The Big 2017 Financial Review

As we’re well into 2018 by now, it’s time to share the Moose house numbers for 2017.

As you probably figured out by the regular monthly updates, 2017 was a big year for us. We hit some big financial milestones and our investments rocketed higher thanks to disciplined investing and favourable markets.

We started 2017 with around $442,000 in our investment accounts. On top of that, we have pensions which were valued at approximately $103,000. Our other assets and debts are trivial. We pay off our credit cards each month and we always carry a moderate balance in our chequing accounts to cover about 2 months of expenses.

We have been renting since 2016, so there are no real estate assets or associated debt. At the beginning of 2017, we owned two vehicles: both older models. The value of these vehicles would have been around $13,000 combined.

Savings Rate Information

Since we both have careers with defined benefit pensions and plenty of mandatory deductions, calculating the true savings rate can be a bit subjective. Do you include employer contributions to certain plans into income and expenses? If you include pensions, should you also include benefits and union dues? How much control do you have over these kinds of expenses?

I decided to keep things as simple as I could without distorting the numbers too much.

Basically I took our net income (which is the money actually deposited into our accounts) and added both our pension contributions and the employer contributions. This formed the denominator of the adjusted income number.

Then for savings—the numerator of the equation—I added our personal savings from net paycheques, our pension contributions, and the employer pension contributions. This isn’t a perfect calculation because my wife’s pension isn’t vested yet, meaning her employer contributions don’t go towards our net worth numbers. However, we’ll assume she will be in the pension plan at least until that becomes vested.

2017 Financial Information

I welcome any questions about these numbers, including suggestions on how I should better calculate savings rates!

Beginning Net Worth Data

Investment Accounts: $442,000
Pensions Value: $103,000
Vehicles: $13,000
2017 Starting Total Net Worth: $558,000

Income Data

Net Income: $113,000
Estimated Taxes: $30,800
Other Federal Deductions: $6,800
Benefits & Pension Payments: $22,900
2017 Combined Gross Income: $173,500
Other Gain: $4,300 asset sale from our truck

Expenses Data

House Rent Expense: $19,150
Tuition Expenses: $2,700
Other Living Expenses: $31,650
2017 Total Expenses: $53,500

Savings Data

Personal Savings: $63,500
Pension Contributions: $19,450
Employer Contributions: $24,550
2017 Total Adjusted Savings: $107,500
Savings Rate from Adjusted Income: 68.5%

Ending Net Worth Data

Investment Accounts: $671,000
Pensions Value: $135,000 (wife’s pension is not vested yet)
Vehicle: $7,000
2017 Ending Total Net Worth: $813,000

Summary Observations

Overall I'm very happy with our numbers for the year. Our expenses were kept pretty tight considering our lavish, first-world lifestyle. We eat like kings, we do a fair amount of entertaining, we live in a beautiful newer rental home, drive a nice and reliable vehicle, I ride a super-nice mountain bike, and we live in general luxury and comfort.

We keep our expenses under control mainly through limiting outside entertainment (bars, restaurants, big name concerts, etc.), choosing to rent a size-appropriate dwelling instead of buying a too-large, too-risky house, having just one older model vehicle (2010 Mazda), and focusing on basic and wholesome living. We buy staple groceries and cook nearly everything from scratch, we make our own wine, and we spend a lot of our spare time with friends at homes or outdoors, reading and studying, and enjoying fun volunteering activities.

In 2018, I expect that our rent expenses are going to drop a bit while education expenses will go up significantly. Our other living expenses will remain pretty comparable.

We've got a few vacations planned, but they're already partially paid for and part of our normal spending. Given our spending, we would need a net worth around $1.5 million to quit our jobs tomorrow and never work again without any reduction in spending power for the rest of our lives. (That's not the plan.)

Our income should go down a bit as I am trying to work less overtime and will be booking most of my overtime for more days off instead of pay. Unfortunately in my position it is nearly impossible not to work overtime as I am a shift worker with an odd schedule and working on some of my days off is part of the job and largely out of my control.

We are in the fortunate position where our household income is definitely higher than the Canadian average. The median total household income for couples in Edmonton area is around $120,000, so we would be solidly in the upper-middle class (approx. 70th percentile).

With two, full-time earners in this house, it makes sense that we earn above the average. Considering our education levels, we are right in the ballpark for average earners with my wife earning a bit below the average and myself earning above (mostly because of that overtime pay).

If you are looking to get ahead financially, Alberta is a good place to be!

Comments & Questions

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Set SMART Goals in 2018

Last week, as planned, I dutifully dumped $11,000 into our Tax Free Savings Accounts (TFSA). That's $5,500 for my wife and $5,500 in my own account. As usual, the Bill Payment from our chequing account to the Questrade TFSA accounts takes a few days to settle before it becomes available for investing in the TFSAs.

I get a little lazy when it comes to financial stuff and investing when I'm on vacation, but now that we're back it was time to make our actual investment purchases.

In the past, I used our TFSAs as a bit of a play account. My rationale was that transactions are not taxed in a TFSA, so this was the best place to buy and sell individual stocks. It was also a leftover symptom of the days where I always invested in individual stocks and all we had were TFSAs and RRSPs. But I'm making a pledge here today that those days are over.

From this year forward, there will be no more single stock buying and selling or "playing" in our TFSAs or elsewhere. I'm moving to a straightforward bi-weekly peek that investing should be. ETFs only. That's it.

It's not that I lost money playing with individual stocks. In fact, miraculously I somehow pretty much kept pace with a buy-and-hold Canadian Couch Potato strategy over the years. For example, in 2016 a bet on Canadian bank stocks resulted in me earning 18% returns.

Our combined TFSA accounts today are worth around $160,000! I'm not complaining about the results. Instead, it's just a life choice and sustainability choice.

Analyzing Stocks vs Focusing on Strategy

When a person buys individual stocks, they often fool themselves into being a sort of amateur stock analyst. I did this, so I am a fool.

Reading MD&A reports, financial statements, analyzing PE ratios, checking moving averages, following writers on Seeking Alpha. The whole works.

However, if I'm really honest with myself it's not stock analysis which I enjoyed. Instead, I enjoyed being right. Analyzing a stock, making a purchase, and seeing it go up in price. It was a type of self-validation.

This type of self-validation made me emotional about stocks. It wasn't the outward, plainly visible type of emotion where I behaved like a bipolar depressive individual depending on the stock performance that day.

It was more of a deep smugness when things went my way and a form of worry when they did not. This is foolish.

Instead, I'm going to focus intently on strategy. I'm continually working on cleaning up my strategy so that it requires less work and remains within the boundaries of my loss parameters.

I'm not going to become a Couch Potato buy-and-hold investor. Why? Because it doesn't fit my loss parameters. Also, the traditional form doesn't really lend itself well to leverage and careful use of leverage is an important part of my investment strategy. (Something I will share more on in the future).

Setting A SMART Goal for 2018

One thing I've learned in my investment journey is the importance of setting clear goals. I use the SMART principle because it worked for us.

Specific
Measurable
Attainable
Reasonable
Time Limited

In the past few months I created spreadsheets to track our net worth since marriage. I used it to create the nice graph on the About Daren page.

I was amazed to see the results of SMART goals there. In 2010, we had about $50,000 to our name. It took four years to double that to a little over $100,000. During these four years I hardly did any investing at all and our savings were pumped into our house and our education costs. Meanwhile our investment accounts foundered. We didn't have goals other than to stay out of additional debt and pay our mortgage and car payment.

However, in 2014 we started to get more serious about investing. We started by putting some money into RRSPs and TFSAs. As a result, we doubled our net worth that year.

In 2015, we set the goal of topping up my RRSP and TFSA accounts until they were maxed. It took all year, but we ended up more than $100,000 wealthier that year.

In 2016, our goal was to max my wife's TFSA, keep up with my TFSA and RRSP, sell our house, and start a Cash/Margin account. Again, we saved around $50,000 and ended the year more than $100,000 wealthier and debt free!

In 2017, our goal was to save $60,000 and focus on strategy, including introduction of leverage. We beat our goal by October and ended the year over $200,000 wealthier!

In 2018, our SMART goal is to once again save $60,000. This time I would like to refine our use of leverage and make our investment strategy simpler. That's a little vague, so more Specific and Measureable my goals are to have every stock position leveraged (by no more than 2:1) and to buy or sell a position no more than once every two weeks (not including stop-loss sales). Given that we've dumped $11,000 into the TFSAs so far, we have $49,000 of saving to go and I'm excited to see the progress!

Your Goals for 2018

While I was inspired by others in my journey, I am not endorsing our path for everyone else out there. People have different life circumstances to deal with and I understand my wife and I are fortunate with our dual income, no kids situation.

This year I encourage you to set a SMART financial goal for yourself. Try to max out a TFSA account ($57,500 cumulative limit if you were 18 or older in 2009). If you are paid bi-weekly, it's an ambitious $2,211 per paycheque.

If that's too much, at least put in the increase for 2018 ($5,500). If you are paid bi-weekly like many, it would take $211 per paycheque to hit that goal.

Open up a Questrade TFSA and begin by purchasing an ETF. A simple, broad global stocks fund is a great place to start. Right now XAW.TO is arguably the best choice out there and last year it returned 15.88% after fees and taxes. That handily beat the 1% or less that your big bank TFSA pays you.

Side Note: I've updated the portfolios page and last month's update now that iShares has released their December returns. The Dual Momentum call is still the same as XEF.TO (Developed Countries Stocks) for January.

I've also cancelled my email service to save costs as my 1-year free trial expired. To get hold of me, please leave a comment.

Comments & Questions

All comments are moderated before being posted for public viewing. Please don't send in multiple comments if yours doesn't appear right away. It can take up to 24 hours before comments are posted.

Comments containing promo links or "trolling" will not be posted. Comments with profane language or those which reveal personal information will be edited by moderator.