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Thread: A young family's financial journey

  1. #11
    Senior Member m3s's Avatar
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    Quote Originally Posted by coolbeans View Post
    How are you suggesting to top off the TFSAs? With a HELOC (wouldn't be tax deductible, I understand)? Slow down on the mortgage payments? Slow down on RRSPs?

    The idea of starting the Smith Manoeuvre was just to tap into the equity in our house and borrow money at a low interest rate. Building up our TFSAs is also a priority after mortgage/RRSP, but separate from the SM idea.
    You said you may consider a re-advanceable mortgage for SM when your renew. I approach renewals as a new mortgage and look at all my options. With a renewal you could free up some equity simply by choosing a downpayment/term/amortization that leaves some cash for TFSA. As far as I know HELOC rates tend to be higher and they risk increasing (my broker has been able to get me a lower fixed rate than any HELOC)

    Paying down the mortgage vs investment is a difficult decision that only you can decide based on your perception of the future and level of risk you want to accept. When it comes time to renew I look at the interest rates and the market and while the rates are generally low I aim to diversify between the two. Considering the safety net of a pension and low mortgage rates, the TFSA looks attractive to take advantage of to me

    I view both SM and TFSA as investment vehicles where the TFSA is entirely tax free and the SM partially tax deductible. I don't see how the SM is separate from TFSA and I don't see how SM can be better than TFSA. Therefore if you are considering SM, I would simply consider maxing TFSA first. The question is not SM vs TFSA in my mind, but mortgage vs investment (which I agree with your assessment)

    I could be wrong but that's how I see it. I max RRSP/TFSA and accelerate mortgage however I don't have to worry about RESPs. Since TFSA came out, I've been saying the SM is mostly irrelevant for those our age and even more so for those younger. I could be missing something but there are few our age who discuss this The SM has not made sense for me based on the available rates and the TFSA is so much less paperwork

    amat victoria curam

  2. #12
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    Quote Originally Posted by m3s View Post
    You said you may consider a re-advanceable mortgage for SM when your renew. I approach renewals as a new mortgage and look at all my options. With a renewal you could free up some equity simply by choosing a downpayment/term/amortization that leaves some cash for TFSA. As far as I know HELOC rates tend to be higher and they risk increasing (my broker has been able to get me a lower fixed rate than any HELOC)

    Paying down the mortgage vs investment is a difficult decision that only you can decide based on your perception of the future and level of risk you want to accept. When it comes time to renew I look at the interest rates and the market and while the rates are generally low I aim to diversify between the two. Considering the safety net of a pension and low mortgage rates, the TFSA looks attractive to take advantage of to me

    I view both SM and TFSA as investment vehicles where the TFSA is entirely tax free and the SM partially tax deductible. I don't see how the SM is separate from TFSA and I don't see how SM can be better than TFSA. Therefore if you are considering SM, I would simply consider maxing TFSA first. The question is not SM vs TFSA in my mind, but mortgage vs investment (which I agree with your assessment)

    I could be wrong but that's how I see it. I max RRSP/TFSA and accelerate mortgage however I don't have to worry about RESPs. Since TFSA came out, I've been saying the SM is mostly irrelevant for those our age and even more so for those younger. I could be missing something but there are few our age who discuss this The SM has not made sense for me based on the available rates and the TFSA is so much less paperwork
    Yeah, the HELOC would be higher. I recently got a quote for 2.49% for 5-year fixed and 3.2% (prime + 0.5%) for the HELOC.

    I'm definitely in the camp of splitting between paying down my mortgage and investment. We had done the odd lump sum payment here and there. But, in the last year is when we started accelerating the mortgage payments. Before that we were catching up on RRSP contribution space. Once we caught up on RRSP, we looked at what to do next and realized that we could pay off the mortgage over one more term if we were aggressive.

    I see the SM as separate from the TFSA because of the source of funding. Funding the TFSA would come from our excess cash flow. Funding a non-registered account utilizing the SM would come from borrowing money against the equity in my house, outside of excess cash flow. If we have excess cash flow, we would definitely choose TFSA over non-registered account. If I'm borrowing money, I would like to be able to deduct the interest, which can't be done if the borrowed money is put inside a TFSA.

    Certainly, the introduction of the TFSA in 2009 added another bucket to direct excess cashflow into for savings. For people who had previously been maxing out RRSP, they used to have to put their excess cash flow into non-registered accounts. Coming from the perspective of a young family, an additional $11,000 each year represents a significant percentage of our annual savings rate.

    Interest rates going up is definitely a risk when employing the SM.

  3. #13
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    Congrats to keep the focus on your finances and not take for granted your current high incomes, and have a plan to invest for the long term.

    Having a high income is enough enough, you need discipline too and you seem to have it.

    I would focus on TFSA by giving yourself more time to pay your mortgage. There is no rush to pay your mortgage considering your low balance relative to your income (less than 1 year gross of income). It can feel good to pay mortgage in 4-5 years, does not mean it's the "best" decision.

    I would take a HELOC on your home only to have the money available in case "Something" happens... but not for SM right now.

    It would make no sense to borrow at +- 3.2% (Prime + 0.5%) for TFSA, while fast paying your mortgage at +- 2.5%.

    I would not bother with SM before you have maxed out both your TFSA.

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  5. #14
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    Here is my feedback....for what it's worth....

    Achieve 1,000K net worth by end of 2018 - great goal!
    Pay off mortgage by end of 2020 - great goal!.
    Catch up on TFSA. Between the wife and I, we have about $54K of contribution space - another great goal!

    If you pay off your mortgage, invest what you (used to) put into your mortgage (i.e., 1) max out TFSAs every year going-forward; max out all contribution room; and 2) max out both your RRSPs eventually AND 3) start/build a non-registered portfolio with what's leftover) you'll be set at age 55.

    You'll likely have >1 M in invested assets + a paid off home + workplace pensions.

    That will provide a VERY NICE lifestyle in (early) retirement.

    Lastly, regarding your mortgage, do what you feel is best - but I would continue to get a variable mortgage with bond yields being so low and for the foreseeable future. You can get a variable mortgage for about 2.25% - it would kill your mortgage even faster.
    Hidden Content - Working on a $1 million portfolio and $30k per year from it.

  6. #15
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    November 1, 2016

    Not much to say for this past month. We're within 120 days of the maturity of our current mortgage. We need to get some rates held in the next month. We didn't have any leftover cash to put towards the TFSA goals. I'm not sure we'll make that goal this year with 2 months to go and Christmas to fight against. If we're going to make it, it would be November. I sent in T1213 (Request to Reduce Tax Deductions at Source) forms for my wife and I. This is for child care deduction (for my wife) and RRSP contributions (me).

    Goals for 2016:
    Max out RRSP contributions. (automatic bi-weekly deposits, on track)
    Max out RESP contributions. (automatic bi-weekly deposits, on track)
    Contribute $5,500 each to TFSA. This is the last bucket to fill up after all the others, see note below. ($4,460 each to date, $0 change)

    Goals for 2017:
    Max out RRSP contributions. (automatic bi-weekly deposits)
    Max out RESP contributions. (automatic bi-weekly deposits)
    Contribute $5,500 each to TFSA.

    Assets:
    House - $446,765 (+$580) (assume inflation increases of 0.13%/mo, based off annual property tax assessment year-to-year)
    SUV - $18,350 (-$175) (2013 model year. I depreciate it $175/mo)
    Car - $7,150 (-$75) (2009 model year. I depreciate it $75/mo)
    Non-Registered Portfolio - $17,940 (+$1,745) (work share purchase plan, I sell when ~$4K vests and put against mortgage, see notes below)
    DC Pension (mine) - $93,000 (+$280) (contribute 4% of salary, company puts in 6%)
    RRSP (mine) - $87,300 (+$1,105) (Couch Potato at Questrade)
    DB Pension (wife) - $164,590 (+$3,050) (based on rough extrapolation of annual statements)
    RRSP (wife) - $19,775 (+$140) (CP at Questrade)
    TFSA (mine) - $21,900 (+$440) (some cash, some CP at Questrade)
    TFSA (wife) - $17,730 (-$20) (some cash, some CP at Questrade)
    Cash - $2,565 (-$2,075) (I target to maintain no more than $5,500 for cash flow, see note below)
    Total Assets $897,075 (+$4,500)

    Liabilities:
    House mortgage - $150,825 (-$1,115) (Fixed at 3.04%, renewing Feb 2017)
    Credit cards - $2,785 (-$1,100) (current snapshot, we pay off every month)
    Total Liabilities $153,610 (-$2,220)

    Net Worth: $743,465 (+$7,215)

  7. #16
    Senior Member m3s's Avatar
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    Quote Originally Posted by coolbeans View Post
    I see the SM as separate from the TFSA because of the source of funding. Funding the TFSA would come from our excess cash flow. Funding a non-registered account utilizing the SM would come from borrowing money against the equity in my house, outside of excess cash flow. If we have excess cash flow, we would definitely choose TFSA over non-registered account. If I'm borrowing money, I would like to be able to deduct the interest, which can't be done if the borrowed money is put inside a TFSA.

    Certainly, the introduction of the TFSA in 2009 added another bucket to direct excess cashflow into for savings. For people who had previously been maxing out RRSP, they used to have to put their excess cash flow into non-registered accounts. Coming from the perspective of a young family, an additional $11,000 each year represents a significant percentage of our annual savings rate.
    I consider your "source" of the funds to be irrelevant. When you renew, you simply increase your mortgage to unlock cash for the TFSA instead of using a HELOC. That way you not only borrow at a lower rate, but also get a better tax advantage of the TFSA than tax deductible interest.. plus no tax deducting paperwork, and it's not a callable loan like a HELOC..

    Whenever you have a mortgage, I consider both TFSA and SM as leveraged investing because either could be used to pay down the mortgage instead. At this point you've already decided that cash should be on your mortgage or invested, so I don't see how cash flow is relevant to catching up on a mortgage or past TFSA contributions

    So it's a matter of TFSA vs mortgage. Personally I think the TFSA is such a good deal it should not be neglected. Many healthy stocks pay 3-4% dividends and they increase them annually, so the sooner you invest the more time you have to reap the tax free rewards. Ideally your direct cash should be going into non-reg to be transferred into TFSA on Jan 1.
    amat victoria curam

  8. #17
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    December 1, 2016

    We'll be signing for the new mortgage late December for 2.14% fixed for 5 years. We'll have about $600 in daily interest to pay to get this rate as our current mortgage matures mid-February.

    We didn't have any leftover cash again to put towards the TFSA goals. Not looking likely to meet our TFSA goal.

    Waiting for the response from the government for the T1213 (Request to Reduce Tax Deductions at Source) forms I sent for my wife and I.

    Goals for 2016:
    Max out RRSP contributions. (automatic bi-weekly deposits, on track)
    Max out RESP contributions. (automatic bi-weekly deposits, on track)
    Contribute $5,500 each to TFSA. This is the last bucket to fill up after all the others, see note below. ($4,460 each to date, $0 change)

    Goals for 2017:
    Max out RRSP contributions. (automatic bi-weekly deposits)
    Max out RESP contributions. (automatic bi-weekly deposits)
    Contribute $5,500 each to TFSA.

    Assets:
    House - $447,347 (+$580) (assume inflation increases of 0.13%/mo, based off annual property tax assessment year-to-year)
    SUV - $18,175 (-$175) (2013 model year. I depreciate it $175/mo)
    Car - $7,075 (-$75) (2009 model year. I depreciate it $75/mo)
    Non-Registered Portfolio - $17,630 (-$310) (work share purchase plan, I sell when ~$4K vests and put against mortgage, see notes below)
    DC Pension (mine) - $94,730 (+$1,730) (contribute 4% of salary, company puts in 6%)
    RRSP (mine) - $90,395 (+$3,095) (Couch Potato at Questrade)
    DB Pension (wife) - $167,640 (+$3,050) (based on rough extrapolation of annual statements)
    RRSP (wife) - $20,110 (+$335) (CP at Questrade)
    TFSA (mine) - $23,340 (+$1,435) (some cash, some CP at Questrade)
    TFSA (wife) - $17,735 (+$5) (some cash, some CP at Questrade)
    Cash - $3,950 (+$1,385) (I target to maintain no more than $5,500 for cash flow)
    Total Assets $908,135 (+$11,060)

    Liabilities:
    House mortgage - $149,705 (-$1,120) (Fixed at 3.04%, renewing Dec 2016 at 2.14%)
    Credit cards - $3,875 (+$1,090) (current snapshot, we pay off every month)
    Total Liabilities $153,580 (-$30)

    Net Worth: $754,555 (+$11,090)

  9. #18
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    January 1, 2017

    2016 has been a good year. Despite no raises or bonuses we were able to save quite a bit and increase our net worth $130,000 year-over-year. That includes ~$28,000 off our mortgage, $85,000 increase in our RRSP/pensions, and $11,000 increase in TFSA. The only goal we didn’t quite make was to contribute $5,500 each to our TFSAs, which we were short by $2,080. In retrospect, if we’re going to meet this goal for 2017, we’ll have to get it done by October. November/December is tough to find extra cash because of Christmas and nanny bonus.

    I’ve decided to start including our RESP accounts in our Net Worth calculation. Although the money is ear-marked for our kids’ post-secondary, including it is an important piece of our family’s overall financial state.

    We’ve signed all the paperwork for the new mortgage (2.14% fixed 5 years) and the first withdrawal is January 13th. I’ll be selling my work share purchase plan vested shares in the next week to make a lump sum.

    I’m looking forward to when the 2016 TurboTax is out so I can run the numbers for the tax return. We’ll be getting money back. Whatever we get we’ll probably throw at the mortgage.

    Goals for 2016:
    Max out RRSP contributions. (automatic bi-weekly deposits) Complete
    Max out RESP contributions. (automatic bi-weekly deposits) Complete
    Contribute $5,500 each to TFSA. This is the last bucket to fill up after all the others. ($4,460 each for 2016, $0 change) $2,080 short.

    Goals for 2017:
    Max out RRSP contributions. (automatic bi-weekly deposits)
    Max out RESP contributions. (automatic bi-weekly deposits)
    Contribute $5,500 each to TFSA.

    Assets:
    House - $447,930 (+$580) (assume inflation increases of 0.13%/mo, based off annual property tax assessment year-to-year)
    SUV - $18,000 (-$175) (2013 model year. I depreciate it $175/mo)
    Car - $7,000 (-$75) (2009 model year. I depreciate it $75/mo)
    Non-Registered Portfolio - $19,910 (+$2,280) (work share purchase plan, I sell when ~$4K vests and put against mortgage)
    DC Pension (mine) - $97,455 (+$2,720) (contribute 4% of salary, company puts in 6%)
    RRSP (mine) - $90,795 (+$400) (Couch Potato at Questrade)
    DB Pension (wife) - $170,690 (+$3,050) (based on rough extrapolation of annual statements)
    RRSP (wife) - $20,425 (+$315) (CP at Questrade)
    TFSA (mine) - $24,690 (+$1,355) (some cash, some CP at Questrade)
    TFSA (wife) - $17,790 (+$55) (some cash, some CP at Questrade)
    RESP - $39,600 (CP e-Series at TD)
    Cash - $5,315 (+$1,365) (I target to maintain no more than $5,500 for cash flow)
    Total Assets $959,605 (+$11,870, +51,470 if you compare with last month due to addition of RESP to NW calculation)

    Liabilities:
    House mortgage - $150,355 (+$650) (Fixed at 2.14%)*
    Credit cards - $3,195 (-$680) (current snapshot, we pay off every month)
    Total Liabilities $153,545 (-$30)

    Net Worth: $806,055 (+$11,900, +51,500 if you compare with last month due to addition of RESP to NW calculation)

    *Mortgage went up because of interest fees for breaking early and only one payment in December.

  10. #19
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    Good work for the year. Hopefully 2017 is even more prosperous!

    Quote Originally Posted by coolbeans View Post
    I’m looking forward to when the 2016 TurboTax is out so I can run the numbers for the tax return. We’ll be getting money back. Whatever we get we’ll probably throw at the mortgage.
    Honestly, picking up the new tax software is probably the best part of January for me.

  11. #20
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    Great work Nobleea.


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