As I put the numbers together for my 2013 year-end review and net worth update I realized that I made two critical errors in my financial plan this year: my financial goals were wildly optimistic – I wanted to achieve a net worth of $360,000 – and I got lazy and failed to properly execute my plan.

Related: Why your financial plan sucks

Midway through the year it was clear that I wouldn’t reach my target, but I pressed on – convinced that a surge in the stock market would make up for lost ground.  While the market did rally in the latter part of the year, it wasn’t enough to help me reach my year-end goal.  Even a last-ditch effort to boost my RRSP contributions – although a worthwhile strategy in the long run – wouldn’t get me where I wanted to be at year-end.

I can come up with all the excuses in the world: a wage freeze at work, a decrease in business income, an increase in day-to-day living expenses, and the start of our basement renovations.  The reality is that all those things happened, and that’s okay.  I’ve tempered expectations and at the end of the day I know we’re still making tremendous progress.

Here’s what my net worth statement looks like compared to last year.

Net worth update: 2013 year-end review

  2013 2012 % change
Assets
Chequing account $1,500 $1,500
Savings account $10,000 $8,000 25.0%
RRSP $90,502 $53,582 68.9%
Defined benefit plan $82,950 $51,698 60.5%
TFSA $4,523 $4,350 4.0%
RESP $8,551 $4,690 82.3%
Principal residence $425,000 $425,000
Total assets $623,026 $548,821 13.5%
 
Liabilities
Mortgage $267,865 $290,519 (8.5%)
RRSP loan $20,000
Total liabilities $287,865 $290,519 0.0%
 
Net worth $335,161 $258,302 29.8%

Looking ahead to 2014

I’m happy with the nearly 30 percent increase in net worth this year and a quick glance at my budget for next year suggests I might expect a similar gain in 2014. Another 30 percent gain would bring my net worth to $435,000, which is a $100,000 increase from this year.

But when you spell it out like that it looks like I’m setting myself up for disappointment again.  Let’s take a closer look at the numbers.

Mortgage

Paying down our mortgage continues to be one of our top financial priorities.  We currently put an extra $1,100 on top of our regular monthly mortgage payment and so we expect our balance to decrease by $22,500 to $245,365.

RRSP

Since I’ve basically made my 2014 RRSP contributions already this year by taking out a $20,000 loan, next year will be focused on repaying that loan.  I’ve budgeted $1,700 per month to pay back the loan over the calendar year, plus an extra $1,500 for a contribution in December.

Related: RRSP contribution or mortgage pay down?

So with a $1,500 contribution, and assuming 8 percent growth in the portfolio, my RRSP should reach $99,352 by the end of 2014, for an increase of $8,850.

Defined benefit pension

When I checked my last pension statement it showed the commuted value was roughly equal to my contributions, plus my employer’s contributions.  That makes an easy calculation and so this forced savings plan should increase by $20,880 and be valued at $103,830 by the end of next year.

And the rest of it will come from?

Half of my net worth growth will come from those three areas next year, which makes sense because they each make up a huge part of our financial plan.  But directing the majority of our cash to these three areas won’t leave much room left for our TFSAs, RESPs, and cash for emergencies.

Then there’s the basement renovation.  We plan to finish our basement in stages as our budget allows for it.  We’ve already had it framed, so we need to start on plumbing and electrical next and then drywall before we paint and install the floor.

Related: Do home renovations pay off?

That means we’ll likely burn through the cash in our savings account, plus some of the cash that was earmarked for “savings” next year.  The goal is to complete the project without going into debt.

We’ll keep our regular RESP contributions and hopefully scrounge up a few thousand dollars extra to add to our TFSAs.

A more realistic net worth goal would be to try and top $400,000 – that would be about a 20 percent increase.

Have you reviewed your finances this year?  What will 2014 have in store for you and your finances?

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15 Comments

  1. CanadianDaniel on December 30, 2013 at 6:36 am

    Thanks for sharing, Robb

    No criticism here I’m even more real-estate bound) — just a couple of observations.

    You could change your mo. mortgage payments to weekly accelerated which will accelerate repayment.

    Your net worth is heavily dependent on the assessed real estate value. Lord, please no sharp housing correction.

    Very few Canadians have a defined benefit plan — good for you!

    All the best in 2014

    • Echo on December 30, 2013 at 8:54 am

      @Daniel – thanks for the kind words. Real estate does make up the bulk of our net worth but I feel like we did a good job reducing that this year – it went from 77% of our assets down to 68%.

      Since we pay over-and-above of minimum mortgage payment, it doesn’t make a difference whether we pay weekly, bi-weekly, or monthly. Our amortization has been reduced to just under 10 years.

  2. Rob on December 30, 2013 at 8:09 am

    I find it curious that in your list of assets that your Principle Residence valuation did not increase at all over the past year (2013 vs 2012). Mine definitely did. You might wish to recheck that one.

    • Echo on December 30, 2013 at 8:56 am

      @Rob – The house value may have increased, but I prefer to keep the value pegged at the purchase price rather than adjusting it for perceived market value.

  3. Bet Crooks on December 30, 2013 at 3:24 pm

    Everything looks great!

    Personally, I wouldn’t include the market return on my RRSP in my “goal” for 2014 though. The market return is not really something which you can control or budget on. For me, the goal is just to get the money into the RRSP. The market may go down 25% or up 25% and it wouldn’t matter because I don’t need that money for quite a few years yet. (It’s sort of like you aren’t including the market gains/losses on your home price since it doesn’t matter if you’re not planning on selling.)

    • Echo on January 1, 2014 at 10:10 am

      @Bet Crooks – Fair point, Bet! I need to find a way to increase my savings rate rather than relying on market upswings.

      • Don on January 1, 2014 at 2:52 pm

        Although I understand Bet’s point, I think you are doing it correctly. The biggest reason is that an investment portfolio needs to have a goal. If you weren’t planning on a certain return, then you’d be better off just placing your money into a GIC, or saving account.

        More importantly, it will help you determine how to deal with risk, and allocate your assets accordingly. If you’re looking for 8% then that could likely be done next year by holding some good dividend payers. I have a portfolio that pays around 4% in dividends. It would only need to appreciate another 4% to give me 8%. Even if the market under performs, again, I don’t think it would be hard to get that.

  4. Elemag on December 31, 2013 at 7:16 pm

    Robb, I only did my portfolio return review, and was quite happy with the number- almost 40%. This came on top of buying a new SUV and paying for it in cash. So, all in all 2013 was a very prosperous year for our household.

    One thing I would like to share is that I pay absolutely no attention to how much my house is worth. I don’t plan on selling in the near future, and I don’t look at the equity we have in it as a real asset. Perhaps, many people would be surprise but I have my own reasons which need not be discussed in this reply.
    I care about two things when I do my annual financial review:

    1.Are my liquid assets (cash, stocks, precious metals, etc.) enough to cover my only liability (the mortgage). My goal is to have minimum twice as many assets as liabilities.

    2. Is my overall portfolio growing and by how much? This includes any new contributions made throughout the year plus the growth via dividends and stock price appreciation.

    Honestly, I prefer to be very conservative in my goals and measuring, so if any surprise occurs, it’s always a pleasant one.

    Happy New Year!

    • Echo on January 1, 2014 at 10:12 am

      @Elemag – Great job on the 40% increase! I do not care about the market value of my house. I do include the purchase price and mortgage amount because one of our priorities is to pay down the mortgage and so this helps us measure our efforts.

  5. Don on December 31, 2013 at 8:22 pm

    I’ve been casually reading this blog for a few weeks, and I like a lot of your advice. I’m also very impressed with your mortgage reduction.

    I haven’t seen if you have given the rational, so forgive me if you’ve answered it, but I’m not sure I would include the value of a DPP in your assets. I have a DPP, but I don’t include it in my evaluation due to the fact that it is locked up. Also, as someone who is also an accountant in a previous life, I’m wondering about not including an offsetting liability for the RESP. I’m just basing this on the fact that an RESP is normally assumed to be paid to your children, rather than the contributor.

    On the investment front, I’m really disappointed in the Canadian market. The Dow is now at an inflation-adjusted high, while the S&P TSX isn’t even at a nominal high. I’m also really disappointed that the S&P climbed over 30% this year as opposed to an 8 or 9% increase here. It’s not very encouraging, as you already know. Are you looking at diversifying to the US market?

    Anyways, just my thoughts, and great work.

    • Echo on January 1, 2014 at 10:22 am

      @Don – thanks for the kind words. I’m not concerned that the DBP funds are “locked”. I treat it like my RRSP, which I don’t plan to touch before I retire, so essentially those funds are “locked” too.

      I view a net worth statement as a snapshot of your finances as they stand right now. Yes, the RESP will eventually go to my kids education, but right now it is an asset. My RRSP will have an associated tax liability when I withdraw from it, but since that is an unknown number I do not discount the value now.

      As for the Canadian market, yes it had a disappointing year compared to the rest of the globe but I’m not interested in chasing past performance. I’d bet that since the US market had such a phenomenal year that it’s probably due for a correction.

  6. Joe on January 2, 2014 at 6:35 pm

    Congratulation on a great year. 30% is awesome and you won’t see that kind of gain very often. Our net worth grew 25% and that’s beyond all expectation. I’d be happy with 8-10% gain in 2014, but it’s mostly dependent on the stock market and real estate market.
    Happy New Year!

  7. Rnr on January 16, 2014 at 11:14 am

    Robb,

    I just recently found your site. Very informative. It would appear that we are in a near identical financial situation (34, 2 kids, one income, similar net worth). I will be keeping an eye on your site and will try to keep pace with your annual net worth gains.

    All the best in 2014!

    • Echo on January 16, 2014 at 11:54 am

      @Rnr – thanks for your comment and all the best for you this year as well!

  8. Derek Olsen on February 11, 2014 at 2:39 pm

    Robb-

    I just wanted to drop by and say thanks for posting all of this juicy info. I find this kind of honest and openness very encouraging and helpful.

    Your increase of 29% over last year has to be putting a huge smile on your face. That is amazing.

    My wife and I just started posting our numbers. We felt very alone in doing so until we found the list that J.Money posted. So, thanks for making us feel not so alone.

    -Derek

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