Author Topic: Moustache Audit: How are we doing? [CAN]  (Read 1371 times)

lax4life93

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Moustache Audit: How are we doing? [CAN]
« on: September 12, 2017, 01:13:12 PM »
Topic Title: MOUSTACHE AUDIT in CANADA
Hey all, I am looking to get some input into our household situation, so your opinions, tips, everything else would be greatly appreciated.  Obviously we have our own bias, comfort levels, fears, etc. but we will try to take any face punches with a smile.
Background: practicing moustachian for approx. 4-5 years.  3 years ago I was laid off from my engineering job, but took moustachianism a little too far and it became a point of fixation and actually gave me a lot of anxiety and stress.  If I wasnít saving every half penny everywhere I could I felt like a failure and this was a problem.  Since then I have returned to my industry, and we have relaxed alittle bit on our moustache practice so this is where you come in.  To help me re-evaluate my goal to become FI.  I am my own biggest critic so your outside perspective is appreciated.

Life Situation: Married 1 year (29/28), Alberta Canada (Major City), 1 dog no kids but starting family in next 2 years.  Potentially 1 parent who will become partially dependent within next 5 years.

Gross Salary/Wages: Combined annual gross salary $122K

NET Pay: 84K per year / 7K per month (less income tax, CPP, EI)

Other Ordinary Income: Currently none realized, but back ground equity building with rental property

Taxes:
Income Tax (included above)
Property Taxes (included in expenses)
Dividend & Capital Gain: none to claim, not a big impact.  Rates can be included if required

Debt & Liabilities:
House Mortgage (primary residence): 341,000 @2.24% for next 4 years
Condo Mortgage (co-owned rental property): 109,000 @2.64% for next 2 years
Vehicle: NONE
CC/STUDENT/OTHER: NONE

ASSETS:
House 1 (primary residence): Valued at approx. 360K [1000sqft bungalow w/finished basement]
Condo (co-owned rental property): Valued at approx. 300K
RRSP 1: 27K
RRSP 2: 24K
TFSA 1: 12K
TFSA 2: 11K
PENSION: 37K
SAVINGS: 8K
CAPITAL CONTRIBUTION FROM BUSINESS: 20K
VEHICLE #1: 99 chev s10 w/ 275 km VALUE ~2K
VEHICLE #2: 08 Pontiac G5 w/ 180 km VALUE ~ 2.5K
TOTAL: 143.5K
NEW START UP PRODUCT BASED BUSINESS: Annual sales ~ 60K, estimated profit (20-30K unrealized as it is invested back into the business for growth.  Any profit will be used to pay back capital contributions before salaries.  Estimated value for sale is unknown.  Likely in the 100K range

EXPENSES:
Mortgage: $340/ week (1475/mo avg)
Prop Taxes: $200/mo
Power & Heat: ~90$/mo average over year, conservative.
Water & Sewer & Garbage: $100.mo
CONDO PAYMENT: $300/mo (we are overpaying to be mortgage free sooner.  The property does make us money)
Home Insurance:$80/mo
Car Insurance:$220/mo approx. $2400/yr
Fuel:$300/mo  (I have long 45km one way commute but carpool to reduce cost.  Wife has 7 km commute.  I am looking for new job closer to home with higher pay.  Engineering world has been tough here the last few years, so this job has been a necessary evil that I am ready to get rid of ASAP!  Wifeís career is amazing, long term and fulfilling, so we located close to this)
Vehicle Maintenance: $250/mo (this is a slush fund.  I do our own maintenance so if this isnít spent it will be accumulated towards the next vehicle purchase)
Dog Expenses:$75-100/mo.  (80 pound sheppard.  $50/food, $15 pet license, $10 amortized check up and yearly shots)
Grocery:$250-300 /mo
Internet: $40/mo
Netflix: $10/mo
Spotify: $10/mo
Cell Phone Plans:$0
Entertainment:60-80/mo
Sports leisure:100/mo
Travel:50/mo.  We donít travel much, but go on one or two road trips per year
OTHER: 0-1000?? This category has been all over the place, as we just moved into our home in November.  We are sporadically completing DIY projects and renovations, purchasing justified household items, replacing costly gym memberships with our own equipment, ETC.  I do not have good data for this category so we have started tracking every dollar spent to get a better idea of why this category is swelling larger than it should be. There
TOTAL: 4000- 5000/mo

RRSP Contributions:0-1000/mo *have not been consistent.  Need to set up automatic transfer*
TFSA Contributions:0-1000/mo *have not been consistent.  Need to set up automatic transfer*
SAVINGS: Remaining.



Specific Question(s):
1)   What are you general judgements, thoughts and opinions about our situation?
2)   Where would you focus your improvements and savings efforts
3)   Where do we need a god damn face punch?
4)   Which areas do you think we are doing exceptionally well
5)   We are looking to build a garage with a rental / inlaw suite above in.  Estimated cost: 30K-40K, which we would take out as a loan and use the rental income (~1100 per month) to pay back plus any extra contributions.  WOULD YOU DO THIS? OR HOW WOULD YOU ATTACK THIS IDEA.  Should add approx. 60-80K in property value.
6)   Our business is growing, and slowly bringing in more income.  It pays for my cell phone, a component of our rent, internet, and utilities.  I did not adjust for these expenses in our analysis as I feel this is fudging the numbers in our favor.  At What point would you comfortably quit your job and try to make this business a full time earner? Salary of 60K before taxes would be given up.  Approx 40% pf annual sales could be realized as profit.  Can receive funds either as Dividend (~20% taxation) or Salary (~25% taxation)
7)   What sacrifices would you be uncomfortable with or would you put into your analysis for rolling out as an entrepreneur full time i.e. benefits, health care, EI, etc etc.

Thanks in advance
« Last Edit: September 12, 2017, 06:01:04 PM by lax4life93 »

RidetheRain

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Re: Moustache Audit: How are we doing?
« Reply #1 on: September 12, 2017, 03:22:37 PM »
Can you pull your business expenses out of your budget and keep them separate? If they are truly paid for by business (like the phone) then they should be part of your business budget and not factor in here. The "profit" you make each month (paying yourself more or less) should consider things like that. The business expenses make a lot of this very fuzzy. Similarly, you are paying extra for home insurance because of the business. You may want to consider that or a portion of that to be a business expense. Generally speaking, you should probably have more clarity on where that ends and your personal expenses begin for liability purposes.

Secondly, your OTHER category. I think a helpful base for this would be a total number. For example, "we are willing to add up to $30,000 in repairs and improvements in our new home" type of thing. Since it's all over the place and you aren't sure what you're going to be doing. Knowing where your line in the sand is will help with estimating for us. After all, you can improve until you have no money at all left. Similar to what you did for number 5 for reference.

Bracken_Joy

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Re: Moustache Audit: How are we doing?
« Reply #2 on: September 12, 2017, 03:29:10 PM »
You may wish to add a [CAN] tag to the title to ensure you get tax/investing help from the right people. Since even mortgages and the taxes on rental homes is different up there, there isn't a lot of advice I can give you there!

Dog expenses seem high. Is that a rolling fund, or does the dog get crazy expensive food or something?

You also need to break out your "other" better. Sounds like you're working on this. How are you tracking your expenses?
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Laura33

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Re: Moustache Audit: How are we doing?
« Reply #3 on: September 12, 2017, 03:36:12 PM »
I don't understand the investment condo -- it sounds like you make a net $2K in income each year, but you are throwing in $3600/yr over and above the mortgage, etc.?  Or is that $5600/yr gross income - $3600 contributions to get to the $2K net?

My big-picture advice would be to be very careful about accounting for your businesses as businesses. 

E.g., you seem to be using the startup business as an excuse to be non-Mustachian in certain areas -- you're subsidizing phone, rent, utilities, etc. with that income, which enables you to avoid really scrutinizing whether those costs in and of themselves are reasonable.  If that startup is a truly viable business, would you not get a better return on the money it throws off by putting it back into the business instead of helping to subsidize better phones/internet?

E.g., you seem very interested in real estate as an investment, but have you looked at the profitability of your current rental on an ongoing basis?  Have you estimated how much that inlaw suite would bring in in rent?  My (potentially mistaken) impression from what you wrote here is that you are "investing" in these properties in the hope of future appreciation, without really looking at whether they are profitable in the short-term.  A good rental property should more than pay for itself in the short term; sure, you hope it appreciates over time, but at least that way your worst-case scenario is that you got paid to own an asset for years.  Price appreciation is just the cherry on the sundae.

The other thing is to double down on the expense tracking -- which, again, is especially crucial when you are trying to track multiple businesses along with your personal expenses.  Glad you have started this.  The secret bad news is that there's always something waiting out there to suck up any free money that you have floating around -- and if you don't already have a plan for that little guy, it's really, really easy to convince yourself that XYZ is a good idea, and before you know it you're blowing $1K+ each month and don't feel like you have anything to show for it.  Get a handle on that now, both to confirm that all of your businesses are as profitable as you'd like to think they are, and to keep your own self in check.

Finally:  if you want to have kids in the next couple of years, what are your plans for parental leave, daycare/SAH, etc.?  You have some slop in your budget right now, but not enough for either of you to quit work -- and certainly not enough if your DW wants to SAH and you want to quit your day job and run your business.  You need to weigh all of these 800 different ideas out against each other; you can't just look at one issue in a vacuum without paying attention to how that decision affects all of your other goals.

Tl;dr:  You've done a good job amassing a starter stash and have many interesting opportunities in front of you; what you seem to need more than anything else is a list of priorities and a plan to achieve them.
Laugh while you can, monkey-boy

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #4 on: September 12, 2017, 03:40:46 PM »
Can you pull your business expenses out of your budget and keep them separate? If they are truly paid for by business (like the phone) then they should be part of your business budget and not factor in here. The "profit" you make each month (paying yourself more or less) should consider things like that. The business expenses make a lot of this very fuzzy. Similarly, you are paying extra for home insurance because of the business. You may want to consider that or a portion of that to be a business expense. Generally speaking, you should probably have more clarity on where that ends and your personal expenses begin for liability purposes.

Secondly, your OTHER category. I think a helpful base for this would be a total number. For example, "we are willing to add up to $30,000 in repairs and improvements in our new home" type of thing. Since it's all over the place and you aren't sure what you're going to be doing. Knowing where your line in the sand is will help with estimating for us. After all, you can improve until you have no money at all left. Similar to what you did for number 5 for reference.

Business expenses removed.
Lets assume worst case scenario and assume business is not paying rent or utilities.  I think I clarified this above. 

OTHER category definitely needs some work.  Setting a cap is a great idea for right now.  We will sit down and set a monthly/yearly goal for this and budgets for these areas.
THANKS!

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #5 on: September 12, 2017, 03:45:00 PM »
You may wish to add a [CAN] tag to the title to ensure you get tax/investing help from the right people. Since even mortgages and the taxes on rental homes is different up there, there isn't a lot of advice I can give you there!

Dog expenses seem high. Is that a rolling fund, or does the dog get crazy expensive food or something?

You also need to break out your "other" better. Sounds like you're working on this. How are you tracking your expenses?

Good tip.  "CAN" added.

I broke out the dog expenses too.  if you don't want to go back a reference above it is as follows.
-Dog Expenses:$75-100/mo.  (80 pound sheppard.  $50/food, $15 pet license, $10 amortized check up and yearly shots)
We could lower this, but we prefer to feed him a high quality food which lowers cost and complications down the road.  We are researching raw food diets and getting meat from locals for cheap to reduce this cost.

Before anyone asks, no we are not getting rid of him.  This fuzzy little bastard makes us happier than anything, keeps us from going out and spending money on other stuff, and helps us hit our activity goals through exersice and such.  :)

Bracken_Joy

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #6 on: September 12, 2017, 03:54:35 PM »
You may wish to add a [CAN] tag to the title to ensure you get tax/investing help from the right people. Since even mortgages and the taxes on rental homes is different up there, there isn't a lot of advice I can give you there!

Dog expenses seem high. Is that a rolling fund, or does the dog get crazy expensive food or something?

You also need to break out your "other" better. Sounds like you're working on this. How are you tracking your expenses?

Good tip.  "CAN" added.

I broke out the dog expenses too.  if you don't want to go back a reference above it is as follows.
-Dog Expenses:$75-100/mo.  (80 pound sheppard.  $50/food, $15 pet license, $10 amortized check up and yearly shots)
We could lower this, but we prefer to feed him a high quality food which lowers cost and complications down the road.  We are researching raw food diets and getting meat from locals for cheap to reduce this cost.

Before anyone asks, no we are not getting rid of him.  This fuzzy little bastard makes us happier than anything, keeps us from going out and spending money on other stuff, and helps us hit our activity goals through exersice and such.  :)

You won't get flak from me, I've spent over $3k on my dog in the past couple months ;)

I just wanted to make sure there wasn't needless leaks here- we had one case study with 3 large dogs with lots of doggy boutique haircuts and clothes and then also crazy spendy food. Doesn't sound like you're doing anything blatantly facepunch worthy though. Although shopping around for dog food is always a good idea. I shop around based on coupons, ship&save deals, stuff like that. It's like car insurance or something- always be price comparing.
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lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #7 on: September 12, 2017, 04:19:04 PM »
I don't understand the investment condo -- it sounds like you make a net $2K in income each year, but you are throwing in $3600/yr over and above the mortgage, etc.?  Or is that $5600/yr gross income - $3600 contributions to get to the $2K net?

My big-picture advice would be to be very careful about accounting for your businesses as businesses. 

E.g., you seem to be using the startup business as an excuse to be non-Mustachian in certain areas -- you're subsidizing phone, rent, utilities, etc. with that income, which enables you to avoid really scrutinizing whether those costs in and of themselves are reasonable.  If that startup is a truly viable business, would you not get a better return on the money it throws off by putting it back into the business instead of helping to subsidize better phones/internet?

E.g., you seem very interested in real estate as an investment, but have you looked at the profitability of your current rental on an ongoing basis?  Have you estimated how much that inlaw suite would bring in in rent?  My (potentially mistaken) impression from what you wrote here is that you are "investing" in these properties in the hope of future appreciation, without really looking at whether they are profitable in the short-term.  A good rental property should more than pay for itself in the short term; sure, you hope it appreciates over time, but at least that way your worst-case scenario is that you got paid to own an asset for years.  Price appreciation is just the cherry on the sundae.

The other thing is to double down on the expense tracking -- which, again, is especially crucial when you are trying to track multiple businesses along with your personal expenses.  Glad you have started this.  The secret bad news is that there's always something waiting out there to suck up any free money that you have floating around -- and if you don't already have a plan for that little guy, it's really, really easy to convince yourself that XYZ is a good idea, and before you know it you're blowing $1K+ each month and don't feel like you have anything to show for it.  Get a handle on that now, both to confirm that all of your businesses are as profitable as you'd like to think they are, and to keep your own self in check.

Finally:  if you want to have kids in the next couple of years, what are your plans for parental leave, daycare/SAH, etc.?  You have some slop in your budget right now, but not enough for either of you to quit work -- and certainly not enough if your DW wants to SAH and you want to quit your day job and run your business.  You need to weigh all of these 800 different ideas out against each other; you can't just look at one issue in a vacuum without paying attention to how that decision affects all of your other goals.

Tl;dr:  You've done a good job amassing a starter stash and have many interesting opportunities in front of you; what you seem to need more than anything else is a list of priorities and a plan to achieve them.

You are right, this is a little unclear.  I will try to clarify this above.
The summary is, we are using the condo as a savings account.  It is cash flow negative but highly Equity positive, and I did a poor job of communicating this. We are focusing on paying off the mortgage rather than using it as a cash flow vessel at this time.

Business Expenses:
-  The benefit of using our business to pay for these items is the tax savings as we are using pre-tax dollars, but subsidizing a small enough amount that it will not impact our personal income.  It is almost a way of extracting money from the business in a tax free manor.  (More complicated than this, but that's why I have an awesome accountant who is good at balancing corporate expenses and personal income)
- The cell phone and internet are the current best deal we can get, and absolutely necessary for what we are doing.  We have no had any lifestyle creep in these areas and are constantly re-evaluating these expenses every 4-6 months to see if we can lower them)
- The business is not cash flow hungry, so it is of no determent to pay for some of these expenses vs. realize a profit.  We are 'making due' where it makes sense and investing into the business where we get the highest return.
VERY GOOD POINT! it is very easy to start to justify spending money when you classify it as business expenses.  Definitely an easy trap to fall into and we do our best to navigate this :)

Real Estate investing:
- Our house currently doesn't have a garage.  Our estimated cost to build a non-suited garage the way I want it (So I can work on our vehicles and feed my DIY hobbies) is approx. 18-20K . No demolition or fancy pants "this would be nice" dollars wasted.
- Differential to build the suite 10-20K more, with rental approx. 1100/mo, has my payback within 3 years.  Unknown factors from this would be increase in property tax and utility increase.  This is a shallow dive, but I would recon this is a reasonable short term payback, and a potential cash flow earner.
- Investment in the current condo property as stated above is cash flow negative but hugely equity positive.  We could restructure to change that, but neither me or my investment buddy are cash flow starved so we are using this for deffered gain.  Capital Gains on this is just a bonus :)  This allows us to minimize the interest paid on the mortgage in the long term by paying it down quickly.  i.e. 20 year mortgage amortization, have owned it 7 years, and only have 8 years left.  We knocked off 5 years by overpaying the mortgage for the last 5 years.

Misc and spending tracking:
- 100% agreed.  That which gets measured gets managed.  The business is completely separate and self contained and analysed quite nicely, but our personal spending has been neglected.
- We usually go through and categorize all of our spending in an excel sheet every month, but have neglected this for the last 4-6 months.

Child care:
- This scares me haha.  If I ignore this it will handle itself right? jk.  Wife will go on maternity leave at 60% salary for 1 year which means I have to pick up the slack.  This means things get tighter.
- Bonus, she will be able to run a portion of the business during mat leave and we can use our corporate dividends to offset lost salary and continue to save!! YAY!  I have to consult my accountant as to what the ramifications are and how to ensure we don't get screwed, but this should work nicely.

THANK YOU FOR ALL THE ADVICE! a priority list is exactly what we need right now, with what our financial requirements are for each priority.  This should allow us to stay focused and not let the XYZ drain our bank account.

YOU ARE A ROCK STAR. Thank you for taking the time to type out that response, and take an honest look at my situation.  I hope my response doesn't seem defensive or justifying the expenses, I am just trying to think logically through the points and type out a response.

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #8 on: September 12, 2017, 04:22:26 PM »
You may wish to add a [CAN] tag to the title to ensure you get tax/investing help from the right people. Since even mortgages and the taxes on rental homes is different up there, there isn't a lot of advice I can give you there!

Dog expenses seem high. Is that a rolling fund, or does the dog get crazy expensive food or something?

You also need to break out your "other" better. Sounds like you're working on this. How are you tracking your expenses?

Good tip.  "CAN" added.

I broke out the dog expenses too.  if you don't want to go back a reference above it is as follows.
-Dog Expenses:$75-100/mo.  (80 pound sheppard.  $50/food, $15 pet license, $10 amortized check up and yearly shots)
We could lower this, but we prefer to feed him a high quality food which lowers cost and complications down the road.  We are researching raw food diets and getting meat from locals for cheap to reduce this cost.

Before anyone asks, no we are not getting rid of him.  This fuzzy little bastard makes us happier than anything, keeps us from going out and spending money on other stuff, and helps us hit our activity goals through exersice and such.  :)

You won't get flak from me, I've spent over $3k on my dog in the past couple months ;)

I just wanted to make sure there wasn't needless leaks here- we had one case study with 3 large dogs with lots of doggy boutique haircuts and clothes and then also crazy spendy food. Doesn't sound like you're doing anything blatantly facepunch worthy though. Although shopping around for dog food is always a good idea. I shop around based on coupons, ship&save deals, stuff like that. It's like car insurance or something- always be price comparing.

Thanks! we love him to death but he is under the same scrutiny as everyone else in the house! I have seen some people go overboard and I understand how it happens when people get emotional, so we try to do our best.

I hope your dog is going well.  $3K sounds like a medical procedure, so I hope he is going alright :)

okits

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #9 on: September 13, 2017, 01:17:09 AM »
Child care:
- This scares me haha.  If I ignore this it will handle itself right? jk.  Wife will go on maternity leave at 60% salary for 1 year which means I have to pick up the slack.  This means things get tighter.
- Bonus, she will be able to run a portion of the business during mat leave and we can use our corporate dividends to offset lost salary and continue to save!! YAY!  I have to consult my accountant as to what the ramifications are and how to ensure we don't get screwed, but this should work nicely.

This part caught my eye.  Be very careful with this.  If your wife will be collecting EI maternity (15 weeks) and parental (35 weeks) leave benefits there are restrictions to her working for pay during that time.

The 15 weeks of maternity leave is meant for physical recovery, post-birth, or if she's physically unable to work during the (up to) two months leading up to her due date.  If she's working for pay during this time her EI benefits will be clawed back, dollar-for-dollar.

During the 35 weeks of parental leave (meant to enable the parent receiving benefits to care for the baby) she will be able to earn a limited amount of pay from work (it will depend on the rules in place at the time, but check out the current "pilot program" to get an idea of what they allow.

That she'll be working on your own business might get you around some of this, or it might not (CRA might disagree of your interpretation of fair pay for the work done, or the true nature of any dividend income, for instance).  Definitely talk to your accountant about this (and just because s/he may have aggressive strategies doesn't mean they will fly with CRA/EI).  Talk to EI about what they allow, and make detailed notes about what you're told.  Also, read up on EI maternity and parental leave rules as there may be a way to stop/restart benefits to allow your wife to work a lot for a few weeks, without having benefits clawed back.

Canadian Ben

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #10 on: September 13, 2017, 06:20:35 AM »
I`m going to throw this out there, but since your rental mortgage is at 2.65%, and is deductible as a business expense, why would you want to finish paying the mortgage? Wouldn`t it be MUCH more cost-effective to remove as much equity as possible (for both you and your co-owner), invest the money in your TFSA, which I`m guessing has at least 50-100k room. You will be making atleast 4% non-taxable in the TFSA, and your 2.65% mortgage rate can be deducted against the rental cash flow, which is being taxed at your current high taxation rate.

While I understand it`s not your plan, it is worth looking at, since it`s an extremely unfavorable proposition to leave the TFSA unfilled, for something that is not making you any future money. The rental when it is fully paid off still has opportunity losses (the equity that is in the rental, and is now just twiddling it`s thumbs, due to the fact you could be at 20% equity, making the same returns - 2.65%; with 80% equity (or 40% if it`s half and half) being invested and making 4%+.


By the way, looking at your expenses, I count 2500- 3500. Might want to figure out where the rest of the leaks are.

Laura33

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #11 on: September 13, 2017, 08:01:25 AM »
The summary is, we are using the condo as a savings account.  It is cash flow negative but highly Equity positive, and I did a poor job of communicating this. We are focusing on paying off the mortgage rather than using it as a cash flow vessel at this time.

FYI, good responses, looks like you've thought a lot of this through.  But I want to focus on the above.

Your condo is not a savings account.  It will be worth whatever it is worth when you sell it regardless of whether you owe 0% or 100%.  So you are literally throwing money into an investment that will get you no additional return on its sale. 

If you want to tell me that the 2.65% interest foregone is more than you can get in a savings account, that's fine (although you then have to reduce that by the tax deduction you get for investment property).  But a savings account is also liquid. 

Different investments for different purposes.
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lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #12 on: September 13, 2017, 11:23:45 PM »
Child care:
- This scares me haha.  If I ignore this it will handle itself right? jk.  Wife will go on maternity leave at 60% salary for 1 year which means I have to pick up the slack.  This means things get tighter.
- Bonus, she will be able to run a portion of the business during mat leave and we can use our corporate dividends to offset lost salary and continue to save!! YAY!  I have to consult my accountant as to what the ramifications are and how to ensure we don't get screwed, but this should work nicely.

This part caught my eye.  Be very careful with this.  If your wife will be collecting EI maternity (15 weeks) and parental (35 weeks) leave benefits there are restrictions to her working for pay during that time.

The 15 weeks of maternity leave is meant for physical recovery, post-birth, or if she's physically unable to work during the (up to) two months leading up to her due date.  If she's working for pay during this time her EI benefits will be clawed back, dollar-for-dollar.

During the 35 weeks of parental leave (meant to enable the parent receiving benefits to care for the baby) she will be able to earn a limited amount of pay from work (it will depend on the rules in place at the time, but check out the current "pilot program" to get an idea of what they allow.

That she'll be working on your own business might get you around some of this, or it might not (CRA might disagree of your interpretation of fair pay for the work done, or the true nature of any dividend income, for instance).  Definitely talk to your accountant about this (and just because s/he may have aggressive strategies doesn't mean they will fly with CRA/EI).  Talk to EI about what they allow, and make detailed notes about what you're told.  Also, read up on EI maternity and parental leave rules as there may be a way to stop/restart benefits to allow your wife to work a lot for a few weeks, without having benefits clawed back.

Very good advice.  We will have to do our research before we hit this stage.  THANK YOU!

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #13 on: September 13, 2017, 11:30:58 PM »
I`m going to throw this out there, but since your rental mortgage is at 2.65%, and is deductible as a business expense, why would you want to finish paying the mortgage? Wouldn`t it be MUCH more cost-effective to remove as much equity as possible (for both you and your co-owner), invest the money in your TFSA, which I`m guessing has at least 50-100k room. You will be making atleast 4% non-taxable in the TFSA, and your 2.65% mortgage rate can be deducted against the rental cash flow, which is being taxed at your current high taxation rate.

While I understand it`s not your plan, it is worth looking at, since it`s an extremely unfavorable proposition to leave the TFSA unfilled, for something that is not making you any future money. The rental when it is fully paid off still has opportunity losses (the equity that is in the rental, and is now just twiddling it`s thumbs, due to the fact you could be at 20% equity, making the same returns - 2.65%; with 80% equity (or 40% if it`s half and half) being invested and making 4%+.


By the way, looking at your expenses, I count 2500- 3500. Might want to figure out where the rest of the leaks are.

GOOD POINT.  We could be making this money work harder for us, and grow tax free like you said.  I think this will be something worth looking at to optimize.  I would venture to say that the goal of being mortgage free on this property has clouded our judgement a little.  There is contribution room in the TFSA so this would make much more sense. THANK YOU.

Leaks: Yes, there are some leaks we need to nail down.  It is embarrassing that I do not know more granular information in this area, and face punch worthy

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #14 on: September 13, 2017, 11:36:34 PM »
The summary is, we are using the condo as a savings account.  It is cash flow negative but highly Equity positive, and I did a poor job of communicating this. We are focusing on paying off the mortgage rather than using it as a cash flow vessel at this time.

FYI, good responses, looks like you've thought a lot of this through.  But I want to focus on the above.

Your condo is not a savings account.  It will be worth whatever it is worth when you sell it regardless of whether you owe 0% or 100%.  So you are literally throwing money into an investment that will get you no additional return on its sale. 

If you want to tell me that the 2.65% interest foregone is more than you can get in a savings account, that's fine (although you then have to reduce that by the tax deduction you get for investment property).  But a savings account is also liquid. 

Different investments for different purposes.

YES I AGREE.  Maybe calling it a savings account isn't what I was trying to communicate, especially to this individuals as informed as the moustache crowd.  Better returns than a savings account or GIC or Bond, but worse than what we could get from ETFs, and it is in a very non-liquid format.  Like i mentioned in the last response, I think the goal of having this mortgage free has clouded our judgement and we have become target fixated.  This is something that can be optimized to get our money to work harder for us. 

Face Punches like this are what I need.  An easy way to sock money away like this other mortgage isn't necessarily the right decision.  Just because it is easy doesn't necessarily make it the optimum decision.

Laura33

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #15 on: September 14, 2017, 06:02:15 AM »
The summary is, we are using the condo as a savings account.  It is cash flow negative but highly Equity positive, and I did a poor job of communicating this. We are focusing on paying off the mortgage rather than using it as a cash flow vessel at this time.

FYI, good responses, looks like you've thought a lot of this through.  But I want to focus on the above.

Your condo is not a savings account.  It will be worth whatever it is worth when you sell it regardless of whether you owe 0% or 100%.  So you are literally throwing money into an investment that will get you no additional return on its sale. 

If you want to tell me that the 2.65% interest foregone is more than you can get in a savings account, that's fine (although you then have to reduce that by the tax deduction you get for investment property).  But a savings account is also liquid. 

Different investments for different purposes.

YES I AGREE.  Maybe calling it a savings account isn't what I was trying to communicate, especially to this individuals as informed as the moustache crowd.  Better returns than a savings account or GIC or Bond, but worse than what we could get from ETFs, and it is in a very non-liquid format.  Like i mentioned in the last response, I think the goal of having this mortgage free has clouded our judgement and we have become target fixated.  This is something that can be optimized to get our money to work harder for us. 

Face Punches like this are what I need.  An easy way to sock money away like this other mortgage isn't necessarily the right decision.  Just because it is easy doesn't necessarily make it the optimum decision.

Also keep in mind that if you are talking about a business investment, the mortgage is likely tax-deductible to offset some of the income you make from the rentals.*  If you get that mortgage paid off, then you get to report and pay taxes on all of the rental income without that offsetting expense.  This is one reason why many property investors keep large mortgages**, and then use that equity to make other investments that in turn throw off more money.

YMMV, of course, given that you're losing money each month -- but this gets back to evaluating the costs/benefits of each business opportunity independently, so that you can make sure you are dedicating your money (and time and effort) to the things that give you the best returns given your interests and risk tolerance.  Good luck!

*I am US-based and am assuming Canada is the same on this issue.
**But not so large they don't make a reasonable profit each month.
Laugh while you can, monkey-boy

Canadian Ben

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #16 on: September 14, 2017, 06:24:40 AM »
He's not losing money each money, he's just putting it in condo Equity, which is deleveraging him, and lowering his returns on his investment.

Novik

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #17 on: September 14, 2017, 07:06:48 AM »
RRSP 1: 27K
RRSP 2: 24K
TFSA 1: 12K
TFSA 2: 11K

RRSP Contributions:0-1000/mo *have not been consistent.  Need to set up automatic transfer*
TFSA Contributions:0-1000/mo *have not been consistent.  Need to set up automatic transfer*

What's your long term RRSP and TFSA plans? If you have high income now, might want to stuff the RRSPs, and then fill the TFSAs with extras when parental leave or dividend only income is in the picture.

You and your wife should have 50k+ of TFSA room each, and decent amounts of RRSP room each as well (although the pension has probably cut into that). What are your goals and plans for filling those? With upcoming variable income years, you want to think it through in advance.
Over-thinking, over-planning and over-committing, aka my 2017 goals: Procrastinating my way to FIRE
If you're a dual American/Canadian citizen living in Canada and investing in index funds outside an RRSP, please PM me!

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #18 on: September 14, 2017, 08:35:31 AM »
The summary is, we are using the condo as a savings account.  It is cash flow negative but highly Equity positive, and I did a poor job of communicating this. We are focusing on paying off the mortgage rather than using it as a cash flow vessel at this time.

FYI, good responses, looks like you've thought a lot of this through.  But I want to focus on the above.

Your condo is not a savings account.  It will be worth whatever it is worth when you sell it regardless of whether you owe 0% or 100%.  So you are literally throwing money into an investment that will get you no additional return on its sale. 

If you want to tell me that the 2.65% interest foregone is more than you can get in a savings account, that's fine (although you then have to reduce that by the tax deduction you get for investment property).  But a savings account is also liquid. 

Different investments for different purposes.

YES I AGREE.  Maybe calling it a savings account isn't what I was trying to communicate, especially to this individuals as informed as the moustache crowd.  Better returns than a savings account or GIC or Bond, but worse than what we could get from ETFs, and it is in a very non-liquid format.  Like i mentioned in the last response, I think the goal of having this mortgage free has clouded our judgement and we have become target fixated.  This is something that can be optimized to get our money to work harder for us. 

Face Punches like this are what I need.  An easy way to sock money away like this other mortgage isn't necessarily the right decision.  Just because it is easy doesn't necessarily make it the optimum decision.

Also keep in mind that if you are talking about a business investment, the mortgage is likely tax-deductible to offset some of the income you make from the rentals.*  If you get that mortgage paid off, then you get to report and pay taxes on all of the rental income without that offsetting expense.  This is one reason why many property investors keep large mortgages**, and then use that equity to make other investments that in turn throw off more money.

YMMV, of course, given that you're losing money each month -- but this gets back to evaluating the costs/benefits of each business opportunity independently, so that you can make sure you are dedicating your money (and time and effort) to the things that give you the best returns given your interests and risk tolerance.  Good luck!

*I am US-based and am assuming Canada is the same on this issue.
**But not so large they don't make a reasonable profit each month.

Yes, this money can be better leveraged to work harder for us. This seemed like a low risk addition to all my other investments, but obviously it can be optimized to grow the 'stache 

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #19 on: September 14, 2017, 08:38:01 AM »
He's not losing money each money, he's just putting it in condo Equity, which is deleveraging him, and lowering his returns on his investment.

AGREED now that everyone has pointed it out. Some 'stache grooming required in this area to make better use of our money. THANKS FOR THE HELP!

Canadian Ben

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #20 on: September 14, 2017, 08:59:53 AM »
Alright, now to go into nitty gritty:

1)You are doing quite well. Your high income + reasonable lifestyle means you are saving quite a bit
2)I`d start officially tracking with cards, but it seems to be closely aligned, you know where most of your money is going.
For your job, remember that if you move closer, you don`t need as high a paycheck. that 300$ fuel, however much time you are losing driving 45km and insurance costs will all go down. let`s say it takes 30min to get to work, your salary is for your 45hrs a week, rather than 40. That's a huge amount of time/salary difference from cutting that commute in half, which would allow you to add another 3-5 hrs to your other business. (This is just estimates, the longer your current commute, and shorter the new one, the more this effect becomes extremely important)
3) You`ve been face-punched enough. And took it well!
4) Lots and Lots of upside. You'll keep doing better all the time.
5)No comment, don`t know enough on the subject.
6)No comment on time/commitment, but you will want to go with the dividends, as it is taxed much lower at all times, and it'll add up quick. Salary income is crappy for taxes.
7) I'd put as much as legally possible under business, but realistically, you could always try going part-time, + independant if you are feeling iffy.

Final points: If you are making much more than your S/O, I'd recommend looking at spousal RRSP, she can fill her TFSA, pay for all your expenses, and you fill her RRSP, and your own TFSA.
It's the best use of your income, in order to keep the most away from getting taxed. Spousal RRSP is free to use after three years, so make sure to take detailed notes, especially if she might become full-time dependant, as that money will go from your high tax rate, to the lowest possible brackets when she takes it out (during non-income years).

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #21 on: September 14, 2017, 09:00:00 AM »
RRSP 1: 27K
RRSP 2: 24K
TFSA 1: 12K
TFSA 2: 11K

RRSP Contributions:0-1000/mo *have not been consistent.  Need to set up automatic transfer*
TFSA Contributions:0-1000/mo *have not been consistent.  Need to set up automatic transfer*

What's your long term RRSP and TFSA plans? If you have high income now, might want to stuff the RRSPs, and then fill the TFSAs with extras when parental leave or dividend only income is in the picture.

You and your wife should have 50k+ of TFSA room each, and decent amounts of RRSP room each as well (although the pension has probably cut into that). What are your goals and plans for filling those? With upcoming variable income years, you want to think it through in advance.

This is kind of step #2, and I would love your take on this as well.  We just bought our current home in November of 206 and we need to come through and do some financial house keeping now that we are settled in more or less (NO MORE EXCUSES!).  With our life starting to change in the next two years I need to re-evaluate this very soon and I have not put much thought into this yet.
- We do have contribution room in both, as everyone has calculated.
- We are currently invested into a mix of ETFs(50%), Value stocks (30%), and then some other stocks I am trading,  and making a capital gain and a dividend from (20%).
1) We have been filling both our TFSA and our RRSP both, but would you focus on one more than the other? I have my opinion on this but I want to hear all of yours.  I understand that the benefit of lowering our taxable income with RRSPs will be minimized when my wife's income drops, and that Dividend earning income is best placed in the TFSA to optimize post RRSP taxation, but is there anything else I am missing?
2) Based on the current mix of Vanguard ETFs available in Canada, what would your personal mixture be?  I would love to hear peoples thought process on how they decide.

I know this has turned into a post within a post, but thank you for evaluating this as well.

Canadian Ben

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #22 on: September 14, 2017, 09:08:06 AM »


What's your long term RRSP and TFSA plans? If you have high income now, might want to stuff the RRSPs, and then fill the TFSAs with extras when parental leave or dividend only income is in the picture.

You and your wife should have 50k+ of TFSA room each, and decent amounts of RRSP room each as well (although the pension has probably cut into that). What are your goals and plans for filling those? With upcoming variable income years, you want to think it through in advance.

This is kind of step #2, and I would love your take on this as well.  We just bought our current home in November of 206 and we need to come through and do some financial house keeping now that we are settled in more or less (NO MORE EXCUSES!).  With our life starting to change in the next two years I need to re-evaluate this very soon and I have not put much thought into this yet.
- We do have contribution room in both, as everyone has calculated.
- We are currently invested into a mix of ETFs(50%), Value stocks (30%), and then some other stocks I am trading,  and making a capital gain and a dividend from (20%).
1) We have been filling both our TFSA and our RRSP both, but would you focus on one more than the other? I have my opinion on this but I want to hear all of yours.  I understand that the benefit of lowering our taxable income with RRSPs will be minimized when my wife's income drops, and that Dividend earning income is best placed in the TFSA to optimize post RRSP taxation, but is there anything else I am missing?
2) Based on the current mix of Vanguard ETFs available in Canada, what would your personal mixture be?  I would love to hear peoples thought process on how they decide.

I know this has turned into a post within a post, but thank you for evaluating this as well.

Point 1) is strangely worded, I'm not sure you've fully understood. RRSP - Lowers current Tax rate, taxed as income when your withdraw (Also good for outside of Canada investments due to tax treaties). TFSA: never taxed (bad for US/Foreign taxation, as you cannot claim the withholding, though it is a small amount). Open investments: you want Capital gains or canadian dividends due to favorable tax.

For the RRSP/TFSA choice, and order, you'd need to check exactly how much each of you are being taxed right now, and if you believe you will have a lower income when you withdraw it. (With your S/O becoming a dependant, that's probably a clear yes for atleast 11500 (0% taxation rate). The highest taxed person should fill the other's RRSP, and their own, until they are both at the same tax rate, and use the tax credits to continue filling it until everything is full, or you hit the point where your withdrawals will be taxed at the same level as currently, then you'd want to fill TFSA. 

** General rule of thumb.

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #23 on: September 14, 2017, 09:10:03 AM »
Alright, now to go into nitty gritty:

1)You are doing quite well. Your high income + reasonable lifestyle means you are saving quite a bit
2)I`d start officially tracking with cards, but it seems to be closely aligned, you know where most of your money is going.
For your job, remember that if you move closer, you don`t need as high a paycheck. that 300$ fuel, however much time you are losing driving 45km and insurance costs will all go down. let`s say it takes 30min to get to work, your salary is for your 45hrs a week, rather than 40. That's a huge amount of time/salary difference from cutting that commute in half, which would allow you to add another 3-5 hrs to your other business. (This is just estimates, the longer your current commute, and shorter the new one, the more this effect becomes extremely important)
3) You`ve been face-punched enough. And took it well!
4) Lots and Lots of upside. You'll keep doing better all the time.
5)No comment, don`t know enough on the subject.
6)No comment on time/commitment, but you will want to go with the dividends, as it is taxed much lower at all times, and it'll add up quick. Salary income is crappy for taxes.
7) I'd put as much as legally possible under business, but realistically, you could always try going part-time, + independant if you are feeling iffy.

Final points: If you are making much more than your S/O, I'd recommend looking at spousal RRSP, she can fill her TFSA, pay for all your expenses, and you fill her RRSP, and your own TFSA.
It's the best use of your income, in order to keep the most away from getting taxed. Spousal RRSP is free to use after three years, so make sure to take detailed notes, especially if she might become full-time dependant, as that money will go from your high tax rate, to the lowest possible brackets when she takes it out (during non-income years).

Thanks Canadian Ben! 
- My number 1 priority has been finding a job closer to home.  I hate the commute, the KM's put on the vehicle, the wasted time everything.  I love riding my bike to work so I can't wait to do this again... even in -30 degree snow! 
- My spouse and I make almost the same amount currently.  I should be able to bump my salary from 60K to 80-85K with my P.Eng and switching industries.  At this time we will crunch the spousal RRSP numbers.  THANKS FOR THE REMINDER! and THANKS FOR TAKING THE TIME TO GIVE ME YOUR THOUGHTS

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #24 on: September 14, 2017, 09:16:54 AM »


What's your long term RRSP and TFSA plans? If you have high income now, might want to stuff the RRSPs, and then fill the TFSAs with extras when parental leave or dividend only income is in the picture.

You and your wife should have 50k+ of TFSA room each, and decent amounts of RRSP room each as well (although the pension has probably cut into that). What are your goals and plans for filling those? With upcoming variable income years, you want to think it through in advance.


This is kind of step #2, and I would love your take on this as well.  We just bought our current home in November of 206 and we need to come through and do some financial house keeping now that we are settled in more or less (NO MORE EXCUSES!).  With our life starting to change in the next two years I need to re-evaluate this very soon and I have not put much thought into this yet.
- We do have contribution room in both, as everyone has calculated.
- We are currently invested into a mix of ETFs(50%), Value stocks (30%), and then some other stocks I am trading,  and making a capital gain and a dividend from (20%).
1) We have been filling both our TFSA and our RRSP both, but would you focus on one more than the other? I have my opinion on this but I want to hear all of yours.  I understand that the benefit of lowering our taxable income with RRSPs will be minimized when my wife's income drops, and that Dividend earning income is best placed in the TFSA to optimize post RRSP taxation, but is there anything else I am missing?
2) Based on the current mix of Vanguard ETFs available in Canada, what would your personal mixture be?  I would love to hear peoples thought process on how they decide.

I know this has turned into a post within a post, but thank you for evaluating this as well.

Point 1) is strangely worded, I'm not sure you've fully understood. RRSP - Lowers current Tax rate, taxed as income when your withdraw (Also good for outside of Canada investments due to tax treaties). TFSA: never taxed (bad for US/Foreign taxation, as you cannot claim the withholding, though it is a small amount). Open investments: you want Capital gains or canadian dividends due to favorable tax.

For the RRSP/TFSA choice, and order, you'd need to check exactly how much each of you are being taxed right now, and if you believe you will have a lower income when you withdraw it. (With your S/O becoming a dependant, that's probably a clear yes for atleast 11500 (0% taxation rate). The highest taxed person should fill the other's RRSP, and their own, until they are both at the same tax rate, and use the tax credits to continue filling it until everything is full, or you hit the point where your withdrawals will be taxed at the same level as currently, then you'd want to fill TFSA. 

** General rule of thumb.

Yes sorry, poorly communicated on my part.  Im only half a coffee in this morning hhaha.
That is a good summary of where to use each investment vehicle.  It has confirmed my assumptions, and I forgot to consider the foreign investment aspect.

That is a great rule of thumb for where to prioritize.  I should be able to whip up a quick spread sheet to see where we should put our money based on the taxation rates.
THANKS!

lax4life93

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #25 on: September 14, 2017, 12:02:13 PM »
Well,  Now that I am Black and Blue from all the face punches, I am going to step out of the ring, hit the gym and start getting back in shape.
TO-DO LIST
#1) Back track and start tracking our bit of disposable income and where it is leaking.  We need to know where this bit of cash is going and how to stop and bleeding.
#2) Calculate our effective tax rates, and come up with our TFSA vs RRSP plan for S/O and I, and how we can minimize our taxation based on Canadian Ben's face punch
#3) turn our automatic transfers back on to implement RRSP/TFSA plan
#4) Determine how to better leverage the equity in my Rental property.  As everyone has pointed out, this money can be better used to work for us.
#5) Get my P.Eng designation for an immediate pay increase
#6) Find a new job.  Get rid of this stupid spendy pants commute each day.  Should result in higher income too.

THANK YOU EVERYONE FOR YOUR COMMENTS.
I still encourage everyone to put in their opinions, but I may not reply as quickly as I have the last 2 days.
I will update things in a new post when I feel I'm ready for another beating, and post a link.

Canadian Ben

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #26 on: September 14, 2017, 12:52:57 PM »
There weren't really any face punches, apart from the commute, which really wasn`t that bad.

even the condo was okay, as long as that`s what you wanted to do.

If people add stuff, it will be tiny details that you don't always think of. Advice rather than facepunches.

Facepunches would be people telling you to stop doing something RIGHT AWAY BECAUSE IT`S STUPID.

Nothing in your scenario is really bad. Just not always optimized.

Goldielocks

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Re: Moustache Audit: How are we doing? [CAN]
« Reply #27 on: September 16, 2017, 09:25:43 PM »
A few more thoughts and reinforcing above comments:

1)  Rental -- I can't tell how much you are getting/ month in rent from this?  It is worth $300k, so I definitely hope that your rent received is $1800 or more.   Even at $2000 you are relying on future appreciation beyond today, if less rent, sell it and look for a different rental property with better potential returns..   What is your planned rental equity gain to get out and sell it and use the money for something else?    When you hit that dollar amount, even if it happens sooner than you expect, it is time to sell.

So, Are you getting $2000+ in rent?  That is tough for a $300k property in Calgary but not impossible. unless you are Air BNB or someother high touch business.

2)  Regardless of the profitability, definitely look for ways to refinance to increase the mortgage, and free up that money to put into other savings.  Tax deductible is a huge benefit that you are missing.   Your marginal tax rate is likely approaching 30%.

3)  Max out your TFSA.  At $60k income, this is the place for it, especially if you need to withdraw it to pay down a mortgage at renewal time, as your contribution room does not disappear.   If you contribute to the RRSP, you don't have to claim the tax deduction this year, even if the money is in there and earning tax free returns.  You can carry the deducation forward to a high income year in future, which is likely after you get your P.Eng.

4)  Business -- Don't count on it being able to be sold for more than the value of your inventory.  Businesses can be hard to sell.   DH was able to pull up to $30k in income from his start up business in the final year of operation (also in Calgary), and sold it for the value of the accumulated inventory, and we were very happy about that.   Goodwill on small business is hard to get $$'s for.

5)  Business -- it is time to start pulling 10% profits from it, or a bit more, in my opinion.   Too many times we re-invest all the profits back into the black hole that is a start up business, and only use it to pay for fringe items like printer ink and cellphones used mostly for the business.  Start pulling income now, and look to financing (business loans) inventory buys or business growth (I assume that is why you roll all the money back in, like we were for the first 2-3 years, to buy more inventory each cycle).   Business credit and loans and credit worthiness are hard to establish at first, so work on that now that the business is generating consistent, if modest, revenues.

Pulling income, and paying yourself even a little, gets you into the habit of doing this.   Once you start pulling $60k in income per year, (likely when you have $500k in sales/yr for a product based business) look towards incorporating, as you can start to take advantage of tax planning by retaining additional amounts in the business as capital growth / paying dividends, etc.   $60k is a sweet spot for income, I think, for Canadians.  (LOL the "Goldielocks" zone... not too much, not too little).

I hope this helps... you have received good feedback from the others so far.