Net Worth Update: 2016 Year-End Review
I like to use the week between Christmas and the new year to take stock of my personal finances, reflect on the year that was, and plan out my goals for next year. I’ve already shared my 2017 financial goals, so now it’s time to update my net worth statement.
As you know, I’m on a path to reach a net worth of $1 million by the end of 2020 and to become financially independent four years later when I turn 45.
Related: 2016 Mid-Year Financial Review
The continued habit of automation and simplifying my finances has really paid off – this was a good year! The biggest victory was paying off our car loan, which we did in October, freeing-up over $800 per month. That money is now being shovelled into my tax-free savings account.
I wanted to reach the $500,000 net worth mark by the end of this year and with the help of a robust stock market we were able to surpass that by a solid $30,000! Here’s a look at the numbers:
Net worth update: 2016 year-end review
| 2016 | 2015 | 2014 | % change | |
| Assets | ||||
| Chequing account | $1,500 | $1,500 | $1,500 | – |
| Savings account | $12,500 | $5,000 | $5,000 | 150.0% |
| Defined benefit plan | $150,853 | $127,451 | $104,703 | 18.4% |
| RRSP | $133,454 | $119,373 | $101,006 | 11.8% |
| TFSA | $7,359 | $4,227 | $4,651 | 74.1% |
| RESP | $25,052 | $17,642 | $12,350 | 42.0% |
| Principal residence | $450,000 | $450,000 | $450,000 | – |
| Total assets | $780,718 | $725,193 | $679,210 | 7.7% |
| – | ||||
| Liabilities | ||||
| Mortgage | $236,843 | $248,056 | $258,916 | (4.5%) |
| HELOC | $11,472 | $25,387 | $35,840 | (54.8%) |
| Total liabilities | $248,315 | $273,443 | $294,756 | (9.2%) |
| – | ||||
| Net worth | $532,403 | $451,750 | $384,454 | 17.9% |
A few questions that I often get asked after posting a net worth update:
Banking
We funnel all of our spending onto the Capital One Aspire Travel World Elite MasterCard. The card pays 2 percent back on every purchase and its new no more tiers redemption program makes it easy to cash in points.
We have no-fee chequing accounts at Tangerine, which we use for bill payments, email money transfers, and the odd debit purchase.
The rest of our banking is done at TD, including our mortgage, line of credit, and investments.
Pension
Each month I contribute roughly 12 percent of my salary to a defined benefit pension plan that my employer also 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 that means 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
The right way to calculate net worth is to use the same formula consistently over time to help track and achieve your financial goals.
My preferred method is to list the current value of my RRSP and RESP 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 2011 and even though the real-estate market has gone up I continue to list its value at purchase price. I’ve since factored our basement development into the equation and increased our home value by $25,000.
Final thoughts and a look to 2017
2016 was a great year for us, financially speaking, as we’re further ahead than anticipated. We posted investment returns of 10 percent in our retirement account (more on this next week), paid off a car loan, and put a big dent into our HELOC.
As we look ahead to 2017 we have our sights set on maxing out my RRSP contribution room and putting $12,000 into our TFSAs. We’ll continue to max-out our kids’ RESPs to take advantage of the 20 percent government grant (free money!). Finally, we’ll pay off our line of credit by the end of the year.
It’s a slow and steady march towards financial freedom and each net worth update brings us closer to our goals. How did your finances fare in 2016?
Very brave of you to publish this, but a good example for your readers to see that saving can be done! Good job! Happy New Year, and keep up the excellent job.
Hi Alan, thanks for stopping by and I hope you’re enjoying the holidays! I keep my finances an open book in hopes that others can learn from my mistakes and my successes (hopefully more of the latter than the former!).
Well done Robb! Continued success in 2017.
Mark
Thanks Mark, same to you!
It’s pretty clear you are living on a tight budget and have a modest income. You have a lot of discipline to be saving as much as you are. You set a good example! You’ll need to create a more sizable non-registered portfolio so as to create an income stream later in life that is more tax efficient. RRSP income is income. Dividends are more tax efficient. Keep going! I love the blog and check it out almost daily as I receive your emails.
Hi Gene, thanks for the thoughtful comment. As the sole breadwinner in the household, I do work hard to ensure my family’s needs are met and that our financial future is secure. That’s why instead of sitting around watching television I use my spare time to write this blog and do other freelance projects to earn some extra income.
I’m not sure I’ll get to the point where I need a non-registered portfolio. After my unused-RRSP contribution is maxed-out in 2017 I’ll only be able to generate about $3,500 in RRSP room each year thanks to the pension adjustment. So that means shifting focus to our TFSAs and trying to catch-up on all the unused contribution room there (over $100,000k between me and my wife). A conservative guess is that it’ll take us until the end of 2024 to fully catch-up.
Let’s say I retire from full-time employment at 55, pension is deferred until 65, but I can start melting down the RRSP between 55-64 while continuing to build-up our TFSAs. From 65+ I’ll have pension income, plus tax-free TFSA income to draw from when necessary. CPP and OAS will be deferred to age 70.
Of course, a lot of unknown variables to factor in, which is why my focus is on reaching financial independence by 2024 and then weighing options from there.
Thanks for reading!
Great post. It’s refreshing to see someone who I can identify with (modest income, family of 4, mortgage payments, etc.)
Quick question: why do you include your kids’ RESP as part of your net worth?
@R – thanks for the kind words. I consider my net worth statement to be a snapshot in time of our current financial situation. I like to track the progress and so it’s gratifying to track and watch our $5000 annual contribution grow. Finally, the RESP technically belongs to the subscriber (aka, the contributor) until the beneficiary meets certain qualifications (i.e. enrols in post-secondary).
Hi Robb
Crongrats on your progression 2016! Just a quick question about how you deal with inflation. If your original goal from when you started this was 1M at that time, then it would be a bigger number today if adjusted for inflation. I would argue that it should indeed be adjusted, otherwise you are slowly lowering your goal in “real” terms.
Hi Garth, thanks so much! I’m not ignoring inflation, but the $1M figure is purely a milestone to strive for. The real goal is financial independence, which is the point when my investment income and passive income is greater than my expenses. I do factor inflation into that scenario, where my income should be growing at a rate equal to or greater than inflation.
Congratulations on surpassing this significant milestone. I like how you characterize the journey as a “slow and steady march.” Incremental progress is still progress. All the best to you in 2017.
Hi Robb, my husband has a great defined contribution benifit plan at work, and I’m just wondering how you calculate that into your net worth? He’s only been working there 2 years (we’re still quite young), but we plan to be here until he retires. It should take care of a large part of our retirement income, but how do I account for it right now?
Thanks!