Welcome to the Million Dollar Journey July 2010 Net Worth Update

Very little has changed since the June update.  In fact, the updates look very similar with the biggest increase this month again being … savings!  While building and generating cash is the goal, it can become an issue if you don’t know what to do with it.  With excess cash, my first choice is to pay down debt, but in my case, my only debt remaining has extremely low interest, or is tax deductible.  The next option is to invest it, which is where I see most of the cash balance going.  For 2010, I haven’t made any RRSP contributions yet, so I’ll be sure to get on that soon.

For those of you who have strong cash flow, what are  your priorities for cash allocation?

On to the numbers:

Assets: $ 531,900 (+1.00%)

  • Cash: $4,500 (+0.00%)
  • Savings: $50,000.00 (8.93%)
  • Registered/Retirement Investment Accounts (RRSP): $76,500.00 (+0.26%)
  • Tax Free Savings Accounts (TFSA):  $19,900 (-0.47%)
  • Defined Benefit Pension: $30,450.00 (+1.67%)
  • Non-Registered Investment Accounts: $12,300.00 (+0.69%)
  • Smith Manoeuvre Investment Account: $55,000.00 (+0.92%)
  • Principal Residence: $283,250 (+0.00%) (purchase price adjusted for inflation)

Liabilities$68,200.00 (-2.15%)

  • Principal Residence Mortgage (readvanceable): $13,800.00 (-10.97%)
  • Investment LOC balance: $54,400 (+0.37%)

Total Net Worth: ~$463,700.00(+1.49%)

  • Started 2010 with Net Worth: $399,600.00
  • Year to Date Gain/Loss: +16.04%

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker can prove useful.

Savings

Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair.  We also need cash to cover any future tax liabilities.

Real Estate

Our real estate holdings consist of a primary residence plus a rental property. The value of the principal residence remains valued at the purchase price (+inflation) despite significant appreciation in the local real estate market.

Pension

The pension amount listed above is the value of both of our defined benefit pension plans.  I basically take the semi annual statement and add the contribution amounts (not including employer matching) on a monthly basis.

Stock Broker Accounts

Another common question is which discount broker do I use?   We actually have accounts with multiple institutions.  I’m hoping to reduce the number of accounts that we hold in the near future.  Here is a review of some of the more popular online stock brokers.

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You have very little debt and interest rates are currently very low. I’m not sure that I would be focused on paying down debt with extra funds.

Personally I have much larger debt than you do and I am focused on growing my investments as I am young and interest rates are low.

16% net worth growth YTD is excellent. You have done a real nice job over the past 2 years.

Great job FT!

You guys are saving so much this year, I know the extra income must play a big part of it. So how about some lifestyle inflation like the rest of us, that way we won’t feel so bad about not growing our NW as much as you ;)

Not sure if you were asking me specifically but we transfer cash savings into a couple areas:

1. RRSPs
2. TFSAs
3. RESPs
4. Non-Registered portfolio

I just use the government UCCB for the RESP contribution plus any extra gifts etc. The RRSPs are automated on a percentage of our salaries and the others are manual ‘savings’ transactions.

Looks like you are doing great. Thanks for keeping us posted on your success.

Way to go Frugal!

Question though – is there a reason you’re not using some of your $50 K (savings) to pay-off the mortgage/readvanceable?

Conversely, are you going to use any of that to buy some dividend payers?

Good job on the update FT! This motivates me to push our networth higher. Thanks again for sharing.

Just a quick question here… I went through the book Is your mortgage tax deductible by Fraser Smith and am planning to apply the Smith Manoeuvre on my new home. A couple of weeks ago, I found out that my employer is providing some of its employees with No-interests Housing Loans for up to $50,000. I applied for the loan and got it. For the next five years, salary deductions of $833 will be taken directly on my paycheque in order for the employer to recoup its $50,000. I went to TD bank and got approved an HELOC for a total of $400,000.

It was decided to we would keep our condo as an investment since we cannot break even as we bought right before the peak (Alberta). I am planning on paying down lump sums on that mortgage in the next two years so I can implement the Smith Manoeuvre on the condo.

I was wondering if it is possible to implement the Smith Manoeuvre on the home I will live in and if the interests are going to be tax deductible? I have a feeling that it will not be the case.

My wife is pregnant with the third one and is not going back to work; she will start a daycare when the newborn will turn 1yo. She will incorporate a company and maybe I could arrange something so that the company would rent the house to us (wife and I) so it would be seen as an investment property to the CRA???!

The other thing is that through work, I get a daycare allowance of $2,000 per child, but according to the CRA “where child care services are provided by an individual, the individual cannot be; the child’s mother or father, your spouse or common-law partner if you are the father or mother of the child; a person under 18 who is related to you.” In your opinion, if my wife incorporates a company, who is going to be the daycare provider, my wife, who is going to be an employee of the company or the company itself?

So Smith Manoeuvre on the house or not? Incorporate the daycare to get the daycare allowance or not?

Any thoughts?

@ Frugal

The house will cost $300,000, because we will put 20% down ($75,000). Therefore, we are looking to buy a house selling for no more than $375,000. I am not quite sure I understand the rest of your reply. I thought that the HELOC was considered a Readvanceable Motgage and that when a payment on the principal was made, there was room created on the credit line side isn’t it? What should I do in order to make it work, what is missing according to you?

Ed Rempel wrote this article about the best picks for the Smith Manoeuvre Mortgages and the TD HELOC made the list. Isn’t it what I got approved for?
https://milliondollarjourney.com/ed-rempels-picks-for-the-best-smith-manoeuvre-mortgage-i.htm

I will book a appointment with an accountant, but would it be a good idea to consult a fiscal lawyer at the same time or the accountant should wrap-up pretty much everything?

Thanks for your help.

I think or ‘excess’ cash flow goes about 2:1 into our investments (stocks and bonds) and debt repayment. We’ve still got reasonably sizeable mortgages, but at quite comfortable levels. I’ve been quite comfortable buying during the dips, and currently are building up cash again.

I’m curious what sort of ideas you have lurking in your head as to what to do with your cash in the future. I know you’ve mentioned you might consider getting back into investment properties, but have you got any other ideas?

I have just called several Chartered Accountants and they do not even have a clue about the Smith Manoeuvre and one told me he knew a bit about it and that it was not worth it as the market is not strong enough to support the idea.

What is the first step I should take here in order to make it work, go to a financial planner or try to find a CA that can help me?

Thanks,

@carllecat,

CA’s are the worst. Because they deal with numbers all day long they think they are qualified financial analysts. Definitely NOT the case. All the CA’s I know as little about ‘finance’ as any lay person they just feel more knowledgeable.

– I wish I had a suggestion, I’m not at a point where I have the flexibility you do so I don’t need to worry so much about ‘alternative’ investments. I’m picking stocks and/or entry points so that keeps me busy and prevents my mind from wandering to those alternative investments.

OT but, have you ever posted about your RRSP account? I’m actually quite curious to see how the whole account looks. You publicly post about your SM account, and there is always discussion about how it is overweighted in financials, just curious how the rest of it breaks down. I find there are actually quite few posts on the PF blogs about stock portfolios and diversification, maybe someday I can write something just as a means to get comments about my own strategy.

FT – Why do you use ING direct with interest rates @ 1.3% when Ally offers 2%?

Just curious. I am getting annoyed with PC Financial and their LOW interest rates. Currently at 1%.

Peter

You know you want to pay off your mortgage so you can have a mortgage burning party!

Everyone BYOB!

Seriously July numbers for the RE market are coming out soon.

Be greedy when others are fearful and fearful when others are greedy.

@ Peter

fyi, you may know this already but Ally is the rebranded former GMAC(General Motors Finance Arm).

Up to you, I know they are CDIC members with all the benefits that entails, but there are reasons that some companies have to pay more to attract deposits. Ally is rated “B” or junk by the rating agencies whereas ING is rated “A” or investment grade. Not saying its definately going to go bust and CDIC wont pay promptly (subject to you being below the insured minimums) in worst case scenarios but to me 0.7% extra versus ING is not worth the potential hassle.

I have to say I’m impressed with this website: A lot of useful information and with a Canadian perspective to boot! I’m impressed with your regular net worth updates (always positive it seems!). I have generally done an annual net worth update for my portfolio. However, I only recently did another one since 2008 (pre- the crash!). Out of disenchantment, I didn’t have the heart to do an update seeing that my RRSP and other parts of my portolio were severely ransacked. Surprisingly, a recent update showed that my net worth actually went up. Some of it was because the stock market has recouped a portion of its losses. But mostly, it is because I have been rather aggressive on paying down mortgage debt. As a result my debt to equity ratio actually improved a fair bit. Your debt to equity is really good!