Some people think a raise in income should automatically equal a raise in their spending. But if our spending always follows our earnings then we would have to change our lifestyle habits every time we change jobs or get salary adjustments. Does this mean Elon Musk, CEO of Tesla Motors, who made $78 million last year should only drink water from Acqua di Cristallo? It’s the world’s most expensive bottled water. Each 750 ml bottle sells for $60,000. Jumpin’ jelly beans After all, Elon has to find ways to spend his money in order to match his income right?
Thinking about income and expenses on a year by year basis leads to myopia and it’s how many people get stuck living paycheque to paycheque They fail to see the longer term picture because they can’t escape their short term cycle of income fueled spending. What they should try to focus on instead is goal oriented spending
With a new year comes new challenges. I thought I’d write down a few 2014 goals for myself.
“If you want to live a happy life, tie it to a goal, not to people or things.”
~ Albert Einstein
1) Increase net worth by $55,000
Last year I aimed for $50,000 and passed. This year I’m upping the figure by 10% to give myself more of a challenge
2) Read At Least 3 Books related to money
Started one so far called Currency Wars, by James Rickards. Others I have lined up are “Think and Grow Rich” and “Secrets of the Millionaire Mind”
3) Make $6,000 in gross dividend income
Last year I made about $4,500 so I plan to buy more dividend paying stocks this year.
Stretch Goal: Start an emergency fund and put at least $100 into it. (This one is gonna be tough )
“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.”
~ Pablo Picasso
Random Useless Fact: There are over 2.5 billion people in the world today who still live under a dictatorship.
In the beginning of 2013 I set out 6 financial goals to complete by the end of the year. Time to recap.
1) Increase net worth by $50,000. Pass
- North American stock markets had double digit gains in 2013.
- Bumper crop in the prairie provinces pushed farmland values to new highs
- Real estate market in Canada also performed well.
- US dollar strengthened against our Canadian Loonie which was a nice unexpected bonus
My net worth grew by roughly $68K in 2013 This is why it’s important to stay invested, because you never know which asset class will perform well.
2) Make at least $6,000 more income than last year. Pass
Made more than $5,000 extra from my farm rental income :) Plus I got a $1,000+ raise at work this year so yay!
3) Put $5,000 into my retirement account. Pass
In late November as a desperate attempt to complete this goal I borrowed $6,000 from the bank to put into my RRSP. The RRSP loan is at 4% interest rate. Maybe this is cheating because I didn’t use my own savings But the goal didn’t specify where the money had to come from
4) Put $5,500 into my TFSA. (Roth IRA equivalent) Fail
Didn’t make any new contributions this year. Used all my savings for better opportunities elsewhere and TD wouldn’t give me a TFSA loan.
5) Put at least $18,000 towards other investments Pass
Made a $20K down payment on the $172K purchase of my second farm. Funded the remaining $152K with bank loans.
6) Bring the total value of my non-registered accounts to $100,000. Fail
Although my portfolio is worth over $120,000 it wouldn’t be fair to count it entirely as mine since roughly $50,000 of that is margin debt.
Looks like I passed most of my goals (4 out of 6,) so overall I’d say it was a pretty successful year Below are a couple of stretch goals, which I didn’t expect to reach anyway.
Back in 2010 when I started this blog I set out a goal to reach financial freedom by the year I turn 35 years old I didn’t know exactly how I was going to do it but I knew I had 12 years to figure it out. Fast forward to today and I’m 26 years old with only 9 more years to reach financial independence :) According to my latest net worth statement from last month, here is a simplified look at my current balance sheet.
Home = $252K
Farms = $325K
Stocks (Inc Retirement Funds) = $161K
Total debts = $535K
So how do I plan to reach financial freedom by 2022? It’s simple. Invest $5,000 a year into my stock portfolio for the next 9 years. In 2022 sell my farms and use that money to pay off all my outstanding debts. Live off dividend income forever
Pretty straight forward eh If Canadian farmland appreciates by 4% a year for the next 9 years, then my farms should be worth about $463K by the year 2022. After commission and capital gains tax I can expect to keep about $420K for myself.
Right now in 2013 I have about $535K of total debt. Next year I expect to pay down $10K of it simply by making the minimum payments on my mortgage, farm loans, etc. And the year after that my debt should be down another $11K as more of my payments will go towards the principle. I’m sure you’re all familiar with a loan repayment curve
After the entire 9 years I should only have roughly $420K of debt left without having to make any additional lump sum or accelerated mortgage repayments. I will use the proceeds from selling my farms ($420K) to completely pay off this remaining debt. Hey that worked out pretty well! This also answers the question people often ask me, “Liquid, how do you plan to pay off all your debt?”