Jack & Blake

Ugh, back to money. This one is fun though.

I follow Dave Ramsay. I’ve taken Financial peace University with my local church (Venue Church) and I listen to his podcast and have him and a couple of his co-workers at Ramsay Solutions. Namely his daughter, Rachel Cruze, and Chris Hogan. I listened to Chris Hogan’s book “Everyday Millionaires”. You might remember from a post a couple weeks ago that I’m a fan of Pastor Craig Groeschel as well, who re recently interviewed Dave Ramsay.

One illustration Ramsay uses is “Jack and Blake”, illustrated below.

Compliments of Ramsay Solutions

The idea here is pretty straight-forward, the sooner you start saving the better you end up doing. This illustration, I’ve discovered, is a bit exaggerated. I used Excel (not Google Sheets) to reverse engineer the graph, and they use an annual interest rate of approximately 11.5%. I realize that’s doable but I’ve dialed that down to 4%. I’m hoping for 8% in the market, and then taking 2% off for management fees and 2% off for inflation (to keep the final # in today’s $$$).

I’m hoping that’s conservative -> our mutual fund manager (which handles about half of our investments, equally split between RRSP and TFSA) only charges 0.5%. At the company I work for, they have a generous Savings Plan, where they 100% match our contributions up to 10-20% of our salary (depending on how long you’ve been at the company, and what division you’re in). My contribution and my employer match is managed by Manulife, which gives us a discounted group plan fee of approximately 0.75%. Inflation is generally at or below 2%, although I’ve heard with this COVID situation the Bank of Canada is willing to let that go above to keep things chugging along.

Anyways, as of last year, my wife and I have a humble $75,000 at the age of 30. That’s more than double what Jack had at this point (approximately $31,000) and far more than Blake (who had just started investing, so just over $2500). We plan to invest at least $12,000 a year, significantly more than either of the gentlemen (who are doing $200 a month). Needless to say, with the head-start and the added contribution we end up further ahead than both.

Even with a meager 4% return, we end up north of a million dollars before retirement. More than 4x Blake, and 10x Jack. That should be enough to retire on, and I’m hoping we can outpace that with added contributions or a higher net market return (better market performance or lower fees). The sensitivity is an extra $500,000 for every 1%. For example, getting 5% gives us an extra half a million in retirement. If we went to the original 11.5% Ramsay uses in his illustration, I’d have over $10 million.

Contribution wise, I’m ahead of the market. Even with part-time hours, and the above-mentioned company savings plan being suspended (until April, thanks to COVID), I’ve managed to contribute over $13,000 already this year – and we are just two months in. And my wife is on maternity leave.

I’ve plotted our position, as well as a few friends, and our niece who we helped open a TFSA account and got her started when she turned 18 a year ago. She’s 19 now, so it’ll be curious to see how she does. We are trying to get a couple young adults at church getting into it. It’s better to be Jack than Blake, and you can do even better with a bit of discipline.

Modified version of the above by Ramsay Solutions

Sometimes it seems like it’s taking forever – that’s one thing I got out of Hogan’s Everyday Millionaires – you’re running a marathon not sprinting a race. Slow-and-steady and avoid the get-rich quick scheme. But looking at this it’s a great visual to be able to see the progress and relax a bit, just keep working the process and we’ll be just fine.

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