Oct 042014

Is our home an asset or liability?

The answer depends on how we define “asset.” 😉

According to the Oxford English dictionary it’s a a useful or valuable thing or person. Investopedia defines asset as a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefits. 

According to these definitions a home is definitely an asset, 🙂 not a liability.

However I’ve also heard some people say that an asset has to generate an income or be cash flow positive. According to this rule a primary residence is not an asset. But personally I think an income generating asset is simply a type of asset but not all assets have to follow that rule. Kind of like how a blueberry is blue but not all berries have to be blue, lol.

For accounting and net worth calculation purposes it’s paramount to count a home as an asset. Otherwise we would run into problems like the following.

Year 1: We have is $100,000 in savings.
Net Worth: $100,000

Year 2: We buy a $400,000 house using $100,000 as our down payment.
Net Worth: -$300,000 because of the $300K mortgage.

Year 3: We sell the house for $400,000.
Net Worth: $100,000

As we can see, the net worth progression swings wildly from one year to the next. This creates a faulty balance sheet that doesn’t represent the reality of our financial situation. However if we include the value of our home as an asset then our net worth chart will become more realistic and less volatile.

Some people don’t consider their homes to be an asset because they say you can’t spend your kitchen. However to me that simply means a house isn’t a liquid asset. But it’s still a valuable property. There are ways to unlock that value such as getting a secured line of credit or reverse mortgage. We can also rent out a bedroom, a basement suite, or a garage to generate passive income. So in a way we can spend our home, just not in a traditional sense.


But one suggestion to keep track of our liquid assets is to create two separate net worth statements. One to determine our liquid net worth which only includes stocks and other liquid investments. The other to keep track of our overall net worth, including our home’s value. 🙂

In a financial context assets are regarded as having monetary value and real estate certainly fits this description.

Random Useless Fact:

In 1999 Google asked 16 students to test out their search engine. Upon reaching the site, they sat still for 45 seconds…just staring. Google finally asked what was wrong. All 16 responded the same: they were waiting for the rest of the page to load. (Video here: skip to 10:27)

Aug 202014

I came across a story recently about a couple who moved from Colorado to California. Their incomes doubled and within two years they became debt free 🙂 The article starts off as follows.

This couple dropped $185K+ of debt in 20 months – Here’s how!
What do too many student loans, a mortgage, and a few bad money decisions equal? A debt upwards of $185K. This couple destroyed that debt in twenty months through budgeting, scrimping, and a handy book about personal finance…

Wow, good for them 🙂 Can you imagine paying down on average $9,250 of your debt every month? That’s amazing! This couple must have sacrificed a lot and lived like paupers to reach debt freedom so quickly.

However what the article introduction doesn’t reveal is that most of their $185,000 debt was in the form of a mortgage, and they sold their house and paid back that mortgage within the 20 month period 😛 I tweeted my findings and received some funny replies from the Twitterverse 😀

14-08-selling-assets-pay-debt debt freedom

Sarcasm aside, this is why it’s important to look at changes to overall net worth and not just the debt or assets as individual parts. So here are a few lessons we can learn from this story.

  • Don’t judge an article by its title. If something seems too good to be true it probably is. According to last year’s poll, virtually every visitor to Freedom 35 Blog has a positive net worth. This means anyone reading this who currently has debt can literally pay it all off and be completely debt free if they wish. All they have to do is sell your assets.
  • Debt is not a major financial worry if you have a positive net worth. If debt was really stressing you out, you would have sold your assets and paid back all your loans a long time ago. The fact that most people, including myself, have outstanding debts despite having a positive net worth, is evidence that we care more about having our material stuffs than living a debt free lifestyle 😀
  • The amount of debt someone has is irrelevant in and of itself. For example, having $40,000 of student loan debt and no financial assets is worse than having $400,000 of debt, but also having an equal amount of assets.

Whenever I hear stories about someone paying off a large amount of debt within a short period of time I always take it with a grain of salt 😉

Random Useless Fact:
How to recycle used underwear. #frugal to the extreme. #swag


Dec 012013

When I first started this blog in 2010, I only had about $300K of financial assets. I thought that was a lot of money back then, but as I learned more about personal finance I realized that it’s actually not that much. The average household net worth in Canada today is $400K. I looked at other people’s balance sheets and was really inspired by bloggers from Planting Our Pennies. They have multiple rental homes, multiple cars, and lots of stock investments 🙂 It’s because of the success of other people that has given me the motivation to work hard.

Today I still do not have a $400K net worth. But I have however broken $700K in assets for the first time ever 😀 I am now in the same boat as many of my online friends and acquaintances like the P.O.Ps. I feel like I fit in more now.

*Side Income:

  • Part-Time Work = $400
  • Dividends = $400
*Discretionary Spending:
  • Eating Out = $100
  • Others = $2,000 (closing costs on farm)

*Net Worth: (MoM)

  • Assets: = $738,800 total (+156,700)
  • Cash = $1200 (-5100)
  • Stocks CDN =$76,900 (800)
  • Stocks US = $45,000 (+1600)
  • RRSP = $38,700 (+5800)
  • Home = $252,000 (same)
  • Farms = $325,000 (Farm 1 old value of 152,500, plus Farm 2 purchase price of 172,500)
  • Debts: = $534,600 total (+155,500
  • Mortgage = $200,700 (-400)
  • Farm Loans = $209,300 (+99,800)
  • Margin Loan CDN = $26,100 (Same)
  • Margin Loan US = $23,600 (+100)
  • TD Line of Credit = $35,900  (+17,000) $9,000 of this account was used for investment purposes.
  • CIBC Line of Credit = $15,000 (new)
  • HELOC = $18,000 (new)
  • RRSP Loan = $6,000 (new)

*Total Net Worth = $204,200 (+0.6%)
All numbers above are in CAD. Conversion rate used: 1.00 USD = 1.05 CAD

Managed to squeeze in a small net worth increase despite some pretty big expenses in November. The legal fees were $1,700 to buy the farm, plus $300 for notarization so I didn’t have to be in Saskatchewan to sign the papers. Most of my debt is used to leverage against financial assets but I still have about $59,900 of consumer debt which I spent on living expenses and luxuries because #YOLO 😉

Cash – I used most of my reserve cash funds to complete the farm purchase. This would be the second farm I bought 🙂
RRSP – I borrowed $6,000 to invest in my retirement account. The borrowing cost is at 4% interest rate, not bad. I haven’t bought anything yet, but I’m looking at Cisco, Coke, Pepsi, Comcast, IBM, and Lockheed Martin 😀
Farms – In my previous Fiscal Update I listed my 1st farm with a value of $152,500, and a 10% deposit on my 2nd farm. From now on they will be combined.
Farm loans – I got a $100,000 loan from the bank to buy my 2nd farm. I’ve combined the value with my existing loan for the 1st farm.

Aug 222013
Earlier this year I wrote about buying a Saskatchewan property at an auction 🙂 But I had to raise $25,000 by the completion date, or I lose my deposit forever! 🙁 The seller has since pushed back the original completion date to October (lucky me) but regardless of the extension I’ve successfully secured the rest of my downpayment now 🙂

But what knocked my toque off is that I’ve managed to exceed what I actually need and somehow doubled the size of my property fund to $50,000 😯 And it’s all thanks to liquidity.

“Always aim for the Moon, even if you miss, you’ll land among the stars.”

― W. Clement Stone

I have definitely landed among the stars 😀 A few months ago I had no cash savings, and no rainy day fund. Today, I can literally buy a brand new BMW 3 series or an Audi A5 in cash!!! 13_08_audiconvertible

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