Advice - New to MMM and I want to know MORE!

[cdnteacher]

Instead of sifting through all the posts looking for someone in a similar situation to me, I'll outline my profile and ask a few questions to see if this whole MMM thing is for me.

I really like the straightforward advice that MMM offers and it aligns with a lot of my current thoughts towards personal finance.

I'm 33 y/o male, married without children (but they are planned in the very near future).
We are able to save 4000 USD per month without much effort. We don't have any debt and 250k in savings.
We are planning on buying a house in Canada within the next couple of years (~350k USD). We live in Switzerland, I am Canadian and my wife is from the UK.
As you can tell we are living in quite a unique situation. We are lucky to be able to save easily (we could probably save more) but we want to know what a good plan of action is moving forward. Should we continue to save and put it all towards a house? Our employment situation might change drastically if we move to Canada and there could be a period of unemployment for both of us. We are also unsure of where or how to invest some portion of these savings to plan for retirement. Do we invest in Canada (there could be tax implications), Switzerland or the UK? Or is there an option for expats like me?

My current idea is to put as much towards the house within the next year, keep some on the side for moving back, potential unemployment, repatriation costs (furniture, car, house renos etc) and then take another look at our financial situation once we stabilize. BUT the problem with this equation is that it lacks any long term investment options and it puts a lot of money into a mortgage. How should we estimate how much to put towards the house and how much to keep on the side for extra costs?

Any advice is much appreciated and thanks for welcoming me to this new community!

[ericrugiero]

With the current plan you would be ~35 years old with a paid for house in Canada, no debt and very low savings.  That's not a bad place to be but many people would  suggest a different route.  It mainly depends on your risk tolerance and priorities.  Here are a few things to think about.

Would you rather have $350K invested and a mortgage on a home?  Most of the time this would be better mathematically because the market typically does better than the ~3-4% mortgage rates you can get these days.  Also, the market is on sale right now.  Nobody knows how long it will be down.  There are some pretty serious problems with businesses being shut down or slow.  But, most people think it will come back and if it does then $250K in the market would grow nicely.  This is a riskier play but it's likely to result in more money. 

In some areas of Canada it could be better to rent than buy.  Look at the cost of each and make your decision.  In some areas owning is WAY more expensive. 

There is a ton of info on here.  Spend some time reading. 

 

[cdnteacher]

Agreed. I like your thinking. I'm working my way through all the info here and I like what you are saying about investing the money and taking out a mortgage. I'll do more research. Thanks for the initial advice and logical thoughts.

[Freedomin5]

As a Canadian expat, you should also read Andrew Hallam’s books “Millionaire Teacher” and “Millionnaire Expat”. He’s a Canadian teacher who taught in international schools for several years before FIRE-ing. He does financial planning for expats now. Many expat teachers here in China base their investing strategies on his books.

Another website to check out is Canadian Couch Potato for Canadian-specific investment information. As Canadian expats, we follow one of the Canadian Couch Potato’s model portfolios. Like you, we save a lot with little effort, but face possible period of unemployment if we return to Canada as well as no CPP since we are not contributing to the government pension plans. For expats, it’s really important to take care of your own retirement first because we cannot access social security. This is particularly important if you plan to work overseas for the majority of your career. It’s less important if you are just overseas for a few years and then plan to work most of your years in Canada.

Finally, we found the Investment Order thread in this forum to be helpful, particularly the investment order for Canadians. We had to skip a few steps since we can’t contribute to RRSP, TFSA, or RESP. But we followed the other steps in the recommended order.

We decided to keep our investments in Canada because that is where we would eventually like to retire. We also purchased a condo in Canada several years ago which is paid off. People say you could also rent, but having been renters for our entire lives (we are still renting here in china) we know that we like the stability of not being kicked out of our home at the whims of the landlord (even if we pay rent on time). We also like locking in the current low interest rates, though our real estate market (Toronto) still seems overheated to me. I suspect that the real estate market will soften due to this recession but who knows? I’ve been thinking real estate will soften for the last several years and it hasn’t happened yet.

ETA: If you are moving back soon, within the next year or so, then I would set aside enough cash to tide you over for at least 1-2 years. Given the current covid 19 situation, your period of unemployment may be long and drawn out. The last thing you’ll want to be doing is tapping into investments when they are down.

[use2betrix]

Have you read all the blog posts?

If not, that’s the best way to start.

[Dicey]

Have you read all the blog posts?

If not, that’s the best way to start.

Agreed!

Mustachianism is about learning and making your own best decisions with that knowledge, not about spoon feeding people pat answers. It's kinda like teaching a person to fish instead of giving them a fish dinner.

The whole "cult" thing is kind of a joke. An inside joke, delivered with a sly wink. Pete really does want people to know how to think for themselves.

[SwordGuy]

Read the blog, then on the forum ask specific questions about specific things that aren't clear to you.   After you do that, on the forum you can enter a case study.  There is a sticky post that tells you how.   Enter a case study and your plan and see what people think.

[swashbucklinstache]

From what you've posted you're a good candidate for an easy-ish run at all this.

Agree with the above with a few additions:
-Read the blog posts, at least the first few years to start. Just binge rather than detailed notes, since imo they mostly serve to introduce concepts
-Make a case study using the prescribed format
-Make a journal, even if you rarely update it at first or ever
-In the first post in your journal, link to posts of interest to you / others
-Read the stickies!
-When you're ready, join a FIRE 'class' thread. Feel free to read others' as well to answer curiosities like "what are people thinking about 1 year before they retire early?"
-Occasionally export/print your journal or other posts, since no website is guaranteed to last forever
-Check out related places on the internet. There's a financial independence subreddit if that's more your thing, and plenty of other blogs. There's bits and pieces of useful things everywhere but more or less you can get the main course at any of those places so pick your favorite
-Track your expenses but never forget that the overall total in and total out are really driving this thing in the end. Really a subbullet of the next one.
-Don't overdo it. Build the life you want and save for it, don't just go for the highest savings rate possible. Directed focus on your personal finance for 50 hours for your first year might be the single greatest financial decision of your life. Doing 75% of what you read as recommended might cut your working years in half. Spending 1800 hours a year on this might be your worst life decision.

[SwordGuy]

From what you've posted you're a good candidate for an easy-ish run at all this.

Agree with the above with a few additions:
-Read the blog posts, at least the first few years to start. Just binge rather than detailed notes, since imo they mostly serve to introduce concepts
-Make a case study using the prescribed format
-Make a journal, even if you rarely update it at first or ever
-In the first post in your journal, link to posts of interest to you / others
-Read the stickies!
-When you're ready, join a FIRE 'class' thread. Feel free to read others' as well to answer curiosities like "what are people thinking about 1 year before they retire early?"
-Occasionally export/print your journal or other posts, since no website is guaranteed to last forever
-Check out related places on the internet. There's a financial independence subreddit if that's more your thing, and plenty of other blogs. There's bits and pieces of useful things everywhere but more or less you can get the main course at any of those places so pick your favorite
-Track your expenses but never forget that the overall total in and total out are really driving this thing in the end. Really a subbullet of the next one.
-Don't overdo it. Build the life you want and save for it, don't just go for the highest savings rate possible. Directed focus on your personal finance for 50 hours for your first year might be the single greatest financial decision of your life. Doing 75% of what you read as recommended might cut your working years in half. Spending 1800 hours a year on this might be your worst life decision.

This is TRULY good advice!  Well said, @swashbucklinstache !

[Laura33]

I can't advise on the Canadian/Expat stuff.  But what I can say is that success generally requires prioritizing FIRE savings above other things.  First, you figure out when you want to retire and what lifestyle you want to maintain by then, and you invest on a pace to achieve that goal.  Then you figure out a lifestyle that you can afford with what you have left. 

Purchasing a house is part of the "lifestyle" equation -- yes, you need a place to live, but how/where/how big/how fancy are all optional choices based on how much luxury you want in your life.  Therefore, the best thing you can do right now is figure out how much of that $4K/mo. you will need to invest to be FI on your desired timeframe, and only use what is leftover for a house fund.

[cdnteacher]

Whoa. All great advice. I have a lot to read and thanks for the initial direction. I'm going to get to work...

[Leisured]

Welcome aboard. I agree with ericrugiero that the stock market is on sale, so it is a good time to buy. Normally, a self respecting Mustachian does not time the market, but these are not normal times. The world will recover in a year, and things will get back to normal, once we have a vaccine.

Is the real estate market on sale too? If so, I recommend your original plan and buy a house, deferring share investment for the future.

If the house market is not on sale, then I suggest deferring buying a house and plunging into the stock market until the indices get back to where they were. In these uncertain times I suggest bank savings covering several months of expenses, more than usual. Normally I would recommend borrowing, say, half you annual income to buy shares, but these are not normal times.

[cdnteacher]

UPDATE: So it's been about 3 weeks now since my original post and I can't thank everyone enough for all their excellent advice. It's really put me on track to get this financial plan solidified and working for me. I've definitely been putting this off for no good reason and it has been an eye-opening experience.

So far, I started tracking my spending, I've read Andrew Hallam's book Millionaire Teacher (I even got it from the library so I didn't have to buy it!), I've blasted through 50+ posts on the MMM blog, I'm reading as much as I can from other sources (Cdn Couch Potato, Mr Poor Swiss, Moustachian Post, Expat Investing Facebook group etc.), and I'm listening to podcasts. I feel good, almost confident, but I'm not quite there yet.

My next steps are to keep going, reading more and gathering all the info I can. I'm going to open an account to set up a portfolio, I just need to decide on the best location for that, I'm still trying to figure that part out. Also, I need to look into the investment order on here and enter a case study, they're on the to-do list. More updates to come. Thanks again. 

[swashbucklinstache]

UPDATE: So it's been about 3 weeks now since my original post and I can't thank everyone enough for all their excellent advice. It's really put me on track to get this financial plan solidified and working for me. I've definitely been putting this off for no good reason and it has been an eye-opening experience.

So far, I started tracking my spending, I've read Andrew Hallam's book Millionaire Teacher (I even got it from the library so I didn't have to buy it!), I've blasted through 50+ posts on the MMM blog, I'm reading as much as I can from other sources (Cdn Couch Potato, Mr Poor Swiss, Moustachian Post, Expat Investing Facebook group etc.), and I'm listening to podcasts. I feel good, almost confident, but I'm not quite there yet.

My next steps are to keep going, reading more and gathering all the info I can. I'm going to open an account to set up a portfolio, I just need to decide on the best location for that, I'm still trying to figure that part out. Also, I need to look into the investment order on here and enter a case study, they're on the to-do list. More updates to come. Thanks again.

Glad to hear that and thanks for coming back. Now, just don't overdo it and focus too much on it so you can't enjoy "the boring middle" as they say, a.k.a. your life. Don't forget to smell the roses =).

[Freedomin5]

If you haven’t read “Your Money or Your Life”, that book is also great in terms of exploring your relationship with money. It’s a classic on this forum.

[Paul der Krake]

As you can tell we are living in quite a unique situation. We are lucky to be able to save easily (we could probably save more) but we want to know what a good plan of action is moving forward. Should we continue to save and put it all towards a house? Our employment situation might change drastically if we move to Canada and there could be a period of unemployment for both of us. We are also unsure of where or how to invest some portion of these savings to plan for retirement. Do we invest in Canada (there could be tax implications), Switzerland or the UK? Or is there an option for expats like me?

There isn't an easy answer to this question. International taxation is very, very complicated. It will depend primarily on your residence and the type of assets you hold. To begin your long and arduous journey navigating this, may I recommend starting here:
https://www.bogleheads.org/wiki/Investing_from_outside_of_the_US

then making your way through the rabbit hole of residency considerations and how tax treaties would apply.

You're going to have to do a lot of reading, multiple times, again and again. Sometimes you will finish reading a wiki page and have more questions then before you started. You will uncover pitfall after pitfall, subtle traps, and misery. Here's a hint: if you think this is easy, you're definitely not reading closely enough.

[cdnteacher]

Another 3 weeks has gone by and I've tried to keep up the pace. But you're right it is tough work, lots of information out there and it's all written to different levels. Some is really high level and I find myself google-ing terms that I have no idea about, and some are so simple and well written that I begin to doubt the quality of the information! But the more I read the more I learn and it's sinking in slowly.

I brought a financial advisor on board from a company called Plan Vision. So far the experience has been great. It is affordable ($150 per year) it is mostly self-paced but they offer great support for the price. And they have a lot of experience working with ex-pat investors. So that has been a big help at this point in time.

I am still confused about tax obligations but from what I've gathered, if I'm just investing and not withdrawing any of the interest then I likely don't need to pay tax (in Canada or in Switzerland). If I move back to Canada, then the situation will become more complicated, but I don't think there is anything I can do about that. I also don't think the brokerage I choose will matter too much in terms of tax but please correct me if I'm wrong!

Right now Plan Vision is suggesting I open an account with Interactive Brokers, since they are most familiar with it and they offer support in the self-guided resources they have available. They also like them because of the really low fees. I've done some research and it seems like TD Ameritrade is a comparable broker. One of the main things I don't like about IB is that they charge a $10 per month inactivity fee for balances under $100K. Not sure where the better deal is. Any feedback on this would be greatly appreciated.

Stay tuned for more updates. And again, thanks for all the help and advice.

[Freedomin5]

Since we’re planning on moving back to Canada, we just opened a TD WebBroker account and are doing self-directed investing using ETFs. The only thing that is not so great is that they charge $10 per transaction. We don’t make purchases often (rebalance 3-4 times per year) and all our other banking stuff is with TD, so we went with simple and streamlined rather than cheapest option.

We are nonresidents for tax purposes. When we get dividends, the bank withholds the appropriate amount of tax and gives us the balance. They remit the tax to the government and gives us the tax form (can’t remember what the form is called). As long as you’re not selling, you don’t have to pay taxes on capital gains. At least that’s my understanding. Once we are back in Canada, we will re-establish residency for tax purposes, then pay taxes as Canadian residents on any money that we withdraw.