Young Couple Diary

[cuppycake]

Hi everyone!

I've been stalking this forum for a few months now and thought it would be time to get into the discussion.

Here are our details:
We are both 24 years old.
Been dating for approx. 8 years (high school sweethearts) -- saving up for marriage in next few years. We just want a small simple wedding. Not looking to spend more than $15-20k (maybe $25k since these things always go over budget).
Combined gross income of ~110k (65/45 him/me)
Just purchased a house this month -- just felt like the right time, and our 600sq ft apartment is really too small for us now.

Assets:
House: $320k
2006 Ford Fusion - University graduation gift from his parents
2004 Ford Taurus - University graduation gift from my parents

Me:
TFSA (GICs): $20k
RRSP: $15k
Non-Registered GICS (@ on average 4.6% expiring in 2013/2014): $16k
Chequing Account: $6k

Him:
TFSA (Cash): 1.5k (we just withdrew most of it for the downpayment)
Chequing Account: $5k
Savings Account: $1k

We both have pension plans at work. He contributes ~150 per bi-weekly pay check and I contribute ~100 per bi-weekly pay check (matched by employers)

Liabilities
Mortgage $256k
Current Credit Card Balance: $2.1k (bought paint/stuff for new home)
No credit card debt/other loans

General Expenses/Spending Habits (monthly)
Food $600
Entertainment $50
Clothing/Misc. $160
Vacation $200
Car stuff (insurance, gas, parking): $520
Cell Phones $100
Property Tax $335
Utilities (not sure yet since we haven't been billed) -- I've budgeted $600
Home Insurance (choose to do this on a yearly basis -- paid for this year, but normally: $55
Mortgage ~$1200
Remainder to Savings/Emergency ~$1800

Goals / Future plan of action:
1. We've budgeted being able to pay between $10-$15k in an annual lump sum towards our mortgage. Hoping to pay it off in 10 years.

2. Since my TFSA is maxed and we withdrew $15k from his for the downpayment (it was cashable) -- apply $5k towards his TFSA this year and $10k in 2013 towards marriage fund/emergencies

3. Learn more about financial planning and the TD e-series account

4. Cut back and food expenses -- I've noticed we really waste a lot of food.


Questions
1. Is this the best way to allocate our money?
2. We estimate approx. $20k a year we can allocate to lump sum or TFSA/RRSP. We were thinking of doing 15k for lump sum and 5k for TFSA or 10k/10k Lump Sum/TFSA -- any advice/suggestions?
3. I opened a CIBC TFSA Investors Edge account -- is the TD e-series a better option?

[cldellow]

Questions
1. Is this the best way to allocate our money?
2. We estimate approx. $20k a year we can allocate to lump sum or TFSA/RRSP. We were thinking of doing 15k for lump sum and 5k for TFSA or 10k/10k Lump Sum/TFSA -- any advice/suggestions?
3. I opened a CIBC TFSA Investors Edge account -- is the TD e-series a better option?

You're doing great. Having $11k in cash is excellent for house repairs + car replacements that will pop up unexpectedly.

My thoughts:

* Do you each need to carry a $5k checking balance? The money is earning nothing, which is a shame. Maybe you need to maintain a minimum balance to avoid fees -- once you're married, consider consolidating accounts to give yourselves more flexibility.
* Do you have a premium credit card? Get one. If you're going to pay $20K in wedding expenses, you may as well get 1.5% back in the form of credit card rewards. If you're willing to maintain a $5k balance, most banks will give you their premium credit cards for free.
* I wonder if $250/mo for entertainment + vacation is lowballing. Most people who buy homes tend to become homebodies for a few years, but even so, you're at the age where all your friends will be getting married. Travel expenses (usually in the high season, too) + gifts can get pricey.
* You left out some important details about your mortgage. What is the interest rate and amortization period?
* My preference would be to at least max out your TFSAs each year. The TFSA is an amazing savings vehicle; while you won't lose your contribution room for not contributing, you are losing time when your money could enjoy tax-free compounding.

Don't worry too much about your RRSPs. You'll get bigger bang per buck later on when your salaries are higher.

If I was you, I would look at getting out of GICs. It looks like the vast majority of your financial assets are in low-risk, near-cash instruments. You guys have both the time to ride out market fluctuations and ample earning power and savings to let you take on much more risk in investing. That said, you don't have a lot of investable assets, so most brokerages will charge you high commission fees. Look for no-load, low-MER index funds (the eSeries are great for this) until your have more like $50k in investable assets.

Longer term, you might look at things like spousal RRSPs as a way of income splitting once you're married -- but only if you expect to have kids and take time off work to raise them.

[Four Pillars]

You're probably in the top 0.0001% of all 24 year olds. Fantastic.

You don't need any of my advice - the only comment I would make is that you should have a line for house repairs/maintenance/renovation etc.

[the-royal-mail]

Doesn't look too bad. The biggest concern I have is that while your plan seems good, you do not appear to be taking the emergency fund seriously enough. You've allocated $15K (is that right?) to a combined wedding AND efund?

If correct, that is nowhere near enough.

The e fund needs to be separate from wedding or any other fund. The point of an e fund is to be there when you need it, whenever adversity strikes.

I would feel better if you rejigged your plan to prioritize saving for this before you do much else. Do this before you start thinking about babies. Then save up for that.

And do not invest this money except in something guaranteed like a GIC.

[Sherlock]

If I was you, I would look at getting out of GICs. It looks like the vast majority of your financial assets are in low-risk, near-cash instruments. You guys have both the time to ride out market fluctuations and ample earning power and savings to let you take on much more risk in investing. That said, you don't have a lot of investable assets, so most brokerages will charge you high commission fees. Look for no-load, low-MER index funds (the eSeries are great for this) until your have more like $50k in investable assets.

I agree, GICs are terrible investments, especially in these low-interest times. The interest sucks, the money is not liquid (I beleive you can redeem it but you pay a penalty), and they're not tax efficient (althouhg in a TFSA I guess that doesn't matter).

Research into the couch potato portfolio and the eSeries funds, or maybe the ING Streetwise funds.

[cuppycake]

You're doing great. Having $11k in cash is excellent for house repairs + car replacements that will pop up unexpectedly.

My thoughts:

* Do you each need to carry a $5k checking balance? The money is earning nothing, which is a shame. Maybe you need to maintain a minimum balance to avoid fees -- once you're married, consider consolidating accounts to give yourselves more flexibility.
* Do you have a premium credit card? Get one. If you're going to pay $20K in wedding expenses, you may as well get 1.5% back in the form of credit card rewards. If you're willing to maintain a $5k balance, most banks will give you their premium credit cards for free.
* I wonder if $250/mo for entertainment + vacation is lowballing. Most people who buy homes tend to become homebodies for a few years, but even so, you're at the age where all your friends will be getting married. Travel expenses (usually in the high season, too) + gifts can get pricey.
* You left out some important details about your mortgage. What is the interest rate and amortization period?
* My preference would be to at least max out your TFSAs each year. The TFSA is an amazing savings vehicle; while you won't lose your contribution room for not contributing, you are losing time when your money could enjoy tax-free compounding.

Don't worry too much about your RRSPs. You'll get bigger bang per buck later on when your salaries are higher.

If I was you, I would look at getting out of GICs. It looks like the vast majority of your financial assets are in low-risk, near-cash instruments. You guys have both the time to ride out market fluctuations and ample earning power and savings to let you take on much more risk in investing. That said, you don't have a lot of investable assets, so most brokerages will charge you high commission fees. Look for no-load, low-MER index funds (the eSeries are great for this) until your have more like $50k in investable assets.

Longer term, you might look at things like spousal RRSPs as a way of income splitting once you're married -- but only if you expect to have kids and take time off work to raise them.

Thank you for such detailed advice!

Answers to your questions:
We do need to maintain a minimum balance, but it is only 1k for my account and 1.5k for his. I like having 3-4k in my account just in case we overspend on the credit card and I always like to charge things to my credit card because of my cash back visa.

The Visa I have is the CIBC Dividend (1%) cash back. He has a Scotiabank Scene Visa but we use my Visa for most of the day-to-day expenses.
I was offered by CIBC the next step up Dividend Visa, but they still wanted me to pay the annual fee -- which working out how much we expect to spend in the next year on the credit card worked out to be less in cash back than what I would be getting with my current credit card.

It's funny you mention the entertainment fund being too low. I just received news of 2 weddings we will be needing to attend within the next few months. Luckily, they are both at local venues, but this was something I honestly didn't consider until now. For the next year or so, we didn't plan on taking any major trips since as you said, we just purchased a home -- but we will definitely look into increasing the budget for this category.

Mortgage details: 25 year amortization, 2.79%, 3 year fixed with CIBC, standard prepayment privileges
-- we missed out on the 2.99% 4 year fixed with the big banks, but we thought this was pretty decent since it was with one of the major banks. We're taking a bit of a chance with the 3-year but since we want to put as much as possible towards the mortgage, we thought a lower rate would give us a bit more freedom.

We would really love to max out our TFSA contribution, but I assumed that since our mortgage interest was higher than the interest paid on the TFSA balance, it would be smarter to put more money towards the mortgage. However I don't like putting "all my eggs in one basket" which is why we were aiming for a minimum of 5k contribution (this year, 10k after this year) to have some extra emergency cash. We should be able to put in more to this as time goes by since my current numbers don't account for raises, extra side income, extra shifts (he works at the hospital), etc.

I will look into the e-series. I see it so much on this forum it's gotten me very curious. It's taking me some time to understand the terminology and how it all works, but I definitely appreciate the confirmation on looking into this!

[cuppycake]

You're probably in the top 0.0001% of all 24 year olds. Fantastic.

You don't need any of my advice - the only comment I would make is that you should have a line for house repairs/maintenance/renovation etc.

Thanks! I don't like being in debt so I wasn't going to open a line of credit, but now that you mention it -- better safe then sorry right?

Doesn't look too bad. The biggest concern I have is that while your plan seems good, you do not appear to be taking the emergency fund seriously enough. You've allocated $15K (is that right?) to a combined wedding AND efund?

If correct, that is nowhere near enough.

The e fund needs to be separate from wedding or any other fund. The point of an e fund is to be there when you need it, whenever adversity strikes.

I would feel better if you rejigged your plan to prioritize saving for this before you do much else. Do this before you start thinking about babies. Then save up for that.

And do not invest this money except in something guaranteed like a GIC.

Based on last years numbers and projected budgeting (we just got the keys last week and will be fully moving in by the end of June), I figure we will have ~$20k a year to "play with". By play with, I mean after we've paid for day-to-day expenses and can put this money into either lump sum towards the mortgage, TFSA, or other investments.

To confirm what you saying -- you suggest that I should save money for the efund and put that money in a GIC?

I agree, GICs are terrible investments, especially in these low-interest times. The interest sucks, the money is not liquid (I beleive you can redeem it but you pay a penalty), and they're not tax efficient (althouhg in a TFSA I guess that doesn't matter).

Research into the couch potato portfolio and the eSeries funds, or maybe the ING Streetwise funds.

Thanks for the input! I'll take a look at both.

[cuppycake]

Update July 2012, changes highlighted in red:

Assets:
House: $320k
2006 Ford Fusion - University graduation gift from his parents
2004 Ford Taurus - University graduation gift from my parents

Me:
TFSA (GICs): $15k
TFSA (CIBC Investors Edge): $5k
RRSP: $15k
Non-Registered GICS (@ on average 4.6% expiring in 2013/2014): $16k
Chequing Account: $4k

Him:
TFSA (Cash): 5.1k (+5k, now maxed until 2013 when we can put back the 15k we withdrew for the downpayment)
Chequing Account: $3.5k


Joint HISA: $6.1k (decided to do this to cover things like annual Property Taxes, Home Insurance, etc.)

Pensions: (not sure how much each of us has contributed so far yet)

Liabilities
Mortgage $252k (-4k, regular payments and prepayments)
Current Credit Card Balance: $2k
No credit card debt/other loans

General Expenses/Spending Habits (monthly)
Food $500 (-100, we should be able to manage this at 500/month, cutting back on eating out and cooking more [its healthier too])
Entertainment $60 (+10 we see a lot of movies)
Clothing/Misc. $200 (+40 using this for many other things)
Emergency Fund (stored in HISA/TFSA): $280 (no change)
Vacation $120 (-80 we have other things we value right now [marriage, home renovations, etc] so we may not tap into this for 1-2 years)
Car stuff (insurance, gas, parking): $365 (-155 -- we paid for car insurance for the year, car insurance money is counted in new category.)
Cell Phones $100
Property Tax $335 (paid until December)
Utilities: $400 (-200, 600 was too high)
Home Insurance: paid for the year, allotment counted in new category
Mortgage ~$1200
Mortgage Prepayments: $1100 ($550 biweekly)
Remainder to Savings/Emergency ~$1800
Property Tax/Home Insurance/Car Insurance: $600 (to be kept in HISA)
Marriage: $230 (a little low right now, will try to increase this budget later -- store in TFSA)

Misc. Comments about the last 2 months:
- we paid for our bi-annual property tax
- we paid for an entire years worth of car insurance (I'm anal about keeping track of money so it should be manageable and I like my credit card bonuses [they wouldn't let me pay by credit card unless I paid for the entire year.])
- his parents gifted us 2k as a house warming
- he received about 7k back as a tax refund (which allowed us to make these large lump sum payments) *note: he hadn't filed his taxes in a couple of years which is why he received so much (and he never claimed his tuition when he did file in University).
- we make mortgage prepayments of 550 every 2 weeks (I do it on my payday as an easy way to remember). My calculations show that this will allow us to pay off our mortgage in 9.8 years.

Review of last month's goals / Future plan of action:
1. We've budgeted being able to pay between $10-$15k in an annual lump sum towards our mortgage. Hoping to pay it off in 10 years. We decided to do bi-weekly prepayments instead. Pays it off faster while inputting the same amount.

2. Since my TFSA is maxed and we withdrew $15k from his for the downpayment (it was cashable) -- apply $5k towards his TFSA this year and $10k in 2013 towards marriage fund/emergencies We are on track. We've put in 5k for his 2012 contribution and need to wait until 2013 to tap into the 15k we withdrew. We are hoping to put in 10k for his TFSA by the end of 2013 as well as 5k in my TFSA to max my contribution.

3. Learn more about financial planning and the TD e-series account. Moved in, bought some furniture, painting and weddings over the last 2 months. Didn't have much time to look into this yet.

4. Cut back and food expenses -- I've noticed we really waste a lot of food.Decreased food limit by $100/month. We will be eating out less and I am packing lunches the night before.

Other future goals:
- look into a way to increase marriage fund -- hoping for a 2014 wedding
- bf likes having separate accounts but it would make more sense for minimum balance purposes (and easier management of cash flow) if we had a joint chequing -- looking into doing this in the next 1-2 years
- stay on track for TFSA contributions
- look into TD e-series

[Ohmsford]

I'm really impressed with your ability to manage your spending and your tight budgeting. My wife and I have been tracking out expenses for about a year now and our food expenses are usually pushing $1,000. Kudos to you. I'll be checking in regularly for tips!