Blooming Canadian Mustachian- Needs advice!

[atran5756]

We’re a couple moving to a new location for my job in Northern Ontario. We have not lived together previously (not common law).  It is a 2 year contract with the option to continue to extend the contract if we decide to stay.  She is looking to find a job in our area and hopefully work full time. I have been told that I will be in the highest tax bracket which is 41%! I don't have any investments in anything yet and have no saved up money. Please advise me on what to do!

Gross Income:    Mr. Mustache       165k/year
                      Mrs. Mustache         ??/year
            
Monthly Expenses:
House Rental:            $600
Fuel:                          $200
Cell phones:               $100
Internet:                     $80
House/car insurance  $135
Food:                          $400
Misc:                          $400
Vacations:                  $400?

Debt!!!
Mr: Mustache: 
         Line of credit at Prime + 0.5%   $75k
      Student Loan at  Prime + 3.5%     $35k
Mrs: Mustache:
         Line of credit at Prime + 1%       $30k


Thank you in advance! :)

[former player]

What's prime in Canada?  What are your short and long-term goals?

Standard advice is -

1.  Cut expenses. Cell phone looks high for a mustachian.
2.  Pay debt, highest interest rate first.  That would be your student loan.
3.  Save in tax-advantaged and employer-matched accounts, invested in Vanguard index funds.

Are you getting married?  Congrats.  If not, you would be best off with a written agreement between the two of you on (mutual?) obligations of support and on ownership of the stash(es) you will be growing.

[okits]

Seriously, RRSPs. Find out how much contribution room you have from previous years to deduct from your new, high salary.

You should be able to kill all (or almost all) your debts over the course of your two-year contract.  Focus on that.

Ditto on the cohabitation agreement. Read up on common law unions in Ontario so you understand the lay of the land.  Also be aware of your individual circumstance (if your GF is moving to follow you and that impacts her ability to earn a living, what do you ask her to be responsible for, etc.)

[swick]

Good advice so far. For common law in Ontario it is 3 years or 1 year with a child -offers WAY more protection then here in BC. Do you have plans to get married or consider yourself a unit?

Maxing out your RRSP's is a good plan, especially if you have any contribution room from previous years built up.

Ditto for TFSA contributions. You probably want to pay off your SL first - but You are making an AWESOME wage.

Prime in Canada right now is 2.85% which would make the debts:

Mr: Mustache:
         Line of credit at Prime + 0.5%   $75k = 3.35%
      Student Loan at  Prime + 3.5%     $35k = 6.35%
Mrs: Mustache:
         Line of credit at Prime + 1%       $30k = 3.85%

Depending on how far north you go you may qualify for a "Northern Living Allowance" deduction on your taxes. Worth looking into.

You may get some travel deductions/benefit from your employer as well. Varies from company to company - worth asking about.

Any chance employer will cover cell phones for you?

Don't panic about the 41% tax bracket - that is not across the board, it is a  tiered system, remember.

[RichMoose]

With your high salary I would first focus on maxing your RRSPs followed by TFSAs. After those then knock down that student loan.

For your RRSP and TFSA, look at opening an account at Questrade or another discount brokerage like RBC Direct. Purchase Vanguard ETF's following the Canadian Couch Potato outline. http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-Vanguard.pdf

Try put your Canadian portion into TFSA and International/US portion in RRSP as you can change to a US$ RRSP down the road and save some taxes.

Your expenses look pretty reasonable to me for two people. Just pay attention to holding the line on spending in the future, often the combination of high salaries and remote living location can lead to spend money on stupid things.

[Kaspian]

^^ Exactly what Tuxedo said.  And please get rid of those lines of credit.  Ain't no need for that nonsense.  You're going to have to figure out how to do income splitting maybe?  I have no idea how to do that.

I live in Northern Ontario.  ...And because I don't fear Internet stalkers I'll tell you I live in North Bay.

First the good news: 

- Generally cost of living is cheaper.
- There's less to do--so less spending, more nature.
- More places are walkable because the communities are smaller.
- Lakes are cleaner. 

Now the ass:

- Heat/hydro/gas bills suck balls in the winter and you're making too much to claim the "Northern Ontario Heating Tax Credit" (or whatever they decided to call it this year).
- Groceries are the most expensive possibly in North America.  Proof:  http://reachfinancialindependence.com/cost-groceries-america-cash-giveaway/
- The above annoys me to no end and makes absolutely no sense because we have loads of farms around here.

Welcome to the north!  Errr...  Which, for a Southern Ontario person is everything from Barrie to Kenora, but up here we know better.  ;)

[atran5756]

I appreciate the responses!

Exactly what Tuxedo said.  And please get rid of those lines of credit.  Ain't no need for that nonsense.  You're going to have to figure out how to do income splitting maybe?  I have no idea how to do that.

- Heat/hydro/gas bills suck balls in the winter and you're making too much to claim the "Northern Ontario Heating Tax Credit" (or whatever they decided to call it this year).

I was curious about income splitting as well but from what Swick says... it takes 3 years of living together to become common law in Ontario. I don't think we would be able to income split in the short run but it's good to know for the future!  We are paying $600 dollars for rental with utilities included so that's one less thing we have to worry about.

Maxing out your RRSP's is a good plan, especially if you have any contribution room from previous years built up.

Ditto for TFSA contributions. You probably want to pay off your SL first - but You are making an AWESOME wage.

Standard advice is -

1.  Cut expenses. Cell phone looks high for a mustachian.
2.  Pay debt, highest interest rate first.  That would be your student loan.
3.  Save in tax-advantaged and employer-matched accounts, invested in Vanguard index funds.

I will be maxing out my contribution to RRSP which all of you agree but some of you guys differ in what I should do after that.  Some say it's better to pay off debts first but others say I should max out my TFSA then worry about the debt because of my high income.  So basically...

1. RRSP
2. TFSA
3. Debt (highest interest rate first)

or...

1. RRSP
2. Debt
3. TFSA

Thank you guys for the time you spent to read and respond to me. I've learned a lot so far!

[former player]

I think you need to do some maths on 2 and 3.   

a) Start with working out how much money you will have available to put to them, monthly and annually. 
b) Then look at how much the interest on that amount of your highest rate loan is costing you. 
c) Then look at your expected return on investment on that amount plus the amount of tax at the highest marginal rate which you would otherwise be paying. 

People here will tell you to go simply on the figures and put your money into whichever of those two options gives you the best return.  Personally, I would regard the next two years as an unrivalled opportunity to free yourself of your student loans, or at least to reduce them to the point where they are not limiting your range of options once your two years are up.  Also, paying off debt is a completely risk-free investment, which tends to skew things in its favour if the numbers are close, as investment returns always have an element of risk.

Whatever you do, congratulations on the job, your relationship, and having such a clear-eyed view of how you will make the most of this opportunity.

[lostamonkey]

RRSP room carrysforward in Canada. If you don't have any RRSPs currently, you probably have a lot of room based on past years income. I would say first max out RRSP, then debt, then the TFSA. Another thing to remember is you get a tax credit for student loan interest paid.

[MBot]

We’re a couple moving to a new location for my job in Northern Ontario.

Whereabouts in the North? Some places it's cheaper to fly south than to drive when you want to visit a bigger citY or obtain things unavailable up north, for some gas costs are more in the equation.

[atran5756]

 Personally, I would regard the next two years as an unrivalled opportunity to free yourself of your student loans, or at least to reduce them to the point where they are not limiting your range of options once your two years are up.  Also, paying off debt is a completely risk-free investment, which tends to skew things in its favour if the numbers are close, as investment returns always have an element of risk.

This is exactly what I was thinking of doing as I don't think anyone would say that is a bad option and I wouldn't have debt hanging over my head even if I do get higher returns from investments.  I will have  to look into the risk vs reward and decide.  I have never invested my money before so I am a little scared to start but know that it may be worth it in the long run.

We’re a couple moving to a new location for my job in Northern Ontario.

Whereabouts in the North? Some places it's cheaper to fly south than to drive when you want to visit a bigger city or obtain things unavailable up north, for some gas costs are more in the equation.

I am going to live in the Kenora area which is what i consider "northern ontario" coming from the GTA.  I always hear how beautiful it is and good it is for fishing but don't know much else.  There is so much I don't know but I am very excited!

 For common law in Ontario it is 3 years or 1 year with a child -offers WAY more protection then here in BC.

Can anyone confirm what Swick has said? I just looked at the Canadian Revenue Agency and am getting conflicting information or maybe I am confused about this common law thing.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/prsnl-nf/mrtl-eng.html

[Cathy]

Can anyone confirm what Swick has said? I just looked at the Canadian Revenue Agency and am getting conflicting information or maybe I am confused about this common law thing.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/prsnl-nf/mrtl-eng.html

You may want to read my essay here: http://forum.mrmoneymustache.com/off-topic/romantic-%27partners%27/msg624653/#msg624653

[Kaspian]

Debt!!!
Mr: Mustache: 
         Line of credit at Prime + 0.5%   $75k
      Student Loan at  Prime + 3.5%     $35k
Mrs: Mustache:
         Line of credit at Prime + 1%       $30k

I would as follows:

- RRSP
- Debt (at the same time as RRSP if possible)
- TFSA

The debt first because even though lately we've been in a massive bull market, paying off the debt is a guaranteed 3.85 to 6.35% return.  Guaranteed.  Some will say, "Oh, but the market did 13% last year--you should do that instead."  Which proves they're screwballs.  Markets even out over the long-term--it could even be -2% this year.  Completely possible.  Who the hell knows?  What I'm saying is, one return is guaranteed while the other isn't.  ...If your loan was 1% or less, I'd say, what the hell--take the gamble, but it's not.

TFSA--sure it'd be nice to have something in there now compounding away like crazy, but the contribution room will always be there when you get the rest of the house in order.

Re: Income splitting.  The Canuck Feds just made the deal way, way sweeter last week.  To the point I almost wish I had a significant other just to do that with.  Definitely keep an eye on it!!