My goals for the next five years or so are pretty straightforward. I’m basically setting myself up for retirement, but I still have some major decisions to make. Here are my medium term goals:
1. I would like to move but I’m torn as to where I want to live. Do I move closer to my parents so I can help them out more on a day-to-day basis? On the other hand, I would also like to be close to my grandchildren so I can be involved in and watch their growth. My own personal preference would be to live on Vancouver Island for the milder weather, but the costs of buying a house there are quite high. I want this to be my final move so it will be a huge decision to make.
Also, I wish to be mortgage free and not dip into my savings, so the property will have to be paid for entirely with the sales proceeds of my current house. To maximize this amount I will continue with upgrades – nothing too major, as, like my other investments, I want to maximize the return on what I spend.
2. I’ve never had a really nice vacation, and again I’m torn as to which destination I will choose, as chances are I will only be able to afford one large trip. I’ve always wanted to travel around Australia and New Zealand. An African safari has also been a dream of mine. I spent my early childhood in England and Germany and travelled with my parents and I’d like to revisit the British Isles and Europe on my own terms.
I contribute monthly to a money market mutual fund (this seems far enough removed from my regular accounts that I won’t be tempted to make a quick withdrawal) and when I’m ready to go I’ll check out what’s available within my price range.
3. I will be reviewing my investment portfolio to see if I need to restructure any accounts and future contributions or change any investments within them. I want future withdrawals to not only be sufficient for my needs, but also minimize taxes paid and draw down the principal as little as possible. I no longer contribute to my RRSP (I manage it by reinvesting dividends from my dividend stocks) and have switched the payment to my TFSA as I think this is more tax advantaged for my situation but I still have more calculations to do.
So, these are my plans to lead up to my eventual retirement. I believe as long as I do my part i.e. sock away as much money as possible and keep my portfolio producing satisfactory income, opportunities will arise that will make my eventual decisions easier to make.
Like I said before in my short term goals, what gets measured gets managed. Goal setting is a big part of my financial plan, and there is no time like the present to get started on some things that may take 1-5 years to develop.
So from building a new house, to maximizing our investment accounts, growing our net worth, and the possibility of a new addition to our family…here are some of my medium term goals:
1. Upgrade our house – We currently live in a 7 year old 4-level split with about 1200 square feet of total living space. But with only 2 bedrooms and 1 bathroom, our growing family will not be able to live here for much longer. The plan is to build a 4 bedroom, 2 bathroom house in a neighborhood closer to where I work.
This process can be nerve racking at the best of times, so with all this talk of a real estate bubble bursting, we have the added pressure of selling our house in a down market.
Meanwhile the cost of building a house continues to rise and the demand for new builds doesn’t seem to be slowing down in our area. But, my wife and I have the floor plan already picked out, so we’re just saving up some cash and waiting for the right time to get started.
Related: How Much House Can I Afford?
2. Triple our total investment portfolio in 5 years – Between my pension, RRSP and TFSA accounts I have roughly $70k. The plan is to triple that value to $210k in the next 5 years.
My TFSA is maxed out annually, but my wife still has contribution room. And since I changed careers I have stopped contributing to my RRSP. So the majority of increases will come from monthly pension contributions, annual TFSA contributions, and dividend & organic growth from TFSA and RRSP portfolios.
3. Increase dividend growth in TFSA and RRSP over 5 years – The plan is to quadruple my annual TFSA dividend income to $2000, and double the annual RRSP dividend income to $3000 in 5 years. These numbers may look relatively small now but with continued dividend increases and a lot of patience, these dividends will be my main source of income in the future.
4. Increase net worth by $300k in 5 years – Again, this is a culmination of achieving the previous 3 goals. The challenge will be to live within our means while we upgrade our house, continue to support our growing family, and still manage to max out our TFSA each year.
I’m on pace to achieve a $50k net worth increase this year, but will really need to ramp up our savings and mortgage payments in order to reach my 5 year goal.
Related: Our Fast Track To Financial Freedom
So there is just a glimpse into my plans for the next 1-5 years. Am I too ambitious? Too cautious? Time will tell…
Every year, sometime in January, I calculate my personal net worth. I gather together all my account and investment statements for the periods ending December 31 of the previous year. I have a spreadsheet set up that compares year-to-year.
First I list all the cash in my savings and chequing account, GIC’s and Money Market accounts. Then come my long-term assets – non-registered mutual funds and stocks, RRSP, TFSA and a small company pension.
I take my residence value from the city’s tax assessment notice which may not be an entirely accurate amount but I don’t want to go through the bother and expense of a yearly appraisal, so it works for my purposes. I don’t list vehicles, furniture or other household goods as they are depreciating assets. If I owned any antiques, art or heirloom jewelry however, I would include them.
Then I list my liabilities. I usually have a credit card balance immediately after Christmas and I have a line of credit, both of which vary in amount. I don’t have any other loans or a mortgage and I don’t owe any money to my parents, friends or the government.
Net worth, of course, is the difference between your assets and liabilities. I am gratified to see that mine is increasing each year despite fluctuations in the value of my assets. I note that in December of 2008 my investments dropped by about 28% but my house had increased in value.
In December 2009 my house dropped quite a bit but I was gratified to see that my portfolio has almost back on track. This proves the value of diversification or “don’t put all your assets in one basket.”
Just like the annual reports of corporations I calculate my debt/equity ratio to keep me from too much debt. Generally this should be under 50%, but I like mine to be less than 5% for my own peace of mind.
I also track the value of all my investments and securities to make sure they are still working for me. I note the year-end balances, annual dividend and annual return.
This is how I realized that my mutual funds were steadily eroding or staying static year by year. I can’t afford to wait for a turnaround (if it ever comes, that is), so they were quickly replaced.
I like to develop my own spreadsheets for tracking purposes as I know what is important for me to know and I don’t have any extraneous information that I don’t need. However, all of the discount trading companies have asset tracking templates, as well as on websites like globeinvestor.com. You can also calculate returns on weighhouse.com.
How do you track your net worth?