# Starting out planning for the future - 23 y.o.



## meddlesomemarmots (Feb 16, 2011)

*Starting out planning for the future - *Updated Nov/11**

Hi everyone,

New here, so bear with me if you will. I'm 23, a recent (one and a half years out of college), and newly moved to just outside Vancouver, Canada from Britain (where I grew up and was schooled).

I'm currently employed, and trying to get everything ship shape so I'm not too far behind when the serious things in life start coming around.

I would describe my approach to finances as frugal - and have a very low tolerance to being in debt (in an ideal scenario, my only debt I will be taking on for the rest of my life is a mortgage).

So that said, here is my financial situation:

Salary: $27,500 per annum before tax (at present, I'm only 10 months into the job, and expect a fairly swift career progression - but I'm not 'banking' on unknown factors like this).

I'm sharing an apartment with my partner, which we split payment 2 ways for ($375 each, including gas, electric, TV and internet) - I'm very happy about my outgoing money on this front, and think we could easily live here for a few years whilst starting out.

Outside of that, my only fixed outgoings are transportation, which is a tax rebatable $972 cost to me (with a little coming back due to the public transport tax credit), and my cell phone, which costs me $240 (before tax) a year, on a pre-paid plan.

I also pay for my private medical plan through my employer, which totals $796.08 per year.

I have $30,000's worth of student debt from the UK, but as it is a government loan, which only tracks the rate of inflation, I am not in any rush at all to pay this back - they work out an amount to pay each month based on your salary, but anything on top of that is my choice (in fact after 25 years the debt if completely forgiven if it is not paid back).

My monthly goal is putting away a minimum of $1000 dollars from my combined after tax paycheck total (including medical beenfit deduction) of $1820. Last year we (me and the missus) splashed out on a 'new' pre-owned car which was at a $5,000 cost to myself, and we paid for it outright.

So basically I would like this advice, if anyone cares to comment. I'm going to be looking at a yearly savings package of around 12,000-13,000 dollars at present which I will be safe in not spending for a minimum of 3-4 years (by the looks of property prices, a very sizable downpayment will be needed for this part of the world, and with about $15,000 of life-long savings another four years of saving at a rate of $12,000 minimum should put me within touching distance of a half-impressive lump sum for property).

Whilst my risk tolerance is low, the interest rates of offer are barely worth having, and whilst I plan on maxing out my TFSA allowance soon, there won't be any real gains made in interest payments. I've never delved into stocks, and in this market, I'm pretty skeptical about investing any money which I may later judge to be important to my lifestyle (i.e. homebuying money).

Any pats on the back/kicks up the butt are appriciated!


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## Jungle (Feb 17, 2010)

Well I think you're doing really well and you seem to understand personal finance, debt, interest and rates of return. Congrats on paying cash for a car and not over spending on a expensive and depreciating asset.

Sounds like investing is more grey for you. 

With your 12-13k yearly savings rate, I would seperate it into three goals:

1. Take a little (like 10% of your pay) for retirement every pay cheque and invest in TD Eseries funds using a couch potato portfolio. You don't need a lot, but the key is that because you are 23, you compounding can work more for you, the sooner you put money in the market. The e-series funds are great, because you don't have to pick stocks; they invest in the entire index, which over time, has provided healthy returns above inflation. They are low mer and the best product for starting out. The have a pre authorized purchase plan to withdraw from your chequing account, which is free. I would use TFSA until you reach a higher tax bracket, then dump it all in your RRSP when you're making more money. 


2. Make a schedule to repay the debt back home. Save a small percent every time you get paid and pay it back. Aim to pay it off in a couple of years. 

3. If your timeline is 2-5 years for buying a house , I would open a second TFSA and save for a down payment. Use a savings or GIC investment, so it stays liquid and doesn't erode with inflation. 

Want to know a trick to get a bigger down payment? When you're ready to buy, deposit it all into your RRSP and use the RRSP first time home buyer plan. Use the refund for an additional down payment-or sock the refund back into your TFSA. Only drawback, is this has to be paid back in your RRSP within 15 years. (I think)

Hope that gets some ideas running for you.


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## meddlesomemarmots (Feb 16, 2011)

Jungle said:


> Well I think you're doing really well and you seem to understand personal finance, debt, interest and rates of return. Congrats on paying cash for a car and not over spending on a expensive and depreciating asset.
> 
> Sounds like investing is more grey for you.
> 
> ...


Thanks for your response, includes some things that I haven't thought of yet, and some things I've been mulling over for a while.

Firstly, the RRSP Homebuyers Plan I'm well aware of - however it does kind of scare me. Whilst on my current spending habits, I would be perfectly able to be paying 'two mortgage payments' (one for the actual mortgage, and one for the RRSP repayment - I'm not sure that the burden of 'having' to repay a loan I have effectively given myself is something that I would like to use unless absolutely neccessary.

Secondly, the debt back home. As the debt is not going to 'increase' (the only way it will 'increase' as I see it is if Britain has a much higher interest rate, than Canada). Making minimum repayments may not pay it off, but the loan will be removed after the period I mentioned (I did some calculations a few weeks back, and if I kept my salary exactally the same, and the salary repayment requirements were the same from the Student Loan Company, I'd have paid back 3,900 pounds of a loan, which totals just over 20,000 pounds today). I strongly think this is about as 'good' of a debt as there is, as there is no real interest going on.

Whilst obviously retirement contributing is not giong to do anything to lower my tax bracket at present, the idea of putting away a nominal amount each month does make sense to me (I'd probably have to PAP the payment as you mentioned to make sure I don't just lump it in with my downpayment TSFA/surplus savings money!). I think I will look into rates (especially for low fee accounts, seeing as there would only be a small amount of funds being diverted into here). For this purpose I'd probably be best off setting up a fund that is specifically for holding until I can get a tax break through RRSP dumping it, and then setting up a TSFA savings/GIC account for downpayment savings. Whilst I understand that TFSAs are perfectly suited for more speculative stock investing, do you think I'd be better off using my TFSA allowance for a couch potato portfolio, or for a GIC/savings account, as I should (hopefully) be maxing out my TFSA allowance in a year's time? I guess it won't really make much of a dfference, as the returns from a GIC/Savings account shouldn't be too substantially lower than a E Series return?

Thanks for your help!


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## Jungle (Feb 17, 2010)

meddlesomemarmots said:


> Secondly, the debt back home. As the debt is not going to 'increase' (the only way it will 'increase' as I see it is if Britain has a much higher interest rate, than Canada). Making minimum repayments may not pay it off, but the loan will be removed after the period I mentioned (I did some calculations a few weeks back, and if I kept my salary exactally the same, and the salary repayment requirements were the same from the Student Loan Company, I'd have paid back 3,900 pounds of a loan, which totals just over 20,000 pounds today). I strongly think this is about as 'good' of a debt as there is, as there is no real interest going on.


Well you believe your salery is going up, and most likely it will. You are only 23. Interest rates will increase. You mentioned that you have a low tolerance for debt. But you're willing to take advantage the system and not pay your student debt off..I believe the right thing to do, is to pay back your debt obligations. As you say, after 25 years they will write off the loan, the lender takes a loss. Poor intentions, if you ask me. 






meddlesomemarmots said:


> Whilst obviously retirement contributing is not giong to do anything to lower my tax bracket at present, the idea of putting away a nominal amount each month does make sense to me (I'd probably have to PAP the payment as you mentioned to make sure I don't just lump it in with my downpayment TSFA/surplus savings money!). I think I will look into rates (especially for low fee accounts, seeing as there would only be a small amount of funds being diverted into here). For this purpose I'd probably be best off setting up a fund that is specifically for holding until I can get a tax break through RRSP dumping it, and then setting up a TSFA savings/GIC account for downpayment savings.


Agree with everything, makes sense. 



meddlesomemarmots said:


> Whilst I understand that TFSAs are perfectly suited for more speculative stock investing, do you think I'd be better off using my TFSA allowance for a couch potato portfolio, or for a GIC/savings account, as I should (hopefully) be maxing out my TFSA allowance in a year's time? I guess it won't really make much of a dfference, as the returns from a GIC/Savings account shouldn't be too substantially lower than a E Series return?
> 
> Thanks for your help!


YES. If you have available room in your TFSA, it's suitable for your goals. It doesn't have to be limited to just "stock speculation" only.


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

The pound has taken a hammering aaginst the Canadian Dollar, there is no saying it won't go back to $2.50 so this might be an opportune time to pay off the Foreign Debt. 

I am setting up TFSA 's for our Son, He has no immdeiate time line for home purchasing but the plan is to allow the monies to grow, do the RRSP contribution, then do First Time Home Buyers.

$5,000 MDY

$3,000 XCB

$2000 XRE

$3,000 GLD

$2,000 JNK

Three year time horizon.


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## Eclectic12 (Oct 20, 2010)

meddlesomemarmots said:


> Thanks for your response, includes some things that I haven't thought of yet, and some things I've been mulling over for a while.
> 
> Firstly, the RRSP Homebuyers Plan I'm well aware of - however it does kind of scare me. Whilst on my current spending habits, I would be perfectly able to be paying 'two mortgage payments' (one for the actual mortgage, and one for the RRSP repayment - I'm not sure that the burden of 'having' to repay a loan I have effectively given myself is something that I would like to use unless absolutely neccessary.
> 
> ...


As for the RRSP - Home Buyers Plan, I'd recommend monitoring the "minimum deposited time" for a tax refund. When I did it long ago, the day I went into to deposit additional funds was the day I found out the minimum deposit time to qualify for a tax refund had changed from 1 day to 90 days. Since I had 65 days until closing of the purchase, I was out of luck!

As for the "only if necessary", I suspect it may be the opposite. If a HBP makes the difference between buying/not buying, then likely you are so close to the limit that you won't have much leeway to deal with a rise in costs such as interest rates or utilities.

Another option is to keep the HBP withdrawal down to a small amount that you believe you can easily handle over 15 years. Don't forget - if you income goes up, you can pay the HBP back faster or stick to the 15 year schedule - the choice is up to you. Some specifically choose the 15 years so that the RRSP contribution in excess of the minimum HBP repayment will generate a tax deduction which they use to pre-pay the main mortgage.

There is also flexibility in when the HBP repayment is made. If you have a lot of overtime early in the year, you can make the 2011 repayment in May 2011. If you don't, the repayment can be made as late as end of Feb 2012.

At the end of the day - stick to what makes you most comfortable. Being able to sleep at night is worth a lot!


As for the TFSA being great for speculative stocks - it depends. If you haven't worked out a suitable strategy to minimize your losses - it is a terrible place to make mistakes. 

When you have a capital loss in a TFSA (or RRSP), it's gone, it can't easily be replaced and it has no benefit. In a non-registered account, the capital loss will reduce other capital gains resulting in less taxes overall. There are no contribution limits so a month after the loss if there is a screaming bargain, there are few restrictions to buying. In the TFSA, if you want to jump on that same bargain, you either have to have contribution room or what's already there has to cover it. Mar 2009 is a good example of bargains available that were easy to get in a non-registered account but with just about everything down, I would not have wanted have to sell something in my TFSA account in order to buy a bargain.

If you can be sure all your picks will go up (or a few will go up enough to put you ahead of any losses), then there's no problem.


As for "I guess it won't really make much of a difference, as the returns from a GIC/Savings account shouldn't be too substantially lower than a E Series return?", it depends on what you've bought. If you bought the Canadian Index, 1 month and year to date are the only performance entries that are lower than a PCF TFSA savings at 1.5% - with the biggest gap being one year at 26.5%. If you up the ante by considering the limited time teaser rate of 2.5%, it's still only the 1 month and YTD entries that are less.

So there could be a substantial difference. 

The basic idea is that the more time before needing the money, the more risk you can take and have time to recover from any downturns.


Cheers


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## cannon_fodder (Apr 3, 2009)

So you grew up and were schooled in England and received a higher education after taking out a loan. But your plan is to give Canada the benefit of your education and not pay back the loan in full?


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## meddlesomemarmots (Feb 16, 2011)

cannon_fodder said:


> So you grew up and were schooled in England and received a higher education after taking out a loan. But your plan is to give Canada the benefit of your education and not pay back the loan in full?


No, the jobs in England are scarce at the moment so by moving to Canada I don't see any real damage I'm doing to England, but I intend to oblige my loan obligations to the fullest - I'm not trying to scam them, just follow the loan agreement. I'm making the required payments, they they determine from my salary (which is 9% of wages above 15,000 pounds). There is no obligation (nor any logical reason) to pay quicker, as the loan amount tracks the national interest rates. The loan system is set up so that if you haven't paid it back, you didn't receive the intended benefits from your degree, and therefore are forgiven the rest of the loan. I am sending moeny back to England that they wouldn't be having if I were working there (jobs are scarce in the UK and, I wouldn't be making even this much back there) - so I am paying back everything I am supposed to under the agreement of the loan. The loan terms were written up to appease angry students/potential students/university workers when the university fees were increased 200% over a year - so perhaps that is why they seem less restrictive than loans from more unscroupulous private companies. It is also a lot better than the previous system where ex-students would declare bankrupt soon after graduating, as the debts were written off, and there was never any _intention_ of paying off any of the debt - which I can understand people haivng a big problem with.

That said my original statement was made under the obviously flawed premise that my lifetime salary will stay at it's current level (not taking into account inflation, let alone salary increases) - so the strong possibility is that the loan will be fully paid off before then anyway. Either way, on this front, it is more economically savy on my end to take the excess money (i.e. money not required by the loans company as my repayment amount) and invest it, to get a higher rate than 0.5% which is the UK's interest rate at present., and then pay it back in a lump sum, rather than paying a small amoutn each month, and losing out on the potential interest on that money.



Eclectic12 said:


> As for "I guess it won't really make much of a difference, as the returns from a GIC/Savings account shouldn't be too substantially lower than a E Series return?", it depends on what you've bought. If you bought the Canadian Index, 1 month and year to date are the only performance entries that are lower than a PCF TFSA savings at 1.5% - with the biggest gap being one year at 26.5%. If you up the ante by considering the limited time teaser rate of 2.5%, it's still only the 1 month and YTD entries that are less.


Thanks, that seems to make sense - I think I'll have a look into the performance results of some different low-fee funds I can find to see what would be best suited for me then.

Thanks for all the help so far everyone, it is much appriciated!


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## cannon_fodder (Apr 3, 2009)

Just out of curiosity, how much is tuition (and all other ancillary costs except for room and board) to acquire a 3 year degree in England?


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## meddlesomemarmots (Feb 16, 2011)

cannon_fodder said:


> Just out of curiosity, how much is tuition (and all other ancillary costs except for room and board) to acquire a 3 year degree in England?


A quick history of fees in the UK are:

- In 1998 the government introduced a 'means tested' system, where students would have to pay up to 1000 pounds a year for fees (excluding books, and most other course materials). Only families earning over 35,000 pounds a year would be charged the full 1000, and lesser earning down to 25,000 a year would be paying a 'proporitonate amount'.

- In 2004 the government ammounced that a 200% rise was coming in in university fees to mass protests and condemnation, and narrowly managed to pass the bill in parliament and everyone, regarding of financial background was charged the new 3000 pounds a year amount. The only way this got through was the policy of only forcing students to pay back a percentage of earnigns, when making over 15,000 pounds a year.

- In 2010, another rise, with maximum cap of 9000 pounds per year for tuition fees alone (note almost every university worth going to has charged at the highest cap level throughout the past 8 years). So for the poor buggers who start going to university in 2012 are looking at $42,742 (27,000 pounds) - BEFORE paying for books, rent, student union memberships, and anything else. If I weren't in the 'transition' phase between 2004-2012 there is no way I would go, or suggest anyone else going to university.


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## cannon_fodder (Apr 3, 2009)

meddlesomemarmots said:


> A quick history of fees in the UK are:
> 
> - In 1998 the government introduced a 'means tested' system, where students would have to pay up to 1000 pounds a year for fees (excluding books, and most other course materials). Only families earning over 35,000 pounds a year would be charged the full 1000, and lesser earning down to 25,000 a year would be paying a 'proporitonate amount'.
> 
> ...


I'd imagine that if the cost was unmanageable (even with loans) that enrolment would reflect that and then the university would have to find the sweet spot - what is the maximum overall revenue they can achieve even if that means less than full enrolment.

I don't know if Canadian universities are on par with those charging 9,000 pounds in England, but it seems with the loan arrangement its not out of reach for only the elite.

Thank goodness my daughter is going local!


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## meddlesomemarmots (Feb 16, 2011)

cannon_fodder said:


> I'd imagine that if the cost was unmanageable (even with loans) that enrolment would reflect that and then the university would have to find the sweet spot - what is the maximum overall revenue they can achieve even if that means less than full enrolment.
> 
> I don't know if Canadian universities are on par with those charging 9,000 pounds in England, but it seems with the loan arrangement its not out of reach for only the elite.
> 
> Thank goodness my daughter is going local!


They are giong to be testing out the system on a few years of students, who will probably end up being guinea pigs to see what kind of numbers they are getting in. They've made such a mess of higher education in Britain it is unreal. The fees have gone up 8000 pounds in under ten years, people going to university is at a record high, and degrees are becoming pretty much worthless (especially in this economy). Out of my core group of friends from the UK, 2 haven't found full time employment in a year and a half, and the other is working for a little above minimum wage. They'd be better off shutting down the poor universities, and cut down on people taking increasingly vocational courses - not charging the ones who should genuinely be going through, the nose for a degree which isn't worth a fraction of the cost!

I'd definately strongly consider not going at all, or finding a way to study outside the country if I was in the same position I was in 5 years ago again!


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## Taxsaver (Jun 7, 2009)

Jungle said:


> Want to know a trick to get a bigger down payment? When you're ready to buy, deposit it all into your RRSP and use the RRSP first time home buyer plan.


Jungle, I was playing with that idea the other day, but I gave up because one one piece was missing, and you provided here: The tax return! Thanks!

I played with my tax software and calculated that I merely get 26% as tax return on each extra dollar on a lump sum payment I put in my RRSP. I was hoping I would get like 40%. For instance, I put a lump sum of $5,000, and I get about $1,500.


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## meddlesomemarmots (Feb 16, 2011)

So it has been about 9 months since my initial post, so I thought I'd 'check-in' regarding where things are, and what advice I've taken/ignored 

So, the bottom line first - salary. This has increased from $28,000 to $34,000 (I did have two jobs for a period during the year which brought me up to $38,000).

Most of my set living costs are the same - the transportation costs are still at a tax creditable $972 a year. Phone costs are still constant at $265.20 a year for my pre-paid plan (I am getting a used phone that is a bit fancier than mine, so I'm thinking about upgrading my plan and splurging on one of these Mobilicity type company deals that offer everything included for $25.00 a month). Our monthly rent (inc. utilities is going to be going up in January to $800.00 per month). My current account has just been dinged $2,400 for the girlfriend' car insurance payment, which she will be paying back to me monthly (whilst my cash is just sitting there doing little, might as well save the $70 odd bucks in interest).

So my current assets at the moment are:

- Savings in the UK - $24,000
- Canadian Current Account - $15,490
- Depreciating car - worth $5,500 or so

Liabilities:

- Student loan from degree - $32,000 (many people were mentioning that this should be my number one priority - however I'm still unconvinced, and due to the current 1.5% interest rate I'm paying - I'm happy to make required payments on this - I'll never be able to borrow money as cheap as this again, and not paying it off in a lump sum does provide the security should I face a life changing issue (injury/disability) of not having to make payments whilst earnings are below $21,240. My increase in salary will increase my student loans to $900 next year.

So going forward, I'm focusing on investing my money for the future in a better vehicle than a current account  I've been reading up over the past few months regarding investing (both books and online). I feel that I'm in a position where I'm comfortable putting more substantial sums into the market - however I'll probably wait until just after Christmas to max out me and the other half's TFSAs. I'm interested in seeing if any other discount brokerages follow the recent trend of commission free ETF, which allow someone like me to set up a heavily diversified portfolio from scratch for no start up costs.

I am also going to try setting up a new savings plan with the he missus. Come the new year, I am going to be covering the house rent, and my medical plan at work, and we are going to try and pay for 'life' from her wages. She is self employed, and grosses a thousand or two higher than me, but with her business costs she 'nets' around $15,000 a year, I think there should be just enough to pay for our everyday life (she isn't as much into writing budgeting, but when she knows she has a certain amount of cash in her account, she can spend sensibly). If this idea can work out, then we should be banking about $20,000 in savings a year. Obviously we'll also have an emergency fund on the side, in case any of the months are tight, or I need to pick up a couple of extra expenses.

Any advice/criticisms/congratulations welcome. 

Also any reading material is very welcome. I'm a regular reader of www.greaterfool.ca and Million Dollar Journey. Recently I've read a couple of books on finances - Crash Proof (Peter Schiff), an index fund book by one of the old bigshots at Vanguard (the names elude me at the moment), The Millionaire Next Door (Stanley and Danko) and The Automatic Millionaire (Bach - I found the figures stated in this book _very_ exaggerated and didn't finish it).


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## tobuyornottobuy (Nov 19, 2011)

I think your early planning is commendable but also hope that you have money put aside for having fun/ being 23!

Regarding the student loan situation, I want to give you bit of support, and perhaps some insight for other into the student loans company.

I graduated in 2004 and worked for 4 years in the Uk, repaying my loan out of my earnings as per the schedule. I was then self-employed and paid when i filed my tax return.

I subsequently moved to Canada 3 years ago and after about 6 months (slow I know!) contacted the student loans company to ask if I could set up a repayment plan, they informed me that there was no way of doing this and I either pay it all off (which at the time I couldn't afford to do)or dont pay anything.

I am just contacting them now to try again to pay!

best of luck in your financial endeavours


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## meddlesomemarmots (Feb 16, 2011)

tobuyornottobuy said:


> I think your early planning is commendable but also hope that you have money put aside for having fun/ being 23!
> 
> Regarding the student loan situation, I want to give you bit of support, and perhaps some insight for other into the student loans company.
> 
> ...


The student loans company, are without doubt the worst money lending organization I've ever know (well, aside from the payday loan sharks on the high street). Their ability to communicate with customers is just terrible - and to contact them via phone from the West Coast is a nightmare - as their office hours are hardly accessible - and they offer no email contact. I can't believe they are saying there is no overseas repayment plan (you are under the old 'mortgage style' system right?) - who the heck can afford to pay it off in bulk? I'm just getting a little tired of waiting 2 weeks for a letter, sending a reply, and having to wait for a month to get a simple matter resolved.

Oh, and we have plenty of money for fun - we don't restrict our money, and lock it away, and it is there for having fun - however just attitude wise we don't spend that much money (during the dry months we are constantly out at the provincial parks hiking) - or find cheaper ways of doing things we enjoy (Toonie Tuesdays down the local cinema is a favourite of mine!)


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## moneyfighter (Aug 10, 2014)

Hi meddlesomemarmots, 

Thank you for posting your money diaries. It is very inspiring for me!!


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