I asked regular reader Philip to share his story of how he grew his net worth to over $1M before the age of 35.  Enjoy!

I was recently with a group of good friends out for a charity golf tournament, enjoying a nice day on the links instead of being at work.  As usual, I had a few amazing shots, but many more horrible ones that I just wanted to get out of my mind.  Despite my mediocre golf play, it was a great day to have fun and relax.     At the end of the round we grabbed dinner at the clubhouse and chatted about various things.

At one point during dinner, the conversation somehow turned to finances, where the majority of my friends were unified in complaining about taxes, the cost of life and the stress of debt.  Most of them are in the same stage of life I am: mid 30s, living in suburbia, 10 years into their careers and married with kids. From what I know of their careers, some of them make very good money, some of them have more modest incomes. Regardless of their incomes, they all seemed to give me the impression that things were tight and saving was a luxury most don’t have right now due to young children, daily expenses and big mortgages.

On the way out of the clubhouse and back to our cars, I couldn’t help but notice that most of them had really nice golf bags, filled with the newest and hottest wedges and drivers.   To match that, many of them headed back to newer SUVs and higher end sedans.   My walk back to the car was no different, with the exception of my old set of golf clubs and my 7 year old car.

I have been teased a few times about my old set of  “executive OSI” bi-metal technology wedges.  Yes, my golf clubs are 16 years old.  While I might play a bit better with a new set, but for me, my set works just fine.  I don’t seem to play golf much worse than my friends who buy a new set every year, so I figure it isn’t worth spending a ton of money just to buy something new.

My old golf clubs are a good representation of how I manage many things in my life.  I’m careful with my money, and I’m usually pretty happy with the material possessions I have.   I’m in a really good position, where I don’t have a lot of the financial stresses that my friends are facing right now.  I was lucky to get really good financial advice early in life, and I’ve followed it religiously through the years.

At this point, I’m 34 years old, married for 7 years and have a 4 year old child.  Our net worth is now $1.35M.  Our home is worth about $350K with no mortgage, and our other assets (RRSPs, TFSAs, and Non-Registered portfolios worth approximately $1M) I manage myself.   Both my wife and I work full time. We both earn about 100K per year individually which has been a big contributor to our savings success (note though that our salaries weren’t always as high as they are today).  We also have never inherited anything, so  we started from scratch early on and made it from there.

I think the biggest contributor to our savings and future savings is in our lifestyle, that’s essentially where we save the most money.

Related: 25 Ways to Save Money

Our financial strategy has been fairly simple, almost boring, but it has paid off for our family.  Yes, it means I play golf with older clubs and drive an older car.  But that’s a choice that I’m comfortable with and I’m happy with what I have.

The financial and lifestyle management strategy we follow is based on five really basic principles.  We don’t get much more complicated than this in our financial planning, and it works for us.

 1.      Geography

I am well diversified by geography, with no more than 10%-15% of my portfolio in Canada.

My rational for this is:

  • Canada is less than 3% of the total world stock market;
  • In the past 10 years, the Canadian market has only been the top world performer once; and,
  • Only 10 companies make up 41% of TSX exchange, so it’s pretty small:5 banks.  4 energy stocks.  1 rail stock.  More info:  http://www.world-stock-exchanges.net/top10.html.

2.      Asset Class

I carefully track what asset classes I invest in, with an overweight on stocks (instead of real estate, bonds etc).

My rational for this is:

  • Generally, since 1926 stocks have outperformed bonds and other investments by a factor of about 30:1   More info:  http://www.investorsfriend.com/asset_performance.htm
  • In Canada, the 25 year average house price gain is 5.3%.  Meanwhile, inflation was running at 3.03% over the same period.
  • Over the same period, the TSX composite would have returned 10.75% annually, bonds 10.9% and the S&P 500 13.5%.

3.      Portfolio costs

I’m very careful on my portfolio costs.  I do most things myself through self-directed accounts, buying ETFs or low cost mutual funds.

My rational for this is:

  • The “average” investor (like me) expects to earn (before fees) 6% per year on their portfolio of stocks/bonds/real estate – over a 25 year period.
  • If I am paying a 2% fee to someone who is managing this portfolio for me, it can cost me a large portion of my overall portfolio growth.
  • I also think most mutual funds are just enriching themselves and not their clients.  Therefore I stay away from most of these financial products.

4.      Tax

I think pro-actively about tax and what it means in my investment choices.    I always think about how to best structure myself for tax efficiency (see portfolio allocation).

My rational for this is:

  • Capital Gains tax: Basically, you’ll pay a max of 23% tax on these in most cases.
  • Canadian Dividends tax:  you’ll pay a max of 30% tax on these.
  • Income / Interest / Bonds tax:  you’ll pay a max of 46% on these.

 5.      Lifestyle management

  • I enjoy my life.  I invest in hobbies, annual vacations, and luxuries.  However I do this within the context of what I earn, so that I always can save a good portion of my income, aiming for 20% per year.
  • I learn how to do things myself (renovations, car maintenance, home maintenance).  If I need a new deck, new driveway, new bathroom, new flooring:  my first question is how can I learn to do this myself and get it done.
  • For any new purchase, the first thing I consider is if I can buy it used.  Most times I can and do. This saves me an incredible amount of money.  I rarely buy things new.
  • I really take care of my things.  I’ve had my golf clubs for 16 years; I’ve had my BBQ for 12 years, etc.  I basically just take care of things and give them the maintenance they need to avoid issues.  Overall I tend to save a lot of money here – I just don’t often find I need to “buy stuff”.
  • I have a wife who shares my values and we are both happy and comfortable with our lives.

So that’s my financial story in a nutshell.  It’s a bit boring, but somehow it’s working and we really find ourselves in a fortunate position.  We have a great life, we’re happy, and we have what I think is a good financial plan.

Thanks for sharing your story with us Philip!  Do you have a financial success story that you would like to share?  If so, contact me!

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