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Monday, April 21, 2014

March 2014 – Investment Update

Posted by Tim Stobbs on April 2, 2014

The following is an update of Tim’s plan to retire early.  Please note we are mortgage free, so net worth is no longer tracked as the house equity isn’t part of the retirement plan.

To track my progress I’ve decided to track both my expenses and my investment gains.  So once the investments gains are consistently beating my expenses I’m financially independent and can stop working.  I use a trailing 12 month average on spending (but excluding vacations) and a trailing 12 month average on investment results.

Investments

Account (Contribution), [+/- Gain or Loss less contributions]

RRSP $37,800 ($100), [+$0]
LIRA $13,820 ($0), [+$50]
TFSA $37,820 ($0), [+$1210]
Pension $93,880 ($1136), [-$46]
Wife’s RRSP $55,420($0), [+$0]
Wife’s TFSA $36,090 ($3000), [+$290]
High Interest Savings Account $3200 (+$600),[+$10]

Investment Net Worth $278,030 ($4836), [+$1514 or +0.5%]

(YTD Contribution: $13,430), [YTD Gain: $8130 or +2.97%]

Average Monthly Gain (12 month rolling) $2201

Spending

Last Month $1634

Another good month overall on spending.  Nothing that odd except we ended up grocery shopping twice (once at the start of March and another time at the end of March for April).

Trailing Last 12 Month Average $2527

Results

Number of months trailing average spending covered by trailing investment gains: 0.87 {Target 1.0 or higher}

PF Score: 22.0  {Target 32}

Commentary:

March was a not bad month at all.  On the plus side we did well to control our spending which helped the overall results which was good because the investments didn’t do that well.  My major issue is I didn’t move those RRSP accounts over yet so they are just in cash and doing nothing.  So after filing taxes this week that is my next task.

Any questions?

 

Feb 2014 – Investment Update

Posted by Tim Stobbs on March 2, 2014

The following is an update of Tim’s plan to retire early.  Please note we are mortgage free, so net worth is no longer tracked as the house equity isn’t part of the retirement plan.

To track my progress I’ve decided to track both my expenses and my investment gains.  So once the investments gains are consistently beating my expenses I’m financially independent and can stop working.  I use a trailing 12 month average on spending (but excluding vacations) and a trailing 12 month average on investment results.

Investments

Account (Contribution), [+/- Gain or Loss less contributions]

RRSP $37,700 ($100), [+$1040]
LIRA $13,770 ($0), [+$380]
TFSA $36,010 ($0), [+$740]
Pension $92,790 ($1047), [+$2113]
Wife’s RRSP $55,420($2700), [+$720]
Wife’s TFSA $32,800 ($0), [+$1450]
High Interest Savings Account $2590 (+$600),[$0]

Investment Net Worth $271,680 ($4447), [+$6583 or +2.4%]

(YTD Contribution: $8,594), [YTD Gain: $6616 or +2.41%]

Average Monthly Gain (12 month rolling) $1982

Spending

Last Month $1123

Oh, wow, that was my lowest spending month since I’ve been tracking, and ironically includes ~$100 for new bedding.

Trailing Last 12 Month Average $2750

Results

Number of months trailing average spending covered by trailing investment gains: 0.72 {Target 1.0 or higher}

PF Score: 19.7  {Target 32}

Commentary:

Well February was a great month all around.  We hit a new low in spending which was done rather by accident.  We just didn’t need to buy much this month, so that is what my spending looks like if we just pay the bills and buy food.  Nice to know how low we can go.

You might have also noted I’ve now started tracking my PF score in the results section.  I figured it might help offset the spikes I see in my other tracking ratio.

The investment results were excellent (thank you RRSP buying season) and  we sold everything in both RRSP accounts at the end of the month.  Yes, I took out over $90,000 from the market and no I’m not insane.  I’ve been meaning to transfer us out of our current bank to self directed RRSP accounts so we can move from mutual funds to ETF and lower our fees.  A quirk of moving the money over is it is much easier to do as cash (given all the fees involved), so we pull out everything as a nice motivation for me to get the paperwork done and buy back into the market ASAP.  Besides we were both over due to rebalance our holdings anyway.

Any questions?

Feb 2014 Investment

(Click to make bigger)

The PF Score

Posted by Tim Stobbs on February 24, 2014

So I was reading my usual blogs the other day when I came across an idea on how to an idea how you are doing financially overall along the idea of the credit score.  A single number which would give you an approximation on how you are doing.

The idea was to use your net worth divided by your annual spending to produce a one number summary of your financial state.  They called it the PF Score. To give credit where credit is due.  The original idea came from jlyblog.

Then depending on your score that should give you some idea of where you are at.

  • Anything in the negatives: You need to get out of debt now.
  • Score of 1: You have enough for one year’s worth of expenses.
  • Score of 5: You are picking up steam.
  • Score of 10: Getting better.
  • Score of 25: You are financially independent!!
  • Score of 30: Your investments are making more than you spend.
  • Anything above 30: Sit back and relax, you’re golden!

In the event you are dying to know, my PF Score would be around 18.

So on one hand I love the simplification of giving you and idea of where you are at in life financially.  Yet I do have one major beef with the idea.  The original author states when your PF score is at 25 you hit financial independence, but that isn’t correct.  Why?  Because it assumes that you can turn your dead weight assets like your home equity or car equity into an income stream.  Which is possible in some cases like a rental suite in your home, but unlikely for the majority of people.

Paying off your mortgage for example, is a good thing and it should increase your PF Score, but the real boost to your score happens when you finish your mortgage and your spending drops.

So should we do?  Well I still like the idea of the PF Score and the basic setup, I would just caution changing the scale a bit.  I would shift 25 to “You are doing great now.”  Then at a score of 30 state “You are likely close to financially independent.  Congratulations and you might want to start looking at a life with no work if you want.”

The exact spot of hitting FI will depend entirely on what multiple of house cost to your annual spending, but based on a few Google searches in Canada at least the average house cost is $389,119 (in Jan 2014) and the most recent average spending by household was $56,279 (in 2012).  So divide those two out and you get 6.9, so let’s round to 7.  So add 7 to the original scale of 25 and there we go a PF Score of 32 should mean you are financially independent in Canada at least.  Obviously this depends on your particular numbers, but if we are dealing in general statements they works just fine.

So do you like the idea of a PF Score?  Or is it too general to be useful?