Author Topic: Reader case study - Canadian couple, anything we should improve?  (Read 3177 times)

Zikoris

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Hello fellow mustachians! I love the case studies and have wanted to do one myself for a while. We're a young couple (25 and 27) in Vancouver, looking to retire before 40. The calculators say we're on track, but I'd love feedback from the community in case we've missed something.

Income

2013 was about $63,400 combined after-tax income, including quarterly GST rebates. Works out to roughly $5300/month.

Expenses

These are the averages for the first four months of 2014. I could go back further, but it would be less accurate as we've made some big cuts in the last few months (cutting landline, and SO's hair).

Housing: $748 <-- Includes rent and insurance
Travel: $633 <-- Two big international trips per year
Food and restaurants: $200 <-- Typically higher, we've gotten a few grocery gift cards this year
Personal care: $87 <-- Haircuts, toiletries, laundry - will drop since I started cutting my SO's hair two months ago
Cell phones: $62 <-- Two phones, talk and text
Internet: $28
Entertainment: $78 <-- We go to a lot of shows, concerts, and movies, but get discounted tickets. We also do a lot of free activities and hiking/biking.
Transit: $32 <-- Bus tickets and bike repairs
Cat stuff: $20 <-- Cat food and litter
Clothes and shoes: $10
Everything else: $50 <-- Books, electronics, kitchen stuff, stamps

Total Expenses: $1948/month

Assets

$92,000 in investments, a mix of low cost index funds and GICs/high interest savings accounts. Roughly 50% fixed income, the rest divided evenly between Canadian, US, and International indexes.

Liabilities

None

Our goal is to retire before 40. We're on track, right? Anywhere to improve? We are Canadian, so some American advice would not be applicable (Republic Wireless, etc). Thanks!

Prairie Stash

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Re: Reader case study - Canadian couple, anything we should improve?
« Reply #1 on: May 21, 2014, 10:23:21 AM »
Obviously you're filing separate taxes, that income level doesn't get GST cheques (rebates).

I'd split it into his/hers.  If you aren't common law on your taxes why are you combining your stuff here? Are you really confident that your relationship will last till death? It's a harsh question but this is an important topic. 

Your assumptions are no kids, cheap rent forever, no car ever and continue getting gift cards for gifts.  I'd remove the gift cards from the equation and use total grocery amounts.  Are the other assumptions correct? Also is $60/person/year for clothes and shoes sustainable?   

totoro

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Re: Reader case study - Canadian couple, anything we should improve?
« Reply #2 on: May 21, 2014, 10:49:08 AM »
I think Zikoris has posted previously that she has no plans for kids.  Also, she is in a co-op and rent increases are tied to income I believe.  Living in downtown Vancouver without a car is quite doable.

As far as filing separately, yes, if you have been living together for 12 months as a couple you need to file jointly and you would not be eligible for the $260 GST rebate each.  Legally you need to do this once you hit that milestone, but you may not have yet.

Your travel is the biggest expense, but it is clearly something you both love and are willing to spend money on.  Do gifts to other family members and hobbies fall in the "other expense" category?  These two can line items can add up for us.

You have a high savings rate for a lowish joint income and I'm not sure I would have anything to contribute to assist in reducing costs. 

You could perhaps increase your income rather painlessly by offering to check in on cats/birds/plants/mail in your building or buildings near you while people are away for a fee.

Zikoris

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Re: Reader case study - Canadian couple, anything we should improve?
« Reply #3 on: May 21, 2014, 11:55:03 AM »
We actually do file taxes together - we've been living together for about four years now. We do get GST rebates, which are around $200 quarterly. We do everything completely legit - we file as common law for everything, including taxes, medical insurance and benefits, and renters insurance.

Our "regular" grocery and restaurant amount is actually pretty close - $230 for groceries, and an extra $20-$30-ish for restaurants, chocolate, and the occasional doughnut.

Gifts are in "other" - we don't really exchange gifts with either each other or other people, but do send cards once in a while. For things like our birthdays, we buy experience-type things (concert tickets, activities), and put them under entertainment. We also tend to give away baked goods a lot, which would go under groceries.

We don't spend much on clothes, because I hang everything to dry and repair stuff as needed. I haven't actually bought any clothes beyond socks and underwear in over a year, and my boyfriend has bought one pair of pants and a few dress shirts over our entire relationship.

Thanks for the feedback!

Prairie Stash

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Re: Reader case study - Canadian couple, anything we should improve?
« Reply #4 on: May 21, 2014, 02:18:09 PM »
You are very set then with expenses.  You're pretty impressive with the low spending.

I'm still not convinced on the GST credit, it's typically not available after family income tops $45,161 and it sounds like you're getting B.C. low income supplement which cuts out at $43,687 (household income). It's possible if you had a lot of RRSP credits and are deducting them from current income. Since RRSP accumulates at only 18% of total income/year I'm confident you're maxing that out and then some.  It doesn't really matter though, it's not exactly a large amount. I can see how its possible in theory, just unlikely for a family making good money like yours.
http://www.cra-arc.gc.ca/E/pub/tg/rc4210/rc4210-13e.pdf

From this point it's more about making sure the withdrawal plan is set up.  Max the RRSP for both of you, watch the relative amounts to make sure the withdrawals will not be taxed all in one persons name.  For simplicity start by withdrawing the basic personal amount ($9,869 provincial and $11,138 for federal), then you never pay taxes and the money goes farther.  TFSA's are easier to manage - no tax on withdrawals.

I would ditch the GIC and buy more equity myself.  50% is pretty high for cash/GIC. I can only assume you're getting 1-3%, are you getting much better than that on the GIC? I think you would get better advice having your portfolio analyzed. You're doing phenomenal, I should be getting advice from you on reducing expenses.

Zikoris

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Re: Reader case study - Canadian couple, anything we should improve?
« Reply #5 on: May 21, 2014, 03:08:54 PM »
Yeah, our tax situation is a bit strange for now - we've done some big RRSP contributions over the last two years, and my boyfriend has accumulated education credits from University (just about used up now). The GST rebates will probably only be around for another 2-3 years max until everything settles down.

The fixed income 50% includes a mix of Canadian bond index, high interest savings accounts, and laddered GICs. The lowest of those is about 3%. We're both pretty conservative, but working on increasing our equities - all new money is going into equities until we get our fixed income down to about 40%.

Prairie Stash

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Re: Reader case study - Canadian couple, anything we should improve?
« Reply #6 on: May 22, 2014, 09:31:43 AM »
Thank you for the blog link.  I feel like I understand you better now. If I wasn't watching the pennies I'd buy your book.

I'll stand with saying your expenses are terrific. You don't need case study help. The only help people can give is making sure the $90k keeps growing with decent returns.

My own portfolio is a mess, I'm currently fixing it and I'm Canadian too.  Its around $90k and growing mostly from savings.  I spent the last while trying to find a good mix of ETF.  My wife is trying a different path and going with a financial advisor.  It's cool having two different takes on it, I also like the guy she uses as he recommended a mutual fund with only 10 stocks (actively managed I hope).  I also just started an RESP so that added a wrinkle, it needs to be conservative as it's not really my money anymore (I just manage it for my daughter).

It's all training at this stage when the amounts are less than $100k.  My current goal is to become knowledgeable and wise so that I can manage $500k in a few years and a million in a decade or two. It's a scary thought.

Meggslynn

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Re: Reader case study - Canadian couple, anything we should improve?
« Reply #7 on: May 22, 2014, 10:33:58 AM »
From one Canadian to another I think your doing fantastic!!!