Weekend Reading: 2021 Financial Goals Edition
I wasn’t sure what to expect when I quit my job last year to focus on blogging, freelance writing, and my fee-only financial planning business. My top priority was to make sure we were able to maintain our current spending and savings rate. In other words, I didn’t want this transition to have any negative financial impact to our lifestyle.
The pandemic threw a wrench into our spending plans as we weren’t able to travel. Instead, we made the most of our time stuck at home by upgrading our backyard experience (new patio furniture and a hot tub). No regrets.
Our savings goals got a boost when I decided to take the commuted value of my pension in March. I had originally planned to max out the small amount of RRSP contribution room I had, plus top-up my TFSA and max out the kids’ RESP. Instead, I received a taxable payout of $156,000, plus got to put $134,000 into a LIRA. I used the cash to immediately max-out my unused TFSA room.
The cash payout also changed the way we planned to pay ourselves from our small business. We lived on the remainder of the proceeds this year and kept more money inside our business. I also opened a corporate investment account at Questrade to invest the excess cash inside our business.
Speaking of investing, it was a crazy year for the stock market. My stomach was in knots when my 100% global stock portfolio fell by 34% in the fastest decline in history. Who would have known stocks would come roaring back just as quickly? As of this writing, my RRSP is up 8.56% on the year while my TFSA is up 13.72% thanks to a large April infusion.
My big hairy audacious goal was to reach $1M in net worth by the end of this year. That milestone was in doubt earlier this year, but is now in reach thanks to a rising stock market. Stay tuned for my year-end net worth update to see if I made it.
Finally, the biggest unknown was how well our business would perform. I left a job that paid ~$50 an hour to focus on work that was paying closer to $200 an hour. Could that number be scaled with more hours and effort?
That did turn out to be the case. With my wife handling more of the administrative duties I was able to focus on what I do best, which is writing, financial planning, and promoting the business. We doubled our revenue from last year!
2021 Financial Goals
Next year will be more ‘normal’ from a financial perspective. You might even say boring, which is fine with me. These are our top financial goals for 2021:
1). Catch up on my wife’s TFSA contributions
We’ve neglected my wife’s TFSA to focus on our RRSPs in recent years. Now that our RRSPs are maxed out we’ll turn our attention to my wife’s TFSA and aim to contribute a whopping $50,000 to it this year.
We’re able to make such a big contribution because we don’t have any RRSP room left and I have caught up on my unused TFSA room. Filling up my wife’s TFSA is the number one savings priority now, and we should be all caught up in two years.
My wife moved her RRSP to Wealthsimple a few years ago and will continue to use the robo advisor platform for her TFSA.
2). Max-out my TFSA
I’m “current” with my TFSA contributions for the first time since 2011. This goal will be achieved when the markets open on January 4, 2021.
My $6,000 contribution will be invested in Vanguard’s VEQT (as I described in this post on how I invest my own money).
3). Add to Corporate Investment Account
We’ve got a pretty good handle on the monthly cash flow inside our business and how much cash we feel comfortable holding as an emergency buffer. Anything over and above that amount will be invested in our corporate investment account.
We plan to add $48,000 ($4,000 per month) to this account in 2021. This account is also invested in VEQT.
4). Continue to max out RESPs (and rebalance)
We’ll continue our contributions of $416.66 per month into TD e-Series funds for our kids’ RESPs.
Our kids will turn 12 and 9 this year and so we’re getting closer to our target education date for when the kids will need to access this money. I’ve described RESPs as being like mini-RRSPs in that you need to de-risk the portfolio in a short amount of time as you get closer to needing the funds.
We find ourselves in the middle of that comfort zone when it comes to risk, since it no longer feels appropriate to be invested in 100% equities. To combat this I’ll add the TD Canadian Bond Index Fund (TDB909) to the portfolio and rebalance to a 75/25 stock/bond allocation.
The portfolio is already worth $65,000, so that should buy them a couple of semesters of post-secondary education 🙂
5). Forego extra mortgage payments
I’ve thought about using our extra cash flow to put a bigger dent into our mortgage balance. But when rates fell earlier this year, our variable rate mortgage dropped to 1.45%. It just makes more sense to prioritize my wife’s TFSA over paying down the mortgage faster.
For now, we’ll forego any extra mortgage payments while we focus on other financial priorities.
Let me know about your financial goals for 2021.
This Week’s Recap:
It was a pleasure chatting with Tom Drake on the Maple Money podcast earlier this month. Check out the episode to hear about my journey from hobby to side hustle to self-employed.
I also wrote about how our food spending has changed during the pandemic.
Remember travel? Here’s a look back at our only trip of 2020 and how much it costs to go to Maui.
I’ll be back next week with my year-end net worth update, plus our investment returns for 2020.
Weekend Reading:
Our friends at Credit Card Genius share how to get FREE checked bags when flying.
Here’s a trifecta from Ben Carlson at A Wealth of Common Sense:
First, Ben takes a shot at ARK ETFs with a short history of chasing the best performing fund.
Next, Ben looks at what happens when you invest in stocks at all-time highs:
“According to my calculations, there have been more than 600 all-time highs since the start of 1988, or roughly 7.3% of all trading days.”
Finally, Ben looked at what happens if you only invested at market peaks. Spoiler: it’s not that bad.
Dan Bortolotti takes a thorough look at some of my favourite investing products with this asset allocation ETF showdown between Vanguard and iShares.
Dan’s colleague Justin Bender accompanies that post with this video comparison of Vanguard and iShares asset allocation ETFs:
Cameron Passmore and Ben Felix put together a terrific year-end recap show for the Rational Reminder podcast. A must-listen over the holidays.
Michael James reviews and recommends Annie Duke’s new book, How to Decide. I also enjoyed this book, along with her previous best seller, Thinking in Bets.
Global’s Erica Alini explains what to expect from your 2021 taxes and how to prepare.
We’re not done with Ben Carlson, as he shares the 20 most important personal finance laws to live by in this Fortune column.
Rob Carrick on why people resist delaying CPP benefits – they think the risk is dying early but it’s actually the opposite.
Finally, here’s Jason Heath on what you need to know if you plan to keep working into retirement.
Happy Holidays, everyone!
For 2021…max out RRSP and TFSA. Tfsa will be done in Feb along with the final top up of my 2020 RRSP.
I want to buy more shares at work if offered.
My stretch goal is 50k in additional mortgage payments. I made 35k in 2020 but would like to make out my prepayment in 2021. Goal to have house paid off in 5 years.
Hi Pam, thanks for sharing. I love that approach to max out your tax sheltered accounts and then focus on slaying the mortgage. Best of luck to you!
Hi Robb, I like reading your column for the insights it gives me into personal finance options. It sounds like your decision to go into business for yourself is working out better than you expected and I wish you continued and increasing success.
I wanted to make a comment about RRSP’s, when I was much younger, a successful businessman was cautioning me about the value of RRSP’s. He was saying the yearly tax deduction that you get wasn’t as advantageous as many people are led to believe.
Back then I couldn’t understand this as the tax refund was very appealing to me. I have since come to agree with my businessman advisor. If your income continues to be high into retirement when you take that money out you will have to pay tax on it. With current government spending the rate of tax in the future might be significantly higher, making your decision to delay taxes a poor choice. Additionally if you are successful and your RRSP grows significantly when in the future you are forced to withdraw money, you might find it affecting your eligibility for a full OAS payment. The future is hard to predict and cautious money management will enable you to best manage what the future may bring.
Hi Rick, thanks for the kind words.
I’ve heard this argument about RRSPs before but I totally disagree. RRSPs remain one of the best tools we have for building wealth and managing taxes. In retirement we also have much more flexibility to manage our withdrawals and tax rates (including income splitting after 65).
You could do worse than maxing out your RRSP and TFSA throughout your career.
I disagree, there is one biggest difference even if the tax penalty equal savings. I.e. Liabilities. I need the max cash right now to support my family needs, mortgage, car payments and education for kids, at 65 or 70 all of this will be gone and all I will left with expenses of Florida
Needing maximum cash right now to support your family etc is a compelling reason to maximize your RRSP but I would suggest that you will have all those or similar pressures when you are retired. Yes a bird in the hand is sometimes the best option and probably why the majority of people take CPP and OAS as soon as they can, even though most personal finance writers suggest that you will have a higher return waiting until you are 70. My point is that an RRSP refund isn’t a gift, it is a loan from the government at a favourable rate of interest. Certainly one benefit is that it is a kind of forced savings that you might not do otherwise.
Agree 100%, I just dont want to rely on CPP/OAS in my retirement, that’s why RRSP is forced saving towards retirement, yes it will hurt paying taxes at that time. I also think it is my own personal insurance policy in case govt runs out of money by then like they are spending billions of dollars which will need to be recovered either by increasing taxes/finding new sources of taxes or cutting down on benefits.
This works both ways depending which bucket you fall into at retirement age.
1) The RRSP pool is worth so much that by withdrawing at the minimum every year in addition to their other income sources, some retiree start getting OAS clawback simply because they have too much income.
One of those other income sources being dividends from their business corporation that had paid Part IV taxes and now want to pay out from their RDTOH. Otherwise so much gets trapped inside the corp and they want to distribute wealth faster to their beneficiaries.
2) Retirees who simply don’t have enough. Then any type of RRSP and TFSA they had accumulated is good but not enough. Probably “should” have put more away but those earning years also have lots of those financial obligations. Being financially disciplined is tough whether you are a high income earner or middle income earner.
My conclusion was managing our own lifestyle spending is key to decide where to put away our savings for retirement.
Hi Robb,
Can you share some numbers? When you say double, we don’t have to any perspective. $50K – $100k? $100k to $200K? Etc
Thx
Hi Derek, sure thing.
For context, my final annual salary before I quit my job was $92k. My online business made $119k last year.
This year the business has earned $239k.
Appreciate your transparency. Thanks
Apart from a RIF, LIF and a TFSA I have an investment account with Interactive Broker which allows me to add margin at a very low rate. While withdrawals from the sheltered accounts are taxed as normal income, my IB capital gains are taxed at half the rate.
I have a rule that any drops in stocks or ETFs have to be reviewed for sale. As a result I moved out of the market at the start of the pandemic but moved back into FANG stocks as soon as they started moving up. Since that time I have basically shifted quite a lot of my portfolios into momentum sectors, lately solar, uranium, bitcoin and some electric vehicles.
Great article as always!
With mortgage interest rate so low, I totally understand and agree with the logic / math behind not making additional mortgage payments and investing that money instead. Even though I know it makes more financial sense, there is something very alluring to me about being mortgage free.
I don’t know if it’s the security, that status of being mortgage free or what. For me, I think I’ve decided the best approach is a 70/30 split between investments and additional mortgage payments.
I appreciate the great content Robb, all the best in 2021
Hi Kyle, many thanks. Nothing wrong with that approach at all. I think it was Morgan Housel who said paying off his mortgage early was one of the worst financial decisions he ever made but one of the best emotional decisions that helps him and his family sleep at night.
I like the balanced approach you’re taking.
Hi Kyle and Robb, Always had a mortgage as I moved up and still have in retirement. The problem with a mortgage, it is not deductible debt (though it is based on an appreciative asset = good debt). Since it is market highs and therefore fewer investment opps, I increased my mortgage payment max for this year.
It is in our Canadian psychie to celebrate paying off your mortgage and being debt free but at 1% rates, we should be using other people’s money as long as it lasts.
Hi Denis, thanks for sharing your thoughts. Just a quick comment about market highs. This certainly depends on where you are in your investment journey. Markets are always rising to new highs, that’s what they do. That doesn’t necessarily mean a crash is imminent or that future returns will be lower. Stocks still offer the highest expected return of any asset class and shouldn’t be avoided unless you have other financial priorities in the short-term.
Robb, I agree with that 8% average but what about that cliche about getting any return at all if you are invested in the best X number of days.
Thanks for sharing. I have a followup question on ReSp. I have my kids turning 16 and 13 next year. I mulled converting 90% equity portfolio, 10% debt into more conservative to 50-50 or convert it into a bond ladder of 10k maturing once every year coinciding with school payments. But after a lot of thinking and analyzing I am thinking of staying invested in equities, VEQT or cash rich dividend financials etf. The reasoning behind this is bonds are at all time high because of lower interest rate. The interest rate can only go higher from here driving the bond prices low in future. So my goal of capital preservation will not work.
Hi Sho, I would not recommend dividend stocks or ETFs as a substitute for bonds. You need principal protection for your 16-year-old at this point and unfortunately that means low interest cash or GICs. Don’t try to squeeze out extra return by keeping too much of your RESP in stocks this late in the game.
I do agree that bonds are not likely suitable either at this stage because prices could fall if rates rise.
Great work on the progress Robb and family! As you know, those maxed out TFSAs will serve you very well in the coming years.
(We will have maxed out TFSAs and RRSPs in 2021 ourselves. No changes to our financial plan that way…will keep doing so until we are mortgage free. <4 years to go…)
No doubt with your corporation now you're doing very well financially and that will only help your savings rate for investing purposes. Certainly seems like you made the correct decision 🙂
Curious, I assume you're paying yourself a salary (and not dividends) from your corporation? Therefore, VEQT is going into a taxable account inside your corporate account? Curious!
All the best to you in 2021 – continued success.
Mark
Hi Mark, thanks for stopping by. You’re in great shape with financial freedom / semi-retirement in sight!
Mark, the plan was to pay ourselves dividends from the corporation this year, but the decision to take the commuted value of my pension meant we could live off that cash and so we did not withdraw anything from the corp this year.
In 2021, we’ll resume our original plan to pay ourselves dividends instead of a salary, while investing the excess cash inside our corporate account (yes, this is taxable).
The one thing I’m still wrestling with is whether to draw a small salary (say, up to the CPP YMPE) to create some RRSP room and add a year of max contributions to CPP. So, a bit of a hybrid approach of salary and then dividends to cover our personal spending needs and savings goals.
I know you’re also looking to incorporate and so you’re likely wrestling with some of the same questions. Happy to chat with you about that any time!