Last year, I wrote about my financial rules of thumb – a moderate list of financial principles we try and live by. Upon reflecting on this older post recently, I wondered if we are actually living these financial values. In some cases, there are clear indications we do what we say. In other instances, we’re a bit weak. A year later, it is interesting to read what I said we would do and what we actually do today….
- Continually reduce our mortgage debt by using prepayment privileges every month.
We’re working on this one every month. Now that our line of credit is at $0, we intend to stick to our current plan until the end of 2012 by putting $300 extra on our mortgage every month. This is one of our 2012 financial goals.
- Use our line of credit only when necessary for major home renovations or emergencies.
We haven’t touched the home equity line of credit for months.
- Save and invest at least 10% of our net income every year.
We’re contributing to our pension plans at work, contributing to our RRSPs and TFSAs monthly and we’re also putting aside some money buy more broad market ETFs and dividend paying stocks when we feel the price is right; so we’re meeting this objective.
- Hold a percentage of bonds that closely matches our age.
We’re not doing very well on this one. I wrote some time ago, when I disagreed with an expert no less, we wanted about 30% fixed income in our portfolio. We’re a little older than age 30 now but I heard Amanda Lang say “40 is the new 25” on national TV recently so maybe 25% bonds isn’t too bad 🙂
- Have an emergency fund.
If you read my last 2012 personal finance and investing goals update, I said we wanted to grow our emergency fund by $3K this year, to about $5,000 in total. We’re well on our way to completing this goal (I have an update on this soon) but it doesn’t stop there. Next year, we’re already thinking about growing our emergency fund a little bit more.
- Always be on the lookout for ways to cut back on everyday expenses.
I don’t have as much patience as my wife has, so thankfully she takes time to scour the flyers and print coupons for everyday expenses. Most often, I just prefer to go to the box stores down the road and get what I need when I need it.
- Avoid carrying any credit card debt in any month.
We don’t put anything on the credit cards we can’t pay off in cash at the end of month.
- Optimize our RRSPs.
We do a couple things with our RRSPs. 1) We make RRSP contributions automatic, sending over a bit of money every month. 2) We optimize our RRSPs in that we only contribute enough to offset paying any additional income taxes come tax time. This approach works for us for many reasons. I need to write another post about that.
- Keep the majority of our RRSPs indexed.
Almost a year after this post was written, I realize we don’t live this value as much as I thought. Over the last year I’ve invested in big blue chip companies like Procter & Gamble (PG:US), so my indexed RRSP is slowly eroding. Except VTI, my account is becoming home to more U.S. dividend paying stocks every year. On the flipside, my wife’s RRSP is almost 100% indexed and probably always will be.
- Keep some U.S. dividend paying stocks in our RRSPs.
- Maximize our TFSAs.
I’ve got my account done for 2012. We’re actively working on my wife’s account. We hope to have that maxed out by fall 2012.
- Keep some Canadian dividend-paying stocks in our TFSAs.
Absolutely! We’ve got about six stocks DRIPping synthetically, buying more shares every quarter. Unless these companies cut their dividend, I won’t be selling them.
- Don’t invest in anything we can’t explain to a 10-year-old.
We’re always working on this one although some experts don’t agree with me.
- Always keep taxes and inflation top of mind when making any investment decision.
I recently had a conversation with my parents about this. A few of their friends were talking about investments and some of them said they prefer GICs to the stock market because you are guaranteed a return. Fine, but I don’t plan on owning GICs or Canada’s Savings Bonds anytime soon because these products are losers to inflation.
- Reinvest all dividends and distributions whenever possible.
I’d like to see all my stocks (eventually I’ll own 40 or more of them) DRIPping. That means my money is working for me full-time so I don’t have to someday.
- Avoid investing in any “hot stocks”.
People don’t “tip” companies like Bank of Montreal, Enbridge, Johnson & Johnson or Procter & Gamble; they don’t have to.
- Never own a mutual fund again.
Many mutual funds charge too much money. Enough said.
- Only own companies that pay dividends.
I’ve read that dividends, over many decades, make up almost half of the stock market returns. That’s one great reason to own them. Another is; if you have a diversified portfolio you’re guaranteed some steady, passive income in good markets and in bad, although all stocks come with some risks.
- Minimize money management fees.
The money you don’t pay out in fees is the money you get to keep for yourself. Do I need to go on?
- Buy more bonds when equities are priced high.
Now is not the time to buy bonds in my opinion. I’m looking for more equities with every stock market slide.
- Buy more equities when bonds are priced high.
- Put emphasis on building retirement income rather than portfolio value.
When I was younger I thought a large portfolio was the key to a successful retirement. Looking back, I was brainwashed by many financial ads; I thought I needed I big “nest egg”. What I recognize today, while portfolio value is important what I really need is steady income to live off of. That’s what I’m starting to build month after month.
- Remember the stock market is unpredictable in the short-term and predictable in the long-term.
This is why I invest in broad market ETFs like XIU and VWO.
- It’s OK to splurge once in a while.
Heck ya. My wife and I recently took a day trip to Vankleek Hill, about 1 hour east of Ottawa to visit my favourite brewery: Beau’s! Our day trip included a tour of the facility, some samples, some more samples, speciality beer purchases to enjoy and then a relaxing lunch on a nearby patio in the hot summer sun. The cost of our day-trip? Probably about $100. The fun factor? Priceless.
What about you? Are you living any of your financial values?