# Young professional trying to save!Advice please..



## Dutch1 (Nov 17, 2012)

Good evening everyone!

I've been reading these forums for a while now and have finally decided to post!

Some quick point form background info..

-24 years old
-Current networth=-4000(Car payments LOC)
-Monthly net=2550avg
-Monthly expenses=1850

I've had an RSP for about 4 years now but only have 2500 in it. I paid my way through school, bought all the vehicles i have owned and pay 100% of my expenses, no help from mommy and daddy. 

I`m hoping to buy a house in the next 3-4 years in my home town where im expecting to pay +/- 225,000. I'd like to put together some sort of strategy other than just saving in a savings account to get there. My employer will autmotically put 1-15% of my salary in an RRSP portfolio of my choice, and match 3% of it. So I was thinkg of just putting 3% in and having them match it all, while still contributing to a TFSA. I've also been thinking about the first time home buyers plan.. should I be dumping everything into my RRSP to get the returns at the end of the year and then using it penalty free to buy the house?

Thanks a lot!


----------



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

Hi,

It's good to have a plan but I do not understand why you feel you need to "put together a strategy" to save money. Why not just do it?

My recommendations:

1. pay off ALL debt
2. reduce recurring expenses if possible (yours seem pretty average so you may not need to do this)
3. save money for rainy day fund 
4. save money in TFSA etc until you achieve 20% DP
5. save money for closing and legal costs, tax adjustments etc, allow 2% for this
6. houses are money pits and you will need savings for repairs, renos and upkeep - save a few thousand for that as well BEFORE moving in

Yes, this will take you several years and it will involve sacrifices and not going on trips and big ticket purchases etc. I recommend you use the next 3-4 years wisely to achieve these goals, re-evaluate at that time if you really need to lock yourself into RE. Saving may not be sexy but it sure is important.


----------



## Spudd (Oct 11, 2011)

First, definitely do the 3% into the RRSP to get the employer match. That's free money, gotta take it. 

Second, what's the interest rate on your LOC? I'm assuming it's higher than a mortgage rate would be. If so, I would pay it off as my next priority. It's also pretty small so it should be a fairly quick win. 

Finally, save for the downpayment using TFSA and RRSP. Both are good options, just keep in mind the maximum withdrawal from the RRSP for the HBP, and remember you'll need to repay the HBP unless you want to be taxed on it later.


----------



## Dutch1 (Nov 17, 2012)

the-royal-mail said:


> Hi,
> 
> It's good to have a plan but I do not understand why you feel you need to "put together a strategy" to save money. Why not just do it?
> 
> ...


I basically looking for what you listed, an order of dealing with my finances. Thanks! Although I often wish I could go out and splurge on some fancy things, I also enjoy saving and reading all I can about it. 



Spudd said:


> First, definitely do the 3% into the RRSP to get the employer match. That's free money, gotta take it.
> 
> Second, what's the interest rate on your LOC? I'm assuming it's higher than a mortgage rate would be. If so, I would pay it off as my next priority. It's also pretty small so it should be a fairly quick win.
> 
> Finally, save for the downpayment using TFSA and RRSP. Both are good options, just keep in mind the maximum withdrawal from the RRSP for the HBP, and remember you'll need to repay the HBP unless you want to be taxed on it later.


I found out today that my employer also has a ESPP(Stantec Consulting) and will match 50% of the first 4% of my salary. So, I thought, put 3% into the RRSP, put 4% into the ESPP, and get 5% of it all back!
Now, even though im far from retirement, should i use a safe portfolio option so that there is money there when i need it in the near future? Also, what are your thoughts on paying 1/15 of it back every year? Seems like it would just add to my monthly budget..

And my interest rate..or..my dads interest rate is 5%. I decided when I took the 13k loan through him that I'd use his rate and then take the debt into my name once im closer to 5k and built up my credit score..


----------



## Compounding1 (May 13, 2012)

Not to beat a dead horse but pay off the debt first! 
Contribute to your works RSP to get their maximum match amount, free moneys good.

Stay away from Mutual funds. Especially with your short time horizon you wont see any gain with the high MER's eating at your returns. 

Read up on your other options and just save into a high interest savings account while you educate yourself. It's boring but you should have a bit of money saved up before you start to invest anyway. Get used to saving your money and 'paying yourself first', then decide where to invest it given your timeline I will assume it won't be anywhere too risky. 

I'm 24 as well and saving. I personally have money in both an RRSP and TFSA. Do the same thing with work matching my contributions. In my TFSA I have dividend paying blue chips that I buy when the markets are down. Boring stocks for the most part but it's generally safer than other stocks and I like my dividends. Goodluck with whatever you decide.


----------



## Dutch1 (Nov 17, 2012)

Compounding1 said:


> Not to beat a dead horse but pay off the debt first!
> Contribute to your works RSP to get their maximum match amount, free moneys good.
> 
> Stay away from Mutual funds. Especially with your short time horizon you wont see any gain with the high MER's eating at your returns.
> ...


Thanks for the advice. It helps coming from someone in the same boat. 
I haven't heard of blue chips before but I`ll have to look into them!


----------



## My Own Advisor (Sep 24, 2012)

Totally agree...stay away from mutual funds. Unless of course, you want to continue paying folks like us who own these companies via direct stock ownership? 

Great news, your employer with match part of your salary in an RRSP. Take the money! 

I like what Spudd said - save for the downpayment using TFSA and RRSP. Both are good options, but I know my wife and I didn't use the Home Buyers Plan (via RRSP) because we didn't want to pay any of that money back. We decided to save up our 20% instead in a high-interest savings account. TFSAs didn't exist a few years back.


----------



## Dutch1 (Nov 17, 2012)

Thanks all for the advice. Would it make sense for me to sign up for the ESPP and have them contribute there, and then transfer into a TFSA periodically to keep it safer?


----------



## Young&Ambitious (Aug 11, 2010)

Espp??


----------



## MoneyGal (Apr 24, 2009)

Employee Stock Purchase Plan


----------



## Spudd (Oct 11, 2011)

Yes, definitely use the ESPP to maximize the amount of free money you get. Cash it out at the allowed frequency to avoid over-saturating your portfolio with a single stock (for my company's ESPP we have to leave it there for 5 years to get the company match, but every company is different).


----------



## Dutch1 (Nov 17, 2012)

Brilliant. I have found out that the funds must be in the account for at least 2 years. Heres the text.. "Class A
You can withdraw or sell shares at any time. However, if you withdraw or sell shares that have not been held for at least two years, (company name) will suspend its matching contributions to your account for one year. You may, however, continue to contribute your own funds. "

So basically if I withdraw within 2 years I lose the year of matching until that date? Little confused.. If I`m taking the money out within 3-4 years anyways perhaps this isnt the best option..


----------



## Dutch1 (Nov 17, 2012)

ANother question..

If my investments drop over the next few years and I dont end up with enough to the do HBP, could I use what I have to do a downpayment and use the HBP for a lump sum contribution against my mortgage?


----------



## Spudd (Oct 11, 2011)

Regarding the ESPP, I read that as they will suspend the match for a year after you withdraw the funds. Check with HR or your manager to be sure. If that's the case, it would still be a good option for down payment savings. If you lose the match for the 2 years then just stop your contributions 2 years before you plan to buy the house.

For your second question, there's no minimum for the HBP. If you only have 2k for example, you can still withdraw it and use it as your down payment. I don't believe you can use the HBP for mortgage lump sum.


----------



## Dutch1 (Nov 17, 2012)

Great thanks a lot Spudd. I agree with your interpretation. 

Theres a part of me that feels like the HBP is a blessing and a curse. If I take out 15k, I have to pay it back 1k per year or 15 years(or faster if possible i believe). That adds another 83 a month onto the mortgage..


----------



## jack cash (Nov 17, 2012)

Sorry, am I missing something with the repayment of the HBP? At the end of the day you're putting money into your RRSP and designating that as your repayment so you don't have to declare any "income" from the HBP withdraw. 

Were you not planning on contributing to your RRSP after you purchased your home? This money isn't being paid to the government; you're still saving for your retirement.

To me it never seemed a problem because I always contribute more than what the HBP repayment would be on 25K ($138/mth).


----------



## Dutch1 (Nov 17, 2012)

This is true. Simple oversight by myself. Thanks!


----------



## cardhu (May 26, 2009)

Dutch1 said:


> I thought, put 3% into the RRSP, put 4% into the ESPP, and get 5% of it all back!


You won’t be getting 5% back, you’ll be getting 5% additional ... so you’ll end up with 12% altogether, of which you contributed 7% and your employer 5%.



> what are your thoughts on paying 1/15 of it back every year? Seems like it would just add to my monthly budget.


That is a common misconception ... but if you use the HBP withdrawal to boost your down payment, then it doesn’t really impact your cash flow much at all ... and what little impact there is generally works in your favour, not the other way around. 

Say you buy a $225k home, and have $50k available for down payment, aside from the RRSP ... that means you have to come up with another $175k from somewhere ... so you can either take a $175k mortgage, or you can draw $15k through HBP, and reduce the mortgage amount to $160k ... by doing so, your mortgage payments (assuming a 25 year amortization, and interest rate of 4.54%), would fall by $83.33/month over the life of the mortgage ... meanwhile, repayments on a $15k HBP withdrawal would be $1000 per year (or $83.33/month) ... seems at first glance to be a wash, an exact offset, BUT ... 

1)	the HBP repayment schedule doesn’t begin for about two years from date of withdrawal, so you actually get a cash flow holiday during the first two years of home-ownership ... exactly the period when most first-time homeowners experience expenses that they never imagined;
2)	the HBP repayments only last 15 years, whereas a mortgage lasts until it is paid off, so you could have a cash flow holiday at the back end of the mortgage as well, if you take the full 25 years to pay it off. 
3)	the HBP repayments are annual, not monthly ... so you have a lot more freedom to shift your cash flow around, to suit your needs;
4)	the HBP repayments are not mandatory ... you can opt to skip the repayment some years, and take the amount into income ... (be careful with this ... it is often inappropriately recommended);

As you can see, HBP repayments do not add a cash flow burden to your budget at all, when the funds are used to boost the down payment ... quite the opposite, in fact. 



> Would it make sense for me to sign up for the ESPP and have them contribute there, and then transfer into a TFSA periodically to keep it safer?


Why would it be safer in a TFSA? Stantec shares are Stantec shares, regardless of what type of account you hold them in. 



> could I ... use the HBP for a lump sum contribution against my mortgage?


Sure, you can use it for any purpose you want to ... add to down payment at time of purchase; make lump sum mortgage payment after the fact; buy a new car; take a vacation; upgrade your home theatre system; make a deductible RRSP contribution ... in many cases, that last option is the best use of HBP. 



Compounding1 said:


> Stay away from Mutual funds. ... with your short time horizon you wont see any gain with the high MER's eating at your returns.


I’m not cheerleading for conventional mutual funds, but this doesn’t make any sense ... the short term is when high MERs matter the least ... in my early years of investing, I owned several conventional mutual funds that were delivering 25% to 45% annual returns ... this during an era when interest rates were a mere 10% ... it didn’t last, of course, but the point is that high MERs are far more of an impediment to long-term gains than to short term gains.


----------



## Guigz (Oct 28, 2010)

cardhu said:


> the short term is when high MERs matter the least ... in my early years of investing, I owned several conventional mutual funds that were delivering 25% to 45% annual returns ... this during an era when interest rates were a mere 10% ... it didn’t last, of course, but the point is that high MERs are far more of an impediment to long-term gains than to short term gains.


I don't exactly agree with that.

What matters is the total return exclusive of MERs, both in the short and long term. 

It is kind of like stuffing money in a mattress and saying that it does not matter because you want to use the money in the short term. :stupid: Every little cent counts!


----------



## Dutch1 (Nov 17, 2012)

cardhu said:


> Why would it be safer in a TFSA? Stantec shares are Stantec shares, regardless of what type of account you hold them in.


Shares fluctuate in value, no? I was thinking it would be safer in a TFSA because I'd be getting a small but more consistent amount of interest.


----------



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

You get interest on _cash balances _in your TFSA. Investments such as MFs, shares etc are handled in the usual way. You do not get interest AND investment returns on the money you used to buy shares, MFs etc.


----------



## cardhu (May 26, 2009)

Dutch1 said:


> Shares fluctuate in value, no? I was thinking it would be safer in a TFSA because I'd be getting a small but more consistent amount of interest.


Yes, shares fluctuate in value regardless of whether they are held in a SPP or a TFSA, but you won’t get interest out of Stantec shares in either case. 

Are you perhaps referring to selling your Stantec shares, and placing the cash in a TFSA? That’d certainly be safer, but not because its in a TFSA ... the reason its safer is because its cash. 



Guigz said:


> I don't exactly agree with that.


Its not really a matter of agreeing or disagreeing ... its math ... short term swings can be significantly greater than the long-term return ...for example, a 2% MER has greater impact on an 8% return over 10 years, than it does on a 45% return over 1 year.


----------



## Guigz (Oct 28, 2010)

I am not disputing the Math, I am disputing the opinion that it does not matter if the MER is higher since it is a short term. Yes it matters, but leaving it longer term is worse.

Besides, I see your point about short term fluctuations and I agree with the conclusion, in theory. However, in practice, if a large mutual fund rises by 45% in a year, the index will have risen by a similar amount since large funds often emulate the index because they have little flexibility due to their sizes. In which case, the index would have been the better choice due to the lower MER.


----------



## cardhu (May 26, 2009)

Guigz, you're missing the point, and you're disputing several things that I never said.


----------



## Guigz (Oct 28, 2010)

:encouragement: Would it help if I quoted you?

Let's just agree to disagree...


----------



## Dutch1 (Nov 17, 2012)

cardhu said:


> Are you perhaps referring to selling your Stantec shares, and placing the cash in a TFSA? That’d certainly be safer, but not because its in a TFSA ... the reason its safer is because its cash.


Yes that's exactly what I`m thinking.. As I`m saving short term(for a house) I feel I should take the 50% match program for the stantec shares, and then once a year or so take them out, put them in a savings account to keep them safe until I buy a house.


----------

