# 20 yrs old and saving for a house



## Kevinlo416 (May 21, 2011)

Hello, I've been reading this forum for a while and I wanted to gather some opinions about my current situation. As it states I'm only 20 years old, I just started my new full time job earning a salary of $30000 before taxes, so I'm really not making that much. My goal in 5 years is to save for a 20% down payment for a house So hopefully i should have $60000. By here's a layout of my financial situation


Monthly income:$1900
Debt : $6500 in credit card debit (11.99% interest)paying $450 monthly
Saving: $1000 into tfsa pcfinancial
TFSA:$3050 currently 
Miscellaneous: $200 gas and food

As you can see, I'm happy with living with $400 dollars per month , but once I pay off my debt within the next year it would free up $450 per month and was wondering where should I invest it too, it would be


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

Invest? Where are you living? You don't list any housing and transportation expenses?

I don't think you're at the right stage in life to be thinking about investing. You have a financial house to build. Start with the foundation. You're just getting started in life. You need to pay off your debts right away. Monthly payments are not enough. Use your TFSA savings to get that debt reduced. That is priority 1.

Finish that off before thinking about anything else.


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## Four Pillars (Apr 5, 2009)

He must be living with the rents.

You are doing a great job of saving, but you need to point those savings in the right direction.

I agree with Royal - pay off those credit cards. You're saving $1K/month in a TFSA and at the same time you are paying 12% interest on the CC debt. Put that money towards the CC and it will be gone pretty quick.

What are you investing in now at PC?


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## marina628 (Dec 14, 2010)

It is nice to see young people have goals .Don't get caught up in savings first then debt payment ,take all that money and pay on your cc immediately.


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## Kevinlo416 (May 21, 2011)

I did forget to mention I am living with my rents, I have a car that I only pay gas for. Also for the credit card it is on a promotional rate of 1.99% for 6 months which is not to bad, so I guess I'll be focusing on maximizing my payments as much as I can. But on a side note I'm not in a rush to pay off the credit card debit( sliced the cards  ) I was just curious which accounts or banks would be best suitable for investing my savings long term and getting a nice return


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## KaeJS (Sep 28, 2010)

1. Take everything out of your TFSA and pay off your credit card. 11.99% interest is not a lot for a credit card, but it is *a lot* in a general sense. 

If you could make 12%/year in the market, you'd be laughing. And that is exactly what the bank is doing. Laughing at you. No sense putting money into a TFSA making no money when you are paying big dollars to carry your debt.

2. You need to save at least $1000/month to have $60,000 in 5 years. Keep in mind that is only a $300,000 house. And, a $300,000 house today will not be $300,000 in 5 years from now. It will be more.

I would pay off the credit card and try to save $1200/month.

Keep in mind you will have to pay insurance for the car one day. As you will with maintenance on the car. Not to mention that unless the car is newer, you'll most likely need/want a new one around 5 years from now.


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## Sherlock (Apr 18, 2010)

Since you plan to contribute monthly, I would recommend setting up a TFSA using either the TD e-series funds, or the ING streetwise fund. Both options would allow you to deposit or withdraw money with no transaction fees.

http://www.tdcanadatrust.com/mutualfunds/tdeseriesfunds/index.jsp

http://www.ingdirect.ca/en/mutualfunds/index.html

But I agree that you should pay off your debt before starting to invest.


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## Sherlock (Apr 18, 2010)

KaeJS said:


> 2. You need to save at least $1000/month to have $60,000 in 5 years. Keep in mind that is only a $300,000 house. And, a $300,000 house today will not be $300,000 in 5 years from now. It will be more.


300k would buy a very nice detached house in a normal city, just not in the GTA.


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## Plugging Along (Jan 3, 2011)

I would agree with the others, that paying off your debt is the smartest investment you can make now. If you take your TFSA and current savings, $450, plus top off your payments to at least a $1000 (so $650 more), you could be paid off in under 3 months. Then you could take the $1000 a month, as start savings. 

As someone else said you need to save at least $1000/month. For your investmenst, if you're looking at a shorter time frame, there are not as many options, so I would not be expecting the 10% returns for a short 5 year period. 

I think it's great that you're saving young, and that's 1/2 the battle. I think if you work on decreasing your debt, figure out if there are ways to increase your income, and make sure you save money each month, you'll be in great shape.


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

You are living with rents? You mean you pay rent? How much?


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## Ben (Apr 3, 2009)

'Rents=Parents... presumably no rent.


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## KaeJS (Sep 28, 2010)

Sherlock said:


> 300k would buy a very nice detached house in a *normal* city, just not in the GTA.


Sorry, this is also true. 

Sometimes I look at the houses in London/Windsor area. It's insane what you can get for 250k.

But regardless, prices still may change over a 5 year period. Just keep in mind that a $300,000 house today may well be worth $325,000 in 5 years from now when you are ready to buy, for example.


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## Charlie (May 20, 2011)

It's a little counter-intuitive when you're in the lower tax tiers, but consider RRSP's instead of all to TFSA.

You can withdraw $25K for your home buy Essentially you get a tax free 'loan' of the refund your RRSP triggers. 

So..on $25K RRSP savings, you'd effectively have an additional $8K available assuming you're in the 25% tax rate. You do repay it over 15 yrs -- but it's still a great deal.


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

House prices in South Western Ontario are cheap by Toronto standards, but cheap housing has the habit of remaining cheap.

We looked to move back to London a few years ago, and the House we bought is worth about $50,000 more, but the house we built in the Georgian Triangle is now worth $300,000 more than what it cost us to build.


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## kaleb0 (Apr 26, 2011)

Kevin thanks for posting! I'm also young (a few years older than you but still still in my early twenties), and I make about the same amount as you, and have managed to save a lot just by being disciplined and learning to truly _enjoy_ saving money.

I might recommend checking out mint.com or http://www.networthiq.com/ as ways to track your progress. Especially mint.com will help you see how tweaking your spending impacts your savings goals etc. Not to mention it has a lot of cool animated graphs and such.

Nice to see another younger member around the boards here. Welcome aboard.


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## kaleb0 (Apr 26, 2011)

Ben said:


> 'Rents=Parents... presumably no rent.


I was never so lucky. Even living at home I had to pay rent as soon as I got my first job.  Then again we were dirt poor so it's part of what's taught me the value of a dollar and why I'm as obsessive about saving money as I am.


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## bpcrally (Sep 12, 2010)

Out of curiosity I just joined mint.com myself. wow what a neat tool!


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## larry81 (Nov 22, 2010)

i tried mint couple months ago, i personally prefer quicken


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## WesternPIKE (May 24, 2011)

Kevin, although saving for a house does seem like the natural thing to do once you have a job I think you should revise your goal downwards. A starter home worth 10x your annual income is not realistic for most people.

Have you considered the costs of home ownership? Currently, your expenses are extremely low because you are not paying property taxes, utilities, insurance, maintenance, furnishings etc. The Canada Mortgage and Housing Corporation has a great worksheet for you to calculate them here:

http://www.cmhc-schl.gc.ca/en/co/buho/hostst/wosh_012.cfm

Earning what you currently do, I think it will be very tough to make ends meet with a 300,000 home in the picture along with these other expenses. Of course if you expect to be earning more in five or six years then that completely changes things.

I do not know where you live, but I know in London, a nice condo, townhouse, or smaller home in the high 100,000-mid 200,00 would be just fine and would leave you more monthly income for other things. If your job is transferable to another location it might improve your quality of life to move to a smaller city if you are currently living in the GTA.


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## GOB (Feb 15, 2011)

KaeJS said:


> 1. Take everything out of your TFSA and pay off your credit card. 11.99% interest is not a lot for a credit card, but it is *a lot* in a general sense.
> 
> If you could make 12%/year in the market, you'd be laughing. And that is exactly what the bank is doing. Laughing at you. No sense putting money into a TFSA making no money when you are paying big dollars to carry your debt.
> 
> ...


I think (and hope) you are wrong about this. Real estate does not always go up, and all bubbles do pop.


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## HaroldCrump (Jun 10, 2009)

I'm Howard said:


> House prices in South Western Ontario are cheap by Toronto standards, but cheap housing has the habit of remaining cheap.


I don't see a problem with that, assuming "cheap" housing also means lower property taxes, lower mortgage, etc.
The negative perception stems from the fact that primary residence is often considered an "investment", similar to stocks.
The problem is further exacerbated by the financial/banking industry using terms like "home equity".
A home apprecating by 2% a year is considered a poor ROI, when the standard expectation these days seems to be that your house must appreciate like a dot-com stock.

If a home with similar quality, features, etc. can be obtained in a different area for a substantial discount, and it leads to lower property taxes, lower mortgage payments, etc. _without_ compromising your ability to obtain employment of your choice, I'd say go for it.
You can take the extra cash and invest in other asset classes like stocks and bonds.
Heck, you can decide to live in Chatham and invest in a rental property in the GTA, although I doubt whether the financials will work out profitably in these market conditions.

There is an opportunity cost to any type of investing....if you decide to "invest" in your residential home by over-paying in a high growth area with all its associated costs like property taxes, maintenance, etc., keep in mind that you are giving up the opportunity to invest elsewhere.


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## KaeJS (Sep 28, 2010)

GOB said:


> I think (and hope) you are wrong about this. Real estate does not always go up, and all bubbles do pop.


This is true.

But when calculating expected future worth, it is always best to think of the worst case scenarios and be as conservative as possible, so as not to get screwed or let down in the end. 

He could get lucky and his $300k house may be worth $285,000 in 5 years from now. But, I wouldn't bank on it.


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## GOB (Feb 15, 2011)

KaeJS said:


> This is true.
> 
> But when calculating expected future worth, it is always best to think of the worst case scenarios and be as conservative as possible, so as not to get screwed or let down in the end.
> 
> He could get lucky and his $300k house may be worth $285,000 in 5 years from now. But, I wouldn't bank on it.


You're right. Or, he could make a conscious decision to stay away from home ownership until values are line with reality. Could be a year, five or ten but it has to happen eventually. Having a negative net worth on your biggest asset, even if you can afford the carrying costs, is a terrible feeling.


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

London Property Taxes are quite high, equal to and sometimes more than a comparable House in TO.

Chatham, not a hell of a lot going for it, you may not live to be a 100 but it sure will feel like it.


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## KaeJS (Sep 28, 2010)

I'm Howard said:


> Chatham, not a hell of a lot going for it, you may not live to be a 100 but it sure will feel like it.


LOL! 

Yeah. Every time I've ever driven through Chatham, I wonder what people do in their spare time.


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## calator (Jun 3, 2011)

KaeJS said:


> 1. Take everything out of your TFSA and pay off your credit card. 11.99% interest is not a lot for a credit card, but it is *a lot* in a general sense.
> 
> If you could make 12%/year in the market, you'd be laughing. And that is exactly what the bank is doing. Laughing at you. No sense putting money into a TFSA making no money when you are paying big dollars to carry your debt.
> 
> ...



in Edmonton and Calgary the houses are cheaper than in 2006... 5 years


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## Sampson (Apr 3, 2009)

calator said:


> in Edmonton and Calgary the houses are cheaper than in 2006... 5 years


Uhh, not at all.


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## calator (Jun 3, 2011)

Sampson said:


> Uhh, not at all.


I don't have the stats for 2006 but comparing with 2007 yes.. http://www.findcalgary.ca/page_content-19.html#stats


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## Sampson (Apr 3, 2009)

The problem is that those are comparing median prices. The Calgary market has been extremely funny because there are many communities where pricing has only moved 10% down since the peak, and others where it has gone down by 30%.


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## calator (Jun 3, 2011)

I agree Sampson, but it's still down and the risk is still high to see lower prices... Real estate is a good investment but if it is done at the right time. We are talking about the nominal prices but we should also count the inflation and the difference is even bigger.


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## ddkay (Nov 20, 2010)

My family and I moved into a resale condo downtown in September 2008. A neighbour of ours sold their unit last month (barebones w/ no renovations since '89) for $397sq/ft, if we can apply the same valuation, ours is up 17% in a little less than 3 years. Most new condos in the core built in the last 4-5 years have asked upwards of $600/sqft, and the record highest price so far is $3000/sqft (Four Seasons Residences in Yorkville). Really depends where you buy, but at the moment the RE market is getting a little carried away. I have no doubt the majority of units sold today aren't for owners to live in but bought by people hoping to rent or flip and are just betting prices will only continue to go up... Watch out.


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