Welcome to the Million Dollar Journey September 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 few 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 capitalistic pursuits.
So now that I’ve declared my financial goal, where do I stand now? Here are the annual dividends generated by account (June 2016):
Account Dividends/year SM Portfolio $5,359.99 TFSA 1 $1,726.20 TFSA 2 $2,072.05 Non-Registered $350 Corporate Portfolio $5,200.10 RRSP 1 $3,564.26 RRSP 2 $375.25
Total Dividends: $18,647.85/year
Since June, there have been a few changes to our financial situation – but one major one. On the steady state side of things, we are still living off my government salary, so we are particularly paying attention to our spending (here is a breakdown of our expenses in 2015). In terms of big financial changes – in the last couple of updates, 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 part-time career in teaching young children. As I may have given it away in my post on creating an investment account for the kids, she has taken the leap and has left her professional license behind.
On the other side of the coin, simply having a high paying job sometimes just isn’t good enough. I’m a believer in following your interests as I believe that life is too short to be unhappy with your work on a daily basis.My wife graduated with a professional degree in a health care field that offered a relatively high salary.
It was all well at the beginning, but it became less appealing once the kids were born. As her career interest faded, it eventually impacted her overall happiness. So together we made the big decision to leave her professional career behind and figure out how to make it work financially on one government salary.
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.
My leveraged Smith Manoeuvre dividend income has increased slightly since the last update due to adding to my Canadian Pacific Railway (CP) position. With the dividends from this portfolio continually churning out cash, there is enough cash to go shopping for a new position or add to an existing one. There are also a number of not-so-strong names in this portfolio which I will look at pruning going forward.
As it has been the trend for this year, I’ve continued to deploy some stale corporate cash into dividend stocks which has resulted in the biggest contributor to dividend income growth ($5,200 annually -> $6,600 annually). In this account, I’m trying to stick with the biggest and best names in the Canadian dividend space with top 6 largest holdings in (besides cash):
- TransCanada Corp (TRP);
- Bank of Nova Scotia (BNS);
- Canadian Utilities (CU);
- Fortis (FTS);
- Agrium (AGU); and,
- Telus (T).
September 2016 Dividend Income Update
|Account||Dividends/year||Yield on Cost|
- Total Invested: $536,667
- Total Yield on Cost: 3.81%
- Total Dividends: $20,461/year (+9.7%)
I’m happy to announce that we hit the $20,000 annual dividend milestone this year. We still have a long way to go, but for the most part we are moving in the right direction. There is 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.
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 portfolios.
Let me know if you have any questions by leaving a comment.