My Journey to Financial Freedom
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Thread: My Journey to Financial Freedom

  1. #1

    My Journey to Financial Freedom

    Hi Everyone,

    New to this forum and have just recently decided to start my journey to financial freedom.

    About Me
    I am a millennial, married, and currently reside in Eastern Canada. I work with the government, getting paid an average salary, and live an ordinary life. I first started investing when I was 19. I opened up a Tax Free Savings Discount Brokerage Account with TD Bank, and invested all my savings I had at the time (~$1000). However, I ended up withdrawing it a few years later to pay off debt. When I graduated from University in 2011, I was able to get a government job, bought a house, and got married, but really didn’t have a good financial plan. Fast forward to 2017, my wife and I are expecting our first child, so I wanted some extra income to cover off the additional expenses. I began reading books and articles on finance and how to build wealth. I developed a strong passion to pursue the road to financial freedom.

    My short term goal is to have my mortgage paid off in 3 years (~$160 000 left). My next goal is to have a net worth of $1 million by the age of 40, and my long term goal is to generate sufficient passive income ($15,000/month). I also started a blog call slowly but wealthy to track my own progress

    Asset
    Cash: $400
    Savings: $5
    TFSA Investment: $24,000
    TFSA Mutual Fund: $3,500
    Real Estate: $260,000

    Liabilities
    Mortgage: $163,000
    LOC: $12,000

    Net Worth: ~$113,300

    I am in a dilemma rather or not I want to consider my house an asset because it give me false sense of net worth. What do people in this forum think?

    Monthly Budget

    HOUSEHOLD INCOME (ME +_WIFE) Approx. $6,500 after Tax and Work Pensions

    EXPENSES Approx. $3,240
    Mortgage + Property Tax: ~$1,075
    Utility: ~$150-$200 Depending on the season
    Cell Phone: ~$120 for 3 Month
    Internet: ~$55
    Food: ~ $600 - $800
    Gas: ~$300 -~$400
    Insurance: ~$270
    Entertainment (Eating out + other stuff): ~$100-~$200
    Misc Expenses: ~ $200

    LEFT OVER Approx. $3,260

    A question I wanted to ask people on this forum is a what point in your journey did you see a sudden change in growth rate? Is it when your mortgage is pay off?

    Thanks.


  2. #2
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    Welcome!

    I think you should include the house, it's definitely an asset. And you're listing the mortgage, so this is an accurate picture of the contribution to net worth.

    You briefly mentioned pension (presumably a payroll deduction). I presume you're accumulating a pension with your government employer. These can add up to a lot! You should list RRSP/pension under Assets.
    Last edited by james4beach; 2017-04-22 at 11:49 PM.

  3. #3
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    On opposite, I don't think you should include your house , you need to live somewhere , no?!

    Yes, I'd suggest to pay off mortgage ASAP.

    my long term goal is to generate sufficient passive income ($15,000/month).
    Really?! $180,000 per year in passive income?! You will need about 6M in savings to achieve it!

    Curious, what province/city you live?

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  5. #4
    Senior Member none's Avatar
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    Of course your house is an asset. Why? Because look up the definition of what an asset is. It's an asset.

    What you do with that asset is another question but it's an asset full stop.

  6. #5
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    Quote Originally Posted by none View Post
    Of course your house is an asset. Why? Because look up the definition of what an asset is. It's an asset.

    What you do with that asset is another question but it's an asset full stop.
    Thus car, iphone and TV are also assets

  7. #6
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    Congratulations! The fact that you are starting to think about your future and recognizing that finances are more than how much can one spend and on what. Yes your house is an asset as are all the other things you own of value. But that's just accounting and has little meaning at this stage of your life. What you should concentrate is living within your means, limiting your credit card debt, pay down your mortgage and saving a portion of your net earnings.

    Also great that you've put $27,500k into your tfsa's. However, I'd get it out of mutuals. If you read many of the other posts here the majority would probably recommend putting the funds into etf's. Better idea than mutuals, but you could also invest in some high quality dividend growth stocks, your choice. Is planning to obtain $15k per month unrealistic, doesn't matter if it is or not, go for it!

  8. #7
    Senior Member tygrus's Avatar
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    Quote Originally Posted by joetheneighbour View Post

    A question I wanted to ask people on this forum is a what point in your journey did you see a sudden change in growth rate? Is it when your mortgage is pay off?
    We all saw massive growth when bubbles ripped across the country. Nothing more.

    As a millenial, there is only one way to wealth now for you. RE is done. Working is going to be harder and harder and taxed more and more. You have to get compounding hard. Throw all you can into investments and drip them every month. Thats the only way I can see now.

  9. #8
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    Quote Originally Posted by tygrus View Post
    We all saw massive growth when bubbles ripped across the country. Nothing more.

    As a millenial, there is only one way to wealth now for you. RE is done. Working is going to be harder and harder and taxed more and more. You have to get compounding hard. Throw all you can into investments and drip them every month. Thats the only way I can see now.
    +1, sad but true.

  10. #9
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    Quote Originally Posted by tygrus View Post
    We all saw massive growth when bubbles ripped across the country. Nothing more.

    As a millenial, there is only one way to wealth now for you. RE is done. Working is going to be harder and harder and taxed more and more. You have to get compounding hard. Throw all you can into investments and drip them every month. Thats the only way I can see now.

    If I had a dollar for every time I have heard it said over the last half century that "real estate is done" I'd be going head-to-head with D. Trump, Esq. in a net worth showdown.

    Even the "bubble" markets - perhaps especially the bubble markets - are far from done. Back in the early 1980s, that was the lament heard all around...it's done. I bought Vancouver house in 1979 for $110,000. It was worth about $275,000 by 1981 and down to $140,000 in 1982, by which time the prime rate hit 22.75%, compared to the cheap 11% mortgage money to which we had grown accustomed. All around, people were crying in their beer. Oh, it's over, they wailed. It will never come back again, no fool will ever buy real estate again, blah, blah.

    I sold my $110,000 house in 1989 for $525,000 in 1989 - almost a 5-fold increase in a few years. That was land value, which was all I paid in 1979 for a 1914 bungalow. A bigger increase than seen in Vancouver and Toronto in recent times. The prices dropped again in about 1991. That $525,000 house went down to probably about $400,000. Today, the 1914 bungalow is gone. The lot is assessed at $3 million and the new house on it at $2 million. Is that indicative of a "bubble"? Probably. Is it poised to blow? Probably. If it blows, will it ever come back and pull ahead of the old record? Certainly.

    So even the folks who bought those Vancouver houses for $275,000 in 1981 and saw the value cut in half about a year later have no need to whine about losing half of their money, unless they bailed out in the trough. Look where they are now. Like the stock market, I suppose. The advice around here seems to be against liquidating one's portfolio in a down cycle. Real estate is no different.

    As for the OP's goal of $15,000/mo. passive income, where's JAG today? He'll almost certainly tell ya' that RE is the best way. He is able to pick up houses for a crummy $100k and rent them out for $1k/mo. I am not sure that he is the only person on the planet who can do that. So by the time you have accumulated about 20 or so of those, and employed the rents to retire the mortgages, lo and behold, you have $15,000/mo.

    Perhaps JAG will chime in here, but one thing about his method of which I am unsure is this: Let's say you have the misfortune of buying a house that appreciates in value quicker than the rents. Take my 1979 Vancouver house. At the 1979 price of $110,000 that house could have been rented in those days for about $1,000/mo. or a bit more. Nicely within the "1% rule" - i.e., it can be rented for 1% of the purchase price per month. But now, with that same Vancouver house being worth about $3 million, I doubt you'll find many tenants willing to shell out $30,000 a month for a 1,300-square-foot 1914 bungalow, despite the quarter-cut hardwood floors of a quality not found today. Que faire? I did a bit of online research awhile ago and saw houses back in the old neighbourhood listed for rent at about $8,500 per month. If you find yourself in that unenviable situation, with the vision of the 1% rent fading in the rear view mirror, do you bite the bullet and accept the lesser return, or do you sell and return to basics, buying 30 houses for $100,000 each and renting for $1,000 a month apiece?

  11. #10
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    as to your question when did savers/investors see a change in growth rate?
    don't know if you mean in dollar terms or % terms. 10% of 100,00 is 10,000, but 10% of 1,000,000 is 100,000. So in dollar terms significant increases tend to come at the end.

    I agree with above that you might want to reconsider the mutual fund. The are probably bleeding you with ongoing fees/commissions. Over the years that adds up to huge cunks of cash for them, not for you. the most effecient way is to buy a stock directly. Commissions are very low by comparison and not ongoing. Next, as somoe mentioned, if you prefer funds, etf's have ongoing commissions/fees but are way lower.

    I notice no RRSP, and if you have a defined benifit government pension, don't bother with the RRSP as retirement pension income + RRSP withdrawals + other investment income will leave you in a tax bracket where RRSP is not of benifit. Stick with the tfsa.

    List you house as an asset. Banks love people with steady employment and a house. That means they would likely lend to invest. But I wouldn't do that now. sometime in the future when you get your mortgage paid off, you might find it worthwile to borrow to invest.

    If you can be agressive with extra payments on the principle of the mortgage - until you notice the % interest on your statement getting lower than principle payment. Usually this is most effective in the first five years of the mortgage. Later when the interest component is much lower than the principle component, it is less effective. If you haven't already done so, study how extra payments on principle shorten your amatorization and the eventual amount you pay in interest.

    Study the taxes on elegible dividends. They are quite low for middle income earners and the almost tax free dividend income can be used to buy more investments.

    Last edited by Pluto; 2017-04-23 at 12:50 PM.
    We can not know things as they are in themselves, but only as they appear to us.

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