Net Worth Update: 2014 Year-End Review
I like to take a snapshot of my finances twice a year in order to see how my financial plan is progressing and whether or not I’m meeting my goals. These net worth updates are encouraging because they reveal how the compounding power of savings and debt reduction add up over time.
Related: Net Worth Update – 2014 Midyear Review
I’ve got a long way to go if I want to become a millionaire by 41 (in six years) and to reach financial freedom by 45 (in 10 years). Even though it felt like we took a step back this year, after borrowing $35,000 to develop our basement, I’m pleased that we kept the needle moving forward and posted a nearly 15 percent increase in net worth.
Here are the numbers:
Net worth update: 2014 year-end review
| 2014 | 2013 | 2012 | % change | |
| Assets | ||||
| Chequing account | $1,500 | $1,500 | $1,500 | – |
| Savings account | $5,000 | $10,000 | $8,000 | (50.0%) |
| RRSP | $101,006 | $90,502 | $53,582 | 11.6% |
| Defined benefit plan | $104,703 | $82,950 | $51,698 | 26.2% |
| TFSA | $4,651 | $4,523 | $4,350 | 2.8% |
| RESP | $12,350 | $8,551 | $4,690 | 44.4% |
| Principal residence | $450,000 | $425,000 | $425,000 | 5.9% |
| Total assets | $679,210 | $623,026 | $548,821 | 9.0% |
| – | ||||
| Liabilities | ||||
| Mortgage | $258,916 | $267,865 | $290,519 | (3.3%) |
| HELOC | $35,840 | $20,000 | – | 79.2% |
| Total liabilities | $294,756 | $287,865 | $290,519 | 2.4% |
| – | ||||
| Net worth | $384,454 | $335,161 | $258,302 | 14.7% |
A recent study of wealth distribution showed that the broad middle-class had 63 percent of their net worth tied up in their home, compared to just nine percent for the wealthiest individuals in America.
I’m conscious of the fact that our principal residence makes up two-thirds of our total assets, but note that the unlocked cash value makes up just 40 percent of our net worth.
In any case I’d like to continue decreasing that number in the years ahead and diversify by ramping up savings in my RRSP and TFSA.
A few questions that routinely get asked after posting these net worth updates:
Banking
For all of my day-to-day spending I use a combination of the Capital One Aspire Travel World MasterCard and the Scotia Momentum Visa Infinite. These cards allow me to maximize my reward points and helped me to earn over $1555 in credit card rewards this year.
I have a no-fee chequing account at Tangerine, which I use for bill payments, email money transfers, and the odd debit purchase.
The rest of my banking is done at TD, including my mortgage, line of credit, and investments. For simplicity, I keep a basic chequing account there and maintain a $1,500 balance in order to waive the monthly fee.
Pension
Each month I contribute roughly 12 percent of my salary to a defined benefit pension plan that my employer matches. The amount listed above is the commuted value of the pension if I were to leave the plan today.
The plan pays 2 percent of your highest average salary multiplied by the number of years worked. So if I retired at 60 with an average salary of $100,000 I’d receive $60,000 per year from the pension plan.
RRSP / RESP
I prefer to list the current value of these plans rather than discounting their future value to account for taxes and distributions.
I consider a net worth statement to be a snapshot of your current financial picture, so when it comes time to draw from my RRSP and distribute the RESP to my kids, net worth will decrease accordingly.
Principal residence
We bought our home in August 2011 and, even though the market has gone up, I’ve continued to list the value at purchase price. This year I’ve factored the basement renovation into the equation by increasing our home value by $25,000.
Final thoughts
Our big financial goal next year is to repay half of our line of credit balance. I expect our assets to grow by about $40,000 – mainly through contributions to my defined benefit pension, RRSP growth, and some cash savings – and our mortgage and line of credit balance to decrease by about $27,000. That’ll mean a net worth of just over $450,000 by December 2015.
Have you reviewed your finances this year? How did you fare in 2014?
Seems like you’re in a fairly similar place as us. Right now I’m currently working on the RRSP and TFSA as well since it obviously is better than a mortgage pay down with rates being so low. We haven’t done the basement yet but will likely do the same as you guys did – pay to have one contractor do it all. Home prices have gone up here quite a bit but I don’t put too much value into it as we have no plans to sell. Also, things won’t be as rosy at the current moment with oil tanking but we did still make some good progress in 2014
Good for you, Dan! Good luck with the basement reno.
Impressive numbers Robb, you’re doing very well.
Great gains for the RRSP and pension plan over the last couple of years.
Keep it up!
Mark
Thanks Mark! Now I need to get to work on that TFSA.
Good article and a practice everyone should undertake at least once a year. I am 59, close to retiring and have done this for years, it has helped me stay on track, points out areas where our finances are strong and where changes may be required.
I do however disagree with you on one point. I refuse to include my house as part of our net worth. My reasoning is that as long as I am living in my home (hopefully for a long time) I consider it as a liability that will be one of our main expenses in retirement with taxes, gas and electricity, maintenance etc. Just consider the cost of redoing the roof or any other major repair. I do know that at some point in our life our house will probably fund our final years and it also acts a safety net if for some reason our investments do not last but for now it isn’t in the asset column of our net worth.
Keep up with the good articles.
Dave
Hi Dave, thanks for the kind words. I do respect your argument to not include the house in your calculation. I think the key is to just remain consistent in how you track net worth. I’ve always included it because I know there’s tangible value in it as an investment and you said yourself that you may have to tap into it in retirement.
All the expenses that come along with it, taxes, insurance, repairs, are definitely liabilities. But that doesn’t mean the home isn’t an asset. That’s my reasoning, anyway.
Very impressive increase this year Mark. I haven’t run our net worth yet but will be doing that in early January. Wonder if we’ll have as big increase as you this year. Looks like you’ve had great gains for the RRSP and pension plan over the last couple of years. Is that mostly due to the hot markets or more to do with contributions?
Hey Tawcan, thanks! The pension is just from contributions (employer-matched) and I had a big RRSP contribution last year ($26k) which combined with about a 10 percent gain in market value.
for your principal residence, why not use the government assessment as a value. that way you would more accurately reflect the market price, even though it will not show your renovation. Keep in mind that the building part actually declines year to year due to depreciation. (if you put 25k into a kitchen, 20 years later it will likely have to be done again)
Hi Tom, it’s pretty close to the value on our annual property assessment. Our “renovation” was actually developing the basement, so we created more liveable space (living room, bathroom, two bedrooms). That’s why I bumped up the house value by about 80% of what we spent. I agree that a kitchen remodelling likely adds little to no value down the road.
It’s great to see that increase in net worth – definitely shows that you’re doing the right things!
Thanks Richard!
Looks like you’ve had a great year. Congrats! We haven’t pulled our 2014 numbers yet, but it was a fairly boring (in a good way) type of year. No big purchases or expenses, which should yield a high savings rate for 2014 on the whole.
Robb,
Might I suggest a way to free up that $1500 you have sitting in your chequing account, and get free banking while staying with TD?
I have a HELOC as my primary loan vehicle ($259,000 limit), but I lock in the outstanding balance. The revolving portion of the HELOC becomes my primary account, and the fixed portion gets automatically withdrawn from the revolving.
I get free cheques, no account fees, no minimum balance, and unlimited transactions. It took a bit of work to set up, but it means I don’t have to worry about overdraft, or accidentally tapping into the $1500 float.
Just a thought from a former banker.
Hi Pirj, thanks for the great suggestion!
Great job on the 15% increase in networth throughout 2014. It will be exciting to follow along and see if you are able to reach the million mark within the next six years. Thanks for sharing
Great job, Robb. I like your strategy of balancing paying down your mortgage, contributing to your RRSP, RESP and TFSA. Unfortunately, there’s only so much money to sock away, especially when you have a family. Here’s to a great 2015!