Thursday, May 29, 2008

Loonies And Fortnights

Well that has to be a record for me. Since my last payday update post two weeks ago, I haven't managed to write a word for the blog. There's a reason/excuse for this, but whatever you want to call it, the drought should soon be over.

Ms. Loonie has just accepted a job offer. That's the "big news" that's been brewing for us over the last several weeks, and now that it's official, I can finally talk about it. It sounds like a great opportunity. It means a career shift for her, but she's been stuck in a rut at work for a while, so that can only be a good thing. The salary is pretty competitive, which is definitely welcome, and she'll be a short subway ride from work, so it's also very convenient. We have some planning to do and decisions to make over the next several weeks, and I'll be sharing the details with you as we go along.

Beyond that news, it is Thursday, and I did post a payday update two weeks ago, so it looks like it's time for another update. I've updated my progress bars and NCN Network chart, and the big change this week is that I've finally dropped below $20,000 in revolving debt, with my current debt sitting at $19,800.22.

I actually have to run to the airport (we're spending a few days in the U.S.), so I need to sign off, but I'll be back next week with some musings on the implications of Ms. Loonie's new job.

Thursday, May 15, 2008

Payday update from an MIA blogger

Greetings, all. I apologize for my radio silence this past week. A lot has been going on in the Loonie household, which you might think would mean more stuff to post about, but I honestly just haven't had a lot of mental energy to devote to blogging. I should be able to go into more detail in a few weeks, but in the interim I'll have to ask you to bear with me.

The injection of a paycheque into the old chequing account always seems to reinvigorate me, so I'm happy to pick up the reins of the blog today, and update you on my progress so far. My progress bars and NCN Network chart have been updated with today's payday changes, and I'm so close to bringing my revolving debt under $20,000 that I can taste it. I'm well positioned to hit my target of $19,850 at the end of the month. My Emergency Fund will also come in easily above the target of $1,370, provided it's not needed for an actual emergency this month (touching wood as I type).

I've brought my lunch every single day so far this month, and have also walked to and from work without fail. Both of these behaviours have now become basic habits by this point, which feels good. Making a lunch and walking to work are just parts of what I do in the morning, and I don't even really need to think about them. We'll see how well I stick to the walking thing once the summer temperatures really hit (my thermoregulation is much better suited to winter than summer), but for now I seem to have cracked the nut on these two.

Mid-way through the month, things are looking good.

Wednesday, May 7, 2008

Time changes everything

Back in March, I posted about the dismal returns I was seeing on my retirement investments. When taking into account my bi-weekly ESP payroll deductions, my investment performance from April 2007 through February 2008 represented a 0.98% annualized growth rate. When I added in my employer's matching contributions, this actually dropped to -4.29% annualized growth.

Well, that was before the market rally that began in mid-March. Since February 29, my retirement balance has increased by $3,383.21, with only $856.12 in contributions during the intervening two months. When I put this in terms of a one-year growth rate, I now come out ahead whether I include the employer match or not. Without the match, my growth rate for the past 12 months is 6.86%, compared to 1.19% when I include the match.

It's unnerving to see such a wide swing in market performance during a one-year period. Two months of bullish growth has taken my annual growth rate from 0.98% to 6.86%. In order to turn around the previous slump, my annualized growth rate during those two months was actually 36.62%. That's a big change from the decline we saw earlier in the year.

I find it fascinating that your view of market performance can vary so widely based on the window you look at. Canadian Capitalist has a great post today about looking at your response to the recent market dips as a gauge for your actual risk tolerance. If your gut reaction to the widespread price drops was to sell, then you should probably consider a more conservative portfolio.

Personally, I was content to ride out the market swings. This may be because these investments are largely academic to me at this point. Since this is all strictly "future money", I'm able to stay relatively cool about my investment performance. As I get closer to actually planning to use this money, however, and when I eventually build up a non-retirement investment portfolio, we'll see just how calm I remain through future market adjustments.

Monday, May 5, 2008

One year of progress: charting the trends

In last week's post of my April month-end status, I noted that, for the first time since I've been tracking it, my Net Investable Assets became positive. During the month of April, my NIA went from ($1,100.67) to $3,491.19. This is a significant milestone, and it's fitting that it should come at exactly the one-year mark. I've only been blogging my progress since last June, but I've been keeping detailed Net Worth records since last April 30th.

I was curious about the pace of my Net Worth growth, so I though I would throw together some charts plotting my progress over time. My NetworthIQ profile includes a graph like this for the overall Net Worth, but I wanted to dig a little deeper and look at the components that make up the metric.

As I touched on in an earlier post, there are several things that go into my Net Worth calculation:
  • Assets

    • Liquid savings - All my chequing and savings account balances, as well as any cash I have on hand, get lumped together here. This includes my Emergency Fund and Freedom Account, as well as my day-to-day chequing accounts.

    • Retirement savings - My group RSP and self-directed RSP get added in here. At the moment, this is the bulk of my life savings, since I've been throwing a good chunk of money in here ever since I started working.

    • Non-financial assets - I include a rough estimate of our home value, as well as a slightly more informed estimate of our car's resale value. I don't update these estimates on a regular basis; they're really just placeholders to represent our most significant possessions.

  • Liabilities

    • Revolving debt - This is my credit card and line of credit debt. Basically all of the debt that I would really call "consumer" debt; this is the "what was I thinking??" souvenir from my spendthrift days.

    • Student loans - Ms. Loonie and I each have student loan debt, which we have both consolidated with my bank at a very good interest rate. We're slowly but surely chipping away at these loans.

    • Mortgage - Our mortgage is my main justification for including our home value in the calculation; the estimated value of the condo really just serves to offset the huge liability represented by the mortgage. If we didn't have the condo, we wouldn't have the mortgage, so it makes sense to me to include both.
The Net Worth number is simply calculated as the total of all assets minus the total of all liabilities. I also calculate a couple of variations on this metric:
  • Net Investable Assets excludes the home and car as assets, and the mortgage as a liability, leaving me only with my true "financial" holdings.

  • Net Liquid Assets goes one step further, by excluding retirement savings from the asset side, leaving only the truly liquid portion of my financial position.
After one year of trying hard to make smarter choices, I've managed to increase my Net Worth by $37,364.61, my Net Investable Assets by $28,372.85, and my Net Liquid Assets by $14,162.99. Here's a representation of my Net Worth over this one-year period:

The irregular curve represents the actual month-to-month variations in my Net Worth, while the straight line represents a straight-line approximation of my Net Worth growth. The equation on the chart shows how the straight line is calculated: for every day of the past year, my Net Worth has increased by $96.30 on average.

Although it's not shown on the chart, there's a statistic called R2, which shows how closely the actual observed fluctuations are represented by the straight line. The closer the R2 gets to a value of 1, the more "accurate" the straight-line approximation is. This line has an R2 of 0.98, which means that my Net Worth progress is matched quite well by a consistent upward trend of $96.30 per day.

This is all well and good, but where is this $96.30 increase actually coming from? I decided to plot the components of Net Worth individually, to show how each piece has contributed to the overall growth. Note that, because my estimated home and car value have not changed in the past year, I will not include them in this trend analysis.

My biggest asset is my retirement savings, so let's start there. By plotting my savings over time, I see that my investment balances have fluctuated quite a bit over the past year, with market movements. The market dips in July and the November-December time frame are clearly visible. However, despite these variations, the fitted line of $33.67 per day still has a respectable R2 of 0.9, so the consistent upward trend is once again a reasonable approximation of the actual investment growth. This balance growth accounts for 35% of my Net Worth increase.

Cash savings are another story. When I plot my liquid savings over time, I see much more of a boom-and-bust cycle. This is partly due to the fact that I include my Freedom Account, which is really meant more for planned spending than actual saving, in this number. You can see that, during our trip to the US last June, and my brother's bachelor party in October, I really depleted cash savings. The upward spike in November is also interesting: this was me gearing up for holiday shopping. The R2 for this chart is only 0.56, so this is the weakest straight-line approximation. Still, the daily growth of $3.45 indicated here does represent real forward progress, and the trend is consistently positive.

There is less to say about the progress against my debts. Revolving debt has been diminished at a pace of $17.34 per day. The R2 for this chart is 0.98, which indicates a very good linear approximation. In fact, comparing the charts for Net Worth and revolving debt, the two appear to move almost completely in concert. This suggests that revolving debt is the factor most closely tied to Net Worth progress: when one goes up or down, so does the other. Student loans and mortgage have diminished at paces of $16.95 and $24.90 per day, respectively, and since these loans have fixed payments, they each follow a virtually perfect straight line.

The upshot of this is that, by maintaining a focus on paying down my revolving debt and contributing to my retirement savings, and by gradually growing my cash savings, I should be able to continue this Net Worth momentum. These three factors contribute 56.5% of the Net Worth growth, so it is very important that I keep moving on these fronts.

It's nice to know how far I've come, and it's even nicer to have a clear idea of how I got here.

Thursday, May 1, 2008

Payday update

Well, I've posted my April update, and with today as the first payday of a three-pay month, I've also updated my progress bars and NCN Network chart.

I've crossed another milestone with today's payment against my revolving debt: I have now paid off more than 25% of the $27,610.94 that I started with a year ago. 26.11% of my revolving debt has now been paid off. That's a big portion of the debt, but it's also a little discouraging when put in the context of my stated goal of an April 2009 payoff deadline. It's looking like this debt will be with me longer than I had hoped when I set that goal.

That's something I can live with, though, because of the progress that I continue to make on an ongoing basis. I have a cushion of savings ($1,333.02 in the form of a no-strings-attached Emergency Fund, and more money socked away for planned spending like car repairs, taxes and licence renewals). I've paid off $7,210.51 in revolving debt, and our mortgage and student loans are also on the way down. I'm definitely moving forward; I just thought the destination would turn out to be a little closer.

Goals for May 2008

On the first business day of every month, I post my update for the previous month's progress, and set goals for the month to come.

Here are my goals for May:
  • Reduce my revolving debt to $19,850 (currently at $20,770.23) - This is consistent with my usual rate of debt reduction. Let's see if I can beat this number.

  • Grow my Emergency Fund to $1,370 (currently at $1,318.02) - Still keeping the increments small, but I want to keep making forward progress here.

  • Update my Equifax credit file with my correct postal code - I missed this one in April, so let's get it wrapped up early this month.

  • Walk to and from work every day, and work out at least three times a week - The walking is already part of my routine, so let's add some actual visits to the gym.

  • Lose 4 pounds - I need to start moving the dial on this if I want to hit my 187lbs target for the end of the year.

  • Blog 31 times in May - I trailed off about midway through April, so I need to get back into the swing of things, and get myself back into the daily posting routine.

  • Bring my lunch to work every day in May - This was a nice goal to have in the back of my mind last month; it keeps my focus on preparing lunches as part of the morning routine, and avoids the simple "I don't feel like it" cop-out. Let's see if I can do even better this month.
There's not much new here, but I'm trying to build some habits, so I'll keep things simple for now.

April update

Well, we've survived the month of April. Hopefully, your taxes are all sorted out. How did you make out with your 2007 taxes? Do you have a plan to do better next year?

Let's look at how I did with my April goals:
  • Reduce my revolving debt to $21,250 - I was able to reduce my revolving debt to $20,770.23 this month. However, this includes the $500 lump-sum payment that I made from my tax refund. When I back this out of my debt reduction, I come up just shy of my goal, at $21,270.23. Still, the fact that I knocked $1,071.63 off the total is nothing to sniff at.

  • Grow my Emergency Fund to $1,310 - My focus at this point continues to be on debt reduction rather than building savings, so these savings goals look pretty trivial. I easily met this goal again this month, finishing with $1,318.02 in my Emergency Fund. However small my contributions to these accounts may be at this point, I still don't want to lose sight of the importance of a safety net. Every little bit counts, and I'm well on my way to having a $1,500 cushion by the end of the year.

  • Update my Equifax credit file with my correct postal code - No progress here, I'm afraid. As you can likely tell by my posting frequency this month, I've had a lot of things competing for my attention. Although the incorrect postal code is nagging at me, it's not as pressing as an incorrect balance or an account I don't recognize. Still, I should get this fixed. Let's bang this one off in May.

  • Walk to and from work every day, and work out at least three times a week - I slipped once early in the month, but since then I've stuck to my walking routine, and have not used public transit once to get to or from work. This comes in handy with the spectre of a TTC strike hanging around, as I'm fairly self-sufficient in my daily transportation needs. I didn't do as well with actually getting to the gym, so I know I need to focus on this going forward.

  • Lose 4 pounds - Nope. Still holding steady at 207. See the previous goal for details...

  • Blog 30 times in April - Wow. Apparently this month was a little hectic, because I only managed to muster up 18 posts for the month. That's 60% of what I was hoping for. Not too bad, but not exactly providing reliable daily reading, either.

  • Bring my lunch to work every day in April - Two weekends ago, we simply didn't have a spare moment to get out to buy groceries, and there was literally no lunch-worthy food in the condo come Monday morning. As a result, I paid $8.48 on soup and bread downstairs from the office. Other than that (and two instances of dropping $2.34 on coffee and a doughnut in a moment of weakness), I nailed this one. The result: I ate more healthily, and didn't blow money in the food court.
Now, on to my month-end update:

Online Savings - $1,882.52
Self-Directed RSP - $45,390.35
Employer Group RSP - $4,906.94

Credit Cards - $17,078.14
Line of Credit - $3,692.09
Student Loans - $27,918.39

Net Investable Assets: $3,491.19
Net Liquid Assets: ($46,806.10)

The most noteworthy result this month is my positive net investable assets (I didn't realize how much I love the colour green). That's right: I officially own more than I owe! Well, at least in a hypothetical world where I have full tax-free access to my retirement savings. This milestone was achieved through an increase of $2,971.68 in my investable assets, and a decrease of $1,620.18 in my debts.

Overall, my net investable and net liquid assets increased by $4,591.86 and $1,604.93, respectively. My NetworthIQ profile has also been updated (including loose cash, home, car and mortgage). I owe a good chunk of this forward progress to the rally in my retirement investments, but consistent debt reduction is also playing a huge role. More than half of my movement this month came from debt reduction, so if I keep this up, then I should be able to avoid dipping back into the red.