# Starting @ 26 (Lots of catching up to do)



## Top_Spin

Hi There,

I've been lurking this site for a short while and think it's a great resource. I'm starting this thread with the intention of increasing accountability towards my goals. 

A little about me: I'm 26 years old and have spent the first 26 years of my life with little focus on wealth building. I have done well career wise and have had money, but I've spent most of it on things that make me (or others that are important to me) happy. 

My goals are perhaps different from most people on this forum. Most people here seem to be dedicated to hard-core wealth building. Some people may disagree, and I respect that they may have different perspectives & priorities, I'll try and explain some fundamental principles I struggle with:

*Why live below your means?*
I understand the need to not overstretch your bounds, but I struggle to see the value of limiting the quality of my life in order to build wealth. For me one should live within their means. If this means that you cannot meet your financial goals, then you should find ways o expand your means rather than limiting the gain you get from your means. 

*Frugality isn't for me*
I'm in agreement that one should not live a lifestyle of extravagance paying little heed to exccessive & unnecessary wastage; however, I struggle to adhere to the principles of frugality. 

*Save up for an early exit*
I feel too many people are focused on saving up as quickly as possible to retire as quickly as possible. I'm not looking for an escape from my life. I was fortunate enough to choose a career which I am passionate about. I enjoy what I do and am good at it. I do want to retire one day, but it's not necessarily a race to the finish.

Then why am I here? Well, my family is a first generation immigrant family. We come from a part of the world that doesn't really place much emphasis on wealth building. We've had our ups and downs. We "did" whatever it took to make it this far. Choosing professions & lifestyle that enabled us to reach financial freedom. I don't want my children to have to face the same struggle. 

That being said, here is some qualitative data on where I stand today. I started thinking like this only in January. Since then I've been aggressively working on bringing down my liabilities.



> Assets - $33,254 (Started 2011 with $28,000)
> Car - $28,000
> Investments - $2504 (adding $1000 monthly)
> DB Pension - $2,750 (I only recently got this. value is only approximate)
> 
> Liabilities - $46,917 (Started 2011 with $51,321)
> OSAP - $10,045 (@ 5.5% however, interest is a tax deduction for me)
> Student LOC - $7,250 (@ 3.25% - I haven't really focused on paying this down because of the low inerest rate.)
> Credit Cards - $5,000 - (@ 4.9% for 6 months - will be paid off soon with my tax return.)
> Car loan - $24,622
> 
> Net Worth ~ -$13,663 (Started 2011 with - $23, 321)


I'm really looking forward to all that I can learn from you all. What was your networth when you first started thinking clearly about wealth building? How old were you at the time? Am I really far behind?


----------



## bmckay

Well, the way we choose to live our lives is up to us. I am a firm beleiver that MORE is not always better. I just don't feel the need to spend $800 on a phone or new gadget. I don't feel the need to buy my lunch and eat out every single day. Food is for energy...just brown bag it.

I just see all that debt and I shudder. I put myself through college by working part time and saving my money. I don't buy things if I don't have the cash to pay for it. Mastercard has never made money off me. In fact, they have lost money because of me as I use my MC for everything and receive the 2% cash rebate, and pay off the card in full as soon as I get home.

Again, how we live our lives is up to us and power to you if not being frugal works for you. We need to weigh how our spending will affect our future and make a decision about how we handle our money accordingly!

Welcome to the forum


----------



## MoneyGal

Ohmigosh, but you HAVE been focussed on building wealth. You've built a career you are passionate about, and your human capital will pay dividends for decades. If you include your human capital in a holistic financial balance sheet, you are already a millionaire!

Others will come along and give you specific suggestions (like pay down your credit card before investing, and stop thinking of your car as an asset). In the meantime, welcome and enjoy the conversations here!


----------



## steve41

Sorry to be so repetitive, but unless you are gunning to write an early retirement book.... 26 year olds don't need to be obsessing about saving for retirement. When you run a projection for a 26 year old, with salary expectations which almost always exceed inflation, retiring at 60, loans/mortgage to pay off, kids to raise... yada, yada... It doesn't work out that you will be saving any significant money until well into your 40s. My opinion? you have very little 'catching up to do'. Unlax.


----------



## Top_Spin

bmckay said:


> Well, the way we choose to live our lives is up to us. I am a firm beleiver that MORE is not always better.


I hear your brother. More is not always better. It just bothers me when people turn down the more for those few situations when more IS actually better. 



MoneyGal said:


> Ohmigosh, but you HAVE been focussed on building wealth. You've built a career you are passionate about, and your human capital will pay dividends for decades. If you include your human capital in a holistic financial balance sheet, you are already a millionaire!
> 
> Others will come along and give you specific suggestions (like pay down your credit card before investing, and stop thinking of your car as an asset). In the meantime, welcome and enjoy the conversations here!


Thanks MoneyGal! I usually have horrible luck with women trying to impress them with my human capital . Jokes aside - I think the one thing where I feel that indeed I have built some sort of assets is in my professional network. I'm well known in my industry for quality work & have relationships that could probably land me a job in a pinch. All those years of working while going to school & working hard have finally paid off. 

I think I list my cars as assets mostly to make myself feel better. lol. and is there really a rule that you should not invest until you pay your credit cards off? even if you're taking advantage of a low interest balance transfer? When things were out of control in 2008 with the markets, I received a balance transfer offier from one of my credit cards for 2.99%. I took out about 5K and took advantage of he day to day fluctuations in bank stocks. I ended up paying far less on interest than the profit i made from the investments... 



steve41 said:


> Sorry to be so repetitive, but unless you are gunning to write an early retirement book.... 26 year olds don't need to be obsessing about saving for retirement. When you run a projection for a 26 year old, with salary expectations which almost always exceed inflation, retiring at 60, loans/mortgage to pay off, kids to raise... yada, yada... It doesn't work out that you will be saving any significant money until well into your 40s. My opinion? you have very little 'catching up to do'. Unlax.


I think you're right Steve. I'm not too worried about retirement. My pension plan will get me about 80% of my salary until i die. Even if I didn't have anything else, I would probably do ok since I hope to have no mortgage by then and some sort of passive income sources. 

I think what makes me feel like I am behind is that my networth is negative... how does one feel good about that?


----------



## LBCfan

Top_Spin said:


> I think you're right Steve. I'm not too worried about retirement. My pension plan will get me about 80% of my salary until i die.


Unless you work for a government, and even if you do, you might want to rethink this. How can you be certain that:

You won't change employers in the next 40 (or 30, or 10 or 5) years?
Your employer won't change to a DC pension plan?
Your employer, when you finally retire, will be able to pay you 80% of final salary for the rest of your life? Even GM went broke, when I was your age anyone suggesting the possibility of that eventually happening would been laughed at.

Some have succeeded with a plan like yours. Many others have not.


----------



## Plugging Along

Top_Spin said:


> *Why live below your means?*
> I understand the need to not overstretch your bounds, but I struggle to see the value of limiting the quality of my life in order to build wealth. For me one should live within their means. If this means that you cannot meet your financial goals, then you should find ways o expand your means rather than limiting the gain you get from your means.
> QUOTE]
> 
> Welcome to the forum!
> 
> I think its great that you're starting to look at your wealth building. It more difficult when you're still in school, and have debt. I think while you are young there are TWO critical things you can do to secure your future. One is build your career, and income potential as you have indicated. I think expanding your means is a great way, however, there is no gaurentee that you will have unlimited means. I have found most people who are not wanting to limit their quality of life, always find a higher quality of life to pay for. That's why I do think the second piece is important, which is learning to live with in your means. This is a very important skill to learn, because if something happens to your means, and you don't know how to live more modestly, you could be in trouble.
> 
> The other reason to live below your means, is eventually you will want to retire, you need to have something saved to do this. It doesn't mean that you have to have a poor quality of life, but you need to make some sacrifices earlier to reap it later. How much you want to sacrifice now is up to you. I know when my spouse and I were your age, we made excellent money. We have a very 'high quality of life'. We saved a little, but spent a lot more. Now, as we are older (36 & 38 so not THAT old), we realize that if we would have sacrificed a little bit more back then, before kids and family, we would have so many more choices now. So you don't need to live like a miser, but I can honestly say that alot of things you have have at 26, will not matter when you're 36.
> 
> 
> 
> Top_Spin said:
> 
> 
> 
> *Frugality isn't for me*
> I'm in agreement that one should not live a lifestyle of extravagance paying little heed to exccessive & unnecessary wastage; however, I struggle to adhere to the principles of frugality.
> 
> ?
> 
> 
> 
> This has been a tough one for me. I don't adhere to the principles of frugality. What are the principles anyways (I really don't know). I do know that I don't spend more than I need to on items, and that by making small changes, I can save a lot. I think you need to find what things are important to you personally, and spend on those items, and for those that aren't then spend less. I consider myself frugal in the fact that I bought a high end new SUV (it was the best vehicle to meet our needs and some wants), but I got it at more than 20% off because I brought it in from the US. Some would say don't buy it at all, or it wasn't needed, but it was something we wanted, and could afford. You just need to come to your own rules.
> 
> 
> 
> 
> Top_Spin said:
> 
> 
> 
> *Save up for an early exit*
> I feel too many people are focused on saving up as quickly as possible to retire as quickly as possible. I'm not looking for an escape from my life. I was fortunate enough to choose a career which I am passionate about. I enjoy what I do and am good at it. I do want to retire one day, but it's not necessarily a race to the finish.
> 
> Click to expand...
> 
> I agree with you here. I have a career that I have built, and really enjoyed. HOWEVER, this does not mean that you shouldn't still save, because you may not want to retire for a long time. My goal is not to reitre early, but rather to have the ability to. At 26, I was moving through a large company at rocket speed, as one of their youngest managers, with all the opportunities. I couldn't imagine every having to leave. That's a great place to be in professional. Just keep in mind, lay off happen, you get crappy managers, there are things beyond your control. If you have a security blanket of savings, you are truly in control of your carreer. I have seldomly every HAD to work for money, I knew I could always leave if I got annoyed. I was never anchored by the fear that I needed my paycheck. Because of that, I was able to take risks at work that paid off. Think of savings as a financial security blanket.
> 
> Now that I have a family with young kids, my priorities changed, and I require a paycheck a little more to pay for the lifestyle that I want my kids and family to have. This is my only regret, that if I would have made a few sacrifices when were younger, I would be less concerned about working now. Something I never really understood at 26.
> 
> 
> 
> 
> Top_Spin said:
> 
> 
> 
> Well, my family is a first generation immigrant family. We come from a part of the world that doesn't really place much emphasis on wealth building. We've had our ups and downs. We "did" whatever it took to make it this far. Choosing professions & lifestyle that enabled us to reach financial freedom. I don't want my children to have to face the same struggle.
> 
> 
> I'm really looking forward to all that I can learn from you all. What was your networth when you first started thinking clearly about wealth building? How old were you at the time? Am I really far behind?
> 
> Click to expand...
> 
> My family was an immigrant family, but I was the first born here too. My parents had me focus on education and being successful financially. If you want your kids to have more, then the best thing you could do now while you're young, is put just a little aside. Even with a high income, you will not have financially freedom as soon as you think if you want your kids to not have to face struggles.
> 
> In terms of networth and wealth building. I started RRSP when I got my first real career job out of University (21). It was forced savings that my family made me do, almost against my will. I didn't understand them, but did it because I was supposed to. It probably wasn't the best idea for me, as I had a lot of debt (consumer and student loans), but it was what got me in the habit of automatically saving. Paying off the loans and the debt where the biggest priority, mainly because my family didn't believe in interest. I was okay with debt  I started looking seriously into finances when I got engage, and my fiancee started to contract and make really decent money. We paid off our debt, and put a little aside for our wedding, and future investments. I would say I was about 24/25 when I started to have a (slightly)positive net worth and was more responsible in terms of building for the future. Once I got into the habit of automatically saving, and being more discplined, then it was pretty easy based on our incomes. Except our problem was we saved a very small percentage of income then.
> 
> I don't think you're behind, especially if you have a great profession, however, I would bet you could be further ahead if that's something you want.
Click to expand...


----------



## Four Pillars

I like wealth-building (as you call it) - I call it being financially responsible. I find that having more money and less debts means less stress in my life. That is a good thing.

I like Plugging's comment about having more options if you have better finances - very true!

To answer your question, I had my big financial awakening at age 27 - my networth at the time was -$14k.

Your balance sheet looks ok - lots of debt, but it appears that you are paying it off at a rapid rate ($5k so far this year). You are also investing $1000 per month. Nothing I can add to that.


----------



## Top_Spin

Thanks everyone for your inspring posts! Here's my update for the end of April. The previous entry was mid april. I think if I put end of month, it will be better. The only main change is credit card debt is now down to 1k. I put part of my tax return towards this. 



> Assets - $33,261 (Started 2011 with $28,000)
> Car - $28,000
> Investments - $2511 (adding $1000 monthly)
> DB Pension - $2,750 (I only recently got this. value is only approximate)
> 
> Liabilities - $42,917 (Started 2011 with $51,321)
> OSAP - $10,045 (@ 5.5% however, interest is a tax deduction for me)
> Student LOC - $7,250 (@ 3.25% - I haven't really focused on paying this down because of the low inerest rate.)
> Credit Cards - $1,000 - (@ 4.9% for 6 months - will be paid off soon with my tax return.)
> Car loan - $24,622
> 
> Net Worth ~ -$9,656 (Started 2011 with - $23, 321)





LBCfan said:


> Unless you work for a government, and even if you do, you might want to rethink this. How can you be certain that:
> 
> You won't change employers in the next 40 (or 30, or 10 or 5) years?
> Your employer won't change to a DC pension plan?
> Your employer, when you finally retire, will be able to pay you 80% of final salary for the rest of your life? Even GM went broke, when I was your age anyone suggesting the possibility of that eventually happening would been laughed at.
> 
> Some have succeeded with a plan like yours. Many others have not.


You're right there are a lot of unknowns. Judging by my past, there is a very high probability that I will change employers frequently in the next few years. So I'm not making it my only strategy. Aside from the DB pension, I'm also planning to save for retirement. 



Plugging Along said:


> Top_Spin said:
> 
> 
> 
> My family was an immigrant family, but I was the first born here too. My parents had me focus on education and being successful financially. If you want your kids to have more, then the best thing you could do now while you're young, is put just a little aside. Even with a high income, you will not have financially freedom as soon as you think if you want your kids to not have to face struggles.
> 
> 
> 
> Wise words indeed. Thanks for sharing.
> 
> 
> 
> Four Pillars said:
> 
> 
> 
> I like wealth-building (as you call it) - I call it being financially responsible. I find that having more money and less debts means less stress in my life. That is a good thing.
> 
> Click to expand...
> 
> You know, I would argue that there is a 'shift' in mindsed in the upcoming generations. My parents generation is very much in line with your thoughts. Less debt does mean you are more financially responsible. I'm finding a lot more young people don't necessarily believe that this is true.
> 
> Dont' get me wrong, I don't think it's financially repsonsible to run up credit cards etc.. But a lot more young people are looking to borrow to invest and they're doing pretty ok. For example for me, borrowing money to invest would actually mean a significant break from tax on a yearly basis. Getting to keep more of my money means less time to save.
> 
> And what about this smith manouvre that many people are looking into. You're essentially seting youself up in such a way that you NEVER have to get rid of your mortgage. I catually even had a financial advisor tell me that he doesn't even need his mortgage anymore but keeps one just because of the advantages of having a lean on your land you own.
> 
> For me personally debt doesn't stress me out. Having more debt than my cash flows stresses me out. If you look at my first post there are two pieces of debt that i'm going to ride out as long as I can. One being my OSAP loan because it's a tax benefit and the other being my student LOC. Simply because I can earn much more than the amount I'm spending to carry that debt. What do you think? Is there perhaps a good debt and a bad debt?
Click to expand...


----------



## MikeT

You can think whatever you want to make yourself feel better.

The truth is you couldn't afford the 30k you spent on the car. But you are a normal 26 year old Canadian. You spend what you don't have and you learn to be comfortable with debt. You convince yourself that you deserve to drive a nice car and you deserve all the nice things, but you can't wait until you actually have the money. 

You'll do fine, just like everyone else living like this. But you could do ALOT better if you just changed your thinking.


----------



## m3s

Top_Spin said:


> *Why live below your means?*
> I understand the need to not overstretch your bounds, but I struggle to see the value of limiting the quality of my life in order to build wealth. For me one should live within their means. If this means that you cannot meet your financial goals, then you should find ways o expand your means rather than limiting the gain you get from your means.


If you live below your means, you will actually have more money to spend on fun things over the course of your life. All my peers have the same mentality as you and I actually spend more money on fun things than they do, and I'm only 27. I just spend less on fees and bad interest than them. I buy things, including expensive cars/motorbikes/gadgets, that I can pay in cash and I save money so that I can avoid bad things such as CMHC fees and bad interest on the things I want.

Let's take cars for an example. Most of my peers have new cars. They stress about keeping it new and after a few years they're bored of it and want a new one, trapping themselves in endless debt. I buy a car in cash and in a few years I buy a motorbike in cash and then I buy another toy in cash etc etc. When I'm bored of them I sell them for about the same price and buy another one with the cash I've saved up. While my friends are trapped in constant debt, I constantly have more cash for vehicles and fun things. They view me as spending more money on cars because I actually have more fun with them. So who's limiting the quality of their life?

While my friends/peers, like you, spent lots of money on credit card interest and car interest, I spent that capital on actual quality of life instead. Most people are followers and they follow the people around them and in lack of leadership they end up all following the people who want your money. If everyone else is doing it, it must be ok, right? Sure it's OK, but it's not ideal. Living below my means allows me to have cash on hand when I need things and therefore avoid needless interest and fees.

I'm planning to buy an M3 in cash this week and before I'm 30 I plan to buy the next 3 series new in cash. My friends will of course perceive me as wasting more money than them, but really who has deprived themselves of quality of life here? By not borrowing needlessly before I had the money, I have more cash now, and I'm only 27. The way I see it, I always have more spare cash for cars, while my peers constantly have the same amount of car debt.

This example could be applied to anything. By living below your means, you will have more money.



Top_Spin said:


> *Frugality isn't for me*
> I'm in agreement that one should not live a lifestyle of extravagance paying little heed to excessive & unnecessary wastage; however, I struggle to adhere to the principles of frugality.


To me frugality is not wasting money on things that add no value to my life. As long as I'm not wasting time to save money, I find that there are often ways to get the exact same thing for less money than people who don't practice frugality. To each his/her own. Why spend more money on something that adds no value?



Top_Spin said:


> *Save up for an early exit*
> I feel too many people are focused on saving up as quickly as possible to retire as quickly as possible. I'm not looking for an escape from my life. I was fortunate enough to choose a career which I am passionate about. I enjoy what I do and am good at it. I do want to retire one day, but it's not necessarily a race to the finish.
> Am I really far behind?


Having a career that you are passionate about is the best thing you can do for yourself. My grandfather worked until the day he was on a hospital bed and I live by the same mentality. Some people want to retire young and I think that's their own prerogative. Your mindset may change after 10-20 years in the workforce, who knows?

Time value of money is key. Saving money when you're young does not mean depriving yourself of any fun, unless paying interest on consumer debts is considered quality of life to you?


----------



## Plugging Along

There are no right answers on how you spend your money or how much debt you're comfortable with. The key is trying to look into the future to see what kind of life you want to have, and making it happen. 

One way of looking at debt for non appreciating assets is that it's really borrowing against your future quality of life and purchasing power, especially if you're still paying for the item long after you're down with it. You get something today, like a car, and could still be paying off after the car dies. How is that helping the quality of life? Let's say you REALLY REALLY like that vehicle, that's the argument that my spouse made for his first sportcar. How long will that really really liking something last? Will it last long enough that you don't need to buy anything again until it's fully paid off? Will you feel the same when you decide to have kids, and have to sell the car at a lose because you're priority has change? 

Nothing is gaurenteed in life, so having a cash cushion just gives you choices to mitigate the impacts or risks.


----------



## m3s

Plugging Along said:


> One way of looking at debt for non appreciating assets is that it's really borrowing against your future quality of life and purchasing power, especially if you're still paying for the item long after you're down with it. You get something today, like a car, and could still be paying off after the car dies. How is that helping the quality of life? Let's say you REALLY REALLY like that vehicle, that's the argument that my spouse made for his first sportcar. How long will that really really liking something last? Will it last long enough that you don't need to buy anything again until it's fully paid off? Will you feel the same when you decide to have kids, and have to sell the car at a lose because you're priority has change?
> 
> Nothing is gaurenteed in life, so having a cash cushion just gives you choices to mitigate the impacts or risks.


Yes that is a good way to sum it up

Borrowing money for depreciating assets just robs you of future quality of life. Living below your means allows you to increase your quality of life over time and keep options open. I prefer to buy a sports car when I can pay in cash, than to drive a new Civic my entire life. Living below your means allows you to save money for emergencies and future expenses. Living exactly within your means by borrowing money just means you have to borrow even more money when sh!t happens, and limits your potential quality of life imo. Look at the cost of consumer debt over the long term and you see that slightly improving your quality of life today only limits it tomorrow.


----------



## the-royal-mail

What a great post by PA. I completely agree. And as far as longevity, I had never thought of it that way! It is true that the novelty of most material things does tend to wear off. Notice I said most. There are a few exceptions of course, but when it comes to things like houses, you want to be extremely careful. When I bought and lived in my condo I was very pleased with it (ie. times were good). But after I had moved out and was unemployed for a stretch and felt trapped when it wasn't getting serious offers, it wasn't so nice. It was a downright burden and money pit. It left a pretty bitter taste in my mouth.

We can only do our best, save as much cash as possible, and realize that indeed life and everything about it is a perpetual cycle of change. Indeed, change seems to be the only certainty.


----------



## Plugging Along

I don't put house/condo in the same category, as they are generally not a depreciating asset. Hopefully if one has to sell it prior to it being paid offm then they will sell it for more than they owe on it, and make some money possible. However, I know when people buy homes for short terms, the run the risk of losing money, especially after the fees. I was that real estate is one of the investments that is gaurenteed to make money (assuming you do your due dlilengence). However, you have to be willing to hold on to it. If the prices drop it could be many years before you make your money back, that's why it should be a longer term investment.


----------



## Top_Spin

> Assets - $34,949 (Started 2011 with $28,000)
> Car - $28,000
> Investments - $3532.13 (adding $1000 monthly)
> DB Pension - $3,417 (I only recently got this. value is only approximate)
> 
> Liabilities - $43,579 (Started 2011 with $51,321)
> OSAP - $9,785 (@ 5.5% however, interest is a tax deduction for me)
> Student LOC - $7,198 (@ 3.25% - I haven't really focused on paying this down because of the low inerest rate.)
> Credit Cards - $2,824 - (@ 2.9% for 6 months - will be paid off prior to expiry of interest rate.)
> Car loan - $23,772
> 
> Net Worth ~ -$8,630 (Started 2011 with - $23, 321)


Hey Guys,

Just wanted to provide an end of May update. 

On track with my plan for the most part. I got a 2.9% interest rate for 6 months on my visa which i could not resist. This should give me more money to invest in the upcoming month than I usually do. I'm also in the process of signing up for some company-sponsored stock sharing options. Net net it will mean about $250 monthly addition to my investment. (IE right now i'm putting in $1000. Future I will still put in $1000 but will get $250 making it $1,250 per month). 

@MikeT - To be honest I bought the expensive car because I used to travel for work and it meant a significant tax benefit for me. I meant more along the lines of borrowing to invest. For example this month I got a BT offer on my credit card for 2.9%. I know I can make more than that by investing. I could spend my free cash to pay off the card or I can put it in an investment to grow which would probably give me more than the 2.9% I'm losing on it. 

@mode3sour - I think your approach with cars is great. They tend to be depreceating assets so the less you pay in interest on them the better. I have two cars right now. One which is on 0% interest and the other whichi s on 5.9%. I considered paying off the loan on the 5.9% many times, but it's simple interest so it was added at the time of purchase. There is no real benefit for me to pay it off early. Good news is that the last payments will be paid sometime later this year.

@Plugging Along - Great way to establish a demarcation point between good debt and bad debt. I agree with you there is no benefit to having debt for a depreceating asset. What would you say if the debt is interest free?

BTW, is it just me or has there been a surge recently of young people joining this forum. It's good to see I guess. In some ways I'm a bit envious as they had their awakening much earlier than I did. Some as early as 18 years old...


----------



## Plugging Along

Not to be a downer, but if you are trying to get an accurate picture of your net worth, you need to be depreciating the car. I don't know exact what formula to use (I don't personally add my vehicles in my calculations), you could try either market value of what you could sell it for, or use a CCA depreciation. Off topic, out of curiousity, I would be interested to know if you were to sell your car today, would it cover your loan? I'm not trying to be disrespectful, but I just remember my best friend telling me that when she sold her truck (because of a nasty split up), it was a relief because that was the end of the relationship, but still a burden because they had to come up the money immediately to pay for the difference. 


I have to say I still disagree with your logic regarding the car. Yes, you may have needed it for work, however, I generally do not think it is a great idea to make a car buying (or purchasing) decision because of taxes. Even at the highest tax rate, you are still pay at least 50 of the cost, and you would have been eligible for the deduction for a less expensive car. I didn't think you could write off the interest of the car. That extra cost needs to be added back into your tax savings. It's like the person who buys something on sale, then pays more interest on it than the orignal price.

My thoughts on 2.9% interest. It's not bad, however I assume, it's not tax deductable. I would looking at not just this one interest rate, but my over all interest rates that one is paying on all their debt. My first question would be could I use this credit 'loan' money, and put against another loan that is at a higher rate? or if it makes sense to for such a short time. Then my next question would beis what are you investing in, that you are getting a gaurenteed return of 4% (factor in the tax) in a 6 month period. could I use this credit 'loan' money, and put against another loan that is at a higher rate? or if it makes sense to for such a short time. Sorry that wasn't your question. 

What do I think about an interest free loan? Well, I am a firm believer you don't something for nothing, there is usually a catch somewhere. I have been offered that for a vehicle, and was able to negotiate a lower price to pay cash. If you could get a completely interest free loan let's say from a credit card, then as long as you are sure that you will pay off the amount before the expiry date, then it's probably not a bad idea. I would also look at future cash flow, and the ability to pay. What would happen if you lost your job or something, would you be able to easily cover the loan so you still don't pay interest. If the answer is yes, then sure use someone elses money. I'd have no problem taking the loan, and even sticking it in my high interest account. If you have to liquid the asset, then I wouldn't do it.


----------



## Top_Spin

> Not to be a downer, but if you are trying to get an accurate picture of your net worth, you need to be depreciating the car.


I"m more interested in tracking progress right now. I went with conservative numbers on how much my cars would sell for and will revisit it in annually. I may even decide to take it out at some point.



> Off topic, out of curiousity, I would be interested to know if you were to sell your car today, would it cover your loan?


 I have two cars. If I sold both today the first would cover loan plus bring in 6k - 8k comfortably. The second one was purchased with zero interest and over a short finance period. It would cover just the loan plus maybe 2 or 3k extra. I probably wont sell eiher. I'll either drive them to the ground or gift them to younger siblings. 



> I have to say I still disagree with your logic regarding the car. Yes, you may have needed it for work, however, I generally do not think it is a great idea to make a car buying (or purchasing) decision because of taxes.


Here's what made sense to me at the time:

Scenario 1: Buy a car around 5k (what i could have afforded if I didn't want to finance)
Total spendings on my car per year (gas + maintainance = 6000 + 1200)
Amount I would get back with marginal rate of 43% = 3096
I would end up at the end of the year with a car worth 3k at best.

Scenario 2: Finance a car with zerio interest around 30k
Total spendings on my car per year (loan + gas + maintanance = 6000 + 6000 + 1200)
Amount I would get back with marginal rate of 43% = 5676
I would end up at the end of he year with a car worth 25k and a loan of 24k.

See what I should have done is to buy a car that costs $1000 per month in financing... Becaue I was using it for work, the amount it depreciates would have been less than the tax benefit i got by having a loan/leas payment. 

What's done is done. Looking back in retrospect if I had to make the decision again I'd probably pick up one of these "off lease" cars that people sell. Pay cash for the buy out and take a relatively new car.


----------



## Plugging Along

Top_Spin said:


> Here's what made sense to me at the time:
> 
> Scenario 1: Buy a car around 5k (what i could have afforded if I didn't want to finance)
> Total spendings on my car per year (gas + maintainance = 6000 + 1200)
> Amount I would get back with marginal rate of 43% = 3096
> I would end up at the end of the year with a car worth 3k at best.
> 
> Scenario 2: Finance a car with zerio interest around 30k
> Total spendings on my car per year (loan + gas + maintanance = 6000 + 6000 + 1200)
> Amount I would get back with marginal rate of 43% = 5676
> I would end up at the end of he year with a car worth 25k and a loan of 24k.
> 
> See what I should have done is to buy a car that costs $1000 per month in financing... Becaue I was using it for work, the amount it depreciates would have been less than the tax benefit i got by having a loan/leas payment.
> 
> What's done is done. Looking back in retrospect if I had to make the decision again I'd probably pick up one of these "off lease" cars that people sell. Pay cash for the buy out and take a relatively new car.


I have to admit its been a while since I've done accounting, but I have no idea how you did your calculations.

Scenario one - your gas and maintenance, you write off, you get you tax back because of the expenses you incurred of $3096. This amount has nothing to do with your car value at the end of the year. Your car value is $6000 - depreciation or you could use a FMV. Neither of these two values are dependant of your opporting cost. You would have a car worth let's say $4200 (I use 30% depreciation because I think that's the CCA for the vehicles). That you paid $6000 for, so lost of $1800. But you would have not loan

Scenario two - again your gas and maintenance are the same, so you write that amount off. Get the $3096 (Same as in scenario 1). I didn't think you could claim a car loan, perhaps the interest only, but I don't think the loan itself is deductable. Could you confirm that? I would think you could claim the CCA which is also 30%, so then your vehicle is worth $21000, and you would have $25000 loan

If I do the math, then I would say that in scenario one you have a car worth $6000, that you is worth $4200, losing $1800, but fully paid. Net worth (just based on the car) is $4200 Scenario 2, you have a car worth $210000, owing $25000, networth of -$4000. If you want to factor tax, then let's say you add on the 43% savings, so then in scenario one, your networth because of the addition cash is $773, so $4973 networth. Scenario two is $3870 tax savings, so networth is then -$1103. 

To me, these numbers say the paid off cheaper car is better. Are my numbers off for those who are tax experts?


----------



## m3s

Nice work with the savings. Looks like you'll be in the green by the end of the year. The DB pension is potentially a huge asset. Just make sure to pay off those debts before the rates go up on you, maybe even build an emergency fund just for that from some of the investment funds. Buying cars new works out fine in the long term if you drive it to the ground. Once they're paid off I'd start saving for the next one, because you can negotiate more with cash and the simple interest can't be paid off ahead of time.

I personally wouldn't use a 2.9% loan to invest. Chances are you won't gain much out of it for the effort net worth wise but you do build credit and investing experience. When you're starting the only way to really increase net worth is to save save save imo. Once you have more assets you can make them work for you worthwhile for the time/risk involved. Even the fees will chew a lot away. My money was all in a savings acct until I had a house etc, and I don't think I missed out on much. I borrow to invest now on margin, which works out better than 2.9% in registered, but I wouldn't advise it unless you have equity to go with it. The only way you'll really grow your net is by saving for now.


----------



## Top_Spin

Plugging Along said:


> If you want to factor tax, then let's say you add on the 43% savings, so then in scenario one, your networth because of the addition cash is $773, so $4973 networth. Scenario two is $3870 tax savings, so networth is then -$1103.


The difference is you're using the same depreciation on both the new car and the old car. We're also assuming the cost of maintaining a 6k car is the same as a new car. I drove alot for work and needed something which would be reliable. I guess what's done is done. I can understand your hesitation to purchase a new car. 

@mode3sour - Thanks for the feedback re: 2.9% interest rate. I considered using the 2.9 rate because of the recent up and down. I managed to buy when markets were low and know that even if they go back to being normal I'll be ok... but you're right, it's a gamble...


----------



## Plugging Along

I was making it simple by using the same depreciation. In reality, the depreciation is lower in used cars, therefore, that would give a better final care value.

Don't get me wrong, I have no hesitation buying a new car. My last two were brand new. I also understand that in terms of reliability. My point was that if you need to go into debt to buy a vehicle, then you should look at something that you can afford without the loan. If that isn't possible, then perhaps getting a less expensive cheaper car, drive it till it dies, while saving up for the next nicer new car. Using tax savings is just an excuse, that really doesn't make financial sense when running the numbers. Money isn't the only reason though people buy things, just calling a spade a spade.


----------



## Top_Spin

*End of June Update*



> Assets - $36,610 (Started 2011 with $28,000)
> Car - $28,000
> Investments - $4,526 (adding $1000 monthly)
> DB Pension - $4,084 (I only recently got this. value is only approximate)
> 
> Liabilities - $43,024 (Started 2011 with $51,321)
> OSAP - $9,647 (@ 5.5% however, interest is a tax deduction for me)
> Student LOC - $7,168 (@ 3.25% - I haven't really focused on paying this down because of the low inerest rate.)
> Credit Cards - $3,287 - (@ 2.9% for 6 months - will be paid off prior to expiry of interest rate.)
> Car loan - $22,922
> 
> Net Worth ~ -$6,414 (Started 2011 with - $23, 321)


Hello All,

Just providing my end of June update. Some unexpected spendings came up which could not be avoided so I'm a little bit behind in comparison to where I'd hoped to be. Oh well, that's how life works. Good news is, I'm still improving. 

Take Care.


----------



## KaeJS

Good stuff on adding to your pension there.

I'm not sure when your 6months of low credit card interest is up, but just don't forget about it. You don't want to get slammed with 19% at $3k.

Also, it's just me, but I would instead pay $1000 to my debts before I invest it. You can make more investing, but it is not gauranteed. The interest you pay on your debts _is_ gauranteed, so you might want to get those out of the way first. It will be stressful if you are adding $1k/month to your investments and your investments start dropping while you are paying 3% interest on your debts.

Keep it up.


----------



## Top_Spin

*A whole year later...*

Wow have things changed in my life... Thanks everyone for the encouragement!



> *End of 2011 Update*
> 
> Assets - $539,086 (Started 2011 with $28,000)
> Car - $28,000
> Investments - $1000 (RRSP)
> DB Pension - $8,086 (approximate)
> Cash - $2000 (cushion in bank account)
> House - $500,000 (I bought a house!)
> 
> Liabilities - $536,528 (Started 2011 with $51,321)
> OSAP - $8,087 (@ 5.5% however, interest is a tax deduction for me)
> LOC - $13,000 (@ 3.5% - Used this to take advantage of HBP. Will be paid off once I get my tax return this year.)
> Credit Cards - $5,000 - (@ 2.9% for 6 months. I paid off earlier balance and took it out again because I got the check. )
> Car loan - $18,983
> Mortgage - $491,561 (Seems so large, daing CHMC!)
> 
> Net Worth ~ $2,558 (Started 2011 with - $23, 321)


Doesn't look as good as I'd hoped. The newly acquired mortgage makes it seem like my liablities grew. And even though I paid 5% down, it doesn't seem like it due to the CHMC charge. 

A few thoughts:
- I'm not sure I like including DB pension as an asset. I realized very quickly how inaccessible this money is when I needed money to buy a house.
- I reallly stretched far to take advantage of the first time HBP. Things will be a bit tight until I get back my tax return. Other than car, house and OSAP everything else will be paid off. 
- I had to use all of my 'emergency' cash to pay for downpayment. So over the next few months I've stopped growing my investments until I can build this cushion up again. 

This years goal is to wipe debt clean.


----------



## Top_Spin

KaeJS said:


> It will be stressful if you are adding $1k/month to your investments and your investments start dropping while you are paying 3% interest on your debts.


That's exactly what happend! Stupid mutual funds. I should have stuck to safer investments. Thanks for the tip. This year will be about cleaning up debt and growing true assets.


----------



## Saniokca

Wow. I'm speechless.

This is why America got crushed. Essentially a piggyback mortgage... You do realize that you bought the house with zero down (i.e. your total assets equal total liabilities).

You are actually way more negative than you think. It would cost you 5% to sell your house if things don't go great. You have an "asset" that can wipe you out...

What is your after tax income? What's the mortgage payment?


----------



## Top_Spin

I think different people have different risk tolerances. I have a pretty strong family support network financially. I think I'd rather own a property than throwing away rent. 


My income is in the low six figures. I think America was crushed by subprime mortgages. I'm far from sub prime and pretty comfortable monthly from a cash flow perspective. Either way, I get your point. Thanks for the perspective. 

Cheer up. It will be ok.


----------



## Saniokca

You went from renting space to renting money... Both are throwing money away... And you purchased risk - until you pay off that mortgage you don't really own the property (you do own the debt though).

You put 5% down which you borrowed (I.e you couldn't even afford the minimum down payment). You also did this when interest rates couldn't really be any lower. Please explain how this is not sub prime.

It won't be ok as long as this is allowed...

P.s. please tell me it wasn't a condo.


----------



## the-royal-mail

Yes I don't think buying a house was a good decision for you. You used your emergency fund AND HBP? What if you lose your job now? Although cashflow is important, why couldn't you have waited a while to save up the 20% DP so that your efund would have remained in place and you wouldn't have had to use HBP? You would have also saved the CMHC charge.

Now you have to make mortgage, tax, condo fee and HBP repayments (at some point). Will you be able to save anything and pay back OSAP?

I always get nervous when I read strategies like this and see that the fallback plan is family. I don't think that's fair to them. Family should be the last line of defence, not the first.

Also, where are you quoting from?


----------



## mind_business

It's one thing to accept your family's help when needed ... it's another to expect their assistance before it's needed to support your high risk purchases. 

Out of curiousity, why did you purchase such an expensive home? If I'm reading your posts correctly, it's just you living in this space currently? From your other thread, I see you're considering leasing out a portion of your home. That's probably a good idea, however unless you're willing to share your kitchen (and who the heck would want to do that), you're going to have to find a sizable amount of cash to pay for a reno.


----------



## MoneyGal

You may want to review the tax advantages of your student loan debt. The interest is not tax deductible - instead, it gives rise to a non-refundable tax credit at the rate of 15%. 

So if you pay $1,000 in interest, you can reduce your federal taxes by $150.

Compared to other forms of debt, there is a slight advantage; but don't keep this debt around for the tax advantages.


----------



## Top_Spin

MoneyGal said:


> You may want to review the tax advantages of your student loan debt. The interest is not tax deductible - instead, it gives rise to a non-refundable tax credit at the rate of 15%.
> 
> So if you pay $1,000 in interest, you can reduce your federal taxes by $150.
> 
> Compared to other forms of debt, there is a slight advantage; but don't keep this debt around for the tax advantages.


I am under the impression the deduction is from your taxable income. Meaning it would be based on your marginal tax rate. Since im in the 43% bracket I should get back 43% of the interest. No? 

For the others, I get it. Thanks for your feedback. What's done is done. Let's move on.


----------



## mind_business

Top_Spin said:


> For the others, I get it. Thanks for your feedback. What's done is done. Let's move on.


Oh come on, let us have a bit more fun 

Although I was being critical, I've made similar, if not more risky financial decisions in the past. I've done some incredibly stupid things with my retirement investments in my 30's, spent way too much on 'stuff' in my 20's and 30's, with no added value, etc.

Buying a home, with a plan to lease out, is doable. You just need to figure out how you'll get there. Good luck!


----------



## MoneyGal

It's not a deduction...it's a credit. Review your tax returns for proof, or take a look here:

http://www.cra-arc.gc.ca/E/pbg/tf/5000-s1/5000-s1-10e.pdf

It's your federal T1 general return. 

You enter the interest paid on line 319 (you can see the line entry on the form I linked). 

Then look at line 338, in which it says, "multiply [the amount] by 15%" to get total non-refundable tax credits.


----------



## DrMatt

The thorns which I have reaped are of the tree
I planted; they have torn me and I bleed.
I should have known What fruit would spring from such a seed.
Lord Byron.

We All participate in weaving the social fabric... So we All should participate in patching it's holes...

Your financial plan is ridiculous. You can't afford it. You think you can, which is scary, and the scariest part is that you can easily make the payments, but the bank that sold you that debt should be fined. The sense of entitlement bred into generation Y (and generation Next) is beginning to look almost insurmountable. You don't even recognize how easily you were duped. I hope others will learn from this and try to save some money to put towards their major purchases before they make them... Good luck to you. The sad thing is that you are right in thinking that it probably will all be OK. But that's part of the problem! (I'm pretty sure you'll ignore this message... But there it is... One random citizens opinion.)

You live in a great country with great personal liberties because of the hard-work, responsibility, duty, and sacrifice of our forefathers... Maybe I'm wrong, but I have a strong suspicion that at least some personal-sacrifice and delayed-gratification is required to keep it.

(wow, that felt good)


----------



## Guigz

DrMatt said:


> Your financial plan is ridiculous. You can't afford it. You think you can, which is scary, and the scariest part is that you can easily make the payments, but the bank that sold you that debt should be fined. The sense of entitlement bred into generation Y (and generation Next) is beginning to look almost insurmountable. You don't even recognize how easily you were duped. I hope others will learn from this and try to save some money to put towards their major purchases before they make them... Good luck to you. The sad thing is that you are right in thinking that it probably will all be OK. But that's part of the problem! (I'm pretty sure you'll ignore this message... But there it is... One random citizens opinion.)


I think that was a bit uncalled for. We all make mistakes or poor decisions. The important thing is to learn from them and not repeat them.

Personally, I think it's crazy that some boomers couple have huge salaries ($400,000+/year) yet they still pay mortgages in their 40s. However, I don't think that laying blame on entire generations is productive.

@Top

Although I would not have made the choices that you did, I would encourage you to take advantage of your high salary and deleverage as much as possible in the next few years. 

With a little bit of effort, you could be in a pretty good situation in a few years.


----------



## Top_Spin

MoneyGal said:


> It's not a deduction...it's a credit. Review your tax returns for proof, or take a look here:
> 
> http://www.cra-arc.gc.ca/E/pbg/tf/5000-s1/5000-s1-10e.pdf
> 
> It's your federal T1 general return.
> 
> You enter the interest paid on line 319 (you can see the line entry on the form I linked).
> 
> Then look at line 338, in which it says, "multiply [the amount] by 15%" to get total non-refundable tax credits.


Thanks. My assumption was based on some misinformation I read on another forum. 

Mind_business - glad I could be of some entertainment to you. I don't mind the scrutiny, and there are some further details which I am not comfortable posting on a public forum that may appease some. 

DrMatt - your message is not ignored. I am in agreement. Hindsight is 20/20. I've learned a lot from the members of this community. Some lessons delivered in a more bitter fashion than others. Yours seems well intentioned. Thanks.


----------



## DrMatt

Guigz said:


> I think that was a bit uncalled for. We all make mistakes or poor decisions. The important thing is to learn from them and not repeat them.
> 
> Personally, I think it's crazy that some boomers couple have huge salaries ($400,000+/year) yet they still pay mortgages in their 40s. However, I don't think that laying blame on entire generations is productive.


I agree that the "ridiculous" part was a little harsh... Glad to see that these forums are friendly enough not to scold me too badly for stepping out of line there!

Have a happy new year! I'll be working the ER tonight... Stay safe everyone!!


----------



## Dmoney

I for one would love to see the minimum downpayment for a CMHC insured mortgage increased to ~20%. I have no problem with the OP buying an expensive house, as it's less than 5x gross salary. I have a problem with us as taxpayers all subsidizing the banks on taking on his risk. 

If as he says he has family support, a good income (low six figures) and is aware of the risk, then things will likely work out in the end. I'm more worried about the people with 0 family support, 0 down, low income and buying a house more than 10x their income.


----------



## ddkay

There are about 40 recently built or under construction buildings in my neighbourhood scheduled for completion within the decade, we're having a little office space renaissance, Google came in and just signed a long term lease for 90,000 sq ft at 111 Richmond W a few months ago. I'm not sure where OP lives but I see how it's tempting for people to ride the boom. Just be careful out there, off bat you have all eggs in one house scrambled with pepper and parsley on top, if the market cools your eggs will get cold, and you know what they say about cold food.


----------



## Causalien

My financial renaissance started at the age of 27 too. When I realized in a competition that my coach is the same age as me and the picture I've been missing behind most of the reason in that sector is money. 

I figured that I've built up enough human capital by then so I dedicated the next 3 years after that for building wealth and the rest is history. The power that better finances enables is incredible and the people I met on the same pursuit to riches are drive and seemed different. Which used to be portrayed as evil when I was younger. 

BTW write off your car completely from the net worth calculation. I think the reality needs to hit harder cause you don't want that equity to get more negative than $50k.


----------



## Financial Cents

MoneyGal said:


> Ohmigosh, but you HAVE been focussed on building wealth. You've built a career you are passionate about, and your human capital will pay dividends for decades. If you include your human capital in a holistic financial balance sheet, you are already a millionaire!
> 
> Others will come along and give you specific suggestions (like pay down your credit card before investing, and stop thinking of your car as an asset). In the meantime, welcome and enjoy the conversations here!


+1 Indeed


----------



## Top_Spin

*End of Nov 2012*



> *End of November 2012*
> 
> *Assets* - $539,134 (Started 2012 with $539,086)
> Car - $0 – Removed per suggestion by some. I still have the cars, but will zero out.
> Investments - $11,134 (RRSP)
> DB Pension - $0 – Changed jobs and moved this to RRSP.
> Cash - $3000 (cushion in bank account)
> House - $515,000 (Applied conservative 3%/yr. Comparable houses in neighborhood selling for much more.)
> 
> *Liabilities* - $510,229 (Started 2012 with $536,528 )
> OSAP - $7,829.53 (@ 5.5% however, interest is a tax deduction for me)
> LOC - $0 (@ Paid off.)
> Credit Cards - $3,000 - (@ 2.9% for 6 months. )
> Car loan - $12,000
> Mortgage - $487,400
> *
> Net Worth* ~ $28,905 (Started 2012 with ~$2,558)


It's been a while since I updated. I'm 28 now and no longer in a negative from networth perspective. A few highlights:

- Changed jobs. Chose to transfer accumulated value of DB plan to RRSP).
- Took out cars from assets per suggestion by some. 
- 407 announced expansion through my backyard, so neighborhood house prices have been shooting up. I left this out of the house value calc in the interest of being conservative.
- Credit card was just a temporary move. Took it out on a low interest purchase check "just in case" when I took some time off for travel in between my old job and new job.. This will be paid off by EOY.
- Income has gone up both due to job and rental income so this upcoming year will be about aggressive debt paydown & building investments. 

TS


----------



## Pennypincher

I have to say, this was one of the most interesting Money Diaries here on this board. Lots of debate on whether buying the house was a good idea or not. I bet if you were born 10 years earlier, and had bought a house for half the price (which was considered high back then), you would have received the same level of scolding, but then the house would have doubled in price and you would be sitting pretty. You just never know for sure. You seem to not mind risk, which might take you further than many people like myself. You also sound like you have some back up plans like rental income from the basement. Good for you for loving your job. I can count on on finger the number of people I know who say they love their job AND they make a decent income.


----------



## Pennypincher

This is super old, but you definitely cannot claim a car loan on your taxes or even the interest paid on it. You can either claim CCA or if you are leasing, a part of the lease payments.


----------



## ehrof

Pennypincher said:


> This is super old, but you definitely cannot claim a car loan on your taxes or even the interest paid on it. You can either claim CCA or if you are leasing, a part of the lease payments.


Not true. If you're claiming car expenses via self-employed or employment expenses form, you can deduct some interest paid on your taxes.


----------



## Pennypincher

ehrof said:


> Not true. If you're claiming car expenses via self-employed or employment expenses form, you can deduct some interest paid on your taxes.


You are right. I made an error writing this without looking back at my source. It was off the top of my head.


----------



## Top_Spin

*32 years... and OLD now...*

I'm 32 years old now... I'm married. I have a baby boy just reaching a year soon. 

Before I share my quantitative update, here's a few qualitative ones... 

1) I still love my career and what I do, but I get it now. Things can change, sometimes you have to work with (or for) people you don't like (or that don't like you). Having a safety net probably would have helped at those times. I had something like that happen twice! But I'm the end, you do what you gotta do to get through the situations you're in. The good thing about not having a cushion to fall back on is that you try really hard not to fall.. and in the end learn to be resilient in some of the most trying of situations. 
2) the house - I took a lot of beating for it on this forum, but it wasn't so bad. The value has actually doubled (literally!) and I've started to like it. I think I'm going to keep it. 
3) I work elsewhere now. I'm good at what I do. I work hard and I'm paid well. However, the longer I do it the more it becomes apparent how disproportionate the ratio is between what amount of monetary benefit I bring to company and the fraction of it that comes to my pockets. I really need to go out on my own perhaps start a business. 
4) I sold my car last week. (Yes the same $30,000 one discussed in this thread so much. I got $3,500 for it. Makes me think, I got six years out of it. $30,000-$3,500 / 6 years = $368 a month. I could have leased and been better off. I bought a used car this time. Felt really proud buying it cash. A whole $32,000. 
5) Getting married was interesting. I learned that it's much more about everyone else than the people getting married! And of course with this approach there is a rediculous amount of spend. At the end, despite the financial setback happiness in the eyes of people I cared about made it worth it. 
6) Baby! I think there is no greater joy I have experienced in life than experiencing the excitement in my son's eyes when I come home from work. I see it now. How my parents made sacrifices in their own comfort to provide for us siblings. I see myself doing it. I walk into a store and walk out with ten things - none of them for me. 

I've decided to purchase some investment properties. Before I make that move, I thought it would be good to document where I am. 



> Jan 2017
> 
> Assets - $1,047,740 (Started 2012 with $539,086)
> RRSP - $2,690 (RRSP)
> DCPP - $20,550
> Cash - $74,500
> House - $950,000
> 
> Liabilities - $630,000 (Started 2012 with $536,528 )
> OSAP - $0
> LOC - $0
> Credit Cards -$0
> Car loan - $0
> Mortgage - $597,989
> Owed - $30,000
> 
> Net Worth ~ $419,751 (Started 2012 with ~$2,558)


----------



## peterk

You sure talked a good talk above...but where the heck is the money?

Your house has gone up $450k, and after 5 long years of hard work your net worth has gone up <450k... This is not the picture of a responsible saver and father. Why have you remortgaged your family's home???

I suppose it would be hard to fault a man for wanting to keep his wife and infant in the same house, no matter the circumstance, but investment properties?? You are playing with fire my friend, and seem to have convinced yourself you are on at least somewhat firm financial footing when the reality is that you are not, and it's only through sheer dumb luck of real estate that you are not despot in your early 30s with mouths to feed.

Still, plenty of time to turn it around.  I'm glad you are mostly enjoying your career and new family and $32,000 used car... Hopefully your return to the forum is an indication that you intend to engage in some humble reflection and constructive learning, to change your ways and develop a stronger sense of financial responsibility? And that your breaking silence after 3 years away is not just for the sake of vanity, to brag at strangers that you are rich and they were wrong...


----------



## OnlyMyOpinion

Very valid comments peterk. It seems unlikely that TS would qualify for any financing for investment properties with an outstanding mtg of nearly $600k. I suspect servicing that debt precludes any other savings. Keep praying that interest rates don't begin to rise too quickly.


----------



## bobsyouruncle

I'm really confused.

I read through this and I think I read you make low six figures.

Yet it looks like you have remortgaged the house (is that correct?) and your net worth is basically the unrealized and speculative gains in property value.

You weren't kidding when you talked about not living frugally or below your means! lol


----------



## mordko

Starting with zero and ending up with over $400K 5 years later? Doesn't seem all that bad to me. And frugality has a limit when we are talking about a young family. 

The mortgage is high though. I wouldn't be planning to borrow or invest any more (except RRSP/company pension). Its not implausible that the interest rates go up by quite a bit. Bring your debts under control first.


----------



## bobsyouruncle

mordko said:


> Starting with zero and ending up with over $400K 5 years later? Doesn't seem all that bad to me. And frugality has a limit when we are talking about a young family.
> 
> The mortgage is high though. I wouldn't be planning to borrow or invest any more (except RRSP/company pension). Its not implausible that the interest rates go up by quite a bit. Bring your debts under control first.


Just to be clear, I'm not judging. It's his life. 

But the $400k is on paper, and he has a lot of debt in spite of a healthy income.


----------



## james4beach

Plugging Along said:


> I don't put house/condo in the same category, as they are generally not a depreciating asset.


Sometimes real estate goes up, other times it goes down. Here are some examples of home prices depreciating or remaining stagnant / losing to inflation:

Canada 1975- 1985 ... negative real return over 10 years
Canada 1989 - 2001 ... unchanged over 12 years, in fact negative real return (graph)
USA 2003 - 2012 ... flat/negative over 9 years
UK 2004 - 2016 ... unchanged in real terms over 12 years
Spain 2004 - 2016 ... negative over 12 years
Japan 1990 - today ... negative over 26 years

Real estate is not guaranteed to make money, nor is it some kind of naturally appreciating asset that's any more of a sure thing than stocks or commodities.


----------



## james4beach

Top_Spin congrats on your baby and continued success. It looks like you've done well. But I think it would be useful to pause and reflect on why you ended up where you are. More than that. You owe it to your family, your wife & baby, to understand your path to where you are today. Your wife is an equal in the household and she must also understand it fully.

Top_Spin: you made a giant gamble, and luckily the market went your way. You're 400K better off because of it, in just 5 years. That's the kind of payoff you can get when you make a massively leveraged gamble.

You took on real estate with about *200:1 leverage*. Top_Spin is a walking, talking hedge fund with exposure to a single asset. I'm glad it worked out for him.

To illustrate why this is really about leverage and luck, let's pretend Top_Spin had entered the same bet with the stock index. In 2011 you start with 500K of S&P 500 index and a 492K loan. Today the stock index is worth double that (I'm pretending you invested in something like XSP). You end up in the same place, a 400K gain in 5 years.

The only real message is: when you heavily leverage into an asset, and the price goes your way, you have a great benefit. It could be a home, stocks, or baseball cards. Mathematically it makes no difference.

If the price goes against you, the effect is amplified according to your leverage. For example if you were to buy new properties with as much debt as you did the first time, and *if you are unlucky* and have your home price decline even just a few %, you could be ruined and even be forced into bankruptcy.

Please make sure that your wife completely understands the math behind this, because it's her life too. She might not be as comfortable as you are making these enormous bets and hoping for a lucky outcome, with the potential to lose it all.


----------



## mordko

bobsyouruncle said:


> But the $400k is on paper, and he has a lot of debt in spite of a healthy income.


Actually, it's not "on paper". It's in real estate, in bricks and mortar. Not as liquid as cash or shares but just as real.


----------



## mordko

While he does have his money in a single asset, it's not comparable to the risk of having all your money in a single stock. One company's value can go down by an order of magnitude or to zero. This does not happen to houses. Obviously house price bubbles can and do occur. Prices could go down by half. Well, if you own a stock index and a bond index, your total assets can go down by half too.


----------



## OnlyMyOpinion

Well after the initial 'pile on', my congratulations as well on your marriage and the arrival of your son! 
I found that having children put a whole new perspective on what was important in life - family. A real joy.

As was pointed out, your liquid assets have done well, up by $83k in just over 4 yrs, and you have a new paid-off car as well!

:applouse:


----------



## cashinstinct

My $305,000 house in Montreal area bought in 2012 almost did not increase much in value (not much more than inflation)... not unhappy with purchase, but a little jealous of these other regions of Canada where values increase these last few years. Stuff that I can't control (no plan to move!!!)

If you were in a similar situation, your net worth would have been around $0 now...

I would consider building a TFSA/RRSP account for retirement.

RRSP - $2,690 (RRSP)
DCPP - $20,550

Do you plan to retire someday?


----------



## bobsyouruncle

mordko said:


> Actually, it's not "on paper". It's in real estate, in bricks and mortar. Not as liquid as cash or shares but just as real.


Except he can't realize that increase without moving to a different city/country, since all the other properties in the area have also increased in value.

I'm still confused as to why the mortgage increased from $487,400 to $597,989 when it appears he didn't move.


----------



## mordko

^ He could downsize or sell and rent while investing the proceeds.


----------



## bobsyouruncle

mordko said:


> ^ He could downsize or sell and rent while investing the proceeds.


He _could,_ yes. He's unlikely to downsize at his age, but renting would be an option. I'd be surprised, though. He seems to like the idea of leveraging debt rather than being debt-free.


----------



## Plugging Along

james4beach said:


> Sometimes real estate goes up, other times it goes down. Here are some examples of home prices depreciating or remaining stagnant / losing to inflation:
> 
> Canada 1975- 1985 ... negative real return over 10 years
> Canada 1989 - 2001 ... unchanged over 12 years, in fact negative real return (graph)
> USA 2003 - 2012 ... flat/negative over 9 years
> UK 2004 - 2016 ... unchanged in real terms over 12 years
> Spain 2004 - 2016 ... negative over 12 years
> Japan 1990 - today ... negative over 26 years
> 
> Real estate is not guaranteed to make money, nor is it some kind of naturally appreciating asset that's any more of a sure thing than stocks or commodities.


I don't put it in the same category because if you hold on long enough (how long that is will vary) you will get more than what you paid on none inflationary dollars. It may take 20 years or more, but it will be more. 

Taking the two bad times I canada you listed my parents bought many properties between 74 and 85 and they have just been selling them now. They are all much more than what they originally paid. Same with our properties that we bought between 89 and 02. 

Can say the same about any of the stocks I have purchased. With real estate there is pretty much a gaurentee if you hold long enough you will get something back. I have had many stocks now worth nothing. Returns vs risks aren't taken in, but That's a seperate conversation


----------



## investorted

Plugging Along said:


> I don't put it in the same category because if you hold on long enough (how long that is will vary) you will get more than what you paid on none inflationary dollars. It may take 20 years or more, but it will be more.
> 
> Taking the two bad times I canada you listed my parents bought many properties between 74 and 85 and they have just been selling them now. They are all much more than what they originally paid. Same with our properties that we bought between 89 and 02.
> 
> Can say the same about any of the stocks I have purchased. With real estate there is pretty much a gaurentee if you hold long enough you will get something back. I have had many stocks now worth nothing. Returns vs risks aren't taken in, but That's a seperate conversation


Sorry to ask but if you are selling properties now which were brought in 1985, are you comparing the values in regards to inflation over the period or is the increase just in absolute terms ?


----------

