Who wants to wait until their 60s to retire?
Brian sits down with Rick Orford of The Financially Independent Millennial to discuss exactly how he retired in his 30s and moved to Italy. We talk about how he started, grew, and sold two businesses, how he blew most of the money the first time around, and all the critical financial lessons he learned along the way.
Retire while you’re still young enough to enjoy it!
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Rick Orford: Hi. Thank you. It’s great to be here.
Brian Davis: Well, it’s great to have you with us. So last week, Deni and I talked about four alternative ways to get rid of bad tenants other than eviction. And today, Deni is taking a break. And I have the pleasure of interviewing Rick, who retired in his 30s. So, we’re going to talk all about how he did that, how you can do that, and some of the lessons he along the way or the mistakes he made along the way. As you join us, say hi in the comments. Let us know where you’re tuning in from. And as always, fire questions at us. Rick is here to answer. So, Rick, on that note, let’s jump right in and start talking about what you did before your recent FIRE and before you retired to Italy.
Rick Orford: Sure. Well, thank you so much for having me and being able to provide this platform to be able to talk about my story. My story is not unlike others who have retired early. And I’m here to talk about how anybody can do the same thing I did. Just to give you a bit of a background of who I am. I didn’t graduate high school. And I was bankrupt in my 20s. In all of that, I was always very good at earning money, I was just really terrible at spending money.
Brian Davis: Like so many of us.
Rick Orford: Yes, like so many of us. It’s the whole keeping up with the Joneses. You get a raise; you buy a better car or a bigger house. I didn’t really grasp the idea that I needed to just spend less than I earned. Such a simple topic or concept at least. But that is exactly what I did. I had to learn how to spend less than I earned. And it was not something that happened overnight. But when I learned to do that, my world changed. For the better.
Brian Davis: Yeah, I mean, that is a common theme in the financial independence and FIRE circles is the whole notion of lifestyle inflation. Like you said, where every time you get a raise, you go out and find new ways to spend it with a bigger house, the sexier car or wearing trendier clothes or whatever it may be. You started this journey as an entrepreneur. You owned a business?
Rick Orford: I have never, I say this from the bottom of my heart. I am not employable. But unless you’re looking for the CEO right off the bat. I ask too many questions, quite literally. I have worked for a number of companies in my career, at least in the beginning. And I’ve done very well. They were they were mostly sales roles or sales engineering roles. And in those I did very well, but they were a means to something better. And for me, the most important wealth building tool that anybody has is to start a small business. That’s it! You start the small business. You start it while you’re working somewhere else. Start with that side hustle and grind and go with those 16-hour days working seven days a week. I’m not sad to say that I did that for 15 odd years, but it was only the last five that actually meant the difference. The last five years was when I realized that investing in myself and reinvesting in myself, that’s where things would really start to roll. I’ll tell you the story. In my first real business that I started, (by the way. Hi, George and hi, Tara. Nice to have you and Kristina, by the way, I see you guys are all coming on.)
Rick Orford: My first business was a Web hosting and web design company in 2004. And it was a long time ago. Some people call me a dinosaur. It was at the very beginning. I discovered the subscription model, having people pay a monthly fee for a service that they wanted. And this model worked fantastic. Still to this day, the subscription model, I think, is one of the biggest and best businesses that that people can get involved with. Because when it comes time to exit, when it comes time to sell the business, which I think is the most important thing in anyone’s journey is to have an exit strategy. The valuation will skyrocket. It’ll be so much better than if it’s lumpy. You earn a thousand dollars this month. Twelve hundred next month. Eight hundred the month after. If you ever when it comes time to sell the company, the investor needs, or the buyer needs to have some sort of surety. They need to be able go to bed at night not worrying that revenues are going down, but they’re actually on the way up.
Brian Davis: Right. It gives them a sense of perceived lower risk in buying the business and theoretically they buy for a higher multiple and so forth. That’s the business model. It’s great because you make the sale once and you keep collecting the checks for two or three or four years.
Rick Orford: Yeah, yeah. And what I discovered is that all you have to do to keep the customer is just two things. Two simple things in a subscription business to keep the customer. One, the product must be valuable. So there has to be value. If there’s no value, the customer will leave. Number two is to make sure that the customer realizes that they are valuable. That’s it. Some of the things that I did and continue to do to this day is pick up the phone and wish somebody a happy birthday. Or I will send a quick note and find out how somebody is doing or what are some of the challenges? We’ll talk in a little bit about what I’ve been getting involved with today. Today it’s a much more collaborative effort with my blog to Financially Independent Millennial. But the fundamentals are all of the same. Offer a good product and take care of your customer and problem solved. And you’ve got a business that will pay dividends until forever.
Brian Davis: So, you’ve actually sold you’ve built and sold several businesses.
Rick Orford: Two companies. So, my Web hosting company was sold in 2007 and I got a very decent multiple on that one. It was life changing money for me. I was 20 something and for me was like winning a lottery. We always say “if only” right? Well, I walked out of the lawyer’s office with a six-figure check, and it felt like I won the lottery. And what was the first thing I did? I bought a Range Rover!
What was the second thing I did? I bought a townhouse four times more expensive than I needed. It was just things like that, when I just was like, oh, well, what am I going to do with the rest of this money? Well, that money didn’t last very long. In fact, it was not six months before I realized that I have a lot of steam left and a lot of energy in the batteries. I need to either find a job or do this again. So, I did it again. I started a telephone company with my husband, who I met on the job at the Web hosting company. I knew we already worked well together. We thought, you know what? Let’s do something else. We started a telephone business; Voice over IP or VOIP and this was in 2007.
Brian Davis: That was pretty early for that business.
Rick Orford: Very, very early! For that business, we used the very same approach which was to take care of your customers and build a subscription model. However, to get there what we had to do was the first year we had to give away our service. It was the only way because voice over IP in 2007 was very early, was very choppy. It was almost a four-letter word. A lot of people just didn’t even like the idea of VoIP. They would say, oh, your VoIP, like it was like something bad. And I would get excited about it while they’re like, yeah, but it’s VOIP. I convinced people to give them phones like IP phones. It’s a telephone with a with an Ethernet cable. I mean, we see them all the time today in stores, businesses, and offices. But in 2007 they were still operating, for the most part on those old, PBX systems that were very expensive and nobody really knew how to use them. Our company solved the question on how can this a business expand? How does a new company acquire a phone system inexpensively and how do we reduce costs? We were able to do that, all of that by offering the service for free and yes, we had to pay for everybody’s phone calls for a year. It was very expensive. But it taught us a lot of things. It taught us about our product. We were able to hone in on those on those skills to ensure that the quality is good. The service was good. There were no outages and so on. After about a year, we started selling the service. We started converting those clients who are zero-dollar clients of up to twenty-four ninety-five per month clients. And it was great.
Brian Davis: You grew that business for how long before you sold it?
Business was formed in 2007, sold in 2014; seven years. We had a lot of challenges along the way. Not unlike anybody else would face in any business, even the web hosting businesses had challenges. If we have time, I can tell you some really funny stories about challenges that we had. I’ll tell you, the one for Web hosting that will stick in my mind forever. Our biggest cost in Web hosting, the biggest monthly expenditure in Web hosting was our own servers.
Brian Davis: Really?
Rick Orford: Today we have clout. It grows with you as you grow. Well, back then, in 2004, I had to buy a server from Dell or IBM. That’s how we started it. It started with one of those. But I soon went to a sort of a cloud company. It was a company that rented servers. There was monthly fee like three hundred bucks a month or whatever for the server.
Rick Orford: So, when I started with the with these servers, I realized that over time as the business grew, our bill grew, and we were spending about twenty-five thousand dollars a month on servers. This was going on my credit card every single month now. This was fine because it was growing with our business. Right. Every time we had a client paying for Web hosting, it would just incrementally increase. The twenty-five thousand dollars a month hosting bill wasn’t actually a problem because every month we got more money. The problem was that our hosting company decided to no longer take credit cards. Instead, they wanted us to use a funny wire transfer. But we weren’t able to do that with our bank because I’m Canadian and our hosting company was in the US. We were not able to get the funds over the border in an in an efficient way. Today, it’s not an issue. So anyway, it was a big challenge because we ended up almost defaulting on our Web hosting bill because our hosting company didn’t give us any notice. They just said, yeah, we don’t take your credit card anymore because the fees are too high! I responded with: “why don’t you just charge me three or four percent more”? But they responded, “It’s a corporate decision. We’re a public company and we don’t get to decide anything”. The second big challenge that I had in the telephone company was fraud. Today, we are always worried about our infrastructure getting hacked. So, usernames and passwords, Facebook and their database, everybody’s databases get hacked today. But ten years ago, this was a big deal. So, telephone fraud was actually a big deal for us. That’s something that we had to keep a very close eye on. I would call it my university education in telephony because my education was focused around preventing fraud. The cost of education was the loss calls for over five- or six-year period. Now, to answer Trent’s question about “how did I find the money to pay for a year’s worth of phone calls”? Well, actually, after I sold my first company, I did have a little bit of money left over. And that was the money that we used to fund the company.
If we didn’t have any money, we probably would have figured out another way to do it. Maybe we would have taken out a loan or something like that. The US and Canada has got a lot of opportunities for people to take out loans for small businesses. I would say that ought to be the second to last option that somebody would take. The last option is to sell equity in your business when it’s too early.
Brian Davis: Right.
Rick Orford: The last way I would ever generate funds would be from getting them outside investors, especially when you’re too early, when you’re too early, the valuation is going to be nil. And 30 percent or 50 percent of nil is not much. You end up giving away your company for nothing or very, very little. I would never recommend that.
Brian Davis: Rick, tell us about the transition to FIRE and your post-FIRE stuff after you retired.
Rick Orford: As you all know, I sold my first business. It was a big deal because it was like winning a lottery. Just six months later, I had to start over again. It didn’t actually hit me until my third yearish in the telephone business that I kept increasing my salary, but I was never getting ahead. It was great I was in the payroll system and when I needed more money, I just increased my salary. But it was wonderful, but it wasn’t as I learned that I either I hired more people as a reinvesting in the business.
Rick Orford: The reason I’m saying this is that my transition to FIRE was only about learning how to spend less than I earned. In my third year or so of the second business, I started learning that very first thing that I needed to do was giving myself an allowance. I wrote myself a check. I had a second bank account opened just for my fun money. That was it. Today I talk about wants and needs. So back then I called it fun money, but it’s just wants like restaurants, subscriptions, things like that. At that point, I started with a number that I thought would be fine. I don’t remember exactly what it was, but whatever the number was, it doesn’t matter.
Rick Orford: What matters is that I ran out of money after about a week. I remembered that? I had to figure out a way to make my fun money last an entire month. That’s when I started looking at ways that I could cut my budget, when it comes to finance of any sort, whether it’s business finance or personal finance, you have two levers. You can either pull back on expenses or you can increase your income. But you cannot continue to do both or infinitely do either. There’s only a certain amount money that one can earn and there’s only a certain amount of money that one saves at the end of the month. We all must live on something, right? So, the first lever I pulled back on was expenses. I committed myself to my fun money monthly allowance. During that first month I ran out within a week or so. It was an eye-opening experience. So, I thought, now what? And I allowed myself to go to the supermarket and buy food, but all the rest of the stuff that was not essential was all done and over with.
Rick Orford: I just saw a message from Tara. She asked, “when you cut your budget, did you add it to your fun money?” Well, Tara, I really wanted to give myself more money for my fun budget. I really wanted to! But I was also very serious in my quest. I learned to start cutting things back. I sold my truck and cut back on going to restaurants. I had one restaurant that I absolutely loved because they treated me like a king. Everybody treated me like a king. I realized how much money I was spending there every single month. If I were a restauranteur and somebody was coming in as much as I was, I’d treat them like a king as well. I stopped going. For me, the biggest cutting edge was the restaurant. I’m not talking about the five-dollar lattes, in my case, it was eating out in restaurants, particular dinners. I would eat out a lot for lunch and dinner. But for me the dinners were always the most expensive because there was always an entree and there was always a bottle of wine, Why not? Who doesn’t love wine? But restaurants, when they pass you a giant book with all these all these wines; I perceived that a more expensive wine was a better wine.
Brian Davis: This is not always the case.
Yes, I cut out the restaurants and I cut out my car. And George. Yes, that is a map of Italy. I moved here two years ago to be with family, and I have the opportunity now to be to be able to do this with my current income. Moving forward on my transition to FIRE, I live off my investments. That’s where my money comes from. And of course, I wrote this book, The Financially Independent Millennial, and I started the blog. But these are side hustles. These are not things that earn any meaningful amount of money. This keeps me keeps me busy. As we all know we’ve been living in an in a pandemic year. So, thank heavens for me, this has kept me very busy all year long.
Brian Davis: Absolutely, this would have been a bad year to be retired and just sitting around twiddling your thumbs, right? It hasn’t exactly had the travel opportunities or any other fun things about being retired. You sold your second business in 2014. You retired and started this side hustles. You’ve published a book, The Financially Independent Millennial, and you started a blog by the same name, which, by the way, we’re going to share a link to in the comments here. Great blog. So, you mentioned that you live off your investments which is a core focus of ours; generating passive income from your investments to live off of so that you can have total control over your time, not having to work a nine to five job to pay your bills. Tell us about what you have invested in, what you’re excited about investing in and your asset allocation.
Rick Orford: I’ll tell you it all. And this is going to break all the rules, the good rules anyway.
Brian Davis: (laugh) Go ahead, we are all about breaking rules.
Rick Orford: All right. So, I will tell you my secrets, folks, if you want to know how I make my money through investments, I’m going to tell you right now. Before I do, I’m going to tell you one little thing. I am the worst investor in the world. I am the worst trader in the world. I’m not the worst investor. I am the worst trader in the entire world. My finger is so fast. I will max out margin my account. I will max it to the limits. I will buy and sell in seconds. I am not good for investing. So, here’s what I do. This is the secret. I have a financial adviser. I have an investment professional who manages my money for me. The type of account that I have is called the discretionary account, which means that the investment adviser is a fiduciary. What is a fiduciary? A fiduciary is someone who has your best interest at heart and in mind. For example, when you go to a lawyer, a lawyer is probably the most common example of a fiduciary. You pay a lawyer a fee and the lawyer work for you. Well, we also have these types of relationships with financial advisors, Realtors and so on. Each one of these professionals have varying levels of fiduciary duty. In my case, because of the amount. This is not like I am a billionaire by any means. It’s low seven figures. But it’s enough where I can get an asset manager. I pay a one percent annually on my investments and they have a profile on what I need.
Rick Orford: They know that every single month I need X amount of dollars. Their job is to get that for me. Trents asking if it’s an interest-bearing account? For the most part, my investments are in companies like Apple and Google, but I also have companies like Visa, MasterCard, Alibaba, and Facebook. I’ve got a lot of the tech names. But most importantly, I don’t have the fang like in the Netflix. And I’ll tell you why in a second. What our investment managers do is they look for companies that make a lot of money, that net a lot of money and that are underpriced. So, a lot of time, especially in the beginning, when we started investing, a lot of our money was in cash. Just waiting for opportunities to get in. And it took us about six months to become fully invested. And the amount of turnover in a year is maybe 30 percent. Maybe it is probably a lot less than that. But what do I mean by turnover? If you have one hundred thousand dollars in your 401k and it flips over 30 percent. That means you’ve traded thirty thousand dollars’ worth in a year. That is all it means. If I were doing that on my own, it could easily be ten times that, easily, because for example, during the pandemic, how many of us during the pandemic hit the sell button one year ago?
Brian Davis: Too many of us.
Rick Orford: Right! And what our guys were doing was saying, wait a second, is this as big of a deal as we think? Are people going to stop buying from Amazon? These are the conversations because a year ago I’m calling my financial guys saying, do you realize we’re in jail here? Like I have never been locked up in my house before and they’re all back in Canada going, oh, you know, the world is fine. There’s no issue. It’s just some little thing that you have over there. It’s fine. But the fundamental was these companies going to continue to make money under the current program or state of affairs? The answer was yes! We didn’t do anything through March or April. If my memory is right, we started buying in early May when we started buying again. We’ve held those positions. The point of this is, is buy low and sell high. Do it but have somebody else do it for you. That’s my experience.
Brian Davis: Ok, so you don’t pick and choose your own stock investments. Do you have any real estate investments? I have to ask; this is a real estate broadcast.
Sure, but in terms of my stocks, I do have my own little pot. I am talking about five percent allocation. It’s really a very small amount in terms of real estate. Now, real estate is very interesting. I have been or was a landlord for 20 odd years and I was a landlord up until I moved to Italy. I ended up with a fourplex. I always say that the number one millionaire printing machine in real estate is a fourplex. And the reason for that is because you can get residential financing. You don’t have to worry about the commercial issues. Plus, you can even live in one of the units if you want. Personally, I would never do it, but if you wanted to have three tenants living around you twenty-four/seven you could live in one of in one of your units and make a lot of money. What I found that in real estate, for any of the developed markets, in any place where you have a university, a shopping mall, an economy, every seven to 10 years, your property value is going to double. Just like stocks, the property value will double. Unlike stocks, real estate will give you a steady monthly. Yeah, the cash was fantastic.
Rick Orford: I chose to sell the units not because of the value. They had more than tripled since I had purchased. It was a very nice exit. The reason I sold was because I was moving to the other side of the world. I thought, how am I really going to deal with a flooded basement, even if there was a property manager? How am I going to deal with that if I’m over here? To me, it was just irresponsible for me to go down that road. The property was 12 hours by car from where I lived in Vancouver. It could have been anywhere in Canada. I could have lived anywhere in the United States and had properties anywhere else in the United States. At least in my mind, I would be able to psychologically get there quick enough. But moving to Italy, I made the decision to sell the property. In fact, even my own principal residence, I thought about renting it out. The rent in downtown Vancouver is incredible? You know what? It’s not worth the risk because the type of the type of renter who will rent my property in Vancouver would be very demanding. I would not be able to serve them well.
Brian Davis: Well, you know, it’s easier than ever nowadays to manage your properties long distance, whether you are the property manager or through services like Spark Rental. I find it so interesting when you said that you were a 12-hour drive from your property when you were living in Canada, but psychologically, it felt closer. A 12-hour drive is still impractical for you to do anything about flooded basement. But I totally understand the psychological distance is a factor for a lot of landlords.
Rick Orford: It was it just that. And now that I’m here, I realized that it is not that big of a deal. It’s not! At the time, if I circle back right to the very beginning, provide a product of value, and take care of the customer. Well, I did not believe that by moving here, I would be able to take care of that customer or that renter.
Brian Davis: I understand. Well, we’re running out of time. But I want to ask you one last question before we wrap up. If you had to offer through your top three tips or rules for success for anyone looking to retire young or just reach financial independence at a young age or quickly, what would those top three tips or rules for success be?
Rick Orford: All right. So, number one, it’s not timing the market; it’s time in the market. It doesn’t matter what investment we’re talking about; it’s about how long you own it. If you’re thinking about a rental property, go out and buy well; don’t overpay. Just be patient. Find a good price for the product. Do your due diligence. Find something that that that you can live in. Stick with a fourplex. My second point by a fourplex that you can live in or at least rent it out but put the money back into the business. Right. That’s number three. Reinvest, reinvest, reinvest, reinvest. And if you’re going to do that with rentals, just keep doing that. I would say that with money is right now, the cost of money is practically zero. I would say that borrow as much as you can for as long as you can. And, you know, just keep doing it. Just keep reinvesting!
Brian Davis: Yeah. Just one final comment on that. I couldn’t agree more. You have the financial gurus out there like Dave Ramsey saying, oh, you know, you should pay off your home mortgage before you go out and invest money and build wealth and all these things. I’m like, are you crazy? You can borrow money at three percent on your home mortgage right now. And if you can invest the money in the stock market or in real estate for an average return of 10 percent, I would do that all day long, borrow a three percent and invest a 10 percent. That’s a no brainer. You do that.
Rick Orford: I’m going to tell you something, not to make you jealous. I’m going to leave you with this. I just bought a new condo and we financed it with an 80 percent mortgage for 30 years and get this, zero-point five percent!
Brian Davis: Maybe you could do that in Italy. You cannot do that in the US.
Rick Orford: They give the money away. I mean, in fact, in some countries they even pay you to take a mortgage. But that’s a that’s another show.
Brian Davis: Well, guys, Rick Orford is the author of The Financially Independent Millennial and the founder of the blog and website, The Financially Independent Millennial.com. Please check out his website with links to it in the comments here. We will link to it in the show notes on the podcast as well. So, Rick, thank you so much for joining us today. It was so much fun, and we look forward to having you back soon.
Rick Orford: You’re very welcome. This was a lot of fun. Take care, guys.
All right. Have a great afternoon, everyone. We’ll see you next week at two o’clock Eastern.