# Modest low/middle class young couple



## zulu22 (Mar 13, 2014)

Hey all,

I've been reading a lot of this forum and I wanted to get some opinions. A lot of the money diaries I read are of people bringing in significantly more income than what we currently are so I find it hard to compare how we are doing with saving, budget, etc. I have only really become financially self aware in the last two years but I have always been fairly frugal.

I am 29 and my fiance is 25, we will be getting married this year and we still have some expenses to be paid on that front. We have not combined our bank accounts yet, but we will be consolidating everything together in the next two months.

Income:
Myself: 43,000 Gross (expected to increase with career change within a year)
Her: 38,000 (expected to increase significantly in the next year or two due to education) 

Assets: 
My Checking: $3,500
My Savings: $6,000 
My TFSA Savings: $10,000
RRSP: $0
Her checking: $2,000
Her savings: $500

Total Net worth:$22,000

Liabilities:
Condo mortgage: $124,000
No other debt.

Combined net monthly income: $4750

Expenses:
Mortgage + tax: $608
Strata: $275
Cell phones: $135
Hydro: $60
Cable: $66
Insurances: $292
Fuel: $300
Groceries: $450
Dining out: $200
Misc items: $400

Total expenses: $2786
Total monthly savings: $1964

Ok, so there it is. I have a few notes to make.

1) The condo. This is the bain of our financial existence going forward. We owe $124,000 @ 2.79% on it and I bought it for $140,000. I plan to sell in two years time but due to the local condo market I may only be able to get $100,000 or maybe less. I am hoping to net a small profit but I highly doubt this will be the case. This is why I am making the minimum payment on the mortgage and socking away cash. Fiance and I would like to start a family within two years time and I would like to upgrade to a small house or townhouse to have a bit of room (plus our building has an age restriction so no kids allowed). 

Our strata does not allow for rentals at this point, but we are trying to change that. I would like to ideally rent out my condo and buy a second property. If I can not rent out my condo, would it make sense to keep it and buy a second property? In the 10 years I may be able to sell this condo for a nice profit and the monthly payments are manageable. 

Or should I wash my hands of this and accept a loss of years of mortgage payments and move on with my life? 

2)I have not put any money into RRSP due to knowing I am going to need cash for a down-payment available when we decide to move, and also having cash available for the wedding. I was planning on starting to contribute to my RRSP once we have settled into he new place. Is this a mistake to wait?

Thanks for taking the time to read this and any input is appreciated!


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## Just a Guy (Mar 27, 2012)

First off, net worth is calculated as assists minus liabilities...if your condo isn't worth the mortgage, as you stated, you have a negative net worth or zero at best...don't be discouraged though, at your age, that's still not bad.

As for the condo, you should probably pay it down as fast as possible to get it down to at least a break even point when you sell. If it's worth $100k, about 90k after fees, you don't currently have $30,000 in cash to make up the difference...if you pay down your mortgage, you won't be hit with such a large amount.

If you can't change the by laws, then there is no point in thinking about having it as a rental. If you can rent the place (get the by laws changed) what would the cash flow be on the property? How much rent, what are the expenses. In my experience, if you've paid more than 100k/door, it's tough to generate positive cash flow.

Your best bet may be to suck it up and stay in the condo until the market recovers. I don't know about you, but I personally don't like to lose money. Walking away from 10s of thousands of dollars just to get a nicer home isn't a good idea.

As for rrsps, it would probably depend on your tax situation. 

Finally, I think you're leaving a few expenses out of your calculations, otherwise your savings should be increasing by almost 24k/year. 

First trick to financial success is figuring out what is really happening with your money.

One more thing...in my experience, one's lifestyle (expenses) tends to grow with one's income...very few people find they have more savings after they get a raise.


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## Westerncanada (Nov 11, 2013)

I am not 100% confident this would be within the rules.. but i know there is an RRSP Home Buyers plan may work if your wife has the RRSP's and is a first time home owner (i'm assuming you own the place on your own or may have purchased it..) worth looking into, you can transfer RRSP direct for a down payment..

Info is here..

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html


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## Nemo2 (Mar 1, 2012)

Just a Guy said:


> Walking away from 10s of thousands of dollars just to get a nicer home isn't a good idea.


+1 (And, if I might add, base your decisions on cold actualities, rather than 'likes'.......i.e. don't confuse 'wants' with 'needs'.)


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## rikk (May 28, 2012)

Well, you might be out $20K on the condo, but you might just be able to dicker and deal ... let's say $30K ... on that small house or townhouse where you really want to be ... I suggest go looking ... :encouragement:


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## Plugging Along (Jan 3, 2011)

If you are unable to rent out the place, it makes no sense to hold on to it in hopes of appreciation. I would either stay their as long as you can, pay down the mortgage so you can break even, then ditch it.


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## zulu22 (Mar 13, 2014)

Thanks for the responses!



> If you can rent the place (get the by laws changed) what would the cash flow be on the property? How much rent, what are the expenses. In my experience, if you've paid more than 100k/door, it's tough to generate positive cash flow.


If I could rent it out I would most likely only be looking at around $200 positive cash flow. Not a great outlook, but it does allow us to move on.



> Finally, I think you're leaving a few expenses out of your calculations, otherwise your savings should be increasing by almost 24k/year


You're correct. That missing money is wedding expenses though which we won't have going forward. We have pre-paid for all expenses in cash (photography,transport, venue, decor etc.)



> Westerncanada
> 
> I am not 100% confident this would be within the rules.. but i know there is an RRSP Home Buyers plan may work if your wife has the RRSP's and is a first time home owner (i'm assuming you own the place on your own or may have purchased it..) worth looking into, you can transfer RRSP direct for a down payment..Info is here..


Thanks, I will look into this. I purchased the condo on my own originally. I was under the impression that if we are both buying together on our next place that it would mean we can't take advantage of her being a first time home buyer, but I will research this more.

We are actually decently happy in the condo together with just us, but it would just not work with an infant. Not to mention the age restriction in place means I can actually be fined upwards of $500 per month if I had anyone under 25 living here. This actually happened in our building when a couple got pregnant already. Strata can be a terrible thing and we do feel very trapped at this point in our lives. I have learned a lot owning this property and moving forward I would like to avoid strata if possible and go to a small house. 

Any more advice is appreciated, thanks again.


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## OptsyEagle (Nov 29, 2009)

No cars ?


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## crazyjackcsa (Aug 8, 2010)

First things first. Unless you're living in a big city or expensive town, you aren't modest-low-middle class. You're already above the Canadian median income.

You'd also have to look into the tenant laws in your province. I don't think condos can say "no kids allowed".

I'd hang in at the condo for at least a couple of years. Why buy a small house if you're going to potentially out grow it again in 5 years?


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## Cdnwife (Sep 10, 2013)

Your wife will not be eligible for HBP program if she is purchasing and you are living with her. The fact that you owned a house within 4 years means she is not eligible.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/cndtns/frst-eng.html

You are not considered a first-time home buyer if, at any time during the period beginning January 1 of the fourth year before the year of the withdrawal and ending 31 days before the date of withdrawal, you or your spouse or common-law partner owned a home that you occupied as your principal place of residence.


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## zulu22 (Mar 13, 2014)

OptsyEagle said:


> No cars ?


We both own our vehicles outright, so no car payments. Only insurance and gas which is in the budget.



> You'd also have to look into the tenant laws in your province. I don't think condos can say "no kids allowed".


It is unfortunately up holdable in court and it is written into the BC Strata Property Act. It's crazy discrimination but I have read of this happening in Ontario as well. A few cases came up when I researched it.



> Your wife will not be eligible for HBP program if she is purchasing and you are living with her. The fact that you owned a house within 4 years means she is not eligible.
> 
> http://www.cra-arc.gc.ca/tx/ndvdls/t.../frst-eng.html
> 
> You are not considered a first-time home buyer if, at any time during the period beginning January 1 of the fourth year before the year of the withdrawal and ending 31 days before the date of withdrawal, you or your spouse or common-law partner owned a home that you occupied as your principal place of residence.


Thanks for the info. I thought this was the case as well.


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## Brian Weatherdon CFP (Jan 18, 2011)

Zulu, I wish I'd had such presence of mind financially when I was your age. The world is open to you; the choice you make will be good. (a) As long as you're living in the condo you continue to build your assets for the next steps when you're ready to upsize. (b) If you sell the condo for a loss you'll make up that loss many times over in future, plus as another mentioned, you may get a great deal on the property you purchase. (c) If you keep the condo as a rental -- my experience suggests finding a renter is easy enough -- then the renter too will be contributing to the growth of your net worth. 

You'll need professional support along the way. Certainly you'll be needing a mortgage broker, so conceivably that might be your first professional to see, and gain what insights you can find from them. They may also refer you to a financial planner (suitably certified or designated) who can offer you low or zero fees for a consultation. Imagine how much you may gain in meeting two such professionals, without it costing you anything for such early insights on your journey forward.


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## Feruk (Aug 15, 2012)

Why are you paying so much for car insurance?
You're missing expenses I think. No electricity, internet, vacation allocation, or car maintainance? The last two might be one-time costs, but if you want a fair budget you should calculate what the monthly cost is and list as an expense.

I agree with others that you should not be making minimum payments on your condo; that's like giving away free money in interest to a bank. You should pay off until at least break-even point if not more. There is only a certain amount of outstanding credit you will be given for a house. Let's say it's 4X gross income (on the high end I think), that means $320K. But if you owe $124K, the most debt a bank will believe you can service is 320 - 124 = $195K for a house.


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