Quarterly Net Worth Update: Q2 2021

Hey hey hey!  We’re back with another quarterly update. But first, a few announcements:

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The annual Plutus Award is open for nomination. Last year, this blog was one of the finalists for Best Canadian Finance Content and Best Content Series (for the FIRE Community Interviews). It was an honor to be considered for these awards! If you enjoy reading this blog, I would truly appreciate it if you could nominate little ole Modern FImily for the following categories for this year’s Plutus Award:

• Best Canadian Finance Content
• Best International or Expat Finance Content (hoping to help any cross border expats out there!)
• Best Personal Finance Content for Underserved Communities (we need more LBGTQ+ faces in the FIRE space!)

You can submit your nomination here. Thank you!

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We also have a podcast recording to share.  Our friends over at The Financial Classroom Podcast had us on again, this time to chat RESPs. RESPs can be an incredible accounts for Canadians to invest in a child’s future education so if you have kids or know someone with kids please check it out!

• The Financial Classroom: Saving For Children’s Education | RESPs | ft Court from Modern FImily

As always, this podcast can be found along with our others on our Guest Appearances page.

Please note that the one question I was unsure about was the carry over rules for previous years where someone could have contributed to an RESP but hadn’t.  I was not sure if the double up contributions (aka contribute $5,000 in a year instead of $2,500 to get a $1,000 match from the government instead of the normal annual max of $500) only existed for the first year of playing catch up or multiple years.  Turns out you can do this catch up for multiple years if you’ve missed out on contributing in years past.

Somehow I have turned into one of the go-to people when it comes to RESPs as this is now our third podcast solely focused on RESPs.  Here are the other 2 for those interested:

• Explore FI Canada: Episode 33: “All About RESPs (Part 2) | Money in Your Tea and Modern FImily”
• Explore FI Canada: Episode 32: “All About RESPs (Part 1) | Money in Your Tea and Modern FImily”

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What Happened in Q2 2021

• The stock market continues to soar and we’re again at new all time highs.  VTSAX, which tracks the overall US stock market, is up another 6.65% this quarter for a total climb of +16.33% for 2021 so far.  Wild wild wild.  Similarly, VCN, which tracks the overall Canadian stock market, is up 15.61% for the year.  Our international funds are also up for the year but nowhere near as impressive as figures.  VIU, which tracks the developed markets, is up 4.16% for the year.  And VEE, which tracks the emerging markets, is up 4.57% for the year.
• April always brings me anxiety as it means tax season.  UGHHH.
  • The Canadian taxes were done in one evening for free thanks to WealthSimple Tax. I always have to laugh when Canadians poke fun of the CRA and what a “hassle” it is to file their taxes each year.  Pleaseeeee take note that the Canadian system is SO much smoother than the US system!!  We decided to hold off on claiming our RRSP/Spousal RRSP contributions from 2020 on our 2020 taxes as our income for 2021 will be significantly higher and we will also have 2 kids to account for when calculating CCB payments vs 1 in 2020.
  • The US side on the other hand…. a nightmare.  As usual.  Ugh.  I’ve been trying to find a cross border CPA this past year but no such luck – I truly do not think anyone actually understands all the cross border rules/headaches for US-Canadian expats.  And I can’t blame anyone, the US tax code is a nightmare, especially for expats. I had spent over 10 nights clocking in ~2 hours per night working on my US taxes with Turbo Tax.  I finally thought I was done but when it came time to review… nope, error. What was the error you ask?  My non-US property taxes (from our rental income in Canada) were higher than my US property taxes.  Yes.  YES THEY ARE!  I DON’T OWN ANY US PROPERTY!  What’s the problem?!  Apparently that is a no-no for Uncle Sam.  I also for the life of me couldn’t get it set up as a tax credit versus a tax exemption.  After wanting to cry my frustrations away, I did some digging and learned about Expat File. Holy shit balls. THIS is the platform I should have been using all this time!  I was able to get my taxes filed in a SINGLE afternoon and their online chat feature was amazing to work with.  And I was able to easily get the tax credit (vs tax exemption) which never seems to go smoothly with Turbo Tax.  Highly recommend as this platform is geared towards expats and I will be writing a whole post on this come early next year for all my US expats out there (along with a referral link that will get you $10 off, stay tuned!)
• After filing our taxes and seeing our remaining 2021 contribution room, we maxed out our Spousal RRSP for the year (with our tax refund).  All of our tax-advantaged accounts are maxed out of the year.  Woohoo!
• I bought more crypto…! Ay!  This time we went after Ethereum.  We sent $10,000 into the ETHR.TO ETF in the TFSA.  It comes with a 0.75% MER which is pricey but it’s the lowest cost way to hold this type of crypto in a tax-advantaged account.  We bought it in early May when ETH-USD was priced at $3,216 so we shall see where this goes.  As of this posting, all four of my speculative ETF purchases (BTCC-U.TO, ETHR.TO, ARKG, ARKK) are DOWN since purchasing.  I seem to have had perfectly awful timing on all four purchases….!  I’m going to keep holding on for a bit as I do see potential gains in the future but this goes to show, do as I say not what I do.  Stick with broad based ETFs! 🙂  These speculative funds make up ~3% of our portfolio (4% at the time of purchase) and I am stopping the madness at this point.
• I got a letter from President Biden stating I finally will be getting my COVID relief payments to the tune of $2,800 USD deposited into my bank account. Ya know, those payments that were supposed to help out when all broke loose in the world over a year ago?  Juuuuust getting them now.  Way to go Uncle Sam 😉 Of course, I cannot complain as this is *free money.
  • *Free but not really free at all.  I can only expect tax rates to go higher due to all this crazy government spending.  We likely will end up owing WAY more than $2,800 in taxes over the years due to tax rate hikes trying to fix this mess.
• We sanded/stained our deck and bought our hot tub!
  • We spent a few grueling days scrubbing off the soot on the deck (455 sq ft) by hand.  So gross.  Then we spent a day sanding the edges with our hand sander and rented out a belt sander for free from our Tool Lending program at the library for the main area.  Afterwards we spent a few hours putting on a coat of cedar stain.  All in cost was ~$50 and a lot of sweat equity.  But it sure feels good to say we did it ourselves and gives us something to be proud of.
  • We dropped $7,000 on our RotoSpa hot tub and are super happy with it.  Our goal this year is to get into the hot tub every day 1.) that we’re in town, 2.) I’m not working, and 3.) it’s cooler than 22 C out – so far we’re on track!  During these warm summer months we dropped the temp to 95 degrees and Finn and I spend an hour+ in our “pool”.  I like to think of the hot tub as our “talking time” when it’s just Nic and I once Finn is asleep and my “thinking time” when I’m in it alone.  So so so good for the soul and we are so happy with this pricey purchase.
• I let my boss know that I’m taking the max parental leave available – 61 weeks!  Woohoo!  I officially started my parental leave at the end of June and am off until September 2022 as a test run into the FIRE life.
• I really really want to sell the rest of our bonds as I see them going nowhere but down in this low interest rate environment.  We had a large chunk of my 401k in a Vanguard 2045 Target Date Index fund which we shifted over to be only US/International equity index funds so that shaved off some of our bond holdings.  Ideally we would have 5 years of cash and the rest equities.  But Nervous Nelly in me is telling me to hold off.  Last quarter we were sitting at around 10% bonds and now we’re down to 6.5% which is where we will stay put for now.  My current thinking is to sell the bonds from our RRSP/taxable accounts first as part of our glide path withdrawal strategy.  We shall see what pans out.
• And oh yea, we grew our family!  Best news evaaaa!  We welcomed our little boy, Parker, to the Modern FImily!  Everyone is happy and healthy and Finn is very excited to be a big sister. Because his due date was so close to the end of the quarter all of the figures below are based off of a few days earlier than the end of Q2 as I knew we’d have our hands full if I waited to update based off June 30 figures.
• As mentioned in a previous post, with the newest edition to the clan, I plan to scale back posting to once every 2 weeks instead of weekly.  For the first few months, a majority of this will be from guest interviews/posts that I have lined up with a few writings from yours truly sprinkled in as well.  I likely will stick to this bi-weekly posting going forward as I am definitely feeling the blogging burnout.

Ok, on to the numbers!

How Do We Stand

As noted in our recent post with our updated FIRE goals/numbers, we are aiming to get to the ~$1.3M mark as our FatFIRE goal.  In Q1 2021 were we sitting at $1,093,404 without the mortgage so about $200,000 to go.  Let see if we’ve dipped back or have inched closer towards our goal.

We do still have the mortgage in place on our home while renting out the paid off townhouse.  We are hoping that by the time we sell the townhouse the proceeds will meet/exceed the remaining balance on the mortgage so we can swipe that out completely and not have to dip into our investments to pay off the remainder on the mortgage.

We reached out to our realtor since trying to sell the townhouse last September and the market has gone up by 10% since then which puts us in positive profit range for the townhouse (he suggested a current list price of $328,000 should sell today vs his suggestion of $299,000 last September vs our original purchase price of $315,000).  Woohoo, only took 6 years to break even… sad!  We will reassess as we get closer to October when the 1 year rental term is up.  If we are all in agreement, we will likely continue with a month-to-month rental agreement until Spring 2022 and try to sell then as that tends to be the best time to sell in our neck of the woods.  Our tenants are not stellar by any means but they pay rent on time which ultimately is what really matters.

With bonds and cash doing nearly nothing, it’s no surprise that the stock portion of the overall portfolio continues to creep up.  That’s fine with me as long as we also have 5 years of cash on hand. And as mentioned above in the recap, we did shift some of our Target Date Funds in our 401k to solely the equity portion (US stock index fund and an International stock index fund) which wiped out some of our bond holdings.

Right now I am focusing on having 5 years worth of cash on hand.  Currently we have around $121,000 in cash which is actually pretty perfect.  Why?  If we assume $40,000 spend per year and $17,000 in CCB during the first 5 years that’s a net difference of $23,000.  Over 5 years that’s $115,000 of cash needed (23,000*5).  We prefer this much more cautious and conservative approach vs something like the yield shield as we want to keep our non-cash investments in the overall market.

Once we FIRE, any taxable income/dividends we receive from our taxable account we plan to withdraw, rather than drip right back into the non-registered account, to shuffle over to our TFSA instead for some tax sheltering.  I’ve been thinking about withdrawals for wayyyy too long and am due to write a post on our withdrawal strategy in the near future.

As I continue to work and earn in CAD and as the USD/CAD exchange rates has shifted from it’s high of ~1.4 to it’s current 1.25 , we’re sitting at a 70/30 USD/CAD split.  With the USD/CAD exchange rate sitting at 1.25 our liquid portfolio fully converted into CAD is $1,332,952.

Withdrawal Rates

Let’s see what this means when it comes time to withdraw.  I like looking at a few different scenarios as we can cut down our spending if need-be in hard times (market tanks).  I also like looking at what our withdrawal rate looks like with Canada Child Benefit (CCB) factored in since it is such a juicy benefit that we will be receiving for the first ~15 years. As previously mentioned, we do NOT rely on any external support in our FIRE figures (CCB, CPP/SS, OAS, GIS) and view them as icing on the cake or to account for any future unexpected medical expenses we may encounter in old age.

It’s pretty awesome to see that the only scenario where we are currently over the “4% rule” is if we spend $50k/year and not have the USD/CAD conversion in place and also assume $0 in CCB. It is highly unlikely we will spend $50,000 and have the USD/CAD sit right at $0 and somehow see CCB dramatically altered/removed in the near future.

Putting It All Together

Total Assets:

• Liquid Investments: $1,133,900
• Townhouse: ~$300,000*
• Home: ~$400,000*
• Total: $1,833,900

*We likely could sell our townhouse and house for more than these values above in the current market but we like to keep this value close to our purchase price as we do not know the true value until we actually sell in the future.

Total Liabilities:

• Mortgage on our primary residence: $309,487
• Total: $309,487

Net Worth:

$1,833,900 – $309,487 = $1,524,413

Total: $1,524,413

There we have it! Comparing this to last quarter, we were sitting at $1,481,465 so we are up $42,948 or 2.8%.  These numbers continue to amaze me.  Not too shabby considering $7,000 poof disappeared when we bought the hot tub with cash and my stupid speculative buys are heading down the drain.  Comparing this figure to this time last year, our net worth was $1,234,645 so we are up $289,768 or 23%.  Even though I understand the magic of compound interest, it continues to amaze me.  I still feel very confident that we will reach our FatFIRE goals within 2 years from now which is crazy to think considering a majority of that time will be on parental leave and DRAINING our portfolio a bit.  I’m really interested to see what our net worth looks like a year from now after a year of no employment income at all to report.

Those following along know we have a few other items in our portfolio that we like to hide behind the scenes as our true emergency fund such as my Health Savings Account (HSA), my pension from my previous employer, Nic’s small 401k from her former employer, our child’s RESP, and any CCB/CPP/SS/OAS/GIS potentially coming our way in the future.  So for the sake of this exercise we are not including them.

The key to all of this is to stay flexible.  If we see the markets tanking during the early years we have no problem tightening the spending belt and taking some staycations vs longer vacations.  We have no problem picking up some fun part time gig for 15 hours a week to add some extra padding.  We are humans, not robots, and are capable of adjusting plans if need be.

Voila! Stay tuned to see how our net worth has changed in 3 months when we check back in on this.

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We believe in stacking up life hacks to keep your enjoyment levels to the max without depleting your bank account.  Here are some ways to further educate yourself and save thousands of dollars over your lifetime by making some simple adjustments:

• Investing Newbies: Check out our free Investing 101 Series.
• How much are you paying for your phone plan?  Canadians, learn more about Public Mobile, and see how we are paying $3/mo for our cell phone plan.
• How much are you paying for internet?  Canadians, learn more about the various Independent Service Providers out there to see who services your area so you can lower your monthly bills.
• How much are you paying for home insurance?  We were able to reduce our rates by 25% by switching over to Square One Insurance.  If you live in BC, AB, SK, MB, and ON, check out Square One for your home insurance, landlord insurance, and/or tenant insurance.  Use this link to receive an extra $15 off your quote.  (Note that you must use this link to start the process to get the $15 off even if you prefer to pay over the phone.)
• How much are you paying for your monthly utility bills?  Fellow Albertans, see how you can likely save on this monthly expense.

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