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Sunday, February 26, 2017

Using What You Already Own

Posted by Tim Stobbs on February 10, 2017

My wife and I use our spending cash to handle all the little things your typically buy yourself like a cup of coffee or a lunch out.  We both get $200/month each to fund whatever we want and if you don’t use it we are free to save it up for something else.  Essentially, it our way to ensure we have some money to spend guilt free without having to check in with it other.  The only expectation between us it we will use it to buy the odd bit of groceries for the house.  For example, some milk, eggs and bread.

Now January usually is a low spending month, after all, you just got a lot of stuff after Christmas so you typically don’t need much, but this month I have by accident taken it to extreme.  I have spent less than $25 of my spending cash for almost the entire month.  How did I do this?

Well I can tell you I wasn’t doing some super controlled spending challenge, or pinching my pennies till they squeaked.  Nope, it happened partly by accident and the other part of it was on purpose.

The first reason this low spending occurred is: my default state in life is to not spend money.  Pardon?!? I know it’s a bit odd, but perhaps I should approach this from the other side.  I know many people who consider that you have to spend money to have fun in life.  For example, to have fun with friends you must go out to a restaurant, pub, movies, etc.  Or to enjoy time as a family you must go out swimming or go to a movie at the theater.  Our lives are basically the opposite of that: how do I do things I enjoy without spending money (or very little money).  So to hang out as a family we go sledding with the kids at a local hill that is a five minute drive away and then we have hot chocolate with way too many marshmallows when we get home. Or we have friends over for supper and play games afterwards while the kids watch a movie in the other room.

The second reason is a bit of conscious exercise that I plan to do this year which is simple put: use the stuff I already own.  It may seem odd, but I noticed people tend to have the habit of always seeking out things they don’t have.  We want the new shirt or shoes; we want the latest movie, video game or a new book.  Yet we tend to ignore the huge pile of stuff we ALREADY own and don’t use much (if at all).

So to show a bit more respect to those previously spent dollars I’m making an effort this year to use what I already own.  I want to reread my favorite books, re-watch my favorite movies and TV shows, and use the recreation gear I already have (like roller blades and golf clubs).  I want to use our good dishes for the occasional Sunday supper.  I want to dig around my house and rediscover what I have forgotten we own (like the old Wii games or the video games that are already on my hard drive) and do projects with materials I already have.  Or cook with those spices and other food items I bought for one or two recipes and largely forgotten about.

Rather than looking for more without, I’m going to look for more within.  If nothing else, it should be a fun year.  So do you remember to use what you own?  If so, do you find it helps you spend less without much effort?

A Million Isn’t What It Used to Be

Posted by Tim Stobbs on February 6, 2017

I sort of find it bit odd that people have a fixation on being a millionaire.  While it sounds like a lot of money you have to keep in mind that over the years inflation keeps dragging down that benchmark so it gets more and more diluted as being a lot of money.  After all I had to even look up what is a millionaire and there isn’t even a standard definition.  Anyone with a million dollar net worth technically counts, including myself.

Pardon? Yep, I don’t really pay attention to the millionaire target other than it happens to be roughly around my retirement amount.  Yet I also tend to ignore our true net worth as it includes our kid’s RESP account balance, rather than what I post on the blog where I leave the RESP balance out.  Yet the other day while I was on Mint cleaning up our transactions from over the holidays I happen to look down at our true net worth and was a bit shocked to see a seventh digit.  So without really meaning to or even paying attention we drifted over that imaginary line in the sand.

Of course the issue is people still tend to consider a millionaire rich, when in fact, as I noted above it becomes less and less meaningful as time goes on.  For example, my father retired roughly ten years ago now.  Let’s pretend he had exactly a million saved, even with a modest degree of inflation over the last ten years that money would be worth $1,177,655 today.  So even if I wanted to retire I would technically be doing it with less money than him.  The further you go back the worst this gets, so 20 years ago a million would now be worth $1,433,667 when you adjust it for inflation.  So in general the older you are the more likely you are to think a millionaire is something impressive.  So your grandparents might find that impressive, but your kids won’t really care at all.

But on a functional level in your everyday life it is utter meaningless.  It really just is a number or a line in the sand that mainly for popular culture references gets a lot more attention than it should.  After all, what happened the day after I found our we were a millionaire? I went to work.  Yes, totally anticlimactic.

Yet on the other hand, getting here is a big deal.  As there is only 1,117,000 millionaires in Canada (according to this story) out of population of 36.4 million or just 3% of the population.  So crossing that threshold tells you that you really are well off compared to the majority of people.  But I don’t consider us rich.  Perhaps well off, but not rich.  After all ‘rich’ is highly subjective.

Another problem with the word millionaire is it ignores the quality of your assets.  After all there are a number of millionaires in Toronto and Vancouver just based on home equity, but selling a home isn’t easy or quick.  Thus some people think the term should only be used with those with investments of $1 million or more excluding home equity.  Which is sort of a logical but doesn’t tend to ignore the popular culture references which dominate the word: millionaire.  Beside the banks solved that issue years ago with the term: High Net Worth Individual.

In the end, a millionaire title is a bit of fun, but I don’t take it too seriously.  If nothing else, it tells us we are heading the right direction for my retirement plans.  So what do you think of the term millionaire? Useful or meaningless?

Jan 2017 – Net Worth

Posted by Tim Stobbs on February 2, 2017

The following is an update of Tim’s plan to retire early.  Please note we are mortgage free.

Our ultimate goal between investments and the home equity is a net worth of around $1 million.  The investment part of that target is $582,000.

Investments

Accounts

RRSP $56,320
LIRA $15,930
TFSA $81,800
Pension $153,140
Wife’s RRSP $83,370
Wife’s TFSA $76,940
Wife’s Taxable $52,080
High Interest Savings Account $17,890

Investment Net Worth $537,470 (increase of $10,990 over last month)

Home Equity

Estimate $395,000

Spending

Last Month $2886

Well this month included a few extras as we celebrated my older son’s birthday with going out for supper on the day of and held a party for him the following weekend (~$500).

Trailing Last 12 Month Average $2553 (or $30,642 for the last 12 months)

Results

PF Score: 30.4 {Target 31}

Net Worth ~$932,470

Commentary:

Well that stock market rally has really held pushed up our investment net worth in the last few months.  Honestly I’m almost making more in the market that I am taking home from my job.  It’s a fun feeling even if it is only a temporary thing.

Now to some investment updates.  I topped off my RRSP with a bit of money to increase my tax refund.  I’m trying to keep my available contribution room as close to zero as I can manage. And then we topped off our new TFSA contribution room for 2017.  Then we decided to sell off some of  my wife’s taxable account to fund our cash savings.   There was also some extra cash in some of our accounts we shifted out to our savings.

And finally our kids’ RESP balance reached $71,720 which isn’t included in the above summary (since it has nothing to do with funding our retirement plans).  Now add it in to our net worth, did you notice what happens? Yep, we hit that mythical seventh digit otherwise know as being a millionaire.  I’ll have another post on that later on in February.

Any questions?

Jan 2017 Invest Net Worth

(click to make bigger)