simplest ways to ensure financial difficulty your entire life

Classic moneygardener; Revisiting an old post from September 12, 2007.....

List compiled with inspiration from young, (age 25 - 35), friends and relatives (ie they helped me compile this list without realizing they did so)

1. Buy a vehicle without looking at total cost of ownership (financing, gas, insurance,maintenance)

2. Buy a home for your maximum lender pre-approval amount.

3. Do not start an RRSP because you have debts to pay off.

4. Do not make proper (higher interest to lower interest) debt repayment a priority.

5. Maintain a short-term view of your finances.

6. Fail to coherently plan finances around life events.

7. Fail to work as a team with your partner when it comes to your household finances.

8. Fail to realize that how you spend and manage money matters more than how much money you make.

net worth update March '10

It's time to report my bimonthly net worth. I report my net worth on the moneygardener or around the 15th of May, July, September, November, January, and March.

Net worth results for the 2 Months Ended March 15, 2010:

• Debt/Asset ratio dropped to 0.44 from 0.46 (record low)
• Net Worth gained 6.7% (record high)
• Total Assets rose 3.2% (record high)
• Total Liabilities dropped by 0.9%
• House Value/Total Assets fell to 60.6% (record low)
• Non-Registered Portfolio grew 5.7% (record high)

Another strong gain in net worth and we are looking good in all categories. Records were set across the board with the exception of our liabilities where we still above early 2009 levels. We're curbing expenses lately as we deal with less employment income. We are also hoping to continue to save money this year and we're determined to find ways to get it done as we reduce fixed costs and consider more frugal options.

dropping the weight of consumer debt

I've held a dirty little secret for the past 4 years and I am going to come forward with it now.

Consumer debt is probably one of the worst items that can appear on the balance sheet of someone trying to grow their net worth and achieve financial freedom. Money that was borrowed to purchase a car, vacation, furniture, or some other asset other than an investment or a home; and the interest associated with it will drag you down hard. The problem is that when it comes to vehicles, it is almost unavoidable to take on consumer debt unless one pays cash upfront which is not really wise considering the time-value of money. If you can find a very low financing rate I would argue that you are better off going that route instead of paying cash because of what you could do with that money investment-wise in the meantime.

In early 2006 we purchased a vehicle and financed it over 60 months. This has been a drag on our net worth and monthly cash flow ever since. The problem with vehicles is that they are essentially money pits and whether you buy them with cash, finance or lease them you can't really win. We've made the decision to now use some extra funds to pay off the vehicle before it is due in order to save the monthly payment's impact on our cash flow while my wife enters maternity leave next month. This move will not save us any interest, but it will allow some more flexibility within our budget and create a spike straight to our net worth as that debt line will vanish into thin air.

Shoppers Drug will be ok

Well back in the summer I exclaimed Shoppers Drug Mart should increase their dividend! They did just that today as they hiked their payout 5%. Apparently this was in line with their earnings growth this year and makes their pay out ratio of 33% 'sector leading'. That is a higher pay out ratio than US chain Walgreen (WAG), which we own, at 27%, however WAG increased their dividend by 22% in 2009.

Shoppers Drug Mart's earnings growth has been slowing over the past few years however I fully expect them to return to double digit earnings growth in the next few years. They run an excellent business, their new stores are very well located and laid out, and they are in the sweet spot of demographic trends in Canada. More of us popping pills, trying to look younger, and getting lazy about big box stores will help this chain succeed going forward. While Shoppers is currently languishing because of an unresolved Ontario government issue and weaker earnings performance recently, I believe they will pull through this to be a part of the future of dividend growth in Canadian investments. I would consider anywhere south of the current level to be a reasonable entry point for the stock. At a P/E of 13-15x the stock looks like pretty good value considering their market position and potential earnings growth ahead.

first trades of 2010 - chips & heavy oil

So I made my first few trades of 2010 today:

Bought Intel (INTC) for my wife's RRSP.
- trading at just 12x 2010 forecasted earnings
- yield is over 3% and dividend was just raised recently
- good dividend growth history
- dominate their industry in an oligopoly
- turn over should increase with Microsoft's Windows 7 looking good
- we are light in the tech. sector in all of our portfolios
- financially sound company with low debt and loads of cash

Bought Canadian Oil Sands Trust (COS.UN) for our non-registered portfolio
- looking to increase exposure to resources in this portfolio
- good way to get paid on the fate of oil with large potential capital appreciation in the future
- distributions (interest income) will become dividends next year and they have large tax pools to offset some tax
- well positioned company in a politically sound country
- I believe oil prices will be strong for the next 20 years, China will be a good customer
- Potential buyers should crop up over the years
- Will add to position from time to time when it looks attractive for the long term

Colgate & UPS provide raises

Consumer products firm Colgate Palmolive (CL) has hiked it's dividend by 20%, citing a positive outlook. They have doubled their dividend since 2004.

Global shipping firm UPS (UPS) has raised it's dividend by 4.4%. That is their first raise since the end of 2007. UPS expects to earn $2.70 - $3.05 for 2010. The shares are currently trading at 20x these 2010 earnings, which seems like a rich valuation.

freight and food make investors richer

CN Rail (CNR) has increased it's dividend by 7% to $0.27 per common share. That marks 14 consecutive dividend increases since the company went public in 1995. CN's 4th quarter revenue and adjusted earnings were both down from 2008.

Canadian grocer, Metro (MRU.A) has increased it's quarterly dividend by 23.6%! Metro now yields 1.7%. Adjusted fully diluted net earning were up 8% in the first quarter of fiscal 2010.

net worth update, jan '10

It's time to report my bimonthly net worth. I report my net worth on the moneygardener or around the 15th of May, July, September, November, January, and March.

Net worth results for the 2 Months Ended January 15, 2010:

• Debt/Asset ratio dropped to 0.46 from 0.47 (record low)
• Net Worth gained 3.0% (record high)
• Total Assets rose 1.8% (record high)
• Total Liabilities rose by 0.4%
• House Value/Total Assets fell to 61.7% (record low)
• Non-Registered Portfolio grew 5.3% (record high)

Our net worth growth keeps chugging along since bottoming out in March of 2009. Savings have still been a bit depressed but I see this picking up in February and March. We are still doing all the right things by living well within our means, saving regularly for investments in our future, and holding and adding to shares of dividend growing corporations.

Fortis powers dividend up

For the 37th consecutive year, Canada-based power distributor Fortis (FTS) has hiked their dividend. This increase came in at 7.7% from $0.26 to $0.28 per share.

This holding of mine represents a good example of how dividend increases and a timely purchase can add up to a profitable situation over time.

I purchased Fortis at an attractive price during the credit crisis and my adjusted cost base (ACB) is $21.73/share. Due to the fact that Fortis has been increasing their dividend regularly and that the share price has risen, my yield on cost (the yield that I am receiving on my intial investment) is 5.2% while the actual yield on Fortis shares today is only 3.9%. So someone purchasing Fortis shares today will receive 3.9% of their total investment in cash annually while I am garnering 5.2% of mine.

2009 net worth results

Well, with 2009 becoming a distant memory it's time to look back at how net worth held up here and with our usual suspects.

First off our net worth rose about 33% for 2009 calendar. That sounds much better than it truly is though, as our net worth was actually at a higher level in May of 2008 than it was in March of 2009. A milestone for 2010 would be to see our house value get to the point where it makes up 50% of our total assets. It currently sits at about 62%.

The Maritime Super-Blogger, at Million Dollar Journey posted a 29% increase in net worth over 2009 reaching the $400,000 mark. The 30 year old is 40% of the way to his goal of a $1,000,000 net worth by age 35.

Tim at Canadian Dream increased his net worth by 39% in 2009. During the year he focused on building his market investments. His net worth stands at $304,500.

If any other bloggers have calculated their net worth increase for 2009 please drop me a comment with your results or a link to your blog, and I will post your results with a link in a follow up post to this one.