Our investing goals are rather simple: to use dividend income generated from our portfolio to cover most of life’s basic expenses.
With that statement you might be wondering what I consider basic expenses…
Here’s a list of expenses that our dividend income should cover within another 10 years:
- Property taxes (currently $4,200 per year)
- Home maintenance (around $4,800 per year)
- Home utilities (heat, hydro, water, internet) (around $4,000 per year)
- Home insurance (currently $1,500 per year)
- Food and household supplies (up to $12,000 per year)
- Healthcare needs ($3,000-$4,000 per year).
That’s the list and this is where we believe this goal of $30,000 per year in dividend income will help us.
The basics do not include any contingency money, new clothing money, funds to cover car expenses, travel or entertainment – so I believe we’ll need more than $30,000 per year to live from.
How are we going to fund the basics and beyond?
We’ve done some math. We’re working on the following:
- A paid off home. We wish to avoid entering retirement or semi-retirement with any debt. We believe servicing debt reduces our financial flexibility because we are forced to pay other people first.
- A $1 million dollar investment portfolio. Lofty goal? Hell yes. This includes all non-registered and registered investments.
- You know from reading this site our goal is to have a Canadian stock portfolio churning out at least $30,000 per year in dividend income. It is our hope most of this income will come from dividend paying stocks sitting in tax-free accounts (TFSAs) and a taxable account. I figure we’ll need about $750,000 invested in those accounts to achieve our goal (750,000 @ 4% dividend yield = $30,000 per year).
- We hope to have RRSP investments to withdraw. We hope to have at least $250,000 saved inside our RRSPs before semi-retirement. Our RRSPs hold more indexed products. $250,000 invested in low-cost diversified ETFs, from U.S. and international markets (i.e., using ETFs like VTI or VXUS, or dividend ETFs like HDV or IDV) should provide at least $10,000 per year to spend for multiple decades.
- Modest workplace pensions. The values of our pensions are growing slowly but there are no guarantees with our long-term employment situation (or any employment situation). This is why we save on our own. We’re optimistic if we can keep our jobs for another few years we’ll have decent pensions/fixed-income for the rest of our lives after age 55.
- Government programs. Based on Service Canada information the average Canada Pension Plan (CPP) payment is just over $600 per month for new beneficiaries at age 65. We’ll also have Old Age Security (OAS) income at age 65 as well. We believe these payments will help our healthcare costs as we get older.
- Part-time income. I can’t sit still for long so I expect to have some form of work for the rest of my life. Our part-time income goal is to net between $10,000 and $20,000 per year for as long as we live from various jobs. That might be this blog if it increases in popularity, it could be seasonal work, it could be another home-based business venture. It could be all of these things or different things. We are optimistic this income will cover our travel and entertainment wish list.
How are we accomplishing these goals?
Having a paid off home while reaching a $1 million portfolio are huge long-term big audacious goals. So, we tend to break down some of our big goals into smaller, shorter-term, bite-sized chunks. Financial freedom doesn’t happen overnight At least not to us.
Here are some examples of our smaller goals:
- If we are able to maximize our TFSAs first, every year, that’s $11,000 more saved per year for future spending. $11,000 invested in Canadian blue-chip stocks should yield about 4% or so. That’s $440 per year (tax-free) we can spend without ever touching the capital – until we want to. Our short-term plan is to max out our TFSAs in early 2017.
- If we can continue to make mortgage prepayments every two weeks, that’s more money against the mortgage principle. Sure, our mortgage rate is cheap but I have no idea what the future holds. A paid off home will not only drop our monthly budget expenditures significantly it should also provide alternatives if we decide to sell our house, downsize, or simply rent for a few years. Our short-term plan is to continue putting cash on our mortgage when we can.
You can read more about our short-term goals here. I’ll be updating this post soon.
- My wife and I are starting to consider some part-time work opportunities outside our day jobs. This is not because we don’t like our current work, rather, we are looking for opportunities to further our learning, follow some passions, and get paid a small amount of income for doing so if we can. This search (now) will hopefully translate into the aforementioned part-time jobs (to net between $10,000 and $20,000 per year) later on in life.
We have big financial goals. These goals seem so damn far away most days. Maybe you feel the same.
To help us on our path we break down our long-term goals into shorter-term goals. Those seem easier to achieve.
We monitor those goals and when we hit the mark – we celebrate. Every little bit of positive reinforcement helps.
This process will be rinsed and repeated for the foreseeable future. This blog is a way to chronicle our journey and keep us motivated. I hope you find some inspiration for your path.
How are your investing goals coming along? What comments do you have for me?
<Image courtesy of Carl Richards, Behavior Gap>