Author Topic: Canadian FIRE Plan - The Beginning  (Read 2219 times)

Pietro

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Canadian FIRE Plan - The Beginning
« on: January 27, 2016, 01:23:32 PM »
Good Afternoon like minded individuals,

2016 is the beginning of my family (me and my spouse) journey to financial independence. I am a long time reader first time poster and have found the hardest part of the journey is the first step. I wanted to outline my plan and ask for advice, concerns, and improvements.

Overview:
My Wife and I are in our mid 20's and have recently moved to a slightly more remote part of Canada to increase our salaries, get more vacation time and travel the world.

My Wife's priority is travel while mine is retirement at a young age

Salary:
Husband: 95,000 a year (Approx 5K a month after tax)
Wife: 95,000 a year (Approx 5K a month after tax)

Debt:
Student Loan: 22,000
Car Loan: 14,000
Line of Credit: 12,000

Monthly Expenses:

(7) Taxi                         
(200)Restaurant/Liquor
(9) Interest
(550) Groceries
(6) Life Insurance (on LOC)
(2300) Rent
(140) Cellphone
(122) Internet
(109) Car Insurance
(315) Student Loan
(100) Misc
(60)Cats
(50) Gas
(8) Netflix
(275) Car Payment

Total Approx: 4,253

Net amount for savings/investing/travel: 5,747

Priorities
1. Pay off Jeep (6.5%)
2. Pay off line of credit (5%)
3. Pay off student loan (5% i think)
4. Review monthly expenses and try and reduce as much as possibly (eating out, liquor, misc ect.)

Step 2:
1) Move banking to lower cost alternative such as tangerine
2) set up questrade account and start investing between TFSA, RRSP
       a) thinking VAB (25%), VCN(25%). VXC (50%) allocation
       b) set up automatic dividend reinvestment for the ETF's
3) Invest VCN and VXC in TFSA while keeping VAB in RRSP to maximize gains in non-taxable account.
       a) should i move a portion of the VXC into RRSP as it would shelter some with-holding tax?


Please give any feedback and improvements necessary.







PharmaStache

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Re: Canadian FIRE Plan - The Beginning
« Reply #1 on: January 27, 2016, 03:33:18 PM »
I'll start out by not bitching at you about the price of your internet, cell phones and groceries.  Assuming it's due to your remote location. 

Your rent seems high.  Can you get it lower?  What are your plans for buying vs renting in the future?

What does your work offer for retirement savings?  Pensions?  RRSP matching? 

Agree with cleaning up your debt quickly, maybe in 6 months.  Just get it out of the way.  Then think about your future vacation budget.

VXC does not shelter withholding tax.  If you are just starting out it makes barely any difference though, so don't worry about it.

TrMama

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Re: Canadian FIRE Plan - The Beginning
« Reply #2 on: January 27, 2016, 03:58:43 PM »
Ditto the remarks about high rent, restaurant, grocery and cell bills. Let's assume it's because of your remote location. It not, then you know what to do about it.

I don't totally understand your question about putting VXC in your RSP. At your income levels you should be putting every red cent into your RSP. It will lower your tax liability substantially, which only gives you even more money to invest. Once you get the debt cleared away, consider filling form T1213 with CRA (based on projected RSP contributions) so you have less tax witheld by your employer.

I'd only put a small amount of cash in your TFSA at first and treat it like an emergency fund until you run out of RSP room. Once you're maxing out your RSP every year, then redirect the fire hose into the TFSA.

Pietro

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Re: Canadian FIRE Plan - The Beginning
« Reply #3 on: January 27, 2016, 04:06:18 PM »
I'll start out by not bitching at you about the price of your internet, cell phones and groceries.  Assuming it's due to your remote location. 

Your rent seems high.  Can you get it lower?  What are your plans for buying vs renting in the future?

What does your work offer for retirement savings?  Pensions?  RRSP matching? 

Agree with cleaning up your debt quickly, maybe in 6 months.  Just get it out of the way.  Then think about your future vacation budget.

VXC does not shelter withholding tax.  If you are just starting out it makes barely any difference though, so don't worry about it.

Thank you for the reply:
I think we can work on getting internet, cellphone and groceries lower but a lot of it is because we don't have many alternatives.

For my pension work gives me 8% then i contribute 3% then they match the following 3% which gives me 14% total so i planned on doing a year-end true-up to 18%, i do have a lot of unused contribution room that i should get cleared up.

My wife is a nurse but currently working casual so doesn't get a pension so I should start contributing to her RRSP and after that is maxed go to TFSA.

What is your best approach to make sure you don't over contribute to RRSP when you have employer matching (just do the math and figure out relatively close what you should contribute each month and then true-up at year-end?)

Sarnia Saver

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Re: Canadian FIRE Plan - The Beginning
« Reply #4 on: January 27, 2016, 06:27:34 PM »
Wife working casual, still making $95k/year?  Focus on putting the rrsp into the person's name who makes the most, and therefore has the highest marginal bracket.  Spousal rrsp's are still something you can do, but income splitting for senior's makes this unneccessary.  Spousal rrsps are great for shifting income from one partner to another after a timeframe of 3 years.

As you start to get close to the rrsp limit, the government allows a space of 2k of over contributions to allow for accidents.  This 2k is not tax deductible and you will have to prove to them that it was an accident and that you have taken steps to ensure it doesn't happen again. 

Each year, you are given 18% gross salary of additional rrsp space, since most company plans do not consider overtime, bonuses, etc as pensionable, even with the full 18% salary going into your plan, you will likely accumulate a little extra space each year.

Pietro

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Re: Canadian FIRE Plan - The Beginning
« Reply #5 on: January 27, 2016, 07:01:42 PM »
Wife working casual, still making $95k/year?  Focus on putting the rrsp into the person's name who makes the most, and therefore has the highest marginal bracket.  Spousal rrsp's are still something you can do, but income splitting for senior's makes this unneccessary.  Spousal rrsps are great for shifting income from one partner to another after a timeframe of 3 years.

As you start to get close to the rrsp limit, the government allows a space of 2k of over contributions to allow for accidents.  This 2k is not tax deductible and you will have to prove to them that it was an accident and that you have taken steps to ensure it doesn't happen again. 

Each year, you are given 18% gross salary of additional rrsp space, since most company plans do not consider overtime, bonuses, etc as pensionable, even with the full 18% salary going into your plan, you will likely accumulate a little extra space each year.

Yes she should be able to, she is in health care which give lots of hours with overtime and double time opportunities. Casual still means she can have over full time hours but just gets more to pick and choose.

Is it better to do quarterly deposits into questrade for ETF's rather than monthly?

I am just looking for a simple fund allocation I can follow and distribute it between remaining RRSP room and TFSA room.

Freedom47

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Re: Canadian FIRE Plan - The Beginning
« Reply #6 on: January 28, 2016, 07:27:26 AM »
If you don't want to over-contribute to your RRSP, you should look at your Notice of Assessment from the Canada Revenue Agency to see what your accumulated RRSP limit is. You can also log into the CRA website and check it there.

What I do is save my money in a high interest savings account and then the day that I get my Notice of Assessment I transfer that full amount into my RRSP as a lump sum. If you haven't been maxing your RRSP in previous years then you can contribute any amount up to the amount on your Notice of Assessment without any fear of over-contributing.

Stagleton

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Re: Canadian FIRE Plan - The Beginning
« Reply #7 on: January 28, 2016, 07:37:14 AM »
Get rid of the jeep. Buy a geo, rabbit or scooter. Or no car

Wow, cant believe u pay 2300$ in remote canada. Maybe switch to a camper van? U can pay it off in 2 months (@ a mere 4600$) if u get 1 from Craigslist and it solves your jeep/commute problem
« Last Edit: January 28, 2016, 07:42:48 AM by Stagleton »

RichMoose

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Re: Canadian FIRE Plan - The Beginning
« Reply #8 on: January 28, 2016, 07:56:45 AM »
Your high incomes should help you easily achieve your goals with a little financial discipline.

Start by paying your car loan and LOC as quickly as possible as the interest on these are not tax-deductible. Then work to max your, and your wife's, RRSPs. To be cautious about over-contributing on your RRSP, just estimate conservatively during the year. Then, in January when you can total up your workplace contributions just make up the difference in "RRSP season". Contributions before the end of February each year can be applied to the previous years tax returns.

Once you're well on your way with RRSPs then look at TFSAs.

If you use Questrade you can make frequent contributions as you will not be paying commissions on ETF purchases. They also offer an easy tool to set up synthetic DRIPs on your ETFs.