Author Topic: Canadian FIRE Plan - The Beginning  (Read 3396 times)

Pietro

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Canadian FIRE Plan - The Beginning
« on: January 27, 2016, 01:40:25 PM »
Good Afternoon like minded individuals,

2016 is the beginning of my family (me and my spouse) journey to financial independence. I am a long time reader first time poster and have found the hardest part of the journey is the first step. I wanted to outline my plan and ask for advice, concerns, and improvements.

Overview:
My Wife and I are in our mid 20's and have recently moved to a slightly more remote part of Canada to increase our salaries, get more vacation time and travel the world.

My Wife's priority is travel while mine is retirement at a young age

Salary:
Husband: 95,000 a year (Approx 5K a month after tax)
Wife: 95,000 a year (Approx 5K a month after tax)

Debt:
Student Loan: 22,000
Car Loan: 14,000
Line of Credit: 12,000

Monthly Expenses:

(7) Taxi                         
(200)Restaurant/Liquor
(9) Interest
(550) Groceries
(6) Life Insurance (on LOC)
(2300) Rent
(140) Cellphone
(122) Internet
(109) Car Insurance
(315) Student Loan
(100) Misc
(60)Cats
(50) Gas
(8) Netflix
(275) Car Payment

Total Approx: 4,253

Net amount for savings/investing/travel: 5,747

Priorities
1. Pay off Jeep (6.5%)
2. Pay off line of credit (5%)
3. Pay off student loan (5% i think)
4. Review monthly expenses and try and reduce as much as possibly (eating out, liquor, misc ect.)

Step 2:
1) Move banking to lower cost alternative such as tangerine
2) set up questrade account and start investing between TFSA, RRSP
       a) thinking VAB (25%), VCN(25%). VXC (50%) allocation
       b) set up automatic dividend reinvestment for the ETF's
3) Invest VCN and VXC in TFSA while keeping VAB in RRSP to maximize gains in non-taxable account.
       a) should i move a portion of the VXC into RRSP as it would shelter some with-holding tax?


Please give any feedback and improvements necessary.



Posted in Investor Alley but I think here is more applicable.

Retire-Canada

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Re: Canadian FIRE Plan - The Beginning
« Reply #1 on: January 27, 2016, 01:47:57 PM »
VXC won't benefit from being held in RRSP as it holds other ETFs not Int'l equities directly.

http://canadiancouchpotato.com/2015/12/11/decoding-vanguards-new-international-equity-etfs/

You may want to hold VIU not VXC so you don't get too overweighted on CDN content and it will allow you to avoid the withholding tax.

Congrats on starting so early. You guys will be rock stars when you get to my age. :)
« Last Edit: January 27, 2016, 01:50:12 PM by Retire-Canada »

Pietro

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Re: Canadian FIRE Plan - The Beginning
« Reply #2 on: January 27, 2016, 01:50:57 PM »
VXC won't benefit from being held in RRSP as it holds other ETFs not Int'l equities directly.

http://canadiancouchpotato.com/2015/12/11/decoding-vanguards-new-international-equity-etfs/

You may want to hold VIU not VXC so you don't get too overweighted on CDN content and it will allow you to avoid the withholding tax.

Congrats on starting so early. You guys will be rock stars when you get to my age. :)


Thank you! So would I only be concerned about equities in RRSP if it was not through an ETF?

Also wouldn't that leave me with zero exposure to the US?
« Last Edit: January 27, 2016, 01:56:29 PM by Pietro »

Retire-Canada

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Re: Canadian FIRE Plan - The Beginning
« Reply #3 on: January 27, 2016, 01:58:33 PM »

Thank you! So would I only be concerned about equities in RRSP if it was not through an ETF?

For example in US ETF you could hold VUN [CDN$] or VTI [US$]. If you hold VTI you benefit in a RRSP from the tax treaties. If you hold VUN tracks the same index, but doesn't hold the US equities directly you don't get a benefit.

The same will apply to VIU and VDU. If you want to stay simple just hold VXC.

My portfolio is [VCN/VUN/VDU/VEE/VAB] I'll be switching the VDU for VIU by the end of the year. It's more work than just holding [VCN/VXC/VAB].

The withholding tax effect is so small I pretty much ignore it.

Pietro

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Re: Canadian FIRE Plan - The Beginning
« Reply #4 on: January 27, 2016, 02:07:04 PM »

Thank you! So would I only be concerned about equities in RRSP if it was not through an ETF?

For example in US ETF you could hold VUN [CDN$] or VTI [US$]. If you hold VTI you benefit in a RRSP from the tax treaties. If you hold VUN tracks the same index, but doesn't hold the US equities directly you don't get a benefit.

The same will apply to VIU and VDU. If you want to stay simple just hold VXC.

My portfolio is [VCN/VUN/VDU/VEE/VAB] I'll be switching the VDU for VIU by the end of the year. It's more work than just holding [VCN/VXC/VAB].

The withholding tax effect is so small I pretty much ignore it.

How are you structuring yours for including it in TFSA or RRSP?

If i do VAB, VXC, VCN that would leave me with zero US exposure would it not?

Retire-Canada

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Re: Canadian FIRE Plan - The Beginning
« Reply #5 on: January 27, 2016, 02:51:58 PM »
How are you structuring yours for including it in TFSA or RRSP?

If i do VAB, VXC, VCN that would leave me with zero US exposure would it not?

VXC is all world exclusive Canada so it includes the US. If you held VCN and VDU + bonds you would be missing out on the US.

I hold:

RRSP = [VUN/VDU/VEE/VCN] + bonds + REITs
TFSA = [VUN/VDU/VEE/VCN]
Non-Reg = VCN

I generally don't want to sell my ETFs and incur costs so having all of them in my various accounts makes it easier to rebalance by additions each month.

I'm also a lot older so my RRSP is like 10 times the size of my TFSA.
« Last Edit: January 27, 2016, 02:54:09 PM by Retire-Canada »

Zikoris

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Re: Canadian FIRE Plan - The Beginning
« Reply #6 on: January 27, 2016, 05:29:07 PM »
I would do something about that $2300 rent. You could definitely trim other categories, but you'd have to stop eating, drinking, driving, and doing anything to even come close to the savings you'd have from slaying the rent monster.

Pietro

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Re: Canadian FIRE Plan - The Beginning
« Reply #7 on: January 27, 2016, 06:56:46 PM »
What is the easiest approach to ensure you don't over contribute to RRSP as I will have employer matching and possibly pensionable amounts if my Wife decides on permanent instead of casual?

The best approach would be to max out our RRSP's first using appropriate allocation and then shift to TFSA?

What is a simple allocation to get started keeping in mind we are in mid 20's so our risk tolerance is higher?