# Six-Figure Income But Looking for Guidance...



## madeofglass (May 25, 2010)

Hi there,

As captioned, I'm 30 yrs. old, have a decent income, spouse stays-at-home and a 1 yr old. I think we manage our money well but need validation / guidance around how to plan for the next few years of our life.

Basically, would you change anything?

The numbers...

*Income: *
$105K + $15K bonus each yr.

*EXPENSES:*
1. Mortgage, prop. tax and condo fees: $1,800 but I pay extra towards principal so more like $2,100 per month. Loan outstanding is $225K, home worth about $280K.
2. Car: Lease ($350/mo) ends next summer at which time I plan to buy it out in cash for $15K.
3. Savings: $100/mo in TFSA, $200/mo in RESP, $500/mo towards company pension (I don't save additional in RRSP although I have $50K of room left).

I have about $5K in an emergency account, $20K in savings (plan to use towards car buyout next summer), $30K in an RRSP (from previous employer). No debt except for the condo and the car.

*SHORT-TERM GOALS:*
1. Buy a bigger home in next 2 years (looking at a home in the $450K range)
2. Paying off car next summer
3. Spouse may want to go to school in the next year...have not budgeted for this as yet
4. Buy a second, paid-off car when we get the bigger place...this is really just to get to the Go Station, so may skip this if I can walk or take a bus every morning

*LONG-TERM GOALS:*
1. Be mortgage-free by 45
2. Paid off cars
3. Retire by 55
4. Passive-income (rentals, dividends, etc.)

*QUESTIONS:*
1. How am I doing? Would you change anything given my goals?
2. Should I pay off the car next summer or hang on to it for emergencies (and finance the car)?
3. Is getting a $450K home realistic based on my salary, expenses, other goals...?


----------



## canadianbanks (Jun 5, 2009)

I'll just answer #3. Assuming that your income is stable and chances for a job loss are low, then it all depends on interest rates. My advice would be to calculate if you can afford paying at least 6-8% mortgage comfortably (25 year amortization), and if the answer is yes then you are in much better shape than the average Canadian borrower. Having said that I think that the Canadian RE market is in a huge bubble (at least the big metropolitan centers), which will crash with dire consequences for many borrowers.


----------



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

There are too many variables ahead of you to set a goal of being mortgage free by 45. Especially when you want to double the mortgage you have, which is far from being paid off at this point.

But the news is mostly good! You're doing better than most I would say. The changes I would make to your plan is as follows:

1. savings/cash ready on hand for rainy day fund...MINIMUM $30K. Not a penny less and given your high standard of living and expensive house to maintain I would budget for even more on this. But set a realistic goal for yourself to have $30K sitting in some cashable GIC's or something. $5K is nowhere near sufficient. See some of the earlier threads I participated in where monty suggested a 3-tier savings plan.

2. Regarding the house, I would NOT double your mortgage. As Suze Orman would say, you are DENIED.  But seriously, your plan is way too optimistic and assumes everything will go perfectly for the next 25 years of your life. You need to save for her education, beef up your rainy day fund, have money set aside for unexpected things like 6 months of unemployment, divorce, new child in your family, marriage, annual vacation, roof or foundation that needs fixing, sudden serious car breakdown and such. Yes, the optimist in you says these things won't happen but you still need to prepare for them if they do. Enjoy your current house. Save the money as you are doing. 

My opinion, which I acknowledge some disagree with.


----------



## MoneyGal (Apr 24, 2009)

I'd look at your figures including tuition for your spouse and daycare for your child. That will add a lot to your monthly expenses...

Your income is great (obviously) but your indebtedness, relative to your savings, is also a little high IMO. I'm with The-Royal-Mail - given that you asked for our opinions, I'd suggest saving more/paying down your mortgage more before you "trade up" houses.


----------



## steve41 (Apr 18, 2009)

A quick and dirty calc, based on your salary, retiring at 55, dying broke at 95, no new home... you should be willing to live on a combined ATI (after tax income) of roughly $50K per year. This requires a significant savings regimen (maxing your RRSP and saving additional beyond the max)

Based on 4% growth, 2% inflation, living in BC. Reducing your lifestyle after retirement (say 70% of pre-retirement) will change that ATI to $57K, but will still require significant savings. Note.... because you are paying off a mortgage, you will be increasing your savings rate substantially once the mortgage is paid off.

If you wish, I can email you the PDF.


----------



## brad (May 22, 2009)

I guess I would also put more in your RRSP; at 30 years old you have a lot of time for that money to grow, so it's a great opportunity.

While I'm sure you're not this way, a lot of people who hit the six-figure mark fall victim to lifestyle inflation and can get in trouble by taking on too much debt or spending too lavishly. You can afford things you couldn't before, but it's important to keep the big picture in perspective.

I earn almost twice what you do and my spouse works fulltime, and yet we only have my 2005 Toyota Matrix (bought with cash), 1 nearly half-paid-off mortgage, and no plans to take on more debt. We're probably a bit too frugal but we're also both around 50 years old so we're focused on socking away what we can for retirement and paying off the mortgage so we own the house well before we hit retirement age.


----------



## madeofglass (May 25, 2010)

Great feedback, thanks.

I should've made the pension part clearer...basically if I stay with the company, I get about 90% of my income annually. My job is relatively stable, I expect to get raises and plan to stay here until retirement...which is why I'm not putting anything in RRSPs anymore.

I expect to pay off another $25K on the house in the next two years and with the equity and some savings hoped to make a $80K downpayment on the new home...but perhaps need to save longer.

Should I pay the car off with the $15K I have saved or finance the car for another 3 years...? Would be great to get rid of the payment although we'd lose most of our savings.

Agreed, we need to budget for her education, a second child, a second home and perhaps a second car all in the next 2-3 years which now that I type this sounds almost impossible...at least we have no consumer debt, thank God! I think all of these can wait but not the home...so we're planning to put extra towards the mortgage and save whatever else we can.

@the-royal-mail: I'm curious, you stated we have a "high standard of living", how did you arrive at that conclusion?

Thanks, this is great feedback and worthy of a chat with the spouse.


----------



## Cal (Jun 17, 2009)

Agreed not alot of savings yet. Have you had that job for many years?

Yeah, I wouldn't like seeing the car payment either. Use the cash to get rid of that. Unless the dealer will let u finance the remaining amount for a low amount.

Are you planning on selling the condo to have the down payment for the upgrade home? I wasn't sure as under long term goals you mentioned Passive-income (rentals, dividends, etc.)

Also under:
SHORT-TERM GOALS:
1. Buy a bigger home in next 2 years (looking at a home in the $450K range)
3. Spouse may want to go to school in the next year...have not budgeted for this as yet
I think I would figure out #3 before doing #1.


----------



## steve41 (Apr 18, 2009)

Think about this people.... he has a pension which will deliver him 90% of his current salary. This guy doesn't need to darken the door of any investment professional in my humble opinion.


----------



## Four Pillars (Apr 5, 2009)

Not exactly financial, but how on earth is your wife going to manage having a 2nd child while going to school? 

As I learned, the biggest problem with the 2nd child is the first one.


----------



## brad (May 22, 2009)

Four Pillars said:


> Not exactly financial, but how on earth is your wife going to manage having a 2nd child while going to school?


That's what summers are for 

Seriously, though, I know two women who pursued PhD programs while raising young children. It wasn't easy but they did it (well, one of them is currently in the process but the other one managed to get a PhD while raising three young children and her husband worked fulltime; she's now a tenured professor, although I know her kids are tired of moving -- when you're an academic with a relatively narrow specialty you have to go where the jobs are, and that typically involves major moves every few years until you can get tenure somewhere).


----------



## MoneyGal (Apr 24, 2009)

I did the CFP while on "maternity leave" from what I did up until the second child was born. I did my studying during naps, and by getting up long before everyone else in the household. It is not impossible!


----------



## andrewf (Mar 1, 2010)

It wouldn't hurt to have some contingency plan if that pension is not as reliable as it now sounds. It sounds pretty good to me, but if it is a privately sponsored plan you need to be cautious.

Some disability insurance is also probably in order.


----------



## steve41 (Apr 18, 2009)

> It sounds pretty good to me, but if it is a privately sponsored plan you need to be cautious.


 Ya think? 90%!!! This reminds me of one of my clients (an FP) who said _"In terms of job security and pension expectation, if I get a couple who are both school teachers with tenure, I almost always politely ask them if they really need the services of an investment advisor."_


----------



## MoneyGal (Apr 24, 2009)

Steve! People are allowed to save beyond their means and invest even if they have pensions. They are even entitled to seek outside opinions on strategies they might employ - and even to outsource those decisions to a third party!


----------



## Cal (Jun 17, 2009)

Steve does make a good point. I know a couple who are both tenured. They don't think like the rest of us (on this site), they don't really have to think about money that way.

True, any couple can spend, save whatever they want.

I have to wonder if I would have the same interest or accumulated investment knowledge, if I were to have a pension that paid me 90% of my earnings after X # of years.


----------



## MoneyGal (Apr 24, 2009)

Cal: I just (co-)wrote a book with a single message: if you don't have a true (DB) pension, go out and buy one with a fraction of your savings (at retirement or afterwards). 

While I believe very strongly in that message, it doesn't mean the reverse is true: people with DB pensions (and a strong counterparty) do not "have" to think about money, but they are by no means precluded from doing so. 

I do admit, though, as a woman in finance, over the years I have gotten a few pitying remarks from other women (mostly teachers; probably because I know lots of them) who say they feel sorry for me that I "have to worry about all of that."  

I am very aware that if you have a strong DB pension, for the most part your retirement is automatically handled and you don't really ever need to learn how to read a company balance sheet or financial statement, or uncover the mysteries of how to understand whether your mutual funds made you any money, etc.


----------



## brad (May 22, 2009)

I guess GM and other big firms have made me skeptical of "guaranteed" pensions, and of course the pension will only be there if you indeed stay with the company. Lots of things happen in life that could conspire to change your mind, so I feel like counting on a pension is putting a lot of eggs in one basket. I do think you could relax and not kill yourself trying to max out your RRSP, but if it were me I'd sleep better at night knowing I had a backup plan.


----------



## HaroldCrump (Jun 10, 2009)

MoneyGal said:


> Cal: I just (co-)wrote a book with a single message: if you don't have a true (DB) pension, go out and buy one with a fraction of your savings (at retirement or afterwards).


Has it been printed yet?
Please provide link or ISBN#
I'd be interested in reading.


----------



## MoneyGal (Apr 24, 2009)

Kindle version out in August; book in stores in September. Here's the publisher's link: http://ca.wiley.com/WileyCDA/WileyTitle/productCd-0470680997.html


----------



## FrugalTrader (Oct 13, 2008)

PM me if you're interested in getting more exposure for the book!


----------



## Cal (Jun 17, 2009)

Oh Frugal Trader...trying to get a free book, I see!

LOL.

Congrats on the book, MoneyGal!

Sometimes I do wish I had one of those pensions. But I am glad that I have a greater knowledge of finances to get to where I want to be. 

I am sure sometimes on the other hand you feel a little for those that don't have to 'worry about all of that'.

I will read your book. Then we can start a new thread to discuss.


----------



## FrugalTrader (Oct 13, 2008)

Cal said:


> Oh Frugal Trader...trying to get a free book, I see!
> 
> LOL.
> 
> ...


shhh!


----------

