Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

Jul 102018
 

I transferred my pension from my previous employer to my personal investment account. The amount is about $20,000, which I currently hold in my TD RRSP as cash. This money exists because I saved 4% of my income and put it towards the company RRSP group plan for 7 years. It’s not a huge amount of money but if I invest all of it into something that can generate 5% return per year, I would earn $1,000 of tax deferred passive income without touching the principal. 🙂 I also have a Deferred Profit Sharing Plan (DPSP) that is awaiting to get paid out as well. But I’m not sure when I will receive that yet. It’s not as much as the RRSP amount though.

Liquid’s Financial Update

*Total Income: = $7,300

  • Full time job = $4000
  • Part time job = $1400
  • Freelance = $500
  • Dividends = $1000
  • Interest = $400
*Total Spending: = $3,600
  • Food = $300
  • Housing = $1200
  • Utilities = $100
  • Miscellaneous = $1100
  • Additional Debt Interest = $900

*Net Worth: (ΔMoM)

  • Assets: = $1,222,500 total (+17,500)
  • Cash = $10,500 (-2000)
  • Canadian stocks = $173,600 (-1500)
  • U.S. stocks = $117,800 (-1700)
  • U.K. stocks = $22,200 (-200)
  • Retirement = $113,200 (+21,900)
  • Mortgage Funds = $33,300 (+700)
  • P2P Lending = $31,900 (+300)
  • Home = $275,000
  • Farms = $445,000
  • Debts: = $433,400 total (-2,500)
  • Mortgage = $192,500
  • Farm Loans = $182,900 (-500)
  • Margin Loans = $51,000
  • TD Line of Credit = $2,000 (-1000)
  • CIBC Line of Credit = $5,000 (-1000)

*Total Net Worth = $789,100 (+$20,000 / +2.6%)
All numbers are in $CDN. 

I will be looking at how to invest the extra $20K. Maybe I will buy some U.S. dividend stocks. The Bank of Canada is also expected to raise interest rates later this week. It’s about time. If the cost to borrow money remains at current levels then in 5 years from now home prices in large cities would likely be 25% higher than today. Higher interest rates will help keep inflation tame so home prices don’t climb too much.

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Random Useless Fact:

It’s hard for attractive nurses to take accurate pulse readings.

Jul 042018
 

Five years ago I acquired a variable rate mortgage from CIBC. It was the cheapest rate I could find at the time. I was quite pleased with the rate but that mortgage term expired a couple of months ago. So I shopped around to see if I can find another good deal.

I expected my mortgage to become more expensive. Surely rates would have climbed over the last 5 years right?

But no. To my surprise I found a lender that offered me an interest rate that’s lower than my previous mortgage by 43 basis points. 😀 CIBC was not able to match this offer so I switched. The new financial institution I am with is not one of the big 5 banks in Canada. It is a lesser known company called National Bank.

I was paying 3.05% with CIBC. This was a variable rate 5 year mortgage at prime minus 0.40%. This was the best CIBC could do.
But my new mortgage with National Bank is only 2.62%. This is also a variable rate 5 year mortgage term. Except the rate is Prime minus 0.83%

A 0.43% difference in interest rates doesn’t sound like a lot. But my mortgage balance is around $193,000. So I will be saving roughly $4,000 over the next 5 years because I switched to a cheaper mortgage provider.

However there are costs associated with changing lenders. Appraisal costs $600, and legal documents from a notary public was $800 in my case. Luckily National Bank has a $750 rebate program for transferring over an existing mortgage. 🙂

In the end the cost of changing banks was worth the extra savings in my case.

Even though most Canadians are choosing fixed rate mortgage I still believe that variable rate is the way to go if you want to save money. The increase in fixed rate mortgages locked in by most home buyers this year is “seen as a response to rate hikes, and fear of higher rates in the future.” But critics have been calling for higher rates for over a decade. Yet rates haven’t actually gone up much. In fact, mortgage rates have dropped over the past 5 years as shown in my post today. That’s why we have to be informed of economic conditions so we can make our own financial decisions, instead of following others. 🙂

I have been a homeowner for almost 10 years. During this time my mortgage interest rates fluctuated from 2.3% to 3.2%. It doesn’t look like rates will climb significantly any time soon. Until we see increasing mortgage rates, I would expect Canadian housing prices to climb even higher.

 

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Random Useless Fact:

30 years ago only 5% of the population admitted to being chronic procrastinators compared to 25% today. Some believe technological advances is the main cause of this change.

Jun 152018
 

Lifestyle inflation is when we spend more money when our income increases. This can feel natural because the more we earn the more we can afford to spend. But this can make it very difficult to save for retirement or meet other financial goals. Lifestyle inflation is what causes many folks to get stuck in the rat race instead of being able to retire sooner. Here are some ideas to help curb lifestyle inflation when we get that big raise next time. 🙂

  1. Visualize the net amount of a raise after paying payroll and income tax.
  2. We don’t necessarily deserve nice things. But we deserve to be happy – which can be jeopardized if we overspend on nice things by sacrificing financial security.
  3. Hang out with friends who have similar spending habits to ourselves.
  4. Pay ourselves first. Set up an automatic transfer for a fixed amount of money from our bank account to an investment account every month.
  5. Define our goals and only spend new money if it will get us closer to those goals.
  6. Have inexpensive hobbies such as reading, blogging, hiking, playing music, and cooking.
  7. Realize that success doesn’t equate to material possessions. Better indicators of success are health, love, friends, family, and experiences. We should be happy with our quality of life without feeling the need to prove it to others.

Reaching a good balance of spending and saving is a personal journey for everyone. There are some people who save too much without enjoying life as it comes. There are others who impetuously spend too much without thinking of their future. Finding the sweet spot between the two extremes will bring us financial happiness. 🙂 Happiness is like peeing our pants. People around us can see it, but only we can truly feel the warmth of it. 😀 Live for today but don’t forget to plan for tomorrow.

 

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Random Useless Fact:

QiZai is the only giant brown panda in the world left. He is literally one of a kind.

Jun 052018
 

May was another spectacular month for the stock market! I managed to earn money from 6 different sources over the month, combined to make over $10,000 in after tax income. Most of this income came from my farmland and cryptocurrency investment. More on this further in the post. I didn’t invest in new stocks in May. But my portfolio continues to climb thanks to my position in high quality stocks. 🙂

I also successfully renewed my mortgage in May with a different lender. I have combined my old mortgage and home equity LOC into a single mortgage balance with an overall cheaper rate. It pays to shop around.

Liquid’s Financial Update

*Total Income: = $14,900

  • Full time job = $4,000
  • Part time job = $700
  • Sold Cryptocurrencies = $4,200
  • Dividends = $700
  • Interest = $600
  • Rent = $4,700
*Total Spending: = $4,600
  • Food = $300
  • Housing = $1100
  • Utilities = $100
  • Miscellaneous = $700
  • Auto Insurance = $1,500
  • Additional Debt Interest = $900

*Net Worth: (ΔMoM)

  • Assets: = $1,205,000 total (+18,400)
  • Cash = $12,500 (+4800)
  • Canadian stocks = $175,100 (+4900)
  • U.S. stocks = $119,500 (+5700)
  • U.K. stocks = $22,400 (+400)
  • Retirement = $91,300 (+2200)
  • Mortgage Funds = $32,600 (+100)
  • P2P Lending = $31,600 (+300)
  • Home = $275,000
  • Farms = $445,000
  • Debts: = $435,900 total (-8,300)
  • Mortgage = $192,500 (+13500)
  • Farm Loans = $183,400 (-500)
  • Margin Loans = $51,000 (-1000)
  • TD Line of Credit = $3,000 (-1000)
  • CIBC Line of Credit = $6,000 (-4500)
  • HELOC = $0 (-14800)

*Total Net Worth = $769,100 (+$26,700 / +3.6%)
All numbers above are in $CDN. 

 

Cryptocurrency Update

I have decided the sell the remaining cryptocurrency I have with QuadrigaCX. The reason is because the crypto market is not as exciting as it once was. Last month Bitcoin’s price dropped below $8,000 hitting a 35 day low. The mainstream isn’t talking about it anymore. I’ve made some decent profit from getting into Bitcoin and Ethereum about a year ago, but I don’t want to push my luck. So I have sold all of my holdings. Here’s what my account balance looks like today. Only trace amounts remain.

I didn’t make a large fortune in the crypto market like some other people, but I’m happy with my gains. 🙂 Maybe I will return to cryptocurrencies in the future so I will not close my QCX account. But for now I’d like to use my resources to invest in other asset types.

 

 

 

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Random Useless Fact:

Jun 012018
 

Next week is Tax Freedom Day! This is the first day of the year in which Canada has earned enough income to pay its taxes. Every payment to the government of all levels that is officially considered a tax is counted. The purpose of having a tax free day is to provide tax paying citizens with a metric with which to estimate their “total tax bill.” 🙂

Tax freedom day is unique to every country. For example, it’s June 7th in Canada because 43% of all income earned by Canadians goes to tax collectively. But in the United States, it falls on April 24th because of a lower 31% tax burden.

How to calculate your personal tax freedom day

To determine our own tax freedom day we need to calculate our tax burden percentage. This can be done by adding up all the tax we pay to cities, provinces, and the federal government. Some forms of tax like tariffs are out of our control. But here’s a list of typical taxes I pay every year, and how much I pay into them relative to my gross income.

  • Income tax – 14% (Federal + provincial)
  • Payroll tax – 4% (employment insurance, state pension premiums)
  • Sales tax – 2% (GST/PST, consumption tax)
  • Property tax – 3% (apartment and farmland)
  • Other surcharges, excise tax, environmental levies, and duties – 5% (tax on alcohol, electronics, gasoline, etc)

So as it turns out my tax burden percentage is about 29%. This is just a rough estimate. But it means in a 365 day year, my tax freedom day would be around mid April. 🙂 It used to be in May, but I’ve managed to lower my tax burden over the years. Despite earning a high income, I’ve learned to pay relatively low taxes. My goal is to eventually drop my tax burden to 25% of my total income. 😀

Here are some strategies I’m using to keep more money in my own pocket.

  • Max out my retirement contribution (RRSP) every year. In 2017, I effectively lowered my taxable income by $12,000 this way, saving me over $3K of income tax.
  • Earn business income. Instead of accepting income as an individual, I use a small business when conducting freelance work. This way I can spend money on business related expenses first, and then pay taxes on whatever profit is remaining.
  • Learn to cook. Prepared meals either from the supermarket or restaurant are marked up with a sales tax. Basic groceries, meat, and produce are exempt from tax.
  • Efficient commute. My city has the most expensive gasoline in North America. It broke records a month ago at CAD $1.62/Litre, (USD $4.72 per gallon.) A big reason for this is taxation. There’s carbon tax, motor fuel tax, and public transportation tax all built into the price of gas at the pump. I recommend either live closer to work, or take public transit. My car only gets driven about 5,000 Km per year.

Taxation is a major living expense for everyone. But luckily there are aspects of it that we can control and reduce. 🙂

 

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Random Useless Fact: