# Please provide tips for my financial future



## Underworld (Aug 26, 2009)

Hi there - just throwing out the state of my finances to get any advice for improvement. Thanks in advance!

Age
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Me: 27
Girlfriend: 27
Retirement age: 65.

Incoming
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Our joint salary: $132,000

Outgoing
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Mortgage: [$432k] $1,313 every 2 weeks @ 5 year fixed - 5.29% (4 years remaining)
Car: [$25k] $450 per month @ 2.9% (4 years remaining)
Student Loan (Hers): [$19k] $300 per month @ 8% ish?
Student Loan (Mine): [$19k] $210 per month @ 3%
Credit Card Average: $2597 paid off in full every month

Current Net Worth
==============

*Assets:* $474788.1

House: 450000
RRSP: 1530.69
Savings: 1257.41
Car1:	18000
Car2:	4000

*Liabilities:* (491703.07)
Mortgage: (429807)
Car: (22795)
Girlfriends Student Loan: (18741.27)
My Student Loan (19509.8)
Money owed to Family Member: (850)

Net Worth: (16914.97)

I've implemented Pay Yourself First and our immediate goals are saving for wedding ~12k. There after I was thinking of tackling her student loan. As my loan is cheap (3%) I'm prepared to leave it for some time.

Hopefully once her loan is paid off we would have a better Gross Debt to Service Ratio.

After this I aim to save up 6 months of emergency funds then I have a choice of RRSP payments OR extra mortgage payments OR saving up for some real estate. To be honest I prefer having hands on with an investment rather than investing it in some semi-uncontrollable investment vehicle.

She pays into a union pension every month and they contribute equally. This contribution is taken off before she receives her net payment every month. I believe it pays out around 50% ~ of your final 5 working years salary per year. 

Any input? Am I steering the wrong way?
Thanks!


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## steve41 (Apr 18, 2009)

Throw in your ages and how your gross salaries split. Remember, you must count salary and years to retirement as an asset. It is represented as future paychecks coming at you over time, but it is an asset nonetheless.

If you already have saved something, (RRSP/TFSA) enter this as well. A long range plan requires all aspects (age, RRSP saved, salary, retirement age) in order to give a meaningful overview.


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## Underworld (Aug 26, 2009)

OK - I've updated it with Net worth, our ages, her pension, retirement age.

Thanks!


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## Cal (Jun 17, 2009)

First I say good work on aggressively tackling your mortgage.

2nd - I would try to renegotiate or get another loan to buy out your gf's school loan. I think you can get a better rate.


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## Underworld (Aug 26, 2009)

Hah - man thats my standard payment on the mortgage :S I'm not paying down anything extra yet. When its time for a new mortgage in 4 years I'm going to switch to accelerated.

I agree on the re-negotiation of rate on loan. Rates are super cheap at the moment. Is a straight up loan from another provider the best route for this? I looked into a line of credit as rates were cheap, however we don't have enough equity in the house for a secured LOC.


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## Sampson (Apr 3, 2009)

By my quick math,

It seems that you're after tax income should be roughly $8000-$8200 and your monthly expenses (assuming everything goes on the credit card) is $6183 - so you should have in excess of $2000 every month.

I personally like a balanced approach, where you are (i) accelerating debt pay down, (ii) saving for emergencies, (iii) saving for retirement, (iv) saving for spending (trips, tvs, etc).

Depending on goals, you can allocate that $2k into those categories. Often 3-6 months of operating expenses is suggested, but since you have so much debt, paying down some of that burden quickly could help relieve some of the outflow towards interest payments.

I think it also depends on your personality. There have been many discussions about 'debt paydown snowballs' or whatever its called whereby you pay down the smallest loan first which in turn boosts your motivation and accelerates the task.


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## The Financial Blogger (Apr 4, 2009)

#1 Forget about the Emergency fund
Get a 20K line of credit instead and never use it unless it is an emergency. Chances are that you will never use it. If you gather 20K and leave it in a money market fund a 1%, you will be losing a ton of money for nothing.

#2 Maximize your RRSP
It is important to think about your retirement and you at the perfect age to do it. If you don't have a pension plan, maximize your RRSP contribution.

#3 Us your the tax return from your RRSP to pay of your debts
I would start with the student loan at 8%. Since you have a high tax bracket, you should be able to pay it pretty fast

#4 In a couple of years, remortgage to pay off all your other debts with a higher interest rate.
The best way to do it is to take a separate mortgage account on a shorter amortization to make sure you don't take 25 years to pay off you student loans.

If you work hard and follow those advices, you will be sitting on a pot of gold within the next 10 years :-D


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## Rickson9 (Apr 9, 2009)

TFSA > RRSP for retirement. Tax free > tax deferred. IMO.


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## mfd (Apr 3, 2009)

Am I the only who seems to think that they've over extended themselves with that mortgage ?


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## Sampson (Apr 3, 2009)

mfd said:


> Am I the only who seems to think that they've over extended themselves with that mortgage ?


I agree. 

If their jobs are stable, they have some buffer room for interest rate increases (they're already paying a relatively moderate/high rate), but it all depends on their lifestyle.

I don't want to make assumptions, since alot of their non-mortgage debt is student loans, but they certainly could get hit fast and hard if one or two things go sour.


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## steve41 (Apr 18, 2009)

Yeah, I gave up trying to craft a plan without putting them on a severe diet early on, or consolidating their loan and having them carry it much longer than it is already.


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## The Financial Blogger (Apr 4, 2009)

mfd said:


> Am I the only who seems to think that they've over extended themselves with that mortgage ?


I agree too, but it's kind of too late now... the house value seems to be pretty closed to the mortgage balance. Considering the general cost of selling the house (agent, lawyer, moving cost, etc.), they would lose money if they would sell to buy a smaller property...


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## PMREdmonton (Apr 6, 2009)

I think now is an important time to show some restraint and get your house in financial order before you get used to spending much of what is a very high income for people your age.

I would agree with tackling her debtload first as it has the higher interest rate.

I also agree with saving up an emergency fund - this is especially true if you don't have very secure, stable type jobs. How much of a fund depends on how easily you could live off one of your paycheques and how likely either of you is to lose your jobs. 3 months should be the minimum. It is probably best to save this in your TFSAs in the form of a highly liquid investment such as a high interest savings account.

Given how highly leveraged you are in real estate in the form of your primary residence, I would not recommend buying more real estate in this stage of your lives. Later when your portfolio is worth more it may make more sense to diversify investments with either an income property or a REIT.

Given your high incomes, I would suggest you being taking advantage of RRSP room that you will have likely accumulated. This is because of the large tax savings it will generate for you. You will have to then choose what you want to do with the investments in your RRSP. You will have plenty time to read up on it as it sounds like it'll be at least a bit of time before you chew up your debt and other savings obligations (wedding).

Once you have used up all your RRSP room, you can then begin chewing up extra TFSA room that you have but still leave enough on hand in a highly liquid form for your emergency fund.

If you haven't already done so, buy some life and disability insurance that is of high quality (usually own occupation, cost of living adjustments, guaranteed insurability riders, etc). I use Sun Life Financial. You may also want to begin the process of getting wills, personal directives and power of attorneys in place.


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## Mike H. (Apr 15, 2009)

My quick thoughts:

1. Before you refinance the 8% student loan, be sure that the new loan still qualifies for the student loan interest tax deduction.

2. Try to not spend $12,000 on a wedding. Think about what is important. Imagine having $12,000 sitting in front of you. Would you spend it to buy food and booze for family and friends, or reduce your debt? Search this forum for ideas about saving money on your wedding.

3. Consider using the TFSA first, and RRSP second. With decades of investment growth ahead of you, the tax free withdrawal will beat the tax deduction of RRSP contributions. The withdrawals also don't affect income tested benefits. Many of my retired clients have their OAS clawed back just from their minimum RRIF withdrawals.

4. Your mortgage interest rate is really high. Talk to a mortgage broker about a better rate once three years have expired from your five year term.

5. Get a roommate to share some of the house expenses. Can you maybe use the home renovation tax credit to build a suite in your basement?


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## CuriousReader (Apr 3, 2009)

Why dont u pay off the $850 owed to family members first, it's not much, and I think it's a good gesture to pay them first.

For wedding, I think it's a personal decision, it's the big day in your life, and (theoretically) the only wedding you would have, so the most important thing is for you and your bride to have the day of your life, of course you need to be reasonable, but dont be too frugal on something like that either.


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## millionaireacts (Sep 12, 2009)

Hello, as a fellow personal finance blogger, I would recommend to take on "EARN MORE and DESIRE LESS" principle.

That means look for other cources of income and be less on spending. Earn more by having a second job as sideline. There are also a lot of ways to cut your expenses back.

Before spending, prepare a monthly budget and stick into it. 

As a follower of Robert Kiyosaki's principles, invest more on the things so-called as assets. Most people invest in things that they thought of assets but in reality these are liabilities.


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## Underworld (Aug 26, 2009)

Thanks for the great advice guys.

Some feedback from me - 

- I didn't think 5.29 was really that bad for a mortgage rate - Historically for a fixed rate it is lowish no?

- I do currently work as much freelance as I can and am currently working on a start up company on the side.

- Yes I agree we do have a big mortgage and mortgage payment, but it is our dream home and we wish to live here for 15+ years. When the home was bought I studied all the possible areas to live in. I believe that in the next 15 to 20 years there will be a greater price gain in this area than other areas due to a stack of infastructure, retail and job creation areas that are soon to be built here. If we see property appreciation again, 5% of 500k is going to be more than 5% of 250k i guess.

- I am concerned about our position if the girlfriend wants to have kids in the future - we cannot sustain the house on one income.

- We are very good at budgeting, restraint, careful purchasing and cash flow forecast. I guess that is something that has happened from having a big mortgage lol

Going forward - I like the idea of the line of credit for an emergency fund, however I think our debt to service ratio is large so im not sure how the bank would look upon that at the time of issuing a line of credit.

Thanks again.


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## mfd (Apr 3, 2009)

As CC has pointed out on his blog in the past the problem with a LOC is there is usually verbiage in the contract that they can cancel the LOC whenever they want. Not exactly something you want to happen when you have an emergency. 

regards,


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## logicfirst (Aug 19, 2009)

Underworld said:


> 5% of 500k is going to be more than 5% of 250k i guess.
> 
> QUOTE]
> 
> It is still 5% nonetheless


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## specialk (Jul 14, 2009)

Underworld said:


> Hi there - just throwing out the state of my finances to get any advice for improvement. Thanks in advance!
> 
> Age
> ======
> ...


1) Put some money aside for a small emergency fund...cash! 1000 or 2000 will be fine.
2) You have around 62,000 in debt am I right? Learn to live on 50-100 thousand and pay off this debt in 1-2 years. If you can not do this, your issues are deeper than mathematical. If you need to...sell the cars and get something cheaper and get rid of those payments, that should help. But obviously with your good income this is probably not totally necessary, just a suggestion. And I love your spirit when it comes to a short mortgage payment and pay it off fast etc, however, given your situation....(and I can't believe I am about to say this)...perhaps you could make the mortgage a bit longer, say 15 years? Just to help you through this debt repayment process, then later with your great income and no other debt, you could make extra payments on the house and knock it out.
3) Add more money to your emergency fund and start putting a good chunk of money into long term investing.
4) You mentioned kids as a possibility in the future and you are concerned with losing the income when she comes home? You also said this is your dream home. I understand where you are coming from on both accounts, but if you and your wife are really serious about starting a family and a house this size is in the way of that...is it really a dream? Just a thought.


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

Underworld said:


> Hi there - just throwing out the state of my finances to get any advice for improvement. Thanks in advance!
> 
> Student Loan (Hers): [$19k] $300 per month @ 8% ish?
> Student Loan (Mine): [$19k] $210 per month @ 3%
> ...


Is it too late to offer some input to this one? I had been meaning to respond long ago but had trouble getting registered on the forum until now.

What I was going to say (since the OP asked for input) deals with the above three items. Everything else here is totally fine with me. There is nothing wrong with student loans. They are a part of life. But what concerns me is the amount of money you are spending via your credit cards every month. That's a lot of coin. Seems to me you would easily be able to wipe out those student loans within a year if you would spend less money, and thereby not have to pay such large CC bills. Apologies if I am missing something obvious.

The other concern I have also deals with the fact that I see all sorts of money being spent on an expensive mortgage and high credit card expenditures and not a penny on rainy day money. If both of you end up unemployed or with some other life adversity you have NO fallback plan, short of accumulating more debt.

Had it of been me, I would have wiped out those student loans before buying a house.

Either way, spend less money (the cash going on your CC) seems to be the most glaring.


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## joncnca (Jul 12, 2009)

the-royal-mail said:


> Is it too late to offer some input to this one? I had been meaning to respond long ago but had trouble getting registered on the forum until now.
> 
> What I was going to say (since the OP asked for input) deals with the above three items. Everything else here is totally fine with me. There is nothing wrong with student loans. They are a part of life. But what concerns me is the amount of money you are spending via your credit cards every month. That's a lot of coin. Seems to me you would easily be able to wipe out those student loans within a year if you would spend less money, and thereby not have to pay such large CC bills. Apologies if I am missing something obvious.
> 
> ...


my understanding was that they simply put all of their recurring expenses on their credit card, that's why it's so high, not that they're going out and buying all sorts of consumer goods. 

my monthly credit card bill is about 1500, but that includes absolutely EVERYTHING possible, food, fuel, household items, utilities if i can, phone, etc etc. i've put a pack of gum on my credit card, i find it easier to see everything on one statement. but that that doesn't mean i'm wracking up 1500 in consumer debt every month.


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

joncnca said:


> my understanding was that they simply put all of their recurring expenses on their credit card, that's why it's so high, not that they're going out and buying all sorts of consumer goods.
> 
> my monthly credit card bill is about 1500, but that includes absolutely EVERYTHING possible, food, fuel, household items, utilities if i can, phone, etc etc. i've put a pack of gum on my credit card, i find it easier to see everything on one statement. but that that doesn't mean i'm wracking up 1500 in consumer debt every month.


Ah I get it - thanks for the explanation.

Though I think it's a good idea to withdraw a set amount of cash every week so that you have cash on hand for the small purchases like gum and lunches, and also for when you owe your buddy $5 or need money for the payphone, have an emergency where there's cash only etc etc. Just makes it faster. But anyway, that's all off topic.


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## stephenheath (Apr 3, 2009)

This is just a personal opinion on how I would deal with it were I in your shoes. I don't think it's the best way, nor the way best suited to maximize your earnings, but I'm a big believer in peace of mind.

I'd hunker down and try and avoid any expense possible, the more cash you have free the faster you can accomplish the list, whichever order you choose to do it in. Wedding recommendation is at the bottom.

1) Pay off the family member. It's too tiny an amount to worry about and you want to stay in the family's good books as you may need free babysitters down the road post-wedding .

2) Accelerate the payments on her student loan and get it paid off right away. (a) Because it's a high interest rate (8%) and (b) because it will then free up $300/mo in cash flow. I'm guessing based on your numbers you could get this paid off in about six months or so.

3) Using the freed up cash flow plus anything else you can accelerate I'd next focus on the car loan. You likely can't make extra payments, just pay it off early, so I would do this by squirreling everything you can in your savings account until you have enough to pay the loan off in full. You can consider this a temporary emergency fund too if need be. Having the car loan paid off gives you another $450/mo in cash flow AND improves your credit report. 

3) Pay off your student loan, which should hardly take any time at all considering you are now directing $750 a month + extra cash flow onto it.

Now, I know you're probably thinking "but what about the emergency fund?" but keep in mind, by quickly eliminating these monthly payments, if you want a 6 month emergency fund you've just reduced how much you need in that fund by $5,760 and have given yourself an extra $960/mo to put towards it.

Finally, you're probably thinking "but what about the wedding, I don't want to wait two years for that". Personally, I would just pay as you go out of your normal monthly income. Maybe the first month you haven't even decided on a date so all your extra cash goes on her student loan. The next month you might have a date picked out so pay some deposits for your hall and caterer, so you put a little less extra on the line than the month before. The next month might be invitations... and so on. You haven't deprived yourself of wedding items, but by not tying up the cash you still allow the focus to be on getting rid of a student loan, freeing up more monthly cash.


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## Dr_V (Oct 27, 2009)

the-royal-mail said:


> I think it's a good idea to withdraw a set amount of cash every week so that you have cash on hand for the small purchases like gum and lunches


Don't want to get too sidetracked, but my wife and I basically don't carry cash. We put _everything_ on our credit card (bills, groceries, $1 purchase for gum, you name it), and we _always_ pay it off at the end of the month. Our monthly credit card bill is typically $3k. The benefit of doing this is three-fold:

- our credit card offers 1% cash back, so we typically get a cheque for ~$400 - $500 each year.

- by putting everything on our credit card, some of the items are eligible for extended warranty protection.

- in Quicken, I'm able to categorize each line item on the Visa card statement, so I have a very precise feel for exactly how much we spend at each store, or in each category (eating-out, entertainment, personal care, home upgrades, etc.).

K.


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## ssimps (Dec 8, 2009)

Dr_V said:


> Don't want to get too sidetracked, but my wife and I basically don't carry cash. We put _everything_ on our credit card (bills, groceries, $1 purchase for gum, you name it), and we _always_ pay it off at the end of the month. Our monthly credit card bill is typically $3k. The benefit of doing this is three-fold:
> 
> - our credit card offers 1% cash back, so we typically get a cheque for ~$400 - $500 each year.
> 
> ...


We do the exact same thing for the same reasons. Reasons 1 and 3 are our main ones. It is a great way to do things if you can. I also think it helps your credit rating.

It takes discipline to do this and a good margin of positive cash flow; one interest payment and your out!


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## joncnca (Jul 12, 2009)

Dr_V said:


> Don't want to get too sidetracked, but my wife and I basically don't carry cash. We put _everything_ on our credit card (bills, groceries, $1 purchase for gum, you name it), and we _always_ pay it off at the end of the month. Our monthly credit card bill is typically $3k. The benefit of doing this is three-fold:
> 
> - our credit card offers 1% cash back, so we typically get a cheque for ~$400 - $500 each year.
> 
> ...


yah, these are the other benefits of putting everything on the CC too. i do keep about $40 cash on me at any one time, but it's really only for emergencies. I have $40 in my wallet right now, which i withdrew like...2 months ago, haha


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