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Inspiration and early retirement

I’m sure you can tell that this site has taken a backseat in my life, and while I’ve always had good intentions to write more often, I needed that little kick in the butt to do it. I got that spark recently when I met someone so financially inspirational that I couldn’t stop thinking about all of the things I needed to write about on GMBMFB.

Why was he so inspirational to me? Because, as a regular guy making a regular income, he is set to retire by the age of 40.

Early retirement has always been a huge focus on my blog, so you can imagine my delight when I met someone who was considerably more hardcore about retirement than me – and wasn’t Tim Stobbs. :) I think what surprised me most was that he wasn’t a personal finance blogger, and didn’t even read PF blogs. Yet, there he was. With a concrete long-term plan to retire in just a few years. It made me realize that if early retirement is still something I’m passionate about (and I definitely am), then I need to focus more on that goal. I’ve been slacking and not saving nearly as much as I could be saving.

Related: What does early retirement mean to you?

So with that being said, I’m going to be making some changes on this blog. I’ll be bringing back my monthly goals and recap posts (with actual numbers and not percentages – based on reader feedback), as well as my weekly spending reports. I realized that those posts (however tedious they were) really helped me focus on the bigger picture. I’m also going to increase my RRSP and TFSA contributions, with the hope of getting closer to investing $900/month.

Related: Why 20-somethings might have trouble retiring by 65

Life is funny sometimes. Short-term goals and plans will always be evolving and changing, but my financial goal of early retirement has always stayed the same. I’m 32 right now, with little financial obligation besides my mortgage. I know I’m never going to retire by the time I’m 40, or even 45. But I do want to stop working earlier than I’m able to, and I need to keep my eye on that prize.

I love this blog, and I’m really excited to start writing again.

P.S. if you haven’t already bought your ticket to the 2015 Canadian Personal Finance Conference, what are you waiting for? :)

How I started investing: Part 3

This is Part 3 of a 3-Part series in how I started investing. If you’re new here, please take a moment to read Part 1: The Beginning, as well as Part 2: DIY Investing!

Part 3: Figuring it Out

Since consulting with a financial advisor three years ago, I’ve made some significant changes in how I invest my money. In Part 2 of this series, I talked about how I rebalanced the asset allocation of my portfolio based on the financial advisor’s advice.

To recap, I was originally investing in 91.7% stocks, 2.7% bonds, and 5.6% cash.

The financial advisor suggested 70% stocks, and 30% bonds, so I readjusted my portfolio to reflect the following:

  • 20% Canadian equity
  • 25% U.S. equity
  • 25% International equity
  • 30% Canadian Bond

I continued to contribute to my TD e-series Funds for the next two years, and it wasn’t until 2013 that I decided I wanted to branch out into ETFs and individual stocks. But because I didn’t have much knowledge outside of these e-series funds, I started by doing a lot of reading online. Particularly Dan Bortolotti’s Canadian Couch Potato blog. I really liked how he laid out each mock portfolio, and I was already on the right track since my portfolio was very similar to Dan’s Global Couch Potato, Option 2:

Option 2: Using individual index mutual funds allows you to keep management fees low and customize the asset mix. TD’s e-Series funds are the best choice, but they are only available to investors who open an online account with TD Canada Trust, or through a TD Direct Investing discount brokerage account. The total annual cost of this portfolio is 0.44%.

When I started saving for retirement in 2007, I was only able to put away $25/month. But just that act of consistently putting away money got me into the habit of saving for retirement. So as my salary grew and my debt shrunk, I was able to contribute more and more. For the past few years, I have been contributing about $750/month towards retirement, and the plan is to keep increasing my contributions as my salary increases as well.

ETFs and Stocks

Early last year, I became interested in investing a little bit of money into the stock market – not enough to jeopardize my savings, but enough to make it interesting. So I started reading. I didn’t really know where to start, but I decided to pay attention to the Business section of the news. I took a look at what companies were doing, researched their stocks, and started tracking a few that I was interested in.

After about 3 or 4 months of monitoring, I decided to take a baby step and buy $1,000 worth of the stock I liked the best (October 2013) through Questrade. Within a few weeks, it plummeted 10%, and I felt pretty bad about it. But, I reminded myself that it wasn’t a lot of money, and the stock market was a lot more volatile than the mutual funds I was used to investing in. Since then, the company has been doing very well, and as of today, it is up 53%. :)

I’ve also invested in my first ETF: the Vanguard FTSE Canadian All Cap (VCN).

Moving Forward

Following the Couch Potato Model, in the coming years, I’ll be looking to advance from the Global Couch Potato over to the Complete Couch Potato portfolio:

The Complete Couch Potato includes additional asset classes while remaining easy to manage. This portfolio is really all the average investor will ever need: it includes almost 10,000 stocks in more than 40 countries, as well as government and corporate bonds of all maturities and additional diversification from real estate and real-return (inflation-protected) bonds. The weighted MER of this portfolio is 0.23%.

I hope to continue to play in the stock market as well – although to a much lesser degree than my mutual funds and ETFs. It was something I was intimidated of for many years, and I don’t think you can ever get over that fear until you take the plunge and make your first purchase. I’m still very cautious and I tend to monitor stocks for many months before buying. In fact, since my first stock purchase in October 2013, I’ve only purchased one other stock – which is up 9.5% since the beginning of the summer. But I have my eye on about 10 stocks at the moment, and I’m excited at making my next purchase. :)

I realized a long time ago that there’s no sense being scared of my money. With no company pension to help me reach my goal of early retirement (and with no confidence that CPP and OAS will be available to me when I retire), I’m going to have to work hard in order to achieve it on my own. Nobody taught me anything about investing, but I’m being proactive in learning and doing. Sure, I’ve made mistakes in the past, and I’ll likely continue to make mistakes. But we all have to start somewhere, right? And thankfully there are helpful blogs and websites out there to help us achieve whatever financial goals we’ve set for ourselves.

Related: What does retirement mean to you?

Anyway, that ends my 3-part series on how I started investing. :) If you have any questions or comments, please feel free to leave a message on this blog post in the comments section, or find me on Twitter at @krystalatwork.

Do you want to share your story on how you started investing? If so, please feel free to email me at krystalatwork@gmail.com. I’d love to hear from you, and potentially feature your story here on the blog.

Why I’m reducing my mortgage payments

One of the ideas I’ve been wrestling with for the last few months is my mortgage payments. I’m currently paying $660 bi-weekly, which is approximately $110 more than my minimum payment. I was happily paying this extra money until I realized that early retirement was still my number one financial goal. And if it’s the most important financial goal for me at the moment, why wasn’t my budget reflecting my priorities?

I thought about this for a long time, debated the merits of mortgage payments vs. RRSP with friends, tried to find money in my budget, got jealous because BF has a pension plan waiting for him in less than 20 years… and then I decided to make my move.

Related: What does retirement mean to you?

The extra $110 I’m putting towards my mortgage on a bi-weekly basis is gone. Instead, I will funnel the money into my RRSP/TFSA. That’s an extra $2,860 I can save in 2014, and will help me with my goal of saving at least $750/month towards retirement this year. With the tax refund I will receive, that money will go towards my mortgage as a lump sum payment.

I think this is an appropriate move because even with just my accelerated bi-weekly payments, I will be finished paying off my mortgage before my desired retirement age. And if that’s the case, it makes sense to put extra money into my retirement accounts now so that I can benefit from compound growth for the next 25+ years.

Take a look at the chart below. The dark blue represents accelerated bi-weekly payments without any additional prepayment options. That cut my original 30-year mortgage down by 4 years.

What I have been doing for the majority of last 2.5 years is what the orange represents: accelerated bi-weekly payments with an additional 20% prepayment. That knocked my mortgage down even further, to 19 years. It’s hard to give that up.

I’m anxious about reducing my mortgage payments, because my plan was always to pay down my mortgage as fast as possible. It doesn’t feel right to pay down debt at a slower rate than I’m capable of. But the past 2.5 years of home ownership have taught me a lot. Being a single homeowner is difficult. It’s hard to get ahead, and planning for the future is tough on a one-income household – especially a future that includes early retirement without a company pension. I’m comforted by the fact that my tax refunds will now go towards my mortgage, so at least I’ll continue to over contribute in some way. :) And, by changing the way I save my money, I believe I’m keeping myself on track to achieve my financial goals.

Have you ever had to choose between paying down a mortgage faster or contributing to retirement?

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