Apr 172017
 

A Present To Yourself

If you like to receive presents, and let’s be honest – who doesn’t? then consider giving yourself the gift of long term planning. That simply means making a plan today that will pay off dividends for you later on. Your future self will thank you for this priceless gift that you have given him or her. And best of all, making this gift doesn’t cost you any money today. 🙂

Last month, Amazon.com founder Jeff Bezos surpassed Warren Buffett to become the 2nd richest person in the world! How did he do it? Maybe a letter he wrote to shareholders in 1997 can reveal some secrets. 😀 In it Jeff writes that we can’t realize our true potential as people or as companies unless we plan for the long term. “If everything you do needs to work on a 3-year time horizon, then you’re competing against a lot of people,” Bezos told Wired in 2011. “But if you’re willing to invest on a 7-year time horizon, you’re now competing against a fraction of those people, because very few are willing to do that.”

Year 7 of the 12 Year Journey

I started this blog in 2010 with a 12 year plan to reach financial independence. It’s now been 7 years and things are progressing very well. 🙂 Back in 2013, my net worth was only $200K. And my financial details looked like the following.

Assets:
Home = $252K
Farms = $325K
Liquid investments (Including Retirement Accounts) = $161K

Liabilities
Total debts = $535K

At that time I wrote about my plans and my course of action to reach financial freedom. Without a solid plan back then, I wouldn’t be where I am today. Developing a strategy years ago was the best present I could have given my current self.

Speaking of the present, we are now only 5 years away from 2022. My net worth is currently about $610K, and here is an update of my financial details today.

Assets: 
Home = $270K
Farms = $436K
Liquid investments (Including Retirement Accounts) = $400K

Liabilities
Total debts = $495K

It appears I’m farther ahead that I initially planned for. This means I have to adjust my original plan made a few years ago. Not that I’m complaining. 😀 So here is my new revised plan for Freedom 35:

Step 1: Pay down $18K of debt per year. After 5 years my total debt should be $400K.
Step 2: Sell all farmland in 2022 for $436K. After agent fees and tax, I would keep $400K in my pocket.
Step 3: Use the $400K from selling farmland to pay off my $400K of debt. This would make me debt free.
Step 4: Re-balance my $400K liquid portfolio to earn $15,000 per year of dividend income.
Step 5: Live on passive income for the foreseeable future.

That’s pretty much it. 🙂 A $15,000 income from a $400,000 portfolio represents a sustainable 3.75% withdrawal rate.

Here is a look at my projected monthly expenses after I reach financial independence in 2022, assuming 2% annual inflation rate from today.

  • 300 – strata fee
  • 30 – gasoline for car
  • 100 – car insurance
  • 30 – home insurance
  • 100 – property tax
  • 70 – internet
  • 40 – cell phone
  • 300 – food
  • 30 – electricity
  • 250 – discretionary

Total monthly spending = $1,250

Discretionary spending will be clothing, entertainment, and other things like that. I won’t have to pay into the MSP healthcare system anymore because I wouldn’t be making enough income to be charged the monthly insurance premium. I also don’t have to move to a small city or change my lifestyle. I can stay in YVR. 🙂

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Jan 122017
 

What’s 6 inches long and gets Kim Kardashian excited? That’s right. It’s money. 😀 Especially the one with Benjamin’s face on it. There is certainly no shortage of liquidity in the world today thanks to central banks. As investors, our priority is to increase our expected returns while reducing our anticipated risks. A good way to go about doing this is by setting goals. Making smart decisions and taking appropriate action is easier if we have defined a target to aspire to. 🙂 If we don’t take control of our money, then someone else will inevitably try to use money to control us.

Here are my financial goals for 2017.

  • Grow my TFSA to $80,000.
    I currently hold $72,000 across all my tax free savings accounts. I have $3,000 contribution room remaining for the year. All the investments inside my TFSAs have performed well, except Bombardier stocks BBD.B. Overall I’ve been quite lucky with my stock picks. 🙂
  • Grow my RRSP to $100,000.
    I currently hold $86,000 in my RRSP. I have $10,000 contribution room remaining for 2017.
  • Grow my net worth to $750,000.
    I hope to grow my wealth by $180,000 this year. $60,000 of this increase could come from savings and debt reduction. The remaining $120,000 would ideally come from investment returns. 🙂 This isn’t an unreasonable expectation considering last year’s market performance, and I currently have over $1 million worth of assets.
  • Increase my passive income rate by $2,000/year.
    I plan to invest at least $35,000 into a mix of fixed income securities and dividend stocks. The average yield on new investments would be 4% to create $1,400 of new passive income per year. The remaining $600 growth should come from dividend increases from investments that I already have in my current portfolio.

That’s pretty much it. As usual, the likelihood for me to reach my goals will depend on many factors, including how the financial markets perform which is largely out of my control. We’ve had a great Q4 in 2016 to finish the year on a high note. But who knows how this year will turn out. Setting goals is important because it gives us something to focus on and look forward to. It guides our behavior so we feel a sense of purpose when making financial decisions. 🙂

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Random Useless Fact:

There’s a man in east India who has 39 wives, 94 children, and 33 grandchildren so far. They all live in a 100 room mansion. It takes 30 whole chickens, 132lb of potatoes, and 200lb of rice just to make a family dinner.

 

Sep 262016
 

When Average Isn’t Enough

Everyone knows that exotic dancers are bad at investing. After all, they always end up losing their shirts. 😆 But they are not alone. Most people in general are simply not very successful at investing.

According to BlackRock, the largest financial management company in the world with nearly $5 trillion of AUM, the average American investor managed to make only 2.11% return per year over the past 2 decades.Â đŸ˜±

16-09-investor-emotion-returns-lower-index

The saddest part is how this number is even lower than inflation, lol. So in terms of real returns people actually lost money. 🙁 There are many reasons for this low performance. Investors’ sentiments, emotions, and personal goals are all factors. But the reason I want to discuss today is the improper use of investment tools.

Why People Are Generally Bad at Investing

Reason 1 – Not using tax sheltered vehicles

The Roth IRA is a great example of a tax savings vehicle that many American investors have overlooked. In Canada we have the Tax Free Savings Account (TFSA) which has similar benefits; Any investment gains realized within this account is tax free. 🙂

The first problem is that most people don’t use it. According to the CRA, in 2013 only 38% of eligible Canadians have opened TFSAs. The second issue is those who do have this account aren’t making the most of the tax savings. Data from RBC Royal Bank suggests that its clients tend to play it safe when it comes to their TFSA with 44% of holdings in high interest savings accounts. *Yawn* Another 21% is invested in GICs which are also producing rock bottom returns right now. This means only the remaining 35% of the money in TFSAs are actually used for proper investments that hold stocks, bonds, and other asset classes that have a decent chance at beating inflation.

This essentially means that only about 13% of TFSA eligible Canadians are using the investment vehicle correctly. But even less have taken maximum advantage of it because only 7% have fully maxed out their contributions. Of course everyone has different financials goals, which alludes to my post about the debt spectrum. So it may be perfectly suitable for a retiree to put all of his savings into a GIC if it suits his investment objectives. But in general 2.11% should not be the target most investors should aim for. 😉

Taxation is one of the costliest expense on investment returns. If more investors make better use of tax advantaged accounts they can leave more money in their own pockets. 🙂

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Random Useless Fact:

33% of Harvard University students get the following question wrong.

16-09-harvard-baseball-bat-ball-question

Sep 012016
 

Millionaire Status

After checking my balance sheet for the month of August I realized that the value of all my assets is worth $1,006,200. Great Scott! For the first time in my life I own a million dollars worth of stuff! 🙂

According to the official Oxford Dictionaries website, a millionaire is “a person whose assets are worth one million dollars or more.” The word “assets” is commonly defined as any owned items or properties that have financial value. So according to this official definition I am now technically a millionaire! ? Gosh almighty! Below is my reaction right now.

16-08-owl-smile-aww-yeah-millionaire

I started investing about 8 years ago. I mostly just buy a wide range of investments and use diversification to lower my risk. I also intend to hold my investments until I retire. It sounds like a simple strategy, but it works for me. 🙂 Some readers may think I’m a good stock picker. But that’s not true.

In the last 7 years falling interest rates have pushed up asset prices across the board for stocks, bonds, and real estate. The S&P 500 index in the U.S. returned over 150% to investors since 2009. 😀 Good heavens!

My point is anyone could have randomly invested in a basket of different securities starting in 2009 and would likely see similar appreciation in their assets as I have. 😉 So I didn’t get lucky choosing stocks. But I am lucky to have started investing near the bottom of the great recession in 2008.

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Jun 092016
 

Living on $29/week

I thought about becoming a food taster once, but decided not to because I didn’t want to have too much on my plate. ? Most wage earners get paid either once or twice a month, but we generally have to eat food everyday. This means learning how to budget our grocery bill is an important skill to have. For some people maybe $200 a month for food is enough, but for others it might be $400 or more. Having a personalized budget that is reasonable will teach us about self control, rationing, meal planning, and will probably even save us money. 🙂 If we fail to watch our spending and plan ahead then we may run out of money before our next paycheque and find ourselves in times of scarcity. ?

16-06-food-stamp-challenge-basket-budgeting-fail

Earlier this week I started a food stamp challenge inspired by a famous celebrity. The idea is to spend no more than $29 on a whole week’s worth of food. I’m about half way through the challenge so I thought I’d give a quick update on how things are going. You can see the previous post for the full list of ingredients and detailed breakdown.

So far I’ve gone through most of the vegetables, but I’ve only eaten 5 of the 14 turkey drumsticks. I’ve been making a lot of salads, sandwiches, and roasts. Overall I’m roughly half way through my food basket. Tomorrow I’ll make a quick stew out of some potatoes, radish, and fish. I have 2 squashes remaining which I’ll probably stuff and bake. I have some left-over tomatoes and green peppers which I’m going to use up tonight lest they spoil. Below are some examples of simple dishes I’ve made so far.

16-06-food-stamp-challenge-basket-update

As mentioned in the previous post I’m only using salt and pepper for seasoning. I first thought this may become boring and repetitive after awhile, but so far the whole foods like tomatoes and bell peppers have quite a lot of natural flavor themselves, especially when cooked, and the salt actually helps to bring out their taste. Since I only eat two meals a day, plus snacks, I don’t have to cook very often. I think eating fewer meals is helping me with this challenge by eating less than other people would.

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