My 7-Year Plan Explained: Is it Realistic?

It has been a week since I have finalized a plan to achieve a net worth of one million dollar within a 7-year time frame. However, despite my commitment to the plan, it is still a rough draft and it is definitely far from being perfect. With that being said, I am almost certain that my plan will be revisited in the future for revision and updates.

In light of that, I still believe that there are still a lot of unanswered questions in my 7-year plan. This is why I would like to take this opportunity to explain my plan in further detail. To help me along with that, I am going to try my best to explain some of the concerns that Chris had brought up:

Hi – not to be a negative Nellie, but I want to challenge some of your assumptions. (Note – I’m not saying they are wrong, just want to start the discussion and have you explain your logic a bit more).

So, you currently are 25, make good money in a government job, but plan on quitting in the next ? year? or so. You plan on putting 5500 into your TFSA, 5000-12000 per year into your RRSP, 10 to 20000 into non-registered investments, start a business that generates 1000 increasing to 40000 per year and invest 25000 per year in real estate. My quick math says that is 45 500.00 of investment every year, assuming no input into your business venture. On top of this, you need to live (food, shelter, occasional fun) and I assume there would be some costs to starting your business and doing real estate deals (legal fees, accounting etc). I assume you are single with no kids, so certainly would be able to live on a minimal amount, but this still assumes you are bringing in a pretty significant amount of money in order to make the above investments. I guess my question is, where’s all that money coming from? That is part of your plan that isn’t explained – all the other numbers add up (although you may be a little on the optimistic side for returns based on my experience – but nothing wrong with aiming high). In any case, I wish you luck with your plan. Take care.

Hi Chris! Firstly, I want to thank you for stopping by and actually taking the time to comment : ). In fact, I welcome any challenge on my plan because that will give me an opportunity to improve on it.

The Persistent Dilemma of Quitting my Job or Staying

Here are some quick points before I get started. Currently, I am on track to hit my 2014 goals, so getting started with the $40,000 isn’t exactly an issue. In terms of my job and when I will quit, I suppose that is up for grabs. What I do know is that in my financial journey, I will have to quit sooner or later, whether it be next year or a few years down the line.

My job and the dilemma of when to quit is something that I have been doing a lot of thinking on lately. Should I decide to stay at my comfortable job through-out this financial journey (which is probably not likely), I will bring in $60,000 a year (after taxes). My job also offers match contributions to my RRSP yearly with a defined pension plan which I haven’t included into my calculations. Hypothetically speaking, if I work through to 2020, I will only have to contribute $3,500 in 2015 and $8000 in 2020 because the government will contribute the remaining half. Of course this is all theoretical, depending on whether I make the choice to stay at my job.

Paper Assets: TFSA, RRSP and Non-Registered Accounts

In terms of the TFSA, well that is pretty self-explanatory. I am sure almost everyone can come up with $5500 a year of contribution money. However, there have been rumours that the Harper administration is looking to increase the annual limit to $10,000 in exchange for his support in the next election. If that does happen to be the case, I would simply deduct the total from either my non registered account or my business venture.

In any case, the non-registered account does not take play until the year 2016. In the year 2016, I would contribute $5,500 for TFSA, $5,000 for RRSP (if I remain at my job) and $20,000 for my non-registered account. That totals up to $30,000. Anyhow, I’m starting to just rehash everything I said in the post and you said in your comment. I’ll get back on track.

In terms of my estimated annual return rate, that is something which is very hard to predict. Perhaps the market will crash some time between now and 2020. However, when it does crashes, I see it as a buying opportunity as opposed to a selling one. I’ll make sure to take full advantage of that and as the market starts to recover in a few years, my quantity of stocks will recover generating the returns I am expecting. This is assuming that the market even goes into a “bear-ish market” within the 7 years. On the flip side, if it remains a bull market like the one we’re currently having, generating an 8% to 10% return seems to be quite a reasonable expectation. In fact, the S&P 500 alone has already returned 11% this year  and it hasn’t even hit the holiday wave yet!

The Real Estate and Business Plan

In the real estate side of things, I am currently still living rent- free with my parents. I barely spend any money on necessary things like mortgage, food or insurance. Of course, this can’t go on forever and it shouldn’t! I’m 25 years old and it is time for me to move out on my own. I’ll make sure to pay it all back in the future.

According to my plan, by the end of next year, my friend and I have plans to start investing in real estate. A 20% down payment of a $250,000 2-bedroom condo equates to $50,000 ($25,000 after divided by 2). We’ll each become half-owner of the property.

I can either fund that down payment through my parent’s home equity line of credit or by emptying out my TFSA, which I have reservations doing. Instead, I would rather let my TFSA grow but I digress. I will most likely opt for the first scenario and repay my parents through the smith manoeuvre. This will also pay for the interest on the home equity line of credit (assuming my investments returns more than 4%-5% annually).

The plan is to have that first property rented out and start generating positive cash-flow even if it is just an additional $100 per month. As for the other properties, this process can simply be rinsed and repeated as a last resort. Hopefully by property 2, I will be able to fund it myself.

Finally, the business section is probably the only one I have yet to figure out completely. At the present moment, I am thinking about starting a low start-up cost online business but I also have plans to open a restaurant in the near future. How do I plan to fund my restaurant? That is question for maybe a couple of years down the line.

Just to end things up, my plan is based on an exponential curve. I take into account the experience and knowledge that I will gain through-out my journey. Simply put, I expect to progress at a much faster rate as each year passes by.

I hope this answers some, if not all of your questions. Do you see any discrepancy or does something not add up? If so, do let me know as I am always trying to improve on my plan. Thanks again for your comment!