# please help prioritize our priorities



## Feebz13 (Jun 23, 2011)

Hi guys,
I've been a lurker here for a while and have been debating on whether to post.

So here it is.

My fiance and I seem to be at a crossroads in our life. We've been living common law for two years now and have a wedding in 4 months and are looking for some guidance. We anticipate our wedding will cost approximately 30k.
Our gross income is approximately 200k/yr combined (100k each). I'm 30 and my fiancee is 28. I've had a few more years of working so I've been able to pay off my loans.

Assets:
Savings: 60k
House: 246k (50k equity)
Non-Registered Equity: 16k (shares held before I met fiance)
Equity (TFSA): 8k 

Liabilites:
Mortgage 196 k (3.77 5 year fixed rate > year 2)
Student Loans:25k
LOC: 38 k

We also plan on moving in the next few years closer to the city (currently live 40 minutes away). Looking at homes in the 550k range.

We have so much in savings for the wedding, and we anticipate we will need a new car within a year. We hope to have children within our first 3-5 years of marriage and plan on moving closer to the city as my parent's are there and will help us with babysitting.

We live frugally and don't carry credit card debt.

We are debating whether we should aggressively pay down the LOC + Student loan versus saving for a downpayment (25-30%) for a new house closer to Toronto. We have also played with the idea of selling my shares in order to pay down the student debt. 

Any suggestions or strategies moving forward. I think we've done a good job of paying off student debt as my fiance started with (120k and we've reduced this amount in half in less than 2 years). Hope I've provided enough information.


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## Larry6417 (Jan 27, 2010)

*Are you also entitled to your entitlements?*

Sorry. I couldn't resist the polyptoton.  The standard (and very reasonable) answer is to pay your highest after-tax debt first. I notice you don't list any RRSPs though you do have TFSAs/ savings. Depending on what you have in the TFSA/ savings (e.g. high interest savings account), it may be worthwhile to use that to pay down your debt (i.e. if your after-tax interest rate is higher than your savings rate then using the TFSA/ savings makes sense). Because you're planning to purchase a new home, saving for such makes more sense in a RRSP than a TFSA. With a RRSP one can save the contribution + the deduction that it generates. Then up to $25K can be withdrawn tax-free (assuming you re-pay the amount to your RRSP).

You and your spouse have excellent cash flow, but I'm a bit leery of all the financial commitments your making. $30K for a wedding, roughly another $300K for a new house, new car, and a child 3-5 years down the road. That's an awful lot even for a couple with your cash flow.

P.S. Congratulations!


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## Feebz13 (Jun 23, 2011)

Hi Larry,
Thanks for the response.
I had no idea what we were doing was polyptotoning (?)! Learned a new word today!

Thank you for sharing your thoughts. They're in line with what we were thinking. We too realize how much is coming up in the future. Just want to be sure we've mapped out a plan.

One thing I forgot to mention was that we both contribute to a pension. Total contributions to date = 33k, which is why we don't currently have any RRSPs. I was worried about taxation at retirment. However,the idea of saving the RRSP + deduction for the downpaymentmakes perfect sense! 

I totally understand your leeriness, we too are leery. We plan on driving our cars into the ground (a litttle embarassing, but they get us from A to B) so hopefully the car expense is delayed, and plan on staying in this home as long as possible to put us in a safe position to move. We're looking at houses in the 550 range but this may not be realistic. 

Really appreciate your thoughts Larry....gonna crunch some numbers with my investments. Not sure what they're yielding right now...


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## cannew (Jun 19, 2011)

Sounds like the two of you are well grounded and have a good handle on your situation. Yes, get rid of the Student loan and LOC as quickly as possible.

After that, your plan sounds fine, but I’d build in a Pay Yourself First. At your ages you can both start an RRSP accounts and I would try to max it every year. This should be over and above any savings for your future plans (which the TFSA could be used for).

In your RRSP stick with safe investments that have growth potential. Avoid speculative stocks, new IPO’s or media favorites. I personally prefer the dividend growth strategy, even in a registered account. But look into the investments options available and consider which meets your objective. 

The good part is you are starting at a great age and have the income to make it work.


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## I'm Howard (Oct 13, 2010)

Forget RRSP's, you are just starting out, BUT Pay down your mortgage, ASAP.

Today's low rates are a once in a lifetime gift, you will face 10% rates sooner than later.

RRSP Investments will all take hits when rates start moving up, now is the time to get that solid foundation, ideally your mortgage should be handled by one pay cheque.

An LOC can be taken out, for EMERGENCY USE.

Rate Increases may also translate into job losses,the Bible said not to build a house on sand, and large debt is building a house on sand.


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## the-royal-mail (Dec 11, 2009)

While I admire your financial track record thus far, it seems like you are prepared to throw all caution to wind in this marriage. Buying a $550K house is not living frugally.

Also, if you are planning to have children, you won't be able to save for their arrival when you've mortgaged yourselves to the hilt like that. What if one of you loses your job? How will you be able to function when so much of your income is going to mortgage payments? What about when interest rates rise?

Remember, just because the bank says they'll loan you $x for a mortgage, nothing says you have to spend all of that. I am not planning to spend anywhere near the amount they recently pre-approved me for.


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## Karen (Jul 24, 2010)

> Buying a $550K house is not living frugally


TRM, this has come up in other threads, but I'm going to say it again. Depending on where this couple lives, a $550,000 house *IS* living as frugally as possible if they're going to buy a house at all. I live in one of the least expensive suburbs of the Greater Vancouver area, in a 22-year-old, 1800-square-foot, one-level house on a normal-sized city lot, and my 2011 Property Assessment shows the value as $519,000; the land alone is assessed at $393,000. And houses in this area have been selling at more than the assessed value for the last several years. So anyone buying a house in this area that would be suitable for raising a family in would be very fortunate to find anything for less than $550,000.

I don't know where you live, but it is obviously in a part of the country where real estate prices are considerably lower than in the lower mainland area of BC or, I understand, in many Ontario cities.


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## kcowan (Jul 1, 2010)

I sold my brother's house in north Toronto for $550k in 2009. It was a tear down on a 25 ft lot with a mutual driveway.

To OP, I think you have too much on your plate. Why are you spending $30k on the wedding? Whose idea is this? Are her parents willing to fund any part of this? If not, why not?

You know that you can hire many babysitters for less than the added mortgage payments. Make sure you are not making emotional decisions.

You are also entering this relationship with most of the equity. Be careful not to soak it all away. I would hang onto your stocks but direct your savings to the LOC and then the student loans. Don't bother with TFSA while you have debt.

The RRSP might only apply to your first home. I would put all your efforts into debt reduction. And I would view a move to TO with skepticism. Hang tough where you are.


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## Four Pillars (Apr 5, 2009)

*I'm questioning your question*

You guys have good cash flow, so it might not be unreasonable to buy a more expensive house at some point. It will limit your options however - what if you wife wants to stay home for a bit long with the kids?

I'd say get the wedding over with and evaluate things well after that. Your current debt is quite manageable with $200k of income. You could easily cut the debt in half over the next 2 or 3 years. Then moving to the city might be very realistic.

I would probably sell the equity shares and either put it in your TFSA as an emergency fund or pay down debt.

Your plan isn't bad, but just don't try to do too much of it at once.


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## Sherlock (Apr 18, 2010)

Feebz13 said:


> Our gross income is approximately 200k/yr combined (100k each). I'm 30 and my fiancee is 28.


Mind saying what you do for a living? I'm guessing doctors or something in the medical field? It seems that every few days someone posts on this forum that they make 100k or more. Makes me kinda depressed since I don't make anywhere close to that...


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## Sherlock (Apr 18, 2010)

Karen said:


> So anyone buying a house in this area that would be suitable for raising a family in would be very fortunate to find anything for less than $550,000.


I don't think an apartment is unsuitable for raising a family. The apartment tower I live in is full of young families with lots of kids.


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## Karen (Jul 24, 2010)

I limited my comment to houses because that's what Feebz said they wanted to buy. But, in any case, in this area of B.C., even a condo or townhouse large enough for a family with a couple of children costs a fortune. Certainly one can buy a condo or townhouse for less than the cost of a house, but you might be surprised at the cost of a nice one, large enough for a family of four, in this area. My friend just bought an 800-square foot, one-bedroom-and-den condo in the same suburb where I live for $405,000, and she pays nearly $400/month in strata fees. I can only imagine what a three-bedroom suite would have cost her.


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## HaroldCrump (Jun 10, 2009)

Karen & other Vancouverites, given what you guys tell us about RE prices in and around Vancouver, I wonder whether typical salaries are accordingly higher than other cities to compensate for the cost of home ownership.

If, for example, a typical single family detached home costs 30% more in Vancouver than say Toronto or 40% more than Montreal, are average salaries higher by that much?

If not, then aren't these folks stuck with 40 and 50 year mortgages?
In some cases, paying mortgages even after they've retired?
I've heard of multi-generation mortgages in the UK, is that the case in Vancouver as well (or heading towards it)?


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## m3s (Apr 3, 2010)

Harold, Vancouver was rated as the most unaffordable RE market in the world vs salary in 2009 here This year it fell behind only Sydney Australia and Hong Kong China. As you can see the UK is more affordable. I was surprised that in 2010, Montreal actually surpassed Toronto as well (RE vs salary)

Because Canada is so "equal" with salaries, you can make relatively the same salary in many places across Canada where the RE and cost of living is orders of magnitude less. I've looked at what the average person in GTA and GVA make, and it's not that much especially when I hear about their living conditions or financial situation. I can make about the same amount, live in a nice big house, and leisurely commute to work in flowing traffic. I'd rather make a bit less and spend a fortune less, but for some people of course they don't want to leave their families.

What really baffles me is all the people moving to these areas to "get rich"


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## m3s (Apr 3, 2010)

According to that people are spending 9.5 x gross income on RE in Vancouver and 5.1x in Toronto. The historical median is around 3x so the OP doesn't look that bad at 2.75x gross household income. A house is a lifestyle choice


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## Jon_Snow (May 20, 2009)

With that large income at such a young age, the OP has very little to worry about as far as I can see... live below your means for the next 3 years, save tons of capital, and the world is your oyster. 

And whats with all these new members making six figures?


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## Financial Cents (Jul 22, 2010)

I think you're doing rather well 

If I was in your shoes, I'd work on:

1) Paying off high-interest debt first, whether it be student loans, LOC, whatever.

2) When all other debt is done, make (more?) lump-sum payments on mortgage - decrease that. 

3) In a few years, once only mortgage debt is left, start contributing and then on maximing your TFSAs.

If you have great pensions, the RRSPs can wait.

Congratulations and don't worry, things will work out for you!!!!!!!


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## Larry6417 (Jan 27, 2010)

Kcowan's right: to use a RRSP for a downpayment, either you or your spouse must qualify as a first homebuyer. See www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

However, RRSPs may still be useful to you as a form of tax arbitrage. For example, you want to have a child in 3-5 yrs. Both of you are in a high tax bracket at the moment. Therefore, the corresponding deduction from a RRSP contribution will be high. If one of you takes time off work (and is in a lower tax bracket) then the money from a RRSP can be withdrawn (and not repaid) *when at a lower tax bracket*. 

I'll clarify: both of you are in a combined federal/Ont. tax bracket of 43.41%. Therefore, $1000 contributed will yield a RRSP deduction of ~ $434. If one you is in a lower tax bracket (say below $37,774, combined rate 20.05%) because you're taking care of a new child then withdrawing $1000 from a RRSP will cost you only ~$200. The drawback? If you don't repay the RRSP then the contribution room is lost forever. However, both of you have pensions, and you'll likely have large amounts of future RRSP/TFSA contribution room.


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## kcowan (Jul 1, 2010)

Just make sure that she contributes to hers if she is taking it out so that attribution rules do not kick in.


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## HaroldCrump (Jun 10, 2009)

mode3sour said:


> people are spending 9.5 x gross income on RE in Vancouver


All housing costs are coming out of net income and not gross, so when banks and others do this type of comparison it is misleading IMHO.
No fault of yours for posting this link, though.
If net income is approx. 30% less than gross, that makes the multiple even more outrageous.
I can buy the RE prices of London, Hong Kong, etc. but what's in Vancouver?


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## kcowan (Jul 1, 2010)

HaroldCrump said:


> I can buy the RE prices of London, Hong Kong, etc. but what's in Vancouver?


Greedy speculators.


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## Sherlock (Apr 18, 2010)

mode3sour said:


> Because Canada is so "equal" with salaries, you can make relatively the same salary in many places across Canada where the RE and cost of living is orders of magnitude less. I've looked at what the average person in GTA and GVA make, and it's not that much especially when I hear about their living conditions or financial situation. I can make about the same amount, live in a nice big house, and leisurely commute to work in flowing traffic. I'd rather make a bit less and spend a fortune less, but for some people of course they don't want to leave their families.
> 
> What really baffles me is all the people moving to these areas to "get rich"


This is largely true, although there are some professions for which it is difficult or impossible to find a job outside of Toronto/Vancouver and maybe 2 or 3 other big cities. But for the 95% of people who don't work in such fields, they'd probably be better off in a smaller city.


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## Feebz13 (Jun 23, 2011)

Wow, this post generated so many responses. Sorry, been a bit behind

@cannew: Thanks. Good to hear confirmation of what we were thinking. As far as RRSPs that's probably something we'll have to post later. I'm worried about the tax implications with regards to our pensions. 

@Imhoward: Thank you so much for this post. This is something I totally overlooked. These rates are all I've known, but I agree you're totally right. After discussing with my fiancee this will become a major priority for us...pay down the mortgage and ensure we have a significant down payment. 

@theroyalmail: I totally agree, if we could, we'd buy a similar home (price) in the city, but that would leave us in an undeseriable area with poor schools and not really a future for a family. The other areas outside of Toronto (ajax, pickering) have lower home prices but the property taxes are higher. So we've decided to save a bit more, and buy in Toronto. 
The move to the city isn't just personal. Professionally we can both do better in the city (or commute to the outskirts), being in the city provides us with options. For example, in our target area to move (east Toronto) there are up to 7 viable options for my wife to work where her pension will transfer. Where we live now, there are probably only 3 options within driving range. I personally would like to work in academia in downtown Toronto. Right now that commute would be a few few hours for me right now from where we live.
That being said, you bring a valid point up. We don't want to be mortgaged 'to the hilt.' We figured about 20-25% of our net income on a mortgage payment is reasonable. Do you suggest saving a bit more for the downpayment? 

@Kcowan: We definitely have a lot on our plate right now. Just wanted to make sure we prioritized these things. The wedding is both our ideas, but the budget is mainly my family....don't want to get into it...not my idea or my fiancees. We've chosen to do it on our own, both our families have offered to help but they've done enough for us. I suspect ourparents will provide a nice little envelope with help in it, but we're not counting on this.
My gut feeling is to keep my equity shares as it's all in a basic couch potato portfolio....but I can see the value in using to pay off debt.

@4pillars: Your reply is what we've decided to do. We're going to take everything once at a time.
Wedding first (3 months left), then student loan + LOC, then downpayment.
We keep an emergency fund for any surprises, just will be smaller than now. 

@Sherlock: we're both in the medical field. If you're planning on making a career change we can talk offline. I finished my doctorate, and my fiancee has 2 degrees. Combined we have something like 15 years of post-secondary education and have had the student debt to show for it....but we're not MDs

@mode3sour: thanks for that link! The house is definitely a lifestyle thing, and this eventual move will definitely be motivated both personally and professionally


Thanks for all the responses. We're going to get married, pay off student debt + LOC, save for mortgage, then see where we can go from there. Baby steps, but in all liklihood we won't be moving any time soon.


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