# Looking for advise on our plan...



## Rat Racer (Sep 16, 2010)

Hello all, 
After reading this forum and several PF blogs, I have spent this year getting much more interested in my families financial situation, and have been doing my best to ensure we are on the right track.
I am providing as much detail as I can, and looking for your thoughts and comments on where we should be going next.
A little back ground... We are trying to get things on track to get out of the rat race... eventually...
My wife and I lived in Toronto for several years and had the requisite big mortgage. When we got pregnant with our first (now 2) we realized that we stopped taking advantage of all the big city had to offer, so decided it was time to get out. We sold our house (in 4 hours) for a reasonable profit, and moved to the Niagara Region. Housing is much more reasonable. We got a much nicer house (not really larger) for much less money. We are 35 years old.
So here are the details:
My income – 104,000 plus bonus (28K in 09), good prospect for salary increase in future.
Wife's income – 75 000 (currently on MAT leave till August 2011, just EI, no top up) good prospect for salary increase in future.
2 kids (2 year old and newborn) 
2 cars – we both commute to work.
Mortgage – 274 500 (925 by weekly payments, 15.9 amortization). House value 318K
I am currently putting 11% of gross income into work RRSP

Assets:
My RRSP – $71K
Wife’s RRSP – $26K
RESP - $2500 – got started a little late, but getting back on track. $200/per child/month - we match the 100 from gouv.
Leveraged investment account – $50 000 (4% div yield)
Cash on hand - $2000 
Home value - $318K
Car values - $45K – 1 paid off (20K), 1 with loan (24K)

Liabilities:
Mortgage - $274500 2years remaining on 5 year fixes - 4.95%
Car loan (1.9%) - $24000
LOC (5%)- $10000 
Investment LOC (5%) - $47000 (will roll it into a SM one day)

Short term goals:
1) Pay off the non-deductible LOC (we have reduced non-deductable debt from 35K to 10K this year, 10K to go, which will be slower with wife on MAT leave, bonus in Feberuary should take care of it and then some.
2) Sell the car with the loan (a BMW, left over from my less financial focused years), and getting a beater car to commute. This will eliminate the car loan, and free up nearly 800/month in cash flow. My wife will be working remotely upon her return to work.
3) With the second child, we need to expand the house. Addition will cost $80-$120K. We are currently talking to contractors. This will be rolled into the mortgage. It will expand the amortization to 25 yrs, with little impact on the payment.
4) I would like to purchase a rental property in $100K-130K range. The existing investment LOC will be used to fund this project.
5) Open TFSA x 2

Medium term goals:
1) Fill back space in RRSP and max out every year.
2) Fill TFSA
3) Build a portfolio of ~3 rental properties (I am a handy guy)
Long tern goals:
1)Pay off mortgage
2) Pay off rental properties
3) Retire at 50-55

There you have it, Ambitious I know... Any help and thoughts would be greatly appreciated.


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## patmanz (Jul 26, 2010)

You didn't tell us in what yours RRSP's are invested in.

I would definitely sell the BMW, nice car but as you already probably know, kids change priorities 

Also, i am not quite sure i understand why you have a 50k Investment LOC at 5% and a 50k leveraged investment account at... 4% ?


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## Ben (Apr 3, 2009)

You're doing OK so far. Good incomes. Respectable net worth. Ambitious plans. Comfortable with more risk than I am. 

Be careful with the debt load. Currently $355,000 with plans to increase to about $450,000 after addition, and upwards of $550,000 if a rental property is purchased. At 5% interest, that would swallow up $27,500 in after-tax dollars, just for the interest alone. About $40,000 gross income.

Anyway, spend less than you earn, or earn more than you spend, and you'll do fine.


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## Sampson (Apr 3, 2009)

While I understand your wife is now on mat leave, something doesn't add up. 
I'm in no way trying to judge and know nothing about your lifestyle so please view my comments as innocent but open and honest critique.

With the relatively low debt load you currently have (and more importantly, low debt servicing load), high income, you should be able to save a great deal of money. You don't list your monthly expenses as a ratio of your income, but with some moderate frugal living, you should be able to save/pay down debt at $30-$50k per year.


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## steve41 (Apr 18, 2009)

OK.... I might have missed or glossed over a few things, but here goes....

-arbitrarily gave Mr a 120K salary 
-indexed everything at 2%
-had both stop work at age 59
-both max tfsa until 60
-didn't include cars in NW, just house
-left out home reno
-didn't sell home... goes to estate
-ran all investments out to a die broke age of 95
-made pre and post lifestyle (ATI) levels equal
-took both CPPs at 60
-plunked you down in beautiful BC
-gave the $50K non reg to Mrs
-paid off LOC loan at age 60
-continued with current RESP pattern
-gave Mr the loans and RESP
-didn't attempt income splitting

Result...

A 4% rate of investment growth and 2% inflation will deliver you an $88K (combined) after tax lifestyle out to age 95.

Its a bit anal (a lot anal), but serves to identify a ball park range for which you can set an overall spending/saving budget. It is a starting point, nothing more.

Ideally, you would want to do this yourself... I wouldn't count on your investment advisor to do this kind of stuff for free. Plus, when you DIY, you can revisit this at will, when markets, rules, etc change. Here are the 2 plans....

Mrs 35 year old
Mr 35 year old


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## Rat Racer (Sep 16, 2010)

Thanks for your replies, your comments are much appreciated. We have a lot to learn, and a long way to go. 

Patmanz - our RRSPs are invested through a fanancial planner I have known for some years. They are in Mutual funds, primarily canadian, US and emerging market equity funds, Value and a dividend fund.

The RESP is also invested similarly.

The non registered investment account is invested in Canadian Dividend paying equities at a discount brokerage.

Ben - I am certainly comfortable with debt, provided it is working for me. This we we have been working pretty hard to get rid of the 10K on the LOC (not the investment one). I see debt as tool that we can use to our advantage. That being said, I heed your caution of not having too much. I feel pretty secure in my job, so I don't see any major concern there, and if something were to happen, there will be a decent severence package to keep us going for a while. 

Sampson - Your comments are absolutely take as constructive thoughts, not as judging, I put out there asking for your thoughts.

There is no doubt that we have a significant expenses. We have been trying to reduce them as things go along, and we have reduced it significantly already. We got the point of being able to apply 2500/month to debt, on top of bonuses and tax returns. we have reduced about 30K or so thus far in 2010. That was before my wife went on MAT leave. We are attempting to reduce our lifestyle to the point that we can live comfortably on one income, and the use the EI to pay debt/save. That is on top of 11% of my income going to RRSP. Daycare is a killer ($800/month/kid) and the biggest issue is commuting cost, between my car payment (for sale), insurance, gas and 407 bills, this adds up to a pretty significant piece of change. I am expecting it to drop significantly next year, as I am hopeful for a company car aned my wife will be working mostly remote when she returns to work.

Steve41 - Wow, that's amazing. I have printed them off and plan on going through them in detail over the next day or two. 
Certainly food for thought. It seems like we can make it, but will need to step things up to make it happen. It certainly leaves me feeling optimistic.

What about the rental property? Would you suggest it or not? 
Any other thoughts?


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## steve41 (Apr 18, 2009)

> What about the rental property? Would you suggest it or not?
> Any other thoughts?


 Sorry, beyond my pay grade. I wrote the program, but am not a planner... I sell it to planners. Such a strategy can be simulated though. Give me some numbers (rental income, value of property, size of mortgage. It is quite easy to integrate into the projection.


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## Rat Racer (Sep 16, 2010)

The properties I am looking at at about 130K, with 20% down, a mortgage of about 105K. It would likely generate about about 1000 to 1100 in rent. My estimates are about 200/month cash flow.

There you have it.


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## steve41 (Apr 18, 2009)

I need to know if you plan to wind down/sell the property at some age, or keep it for the estate. Also.... do you expect the rental income to be indexed? Sorry to be so picky, but it makes a difference.


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## Rat Racer (Sep 16, 2010)

The goal would be to keep them long term, and I guess indexed at inflation rate.


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## steve41 (Apr 18, 2009)

OK. The prior warning as to details I might have missed still applies...

Notice that the rental property strategy seems to be positive outcome.... the estate gets a boost.

Mrs thirty five
Mr thirty five

Oh yeah... I combined the 274K and 105K mortgages into a single 20 year mortgage.


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## Rat Racer (Sep 16, 2010)

*October review...*

Here is the October update...

No giant changes from last month...
Liabilities - 
We continue to plug away at our mortgage and car loan. We continue to reduce the consumer debt, slowly but surely. Income is lower than usual, as my wife is on MAT leave. All the consumer debt should be paid off by February/March if my annual bonus comes through (touch and go right now)...
There should also be a moderate tax return that should help.

Assets - 
Total registered Assets (RRSP/RESP) - markets and regular contribution (through work, with matching) has climbed to just over 103K.

total net worth gain - +2.97% Oct, +40.75% YTD

Other stuff - 
We have had three quotes come in for a home renovation, and they are all far more than I would have thought. I find myself wondering if we should move, as I don't think its worth the reno at that cost.

I have had no time to look for a rental property over the last couple of months. I am not sure I will have time to make it happen before the end of the year. But I will keep trying to find the time.

Fiances have been more or less put on autopilot for the last couple of months (9 week old baby at home) and the foreseeable future. We will continue to plug away slowly but surely, but I don't see any significant changes over the next 3-5 months.

There you have it...


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## Rat Racer (Sep 16, 2010)

*March Update*

Things are not where I had hopped they would be a t this point of the year, but not terrible either.

Car loan - I was able to sell the car in early December - got pretty close to what I owed on it and was able to replace it with a much more economical car at less than half the price. Does just fine for me to run back and forth to work in. Put the new car on the line of credit.

Credit cards snuck up on us, and got out of control. Just managed to pay them off, with year end bonus (a fraction of last years, company had a rough 2010) and some stock market gains.

Expecting a moderate tax return for the year, which will begin to work on the line of credit.

Liabilities

LOC - $23900 (Includes car)
Mortgage - $259000 (likely to go up about 190K, renovations)
CC - $0

Assets

RRSPs - $120000 wife and mine combined
RESP - $3000
Home Equity - $70000

Hope to have:
- the LOC paid by end of year, 
- new larger renovated house with the mortgage to go with it.
- increase savings and investments.

cheers


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## OhGreatGuru (May 24, 2009)

What happened to the $47k gambling debt (aka leveraged investment loan)?


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## OhGreatGuru (May 24, 2009)

Let's see, combined income ~$180K
Mortgage of only $259K.
Your monthly mortgage payments are only ~14% of gross monthly income.

And you can't get your other debts under control? Sounds like you have a spending problem, not an investment planning problem.

_Credit cards snuck up on us, and got out of control. _

That kind of says it all.


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## marina628 (Dec 14, 2010)

OhGreatGuru said:


> Let's see, combined income ~$180K
> Mortgage of only $259K.
> Your monthly mortgage payments are only ~14% of gross monthly income.
> 
> ...


Yes I looked at the numbers and seems like a lot of good times in this house.You should really sit down and tighten that budget.


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## Rat Racer (Sep 16, 2010)

OhGreatGuru - My wife is currently on MAT our inco9me has been dramatically reduced from the combined income of ~180K. That being said, there is surely some fiscal tightening possible in our household.

- The 47K gambling debt was liquidated to take to profits when I started to get nervous about the Market breaking the 14K mark. I used those profits against the CC debt.

marina628 - Agreed. There have definitely been really many good times in our house... 

We have good stable income, so we opted to be OK with some slowly creeping LOC debt while my wife was on MAT leave, as we are confident that we will be able to kill the LOC within 6-8 months of her going back to work. As for the CC, I have no explanation. There were a few unplanned purchases over the past 8-months (tires, special pull out couch for a family will of back surgeries, other second kid stuff).

I now understand why they call a boy and a girl a million dollar family, because it costs you at least a million dollars...


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## OhGreatGuru (May 24, 2009)

Rat Racer said:


> ...
> 
> - The 47K gambling debt was liquidated to take to profits when I started to get nervous about the Market breaking the 14K mark. I used those profits against the CC debt.
> 
> ......


Good move. As I understand it you retired the investment loan and paid off some other debt. Every dollar you pay off debt will improve your subsequent cash flow. Remember you are re-paying those loans with after-tax dollars.


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