September 15, 2010, 5:00 am

Financial Planning Goals While Turning 30 Part 2

by: The Financial Blogger    Category: Financial Planning,Personal Finance
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Yesterday, I discussed what I want to put in place before I turn 30. This magic number makes me act on the financial aspects of my life because I feel a sense of urgency to have a solid plan in order to reach my ultimate goal; retiring at 55.

25 years left to become a multimillionaire

Hoping to retire at 55 is almost a utopia in North America. While governments consider extending the normal age of retirement closer to 70, I want to pull out the plug 15 years prior. If I really want to reach my goal, I need to figure it out by 30 before it’s too late to act!

I need to invest more

While I want to use additional money to pay off my debts before I reach 30, I want to do the opposite afterwards. I strongly believe in the force of compound interest and this is why I only want to build a small level of equity as a safety net before I switch to a more aggressive investing mode.

During my 30s, I will concentrate on increasing my Smith Manoeuvre (some other expenses prevented me to start it in August as planned… the project is still on ice for September… arg!).

If I could reach near $1,000 per month to be invested in my account while I pay interest only on my mortgage, I think I will be able to build an interesting investment account. At a 6% rate, I would create 163K within 10 years while my mortgage will still be around 250K. And if I keep using the same strategy during 25 years, I’ll end-up with 692K in my account.

Doing major projects with my bonuses

When I was talking about stabilizing my income during my latest post, I also wanted to try to pay all my living expenses with my base salary while using my bonuses toward debts.

At 30, I want to be able to manage my budget with my base salary (plus my company’s income) and use my bonuses (plus my company’s bonuses) for major projects such as renovations and vacations. This should be considered as gravy stuff and I should only treat myself to a garage if my bonus permits it. Therefore, I would not resort to more debts to finance my project. If I want to buy another car, I would have to get rid of my current payment and not have a higher car payment once the change is made. Keeping the same level of lifestyle will be very important to reach retirement at 55.

Think about my pension plan

I have a pretty decent pension plan where I work. If I would ever plan to leave and start working full time on my company, I would need to be able to draw a salary over 100K in order to maximize my RRSP (about 20K per year) in order to enjoy a similar pension at retirement.

By investing 20K per year for 25 years at 6%, you get the magic number of 1M$. Unfortunately, 1M$ won’t be enough to generate the equivalent of my current pension plan. I would probably have to increase this amount to 30K per year (using my TFSA account + my wife’s) to reach the same level.

So the day I leave my day job, I will be sitting on something providing me with enough money to cover my pension plan…

Concentrating on my children’s education

I haven’t started an RESP yet. Not that I don’t find it important. It is VERY important. However, I have had other priorities first. Starting at 30, I want to invest a few thousand per year for my kids’ education to make sure they have enough money to pursue the diploma they want.

I think the RESP is one of the best way to help your children pay their tuition. An RESP is a safe and effective way to save for your child’s education, so be sure to consider looking in to one if you need to start thinking about that. Ultimately, I would like to buy a duplex or a triplex in Montreal so they can live in it while studying.

What are your financial projects during your 30s?

What about you? Do you have any special plans for your 30s? Do you think I am crazy to think that 30 is an important number in financial planning?

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You’re not crazy. I think it’s just logical to take time to review what you did, revise your goals/needs at a regular pace.

Insurance planners always say that (to sell you more insurance products lol!) ;). I think on some points they a right.

You need to revise what you did, what needs to be done, when and how.

Life is your biggest project, and as a father you’re in charge for about 20 years of your babies biggests projects: their lifes! Better try to do a good job or they might fire you later ;)…

These are great goals. I’m not quite 30 yet (I don’t turn 20 for another few weeks) but I definitely have similar goals. When I turn 20 I want to start saving up for retirement, so my net worth can be $1 million+. I want to save up for my (future) children’s education (I want to have 4 so I need to be super aggressive). I also want to start investing. Hey, I can dream right?

My advice is save the RRSPs until later when you will be making a great deal more. TFSA are the way to go when you are younger and in a lower tax bracket to grow tax free. I read a book by Derek Foster “Stop Working: Here’s How You Can” that provides a strategy for dividend investing which work well inside the TFSA to build up your asset column. Read “Robert Kiyosaki ” by Robert Kiyosaki which defines an asset anything that does not cost you money (house, car, etc..). The primary goal is to have your invested money generate cash flow as oppose to tying it up in non-assets.

That said you need to take most of what you read for the ideas and not to the detail letter that is written. Shelter, education and happiness, while not money makers, must be balanced in the equation.

I am a little older and almost mortgage free and will start looking to more advanced/risky investing but only with money I can afford to lose. I like the one general rule of thumb “pay yourself first” that is stressed by most of the financial gurus (David Chilton, Robert Kiyosaki, Derek Foster, etc…).

In the end I always buy one lottery ticket a week. You never know…..