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Net Worth Update April 2011 (+0.66%) – Middle Class Definition?

Welcome to the Million Dollar Journey April 2011 Net Worth Update. For those of you new to Million Dollar Journey, a monthly net worth update is typically posted near the end of the month (or beginning of the next) to track the progress of my journey to one million in net worth.  If you would like to follow my journey, you can get my updates sent directly to your email.

It looks like the TSX decided to take a break this past month which lead to a small correction.  It’s interesting to see how these corrections affect our overall net worth.  With low debt, when markets perform poorly, net worth growth can be challenging!  Fortunately, our savings rate remained strong so we managed to squeak out a small gain in April.  In the near future, we’ll be making another $5,000 TFSA contribution, and a $2,500 RESP contribution.

Net worth aside, I read an article in the Financial Post that I thought I would share.  The article was written by Jonathan Chevreau and based on a letter from a reader defining what middle class really means.  Here are some snippets that really hit home with me:

I have colleagues who drive nicer cars, live in fancier homes and take more trips than me.  They are members in good standing of the “All show no dough” club. They don’t seem content because there is always more to want.  Consumerism really never puts one on a path to happiness.

And the true meaning of middle class:

So, what is middle class?  Middle class is being able to meet your reasonable needs such as shelter, food and clothing in a reasonably comfortable way … and finding a way to be happy and self-fulfilled.  The rest is just people confusing what they want for what they need.

In other words, middle class is more a state of mind than it is a dollar amount.   Millions of Canadians have proved that much.

Back to you, what does middle class mean to you?

Quick reminder, the income tax deadline is typically the end of April, but since April 30th is a Saturday, the deadline is pushed to the next business day which is May 2, 2011.

On to the numbers:

Assets: $ 609,248.00 (+0.63%)

  • Cash: $4,500 (+0.00%)
  • Savings: $59,000 (+7.27%)
  • Registered/Retirement Investment Accounts (RRSP): $108,700(-0.64%)
  • Tax Free Savings Accounts (TFSA):  $27,000 (+0.37%)
  • Defined Benefit Pension: $34,000 (+1.19%)
  • Non-Registered Investment Accounts: $11,300 (-4.24%)
  • Smith Manoeuvre Investment Account: $73,000 (+0.69%)
  • Principal Residence: $291,748 (+0.00%) (purchase price adjusted for inflation)

Liabilities$65,000 (+16.18%)

Total Net Worth: ~$544,040 (+0.66%)

  • Started 2011 with Net Worth: $505,800
  • Year to Date Gain/Loss: +7.56%

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments – ie. our credit card bill). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker has proven useful.

Savings

Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair.  We also need cash to cover any future tax liabilities.

Real Estate

Our real estate holdings consist of a primary residence and REITs plus a rental property. The value of the principal residence remains valued at the purchase price (+inflation) despite significant appreciation in the local real estate market.

Pension

The pension amount listed above is the value of both of our defined benefit pension plans.  I basically take the semi annual statement and add the contribution amounts (not including employer matching) on a monthly basis.

Stock Broker Accounts

Another common question is which discount broker do I use?   We actually have accounts with multiple institutions.  I’m hoping to reduce the number of accounts that we hold in the near future.  Here is a review of some of the more popular online stock brokers.

If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).

FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 28 comments… add one }
  • Sarlock April 29, 2011, 11:23 am

    Slow and steady wins the race. Nice continued upward movement on the net worth. As you get closer to your goal, your net worth will become more fixed to the movement of the stock market and as such become more volatile. Just keep focusing on your savings rate – that’s the number that matters most on a month-by-month basis.
    Regarding middle class, you nailed it. It’s not about a certain income level necessarily, it’s about having enough income to enjoy a comfortable and happy lifestyle. I know people who earn much more than me that aren’t nearly as content.

  • Sampson April 29, 2011, 11:48 am

    You really got to get on those TFSA and RESP contributions ;)
    If I ever had any criticism it’s that you always make those so late in the year.

  • FT FrugalTrader April 29, 2011, 11:49 am

    @Sampson, lol, you are right, I need to improve there. Baby steps!

  • ITS April 29, 2011, 12:38 pm

    Middle class, means that you are the one segment of the population expected to pay taxes. The poor don’t make any money, the rich can shelter it… enjoy the bill to run a dysfunctional country middle class…

  • Broker April 29, 2011, 12:48 pm

    FT do you use a spreadsheet to keep track of your monthly updates?

  • Echo April 29, 2011, 12:49 pm

    Congrats on keeping the needle moving forward even in a turbulent month.

    As for that quote, I think that meeting reasonable needs in a reasonably comfortable way is not really describing middle class, but it describes people who are prudent and realistic with their finances.

    The wealthy can meet reasonable needs in a reasonable way too, just because they have more money doesn’t necessarily mean that they have more wants. Many working class folks fall into that category as well.

    The term “middle class” casts a fairly wide net in our society, and I don’t think it can be defined as being financially responsible.

  • Support Spy April 29, 2011, 2:09 pm

    Good work FT!
    I have a question though. When adding a large cap ex to your budget, in my case, new windows for my home, how would you display this in your budget and net worth? Does this warrant a separate line item? There is an increase in home resale value, but not 100%. Any advice on how to calcualte the change in net worth?

  • Yun April 29, 2011, 3:11 pm

    FT, how do you get your money out from PC or ING if if you need a large amount of cash within a day or two for an emergency? I have my emergency fund in my PC saving account but I have a cash withdrawal limit of 1K. Last weekend, I needed 4K cash and ended up getting it from my TD LOC. Thanks.

  • Jungle April 29, 2011, 3:20 pm

    I would not display a large capital expense in my networth. First, the money is going out to pay for windows and second, how do you know that this will increase the value of your home? I look at it more like a necessary maintenance cost, to keep the home modern.

    Middle class=working class. Family, owning home, car, clothes and food, job, is enough luxuries for middle class but will still keep you working.

    Frugal: Good job with the networth update!
    Markets are rather flat. US equities are up, but so is the CDN dollar against USD… making it almost neutral.

    We’ll do our update on Sunday May 1 and today’s closing prices will be used for values.

  • FT FrugalTrader April 29, 2011, 4:08 pm

    @Broker – I use google spreadsheets to track my annual net worth.

    @Echo – very good point! I think what the author of the letter was trying to say was he is finanically wealthy (lawyer), but lives a middle class lifestyle.

    @Support – I would simply go by what the cash balances say, or what your line of credit says. If it really does add value to your house (likely less than 100% return), then it’s up to you to add it to your home value.

    @Yun – good point, I usually keep some cash at home ($500 or so) and my bank accounts also allow a limited amount of cash to be withdrawn. I’ve never had a situation where I’ve needed physical cash in a short period of time. The closest was when I needed 10K to close on a house, and I just got a bank draft from a teller @ cibc.

  • Yun April 29, 2011, 4:35 pm

    FT, thanks for the reply. You mean you can get bank draft from a CIBC teller with your PC account?

  • FT FrugalTrader April 29, 2011, 4:40 pm

    @Yun, in that case, it was with a CIBC account. If you want a draft from PC, you need to phone them and they’ll send the draft to the nearest CIBC.

  • Ed Rempel April 29, 2011, 7:58 pm

    Hey FT,

    Nice progress.

    We find the sign of middle class is that their largest asset is real estate.

    There are a lot of exceptions to this, but this rule of thumb usually fits both in net worth and the way they think about money:

    Poor – Most valuable asset is a consumer item, such as a car.
    Middle class – Most valuable asset is their home or other real estate.
    Wealthy – Most valuable asset is their business or non-registered stock market portfolio.

    In terms of net worth, middle class probably probably starts with a net worth of $50,000 and goes up to about $4 million.

    You might think that millionaires start at $1 million net worth, but having $1 million net worth does not really change your lifestyle. Most people today should be saving $1-2 million by the time they retire (similar to pension plan values).

    Lifestyles start to change when net worth is about $4 million, based on our experience, so that is probably the top end of middle class.

    Ed

  • joe April 29, 2011, 10:56 pm

    Help wanted.

    Does any one know that there is any financial organization in Canada which provides no-fee US dollar credit card (visa or mastercard)?

    Thanks in advance.

    Joe

  • sco April 30, 2011, 3:15 am

    Working class is not the middle class. Though it’s nice to imagine you are in the middle.
    If the net worth of the rich is in tens of millions (and it is), the middle is a few millions. The rest are working poor.

  • FT FrugalTrader April 30, 2011, 11:05 am

    @Ed, I guess one exception would be the people who invest in real estate as their business and build a substantial portfolio that way.

    @joe, take a look at the TD Select Service accoiunt, I believe they provide a free USD credit card or similar.

  • rick April 30, 2011, 4:19 pm

    I’m new to MDJ and have read over your goals and net worth updates but it seems your including your wife’s assets into your million dollar journey. Should you separate your assets and only include yours for your MDJ. Currently you should state your goals as MDJ for my family.

    • FT FrugalTrader April 30, 2011, 6:14 pm

      @rick, pretty hard to separate assets when everything is mixed. I guess technically, if we were to separate, she would be 50%, so I guess the net worth should be half of what is reported?

  • guinness416 April 30, 2011, 4:55 pm

    Middle class, where I come from, is about eduction and cultural interests and the like as much as just money. That’s such a narrow way to look at it. I just saw a post (.pdf) at NPR money that said 40% of (american) people with incomes below $20k think they’re middle class and 30% of those with incomes above $150k. It’s such a meaningless descriptor at this point.

    I do wonder about all these bloggers who “just know” that their neighbours/acquaintances are deep in debt because they hve nice cars or whatever. How on earth do they know? Have they seen the bills? Are they absolutely sure there’s no inheritance/spouse’s income/profit on their last home/business income/frugality on the boring stuff/whatever in play? I take great holidays to overseas places but you’d better believe we can afford them. I wonder do our colleagues and neighbours sniff self righteously about us being deep in the hole.

  • FT FrugalTrader April 30, 2011, 6:30 pm

    @guinness, Sorry, didn’t mean to sound self righteous in my post! The letter hit home with me because I have neighbors/friends who buy really nice expensive things, but yet complain about their consumer debt! To each their own, but many are one pay cheque away from disaster. Throw kids into the mix and the plot gets thicker.

  • guinness416 April 30, 2011, 6:47 pm

    That was directed at Chevreau not you MDJ …. due to the good manners of a middle-class upringing I wouldn’t be so rude as to call you self righteous in your own comments section ;-)

  • ITS May 1, 2011, 1:49 pm

    To all of you that consider themselves middle-class I would like to remind you to go and vote conservative tomorrow.

    Vote conservative as the lesser of all evils or say hello to new taxes that will go to welfare babies, failed social programs, and unnecessary gun-registries.

  • BW6 May 1, 2011, 3:18 pm

    I think it’s hard to define middle class as a state of mind, the sky is only blue after all. For example if your making $40000 a year and driving a $70000 car and living in a $600000 and are leverged to the max, you may think you are middle class but in reality you are one missed paycheque away from a world of hurt (obviously this assumes no inheritance, etc)

    By definition middle class is a value of net worth. However, the value to be classified middle class is constantly evolving and not just based off inflation. I believe the middle class is shrinking in North America (US more than Canada at present) and the net worth value is also expanding. I agree with Mr. Rempel who stated that net worth is probaly somewhere between 50K and 4 Million.

  • My University Money May 1, 2011, 9:43 pm

    Great point about asset classes Ed, interesting to note that the new “magical million” number is now about 4 million!

    Middle class is definitely an elusive description. For example, as someone who lives rurally I can make much less than people who live in urban areas yet my house and car might very well be of higher quality and I might manage to have more left over for savings.

    I do agree that the middle class get to support the whole country in terms of taxes…this makes the new reality of a shrinking middle class (no matter how you slice it) a scary one!

  • SavingMentor May 2, 2011, 9:13 am

    I’ve always found the term middle class to be over used and incredibly ambiguous. It seems that a lot of people would agree with that sentiment. I’ve given up trying to define it in my own head and just use it as a rough indicator or descriptor that doesn’t really mean a whole lot when I come across it in an article or report.

  • Ed Rempel May 3, 2011, 2:15 am

    Hey FT,

    We have found our rule of thumb to be surprisingly accurate:

    – middle class people have real estate as the largest asset.
    – the wealthy have a business or stock market portfolio as the largest asset.

    You are right that a real estate corporation should be an exception, but we have not really found people that fit that. To make it out of middle class would take far more real estate investments than most people would think. For example:

    – We have some clients with 5-10 rental properties (doing Smith Manoeuvre on all) and know others in that category, but they are all clearly middle class.
    – I knew a guy that owned 5-10 apartment blocks – about 500 tenants – and he was still clearly middle class. Very down-to-earth, simple guy that wore overalls and focused on paying off debt.
    – I did know a guy with 35 apartment blocks – about 4,000 tenants. He was definitely wealthy.

    Real estate investors are a lot like GIC investors, in that they tend to like simple investments they can understand and control, and don’t really focus on building serious wealth. They do tend to be control freaks.

    Being wealthy tends to be partly a state of mind. As Guiness pointed out, being wealthy is partly about education and culture. Stock market investors tend to have wide ranging interests in many fields all over the world, since that is where they are invested. Real estate investors tend to be narrowly focused on physical buildings near their home.

    Stock markets also have many times higher returns over time, which is what can create the net worth.

    Ed

  • Ed Rempel May 3, 2011, 2:17 am

    Hey FT,

    I think it is accurate to show your net worth as you do. I assume everything is jointly owned, which means you and Mrs. Frugal both own all your assets. You are a married couple – not 2 roommates sharing a house and some investments.

    Ed

  • cannon_fodder May 6, 2011, 6:52 pm

    Congratulations again, FT! You had yet another positive month (when was the last time you went backwards?!).

    Alas, I can not enjoy you in such fine company. After a big income tax bill, a big vacation bill and some piggish behaviour with my investments, we had a large, negative movement.

    We were down 6.2% MOM but we are still up 14.43% YTD and close to 40% YOY.

    I’ll see if I can start a new and positive streak for next report…

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