It’s safe to say that 2022 did not go according to plan. On a macro level we had stubbornly high inflation, rapidly rising interest rates, and falling stock and bond prices. Personally, we managed to execute our revenge travel plans with a week in Maui, three-and-a-half weeks in Italy, three-and-a-half weeks in the U.K, and eight nights in Paris. And, in the midst of all of this, we decided to build a new house.
I like to set financial goals before the start of each year so we can map out our spending and savings strategy and make sure we’re aligned with our longer-term vision. But plans can change and so it’s important to be flexible and course correct as needed.
At this time last year I fully intended tackle five goals:
- Finish catching up on my wife’s unused TFSA room ($37,500)
- Max out my annual TFSA room ($6,000)
- Invest excess profits in the corporate investing account (~$48,000)
- Max out RESP contributions ($5,000)
- Add an extra $6,500 into our travel budget
The year started off well enough. I contributed the $6,000 annual maximum to my TFSA and we added another $10,000 to my wife’s TFSA. We contributed $8,000 to our corporate investing account.
Then we went to visit a show home in a new community nearby our house. One thing led to another and we ended up signing a purchase agreement to buy a lot and build a new house.
Our course correction from there meant pausing contributions to my wife’s TFSA and in fact we ended up draining our TFSAs to use for the initial deposit and subsequent draw.
We also adjusted our expected contributions to the corporate investing account, from $48,000 down to $36,000, to build up a bigger cash reserve just in case.
Outside of that major change in plans, we managed to travel through most of April and July and still exceeded our business revenue expectations for the year. We also maxed out the kids’ RESP contributions for the year.
2023 Financial Goals
We don’t have a possession date for our new house yet but we’re targeting March 1st. We’ll also need to put our existing house up for sale (definitely not renting it out!) soon and try to thread the needle of selling it shortly after moving into our new house.
Whenever you’re going through a major life change, whether it’s buying a new house, going on parental leave, having a child, or even retiring, it’s okay to give yourself a grace period to adjust to your new situation. That might mean pausing automatic savings contributions for 3-6 months to make sure you’re still on solid financial footing.
On the other hand, as a planner I like dealing with certainty when it comes to my own finances. Unfortunately, we don’t have much certainty heading into 2023.
We don’t have a possession date. We don’t know when (or if) our existing house will sell, or for how much. We don’t know how much we’ll end up putting down on the new mortgage. We don’t know what the new interest rate will be on the new mortgage. We don’t know (exactly) how much we’ll end up spending on extras such as window coverings, landscaping, a new couch and TV, moving costs, and any “upgrades” over and above our housing allowances.
We also don’t know if we’ll travel next year. With the move and the extra expenses, it might be nice (and economical) to stay home for a year and enjoy our new surroundings.
Finally, we don’t know how much we’ll be able to save and invest next year.
With all of that in mind, here are our very simplified 2023 financial goals:
- Move into our new house
- Sell our existing house
- Set aside ~$50,000 from the house sale proceeds for window coverings, landscaping, and other “extras”
- New house is completely furnished, windows covered, yard landscaped in 2023. No “someday, maybes”
- Remaining proceeds from house sale go towards the new mortgage
- Max out RESP contributions ($5,000)
- Contribute $6,500 each to our TFSAs (late 2023)
- Invest excess profits in the corporate investing account (~$36,000)
- Maintain work-life balance – no increase in business revenue expectations
- Use accumulated travel points towards a one-week all-inclusive holiday somewhere sunny
Everything flows from the first two goals. We need to be in our new house and to sell our existing house before we can achieve any other personal goals. Everything else will remain on hold until we have certainty around the timing and financial implications of this move.
Final Thoughts
The past year has been unusual in a lot of ways. Next year will be much of the same until we settle into our new reality. For us, it’s the start of a new chapter in our lives.
We’ll get our feet under us again and make a plan for the next 10 years of our life. That will include paying down the new mortgage, filling up our TFSAs again, and building up our corporate investments. It will definitely include more travel.
A transition period like this is a great time to re-evaluate your annual financial goals and make sure they align with your long term vision. Know that it’s okay to pause your regular savings while you adjust to your new situation, or if you need to fund a one-time expense.
Assess the impact. What will the change mean for your long-term goals? You might need to work a year or two longer, or reduce your spending assumptions in retirement. Maybe it won’t impact your goals at all.
Readers: what are your financial goals for 2023? Any big changes from this year to next year?
We’re building a new home and should have possession of it sometime in February. I’ve been asked a few times if we are going to hang onto our existing home and rent it out. After I stop laughing I explain why I have no desire to own a rental property.
I admit that I have a preference for owning a small slice of nearly every publicly traded company in the world through a low cost, total market ETF. I’d never want to get my hands dirty working for any of those companies, but I’m happy to share in their profits over time.
The thought of being a landlord and having to worry about finding and managing tenants, dealing with general upkeep and maintenance, and holding a contingency fund for larger renovations or repairs is not at all appealing.
Being a financial planner, I also have many clients who do own rental properties, and while some are happy to own and manage multiple properties, others have shared their horror stories about bad tenants, expensive repairs, cash flow troubles, and the lack of price appreciation in areas of the country outside of Ontario and BC.
Still, I like to explore my options. The risk our house doesn’t sell in a reasonable time and for a price we’re willing to accept is not 0%. If the local housing market dries up, it might make sense to take down our listing and rent out the home, at least temporarily (for a year or two).
A property appraiser determined we could fetch about $2,800 per month for our house. That sounds pretty good on the surface, but a closer look at the numbers gives me pause.
Let’s assume we extract a good chunk of the existing home equity for a down payment on our new house. That leaves a mortgage of about $390,000. Paid over 25-year, the mortgage payment would be $2,284 at an interest rate of 5%. Property taxes and insurance add another $650 per month. That comes to $2,934 per month in expenses. Tenants would pay for their own utilities.
Even if we managed to get $3,000 per month, we’d only make about $800 for the entire year, which is not nearly enough of a contingency for maintenance or minor repairs (let alone if something major breaks).
A smaller mortgage of, say, $340,000 would bring the mortgage payment down to $2,000 and make the numbers more palatable. But that’s just robbing Peter to pay Paul, meaning the smaller the mortgage on our existing home, the bigger the mortgage will be on our new home.
Then there’s the actual issue of being a landlord, even temporarily. It’s not for me. After all, I’m Canada’s worst handyman. I’d end up hiring out the property maintenance, further eroding the already razor thin profit margin.
Finally, there’s my faith in the local real estate market. Lethbridge seems to have more of a steady 2-3% a year housing market than a boom and bust housing market. So, likely no potential for a real estate lottery pay-off in a short-time frame.
Related: Was My House A Lousy Investment?
For those reasons, turning our existing house into a rental property after we move is a last resort option.
This Week’s Recap:
Last week we got the official word that the annual TFSA limit will increase to $6,500 in 2023. That takes the lifetime TFSA limit to $88,000.
Also of note, CPP recipients will get a 6.3% increase in their benefits in January based on the inflation numbers for 2022.
Many thanks to Paul Brent of the Globe and Mail for including my comments in this piece on tax loss harvesting.
Promo of the Week:
I didn’t take part in Black Friday shopping, but if you’re looking to take advantage of any online deals this weekend make sure to go through a cash back website like Rakuten first to earn a rebate on your purchase.
If you’re new to Rakuten (formerly Ebates), you’ll get a $30 cash bonus when you join today.
Weekend Reading:
In addition to a higher TFSA contribution limit and indexed CPP benefits, Erica Alini says most Canadians will get some tax relief as tax brackets also get adjusted upwards by 6.3% (subs).
What should you do with your mortgage in a rising interest rate environment? Jason Health at Objective Financial Partners shares some strategies.
Andrew Hallam says that by saving $500 a month, you could have $12,100,000 over 60 years if you keep asking this one question.
Should RRIF withdrawals be based on the younger spouse’s age? It depends.
A Wealth of Common Sense blogger Ben Carlson rights says the markets can’t save you if you can’t save.
Of Dollars and Data blogger Nick Magiulli turned 33 and wrote a great piece on learning to live.
Stop thinking about what you are retiring from and start thinking about what you’re retiring to.
Most investors are experiencing hefty double-digit losses. Andrew Hallam explains why we aren’t far removed from chimpanzees:
Smart investing isn’t about chasing past returns or coveting what others own. Instead, it’s about owning a globally diversified, low-cost portfolio. It’s about maintaining a consistent allocation through thick and thin. That means rebalancing as needed: selling pieces of “winners” and adding the proceeds to the “losers.”
Index investing as a theoretically optimal investment strategy works best in an efficient market, but if everyone turns into a passive index investor the market can’t be efficient. Ben Felix explains what this paradox means:
Rob Carrick on what the Algonquin Power debacle says about dividend stocks versus GICs (subs).
My Own Advisor Mark Seed shares his financial independence update. Inspiring stuff!
A Wealth of Common Sense blogger Ben Carlson again, this time comparing now disgraced FTX founder Sam Bankman-Fried versus The Match King Ivar Kreuger.
Finally, long-time Wall Street Journal personal finance columnist Jason Zweig shares his suggestions for the books every investor should own.
Have a great weekend, everyone!
It was a sobering week for crypto bros, as yet another epic collapse has exposed the supposed “future of money” as little more than a house of cards. Crypto trading platform FTX, which landed high profile partnerships with the likes of Tom Brady and Steph Curry, and signed a $135M agreement with the Miami Heat to rename their arena, filed for bankruptcy on Friday.
This comes less than four months after major crypto lender Celsius Network filed for bankruptcy, and less than six months after the collapse of major tokens terraUSD and luna.
Exactly one year ago (Nov 12, 2021) Bitcoin reached an all-time high of $80,827 CAD. Today, one coin is worth $21,118 – a 74% decline from its heights.
Ethereum (or Ether), the second most popular digital coin, reached a peak of $5,829 CAD at the same time last year. Today it trades at $1,583 – a similar 73% decline in value.
The space is so rampant with fraudulent activity and bad actors it makes the characters and events described in The Big Short look like choir boys running a small-time grift.
For regular investors, it’s a tale as old as time. It’s called the Greater Fool Theory. Asset soar in value, beyond any sensible metric or fundamentals. Investors pile in, thinking they can still make money as long as there is a “greater fool” behind them ready to buy at even higher levels. Soon, we run out of buyers and the price plummets.
The reasonable takeaway is to avoid this space. That includes mainstream coins like Bitcoin and Ether. That includes NFTs. That includes so-called stable coins and crypto savings accounts promising high returns. It’s quite possibly all a Fugazi:
This Week’s Recap:
No posts from me this week, but I received a lot of good responses to my Master List of Financial Goals post last week. I hope that has helped you think about your own financial goals and how to support that vision of your life.
It’s also timely to re-share this post on the trouble with GICs. U.S. inflation numbers came in lower than expected this month, and the S&P 500 responded with a massive 5.54% increase in a single day.
Reader: My stocks are tanking but I can get a 1-year GIC at 5%.
Stocks: pic.twitter.com/KFI9HKmXz3
— Boomer and Echo (@BoomerandEcho) November 10, 2022
Promo of the Week:
If you’re a small business owner then you need to take advantage of the American Express Business Platinum Card and all of the perks that come with it.
New cardmembers can earn 90,000 Membership Rewards points when they spend $6,000 in the first three months.
I transfer Membership Rewards 1 to 1 to Aeroplan where I value Aeroplan miles at 2 cents per mile*. That means your initial 80,000 welcome bonus points can be worth up to $1,600.
*Note that I recently redeemed Aeroplan miles for four business class tickets from Calgary to Rome. The tickets would have cost a whopping $33,000 in cash, which means I got an incredible 10.5 cents per mile value out of those Aeroplan miles.
You’ll also get hotel perks and airport lounge access.
The $499 annual fee may be tax deductible as a business expense.
Weekend Reading:
We’re starting to get into Christmas mode now, but with a potential house sale on the horizon we’re looking for ways to simplify things this holiday season. I got some inspiration from a minimalism blog – 69 festive minimalism tips for a simpler Christmas.
Travel expert Barry Choi reviews the American Express Aeroplan Reserve Card – it’s one of our go-to cards for travel.
More on the FTX collapse, which wiped-out the founder’s entire $16B fortune.
Here’s Mike Drak on why we need to shift from traditional retirement planning, which focuses exclusively on how much an individual needs in retirement, to longevity planning, which includes the often overlooked non-financial aspects of retirement.
My Own Advisor Mark Seed takes a look at the cost of elder care in Canada:
“The range I suggest is $1500 to $4000 per month for eldercare costs, which includes everything from personal care, companionship, home maintenance (external and internal), personal response systems, home and personal adaptation accessories and transportation. The lower end of the range is for individuals with lighter needs (and likely a family caregiver nearby or a couple where one is caring for the other) and the higher end is for more complex needs and/or frailer seniors living alone.”
Fred Vettese has been writing up a storm at the Globe and Mail about CPP and OAS. The first is about what the expansion of CPP will mean for our retirement (subs). Note, it will take more than 40 years before the expansion is fully phased in.
Next, here are two ways that retirees who haven’t lived in Canada that long can increase their OAS benefits (subs). If you can’t access the article, the gist is that by waiting until 70 to take OAS you can increase either your “residency-adjustment” or your “age-adjustment” (but not both).
Jason Heath says it may be necessary or advisable to withdraw from your RRSP in your 60s. Here’s why (and how much you should take).
The always clever and creative Andrew Hallam explains what the psychology of rats can teach you about lump sum investing.
A question I’m seeing more and more. Should clients use home equity to help fund retirement?
A Wealth of Common Sense blogger Ben Carlson explains how you should choose your asset allocation.
I really enjoyed this piece from Rob Carrick on the right things a brutally honest advisor would tell you about fees, returns, and more (subs):
“You know how we told you that prudent portfolio diversification is the path to long-term investing success? Funny story. Those bonds and bond funds we put in your portfolio for stability dropped like a rock. Sorry about that, chief. Investing means getting punched in the face every now and then, even as you keep progressing toward meeting your long-term financial goals.”
Finally, we all know interest rates were sky high in the 1980s. But are Canadians worse off financially now than they were back then? The answer may surprise you.
Have a great weekend, everyone!