Freedom 45 update: My net worth is up $79,000

Our boys were with their grandparents and we were enjoying our time away. The trip was also a time for reflection as it had been a busy year. My day job is as an engineer for SaskPower and I am also a Regina public school board trustee. I was so busy last year that I had dropped down to four-days a week at SaskPower in order to have more free time with my family.

I also wrote a series of articles for Moneyville in November, called Freedom 45, about my goal to retire at 45. (I am 33 now.) The series generated a lot of interest and among the comments was the recurring theme that I was saving too much for the future and not living enough for the present. I like to think you can do both. You can spend New Year’s Eve on a beach in Hawaii and still save for an early retirement. All it takes is a plan to put away $4,500 over a six month period in order to pay for the trip.

Every year I update my progress towards my goal of having $750,000 in investments and no mortgage by the time I’m 45. With 12 years to go, I’m almost a third of the way there.

At the end of 2010 my net worth was $383,400, an increase of $78,900 or 26 per cent from a year earlier. Of that amount, my investments, not including my house, were worth $126,900 an increase of $28,200 or 29 per cent. My investments increased mainly in my Defined Contribution Pension Plan which is a balanced fund of stocks and bonds. I also invested in indexed mutual funds and a few specific stocks like utilities and banks.

While the investment growth is impressive that wasn’t my focus. Instead I worked at paying down my mortgage. The mortgage at the start of 2010 was $121,200 at 3.75 per cent, over a 15 year term on a two-storey, four-bedroom house in suburban Regina. By the end of the year I had paid off $37,700 of mortgage principle. This leaves me owing $83,500 as we enter 2011.

I’m ignoring increases in the value of my house since it doesn’t really matter to my early retirement plan, but local real estate prices were about 7 per cent higher this year.

So, how does my progress fit in with my plan? Well according to the plan, I should have finished the year with a net worth of $370,200. I beat that by $13,200. I don’t get that excited by it since I fully expect some bad years in the future. I learned that the hard way with the stock market correction in 2008 when my net worth only increased by $4,600.

Also net worth fluctuates with the fortunes of the real estate or stock market. I try to keep my enthusiasm in check as I remind myself that I’ve still got another 12 years to go until I reach my goal.

So if a net worth isn’t a good indicator of early retirement, how do you know when you can retire? Well that is more driven by your investment income compared to your spending. Once your investment income exceeds your expenses for a few years it is likely safe to retire if you have conservative portfolio. I would caution trying that with a riskier portfolio such as having a high percentage of stocks.

Now that I’m back from my warm vacation and shoveling two foot drifts of snow in my driveway I’m looking forward to 2011 (especially spring when I can put my shovel away). In the mean time I will keep working on paying down my mortgage which I hope to have paid off by early 2013 and planning our summer vacation in the Rocky Mountains. Life really is about balance between today and the future; you have to plan for both. I wish you a happy New Year.

Tim Stobbs lives in Regina, Saskatchewan. You can follow his attempt to retire early on his blog Canadian Dream: Free at 45.