# Novice's Quest to Financial Freedom



## noviceinvestor (Jan 7, 2013)

I graduated from University about 3 years ago and managed to get a steady and full-time government job. The pay is not exactly stellar, but it is reasonable for now. Currently, I am pursuing a CMA designation and hope to get that by next year. As a 28-year-old, my quest is to pursue financial freedom, like everybody in this forum. My current goal is to reach a net worth of $1 million by the age of 40. Of course, the question is, is this goal attainable? I guess we'll see. I would appreciate everyone's feedback of how I'm doing and any suggestions for me to reaching my goal.

*Employment income (gross)*: about $55,000 (expected growth of 7-10% per year)
*Pension*: Government defined benefit pensions
*Marital status*: Single

*As of August 31, 2013:*
Chequing account (PC Financial): $1,359.32
Savings account (PC Financial): $24,104.67
Savings account (TD Canada Trust - Note 1): $500.10
TFSA (TD Waterhouse - Note 2): $21,701.64
TFSA (Canadian Western Bank - Note 3): $4,528.33
RRSP (TD Waterhouse - Note 4): $22,806.71
Non-registered investment account (TD Waterhouse - Note 5): $53,825.06
Total net worth: $128,825.83

Note 1: TD Canada Trust savings account was an account I opened when I was a student at 18 years old. As long as I hold $500, there would be no monthly fees. I get two free withdrawals from this account per month. This is a grandfathered account and no longer exist in the current TD savings account product lineup.
Note 2: TDW TFSA mostly holds TDB909 (Canadian bond index e-series), ZSP (BMO US index non-hedged ETF), and ZRE (BMO equal weight REIT). Holdings are subjected to change. TFSA is fully contributed and future contributions will likely be in this account. This account is usually contributed in lumpsum in early January.
Note 3: CWB TFSA is just a savings account that currently pays 2.25% interest.
Note 4: TDW RRSP mostly holds VEA and VWO. The RRSP is fully contributed in lumpsum by April.
Note 5: Non-registered TDW account mostly holds Canadian dividend paying stocks. It currently holds AGU, ALA, BNS, CPG, CSU, CU, CVE, ENB, GEI, HCG, MG, POT, T, VFV, and GIB.A (only nondividend paying stock). Each holding has about $2,000 to $3,000. I also hold a 3-year laddered GIC, $5,000 each year -- rates are 1.85%, 1.95%, and 2.22% for one, two and three years respectively.

*Recurring monthly income*:
Pay cheque: $2,880 per month

*Recurring monthly expenses*:
Rent: $1,000 per month rent to my relatives whom I'm staying with. This includes everything, such as food and utilities.
Transportation: $89 per month (monthly bus pass)
Cell phone: $40 per month (fluctuates; it is pay per use, but on average it's about $40 including tax)
Coffee: $60 per month (guilty pleasure...)
Total recurring expense: $1,189 per month

There are some non-recurring monthly expenses, but I have not included them because it's hard to estimate these expenses. That said, future updates to my net worth may include these non-recurring items. All net savings (income less expense) will go into my PCF savings account.

*Future goals and expenses*:
I am looking to purchase a home between now and 5 years. With house prices so high, I don't feel ready to purchase one yet. My current arrangement with my relatives have been adequate so far (and they haven't booted me out of the house yet... ). I want to wait and build a better financial foundation first before actively searching for a house.

So what do you guys think? Am I on the right track? Do you think I can attain a million in 10-15 years, if markets don't crash and burn?


----------



## peterk (May 16, 2010)

Seems like you got things sorted out investment wise. How much is fixed and how much stocks?

Where does 7-10% raises come from? That seems a bit high, especially for government. Or maybe you'll get that raise for a few years and then max out?

To have 1m by age 40, at 6% returns, you need right about $4000/month in savings. So it looks like a ways to go my friend, keep at it! And welcome to the forum.


----------



## retiredat45 (Aug 6, 2013)

*A great start ....*

You certainly have yourself in an enviable position given your age, frugal lifestyle and continuing education! Great starting point. 

My two cents on your position are as follows:

i) too much in savings. $24,604 represents 20% of your net worth sitting in a savings account earning very little. It's also about two years worth of your total expenditures - a pretty big "emergency fund". I'd pull 75% of it out of savings and get it working for you!

ii) you also seem pretty heavily weighted in income earning investments for someone at your age. I'm not suggesting that you throw caution to the wind, but you'll need some good wins on the growth front to reach your future goals within the timeframe you have stated. Use your youth as the asset that it is and invest in companies with a history of steadily growing their earnings and dividends who occupy a market that is still growing. My favourite is GPC which I've held for years. The company has grown their sales, earnings, and dividend every year for a VERY long time. There are lots more out there if you look for them.

iii) as PeterK mentioned, you should break out your fixed income and growth oriented holdings to make sure you have the appropriate blend. Then you can assign projected returns to each component and calculate the average annual yield. While projections aren't guarantees - they'll provide you benchmarks to use as you progress toward the goal - you'll know exactly where you are on your path to $1M.

Good luck!


----------



## the-royal-mail (Dec 11, 2009)

Another one with a goal of $1 million? Why? In this case, sorry to burst your bubble but that's just not realistic (or necessary for that matter). With $55K of income, even if it was gross income and you lived under a bridge and starved for 10 years you would only have $500K, plus you would have died from starvation and disease. Your net income is much less and once you take out your expenses and account for modest growth (where do you work that you are getting 6-7% annual increases?) you're still nowhere close to $1M. I don't think this type of goal makes any sense.

I admire your low recurring expenses but feel you should be living on your own, at least find a nice apt and start living on your own. You may want to meet a lady and be alone with her etc. As well, you may want to consider buying a car at some point as staying in the city within public transit range is pretty limiting.

I am glad to hear you are not hot and bothered to buy a house at this time. You are nowhere near being at the right stage for that.

Lots to do here but I really think that money management, keeping expenses in check, savings are the most important skills for you to hone before ever setting unrealistic goals. The good news is I fully believe you are capable but you should be prepared to work for a solid 25 years and probably more. Set much smaller, short term and realistic goals and don't listen to the rhetoric of many financial websites, blogs and such. Many are not objective or do not apply to you.

Best,


----------



## Homerhomer (Oct 18, 2010)

Congratulations.
You are in a fantastic position at a fairly young age, to have decent paying job, a pension if you decide to stick around and $128K in assets at the age of 28 is great.

Now your next goal is to make realistic goals ;-) as 1Mil seems to be taken out of a blue without any thought put into it. Currently you are $871K short of your goal, for simplicity purposes let's just assume you will not have any investment returns, so to save up 1Mill by the ago of 40 you will need to put away $72597 each year, which means that your income will have to be in the $150K per year range since you also need to live somehow and pay for it.
With your pay your rate of savings will probably be in the $12000 per year range so about 60K short, and you will not be able to make that up with investment returns. 

So set your goal more realistic, calculate what is possible, account for your expenses and the fact that you need to have fun in life as well.


----------



## HaroldCrump (Jun 10, 2009)

+1 to what the-royal-mail and Homer2 said above.
IMHO, 28 is too early to think of life purely in terms of $$.

Sure, fiscal responsibility, awareness, and money-smarts is important.
But do not forget to enjoy life, and that requires money.
Learn to discern value, appreciate experiences, and build equity in yourself, before you build equity in R/E or stocks.

By the time you are 40, $1M won't count for much.
Probably a simple 3 bedroom house in a suburb will cost $1M at the rate we are going


----------



## Jon_Snow (May 20, 2009)

I had similar thoughts as the OP in my late 20's and early 30's... a few things were necessary for me to acheive the "mythical million" by my late 30's.... crazy real estate appreciation in the Vancouver area - completely nutty to be honest - some of our real estate has doubled, while some other properties have tripled in value. I don't see this happening again in the next ten years.

Also, unless your salary is a large one, you really need TWO incomes to save anything these days... we have lived on one income, banked the other for the last 12 years.


----------



## My Own Advisor (Sep 24, 2012)

@noviceinvestor,

Congrats on having a great job at a young age and all the savings.

If you choose, might be good to simplify things: 
1. Keep the savings account for the house fund, but merge the TFSAs. Keep CDN stocks or dividend ETFs in TFSA and you may eventually use the income made inside the account for more house fund/downpayment.
2. Definitely keep the RRSP and some contributions going in but based on your salary, try and max out that TFSA every year going forward before the RRSP. Just my take.
3. Good call on RRSP ETFs. When VTI prices fall, buy some VTI in there. 
4. Non-registered TDW account is a great place to hold Canadian dividend paying stocks. I wouldn't hold GICs in there. 

Future goals:
I wouldn't be in a rush to buy a house. Take your time. Wait. Also, I wouldn't be so worried to reach your million in 10-15 years, it would be tough to do so. Besides, lots of things get in the way. Like marriage  Kidding aside, life happens. You're young and you have your health. Enjoy it. Get a good savings plan/process in place, at least 10% and maybe closer to 20% if you can, then set aside some "fun" money and just have fun. 

Saving and investing is good but life is short.

Mark


----------



## Sampson (Apr 3, 2009)

I'll be the first to say that $1M is certainly achievable by age 40, but not given your present 'stats'. Stroll over to MillionDollarJourney to see a family reach $1M by 35.

I would reinforce HaroldCrump's point that $1M won't mean much in 12 years AND it certainly won't give you financial freedom.

However, $128,000 at age 28 is something to be very proud of. Obviously you've been doing a lot correct. Keep the lofty goals, and set short term goals that you can achieve all along the way to keep motivated. You will find that increasing your salary while maintaining the same outflow will be the best way to increase those networth numbers.


----------



## SpendLessEarnMore (Aug 7, 2013)

is the $128k net worth all accumulated in last 3 years of working? And no student debts? That's impressive.

I ask because your situation is somewhat similar to mines in that last 3 years I've work I made in the mid to high 40's gross and also factoring in my cash flow positive rental income I'd guestimate that I've accumulated at the most 60k of net worth.

But $1mil networth by 40? You're doing $128k in 3 years. Say you do $150k networth every 3 years times 4 (12 years to get to 40 years) is $600+ $128 = $728k. The deciding factor whether you get to 1 mil is how well your investment does and you can cheat by getting a spouse.

Overall you're doing a great job. Look forward to reading your progressions.


----------



## rayka (Sep 20, 2013)

I agree with many of the comments already posted. Your goal is possible but it will completely depend on your future income stream and investments. I am 37 and have just passed the $1 million mark. Largest contribution factor would be my salary as it has increased by approx 10 fold from my days as a financial analyst. Investments obviously helped as well but for me anyways the pay off was focusing on a career path that would yield the desired income.


----------



## noviceinvestor (Jan 7, 2013)

First of all, thank you all for the good comments. It only encourages me to keep on doing what I'm doing. Seems like the common issue here is that my goal is unrealistic and why I chose a million. Well, there's not any particular reason why I chose the goal. I think I chose it because when one reaches the goal, that individual would join the "-naire" club. It's a long-term goal, and you guys are probably right it's far-fetched to get to that point by 40. At the end of the day, my ultimate goal is to continue progressing upward.

@ peterk: Regarding how much is fixed income and how much is stock, please see the following breakdown:

Non-registered
Cash (including GIC): $15,006 (3-year laddered GIC @ $5k each. Invested in early August because GICs generated higher rate than normal bank acct).
Bonds: $0
Equity: $38,819.06

TFSA
Cash: $4,653.64 ($4,528.33 in Cdn Western Bank)
Bonds: $685.13
Equity: $20,891.20

RRSP
Cash: $397.47
Bonds: $0
Equity: $22,409.24

Total breakdown:
Cash and fixed income: $20,742.24
Equity: $82,119.50
Total: $102,861.74

As for 7-10%, that's how the pay grid is going to move up to the next level. There is a maximum, but most likely if I reach that max, I'll looking for a new job with higher potential.

@ retiredat45: You're likely right with how much I have in my savings account. As mentioned, I live with my relatives. My parents live overseas. They are elderly and have had some health issues. In case any emergency arises, I may need to drop everything here and take off. That's why I keep a substantial pool in my savings account. I am currently keeping at a minimum $20,000 in my bank account. As I earn more in the coming years, you'll see more invested my portfolio.

As for income oriented investments, I lean towards dividend paying stocks because I believe a sustainable dividend paying company = a healthy company. I generally look for stocks that can grow and pay out dividend, and I try to buy them when they are cheap. For instance, I bought Magna at about $44 in May 2012, Constellation Software earlier this year at about $117 and Home Capital Group at about $51.50 earlier this year as well. Of course, not all my picks have panned out. My ACB for Potash is about $40 and Crescent Point is about $42.25. However, because their dividend is sustainable in my opinion, I can wait for them to turn around.

@ My Own Advisor: Don't want to come off as kissing @$$, but I enjoy reading your blog and your posts here whenever I go through the forums. I do intend to continue maxing out my TFSA and RRSP. At this point, until I do get to the point of buying a house, I don't see myself withdrawing any of these two. Definitely not in a rush to buy a house just yet. Relatives are still fairly happy I haven't caused trouble for them!

@ Sampson: I think my goal next year and every year going forward is to reduce the amount of outflow compared to the prior year. Unfortunately, I don't think I can achieve my goal this year, but my pace isn't too far off from last year. That said, excluding investment gains in my portfolio, I'm saving close to 50% of all income I get monthly. I'm pretty happy with that.

@ SpendLessEarnMore: Maybe I'll cheat a little when I get married and combine my future spouse's net worth to mine to make $1 mill . 

When I was in school, I was down right a cheap skate. I could probably go months without spending a dime! Brought my own lunch; hadn't developed the addiction to coffee; rarely touched alcohol. No monthly bus pass because I had the U-Pass, which covered transportation for about 8 months of the year. Worked two jobs while doing a 4 courses per semester (plus spring & summer). Borrowed student loans for my first degree because I was legit poor, but not permitted to get any for my second degree. However, I was fortunate to be able to defer my loans interest free until I finished my second degree and I had enough saved up to pay for my second degree by that time. At the last day of classes, I re-paid $33k from pure hard work. Also, I benefited from high interest rates. I had purchased long-term GICs in the 5% to 6% range with any income I got. That definitely helped a lot to re-pay my student loans.


----------



## noviceinvestor (Jan 7, 2013)

*September 30, 2013 Update*

Update as of September 30, 2013

Chequing account (PC Financial): $1,409.31 (August - $1,359.32)
Savings account (PC Financial): $26,630.05 (August - $24,104.67)
Savings account (TD Canada Trust): $500.12 (August - $500.10)
TFSA (TD Waterhouse): $22,166.24 (August - $21,701.64)
TFSA (Canadian Western Bank): $4,536.70 (August - $4,528.33)
RRSP (TD Waterhouse): $23,975.74 (August - $22,806.71)
Non-registered investment account (TD Waterhouse): $54,799.28 (August - $53,825.06) 
Total net worth: $134,017.44 (August - $128,825.83)

Net worth (from prior month): +4.03%
Net worth (YTD): +22.6%

I had a fairly good September in terms of investment, particularly my international investments in my RRSP, which gained more than 5%. In addition, my savings account grew slightly more than normal. This increase is attributed to the fact that I was out of town for a few weeks. My office subsidizes travel and accommodation, and pays food allowance while working out of town. They reimbursed my expense claim before I even paid my bill. As a result, I expect a lower increase (or maybe even decrease if the markets crash) in the next month or two when I pay off the balance on my credit card.


----------



## doctrine (Sep 30, 2011)

Are you federal or provincial? Pension is DC or DB? I would estimate if you are federal, and can work yourself to a $80k/year salary by age 40 (conservatively speaking), your pension alone will be worth well in excess of $500k. So yes, not difficult to be worth $1M in total. 

Much more difficult to have $1M in liquid assets.


----------



## noviceinvestor (Jan 7, 2013)

@ doctrine: Provincial DB


----------



## noviceinvestor (Jan 7, 2013)

*October 31, 2013 update*

Update as of October 31, 2013

Chequing account (PC Financial): $60.01 (September - $1,409.31)
Savings account (PC Financial): $29,488.82 (September - $26,630.05)
Savings account (TD Canada Trust): $520.14 (September - $500.12)
TFSA (TD Waterhouse): $22,575.35 (September - $22,166.24)
TFSA (Canadian Western Bank): $4,545.37 (September - $4,536.70)
RRSP (TD Waterhouse): $25,084.46 (September - $22,806.71)
Non-registered investment account (TD Waterhouse): $57,002.14 (September - $54,799.28)
Total net worth: $139,276.29 (September - $134,017.44)

Net worth (from prior month): +3.92%
Net worth (YTD): +27.42%

I had another solid month with my investments in October. My Canadian (mostly in my non-registered portfolio) and international investments (RRSP) led the way. My TFSA has not shown much growth due to the fact it has REITs and some fixed income. These upcoming two months, I may rejig my TFSA portfolio.

Looking forward, November will be the month where most of my bills incurred from my work trip in Sept comes due. My office has already reimbursed my expenses in late September, so I expect the amount in my savings account to decrease.


----------

