What’s better than a few days off? I guess nothing!
It has been a little bit over a week that I haven’t opened up my laptop to write an article for my blogs. I wasn’t really on vacation per se since I was in a training course for work. The problem is that I usually blog in the morning and I didn’t have a single spare moment last week to write anything. I thought I would look at it on the bright side and see it as a week off from blogging. This is usually good for my level of inspiration!
I decided to start my week of writing with my quarterly net worth update. I’ll also update my 2013 personal goals at the same time.
My net worth barely budged over the past three months. My assets are sitting slightly under $566K but there were some movements. I cashed out some of my employer stocks (which is part of my plan to pay off debts)… but to invest in our new project; my wife’s daycare. We needed a few things (furniture, toys, paint) before we could open up in September. This is why we decided to take about $2,000 and invest it in this project. Since my wife is expected to earn roughly $2,000 in net income (after expenses and taxes) per month, this will be repaid by the end of September already. After this point, most of this extra income will be directed towards our debts to achieve our main financial goal for 2013: dropping under 300K in debts. When you want to make more money, you should never hesitate to invest. You don’t need a lot, but you often need money to make money.
The second major change in my assets is the gain in value of my pension plan. I received my update as at December 31st 2012 and my value is now up to $33,386 (from 26,131). Since it is a defined pension plan (e.g. the employer will pay me a fixed pension at retirement), this is an actuarial value calculated in the event I would leave my employer prematurely. Each year it goes up by 5-7K so it’s always nice to receive my booklet to update my net worth!
Unfortunately, we also had to update our company shares. Since there was a small drop in income compared to last year, the share value dropped accordingly. The method we used to calculate what our company is worth is quite simple:
Average of past 12 months of gross revenue * 36 months – debts + cash in bank account
This enables us to follow our progression and plan for the future. On the other hand, I have no desire to sell so this is definitely a virtual value. Fortunately, this drop of value was compensated by my pension plan so it doesn’t really affect my total net worth.
I opened my TFSA account to fund my children’s private education once they reach high school. Since I still have debts to pay off, I’ve started investing $50 every two weeks. I continue to use the “pay yourself first” method to fund my children’s education. So far, it is going pretty well since I struggle to pay off my debts, but I make sure my kids will have enough funds to study what they like without bothering with money. Opening a TFSA this year was another of my personal goals, yeah!
Here are my assets & liabilities as of July 2012:
CHANGE (%) CHECKING ACCOUNT $1 000 $1 000 0,0% EMPLOYER STOCK
$2 507 $3 853 53,7% RRSP ACCOUNT $35 573 $37 734 6,1% RESP $2 003 $2 633 31,5% PENSION PLAN $26 131 $26 131 0,0% HOME $351 640 $351 640 0,0% COMPANY SHARES $131 521 $131 521 0,0% MAZDA TRIBUTE $12 586 $11 284 -10,3% MAZDA RX-8 $800 $- -100,0% TOTAL $563 761 $565 796 0,4%
CREDIT CARD $6 831 $5 092 -25,5%
LINE OF CREDIT $19 597 $19 918 1,6%
HELOC $263 015 $262 803 -0,1%
CAR LOAN $12 586 $11 284 -10,3%
Personal Loan $8 333 $7 916 -5,0%
Pool Loan $5 370 $5 290 -1,5%
TOTAL $315 732 $312 303 -1,1%
I’m a little bit disappointed (once again!) about my debts since it didn’t go down by much. Since we used about $2,000 to build a nice day care, I can always find solacethat I don’t owe this money. Still, I was looking for a little bit more in terms of debt repayment. At least, I know that my bonus will be big enough to cover at least 6K in debt repayment in January. Therefore, I need to concentrate on finding the next 6K and I have almost 6 months to do it. I think it’s a realistic, especially since my wife will be earning extra income from the daycare.
It sucks that she has to go back to work in the near term but it’s good to see this money coming!
Another of my personal goals for 2013 was to lose weight. I was showing 193 lbs in January and am now down to 185 lbs. I wish I could drop under 180lbs by the end of the year but this will require a lot of work and constant healthy eating habits!
In order to achieve my weight loss goal, I decided back in January to run at least 10 miles per week. I thought that by running 500 miles for the year (I’m giving myself 2 weeks of vacation), I should be able to lose weight. So far, I am holding on with 293 miles ran in 28 weeks. I’m even running a few extra miles to not fall behind. The key is really to run at least 3 times a week for a minimum run of 3 miles each time. This is good as I burn fat while I gain muscle at the same time.
My last two yearly goals are really linked to each other: I am aiming at a total income over $150,000 and want to go to Hawaii in 2014. So far, I haven’t done anything to put money aside for Hawaii but I’m working very hard on making over $150K. I need to make a bonus around 30K to make it happen and I’m right now expecting 15K if the year would end today. Since we are half way in our year, this still all makes sense. I just need to keep working harder to make it happen!
This is one thing I love about my blog is that I can track my goals publicly. It adds up to accountability and make me work hard to achieve them! Do you track your goals? How are you doing so far?Comments: 4 Read More
Don’t you remember your motherand father telling you: “you don’t understand today why I’m doing this, but one day, you will be thankful”.
This is exactly why Governments should force the population to save; because we will be thankful one day! Instead, most Governments are currently acting like other parents who may have told you “You just have to do the same with your kids when you have them to get revenge” as spending without looking behind and you can always charge your kids for your own mistakes!
The housing bubble burst in the US between 2007 and 2008. At that point, Americans thought their houses were the biggest ATMs they had ever seen. All they had to do was to sign a few papers at their local bank and walk away with plenty of cash in their pockets. This cash was used to buy useful andbbasic necessities in order to have a decent life such as a second BMW, a 50’’ plasma TV, a heated pool, vacations at Disney and several pairs of shoes. Tell me really, who can live with only two pairs of shoes?
People didn’t care and we all know the end of the story: Americans saw their house values melt by more than 30% within 12 months. Even worse: companies started to cut jobs, increasing the unemployment rate and reducing the State revenues collected in taxes.
After this Tsunami, Americans woke up and started to work hard and spend less. They switched their focus on paying debts above everything else. They went from a household debt-to-income ratio of 125% to nearly 100% in a short period of time. You can clearly see on the following graph what happened:
While I switched my focus on paying down my debts over the past two years, it seems like most Canadians don’t see it this way. As you can see on the above graph, the household debt-to-income ratio in Canada never ceased to increase and we are now showing a 165% ratio. Since January 2000, housing prices surged by 123%. There are more condo towers being built in Toronto than on the entire American East Coast. Are we richer than Americans or Dumber?
Such stats make me think about two very bad scenarios:
#1 There is definitely a housing bubble in Canada (don’t expect to sell your house with profit next year ).
#2 Most Canadians are NOT saving for retirement (which means YOU will have to pay for their retirement).
This is maybe why we should force people to save money.
I’ve heard this train of thought many times recently. In capitalism, most individuals hate seeing Governments telling them what to do. With all the horror stories in our history, I can appreciate this reflex. On the other hand, the same individuals expect Governments to save them from their own crap when they fail.
As a society, we have two options:
#1 We force people to save for retirement. Then we make sure everybody will get a minimum income at retirement. If everybody has made their own pension while they live, they will continue to spend money at retirement instead of being at the expense of the society.
#2 We let people spend their money on TVs and such and we tell poor retirees to starve in the street and die quietly because we don’t want to miss our TV shows. Since the Governments can’t afford to pay a pension to each individual, there are no other ways to let those people die in the street at one point.
Since we live longer and we have few workers to pay taxes, we can’t just imagine that we can afford to pay for everybody. Math in general is pretty simple. If you produce 10 sandwiches per day in your bag and you need to feed 20 people, you either give a sandwich to the first 10 and let 10 people starve or you give half of a sandwich to everybody and we are all a bit hungry. What happens if your production drops to 8 and you have 25 people to feed? This is where we are heading right now. So don’t tell me I can’t tell you what to do with your money since you will be begging for money in a few years from now and we both know the Government can’t handle this demand.
The problem is that most adults are still living like teenagers and think their parents (the Government) will be there to pay for their mistakes.
Let’s call it a FRSP and force each worker to put at least 5% of their income into it. I don’t think the Government should manage this money because it’s not their primary job and this would make the difference between acting as a good father and acting as the godfather ;-).
The FRSP should be quite similar to what we know as a RRSP (Registered Retirement Saving Plan). We should allow people the same flexibility in term of investments but the contributions would be obligatory and directly taken from their paycheck.
Over time, the FRSP could be increased to roughly 10-15% in order to make sure everybody has a good pension to live on. But to start with, I would copy the Australian approach (they started at 3% back in the 90’s and they are expecting to raise it to 12% in 2020).
Just for fun, I calculated my debt to income ratio… I can tell you I’m contributing to the 165% average! As my latest net worth statement, my debt level is at $312K. I’m making roughly $135K per year so it makes a ratio of 231%… yikes!
But… considering I’m 31 with three kids, I’m definitely at the moment of my life where my debt-to-income ratio is at the highest. It’s totally normal. In the next 10 years, I’ll be working on paying off my debts and reduce that ratio significantly. At the same time, I’m saving a lot of money for my retirement. Each year, I contribute $5,000 in my RRSP (which is 3.7% of my salary) combined to a defined pension plan which as an actuarial value of $10,000 per year at least. Therefore, each year, I’m saving 11.11% of my total income for my retirement.
This is why my debt-to-income ratio is not worrying me. The problem is when you have such a ratio and you don’t save for retirement or try to pay down your debts. Therefore, you wake up one day, you are turning 50 and you still have a ratio over 150%. This is where the problem is!
How would you feel if we would force you to save money tomorrow in a FRSP?Comments: 18 Read More
Last week, I wrote about our Daycare project in order to make more money. This is the compromise we found to make more money, reestablish our budget and still enjoy our quality of life. While my wife will be working and I will have to participate more in the household chores, my children will still come home from school early and we will be there to help them do their homework.
However, we won’t be chillin’ like villains as we are right now. Life has been pretty smooth since I moved into my house in the country three years ago. We haven’t worked much, enjoyed two awesome vacations in Virginia Beach and Disney World an even put money in the house so we have central AC and a pool for summers. As I have mentioned before, life was great but my debts were stagnating. It was somewhat impossible with such a lifestyle to aggressively drop my debts and I even ended-up with some consumer debt, something I’m definitely not used to having!
I’m pushing harder on my online company while my wife will start her daycare for one specific reason: we want to reach financial independence. I’m tired of looking at my account balance to make sure I have enough money to cover for the month. I’m tired of thinking about the best moment to cash out my employer’s stock or waiting for my year-end bonus in order to breathe again. This strategy worked well for several years and enabled me to live beyond my means most of the time. This time is over.
Some people think it’s better to live now and not wait for tomorrow. Their thesis is based on a pretty strong argument: what if you die tomorrow? Since nobody knows, I guess we can argue a long time about this concept of life. On the other hand, I’m tempted to ask: what if you live until 90? The odds are actually on my side as your chances of dying tomorrow are pretty thin compared to an average life expectancy over 80 now in industrial countries…
Nonetheless, I’ve always been a big supporter of the “live now and see for tomorrow”. I have a stable job with a solid pension plan so I don’t really mind about tomorrow. I spend a lot of money to enjoy life right now and even dropped my hours worked since 2009 to almost feel like a half-retirement (after all, who can work in a bank at 4 days a week? Hahaha!). But over the past six months, I realized that I want even more. I’ve been telling people as a half joke, half truth that I wanted to retire by the age of 35. I’m turning 32 this year and I now truly want to retire at 35. It’s not really retirement; it is more like financial independence.
Dreaming about the morning where I will have to head for my coffee before playing golf is surely interesting but it doesn’t bring the dough home. While I’ve realized I want to retire early to enjoy life, I also realized that I have to make some sacrifices to make it happen. You can’t chill out and hope you will win the lottery.
The price of my early retirement is definitely in the number of hours worked. I have to go back to 50 hours/week while my wife goes from “0” to 40! Don’t get me wrong, she is definitely working more hours than me right now being a stay-at-home mom but those hours are not compensated. This is what we need: more money to pay off our debts faster!
By changing our life and making more sacrifices, it implies I will have to participate a lot more in doing household chores and that we will have to do the groceries over the weekend and so on. Our lifestyle won’t be as smooth as it was before. But I know that we will build a stronger future for us and our children.
If I had to change my current lifestyle for the next 10 years or even for the rest of my life, the change wouldn’t make sense to me. The point here is to work very hard for the next three years and then, change our lifestyle drastically. I did it once when I started working ten years ago and I was able to buy myself 5 years working 4 days a week. Next time, the goal will be to drop my hours worked to 25 hours/week. This is just enough to keep me busy and ensure a source of income. But I won’t be able to do this as long as I have all those debts!
I told my wife that the next three years won’t be fun. We will be working hard and this is going to be very tough. However, in three years, we won’t have discussion about our budget anymore. This is the whole point: being able to spend money as I want without having to check my bank account.
This new project implies that we will both crank up our hours worked. I don’t want to cut back on my current lifestyle and there is not much I can cut out of my budget anyways. This is why the only solution is to crank up the income for a few years and use this extra income to clear our debts.
Would you be willing to work like an animal for the next three years if it leads to financial independence?Comments: 6 Read More
Life changes at light speed… faster than the internet!
During the month of May, I did the usual for me: I looked at my budget!
Instead of looking at my budget on Excel, I thought of printing my last two months of credit card statements. The advantage of paying everything with your credit card is that you have 100% of your expenses on a single document. Then, it’s pretty easy to determine what is going wrong with your budget!
That’s a funny statement considering that I’m the largest of my family (by far) and I weight 185lbs. So the problem is not the amount of food we eat or the quantity but it lies in the quality. We eat a lot of fish, fresh vegetables and good meat over the weekend (like duck, lamb or filet mignon!).
This has a ridiculous impact on our budget. Considering that my two oldest children eat like adults now, our grocery bill has jumped to $1,200 per month! The worst part is that there is not much we can do about food. I might cut on my weekend dinners but it won’t reduce the grocery bills by much. I had to find somewhere else to cut…
My priorities are kids and family. Therefore, I won’t cut my savings plans for their tuitions fees nor will I tell them they can’t do the activities they like. The reality is that kids are expensive, lol! On my side, I noticed I could certainly eliminate a few bottle of wines per month. Besides that, I don’t spend too much money on clothing and the fact we have three kids really prevents me from spending money dining out!
I already brownbag my lunch every day and bring my own mug of coffee to work. I’ve negotiated all my insurance premiums (life, auto, house, etc) and saved a great deal. built my own home gym and only play soccer at a total cost of $400 for the year. My wife does a few runs and a cardio class for about the same amount. It would be stupid to cut on our health for the sake of paying bills!
What’s left? Cars most probably…. but my Tribute is still under guarantee and I pay 0% interest (I know it’s hidden but I can’t drop the payment!) on it. My RX-8 didn’t breakdown in the past 12 months and therefore, doesn’t cost much these days (knock on Holy wood!). Since I only have to drive 5 minutes away from my house to get to work, it’s not with mileage I can do something either!
I stopped all renovations plans for my house (we are just painting this year) so I won’t have to spend much money there as well.
Life is expensive when you want to do something with it. Doing sports is crucial for our family. It’s part of our main values along with eating well and healthy. A Family of 5 just requires a lot of money with such a lifestyle.
The interesting point I made after looking at my credit card statement was the following: I need to make more money. Hahaha! Isn’t that cliché?
But that’s the reality: the biggest expense I have right now is definitely my debt payments. If I can generate additional money to pay off my 2 personal loans and car loan, I will free up almost $800/month with that. Then, I can focus on paying down my mortgage and starting to think about becoming debt free.
Our first step will be to start a daycare in September. My wife will take care of a few kids and we will end-up adding at least $1,500 per month to our budget. We will cut our lifestyle quality but we will be going forward much faster with our financial plan.
Once the consumer debts are paid off (which would be within 18 months), we will be able to save a lot of money. We could either invest this money or simply pay down our debts faster.
The following point is to increase our online income and get rid of our corporate debts. The current debt payment plan is going well. Everything should be paid off within three years, probably less. After that, it will be time to withdraw a few thousand per month in order to pay our debts even faster.
The month of May was quite revolutionary this year. Instead of focusing on our lifestyle and not working too hard, we decided to switch focus and go “all-in”. I swear, I wouldn’t be a good poker player as I truly always want to go “all-in”!
My wife will focus on her daycare for the next three years and I’m adding more hours to my online company. Starting with the Niche Site Duel 2.0, I’ll be working more than my regular 10 hours/week. It’s time we make it grow and make money!
What are your priorities right now? Do you focus on living or making sacrifice to pay off your debts?Comments: 9 Read More
I know the trend on financial blogs is to tell you to pay off your debts… but what if this advice is wrong?
A rich person is an individual with no debts. I’ve often heard that quick line explaining that paying down your debts is the universal financial advice. Since the beginning of 2012, I’ve embarked on a quest against my debts. At the end of the year, I quit on paying debts and decided to turn back to what I do best: make money.
This doesn’t mean I’m not paying off my debts. In fact, my latest net worth statement shows that I’m now attacking my consumer debts with success. I’ve also mentioned on this blog that we are concentrating on paying off our corporate debts at a fast pace recently. Over the past 12 months, we have paid down about 30K of our corporate debts and we should pay another 20K this year to finish paying off our debts towards the end of 2014.
Quick accounting tip: you are better off paying your corporate debts over a few years since you need to use after tax money to pay it. Therefore, if you pay everything in 1 year, you will have a big fat check to write to the tax guy!
My partner was quite happy to see my perception of debts changing over the years. After all, I was the one who mortgaged his house to buy our first site 4 years ago…
While most people like using a conservative approach regarding debt, I usually think that using other’s people money is the best way to make money. I’ve been thinking this way since I was a kid. I guess it’s in my genes. My life has been covered by leverage stories:
Back in high school, I was 12 when I first borrowed money (it was school money) from my friends to play dice. While it was a very bad idea to borrow money to gamble, I won a lot more money than I lost and was able to quickly reimburse my friend and run with my own money (and keep winning).
Back in College, I was thinking of applying for a student loan to invest in the stock market. Unfortunately (or fortunately), I was too lazy to fill in the paperwork in order to get the loan. Instead, I borrowed $5,000 on my credit card to buy a new car and fund enough cash to move into an apartment. Overall, it was an awesome move since I got a super nice deal in a great area of Montreal for cheap. My car was new and therefore I had never to go to a garage. Within 12 months, I cleared my credit card debt with my first day job.
Right after paying off my credit cards, I bought some land with a personal loan. I wanted to build my assets as fast as I could. Since I didn’t have many payments going on, I thought of borrowing 25K at a bank to buy a piece of land. I sold the land a year later with a profit of $4,000. That’s pretty nice considering I didn’t use my money!
Borrow to invest in the stock market. At the same moment, I wanted to start investing in the stock market. I was following several stocks daily and thought I could make a few dollars out of my new hobby. I borrowed 20K in 2003 and turned it into a profit of 50K in three years. This was the cash down payment for my house.
Borrow to buy the house of my dreams. I borrowed from my parents the amount of 25K a few years ago because I absolutely wanted to put 20% cash down on the house of my dreams. I knew I had to pay back the 25K (plus interest) after 5 years. But I also knew that my career was booming at the time and my income was set to be a lot larger 5 years later. I struggled a bit to pay them back on time, though I did it. In the meantime, I lived in an awesome house where I made a nice profit to buy my third house. I actually used a part of my profit to pay off my parents. This was definitely a great move. From a loan of 25K, I made a profit of $75,000 in four years.
Remortgage my house to buy a website. In 2009, I decided to borrow almost $30,000 using my house as collateral to inject into my online company. This transaction opened the door to many other deals and was definitely one of the pillar moments for our business. Since this purchase, we have been making over $100,000 in annual gross income. I took about 23 minutes to decide to buy the site or not and to remortgage my house. In fact, 3 minutes was for thinking about it and 20 minutes was to explain to my wife why she had to sign all the paperwork ;-).
After all these great stories about leveraging, I can say that borrowing money is definitely a good idea. I would not be worth 250K at the age of 31 while affording to have a stay-at-home wife + three kids without my leveraging abilities.
However, it’s been over a year that I’m focusing on debt repayment. My goal in 2013 is to drop under $300,000 of debts and would like to clear all my consumer debts other than my mortgage by the end of 2015. Our online company went up to nearly $100,000 in corporate debts last year and we are now down under $70,000 and counting.
Both my personal and corporate finances have been growing year after year due to several leverage maneuvers. Nonetheless, I’m taking the decision to clear my debts in the upcoming years. By the end of 2015, I should only have a mortgage over my head and my company will be free of debts. Can you see me coming with this?
That’s right: I’m preparing for financial freedom. In two and a half years, I’ll be 34. By the age of 35, I wish to be financially free. This doesn’t mean that I won’t have any debts but if I can clear everything and have just a mortgage to take care of; I can basically live from any kind of income and still be able to make it.
While leveraging has been the only solution to generate income over the past 10 years in my life, it’s time to clean my balance sheet in order to move forward a lot faster. You know I’ll start borrowing again at the age of 35 to grow my income & assets to a whole new level. I’m just preparing my balance sheet for another big jump in two years…
What about you? Have you ever borrowed money to accelerate your asset building?Comments: 17 Read More
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