Author Topic: Cdns withdrawing from RESP - strategy suggestions?  (Read 754 times)

elaine amj

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Cdns withdrawing from RESP - strategy suggestions?
« on: August 04, 2019, 03:03:29 PM »
My DD is now 18 and starting University in the Fall. I have DS16 following in her footsteps next year. I have enough saved in their RESP for their schooling - but now trying to figure out the best strategy. Any suggestions?

I also have enough additional savings also to float her tuition payments if it works out best to delay RESP withdrawals.

I did some research and found out I can only withdraw up to $5k of the EAP (govt portion) in the first 13 weeks of school. Not a big deal as my DD is only allowed a max of $7500 in EAPs anyway.  I do plan on withdrawing $5k of EAPs in September and then $2500 of EAPs around mid-December. I figure this is best since the govt portion is the least flexible. This will cover the bulk of her tuition for the first year.

Any thoughts on whether we should withdraw more from the RESP this year or just leave the funds to continue growing tax free? Our RRSPs and TFSA are pretty much maxed out.

On another (related) note, I am wondering if my DD should apply for an OSAP loan, use it to invest over the next 4 years, and then repay the interest free loan when she graduates. She could learn a little bit about investing - even if it is just in a high interest savings account.

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elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #1 on: August 04, 2019, 06:54:00 PM »
Just been doing more reading. Looks like I will only be able to withdraw as much as we can justify for tuition, books, transportation, and living expenses.

Her tuition is about $7600. Say $600 for books? Maybe I could get away with withdrawing $12k? Or perhaps even $15k?

I do think DD will take the $3k OSAP loan (and the additional loans annually) and put it in a High Interest Savings Account. I guesstimate she will earn maybe $800-1000 or so in interest over the next 4 years but that will be a nice little graduation present. Figure why not take advantage of free money with almost no risk?

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snacky

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #2 on: August 05, 2019, 04:07:39 AM »
It might be different in Ontario but in my province part of the student loan application makes you prove financial need. Savings would disqualify you. Your loan strategy might not work.

Following along for when I get to deal with this in a few years

elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #3 on: August 05, 2019, 06:39:41 AM »


It might be different in Ontario but in my province part of the student loan application makes you prove financial need. Savings would disqualify you. Your loan strategy might not work.

Following along for when I get to deal with this in a few years

Oh good point. Oh well. It was an interesting thought and I got to explain imvestments and why stuffing money into a mattress is a bad idea (due to inflation).

DD is now planning to sign up for at least one bank account bonus and then look into a credit card sign up bonus after that. I suggested she start learning to use a credit card to earn points. She was a bit taken aback (and nervous lol) when I told her she would be in charge of managing her CC and paying her own CC bills. She'll also have to manage her own bank accounts (up to now we have always managed it for her)

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elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #4 on: August 05, 2019, 05:10:22 PM »
Hmmm...looks like we can't pay tuition with a credit card. Booo

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elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #5 on: August 09, 2019, 12:18:20 AM »
Been doing more studying on this and my head is spinning from taax implications,  etc. For my own reference, I will try to post things I learn here.

When I withdraw, there are two types I can specify :
- EAPs (which include grants and investment growth according to whatever calculation/ratio my financial institution uses) that is taxed in the hands of my child
- contributions (which is no - taxable)

The Basic Personal Amount is $12,069 (only $10,582 in Ontario). She should also be able to claim about $3k in tuition for 2019. So she can get about $14-15k in taxable income without paying taxes.

I estimate my DD will earn $5-7k at her part time job and other income this year (estimating high just in case). So she can probably get away with a max of $7k in EAPs.

My current thoughts are to withdraw $5k in EAPs now and another $2000 in EAPs in mid December. (Important to not that although we can only withdraw a max of $7200 in CESG per student, it sounds like EAPs are a mix of CESG grant money and investment growth. So likely I will need to take a few years to withdraw all this).

Another concern is whether this will affect her non-repayable OSAP grants next year. Might be shooting ourselves in the foot by withdrawing too much too quickly.

Another possibility is to just withdraw $3k from her EAPs this year (to use up the room in her Basic Personal Amount) and see how things shake out for next year. But maybe her job income will be higher and she will be stuck paying more taxes? Ugh - this stuff is complicated!

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snacky

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #6 on: August 09, 2019, 07:32:23 AM »
Bigger schools have a person in the admissions office whose job it is to help students navigate this stuff. Ask.

elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #7 on: August 09, 2019, 11:31:42 AM »
Bigger schools have a person in the admissions office whose job it is to help students navigate this stuff. Ask.
Good idea. Will give that a shot. I tend to be highly suspicious of these types of advice as I find they give standard advice that is not always optimal (mybown prejudices). But it will be a good spot to check my facts and hope they point out things I miss.

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bluebelle

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #8 on: August 09, 2019, 03:29:30 PM »
I came across this article recently:

https://www.moneysense.ca/save/investing/resp/what-is-resp-registered-education-savings-plan-explained/


I thought the following was the most useful part of the whole article:
Here’s a tip: Because you can specify which type of withdrawal you want to make, draw down the EAP portion first. That way if your child doesn’t finish the program or there’s money left over, contributions will make up a larger portion of what’s left and can be taken out by you tax free.

Prairie Stash

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #9 on: August 10, 2019, 08:16:38 PM »
Been doing more studying on this and my head is spinning from taax implications,  etc. For my own reference, I will try to post things I learn here.

When I withdraw, there are two types I can specify :
- EAPs (which include grants and investment growth according to whatever calculation/ratio my financial institution uses) that is taxed in the hands of my child
- contributions (which is no - taxable)

The Basic Personal Amount is $12,069 (only $10,582 in Ontario). She should also be able to claim about $3k in tuition for 2019. So she can get about $14-15k in taxable income without paying taxes.

I estimate my DD will earn $5-7k at her part time job and other income this year (estimating high just in case). So she can probably get away with a max of $7k in EAPs.

My current thoughts are to withdraw $5k in EAPs now and another $2000 in EAPs in mid December. (Important to not that although we can only withdraw a max of $7200 in CESG per student, it sounds like EAPs are a mix of CESG grant money and investment growth. So likely I will need to take a few years to withdraw all this).

Another concern is whether this will affect her non-repayable OSAP grants next year. Might be shooting ourselves in the foot by withdrawing too much too quickly.

Another possibility is to just withdraw $3k from her EAPs this year (to use up the room in her Basic Personal Amount) and see how things shake out for next year. But maybe her job income will be higher and she will be stuck paying more taxes? Ugh - this stuff is complicated!

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I see a solution to some of the stress.

in 2019 you will take money out in September for the first semester tuition. In January 2020 you will take more money out for classes that start in January, that will count towards 2020's problem. In December every year you will KNOW how much your child has earned as income for the year and pull out the EAP portion to get to the basic deduction for 2019,2020 etc. Merry Christmas, you have to fill out a form over the holidays (ugh).

In total, you hope to have 8 years of EAP withdrawals, 4 for each child, maybe longer :(. Don't worry about maximizing it upfront, the goal is to get 15%/year (that's 120% over 8, so there's even some buffer). If you're over 15% that's great! if you're under, then there's minor tax implications looming way down the road, also great because it means you have a bucket load of cash. To figure out if you have taxes, its your entire RESP account - All your Contributions. That's your EAP. Then divide the EAP by 8, is it big or small? Big (for me) is $5000 and up. Small is $3000 or less. In between is awkward. If its big, taxes will be owed. If its small you can avoid them fairly easily.

If you are still working your child can transfer the tuition to you and you can give them the tax refund if you feel inclined. By doing it this way it removes the tuition amount from the equation, it assumes it will be used every year at maximum value. You can always let the kids use it, but for simplicity if you just assume its transferred it makes planning easy.

Always push taxes to the back end. Unexpected things will occur before your son finishes school, delaying taxes is a brilliant strategy. When in doubt, delay taxes.

Congratulations! I hope its not too sad seeing your daughter off to school and mostly just exciting.

elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #10 on: August 10, 2019, 10:55:18 PM »
Been doing more studying on this and my head is spinning from taax implications,  etc. For my own reference, I will try to post things I learn here.

When I withdraw, there are two types I can specify :
- EAPs (which include grants and investment growth according to whatever calculation/ratio my financial institution uses) that is taxed in the hands of my child
- contributions (which is no - taxable)

The Basic Personal Amount is $12,069 (only $10,582 in Ontario). She should also be able to claim about $3k in tuition for 2019. So she can get about $14-15k in taxable income without paying taxes.

I estimate my DD will earn $5-7k at her part time job and other income this year (estimating high just in case). So she can probably get away with a max of $7k in EAPs.

My current thoughts are to withdraw $5k in EAPs now and another $2000 in EAPs in mid December. (Important to not that although we can only withdraw a max of $7200 in CESG per student, it sounds like EAPs are a mix of CESG grant money and investment growth. So likely I will need to take a few years to withdraw all this).

Another concern is whether this will affect her non-repayable OSAP grants next year. Might be shooting ourselves in the foot by withdrawing too much too quickly.

Another possibility is to just withdraw $3k from her EAPs this year (to use up the room in her Basic Personal Amount) and see how things shake out for next year. But maybe her job income will be higher and she will be stuck paying more taxes? Ugh - this stuff is complicated!

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I see a solution to some of the stress.

in 2019 you will take money out in September for the first semester tuition. In January 2020 you will take more money out for classes that start in January, that will count towards 2020's problem. In December every year you will KNOW how much your child has earned as income for the year and pull out the EAP portion to get to the basic deduction for 2019,2020 etc. Merry Christmas, you have to fill out a form over the holidays (ugh).

In total, you hope to have 8 years of EAP withdrawals, 4 for each child, maybe longer :(. Don't worry about maximizing it upfront, the goal is to get 15%/year (that's 120% over 8, so there's even some buffer). If you're over 15% that's great! if you're under, then there's minor tax implications looming way down the road, also great because it means you have a bucket load of cash. To figure out if you have taxes, its your entire RESP account - All your Contributions. That's your EAP. Then divide the EAP by 8, is it big or small? Big (for me) is $5000 and up. Small is $3000 or less. In between is awkward. If its big, taxes will be owed. If its small you can avoid them fairly easily.

If you are still working your child can transfer the tuition to you and you can give them the tax refund if you feel inclined. By doing it this way it removes the tuition amount from the equation, it assumes it will be used every year at maximum value. You can always let the kids use it, but for simplicity if you just assume its transferred it makes planning easy.

Always push taxes to the back end. Unexpected things will occur before your son finishes school, delaying taxes is a brilliant strategy. When in doubt, delay taxes.

Congratulations! I hope its not too sad seeing your daughter off to school and mostly just exciting.
Gonna digest this but sounds like a failry simple solution.  Thanks so much!

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #11 on: August 12, 2019, 07:28:48 AM »
We are pulling out the maximum this year (15K) and next year because of something to do with income tax - Our DS will only have one work term in 2020 and this year his earnings are under the personal exemption as well.  In 2021 he will have two work terms and his income will likely be taxable.  The Hub,  CPA, ran the numbers a few times in consultation with our financial planner (my brother) to reduce the tax load overall. 

Hubs is setting up a TFSA now that our son is 18 and the RESP money that is not used will live there until it is needed.

We are budgeting 1500 for books per semester - but if DS can find used ones, bonus.
DS is not applying for OSAP this year as my Hub is so debt adverse that he has said no he is not doing that.  Things may change in the future when both kids are pulling on that RESP and it is much smaller than it is now.  DS will have some years with two semesters of study and only one work term so maybe then.  And we are dividing the RESP money equally, not need based.  Again that may change if we need to. (Say daughter decides to study the arts and do a PhD and needs more money).

But can I just say, your DD may be wise in choosing to study closer to home.  We are paying 15K this semester for tuition and residence fees.  Books and clothes and transportation are not included.  Winter semester residence is $2k cheaper.  Waterloo engineering tuition is sooooo expensive.  I was so unprepared.

But damn! it is also so exciting that they are launching.


elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #12 on: August 13, 2019, 07:17:56 AM »
$15k for just this semester?! Ouch. Still - super exciting for your DS :)and it's an excellent school for engineering.  If DD had chosen that path, I would have recommended Waterloo too. How much was just the residence and meal plan portion? Something like $12k for the 8 months, right? He also won some scholarships, right? How much did he get again?

BTW - he should apply for OSAP (apply now). There's are non-repayable grants he may be eligible for and he can always say no to the actual loans. It really doesn't hurt to apply and see what he gets.

There have been many days where I have regretted not encouraging her to go to Waterloo. It would have forced her to be more independent.  Some days, she tries to get us to hold her hand through way too much instead of attempting to try things on her own and it drives me crazy. So been refusing to answer many questions now and she is in a bit of shock lol.

On the other hand, the savings alone will mean she gets a headstart from a financial point of view. I helped her figure out a monthly budget and it looks like she will save a ton. Even with my insisting she pays me a nominal rent.

Right now tuition and fees for 1st semester is $3820.11. And 2nd semester is $3283.43. She got $6k in scholarships this year (and probably another $5k every year for the next 3 years) And $1669 in non-repayable OSAP grants. Hey...pretty much a full ride!

We have decided that we will pay all her tuition (so she gets to keep the scholarships for her own savings/expenses) but we will keep the grants. So we will be using $5434.54 from our RESP money this year. Anything else we withdraw will get stashed in our own savings since we are going with needs-based and not an even split between the two kids.

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« Last Edit: August 13, 2019, 07:39:01 AM by elaine amj »

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #13 on: August 13, 2019, 10:46:07 AM »
$15k for just this semester?! Ouch. Still - super exciting for your DS :)and it's an excellent school for engineering.  If DD had chosen that path, I would have recommended Waterloo too. How much was just the residence and meal plan portion? Something like $12k for the 8 months, right? He also won some scholarships, right? How much did he get again?

The residence with meal plan is $7200 plus 400 if he ends up getting a single room. That is billed later.  We want him to have the gradual transition out of our house and this seemed like the best option for him to make friends, learn how to live independently and hopefully manage the stress and workload successfully.  Living at home and commuting was not an option.  Next semester it is significantly less for the room.  September -December is the highest demand, so they charge the most for that semester. 
The tuition itself is so much more expensive than I had imaged. $6,900. Mine at UoT was 1895 for the last semester (back in 1991).  It was the same as dentristy and pharmacy.  (even though my starting salary was half).  There are also a lot of fees for co-op and insurance. We can't opt out of those.  The ones that we could opt out of, are really only a small proportion and I believe in supporting the initiatives that they fund.  If our insurance was better than the university plan, we could opt out of it as well.  So it all adds up to $8,400. on the tuition bill for each semester it stays the same.

He got a one time scholarship of $2000 and then a couple of high school prizes so I think it all came to about $3000.00. 
He has been working part time so I think he has saved $9,000.  between his various accounts.  He continues to pick up odd jobs and has been very diligent about saving money.  He doesn't buy any of the usual stuff Hubs and I would spend money on.  We are suggesting that he cover books and extras this semester. 

We are going to buy all his clothes and supplies he needs to get moved in (shoes, rain coat, XL sheets, laundry bags etc).  He has one suits for funerals and interviews, but I think he should probably get a couple more dress shirts and ties for changing it up on interviews.  We will probably buy him another suit in a couple of years so that he can go to events as required. 

I checked the calculator on the OSAP website.  Our income is way above grant levels. Hubs got a big raise last year. Son would qualify for $4500 in loan apparently. So I think for now, we are just going to pull down from the RESP.   My stepmom is going to continue to contribute to it until our DD is 18.  My Dad and her have been building them for each set of grandchildren and so there is lots of money there.   The plan was for it to cover tuition for six semesters.  Hubs' parents also gave us money on the weekend for each of them. If a chunk of loans are required, my son has a 25K inheritance invested for him which he can draw on at 25.  It is flowing from my TFSA to his as his contribution room opens up each year.  As much due to fortune of birth as our own hard work, we are set.  Finances I don't have to worry about.

Mental and physical health and workload and girls and job finding.....I can still worry myself silly on all those areas.....

elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #14 on: August 13, 2019, 09:28:47 PM »
$6900 PER SEMESTER?!  I must not have checked out the cost of engineering degrees at Waterloo. A science degree at Waterloo was only $7k+/year so almost half the cost.  Then again, engineers make the big bucks. And his co-op fees will be more than covered by his co-op pay. Back in the day of lower min wages, I remember earning $10k working in the marketing dept at Chryslers for just one semester. Too bad I hated it so much I never went near another Mega Corp again lol.

It sounds like you have a very well thought out financial plan moving forward. His education tax credits will definitely be helpful in offsetting the RESP withdrawals and his part time job.

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #15 on: August 14, 2019, 03:28:01 PM »
I am hoping DS can stand working for the megaCorp's.  Apparently the average wage is $24/hour for Waterloo co-op students.  Lower years will be less and upper, more.  He will have two co-op's back to back (5 and 6) because he is doing the first two semesters back to back.  Hopefully that means he can get a really good job between the length of employment and his education. Also, many students get their first full time job from their last co-op employers.  My fingers are crossed that by getting into this program, he has a ticket!

I think that Hubs plans for my son to pay the taxes on the RESP withdrawal.  I believe it is only the grant portion and the gains are taxable. but Hey, I am not the accountant.  The the contribution has already been taxed so it shouldn't be taxed again.  Most of Son's income will be under the personal exemption for at least these two years so I think that is why Hubs is pulling the maximum grant out now.  Hubs was quietly running scenarios on his work software for weeks. I am just moving money around as told because I know the account passwords! 

elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #16 on: August 18, 2019, 09:13:47 PM »
He's going to be making awesome money as a co-op student :) And it will be very helpful to have an 8 month work term.

My DD can apply for a work term in her 3rd year of university. She would work between 8-16 months in her 4th year. That means spending an extra year in school, but that could be worth it if it results in the right connection for a good job.

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #17 on: August 19, 2019, 05:07:45 AM »
He's going to be making awesome money as a co-op student :) And it will be very helpful to have an 8 month work term.

My DD can apply for a work term in her 3rd year of university. She would work between 8-16 months in her 4th year. That means spending an extra year in school, but that could be worth it if it results in the right connection for a good job.

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apparently these long term coops lead to a job offer in the pocket for once they graduate.   This was mentioned to us at both Toronto and mcmasters info day.

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #18 on: August 19, 2019, 10:05:03 AM »
My DD can apply for a work term in her 3rd year of university. She would work between 8-16 months in her 4th year. That means spending an extra year in school, but that could be worth it if it results in the right connection for a good job.


Elaine, please try to persuade DD to do the work term!!  As someone who completed one of these co-ops (different university though) I cannot recommend them enough!  By taking the 16 month internship I was able to gain some experience in the field at a great pay rate (~$30/hr) as well as take a mental break from Uni.

My third year was a very heavy load and going from school to work at just 40hrs/wk was a huge change. Although to fill time I took one night class every semester so that when I returned to school for my fourth year it was a lighter course load. Overall it led to more money coming out of school, better connections, higher grades due to the lower workload and a better CV.

I know anecdotes are not evidence but when I was applying for jobs after Uni with a highly sought after employer the 3 of us that made the final round of interviews all had coop experience.

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #19 on: August 19, 2019, 01:25:55 PM »
@Saskatchewstachian I did some numbers; with a 16 month work term you could have earned roughly $80k.

However, that's over two years, if you start in the summer (after spring term) and end in the fall it means you earn $40k/year, so taxes are minimal! If you kept expenses in line with you University expenses, say $2000/month (maybe some splurge) my math says there's about $32,000 that could be saved. Is that roughly correct?

In other words, 4th year can be self funded fairly easily. In hindsight, not doing the 16 month internship is one of my few regrets.

Engineering sounds expensive, but its fairly simple to fund school through working, a lot of the schools push the intern possibilities real hard. You may only need to pay for three years as a parent, with luck the child pays for the fourth. Overall, as a parent, it can be one of the cheaper programs since you can hope/expect the child to pay more than usual.

I hope my kids go to Engineering, I'll pocket the savings.

Saskatchewstachian

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #20 on: August 19, 2019, 01:58:58 PM »
I dug back into my budgeting spreadsheet and un-hid a number of tabs from back then and pulled the following out.

Income -
From the base wage and some overtime the internship gross income was $96,725 over 16 months. This netted $67,600 after taxes and deductions. It should be noted though that much of the taxes deducted were returned at income tax time by a $5,000 refund one year and a $5,500 refund the following year. I wasn't aware back of strategies available such as adjusting withholding so was one of the people excited about getting a big cheque which was just my own money..

Spending -
Since this was pre-MMM discovery the spending while on internship grew at a much faster rate than it should have. The worst offense was a brand new car right at the start (~30k). Spending hovered between 2700-3000/month but includes items such as tuition for the night classes I was taking as well as the above mentioned car payment.

Taking the ~$68k and subtracting the $3k*16mon=$48k equals about $20,000 of savings after internship. This easily paid for my tuition for the final year as well as a month in Europe backpacking after Uni. I was also contributing to an RRSP while working so was able to have a few thousand in the market much sooner than most of my peers.

elaine amj

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Re: Cdns withdrawing from RESP - strategy suggestions?
« Reply #21 on: August 19, 2019, 04:05:25 PM »
That is some amazing income!  I love how u just brokw it all down :) And yes, I am a huge proponent of co-op so will be pushing hard for DD to do the full 16 months.

My DD is great at saving too so I bet she will take full advantage. She has close to a full ride through uni if she keeps up her grades so she will likely start investing next month. I ended up telling her that I will pay her tuition as promised and that any scholarships she earns is hers to keep.

So this year she is pocketing $6000 with about $5k/yr annually after that. Her tiny part part time job more than covers her expenses, even with paying rent to me so with that and a paid internship she should be well ahead of the game at the end of school.

I hear ya about blowing money in school though. I was very frugal but when I actually earned $10k one summer working at Chrysler (first time I got paid decently haha!), I took my friends out for meals all the time and generally spent wildly (for me anyway!). Then again, it wasn't all spendypants stuff.

$1200 went to rent and food and $5k was invested in a small business where we set up kiosks in 10 malls around Ontario and sold makeup. The business eventually went bust along with my $5k though. And the last $1k in my bank account was drained to buy my DH's wedding ring.


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