This page represents a general look at my financial progress in the last 5 years divided into various categories. It details how I got started, what kind of companies I invest in, how I take unorthodox actions like purposefully going into debt to catalyze my wealth accumulation, and the important financial lessons I’ve learned to make me a better investor. Hopefully my quirky strategies will inspire others to reach for their financial goals as well
A dividend is simply money that some companies will pay to their stock holders. It’s their way of saying “We’re offering you a piece of our profits because you are a valued shareholder.” It’s one of the simplest and quickest ways for ordinary citizens to make some extra income. All investors have to do is wait for the steady dividends to roll in periodically; it’s as easy as earning interest. When I got my first job I wanted to start investing early and take advantage of compounding. So far so good, but in late 2012 I had to sell some of my dividend paying stocks in order to fund a new investment venture :0) I’m delighted with my growing dividend income overall in the last 4 years, and at this rate I should be able to hit $10,000 a year in dividends by 2015 …
I’m a big fan of buying dividend growth stocks that tend to increase their distribution over time. In 2012 alone many companies I own such as TD, Bell, McDonald’s, and Chevron, have all increased their rate of dividend distributions to shareholders Even if I stopped investing any more new money today the chart on the right should still grow over time because in order to stay competitive some corporations just can’t help but keep raising their dividends year after year :0) Anyone can get started. Just open up a brokerage account with your bank, purchase shares of dividend paying companies, and start receiving money almost immediately. Choosing the right companies though, requires a little research (~_^)
Income / Expenses Progress
The cost of living inevitably increases over time due to inflation. So in order to get ahead we must make our incomes grow faster than our expenses. Then take the difference between the two, (Savings) to invest and produce real returns which will boost our future incomes. This self propelling phenomenon becomes exponentially more rewarding as time goes on until eventually, our savings and incomes will carry enough momentum to generate excess returns and become self sustaining so we can leave the rat race forever and become truly free. This is the ultimate goal.
My income is mostly fixed and predictable and I try to do the same with my monthly spending, so at the end of every year I compare my earnings to my expenses. The graph below represents what my net income to expenses look like for a typical month in a given year*.
2008 - Just graduated from college and found an entry level, design related job with a $35,000 gross salary. Also picked up a part-time job on the side. Saving as much as I can to buy a home so I was still living with parents rent free (^_^) That’s why my expenses were so low this year.
2009 - Life is good. Bought and moved into my own apartment. Spent all my savings on the $15,000 down payment though. Started to invest in the stock market.
2010 - Dividend income starting to show signs of growth. Bought a used car so expenses increased. Paid off all student loans.
2011 - Borrowed money from the bank to invest in the financial markets boosting dividends. However expenses increased as well to service the extra debt.
2012 - Promotion at my part time job :0) Continuing to invest. Near the end of the year I bought a farm which is going to be rented out for income.
2013 - The new addition of rental income from the farm, about $5,000 a year, will add a nice boost to my overall earnings, but my expenses will also increase due to the interest I have to pay for the farm loan. I plan to continue growing my income faster than my expenses. Stay tuned for actual data at the end of 2013…
People often think they need to be really smart, talented, or work really hard to have a chance of making six figure income. Furthermore, as many people with careers will probably understand, the longer you work in your respective field, the harder it becomes to significantly grow your salary. But here’s a secret I learned. You don’t HAVE to make money from just your one source. My full time salary is not increasing at the same rate it used to, but through investing and starting multiple revenue streams, about 1/3rd of my income now comes from other sources other than that regular 9 to 5 job (as shown in the income/expense bar-graph above.) And these extra incomes are growing much faster than my full time job as well. I’ve only been working for about 5 years, but maybe in another 5 years these other income streams will grow to represent about half of my total income, which means that if at that point I’m making let’s say $50,000 from my full time work, then my total annual income would be $100,000. So it’s totally possible to have an average paying job, and still make tons of money if you can think outside the box and put your time and money to work in the right places :0)
It’s not about being a workaholic and compromising a balanced lifestyle either. I currently work about 45 hours a week at my full time job (including over time) and 5 hours a week at my part time job. It certainly helps to work a little harder than the average citizen if I want to get ahead, but that’s a sacrifice I’m willing to make for early financial freedom All other sources of income I currently make like from rent and dividends are passive, and hassle free
Net Worth Progress
Slowly paid my way out of student loan debt. In the meantime saved diligently and put money into buying an apartment, and investing in the stock market and farmland. My take home salary from my 9 to 5 job has never exceeded $40,000 a year. But income is only part of the equation to financial success. Making the maximum usage of what we have is the ultimate reward. Currently about 50% of my net worth is in the stock market, 25% in the equity of my home, and 25% in my Saskatchewan farmland. Net worth is the value of all net assets, a barometer for wealth…
The other part of financial success is building up assets My strategy has been to buy up appreciating assets that also generate income. But we don’t have to earn a lot of money to do this because when interest rates are low like during the recovery of a recession we can leverage the power of using other people’s money. Since I started working I’ve managed to buy an apartment for $230,000, a farm for $150,000, various stocks valued at more than $100,000, and throughout all this time most of those assets are worth more now than when I initially bought them. Later this year in August of 2013 I plan to purchase another piece of farmland for $172,500. My total assets by the end of this year should be around $700,000 but roughly $500,000 of that money will be from debt, or money borrowed from the bank. If my assets on average return just 7% annually (income + capital appreciation) then my wealth would go up almost $50,000 a year without even having to save any additional money This is how I’ve been accelerating my net worth There’s no way I could buy $700,000 of investments from my savings alone obviously, but by borrowing to invest, I get the full benefits brought by those investments while slowly paying down the debt used to buy them, increasing the gap between my assets and liabilities, which of course translates to higher net worth (^_^)
I update the value of my apartment once a year every January. I use the lowest of 3 calculation methods. 1 the government assessed value, 2 the fair market value, or 3 my original purchase price in 2009, which was $230,000, plus inflation (CPI) every year. In 2013, the 3rd method gives the lowest value of $252,000 so I will use this number to calculate my net worth with. I update the value of my farm twice a year. Once at the end of December, and the second time is an adjustment in April. I calculate the value by taking the average of inflation, and the annual farmland value report by Farm Credit Canada. These conservative valuation methods for my properties are designed to keep my net worth less volatile, and curb the effects of false signs such as speculation. I update my net worth once a month.
Current Goals Progress
Short term (before 2014) - Increase my salary at work by $3,000, and increase my investment income by $3,000 or more. (currently on track)
Medium term (before 2017) - Invest in a commercial property. Grow the value of my investments to $200,000. (currently on track)
Long term (before 2030) - Find a girl, get married, start family, stay healthy. Teach my kids to be financially responsible. Grow an investment portfolio to 1 million dollars. (currently working on the “find a girl” part)
Life-Time (no specified time) - Retire with at least 5 million dollars in net household assets and live comfortably. Fish, golf, read, dine, and travel around the world. Also see My Goals: under the “About” page (currently working on these goals)
Road to Financial Freedom
The whole point of this blog is to track my progress to have enough income generating assets to live a financially free life. I anticipate it will be a long and slow process just like it would be for anyone else :0) but so far I am having a lot of fun watching my financial security become more and more self sustaining every year I will be financially free when my nominal passive income for the year reaches 100% or more of my expenses for that same year.
Year End 2009:
Passive income can cover 1% of my expenses. (No initial goal set)
Year End 2010:
Passive income can cover 7% of my expenses. (No initial goal set)
Year End 2011:
Passive income can cover 16% of my expenses. (Exceeded goal of 15%)
Year End 2012:
Passive income can cover 21% of my expenses. (Missed goal of 23%)
Year End 2013:
The goal is 26%. But check back at the end of this year for actual data.
Nominal – The passive income I make before factoring in inflation (CPI.)
Passive Income – After tax income that requires little or no work to maintain. The tax is calculated under the assumption that I do not have any supplementary active income, ie: a job. Examples of passive income include dividends, royalties, rent, pensions, child care benefits, etc.
Expenses – My total spending for that particular year. This will always be a moving target due to inflation and lifestyle changes.