A few months ago, I wrote down our personal finance and investing goals for 2011. If you’ve been reading my blog for some time, you might recall last year was the first year we captured some personal finance and investing goals in “black and white”. I posted them on my blog for the world to see and scrutinize. I also posted them on my blog to keep me honest and accountable. We figure if goals aren’t written down nor shared, we don’t have much hope in achieving them. Even if they are written down and shared, the journey is not always a perfect or a successful one. Read on to learn more.
Our 2011 goals are:
• Goal # 1 – Increase mortgage payments by $200 per month.
• Goal # 2 – Contribute $5,000 each to TFSAs.
• Goal # 3 – Optimize our RRSPs.
• Goal # 4 – Continue my full DRIP with Bank of Nova Scotia.
• Goal # 5 – Start my full DRIP with Fortis.
• Goal # 6 – Build up our emergency fund to $10,000.
It’s been about 3 months since I published these 2011 goals so let’s see how we’re doing.
Goal # 1 – Increase mortgage payments by $200 per month
After using some online calculators, I figured out if we increased our mortgage payments by $200 this year and never stopped doing these pre-payments until the mortgage was done, we’d save almost $30,000 in interest costs over the life of our mortgage and payoff the house about 4 years earlier. Needless to say, we’re all over this. For the last 4 months, we’ve been putting an extra $200 per month on our mortgage. We hope to continue this trend until at least the end of this year. We’re on our way to accomplishing this goal.
Goal # 2 – Contribute $5,000 each to TFSAs
Annoying election aside, our government has been pretty good to us in recent years – I’m referrring to the TFSAs. While election promises include increasing the TFSA contribution room to $10,000 (with strings attached), I won’t believe it until I see it. We figure we better take advantage of this financial tool because who knows when the government will change its tune for the better, or worse.
You already know the skinny on TFSAs:
• You can contribute $5000 per year into a TFSA.
• The money can be earned or withdrawn completely tax free.
• Contribution room can be carried forward indefinitely.
On the positive side, I have maxed out my TFSA contribution room to date. I now hold a few dividend-paying stocks in my TFSA. My plan over time is to transfer a few of my Canadian dividend-payers (from unregistered accounts) into my TFSA to shelter the dividends paid. I’ll keep some stocks unregistered until my TFSA contribution room increases in 2012 and thereafter. While I’ve received many comments to my TFSA approach (some people are for it and others are against it) I think this strategy works for us because what I’m seeking is long-term tax-free income, hopefully rising income over time.
On the negative side, my wife has not contributed to her TFSA for 2011 yet. That was the plan but finding $5,000 for her account this year is now going to be impossible. Instead of the TFSA contribution we installed a new roof on our home, more on that in a bit.
Goal # 3 – Optimize our RRSPs
I’ve been schooled on the importance of managing our RRSPs efficiently for the long-haul. Until I became My Own Advisor, for years my wife and I weren’t managing our RRSPs, they were managing us. For almost 10 years we held various equity and bond mutual funds in our RRSPs, paying lots of high management fees in doing so. That changed last year when we accomplished our financial goal called “clean-up our RRSP accounts”.
For over a year now, we’ve used ETFs like XIU and XBB for about 80% of our RRSP holdings to get near-market returns. With this strategy, we’ll never beat the market like many mutual fund managers aspire to but we won’t lag it by very much either. That’s just fine with us. For 2011, we intend to optimize our RRSPs – that is – contribute only enough needed to avoid paying any more taxes come tax time and if anything, get a little bit back. While I enjoy getting a tax refund (we did last month) I don’t want to get lots of money back. Sounds odd I know. If I was fortunate to get lots of money back, that isn’t a great thing because it means I’ve overpaid my taxes during the year and I’ve given our government a tax-free loan. That doesn’t sound right to me. What about you? We figure optimizing our RRSPs in 2011 will cost us a couple hundred dollars every month. We’re on our way to fulfilling this goal again.
Goal # 4 – Continue my full Dividend Reinvestment Plan (DRIP) with Bank of Nova Scotia
Bank of Nova Scotia (BNS) is one stock I cannot run my synthetic DRIP with yet. This is because I don’t own enough BNS shares for the dividends paid each quarter to buy one full share. So, I’ve started my full DRIP with their transfer agent (Computershare) to help me get there. Last year I managed to contribute at least $50 per month into BNS stock, no commission fees, based on the cost of an envelope, a stamp and my personal sacrifice of walking to the mailbox up the road. Hopefully later this year, taking advantage of any BNS stock price dips under $55, I can add more to my position. Right now, I feel BNS is valued quite high and I won’t be adding to my holdings anytime over the next month or so.
Goal # 5 – Start my full Dividend Reinvestment Plan (DRIP) with Fortis
I’ve been meaning to do this for some time and a few months back I finally did it – I bought another dull and boring stock 🙂 This goal is now complete. Fortis (FTS) pays me a healthy (and steady) dividend and is considered a Canadian dividend aristocrat, consistently raising its payout to shareholders year after year. Like BNS, I just need to increase my holdings in this company over time.
Goal # 6 – Build up our emergency fund to $10,000
With a new home (we’ve been here for 5 months) there are lots of known expenses; new appliances and window treatments to name a few. We knew we needed to buy another sump pump. We were also aware in the fall of 2010 (when we bought the house) a new roof would be required at some point. Well, that “some point” came this spring. After the winter has its way with our asphalt shingles, we discovered many of them had lifted and separated, more than before. If you know a little about roofing and shingles, these are not good signs – troubling ones in fact that can lead to water damage. We haven’t had any water in our ceiling yet but we didn’t want to wait for that to happen either. Trying to be proactive, we decided to get a new roof this spring and finally settled on installing a steel metal roof.
The decision was rather agonizing for me. The cost of installing an asphalt roof in Ottawa is about $3.00 per square foot, labour and taxes included. The steel metal roof was more than double this price. We finally decided on the steel metal roof because the pros (below) far outweighed the cons (price). Metal roofs:
• Offer outstanding protection.
• Have a very long life; some metal roofs haven’t been replaced in 100 years.
• Are durable, are fire retardant and are maintenance-free.
• Are energy efficient (much more so than asphalt) since metal roofs reflect heat and block heat transfer to attics. We anticipate saving more than 15% on our hydro bill this summer by not cooling our house as much.
• Are environmentally friendly; our metal shingles are partially made from recycled material.
• Come with an amazing warranty; lifetime for as long as we own this home and even if we sell our home there is a 40-year transferable warranty.
With all the benefits, I panicked over this decision (…still panicking to some degree) because of the cost. Some of our neighbours are probably going to buy a new, shiny, economy car this year. Instead, we got a roof. Not very sexy. I guess few major home infrastructure projects are. Nobody cares about a roof until you have a problem with it. Based on this purchase, for as long as the home stands and for as long as we live, we should never have a problem.
In the end we are very happy with our roofing decision but it certainly means we won’t accomplish this goal – creating a modest emergency fund this year. On the contrary we now have a HELOC to pay off and with interest rates being what they are we are now extremely focused on getting this line of credit paid off as quickly as possible.
Well, that’s my spring update on our personal finance and investing goals for 2011. To recap, we’re well on our way to accomplishing some of them and in other cases, we have no hope in achieving others. I guess this is a good reminder – you can plan all you want but then life happens and priorities need to change. Life is also, for us, about balance. You win, you lose but then again you need to take time and enjoy the ride. To my latter point, in a few short days, I’ll be off on vacation for a week enjoying some golf and sun with great friends. My annual boys-trip has arrived!!! My wife will also be on vacation, with the wives of the gents I’ll be travelling with. I often wonder between the boys and the girls, who really wants and needs the vacation more???
In any event, I really enjoy planning for tomorrow and being prudent about today but life after all is for the living. While doing a little bit of saving and paying, I’m doing a bit of playing this spring. On the financial planning and investing front, I know we won’t be able to accomplish everything we had hoped in 2011 but that’s OK. At least I know through some balance I’m going to have fun with the process.
I’ll do my best to respond to your comments and feedback over the next week while on vacation. Have a happy and healthy Easter weekend everyone!