Category Archives: Investing

Why I Stopped Saving for My Kids’ Education

With two clicks of my mouse I cut off the saving that I had previously been automatically been putting towards my children’s education each month since shortly after they were born. It wasn’t a huge amount of money only $167/per child per month so it wasn’t like I had to do it because of cost cutting or anything.

So why? Well because I hit the goal I had set for their RESP fund. It had recently broke the $80,000 threshold I had set for the total amount saved for both kids.  So that gives both kids an even $40,000 each to help cover the cost of their education.  Yes I’m fully aware that won’t fully pay for a post secondary degree depending on what they take and where they take it.  You see we never planned to pay for all their education costs.  We instead wanted them to have a better start than we did.

My wife and I after graduation had a total of $60,000 in student debt back in 2000 which actually was fairly low for two bachelor degrees when we both we paying for living costs as well as the usual tuition and book costs.  But it did take us a while to pay off those debts so we wanted out kids to end up with a better start in life than we got.  But rather than trying to guess how much to save based on the wide spread of costs depending on what my kids take for post secondary education we decided to instead just save a flat $40,000 per kid to cover the basics and let them decide is the additional cost above that amount is worth it.

Also if I’m going to be completely honest I really only expect one of my kids to go to university.  My one son loves math and science so I can totally see him taking a engineering, science or geology university degree. The other son will likely end up with some other  post secondary education like a trade or diploma.  For him school has always been an effort and frankly I don’t see him in a university, but should he want to try the money is there regardless of what he chooses to take.

On the plus side now that we have stopped those payments to their RESP we can now use their Canada Child Benefit (which over the summer went up to $340/month) to actually pay for those kid related expenses like new clothes and food for my 13 year old who is growing at an insanely fast pace right now.  Like seriously the kid has grown almost six inches in a year and eats at times like a bottomless pit (given my own memory of those times growing up this is hardly surprising).  Also the money helps pay for their activities like swimming lessons or other classes they want to pursue.

Of course some people might wonder why stop investing in their RESP at all.  Why not not just keep saving and pay for all their post secondary education costs?  Well when I went to university I saw some of those kids who had all their costs paid for by their parents and at times it didn’t end well.  Kids would party too much and study too little and waste everyone’s money and time by failing badly at most of their classes.  So I really want my kids have to come up with some of the money for their education.  It might be from working a summer job or applying for scholarships I really don’t care how it gets paid as long as they have to do some effort to get it.  I want to balance my kids having a good starting point in life with my kids not getting entirely a free lunch.

So how do you handle saving for your kids education?  Do you plan to pay it all or partly or none?

The Stock Market Melted, Now What?

Well that was interesting.  I generally ignore the stock markets most of the time except for my monthly net worth posts where I login to my accounts and check the balances.  Yet even the current media coverage on the stock market decline managed to pierce my fog of ignorance a bit earlier in the month than I’m used to.  So yes, the TSX index is down like 10% or more from its recent peak.

First off, I don’t panic. In fact, I go back to my previous notes about my emergency plans and what the trigger is.  You know that plan you wrote down when things were going well and you were calm and rational…unlike now where your mind seems to be moving like a squirrel on a double espresso.  And there is black and write is my trigger point which is 10% decline in our portfolio, so while my TSX index is down over 10% I will need to check if my portfolio is down that far yet.  Given my bonds I doubt that the damage will be that bad but I will confirm that tomorrow.

Yet the timing of this does suck.  I was supposed to be re-balancing my portfolio next week and selling some investments to provide cash for next year.  So what do I do?  Well looking at my emergency plan the answer is simple: nothing.

Pardon?!? Yep, the answer is I’m doing nothing.  I’ll just sit back and wait until the US mid-term elections are done and the world just calms down a bit.  In the meanwhile I still have lots of cash in my savings account to live on in the short term and that gives me time to push off pulling money out of my investments until later on in November.  Of course the delay is more psychological than real as I will be pulling money out the bond part of my RRSP.  What I’m really delaying is the re-balancing of my RRSP accounts as I don’t want to re-balance to a stock market blip that will put my off my planned percentage split of investments five minutes after I finish the transactions.

So I might be “missing a buying opportunity” or “trying to time the market” by delaying my re-balancing but the fact is I wrote out a plan back when I was much more calm which said this: when your portfolio goes down 10% or more than you trigger the emergency plan.  Don’t sell investments.  Sit down, take a deep breath. Cut back on optional expenses (if you feel the need to do ‘something’).  Use your slush fund to pay expenses in the short term (if required).  Keep the long view and consider your options: perhaps pick up some part time work or a contract position and consider using debt as a medium term measure if the decline goes on a for an extended period of time.  Keep in mind, you are in this for the long run so don’t do anything stupid in the short term.  Sit on your hands if you have to but DO NOT touch that ‘sell’ button.

See “rational past me” knows “stupid panic current me” very well and wrote out just what I needed to hear: don’t do anything.  Sit tight and if you need to do something work on something to give you some income or perhaps look at your spending in the short term to give yourself a sense of control in a chaotic time.

That is the real value of writing out an investment plan.  It doesn’t have to be long or complex but it should be your ‘go to’ document when things hit the fan and you don’t know what to do.    So what does your investment plan say to do right now?  Or how are you reacting or not to this stock market decline?

Life After FIRE – One Year Review – Part II

Well welcome to part II of my series on my one year of early retirement.  Today, we get into some of the nuts of bolts of how this entire idea of early retirement works: let’s talk about the money.

So in the interest of a proper review let’s look at where I was at during the end of Sept 2017.

  • Investments: $595,030
  • Net Worth:$990,030
  • Spending Previous 12 months (less renovations):$35,305

Meanwhile, my end of August 2018 numbers were:

  • Investments: $619,850 (increase of 4.2%)
  • Net Worth:$1,014,850 (increase of 2.5%)
  • Spending Previous 12 months :$35,814 (increase of 1.4%)

Of course keep in mind I was officially on vacation for my first six weeks of early retirement and getting paid and still saving so the comparison to exactly one year ago is a bit off.  But overall the investments and net worth went up even with the choppy stock market of the last  12 months.  Of course I was sort of hoping to see my spending go down a bit not up during the first year but such is life.

A good part of our family’s income for the year was my wife’s daycare business which she has chosen to keep doing for a few more years (roughly $8000 for the year).  Then the rest came from cash we had pre-saved for the year and dividend income (roughly $10,000).

Now according to my last net worth update I’ve exceeded my goal for the year as our money in from investment gains and income was 108% of our spending. This was even with our spending being a bit higher than predicted and our investment returns did lower than expected. Of course this is somewhat of an illusion because in fact it is only because without my tax refund of just under $4000 this won’t have occurred, with out that I would have been under my target. And of course going forward that large of a tax refund isn’t like to happen again as it was somewhat a left over from my previous job. So am I screwed going forward? Not really.

Why? Well there are two items that come into play. First the low investment returns, had those been closer to my expected long term average of 4.5% we would have still covered our spending without the tax refund. I purposely left some slack in the numbers to cover this very scenario. The second reason I’m not really screw going forward is I’m expecting some additional income in the future.

The two main increasing sources of income will be when I actually like publish a book or two (or take on some other ‘fun’ work which pays) and our Child Tax Benefit is set to swell dramatically in 2019 (estimates have it increasing from around $340/month to closer to $1000/month).  Also we have stopped adding money to our kids’ RESP account as of this summer so know we can actually use our current Child Tax Benefit for our kids day to day expenses.  We stopped adding money to the RESP because we broke our $80,000 target (the actual account balance is closer to $80,500 if you want to know).  Of course a concern would be changing of the Federal government in the 2019 election, which even if they did roll things back to the old program amount we would still get around $730/month.

So going forward we should definitely have more income coming in even if our spending stays at the current level.  Later this year I’ll take some cash from my RRSP account to fill up our high interest savings account which we use to help ‘pay’ ourselves an income twice a month.  I use automatic transfers twice a month to simulate a paycheque.

So short term, I really don’t expect any problems for the next year or two.  But with the long term we do have a potential issue that if our investments continue to perform below our planned long term average for the next five years my wife’s full retirement might get delayed.  Yet even if that did occur we do have options like me doing some part time work to help boost savings and/or downsizing the house or any of my other back up plans.

The point is we will deal with that if it occurs in the future.  Life never goes according the plan.  You just adjust as you go which is honestly how we go to this point in our lives.  We adjust as things happened.

Any questions on the money side of things?  Or any other questions you would like to know about? If so, please ask in the comments.