It's Not About How Big It Is!

From Prospera Chartered Accountants |

CPA Firm Calgary Alberta

It's Not About How Big It Is!

Building substantial personal financial assets is not dependant on the size of your income or how much you will inherit from a wealthy uncle. It is not even about winning the lottery.

Building net worth is about disciplined spending, managing debt sensibly and regular saving.

Take Roger, a seemingly successful engineer, at the top of his profession. Roger earns over $500,000 a year, is 55 and married to Jolene. Jolene has stayed at home to raise their two daughters, now both at university. He owns a $600,000 house in Calgary and a condo in Fernie , two BMW’s and is well known in the community for his philanthropy.

Successful? When Prospera signed on Roger to the Millionaire Program, we were not sure if we could help him. After analyzing his net worth and spending habits we knew he desperately needed us.

With a $300,000 mortgage, leased cars and credit card debt of $20,000 he was financing lifestyle with income. His only saving was his annual contribution to his RRSP which had a fair market value of $450,000. He had taken a hit with the collapse of the tech stocks as he was heavily invested in Nasdaq to try to boost his wealth. On further analysis he had contributed all his RRSP’s into his own RRSP and never made use of the spousal contribution.

With stock options in the money he was waiting for the company stock to crest before cashing out.

A common situation we see all too often. Although enjoying a comfortable lifestyle he was saving a negligible amount. $13,500 is 2.70% of income. In order to finance the same lifestyle as he currently enjoys, Roger will have to work until 65, hope the stock options work out and perhaps downsize his principal residence.

The mistakes are obvious. A disregard for financial planning results in a poor savings record. A panic on seeing retirement looming causes him to invest aggressively in high risk investments. An unstructured retirement plan results in his wife having no income and all the retirement income being taxed in Roger’s hands. Lastly, a desire to maximize returns on stock options leaves him aggressively investing all his hopes in one place, the company he works for is also the company he has the bulk of his investments in.

Our Millionaire Program for Roger

  • Create an accurate net worth statement
  • Join he and Jolene in creating a realistic budget for monthly spending and saving
  • Plan to pay off debt as soon as possible
  • Fund a spousal RRSP from now to retirement to give Jolene an asset base from which to draw a retirement income
  • Plan to cash in stock options to build an investment portfolio that is diversified and conservative
  • Save at least 10% of future income to build up the investment portfolio

Too often we see aggressive investing and panic buying as motivators for retirement planning. Much better to create an aggressive savings plan and diversified portfolio.

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