We live here now.

Summerside PE offers quite a low cost of living, and for the time being, any other place we try to live will need to compare favorably on basic living expenses. For our purposes, “basic living expenses” includes housing, taxes, insurance, food, electricity, heating or cooling, and communications. Put differently, we need to be warm, dry, fed, in contact with the world around us, and mildly entertained. We evaluated the financial aspect of our experiment on this basis.

Villa Serena, Mazatlán, México

On the advice of relatives, we chose to experiment with living at Villa Serena, located in Mazatlán’s old downtown. We found a one-bedroom apartment for USD 653 per month. This price included MXN 300 worth of electricity per month, and access to the amenities, although we did have to pay an additional MXN 150 per month to use the laundry facilities and MXN 25 per 19-litre bottle of water. We ended up spending a total of CAD 1129 + MXN 13942, or approximately CAD 2280 on housing costs for three months. That makes CAD 760 per month for rent, cooling, water, cable TV, and internet. The corresponding items cost us CAD 782 per month in Summerside. That makes it possible to live in Mazatlán quite inexpensively. We love that.

Cooking with my youngest sister-in-law, Mary

We ate quite well, mostly cooking, but occasionally eating out. We certainly enjoyed a lot of Hector’s bread at Molika Bakery, which we mentioned in a previous article. We spent about CAD 2280 on food for three months, or CAD 760 per month, which makes for a telling coincidence: we value food. We spent about CAD 183 on our Molika Bakery habit, CAD 32 on coffee beans, CAD 934 on shopping at the big grocery store, CAD 156 at the local market , CAD 216 on pizza, and the rest (about CAD 759) on eating out. After we returned home, we computed what we spent on food in June unrelated to travel, and it came to just under CAD 1000.

Traveling in style with our good friend, Jen

We love how little transportation costs at home, and in Mazatán, the taxis and pulmonías didn’t disappoint. We spent CAD 136 on transportation, excluding the trips to and from the airport, which totaled an additional CAD 53. Given the flat rate of CAD 6 or 7.50 per trip in Summerside, CAD 136 would buy about 17 trips, or 8 round trips, at home. We probably use about 4 rounds trips per month at home, which costs around CAD 180-200 over three months, depending on where we need to go. While we encountered some trouble flagging down a pulmonía in Mazatlán, we found the service overall both efficient and pleasant to use. I also owe the taxistas a debt of gratitude for letting me practise Spanish with them.

I think I can make a strong case that Mazatlán offers us an excellent place to live, with a cost of living very similar to Summerside. We consider our experiment a financial success, at least on the surface. We couldn’t resist looking at some real estate listings, and while houses cost considerably more there than at home, we had to double-take at the property taxes those listings quoted. As a single data point, a house listed at USD 250k carried property taxes of USD 200 per year. This compares favorably to the CAD 1250 per year we pay in Summerside. Although we would need a cash infusion to move there, it appears that we could live in Mazatlán spending under our arbitrary limit of CAD 2000 per month for basic living expenses.

There was a great post on Treehugger recently that I’ve bookmarked for more serious contemplation.

Although they may be neither popular, nor well known, there are alternatives to the two major housing options of “buy” vs. “rent.”  It seems like every day I personally vacillate between wanting to live in a Parisian apartment overlooking local markets and wanting to live on a lakefront, almost cottage-y property.  In the first case, we’d walk everywhere we needed to go and in the second case we’d generate our own electricity and grow some of our own food.  I just can’t decide whether I want to live with people or get the heck away from them.

We’ll likely be where we are for some time to come, but Dauphin was always a calculated, strategic move.  So far it has pretty much worked according to plan.  We’re closing on houses #8 and #9 on August 1, and our rental income will provide more than we need to live comfortably there.  And for the total cost of all 9 houses we’ve purchased, we still would have been only able to buy the most entry-level of entry-level homes in Toronto. (And, that would be with us paying for the privilege of ownership, not being paid enough that we don’t have to work!)

As I said to Joe last night, although yes, we can consider ourselves “retired” from traditional careers, our “job” right now is to figure out where we really want to live next and how we will be able to afford it.  It’s not as easy as you might think, and you really do need to be semi-retired before you can tackle that task; you can’t know what you really want out of living when don’t yet have the freedom to just “live.”

If I were still tutoring, I would be too busy and preoccupied to really think about what I wanted out of a house, community or local environment.  How was I to know, for example, that I really don’t mind “cooking*” when my previous life was arranged in such a way that preparing food was nothing but a huge inconvenience?  When I had taken probably less than a dozen baths in my whole adult life (and had never seen Joe take a single one!), how was I to know that we would treasure our jacuzzi tub?  There is a lot you discover about yourself when you stop “working” and start doing what might be work for some, but is really just an activity for you.

That’s why I don’t think of it as a “failure” that Dauphin won’t be the place we live for the next 30 years.  Rather, moving somewhere that is decidedly not our retirement paradise was the smartest thing we ever did:

• We had no illusions or unrealistic expectations of the perfect life.  (It was a stop along the way – another phase of the plan.)
• We chose to move solely based on finances (including of course our required amenities and necessities) so there is less of an emotional attachment to where we live.  (Leaving Toronto was emotionally so much tougher than leaving Dauphin will ever be.)
• We put ourselves in the best position to figure out what we really wanted, and didn’t assume we already knew what that was. (How could “Rat Race Rainsbergers” even pretend to know what “Retired Rainsbergers” want or need out of life?)
• Although it wasn’t part of the original plan, travel is such a huge part of our lives that we can somewhat experience and compare locations.  Two weeks ago we were in Ireland and I’m writing this now from Malvern, PA. In August and September alone we’re projected to be in Dauphin, Winnipeg, Toronto, Oshawa, “the cottage,” Brampton, Niagara Falls (ON and NY), Chicago, Turkey, the Netherlands and Costa Rica. If we can’t find something we like, it sure isn’t from a lack of trying!

And, if home ownership in Dauphin means we get to travel like this, then maybe there’s even something to be said for not doing too much of your “living” where you live!

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* – I still hate “cooking” and will refuse to prepare anything that involves the actual cooking of meat. And, much fewer of our meals are actually “cooked” now since we’ve been eating a lot raw. So, I use the word cooking to mean “making meals.” But, what I have discovered is that I like the act of chopping vegetables, I don’t mind boiling things into a soup and as long as Joe’s not sick of honey-mustard, I’m quite happy to make our own salad dressing.

I’m so used to giving people the 10-second-elevator-talk answer to this question, I’ll see whether I can actually remember the details accurately!

It was winter, somewhere between 2003 – 2004. My math tutoring business was off to a strong start, we were living in Bavyiew Mews (still one of my favourite places we’ve lived — probably the closest thing to a “home” we ever had) and Joe was caught in a mixture of out-of-town (often out-of-country) travel and telecommuting.

We had been reading some pretty interesting personal finance books (Free Parking, Your Money or Your Life) and we began to take some of their alternative definitions of “wealthy” to heart. Joe especially liked the concept of “infinite wealth.” (Well, who wouldn’t?) The beauty of this concept is that anyone can be financially wealthy; it simply requires a balancing of income and expenses.  For most people, it is easier to spend less than to earn more.  So, we decided to begin our quest for infinite wealth by reducing our expenses.

The one expense we had the least control over was rent.  Since we had needed home office space for Joe and tutoring space for me, we found ourselves in a two-story, three bedroom rental unit with a full basement, which set us back just over $1700/month.  Certainly, we knew we could cut back in this area.  But even still, saving a few hundred bucks a month wasn’t going to make us infinitely wealthy, and we were pretty firmly entrenched in an affluent ‘hood in Toronto; rent wasn’t going to be substantially less in our neck of the woods.  What if we didn’t have to pay rent at all?  What if we found a house so cheap we could buy it in cash and save $20,000 annually?

OK, but where to look?  Surely somewhere in this great country, there had to be cheap real estate.  How do we narrow down the search?  We needed some criteria (or as Joe would now call them, “acceptance tests”) to evaluate our options.  So I asked Joe, “If you were semi-retired, what would you want to do?” Remember, the goal is to not have to work, so if not working, then what are we doing?  Joe replied that he might like to be able to bowl.  We both agreed that our high speed internet connection and digital cable were also necessities.  And so, the search was on:

1. 5-pin bowling alley
2. high speed internet
3. digital cable
4. inexpensive real estate

With the help of Google (for a list of every 5 pin bowling alley in Canada) and MLS, I cross-listed locations that had both 5 pin alleys with those that had houses under $40,000 for sale.  When I had a short list of cities, I checked for the availability of both high speed internet and digital cable.  But, it didn’t stop there!

Once I had cities/towns that passed these acceptance tests, then they had to pass the “livability” test: could we live there without a car?  This is where I needed maps of towns, locations of grocery stores, transit info etc.  At this point, I was pretty sure we were destined for prairie living or something near the east coast.  When it came time to investigate Dauphin, we liked what we saw.  The presence of a Wal*Mart, while hardly inspiring, at least told us we could buy stuff.  Pizza Hut meant we could still order in.  And, a local airport?  Well, the flights were expensive, but if Joe’s clients were paying for travel. . .

It was good enough to warrant taking our first ever vacation in the summer of 2004. (Photos)  If nothing else, we’d be getting a 2 person jacuzzi tub suite at the Super 8 for $108/night and we’d explore a part of Canada we’d never seen.  At worst, it would simply be a few days of quality time.

It turned out to be better than that.  Good enough that we could see ourselves living there.  Good enough that we bought our house before we left!  On the way home, we “planned our escape” and came up with a reasonable moving date of June 2007, just under three years in the future.  And six weeks ago, it became a reality! (Well, the moving OUT part.  The moving IN part we’re still dealing with, but that’s another post.)

Four more nights on this rotten sofabed. Four more nights in Toronto before we begin our adventure in Dauphin, Manitoba. We won’t be there until June 25, but there’s the small matter of a trip to Como, Italy in the interim, so that means only four more nights in Toronto. But why move?

It’s step one in a straightforward, four-step plan to retire early. Forget about Freedom 55, we’re looking at Freedom 40! We used to try for Freedom 35, but it looks like I’ll miss that by a few years. Here is the ionospheric view of our plan:

1. Lower expenses to a minimum.
2. Build enough passive income to cover expenses.
3. Learn how to develop enough passive income to cover ten times our expenses.
4. Move to wherever we might want to live, if not Dauphin, Manitoba.

Since it’s generally easier to spend less than make more, I imagined it we would reach a 1.0 wealth ratio quicker if we spent less.

Your wealth ratio is your net passive income divided by your expenses. A wealth ratio of 1.0 indicates that you no longer need to work at a conventional job to pay the bills. Be sure to include all your expenses, and not just the ones you might put into the typical optimistic budget.

We reasoned that our biggest expense would be a house, and we didn’t want to take on the liability of a house in Toronto, so we looked elsewhere. Sarah found houses under $50k (Canadian, of course) throughout the country, but Dauphin seemed to have a decent mix of what we wanted from semi-retirement, so we went there, and three years later we’re ready to move there. I digress. The point is that we could eliminate our single largest expense (rent or mortgage payments) by buying a house we could afford with cash, and that’s what we did: the house into which we are about to move cost us $38k including closing costs, compared to the $20k+/year we would pay in rent for a comparable space. Instead, we spend about $1500 on insurance and property taxes per year. In total, we estimate our annual expenses at about $20k, including lodging, communications, basic transportation, insurance and food. It’s like having everything but the lodging expense free of charge. Who wouldn’t love
that?

After we have lowered our expenses, the next step is to generate sustainable passive income streams worth more than our expenses on a month-to-month basis. Our current income streams include rental properties, interest on personal loans and interest on cash in the bank. Normally I wouldn’t include bank interest, but the amounts right now are not trivial, so they’re worth including. At the present moment, our passive income streams are worth in the neighborhood of $8k/year before taxes, which is at least $5k/year after taxes, representing a wealth ratio of approximately 0.25. This is a pretty good start, and includes only the most reliable, sustainable streams of income we currently have. Our passive income is at least $5k/year, but at most already well over $25k/year. This reflects the amount of uncertainty in some of our streams of income, either because the income is not reasonably guaranteed, the principal is at risk or the income stream is likely to disappear with a month’s notice or less. It would be possible to boast that we’re already out of the rat race, but it’s more reasonable to say that we are on our way. Once we reach a wealth ratio above 1.0, we can move on to step 3.

This is clearly the part where I start hand-waving, but the reasoning seems sound enough to move forward.

Once we have enough reliable passive income to cover our living expenses, we no longer need to work in the conventional sense. This means that we can do anything we choose with our time. While I’m sure I’ll spend some amount of time relaxing, the next step is to figure out how to “add a zero” to our passive income streams. The theory is that the time we used to dedicate to working to pay the bills can now be spent learning about more profitable forms of investing. This will include bigger deals of the types we now do (loans, real estate) and other, more sophisticated kinds of investing. Not only will we have more time to learn these things, but we can choose
to work to earn money to participate in these deals, rather than having to work to pay for living expenses. This is the phase during which we could choose to spend more, but if we instead re-invest in ourselves, we should be able to turn $20k/year in passive income into $200k/year in passive income. This would let us move on to the
final step of our plan.

Once we have, say, $200k/year in passive income, we should be able to live just about anywhere in the world we could reasonably want to live. Granted, that’s not enough to retire in places like Tokyo, the San Francisco Bay Area or London, England, but we probably don’t want to live there, anyhow. I would be surprised if we had difficulty finding a place we’d enjoy living that costs more than $200k/year. At this point, we’d be able to finance virtually anything we’d reasonably want to do. Would we live like royalty? Likely not. Still, we would never have to worry about paying our living expenses again. If $200k/year of passive income weren’t enough to retire, we would be doing something very wrong.

So that’s why we’re moving to Dauphin, Manitoba: it looks to us to be a good mix of cheap enough to fit into our plan, but not so remote or desolate as to be devoid of quality of life. It’s small, inexpensive and friendly, just like it says right on the licence plates. A good place to start our retirement and a safe place to learn how to go from semi-retired to indefinitely wealthy. With any luck, that’s only about seven years away.

Stay tuned to see how we’re doing.