# How Much Should I be Saving....



## Hank (Jan 7, 2013)

Hi everybody, I'm new to the forum and have been reading for awhile and value the input of any of this sites members.

Situation: I"m turning 33 soon, just bought my first house in Ottawa, making approximately 150k per annum now, as I've been promoted (I feel I"m at the peak of my earning potential right now, but could be wrong), wife earns 42k but is on mat leave.

I had 25k saved up until last year, used 20k for my home, and was a very big spender and never saved a thing until the last couple of years. Well, all that is about to change.

Right now have 5k in RRSP's in a crappy mutual fund (talk about that another time) and 20k in cash savings for emergencies, job loss, company gets sold etc that I do not want to touch.

I'm wondering approximately how much I should be investing per month in order to retire at 55, and if that goal is even realistic? I was planning on investing between 1-2k per month, with 2k being the goal. I will probably do a coach potato type portfolio (still reasearching that). I know I've waited way to long to start this program and I"m so upset with myself but will try my best to make it right.

Any advice at all is greatly appreciate as every financial advisor talks in circles and miscalculates etc etc.


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## Oldroe (Sep 18, 2009)

You need to get a very good handle on your expenses. Before you look at investing.


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## Hank (Jan 7, 2013)

Oldroe said:


> You need to get a very good handle on your expenses. Before you look at investing.


I do now. I've been saving 1-2k per month to get my emergency fund up to 20k and I still have a comforable amount left over.


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## jamesbe (May 8, 2010)

With that kind of income (190k with wife) you should be able to save $50k+ a year! 

If you want to retire at 55 you better start saving much faster IMO.


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

Interesting.

It seems you have two good incomes, are in a house and have money saved for unknown. This is good. I guess my questions would be 1) are you keeping a monthly budget of all your expenses (this doesn't require expensive software, just excel will do) and 2) have you saved up anything for the arrival of the baby? This will cost you quite a bit of money and it's probably a good idea to save some cash for the immediate expenses, plus some for the future

I agree with Oldroe. Need to get a better handle on where you stand on budgeting/expenses/spending habits before even thinking about investing and retiring. And baby comes first.

Good luck!


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## jamesbe (May 8, 2010)

Here is a good calculator. Based on the numbers you provided it came up with exactly as I mentioned before. You need to save about $4000 a month.

http://www.ingdirect.ca/en/tools/index.html#


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## andrewf (Mar 1, 2010)

I would recommend making max RRSP contributions to start off with. Given your income, I would focus on that rather than accelerated mortgage paydown.


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## Hank (Jan 7, 2013)

jamesbe said:


> Here is a good calculator. Based on the numbers you provided it came up with exactly as I mentioned before. You need to save about $4000 a month.
> 
> http://www.ingdirect.ca/en/tools/index.html#


:upset:

Wow, no way I can do that. I guess that answers my question, unfortunately.

I suppose the new goal is to save as much as I can...


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## Hank (Jan 7, 2013)

andrewf said:


> I would recommend making max RRSP contributions to start off with. Given your income, I would focus on that rather than accelerated mortgage paydown.


I will definitely be doing exactly that. 

I was also considering taking my RRSP return and putting that towards my mortage each year. Any thoughts on that strategy?


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## KaeJS (Sep 28, 2010)

Hank said:


> I do now. I've been saving 1-2k per month to get my emergency fund up to 20k and I still have a comforable amount left over.


I make $36k/year + Rental income and I save $1600/month....

You're still spending too much.


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## Echo (Apr 1, 2011)

KaeJS said:


> I make $36k/year + Rental income and I save $1600/month....
> 
> You're still spending too much.


I'm guessing you're single and don't have any kids?


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## KaeJS (Sep 28, 2010)

Echo said:


> I'm guessing you're single and don't have any kids?


Best way to live, my friend.

With facebook, jealousy, greed, selfishness, the economy, etc etc. It's the only way to live.

Women/Men can't be trusted and Children cost too much.


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## Hank (Jan 7, 2013)

KaeJS said:


> I make $36k/year + Rental income and I save $1600/month....
> 
> You're still spending too much.


Wow, 

Not sure how that is remotely possible but thats amazing.


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## Hank (Jan 7, 2013)

the-royal-mail said:


> Interesting.
> 
> It seems you have two good incomes, are in a house and have money saved for unknown. This is good. I guess my questions would be 1) are you keeping a monthly budget of all your expenses (this doesn't require expensive software, just excel will do) and 2) have you saved up anything for the arrival of the baby? This will cost you quite a bit of money and it's probably a good idea to save some cash for the immediate expenses, plus some for the future
> 
> ...


I'm doing that as we speak.

Great tip and thanks again.


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## jamesbe (May 8, 2010)

Hank said:


> Wow,
> 
> Not sure how that is remotely possible but thats amazing.


haha, yeah I spend more than $36k a year on stuff


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## KaeJS (Sep 28, 2010)

Hank said:


> Wow,
> 
> Not sure how that is remotely possible but thats amazing.


Well, it's not easy. And a lot of the time I want to do something, or want to buy something, and I force myself not to.

Some people say I have too much discipline for my own good. That's probably somewhat true.


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## Sampson (Apr 3, 2009)

We have somewhat similar stats and we easily saved 35%+ of net. 2-3X your rate, but we'll be 'free' by 45. I think you should easily be able to save $50k per year if your wife goes back to work, but we don't have any info about your spending, mortgage size etc.


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## Hank (Jan 7, 2013)

Sampson said:


> We have somewhat similar stats and we easily saved 35%+ of net. 2-3X your rate, but we'll be 'free' by 45. I think you should easily be able to save $50k per year if your wife goes back to work, but we don't have any info about your spending, mortgage size etc.


Good for you Sampson, I envy you!

Mortgage with taxes is 2k per year. Cars, 500 a month, saving 214/month for RESP, plus all the normal expenses pretty much.

I recently quit smoking AND drinking (well a 90% cutback on beer!) we don't live a lavish lifestyle but I figure expenses are between 5-6k.

That leaves 4-7k per month, still calculating those estimates. 

I'll report exact numbers back as soon as I can.


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## KaeJS (Sep 28, 2010)

I struggle with beer, too :biggrin:


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## Young&Ambitious (Aug 11, 2010)

Hank said:


> Mortgage with taxes is 2k per year.


I do believe this is wrong 

Budgets are mind-blowing and eye-opening. This and playing around with FV calculators. This will help you greatly.


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## Hank (Jan 7, 2013)

Young&Ambitious said:


> I do believe this is wrong
> 
> Budgets are mind-blowing and eye-opening. This and playing around with FV calculators. This will help you greatly.


2k per month - typo

So far I'm calculating around 6k per month in expenses and that is a conservative figure. : (


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## blin10 (Jun 27, 2011)

if your parents thought same thing, you wouldn't be posting here lol 




KaeJS said:


> Best way to live, my friend.
> 
> With facebook, jealousy, greed, selfishness, the economy, etc etc. It's the only way to live.
> 
> Women/Men can't be trusted and Children cost too much.


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## blin10 (Jun 27, 2011)

with a combined salary of 190k you're planning to save 1-2k a month and retire early ? dude, you seriously need to re-evaluate your goals... what could you possibly spend all that money on to have only 1-2k left ? you're married so can't be hookers and blow (it's a joke), so other then that on what ?


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## KaeJS (Sep 28, 2010)

blin10 said:


> if your parents thought same thing, you wouldn't be posting here lol


Whelp, that was their choice.

And neither of them are going to be able to retire comfortably.

Then guess who's going to have to foot the bill?

Good Old KaeJS. Which is exactly why I must blow my millions before they go into intensive care.


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## blin10 (Jun 27, 2011)

to each its own, whats the point of retiring comfortably if you're by yourself with no wife/woman and no children ? most friends will change, not stay in same area, so what exactly are you planning to do then ? sure you'll have a million, but you'll be lonely, miserable old dude who is mad at the world



KaeJS said:


> *Whelp, that was their choice.
> 
> And neither of them are going to be able to retire comfortably.*
> 
> ...


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## My Own Advisor (Sep 24, 2012)

Congrats on the new house Hank. Ottawa is great isn't it? 

If you can sock away about $2K/month for this year, between RRSPs, TFSAs, unregistered accounts - that's a great start. You can always ramp it up higher next year and in the years to come to pad your investment accounts. 

I would definitely recommend putting any tax refund to the mortgage. We plan to do that this year. We did the same last year. 
http://www.myownadvisor.ca/2012/04/how-we-spent-our-tax-refund-this-year/


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

Hi Hank, we are happy to help but please note it is not necessary to quote replies. Simply reply in the thread and address the person by name if need be. The thread is all connected together, quotes not necessary and waste space repeating.

Look forward to your comments about budgeting and controlling spending. Seems to me if you do that you can get a better handle on what savings goals might be reasonable for you.

And don't take any phone calls from the banks - this is RRSP season. They want to get you signed up to pay more MF fees. Cash is king until you get all this figured out.


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## jcgd (Oct 30, 2011)

Hank, looks like you need to make some decisions. It sounds like you live like you make $150k per year. But, if you want to retire early you will have to learn how to live like you earn $90k per year and bank the rest. If you do that, there should be no issue retiring early. 

Simple places to start and once you form a habit, they are easy money.

- Buy cars in cash, drive em into the ground. Cars are to be used until they are worn and tired and then discarded like the disgusting things they are. If you are proud of anything but how little your car costs or how far it can get on a litre of gas then you are using it for the wrong reason. 

- Eat out less or not at all. Hint... swap your lunch bag in for the kids in the morning and then dash before the wife realizes! Just think, if you can save $10 a day, that's $200 per month. $2400 per year. Every year you eat a bagged lunch you earn about two week of retirement. It adds up.

- Make coffee at home. Or at the very least, find somewhere cheap instead of Starbucks or $5 latte places. Even a tassimo will get your coffee to under a dollar per day.

- Buy less materialistic things. And if there is something you want, think about the resale value before you buy it. Electronics are almost as bad as cars, except you can sell a car for scrap metal. Electronics usually cost you in recycling fees if you want to throw it out.

- Get hand me downs for the kids. If you put effort into this, especially for toys, your kids can have rooms full of toys and they will cost hardly anything. If the kids want toys, give em $20 and take them to the market. Instead of one toy they can get a bag full.

Obviously there are a million more areas to cut costs, but if you think about your life and the things you really value you can trim the fat, have more of what you really need/ enjoy and still retire early.

You get paid a lot. But if you spend like you earn you will never be wealthy. You might look like the Jones' on the outside, but your finances will show the truth. 

For me, the key was finding satisfaction with having less. Getting rid of the excess made me feel more free and less like I was being crushed by my obligations and material possessions. Luckily I learned this now in my 20s instead of after I have kids.


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## Sampson (Apr 3, 2009)

Hank said:


> That leaves 4-7k per month, still calculating those estimates.


That's plenty. $50k per year into savings and/or mortgage paydown. Even with conservative investment returns, you'll make the 55 retirement goal, assuming you don't increase spending further.

Save $3-4k per month, then spend the rest. 30% savings rate of net pay is nothing to be ashamed of.


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## andrewf (Mar 1, 2010)

KaeJS said:


> I make $36k/year + Rental income and I save $1600/month....
> 
> You're still spending too much.


Offtopic, but related to the 'raise' thread...

Kae, you're a smart guy. You have a degree, right? In an analytical field (engineering/science/math)?

Why are you wasting your time with your current job?



Hank said:


> I will definitely be doing exactly that.
> 
> I was also considering taking my RRSP return and putting that towards my mortage each year. Any thoughts on that strategy?


As long as you're using all of your available RRSP contribution room.

Then, fill your TFSAs and invest those for retirement.

Then use any leftover cashflow for mortgage paydown. Rates are low right now, I would focus on building an investment portfolio. 

I agree that saving $4k-$5k/month is a reasonable goal for you given your age, income and desired retirement date.

How risky is your income/industry? Is it cyclical or do you have good job security? You may want to look into disability insurance.


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## Sampson (Apr 3, 2009)

The $4k-$5k should allow you to maximize RRSP, TFSA, and RESPs (assuming one kid). Anything else can go onto the mortgage. Truthfully, if you start at 33 and maximize all those registered savings plans, you'll definitely meet your objective. Don't listen to people who say you need to save 50% of your net pay. You don't. If you and your wife contribute $30k into your RRSP $11k into TFSAs and $2.5k into RESPs, you'll be saving more than most Canadians earn.

Good luck and keep faith.


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## KaeJS (Sep 28, 2010)

Hank, I apologize, I don't mean to hijack your thread.



blin10 said:


> to each its own, whats the point of retiring comfortably if you're by yourself with no wife/woman and no children ? most friends will change, not stay in same area, so what exactly are you planning to do then ? sure you'll have a million, but you'll be lonely, miserable old dude who is mad at the world


I want a female companion, I just don't want children.



andrewf said:


> Offtopic, but related to the 'raise' thread...
> 
> Kae, you're a smart guy. You have a degree, right? In an analytical field (engineering/science/math)?
> 
> Why are you wasting your time with your current job?


andrew, I do not have a degree, unfortunately.

Thank you for the compliment, though.


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## andrewf (Mar 1, 2010)

Dammit Kae. Quit your job, sell your house and get a degree. What's your career plan without one? A lot of doors will be slammed in your face.


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## KaeJS (Sep 28, 2010)

andrewf said:


> Dammit Kae. Quit your job, sell your house and get a degree. What's your career plan without one? A lot of doors will be slammed in your face.


Well, my current plan is to pay off the mortgage within 13 years (will be 35 years old).

Then.... who knows. I've worked the numbers. It's very possible.

I don't want to get a degree. I don't believe in it.


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## andrewf (Mar 1, 2010)

Don't believe in it?

You could easily be earning double... Get a degree in any analytical field that interests you. I agree that degrees are somewhat just signalling, but the signal has a good ROI.


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## Barwelle (Feb 23, 2011)

Potential employers believe in it.


edit: if you don't believe in a degree, come to Alberta and sign up for the rigs or start a trade. Then you'll get your raise.

I'm not in the financial industry, but as much as I can tell, it's hard to get high up without credentials.


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## Plugging Along (Jan 3, 2011)

There is a stereotype of people with degrees vs no degrees, believe that someone said somewhere that stereotypes are there for a reason. :rolleyes2:

If what one is doing is working then no need change, if your current path isn't, then maybe there is something else.


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## Plugging Along (Jan 3, 2011)

Back to OP 

You need to decide what it is you want. Your spending is high, your, savings rate is low. I would expect beast on your incomes, you should be able to save at least 15to 20%. 

You have to decide if you want to restore early, and cut expenses now, or retire later.


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## Barwelle (Feb 23, 2011)

Plugging Along said:


> There is a stereotype of people with degrees vs no degrees, believe that someone said somewhere that stereotypes are there for a reason. :rolleyes2:


Touché. 


That is all.


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## Eclectic12 (Oct 20, 2010)

Plugging Along said:


> There is a stereotype of people with degrees vs no degrees, believe that someone said somewhere that stereotypes are there for a reason. :rolleyes2: ...


Maybe ... whether one believes or not - there is the practical matter of what the typical manager is doing during the hiring process. Where the manager is using requested the degree(s) to cut the number of applications to review down to something manageable, the degree means the resume will be read.


Cheers


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## KaeJS (Sep 28, 2010)

Degrees cost a lot of money, time, and produce way more stress than I need. 

I'm content without one for now. 

I have no plans to spend x amount of dollars to get a degree.


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## Oldroe (Sep 18, 2009)

I'm totally against the curmudgeon lifestyle. It's all about balance. You need to get to 55 with all these things in place rrsp, tfsa,resp and the most forgot area investments outside these. 

And you need to do this with lot's of fun along the way, squeezing nickels until they are dimes is know life.


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## lifeliver (Aug 30, 2010)

Hello Hank, 

Have a look at this blog

http://www.mrmoneymustache.com/

It has a lot of great ideas on how to cut back on your spending and live a simple yet fulfilling lifestyle.
Its a bit extreme but its a fun read for someone who is trying to make a change in their spending / saving rate.


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## YYC (Nov 12, 2012)

the-royal-mail said:


> Hi Hank, we are happy to help but please note it is not necessary to quote replies. Simply reply in the thread and address the person by name if need be. The thread is all connected together, quotes not necessary and waste space repeating.


I actually find it tremendously useful, since there are a number of people talking to him, and responding with quotes makes it clear who he is responding to. Just like this reply from me! How would anyone know I was talking to you, since two full pages of posts have happened since my reponse to your comment. Maybe you could stop your broken record about this, let people post how they want.


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## Hank (Jan 7, 2013)

Wow, thanks everybody. The insight and encouragement is extremely helpful and very much appreciated.

It will take me another 4-6 weeks to accurately determine my exact spending per month.

I dunno, its hard to believe our costs are so high when we don't really do or buy a whole lot any more. 

I'm actually on pace to do about 164k this year, that said, I don't see how I can save 4k, maybe 2-3k max. Time will tell as my wife goes back to work and our new "less extravagent" ways come into effect. This certainly is a major eye opener and I have definitely raised the bar in terms of savings goals.


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## Hank (Jan 7, 2013)

YYC said:


> I actually find it tremendously useful, since there are a number of people talking to him, and responding with quotes makes it clear who he is responding to. Just like this reply from me! How would anyone know I was talking to you, since two full pages of posts have happened since my reponse to your comment. Maybe you could stop your broken record about this, let people post how they want.


Agreed, that is a such a weird request to make a on message board.


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## Hank (Jan 7, 2013)

Also, I'll start a thread in investing soon as I'm trying my best to make sense of all my options and it has become absolutely overwhelming!

I'd like to set up a coach potato and have so many questions.

Thank god I found this place :encouragement:


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## andrewf (Mar 1, 2010)

A good primer on couch potato investing is the MoneySense 'Guide to the Perfect Portfolio'. It's pretty accessible and will answer most of your questions as you go.

But yes, I'd say your priority right now should be getting a handle on your budget.


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## Hank (Jan 7, 2013)

andrewf said:


> A good primer on couch potato investing is the MoneySense 'Guide to the Perfect Portfolio'. It's pretty accessible and will answer most of your questions as you go.
> 
> But yes, I'd say your priority right now should be getting a handle on your budget.


Thanks, I will check that out.


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## peterk (May 16, 2010)

You're certainly in the right place Hank! Welcome.

From what details you give so far it certainly seems like you're having a keeping up with the joneses problem. 7-8k/month spending with minimal saving you must surely be squandering money on extravagances that don't ACTUALLY make you any happier. 
Don't wait 4-6 weeks to come back with your budget. Tell us NOW and get it out in the open. You absolutely don't have to "accurately determine my exact spending per month" to get started. The details don't matter, it's the mindset.


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## Plugging Along (Jan 3, 2011)

Welcome Hank!

I think there is a combination for building wealth: 1. developing strong savings habits, 2. having a strong income, and 3. investing knowledge. 

The 3rd is really the last thing to worry about. You have number #2 which is a hard one for some, so that's great, and if you can get your spending under control. 

We a higher income than you, and save about $5-6K a month. Based on our income, it could be more. However, our childcare, and kids education costs us about $40K a year. We are okay with this, and cut in other areas. Don't worry about being a miser, but see if there are areas (which I have a feeling there are a ton), that do not add as much value for your lifestyle. Work on those.


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## Ihatetaxes (May 5, 2010)

KaeJS said:


> Well, my current plan is to pay off the mortgage within 13 years (will be 35 years old).
> 
> Then.... who knows. I've worked the numbers. It's very possible.
> 
> I don't want to get a degree. I don't believe in it.


Likely the lack of degree is part of the reason your boss isn't giving you that raise you were talking about.

I agree with Andrew that you are wasting your time in a call center job making $36k. I don't have a degree either but was making six figures by 26 years old in sales. You talk about wanting millions but without the degree you will need to do something entrepreneurial or commission comped sales related to make six figures. Very few large companies will hire you without a degree especially in times of higher unemployment when the pool of candidates is so large and many recent university grads will be competing with you for those jobs.


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## Hank (Jan 7, 2013)

peterk said:


> You're certainly in the right place Hank! Welcome.
> 
> From what details you give so far it certainly seems like you're having a keeping up with the joneses problem. 7-8k/month spending with minimal saving you must surely be squandering money on extravagances that don't ACTUALLY make you any happier.
> Don't wait 4-6 weeks to come back with your budget. Tell us NOW and get it out in the open. You absolutely don't have to "accurately determine my exact spending per month" to get started. The details don't matter, it's the mindset.


Thanks

Re: budget, I'm still trying to figure out an actual number, I hope to get a very good idea this weekend when I have some free time. but I"m guessing around 7k? My spreadsheet is sitting at 6k but I'm most likely leaving things out. 

I'm plugging all my extra money into my savings account until I figure out where to put it.

4k a month over 22 years seems like an insane amount of money to put away month after month. Or is it just me?


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## MoneyGal (Apr 24, 2009)

Hi Hank - it does seem insane in mainstream culture. It isn't insane at CMF. I'm really with whoever said, above, that you need to find a balance you can live with -- a balance between current wants and needs, and future wants and needs. 

(I'm sure you've done the math, but 4000*12*22 = $1,056,000, not accounting for any investment growth or any erosion from inflation. Does saving $1M seem like an insane thing to do?)


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## Pennypincher (Dec 3, 2012)

KaeJS said:


> Degrees cost a lot of money, time, and produce way more stress than I need.
> 
> I'm content without one for now.
> 
> I have no plans to spend x amount of dollars to get a degree.


There are a lot of jobs that will pay for your degree if you go to night school. It's a win - win.


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## jamesbe (May 8, 2010)

Ihatetaxes said:


> Likely the lack of degree is part of the reason your boss isn't giving you that raise you were talking about.
> 
> I agree with Andrew that you are wasting your time in a call center job making $36k. I don't have a degree either but was making six figures by 26 years old in sales. You talk about wanting millions but without the degree you will need to do something entrepreneurial or commission comped sales related to make six figures. Very few large companies will hire you without a degree especially in times of higher unemployment when the pool of candidates is so large and many recent university grads will be competing with you for those jobs.


I hate to take this too far off topic but experience can substitute for education at times. I don't have a degree and make six figures, I have a diploma and worked my butt off the first few years to prove myself. But I'll agree more and more employers will dismiss you without one. I don't qualify for my job.... I fear eventually I'll have to move on and will be ignored without the diploma. But I have received unsolicited offers simply based on my experience so maybe not...


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## Hank (Jan 7, 2013)

MoneyGal said:


> Hi Hank - it does seem insane in mainstream culture. It isn't insane at CMF. I'm really with whoever said, above, that you need to find a balance you can live with -- a balance between current wants and needs, and future wants and needs.
> 
> (I'm sure you've done the math, but 4000*12*22 = $1,056,000, not accounting for any investment growth or any erosion from inflation. Does saving $1M seem like an insane thing to do?)


Great points and I totally agree.

What would that look like within sound investments (ie coach potato portfolio) as 22 yrs?

How much do you guys think one needs to retire at 55 to live a normal type of lifestyle?


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## jamesbe (May 8, 2010)

Depends on many factors. I have similar income to you, I'm shooting for 2mil.


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## Hank (Jan 7, 2013)

jamesbe said:


> Depends on many factors. I have similar income to you, I'm shooting for 2mil.


Wow

And so you're doing 4k a month for how many years to hit that number?


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## andrewf (Mar 1, 2010)

If you can achieve a 6% real return (ie, after inflation), saving $48k/year for 22 years is about $2,080,000 in today's dollars.

It might seem like a lot of money, but if you want to continue to have a nice lifestyle in retirement, I don't think it's unreasonable. Especially if you want to retire at 55.

If you drew $2 million down at 4-5% per year, you would have $80k-$100k in pre-tax income, plus CPP and OAS when you're eligible.


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## andrewf (Mar 1, 2010)

Hank, if it helps, for every dollar you put in an RRSP, you'll get ~50 cents back. That means putting $4k in your RRSP per month will cost ~$2000 in after tax cash flow. Now, you will run out of RRSP room saving at $4k per month, but it makes saving that much sting a bit less.


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## Hank (Jan 7, 2013)

andrewf said:


> Hank, if it helps, for every dollar you put in an RRSP, you'll get ~50 cents back. That means putting $4k in your RRSP per month will cost ~$2000 in after tax cash flow. Now, you will run out of RRSP room saving at $4k per month, but it makes saving that much sting a bit less.


Great point

On that note, if I were able to invest say 2-3k per month, and re-invest my tax return (40-50%) each year totalling an average of 4k per month, is that a sound, realistic appraoch to hitting that 2million mark?


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## jcgd (Oct 30, 2011)

The tax return is paid back later when you withdraw funds from the rrsp. If you want to put $1000 on your rrsp you need to contribute $1000 plus the tax return. You may be taxed more or less in retirement depending on your tax rate then, but you get the idea.

Ie. $2000 in rrsp + refund into rrsp = approx $2000 out of rrsp after tax in retirement. 
$2000 into rrsp = $2000 minus taxes during retirement out of rrsp. 

* ignoring any investment returns.


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## GoldStone (Mar 6, 2011)

andrewf said:


> If you can achieve a 6% real return (ie, after inflation), saving $48k/year for 22 years is about $2,080,000 in today's dollars.


Retirement plan that relies on 6% real return (8.5% nominal) is way too aggressive.

North American equity valuations are high by historic norms. So are bond valuations. 2-4% real (4.5-6.5% nominal) would be a more prudent number to use for planning purposes.


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## andrewf (Mar 1, 2010)

Roughly, yes, except that you will run out of contribution room. For instance, the most new RRSP contribution room you can get is ~$23k per year. You didn't say how much unused room you have (it will say on your previous Notice of Assessment from CRA), but you'll chew through that backlog within a few years, I imagine.


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## andrewf (Mar 1, 2010)

I agree to an extent, Goldstone.

2% real gives $1,310,000 (I think this is very conservative).

4% real gives $1,640,000 (this is probably prudent to use as a plan).

Keep in mind that this is invested over time. Not all of it will be invested at today's rather lofty valuations for NA equity. I would also start with a more aggressive equity/FI mix, so high bond prices should not be a huge problem over the next few years.


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## Hank (Jan 7, 2013)

jcgd said:


> The tax return is paid back later when you withdraw funds from the rrsp. If you want to put $1000 on your rrsp you need to contribute $1000 plus the tax return. You may be taxed more or less in retirement depending on your tax rate then, but you get the idea.
> 
> Ie. $2000 in rrsp + refund into rrsp = approx $2000 out of rrsp after tax in retirement.
> $2000 into rrsp = $2000 minus taxes during retirement out of rrsp.
> ...


I would be taxed a lot less, no question.


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## Zoombie (Jan 10, 2012)

Hank said:


> 4k a month over 22 years seems like an insane amount of money to put away month after month. Or is it just me?


It does seem like a lot, but keep in mind that retiring at 55, you may live to be 95 and need to have income saved for the next 40 years. Also, if you want to maintain a similar lifestyle in retirement as you do now, (spending 6-7k per month) that adds up to an insane amount of money as well. 

ie. $6k x 12 mo x 40 yrs = $2.8M 


Of course you would likely have much reduced expenses late in retirement, and the above is rather simplistic (ignores income earned on principal) but retirement is not inexpensive.


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## GoldStone (Mar 6, 2011)

Andrew, I disagree that 2% real is very conservative.

FPX Growth Benchmark
15 year nominal return
from 1997-12-31 to 2012-12-31

*5.31%*

Calculated here:
http://www.croftgroup.com/indexes/calculator.asp

Subtract 2.5% inflation. You get 2.63% real.

You suggested a more aggressive equity/FI mix to start. It may or may not help. If we have another 2008-like meltdown, it will hurt.


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## Hank (Jan 7, 2013)

Zoombie said:


> It does seem like a lot, but keep in mind that retiring at 55, you may live to be 95 and need to have income saved for the next 40 years. Also, if you want to maintain a similar lifestyle in retirement as you do now, (spending 6-7k per month) that adds up to an insane amount of money as well.
> 
> ie. $6k x 12 mo x 40 yrs = $2.8M
> 
> ...


This is very helpful. I don't see myself living close to 90 but my wife may!

I won't have a mortgage at 55 so thats 2k+

This is all very very helpful.


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## jamesbe (May 8, 2010)

Hank said:


> Wow
> 
> And so you're doing 4k a month for how many years to hit that number?


Well I'm basically the same age as you (34) but I have over 300k saved already (RRSP + TFSA + Cash) and I also have over $200k in equity in my home.

As mentioned 2mil sounds like a lot but I don't want to have to go back to work at 80. I'm not sure if I'll retire at 55 or not but I hope that I could if I wanted to. I'll probably work as long as I can and feel I need to. I won't work for minimum wage unless I have no choice. I'm building now so that if I have to stop or want to stop working at any point I can just throw up my feet and do it.

I could be saving a lot more but we wanted a nice home with some land. Hopefully I can use that equity and downsize in the next 10 years.

You are lucky your wife also earns a large income. That certainly will help you guys save! Mine isn't working and hasn't for 5 or 6 years now and never made over minimum wage anyways. Extra earning would have us retiring really early.


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## andrewf (Mar 1, 2010)

How many 20 year periods have there been with sub-2% real returns on a balanced portfolio?


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## Hank (Jan 7, 2013)

jamesbe said:


> Well I'm basically the same age as you (34) but I have over 300k saved already (RRSP + TFSA + Cash) and I also have over $200k in equity in my home.
> 
> As mentioned 2mil sounds like a lot but I don't want to have to go back to work at 80. I'm not sure if I'll retire at 55 or not but I hope that I could if I wanted to. I'll probably work as long as I can and feel I need to. I won't work for minimum wage unless I have no choice. I'm building now so that if I have to stop or want to stop working at any point I can just throw up my feet and do it.
> 
> ...


Holy smokes, how did you get 300k already!?!

Good for you, you have a sound plan in place with a good head start inlcuding lots of equity.

You really think with that much money you'd spend it all before 80?

PS Nobody will hire an 80 year old!


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## jamesbe (May 8, 2010)

I honestly am not sure LOL.

I bought my first house at 21 or 22 and saved saved saved. 

I haven't really deprived myself either and have made some stupid money mistakes like buying multiple new cars over the years and my hobby is racing (a notoriously expensive sport).

But I do not spend much money on eating out, or drinking like many of my peers. I also do not go on vacation every year like many. This year was the first time I EVER went on vacation actually!


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## Oldroe (Sep 18, 2009)

A very good strategy is to contribute enough to your rssp to drop you down 1 tax bracket. Then drop the tax return on the mortgage.


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## Hank (Jan 7, 2013)

Oldroe said:


> A very good strategy is to contribute enough to your rssp to drop you down 1 tax bracket. Then drop the tax return on the mortgage.


Great idea. Any information or links on those exact brackets and the math behind doing this?


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## andrewf (Mar 1, 2010)

Taxtips.ca is a great resource.

Here are Ontario marginal tax rates for different kinds of income:

http://www.taxtips.ca/taxrates/on.htm


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## underemployedactor (Oct 22, 2011)

KaeJS said:


> Degrees cost a lot of money, time, and produce way more stress than I need.
> 
> I'm content without one for now.
> 
> I have no plans to spend x amount of dollars to get a degree.


Hey Kaej, you can have mine, I'm not using it anymore. I'll give you a great deal. Let's see, it cost me around 200 K or so, so I'll let you have it at the knockdown price of 50K. What do you say? 50K for a slightly used BCom from a prestigious University?
Cash only of course.


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## Ihatetaxes (May 5, 2010)

jamesbe said:


> I honestly am not sure LOL.
> 
> I bought my first house at 21 or 22 and saved saved saved.
> 
> ...


Yellow S2000?


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## slacker (Mar 8, 2010)

Saving only 1 million dollars, and wanting to retire at 55, plus starting with such a high income level, who is having trouble cutting expenses... will lead to a very bare bones and disappointing retirement.


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## GoldStone (Mar 6, 2011)

andrewf said:


> How many 20 year periods have there been with sub-2% real returns on a balanced portfolio?


No one is talking about sub-2% returns.

To recap:

We both agreed that 6% real is too aggressive.
You think that 4% real is prudent; 2% real is too conservative.
I think that 4% real is still a bit too aggressive; 2% real is prudent.

Back to your question. I concede that 20th century balanced portfolios support your number (4% real). Can we use 20th century stats as a guidance going forward? I'm not sure. Economic conditions are very different. Government deficits & debt, credit contraction, unwinding of debt, slow economic growth or no growth, retiring baby boomers, low birth rates, etc etc. The impact on investment returns is uncertain.

When I started investing in 1997, everyone was talking about 10% equity returns as being the norm. What we got instead was a "lost decade for equities". FPX Balanced benchmark returned 2.6% real over last 15 years. That's closer to my number than to yours.

Nothing is guaranteed. I'd rather use more conservative number in my planning. If it proves to be too conservative, great! I can retire sooner than I expected.


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## GoldStone (Mar 6, 2011)

Hank said:


> How much do you guys think one needs to retire at 55 to live a normal type of lifestyle?


Hi Hank,

Here's a simple rule of thumb:

Decide how much you want to spend annually in retirement. Multiply by 25. That's what you need to save.

80K lifestyle * 25 = 2,000,000
70K lifestyle * 25 = 1,750,000
60K lifestyle * 25 = 1,500,000

The factor of 25 is derived from the 4% safe withdrawal rate.

http://www.bogleheads.org/wiki/Safe_Withdrawal_Rates

http://en.wikipedia.org/wiki/Trinity_study


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## MoneyGal (Apr 24, 2009)

Goldstone, you might find this article interesting: http://www.advisorone.com/2013/01/1...utm_medium=enewsletter&utm_campaign=dailywire

_Financial advisors relying on the classic “4% rule” for their clients’ retirement income have a better than even chance of failure, according to newly published research.

Titled “The 4 Percent Rule is Not Safe in a Low-Yield World,” the study by Michael Finke, Wade Pfau and David Blanchett argues that advisors make a grave mistake in basing their clients’ retirement plans on historical returns that may be an anomaly._

The underlying paper is worth reading. I don't know Finke or Blanchett but Wade Pfau is an amazing thinker.


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## andrewf (Mar 1, 2010)

Well, it raises the question of whether insurance companies are pricing their annuities on the basis of historical asset class returns. If the 4% rule is potentially disastrous today, is it not also possible that annuities are underpriced for much the same reason? Small insurance industry failures can be tolerated, but what about large systemic failures?


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## Sampson (Apr 3, 2009)

andrewf said:


> Well, it raises the question of whether insurance companies are pricing their annuities on the basis of historical asset class returns.


I was thinking exactly the same thing, especially after MGal chimed in.

Great minds are great


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## GoldStone (Mar 6, 2011)

MoneyGal said:


> Goldstone, you might find this article interesting: http://www.advisorone.com/2013/01/1...utm_medium=enewsletter&utm_campaign=dailywire
> 
> _Financial advisors relying on the classic “4% rule” for their clients’ retirement income have a better than even chance of failure, according to newly published research._


MoneyGal, I'm well aware that 4% SWR is not really safe. I hesitated whether to mention it here in this thread. I decided not to, based on where the OP is in his investment journey. I didn't want to overwhelm him with fine-grain details.

Now that you raised this subject encouragement, I should mention that I use 3% SWR for my own planning. That means factor of 33 for estimating the savings goal.


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## MoneyGal (Apr 24, 2009)

Annuities are not priced on market returns. 

GoldStone, I have another article for you which I will post tomorrow.


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## Sampson (Apr 3, 2009)

So how do the insurance companies ensure they remain profitable? Are they backstopped by debt?


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## brad (May 22, 2009)

Hank, I have another idea for you to consider. At your income level, you can also think about making significant contributions to charity. There are tax benefits, of course, but that's not why I'm bringing this up. People make all kinds of arguments for giving to charity, out of duty or responsibility, but I prefer to look at it through the prism of opportunity. For years, I made token contributions of a few hundred bucks per year to a few charities that were working on causes I supported. But then one year I decided to take it a step up to see if I could make more of a difference. The satisfaction I got from that transformed the way I felt about giving, and I've been allocating an ever-increasing percentage of my income to charity ever since.

Just as with investments, you want to maximize your "returns" with charities, getting the biggest bang for your philanthropic buck. Many organizations are doing research in this area to find the most effective charities, and the first thing you learn is that smart charity does NOT begin at home: if you want to have the maximum impact you should give to organizations working in developing countries. It's no contest. Giving to your local arts organization or homeless shelter is the equivalent of putting your money in a standard bank savings account at 0.1% interest; donating to an effective charity working in developing countries is like picking a magical low-risk stock that returns 80% year after year. You can save a lot of lives with relatively few dollars.

But the surprising thing I've found is that the proportion of personal satisfaction increases exponentially with the amount you give. I currently give $12,000/year, allocated in a portfolio across four charities. As soon as my mortgage is paid off in about four or five years, I'm planning to at least double that amount. Not because I feel I "should" but because I want to make even more of a difference. Big donations have a much greater impact than little ones, and in some cases the charities you give to can tell you exactly what your donation accomplished. For example, half of my donations go to the Against Malaria Foundation, one of the world's top-rated charities. All of their overhead costs are covered separately by a small group of private donors, which means that 100% of everyone else's donation goes directly to buying insecticidal nets that protect people from mosquito bites while sleeping. My donation will protect 2,700 people per year. If even 5 of those people would have otherwise gotten malaria, I'd feel like a hero. How many chances do normal folks like me get to save actual lives?

It's a balancing act, of course: I have to balance my charitable giving with paying off my mortgage and saving for retirement. Those are my three biggest financial allocations each year. It doesn't leave a whole lot left over for living now, but it leaves enough, and my charitable giving makes me a lot happier than most other things I could spend $12,000 on. It's worth thinking about. My charity "portfolio" is a mix of high-impact donations to organizations working in developing countries and some lower-impact ones working here at home: it's kind of like a balanced investment portfolio. Even though I know my "at home" charities may not be the most effective, I want to support what they do because their work is important to me personally. But they don't get most of my money.

You could read "The Life You Can Save," by Peter Singer, or visit the website (thelifeyoucansave.org). To find the most effective charities, look up givewell.org. The most effective charities are not necessarily those with the lowest overhead, by the way -- that's a fallacy. Givewell and other charity evaluators look at the effectiveness of charities based on the amount of good that a donated dollar can do.


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## MoneyGal (Apr 24, 2009)

Annuity prices are set by life assurance companies taking into account:

• current and expected future mortality rates
• the yields available on fixed interest investments
• expenses relating to the sale of the annuity (including commission) and expected future administration costs, and
• the required profit margin, which will reflect the level of capital that the company is required by the regulators to hold during the life of the annuity.

Toronto Gal posted an infographic setting out insurance profit margins a little while ago somewhere on the board.


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## Hawkdog (Oct 26, 2012)

KaeJS said:


> Degrees cost a lot of money, time, and produce way more stress than I need.
> 
> I'm content without one for now.
> 
> I have no plans to spend x amount of dollars to get a degree.


I have a degree, used it for ten years - Biology/Forestry. Quit - went to work for a Diamond drilling company - within 3 years I was making 140,000 - year.
The best thing about the degree, besides all the fun there is to be had at Uni, is that now I work in mgmt for the same company after 10 years, less money more time at home.


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## andrewf (Mar 1, 2010)

I know people at work who are 50 and being held back by not having a degree. Some people who are quite competent and experienced but were laid off, and finding it hard to be considered for equivalent jobs without the piece of paper.

I think it's a big mistake not to have it, at least in most 'office' careers.


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## Mall Guy (Sep 14, 2011)

Ihatetaxes said:


> Likely the lack of degree is part of the reason your boss isn't giving you that raise you were talking about.
> 
> I agree with Andrew that you are wasting your time in a call center job making $36k. I don't have a degree either but was making six figures by 26 years old in sales. You talk about wanting millions but without the degree you will need to do something entrepreneurial or commission comped sales related to make six figures. Very few large companies will hire you without a degree especially in times of higher unemployment when the pool of candidates is so large and many recent university grads will be competing with you for those jobs.


+1

I didn't have a degree to start out with, and have always made good money in sales. Rose through the ranks, until one day my boss (CEO) said if I want to be considered a BIG part of the succession plan, I need to get an MBA . . . so at 45 I am back in an exec program grinding out 20 hours a week of school work on top of my job . . . do it early, do it now! Or the 'go to Alberta thing' might work as well, of course Newfoundland IS the new Alberta!


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## Hawkdog (Oct 26, 2012)

agreed. if you not going to get a degree, get a trade.
go work in a camp where you don't have any expenses - with your will power you could save tons.


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## Mall Guy (Sep 14, 2011)

Oh, and I would have said I pay almost double what KaeJS makes a year in child support/university costs, but that would just fuel his argument :biggrin:


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## peterk (May 16, 2010)

Well, I still like you KaeJS.


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## KaeJS (Sep 28, 2010)

underemployedactor said:


> Hey Kaej, you can have mine, I'm not using it anymore. I'll give you a great deal. Let's see, it cost me around 200 K or so, so I'll let you have it at the knockdown price of 50K. What do you say? 50K for a slightly used BCom from a prestigious University?
> Cash only of course.


Too bad it has your name on it, or we could strike a deal.



peterk said:


> Well, I still like you KaeJS.


I think you're the only one. :biggrin:

I know Homerhomer is a big fan.


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## Argonaut (Dec 7, 2010)

I got a degree that didn't really help me career-wise, but it was a decent trivial knowledge builder. I guess it was part of the reason I was hired on at the bank, but I soon tired of that. Much as was previously mentioned, I decided to do the Alberta thing. Now I make $550 a day.

Unless you have very specific qualifications, though, you'll be getting an entry-level job. Also, it's a myth that anyone who heads out will get hired. Speaking from the drilling side of things, the work is brutally hard. If you have any doubts, don't go! I'll stick it out for as long as it makes sense.


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## KaeJS (Sep 28, 2010)

$550 in one day?

That's more than I make in one week.

That's just sad...


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## Argonaut (Dec 7, 2010)

Generally work twenty days a month, so that's not every day. Plus, most guys take time off in the spring at least. In this case I wouldn't feel too bad taking EI because I pay so damn much into it. Don't feel too bad KJ, the only time I wouldn't trade places with you is the precious few hours when I'm sleeping.


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## GoldStone (Mar 6, 2011)

KaeJS said:


> That's just sad...


What's sad is how this thread got thoroughly hijacked.

The OP is a newcomer. He deserves a better welcome.


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## andrewf (Mar 1, 2010)

Sorry about that, OP.

Btw, EI caps out at $840/yr.

Kae's career discussion can continue in his raise thread.


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## Pigzfly (Dec 2, 2010)

For Hank (...because apparently this was way-hijacked).

It may seem like you're not living a very luxurious lifestyle and I know the feeling. That said, here are some quick things to evaluate that usually cost (me, mostly) a lot of money:

- vacations & attending things like weddings
- gifts, especially weddings, babies, Christmas, birthdays,
- electronics - how old are your phones? your tv? your computers? cameras? apple tv, game systems, etc
- "stuff" like dvds, books, sporting goods (big one for me!!)
- furniture
- alcohol
- art work
- food 

big categories for other people:
- clothing
- cars
- hair and makeup
- restaurants
- bars
- general shopping

Taking a wild stab, I bet there are several thousand dollars that you could cut without much batting of the eyes in the above categories. Take me for example, I could cut out $100 a month in groceries with practically zero effort. I could probably cut out $300 with a solid effort. However, I'm not going to, because I like to buy delicious foods that are pricey. Like seafood and cheeses. 
Other things are slightly different habits. Most people have "my vehicle" and "my spouse's vehicle." Whenever you're together or only one of you is going out, take the more fuel efficient one every single time, unless the other vehicle is needed specifically. There are a myriad of small lifestyle tweaks like this that will make it fairly easy to put more money to savings and really not affect your lifestyle whatsoever. Don't buy things at gas stations, pack your lunch on occasion or always, have friends over for a potluck, use the library for movies, get netflix instead of cable, cancel magazine subscriptions..... on and on and on.

Best of luck figuring out a good balance for your retirement and lifestyle goals


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## Oldroe (Sep 18, 2009)

Contribute enough to drop 1 tax bracket will give you a tax return of the differences between your tax bracket and the one you move into.
I don't no the tax brackets anymore so we will just make it #'s

56% tax bracket down to 48% so you get 8% of 150k you get 12k tax return, lets assume you are in the 56% tax bracket by $5000 so you contribute $6000 to your rrsp to get 12k plus 56% of your 6 k or another $3360.

The math monkeys here can do a better job of this, but it's away to have cake and eat it to.

Most times you are close to the next tax bracket making it a very large rrsp contribution. I would put every $ of my money then borrow for 30 days to lower 1 tax bracket. Pay your loan off then put the rest of return on your mortgage.

Now you need to calculate the savings on the mortgage.

You hear about people that ask payroll to increase weekly tax to insure a tax return. This is a much better way.


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## Pigzfly (Dec 2, 2010)

Oldroe said:


> 56% tax bracket down to 48% so you get 8% of 150k you get 12k tax return, lets assume you are in the 56% tax bracket by $5000 so you contribute $6000 to your rrsp to get 12k plus 56% of your 6 k or another $3360.


You only pay the higher tax rate on the marginal dollars. Fictional brackets here, but say the top end of the 48% bracket is 125K, you are only paying 56% on 150-125, or 25K, so it doesn't work out to a 12K tax return.

Nova Scotia has the highest income taxation in the country and their top marginal rate is 50.0, nowhere comes even close to 56%.


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## brad (May 22, 2009)

Pigzfly said:


> Nova Scotia has the highest income taxation in the country and their top marginal rate is 50.0, nowhere comes even close to 56%.


I think Québec has Nova Scotia beat; for 2013 the top marginal rate is 54.75%.


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## andrewf (Mar 1, 2010)

I'm always surprised by how many people think that's how taxes work. People are terrified of earning more money in case they get bumped into the next tax bracket...


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## Oldroe (Sep 18, 2009)

Thank god a few finally woke. You are correct. As stated those are just #'s.

I would think a few on cmf could run the correct #'s for op and you will fined out this is a very good strategy.

Run this every year and you have your rrsp and the mortgage payed.


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## newfoundlander61 (Feb 6, 2011)

Start with 10% of gross, do that for a while and move up if you can afford it.


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## Pigzfly (Dec 2, 2010)

@Brad - then the generally reputable taxtips.ca has done me wrong! http://taxtips.ca/taxrates/qc.htm They had Québec listed at 49.97. I believe (definitely could be wrong) that NS has actually had QC beat for a few years now. Might be something to do with healthcare charges, that would make the effective marginal rate different?


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## Pigzfly (Dec 2, 2010)

Oldroe said:


> As stated those are just #'s.


The numbers weren't the main reason I was responding, it was the part where you were implying if you're in a higher tax bracket that your taxes go up on all your earnings, when it is only on the dollars that fall into that specific bracket.


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## brad (May 22, 2009)

Pigzfly said:


> @Brad - then the generally reputable taxtips.ca has done me wrong! http://taxtips.ca/taxrates/qc.htm They had Québec listed at 49.97. I believe (definitely could be wrong) that NS has actually had QC beat for a few years now. Might be something to do with healthcare charges, that would make the effective marginal rate different?


Ah, okay, it must be more complicated than simply adding the federal and provincial rates, then, sorry. I was basing the rate on adding the top federal marginal tax rate of 29% as shown here http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html plus the top Québec marginal tax rate of 25.75% shown here: http://www.revenuquebec.ca/en/citoyen/impots/rens_comp/taux.aspx.


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## jcgd (Oct 30, 2011)

Yes, about the tax returns here there are some very confusing or very wrong explanations.

Example:

Made up brackets.

10%: from $0 to $7,550
15%: from $7,551 to $30,650
25%: from $30,651 to $74,200
28%: from $74,201 to $154,800
33%: from $154,801 to $336,550
35%: $336,551 and above

If I make $7000 one year I pay 10% of $7000. That's it.
If I make $10,000 I pay 10% of $7550 PLUS 15% of $2450, the balance after I exclude the first bracket's maximum dollar amount from my income.

It works the opposite way when you get tax returns.


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