Author Topic: Case study: Immigrant in rural Canada  (Read 1998 times)

BSL18

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Case study: Immigrant in rural Canada
« on: February 12, 2018, 08:10:18 AM »
Hi everyone,

I've been a reader of this forum for quite some time now, trying to fit the Mustachian way of life with the particularities of my situation so far. I still have some (obvious) improvements I can do, but I figured I might benefit from the thoughts of eveyone on my situation.

So here's where I am: immigrated nearly 10 years ago, now 31, living with my SO in a house we bought 4 years ago (no kids). 100k$ in mortgage, two cars (more on that later), fully paid, no student loans (thanks European school system). Currently working on paying my line of credit we  used to make mandatory repairs on the house (9k$ left). Not considering the house as an investment in any way. Prices in my area (2h from Quebec) are at best not dropping, and selling is a pain, so I don't expect to ever get back the money I'm putting in. However I wanted to have my own place, and I love the sweat equity so it is a giant playground for me.

No real target as far as FIRE is concerned. I know I want to get there, but I don't feel that I have a good enough picture to set a precise target, and as I might soon have kids I don't want to set unreal goals. However I do think that I can improve my spending and get closer. I know the importance of setting goals and the plan is to get enough information to set it realistically and honestly.

Now onto the numbers (2017 report, averaged per month):
House         
Mortgage/Taxes                         776$
House Insurance                 66$
Improvements, furnitures, etc                400$
Utilities         
Electricity (Includes heating)           136$
Phones                       116$
Internet                                 72$
Food         
Groceries (includes cleaning stuff ASO)     494$
Restaurants                    123$
Cars         
Insurance                            84$
Fuel                               396$
Tires/repairs                    167$
Licence                       44$
Health      
Doctor, dentist, etc                 33$
Job health insurance                                368$
Drugs                       5$
Life insurance                    199$
Entertainment            
Travel                            291$
Sport equipment                 78$
Sports                       122$
Misc                               10$
Other spending            
Clothes                       60$
Misc                               15$
Gifts/Charity                    176$

Living on a combined 100k$ a year, with the following stash:
Combined TFSA: 3000$
Combined RRSP: 19000$
Pension plan: 15000$ for me, nothing available for SO

A few precisions before getting punched:
- I can't shop at Walmart, Maxi, etc..., I actually only have a one (rather small) grocery shop in a 60km radius around my place.
- Two cars for two, yes. I work, she works, and here having a job at the same place is not an easy task. House is inbetween jobs, but with that and sports (more to come on that subject), we average 50000km per year...
- Sports. No way in hell I'm reducing that, I love it, my SO as well, and well... we live in the middle of nowhere so we do have to drive to get there. I actually combine some of the driving with volunteering as a coach.
- Travel. Rather expensive, going back to Europe every Christmas when the airlines are ripping us off. Not smart, but as long as I can have my yearly dose of grandparents visit, I don't care how much I spend on that one. Will be reconsidered in the next few years if I'm realistic...
- Phones. No landline, both phones paid, best deal I could find was 40$ with calls all around Quebec (here a place as close as 15km can be a long distance call...) and a bit of data, so we both switched to that.
- I did my homework for 2018 a few weeks back, plan is:
     - Clear the line of credit (will be done by June)
     - Stash some cash for my SO car replacement (210000km already, so better have some cash ready when it is time)
     - RRSP for me: 3500
     - Employer pension plan: 1800 (+1800 matched)
     - TFSA for me: 1600
     - RRSP for SO: 5800
     - TFSA for SO: 1600

We don't have any Emergency Account per say, jobs are stable, but I do split the savings between RRSP and TFSA to keep some access to our cash. We also save money monthly for what will happen but God knows when (around 6000 per year, right now going to the line of credit) and I clear that to send it to our retirement savings (all in ETF of course, using Wealthsimple) every January.

Now I'm ready for the punching, let it fly! (Oh and if you feel like there's something unclear before hitting, just let me know!)
« Last Edit: March 29, 2018, 03:29:52 PM by BSL18 »

Novik

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Re: Case study: Immigrant in rural Canada
« Reply #1 on: February 12, 2018, 12:40:24 PM »
Looking at the numbers below, I don't see a monthly total - that's pretty critical for really feeling your spending. My math says 4231$/month, or just over 50k/year, so the FIRE stash needed would be almost 1.3 million dollars.

Ballparking from 100k combined salary, you're looking at 76k per year in income, and you're spending 50k of that. FIRE is a long way off at this rate!  Not to mention your TFSA and RRSP savings are not particularly large given your incomes and ages.

Good news - you know where you are (high five for tracking!) and you have lots of room to improve!

Some comments on specific spending numbers....
House         
Mortgage/Taxes                         776$
House Insurance                        66$
Improvements, furnitures, etc    400$     <- WHAT! Split it into 'maintenance', 'improvement', 'decorations' to track and cut accordingly (hint: 1 is a need, 1 is a want, 1 is a luxury)
Utilities         
Electricity (Includes heating)       136$
Phones                                     116$
Internet                                   72$
Food         
Groceries                                 494$     <- reasonable. Depending on your purchases, see if couponing apps might help.
Restaurants                             123$     <- could be lower. Are you getting value from this or it is because of poor planning?
Cars         
Insurance                                  84$
Fuel                                        396$     <- HOLY SHIT. see below.
Tires/repairs                           167$
Licence                                    44$
Health      
Doctor, dentist, etc                     33$
Job health insurance                   368$     <- ouch. Any chance you could reduce this? (ie. one family coverage vs. 2 individual)
Drugs                                       5$
Life insurance                           199$      <- Why do you have this?? Seriously, please explain how much/how long/what kind/WHY
Entertainment            
Travel                                     291$
Sport equipment                       78$
Sports                                     122$
Misc                                        10$
Other spending            
Clothes                                   60$        <- semi-reasonable if you don't spend it just because it's budgeted. I'd aim to reduce though!
Misc                                       15$
Gifts/Charity                          176$       <- highly recommend you split these categories for 2018. Very different purposes in my opinion!


For cars...
  • good job having them paid off and saving up for eventual replacement
  • even at 50 000km /year, your fuel spending is high. I drive about 15 000km a year, spending 85$ average on gas in a month. If I drove 50 000km a year, my spending would still only be 285$/month. I'm guessing you have issues in the fuel efficiency department, or else just an inefficient car.  Consider the immediate things you can do to improve this: are your tires inflated, efficient driving speeds and braking, buying non-premium gas, good credit card with fuel rewards etc.
  • Long term, please get more fuel efficient car(s) as you replace them. Depending on your particulars, might even be worthwhile to get more fuel efficient cars sooner rather than later for the gas savings.

Travel - what kind of difference in price would it be to travel in late January instead? What kind of difference in experience would it be? Is the trade-off worth it? I'd recommend exploring credit card hacking to fly to europe on aeroplan/air miles/other points.

Phones - not sure what you mean with your exploration... why don't you get the 40$ with calls and data that you found? It would beat 116$/month!

Also, please do explain the life insurance - may be reasonable, may be face-punch worthy. Hard to say without details.


Your 2018 plan looks good overall. Without exact numbers it's hard to say, but with reduced spending and no more debt, you can catch up and max out RRSPs and TFSAs for both you and your SO in the next 3-5 years.

Sun Hat

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Re: Case study: Immigrant in rural Canada
« Reply #2 on: February 12, 2018, 01:11:22 PM »
You need to save more. In addition to your current plan, I would aim to contribute the maximum to your TFSAs. Since it grows and can be withdrawn tax-free, it's too good to leave on the table.

To achieve the additional $7800 ($5500-1600=3900 x 2=7800) savings per year, I suggest:

Improvements, furnitures, etc                400$ $200
Food         
Groceries (includes cleaning stuff ASO)     494$ $400
Restaurants                    123$ $50
Entertainment           
Travel                            291$ $191
Sport equipment                78$ $50
Sports                       122$
Misc                              10$
Other spending           
Clothes                       60$ $45
Misc                               15$
Gifts/Charity                    176$ $50

Your sports and travel really eat up a lot of your budget, so if you want to keep them and save, you have to cut the other categories to the bone. Otherwise, you're choosing your hobbies over your future.

BSL18

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Re: Case study: Immigrant in rural Canada
« Reply #3 on: February 12, 2018, 04:09:17 PM »
Thank you guys for the feedback. I'll try to answer precisely each of your questions:

Novik:
- Your math is right. I started tracking for real last year, have all in Excel now, so I figured after one year I could start cutting off for real.
- Improvement/maintenance are about 300, decoration 100. Tools also in here, as I don't have a family here, even when using the equivalent of Craiglist here, it adds up fast. I'm equipped now, so the rest will be wood and screws and paint.
- I tried Flipp, but the only grocery store I have is Metro, and they don't price match...
- Restaurants are often one breakfast with my SO, plus one with visiting (or visited) friends
- Car subject... sensitive one! Although gas is around 1,20 here, so at 8L/100km and 50000km, I get 4800$. Pretty close. We own a 2011 Hyundai Elantra and a (don't punch yet..) Subaru Impreza 2007 (SO's car). Trying to convince her that the next does not need to have 4x4.
- Job health insurance is mandatory here in Quebec, and it is the family package... So we're screwed until we have kids I guess!
- I went too fast on life insurance. It includes job loss for SO (who works from home with her PhD, so if she's laid off it's gonna be hard to find something right off the bat). We actually talked recently about getting rid of the whole thing, and decided to delay as we think about starting a family. As soon as we have enough stash and mortgage is gone, this will be gone as well. It's basically an (expensive) peace of mind as we're relatively new to the country and want the ther to be fine should anything happen. We started when we bought the house 4 years ago, it's 25yrs term insurance.
- Clothes: we're not that spendy on clothes, this includes work related clothing I had to buy this year (and of course... no thrift shop any close...)
- Gifts/charity is honestly split 90/10. I give a few bucks to kids charity/activities now and then in the community. Gifts are a big part, we both are making the most bucks in our families and as we're gone we want to help the others a bit when we get back. Although I figured it was not sustainable so this year I started planning ahead and having things ready to DIY when I arrive there. More pleasant for me, definitely more worthy for them!
- Travel should be improved, I will have more holidays starting this year so we might have the option of going another time. Will definitely look into that one as it sucks a good chunk of our budget. I have the BNC World master card, with cashback on... travels of course.
- 2018 plan is already done, and all the money we had to put in the house (leaky basement...) that we throw in the credit line will go to our savings.
- Phones: what I meant is that it is going to be 40$ per month in 2018. Internet provider about to change as well, reducing the cost by around 25%.

Sun Hat:
- Furnitures will decrease indeed, so that will help.
- Restaurants will be a battle, SO adopted the Canadian way of life and a brunch is tough to dismiss. But they are pretty cheap, so I guess the visiting friends will have to enjoy my cooking for this one!
- Sports equipement: I think it will decrease. We love sports in general, so we had to buy quite a bunch of stuff. I always try to match and mix, but well, playing badminton with soccer cleats is not easy. Now I think we're done for a few years.
- Clothes will be reduced, had to, but hated to.
- I figured sports, travel and cars would be the first 3 fields of improvement. Sports, I definitely choose that over my future. I need it, and I don't think that quitting (because unfortunately here you don't have all the cheap options that I had when I lived in Quebec) would make my any happier, now or in the future. Travel will have to change for sure, this is an area that has been bugging me... Still thinking about how to make it work. If it was a cruise in the Carribean each year, it would be gone already. But grandparents in their 90s... well, I won't have that in my future. Although as Novik mentioned, they would have us just as happily in January.

A lot of the spending I have is related to the fact that I live in the middle of nowhere (like the mortgage, I included interest and principal in there, as the house is not an investment). I want to use that to my advantage (starting a garden next Spring for sure), but it makes a lot of things more expensive so I was looking for fellow "Lost in the wild" people to see if anything could be done about that. I know I have a mild case of Excusitis because I'm probably the most pseudo-Mustachian guy in my friend circle so I think I'm not doing that bad (Quand on se compare on se console, as we would say here), but I think I look too much at the problem and not enough at the solution.
« Last Edit: February 12, 2018, 04:11:25 PM by BSL18 »

Prairie Stash

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Re: Case study: Immigrant in rural Canada
« Reply #4 on: February 20, 2018, 07:31:59 PM »
https://www.canada.ca/en/services/benefits/ei/ei-self-employed-workers.html

You still skimmed over the job loss insurance. Is it to replace EI because she's self employed? Is it in addition to EI?

You're paying $2400/year, what are you getting for it?

Reading between the lines, she makes $500 more than you, is that why you have her RRSP at $500 higher than yours? I'm guessing that's the magic number to bring you to the lower bracket. Up your TFSA, use that as the EF.

BSL18

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Re: Case study: Immigrant in rural Canada
« Reply #5 on: February 26, 2018, 08:04:01 AM »
She works from home for a small company. 2400$/yr is for life and job loss combined. I have job loss insurance at my work but she doesn't. She gets 75% of salary should anything happen. Length of payment depends on the cause of job loss. Life insurance is 300k to the other spouse whoever passes away first (enough for mortgage payment and a few years of child care basically).

We bought a house with a low down payment, and we started over financially 3 years ago, when she finished her PhD. I understand that this yearly 2400$ could go to our savings, but for the first years (meaning until we have a few months of expenses in a TFSA) with the house, and potientally starting a family, I bought the peace of mind.

She actually makes less than I do. However, I have a matched 3% savings with my employer, that she doesn't have. So she sends more towards her RRSP and TFSA, and I send more toward debt reduction. Our whole budget is set up so that we end up with the same speding money (groceries, fuel, etc..) so as I'm making around 20% more I pay the mandatory health insurance, more debt reduction, more of the mortgage, etc...

Basically, as soon as credit line is done for, I will max up my TFSA (100$/wk roughly), and send anything left to hers. Hopefully I will soon be able to catch up on previous years unused contributions.

Prairie Stash

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Re: Case study: Immigrant in rural Canada
« Reply #6 on: February 27, 2018, 09:34:15 AM »
So you have a pension and RRSP, she has RRSP. Your work pension counts towards the RRSP room. Basically you are going to end up with a much larger RRSP than her.

Other than equality, is there any reason for the specific RRSP and TFSA amounts? Its not tax optimized from the description. If you make 20% more and your combined income is $100k, that means you make $55k, she makes $45k. At those tax brackets, in Quebec, you should put $2k into her RRSP, to bring her down to $43K which is the lowest bracket, and you should contribute $12k. That will maximize your households refund for now. If I'm wrong, I'm sorry. These numbers are rough and based off what was provided.

In any event, its pretty rare that its not optimal for the larger income to have larger RRSP contributions. based off the 3% matching, that puts your salary at $60K and hers is $40k - no RRSP is recommended for her, all TFSA. Apply the math more carefully, I'm just illustrating the point.

To make things equal, top up her TFSA. In the future, when you have kids, up her RRSP contribution to maximize CCB payments. Over time this will equal out and you will receive larger refunds as a result now and in the future. I expect her salary to increase with time as she gains experience, the RRSP will become more valuable in a few years and she will have a lovely TFSA to work with.

The rules (assuming space is available in each)
High Income RRSP>TFSA
Mid Income - RRSP=TFSA
Low income TFSA>RRSP
Expected to be high income - TFSA now, RRSP when high income

BSL18

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Re: Case study: Immigrant in rural Canada
« Reply #7 on: February 27, 2018, 10:15:27 AM »
Thanks for the advice!

It is roughly 55k/45k indeed, I didn't count employer match in the gross salary. I actually got my yearly evaluation earlier this week and I'll be up to 58k/yr (59.7 with match). Her annual evaluation is in September usually, so she will be closer to 48k this year. I provided 2017 numbers.
RRSP and TFSA amounts are based on a percentage of gross salary that we want to save for retirements. This year is a bit tweaked as we push to reimburse all debt. In June (after credit line is cleared), we will be around 22% of gross salary each saved for retirement each week. The specific amounts are based on the fact that I based my thinking on the scale you provided at the end of your message, meaning that I think we are both mid income, so I did not really knew what to choose between RRSP and TFSA. Therefore I figured the most important was to save anyway, and chose to split it. I will try to find a good source of information to calculate exactly how I should distribute the savings, I think you're bringing an excellent point.
We arrived in Canada in 2010, so I don't think remaining space in TFSA's and RRSP's will be much of a problem in the near future, I hope it becomes one though!!

Prairie Stash

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Re: Case study: Immigrant in rural Canada
« Reply #8 on: February 27, 2018, 01:49:35 PM »
https://www.taxtips.ca/taxrates/qc.htm

Tax tips (website) is the best source of information, the website looks old because its been around forever; it's an amazing resource. Low income, in Quebec, is $42,705 in 2017 when talking about RRSP vs. TFSA.

You are correct, you are both mid income to start. However, once you contribute to the RRSP her income falls into the low income, yours stays in the mid income. Get a copy of Simpletax (free) and play with various RRSP contributions. You'll see that if you contribute an extra $1000, you get $371 back. If she contributes another $1000, on top of her $5000, she gets $275. Since you are married, you obviously want the extra $100.

Without saving a dime more you'll get an extra $335 back. That's your reward for doing a case study.

Don't worry about running out of space, at 22% of gross you won't. RRSP grows at 18% (15+3% match for you, the employer part eats up your room) and $11,000 for the TFSA (another 10%). You need to hit 26% to match the accumulation in room/year at present salary. I mention it so that you might feel the challenge, you're pretty close already.

TrMama

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Re: Case study: Immigrant in rural Canada
« Reply #9 on: February 27, 2018, 03:18:48 PM »
I'd have a good long look at your health insurance premiums. Are you really spending $368/mo? I've never seen such a high premium for extended health in Canada. Remember your taxes cover any health care received via RAMQ and "health insurance" is just for the extras. What on earth are you getting for $4416/yr?

I'd also have a good look at the life/EI insurance. Is it some kind of whole life policy? Have you looked at basic term insurance? I bet you could get a lot more coverage for a lot less money if you switched to a basic term policy.

BSL18

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Re: Case study: Immigrant in rural Canada
« Reply #10 on: March 01, 2018, 10:07:25 AM »
Thanks for the link, looks really helpful. I'll adjust the RRSP and TFSA contributions consequently. And I will try to up our game regarding the savings. I know that we are not on the FIRE way yet, but I think 2018 is a key year for us as we will get rid of all debts except mortgage, and the main work on the house is done so we don't need to save that much money for that part either.

TrMama: I looked at the number again, and I took the bi-week number!! My bad, I have to say that I rarely look at my pay stub as I base nearly all my financial decisions on the take-home money. Real number would be around 200$. I guess that should sound much more reasonable.

Life insurance is a basic term insurance indeed, for both of us. I'm a former smoker so I'm costing us more on that front.
« Last Edit: March 01, 2018, 03:18:02 PM by BSL18 »

BSL18

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Re: Case study: Immigrant in rural Canada
« Reply #11 on: March 03, 2018, 05:06:50 AM »
Starting in May/June, my weekly take-home paycheck should be around 720$ with 163$ for retirement savings. I understand that the most tax-efficient way to use it would be to put it in my RRSP, but on the other end I don't have an emergency fund (56k credit line combined with SO is my safety net so far). The plan so far is to split it 75% RRSP and 25% TFSA to keep an access to a part of my stash. Any advice on the matter?

Also, another question I had was about salary projection. I will most likely cross the next tax barrier (around 85k) in around 5 years if I stay in the same company. Wouldn't it be more efficient to use up the TFSA room until then and switch to the RRSP after that?
« Last Edit: March 05, 2018, 06:58:49 AM by BSL18 »

Prairie Stash

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Re: Case study: Immigrant in rural Canada
« Reply #12 on: March 05, 2018, 10:18:06 AM »
$56K credit line is a very nice safety net. You also have a second household income, that's a safety net. In the event of a prolonged layoff (multi year) you can tap into the RRSP (definitely a last ditch measure, it messes up your future).  People generally have more safety nets then they realize.

Salary projection is an interesting conundrum, obviously, get the match portion (that's beyond questionable). Ultimately, you need (usually) both accounts to be filled up for early retirement, the order doesn't matter unless you are optimizing taxes over your working career. Normally the fastest route to maximizing both is to get the largest refund possible and put the refund into the accounts as well.

The benefit of RRSP contributions isn't the refund you get this year; ts the difference in tax brackets from the time you put it in to the time you pull it out. The bigger the difference, the better RRSP contributions get. Until the RRSP accounts reach approximately $200-250k (in my case) the contributions are pulled out at 0%. Because I'm going to be an early retiree, my goal was to reach $200k in mine (and my spouses) accounts, regardless of future earnings. I'm a little extreme, I plan on living of less then $30k/year. How much do you plan on living on and when do you plan on retiring? Those are also important considerations in determining whether you should delay RRSP.

The standard advice is delay, but you have to be a standard individual for that to work.

BSL18

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Re: Case study: Immigrant in rural Canada
« Reply #13 on: March 06, 2018, 06:24:12 AM »
I think we're fine on the safety side as well indeed. My job is very secure (not many engineer in my area) and I've had several offers in the last year. So not many chances for a prolonged unemployement.

Match portion is fixed at 3%, so it follows my salary year after year. Got a higher than expected raise this year (should have been 58/59.7 as mentionned before, will actually be 65/67). So credit line will be clear in April, and savings will go up from there (32% of every take home paycheck).

I target living on 40k/yr, it is pretty much what we live on now, and it feels like we are at a good compromise between mustachianism and our interests and hobbies. Of course I'll still work on a few things (cars, going out, etc...) that are not as important to us. So I need to reach 1M at least. Realistically speaking, I don' think we will reach fire in the next 10 years as the family will most likely grow by then. An easy target would by to retire at 50, but somehow it doesn't sound very challenging. 45 would be an interesting target.

So starting this year and looking at the next 15, I'll probably spend 7 or 8 years in this tax bracket. By then, both TFSA will be maxed out for sure, so a switch to RRSP would make sense I think.

LessIsLess

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Re: Case study: Immigrant in rural Canada
« Reply #14 on: March 12, 2018, 02:22:03 PM »
Is it cheaper to heat your house with wood?  That's a few dollars you can save and great exercise!

BSL18

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Re: Case study: Immigrant in rural Canada
« Reply #15 on: March 12, 2018, 03:11:34 PM »
Is it cheaper to heat your house with wood?  That's a few dollars you can save and great exercise!

Electricity is pretty cheap in Quebec, and our bill does not seem that high compared to other houses in my neighbourhood. I actually considered adding a fireplace when we bought the house, what kept me from doing it is the insurance cost that come with the change.