So this weekend I took out a loan from the bank for RRSPs. Generally I think it makes more sense to save ahead (which I do anyway), but I had some extra cash floating around (paycheque to paycheque) and some RRSP contribution room so I decided to take a loan. I ended up borrowing a little over $5100 (which turns into me paying back $200 per paycheque). The total cost of borrowing is about $70. Considering that I'll get at least 30% of that back through my income tax, it sounds like a pretty good investment to me! The interest rate they gave me as well is below prime, so it will be my lowest priority to pay off.
When I get my income tax back, I will split the return three ways: 1/3 going towards an RRSP re-contribution (for next year), 1/3 going towards my mortgage, and 1/3 going to a student loan. Once my student loan is paid off, then I will concentrate my energy towards the RRSP loan, and then finally to my bigger students loan. All in all, this will really help our next worth and things are moving in a perfect direction before the baby is born!
Monday, February 21, 2011
Wednesday, February 16, 2011
Rebalancing
The TSX hit over 14000 today so I rebalanced my portfolio, taking 20% of my TSX fund and switching it over to bonds. 100% of my contributions will be in the TSX fund and I will rebalance 20% again when the TSX hits 15000.
Saturday, February 12, 2011
First Update In A While...
With a new baby on the way in a few weeks, I should maybe give an update on what has happened to us financially in the past six months or so, and give a few of my financial goals that I have for myself.
Goal #1: Put $25 per paycheque towards baby's RESP
This is a no-brainer. Right now I contribute $225 towards my TFSA each paycheque, so I will just chop $25 off this and put it into the RESP. Until I am financially comfortably able to retire (whether I do or not), it will stay at $25. Most financial books say for parents to take care of themselves before they take care of their kids and that's what I will do for now.
Goal #2: Every 1000 point gain on the TSX means 20% contribution into Bond Index
I need to get this into writing so that I have it. When the TSX gets to 14000, 20% of my TSX money will go into bonds (whatever the current value). When the TSX gets to 15000, another 20% of the TSX money will get transferred over. Let's say I have $10000 in TSX and $5000 in bonds, it will change to $8000 in TSX (20% reduction) and $7000 in bonds. All of my regular contributions will go to the TSX.
Goal #3: Increase my passive income
I re-read "Rich Dad, Poor Dad" over Christmas (come on...I'm about to become a father) and one of his statements was that you are wealthy when your passive income meets your expenses in a month (or a year or whatever). That is, if you have $2000 per month in expenses (food, mortgage, hydro, whatever), if you have $2000 per month coming in and you don't have to get off the couch, you are wealthy. This is my goal. So the question is how to get passive income. One of my friends has solar panels installed, and claims that a $30000 investment will net him $300 per month over the next 20 years. Another option for me is to take an RRSP loan out and then get a huge chunk of money back, increasing my net worth a lot. The problem is that there would be no passive income. The third option would be to start the "Smith Manouevre", which is to take a loan out for investments and then get the tax benefit for the interest paid. The passive income is your tax benefit, but I can't make it work in my head because the interest paid each month would obviously be higher than your tax benefit. The hope/dream would be that your investments would increase faster than the loan that you take out. I have some thinking to do about that.
Goal #4 - Take a vacation to Hawaii
Although she won't say it, I think that frugala was a bit disappointed that we didn't go someplace warm for our honeymoon (although the Ice Hotel in Quebec City was fabulous!). So we decided that when our collective net worth is $100,000 we will go on a holiday to Hawaii. She has family there so we may be able to stay more frugally than most people, but it is an expense for sure.
Goal #5 - Buy a new house
We will be moving in the near future (probably the next year or so), so I should probably be starting to save some money towards a bigger down payment. The current mortgage is dropping quite nicely for me, but probably the mortgage will be at least $100,000 more than it is now.
What I Have Accomplished
In the last bit, I have a Visa bill of $0, increased my investments and paid off one of my student loans (there is still one left). My cash flow is rising, which is why I am at decision time as far as what to do. Obviously with a baby there will be changes in all aspects of my life and maybe things will be tighter, but I set these goals for myself in September when I took the extra tutoring jobs. A big thanks to frugala who took over one of my loans (in exchange for me paying for most of the monthly bills and all the mortgage payments) that allowed me to get into the black much more easily.
Goal #1: Put $25 per paycheque towards baby's RESP
This is a no-brainer. Right now I contribute $225 towards my TFSA each paycheque, so I will just chop $25 off this and put it into the RESP. Until I am financially comfortably able to retire (whether I do or not), it will stay at $25. Most financial books say for parents to take care of themselves before they take care of their kids and that's what I will do for now.
Goal #2: Every 1000 point gain on the TSX means 20% contribution into Bond Index
I need to get this into writing so that I have it. When the TSX gets to 14000, 20% of my TSX money will go into bonds (whatever the current value). When the TSX gets to 15000, another 20% of the TSX money will get transferred over. Let's say I have $10000 in TSX and $5000 in bonds, it will change to $8000 in TSX (20% reduction) and $7000 in bonds. All of my regular contributions will go to the TSX.
Goal #3: Increase my passive income
I re-read "Rich Dad, Poor Dad" over Christmas (come on...I'm about to become a father) and one of his statements was that you are wealthy when your passive income meets your expenses in a month (or a year or whatever). That is, if you have $2000 per month in expenses (food, mortgage, hydro, whatever), if you have $2000 per month coming in and you don't have to get off the couch, you are wealthy. This is my goal. So the question is how to get passive income. One of my friends has solar panels installed, and claims that a $30000 investment will net him $300 per month over the next 20 years. Another option for me is to take an RRSP loan out and then get a huge chunk of money back, increasing my net worth a lot. The problem is that there would be no passive income. The third option would be to start the "Smith Manouevre", which is to take a loan out for investments and then get the tax benefit for the interest paid. The passive income is your tax benefit, but I can't make it work in my head because the interest paid each month would obviously be higher than your tax benefit. The hope/dream would be that your investments would increase faster than the loan that you take out. I have some thinking to do about that.
Goal #4 - Take a vacation to Hawaii
Although she won't say it, I think that frugala was a bit disappointed that we didn't go someplace warm for our honeymoon (although the Ice Hotel in Quebec City was fabulous!). So we decided that when our collective net worth is $100,000 we will go on a holiday to Hawaii. She has family there so we may be able to stay more frugally than most people, but it is an expense for sure.
Goal #5 - Buy a new house
We will be moving in the near future (probably the next year or so), so I should probably be starting to save some money towards a bigger down payment. The current mortgage is dropping quite nicely for me, but probably the mortgage will be at least $100,000 more than it is now.
What I Have Accomplished
In the last bit, I have a Visa bill of $0, increased my investments and paid off one of my student loans (there is still one left). My cash flow is rising, which is why I am at decision time as far as what to do. Obviously with a baby there will be changes in all aspects of my life and maybe things will be tighter, but I set these goals for myself in September when I took the extra tutoring jobs. A big thanks to frugala who took over one of my loans (in exchange for me paying for most of the monthly bills and all the mortgage payments) that allowed me to get into the black much more easily.
Sunday, November 7, 2010
Financial Update
It has been a while, so here is the most up to date information on what I have done (and what I plan to do) before the baby comes:
- frugala paid off a loan for me, so rather than charging her the equivalent of rent, she keeps her entire paycheque and I pay for all tbe mortgage and bills (minus half groceries, car stuff and dog stuff)
- I have received two raises since September: for the first one I increased my mortgage payment and increased my RRSP. For the second one I increased my RRSP and my TFSA (the TFSA increase will turn into the baby's university savings)
- I save $300 every two weeks now: $225 goes into my TFSA and $75 goes into my RRSP. From the $225, for every $1100 I accumulate, I take $1000 and pay something off (be it a loan, or a credit card, or a mortage or hopefully one day into the RRSP). The idea is to minimize the loans and to slowly build up an emergency fund (from the extra $100 that get put into there)
- I have started two part time jobs, where to money gets funnelled into my TFSA (for the purposes mentioned above). I work for Homework Help, where I get paid to tutor math in the evenings. I also tutor 3-4 students each week (it was supposed to be 4 but the last one has cancelled the last three weeks, so I am counting on three now). The idea of these extra jobs is to use the money for savings and/or paying things off, not for the regular expenses for week to week. This is important, because when second semester starts (February), we are getting close to baby time and my energy will (properly) go to my family rather than gaining extra cash. The plan is to have my credit cards at zero and another student loan paid off by the time the baby is born.
- When the TSX hit around 12500, I dumped half of my Canadian Index fund into a bond index, with all of my current contributions going into the Canadian Index fund. The TSX has continued to rise, but I have taken my profits from it. Long term I think this is going to work. I will only re-balance next when the TSX hits 13500.
- Finally I have been thinking about using the Smith Manoeuvre (this will be once my student loans get paid off). The idea is that you borrow for investment purposes, and then the loan is tax deductible, and with the tax benefits you put that towards your non-deductible loans. It makes a lot of sense as you gain equity in your house. The plan for me would be to pay minimal on your loans, and then increase the loan for the amount of equity that you have on your house. Theoretically, when you are done paying your mortgage, you can either pay off your Smith loan, or continue to keep it and keep the deductions and increase your investments with the extra money. There will be considerable more planning as we get closer, but it makes a lot of sense. There will be little change in the daily handling of my finances, but there will be a much larger tax deduction and more investments in the long haul.
Thanks for reading!
I have been updating our net worth on spreadsheets, and will update the post either later today or this week.
- frugala paid off a loan for me, so rather than charging her the equivalent of rent, she keeps her entire paycheque and I pay for all tbe mortgage and bills (minus half groceries, car stuff and dog stuff)
- I have received two raises since September: for the first one I increased my mortgage payment and increased my RRSP. For the second one I increased my RRSP and my TFSA (the TFSA increase will turn into the baby's university savings)
- I save $300 every two weeks now: $225 goes into my TFSA and $75 goes into my RRSP. From the $225, for every $1100 I accumulate, I take $1000 and pay something off (be it a loan, or a credit card, or a mortage or hopefully one day into the RRSP). The idea is to minimize the loans and to slowly build up an emergency fund (from the extra $100 that get put into there)
- I have started two part time jobs, where to money gets funnelled into my TFSA (for the purposes mentioned above). I work for Homework Help, where I get paid to tutor math in the evenings. I also tutor 3-4 students each week (it was supposed to be 4 but the last one has cancelled the last three weeks, so I am counting on three now). The idea of these extra jobs is to use the money for savings and/or paying things off, not for the regular expenses for week to week. This is important, because when second semester starts (February), we are getting close to baby time and my energy will (properly) go to my family rather than gaining extra cash. The plan is to have my credit cards at zero and another student loan paid off by the time the baby is born.
- When the TSX hit around 12500, I dumped half of my Canadian Index fund into a bond index, with all of my current contributions going into the Canadian Index fund. The TSX has continued to rise, but I have taken my profits from it. Long term I think this is going to work. I will only re-balance next when the TSX hits 13500.
- Finally I have been thinking about using the Smith Manoeuvre (this will be once my student loans get paid off). The idea is that you borrow for investment purposes, and then the loan is tax deductible, and with the tax benefits you put that towards your non-deductible loans. It makes a lot of sense as you gain equity in your house. The plan for me would be to pay minimal on your loans, and then increase the loan for the amount of equity that you have on your house. Theoretically, when you are done paying your mortgage, you can either pay off your Smith loan, or continue to keep it and keep the deductions and increase your investments with the extra money. There will be considerable more planning as we get closer, but it makes a lot of sense. There will be little change in the daily handling of my finances, but there will be a much larger tax deduction and more investments in the long haul.
Thanks for reading!
I have been updating our net worth on spreadsheets, and will update the post either later today or this week.
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