# Taking a Long-term View of Your Finances

I like to keep tabs on my finances for both the short-and-long term. A monthly spending summary is great for keeping track of where your paycheque goes, and an annual forecast works well for spotting trends and opportunities for your money.

But it’s also nice to gaze into the future. I want to know what my finances will look like in 20+ years so I use a spreadsheet to take a 50,000-foot view of my long-term finances.

### Long-term financial outlook

It starts with a basic net worth statement where I list all of my assets and liabilities. I’ve built in some assumptions, such as an expected savings rate, allowance for large purchases like a new car, plus potential salary growth. Then I used a formula to project what my net worth will be 20 years from now.

For example, at the end of this year I project the value of my RRSP to be $112,000. My assumption is that I’ll contribute $12,000 per year for the next three years*, and then $3,000 per year thereafter. My expected annual rate of return is 8 percent. At that rate, by the end of the year that I turn 55, my RRSP will be worth approximately $730,000.

**At this point I’ll have caught up on all of my unused contribution room. The $3,000 going forward represents new contribution room earned after the pension adjustment*.

Once my RRSP is maxed out I’ll shift focus to our TFSAs and begin by conservatively saving $10,000 per year until the mortgage is paid off. Then we’ll bump-up our contributions to $20,000 per year – while careful not to over-contribute down the road. By the time I turn 55, our TFSAs should be worth approximately $680,000.

I’m more conservative with the value of our house. It’s currently worth about $450,000 and my assumption is that it will increase in value at a rate of 3 percent a year. So by the time I turn 55 the house should be worth about $812,000.

On the liabilities side, I use a mortgage calculator to figure out how long it’ll take to pay off our mortgage. The calculator allows you to input extra monthly payments or lump sum payments over the years to see how it reduces your amortization.

My current projections have us mortgage free by 45 – nine years from now.

### Final thoughts

I’d like to reach financial independence in my mid-40s and I think I’m on the right track.

My net worth at the end of this year should be over $460,000 – and if my projections are accurate that should increase to more than $1,000,000 by the time I’m 41 and close to $3,000,000 by the end of the year that I turn 55. The extra $800,000 or so will come from my pension, a fully funded RESP (ready for disbursement by then), plus cash savings.

Obviously these are only projections and might not reflect reality. Job loss, health problems, and other events might derail my plans, but it’s nice to take the long view and see how my net worth will grow over time.

I haven’t done nay hard calculations but I’ve been a bit conservative with my projections since I’m using only a 6% return in my RRSP. Since I have DB pension I actually don’t care too much.

Tax in retirement might become a big issue though.

Long-term compounding is a powerful thing when we let it do its thing.

Doing projections like this is a great way to see what you’re working for and increase your motivation. It can be hard to connect our decisions today with the results a few decades from now unless we actually do the math and see what will happen (if all goes well).