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?
