Posted by Tim Stobbs on June 10, 2008
Well my since my second opinion post was turning into a monster length comments I decided to take the last set of questions be Jordan and answer them in their own post. Jordan asked the following:
But do you think it would be possible to share some of the more general information of your plan, like the % of income saved for retirement, paid to the mortgage or other financial goals like the RESP you mentioned. How long you project it will take to pay off your mortgage? Is your priority to pay it down or save & invest? What % or $ do you expect your net worth to increase annually? What have you set as important milestones along the way and when will you hit them? Can you describe in a bit more detail the types of “What if” plans you put in?
All of the above are very good questions so here are some of the answers. The plan using most of my yearly savings to cover everything including a slight mortgage acceleration, the RESP’s and retirement. The plan requires I save just over $15,000 annually (about 21.5% of our pre tax salary/daycare income) which includes $230/month for RESP’s for the boys and $150 annually to accelerate the mortgage to insure it is paid off on my 45th birthday.
The goal for the RESP accounts was to ensure each child has at least $10,000 a year (today’s dollars) for four years to help cover their education costs. Meanwhile the slight mortgage acceleration is to just make sure it is paid off when I retire at 45. At this time I have no plans to put any additional funds at the mortgage beyond what is outlined in the plan. I just want it gone by the time I retire, beyond that I don’t feel with today’s low rates there is any point trying to pay it off faster. The pay back just isn’t there. If rates increase to 7% or more it might be worth my while to adjust the plan depending on how my investments are doing.
According to the plan by next year my net worth should be up 12% (note the plan using my actual net worth, not the blog version). From there the % should drop as my savings are only scheduled to increase by 1.5% per year (with inflation) meanwhile the assets should keep growing at a higher rate. While I expect my salary to increase by 3% annually. This should allow me some wiggle room if inflation is higher than I expect. The plan also allows for any additional money that shows up at my door to be spent with no effect on the plan. So any bonuses, or daycare income is freely available for personal spending. The plan does have a yearly net worth number which I could use as a target if I like (which would mean I should have a net worth of over $1million in today’s dollars when I retire).
The ‘what if’ plans consists of several scenarios I had Preet run to determine the effects of certain events on my goal. The idea of the ‘what if’ plans is to cover any short fall in the main plan if my personal inflation is higher than expected or my investment performance isn’t as high as predicted. The plans consist of two main options 1) downsize my current home to a smaller one by 20% of market value and 2) work part time in retirement and produce $2500/year during my early retirement phase (45 to 60). The second option was put in the simulate the fact I expect to do some things that earn some income in retirement (freelance writing/this blog).
The interesting fact of the plan is I set it all up to be reasonable for goals. I could easily exceed the savings goals and consider retiring earlier than 45. At this time I not willing to do that. Why? I need some money to enjoy today and cover this little odd expenses that show up.
Posted by Tim Stobbs on March 4, 2008
I really do like getting emails with questions from people. Some things are certainly specific enough that they can’t really be brought up in the blog. Yet here is one from a reader, Trevor, I thought I would share.
“I was just wondering when you started saving. “
My response went something like this:
I’m not sure I completely understand your question, so if I don’t answer it let me know.
I’ve been saving since I was a little kid. So during high school I got the chance to go on a school trip to France I paid for half the trip myself. Then when I got to university I drained all my savings again on classes and books. So I really didn’t start saving for retirement and paying down debt seriously until about six months after I got my university degree (age 22 1/2).
I find it rather interesting that it seems I’ve always been saving. So by virtue of that fact I’ve never had a major problem with debt. I’ve only ever had a balance on my credit card for a few days when a expenses cheque from a work expense was late. So obviously this behavior has helped on my plan to retire at 45, yet I feel it can be learned.
For example, I’ve met many people who start off in life not doing so well with money and manage to turn it around. It really is a matter of deciding what you want and making the choices to get there. Will power is more important than your salary when you are planning early retirement. You need to be able to say no to the things that don’t matter to you (but may still matter to your friends, co-workers or neighbours) and say yes to what does matter most: freedom.
So when did you start saving?
Posted by Tim Stobbs on November 27, 2007
I had a question from a reader, Jordan, about how I handle my holiday spending. By an odd twist of fate I had several of my old Christmas budget files still on my hard drive, so I in the position of being able to analyze how much I’ve spent in the last four years.
First let me explain how I handle my Christmas shopping. I plan really far in advance. We normally set our total budget amount a year in advance. That way I start saving in January for the following Christmas. Then in October I sit down with my wife and we check out our list of people we bought for last year and updated as required. We also set limits for each person at this time. Typically limits are $50 for an adult, $40 for older kids and $20 for babies.
So over the last few years our total budget has been between $1150 to $1500 for 22 to 24 people. After we buy a present we enter it into a budget spreadsheet. This allows us to track each year how under budget we are doing, since we have yet to ever break our total budget. Our actual spending has ranged from $900 to $1350 total or $40 to $56 per person including shipping.
If we go over budget on a individual present, we then reduce our spending on someone else. This way the overall budget stays below its limit regardless of what we spent on a single person.
This entire system works well for us partly because we have set limits on our spending that we don’t go over as a whole. To help you reduce your holiday bill I suggest the following:
- Don’t buy gifts for people you barely have a relationship with. In my mind presents for teachers, mail carriers, babysitters and office co-works is insane.
- If you insist on doing something for your office bring in something that everyone will like such as a sample tray of your Christmas baking.
- Setup a gift exchange to reduce costs. A few years back my siblings got together and setup a gift exchange between our spouses and us. The idea was to let everyone focus more on the kids. It’s worked great so far.
- Homemade is fine as a present. Actually when we first got married, my wife and I made gift baskets, which featured mostly homemade items such as candles, hot chocolate mix, cookies and then some assorted dollar store items like mugs. They went over very well because everyone realized the effort we put into them (not to mention our hot chocolate mix is better than any store bought one I’ve ever had).
- Start shopping early. This allows you a stress free week before Christmas and also allows you time to find most of your presents on a good sale. Just because a present looks like it cost $50, doesn’t mean you have to actually spend anywhere near that amount.
So that’s my method and ideas around Christmas shopping. If you have an idea that has worked for you please share.
This post is part of the Canadian Tour of Personal Finance, check out the other blog posts here.
