Stocks went down. Real estate went up. Yet I sold stocks to buy real estate. Welcome to 2022, where things no longer make sense.
That’s right, we made a big decision earlier this year to purchase a lot and build a new house. Once we decided we were serious about taking this step (as in, we found a lot, builder, and floor plan that we liked at a price we could comfortably afford), we sold all of the investments in our TFSAs and moved them to a high interest TFSA at EQ Bank.
We also secured financing so that we could meet the builder’s draw schedule without having to sell our existing house before the final draw. We’ll use a mix of our existing savings, plus a line of credit from our home equity.
The building process should take about 10 months. We haven’t done much yet, other than select our appliances (supply chain!), decide on exterior colours, and pick out windows. We’re eager to see more activity this summer and into the fall.
It has been a weird start to the year, with inflation soaring and stock and bond markets crashing. We’re focusing on what we can control – earning enough in our business to meet our spending and savings goals – and trying not to sweat the markets or the price of gas, avocados, and coffee.
Our business earned as much as we expected in the first six months of the year. We intentionally planned to earn a bit less this year due to our revenge travel tour that included trips to Maui, Italy, the U.K, and Paris. So far, so good.
I planned to invest about $40,000 in our corporate investment account this year, but I’ve front-loaded most of that to take advantage of lower stock prices. We’ve already contributed $32,000 so far this year.
We’re no longer contributing to our RRSPs (due to paying ourselves dividends for now), so those accounts are just sitting there taking a beating this year.
Indeed, it turns out that selling stocks in January was fortuitous timing in our TFSAs because global stocks are down about 17% on the year.
Finally, we had our house appraised so we could increase our home equity line of credit. If you’ve followed these updates you’ll know I’ve kept our house value at around its purchase price for many years. Well, the Lethbridge market finally took off last year and our appraisal came in at $530,000. Comparable homes are selling in the $560,000 range.
I’m comfortable moving up our home value based on the appraised value, and that gives us some wiggle room in case home prices fall in the coming year.
Now, let’s look at the numbers.
Net worth update: 2022 mid-year review
Total Assets – $1,461,979
- Chequing account – $5,000
- Savings account – $60,000
- Corporate investment account – $205,313
- RRSPs – $250,705
- LIRA – $166,225
- TFSAs – $170,586
- RESP – $74,150
- Principal residence – $530,000
Total Liabilities – $164,712
- Mortgage – $164,712
Net worth – $1,297,267
This report is going to look very different at the end of the year. Our draw schedules will begin soon, which will deplete our existing savings. We’ll end up with more debt due to carrying the line of credit for several months before we sell our house. Hopefully, by March 2023, we’ll end up with our “new normal”, which will be a more expensive principal residence, a bigger mortgage, and empty(ish) TFSAs.
Our 10-year plan is to stay in the new house while our kids finish school and decide where they want to go for their post-secondary education. We’re open to the possibility of moving to be closer to them, or to do our own thing. We’ll see when the time comes. In any case, the new house will better suit our needs and we’re excited for this next chapter of our lives to begin.
Now let’s answer a few questions about the way I calculate net worth:
Credit Cards, Banking, and Investments
We funnel all of our purchases onto a few different rewards credit cards to earn points on our everyday spending.
Our go-to card is the American Express Cobalt Card, which we use for non-Costco groceries and gas. I’m also using the HSBC World Elite MasterCard, which came with an incredible 100,000 point welcome bonus. Finally, we look for the best credit card sign-up bonuses and time our large annual spending (car and house insurance) around these offers. One I’m using currently is the American Express Aeroplan Reserve Card.
Our joint chequing account is held at TD, along with our mortgage and kids’ RESPs. My wife has her own chequing and savings accounts at Tangerine. Our high interest savings account is held at EQ Bank, which pays 1.65% interest.
My RRSP and TFSA is held at the zero-commission trading platform Wealthsimple Trade. My LIRA is held at TD Direct, and the corporate investment account is held at Questrade. My wife’s investments are held at Wealthsimple. You know all of this from my post about how I invest my own money.
RRSP / LIRA / 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, LIRA, 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/LIRA and distribute the RESP to my kids, my net worth will decrease accordingly.
Principal Residence
We bought our home in 2011 for $424,000 and developed our basement a few years later, increasing its value to ~$450,000. The next year I bumped up the market value by 2% (which is still less than its city-assessed value), but the local real estate market has since flattened – with nothing selling in our price range – and so I’ve left the value at $459,000 for the past three years. As I explained, we recently had a property appraisal and I have increased the value to match that appraisal at $530,000.
Final Thoughts
I’ve been warning readers for several years that we should probably lower our expectations for future returns. Trees don’t grow to the sky, as they say. That’s why I’m not surprised at all to see global markets fall this year after three years of exceptional returns.
Focus on things you can control, like your savings rate. Your investment portfolio and net worth will fluctuate up and down in the short-term, but what you want (at least in your accumulation years) is to keep the needle moving forward over the long-term.
Money invested today has a higher expected return than it would have 6-12 months ago. Take comfort in that. I know I do.
We’ll continue following our plan, investing what we can in our corporate investment account while preserving cash on our personal side of the ledger for upcoming house expenses. We want to put a sizeable down payment onto the new house and have money left over to do the landscaping, etc. Then we’ll transition into that new chapter, with a new (larger) mortgage payment, and start to fill up our TFSAs again.
