Author Topic: Reader Case Study - Where to invest?  (Read 1399 times)

newb999

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Reader Case Study - Where to invest?
« on: June 03, 2015, 08:07:19 AM »
Life Situation: Young professional, just finishing paying off a 12k loan, living in Milton, ON, no RRSP but shopping for one now

Gross Salary/Wages: 60 000 CAD (soon to be 66k)

Pre-tax deductions: N/A

Other Ordinary Income: one night bartending/week = approx $5k/annually

Adjusted Gross Income: 71k annually (once raise applies)

Taxes: $18,481 annually

Current expenses: Rent: $850/month
Car insurance: $117/month
Gas: ~$225/month
Internet: ~$50/month
Loan payment: $400/month(loan given in 2014 @15% interest - ouch- signed for a 3-year term but I have $634 left to pay off. Goal to pay within two weeks - more on this later)
Groceries: ~$200/month
Other: Mint says I spend about $200 on 'other', includes pharmacy, account fees, entertainment, loan insurance, etc. I anticipate facepunching.
Total: $2042

Assets: TFSA: $68.74 - Please don't laugh. I was excited about closing my loan and emptied this account.

Liabilities: - Consolidated credit loan: $634 - as above, I got into some trouble doing unpaid internships after grad school and not finding a job. Consolidated 12k into a 15% loan over a 3 year term. I've managed to pay off most of it in just over a year...thanks MMM
- Credit balance: $1010 - I KNOW. I got excited about paying off the loan early and let the credit grow this month. I do pay it monthly... i went a year without credit cards to teach myself a lesson.
- One depreciated beyond belief 2003 Mazda Protege 5. I know banks put cars as assets but Lola has given me significant trouble in the last year and as such she's a major liability.
Total: $3686

Basically, I want to transfer what I was putting into my loan into an RRSP. I'd like to buy a house with my SO in the next couple of years. I've read Canadian Couch Potato and MMM, and I think the TD Canadian Index Fund-e is right for me, but I'm very novice. I really have a limited understanding of mutual funds, rrsp's, etc. I want to take advantage of the Home Buyer's plan (you can dump up to 25k tax free into a home - I'm sure you all know that). I want to make sure I'm selecting the right funds for me. Work has an rrsp but don't match until you've been with the company for a year (2 months to go). Once that happens I will open that account but you can't use home buyer's with that fund. I'll open once they match but didn't want to use it until I'd paid off my loan.

PS - I know the loan payments seem low to pay off in a year - when times were good, I upped it to $200/weekly and dumped anything extra into it, I also got a healthy tax return and poured it all into the loan.

I'd like to add - there's a major gap between expenditures and income. I can attribute a solid chunk of that in recent months to my car being temperamental. I've put $3k into her alone since Sept. There's the tiniest possibility work will give me a car and I'm holding off until then. Even if they don't give me one - it's another 5k beater for me.

Phew that took awhile. Please let me know if any more details are required.

Chrissy

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Re: Reader Case Study - Where to invest?
« Reply #1 on: June 03, 2015, 08:54:56 AM »
You should have ~$2,700/mo income in excess of your expenses.  Are you sure you listed everything?  Where are the utilities?  Your phone?

I think your priority should be to pay off your $3,700 in debt while simultaneously saving $5,000-$10,000 in an emergency fund.  That's 3-6 months of expenses.  And, you need another $5,000 in cash for a car.

You can meet these goals in less than a year, and still have ~$14k in cash for your House Fund.

From there, it'll take another 4-5 months to reach the $25k required for the Home Buyer's plan.

I recommend waiting to invest in an RRSP for <18 months to meet these other goals, then you're free to go whole-hog into retirement accounts.