FI My Kid

Categories Personal Finance

I am having a wonderful Mother’s Day. How appropriate this post is about children.

I have two children. My daughter loves school, my son could barely attend school. This is for my son who wants FI. He will be 20 years old this year and here is the plan we have formulated.

Why?

I had to ask him why he wanted FI. He said that I seemed to have a pretty great lifestyle. Now that was music to my ears since sometimes, you don’t think they are watching. Especially during the teenage years, they seem so distracted all the time. He also wanted to FI in case he was let go from a job. That way he would not be as concerned. My son is very insightful indeed.

The Goal

He wants to be able to have a small modicum of FI on 25K a year which would take a 625K portfolio. He wants to reach this by 35 years old. I also want him to complete his university degree and obtain a career along the way. He reads Canadian Couch Potato website already without my suggesting it. He is well ahead of the his father.

He also knows that the point is not to tap out of work altogether. Humans need to be productive. He knows he will continue to earn after FI. Too much FI probably ruins all ambition. And that is NOT a good thing.

The Plan

We had gone back and forth between being a Canadian dividend investor versus index investing. He has spent time researching the pros and cons of both. He wanted to be a hybrid investor but I am making him decide on one method. In the end, he decided on ETF index investing. In fact, his portfolio will mirror ours exactly. We both came to the conclusion that we are really lazy people and thus the 2 fund portfolio will work well for him. And yes, he is going to be 100% equities because he is 19 years old. FI or not, his investment runway is huge and he does not plan to stop working when he hits the FI number.

He has contributed to his TFSA since he turned 19 years old with money saved from birthdays and working. He started an account with Questrade. It is so much easier for young people to invest with index funds nowadays.

So this is what we came up with.

FI Goal- 625,000 by 35 years old

SWR 3.2%

Yearly budget 18,000

ETF’s:

  • TFSA– VGRO (80% equities/ 20% bonds)
  • Taxable Account– ⅓ VCN, ⅔ XAW (100% equities)

The Budget- 1500/ month

Housing 750
Transportation (bus pass) 100
Groceries/ Household 300
Cellular 30
Clothes 50
Haircut 15
Health- dental, glasses 75
Miscellaneous 180

When he finishes his studies and gets a job, he will contribute rent for the lower unit that he lives in with his sister. He has made a rough budget of 18K a year for his living expenses when he gets a job. If he can save 50- 60% of his gross income, he should reach FI around 35 years old.

We have paid for their education costs. We will cover their university costs when they attend the local university. If they wish to move away, they will be expected to cover the extra living costs. I am not surprised that both of them prefer to stay locally.

He will likely be an average wage earner. Thus I do not need to make the calculation with a six figure income. He has plans to travel frugally with his friends and sees the value of giving himself some financial stability.

It is always the journey to FI that will develop his character. I simply would not take that away from him.

Thankfully he had always been frugal. Aside from some computer games, he never really wanted much else. In fact, I can not even make him get a driver’s license as he does not want to own a car, like ever. I think he will be just fine in the spending department.

He already recognizes that there is no career charming. He only hopes to find something useful where he can be of service. But he is also very social. I do not envision him staying home doing nothing.

He plans to put most of his work funds into his new investment account. He has already started being interested in the concept of behavioral finances.

I do not want him to use credit cards yet. I currently allow my children to use our family credit card which I check the charges regularly. They shop for our groceries so allowing them access to the credit card has been helpful. They both prefer to use debit cards. I think I might have scared them off credit cards for now. But the next step would likely be for him to obtain a credit card to develop his credit score.

He has a no fee chequing account at the bank and I have showed him how to buy term deposits online for his short term funds.

I have warned him that the food budget will likely be the most budget busting item on his whole list. He loves the home gym so that is another expense that will be absent. I think he has heard me go on about the dangers of recurring expenses enough.

My children have certainly grown up with my love of libraries and the overall sharing economy. They see the value of Netflix, Spotify and the local transit. They see how living in an urban neighbourhood allows them to not have to own a car.

They have also seen the benefit of good public schools. They have known friends and family who have attended both private and public schools. They often tell me they can not see the difference. In fact, they are noticing that many of the academically stronger students came from their local public schools. These are lessons that they could only learn by observing people they know. If I told them that, they would probably not have believed me.

I had the very frank discussion with him regarding real estate. He is aware of the higher capital required. He has opted for ETF investing instead. Wise choice. He has also decided that he would prefer to save money by staying at home for now. Buying a single family home would not be in his future. We both agree that that would be an unnecessary burden when he should value his freedom instead.

So this is the plan to help my son achieve FI. I believe he will be able to reach it much easier than his father. My son is very clear that he wants this. He is enjoying his current studies but I know he has heard the stories of university graduates working at coffee shops. That is a good trait he possesses. He is self aware and understands his own limits already. His decisions have also shown how carefully he thinks about the plan.

Emotional intelligence is underrated. Simplicity is underrated. Doing less is frowned upon. I hope he finds success following his own path. That would be the best Mother’s Day gift ever.

13 thoughts on “FI My Kid

  1. I’m glad he has a financial plan but the idea that a 20 year old won’t get a driver’s license is concerning. Not owning a car and not having a license are vastly different. Being legally able to drive is part of being a functional adult. There are lots of scenarios where he would need a rent car or need to drive a work vehicle when he gets a job.

    1. Hi Steveark!!

      Him not wanting to drive and our making sure he drives are definitely two different things. He most certainly will be driving but not getting a car anytime soon.

      I think I read somewhere that your son is a physician? I might be confusing folks. You are definitely ahead of me in that department. I worry about my kids’ futures nowadays.

      1. Hello Steveark!

        I just went through your website and your writing is freaking amazing. I have read the inheritance post of yours before and didn’t even know that was you!!

        Anyhow, thank you for stopping by. I am still worried about my kid and now I have another thing to worry about- his NOT DRIVING. I think I’ll trick him next weekend on going out for a spin with his mom!!!

  2. passing down wealth to the next generation is definitely not easy.

    Wonder if your children know you blog and what their reaction might be to see the networth.

    1. Hello BC Doc,

      I figure if we can teach our children to live a good life without needing a large income, it would help them with whatever career they choose.

      Interestingly all those years my husband had his BMW, the kids always preferred my Honda Civic. Funny eh?

  3. Thanks for sharing your journey, Dr. MB! I am a few years younger so it’s great to see what you experience. 😀

  4. That’s great that you and your son are open about finances with each other. I am hoping that I will have a similar relationship with my sons when they reach that age.

    Have you had any discussion about whether he has interest in starting his own business or being a landlord?

    I have also thought that years from now, if one of my sons presented a reasonable business plan to me, then I would be more than happy to give them seed money for their idea or invest in a property for them to manage.

    Of course, it wouldn’t be a handout (economic outpatient care) as that would not teach them anything. I would definitely expect a reasonable investment return like any investor or bank would (ok, maybe I will shave off a percent)! 🙂

    1. Hello DN,

      I talk about money and planning with my kids nowadays. It helps them visualize what can happen long term and how little is required for savings if they start early. The compounding calculators just make their eyes bug out when I first showed them.

      My son is very entrepreneurial and has started building online businesses with his friends already. He is not interested in the landlording yet but I would certainly be open to the idea of him bird dogging real estate deals for me if he ever develops the interest!

  5. Your son is so ahead of the financial game it is quite impressive. If I had started an interest that early I would likely have been able to retire now several times over.

    I have started talking finances with my daughter (who is 12 yrs old). I drive her to school in the morning and use that time when she is a captive audience.

    She actually seems to have taken an interest in it because she sees my lifestyle (which I remind her is my lifestyle because of what I do and not her lifestyle when she leaves to forge her life) and she definitely grasps the importance of good financial planning.

    Luckily her school has required course in basic finances in school (something I never had throughout all my educational years). So I think she will be ahead of the game that way too compared to me.

    Being wealthy the key as a parent is to not let your kids develop an entitled behavior. That’s why vast majority of generational wealth is lost in 2nd generation and close to all lost by 3rd generation.

    Hopefully by instilling this foundation early on I can prevent that from happening. The generational wealth loss data also makes me feel less guilty spending it on a happy lifestyle in retirement instead of trying to leave a large sum for kids and denying me stuff

    1. Hey XRV!

      Your daughter is so watching you! When her eyes glaze over when you talk about this stuff- stop talking!!!! (A good rule of thumb when dealing with people especially teenagers.)

      I did not discuss finances too much with my kids until they were in high school. It started when we would go to the local shops/ restaurants and their classmates would be working after school and evenings. They were the ones who kept bringing up the subject. The true learning for them comes when they develop the genuine interest. Then strike while the iron is hot.

      Neither of my kids are entitled. They both use transit, my daughter shops at thrift stores, live very simply, etc.

      I am glad my son is thinking about FI. He probably won’t earn a large income so I want him to develop strong habits early. I basically told him if he lives simply and can save a good portion of his income, that in itself is a financial superpower. Plus with how he wants to invest, he will hopefully be fine.

      I am sooo happy to hear you are with your daughter now. Forgive yourself for the lost time in the past, spend time with her lots. All that talk about quality time versus quantity time is bunk. Kids need time period. You actually have her at one of the most important times. She will be blossoming into a young woman before you know it. This is exactly the time when she will require more guidance even when she says she does not. You can do a lot of good now XRV.

      1. Wonderful advice. Very refreshing to hear how your kids are bucking the norm that children who come from wealth usually act and spend

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