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My Journey to Financial Freedom

9K views 37 replies 17 participants last post by  My Own Advisor 
#1 ·
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.
 
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#2 · (Edited)
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.
 
#3 ·
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?
 
#6 ·
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!
 
#7 ·
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.
 
#10 · (Edited)
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.
 
#11 ·
.

congratulations on the baby & the growing family. I think you have a terrific financial profile. You're working hard on your financial plans & undoubtedly all will succeed in the end.

the suggestions upthread are excellent. Pay down the debt ASAP, say the suggestions. Don't buy mutual funds, their management fees are too high. Buy ETFs instead. Even better than ETFs, start accumulating a 5-pack of quality individual stocks. DRIP everything that can be DRIPPed.

you mention a pension, presumably from work. This means you & spouse can concentrate on building those 2 TFSAs for a long time to come.

re including house in net worth calc or not - opinions & practices from cmffers range across the spectrum, so the OP could take his pick.

persons who do not include personal residence in net worth point to the illiquidity of real estate. Net worth should be cash that can be raised fairly easily, they say. Obviously parties who own rental properties but no other investments would have a different point of view, still, this particular OP is not in the landlord category at present.

a compromise approach among the house includers is Dmoney's. He includes his principal residence at cost. He has a fairly large mortgage so the inclusion compares nicely. Dmoney has a diary thread in this section, you can see how he handles the house.

all cmffers agree though: do not include vehicles, boats, jewellery, art or any other personal possessions in net worth.

welcome to the forum. You've made a great start, now please don't forget to come back & tell us about the baby when he or she arrives.

.
 
#16 · (Edited)
.
all cmffers agree though: do not include vehicles, boats, jewellery, art or any other personal possessions in net worth.

Of course they are - anything you can sell for $$$ is technically an asset. Whether it's worth accounting to that level is up to you. If you're talking about a $100 asset versus an asset worth more than 100K is up to you.

House being an asset is a no brainer.
I think for cars I would include an expensive car as an asset, and a junker commuter not. Perhaps also based on whether I plan to drive it for a few years and sell later for a newer car, or drive it into the ground and sell for scrap. Since I don't own a car I don't have to deal with the issue. :)
 
#13 ·
Home is an asset for sure.
However, in general, would worry about relying too much on house value increase.

Example: if net worth went up from 100k to 200k in a couple of years, only because of home value, but mortgage stays the same (person refinances / has a heloc balance / etc) and there is no extra savings...

In your case, you have good savings habits, so you should have great progress in the future.

Some people would use a "Financial Net Worth" to isolate how their investments are doing.

For pension, did you get a 2015 annual statement (probably too early for 2016) saying its "commuted value" ? (value you would get if you quit). It's something you own and could be part of net worth.
 
#14 ·
Thank you everyone for the replies. I am actually quite surprise on the number of replies and all the great opinion and advice. I am slowly trying to learn things along the way and I think this forum will help me out a lot. My mutual fund is currently invested into TD e-series, not quite sure what my plan is with that yet. My next few financial move is to bring my debt down while putting a little bit aside for investing. I have a DRIP setup but I don't hold enough share to make it work right now so I'll have to buy a few more share as well.

Someone asked which province I was living in. I currently live in Newfoundland but will be moving to New Brunswick in the near future.

But a lot of you mention pension which I never actually looked into. I think I'll go find out how much is actually in my pension plan right now and add that on here.

For the long term goal of $15,000/month, I am not sure if it's realistic or not. I just wanted to put a tangible goal down to strive for and use it as a way to measure progress. I find that it helps motivate me.

In terms of mortgage, I was actually doing bi-weekly payment at $925 per payment until recently. I wanted to free up some cash flow for baby expenses so I changed it back to monthly payment for now.

Once again, I am very grateful for all the replies and opinion. It definitely allow me to see some alternate point of view. I'll definitely keep you guys updated with the baby and my progress.
 
#32 ·
I have a DRIP setup but I don't hold enough share to make it work right now so I'll have to buy a few more share as well.
Wow your journey sounds so very related to me only wish i was 27 :( (not far am 29 myself). Congratulations on the baby and all the very best its the best part of the life . You mentioned about the DRIP, just curious what account you use for DRIP .
 
#19 ·
Sure :) We live in very expensive GTA, family of 4, 3-4 times per year we travel abroad, spending thousands on food (like tasty stuff) and we spend 80K per year...

If you want to save, consider moving your bank account to Tangerine. If your salary is deposited there , you gonna get some cash as a gift + $50 if you open account there and no any fees...
Also for saving account they offer much higher rates than big banks.
 
#26 ·
Just curious where and why are you going to move? Considering that house prices there at least 4-5 times cheaper than in GTA, I was thinking in future to retire there (one of the options).....
I am moving for work. Going to be moving to the Fredericton area, been looking at houses online, its even cheaper than Newfoundland. I won't recommend Newfoundland because of the Tax, weather, and cost of living. The provincial gov't has recently hiked tax on several areal. The cost of living is high cause most goods gets on the island via the commercial ferry which makes grocery more expensive. The Iceberg are kind of nice tho.
 
#21 ·
thank you for sharing your current picture! how old are you? great mind set and attitude towards getting yourself set for life and nice goals.

the 15k per month in passive income goal is certainly a big one. do you have any ideas on how you will achieve this? or is this a combined goal for you and your wife?

in your first post, do you also include your wife's investments in the networth calculation?
 
#27 · (Edited)
in your first post, do you also include your wife's investments in the networth calculation?
I did not include her investment which is around $17,000. I am currently restructuring her investment portfolio since it is all in standard TFSA savings account right now. I will include it on my progress update.
 
#22 · (Edited)
For the OP, just to be realistic, $4-6 MM throwing off $15k monthly income is not possible with your set up. I am all for setting goals, but better to be realistic I think. You need other asset holdings like big RE portfolio to get those kinds of numbers and that involves risk and you dont sound like that kinda guy. I think something in the order of couple mill is doable if you use your RRSP/TFSA and govt pension the right way.

Also, if you want to get wealthy forget paying down your mortgage. If you take those extra payment you are making and invest and monthly compound them, they will far exceed the value on your home one day.
 
#30 ·
Think back 40 or 50 years, there was the double digit inflation, tech bubble, financial crisis and how many others. Cars in 1980 averaged $5,500 a house $86,000, income $11,300. Today an average car cost $25k but most probably pay over $40k and average income $75k? So what will happen 30 or 40 years ahead? I certainly don't know but it clear that prices and costs won't go down. Maybe 30 or 40 years ahead, if the trend continues, $150k of income from savings or more might be reasonable, especially if one is actively working towards that goal.
 
#34 ·
http://www.slowlybutwealthy.com/2017/07/neighbour-joe-july-2017-net-worth.html

Hi, sorry for being gone for so long, my son was recently born so things got a little busy.

Here is an update:

Asset

Chequing: $5,121.62
TFSA Investment: $29,885.99
TFSA Mutual Fund: $3,558.30
Real Estate: $255,000
Work Pension: ~$153,000 (I checked but I can't remember the exact amount)
*Automobile is not included as I feel it depreciate too fast and will give a misrepresentation of my true net worth

Liabilities
Mortgage: $162,573.98
LOC: $12,282.32

*Credit Card is not included as it is paid in full every month

Current Net Worth: $271,709.61
 
#35 ·
Haven't posted here for a while, but I am making progress towards my goal.

Asset
Chequing: $2,685.62
Savings: $6,515.11
TFSA Investment: $91,285.85 (Market Value)
RESP: $2,039.45 (Market Value)
*Real Estate: $224,000 (Purchase Price of my house)
*Define Benefit Work Pension (Transfer Value): ~$153,000 (Last checked in Jul 2017,aprox $1000 a month of contribution)

*These have not been updated since the start of this blog.
**Automobile is not included (No monthly car payment)

Liabilities
Mortgage: $121,099.50

*Credit Card is paid in full every month

Current Net Worth: $358,426.53

Passive Income
Current Passive Income: $2,940.24/Year or $245/Month
 
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