When we first started our company back in 2008, we decided to name it M-35. To be honest, my friend wanted to name it M-30 at first…. But the  “M” stands for “millionaire” and the number stands for the age when we arrive. I thought that 3 years was a little too short . So this is why we decided to use M-35 as our official name: because we think we can reach $1M in net worth by the age of 35.

As of my last net worth statement, I’m standing at $203,500 and for the record, I’m 30. Therefore, I have to multiply my net worth by 5 in order to achieve my objective. Out of all my personal and blogging goals, this is by far the most aggressive! But hey! Sometimes, you have to set the bar very high if you want to accomplish awesome things, right?

But setting high goals doesn’t mean anything if you don’t have a strong plan. On the other hand, growing your net worth by 800K in 5 years is a bit too much to swallow in one piece. So let’s take this elephant steak one bite at a time:

Employer stocks: + $43,000

I used to cash my employer’s stock once a year to pay off for different expenses. Starting this year, I’ll be keep them and hope to grow this part of my portfolio. Since I got a new job, I should be able to restrict my expenses. I invest $7,800 per year through my pay check in this stock and I only calculate a growth of 4% for the next 5 years. The growth is related to the DRIP plan where the dividend is around 4% at the moment.

RRSP: + $60,000

I intend to invest $10,000 in my RRSP every year for the next 5 years. Here again, my goal was to be conservative so I used a 4% investment return on my money. This should create another 60K. I will use my bonus to make my contributions.

Pension Plan: +37,000

This one is pretty hard to determine as I have no control over its value. I assume that the pension plan will grow by $6,000 per year with an investment return of 4%. This is how I got the + $37,000 number.

House: +75,000

I’m not counting on my house value to burst, but at 4% over the next 5 years, I would gain $75,000 on the value of my home. Since it is a fully equipped property in a nice area, I guess I should be able to expect to see it grow at this pace.

Debts: -$150,000

Here again, this is a fairly aggressive goal considering that I wasn’t able to pay down my debts efficiently over the past 3-4 years. On the other hand , controlling my finances is my goal for 2012. So if I want to make sense… I need to set my debt repayment plan in line with my goals. While my income will decrease in 2012 due to my job switch, this should only be temporary and I head back to 150K-175K starting in 2013. This is why I think I’ll be able to pay back about 30K per year in debts. It’s easier said than done, so we’ll see how it goes after a year .

And… this makes only $365,000 to add to my net worth

Can you see how difficult it is to create a net worth of 1M$ in 5 years when you start from 203K??? Ouch! According to this plan, my net worth would be 568K at the age of 35. I can say that if I reach this level, I’ll be happy but I won’t be “proud”. However, I have one last Ace in my pocket: my online company! Still… I need the valuation of my shares to rise from $98,000 (as of today) to $432,000. Since I have a partner, I need to be able to claim that my company is worth 864K…. hmm.. is this possible?

Let’s take a closer look and we will see!

Our valuation model is quite simple for the moment: 3 times our annual income minus existing debts + cash. So if I need a value of $864K, I need annual income of $288,000 per year with no debts and no cash. If you divide this number by 12 to reach a monthly income target, we get the round number of… $24,000 per month! In 2011, we made a total of $114,158 or $9,513/month. So this represents a 152% increase over 5 years or an annualized growth of 20% over the same period.

I don’t know if it’s just me but if I break down the number as previously mentioned, it doesn’t seem that difficult. If I consider that my plan this year is to go from 9,5K/month to 15K, I’m already aiming at a 57% increase this year! The worst part is that I think it is quite feasible (not to make 180K this year but to get to 3 months in a row of 15K in 2012).

You can argue that my plan to become a millionaire by 35 is directly related to the valuation I give my online company. And I couldn’t argue with you. However, I will only smile thinking that while I have my day job paying me over 100K per year, I’m doubling my pay check through my online company.

So the race is now on… let’s see if I can make it!!

I really like the beginning of each year since I’ve started this blog. I’ve realized that I achieve more things in my life since I started authoring The Financial Blogger. And each year, I set very specific goals for the upcoming 12 months.  For the past 2 years, I’ve made these goals “public” on this blog and I follow-up on them in June or July to see if I’m on track or not.

So far, I was able to achieve most of my personal goals. I am convinced it is because of the additional accountability I get by posting them and letting your know about it. For this, I have to thank you! I hate to lose and telling people that I have lost is even worse for me. I guess this is why I get so motivated to pursue my objectives!

For the past 2 years, most of my finance goals were oriented towards making more money. Only 4 years ago, I was making about $60,000 per year. I have broken the 6 figure income at the age of 28 (2 years ago) and crushed 2011 with over $176,000 in total income. While I’ve focused heavily on climbing the corporate ladder and finding a high paying position, I’ve also pushed my online company to produce some serious income (we went from $18,403 to $124,514 in 2010). This year is going to be different though.

I’m not going to focus on income creation.

I’m not going to focus on asset building.

I’m going to focus on taking control of my finances!

What does this mean? Well, it’s quite simple. While I was able to multiply my income by 4 in the past 4 years, I’ve certainly multiplied my expenses by the same factor (if not more!). I bought a huge house, drive an expensive (gas consumption wise) sports car, ate at great restaurants and drank a lot of wine (lol!). So while my net worth has kept increasing (latest result with my bonus to come at the end of January!), it was mainly due to the growth of my assets and not from a decrease in my debts. And recently, this has started to bug me big time. This is why my goals are slightly different this year:

Going under $300,000 in debt

As of my November net worth statement, my debts total $343,070. To be honest, there will be about $25K-$30K paid on them by the end of January. So my goal will be roughly to pay over 13K in debts this year. This cannot really be seen as an aggressive objective per se (as it only means 1K per month), but considering the fact that I have constantly overspent for the past 2 years, I think it will be a important feat to reverse the trend and start paying back my stuff on a monthly basis. ‘Cause the problem lies right there: I’ve been dependant on the size of my annual bonus to pay off my debts for the past 3 years. I need to be able to pay for all my stuff with my bi-weekly pay check and just enjoy my bonus at the end of the year whatever it may be.

I’ve already taken some action to realize this objective:

- I won’t be working 1 hour away from my house anymore (more details to come about this project!)

- I reviewed my insurance policies a few months ago and saved $50/month for the same protection

- I reviewed my cable bill a few days ago and reduced it by $15/month

- I’ll be cooking more (since we are expecting our 3^rd child in a month or so, I won’t go to the restaurant very often!)

I’ll also be more cautious about my spending and plan in advance. For example, we will install a pool this summer, but this will be paid for by my tax return which is already planned. Therefore, I won’t be counting on credit to pay for it!

Setup an RESP for my kids (yeah, I know, I suck!)

William is now 6 and I haven’t setup an RESP for my kids yet… man I suck sometimes! This year, I want to not only open the RESP but put $2,400 in to it. This won’t happen until I get my finances under control but I will eventually setup the RESP and invest $200/month into it. I’ll obviously have to invest a lump sum to have it hit $2,400 for 2012 but it will be set for future years.

Since we get a 30% subsidy from the Government, this will make the sum of $3,120 per year. If I calculate that I will start withdrawing money from this account when William is 20, I will have the amount of $58,425 (or $49,455 in today’s dollar considering a 2.25% inflation rate) if I invest at 4%. Since a year in university cost about $5K in Quebec today, I will have enough to support my 3 kids going to University without any problems.

 
oh, and the only book you need if you want to setup a RESP for you kids is this one:

Make $130K this year

Huh? My goal is to pay off more debt and I aim for a lower income? What the…???? yeah… well this is also part of a bigger plan where I won’t be working downtown anymore. So on one hand, I’ll be saving a lot in the cost of transportation, but on the other, I’ll be making a lot less. Last year, while I made 176K, I got 64K in bonus. Therefore, the rest of my income totals $112K. I know I won’t be getting a similar bonus this year since I’m leaving downtown. This is why I aim to generate an excess of roughly 20K from my “base income”. This could come either from my bonus or my online company. Speaking of which, I’ll be back with my blogging goals for 2012 tomorrow.

So what do you think? And what are your goals?

Do you think I can do it? Man, I was depressed to see that I’ve increase my debts by 18K in 2011 instead of paying it down… I hope that this year, I will not only reach a “deficit 0” but also pay down for 13K of debts! Do you think it’s feasible, even with a smaller income? And what about you? Do you have any specifics goals for 2012? Anything you want to crush?

Each year, I establish my financial and blogging goals at the beginning of the year. It is a way to focus on very specific things throughout the year instead of trying to reach all kinds of goals at the same time. So my 3 financial goals for 2011 were :

#1 Paying off all my credit cards (22K!)

Good news or bad news, I know that as of the end of January 2012, I won’t have any credit card debt. I say good news because I will reach my goal albeit only 1 month late. But I say bad news as it didn’t happen the way I thought it would. To be honest, my goal was to systematically pay back my debts throughout the year. If you have been following my net worth statement, you know that it didn’t happen at all. In fact, I kept increasing my debt level (up to 28K back this summer!). This is how I finished in the top 3 and made $176K this year.

So the way I found to reach my goal was to get the most amazing bonus I’ve ever earned (which will be paid in January 2012). This is the only reason why I will be able to:

a)      Clear 22K in credit card debts

b)      Pay off my 10K RRSP loan

While I’m pretty proud of my bonus, I’m not that proud of my spending habits! This is why I’ve started to see things differently and applied a few changes to my habits. Starting January 20^th, I will be leaving my job downtown to either work 5 minutes from my house or 50 feet away from my bedroom (I don’t know if I’ll stick to the rat race or not yet). In both cases, I’ll be saving roughly $10,000 in transportation cost (this includes, metro pass, gas, parking and car maintenance). Since I live in a highly taxed province, this will equal almost $20,000 of gross income

#2 Increase my net worth past 200K (from 152K)

Here again, I say mission accomplished but not the right way! As of November, my net worth was sitting at $177K. I will see a big jump in January with the arrival of my bonus (which will be roughly 30K after taxes. So in a single year, I was able to increase my net worth by 50K while the 30K will serve to pay down my debts.

I don’t expect to reassess my company shares until our annual meeting that usually happens in April or May. Until then, my net worth will be pretty stable. My other big asset, my house, has been reassessed after I’ve installed a central AC this summer. Also, I won’t increase the value of my house again at the end of the year to consider inflation. However, my neighbor just sold for $340K and I have over 400 square feet more (and a central AC ;-D ).

#3 Get into the Top 3 Financial Planners in Montreal and Make 150K

I still don’t know if I’ll win the Planner of the Year in Montreal (the announcement is being made in late January) but I know already that I’ll be in the top 3. This year was a tremendous one and I’ve achieved 272% of my numbers. This is how I finished in the top 3 and made $176,000 this year.

I know I might never repeat this great year, but at least, I will use the money earned for a good purpose. Instead of building a garage (man, I really miss my garage!), I will pay down my debt and start fresh for 2012… with more goals! Those will be announced at the beginning of 2012 .

Stay tuned as I’ll also update you on my 2011 blogging goals next week!

Another month has just passed and we are already thinking about Xmas shopping! I haven’t been looking at my expenses until recently when I took austerity measures in order to get back to a “black” budget. So this month has been quite challenging in terms of expenses for 2 main reasons:

Xmas shopping

Our 3rd baby

While we have been pretty reasonable with Xmas shopping this year (we give gifts to our kids), the arrival of our 3rd baby is generating tons of unexpected expenses.

But you already have 2 kids, what else do you have to buy for the 3rd one that you don’t already have????

Well, this is the problem.

A very frustrating problem.

We have to buy all kinds of stuff that we already have because they are not considered safe anymore!

Man! It’s not like we had William and Amy back in the 40’s!

Watch this; we had a problem with our stroller so we have to change it… all right $300

Our baby seat for the car is overdue (they only last 5 years !?!?!). Another $200

There was a recall on our baby crib (that we only paid $400 not so long ago!) so we can’t use it anymore! Aaaahhhh! Thank God, one of our friends kept his so we can borrow it.

So while we have tons of clothing,both our children were born during summer time and this one is due Feb 2nd. So half of the clothes won’t work… ugh!

So this is why we have been struggling between Xmas and baby shopping in the month of November. I’ve decided to sell more of my stocks to pay for these expenses in order to avoid increasing my debt level. Good news! It worked! Not going to the restaurant or ordering out for a second month in a row was a great help! It’s a bit frustrating sometimes but it is nothing compared to not paying your credit card balance in full!

As I mentioned earlier, I’ll get a pretty fat bonus this year. Even though I have to pay a huge load of tax (50%) on it, I will still have enough to pay back about $25K in debts in one shot. On top of it, I’ll be reducing the cost of transportation by about $700/month starting the last week of January. So, I’ll not only start fresh with less debts but I will also have a balanced budget that doesn’t count on a huge bonus at the end of the year to pay down my debts!

Right now, my biggest issue is to resist the temptation to “treat myself” and buy more stuff. I love to go to restaurants, dress well and do activities. I just have to lock up my wallet and ignore the fact that I’m getting this bonus. Sorry capitalism, I have to stop making the economic wheel turn and think about paying down my debts .

Assets:

Liabilities:

Net Worth: $177,544

During my last net worth statement, I was completely ashamed of myself. How can I make so much money and spend it all? It’s one thing to reward yourself (I’m a big believer in behavioral psychology!) but you ain’t doing anything good if you finance your rewards through your credit card! So this is how I went on an austerity plan (feels like a Greek guy!).

My austerity plan has 1 objective: cut on dinning out!

We are tired, we want to celebrate or we simply have this obsessive image of a BBQ chicken with fries and sauce (my favorite is the combo double chicken legs! Hum…. So tasty!). I love to eat and I know I spend a lot of restaurants and ordering food when it’s Friday and we don’t feel like doing supper. Well for the past 6 weeks, we haven’t ordered anything and we didn’t go to the restaurant either!

The second important source of expenses in my household is my cost of transportation for work. I live 85 km away from my job (that’s a 1 hour drive on the highway for US readers ). While I really enjoy driving (after all, I did Montreal – Virginia Beach in one shot, no stops ), it cost me a ridiculously high amount to make this distance. There is gas, parking (yup, I don’t even have free parking!) and a higher cost for car maintenance. With the price of gasoline rising, it is now a $10,000 expense per year in my budget. The most disgusting part is that since I’m at a marginal tax rate of 42%, my last $17,241 earned on my notice of assessment goes to transportation… Even if this year I’ll reach a total income of about $150,000 (more on that later on), it is 11.5% of my total income going to transportation!!!! I can’t do anything about this right now, but I will in February. I can’t tell you more right now, but let just say that regardless of what is happening until then, in February, I’ll be working in the same city I live. So I’ll go from 10k to $500 per year for gasoline to go to work ;-D.

My Halloween Horror Story

I’ve delayed my net worth statement on purpose to get it on Halloween’s day because I have a horror story regarding my personal finance. I feel like living the sequel of an old horror movie of a story that happened 11 years ago (I would have preferred the tragic number “13” but it’s only 11 years…). For the very first time in 11 years; I wasn’t able to pay my credit card in full! I have municipal taxes and school taxes coming in November and I needed to leave a few more hundreds in my account. This is how I was able to pay only a part of my credit card statement. I could have taken the missing amount from my company’s account but I wanted to act different this time.

For a while, I’ve been taken resources right left and center to pay off my lifestyle. This time, I’ve decided to stop counting on the fact that I’ll be making more money later on and take the hit. I guess that if you really want to change your behaviors, it needs to hurt. Pain is probably the biggest motivation factor I’ve ever experienced in my life. I felt the pain a few weeks ago when I paid partially my credit card.

The pain of paying interest.

The pain of feeling like a slumbag who’s not able to manage his budget properly.

The pain of publicly writing this article you are reading this morning.

But when it hurts, you do something about it. This is why I decided to take a deep breath and take out the stitch one shot!

But there is still a good news ;-D

My “austerity” plan actually worked though, my debts have decreased by $300 or so this month. This was the very first time since a while that I’ve actually decrease my debts instead of taking more money out of my line of credit. While $300 is not an incredibly high amount, it is definitely a good step in the right direction!

So my net worth has slightly declined (thx to the value of my 2 cars!) but my debts has slightly reduced as well. This is what the most important part is for me right now!

Assets:

ASSETS	PREVIOUS MONTH ($)	CURRENT MONTH ($)	CHANGE (%)
CHECKING ACCOUNT	$1,000	$1,000	0.0%
EMPLOYER STOCK ACCOUNT	$2,395	$2,699	12.7%
RRSP ACCOUNT	$30,441	$30,309	-0.4%
PENSION PLAN	$20,218	$20,218	0.0%
HOME	$345,640	$345,640	0.0%
COMPANY SHARES	$98,000	$98,000	0.0%
MAZDA TRIBUTE	$19,530	$19,096	-2.2%
MAZDA RX-8	$7,200	$6,800	-5.6%
TOTAL	$524,424	$523,762	-0.1%

Liabilities:

DEBTS	PREVIOUS MONTH ($)	CURRENT MONTH ($)	CHANGE (%)
CREDIT CARD	$20,721	$22,342	7.8%
LINE OF CREDIT	$19,912	$19,868	-0.2%
HELOC	$264,309	$263,109	-0.5%
CAR LOAN	$19,530	$19,096	-2.2%
Personal Loan	$11,666	$11,458	-1.8%
RRSP loan	$10,000	$10,000	N/A
TOTAL	$346,138	$345,873	-0.1%

Total Net worth: $177,889 (-0.2%)

Ouch!

And…

Poor me!

That’s exactly the 3 words I thought when I pulled out my assets and liabilities last week to write this post. In the span of a single month, I dropped my net worth by $9,000… how can I lose 9K within 1 month?!? OMG!

When a big movement in your net worth occurs, you need to find out what happened!

I knew that this wasn’t going to be a nice month since I was taking my vacation right after writing my latest net worth statement but I didn’t expect to see such a dramatic change in my personal finances… as I didn’t expect to go to New York for my birthday the same month either!

So Where Does all My Money Go? (that’s also the title of a great blog authored by Preet ).

First there was my vacation when we went to Virginia Beach,

then there were both municipal and school taxes,

then there was a crazy weekend in NYC for my birthday (I turned 30 ;-D ),

then there was the tire that blew on the highway the day I got back from vacation,

then there was another great supper at an expensive restaurant for my birthday with friends,

then there were “back to school” expenses for my 2 kids,

then there was private daycare for my youngest one as we want her to play with other kids her age to be ready for school next year,

then there was the market dropping like a rock…

all right, so out of all the reasons describing why I feel poorer there is only one reason that was out of my control: the stock market and its mood swings! As for the rest, I have no excuses. I just hit a bigger wall this time as everything happened during the same month. Maybe I needed this to finally put some action behind my words. This is when I decided to take my finances in hand… with real moves!

#1 Review my insurance coverage

Believe it or not, you can’t trust anyone. And when I say “anyone”, I also mean the people that you can trust… in fact, you can’t really trust them . When I took my term insurance 3 years ago, I knew my needs and I knew what kind of product I was looking for. That’s one of the main advantages of being a financial planner . However, I don’t know much about insurance pricing and I should have shopped around. Instead, I trusted my wife’s cousin… big mistake!

When I reviewed my insurance coverage this month and realized that I could get $500,000 more in coverage while paying $30/month less (without counting the fact that I am 3 years older than when I first signed my insurance policy!). So, the tip of the day: shop around once every 2-3 years for your insurance coverage and you’ll probably discover a few bucks hidden under the mattress!

#2 Drop my electricity bill

When I moved in last year, I was on a monthly plan at $300/month. Even though I have a big house, I didn’t expect to see my bill go so high. During past 12 months, I’ve been working on dropping this bill down and having a small monthly plan. I got my electricity spending reduced to $250 per month for the upcoming year. So this is an extra $50/month in my pocket!

#3 Restaurants are my Arch Enemies!

When I need to cut down on something to make some room for my budget, I know exactly where to look: restaurants! I really, really, REALLY enjoy food. This is why I always end-up going to good restaurants and picking among the most costly plates. On top of that, I’m a bit lazy when it comes down to cooking over the weekend. I have a bad tendency of ordering pizza or chicken on an almost regular basis…

For the past 2 weeks, I’ve made some modifications in my habits. #1 I didn’t go to the restaurant at all. #2 I cooked instead of ordering unhealthy food! Last Friday, I cooked duck and made a shrimp risotto. Instead of paying more than $100 in a restaurant to have the same thing, we had everything done for less than $30!

Communication is the key!

When you are getting a little bit tight in your budget, you might have the reflex to keep it to yourself and without discussing this with your spouse. For example, I’m the only one working and managing the finances at home. On top of that, I know that my wife is a bit insecure about money. I used to tell her that everything is fine all the time but now, I had to tell her that we need to slow down at least for a few months.

It wasn’t fun to tell her that we need to slow down but I obviously need to get my spending under control. The days where I can only spend and never look back are over. I’m still in a pretty good financial situation, but I’ve been running from one excess to another lately. This has to stop. Since we can easily save $500 per month in restaurant and activities, we’ll adjust to that for a few months and see how it goes.

The good news is that I can always count on my bonus to pay off some debts… but here again, this is a habit I should quit along the way. I should be able to live with my main income and put the bonus aside.

So here are my assets and liabilities! (you’ll notice that my RRSP account grew by 9K but it’s because I took at 10K loan to invest in the market dip… the leverage loan is currently breaking even but the rest of my investments had suffered the wrath of the market!).

Assets: $524,424

ASSETS	PREVIOUS MONTH ($)	CURRENT MONTH ($)	CHANGE (%)
CHECKING ACCOUNT	$1 000	$1 000	0,0%
EMPLOYER STOCK ACCOUNT	$6 867	$2 395	-65,1%
RRSP ACCOUNT	$21 453	$30 441	41,9%
PENSION PLAN	$20 218	$20 218	0,0%
HOME	$345 640	$345 640	0,0%
COMPANY SHARES	$98 000	$98 000	0,0%
MAZDA TRIBUTE	$19 964	$19 530	-2,2%
MAZDA RX-8	$7 600	$7 200	-5,3%
TOTAL	$520 742	$524 424	0,7%

Liabilities: $346,138

DEBTS	PREVIOUS MONTH ($)	CURRENT MONTH ($)	CHANGE (%)
CREDIT CARD	$18 684	$20 721	10,9%
LINE OF CREDIT	$19 677	$19 912	1,2%
HELOC	$262 836	$264 309	0,6%
CAR LOAN	$19 964	$19 530	-2,2%
Personal Loan	$11 874	$11 666	-1,8%
RRSP loan	$-	$10 000	N/A
TOTAL	$333 035	$346 138	3,9%

Total Net worth: $178,286 (-5%!)

We all want to retire early and live the life. We all want to have a high quality of life in our golden years. We all have different plans for saving towards retirement.

It’s solid personal finance advice to suggest to a young person to save money towards retirement. We all should have retirement savings on our minds, regardless of our current age. There are many ways that one can go about saving up for retirement and it all depends on what opportunities are available to us. The dilemma with retirement saving for most of us is surrounding the idea of the amount of money that we should be putting aside for our retirement right now.

How much of your current income are you saving towards retirement? How serious are you about your retirement?

I’ve recently had many mixed feelings on saving money for retirement. I wanted to present two different scenarios that got me thinking differently about retirement planning:

Scenario #1: My friend’s father passed away sadly at the beginning of the year. He worked a job that he didn’t like up until his last few days because he never planned for his retirement. Since he never saved money and had three children, he had to work way past the point where his body could function properly. He would hate his job and waking up every day for work dreading it.

Scenario #2: A rich older man that I knew of passed away just as he retired. He planned and saved for his retirement meticulously. He was so aggressive with his savings that he was able to retire at 55. His sacrifice and dedication paid off as he reached his goal of early retirement.

As you can tell the first scenario has me worried about retirement and the idea of saving enough money. I really don’t want to end up working a job that I don’t care for until my late-60s. Especially if I can start planning for this in my 20s.

On the other hand I don’t want to live like a hobbit and save every single penny. There’s no fun in staying home and not going out much. I could never be one of those people that brag about saving money by not going out or traveling at all.

What’s my solution to my mixed feelings on retirement planning?

Setting long-term financial goals while still finding ways to enjoy the present moment. You don’t have to go in one extreme or the other.

You can escape the rat race without being completely careless and quitting your job without a backup plan. There are many ways that you can enjoy today without losing out on tomorrow. I believe that it all comes down to conscious spending and prioritizing. You can have the nice toys that you want as long as you make the money and manage to save a decent amount of change. It’s cool to spend your money on trips if you plan for it and earn in.

I really believe that we can have what we want right now while still planning for the future. We just need to plan ahead and find that perfect balance. It might take a long time before we find that perfect balance, but I’m sure that it’s possible to hit eventually.

If you want more detailed help then you should check out Mike’s newest eBook launch: The Rat Race: 1 Year From Now, Will You Still Be A Rat? This small investment can help you get out of a viscous cycle that’s taking a toll on your health and your happiness.

What are your thoughts on saving for retirement? How aggressive are you? Would you rather spend more money now to enjoy life?

(photo credit: john walker)

Okay, I won’t take long to answer this simple question. In fact, chances are that you don’t even know who Frederik Meijer is. To be honest, I didn’t know before writing this article either .

So here’s a quick description of each guy :

Name: Warren Buffet

Occupation: CEO & Chairman of Berkshire Hathaway

Net Worth: $50B

Name: Carlos Slim

Occupation: Business man (mainly active in telecom, real estate & mining companies)

Net Worth : $74B

Name: Ingvar Kamprad

Occupation:  Founder of IKEA

Net Worth: $6B

Name: Frederik Meijer

Occupation: Businessman (Meijer Supermarkets)

Net Worth: $4.7B

All right, you guessed it… they are all rich!

Nope, think again.

They are also known for their frugality. While Buffett and Slim live in their very same house as 40 years ago, Ingvar drives a 15 year-old Volvo.

But that’s not my point either. In fact, it is only half of the story. Some people pointed out in one of my latest posts (Why Cutting Out Your Starbucks Won’t Make You Rich) that frugality pays off over time and that some of the richest men on Earth are frugal.

All right guys, you made a point: there are frugal billionaires out there. But, seriously, do you really think that these guys amassed their fortune by saving 50 cents on toothpaste?

What they really have in common is the following: they are all creative businessmen. And this is really how they made their money: by founding a company.

In fact, it appears that there are only few ways to become a billionaire:

#1 Inherit a huge fortune (such as M. Stefan Quantd who owns 17% of BMW… my favorite car constructor!).

#2 Be part of the first Facebook collaborators (such as Mark Zuckerberg, Dustin Moskovitz, Sean Parker and Eduardo Saverin).

#3 Be an incredibly awesome entrepreneur (like most people on the Forbes Billionaire’s list).

So I told you last week and I’m yelling this proudly again: frugality won’t make you rich. My theory is that frugality will slow you down and prevent you from becoming rich. Forget about being billionaires like these guys. Just think about living the good life without having to budget because you make more money than you spend anyways. This is financial independence:

Working because you want to instead of needing to

Living in the same house for 40 years if you want to instead of having to

Making money from your passion not from a measly bi-weekly pay check

And how do you reach financial independence? By not restraining your passion, your guts, your brain. Get rid of this old set of restrictions indoctrinated in our minds since youth. Open up your mind and see further than the 2 for 1 coupon stuck in the wallet in your back pocket.

I think these frugal billionaires are an exception. And I also consider that there should be a balance between living frugal and over spending. This balance is what I call “financial independence”. As long as you can spend money as you wish and that you don’t have to budget, that’s the real life, regardless how much you spend.

Then, it’s only a matter of earning more than you spend… and doing it through passive income . In the end, I would rather look like Richard Branson than Ingvar Kamprad but that’s probably because I prefer driving cool cars than sitting on a nice chair in my kitchen .

Wow… this is nice! The stock market is down and I’m still able to show a 7K growth for my monthly net worth statement! Nope, I didn’t increase my house value or my company shares (this is being done annually). In fact, I received my pension plan update, yeah!

However, what I am the most proud is to see my debt level increase by only $500 while I hosted 2 birthday parties and booked my vacation (Virginia Beach, here we come!) since my last update. The parties along with the hotel in VB have probably cost more than $1,250. Therefore, the increase is less than the money I have spent over my monthly regular budget. I know that other expenses will make my task of lowering my debt difficult in the upcoming months as I have municipal and school taxes along with… my B-Day in September .

Why looking at your net worth on a monthly basis is a good thing?

I used to think that looking at my net worth month after month was kind of a waste of time. Some people do it on a yearly basis and they are just fine with it. However, I have noticed that since I follow it on a monthly basis, I’m being a little bit more cautious about my spending.

I’m not going to cut down on my Starbucks, but I will be more patient for bigger spending. For example, I have been going crazy to buy a pool this year. However, buying a pool also implies buying all the equipment and building a deck around it. Since this year I have spent enough money on my house (I added a central A/C and did my landscaping), buying the pool would be totally irrational. Therefore, I’ll wait until next year when I can pay cash for it. I have recently mentioned that I am expecting a big bonus in January. This bonus will be used to pay off my debts, maximize my RRSP and pay for my pool ;-D. If my bonus is not big enough, the pool will simply have to wait another year.

If I wasn’t looking at my net worth on a monthly basis, I might have thought that I could borrow some more as all pool dealers offer generous financing options. However, I would have jumped at the time of my yearly net worth statement. Since the beginning of the year, I have seen my debt level grow from $328K to $333K this month. While my assets are evolving faster than my debts, it is still not a good sign to see them growing! This is exactly how the US Government got into debt troubles; they didn’t care about their debt enough…until it hit them in the face harder than a shovel swung by Alex Rodriguez!

Then again, my plan is to eventually use my employer stock to pay off my debts. While it is growing on a steady basis (besides this month obviously!), it is also paying a 4+% dividend (which is double the interest I pay on my debts). This is why I let my employer stocks grow at the same pace as my debts do .

So here’s the statement for the month:

Assets: $520,742

 

ASSETS	PREVIOUS MONTH ($)	CURRENT MONTH ($)	CHANGE (%)
CHECKING ACCOUNT	$1 000	$1 000	0.0%
EMPLOYER STOCK ACCOUNT	$6 930	$6 867	-0.9%
RRSP ACCOUNT	$21 453	$21 453	0.0%
PENSION PLAN	$12 000	$20 218	68.5%
HOME	$345 640	$345 640	0.0%
COMPANY SHARES	$98 000	$98 000	0.0%
MAZDA TRIBUTE	$20 398	$19 964	-2.1%
MAZDA RX-8	$8 000	$7 600	-5.0%
TOTAL	$513 421	$520 742	1.4%

Liabilities: -$333,035

 

DEBTS	PREVIOUS MONTH ($)	CURRENT MONTH ($)	CHANGE (%)
CREDIT CARD	$16 625	$18 684	12.4%
LINE OF CREDIT	$19 717	$19 677	-0.2%
HELOC	$263 710	$262 836	-0.3%
CAR LOAN	$20 398	$19 964	-2.1%
Personal Loan	$12 083	$11 874	-1.7%
TOTAL	$332 533	$333 035	0.2%

Total net worth: $187,707 (+3.7%!)

Why Do You Fear Debt?

I’ve been thinking about why people are so afraid of debt. Here are the possible reasons I have found so far:

a)      Educational background (we have been told by our parents, by school and by the Church that debt is evil and that we should always spend within our means).

b)      Financial Gurus (most “great financial gurus” are literally preaching a frugal lifestyle and to avoid debt at all cost even if it means using half a tissue paper)

c)       Fear of losing (this is more understandable: if you have too much debt, you could eventually default and lose your house/car/lifestyle. Nobody wants that)

d)      Hate to pay interest (that is another good point: when you borrow money, it always costs more to pay it back than paying cash in the first place. Interest sucks!)

I might have forgotten one or two more reasons why people fear debt but in general, you probably fall into one of these 4 categories. When you think about it, they are not dumb reasons. In fact, some of them are easily defendable points. In front of this info, most people would agree that having debt is a bad thing and someone that is debt free is to be considered “rich”.

Well, I completely disagree with that. Debt can be so useful that if you are trying to pay them off ASAP, you are missing something.

What is the worst that can happen?

If you have too much debt, the very worst thing that can happen is going bankrupt. This is the worst case scenario; losing everything. I might have a different point of view on debt because I have a different background than most people. At the age of 14, my parents went bankrupt. It is important to say that, back in the 90’s, my dad was making over 100K already. My parents were spending their money as it was coming in. While there was lots of money coming in, there was lots of money going out! When my dad lost his contract, it took only 3 months until there was no money left and had to declare bankruptcy. We lost our big house, big cars, no more vacations, we lost everything… in fact, I even remember my mom looking for spare change under the cushions of the couch to buy a pint of milk at one point!

However, losing everything is not as bad as it seems. It sucks big time but you just get over it. You learn to live with less money in your pockets and you start working hard again. Surprisingly, 4 years later, my parents had started a new company and were making even more money than back in the 90s! You couldn’t tell they went bankrupt and had lost everything a few years back!

What have I learned from this?

I’ve learned 2 things from going bankrupt as a teenager:

#1 don’t overspend and make sure you have a backup plan (I have my budget under control and I can always rely on my online company to pay my bills if I lose my job)

#2 losing everything is not that bad (so I don’t have to fear debt)

Now, it’s not because I don’t fear debt that I should go to the bank and fill my pockets with loans! In fact, one should only borrow to build assets and avoid consumption related debt. For example, don’t finance your vacation . Make sure you have a budget for it!

Where I’m a bit different than others is that I always calculate where my money will generate the most benefits. Then, since my mortgage is at 2% and I can easily generate more than a 2% yield, I invest in the stock market and my company. Therefore, instead of focusing on paying down my debt, I think I should focus on creating more assets.

Over the past 3 years, I have noticed that my spending habits have increased significantly. Unfortunately, not all my debts and expenses are related to creating assets. I have also increased my lifestyle a lot. This is why I am now trying to pay down my debt as I consider that if anything happens right now, I will definitely run into a tough time even if I can count on my online company to cope with my salary loss. My other goal is to drop my debts to eventually give me the option of quitting my day job. I really like what I do right now but just having the option possible would make my day!

Are you afraid of debt? Do you sleep well at night? As long as my interest rate is low, I do!