Welcome to the Million Dollar Journey December 2015 Financial Freedom Update. For those of you new here, since achieving $1M in net worth in June 2014 (age 35), I have shifted my focus to achieving financial independence. How? I plan on building my passive income sources to the point where they are enough to cover our family expenses. All within the next 5 years. If you would like to follow my journey, you can get my updates sent directly to your email, via twitter (where I have been more active lately) and/or you can sign up for the Money Tips Newsletter.
In my first Financial Freedom update, I talked about what life has been like since becoming a millionaire, why I like passive income, and our family financial goals going forward.
Here is a summary:
Our current annual recurring expenses are in the $50-$52k range, but that’s without vacation costs. However, while travel is important to us, it is something that we consider discretionary (and frankly, a luxury). If money became tight, we could cut vacation for the year. In light of this, our ultimate goal for passive income to be have enough to cover recurring expenses, and for business (or other active) income to cover luxuries such as travel, savings for a new car, and simply extra cash flow.
Major Financial Goal: To generate $60,000/year in passive income by end of year 2020 (age 41).
Reaching this goal would mean that my family could live comfortably without relying on full time salaries. I would have the choice to leave full time work and allow me to focus my efforts on other interests, hobbies, and other capitalistic pursuits.
Current Financial Numbers
So now that I’ve declared my financial goal, where do I stand now? Here are the annual dividends generated by account:
Account Dividends/year SM Portfolio $5,786.67 TFSA 1 $1,508.50 TFSA 2 $1,873.35 Non-Registered $750 Corporate Portfolio $2,369.10 RRSP 1 $3,520.84 RRSP 2 $282.90
Total Dividends: $16,091.36/year
There are a few updates since my last post in August. To start, my wife has extended her leave for another year, so we have another year of living off my government salary. After that, she’ll have to make the big decision of whether to leave her line of work, or dive back in. It’s a big decision to make, but the bright side is that she still has several months to make a choice.
In the last update, I also mentioned my investment in private equity in the form of a convertible loan (a loan that can convert to equity in the company). At the end of the one year loan term, the company growth was not quite where I was hoping, so I decided to call the loan. While it’s great to have the cash back in the account, it just builds upon the cash reserve that I need to deploy.
On that note, lets take a look at investment income. As readers may know, I am a fan of dividend investing for producing passive income. While there are merits to this investment strategy, there are also substantial risks – particularly dividend cuts. The goal of the strategy is to pick strong companies with a long track record of dividend increases, but even with the best of intentions, my portfolios have seen a number of dividend cuts. With prolonged low oil prices, oil and gas dividend stocks have taken a hit. With significant exposure to the energy market, it hasn’t been pretty.
To start, my leveraged Smith Manoeuvre dividend portfolio for the first time has seen a significant drop in dividend income year over year. This is due to dividend cuts in resource names such as: Canadian Oil Sands; Baytex Energy; Crescent Point Energy; Major Drilling Group; Calfrac Well Services; and, Teck Resources. While these are companies of decent quality, prior to their dividend cuts, they did not have a history of dividend increases. This account currently sits at $1,368.75/quarter in dividends vs. $1,446.5/quarter reported last in the update. We’ve also seen smaller reductions in dividends in our TFSA and RRSP.
Even with the reduction in dividend income in some of our accounts, it hasn’t been all bad. The good news is that I’ve been deploying some of that corporate cash into dividend stocks which has resulted in an overall gain in dividend income quarter over quarter. With oil in the 30’s and other resource/materials companies hurting, I am watching the best names and waiting to deploy more capital. In case you are wondering, i’m watching ExxonMobil, Chevron, Imperial Oil, Potash Corp, TransCanada, Suncor, and Enbridge.
We still have a long way to go, but we are, for the mos part, moving in the right direction.
Total Dividends: $16,873.51/year