Author Topic: Reader case study : Starting on the right foot! (Canada)  (Read 1483 times)

Calicoskies

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Reader case study : Starting on the right foot! (Canada)
« on: June 18, 2018, 04:44:48 PM »
Hello everyone!

I’m 21 years old, and I like to think I live relatively frugally. Right now, though, because of the studies, I’m living pretty much paycheck-to-paycheck, as I don’t have a steady, reasonable income (which hopefully will get better once my girlfriend finds a job). I was wondering if perhaps you could help me make more sense of my financial situation and help me towards my dreams... I live in Montréal (Québec, Canada), but I want all the advice you can give me, even from a different-country perspective! All numbers are in Canadian dollars.

My dreams:
•   Buying a 3 or 4-apartment building which I could live in and rent the upper floors in Montréal
•   Becoming financially independent ASAP
•   Getting to work 3 days a week ASAP after the start of my career.
•   We do not want children (being a gay couple makes it way more complicated anyway), though we could see ourselves being a foster family. We do want to be able to welcome our ageing parents in the future (at least 20 years from now, hopefully).

My living situation:
•   My girlfriend is American, I’m Canadian. We live in Montréal, Québec. She is 20, I am 21.
•   I struggle a lot with 5-day workweeks and tend to suffer depressive episodes from being overworked, especially in the winter (I was also taking 17 credits plus 14 hours of work a week, so it’s normal that it would be a lot. Perhaps I could handle a 5-day workweek after my studies).
•   My girlfriend’s French isn’t fluent yet, and that very much limits the jobs she can have.
•   My girlfriend is American, so she has a study permit to be here. Her degree will be her key to permanent residency, but for now, she does have student loans and needs to pay for healthcare.

Income (this is a bit hard to calculate):
•   I make 19$/h doing secretary work, 14h/week, earning an after-deduction paycheck of 500$ every 2-weeks.
•   My girlfriend has not gotten a job yet. She will start working this year and we can assume she will earn the minimum salary, 12$/h, 14h/week for an after-deduction paycheck of about 250$ every 2-weeks.
•   During the summers, we do not take classes and work our asses off instead. Assume a 1000$ paycheck for me and a 500$ paycheck for her every 2 weeks. This is 4 months of the year.
•   We get 600$ every month as a very generous gift from my parents so that we can continue our studies.
•   My tax returns every year average 1000$ if not more. They arrive around May.
•   Neither of us contribute to RRSPs (401(k)) or TFSAs.

Total approx. after-deduction monthly income: 2100$ per school month, 3600$ per summer month
Total approx. after-deduction yearly income: 31 200$

Assets:
•   8 500$ of inheritance which has gone untouched in a standard mutual fund TFSA (tax-free savings account). I don’t think it earns much, as it is very low-risk… plus they also cost a fee.

Liabilities:
•   In the end of her studies, our estimate is that my girlfriend will have about 80 000$ in student debt (20 000$ per year?). I won’t have any.
•   No consumer debt, CCs get paid off in full before the end of every month.

Expenses:

•   Housing (small apartment): 575$/month
•   Heating/hot water/electricity: 40$/month
(it’s the estimate that the company makes us pay every month, so we’re expecting them to lower it significantly and give us a nice credit after a year since we use way less than 2/3 of that)
•   Internet: 30$/month
•   Phone for me: 30$/month
(looking into prepaid to lower this – anyone has recommendations in Canada?)
•   Phone for girlfriend: 50$/month
•   Renter’s insurance: 40$/month, or 525 every year paid in July
(Yes, this is OUTRAGEOUS. Our dog is a pitbull-type dog, and even though she’s an old arthritic couch-potato, they charge us triple because “pitbulls are death machines”. We have to be insured through a shitty company called hard-to-insure-me.com, along with the pyromaniacs and criminals of this world. Ridiculous. However, we’re looking to only cover liability and drop the damage insurance – it probably won’t lower it by much though since death-machine bites are covered through liability anyway. (before you suggest them, State Farm, the legendary non-asshole insurers, do not exist in Québec, I’ve looked into it.).
Total expenses for home and utilities: 765$/month (or 725 per month + 525 once a year)

•   Groceries: 80$ per week, total 160$ per month
(we’re practical vegetarians/vegans, so we get our nutrition a lot from plants, seeds and nuts – which can still get pricey)
•   Transportation for me: 108$ per month (dual-city pass)
•   Transportation for her: 50$ per month (single-city pass)
(We take public transportation. We would like to bike everywhere but we’ve found that the passes pay themselves back super quickly, and we’d have to use public transit to get to a lot of places anyway – for instance, my school far away has no biking access close by. We therefore take public transit everywhere and do weekly groceries by bike)
•   Donations: 15$ a month (I can’t just ABANDON the child I’ve been fostering in Ghana!)
•   Healthcare for her: 120$ per month. Mine is free.
•   Clothing: 200$ each per year, or 16$ a month each. Total: 32$ per month.
(We are not shoppers. This is budgeted, but it often pours into the “I need new boots because these have holes in them” to complete the misc. budget instead)
•   Dog and cat food, yearly vet visit, litter… : 75$ per month
•   “Miscellaneous” budget: 100$ each, 200$ total per month
(This includes anything from toilet paper, laundromat access, replacing winter boots with holes in them, the once-a-decade night out … However, since it hasn’t been long since we moved together, we sometimes have to buy basic stuff like a blender, some home repair tools, a desk, etc… That raises the Miscellaneous budget by quite a bit on some months. I like to think we’ve got pretty much everything now, though.)
Total expenses excluding home and utilities: 760$ per month.

Total expenses per month: 1525$
Total expenses per year: 18 240$.

(Now you might be thinking “she earns 31 000 and spends 18 000, how on earth is she living paycheck-to-paycheck???”. These numbers count my girlfriend having a job, which she hasn’t for the last year or so. Our earning for last year would be more like… 19 200. That extra 1 000 expense can easily be explained by the buying of a mattress, a desk, a blender… )

The idea for the future:
I’ll finish my degree within 3 more years or less, with the promise of a 40-50K job right after. I would probably need a shorter workweek, though. My girlfriend will finish her degree within the next 3-4 years. It’s an art degree, not leading to a particular salary. She does need the degree for permanent residency, though.

Our earnings are not stable. We have to find a different job every summer, and my 19$/hour wage can go down with my new employer (can’t keep the old job, as much as I love it, because internships are sucking my time during the week and my soul as well – gotta find weekend jobs).

I would like your advice in these categories:
•   Reduce my expenses
•   Figure out how to reach my goals
•   How to manage my current and future savings.

If you’re in Canada/a student/in a similar situation and have some tips to share, even though they don’t pertain directly to my situation, feel free to share them! I want, like I said, all the advice I can get.

Summary:
Total approx. after-deduction yearly income: 31 200$
Asset: 8 500$ in a standard mutual fund
Liabilities: about 20 000$/year of student loans
Total expenses per year: 18 240$

Here we go! Unleash the power of the Mustache!!!

PharmaStache

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Re: Reader case study : Starting on the right foot! (Canada)
« Reply #1 on: June 19, 2018, 11:16:28 AM »
Does going 80k in debt for an art degree that won't land any particular job sound like a good plan to you (as your goal is financial independence)? 

RichMoose

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Re: Reader case study : Starting on the right foot! (Canada)
« Reply #2 on: June 25, 2018, 11:28:52 AM »
If I am understanding your case study correctly, I'm not sure if your adequately evaluating the cost of realizing your goals.

To be FI you will need a stash of around $500,000 at your current spending levels. If your plan is to buy a 4 unit building and live off the rent from the other units, that will cost your at least $750,000 at today's prices for a reasonable building in a well located neighbourhood. You would still need at least $500,000 equity in the building to make it work financially. Don't forget to account for the costs of owning, being a landlord, and so on. You have to deal with taxes, insurance, vacancies, maintenance and repairs, bad tenants, possibly even lawyer fees, unpaid utilities, etc.

If you make $40k gross once fully employed and have no changes to your lifestyle, it will take you 25 years to build a $500,000 stash. (Not including your GF income of course, but the again she has all that debt to deal with.)

To build an adequate stash and obtain FI quickly, you need to plan on working hard, especially at the start of your career. Full-time employment, plus overtime if you can get it. For example, if you keep your COL nice and low, but increase your salary to $70k per year, you could be FI in around 10 years.

I suppose, in a nutshell, I don't think it is realistic to have the goals of getting FI quickly AND working just 60-80% after graduation.

Lews Therin

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Re: Reader case study : Starting on the right foot! (Canada)
« Reply #3 on: June 28, 2018, 08:16:55 AM »

•   Buying a 3 or 4-apartment building which I could live in and rent the upper floors in Montréal
Is it even cost-effective to buy and rent in Mtl? According to the calculators I've seen, and the price of rent, it's less cost-effective than simply owning stocks. Have you looked at what actual profit you'd be making after paying for the taxes, interest on a 3-4 apartment building in Mtl?

Income (this is a bit hard to calculate):
•   Neither of us contribute to RRSPs (401(k)) or TFSAs. -What are you currently contributing to then?

Total approx. after-deduction monthly income: 2100$ per school month, 3600$ per summer month
Total approx. after-deduction yearly income: 31 200$

Assets:
•   8 500$ of inheritance which has gone untouched in a standard mutual fund TFSA (tax-free savings account). I don’t think it earns much, as it is very low-risk… plus they also cost a fee.
You should look at what the fees are on that account, and move it to a low cost fund. Vanguard has even brought in active management mutual funds at .50%
Options: Tangerine 1% MER, Td E-series .33% MER, Questrade (self-directed investing) .1% MER


Expenses:

•   Phone for me: 30$/month - Koodo has 15$ pre-paid plan, I'd need to know more about usage to give better recommendations
•   Phone for girlfriend: 50$/month -- Why does she have double the price of your phone bill? Use VOIP phones services, Google calls (from gmail) or Whatsapp in order to call back to the US.
•   Renter’s insurance: 40$/month, or 525 every year paid in July - Try to find group rates (Students, associations, university deals, you should be able to lower this. When you call for rates for insurances, make sure to ask about special rates for groups, and then go through your life scenario in order to guide them into recommendations (That's how I learnt there was a group rate for federal workers in Canada. I assume there will probably be one for your GF's university too)


•   Groceries: 80$ per week, total 160$ per month - That's suspiciously flawed math! (How can two weeks be the months' bill? :D)

Total expenses per year: 18 240$. Thats very low for two people, but with just one income, you are barely breaking even.

•   Reduce my expenses - Simplest examples were noted, The pet expenses could probably be worked on as well.
•   Figure out how to reach my goals : Best case scenario, you will be making 40k, with expenses at 20k. This will not be a quick run to FIRE. You alone would be at 50% SR (Or close) but that is still 15+ years work to reach FIRE. Your GF will need to repay 80k (Though you should both be looking at ways to reduce this, share books, make photocopies of what you need, buy on kijiji)
•   How to manage my current and future savings. Move your TFSA money into low cost funds (Make sure the one you are in is low cost) and the extras, fill your TFSA and then your RRSP; read up on which is most applicable when you have a better gauge of your income. All extra money should be going into TFSA during school.

Summary:
Total approx. after-deduction yearly income: 31 200$
Asset: 8 500$ in a standard mutual fund
Liabilities: about 20 000$/year of student loans
Total expenses per year: 18 240$


All in all, like RM said, it's not currently possible for you to get to FI quickly (depending on your definition of Quickly) at this rate, you are looking at around 40 for FIRE. On the other hand, all you have to do is find ways to increase your income in order to cut that number down by huge chunks, since your expenses are very low.
I would look at every way to decrease that 20k in student loans, since unless tution by itself is 20k, everything else can be reduced.
« Last Edit: June 28, 2018, 08:19:18 AM by Canadian Ben »

Calicoskies

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Re: Reader case study : Starting on the right foot! (Canada)
« Reply #4 on: July 01, 2018, 07:49:13 AM »
Thank you everybody for the ideas! We'll look into them. Right now, I've reduced my phone bill by half and our internet bill by a third!

JamieNewmarket

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Re: Reader case study : Starting on the right foot! (Canada)
« Reply #5 on: July 01, 2018, 07:57:15 PM »
Just a quick heads up regarding your insurance issue.  State Farm was acquired by Desjardins.  Desjardins is certainly available in Quebec.   Hard to say if the policy options are now cross-province. 

Hirondelle

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Re: Reader case study : Starting on the right foot! (Canada)
« Reply #6 on: July 02, 2018, 02:54:39 AM »
Good job on the low expenses side of the equation. Regarding your girlfriend's job situation. She's a native speaker in English, would it be an idea for her to teach online to e.g. Chinese kids (VIPkids is an example I've seen on here before, several other companies out there). They usually pay up to $20/hr and she can work on improving her French to get a local job in the meantime.

As her current degree isn't likely to produce much income in the future, would it be feasible to switch to another degree or at least change the direction a bit and follow more courses that are likely to help find employment later on? Depends on how flexible her program is ofcourse. She could even consider a double degree (use courses of the one as electives for the other and the other way around) but that'll be a lot more work to finish in a 3-4 year timeframe.

Goldielocks

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Re: Reader case study : Starting on the right foot! (Canada)
« Reply #7 on: July 06, 2018, 10:15:34 AM »
I am in BC, which is quite a bit different from QC, but some thoughts:

1.  I have never been asked about pets on home or renter's insurance.  Swimming pools, waterbeds, aquariums, trampolines, boarders, businesses from home, woodstoves, yes, but never pets.   Could you keep looking?  There should be insurance that does not even ask.

2.  Why is it taking so long to get your degree?  I know QC tuition is low, but as you have seen, the living costs add up while you are doing this.   If you are 21, should you not be within 18 months of getting a degree? especially if you are taking 17 x 2 terms = 34 credits per year.  What's up with this?

3.  Why is your GF going to take 3-4 years to get a degree?  Perhaps she has just started and finished the first year.?  Goal should be to do it in as few of years as possible.

4. Your monthly income is not stated correctly.  Something is wrong.  Your income alone in summer is over $3.4k before tax.  $19/hr at 40 hours per week is  $3500/month (including the top up for paid out vacation) pre tax.  Your taxes should be extremely low.  Your GF is bringing in $1k per month. Your annual take home should be higher, I think you are not including your tax return, and you are under calculating your income.

5.   Look into taking the building maintenance course.  This trains people to be superintendents of apartment buildings.  If you don't want a 9-5 office job, you may be happy with a 40-50 hour a week superintendent job, which keeps you moving throughout the day, especially given your long term goals.  These also lead into positions for onsite work, where accommodation is included, for a shorter / lower paid work week.

HEY -- you don't need a masters degree right now, you know.  I think getting a trade certificate  after graduation (like building maintenance noted above) is in your best interests.  You can get advanced degrees later, if you need them.  You need to figure out what sort of job you can do full time, or get your health taken care of so that you can.

What type of job do you WANT after graduation?   

6.  My daughter is taking a fine arts degree.  It is possible for this to be a job that leads to a career, but your GF needs to be specific about envisioning what that career is, now, and look for classes and part time / intern work that supports that.  I do know that a lot of practical skills are taught in fine arts that are job-applicable.  If your GF is taking general arts, she is only in first or second year, so have her change to think about what she wants after graduating, and tailor the education to that.  I imagine it would be very very hard to get a job in Montreal if you have a general arts degree and limited french. (!)  most of the general arts jobs want a person with excellent writing skills / communication / or sales... in French... to support operational staff that are not quite as adept.

If her French improves, maybe look to moving to Hull, QC, for more bilingual jobs after graduation?

7.  Your goal, right now, is to focus on completing your education in as short of time as possible, without loans, with an eye to what you want to work at after graduation.  Let your GF figure out her stuff, and you can figure out yours.  You are only 21, so you need to let the relationship evolve.  It may change, or it may not. 

8.  Who thought they could be a dog owner while a student going to school?  I sure hope this was a childhood pet that you were required to take with you when you left home, because that alone shows that you need to think longer-term in your planning.   If my kid did this, after moving out, I would be reducing support for them... to force them to start planning.

....
Your parents are giving you over $7200 per year.  Wow.  That is a lot, and you should be focused on how to get out of school and on your feet and stop that.   Also make certain that you are not subsidizing your GF in any way beyond your own basic costs, (e.g., no larger apartment than what you would have rented, that dog is 100% yours if you are feeding it,  you split grocery costs) that would drive your parents nuts  to think they are subsidizing someone else's kid, and could end up in their cutting some of the support to you eventually.    My parents supported my sister like this, and when her BF moved in, but was not paying his way... well.. lots of tension was generated and they only put up with it for a year.  Be careful not to upset the golden goose this way.


Goldielocks

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Re: Reader case study : Starting on the right foot! (Canada)
« Reply #8 on: July 06, 2018, 10:52:25 AM »
I guess I am grouchy today.  I have to point out.

"In the summer we work our assess off".

But your calculation only has you working 35-40 hours weeks, and your GF is only allowed to work 20 hours a week on a student visa, right?  And she has not even started working in Canada yet if I read this correctly?

This is not working your assess off.  Really, it isn't.

Income math


Calico
Summer: $19/hr x 8 hr/day x 22 days/mo x 4 mo x 1.04 (top up for vacation pay) = $13,911
Winter: $19/hr x 14hr/wk x 8 mo x 4.1 wk/mo x 1.04 (top up for vacation pay) = $9,073
Total: $22k (approx)

Taxes $2,325 plus QPP, EI $1279  ...  but you get credits back for your Pension contribution and your student expenses (15% of tuition and refundable costs, federally), which I won't include here, but are likely to be about $500.

Net (conserative):  $18,296 plus extra tax credits. -- I have not taken your pension contribution out of this.

GF Income
 20hr/wk at $12/hr;  (she should be working this in the school term, too, because of her apparently low course load?)  $12,980 -- Very low taxes because very low income, not eligible for QPP, etc.

Total income, net of taxes is approx $31k/yer
PLUS $7200 from parents

New total income is $38k/yr.  (Couple)

Calicoskies only Income versus Expenses

BUT!  I recommend that you keep finances separate until you marry, and that you do not marry until you are both finished school and starting your jobs (Personal experience advice here!!)

So let's take a look at your expenses.  We know that your income is:
$18,300 + $7200 (parents): $25,500/yr

Expenses:

Housing $575 / 2
Heating $40/2
Internet $30/2
Phone $30
Renter insurance $40 (I am giving this all to you, assuming it is your dog)
Groceries $160/2
Transportation $108
Dog $75
Misc $100
Monthly total:$755/month

Tuition / school fees, QC (I assume your parents give you money and you pay your tuition) $2200/yr (34 credits, at Concordia)

Yearly expenses (Calico only):  $11,260
Yearly income (Calico Only):  $25,500

NET SAVINGS (Calico):  $14,240

So, where is the problem?   You should not have ANY credit card debt, or should be aggressively paying it off (because it was a first year debt before you started to work) and you should also be maximizing into a TFSA at $5k/yr. 

You either have under reported income, e.g., you are working far less than you describe above, have missed a lot of expenses, or maybe you are subsidizing others (dog, GF) without being aware of it?




•   Housing (small apartment): 575$/month
•   Heating/hot water/electricity: 40$/month
(it’s the estimate that the company makes us pay every month, so we’re expecting them to lower it significantly and give us a nice credit after a year since we use way less than 2/3 of that)
•   Internet: 30$/month
•   Phone for me: 30$/month
(looking into prepaid to lower this – anyone has recommendations in Canada?)
•   Phone for girlfriend: 50$/month
•   Renter’s insurance: 40$/month, or 525 every year paid in July
(Yes, this is OUTRAGEOUS. Our dog is a pitbull-type dog, and even though she’s an old arthritic couch-potato, they charge us triple because “pitbulls are death machines”. We have to be insured through a shitty company called hard-to-insure-me.com, along with the pyromaniacs and criminals of this world. Ridiculous. However, we’re looking to only cover liability and drop the damage insurance – it probably won’t lower it by much though since death-machine bites are covered through liability anyway. (before you suggest them, State Farm, the legendary non-asshole insurers, do not exist in Québec, I’ve looked into it.).
Total expenses for home and utilities: 765$/month (or 725 per month + 525 once a year)

•   Groceries: 80$ per week, total 160$ per month
(we’re practical vegetarians/vegans, so we get our nutrition a lot from plants, seeds and nuts – which can still get pricey)
•   Transportation for me: 108$ per month (dual-city pass)
•   Transportation for her: 50$ per month (single-city pass)
(We take public transportation. We would like to bike everywhere but we’ve found that the passes pay themselves back super quickly, and we’d have to use public transit to get to a lot of places anyway – for instance, my school far away has no biking access close by. We therefore take public transit everywhere and do weekly groceries by bike)
•   Donations: 15$ a month (I can’t just ABANDON the child I’ve been fostering in Ghana!)
•   Healthcare for her: 120$ per month. Mine is free.
•   Clothing: 200$ each per year, or 16$ a month each. Total: 32$ per month.
(We are not shoppers. This is budgeted, but it often pours into the “I need new boots because these have holes in them” to complete the misc. budget instead)
•   Dog and cat food, yearly vet visit, litter… : 75$ per month
•   “Miscellaneous” budget: 100$ each, 200$ total per month
(This includes anything from toilet paper, laundromat access, replacing winter boots with holes in them, the once-a-decade night out … However, since it hasn’t been long since we moved together, we sometimes have to buy basic stuff like a blender, some home repair tools, a desk, etc… That raises the Miscellaneous budget by quite a bit on some months. I like to think we’ve got pretty much everything now, though.)
Total expenses excluding home and utilities: 760$ per month.

Total expenses per month: 1525$
Total expenses per year: 18 240$.