Posted by A lot of financial and non-financial life events happened in 2022: layoffs, mortgage stress, a new baby! After a 6-month hiatus from the blog, it’s time to share how 2022 landed against our financial plans.
What happened in 2022? Life!
Perhaps my “Best Laid Plans” post back in May 2022 was foreboding omen for what was to come in the year, as the LJ family faced a lot of ups and downs in our life:
- In June, we found out we were expecting our first child (yay!), but that meant we had to financially plan for how we were going to survive a 12-month maternity leave given I am the higher income earner in the family
- While we were excited when Mr. LJ started a new job in big tech at the start of the year, we learned by fall that he was a part of the wave of big tech layoffs
- Interest rate increases from the Bank of Canada pushed up our variable rate mortgage from a dreamy 1.26% to teary 5.26% by December
Between the financial changes and the physical/emotional toll of a first time pregnancy, I decided to take a hiatus from Loonie Journey to gather my bearings.
Life is 10% what happens to you and 90% how you react to it
In business as it is in life, what matters is how we handle adversity and how we pivot to react. As the financial planner in the household, here’s what we did:
1. Plan for maternity leave
Without my paycheque during maternity leave, employment insurance simply would not be enough to support our monthly expenses, no matter how frugal we got with the budget. We knew we needed to grow our emergency fund (or as I like to call it, “our cash hoard baby fund”) such that we can draw down from it to support our expenses during my time off.
To grow our cash balance, we suspended all investments that weren’t employer-matched. Since I was pregnant, we paused any overseas vacation plans and stayed in the country. Any excess cash at the end of each month was quickly siphoned to our high-interest savings account.
2. Plan for layoffs
Since the spring/summer, we had been anticipating a potential tech layoff in the sector. (We even mentioned the job risk in the ‘Best Laid Plans‘ back in May!)
As someone who’s seen what happens in the executive boardrooms, all the cost-cutting telltale signs were there:
- Slowing revenue growth
- Internal projects starting to get “temporarily paused”
- Slipping share price
- Souring investor sentiment calling for change
It seemed layoffs were inevitable. At the end of summer, Mr. LJ started reaching out to his network to see what job opportunities might exist.
By late fall, Mr. LJ received the layoff notice and severance offer. It was a generous package, which included a severance payment that was guaranteed to be paid, regardless if he found alternative employment. Very quickly, he accepted it.
Within the next week, Mr. LJ received an employment offer from a public financial institution. While the overall compensation package was not as lucrative as big tech, it was a fair and equitable offer. He accepted it and started the job in 2023.
Despite the short term stress from the looming layoffs, it turned into a blessing in disguise. We were able to grow our “cash hoard baby fund” from the one-time guaranteed severance payment and a signing bonus from the new job.
While we were lucky to have emerged financially unscathed, I attribute it to the early steps that Mr. LJ took in summer and early fall to find a new job. Between the severance package and the new job, Mr. LJ didn’t miss a single week’s paycheque in the process.
Others weren’t so lucky. As the layoff notices came through, some big tech colleagues were shocked, some were in denial. Those on work visas were in an even tougher spot, having to figure out expenses while trying to stay in the country. Layoffs suck.
3. Plan for interest rate increases
Although it hurt the wallet to continue with our mortgage repayment plans, we stuck to it for the most part. For every interest rate increase, we upped our lump sum payments to match. By increasing our payments to offset the higher interest costs, we kept our amortization period to what it was prior to the rate hikes.
Could we have saved ourselves a ton of money by locking in a cheaper, fixed rate mortgage earlier in 2022? For sure, but hindsight is 20/20. We had always known a 5% interest rate was simply the markets returning back to normal. It just happened a lot faster than anticipated.
So are we planning to switch to a fixed rate mortgage now? Nope, for two reasons:
- We had planned to pay our mortgage assuming a 5% interest rate anyways. After the latest January 2023 hike landing us at 5.56%, we aren’t much higher than our planned payments. There is always a possibility that rates could go higher, but the fixed rates that are being offered today aren’t that enticing (high 4% for a 3 year fixed) as I do expect that rates need to come down in 2024+. Since we can still afford it, we’ll stick to our variable plan.
- We took on less mortgage debt than banks were willing to give us when we bought in 2020. At the time, some realtors wanted us to buy $500K more house because banks would lend that much to us. I did some calculations assuming that higher mortgage and higher interest rates at 5%. Looking at the ridiculously mandatory payments, I concluded they were insane. We’re happy that we bought a small modest property with a mortgage that doesn’t leave us eating Kraft Dinner every day.
Alright, now let’s get to the financial recap for 2022!
Financial Goals Progress
To recap, our financial priorities for 2022 were:
| Goals | Year End Progress |
|---|---|
| Continuing with company plan top-ups, such as pension plan matching and employee stock purchase plans | 100% |
| Maxing out my RRSP contribution limit | 100% |
| Grinding down Mr. LJ’s RRSP contribution limit to manage his 2022 taxable income, but preserve some room for the next 2 years | 100% |
| Grinding down Mr. LJ’s TFSA contribution limit | 40% |
| Increasing payments on our variable mortgage to match any interest rate increases | 80% |
Given all the life events, I am a bit surprised that we achieved most of our financial goals:
- We reached our two RRSP objectives in the first half of the year, before we found out about the baby, as we funnelled our 2021 bonuses, tax refunds and one-time RSU payout directly into RRSPs.
- Instead of investing into Mr. LJ’s TFSA, we redirected the money towards our “cash hoard baby fund”, which is now sitting around ~8x our monthly expenses.
- On the mortgage, we did up our lump sum payments to match interest rate increases until early summer. By late summer, we suspended the lump sums for 2-3 months in anticipation of the potential layoff risk. Once Mr. LJ’s job situation was clear, we re-started the lump sums but did not repay more to catch up on the 2-3 months.
Net Worth Update
Similar to our Q1 2022 update, I’ll focus on the controllable and non-controllable net worth components to gauge progress.
Within our control
Goals: Instead of hitting all 5 of our financial goals, we pivoted towards growing our baby fund. If we weren’t expecting a child in 2023, we would have reached all of our 2022 goals.
Savings & Contributions: We contributed $123K to our TFSAs, RRSPs and pension plans during 2022. Even I’m a little shocked by the magnitude of that number. Two major components were a hefty tax refund and my company’s RSUs that finally vested after 3 years, which turbocharged both our RRSP contributions in Q2. Since we contributed ~$37K in Q1 and ~$66K of one-time tax refunds & RSUs, our typical contributions were only $20K from April to December.
Asset Allocation: We are on target for each segment. We are slightly underweight in International Equities, but it’s within our acceptable 2.5% deviation so no rebalancing is needed.
| Target Allocation | Q4 2022 | Acceptable Deviation (<2.5%) | |
| Cash | 0% | 0% | Yes |
| Bonds | 0% | 0% | Yes |
| Canadian Equities | 26% | 27% | Yes |
| US Equities | 42% | 43% | Yes |
| International Equities | 32% | 30% | Yes |
| Total | 100% | 100% |
Mortgage: We repaid $27K of our mortgage principal in 2022, which is slightly behind the ~$7K/quarter pace we had in Q1. A part of it is because we missed 2-3 months of lump sum payments halfway through the year. We are further behind than where I thought we’d be in our mortgage repayments, because I had expected our higher lump sums would be paid towards principal instead of the ever increasing interest portion.
Outside of our control
Portfolio Returns: For 2022, my portfolio was down -10% and Mr. LJ’s was down -9%. Ouch. Given we suspended most of our investment contributions in second half of the year, we weren’t able to average down the cost basis of our ETFs, which were largely bought prior to 2022 at a higher price.
Overall
We had a good 2022. While we didn’t quite hit every financial goal we wanted, it was due to a good reason as we prepare to welcome a new member to the family.
Looking ahead to 2023, it’ll be a tighter year of finances as we navigate through a baby during maternity leave. I believe our planning and cash reserves will leave us in a good position to manage through the year.