Welcome to the Million Dollar Journey June 2016 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 couple Financial Freedom updates, 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 (March 2016):
Account Dividends/year SM Portfolio $5,224.87 TFSA 1 $1,505.00 TFSA 2 $1,899.50 Non-Registered $406 Corporate Portfolio $4,800.10 RRSP 1 $3,484.69 RRSP 2 $310.95
Total Dividends: $17,631.11/year
Since March, there have been few changes to our financial situation – it’s been slow and steady. We are still living off my government salary, so we are particularly paying attention to our spending. As promised, here is a breakdown of our expenses in 2015. In the last update, I mentioned that Mrs. FT has since volunteered and substituted in a private pre-school and seems to be ready to leave her healthcare position for a career in teaching. More on this in a future post as it develops!
Now, lets talk a bit about my passive income strategy – generating dividend income. As dividends are the main focus of my passive income pursuit, there is a large dependence on the market. 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.
In the last update, I mentioned that the oil correction was taking a toll on the income portfolios due to significant dividend cuts. As oil prices seem to have found a bottom, dividend cuts have seemed to have subsided… for now.
To start, my leveraged Smith Manoeuvre dividend income has increased slightly since the last update due to adding to my Manulife position and a couple of dividend increases from two of the big banks. With the dividends from this portfolio churning out cash, there is now enough cash to go shopping for a new position or add to an existing one.
As it has been the trend for this year, I’ve continued to deploy some of that corporate cash into dividend stocks which has resulted in the biggest contributor to dividend income growth ($4,800 annually -> $5,200 annually) . With oil in the low 40’s and other resource/materials companies hurting, I am watching the best names and waiting to deploy more capital. I’ve also taken some idle cash from our TFSA accounts and started a couple “speculative” energy positions.
June 2016 Dividend Income Update
Total Dividends: $18,647.85/year (+5.78%)
If you are also interested in the dividend growth strategy, here are the Canadian dividend stocks with the longest history of dividend increases. With this list, you’ll get a general idea of the names that I’ve been adding to my corporate account.
We still have a long way to go, but we are, for the most part, moving in the right direction. I hope to cross the $20,000 annual dividend income this year. I have a substantial amount of cash to deploy in both my “non-registered” account and in my corporate portfolio. You may notice that RRSP 2 is also fairly minimal in dividends, that’s because that is my wife’s RRSP, and it is 100% indexed.