Author Topic: High income, low debt, good pension, no investments, poor planning  (Read 3660 times)

red_pill

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Given the length of this post, and the detail included (which I hope isnít too much), Iíll put my questions here:

We are (relatively) high income, and certainly low debt (compared to the general public, anyway).  We did not fall victim to extensive consumer debt like most, so my mustachian ďawakeningĒ has been less painful than it could have been.  And, we have had some financial good fortune as of late, resulting in significant extra cash flow projected for the next year and beyond.  I want to maximize our utility of these ďprime earning yearsĒ, and start with this next year But how?  What are my blind spots?  Are there areas of potential optimization that Iím not taking into account? 

I have included notes at the bottom for rationale / specific questions on certain items.

The below are anticipated income / expenses for the next year.
 
SITUATION:
Me: 40 yrs old  (thinks of himself as frugal, but actually very impulsive)
Wife: 45 yrs old  (naturally somewhat frugal, but not as enamored with MMM as I am, but generally not a hard sell on things)
One child (aged 10).
Live in Au Pair
We live in a HCOL west coast Canadian City

INCOME:
Gross Salary:
Me:    $128,000  (+3.5% raise June 2018, 3.5% April 2019, 2.5% Feb 2021)
Wife:  $105,000  (+3.5% raise April 2019)

Pension Contributions:
Me:   $12,600 / yr    Employer Contribution:  $12,600 / yr
Wife: $10,350 / yr  Employer Contribution: $10,350 /  yr

Federal Taxes & Social Security deductions:
Me:   $32,100
Wife: $23,200

Take Home:
Me:   $83,300 + $16,000 (net) bonus
Wife: $71,450 

TOTAL (AFTER-TAX & DEDUCTIONS) CASH INFLOW:  $170,750


EXPENSES:

Housing
Mortgage Interest (1)         $1,080       ($90 / month)      
Property Tax                      $3,480         ($290 / month)
House Insurance (2)           $1,500      ($125 / month)
Home Improvement (3)      $3,000 (est)   ($250 / month Ė not budgeted)
Electricity (4):                   $1,560           ($130 / month) *reduced
Natural Gas (5):                $   750         ($60 / month)
Utilities:                            $   600      ($50 / month)
Internet / home phone (6): $1,200          ($100 / month)
Netflix:                              $   130        ($11 / month)
My Cell Phone (7)               $   900         ($75 / month)
Wifeís Cell Phone   (8)    $   600       ($50 / month)
Housing Subtotal            $14,800

Transportation
Car Lease (9)                    $5,880        ($490 / month)
Gas   (10)                          $3,900      ($325 / month)
Parking (10)                      $   920      ($ 76 / month)
Car insurance                    $2,150      ($180 / month)
SUV Insurance              $2,150      ($180 / month)
Transportation Subtotal:   $15,000 / yr


Recreation
Vacations (11)                  ?             (not budgeted)
Family Crossfit (12)            $ 3,600         ($ 300 /month)
Circus                                $ 2,220      ($185 / month)
BJJ                                    $    960       ($ 80 / month)
Music Lessons                $    720      ($ 60 / month)
Recreation Subtotal        $  7,500 / yr    + vacations


Other
Charity                                   $     504       ($ 42 / month) Ė immorally low given our income levels
Childcare (13)                         $  8,250       ($950/ month to $500/mo in Sept
Life insurance (14):                 $   2,800      ($233 / month)
Groceries (15)                         $ 20,800       ($400 / week)
Cash Spending (16)             $ 13,000      ($500 / bi-weekly)
Other Spending Subtotal      $ 45,354 / yr

TOTAL SPENDING:   $  88,224  + vacations


SAVINGS:
Mortgage Principal             $ 27,300 / yr      ($1050 / biweekly)
RESP (17)                      $ 2,400 / yr        ($200 / month)
TOTAL SAVINGS:           $ 29,700 / yr

TOTAL CASH OUTFLOW = SPENDING + SAVING   =  $117,924

Left over = $52,826 (minus vacations)


ASSETS:
Cash (18):                        $13,000
House (19):                      $960,000 Assessed Value
Education Savings Plan:      $36,000 
My TFSA: (20)                    $0
Wife TFSA:                         $0
My RRSP:  (21)                   $0
Wife RRSP:                         $0

My Pension:    Defined benefit, fully indexed, payout approx. $65,000 / year in 7.5 years.  Present value = ?
Wife Pension:     Defined benefit, fully indexed, payout approx. $50,000 / year in 4 years. Present value = ?
Estimated pension take-home after taxes = $78,200 (assuming 32% tax rate which might be a bit higher than actual).


LIABILITIES
Mortgage:        $28,700    (2.69%, 14 months remaining.)
Credit Card:      $ 0
Line of Credit:      $ 0

VEHICLES:
2011 Santa Fe w/ 100,000 km (60,000 miles) = $10,000
2017 Audi A3 with 16,000 km (10,000 miles) 36 months lease remaining (yeah, I know, see note 9)


 NOTES


(1)   Mortgage interest ĖI plan on doubling up my mortgage payments, which will reduce my remaining mortgage term from 14 months to 7 months.  So, this should end up saving $500 in interest. Mortgage freedom by December!
 
(2)   House Insurance Ė by shopping around, and then increasing deductible and removing a stupid ďidentity theft coverageĒ that I didnít even know was on there (and was totally useless), I reduced this by $700 / yr.

(3)   Home Improvement Ė we donít actually budget this, we just pay as it goes, and I would bet that $3,000 is an under estimation as there are a few larger projects that need to be done. 

(4)   Electricity Ė historically it has been on an equal payment plan of $120 per month. I have since slashed it by over half, and am on track to be around $50 this month.  But, we are approaching air conditioning season, so that will increase depending on the success I have in mitigating some of our a/c needs (exterior blind to block the sun on some big windows, etc).  Estimated savings = $600 / yr

(5)   Natural Gas Ė one of my electricity saving strategies was to switch over from my heat pump to my NG furnace as primary heat source. (I didnít know that NG was way cheaper than electricity Ė that wasnít the way it was 6 years ago when we put the heat pump in).  Because of that I anticipate the average NG usage over the year will increase a bit. Estimated increase = $100/yr

(6)   Internet / Home Phone.  We have no cable (yay!) having gotten rid of it years ago and donít even miss it.  I re-examined this bill a few months ago and saw that I could actually get a better plan but was cheaper.  Savings of $17 / month = $204 / year.  There is also a potential savings of an additional $10 / month to ditch our home phone.  But I just canít bring myself to do it as our daughter uses it to call us at work.  Also, we try to have an electronics free lifestyle as much as possible, so donít always have our cell phones nearby, or ringers off Ė so the home phone is handy for when one spouse is trying to get a hold of the other. Still, it probably only rings about 8 times a month.  Probably not worth it, but stillÖhaving trouble axing it.

(7)   My cell phone:  This was a pre-MMM decision, and I got a brand new iphone7 on a 2 year plan.  I actually didn't even know you could buy a used cell phone - I thought people kept them till they died.  My 2 year term is due up in February, 2019, so I can go to a cheaper plan then.  My next phone will be a used one for sure.  Savings from this TBD.

(8)   Wifeís cell phone:  This one we just bought a few weeks ago when her old one died.  We got it used!!!  She's on a contract-free plan that's pretty cheap by Canadian cell phone standards.

(9)   Car Lease:  Because Iím an idiot, I decided to lease a brand new 2017 Audi A3 for four years.  This was before I found MMM.  It was a present for my wife for going through breast cancer, and I rationalized it by saying it was only marginally more expensive than a new Corolla or Mazda3 or whatever, a lease offered cost certainty since it would be under warranty the entire time and came with (an overpriced) maintenance package, and I also felt obligated to get it since my neighbor was the sales manager at the dealership, and it seems like everyone in my neighbourhood has a nice car.  I know, right?  Stupid, stupid, stupid.  Recently, I costed it out Ė the thing will cost me 60 cents per km to drive over the 64,000 km lease. Gah! But Iím not going to lie, itís a sweet, sweet ride.  Iím not really a car guy, but I love driving that damn thing.  Still, we have agreed that when itís time for it to go, we will be replacing it with something used that fits our lifestyle a little better.   Our cash flow doesnít require us to get rid of it right away, but nor are we adamant to keep it for the entire four years.  Iím not sure how to make that decision of ďwhenĒ to get rid of it.  I would have to buy the car out, pay the taxes on it, and then trade it in for something else.  I would likely lose a few grand on the transaction.  Details on the lease:

May, 2017 Ė 4 year lease (so 12 months gone, 36 months remaining)

Cost of Lease =    $20,015
Interest on Lease = $1,145  (0.91%)
Taxes on Lease =    $2,453
Total cost of lease= $23,613 
*this is for the entire 4 years, only ĺ of it is remaining.

Buyout:
Purchase Price:     $39,703 (includes $1,179 of buy out penalties)
Taxes:               $ 4,764
Total Purchase:     $44,467 
(this is from December, so would be less by maybe $2,000 or so by now?)

Blackbook trade in value: $26,000 - $29,000
Blackbook avg private sale price = $31,000
But I see online there are some demo models that list for $36,000 to $42,000

(10)   Gas and Parking:  My wife and I work in the same building.  After the MMM wake up a few months ago, we started commuting together (we work slightly different shifts, so this created a small hassle for me but I saved the $76 / month parking plus reduced our driving by 400 km / month (at 12 L/100 km in our SUV = $60/ month gas).  Total savings = $1,650 / year.

(11)   Vacations Ė weíve never budgeted for them, if we go we just pay for it out of our extra cash flow.  Not ideal, as I find we justify the costs in piece meal fashion and quickly lose track of the overall pricetag.   Honest assessment for the next year would be about $13,000 (we have a two week Hawaii trip planned, which is already paid for, and a few other smaller planned). 

(12)   Crossfit Ė yes, thereís cheaper ways to get my fitness on, including the free gym at my office. But this is my only social outlet, and my friends are there.  Could for sure coach there and get my membership for "free" but I like it being my fun place, not another work place.  Overall, our recreation expenses are high, especially for our daughter who does circus, BJJ, Crossfit, and music lessons.  She is very shy, but through these activities her confidence is high and sheís very well rounded.  Watching her throw an armbar on a boy who outweighs her by 20 lbs brings a tear of joy to my eye.  She loves the identity of being ďsportyĒ and has a very positive body image, which I think is important.  Are there cheaper ways to get the same result Ė sure there are.  But Iím reluctant to cancel something when I can afford it and am just being cheap.  I did cancel my boxing gym membership.  I liked it, but just couldnít justify the expense on top of Crossfit.  Savings = $109 / month = $1308 / year.  (I've noticed that the more the word "but" appears in a case study, the more likely the expense should be analyzed).

(13)   Childcare Ė Last year it was $11,400 because I screwed up our Au Pair contract and gave her higher than going-rate.  New Au Pair is coming in July, and we have corrected this. It will be down to $8,250.  Savings of $3,150 / year.

(14)   Life insurance:  We both have group plans from work, and term plans ourselves.  I suspect we are over-insured, but Iím not sure.  Donít ask me why Iím insured for more than my wife is Ė itís what the financial advisor guy suggested, possibly at the suggestion of my wife. lol. 

My Group Plan:            $600,000     
My Term Plan:            $725,000    20 year term since 2011

Wife's Group Plan:      $600,000   
Wife's Term Plan:   $415,000    20 year term since 2011

(15)   Groceries:  Yes, $20,000 a year is crazy.  I have a thread in Ask a Mustachian for some advice on getting it down.  Ongoing project.

(16)   Cash Spending:  Okay, for the record, we donít actually spend this much.  But I'll tell you where this comes from.  Several years ago I was frustrated with the credit card constantly being on fire.  So, we created an ďenvelopeĒ system for our own personal spending.  That way there were no fights.  We set the amount at $250 each every payday.  Yeah, thatís insane, I know. I actually picked that amount after asking my wife how much money she would need for all her personal stuff (dinners out, hair stuff, coffees, shoes, etc) without going over. She said $400 a month.  I said fine, letís do $500 and never speak of this again.  It was high enough that neither of us could have a rational reason for going over.  So, thatís how I have it budgeted.  This shows a few things to me.  One, I have a mishmash of budgeting strategies Ė a combination of envelope system with some pay yourself first, and a bit of zero sum. Itís a mess.  Second, we actually donít stick to it.  Iíve spent $8 in the last two months on personal stuff (had to get a pair of jeans hemmed).  Thatís it.  So I just donít take money out the next week or the week after, etc. Or, we use our cash for farmerís market (which should be grocery expense). The problem with this is, when thereís something I do want that is more than my allowance, I easily justify spending that.  Same with my wife, whose powers of justification approach super human levels.  Result: We donít actually know how much we spend on just ďstuffĒ.   I love doing cash Ė love it.  It makes me WAY more disciplined than relying on credit cards and Mint.  But, my overall strategy could use some shoring up, thatís for sure.  One thing we paid cash for was our house cleaner, which I cancelled a few months ago.  See, I actually LIKE cleaning and LOVE decluttering (honestly, it's my dream job), so this was easy!  We had just fallen into the habit of it since we used to have a live-in nanny who did it all.  Savings = $200/month = $2,400 / year (well, except we didnít reduce our cash outs by that amount, so is it really "savings"?).  Is there a better way to do this?

(17)   RESP - I realized that if I had an investment product with my bank that I would get free banking if I downgraded my service package and got rid of overdraft protection.  I keep a $1000 balance in my checking acct, so didnít really need the overdraft protection.  So, I moved my RESPís to an index fund at my bank, and now I get my banking for free.  Savings of $15/month = $180 / year.  Plus, my RESP went from a 2.2% MER to an index fund from my bank at 1.1% MER.  On the $36,000 we have in there, that equals a savings of $400 / year.   

(18)   Current cash on hand: $13,000.  I literally have no idea what to do with it.  Pay down the mortgage (Iíve already reached my max lump sum pre-payment, so to pay $10,000 more would incur a $112 penalty, which is exactly what interest I would be saving)?  Maybe use this to correct the car debacle?  Start up a TFSA?  Suggestions on this?  And there's generally $2K to $4k per month coming in for the rest of the year - what do I do with it all?

(19)   House:  2700 sq ft, 4 bedrooms and 3 bathrooms of suburban joy.  It has appreciated significantly since we bought it 8 years ago for $640K.  The house is 10 years old, so some things are starting to need more substantial maintenance.   Once we no longer need childcare, we need less space (no live in Au Pair).  My wife wants to have more room for our daughter so that our house is the one that she and her friends hang out at when they are teenagers Ė I think thatís an awesome idea, but precludes us putting a suite in our basement ($1,000 / month income, but parking hassles to go with it). Regardless, that decision is 2 years off anyway.  We could also downsize at that time.  When we retire our employer will pay all moving costs to relocate to wherever in the country we want.  And I mean all costs Ė realtor fees, moving expenses, and property transfer taxes on new place.  Pretty cool benefit. But, we like it where we are for now Ė great schools and awesome house.  However, being almost mortgage free in a million dollar home does have me thinking about opportunity costs of that money.  Iím also thinking that we are at the peak of the market, and it sure would be nice to cash out now, but thereís nowhere to go Ė the rental market here is awful.  What am I missing on this front?

(20)  We haven't done any TFSAs yet - our focus has been mortgage elimination (which I really am looking forward to).  I understand that from an optimization standpoint, a low interest rate mortgage shouldn't be a priority, but I value peace of mind.  No opposition to TFSA's, I just haven't done them yet.

(21).  I'm reluctant to do RRSPs.  Due to our defined benefit pensions, we have somewhat high income projected in our retirement years so the savings will be limited, and perhaps even eliminated since the gains on them are all taxable at income tax rates. 

Thanks for reading this far - looking forward to some sober second thoughts on this. 



« Last Edit: July 28, 2018, 02:57:37 PM by red_pill »

Prairie Stash

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Extra money - where is your TFSA and investment accounts? The TFSA is for your emergency cash fund, or investments, your choice. I don't see the four accounts you should have; 2 for each of you. I also don't see RRSP, so I assume its all been used in the DB contributions.

With your DB in 7.5 years, it will not cover your expenses today, you have a shortfall. Easily fixed by fully investing in a TFSA for both you and your wife and then by starting taxable investment accounts (all high earners have them, unless they're spendy).

RESP - 1.1% MER is high for an index fund. You can halve that or more (saving $200 in fees) this is minor but I have a soft spot for RESP, I like to see them maxed out always. National Bank does a better job for RESP than most other places in Canada.

Bank fees - I pay $0 in fees with RBC, unfortunately I have to remember to use my RBC credit card every 3 months (minor annoyance). Years ago the promo was to buy a $500 mutual fund to get free banking, not $32,000. Even with the high MER, who cares when the intial value is so low.

red_pill

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Extra money - where is your TFSA and investment accounts? The TFSA is for your emergency cash fund, or investments, your choice. I don't see the four accounts you should have; 2 for each of you. I also don't see RRSP, so I assume its all been used in the DB contributions.

With your DB in 7.5 years, it will not cover your expenses today, you have a shortfall. Easily fixed by fully investing in a TFSA for both you and your wife and then by starting taxable investment accounts (all high earners have them, unless they're spendy).

RESP - 1.1% MER is high for an index fund. You can halve that or more (saving $200 in fees) this is minor but I have a soft spot for RESP, I like to see them maxed out always. National Bank does a better job for RESP than most other places in Canada.

Bank fees - I pay $0 in fees with RBC, unfortunately I have to remember to use my RBC credit card every 3 months (minor annoyance). Years ago the promo was to buy a $500 mutual fund to get free banking, not $32,000. Even with the high MER, who cares when the intial value is so low.

We donít have TFSAs or RRSPs.  Our priority has been mortgage elimination.  My emergency fund is provided by a HLOC that we donít use.  Job security is very high for us.  I am reluctant to do RRSPs since my pension income puts me in not a super low tax bracket and I donít like how ďlocked in they areĒ.  TFSAs are where I would feel more comfortable investing to start.

I also see the income / expenses shortfall after my retirement.  Having trouble pinning my wife down to exactly how we are going to address it. She figures With the no child care, no mortgage, probably one vehicle thing it will be even Steven. But Iíd like to get more clarity on it.

RESP - I was pretty proud of myself for moving from investors group to rbc at half the MER. But youíre right - thereís better out there. Just havenít done it.  I could still get the free banking as long as I have $1000 in a GIC (which is actually a good rate of return just for the free banking)
« Last Edit: May 10, 2018, 02:29:19 PM by red_pill »

robartsd

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Given the length of this post, and the detail included (which I hope isnít too much), Iíll put my questions here:

We are (relatively) high income, and certainly low debt (compared to the general public, anyway).  We did not fall victim to extensive consumer debt like most, so my mustachian ďawakeningĒ has been less painful than it could have been.  And, we have had some financial good fortune as of late, resulting in significant extra cash flow projected for the next year and beyond.  I want to maximize our utility of these ďprime earning yearsĒ, and start with this next year But how?  What are my blind spots?  Are there areas of potential optimization that Iím not taking into account? 
I'd take a closer look at just about everything you listed under "Recreation" and "Other" - the total here is about what my (2 adults) household spends in a year. Of course in 7.5 years you'll have all your spending other than vacations covered by your defined benefit plans, so if you don't care about retiring earlier than that you don't need to make changes.

Recreation
Vacations (11)                  ?             (not budgeted)
Family Crossfit (12)      $ 3,600         ($ 300 /month)
Circus            $ 2,220      ($185 / month)
BJJ                     $    960       ($ 80 / month)
Music Lessons      $    720      ($ 60 / month)
Recreation Subtotal        $  7,500 / yr    + vacations

Other
Charity                       $     504       ($ 42 / month) Ė immorally low given our income levels
Childcare (13)                   $  8,250       ($950/ month to $500/mo in Sept
Life insurance (14):            $   2,800      ($233 / month)
Groceries (15)                   $ 20,800       ($400 / week)
Cash Spending (16)        $ 13,000      ($500 / bi-weekly)
Other Spending Subtotal     $ 45,354 / yr

red_pill

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I'd take a closer look at just about everything you listed under "Recreation" and "Other" - the total here is about what my (2 adults) household spends in a year. Of course in 7.5 years you'll have all your spending other than vacations covered by your defined benefit plans, so if you don't care about retiring earlier than that you don't need to make changes.


There is a pretty ugly penalty on the pension for retiring early.  Golden handcuffs indeed.  So, no early retirement, but once I hit my 25, I don't want to have to stay a day longer unless I want to.

Prairie Stash

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We donít have TFSAs or RRSPs.  Our priority has been mortgage elimination.  My emergency fund is provided by a HLOC that we donít use.  Job security is very high for us.  I am reluctant to do RRSPs since my pension income puts me in not a super low tax bracket and I donít like how ďlocked in they areĒ.  TFSAs are where I would feel more comfortable investing to start.

I also see the income / expenses shortfall after my retirement.  Having trouble pinning my wife down to exactly how we are going to address it. She figures With the no child care, no mortgage, probably one vehicle thing it will be even Steven. But Iíd like to get more clarity on it.

RESP - I was pretty proud of myself for moving from investors group to rbc at half the MER. But youíre right - thereís better out there. Just havenít done it.  I could still get the free banking as long as I have $1000 in a GIC (which is actually a good rate of return just for the free banking)
What I hate about case studies is having to be harsh, moving to RBC was a good step. I'm also with RBC Bank, not RBC direct, because of some arcane rules (matching grants) that National Bank solved this year. I missed my last appointment to switch over (life happens), getting it done soon. Few of us are perfect and even when we optimize, the rules change and something better comes along.

On the RESP side I'm stopping investments in there the day I max out the grants. Its not a permanent budget item, you can remove it from long term planning. You will also be losing your very small Child Benefit cheque, so the savings wont be as large as $2,400.

You can start an RRSP account with RBC today, put money in and pull it out next year if you want. Preferably you leave it until you retire, your choice though. How much RRSP room do each of you have? its easily found on the CRA online account; along with TFSA contribution rooom. If you don't have an account, its an easy task to fix.

Pension income in BC, you are roughly going to be taxed at 28%. Some of your current income is taxed at 38% (over 93,208), then at 32.79 (over $91107) then 31% (over $79,353). You list your income at $99,000 so a $6000 RRSP contribution today will get a $2280 refund and you will be taxed for $1680, a $600 guaranteed gain. Its really easy money, you can pull it all out the same year you retire. At worst, you should do this the three years before retirement, its an easy $2000+ bonus without any effort. Or you can go big and put in $19647 a year for 3 years,  getting an additional $1009.96/year after the withdrawal tax.

Play with the numbers yourself, most of the money is from the top two brackets and only requires you to put in $7893/year. If you use the refund each year to pay for it, its only $4893/year upfront and nets $696/year that you do it. Over the next 7 years that $35000 you have to pay in, getting $4200 after all taxes ($39,000 should be taken out over 3 years). You could even take the money from the HELOC and pay interest and come out ahead.

debbie does duncan

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WOW....you like to spend alot.
There is no reason for 2 vehicles if you work in the same building. Kill the lease now.
 You have a free gym but insist on Crossfit. I am pretty sure Circus and BJJ are not worth it what ever they are?
Cell phones are high considering you have a home phone. Have you tried Teksavvy?
 Do you need to go on all those vacations? That seems really high or do you take the Au Pair with you? And I am not sure I understand but you each get $500 a month to blow on ????stuff???
Are you happy with such an outflow of cash?
I would recommend taking your extra cash and making sure you daughter has a RESP.
 Or TFSA it now! Good luck with the reckoning.

red_pill

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WOW....you like to spend alot.
There is no reason for 2 vehicles if you work in the same building. Kill the lease now.
 You have a free gym but insist on Crossfit. I am pretty sure Circus and BJJ are not worth it what ever they are?
Cell phones are high considering you have a home phone. Have you tried Teksavvy?
 Do you need to go on all those vacations? That seems really high or do you take the Au Pair with you? And I am not sure I understand but you each get $500 a month to blow on ????stuff???
Are you happy with such an outflow of cash?
I would recommend taking your extra cash and making sure you daughter has a RESP.
 Or TFSA it now! Good luck with the reckoning.

1) The two vehicles.  We work slightly offset shifts (she gets Mondays off, I get Fridays).   On the days we both work, the SUV sits in the driveway all week, but is used by the Au Pair to take our little one to activities.  Still, that activity could be rescheduled to another time or some other arrangement made.  So, yes, I agree we could make due with one vehicle.  My wife is not in agreement (yet).  We need childcare for one more year, and after that I'd say it would be very hard to justify having two vehicles.  But this is one of those larger lifestyle adjustment changes that is a bigger step than cutting cable.

2) Since the lease is just a year old, I'm in a negative equity situation.  Killing the lease would incur a $6,000 loss, at least.  I'd owe $6,000 for an empty space in my driveway.  While I would save on operating costs, it still sucks.  By next year that loss will be significantly less (if anything at all) and that's when we also hit the no childcare period which is a good time to revisit the second vehicle issue.  I agree the lease needs to die, but when is the question.

3) Crossfit was my thing.  I was doing it competitively, my wife just recreationaly.  Without a doubt, the fittest I've been is when I'm crossfitting regularly.  At 40 I can wipe the floor with most 20 year olds.  But I've been getting a bit sick of it lately and was thinking of taking a break from it.  I think (still haven't pulled the trigger) that we are going to to put our memberships on hold through the summer.  I can still do the occasional drop in.  I'm not willing to cut this on purely financial grounds, but more from a crossfit fatigue grounds. Still, what started as a sacred cow is now being led to the butcher shop.

4) BJJ and circus - if you don't know what they are, why would you assume they aren't worth it? :)  You're right though, because the $ on them is high.   BJJ = Brazilian Ju Jitsu.  For a shy 10 year old girl, it's a friggin' magical confidence elixir.  I consider self defence to be a life skill, and she likes it.  Watching her put a boy into an arm bar brings a tear of joy to my eye.  Plus, at $80 / month for twice a week, it's dirt cheap as far as kids activities go.  And it's very close by.  This is by far the best bang for my buck we get for activities go.  BJJ is staying.  Circus is a circus school..... as in trapeze, hand balancing, that kind of stuff.  Yeah, it's expensive and we've discussed it being on the chopping block.  But she likes it, it's great athletic development (you wouldn't believe what that kid can do), and I waste way too much money on other stupid shit that I need to cut before I want to start taking away from her.  Know what I mean?  It's like, why negatively impact her when I need to get my own shit in order first?

5) My cell phone is a lot ($75 a month) but in Feb I'll be done paying for the phone and will be reducing it.  My wife's phone is like $50 and I think that's one of the cheaper plans that we found.  Our landline costs $8 a month as we have it bundled, so it's less than TekSavvy anyway. Still, I think we could cut the landline right now and just rely on cell phones.

6) $10,000 vacations and $500 each per month - trust me, that's a fraction of what we blow.  We've probably got about $30,000 a year of unaccounted for expenses.  No joke.  Where is it?  I have no idea.  I'm not a super tight wad and it wouldn't bother me if I knew what it was for.  I don't bat an eye at an awesome trip that costs a few grand, but when we end up at the end of the week and have no money left over when we should have had a few hundred bucks....that's not a fun feeling for me. On this front it's less about the amount of money being spent, and more about knowing where it's being spent and making sure they are all conscious choices.  We are now tracking all of our expenses and have budget categories set up, so this is getting better (slowly).

7) RESP - yup, have it.  $36,000 in there.

8) TFSA - after the mortgage is gone, that's the next priority. 

Thanks for your feedback!  What else have I missed?
 

PharmaStache

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Who the heck do you work for that you get your DB pension so early and then get to move anywhere you want for free? :)

I mean...you can basically do what you're doing with no changes, work until you both get your pensions, stay in the city a few more years for your daughter to graduate and then move, downside and retire.  Buy a house that's half as expensive and invest the rest. 

What I'd do:
1. Figure out where 30k a year is going- this is going to be the cause of your retirement plan failure if you don't.
2. Pay off the mortgage
3. Start maxing out your TFSAs- so 11k/year and then whatever room you have built up already (around 60k each).  That'll keep you busy for a couple of years.  Figure out how to invest in low cost index funds (for this and the resp)- visit Canadian Couch Potato for this info. 
4. Refine your current budget and what your retirement budget looks like.  Visit options around the country and see how much your house will cost there.
5. Later you can do the calculations to figure out if investing in RRSPs is worth it or not given your DB pensions.

red_pill

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Who the heck do you work for that you get your DB pension so early and then get to move anywhere you want for free? :)

I mean...you can basically do what you're doing with no changes, work until you both get your pensions, stay in the city a few more years for your daughter to graduate and then move, downside and retire.  Buy a house that's half as expensive and invest the rest. 

What I'd do:
1. Figure out where 30k a year is going- this is going to be the cause of your retirement plan failure if you don't.
2. Pay off the mortgage
3. Start maxing out your TFSAs- so 11k/year and then whatever room you have built up already (around 60k each).  That'll keep you busy for a couple of years.  Figure out how to invest in low cost index funds (for this and the resp)- visit Canadian Couch Potato for this info. 
4. Refine your current budget and what your retirement budget looks like.  Visit options around the country and see how much your house will cost there.
5. Later you can do the calculations to figure out if investing in RRSPs is worth it or not given your DB pensions.


Thanks, thatís a good list and what I was thinking.  Thereís two forks in the road.  The first is in 3 years when my wife can retire.  But the big one is in 8 years when I can retire and our daughter is graduating high school.   I really want to get this dialled in so when those things happen Iíll be ready.

debbie does duncan

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6) $10,000 vacations and $500 each per month - trust me, that's a fraction of what we blow.  We've probably got about $30,000 a year of unaccounted for expenses.  No joke.  Where is it?  I have no idea.  I'm not a super tight wad and it wouldn't bother me if I knew what it was for. 


Are you sure you are on the right website?



















formerlydivorcedmom

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4) BJJ and circus - if you don't know what they are, why would you assume they aren't worth it? :)  You're right though, because the $ on them is high.   BJJ = Brazilian Ju Jitsu.  For a shy 10 year old girl, it's a friggin' magical confidence elixir.  I consider self defence to be a life skill, and she likes it.  Watching her put a boy into an arm bar brings a tear of joy to my eye.  Plus, at $80 / month for twice a week, it's dirt cheap as far as kids activities go.  And it's very close by.  This is by far the best bang for my buck we get for activities go.  BJJ is staying.  Circus is a circus school..... as in trapeze, hand balancing, that kind of stuff.  Yeah, it's expensive and we've discussed it being on the chopping block.  But she likes it, it's great athletic development (you wouldn't believe what that kid can do), and I waste way too much money on other stupid shit that I need to cut before I want to start taking away from her.  Know what I mean?  It's like, why negatively impact her when I need to get my own shit in order first?

That's kind of how I feel with my kids, too.  Oldest wants to do club volleyball to the tune of a $3-5k per year.  She's good at it and if we don't do this now it will really be too late to get her into it later...so I'll finish cleaning up my end of the street before I limit her.  [Circus school sounds AWESOME, btw.]

You've made a lot of changes fairly quickly. It took me a full year of tracking before I started making changes.  I'm now on year 3 of tracking and making harder adjustments (cable just went away).  This year we've been able to cut about $500/month of our average expenses [excluding one-off major medical expenses].  Still a long way to go.

We've made a choice to have one big vacation every other year, and smaller vacations in between.  We actually have a vacation budget.  For me, part of the fun is planning, anyway.  I booked my Mar 2019 cruise in early 2017, so LOTS of planning fun in advance :)  This year's smaller vacation is going to get really really small and cheap because we had unexpected expenses to pay and I didn't want to pull money out of our investment accounts.

Don't just throw your $13k in cash somewhere - this is a great emergency fund.  Anything over and above that should be invested, either in a tax-advantaged Canadian account or a taxable brokerage account.


Rosy

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Who the heck do you work for that you get your DB pension so early and then get to move anywhere you want for free? :)

I mean...you can basically do what you're doing with no changes, work until you both get your pensions, stay in the city a few more years for your daughter to graduate and then move, downside and retire.  Buy a house that's half as expensive and invest the rest. 

What I'd do:
1. Figure out where 30k a year is going- this is going to be the cause of your retirement plan failure if you don't.
2. Pay off the mortgage
3. Start maxing out your TFSAs- so 11k/year and then whatever room you have built up already (around 60k each).  That'll keep you busy for a couple of years.  Figure out how to invest in low cost index funds (for this and the resp)- visit Canadian Couch Potato for this info. 
4. Refine your current budget and what your retirement budget looks like.  Visit options around the country and see how much your house will cost there.
5. Later you can do the calculations to figure out if investing in RRSPs is worth it or not given your DB pensions.


Thanks, thatís a good list and what I was thinking.  Thereís two forks in the road.  The first is in 3 years when my wife can retire.  But the big one is in 8 years when I can retire and our daughter is graduating high school.   I really want to get this dialled in so when those things happen Iíll be ready.

LOL - Yeah, I think finding that $30K would be an excellent first step - but the question is, do you have the discipline and/or desire to plow it into step #2 and step #3?
You are right, you are not Mustachian in any way, but hey, you are moving in the right direction - swift and sure.
...muttering... but you are the poster child for what a good income, a solid career path and a good partner in life can do - you are golden:)

CindyBS

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Two things that jumped out at me that have not been mentioned:

1) you spent $400/week on groceries for 4 people.  My house has 4 people, 2 of them are teenage boys, and we spend $125/week.  You are spending almost 4 times what I do.  I do understand that you live in a HCOL, groceries are more expensive in Canada, etc. but even taking that into consideration it seems so high.  Especially since you have live in help - that should make your grocery bill even lower since someone is home all day that can cook things from scratch.  Heck, your au pair can do cooking lessons with your daughter. 

2) You have live in au pair for a 10 year old girl.  Not to be insensitive (and I am mom of a child with multiple disabilities) - is she disabled?  Is there some reason she needs that much childcare?  Does you daughter go to school during the day most of the year?  Where I live, your daughter would be babysitting other kids by age 12 or so.  You list childcare as $8,200 ish per year.  But that is really not the true costs since I assume you feed the au pair and she (I assume is a she) uses your water, and electricity, etc.   What is the exit strategy on this?  My recommendation is to maybe go one more year at the absolute most and then transition to summer camps or just a summer or school break babysitting situation and then to nothing.  Most 11 and 12 year olds are capable of being home alone for a few hours, even if they aren't all day.  When my youngest was 12 we would have half day babysitting for him where he would be home alone for 3-4 hours and then someone would be with him 3-4 hours.   Where I live there is no daycare at all for kids over age 13 because they don't need babysitting.   I have never met an able-bodied teen who was cool with having a babysitter and can see it causing a lot of strife going forward.  (again, different story if she has a disability).  Not only will it be a problem with your daughter, you will be robbing her of so many opportunities to learn to become independent. 

CindyBS

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(19)   House:  2700 sq ft, 4 bedrooms and 3 bathrooms of suburban joy. . . .

My wife wants to have more room for our daughter so that our house is the one that she and her friends hang out at when they are teenagers Ė I think thatís an awesome idea, but precludes us putting a suite in our basement ($1,000 / month income, but parking hassles to go with it).  . . .

 What am I missing on this front?



Let's suppose your daughter uses her new "living room" for 6 years.  You are talking about forgoing $12,000/year x 6 years ($72,000) of income so she can have a living room.  How about putting her in a bedroom that is adjacent to another bedroom (since you will have 1 empty).  Then tear a hole in the wall between them, put in a door or maybe not, then she has a bedroom and "living room" for less than $1,000. 

Or just have her hang out in your actual living room or actual family room.  With 2,700 sq ft. - I can't imagine the rooms aren't big enough. 

Either way $72,000 for a kid to have her own living room seems way excessive to me. 

jezebel

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Two things that jumped out at me that have not been mentioned:

1) you spent $400/week on groceries for 4 people.  My house has 4 people, 2 of them are teenage boys, and we spend $125/week.  You are spending almost 4 times what I do.  I do understand that you live in a HCOL, groceries are more expensive in Canada, etc. but even taking that into consideration it seems so high.  Especially since you have live in help - that should make your grocery bill even lower since someone is home all day that can cook things from scratch.  Heck, your au pair can do cooking lessons with your daughter. 

2) You have live in au pair for a 10 year old girl.  Not to be insensitive (and I am mom of a child with multiple disabilities) - is she disabled?  Is there some reason she needs that much childcare?  Does you daughter go to school during the day most of the year?  Where I live, your daughter would be babysitting other kids by age 12 or so.  You list childcare as $8,200 ish per year.  But that is really not the true costs since I assume you feed the au pair and she (I assume is a she) uses your water, and electricity, etc.   What is the exit strategy on this?  My recommendation is to maybe go one more year at the absolute most and then transition to summer camps or just a summer or school break babysitting situation and then to nothing.  Most 11 and 12 year olds are capable of being home alone for a few hours, even if they aren't all day.  When my youngest was 12 we would have half day babysitting for him where he would be home alone for 3-4 hours and then someone would be with him 3-4 hours.   Where I live there is no daycare at all for kids over age 13 because they don't need babysitting.   I have never met an able-bodied teen who was cool with having a babysitter and can see it causing a lot of strife going forward.  (again, different story if she has a disability).  Not only will it be a problem with your daughter, you will be robbing her of so many opportunities to learn to become independent.

I am confused on the au pair thing as well.  Our after school babysitter (1.5 hr) was a (mature) 11 year old and many 9 to 10 year olds can be left alone for short periods.  I don't understand why a 10 year old needs full time child care.  An after school sitter would be much less expensive.

red_pill

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Two things that jumped out at me that have not been mentioned:

1) you spent $400/week on groceries for 4 people.  My house has 4 people, 2 of them are teenage boys, and we spend $125/week.  You are spending almost 4 times what I do.  I do understand that you live in a HCOL, groceries are more expensive in Canada, etc. but even taking that into consideration it seems so high.  Especially since you have live in help - that should make your grocery bill even lower since someone is home all day that can cook things from scratch.  Heck, your au pair can do cooking lessons with your daughter. 

This is currently under attack... I got a ton of great tips from a post I put up in the Ask a Mustachian.   I've been compiling a list of prices for my common meals, etc to try and establish where this is all going.  The initial data suggests my 1 lb of meat a day and my wife's penchant for all things organic/free range/nonGMO are significant contributors :).  Oh, and we were throwing out tons of stuff.  But, for the past three weeks we've made a menu and shopped off it, and the results were....well, at least a bit encouraging.  Week 1:  $189.  Week 2: $370 (Costco run, so lots of bulk stuff). Week 3: $300.   Just by watching prices we've eliminated some items that were really high cost.  I will continue this for a few more months to really establish a solid baseline and see where we are at, as well as establish some better habits to ensure less waste and better planning. Then we'll move on to phase 2 of reducing costs.

2) You have live in au pair for a 10 year old girl.  Not to be insensitive (and I am mom of a child with multiple disabilities) - is she disabled?  Is there some reason she needs that much childcare?  Does you daughter go to school during the day most of the year?  Where I live, your daughter would be babysitting other kids by age 12 or so.  You list childcare as $8,200 ish per year.  But that is really not the true costs since I assume you feed the au pair and she (I assume is a she) uses your water, and electricity, etc.   What is the exit strategy on this?  My recommendation is to maybe go one more year at the absolute most and then transition to summer camps or just a summer or school break babysitting situation and then to nothing.  Most 11 and 12 year olds are capable of being home alone for a few hours, even if they aren't all day.  When my youngest was 12 we would have half day babysitting for him where he would be home alone for 3-4 hours and then someone would be with him 3-4 hours.   Where I live there is no daycare at all for kids over age 13 because they don't need babysitting.   I have never met an able-bodied teen who was cool with having a babysitter and can see it causing a lot of strife going forward.  (again, different story if she has a disability).  Not only will it be a problem with your daughter, you will be robbing her of so many opportunities to learn to become independent.

Thankfully, she is not disabled.  We have no family in the area and this was necessary given our work hours.  A 10 year old staying home by herself would not be appropriate here.  Our current au pair is leaving this month and we have a 1 year contract with a new one, which we will be paying less than the current one (I was overly generous in our current contract). Our working hours have stabilized significantly and after next year I really hope to be done this expense.   

I estimate that the true cost of the Au Pair is pretty high - the $8,200 pay, probably $3,000 in groceries, $12,000 in opportunity cost for us not being able to AirBnB or suite out the basement (she stays in the spare room in the basement), having to have a second vehicle (I'm positive we could make due with one) which costs at least $6,000.  So what's that all in - almost $30,000?   So yeah, the sooner we get rid of that, the better!

red_pill

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(19)   House:  2700 sq ft, 4 bedrooms and 3 bathrooms of suburban joy. . . .

My wife wants to have more room for our daughter so that our house is the one that she and her friends hang out at when they are teenagers Ė I think thatís an awesome idea, but precludes us putting a suite in our basement ($1,000 / month income, but parking hassles to go with it).  . . .

 What am I missing on this front?



Let's suppose your daughter uses her new "living room" for 6 years.  You are talking about forgoing $12,000/year x 6 years ($72,000) of income so she can have a living room.  How about putting her in a bedroom that is adjacent to another bedroom (since you will have 1 empty).  Then tear a hole in the wall between them, put in a door or maybe not, then she has a bedroom and "living room" for less than $1,000. 

Or just have her hang out in your actual living room or actual family room.  With 2,700 sq ft. - I can't imagine the rooms aren't big enough. 

Either way $72,000 for a kid to have her own living room seems way excessive to me.

Each floor is 900 sq ft.  Three bedrooms / 2 full baths upstairs.  Living room, kitchen, dining room, "sitting room" (kind of like a small living room off the front door), and 1/2 bathroom on the mainfloor.  And a large rec room, bedroom and full bathroom in the basement.  Currently the au pair lives in the basement, and the spare room upstairs is used for the dreaded in laws.
 
My wife is totally on board with putting a suite in the basement once the au pair leaves.  She wants to airBnB it, I'd rather do a longer term rental.  I guess we can figure that out when we get to that point next year (hopefully).  The small "sitting room" can be used as a rec room for our daughter and friends.   

jezebel

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I estimate that the true cost of the Au Pair is pretty high - the $8,200 pay, probably $3,000 in groceries, $12,000 in opportunity cost for us not being able to AirBnB or suite out the basement (she stays in the spare room in the basement), having to have a second vehicle (I'm positive we could make due with one) which costs at least $6,000.  So what's that all in - almost $30,000?   So yeah, the sooner we get rid of that, the better!

But I don't understand why you would pay for live-in child care for a 10 year old that is in school for the most of the day?  Surely there are much less expensive alternatives.  The families that I know with au pairs have more than one child and/or at least one young child that is not in school yet. 

CindyBS

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I estimate that the true cost of the Au Pair is pretty high - the $8,200 pay, probably $3,000 in groceries, $12,000 in opportunity cost for us not being able to AirBnB or suite out the basement (she stays in the spare room in the basement), having to have a second vehicle (I'm positive we could make due with one) which costs at least $6,000.  So what's that all in - almost $30,000?   So yeah, the sooner we get rid of that, the better!

But I don't understand why you would pay for live-in child care for a 10 year old that is in school for the most of the day?  Surely there are much less expensive alternatives.  The families that I know with au pairs have more than one child and/or at least one young child that is not in school yet.

I sense a lot of all or nothing thinking.  There are so many options of childcare for 10 year olds that are not live in help. 

red_pill

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I estimate that the true cost of the Au Pair is pretty high - the $8,200 pay, probably $3,000 in groceries, $12,000 in opportunity cost for us not being able to AirBnB or suite out the basement (she stays in the spare room in the basement), having to have a second vehicle (I'm positive we could make due with one) which costs at least $6,000.  So what's that all in - almost $30,000?   So yeah, the sooner we get rid of that, the better!

But I don't understand why you would pay for live-in child care for a 10 year old that is in school for the most of the day?  Surely there are much less expensive alternatives.  The families that I know with au pairs have more than one child and/or at least one young child that is not in school yet.

I sense a lot of all or nothing thinking.  There are so many options of childcare for 10 year olds that are not live in help.

Hmmm I never thought of it that way (that I look at things as all or nothing choices).  Anyway, the live in option was because of our shifts, travel and overtime situation combined with us not having any family anywhere near by to help us out of jams (if my wife is away and I get called out at 2:00 am what would I do?)  Looking back on it, and we sure have paid a premium for that though and I fact it only happened a small number of times. Well, we have another girl coming for the next year. And then we can revisit. Little Pill will be 11 then and my wifeís hours have stabilized quite a bit with very little travel. Iím sure we could figure something out. But we are locked in for another year. Iíll enjoy the convenience for now, and it has been good to expose Little Pill to a good role model,  but yes itís on the chopping block this time next year. 

NorthernDreamer

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I would say any extra money put into TFSAs. If you have nothing in them right now, you have a good amount of room. It looks like around $57,000 each but don't quote me on that (my brain is feeling a bit mushy today, damn office job).

If you want to DIY, you could open self-directed TFSA accounts with Questrade. Invest in low-fee index funds. I generally follow the Canadian Couch Potato formula: https://canadiancouchpotato.com/model-portfolios/

If you don't want to DIY, you could open TFSA accounts with either Wealthsimple or a managed one with Questrade. I have never done either of these options so I am not sure what the pros and cons are between them.

A Questrade referral link will give you a bonus of up to $250 with self-directed accounts. ;)