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Could I be doing more?

45K views 111 replies 29 participants last post by  scorpion_ca 
#1 · (Edited)
#5 ·
Hi showmethemoney45,

Presently, your family has a yearly income in excess of >300k gross, you have net assets ~1.5 million, and you're both 'only' 34.
That all seems pretty great so far.

You're asking about passive income, presumably through investing, so tell us:

- over the recent past, how much are you savings each month and putting towards your TFSAs/RRSPs/DRIP stocks, and
- what are the actual securities held in your TFSAs & RRSPs and what do you consider to be DRIP stocks (I presume these are held in a non-registered account)?
 
#6 ·
Why do you have 95K in savings and 5K in stocks, but only 5K in TFSA? It looks like you have taxable investments without having taken full advantage of the tax shelter? Also, at 155K in RRSPs, have you maxed those out?

I agree on the REITs. Mine are paying 6-8 percent, and they don't phone me at 11 pm to say the washing machine is broken.
 
#7 ·
TFSA is held in cash-(yes I know this is bad)
RRSP's (don't know-I'm with Sunlife and doing a medium risk stew of sorts that they pick)
DRIP's I've been putting only $250/month sort of for fun as my skill level is so low.

I was just on mat leave so that slowed us down for the last year and a half.

Currently we are putting $1000/month into savings, $250/m into DRIPs, and an extra $650/month onto our primary residence. Our property net cash has just been sitting in a separate savings (30K) in case vacancies spike or we need a new roof. I put roughly 500/month into RRSPs through my work.

Thanks for the replies!
 
#9 ·
Currently between your RRSP and stocks you DRIP, you're putting in $750 / month into your investment accounts, correct?
Are you looking for advice on how to find room in your budget to increase that amount - if so we'd need to see your budget.
Are you looking for advice/ideas on how to invest these funds - if so we'll need to know details about what exactly you're invested in.
 
#10 ·
You guys seem to spend quite a bit. Perhaps there is more you could cut back on to increase that $2000/month savings? You net somewhere around $17,000/month? I would think you could save $5000/month easily without too much trouble or hardship.

What line of work is your husband in, BTW?
 
#13 ·
I definitely know we could be saving more. Our kids daycare costs $1700/month, house/utiliies are roughly $3000/month, $2000/m investing....jesus...where is the rest going? I guess we're having too much fun? Trips, flames games, new tvs are really adding up. We probably take home $15000/month (not including the rental income).
So, that leaves over half of your $15,000/month unaccounted for. If you don't now where all of your money is going, it's hard to know where you can cut. I would suggest tracking ALL spending for a few months. Once you know where your money is going, you will be in a better position to decide what you can cut back on or cut out completely.
 
#15 · (Edited)
We download our chq acc and credit card accs from our on-line banking into excel and group expenditures that way. Not sure if that could work for you. The great thing is that you are young, have great incomes and are now focused on 'paying yourself first'. Financial independence is definitely do-able. Remember expenses and savings will change over the years, for example the kids will be in school all day before you know it, then maybe daycare costs will go to paying off the house, etc.
 
#21 ·
You have more than enough income to become rich. Your household income is very high.

You must begin meticulously tracking your spending. Create a spreadsheet and create an entry for EVERY amount you spend more than $5. Put a code in the column next to it, like
F = food
E = entertainment
H = housing and home related
C = consumer goods/toys
K = kids

Collect this data for a few months and then analyze exactly where your take-home pay is going. As others have said before, figuring out where your money is going is a very important factor. Personally I think it's a bigger part of building wealth than investments. (The returns/gains from controlling spending will far exceed any investment gains).

That being said, you really ought to have much more in your TFSAs. Things like your savings and stocks can go inside the TFSA. This is the best tax shelter available... generally better than an RRSP, even.
 
#23 ·
I read it Peter as this is her goal in 10 yrs time(those being the items that would make her feel 'rich'?i think?)
I personally think to be successful at any thing and work towards any goal tracking is highly important and having little milestones etc
I don't doubt you have a high income but it is a little concerning you don't have a 'handle' on your personal balance sheet
It's nuts you can't account for roughly 8k a mth in your budget lol

Maybe i am a different bird(doubt it,lol)but 1st things 1st get a handle on where your money is going!my 2 cents-was said up thread.
 
#24 ·
"The things I dream for are as follows:

New house 2.5M (inflated cost 10 years from now)
cabin 250k (price now)
Condo 400k (for my parents when then get old)
kids RESP etc 200K

=3.35M
Think this is possible in the by the time we're 45? (10 years from now)"


These are good and ambitious goals. I wouldn't be too concerned with a "rich house", I'd be more concerned with generating long-term cash flow to do whatever you want. There is no point in being "house rich" and cash poor.

I would focus on building assets (beyond your primary residence) that generate cash flow. Then, with that cash flow, you can do whatever you want...own and pay for expenses in a fancy home, downside the primary home and have other homes, have one home as home-base and travel the world; buy stuff - your designer jeans all the time; etc.

Again, I would focus on building assets that generate income and use that income to fund the lifestyle of your dreams.

Just my $0.02!
 
#25 ·
Because we could never afford one, I've always shaken my head when we drive by the multi-million dollar houses (I mean the opulent ones, not those in Vanc :)
Even if I could afford one, the thought of all those ongoing, embedded costs (taxes & util, upkeep..) would keep my semi-frugal (cheap?) nature from owning one.
The OP has some other priorities (i.e. where does the money go) before finalizing their future goals, but when that time comes I would really think about what is important, what financial independance is worth to you, and how much you want to have tied up in a roof.
 
#31 · (Edited)
Smarter people than me would reply, but since your mortgages are about 60% of your real estate value, you have some room for their value to drop before you're under water... so I'd probably be putting money into investments so that your net worth is not so heavily weighted towards real-estate - at least up until you max out RRSP and TFSA. (Right now you have about 1.5M in RE vs 260K in RRSP & savings)

Keeping tax deductible interest around when you have other debt to pay off is a good idea, unless that interest is at a higher rate than your other debt even when accounting for the tax deduction.

Keep in mind... you're paying $0.00 for my opinion :biggrin: But I'm in a situation that is vaguely similar (numbers are quite different though) and this is my general plan, after plenty of reading on CMF and other forums, blogs... etc.

Something to be aware of regarding tax-deductible interest on the rental mortgages, in case you don't see this already... all other things being equal, your cash flow will be reduced towards the later stages of paying off the rental mortgages, since the amount of interest you pay per payment goes down, which therefore reduces the tax deduction you can claim. So it will seem that rental cash flow gets tighter and tighter, until they are paid off. (hopefully you can increase rent over time to cover that)

Because we could never afford one, I've always shaken my head when we drive by the multi-million dollar houses (I mean the opulent ones, not those in Vanc :)
Even if I could afford one, the thought of all those ongoing, embedded costs (taxes & util, upkeep..) would keep my semi-frugal (cheap?) nature from owning one.
+1. I'd rather pile my extra dough into something that either makes me money... or spend it on experiences (I'm of the camp that values trips and non-material fun over material wealth - like most CMFers, I believe.)
 
#26 · (Edited)
IMO, you have nice income, but are dangerously over levered in one asset area, real estate. Also, you are making the inaccurate assumption that housing will go up forever. I can tell that just by your 10 year inflated cost calculation. Housing is not tied to inflation, its tied to wages and interest rates.

So those two things should tell you something right now, interest rates are as low as they are ever going to be and wages will be under severe pressure for years to come because of the oil situation. Calgary is a one trick pony. I lived and worked their for 10 years so I know. Your RE assets are likely to lower in a few years time. Shave 20% off your home and rental properties then take a look at your situation.

And maybe just a little tip for the poster, you are pretty wide eyed about wealth and its great and all, but freedom is your biggest asset. I retired at 39 and now nobody controls my path but me. I live in a area with lots of 1 million dollar houses around me, but noticed one thing, the owners still get up and go to work at 7 am. I am making breakfast for my kids in my PJs at that time.
 
#28 ·
I retired at 39 and now nobody controls my path but me. I live in a area with lots of 1 million dollar houses around me, but noticed one thing, the owners still get up and go to work at 7 am. I am making breakfast for my kids in my PJs at that time.
tygrus - If you don't mind my asking, what age were you when you got married and had children? Did you plan to stop working so young before having kids or did your plans change after they arrived?
 
#30 ·
I retired, got married and had a kid all in in my 39th year. This wasn't really a plan but it worked out.

When I was a bright eyed engineer out of university, I got a job in the patch when I was 26. The money was ok, but I HATED working for someone else. My bosses were always these suck up type A'ers who wanted to micromanage me, gave me no freedom and I had to beg for a raise each year. I tried a couple different companies but always found the same thing. In my last job I was jetting all over NA attending endless meetings and getting home friday nights at midnight all on my way to gaining 100 lbs and about 6 months of insomnia. That was enough.

Fortunately 10 years earlier I had started to build alternative income in a business and investments and it was time to make a stake on my own. The first year or so was scary without a paycheck coming each month, but that soon subsided. Now its a beautiful thing and its income for life, even if I live to 100.
 
#34 ·
People's obsession with housing is becoming very disturbing. I get that people want some symbol to flaunt and I guess a house fits that bill better than cash in a bank or a stock portfolio.

A lot of those massive shacks are multi generational. Meaning that 2-3 families sometime live there. This is common with new immigrants. You will see the kids live at home until they are 30+ and on top of that older grandparents can be living there as well. Sometimes the house is willed to some of the kids in return for them letting their parents stay in the house when they are older. This is a different strategy than westerners have seen so don't get too rosy eyed when you see mansions. There could be 10 people paying the mortgage in there.

A 2.5 million house where I live is going to probably bigger than 5,000 sq feet. The typical family is 4 people. What do you need all that space for?
 
#35 ·
I have to admit, I get sucked into the the housing piece too. We have one of the smaller houses in the area, but it's a great area. My kids friends have commented they thought we would be 'richer' because we do so much with the kids and we have a cabin.

We would like more space our place is under 2000 sq feet but I always like the idea that I want to have freedom and choice more than a larger house. I have to keep reminding myself that.
 
#36 ·
Lurking For Many Years Here This Thread Prompted Me To Register

I have had a wonderful time for several years just reading the posts on this forum and reading Canadian Couch Potatoe and learnt a tremendous amount based on individuals perceptions, albeit I've remained frozen on moving forward outside of what we know, but that needs to now change. Thank you to all that contribute. Now as we are prepping for the highlight of our twilight (hopefully), I decided to register, prompted by this interesting post and everyone's individual perceptions regarding real estate ownership versus other types of investments.

Ironically our wealth (for what it is) has solely been built up through real estate over the years = buying revenue properties, building properties ourselves and selling them, picking one of the last 5 lots in a community then flipping upon possession for a 20% return in the late 90's and early 2000's, and lastly buying a canal lot in the USA in 2009 when their market was at rock bottom low, which is now approximately worth just under double what we paid and cost of build. Have we made a few errors = Sure! Overall though RE has enabled us to build a 7 figure Net worth, whereas my consistent attempts in the stock market for over 15+ years has been sad to say the least by comparison. So we've stuck with thus far the "if it ain't broke, don't fix it" theory.

The biggest problems with RE which has been our personal experience over several decades, has been when people have tried to speculate and not look at long term buy and hold or a double sided option = fix and flip, but if market not there at the time, would it be a cash positive/initial low subsidise rental option? Typically, we all need a roof over our heads, food in our stomachs and somewhere warm to sleep at night, this is unlikely to change in the future, and has been our premise with what we've done over the years.

It was generally greed and speculation of folks seeing a huge rising $$'s in RE market in the 2004/5/6 era where folks saw their neighbours sell their homes after contracting a builder to build and then saw the price of the same property go up by another $100/$200K plus between sale and possession of the new home. We heard many say "I'm not going to lose that much, I'll lock in at today's rate with the builder, and sell my current house just before possession date". They became gamblers or speculators. All of a sudden a glut of product hit the market (bubble), then folks were having to fire sale large highly leveraged properties, to meet their mortgage approval of "subject to their current home being sold". I recall even builders having to adjust their agreed to prices by 6 figures here in Calgary area because the lenders some 18 months after contracts being agreed would lend based on the rapid declining appraisal prices.

OTOH, we have many many friends and family that bought properties over the years and have created a wonderful retirement portfolio. EG: One bought 9 properties back in the early to mid 90's at around $69,000 to $89,000 and these are obviously paid down now through huge rental increases, and the values are in that $350,000 to $400,000+ range. That same person about 8 years ago bought a 10 plex for a $1million from what he'd saved from the previous 9 rentals once paid off, and we questioned whether it was a smart move at the time based on lofty values then. Well, today it's worth considerably more than that and his rental rates have increased exponentially. My father paid UK600 for a piece of land in 1960, to build a luxury then, house on it total cost was UK4000 and he worried himself sick on having a loan at that time for the actual build. Sold in 1987 for UK82,000 Today it is worth even with up down markets in-between over UK650,000. Uncle bought a farm in late 1950's for a few thousand pounds, in 1980's bought the one next door for exponentially more, converted many of the granite outbuildings to holiday rentals being coastal area, and now so less change out work, rents out all as long term rentals - the value of his holdings here are worth a few million UK, and he has paid down many years ago any owings. These are just a handful of many many folks we know who have created their wealth being low income earners through using OPM for leverage through RE.

Of course it all depends on which market place you are in - we've always considered investment for RE only in areas where there is a large economic centre, and accordingly after the peak prices of 2007, the declines throughout the following 3-4 years, we are today even with recent declines still seeing single family properties worth more than they were in the peak of first quarter 2007. 1995 properties were selling here for less than they were bought in 1993 but today they are worth more than double that again. There's very few things you can invest in we've personally found that long term can give you the returns of what RE has for such a small initial investment by comparison. Every market rise, we hear that "oh don't you think properties are too high priced to buy now", yet just like the S&P500 long term they've still gone up, up, up.

For sure RE is not as liquid to sell as stocks, ETF's etc but for someone young enough and with time on their side, just as I see advised in the stock market long term, I'm curious how one could go wrong for such a small initial investment leveraging with OPM when in a large economic centre. Don't get me wrong, I'm going to start a "Pls advise/help me thread" regarding liquidating our assets now we are older, as we wish to start travelling, but reading the comments on RE here, I found it quite interesting our actual experience over the past several decades versus some other's thoughts.

I've really enjoyed this thread and it's comments, have been envious of what so many folks here on the forums generally have achieved at such a young age with good incomes and being able to retire so young like Jon Snow, MOA (great website by the way). RBull I like how you write very much also. Unfortunately we have always been what my father termed "house rich and cash poor", now we need to liquidate and decide where to put it all for a half decent return as risk adverse as possible all things considered. Hoping in future posts to glean your knowledge utilizing other less hands on, more passive investment vehicles outside of RE.
 
#37 ·
Hoping in future posts to glean your knowledge utilizing other less hands on, more passive investment vehicles outside of RE.
I only would recommend have maybe 20% of your assets in equities. Its not that the stock market is a bad place, its that people cannot stomach the volatility.

If you had a 7 figure stock portfolio, you could find yourself easily down 50-100k any given day. Its hard to have conviction to hold on through those periods. Your RE portfolio probably held solid and even if it did fall a bit, you didn't know it.

ETFs have help smooth a lot of the market volatility though. They are the only equities I buy.
 
#38 ·
I disagree. It's all relative. We have ~75% of our net worth in equities. We are extreme buy-and-hold investors. The only time we sell is on the back end of a Norbert's Gambit. We also don't time too much either. Cash flow is pretty consistent so we buy 'something' every month or so. Not too much thinking required. If the market goes down, it just means our next purchase will be at a discount. Absolutely zero stress.
 
#39 ·
After spending some time going over the last 6 months of expenses I have come up with the following:
(Spreadsheet was too big to attach so I'll just give you the summary)

Net income: $106,598

Savings/Investment: $21,700 (more than I originally thought)

Housing/grocs/health: $37,202

Transportation: $6,150

Kids/care: $13,700

Personal/Entertainment/recreation/house stuff: $17,820 (bought 5500 worth of tvs recently)

Vacation: $6,800
 
#40 · (Edited)
Great. Where did the other $3,226 go?
'Other' spending?


To break this down for others, on a monthly basis you and your family:

Earn: $17,766.

Spending:
  • Savings/investment: $3,616
  • Housing/groceries/health: $6,200
  • Transportation: $1,025
  • Kids/care: $2,283
  • Personal/entertainment/house stuff: $2,970
  • Vacation: $1,133
 
#41 ·
So you are saving ~20% which is actually pretty good. With further analysis and discipline you could probably increase that though and meet your goals even sooner. Also, are either of you making your own contributions to a pension through payroll? That might be another source of retirement savings that you haven't counted.
 
#45 · (Edited)
Actually your saving and spending habits are probably going to miss the bigger picture. Here's the big picture: you have insanely high leverage.

Going back to the first numbers you posted (the balance sheet part, assets & liabilities) I see that your overall leverage is very high.

3.03 M in assets
1.58 M in debts
= 1.45 M net worth

Your leverage ratio is 3.03/1.45 = 2.09 which I would say is very high considering the majority of your assets are illiquid. I would make it your first priority to reduce your leverage.

To illustrate why your high leverage is dangerous, consider the amplification effect and look at what happens in this very feasible scenario:

If assets decline in value by 40%, here's what happens to your balance sheet:

1.82 M in assets
1.58 M in debts
= 0.24 M net worth

It would slash your net worth from $1.45 million down to $240 K. See why leverage is dangerous? A 40% decline in assets causes an 83% decline in your net worth -- i.e. it WIPES YOU OUT. You're toast.

With your leverage ratio of 2.09, you are more than doubling the impact of asset price changes. This is why I love this ratio.

Reduce your leverage! Perhaps make it a goal to get down to 1.50 on the leverage ratio. The 40% decline is well within the realm of possibility. I promise you, if that happens, it will destroy you with your current balance sheet.
 
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