In this article, I hope to provide you with some suggestions to help you get ahead and manage through what seems to be insurmountable barriers where homes are expensive, no job security, and where more than half of all couples divorce.
The greatest opportunity to get ahead is to work hard in school and get really good grades. Your education should be focussed towards meeting the requirements for a high paying career. Specifically, I would suggest you to:
- understand your unique strengths and your interests (What areas do you find to be better than most people at? What comes easy to you?);
- search careers that utilize your strengths and interests to get an understanding of:
o what do those careers pay,
o what are the prerequisites to qualify for such a career,
o whether you have a chance of completing those educational and certification prerequisites,
o the availability of such work where you are able to work once you’ve acquired the necessary education and training, and
o the market trends that could impact the desirability or ability to get into such a career.
- dedicate yourself to attaining that career by working harder than everyone else. Nothing is more important. If possible, remain single as you are not in a financial position yet to be taking on a family.
If you are older and unemployed or feel you’ve “maxed out” as to your income and just getting by, it is never too late to go back to school. The average person nowadays changes careers about eight times in their lifetime. The only difference is that you’ll most likely have to make a living during the day and go to night school.
Keep in mind that your formal college or university education is rarely the last time you’ll need to take courses or seminars. You should have a philosophy of always looking to get all of the applicable qualifications, designations or certifications for your career. This helps you to stand out as a qualified and knowledgeable professional. And this extra education usually translates into an even higher income.
- Live within your means
Once you’re working in your chosen career, you might have amassed some school loans in the pursuit (about 60% of Canadian university students end up with student loans). Now is the time to be setting aside at least 10% of your gross income to get the school loans paid off as quick as possible. If you can save more, that’s great!
When you no longer have debt, you should live on no more than your disposable income (your after-tax income less all withholdings) less 10% of your gross income which is dedicated for your saving.
There are tax assisted ways to save such as contributions to an RRSP. Where you make RRSP contributions, you should also save the resulting tax refund. As an example, early in my career, I saved $500 a month to my RRSP. A week or two before the end of the RRSP contribution period, I would borrow $4,000 on my line of credit and also contribute that to my RRSP. This gave me a tax refund of about $4,000 (= $10,000 x 40% marginal tax rate) which I’d then use to pay off the credit line. At most I’d have one month of interest which works out to about a cup of coffee. The other neat thing about this type of borrowing is that it helped me to establish a positive credit history which helps later on when you buy a home.
To be able to make meaningful savings, you might have to make some sacrifices like living at your parent’s home, living in low-cost housing, or living together with a friend to share expenses. You might also use public transportation as driving a car is an expensive non-necessity. It is also unwise to finance anything as not paying up-front usually means expensive financing. During this key time, it is important to remain debt free – so don’t run up your credit cards. If you don’t have the money in your bank account, just don’t buy. Again, the more you’re able to save, the better off you will be.
- Securing your future home
Paying rent is generally a waste of money. If you can put down enough of a down payment such that your monthly mortgage payments are the same as you’d otherwise pay in rent, at the end of the mortgage amortization you own your home; whereas if you rented, you’d have nothing left. Also, rents tend to increase every year, but where you buy a home, you’ve locked-in your “future rent” to a great extent. And if your home experiences any price appreciation, you end up being way better off than having rented.
When you are buying your home, it is important to do your homework so as to recognize what is a good price and navigate through the various expenses and seek to minimize them. The best way to explain this is by telling you the story of what I did.
To rapidly build up a down payment I contributed to my RRSP to build up $25,000 which I could then withdraw as an interest free loan under the Home Buyer Plan (“HBP”). Starting the second year following the year in which I made the HBP withdrawal, I then had to pay 1 / 15th of the loan back each year. This $25,000 I added to my other down payment funds which helped me to get over the 20% minimum to qualify for a conventional mortgage. With a conventional mortgage you don’t have to buy expensive CMHC mortgage insurance.
To make sure I was getting the best mortgage rate, I had gone to several banks and credit unions as well as searched on the internet. At times a financial institution will do a promotion for a period of time where they offer a really attractive rate to get a new customer. Having found a deal, I applied and was pre-approved which helped me make a stronger offer and be seen as a better buyer. And going through a pre-approval also locked in the interest rate for a period of 90 days. I found I could do just as good or better on my own than using a mortgage broker. But in more difficult situations, a mortgage broker can be a great help.
I knew a lawyer who was willing to do the closing at a good price for me; but if I didn’t know someone, I would have negotiated the legal fees in advance. I used the standard Real Estate Board of Greater Vancouver Contract of Purchase and Sale which my lawyer helped me complete for making the offer. We put in the appropriate subject clauses like satisfactory financing (as I needed the bank to approve the property and make sure all their conditions were satisfied) and inspection (to make sure that the townhouse was technically in good shape).
I ended up buying the property from a previous owner so the purchase was exempt from GST. Although the previous owner used a realtor, I didn’t need one and negotiated a reduced price by one half of the commission and saved $8,000 (their realtor didn’t deserve a double commission at my expense and he voluntarily reduced his commission to get the deal done).
As a first-time home buyer resident in British Columbia for more than 12 months, and as the townhouse I was buying was less than $425,000, the purchase was exempt from the British Columbia Property Transfer Tax.
Before removing the subject for inspection, I had gone through more than 12 months of strata meeting minutes to learn about any possible problems or issues with the property – like water damage, maintenance issues, and whether there was any potential for a special assessment. I called up the Strata Council President and asked the same questions just to make sure I wasn’t getting stuck with “a lemon”. I also made sure that the strata had appropriate liability insurance in the event that liability were to occur on the outside of the property.
Hiring the inspector ended up saving me some money as I was able to go back to the seller with the inspection report and ask for certain items to be fixed or a reduction in the purchase price.
Last few things to note was that I chose a 5 year closed mortgage as I did not want to gamble on interest rate increases making it unaffordable to hold onto my townhouse. I also got myself comprehensive property insurance so that I was covered for any potential disaster as I was simply not in a position to pay for any type of significant loss or liability.
Family can be one of the greatest joys of life or it can be one of your greatest miseries. So it is important that in searching for a spouse you find someone who has similar spiritual and personal values as you. Where you both have similar spiritual values and a cultural commitment of never divorcing regardless of how tough it gets, you just might have a shot at making it. Similarly, you both need to have similar attitudes and habits concerning money. Where one spouse doesn’t appreciate how hard it is to save a dollar, it can be very stressful. Differences in attitude over money is the top reason why most couples divorce.
It is a good thing to plan your future together so that you both have the same financial goals, same willingness to save a certain amount of money each month, and also have an attitude of openness where all money earned is family money. That doesn’t mean that each of you not have a certain amount for discretionary spending (“mad money”). Rather it means that you both are on the same team and both are willing to do what’s necessary on the financial side to achieve your goals. When tough times come, there should be a willingness by both to do what is needed and not run up debt unnecessarily.
The next step
I hope that these few words of advice are found to be helpful. As a client or children of a client, I provide financial planning advice without cost or obligation. I want to make sure that the children of my clients develop good money habits that will lead to a successful marriage and a financially successful life. If you would like to become a client or your parent(s) are a client, please feel free to contact me by calling: (604) 288-2083 or by email: Steve@lycosasset.com