Posted by Canadian Dream on March 2, 2011
While I wasn’t expecting anything interesting for this update I did hit a minor milestone. See below.
Assets
House $340,000
RRSP $27,700
LIRA $11,500
TFSA $10,600
Pension $33,500
Wife’s RRSP $20,200
Wife’s Investment Account $12,700
Wife’s TFSA $8,600
My Investment Account $6,500
High Interest Savings Account $6,900
Debt
Mortgage $76,600
HELOC $0
Net Worth $401,600 (+$18,200 or +4.7%) [+ 4.7% YTD ]
Investment Net Worth $138,200 (+$11,300 or +8.9%) [+ 8.9% YTD]
Mortgage is down by $6,900 or 17.7% of my goal for 2011.
If I haven’t mentioned this recently let me repeat something: saving for early retirement is a really bloody boring exercise a lot of the time. Sorry to disappoint you if you have other ideas on the situation, but the reality is it is mostly about keeping up a savings routine. Yet today I hit one of little milestones that makes the journey a little more interesting as we finally broke the $400,000 net worth mark.
So that made me curious on when we past the $300,000 mark? Well according to my records that occurred in Dec 2009 ($304, 500), so from then to now was a mere 14 months. Pardon?!?! Does that work out to almost $7000/month? How is that even possible?
The answer is simple: the minor miracle of compound interest and a savings plan. That $100,000 gain is broken down into the following:
- Paying off mortgage $44,600
- Investment net worth up $39,500
- House value up $13,000
The mortgage is the classic case in point. As I continue to put on additional lump sump payments that drives my interest costs down and allows more of my regular payments to go to principle. Although each payment doesn’t change the situation that much, the compounding effect starts to build up until now over 80% of my regular payment is now going to the principle. So even if I stopped making lump some payments the mortgage would still be paid off in under five years. It’s now snowballing all by itself and I’m just giving it an extra push down the hill.
Any questions?
Posted by Dave on February 8, 2011
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
My goal is early retirement but I’m not saving for it. Last week sarahhiggs asked a question – whether I was saving for retirement or utilizing a Tax Free Savings Account or Registered Retirement Savings Plan. The short answer is no – my spouse and I have decided our primary goal right now is paying off my mortgage. Paying off the mortgage is our primary financial goal for the following reasons:
1) I don’t like debt
Regardless of your view on whether a mortgage is good debt or bad debt, I think the bottom line is that there is an agreement between the buyer and the financial institution to pay something back. My preference with this debt, as well as all of my debts, is to zero it out as quickly as possible. I don’t like owing anyone, including a faceless bank, money and never really have. Our mortgage will probably be the last major debt that we will ever have (or plan to have) – paying it off is freeing.
Ideally we would have saved the approximately $200,000 to buy our house, but we were kind of anxious to “own” a house. We felt that the $20,000 in interest we would have to spend over 6 years (most of it in the first few) was worth it.
2) Financial Freedom is more important to us than savings right now
After our house is paid off our fixed monthly bills will be approximately half what they currently are. After this point we will have some decisions to make. Right now we plan to work full-time until we have enough passive income to cover our living expenses. With our bills significantly lower we will be able to put significant dollars towards our savings goals and hopefully achieve our financial goal of retirement at 45.
3) The “return” on our mortgage is risk free
Looking at Tim and Robert’s returns over the past year or so I may have been better investing my money than paying off my mortgage. Paying off my mortgage is (to me) a sure thing investment wise. My fixed 3.59% is not great compared to what I could have achieved in the market last year, but coupled with my other two reasons it is a rate I am willing to accept in order to achieve my end goal.
My wife and I keep our finances separate. Right now over 75% of each of my paycheques is going towards paying down the mortgage. My wife’s money is used for our other savings, which will soon be used in purchasing a car, but is also our trip money, house renovation money and other larger “stuff” that we generally buy together.
We are currently 1/3 of the way done paying off our mortgage, with 4 years remaining. I’m looking forward to paying this off in the near future, but along the way we’re trying to have some fun. If we put every penny we made towards our mortgage we could probably shave off a year or so in payments, but we have decided on a more moderate plan of attack right now.
\How about you? Do you have a singular financial goal, or are you spreading your money around to many goals?
Posted by Dave on June 15, 2010
Has anyone ever told you that your house is the best investment you could ever make? I’ve heard this several times in my life and was always skeptical about it. For something that costs as much as it does, you’d hope that it would be a good investment, but to me it really isn’t.
I don’t look at my house as a great investment, or really as an investment of any kind. I look at the significant money it is costing me to pay down a mortgage as a prepayment for housing that will hopefully take me through the rest of my life. I have to live somewhere, whether it be some sort of rented room, an apartment or a box (which really isn’t an option if I want to live in Canada – unless it’s a really nice box). All of these housing options are going to cost me money. Renting a house or apartment will cost money forever – if I don’t pay my rent, I won’t be welcome to stay. From a cash-flow perspective, a large upfront cost is much more palatable to me than payments to perpetuity.
In the same vain, buying a house will cost money in the form of property taxes and maintenance, but once a house is paid off, these costs are fairly low. For me, monthly expenses would amount to approximately $300 per month (property tax and condo fees) to live.
My end goal is to have a house that is worth as much money as it cost me to attain it (up-front costs plus improvements and interest). Part of the reason I have accelerated the payments on my mortgage is to significantly reduce this cost of ownership. One year ago, I amortized my mortgage over 35 years, and so far have cut approximately 20% of these years out, with the intention of paying the entire house off in around 6 years. If I paid regular payments over the entire 35 year amortization for this place, I would have to pay for the house twice.
I understand that I could invest the almost $200,000 I’m going to end up spending on my house and be making a reasonable return, but I’d much rather be debt-free after 6 years than shackled with an enormous debt. Having no debt would provide a significant amount of freedom in my career and lifestyle that would not be afforded by having to pay my lender over a longer period of time.
With all this being said, after a year do I regret buying a house? From a spending perspective it’s pretty crappy to be allocating 25% of our spending to paying down the mortgage every month, but when I look at it that over the past year, I have pre-paid approximately 2-3 years of rent in my city.
I’m wondering how you look at your house? Do you utilize the tax-free capital gains afforded to your residence to gain on sales? Is your house your best investment?
