2021 Financial Goals
Another year, another round of goal setting!
Let’s get after it!
Financial goals – our power is in the “why”
For years on this site, I mean years, we’ve set financial goals to keep ourselves accountable.
2021 will be no exception…
Here are some recent major milestones including some significant learnings and changes by the decade below:
December 2020 goals – final update.
Our goals are becoming rather easy to set each year because our “whys” for saving and investing are crystal clear:
- We save money and invest our money to deliver future financial independence.
- We believe saving today, with some compounding power already on our side, will provide many financial options in the coming years.
Simple, but effective we think!
Is semi-retirement within reach?
I mean, we have a ways to go for sure but with 2020 markets rebounding like they did (geez…nobody saw that coming – in a pandemic no less!), last year was yet another reminder to stay the course with our investing plan.
That investing plan is:
- Keep savings automated – money is easily dedicated for investment purposes inside registered accounts.
- Invest in mainly low-cost, diversified ETFs for diversification. This complements our basket of existing stocks.
- Do not interrupt the compounding work inside our portfolio.
The basic rule of compounding comes in four words: never interrupt it unnecessarily.
You can visit a very recent version of My Financial Independence Plan here.
To realize that FI plan, we’re going to lift some content from it for 2021 financial goals. Here you go:
I can’t control our investment returns to ensure they are “within historical results” but I can control the following contributions and debt liabilities – so in 2021 we will:
- Max out contributions to our Tax Free Savings Accounts (TFSAs).
- Max out contributions to our Registered Retirement Savings Plans (RRSPs).
- Continue to pay off our mortgage.
- Initiate a larger emergency fund to start semi-retirement with.
The “whys” behind these goals are clear to us:
Max out contributions to TFSAs – by investing in low-cost, diversified ETFs inside these accounts (along with our existing Canadian dividend paying stocks) we hope to gain both growth and diversification beyond Canada’s borders. I’ll share some of the purchases I made recently in some upcoming posts.
I also played with some calculators recently on this account subject and it wouldn’t surprise me one bit, to know that some individual investors now have >$100,000 inside their TFSAs today (that’s TAX FRE MONEY folks!) if they have invested wisely inside account since account inception.
Should you keep investing inside the TFSA, even assuming the contribution room does not increase with inflation as the program should, you can see some tremendous wealth can be gained from this account alone with time.
Since inception, here are the annual and cumulative limits assuming no withdrawals over that period were made:
|Year||TFSA Annual Limit||TFSA Cumulative Limit|
Conceivably, some couples might be well over $200,000 right now in combined TFSA assets. Doesn’t that just blow your mind??
Check out this free calculator and more on my handy Helpful Sites page.
Max out contributions to RRSPs – unlike years past, we’re making investments inside our RRSPs an explicit goal this year because we’re fortunate to have both RRSP accounts maxed out right now. When new RRSP contribution room comes our way (we’ll likely have enough saved up by March 2021 to contribute meaningful funds), we hope to be ready to contribute to that tax-deferred account as much as possible.
Even though we both have workplace pensions in our future (mine is defined benefit (DB), my wife’s is defined contribution (DC)), we believe having RRSPs full of investments will provide some of that desired financial flexibility we’ve been working hard towards for the last 20 years.
Continue to pay off mortgage – I think it goes without saying that this must occur but we’re also making some small lump-sum contributions to our mortgage a few times per year. We do that because, well, we can.
In the coming 3-4 years, without any mortgage debt, we’ll have financial options….
Initiate a larger emergency fund to start semi-retirement with. This goal may be controversial on the site by readership! Bring it on 🙂 Ha.
For years, we’ve kept our emergency fund at this steady amount.
However, in the coming years, we’ll want to grow that fund. There are a couple of reasons for that:
- As we age, $hit will happen. I know the last thing I want to do, as I get older, is go back into more debt if or when a major financial emergency hits.
- A reminder to readership we are 100% equity investors. No bonds. No fixed income. No GICs. Nada. This means if the stock market goes down, in bunches, our portfolio value is likely to dive down with it. That said, I want to have some money on hand to invest when market calamity hits – eventually it will again. I’ve trained my investing brain to buy more stocks when they are on sale. You should too.
How much cash should you keep?
- Our goal is to have ~1-years’ worth of basic living expenses “banked” for semi-retirement. I figure if we’re getting closer to working on our own terms, or at least making full-time work a decision point that we want to continue, then might as well be as financially ready as we can… #FIWOOT and not FIRE.
I prefer Financial Independence Work On Own Terms (FIWOOT) versus FIRE
“There is a close logical connection between the concept of a safety margin and the principle of diversification.” – Benjamin Graham
You got it Ben!
We have a plan in place to approach semi-retirement in the coming years. Of course, the future is far from certain. So, we’ll save some money and have some fun with what’s leftover throughout 2021.
I will keep you posted about any new milestones or changes – so you can tailor your own plan accordingly.
Thanks for reading and let me know what comments or questions you might have. Happy to answer them as best I can. I’ll update our progress as the year moves along.
These seem like really reasonable and achievable goals Mark. I especially like your plan to get rid of your mortgage ?.
Ha. Thanks Maria! It’s coming along! All the best to you.
Lol. Makes two of us and Mark knows that too.
Thanks for sharing your personal finance goals! 🙂 Just amazing that a couple can have a $200K TFSA! 🙂
Yup, and some do and more! Wild. 🙂
So well done Mark, and you’re on a great trajectory.
You’re living great now and that’s sure to continue with FI.
Thanks, things are coming along!
I’ve changed my position to not sit on cash anymore. Enough to take advantage of all the banking deals to trigger the zero fee bonuses and a small buffer. The rest remains invested and I have several credit lines at my disposal of there ever was an emergency plus credit cards. Put emergency on credit, 30 days no interest and then if needed transfer balance to credit line for extra time prior to interest trigger. That gives me time to wait for dividend payments or sell capital to pay for emergency. As for your comments on funding a TFSA early, yup I am sitting well over $100k by just being smart with index funds and maxing out each year.
Good luck on your 2021 goals…
and my focus will always strive to reduce expenses and stick to it
That’s interesting Chris. I’m actually going the different direction since I have no idea what the future holds and having some funds readily available helps me sleep at night!
I also have a line of credit but I don’t want to be in debt in an emergency, that would cause me more stress which I don’t need.
That’s great, re: well over $100k and no doubt always having that account maxed out in indexed funds has helped. Kudos.
As usual this is a very useful and sensible financial plan overall Mark. One question I have although it may have been answered over the years that you have been posting is, what costs did you incur for “ditching the pricey mutual fund stocks” Still pretty new to all of this. Thanks
The costs I incurred were more opportunity costs – I could have had more money if I didn’t not invest in such funds.
I was a young(er) investor 10+ years ago so in my early-30s I certainly didn’t have as much invested as I have now.
Hope that provides some insights.
Definitely stay away from any DSC funds and tell your friends and family to do the same!
Sounds like a great plan Mark and pretty similar to ours. We plan to have 5 years of cash in a HISA once we FIRE along with the mortgage gone and plan to continue to contribute into the TFSA for the long run. Thankfully since we will retire when our kid(s) are young, this 5 years of cash really won’t be tremendous of a figure thanks to CCB (~$17k/year which is just wild). We do not factor in CCB into our calcs to reach our FIRE number (or anything from the government really such as my pension, CPP, and OAS) so this is just icing on the cake for us and will bring our withdrawal rate to below 2% assuming CCB remains in existence.
Whoa, that’s a bundle of cash (5-years’ worth) but like I mentioned, everyone seems different Court. I figure 1-year is enough but that also assumes we’re still working part-time/semi-retirement. It won’t be full-on retirement for at least 10 years I think. I want to stay a bit busy and have an income stream.
If you have your FIRE number then any pension + CPP + OAS will absolutely be icing on the cake – with cherries!
It sure is but with CCB, we’re talking $85k in a HISA will be more than enough for us for 5 years. For some people this couldn’t even last 2 years.
The main reason is sequence of returns risk. The last thing I want is to enter retirement in a down market which does not return back to its previous levels for another 5 years. Seems improbable but it’s definitely possible and not a risk we’re willing to take.
After reading all of Karsten’s work on withdrawal rates we feel comfortable with this decision and wish more people would be a bit more cautious (as long as their job is enjoyable).
“The main reason is sequence of returns risk.”
Yup, we figure as long as we are working part-time, 1-year in cash of expenses should be enough. (It’s probably much more than that actually but I’ve landed on $50K in a HISA.)
Karsten’s work is the best I’ve read on the blogosphere on this subject. 🙂
Did you read his post on my site?
Yep sure did! That’s awesome that you were able to get him on. He’s a legend in my eyes.
Oh yea, while you’re still bringing in some sort of income, 1 year is likely enough. As you approach the date where work will no longer exist I’m curious to see how your thoughts on the years of cash holdings evolve 🙂
Ha, I’m sure they will evolve Court 🙂
BTW – I owe you a reply I know for that feature!
All good, no rush!
Ha, working on it – see the drive 🙂
Great read Mark. But I want to clarify a misconception in your RRSP comments. Your “new RRSP contribution room” does not occur in March 2021 as you state. Your new contribution room for tax year 2021 starts on January 1, 2021 and contributions can be made until March 1, 2022. I made it a habit in the past to contribute as early as possible to our RRSP’s and invest the money immediately. Therefore any contribution from January 1, 2021 to March 1, 2021 can be used as a contribution for the past tax year 2020 (if it has not been made yet) or the present tax year 2021. The earlier you make the contribution, the faster it grows in your RRSP. You may have to make the calculation of RRSP contribution room yourself (18% of earned income) in order to calculate it, but by looking at last years tax notice of assessment you can make a pretty good estimate if a pension adjustment is involved (ie. you have pension plan contributions).
Ah, great catch Roger and I’ve clarified the wording. I meant to imply we’ll have meaningful money saved up by March-ish to contribute to both RRSPs – we’re in savings mode for those accounts now.
In previous years, we’ve tried to max out our RRSPs as fast as possible, and fully aware of 18% of earned income from NOA. I’ll await to file my return this spring to see what my 2021 contribution room will be 🙂
Got plans for your RRSP this year?
Yes, probably VXUS since I have enough US and Cdn investments already. Time to diversify and get more international investments.
Smart stuff. I bought XAW inside my TFSA for that reason. VXUS is a solid low-cost fund as you know.
Even without your DB pensions, your path is solid and you’re more than on your way to a secure future.
I hope so cannew. I’ve put a bit of thinking into our plan but it doesn’t mean I don’t have some blind spots.
I appreciate the wisdom you share since you’re clearly comfortable with your plan and it’s working for you.
Happy to hear that you also see the benefit of having an emergency fund. We like to keep around 6 months of mortgage payments in a HISA. It’s really not that much money, all things considered, and it pays dividends in the form of a good night’s sleep! My bet is that once you have that year of expenses saved up, you’ll be itching to transition to #FIWOOT. Look forward to reading about that :)!
Oh for sure…we do. $hit happens sadly and you need to be prepared financially beyond job loss, other. That’s just my thinking. I call it my “sleep at night” factor. Everyone’s threshold is different but with a 100% stock/equity portfolio I wouldn’t feel comfortable having no cash on hand.
Yes, transition to #FIWOOT is sloooowwwly starting. It will take a few years but I’m OK with that and that’s our plan anyhow.
Need to visit your site this week 🙂 I noticed your new article.