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?
Yesterday Boomer wrote about our rental property venture from my University days (thank Mom, I guess I deserved that). Now this is a great idea for parents who have children moving away from home to attend University. Purchase a house and have your child act as the landlord, managing the bills, finding tenants, collecting rent, and keeping the house properly maintained.
While it’s true that I wasn’t really a fiscally responsible landlord (that was a huge responsibility for a 19 year old), this venture did teach me many valuable life lessons. I’m proud to say that my money management skills have greatly improved since then (whose hasn’t?), so before you Boomers are scared off that your child will destroy the house and leave you in financial ruin, let me highlight the benefits of this rental property venture:
Establishing a good credit rating for your child – As a partner in this venture, I got my name on the title of the house (co-signed by my parents). It felt pretty good to call myself a home owner at the age of 19, but the real benefits were in building a credit score at an early age.
Keeping a close eye on your investment – Even though the rental property was located in another city, my parents could still keep tabs on what was going on with the house since their child was acting as the live-in landlord. We shared a joint account for bills, and we could chat any time about any maintenance or vacancy issues.
Teaching valuable life skills to your child – Again, I was only 19 when we started this venture. I learned a lot during my 5 years at this rental property. True, some lessons were learned the hard way…but that’s what life is all about, learning from our mistakes. I managed the household expenses, took care of the lawn and any simple maintenance (I stress the word simple), found roommates, replaced roommates, evicted roommates, and really figured out a lot about people and how to be a good judge of character.
Setting your child up for success – While I was in school I worked 30 hours a week in the hospitality industry. I advanced fairly quickly, utilizing many of the skills I learned while managing the rental property. The senior administration at the hotel also held a perception of me as being more responsible and professional than my peers. Whether that was true or not, it certainly helped me stand out from the crowd when it was time to be promoted.
So for all of the Boomers out there who have children moving away to attend University, think about the positives and negatives involved in purchasing a rental property for them to live in. Hopefully you learn from our example and can set some solid controls in place to prevent any financial abuse or property damage. I know I am thankful for the opportunity my parents gave me, as it helped me develop life skills that I wouldn’t have learned by living at home or at the dorms.
How about the readers…do you plan to do something like this for your children? It’s outside the realm of a traditional RESP, but the benefits could be tremendous for both you and your child. Heck, you might even make some money when it’s all said and done.