Bruce Merrett is just an ordinary guy. He never won Lotto or earned mega-bucks, but he still found financial freedom by breaking the cycle of bad money habits in his life. He shares his solution with Catherine Harris.

Crippled by debt, Bruce Merrett was in a bad way. He couldn't eat, couldn't sleep. He had a young family and he was about to lose his house.

It was, he recalls, the worst period of his life.

"I felt all alone in the world. I felt there was no one I could talk to. There were no debt counselling services or anything like that, that I was aware of."

Hoping to correct his sleep problem, Merrett headed for the library. He picked up an aptly named book called Grow Rich While You Sleep.

This had to be the book for him, he chuckled, and it was. Not just for the stress management techniques it taught him, but for the epiphany it brought him about his finances.

Today Merrett is nearing retirement age. He's been financially independent since he was 55. He shares his story infrequently, mainly to financial literacy groups, in the hopes that others will find some answers.

EASY MONEY As far as financial literacy goes, Merrett did not have the best of starts. His parents emigrated from England to New Zealand when he was 3, but when they split up, he and his brother were taken back to the council estates and bedsits of Nottingham.

His mother went on a benefit, and he learned from her that debt could be rung up "on the slate" at the local corner store.

When the bills got too much, she moved, every few months. "I grew up with the idea that that was how money worked."

When he was 11, his mother got sick and he and his brother were put into care. They were sent to a Barnardos home which took orphans of sailors and trained them for the navy.

"I can't say I enjoyed being there but it did give me a sense of stability and I didn't have to think about money. I had a sense as a child of, how can I take care of my mum? But there was nothing I could do."

Both brothers later joined the navy, where Merrett thrived.

After nine years of service, he left for a career in telecommunications. He got married, got a mortgage and, like most people he knew in the mid-1970s, borrowed liberally. So at the age of 25, he found himself deeply in debt.

"Inflation and interest rates were going up and I was paying 16 per cent interest on the mortgage with a limited income, and so the difference was made up by borrowing."

But the debt was starting to bother him. "I was taking the family on holidays and borrowing for that. And I think a lot of that was about getting away from the problem.

"It's a classic problem, isn't it? You're in denial and you're trying to buy your way out of the situation, in a way. But all you're doing is mortgaging your future."

So after reading his library book, Merrett took a risk he'd never contemplated before.

He knew through his work a snippet of information about an aerospace company and figured they would lose a contract and that their share price would fall. He rang a London sharebroker and gingerly asked for advice.

At that time in the UK, buyers could "deal on the account", a now-defunct system which gave them a fortnight to settle.

"I learned that it was possible to sell shares that I didn't actually own, in a falling market, and so long as I bought them within 14 days ‘on the account' at a lower price I could pocket the difference. I could make money out of nothing."

Over three months, Merrett made a significant amount of money. He could be debt-free.

"The thing that made it easy was, I'd learned a lot more about risk . . . I was so far in debt, and was concerned about losing everything, sleeping in the car. I had nothing to lose."

THE GRAND PLAN

Merrett could have continued solely playing the sharemarket but decided it was too risky. "It was a particularly unique part of the investment cycle that worked for me and I was aware of that.

"I was able to stop. But what I'd learned from that was, here were people who seemed to be able to make money work. It wasn't a negative thing that was crippling, this thing I'd known called debt."

What he was also sure of was his need for a plan. A plan that encompassed his working life and that summarised his aims.

His first decision was to become financially independent by the age of 55. His second was to return to New Zealand. In 2002, nearly 30 years later, he brought his wife Sue over for a holiday, "and she knew I was doing a reconnaissance".

As part of his plan, Merrett set himself timeframes.

He stopped borrowing for ordinary reasons and began putting away 10 per cent of his earnings for investment purposes before he could spend it.

He learned about leverage and investment cycles, risk and "the difference between disempowering debt and strategic debt".

Deciding he had a relatively high risk tolerance, he aimed for 10 per cent compound annual growth. He read up on various markets to diversify his investments. He actively managed them.

"And I didn't have a Plan B. I didn't have a plan that said, if it doesn't work and I lose all the money that I've saved . . . I didn't give it any space in my mind.

"Deep down, I must have thought, if it happens I'll be no worse off than that good fortune, that period that I was able to clear my debts."

Everything was going according to plan until at age 41, life threw Merrett a curveball.

He had been doing voluntary work helping adults with physical disabilities. The organisation asked him if he wanted to join fulltime.

"It was so incredibly satisfying but the wages were about half of what I'd been used to. But I loved it, I was happier, and by age 40 I'd been 14 years into this plan and it was working and I could afford it."

The plan also allowed him other luxuries, such as doing a diploma in psychotherapy and setting up a charity for people with disabilities to go tallship sailing.

It made it possible for him to sponsor a disabled person on a trip to the North Pole.

All the while, he was reading and absorbing more about investment. He even foresaw the global financial crisis.

"I've got to say this but I did see it coming, and I took some very cautious measures before it happened. I could also see the finance company situation developing. Not that I ever got into that because I felt it was too risky . . . But I did tell everybody I knew."

HOME AGAIN

When Merrett finally made it out to New Zealand, he did some work for IHC. He bought a lifestyle block in Wairarapa, sharing it with his daughter and son-in-law.

"Life was absolutely wonderful. And I was aware of how incredibly fortunate I was."

Today Merrett is enjoying semi-retirement. He won't be giving the Rich Listers a run for their money but he is financially comfortable and reached all his goals. He prefers a modest lifestyle and counts his blessings.

"I take a very conservative approach now because I've got sufficient funds for my needs. I don't need to make more money. I don't really watch the markets actively. I'm at the place I wanted to be."

BRUCE'S TIPS

1. Pay yourself first – set aside an amount for your savings before anything else.

2. Always try to position yourself so you never have to spend more than your level of income, whatever that is.

3. Have a safety net.

4. Learn what dollar-cost averaging is. This is the practice of buying a particular investment on a regular basis, no matter what the share price is. While supporters say it helps ease people into the sharemarket, critics argue it's better to time the market. Merrett says: "I don't believe anyone can time the market."

5. Factor in inflation.

6. Understand business and financial cycles. "That way you've got a chance of seeing things coming."

7. Understand strategic debt. For example, a cashback credit card paid off monthly avoids eftpos charges and gives a bonus at the end of the year.

8. Don't ignore retirement planning. "Most people do," says Merrett. "Most people are probably unaware that if they had to provide their own superannuation, they'd need at least $500,000 at 65."

9. Use tax breaks and employer and Government assistance, for example, Kiwisaver and PIE funds.

10. Don't underestimate the power of planning, goal setting and compound interest.

11. Respect money, love everything else. "You have to respect it, it's so powerful, but if you love money you'll go down that greedy, uncontrolled spending track."