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Discussion Starter · #1 · (Edited)
I have been reading lot of blogs (Canadian Couch Potato, MoneyGeek, MoneySense, CFM, Michael James on Money, Million Dollar Journey, My Own Advisor and etc.) lately. After reading these blogs, I have decided to set a goal that is save one million dollar by the age of 40. I have only 9 years to reach my goal.

Am I on track to reach my goal? – My gross income is around $120-125k (depends on bonus) a year and I try to save as much as possible. I did not buy a house as there is not enough job security in Canada. My monthly moving average expenses is around $1,700 though I am trying to reduce it to $1,500. My present net worth is $190K. Here is the breakdown of my asset allocation. I have started to invest in index funds and ETFs since last year.

Bond, GIC & Cash - 51% (Mostly in savings a/c 1.9%-2.05% interest and $17k ZAG in TFSA)
Equity - 40% (TD900, TDB902 & TDB911 in RSP)
REIT - 9% (ZRE in TFSA)
Total - 100%

Your valuable suggestion would be highly appreciated.

Thanks!
 

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Discussion Starter · #4 ·
$90k savings is not possible unless I get huge raise that I don't foresee. I will be able to save around $55-65K per year; however, it will depend on my job.

I am conservative with my investments like you. I should have started to invest earlier but my knowledge was up to savings account and GIC. I have started to read financial books, news and blogs and trying to improve my knowledge.
 

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Discussion Starter · #5 ·
I am investing more in equities nowadays. My plan asset allocation is 70%/30%. I did not want to invest everything in equities at once.

Just running some hypothetical numbers thorough Excel's Payment function (PMT)
i=5%
n=9
PV=-190,000
FV=1,000,000

Result PMT = -63,958

So at 5% rate of return, you would need to save $64,000 per year to have $1M in 9 years. Have you considered your risk tolerance in selecting an asset allocation that is 50% cash and fixed income? Depending on how much of that is cash even the 5% rate of return I used may be high.

If you go to the General Personal Finance forum on this site there is a thread called Online Calculators where you will find investment calculators that can help you determine future value for various savings rates and rates of return.
 

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Discussion Starter · #7 · (Edited)
I have maxed out my RSP & TFSA and I will be able to max out next year too. I also use DRIP. My contribution to the registered accounts is around $26k per year. My plan is to save $1M and use that fund in my retirement. I will try to create an excel file and find out the yearly savings/investing amount.

The average $90K per year that I mentioned includes the compounded interest on investments as well as new contributions. One thing that you have to figure-in is the taxes on the interest paid on those investments. The combination of RRSP and TFSA yearly contribution limits is less than half of the 64K/year as quoted by GreatLaker, so you can't shelter it all. It's not so simple a formula as compounded interest when you take into account that not all the interest earned is yours to keep. I don't know how much RRSP/TFSA unused contribution room you have, and if you even want to consider an RRSP to reduce the tax burden. I guess it depends on how fast you want to burn though the $1M, because you'll pay taxes on the money when you withdraw it from the RRSP.

Maybe if you're good at using Excel, you can modify a compounded interest spreadsheet to subtract the estimated taxes to be paid on each year's interest; then you'll have an idea of the amount you need to contribute each year, and the rate of return needed to achieve the 1M in 9 yrs.
 

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Discussion Starter · #9 ·
still single and does not have any plan for kid..... drink occasionally (less than $100 a year) :)

OK..... a quick RRIFmetic run says that.... at a $20,000 yearly expense level your rotten kids will inherit $2M at your age 95. If you adjust your lifestyle to $27,000, you will (just) die broke at 95.

No matter what, you will have to stick to the domestic beer.:peach:
 

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Discussion Starter · #12 ·
I will be able to save more than $50k a year as long as I have a well paid job. I work for a stable, reputed company but the industry is full of uncertainty. My net worth was around $125k at the end of Dec 31, 2013 and I am forecasting to reach around $203k by Dec, 2014....depends on market. I think my savings rate is so far so good but always try to reduce the expenses.

I started to invest a year ago. So, I am learning day by day and investing more on equities. I will buy TD e-series another year. After that, I will switch to ETF to reduce cost.
 

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Discussion Starter · #17 ·
I will not be disappointed if I have $700/800k at 40. The reason I chose this goal is that it will help me to reduce cost, increase savings and I will be able to get around $30/40K interest/dividend as a second income. I think it will give me financial freedom.

I would like to complete MBA in Finance and change my career once I reach my goal. I don't want to quit my job and complete MBA at this moment.

What is the significance of having $1M at 40? Would you be disappointed if you have $800K at 40 and $1M at 42? Why?

The goal sounds arbitrarily aggressive to me. It may be counterproductive, because it may push you to take unnecessary risk.

You may want to review Larry Swedroe's guide to asset allocation:

http://www.cbsnews.com/news/asset-allocation-guide-how-much-risk-should-you-take/
http://www.cbsnews.com/news/asset-allocation-guide-what-is-your-risk-tolerance/
http://www.cbsnews.com/news/asset-allocation-guide-how-much-risk-do-you-need/
http://www.cbsnews.com/news/asset-allocation-guide-dealing-with-conflicting-goals/

According to Swedroe, asset allocation decisions should be based on 3 factors:

ability to take risk
willingness to take risk
need to take risk

Come up with a solid plan that matches your ability, willingness and need to take risk.

Whether your reach $1M at 40, 42 or 45 depends on the market returns. They are out of your control.
 

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Discussion Starter · #24 · (Edited)
It's important to reach my goal but I would be okay if I don't reach there on time. I don't have any plan to retire once I reach my goal. As I mentioned previously, it will give me financial freedom and I will be able to do what I like to do.

I am not only depending in investment income but also in saving more to reach my goal. I read couple of books written by William J. Bernstein and he mentioned that young people should pray everyday that market should go down and I do the same. I didn't like that market has gained last three years as I had to pay more. I am hoping that market should go down in 2015 and onward that I could buy more.
 

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Discussion Starter · #29 · (Edited)
My expenses were around $20k and paid income tax around $29k last year though would get some refund due to RSP contribution. Income tax is a killer for a single person.

I bought some ZRE, ZPR and will buy some VCN this year.....trying to reduce my fixed income position.
 

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Discussion Starter · #30 ·
Net Worth Update -

Q4, 2014 - $205k
Q1, 2015 - $228k (around 11% gain)

Target to reach $300k at the end of this year but doubt it....company stopped contributing group benefits and other perks.....might not get bonus and increment this year....however, glad to have a job.
 

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Discussion Starter · #31 ·
Net Worth Update - plan was to reach $250k at the end of Q2, 2015 but could not reach there due to "Mr. Market" and additional $5.5k expenses.

Q1, 2015 - $228k
Q2, 2015 - $243k (around 7% gain)
 

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Discussion Starter · #32 ·
Net Worth Update - plan was to reach $275k at the end of Q3, 2015 but could not reach there due to 10% salary cut, took a vacation as well as market drop.

Q1, 2015 - $228k
Q2, 2015 - $243k
Q3, 2015 - $250k (around 3% gain)

So far, the average monthly expenses is around $1,650 in 2015. But it will increase in the next quarter because of one time auto insurance payment and boxing day shopping. Now focus is to save $10k for TFSA payment in Jan, 2016.

I have ZAG & ZRE in TFSA, ZPR & VCN in cash account and VUN, XEF, TDB900 & TDB911 in RRSP. I will sell TDB900 and TDB911 once the market is up and will buy more XEF.
 

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Discussion Starter · #34 ·
Yesterday I was calculating my monthly moving average expenses for 2015 that is $1,720. Expenses include all costs including housing too. Our company has reduced our salary by 10% in Sep and they also stopped contributing 5% of our salary to group RSP at the beginning of this year. It might take little longer to reach my goal.
 

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Discussion Starter · #36 ·
Yup, that also includes mini vacations and entertainment but I have another expenses around $7k yearly that I give to my parents for their monthly expenses. They don't live here. So, they are able to manage their monthly expenses with that amount. I don't take much vacation at present as I am trying to reach my goal ASAP. I am getting tired of this North American crap to worry about jobs every couple of months. I think this cannot be a healthy lifestyle as to worry about job always.
 

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Discussion Starter · #38 · (Edited)
My plan was to reach $300k at the end of 2015 but could not reach there; however, I'm happy with the result.

Net Worth -

2013 - $125k
2014 - $205k
2015 - $276k (around 35% gain)

Expenses -

The average monthly expenses is around $1,680 in 2015.

Passive Income (Dividend & Interest) -

2013 - $805
2014 - $3,591
2015 - $4,650 (around 26% gain)

Asset Allocation -

Fixed Income - 25%
Equity - 64%
REIT - 11%

2016 target is to reach $350k.
 

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Discussion Starter · #40 ·
Thanks MOA...

I could increase my passive income by investing more on dividend and preferred shares ETFs but I prefer 50% dividend and 50% capital gain at present as I think my income is high and I would like to pay less tax now.

Sometimes this passive income puzzles me as I received around $500 from ZPR this year but on the other hand I lost around $3,000 value of the fund though I do not have any plan to sell it in the near future.
 

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Discussion Starter · #41 ·
Here is the Q1, 2016 net worth update. $6k savings in the first three months is way less of a saving than my expectations.

Net Worth -

2015 - $276k
Q1, 2016 - $282k (around 2% gain)

Expenses -

The average monthly expenses is around $1,500 in Q1, 2016. But it will increase during Summer and Fall. Moreover, this expense does not include monthly expenses of $600 that I provide to my parents.

Passive Income (Dividend & Interest) -

2015 - $4,650
Q1, 2016 - $1,400 (Way better than Q1 of 2015)

Asset Allocation -

Fixed Income - 24%
Equity - 62%
REIT - 14%

I will be happy if I could reach to my net worth of $325k at the end of 2016.
 
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