Author Topic: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!  (Read 842 times)

tigatok

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[CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« on: September 13, 2018, 04:54:28 PM »
Hey there, quick rundown on my financial status and current dealings..

I'm 23 y/o located in BC, Canada. I make ~$80,000 salary per yer, looking like ~4.9k per month after taxes. I currently have no debt, however can expect a rather large amount of debt in the future, when a certain case settles, will not get into details right now though, as the amount/scale/options I have are unknowns. I also do contracting on the side, which pulls in around $75 an hour, for about 20 hours a month. Actively trying to get more clients, however the current one offers enough work at the moment.


Cash:        $6,705
Visa:        -$4,500 (paid in full every month/statement, I basically use my Visa for 100% of my purchasing)
Checking:  $6,400


For investments:

Direct Investing account (through RBC): $1,643.00
Quest Trade TFSA                               : $1,000.00

Direct Investing Breakdown:
- 27% in VYM
- 7.1$ in MJJ
- 62% in HMMJ
- 4%   in BOTZ

Basically my hobby acc, however the account has an unrealized gain of $200, totaling $1849.45.

Quest Trade (Following Couch potato investing)
- 57% in XAW.TO
- 29% in VCN.TO
- 12% in ZAG.TO
With an unrealized gain of -$5.00

I'm looking to invest as much of my income that I can save, as possible. My current plan is to go full on in my couch potato portfolio, and probably close out the Direct investing account in the future. I recently opened the QT account, and set that up as my TFSA. Is investing in my Couch potato a decent strategy?
« Last Edit: September 14, 2018, 12:47:38 PM by tigatok »

Freedomin5

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Re: 23 y/o, 80k salary plus contracting on the side - Could use any advice!
« Reply #1 on: September 14, 2018, 01:12:25 AM »
Yes, I follow the Canadian Couch Potato strategy as well. Why are you not investing in an RRSP?

tigatok

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Re: 23 y/o, 80k salary plus contracting on the side - Could use any advice!
« Reply #2 on: September 14, 2018, 09:11:03 AM »
Between the TFSA and the RRSP the TFSA I thought would be a better strategy initially. Is this perhaps not the best way to look at it?

Freedomin5

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Re: 23 y/o, 80k salary plus contracting on the side - Could use any advice!
« Reply #3 on: September 14, 2018, 09:25:41 AM »
My understanding is that it depends on your tax rate. The RRSP lowers your taxable income which could potentially put you at a lower tax rate. TFSA is good if youíre already at a low tax bracket.

Ideally, you would be saving enough that you can maximize both. Why choose one over the other when you can just contribute the max to both?

However, if youíre anticipating a large debt in the near future where you may have to withdraw funds, then maybe choose the option that doesnít have a penalty. Youíll have to look more closely at the withdrawal rules for TFSA and RRSP. Iím not sure of them since I have no intention of withdrawing anything until Iím in my 60s, which is around 30 years in the future.

BTW, if you want more Canada-specific advice you should consider modifying your post title and putting [CANADA] in it. That will catch the eye of the Canadians in the crowd like @Goldielocks and @RichMoose . Those are the ones just off the top of my head that frequently post on BC-related and tax-related and investment-related Canadian threads. Iím sure there are many more out there who can help. 
« Last Edit: September 14, 2018, 09:34:21 AM by Freedomin5 »

tigatok

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #4 on: September 14, 2018, 12:49:12 PM »
Hey thanks for the replies! I've updated my post title, hopefully will gain more traction. I will see if I can lower my expenses so I can maximize RRSP room this year. I've also heard of people taking a loan out so they could fill their RRSP, and then pay back the loan amount. Not sure on the specifics about that, but it seemed like a good idea. Though less appealing if I need cash right away.

I chose the TFSA, because at any point I can pull money from there tax-free.

FrugalToque

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #5 on: September 14, 2018, 12:56:59 PM »
Hey thanks for the replies! I've updated my post title, hopefully will gain more traction. I will see if I can lower my expenses so I can maximize RRSP room this year. I've also heard of people taking a loan out so they could fill their RRSP, and then pay back the loan amount. Not sure on the specifics about that, but it seemed like a good idea. Though less appealing if I need cash right away.

I chose the TFSA, because at any point I can pull money from there tax-free.

The TFSA is good if your income is really unstable (like maybe this legal trouble you're in?) so it's not a terrible situation for you at the moment.

But, long term, if you expect to be in the $80k bracket perpetually, you should shift money over the RRSP.  The immediate benefit would be taking 18% of your income completely off your taxes payable.  That comes off the *top* tax bracket, which is effectively 28% and 31% in BC/Fed combined taxes.  (You're straddling a bracket.  You can see here: https://www.taxtips.ca/taxrates/bc.htm )

So if you could put in $15k, you're only losing about $10k of income.  That's a pretty good deal.  Yes, the money is *sort of* locked away - but only because you have to pay income tax on it when you withdraw it, so don't withdraw in the same year you have income, because it goes right back on the top.

When you retire,  you withdraw and pay taxes, but you won't be withdrawing $80k/a, so you'll be a much lower tax bracket (maybe something close to 0%).

So yeah, for now, the TFSA might make sense because of your troubles.  But later, the RRSP.

Toque.

tigatok

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #6 on: September 14, 2018, 04:46:22 PM »
Hey Toque,

Appreciate the response. That gives me lots to think about. I'll see if I can somehow work the RRSP in and maybe do a split contribution?

FrugalToque

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #7 on: September 15, 2018, 11:54:51 AM »
Hey Toque,

Appreciate the response. That gives me lots to think about. I'll see if I can somehow work the RRSP in and maybe do a split contribution?

Yeah.  Only you know the potential depth of your current financial woe, so only you know how much you want in that easy-to-access TFSA.

But once you have that "rainy day you definitely know is coming" situation handled (i.e. your money in your TFSA covers it) then you should start putting some of the contributions in the RRSP.  At the very least, get yourself out of the 31% tax bracket that starts at $79353.  The next lowest tax bracket isn't until $46k, so you can't get that low, but at least put a couple thousand in for now

(Again, this all depends on that expense you have coming up)

Toque.

Retire-Canada

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #8 on: September 15, 2018, 12:03:20 PM »
You are making $80K/yr base salary + $18/yr at your side-gig so you have enough income to fund your RRSP and TFSA without having to choose. So I would make that happen. Regardless of what happens with your future debt event getting as much money into your investments now will help you later as it will have more time to compound. 

You are 23 so if you retire at 50....making a few assumptions:

- $1 you put in this year will be worth ~$6.60 when you retire.
- $1 you put in at 35 will be worth ~$2.85 when you retire
- $1 you put in at 45 will be worth ~$1.42 when you retire
- $1 you put in at 50 will be worth ~$1 when you retire

So the more you get in now the further ahead you will be. Waiting only robs you of the potential compound interest between now and then.

Zikoris

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #9 on: September 15, 2018, 12:27:51 PM »
I think your couch potato-esque investing strategy is sound, but you really need to save more. I make less than half your salary, probably live within 100 km of you, max out my RRSP and TFSA every year, and also put a solid chunk into non-registered investments on top of that. And travel overseas to five or six countries a year. So that's probably what I'd focus on - you'll get way more bang for your buck at this point by boosting your savings rate than fiddling with investments.

RichMoose

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #10 on: September 16, 2018, 07:36:05 PM »
The above advice is all great stuff! You're at the beginning of your journey, so now is the best time to get started.

Dump the pot stock heavy trading account, move to Questrade opening up a RRSP and TFSA.

Then, try maximize both accounts. At your income level that shouldn't be a problem at all. But if you don't think you can, max your TFSA and put the rest in RRSPs. (At your age you should be able to contribute over $30k to your TFSA because of unused contribution room, but sign up for My Account with CRA to confirm.)

Don't look into RRSP loans quite yet, focus on regular and aggressive saving first. RRSP loans might be an option in a year or so once you've formed good habits elsewhere.

As for investing, go with a CCP or the new Vanguard Portfolio ETFs (VBAL.TO is a good starting point).

Don't let yourself get slowed down financially because of legal stuff, those things can take years to sort out. Just put your nose to the grindstone and stash away money aggressively!

tigatok

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #11 on: September 17, 2018, 09:15:50 AM »
I think your couch potato-esque investing strategy is sound, but you really need to save more. I make less than half your salary, probably live within 100 km of you, max out my RRSP and TFSA every year, and also put a solid chunk into non-registered investments on top of that. And travel overseas to five or six countries a year. So that's probably what I'd focus on - you'll get way more bang for your buck at this point by boosting your savings rate than fiddling with investments.

So what percentage would you say you live on? I use YNAB religiously so I have access to my spending stats and what not, I definitely need to find a way to save more money, I agree.

Retire-Canada

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #12 on: September 17, 2018, 09:27:55 AM »
So what percentage would you say you live on?

At your income level I would shoot for a 50% after tax savings rate. When I had a similar level income to you that's what I shot for. My income varies so when my income goes up I want to be saving a higher % since my spending doesn't need to increase when my income does.

Zikoris

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #13 on: September 17, 2018, 09:48:40 AM »
I think your couch potato-esque investing strategy is sound, but you really need to save more. I make less than half your salary, probably live within 100 km of you, max out my RRSP and TFSA every year, and also put a solid chunk into non-registered investments on top of that. And travel overseas to five or six countries a year. So that's probably what I'd focus on - you'll get way more bang for your buck at this point by boosting your savings rate than fiddling with investments.

So what percentage would you say you live on? I use YNAB religiously so I have access to my spending stats and what not, I definitely need to find a way to save more money, I agree.

We generally have about a 65% savings rate, so we spend 35%.

I have no idea what we're looking at this year since my partner quit his job and started a business, so our income is all over the place. It will be interesting to see.

tigatok

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #14 on: September 17, 2018, 10:06:46 AM »
I just took a look and crunched some numbers. I pretty much spend all my money. Which is terrible, and I'm not exactly sure how thats possible. Here are some numbers I've crunched:

Maintaining my current after tax net per year ($59,087):

Savings after hard expenses            (expenses that will always need to be paid): 53.44%
Savings after minimalist expenses   (expenses that I could cut out/lower):           55.91%
Savings after current realistic expenses (current amount I spend):                      43.59%


So it seems that I should be able to save way more than am spending if I watch myself. If I push my self to the extremes then I can save around 55% of my net income. If this whole case thing didn't happen, then the minimalist expenses would be around 65%.

Retire-Canada

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #15 on: September 17, 2018, 10:26:33 AM »
This is a process. Don't feel you have to go from where you are now to FIRE Hero! status in one or two steps. Get started and keep improving. I spent a shit ton more than I do now and at the time it just felt normal/necessary. But, with more time and introspection I realised I could do better. The more I saved the more opportunities I found for saving even more.

Every $25 you save and invest is [more or less] $1/yr for life once you retire. Break the journey down into small easy to swallow chunks.

My best savings year was 72%. If you had asked me a couple years earlier if that was even possible I would have said no chance.

tigatok

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #16 on: September 17, 2018, 11:17:03 AM »
I'm thinking if I calculate the amount I can save (not the highest percentage first, say like 45% of my cheque) and then just toss that money into the TFSA immediately, then I will NOT be able to spend that. This in theory should kick start this and I will have no choice but to spend less.

OTOH I have a question regarding RRSP/TFSA. You can have a TFSA and have it NOT be an investment account, right? Why would people do this? I assume whenever someone says "Put as much as you can in TFSA" then I should be putting that money into a TFSA that IS invested, correct? Same with RRSP?

Thanks for all your help and input!

Retire-Canada

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #17 on: September 17, 2018, 11:23:15 AM »
OTOH I have a question regarding RRSP/TFSA. You can have a TFSA and have it NOT be an investment account, right? Why would people do this? I assume whenever someone says "Put as much as you can in TFSA" then I should be putting that money into a TFSA that IS invested, correct? Same with RRSP?

You don't have to invest money inside a RRSP or TFSA. Not everybody understands the power of compounding returns and even fewer "trust" the stock market. If you put money into a RRSP/TFSA and you let it sit in cash it will just get eaten away by inflation. If you manage to get a small amount of interest on it via bonds/GICs/etc... you might just keep pace with inflation. Neither of those options is going to get you to retirement particularly quickly. So I would invest that money in the stock market via some globally diversified index funds and let it grow as fast as it can.

tigatok

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #18 on: September 17, 2018, 11:26:42 AM »
OTOH I have a question regarding RRSP/TFSA. You can have a TFSA and have it NOT be an investment account, right? Why would people do this? I assume whenever someone says "Put as much as you can in TFSA" then I should be putting that money into a TFSA that IS invested, correct? Same with RRSP?

You don't have to invest money inside a RRSP or TFSA. Not everybody understands the power of compounding returns and even fewer "trust" the stock market. If you put money into a RRSP/TFSA and you let it sit in cash it will just get eaten away by inflation. If you manage to get a small amount of interest on it via bonds/GICs/etc... you might just keep pace with inflation. Neither of those options is going to get you to retirement particularly quickly. So I would invest that money in the stock market via some globally diversified index funds and let it grow as fast as it can.

Perfect, thanks. I just wanted to clarify that when someone says "put into rrsp/tfsa" that they most likely mean invest it through those accounts. I will continue to do that!

Zikoris

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #19 on: September 17, 2018, 11:28:32 AM »
I suggest moving away from the mindset of "expenses that will always need to be paid", and look at everything you spend as optional and flexible. Yes, everything. On your income, I would be saving 78% if I changed nothing about my lifestyle, and 85%+ if the only lifestyle change I made was to cut out my trips to Asia and Europe every year. So if you're looking for a real "bottom line" minimalist spending number, put that at something like $10,000. Not that you have to spend that little, but it should bring your other numbers into perspective.

On TFSA/RRSP, yes, you can have accounts that aren't investments - savings accounts, GICs, etc. People do it because they fear/dislike/misunderstand investing, or sometimes just for the simplicity and stability. You can get some not-horrible rates on GICs these days, which can be a reasonable option for the portion of your portfolio you'd like to keep more stable and lower risk. A TFSA savings account would really only make sense if you were using it to hold your down payment or something.

tigatok

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #20 on: September 17, 2018, 01:19:58 PM »
Just looking over my financials. Can someone clarify that this is correct, and or if it makes sense?

My current, total amount of RRSP room is $37,036. This is unused contribution room + my 18% for this year. Because of my unknown amount of potential debt, I am going to fully fund my TFSA as much as possible. I should theoretically be able to catch up to the 37358.63 in a couple years or so. When I finally learn about the amount the debt is, I can make my decisions to switch to funding my RRSP. I could even transfer from my TFSA into my RRSP to save some income tax.
« Last Edit: September 17, 2018, 01:30:35 PM by tigatok »

Retire-Canada

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #21 on: September 17, 2018, 02:16:27 PM »
Just looking over my financials. Can someone clarify that this is correct, and or if it makes sense?

My current, total amount of RRSP room is $37,036. This is unused contribution room + my 18% for this year. Because of my unknown amount of potential debt, I am going to fully fund my TFSA as much as possible. I should theoretically be able to catch up to the 37358.63 in a couple years or so. When I finally learn about the amount the debt is, I can make my decisions to switch to funding my RRSP. I could even transfer from my TFSA into my RRSP to save some income tax.

I'm not following why this potential future debt means you should fund the TFSA over RRSP at your relatively high income level? Are you thinking you'll need to use the TFSA money to pay down that debt? If not I'd fund the RRSP and get the tax break this year and every year going forward. If your future retirement income level is going to be lower than your current $80K+/yr the RRSP results in more money. Assuming tax rates stay more or less the same.

tigatok

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #22 on: September 17, 2018, 02:29:42 PM »
Yes, the thinking being that I more than likely will have to help pay the debt down with the TFSA account. The debt will be from ICBC as a result of a claim where my insurance was deemed breached (long story, no drugs/alcohol involved, huge law case.). The debt is not something I can estimate accurately, however looking at probably around 100-300k.

SunnyDays

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #23 on: September 17, 2018, 09:16:54 PM »
For those of us not in BC, could you clarify what ICBC is?  Was this a car accident where you effectively were uninsured?

I also earned 80K per year, and was easily able to save 50%, albeit with a paid off house, but with applicable house expenses like property taxes, maintenance, etc, and 3 pets.  I simply put away half of each pay cheque and lived on the rest.  So much of what we unthinkingly spend is simply a waste and really doesn't contribute to our quality of life.  A debt of even the lower amount of 100K is a lot, but if you can throw half your take-home at it, you can be done in 4 years, or less if your income rises and you keep your expenses stable.  300K would be a harder road.

Even if you need a lot of liquidity in your savings, you could still put something into an RRSP each year and then put the tax savings you realize from that into your TFSA.

Good luck.  You can do this!  Youth is on your side.

Lews Therin

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #24 on: September 18, 2018, 08:10:02 AM »
Howdy!

I'd recommend creating a Case Study, which will allow us to give you a more detailed plan with concrete steps you can take.
Doing the case study (even if you don't post it for others) will at least let you figure out where your money is escaping.

https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

I'm at close to your income, and saving huge amounts, which you can do as well if you cut out some extras, since you'll want to repay the ICBC debt quickly.


Retire-Canada

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Re: [CANADA BC] 23 yr/o 80k/yr Could use Investment advice!
« Reply #25 on: September 18, 2018, 08:21:36 AM »
Another consideration is that RRSP can offer a place to secure money from creditors if you think there might be a bankruptcy in your future due to your legal issues.

There are limitations on this so it's something you want legal advice to fully understand.