or frugal?

Frugality is seeking maximum value. Here are my friends and I at the Montreal Jazz Fest. Total cost. $0. Amount of pleasure: you can see it in our smiles.

I am happy to say that at this moment in my life I am earning more than I am spending. There can only be two explanations for this. Either I earn so much that I have a positive balance at the end of the year, or I spend so little that I have a positive balance at the end of the year. In my case it’s the latter. I earn very little, but I spend even less.

How do I spend less? The biggest secret is that I don’t own a car. I own a bicycle. Every now and then, I have to pay $50 or $60 for bicycle repairs expenses but this is nothing compared with the car expenses which I used to have.

With all the car sharing networks popping up, I find that owning a vehicle in a big city has become more of an inconvenience than an advantage. If you live in a big city, give it a try. I bet that you’ll save lots of money and your life will become simpler.

This is embarrassing, but I try never to buy new clothes. I wear my clothes until they’re completely worn out. Honestly, if one t-shirt lasts me 5 years, why would I buy more? The same goes with shirts, shoes, etc. I don’t understand when people spend $200 to $500 every month on clothing. What do they do with the clothes that they used only 3 or 4 times? Do they throw them away or do they put them in another box in their closet and then throw them away a few years later?

I have no TV either. Did you know that the average North American watches over 35 hours of TV per week? What a waste of money, time, and intellect. No wonder that most North Americans are victims of media manipulation.

What I am about to say is controversial, but I believe that at least 50% of the people going to university are wasting their time, money and energy. I am a strong believer that you can learn many careers on your own, for free, via the Internet, at your own pace with only the subjects that interest you. Either way, most people change careers about 5 times during their lives and end up working in fields for which they never received any formal education. Many of the entrepreneurs I’ve interviewed claimed that they never bothered with college.

Where do I spend my money?

I live in a neighborhood where there are lots of ethnic restaurants. They’re not expensive and they’re so good. Anyway, I do confess that I do eat out every day. I make sacrifices so that I can indulge myself eating.

I don’t make any money from the Internet, but I pay for website and podcast hosting. Producing content gives me lots of pleasure, so I am willing to pay for the privilege of sharing my ideas.

Where to go from here?

I will continue spending less than I make. I enjoy my life of austerity. I pay $13 for a haircut and I love it. Any time that I can cut expenses without reducing my quality of life, I will do it. I just went to the Montreal Jazz Festival last night. It cost me nothing and it gave me lots of pleasure. There are many pleasurable things that we can do for free and have a great time.

For the past two years I have been investing in real estate. My present plan is to buy one property per year and then let my properties gain value over time. If this happens, I will have a nice financial future. See my article about purchasing my first and second property with no money.

One month ago I opened a Tax Free Savings Account. I will not be investing much in it due to all the mortgage debt that I have. I always consider that debt should take priority, but it is a nice mental exercise to have different kinds of investments.

What is in it for you the reader.

The most common formula to financial success is to  spend less than what you earn and invest the rest. As long as you stay loyal to the principle most likely you will do well.

Send me a message and let me know how you are carving financial success in your life.

Money Talk.

4th Money Talk meeting
4th Money Talk meeting

Our 4th Money Talk meeting was a great success. We shared lots of ideas and had an  excellent time. Our next meeting will be July 27th. If would like to come, send me a message.

We talk about money and have fun
We talk about money and have fun