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?
