First Net Worth Update

OK, here's the first of my net worth updates. I'm thinking of posting this annually to see how I'm doing.

First, some comments about the information given:

I'm including my home because I plan to use the equity to buy up and to eventually borrow against for investing. The value is somewhat subjective until we sell, but is based on the mortgage approval I recently had done. It is above the assessed value, but not by much and other apartments in the area have sold for about 10,000 more than what I have listed.

I'm excluding the car both as an asset and a liability because I have no intention of selling the car or borrowing against it. Recording the loan without the asset doesn't truly represent my net worth, because if I was unable to make the loan payments a very large portion of the loan would be repaid with the sale of the car. Mostly though, it is because I don't want to have to constantly check the blue book value of the car to see what it is worth in comparison to what is owed.

I'm also not going to include things like Jewellery or savings that are earmarked for future purchases. I have a TFSA to save for Christmas gifts, vacations, etc. It would be misleading to include that in my net worth statement to see how healthy my finances and retirement planning is doing. I do have some investment money in it at the moment though until I can figure out a better place to put it.

Finally, my wife's pension, if she works until 65 is 70% of the average of her 5 highest earning years. I'd just be guessing if I included an accumulated amount in her pension, so I'm excluding it as well. Although, I'm not too worried about her retirement plan due to this. We may decide to supplement it with RRSPs at some point though.

OK, enough chat, let's get to it.

Assets:

House: $200,000
RRSP Savings Account: $800
RRSP (as of Dec 31, 2010): $1000
TFSA: $200

Total Assets: $202,000

Liabilities:

Mortgage: $155,500
Student LOC: $8,100
BC Student Loan: $6,200
Canada Student Loan: $9,600
Scotia BC Student Loan: $500
Scotia Canada Loan: $1000

Total Liabilities: $180,900

Net Worth: $21,100

Even with all the student loans I'm happy with that number. At least its positive. So now I have a yard stick for measuring against. Now its time to work on achieving my goals and hopefully boosting this number up for next year.

If you have any questions about my calculations or think I missed something or just generally have a question, please let me know.

Time to get Serious

Its fun and interesting for me to discuss what is going on in the rest of the world, but its time to get serious about my own financial life. To start with, I need to set some goals, make sure they are measurable, and most importantly actually measure my progress. I've read and believed in the importance of writing down your goals, but I've never actually gone to the effort of actually doing it... until now.

I'll start with my goals this week, and over the next few weeks I'll post my debt levels, my net worth, and so forth so that I'll have a benchmark to mark my progress with. I'm not doing it to be boastful (and at this point I don't have much to boast over). So hopefully no one takes it as such. Perhaps it might help someone else to see the progress and be willing to take the same steps. Share your advice and perhaps we can help each other make this journey together.

My Specific Goals:

• Apply for at least one job every day and hopefully be working as a full time accountant by the end of 2011. Starting this after this semester is over.
  
• Buy 8000 WorldMark Credits by the end of 2011.
  
• Increase mortgage payments in order to pay down the mortgage enough to have enough equity to put at least a 20% down payment on a $350,000+ town home by the end of 2012.
  
• Invest $200/month for 4 years in order to start a home-based (non-accounting) based business when I'm done school.
  
• Flip the spending circle, so that I save first and spend after. Including unexpected car maintenance, vacations, property tax, Christmas presents, etc.
  
• Pay cash for my next new car.
  
• Have no student loan debt by the end of 2014.
  
• Have a single detached home by 2017 without selling the town home purchased in 2012.
  
• Have the detached home above fully paid for by 2022.
  
• Create enough passive income and wealth, that working becomes optional by the time I turn 45.
  
• Retire at the age of 65 with 100% of my last years salary.
  

My Generic goals:

I believe that goals need to be specific to be successful. I have a few goals though, that I still need to nail down the details. So rather than leave them off the list entirely, I thought I would write them down here and recognize that some more work is required.

• Write an accounting software package. For obvious reasons I can't go into a lot of details here. However, I still should come up with a reasonable time line. Is this just a hobby, or can this make money?
  
• Travel the world. Go to places I've never been before, and revisit some of my favourites. I'm not talking about at the age of 65 either!!
  
• Start a family.
  

I'm sure these goals will be tweaked and added to over time. I may also need to make some adjustments after I do some number crunching to see if these are all feasible. Any advice? Questions? Thoughts? Care to share your own goals?

Financial Vocabulary

The author of the Rich Dad, Poor Dad series, Robert Kiyosaki, states the importance of expanding your financial vocabulary on the journey to becoming rich. I tend to agree with him on this point, even though, ironically he misuses words like assets and liabilities (at least in a financial sense). An asset is a past event that has a future economic benefit, while a liability is an obligation arising from a past event. So to say that a home is a liability because it costs you money rather than making you money is incorrect.

A home contains many components that would end up in a financial statement. The mortgage is a liability, the home itself is an asset, any rental income received would be income, and maintenance would be considered an expense. Even if the home decreases in value and you spend money maintaining it, it is still an asset because it has a future economic benefit. Either you can borrow against the equity (home value less the mortgage) or you could sell the home.

That isn't to say that all assets are good investments though. I think that was the point Robert was actually trying to make. With the amount of interest spent, repair costs, etc, and if you're not planning on selling the home or using the equity for other investments, it may not be a very good investment after all.

Another term used in the financial world is an "investment vehicle". I like to use that term just because it drives my brother nuts! He insists that it is a bad term because it is clearly not a vehicle. No tires, no steering wheel, etc.

The Free Dictionary defines a vehicle as:

• A medium through which something is transmitted, expressed, or accomplished: His novels are a vehicle for his political views.

So to me, the term investment vehicle makes perfect sense. It is a vehicle designed to accomplish your financial goals. You put your investments in your vehicle and hopefully move that vehicle closer to your financial freedom. I also like the term just for the analogies you can draw from it. Just like you wouldn't take a sports car the same places you'd take an all terrain vehicle, not all investments are used to accomplish the same goals.

A common misconception with the Tax-Free Savings Accounts (TFSA) is that they are just savings accounts. A TFSA is an investment vehicle, just like a Registered Retirement Savings Plan (RRSP) is. You can choose what investments you want to put inside that vehicle, including stocks, bonds, saving accounts, T-Bills, etc.

Any misues you'd like to share? Any other terms that bug or baffle you? Have I misused any? Love to know what you think.

Art Connoisseur

Every now and then I like to day dream of a day when I'm very wealthy and don't need to worry about where my next pay cheque is coming form, or how much dinner is going to cost. Also, from time to time, I like to wander into an expensive art gallery in Whistler or Vegas and imagine that I could actually afford to purchase one of the pieces without needing a second mortgage on my home. The problem though, is that I guess I'm not that imaginative as I can't even bring my imaginary future self to make such an outrageously priced purchase.

I realize art isn't exactly a practical purchase, but I don't think all our purchases need to be. There is some worth in having a piece in your home that lifts the heart and makes you proud of the home that you live in. I have a sculpture in my home that we purchased in Mexico that instantly reminds me of those beaches and the great times we had spending it with friends, as some great friends came together in marriage. I have another that my sister-in-law painted that always reminds me of her and her family that we don't get to see as often as we'd like. Other pieces we bought (probably at Sears or something) that just make me smile and I couldn't even tell you why. However, even though I don't think it is a wasteful purchase, and I've seen some beautiful art in those show rooms, I can't imagine myself ever spending tens of thousands of dollars on a single item.

That got me thinking, that I'm surrounded by a lot of talented people. I'm not truly an art connoisseur, and I couldn't even tell you the name of the artists galleries that I was in. However, it did occur to me that they must have started out as my artist friends and family are now. One day very much unknown, but sometime in the future they may very well be recognized for their brilliance.

Because I don't care about keeping up with the famous Jones, I don't need to tell people I have an original of Charles Burton Barber. In fact, I take pride in saying, "my cousin painted that", or I picked that up in a bazaar in Cancun. Besides art speaks to people differently, and I think it is more important to have a piece you find beautiful and speaks to you, than just to have a piece because it is expensive or made by someone famous.

So next time you're thinking of decorating a new room, why not ask your artist friends and family what they have available for you to purchase. You can help them out and get a beautiful work of art at the same time. If you're not as blessed as I am to have talented artists in your inner-circle, here are a couple of links for you to check out:

http://www.redbubble.com/people/amandagwright
"http://walterhelenaphotographycatalogue.blogspot.com/

If anyone wants to send me some art just because you love me, this is one of my favorites.