Feb 172020

What should your net worth be?

Author Thomas J. Stanley, first published his Wealth Equation in the book, Marketing to the Affluent. He states that your household’s net worth should equal 10% of the age of the primary breadwinner times your household’s annual realized income.
So your expected net worth = (Age)x(0.1)x(Income)

If you are in the Balance Sheet Affluent category, also known as “prodigious accumulators of wealth”, then your net worth should be twice the expected value.

In short, you will be considered affluent if your net worth is 2x the expected result based on this equation. πŸ™‚ This is not a perfect indicator of affluence as it usually becomes easier to accumulate wealth as people progress further in their careers. But it’s a good place to start looking at how you measure up to others in similar situations. Give the Stanley Wealth Equation a try for yourself and see where you land. πŸ™‚

When it comes to reaching a net worth of a million dollars by age 60, a good rule of thumb is to save and invest 5% of your income in your 20s, 10% in your 30s, 15% in your 40s, and 20% or more during your 50s.


A passive way to increase your wealth

Wouldn’t it be awesome to grow your net worth without having to think about it? Well there’s a practical way to do this. πŸ˜€

According to Stanley, to build up a large amount of wealth you can simply live in a neighbourhood where your income is among the highest. For example, if your household income is $120,000 then you should live in an area where the median value of a home is less than $400,000. By doing so there’s a good chance that your income will be in the top 20% in that neighbourhood. Then you can live and consume as though your income was 20% or 30% lower than it actually is. Save the difference. Accumulate your wealth. And you will not feel like you’re missing out on anything in the meantime. πŸ™‚

Living on less than you earn is pretty easy in this situation because people who live in the same area tend to have comparable fixed costs anyway. For example, many families who on the same block will pay similar rent. Property tax rates are also similar. Many residents will drive similarly priced cars, and shop at the same local grocery stores. Do you want to be the only household on the street with a $240,000 McLaren GT parked in the driveway while everyone else drives $30,000 sedans or $50,000 SUVs? Probably not. You’ll stand out like a sore thumb. Your neighbors will be jealous and think you’re a total snob. And you’ll be the designated target for any neighbourhood crimes such as vandalism, theft, property damage, or burglary.

So living in an area where your income is in the top quintile almost forces you to live within your means and save more. The average savings rate in Canada is only 3%. It’s higher in the U.S. at roughly 8%, but still on the low side. Where you live matters a lot to your wealth building potential.Β  If you live in a modest neighbourhood compared to your income you can easily keep up with your neighbours, while still maintain a large savings rate. πŸ™‚


Random Useless Fact:

Pesticides can threaten biodiversity and are harmful to the environment.

Feb 032020

A rough start to the new year

January was such a bizarre month for world news. Bushfires scorched Australia. The U.S. assassinated a general in Iran nearly starting a war. Then out of nowhere Iran shot down a passenger plane full of civilians. Firefighters in France set themselves on fire and fought the police. Britain officially left the European Union. A deadly virus from China caused partial or full lockdowns of entire cities directly affecting over 50 million people. Landslides hit Indonesia causing deaths, mayhem, and displacing thousands of people.

But despite all this, the financial markets don’t seem to be fazed much. Global stocks are down, but the Canadian market is up. πŸ™‚ As long term investors we have to simply ignore the current events and continue to execute our long term plans. In terms of building wealth we can control how much we save, what to invest in, and when we retire. But we can’t control the market’s rate of return. So let’s top up our tax advantaged accounts, find ways to cut back spending, and look for new ways to make money. πŸ™‚

Real Estate Drop

Unfortunately my home fell in price according to the official BC Assessment. Every year in January the assessed value is updated, and mine fell about 10% in 2020. πŸ™ That’s in line with other properties around Metro Vancouver. Lending Loop also wrote off $2,000 worth of my portfolio due to bad loans. Overall my net worth took a beating this past month. But we can’t expect things to go up all the time.

The good news is after selling the farmland I’m now holding a big chunk of cash which I can invest in something new. I actually made a real estate purchase recently but I will cover that transaction next month as it’s not completely finalized yet.


Liquid’s Financial Update January 2020

*Side Incomes: = $2,600

  • Part time job =$700
  • Freelance = $200
  • Dividends =$1200
  • Interest = $500

*Discretionary Spending: = $2,200

  • Food = $400
  • Miscellaneous = $800
  • Interest expense = $1000

*Net Worth: (Ξ”MoM)

  • Total Assets: = $1,221,000 (-$213,300)Β 
  • Cash = $283,500 (+234,000 sold farmland)
  • Canadian stocks = $217,700 (+33,700)
  • U.S. stocks = $145,200 (-1100)
  • U.K. stocks = $23,000 (-400)
  • Retirement = $146,600 (+2700)
  • Mortgage Funds = $38,500 (+600)
  • P2P Lending = $35,500 (-1,800)
  • Home = $331,000 (-36,000 assessed land value 2020)
  • Farmland = $0 (-$445,000 sold it)
  • Total Debts: = $218,800 (-186,000)
  • Mortgage = $184,800 (-400)
  • Farm Loans = $0 (-161,300)
  • Margin Loans = $34,000 (-300)
  • Farmland sales cost = $0 (-$24,000)

*Total Net Worth = $1,002,200 (-$27,300 / -2.7%)
All numbers are in $CDN at 0.76/USD

Ouch. A $27K cut to net worth is not a good way to start the year. One month does not make a trend. But there’s an old adage that says, “as goes January, so goes the year.” A gain or loss in January has correctly predicted stock market’s overall movement for the entire year with great historical accuracy. We’ll have to wait and see how the rest of 2020 plays out. But in the meantime I’ve replenished my Canadian stocks. I also contributed to my TFSA for 2020, but haven’t decided what to buy with the money yet. πŸ™‚


Random Useless Fact:

The average time spent by recruiters looking at someone’s resume is 5 to 7 seconds.

Jan 272020

Why it’s hard to replicate success

After celebrating my millionaire status last year I reflected on my past and examined what factors contributed to my financial growth. I’ve realized that a big part of my wealth comes from simply being in the right place at the right time. πŸ™‚ Sometimes good things just happen to me for no apparent reason. In order to make better decisions going forward I believe I need to understand what my undeserved privileges are, and not take them for granted.

Here are 5 advantages that I had no control over, yet have helped me grow my net worth. πŸ˜€ And due to the serendipitous nature of these advantages, it’s not likely for others to make use of them all.

  1. I’m a millennial.
    Fund manager Peter Lynch says regular retail investors have an advantage over professional stock pickers. We can identify opportunities in our areas of expertise. What has been the best performing stock sector over the last 10 years? Technology. πŸ™‚ Which investor age group is the most familiar with technology? Millennials. πŸ™‚ This inherent advantage has made me so much money as I followed Peter Lynch’s advice: Know what you’re buying. And know why you’re buying it. Millennials are better educated about stocks than any prior generations. We have so much information at our disposal. And we know how to use it. We grew up with Google, Apple, Amazon, Netflix, Tesla, and other tech companies. We know these brands intimately because we use their products and services religiously, and have a better sense of which brand will become the next big thing. This gives us a unique advantage over older generations. If something attracts you as a consumer, it should also interest you as a potential investment. πŸ™‚
  2. I started my career in 2008.
    Lots of companies were restructuring in 2008 and didn’t have the budget to hire expensive senior workers. They could however afford to bring in juniors at that time. As someone who just finished school I was cheap, available, and eager to prove myself. Since most unemployed people were looking for jobs that required experience, I didn’t have much competition at my salary level. It didn’t take long before I landed my first job in the graphic design industry.
  3. I was given a large severance.
    My employment abruptly ended a couple of years ago. But I already had a contingency plan prepared. So I got back on my feet pretty fast. I actually started to make more money than before. πŸ™‚ Plus I received a five figure severance package from my old employer since it was a no-fault termination. Things couldn’t have turned out better for me. πŸ˜€
  4. I’m not American.
    Several years ago I tried get into a venture capital deal in the U.S. I asked the company if they accept Canadian investors and they said yes. So I wired them $55,000 to put into a startup business which delivers online music streaming, and some other companies. I imagined my seed money was going to turn into $500,000 when the company eventually goes public. πŸ˜€ But a few months later they refunded my $55,000. It turns out they can’t accept my money after all because I’m not American. Thankfully my investment didn’t go through – I just found out that the music streaming company ceased operations last month. Its user base has been shrinking and it ran out of operating money. So I definitely dodged a bullet there. Phew. πŸ™‚ I clearly didn’t know what I was doing. But something beyond my power saved me from making a huge mistake.
  5. I grew up in Vancouver.
    Vancouverites talk about real estate more than we talk about the weather. Most already own their homes, and the rest are just waiting for the right entry point. So growing up in this environment has made me naturally biased towards favouring home ownership. I purchased a condo in 2009. Property prices here have doubled since then. But the same can’t be said about other Canadian cities like Calgary or Ottawa where price growth is slower. A big part of my net worth today comes directly from the tremendous growth in the local real estate market. So where you live can have a big impact on your finances. And I just happened to be lucky enough to live in a city with a strong real estate market.

Making smart financial choices obviously helps. But not everyone can save and invest their way to wealth. Some are just born with certain privileges. Even Warren Buffett admits that luck is important to success.

Buffett said he is lucky to be born in America. If he had started his life in Africa he would have become some animal’s lunch because he can’t climb trees very well, lol.

We all have different stories, different beginnings. There are many things that we cannot change. But it’s important to develop a positive, growing mindset to face the world. The more we concern ourselves with the things we can’t control, the less we can affect the things we can control. πŸ™‚

I believe everyone has innate advantages that aren’t shared by most people. πŸ™‚ Let’s all keep our eyes open for opportunities that are unique to ourselves – or else they will pass us by and we will have squandered our privilege.


Random Useless Fact:

Actor Leonardo DiCaprio has never been married before.

Jan 132020

Farewell to my 310 acres of Saskatchewan farmland

Farmers and Wall St. bankers don’t have much in common. But something they both seem to enjoy is getting down and dirty with their hoes. πŸ˜‰ Farming can be difficult. Some grain farmers barley scrape by. Luckily for me it’s a lot easier investing in farms than working on them. πŸ™‚

Thank you so much everyone for following me on my 7 year farmland journey. I have received a lot of comments and support regarding this major investment. But all things must come to an end. As you may be aware, last year I put my farmland up for sale with a real estate agent. Well as of last week I have successfully sold my farmland. πŸ™‚

I received my first offer after a few months of listing my land. The buyer and I negotiated and we ultimately settled on a price of $445,000. This is 5% below my initial asking price.

The advantage of getting out of an investment is being able to reflect on my decisions, and consider where I could have done better. In today’s post I’ll review my experiences of buying, managing, and selling the farmland.

Breaking down the numbers

I invested $40,000 of my personal savings, and leveraged up to buy $322,000 worth of farmland. It was basically a 12% downpayment that allowed me to greatly improve my returns by 8-fold. πŸ˜€

Farmland profitability 2013 to 2019: Let’s start by looking at the farm’s income statement over the years. In 2013 my operating costs were low because I only had a mortgage on one farm for most of the year. It wasn’t until the end of 2013 that I had closed on the second farm. I operated at a small loss in 2014 before turning a profit again in 2015.
Net operating profit: $10,000Β 

Let’s look at my capital gains next.

Capital gain = sold price – purchase price – transaction costs
Sold price: $445,000
Purchase price: $322,000Β 
Total commissions and other transaction fees: $26,000
Capital gain = $97,000
Cheese-n-rice! That’s the most money I’ve ever made buying and selling a single investment! This must be what affluent people feel like all the time. πŸ˜€Β 

Finally the return on investment can be determined using the following formula:

ROI = (Net gain from investment / Cost of investment ) x 100%
Net gain = $97,000 capital gain + $10,000 net operating profit
Cost of investment = $40,000

Return on Investment = 268%Β 


Wow. 268% ROI over 7 years works out to a 20% annualized return. πŸ˜€ Sweet sassy molassy! I feel simply elated! By comparison the TSX stock market index returned about 60% over the last 7 years, including reinvested dividends.

Here is a look at my farmland balance sheet over the holding period. $40,000 of cash savings was turned into $260,000 due to price appreciation and gradually paying down the farm loan.

Continue reading »

Jan 062020

Happy New Year! 😎 As a personal finance blogger, I celebrated New Year’s Eve properly in the traditional fashion – by looking up the new value of my home on the BC assessment website. πŸ˜€ Needless to say my condo’s assessed value for 2020 has dropped. I will update my net worth next month to reflect the new value, but today’s post is meant to highlight my December 2019 finances.

A bullish decade

The U.S. stock market has been on a bull run for 130 months now – a historical record. But who would’ve guessed? In 2010 the dreadful malaise of the great recession was still lingering on investors’ minds. The stock market was still recovering. And many people felt uneasy and hopeless as the S&P 500 index returned virtually nothing from 2000 to 2009.

But it was a completely different story over the next 10 years. From 2010 to 2019 investors saw steady gains on Wall Street, with relatively low volatility and few setbacks. The S&P’s annualized return in the 2010s was 13% according to the NY Times. Not too shabby. The 29% return last year in 2019 really helped out any boomers who are retiring this year.

On the labour front, the unemployment rate dropped from 9.9% in 2010 to just 3.5% now. Real median household incomes rose 12% during that time.

Canadians have much to celebrate as well. The TSX Composite gained around 6.7% annualized. It’s not great, but also not bad. The MLS price index shows homes are now worth 67% more across the country than 10 years ago. But that varies a lot depending on location and type of home. Bond portfolios rallied around the world as central banks competed to see who can lower their interest rates the most. Overall it had been an economically fruitful decade for many people. πŸ™‚

Increasing my cash holdings

I remember that 2018 was a rough year where the stock market fell 12% in Canada, and 6% in the U.S. But since we entered into 2019 on a fairly low point, this past year has been an absolute blessing. The market rebounded and helped to propel my wealth upwards by $261K in a single year. Which isn’t all that impressive once you take into consideration that I already had $1.2 million worth of assets going into 2019, and that all asset classes I owned went up in value. It was just a great year for investors in general. πŸ™‚

I made some adjustments over the past month in order to get ready for the new year. My plan is to increase my liquidity for a potential real estate purchase in the lower mainland in 2020. My price range is between $400K to $700K so I would require a sizeable cash amount for the down payment.

I sold all of my TD e-Series mutual funds worth about $13K and closed my fund account. I had started investing in the e-Series funds a long time ago in order to demonstrate to readers how to set up the account and how to operate it. This was before Vanguard ETFs came to Canada. So I was basically showing people how to buy index funds in 2013 before it was cool, haha. πŸ˜€ I gradually put more money into the fund over the years but have now decided to sell everything. πŸ™‚ Index funds have become too mainstream anyway.

I also sold $20K of REITs and other stocks in my TFSA and withdrawn the cash to my chequing account. I will put the $20,000 back into my TFSA this year, along with an additional $6,000 of new contribution.

Farmland Update

My farmland has been sold. I am still waiting to receive the final adjustments and paperwork by mail from my lawyer in Saskatchewan. But there shouldn’t be any issues. The total commissions and fees related to the sale add up to about $24,000 – which I’m including in today’s net worth update. πŸ™‚ Technically I didn’t pay the fees until January, so I’m including the amount as a December liability below for best accounting practices. I will write a detailed post on my farmland sale in the upcoming weeks. πŸ™‚

Liquid’s Financial Update December 2019

*Side Incomes: = $2,900

  • Part time job =$1100
  • Freelance = $200
  • Dividends =$1200
  • Interest = $400

*Discretionary Spending: = $2,500

  • Food = $400
  • Miscellaneous = $800
  • Interest expense = $1300

*Net Worth: (Ξ”MoM)

  • Total Assets: = $1,434,300 (+27,700)Β 
  • Cash = $49,500 (+36,300)
  • Canadian stocks = $184,000 (-16,500)
  • U.S. stocks = $146,300 (+5800)
  • U.K. stocks = $23,400 (+700)
  • Retirement = $143,900 (+900)
  • Mortgage Funds = $37,900 (+200)
  • P2P Lending = $37,300 (+300)
  • Home = $367,000 (assessed land value 2019)
  • Farmland = $445,000
  • Total Debts: = $404,800 (+22,700)
  • Mortgage = $185,200 (-400)
  • Farm Loans = $161,300 (-600)
  • Margin Loans = $34,300 (-300)
  • Farmland sales cost = $24,000 (new)

*Total Net Worth = $1,029,500 (+$5,000 / +0.5%)
All numbers are in $CDN at 0.77/USD

Many analysts thought 2019 would be a bad year for the S&P 500 given all the worries about trade wars and recessions, but the market actually closed out its best year since 2013. January is often an accurate bellweather for the rest of the year. I’m looking forward to see what new market events 2020 will bring. πŸ™‚


Random Useless Fact: