Net Worth Update: 2018 Mid-Year Review
It’s the end of June and that means it’s time to check in on our financial progress for the year and update our net worth statement. At the end of 2017 I shared our household net worth had reached $635,000+ and that our goal is to reach $750,000 by the end of 2018. The bigger picture objective is to hit the million-dollar mark by the end of 2020, and then become financially free (day job optional) by 2024.
The stock market has been a roller coaster so far this year but our investments have grown at a modest 3.9 percent clip. I maxed out my RRSP contribution limit prior to the deadline this year and now, due to the pension adjustment, have just $3,600 in annual contribution room going forward. I make this automatic by contributing $300 per month on pay day.
With plenty of room available on the TFSA side we continue to make TFSA contributions a priority and put $1,000 per month into this tax-free shelter. It’s gratifying to see our balance grow into something approaching respectability (for a personal finance blogger!).
We max out our RESP contributions for our two kids (now ages 9 and 6) by setting aside $416.66 per month and investing it in TD’s e-Series funds.
How do we maintain such a high savings rate? We’re not the most frugal family in the neighborhood, but we do have two paid-off vehicles and no desire to replace them anytime soon. And while my salary remains frozen until at least September 2019 (applies to all non-bargaining public sector staff in Alberta), we find creative ways to increase our income through freelance writing, credit card rewards, and by selling the odd item on Facebook or Kijiji. We spend on things we enjoy; like good, healthy food, wine, and travel.
Could we tighten our belts and reach our savings goals faster? Sure, but we prefer to enjoy the journey and strike the right balance between enjoying life today and saving for tomorrow. I think we’ll still get there faster than most people would ever dream.
Here’s a look at the numbers:
Net worth update: 2018 mid-year review
Total Assets – $899,867
- Chequing account – $1,500
- Savings account – $12,500
- RRSP – $174,265
- Defined benefit pension plan – $186,816
- TFSA – $27,113
- RESP – $38,673
- Principal residence – $459,000
Total Liabilities – $219,440
- Mortgage – $219,440
Home equity line of credit – $0
Net worth – $680,427
Now let’s answer a few questions about the way I calculate net worth:
Credit Cards & Banking
We funnel all of our purchases onto a couple of different rewards credit cards to earn points on our everyday spending.
Our go-to card is the now discontinued Capital One Aspire Travel World Elite MasterCard. We have a grandfathered version that pays 2 percent back on every purchase and comes with a 10,000-point bonus each year. Our secondary card is the new American Express Cobalt Card, which pays 5 percent back on ‘eats & drinks’ so we use it at any grocery store, restaurant, and liquor store that accepts Amex.
We each 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 estimated 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 had typically listed its value at purchase price. I’ve since factored our basement development into the equation and increased our home value by $25,000. Last year I bumped up the value by 2 percent (which is still less than its city-assessed value).
Final thoughts
I must admit it’s incredibly motivating to watch our net worth grow and to see just how close we are to reaching the million dollar milestone. Our finances are humming along now on auto-pilot and we’re maxing out all of our available tax-shelters. I’m even looking forward to the next stock market crash as an opportunity to put a big chunk of money to work at a discount.
We’ll keep plugging away for the next six months and see if we can get our net worth up to 3/4 of a million by the end of the year.
How are your finances shaping up for 2018?
Your pension is way too generous! – must be a government job!
Hi Neil, I actually agree with you. In fact, our pension contributions keep increasing to pay for all the past employees who retired at 55 with full pension.
I work at a publicly funded university.
Yes pensions are nice, but not as great as many people may think, especially if you don’t start near the beginning of your career. Remember he’s paying into it and those numbers are deducted from his RRSP. The way the actuarial tables are constructed, such pensions don’t pay much until you’ve been there 20+ years. D.I.Y.ers would be much better off depending upon their age and expected number of years working, if they would allow you to opt out. How do I know? I was 50 when I started under such a plan (at an Ontario College) and if I don’t stay until I’m in my 70s, I won’t see much pension at all. Hopefully I’ll be in good health, and enjoying my work as much in 2038 as I do today! Of course, living forever is another way to maximize the return. 🙂
Government pensions (and pseudo govts – university/cities etc) are way too generous when the employed (ie the taxpayer) is funding a huge portion of it!
Especially when us non-govt workers don’t even have pensions and don’t work the slack hours that you work.
I’ve worked private sector as an employee to Fortune 500 companies, for startups, and was self-employed for years before I started teaching. Each had its pros and cons. But please allow me to dissuade you of your perspective about colleges’ funding. Less than a third is from the public purse. Remember as well that the infrastructure provided by the sectors you mention enable the private sector to exist and vice versa. Plus if you’re a Gen Xer or Boomer, you benefited by way more support than today’s students get. Finally, I don’t know what you mean by “slack hours”. Flexible for sure, but I’ve almost always had roles with some autonomy for setting my schedules.
Sorry Peter, I have to disagree.
If you think uni’s are the only place people learn – you are completely wrong – Ask Bill Gates who although he went to uni, did not graduate.
I personally believe that all our social benefits including pensions will eventually bankrupt the nation (Canada and eventually the US) or cause us to print more $’s, which drops our stand of living.
I believe that you have that inverted. It is the private sector that has enabled the public sector not the other way around. The private sector (and its employees) funds the public sector – without a private sector there would be NO public sector (where would funding (tax $’s ) come from?
nice progress Robb. Have you given any thought bout potentially moving RESPs to one of the Vanguard Portfolio funds?
Hi Ray, thanks! Good suggestion. I’m not sure if you meant the Vanguard asset allocation ETFs or their new mutual fund products. The issue I have with the using the all-in-one ETF for our RESPs is that I make monthly contributions and the e-Series funds are free to buy and sell, whereas I would incur a commission to buy the ETF (I’m with TD Direct).
If you meant the mutual funds, they are not available through TD at this time.
Yes, I was referring to the asset allocation ETFs. Yes, commissions can be a drag. I usually contribute the maximum at the beginning of the year that allows me to put the grant early to work and do a single trade.
If you are already at TD for their eSeries, it may not be worth the switch, but consider Questrade which offers no commission fees for purchasing ETFs. http://www.questrade.com/pricing/self-directed-investing/commissions
Congrats on your net worth progression Robb! Awesome!
Like you, I track my net worth and find it motivating as well.
As for your principle residence, is there any particular reason why you don’t use the city’s assessed value, since these values are usually conservative anyways?
As you know, real estate like stocks go up in value over time. You wouldn’t use the purchase price of your ETF in the calculation of your net worth rather than the present day value, therefore, why treat your home value differently?
Thanks for sharing!
Hi DN, thanks for your comment. Our real estate market in Lethbridge is pretty soft and so I felt most comfortable keeping it pegged to purchase price. Keep in mind I boosted the value once we did our basement renovation and now I add 2% per year. It’s all a bit of a crapshoot anyway because it’s only worth what someone will pay in any given moment in time.
Hi Robb. Does your pension include a Bridge benefit? OMERS is 2% with bridge, but drops to 1.33% at age 65.
Hi Doug, I had to check to be sure. So at age 65 the formula drops to 1.4% for earnings up to the YMPE (or CPP maximum) and then 2% for earnings above that.
In that case I’ll need to update my example: At 60 I’d still receive $60,000/year from the plan, but at 65 that would drop to approximately $52,000. It’s assuming 65 is the age when most people apply for CPP.
Great progress! Do you know if there is a rule of thumb of what your net worth is based on age etc? Just want to see if we’re on par…
Hi Krista, thanks! I’m not a big fan of age-based savings benchmarks but they can be useful as a rough guideline. I’ve written more about that here: https://boomerandecho.com/age-based-savings-benchmarks-dumb-look-anyway/
Great job Echo family!! 3.9% is pretty darn good considering half the year is over and the S&P/TSX composite is only up 0.42% YTD and S&P500 is up 1.67% YTD. You are beating the market!!
How do you value your defined benefit pension? Is the $186K your contributions over the years?
Hi GYM – thanks! Yes, the power of global diversification. My international holdings helped pull up the Canadian and U.S. equities, which have been mostly flat.
The DBP is my commuted value at the end of 2017 (when I get my annual statement) plus any contributions made in 2018.
Yes, and the C$ is tanking, meaning those ex-Canada investments increase from our perspective. When the C$ increases, those will go down again…
Well done! Is your mortgage fixed or variable? Mine is up for renewal and need to know current thinking.
Hi Ronnie, thanks! My two-year fixed rate mortgage (at 2.19%) comes due in September and I’m looking to renew at the best of either a short-term fixed rate or a 5-year variable rate. I’ll see what kind of rates are being offered after this next anticipated rate hike in July.
https://boomerandecho.com/my-mortgage-renewal-strategy/
I too am in a DB pension plan and I’ve tried several different ways of assigning it a meaningful current value. In the end I decided to use the figure on the statement that said “if you had ceased work on December 31, 2017 you would receive a monthly pension of $3,000 at age 60”. In Excel I calculate how much money I would need today to provide that same income at age 60 at a 4% drawdown rate.
Because the pension is guaranteed, I assume a growth rate between now and age 60 of just 4% p.a.
I also adjust downwards the stated age 60 pension by the adjustment for wanting it to be a spousal pension.
When I tested this against my actual commuted value it was about 20% lower, but to get may commuted value out I would lose about $100K to the CRA due to something called Maximum Transfer Value.
Hi Bob, that sounds like a reasonable approach. I also use the commuted value “as of this date” from my statement and then for my mid-year review I just include 2018 contributions.
As I’ve said before there are many ways people track net worth. I think the best approach is to calculate it the same way consistently over many years because the real goal is to measure your progress and you don’t want to be changing the rules halfway through the game.
Hello. It’s funny but i’ve read your blog for a couple of years and our NW climbs at about the same rate. We are close in age and $$ as well but no DB for me. I kinda consider your updates as barometer to my own situation. Look forward to the next one.
Hi Randall, very cool! Glad to help provide a benchmark for you. I like how you mentioned it in context, too, which is important. Sharing my financial situation might be motivating for others who are at a similar age and stage in life (38, two kids, stay-at-home spouse, never made six-figures), but not as useful for someone whose situation is completely different.