Back in January, I wrote down our personal finance and investing goals for 2011:
• 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.
In April, I provided you with an update on where we were at with our goals – some good progress was made actually. This year I posted our goals in “black and white” and for the world to see for two main reasons. One, writing things down keeps me/us honest. Two, I’ve shared them because I think it helps me/us be accountable. Even if goals are written and shared, sometimes it’s a struggle. Let’s see how we’re doing so far…
Goal # 1 – Increase mortgage payments by $200 per month
Might as well start with the best news, first. We’re on our way to accomplishing this goal! We’ve managed to maintain the $200 lump sum payments per month on our mortgage since January 2011 and we have no intentions of stopping them. If we keep this up, long-term through our mortgage amortization, we’ll be close to paying off our mortgage almost 4 years earlier! Check out how you can pay off your mortgage sooner by using this handy government calculator.
Goal # 2 – Contribute $5,000 each to TFSAs
Very early on this year, I maxed out my TFSA contribution for 2011. 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. On the not-so-great side, we were not able to max out our other TFSA yet. We were close, that was the plan but instead we made a detour this spring and installed a new metal roof with the funds intended for my wife’s TFSA. The roof was expensive, so until we pay off our line of credit, we won’t be contributing to either of our TFSAs going-forward. At least with this goal, we got halfway there 🙂
Goal # 3 – Optimize our RRSPs
Until I became My Own Advisor, I invested in high-fee mutual funds. I still can’t believe I did that! I’ve put those dark days behind me and now we’re invested in dirt-cheap ETFs like XIU and XBB in our RRSPs – and getting near market-returns because of it. To date in our RRSPs, we’ve only contributed enough money to hopefully off set paying paying any income taxes come tax time in 2012. If anything, we might get a tiny tax return which is fine by us. We optimize our RRSPs instead of maximizing them. So far, we’re on track to do just that in 2011.
Goal # 4 – Continue my full Dividend Reinvestment Plan (DRIP) with Bank of Nova Scotia
You might already know I love Canadian banks. They make money, lots of it, mainly from folks like us borrowing for houses, cars and lines of credit. So, I figure if I can’t beat ‘em and I might as well own ‘em. I own Bank of Nova Scotia (BNS) but unfortunately this 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, about a year ago, I started my full DRIP with their transfer agent to help me own more BNS shares, commission-free. Last year I managed to contribute at least $50 per month into BNS stock and this year I’m on track to do that again. Steady as she goes.
Goal # 5 – Start my full Dividend Reinvestment Plan (DRIP) with Fortis
I finally made my purchase of Fortis stock earlier this year and since that transaction, I’ve been making optional cash purchases commission-free using their transfer agent as well. Like Bank of Nova Scotia, I hope to increase my holdings in this Canadian dividend aristocrat throughout the rest of 2011.
Goal # 6 – Build up our emergency fund to $10,000
With a new home (we’ve been here for just over 6 months now), you know from your own “homemoaner” experiences that there are always known expenses like new appliances and window treatments, and lots of unknown expenses like a faulty air conditioner unit (yes, this happened to us). When we bought this house in the fall of 2010, we also knew a new roof would be required at some point. Unfortunately that “some point” came this spring after we saw the damage left by snow and ice on our old asphalt shingles. Being proactive instead of waiting for our roof to leak, we decided to get a new roof this April and settled on installing a steel metal roof. While we love the roof we didn’t feel the same about the price. Our steel metal roof was more than double the cost of a typical asphalt roof, but man, this thing is built to last. I’m convinced our metal roof will outlive us; it’s warranted for as long as the home stands. With all the steel metal roof benefits, paying for it isn’t one of them. Because of this not-so-sexy-infrastructure project we have no hope of meeting this goal this year – I’m waving the white flag right now. Instead of a healthy emergency fund (which we used to have) we now have a very unhealthy line of credit (LOC). I’ve never had one before and it’s annoying to carry. While borrowing rates are at record lows (which won’t last forever….) we’re working hard to save and pay off the LOC. Unfortunately we’re at least one year away from finishing those payments.
Well, that’s my summer update of our personal finance and investing goals for 2011. To recap, we’re well on our way to accomplishing at least half of them and regarding our emergency fund, we have no hope. Failing this last goal doesn’t sit well with me. We had great intentions but we’re going to fall woefully shorty. So, I’m torn on our progress. On one hand, we’re doing some good work paying down the mortgage and growing our dividend-income for tomorrow. On the other hand, we’re not putting down as much as we absolutely could on our LOC today. On top of that, we also want to live our lives and spend a little of what we make since life after all is about living – balance is important to us.
I’m sure you have some opinions to offer.
Are we being too loose with our debt repayment plans or is the balance fair?
As always, share your thoughts!
Thanks for clearing things up for me MOA, and in such prompt fashion.
I am now officially ready to go on part 2 of my DRIP Consideration series 🙂
@My Own Advisor
Yes, this answers most my curiosities perfectly, thank you. I do have one big question that remains however.
If I’m not mistaken, one way to skip all the legwork involved (obtaining share certificate, transfer agent process, filling out necessary DRIP & SPP forms and then reversing back to discount brokerage), provided that one is is a situation to do so, would be to simply begin ‘synthetic DRIPping’ through a brokerage account from the get go, is this correct?
For example, I currently have 84 shares of CM in my holding company right now. With an annual dividend of $3.48, I am expected to receive $73.08 per quarter. With the market price of CM sitting at $70.00 per share right now, I effectively have enough dividend income to go ahead and DRIP ‘synthetically’, right?
I realize that being able to get to this stage is largely dependent on one’s financial situation & ability, and going the route of the DRIP & SPP directly with the company (i.e. obtaining share certificate, transfer agent process, filling out necessary DRIP & SPP forms, etc) makes sense until you have accumulated sufficient amount of shares.
I can fully understand the advantages of fractional share purchase while making periodic ‘top ups’ at no fees for accumulation purposes; however, if I’m not mistaken, the most practical end result for many investors may result in going with a discount brokerage at the end of the day anyway. Correct?
If I can go with the brokerage firm immediately, my impression is that you can set up the synthetic DRIP without having to deal with the process of obtaining a share certificate, going through the transfer agent process, filling out necessary DRIP & SPP forms, is that correct?
Thanks!
TWC
@TWC,
You’re not mistaken at all – you can avoid all the legwork of full DRIPs by having enough cash right from the start to own enough shares to run synthetic (brokerage) DRIPs.
For your example of CIBC, you’re bang on. 84 shares x $0.87 per share paid this past July = $73.08 which is more than enough to DRIP one full CIBC share which is now trading around $70.
For most of my holdings, I never had enough cash (still don’t…) to buy enough shares to run the DRIP synthetically right out of the gate, so leveraging full DRIPs with transfer agents really is a great way for small time investors (like me) to buy more shares at the cost of stamp, oh yeah, and a cheque of course 🙂
The end result I’m looking for, at the end of the day, is exactly what you said — have a diversified basket of dividend-paying stocks in my discount brokerage account with no more processes to deal with; no more share certificates, transfer agents, etc.
Write anytime 🙂
Interesting article. Cheers for posting.It’s been very educational & fulfilling. Picked up some useful tips
It’s quite obvious that you’ve taken the bull by the horns and are in full control of your financial destiny.
In my 20s, I too was caught up in having strictly mutual funds within my RRSPs and registered accounts were the only accounts in my name.
Regarding goal #4 [I’m new to the DRIP terminology 🙂 ], when you say ‘synthetic’, I am assuming that once you have accumulated enough dividend income in the run of a quarter to earn enough to cover 1 share, you qualify for the synthetic DRIP, correct? Out of curiosity, why are you not interested in the fractional share purchase route?
I was just curious because it seems as though you are setup for the ‘full’ DRIP with respect to your BNS position. Is this equivalent to the Share Purchase Plan so that you can buy shares at specific time frames until you qualify for the synthetic DRIP?
Thanks,
TWC
@TWC,
Hey now, you’re no rookie to DRIPs 🙂
Yes, your understanding is correct. Once I have enough shares in a dividend-payer to buy at least one whole share each quarter, I move the “full” DRIPs running with the transfer agents to my discount brokerage account to continue my “synthetic” DRIPs. While I lose the ability to compound fractional stock shares (just one advantage of full DRIPs) I gain the cash in my brokerage account after the whole share is purchase that I can either:
a) spend,
b) use to paydown our LOC or mortgage via prepayments,
c) save and use to buy new dividend payers, or
d) use to make optional cash purchases (OCPs) for other stocks I still have with transfer agents.
I hope I’m explaining that OK?
You are also correct that I have a full DRIP with BNS. Once I have about 140-150 shares of BNS, I will be moving all shares over to my brokerage account to follow any of the recipes above.
The full DRIPs are equivalent to an SPP but I can’t buy at specific times unfortunately, I’m at the mercy of the transfer agent when they make the transaction. (It’s different for each company I’ve found, but many make the buy at the end of the month). Given the recent market turmoil, I’m looking forward to more BNS at a lower cost this summer.
Let me know if this helped. Chat soon!
I think u shouldn’t be “torn on our progress”…….No, not at all! You are well ahead of most and on a sure track, but I add a caveat: major on the: ‘On top of that, we also want to live our lives and spend….”. Life is short! Take time to smell the roses but not the ones at home but treat yourselves to a good annual vacation someplace romantic and do it each year and you won’t regret it! When you’re old you won’t need as much money as all the calculators say and if you have a surplus then you’ll be too old to enjoy it. Enjoy more now!
@Jon,
Thanks for the positive reinforcement! I do admit, I sometimes feel we’re not doing very well…but I’m probably being hard on myself/us. Yeah, we’re trying to do a bit of that Jon, live for today and take vacations together. You’re right about enjoying things so much more in our 30s than in our 80s and beyond. We’ve been fortunate to travel to South America and Europe a few times already. Hopefull there are a few other continents in our future 🙂
Great job so far. I enjoy reading these updates cuz it acts as a reminder for me to look at my own goals. I am attempting to optimize all my accounts to make them more tax efficient. Where do you plan on keeping your EF? Online savings accounts or maybe GICs?
Hey BadCaleb,
Thanks for checking in and commenting! Comment more often 🙂 Historically, we have kept our EF in a HISA (high-interest savings account). This way, it is very liquid. Hopefully we’ll build it back up sooner than later. We consider our EF a great security blanket. What about you?
Great goals and great progress. Huge goal on the ER! I’m nowhere near $10k in an emergency fund, but I also rent and don’t have any dependents.
Keep up the fantastic work.
Geez, thanks Mantra! Yeah, big and then not so much. $10 K sounds like a good sum of money but in a big emergency (new well pump for us, car breaks down, other) it can go rather quickly.
@MOA- sounds like you’re doing a lot of good things. You’re clearly able to weigh long term benefits against short-term sticker shock (case in point: the steel roof). Keep up the good work (and the great blog!).
@Y&T – I’ve been able to simply call my discount broker and ask them to set up a DRIP on the equities I’m interested in. No forms, no fuss, and it only takes as long as you need to get through the automated phone menus.
@PGW – thanks, I appreciate the support from readers like you but also the different points of view regarding my journey. In both regards, we can all learn 🙂
Hey MOA,
Writing down your goals and sharing them with readers is an excellent way to keep on track and get inspired 🙂 As Mike points out, you can’t possibly do everything at once – so don’t beat yourself up. From what I can see you are doing an excellent job.
I would definitely like to max out my TFSA this year, but that is also unlikely. I am very close to building a nice big line-of-credit for investing – that’s my goal right now, even more advantageous for me than my TFSA 😉
Keep up the good work!
@Y&T I don’t see an issue with using your EF to pay your property taxes, since you would have had to take the funds from elsewhere which I think would have put in a tough spot. But ideally a seperate account for that would be beneficial, and then you can keep the EF as exactly that.
@Ninja,
Thanks again for your support, it is appreciated for sure! We’re trying, maybe I just have high expectations, or too high? I need to be more realistic and hopefully I’m getting better at that with age. Humm, an LOC for investing – going more leveraged are we? Do tell. Are you going to be writing a post about your strategy and why this would work for you? Hint, hint. 🙂
You sound like you’re doing fantastic Mark. On my to do list is to start my very first DRIP too, and it’s as easy as printing a form off and mailing it, yet it’s still not done yet. You’ve inspired me to get back on the bandwagon 😉 Thanks!
Glad to hear your roof is doing so well! What amount of EF do you have right now? I’ve been trying to build my EF too but its difficult because I keep dipping into it (e.g. to pay our property taxes). Need to make it less accessible I suppose and allot money aside each money for expected expenses.
I think I will try to “optimize” rather than maximize the RRSPs. I maximized my RRSP’s this year but have not maximized my TFSA since taking money out last year for the down payment.
Thanks Y&T! Starting a full DRIP is fun. It takes some accounting to do/keep track of the dollar cost averaging, but other than that, it’s great to see your shares (fractional shares at that) compounding right before your eyes 🙂 We have a couple thousand in our EF now, but that will likely get liquidated this month to put another big payment down on the roof LOC. I hear ya, (your taxes), there is always a temptation to dip into it. We had a good thing going for a couple of years, before I started the blog actually, but got away from having a healthy EF after so many expenses arrived for the previous house and existing/current house. After the roof LOC is paid off, we’re gonna get back on track!
I honestly think for many people, optimizing their RRSP and maximizing their TFSA is the best way to go. Add in any type of DC or DB pension, and you don’t necessarily want a fat RRSP nest-egg to pay taxes on upon transfer and then withdrawals from a RRIF. At least I don’t. I want to be as tax-efficient as possible in my senior years.
Sounds to me like you are doing lots of good things with your money – keep it up!
I wouldn’t worry about the EF – just keep at it. You can’t do everything all at once.
Thanks Mike, we’re trying! While I prefer to have an EF, we’ve got lots of things on the go so it’s difficult to accomplish so many goals at once. You’re right, you can’t do it all. Thanks for your support.