It has been a while, so here is the most up to date information on what I have done (and what I plan to do) before the baby comes:
- frugala paid off a loan for me, so rather than charging her the equivalent of rent, she keeps her entire paycheque and I pay for all tbe mortgage and bills (minus half groceries, car stuff and dog stuff)
- I have received two raises since September: for the first one I increased my mortgage payment and increased my RRSP. For the second one I increased my RRSP and my TFSA (the TFSA increase will turn into the baby's university savings)
- I save $300 every two weeks now: $225 goes into my TFSA and $75 goes into my RRSP. From the $225, for every $1100 I accumulate, I take $1000 and pay something off (be it a loan, or a credit card, or a mortage or hopefully one day into the RRSP). The idea is to minimize the loans and to slowly build up an emergency fund (from the extra $100 that get put into there)
- I have started two part time jobs, where to money gets funnelled into my TFSA (for the purposes mentioned above). I work for Homework Help, where I get paid to tutor math in the evenings. I also tutor 3-4 students each week (it was supposed to be 4 but the last one has cancelled the last three weeks, so I am counting on three now). The idea of these extra jobs is to use the money for savings and/or paying things off, not for the regular expenses for week to week. This is important, because when second semester starts (February), we are getting close to baby time and my energy will (properly) go to my family rather than gaining extra cash. The plan is to have my credit cards at zero and another student loan paid off by the time the baby is born.
- When the TSX hit around 12500, I dumped half of my Canadian Index fund into a bond index, with all of my current contributions going into the Canadian Index fund. The TSX has continued to rise, but I have taken my profits from it. Long term I think this is going to work. I will only re-balance next when the TSX hits 13500.
- Finally I have been thinking about using the Smith Manoeuvre (this will be once my student loans get paid off). The idea is that you borrow for investment purposes, and then the loan is tax deductible, and with the tax benefits you put that towards your non-deductible loans. It makes a lot of sense as you gain equity in your house. The plan for me would be to pay minimal on your loans, and then increase the loan for the amount of equity that you have on your house. Theoretically, when you are done paying your mortgage, you can either pay off your Smith loan, or continue to keep it and keep the deductions and increase your investments with the extra money. There will be considerable more planning as we get closer, but it makes a lot of sense. There will be little change in the daily handling of my finances, but there will be a much larger tax deduction and more investments in the long haul.
Thanks for reading!
I have been updating our net worth on spreadsheets, and will update the post either later today or this week.
Showing posts with label progress. Show all posts
Showing posts with label progress. Show all posts
Sunday, November 7, 2010
Monday, July 13, 2009
Steps For Financial Freedom
In this post I will list my financial steps that I am taking in order to make myself financially independent by the time that I retire. My personal goal is to retire at age 45. I am a teacher, so the lure of a full pension will probably prevent that, but the goal remains that at age 45 I will be able to work as much or as little as I want.
What do I consider to be financially independent? That is to have enough passive income available to cover my expenses in a month. Passive income can be interest on investments, income from businesses, income from rental properties, or basically any way that I do not have to be active in order to earn money. Financially free means that I will have the choice to continue to work or not. I am a teacher and I love what I do (even so much that I teach summer school as well but more on that in the future), but I can see that the time would come that I would want to be out of the classroom. Some teachers go into administration (principal, vice-principal) or work at the local board of education or the Ministry of Education, but (as of now) these don’t have much of a pull for me.
Here is the list of what I am trying to do in order for this to happen:
Pay Yourself First: the age old adage, which is to give yourself part of your salary as a bill to yourself. Generally it is considered to be 10-15%. This would go into long term savings. In Canada, we are lucky enough to have the RRSP available to us, giving us a tax benefit now and long-term savings, and you have the opportunity to save up to 18% of your salary in this manner. As a teacher, my pension affects this, so I am only able to contribute 9% of my salary into RRSPs. The second option (which I prefer) is the Tax Free Savings Account. You pay taxes on your money now, but it can grow tax free in your investments and you can (most importantly), withdraw it tax free at any time. There is a limit of $5000 invested per year that you can put into here, but I think this is a great opportunity for people. For now, my index and dividend mutual funds are in the RRSP and my fixed investments are in the TFSA, but I will discuss in future posts what I hope to do.
Spend Less Than You Earn In Each Month: Although this is obvious, it is a goal that I live by. Each paycheque, I should owe less than I did the paycheque before. In order to get wealthy, this is what you have to do. I will talk about how I try to do this in future posts, but you can do it by cutting what you spend (some call this being frugal) or increasing what you earn.
Be Loan Free: Great advice that I read is that the only loans that could be considered good are for a house or education. These are assets that (should) appreciate in value or make you more valuable (with more earning potential). This means that anything else that I purchase, I have to save for. This goes for automobiles, winter coats, vacations, groceries, extra courses that I take, big screen televisions and everything else in between. I have a mortgage and am finishing off my loans for school, but I intend that these will be the last loans that I take in my life.
Increase Passive Income: I consider these investments to be ways to make money without doing anything (or not much). My personal goals will be to purchase a second house and rent it out at age 35 (when my current loans are paid off), and then purchase a third house and rent it out at age 40. The dream would be to have my current house and the two investment properties paid off at age 45, and then sell some of them and purchase an apartment building of some kind that could be managed for me. The other way is to increase your assets and have them earn money for you. My investing strategies will be discussed in future posts.
Limit Discretionary Spending: Right now I am living out of buckets, that is I choose to spend cash for all of my purchases every paycheque, and if I run out of cash, then I stop spending. My Master Card is now used only for medical supplies that I order online. This will be discussed in future posts.
Learn Constantly: One of the reasons that I started this blog was to help keep myself up on the world of personal finance. One of the reasons that I am a teacher is that I consider keeping your mind open and active to learning is the most important thing of all. I have an open mind towards most things, including finance, so if some new possibility opens itself up, I can change my fundamentals (with enough information). I take courses (for my job) every summer and teach summer school, and hope to eventually take some financial courses. I have at least a dozen personal finance books and go to the library constantly for old books to get new ideas (for me). Even if the fundamentals are the same, each book is unique and has some good ideas.
To conclude, feel free to leave a comment if you have something to add to my list, or have things that I am doing that you feel are incorrect. Thanks!
What do I consider to be financially independent? That is to have enough passive income available to cover my expenses in a month. Passive income can be interest on investments, income from businesses, income from rental properties, or basically any way that I do not have to be active in order to earn money. Financially free means that I will have the choice to continue to work or not. I am a teacher and I love what I do (even so much that I teach summer school as well but more on that in the future), but I can see that the time would come that I would want to be out of the classroom. Some teachers go into administration (principal, vice-principal) or work at the local board of education or the Ministry of Education, but (as of now) these don’t have much of a pull for me.
Here is the list of what I am trying to do in order for this to happen:
Pay Yourself First: the age old adage, which is to give yourself part of your salary as a bill to yourself. Generally it is considered to be 10-15%. This would go into long term savings. In Canada, we are lucky enough to have the RRSP available to us, giving us a tax benefit now and long-term savings, and you have the opportunity to save up to 18% of your salary in this manner. As a teacher, my pension affects this, so I am only able to contribute 9% of my salary into RRSPs. The second option (which I prefer) is the Tax Free Savings Account. You pay taxes on your money now, but it can grow tax free in your investments and you can (most importantly), withdraw it tax free at any time. There is a limit of $5000 invested per year that you can put into here, but I think this is a great opportunity for people. For now, my index and dividend mutual funds are in the RRSP and my fixed investments are in the TFSA, but I will discuss in future posts what I hope to do.
Spend Less Than You Earn In Each Month: Although this is obvious, it is a goal that I live by. Each paycheque, I should owe less than I did the paycheque before. In order to get wealthy, this is what you have to do. I will talk about how I try to do this in future posts, but you can do it by cutting what you spend (some call this being frugal) or increasing what you earn.
Be Loan Free: Great advice that I read is that the only loans that could be considered good are for a house or education. These are assets that (should) appreciate in value or make you more valuable (with more earning potential). This means that anything else that I purchase, I have to save for. This goes for automobiles, winter coats, vacations, groceries, extra courses that I take, big screen televisions and everything else in between. I have a mortgage and am finishing off my loans for school, but I intend that these will be the last loans that I take in my life.
Increase Passive Income: I consider these investments to be ways to make money without doing anything (or not much). My personal goals will be to purchase a second house and rent it out at age 35 (when my current loans are paid off), and then purchase a third house and rent it out at age 40. The dream would be to have my current house and the two investment properties paid off at age 45, and then sell some of them and purchase an apartment building of some kind that could be managed for me. The other way is to increase your assets and have them earn money for you. My investing strategies will be discussed in future posts.
Limit Discretionary Spending: Right now I am living out of buckets, that is I choose to spend cash for all of my purchases every paycheque, and if I run out of cash, then I stop spending. My Master Card is now used only for medical supplies that I order online. This will be discussed in future posts.
Learn Constantly: One of the reasons that I started this blog was to help keep myself up on the world of personal finance. One of the reasons that I am a teacher is that I consider keeping your mind open and active to learning is the most important thing of all. I have an open mind towards most things, including finance, so if some new possibility opens itself up, I can change my fundamentals (with enough information). I take courses (for my job) every summer and teach summer school, and hope to eventually take some financial courses. I have at least a dozen personal finance books and go to the library constantly for old books to get new ideas (for me). Even if the fundamentals are the same, each book is unique and has some good ideas.
To conclude, feel free to leave a comment if you have something to add to my list, or have things that I am doing that you feel are incorrect. Thanks!
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