To keep me honest and focused I post my financial goals on My Own Advisor. One thing I’ve learned over the years is I have a much better chance at realizing my goals if I keep tabs on them, and often.
Here’s a recap of our original 2014 financial goals:
- Continue putting $300 lump sum payments on our mortgage every month ($3,600).
- Maximize both Tax Free Savings Accounts (TFSAs) ($11,000).
- Increase Registered Retirement Savings Plan (RRSP) contributions by $200 per month ($2,400).
Here’s our report card with just less than four months to go in 2014.
Continue putting $300 lump sum payments on our mortgage every month ($3,600) – on target!
Since January 2014 we’ve been meeting this goal. I’ve calculated if we keep up our prepayment schedule I’m predicting we’ll be mortgage free 7 years this Christmas.
Maximize both Tax Free Savings Accounts (TFSAs) ($11,000)
I hold some Canadian stocks that pay dividends in one account so I moved some of those holdings into my TFSA earlier this year. My TFSA is out of contribution room now. We also saved enough money to max out my wife’s TFSA earlier this year. Her TFSA is now out of contribution room. This goal is complete. In early 2015, we hope to contribute to both accounts once again.
Increase Registered Retirement Savings Plan (RRSP) contributions by $200 per month ($2,400) – on target!
We’ve been meeting this goal since January 2014 and hopefully we’ll keep pace for the rest of the year.
New goal started as of August 2014: Save for home improvements ($4,000) – well below target
This new goal is to save for some home improvements we plan to do in 2015. Those updates will likely cost more than $4,000 but I figure we better start saving now. This is a major stretch goal for us. So far, since I’ve announced this goal we’ve only saved $200. A long ways to go…
Stay tuned for more updates later this year.
@Lloyd, glad to hear that you’ve created a nice nest egg! If you ever need quotes on guaranteed products I’d be happy to oblidge. Canada Life lifetime annuities pay out quite well if you have longitivity in your family.
@Lloyd, unfortunately your colleagues bought at the wrong time however becoming financial independent will be a bumpy road, just look at Ted Rogers.
Ya, timing can be huge when one does lump sum leveraging. Sure all of my stocks went down during ’08 but some of the stuff I had purchased long before was still in positive territory from when I bought it.
I am a big fan of slow and steady accumulating dividend stocks and with the DRIPs, I buy more during a correction. Am I as well off as I could have been? Not by a long shot. But I sleep well at night and that my friend is worth an awful lot IMO. In fact it is getting to the point where I have enough and I am looking at mostly guaranteed stuff from now on.
Having said all that, leveraging is a great tool, just not for me at this point in my life.
Wow, the bank must be very happy with you guys.Paying down that mortgage at 3% while your missing out on better returns in the market all the while blaming all the financial advisors out there for their management fees while earning you better than average returns and saving you taxes? Have any of you even heard of an individual investment shelter, corporate class. Did you realize that you don’t need to pay nearly 50% in taxes when you take out your RRSP? Would you like to pay 25% with no taxes until you take it out? My clients are retiring at 55 at the latest with life-long income using my strategies. Anyone else?
Having bank stocks in the RRSP/LIRRSP and TFSA makes me happy keeping the banks happy so I’m not really “missing out” of much.
Half a dozen guys at work signed up for the ‘borrow 100K to invest’ scheme in the spring of 2008. You know where that went. Not one of them say they would do it again.
I’m doing just fine thanks but more power to those that want to do it.
Congrats for having many of your goals on track! Renovations do cost a lot, and most of the time people go over budget, so watch out for that too! Good luck!
Well, it’s coming along. We are lucky to have good jobs but this also means we cannot take them for granted – save now – who knows what the future holds. Thanks for your comment.
Unlike DD I fully support your approach to reducing costs (by paying your mortgage down; by saving in advance for renos etc to avoid paying interest costs) and building assets (through your unregistered, TFSA and RRSP savings).
The truth is that the past does not predict the future. No one can say what strategy will guarantee the optimum return.
Balancing your goals is one of the simplest ways to reach all of them eventually. Does getting the absolute maximum $$$ matter the most? Or does enjoying life and reducing worry by taking a balanced approach to investing and paying debt matter more? The answer will differ for different people, but I’m on the non-$$$ side.
Good luck with topping up the home improvements fund. We keep an eye on that one too–no fun starting retirement with a falling down house!
I’m a fan of reducing my risk profile, so to me, a $200k debt is a risk.
Like I wrote to Donald I am saving for the future but not to expense of avoiding lump sum payments on my mortgage. My TFSA is maxed, my RRSP should be maxed in another 2 years. I figure that’s good but we can always improve. If I could predict the future, like you say, maybe I could make a better decision but this is allowing me to sleep at night.
Thanks for the comments and encouragement.
We paid off our mortgage ASAP. Sure I could have invested and earned more but there is something to be said for being debt free. We still maxed out our TFSA, RRSP and bought a house for DD. Intelligently, borrowing to invest has merit. It’s just not for us.
I’m with you Lloyd, certainly given that our mortgage debt remains into the 6-figures, I cannot fathom taking on more debt or leveraged investing right now. Thanks for the comment.
What kind of updates are you doing on your home Mark? That is exciting, you are making some great progress with your goals. Congrats on having the TFSAs maxed out!
Thanks Daisy. Likely another bath reno. We’ll see if we can afford it while saving for retirement.
@Mark, best of luck with your plan! If more Canadians had a plan they would be living better retirements and sooner than age 65. Check in with me when you need to do the smith manuover as we still have fully advancable mortgages with no legal or other fees. (The banks charge fees to re-advance a mortgage).
Thanks for the wishes on the goals Donald. We’ll see if I go the SM route, if rates remain low for many more years, I will consider it once the debt is down to a far lower manageable level.
Sorry that’s 7%-4.5%=2.5%.In retirement your RRSP is 100% taxable whereas a Non reg corporate class account would be 50% (so 25%).You could also use that Non reg account to make your principal mortgage tax deductible. Lots of options here.U
Thanks for writing back Donald, and yes, 7%-4.5% is still 2.5% net return if investing over 10+ years.
I have thought about the Smith Manoeuvre for investing, but will not do it now until my mortgage debt is a bit lower, maybe closer to $100k. For now, I will continue to kill my mortgage and invest using my RRSP and TFSA, at the same time.
@Michael James, be sure not to paint everyone with the same brush. Many accountants have cheated investors, does that mean all accountants are bad? Also if the market does 7% and after tax the mortgage is 3.5% that means that my wealth will be growing by 3.5% without paying down my mortgage first. Later I can put the lump sum down while having a nice retirement nest egg. But that being said, if you fear job loss, sickness, etc. get DI or CI insurance because if you get sick you will still have expenses like property taxes, heat and hydro, repairs that still need to be paid.
So you have to ask yourself is 3.5% loss of wealth worth it to sleep at night. If so then pay down the mortgage.To each his own but it’s certainly not the best way to financial freedom.
@Donald: Your accountant example is too broad. I’m not talking about all advisors, just those with Investors Group. I’ve watched a few Investors Group representatives work and all have used slick materials promoting leverage that they clearly didn’t create themselves. So, I’m wary. I’m also wary of the sky-high MERs of the funds they sell.
I’d be interested to see how you get to a 7% return with a balanced portfolio paying 3% fees. Then I’d like to see how the math works out when mortgage rates rise.
@Mike, the mers of Investors Group mutual funds are on par with the banks so I’m not sure how far back your research goes? Please see Globe and Mail article may 2014. As far as the balanced fund at 7%, sounds reasonable. You wouldn’t be paying 3%, more like 1.75%. What happens if interest rates rise? House prices drop. Most people can barely afford a house. If interest rates go up most won’t be able to afford it. Wages haven’t went up in a long time.
@Donald: I looked at all the balanced funds on the Investors Group web site and found none with MERs anywhere close to 1.75%. But even if we take your 1.75% figure, this means you’re expecting a balanced fund to deliver a compound average return before fees of 6.75% above 2% inflation. Only the most bullish of commentators expect this kind of return for stocks, never mind a 50/50 split with bonds.
You’ve missed the point with interest rates rising. If I use my house to leverage a portfolio now and interest rates rise, I’m still on the hook for the total debt, even though my house has dropped in value and my mortgage payments have gone up. This is the risk people take with leverage.
Interest rates won’t rise until the market recovers.That a while away.Five year fixed mortgages stand at about 3%. If you had non-registered investments you can write off your mortgage through the smith manuover. That means that your paying 1.5% on your mortgage. Institutional funds like Iprofile will always beat the market over the long run so that’s better than 8%.I just found you a 6.5% return. Since your buying mutual funds that are professionally managed and holdING them for the long run, you can’t lose. Sure there are fees but I don’t care about that, I care about risk and money in my pocket.Professionally managed mutual funds (like iprofile) weed out the weak companies much faster then the stock market will. Investments are all about the net return you get and risk management. What fees you pay are irrelevant. That being said, I can build you a portfolio with very low fees.
@Michael, my accountant example doesn’t seem so broad anymore. Read up about how Warren Buffet just lost $750M on Tesco stock from accountants fudging the numbers.
Hi Mark, there are better strategies to achieving financial freedom. The best one isn’t paying off your mortgage when a mortgage is at less than 3% while a properly diversified portfolio will get you 7-8% over 10-15 years. The banks use that strategy to get you to keep consumer debt (at much higher rate than 3%) while paying down your mortgage.
Thanks for the comment Donald. The mortgage is actually closer to 4.5% when you take into account that I need to pay my mortgage with after-tax dollars; so 4.5% is closer to my guaranteed rate of return by killing debt. Killing debt is also a good move since it reduces risk, from job loss, health complications or other.
As for investing, we are doing this every month. Here is a passive income update on that:
I agree a properly diversified portfolio should gain 7% or so over the next 10 years but I figure both debt reduction and investing is a good plan for us.
Investors Group guy wants you to maintain your leverage. It was an Investors Group guy who talked a 75-year old widow into using leverage (http://www.michaeljamesonmoney.com/2013/03/investors-group-advises-leverage-for-75.html).
Isn’t leverage the greatest thing since sliced…? *Sigh*. This is another example whereby nobody wants you to save money I think Michael. If I had no debt (like you) I’d be pretty stress-free…