There’s More To Debt-Free Living Than Financial Freedom
Debt-free living in retirement should be a priority for everyone to lessen the burden of financial stress.
The problem with debt-free living is that just because you achieve this wonderful goal it’s not the end.
There are times we wonder why we are saving so much money and other times we feel confident with our choices.
At the start of Covid-19 when businesses were laying people off and receiving the Canada Emergency Response Benefit (CERB).
Living that debt-free life got a little bit of a panic nudge as it should have for everyone.
Retirement investments were dropping, layoffs, job loss, death, illness was happening everywhere and it still is.
Although I was able to work from home we were still thinking ahead just in case something were to happen.
Not only did we consider job loss but also whether any of the three of us were to get ill or die from Covid-19.
The reality was and still is that people are dying and we have to plan whether it’s for this pandemic or the next.
These are the things we think about and although it may be over the top for some people it gave us peace of mind.
Planning For The Worst While Debt-Free Living
In light of what was happening in the world we still created a financial plan just in case I got laid off.
There were going to be some changes with our budget starting with our retirement investments.
Living that debt-free life wasn’t as secure as we thought it would be, and it never will be.
Unless of course, you are living debt-free and truly wealthy.
By that I mean you have millions of dollars that you’re set for life as long as you manage the money well.
That’s not the case for us or most Canadians so it’s important to keep this blog real for people like you and me.
Net-Worth Increase Since Mortgage Pay Off
Since we paid our mortgage off in May 2014 this has allowed us to direct a large chunk of our income to retirement.
As you can see from our May 2014 Net Worth update chart we finished the month with a net worth of $585,141.40.
Below you will see our current net worth update for July 2020 at 1,180.154.66 a difference of $595,013.
(sorry about the horrible photo quality from my early days blogging)
You’ll also notice that we haven’t changed the value of our home since 2014 at $345,000.
In that time-frame, we also paid cash to purchase a floor model vehicle for $45,000 cash our biggest expense since.
We’ve changed our life insurance plan to an investment portfolio and max out my RRSP and both our TFSA’s each year.
We also purchased a life insurance investment policy for our son so he will never need to get one in his life.
That is costing us $550 a month for 10 years but this is something we’re doing for him along with funding his RESP.
What seems to be happening is that once you are debt-free you have to divert income somewhere.
So, this is what we’ve done.
We’re all set now aren’t we?
Well, not necessarily since those retirement investments can go either way, up or down.
Catch my drift?
That’s probably why some people still hide money under their mattress. ( I don’t suggest this by any means).
Debt-Free Living On Canada Pension Plans
Just because we have no mortgage doesn’t mean that we get off scot-free when it comes to finances.
We still have 20 years until I will retire (unless I decide to retire early) which means more time for investment growth.
Not everyone sells there house just because they retire but some do just to release the equity in their home.
Moving into an apartment or smaller home may suffice.
If you have no house to sell to fund your retirement or you’re still in debt all that’s left is Canada Pension Plans.
That’s IF you qualify for them and the amount you get may not even be the max amount.
For instance, let’s look at the Canada Pension Plan and Old-Age Security.
You will have to pay tax on the Old Age Security pension payment.
The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit that replaces part of your income when you retire. If you qualify, you’ll receive the CPP retirement pension for the rest of your life.
- be at least 60 years old
- have made at least one valid contribution to the CPP
Other Pension Plans In Canada that you can apply to apart from post-retirement if you receive CPP.
Old Age Security is another benefit you can get after the age of 65 in Canada if you are not automatically enrolled.
For instance, if you are collecting CPP early the CRA may auto-enroll you in the program when you hit 65.
Unfortunately, since I moved to Canada when I was 30 years old I may not get a full Old Age Security pension.
You can receive up to $613.53 per month (July to September 2020 maximum monthly payment).
The amount you receive depends on how long you lived in Canada or specific countries after the age of 18.
Guaranteed Income Supplement (GIS)
Lastly, there is the Guaranteed Income Supplement that you may also qualify for if you live in Canada.
Guaranteed Income Supplement
You may also be eligible for the Guaranteed Income Supplement if:
- you are 65 or older
- you live in Canada
- you get the Old Age Security pension
- your income is below:
- $18,600 if you are single, widowed or divorced
Your income plus the income of your spouse/common-law partner is below:
- $24,576 if your spouse/common-law partner receives the full OAS pension
- $44,592 if your spouse/common-law partner does not receive an OAS pension
- $44,592 if your spouse/common-law partner receives the Allowance
You apply for the GIS at the same time as you apply for the OAS pension.
If I’m lucky with health and continue to work for my current employer until I retire then I’ll have a defined benefits plan.
What’s the problem then?
Everything sounds and looks dandy on paper but anything could happen at any time.
Also, the amount of money you get from your pension plans may or may not fund your dream debt-free living retirement lifestyle.
That’s the problem.
We’ve lived through so much the past few years with illness and death in our family that we’ve learned quite a bit.
Not only have we learned what we need to do but what could happen if we aren’t prepared.
This is what I want to share with you about debt-free living and how easily that can change.
Debt-Free Living Through Illness and Death
Are we prepared for ill health or death?
Yes and no. I don’t have critical illness insurance but I do have life insurance.
If something were to happen and I could no longer work our financial picture will change dramatically.
I know many of you may tell me that we can sell our house and we could if one of us were to get sick.
We’d still have to find somewhere to live for whoever is not sick and get professional healthcare.
Healthcare costs above and beyond what the government pays are expensive.
Costs of Long-Term Care and Retirement Living In Canada
The costs of long-term care if you want private or semi-private rooms and the best living environment will cost you.
For example, a private room in a higher-end long-term care home in a small Ontario city runs close to $3000 a month.
You can expect to pay far more than that in a bigger city, especially for sought-after retirement homes.
I’ve done my research and there are homes that charge upwards of $4500 to $6000 a month.
Monthly costs do not include cable if you want to watch television nor any extra furniture in the room.
You still pay for haircuts, outings, or anything extra such as visits to the local pub, clothing, and other personal needs.
I won’t even get into the astronomical costs of transportation if you need to hire a transportation service.
Also, not all prescriptions are covered whether you are 65 or not which means you pay out of pocket.
Best of it is, you may end up in long-term care before you need to be there especially if you are unable to live at home.
Lots to consider even for a couple who is experiencing debt-free living.
A Legal Will Is A Must For All Canadians
Do we have a Will?
Yes, we have a legal WILL so that everything that needs to be sorted will be for our power of attorney.
- Who will be your power of attorney?
- What if you have no children to look after you if your spouse dies?
- What if you have no spouse or partner?
These are the things we think about even though we are enjoying debt-free living.
However, like everyone, we went to retire happy, healthy, and free from financial stress.
Unfortunately, not everyone can, and for those that carry debt in retirement, things may be put on hold.
10 Debt-Free Living Tips From Our Experience
From our experience since reaching debt freedom, there are things we can share with you about obtaining this lifestyle.
There are also things we’ve shared with you that may coincide with debt-free living that people sometimes forget.
Whatever you choose to focus on making it be a balance of everything so in the end you’re not left asking why you didn’t.
- Pay off all of your debt fast, control spending with a budget, and save money where you can.
- Kill your mortgage to get it out of the way
- Invest in your RRSP and TFSA or any other retirement investment as soon as possible.
- Create a passive income stream or various streams of income. (ex: this blog currently earning 5-figures)
- Plan For Financial Disaster with a Plan B
- Research Long-Term Care costs
- Prepare a Legal Will
- Understand government pension plans in Canada and your pension plan (if you have one)
- Know the costs of death, where you want to be buried and pre-plan if you can
- Retire Happy, Retire Healthy, and live your best life no matter how much money you retire with.
Debt-Free Living For The Future
Debt-free living has so much more to do with the future than it does the present since the end is the end of the line.
All we can do is pave the way so when the time comes whoever is looking out for us will have the means to do so.
It’s funny how both Mrs. CBB and I find that as we age the little things in life far more enjoyable than a luxury.
Gone are the days of wanting a big house as we welcome the peace of our smaller home and property.
We know if we retire healthy that travelling is in our future however if not then we will retire happy with what we have.
At the end of the day retiring debt-free can take a chunk of stress off your shoulders to help live your best life.
Debt-free living is the freedom to strive towards but you’re never out of the woods until you’re buried in them.
Morbid, maybe but it’s the truth.
Discussion: What are you doing today to achieve a debt-free living lifestyle?
Leave me your comments below and tell me how you feel about debt, retirement, pensions, ill-health, long-term care, etc.
I’d love to read your feedback on this topic.
Net Worth Losses and Gains
What happened to our money in July?
It was nice to see our investments increase by 25k in July after a downward spiral the past few months due to Covid-19.
I’m not sure that’s a sign that things are looking up for the economy or just a momentary glitch in the system.
We’re just hanging by a thread at the moment as most people are because we don’t know what to expect.
Yes, our net worth went up but it’s still not putting up where we should have been before COVID hit.
The joys of investing my friends, it goes up, it goes down and you just take it and pray that when you retire it’s up.
The good thing is that almost all businesses are back up and running and hopefully continue to do so.
Also, plenty of people are working from home which allows businesses to continue as per usual.
At this point an increase in our net worth is better than a decrease, so we’ll take it.
Although we’ve been spending more than normal in our monthly budget we still managed to sock away 4k this month.
We’re hoping to work in a no-spend challenge for September so we’ll see what happens with that.
Understanding Net Worth
What Does Individual Net Worth Mean?
Net Worth is a snapshot of your financial health sort of like a picture or debt to net assets.
In simple terms, it’s a total of the value of your assets minus your liabilities.
We credit the growth of our net worth due to patience, perseverance, using a monthly budget, and not giving up.
Your numbers may go up and down but don’t let the numbers scare you rather understand why and move on.
If you would like to use our budget I offer a FREE downloadable budget which I created and that you can use.
I don’t charge for it because I want you to save money not spend more!
There are tonnes of other free resources at Canadian Budget Binder to help you build your net worth.
Calculate Your Net Worth
Do you know how to calculate your own Net Worth?
We like to calculate our net worth every month so we know if we are still on track.
Some people calculate it yearly or quarterly but it’s up to you and how informed you want to stay.
Net Worth is only an estimate and not everyone uses the same type of figures to tally it up.
Some of you may not include vehicles like we do or leave out assets inside the home as we have.
You might be that person that believes that your house should be excluded.
It depends on what you want to calculate or what you can sell today and make money for tomorrow.
Figuring out net worth is fairly easy as long as you know your monthly financial numbers.
Net Worth is adding up all your assets (what you own) then taking away your liabilities (what you owe) which will give you a net worth number.
Understanding your net worth will help you determine if you are on track meeting or beating your personal financial goals.
It doesn’t get any easier than that.
Determining Net Worth
Net Worth = Assets – Liabilities
Why not go ahead and calculate your own using our Free Money saving Tool Net worth Calculator (Canadian Budget Binder 2012)
When budgeting anything is possible, we are proof of that although we still have a long way to go in our journey.
These are our numbers and our goals, not a means of comparison towards your own goals to others’ target goals.
We don’t care how much money others earn or if they have a high net worth or if it is lower than ours as it’s not a competition.
I hope our experiences will help guide you along your financial path working towards debt freedom.
Not everyone has the same path in life.
Some of you may have had to start over like I did or go to school a second time and now have OSAP loans to pay back.
Others may have divorced, lost money in the stock market or other investments, suffered job loss, fell ill or injured on the job and so on but you can’t let that stop you from achieving your financial goals.
You may have been given trust funds, paid-for homes, educations, or other perks that give you a financial kick-start and that’s OK too.
Earn It, Save It, Invest It, Build It
Remember what I said, “It’s not about how much money you make, it’s how you save it”.
The reason people accumulate wealth is that they know how to save or invest even if inherited or a lottery win.
The smallest improvements should mean big strides in working towards reaching your goals.
Sometimes we have to fail to learn and we’ve all been there.
Money can be evil for some people especially those who have a negative attitude towards their financial situation.
Be optimistic and little by little with determination you too should see improvements if you want that to happen.
Canadian Budget Binder Net Worth Updates 2020
Click the links below to read our net worth updates for the year.
- January 2020 Net Worth Update
- February 2020 Net Worth Update
- March 2020 Net Worth Update
- April- Oops I forgot
- May 2020 Net Worth Update
- June 2020 Net Worth Update
That’s all for this month’s net worth update but please check in the middle of September 2020 to see how we made out in July 2020 with our financial portfolio.