Weekend Reading: 2022 Financial Goals Edition
Yes, I know it’s not even December yet but I’m going “that guy” – the first to share his 2022 financial goals. First, a quick trip down memory lane.
I’ll never forget attending a ceremony to be recognized for 10 years of service at the University along with dozens of other employees receiving awards for 5 to 50(!) years of service. As I sat there I remember thinking, if I’m still here in five years to receive my 15-year recognition then something has gone horribly wrong in my life plan.
Two months later we embarked on our epic 32-day trip to Scotland and Ireland. After this life changing trip I decided to put in my notice for the end of the year and pursue my entrepreneurial dreams.
It has been two years since I quit my job as a post-secondary fundraiser and turned my long-time online side hustle into a full-time business. Aside from *waves hands at everything* the transition has gone even better than I imagined.
I work side-by-side with my wife, who handles all of the new client communication, scheduling, invoicing, and so much more so I can focus on what I do best – writing, planning, and working one-on-one with our existing clients. It’s a dream come true. Best of all, we’re there for our kids when they leave for and come home from school.
The result is a wildly successful business that does not compromise a healthy work-life balance. We’ll put that to the test next year (fingers crossed) when we can hopefully resume travelling. I may or may not have shed a tear when our youngest daughter got her first dose of vaccine yesterday.
2021 Recap:
We had five financial goals or money moves to make this year. The first was to catch up on unused contribution room in my wife’s TFSA. Our goal was to contribute $50,000 but we’ll end up short of that by about $6,000. Life is about trade-offs and we opted to spend that $6,000 on some backyard landscaping instead.
I’m current with my TFSA contributions and so we were easily able to take care of our second goal of maxing out my annual TFSA limit of $6,000.
Our third goal was to continue investing aggressively inside our corporate investing account. We already have a healthy cash float for our business, and our expenses are quite low after we pay ourselves, so we’re able to invest excess profits inside the corporation. Our goal was to invest $48,000 in 2021, but business revenue was better than anticipated and we were able to invest $70,000.
Our fourth goal was to max out our kids’ RESP contributions ($5,000) and we have done that again this year. A related goal was to rebalance this account, which is 100% invested in equities, by adding bonds. I have not done this yet. That may have been wise in hindsight but the fact is we need to dial down the risk in this account as my kids are now one year closer to needing the money for post-secondary.
The fifth goal was more of a change in philosophy. Before the pandemic I thought it would make sense to start paying down the mortgage more aggressively by 2021, but when the interest rate on our variable mortgage fell to 1.45% I decided to forego any extra mortgage contributions and focus on the other four priorities above.
2022 Financial Goals:
If you’ve been following my journey you know that we reached our $1M net worth milestone last year and now aim to reach Coast FIRE status.
What this means to me is having the flexibility to work and earn less without feeling the pressure of maintaining a high savings rate. The truth is our rich life includes more travel and active leisure, and less time spent in front of a computer working on a spreadsheet or on Zoom calls.
We don’t know yet what 2022 will bring in terms of the ability to safely travel outside of Canada as a fully vaccinated family. I am forever an optimist and have tentatively booked trips to Maui, Italy, and the U.K. (all refundable).
Financially, our 2022 goals will look a lot like this year’s 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) and rebalance for real this time
- Roll the extra $6,500 ($44,000 to TFSA in 2021 – $37,500 to TFSA in 2022) into our travel budget
We can achieve this by continuing to pay ourselves at our regular rate, while intentionally earning less business revenue (taking on fewer clients and fewer writing assignments). Since it can be hard to say no to new business, we’ve already blocked out our calendar for most of April and most of July (when we presume to be travelling).
You can see where this is going. If we’re successful next year then 2023 will shape up to be our first Coast FIRE year where we are only contributing $6,000 each to our TFSAs, plus $5,000 to the kids’ RESP.
I’ve done the math to know that we can just let the rest of our investments ride without ever adding to them again. We’d have the option to spend that extra $31,500, or reduce the amount we pay ourselves, or some combination of the two.
More likely, our business will still continue to do well and so we can keep adding excess profits to our corporate investing account.
That’s the plan, anyway.
This Week’s Recap:
I recapped our trip to Boston in the last edition of Weekend Reading.
Is free trading really free? I explore the issue of trading fees in my latest MoneySense column.
On Young & Thrifty I look at whether stocks are more risky than real estate.
Promo of the Week:
If you’re a 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 80,000 Membership Rewards points when they spend $6,000 in the first three months. If you keep the card past the 14 month mark and make one purchase then you’ll earn an additional 25,000 Membership Rewards points.
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:
Costco ended its credit card relationship with Capital One and is forging ahead with CIBC. Our friends at Credit Card Genius breakdown the new details on what the CIBC Costco MasterCard is going to offer.
Another plug for Dan Bortolotti’s excellent new book – Andrew Hallam shares how to reboot your portfolio with Canada’s ETF guru. Read my review of Reboot Your Portfolio here.
Has the pandemic ended the dream of retiring abroad? Jon Chevreau says it can still be done.
The odds of you picking a single stock and it becoming one of the big winners of the future are not in your favour. Read why this is the stock picker’s bear market.
Investing is easy just buy shares in companies you know and use every day. pic.twitter.com/vbJalyws0S
— Boomer and Echo (@BoomerandEcho) November 24, 2021
With assets everywhere seemingly overvalued Nick Maggiulli (Of Dollars and Data) shares why this will not last.
PWL Capital’s Justin Bender explains the key concepts of asset location:
My own view is that most DIY investors should ignore asset location and intentionally hold the same asset mix across all accounts for simplicity.
Millionaire Teacher Andrew Hallam tells investors: Don’t worry, be happy.
“Take comfort knowing this: most wealthy retirees didn’t earn their fortune with a single home run. Sure, stories of fast fortunes grab our attention. But they aren’t the norm. Instead, most people grow wealthy because they spend far less than they earn, they invest responsibly…and they’re patient.”
An enjoyable read from Wealthsimple Magazine on the five simple rules to be the absolute worst stock picker.
Steadyhand’s Tom Bradley says investors should be wary of the next big thing in ETFs.
Finally, why millions of Canadians are planning to choose self-employment, and how to make that transition.
Have a great weekend, everyone!
Hi Robb
What is your plan around investing/saving within your business via your Corp Investment account? Keep the money within the investment acc to grow until needed or when in a lower tax bracket in a future tax year?
Almost like having an unlimited contribution TFSA! Only downside I see is keeping the business operational and annual T2 filings (and if it applies then, GST/HST returns).
I understand drawing Dividends from your company does not create RRSP room in the next tax year (plus perhaps a reduced CPP payout at retirement, but really who know what would happen to CPP in the next 30 or so years, maybe they extend age to maximize CPP to 90 from the present 70, who knows!)
Atleast their is full control over the ~$7000 CPP (employer+employee portions) plus EI premiums are avoided as a self employed. I’ve also heard if their are dividends received within the business investment account by virtue of your holdings (ETF or stocks), those can be nullified by the Corp paying out a Dividend equivalent to what is received but I’m not sure if that applies only to Canadian dividends paid out or international as well.
Any other cons in your view keeping and investing business revenues within a corp?
Rick
Hi Rick, at this point the plan would be to invest those funds until we’re no longer actively working in the corp and then continue to draw dividends from it in retirement.
The downside of my dividend approach now is that we don’t pay into CPP or earn RRSP contribution room. There’s good evidence that we’re better off taking a salary and contributing to the RRSP, although I think the examples in the research only show high income earners in the highest tax bracket.
On the plus side, we don’t have to pay both the employer and employee side of CPP contributions, and our personal tax rate is really low. We’ll do this for another year and re-evaluate.
Thank you, would you be able to reference the research you mentioned in your reply please for further reading on the topic?
Also is the point about nullifying dividends received within a business investment acc by the Corp paying out an equivalent dividend true?
Hi Rick, here’s a paper by Ben Felix that looks at RRSP/TFSA vs Corporate Investing. The answer depends on your circumstances and tax rate, but there’s a good summary at the end of page 7 that should help you decide: https://www.pwlcapital.com/wp-content/uploads/2018/06/2015-07-30_PWL_Felix_A-Taxing-Decision_Hyperlinked.pdf
It also addresses the RDTOH (refundable dividend tax on hand) concept that you mentioned.
Hi Robb,
Congratulations for an amazing year you have and for achieving that FI goals. It’s truly a liberating feeling when you can do your passion in your own time.
Hi Rommel, many thanks for the kind words. I’m very grateful to be able to do this for a living.
I haven’t done my 2022 financial goals yet – I always wait till bonus/dividend announcements which are typically late in December. I have a few sketched out and I hope one of them it to spend some money on a real vacation!
Hi Pam, I hear you on the vacation. We need a 2020 do-over!