How do you divide your income?

[Marioo1991]

Originally Posted by mo_bettah

Did you flunk out of grade 5 math?

because I had a typo and put a "k" after the $400,000 ?

[Ducdesmo]

Originally Posted by mikeivb

If you have 100k in your RRSP when you're 30, earning 7% it will total over $1,000,000 by the time your'e 65 without putting anything more in it.

If you buy a a house for $400,000 and it gains 5% per year, by 65 it will be worth $2,000,000

Even factoring inflation, the house will be worth approximately 3 times what you paid, and the RRSP will be worth over $500,000

One of my old neighbours bought her house over 50 years ago for around $5,000. Sold it a few years ago for just shy of a million dollars.

Start being smart with your money young, the time value of money is a lot more valuable than people realize.

Horrible analysis. Anyone who thinks you will earn 5% on housing year after year or what the economy will be like in 30 years is delusional.

[Marioo1991]

Originally Posted by itsallaboutgz

Horrible analysis. Anyone who thinks you will earn 5% on housing year after year or what the economy will be like in 30 years is delusional.

It's hypothetical. I'm sure people 35 years ago didnt think a $50,000 house could be worth $1,000,000 by 2010.

You could also argue that 7% year over year is not a realistic figure either, but no one knows what interested rates are going to be like in 10 years

[waddy41]

even if your house is worth $2 million after 35 years, you're forgetting about all the expenses with owning a house
- interest on $300k, assuming you only had $100k as mentioned above
- property taxes, that's approximately $2000 every year for 35 years...and that will increase as the house value appreciates
- repairs and maintenance on your house

[taylor192]

Originally Posted by mikeivb

If you have 100k in your RRSP when you're 30, earning 7% it will total over $1,000,000 by the time your'e 65 without putting anything more in it.

If you buy a a house for $400,000 and it gains 5% per year, by 65 it will be worth $2,000,000

Even factoring inflation, the house will be worth approximately 3 times what you paid, and the RRSP will be worth over $500,000

You're not taking into account the premium you pay to own the home, or the servicing costs of the mortgage, or the maintenance of the house. My RRSP costs me nothing in time or money

Originally Posted by mikeivb

One of my old neighbours bought her house over 50 years ago for around $5,000. Sold it a few years ago for just shy of a million dollars.

She made 11%/yr, which basically means she won the lottery.

If she lived in Detroit she might be getting $80K for her house.

Then again she might be lucky too. Some houses of that age sell for only the land as the house is a teardown, or the house needs to be gutted to be brought up to code. Home ownership comes with risk, yet Vancouverites have mostly eluded these. I wouldn't expect the same gains to continue going forward here.

Originally Posted by mikeivb

Start being smart with your money young, the time value of money is a lot more valuable than people realize.

Best advice. Regardless of what you do, start early.

[taylor192]

Originally Posted by waddy41

even if your house is worth $2 million after 35 years, you're forgetting about all the expenses with owning a house
- interest on $300k, assuming you only had $100k as mentioned above
- property taxes, that's approximately $2000 every year for 35 years...and that will increase as the house value appreciates
- repairs and maintenance on your house

Yet you gotta live somewhere.

[Marioo1991]

Originally Posted by waddy41

even if your house is worth $2 million after 35 years, you're forgetting about all the expenses with owning a house
- interest on $300k, assuming you only had $100k as mentioned above
- property taxes, that's approximately $2000 every year for 35 years...and that will increase as the house value appreciates
- repairs and maintenance on your house

I'm not forgetting it, I just didnt mention it.

Even if your total interst expense/maintenance/property tax is the same in the end as your house is worth, and assuming you pay of your mortgage on time, you own that asset, you could sell it and have all that money to spend on whatever you want.

you could probably rent for 35 years, and spend probably half of what the person who bought the house spent on mortgage/maintenance/property tax, but what do they have in the end? nothing.

[taylor192]

Originally Posted by itsallaboutgz

Horrible analysis. Anyone who thinks you will earn 5% on housing year after year or what the economy will be like in 30 years is delusional.

A house at the peak in 1981 was $190K, at the peak today it is $900K. That's 5.2%. Compare the valleys and you get about the same.

The problem going forward will be past gains cannot always predict future gains. Vancouver could become a Detroit, a city that has been shrinking in population for more than a decade. Imagine if Asians stop coming here, if staying in China becomes a better choice. Imagine when baby boomer money dries up, and people stop retiring to the left coast. Imagine owning in Japan where prices have been negative for 19 years! Imagine owning in Germany where they have been flat for 15 years. ....

Anything can happen, having all your assets in one single non-liquid investment is not smart. For some they've won the proverbial lottery, lucking out living here and having bought decades ago, yet if they lived elsewhere they'd be struggling.

Take me for example. I made $70K selling my $220K house for $290K after 6 years. Good, ~5%/yr. My coworker here bought a 2bdrm condo for $250K about 6 years ago and could sell for $450K or 10%/yr. Did he know he'd make that much? Nope, he and I just knew housing was going up and we wanted in.

[Marioo1991]

You're not taking into account the premium you pay to own the home, or the servicing costs of the mortgage, or the maintenance of the house. My RRSP costs me nothing in time or money

True, but as i mentioned above I didnt forget them, I just didnt mention them

Also as you mentioned, you gotta live somewhere. I pay less for my mortgage/maintenance/property tax than some of my friends pay for their rent living in the same area

She made 11%/yr, which basically means she won the lottery.

If she lived in Detroit she might be getting $80K for her house.

Then again she might be lucky too. Some houses of that age sell for only the land as the house is a teardown, or the house needs to be gutted to be brought up to code. Home ownership comes with risk, yet Vancouverites have mostly eluded these. I wouldn't expect the same gains to continue going forward here.

She told us that it felt like winning the lottery..

That house sold for just the land, they tore it down right away and built a new house. A typical house in that same area, with same size lot and age of the property would sell for probably in the 1.2mil-1.3mil range.

Best advice. Regardless of what you do, start early.

Well said

[taylor192]

Originally Posted by mikeivb

you could probably rent for 35 years, and spend probably half of what the person who bought the house spent on mortgage/maintenance/property tax, but what do they have in the end? nothing.

Owning is a large premium in this city. My condo costs $1000K more to own than rent.

After 35 years of $1000 saved at 7%, I'd have $1.7M. That's not "nothing".

We can continue to do more math, about rental increases vs stable mortgage payments, ... yet lets stop here and st say your example was too vague. Housing does not go up at 5%, historically it is 3% if you go back far enough. We've been lucky to live in a city that has exceeded growth of other cities, people in Detroit not so lucky.

[taylor192]

Originally Posted by mikeivb

Also as you mentioned, you gotta live somewhere. I pay less for my mortgage/maintenance/property tax than some of my friends pay for their rent living in the same area

What area are you in?

I'm renting well below costs of owning in Kits, yet know that towards Surrey it starts to even out as a couple of my coworkers have rental properties in the burbs. I didn't know there was anywhere in the city you could buy for less than renting.

[Marioo1991]

Owning is a large premium in this city. My condo costs $1000K more to own than rent.

After 35 years of $1000 saved at 7%, I'd have $1.7M. That's not "nothing".

Thats cuz you're smart with your money, most people aren't. I'm talking about people who have rented for decades, and the extra money they could be investing, they dont. On the other hand, a person can own a house, and have nothing in the end too if they keep adding a second mortgage, etc.

We can continue to do more math, about rental increases vs stable mortgage payments, ... yet lets stop here and st say your example was too vague. Housing does not go up at 5%, historically it is 3% if you go back far enough. We've been lucky to live in a city that has exceeded growth of other cities, people in Detroit not so lucky.

Very true, although comparing Detroit to Vancouver is like comparing apples to oranges.

[Marioo1991]

Originally Posted by taylor192

What area are you in?

I'm renting well below costs of owning in Kits, yet know that towards Surrey it starts to even out as a couple of my coworkers have rental properties in the burbs. I didn't know there was anywhere in the city you could buy for less than renting.

I Live in North Burnaby now, but used to live in the west side of vancouver.

By saying I pay less than someone renting in the same area is misleading. If I bought at todays prices and had 0 down, then i would be paying more.

[taylor192]

Originally Posted by mikeivb

Very true, although comparing Detroit to Vancouver is like comparing apples to oranges.

Not really.

Detroit was a booming city and the place to be at one point, like Vancouver is now. Detroit has major company and manufacturing HQ'd there, something Vancouver does not have. Detroit is sort of a port city too, cause the ships can sail up the St Lawrence and the Great Lakes. Detroit is a border city with a lot of goods crossing.

Thus Detroit had a lot going for it, and still fell on its face. Vancouverites cannot be arrogant and ignorant to this.

San Diego is very similar to Vancouver. Good weather, lots of wealthy immigrant money, great lifestyle, ... and property values there fell sharply despite everything going for it.

[taylor192]

Originally Posted by mikeivb

By saying I pay less than someone renting in the same area is misleading. If I bought at todays prices and had 0 down, then i would be paying more.

OK. I try to keep discussions to today's prices, since anyone reading and contemplating getting into the market does not have a time machine.

[Marioo1991]

back to on topic - understand the time value of money, very good knowledge to have.

[taylor192]

Originally Posted by mikeivb

I dont know alot on the issue of the decline of Detroit, but wasnt a lot of the decline due to loss of jobs in the automotive and manufacturing industry?

Yes, and what do you think people do here for work? If that city can suffer massive job losses, why do we think we're any better since we have little manufacturing and only 1 company HQ.

Vancouver better never fall out of grace of being the best place on earth.

[taylor192]

Originally Posted by mikeivb

back to on topic - understand the time value of money, very good knowledge to have.

I know you PM'd me, yet going offtopic is not that big a deal. This isn't exactly the most serious topic.

[BeefCake4000]

Originally Posted by taylor192

I know you PM'd me, yet going offtopic is not that big a deal. This isn't exactly the most serious topic.

Not offense taken for going off topic, I am open to all opinions. However, I would like to emphasize that I do take this topic seriously. I am not here to waste RS members valuable time.

Back on topic: A member stated that I gave too little information for analysis, which I agree. Here is the revised version, hope it helps.

1) After all the expenses, I have $2200 of flexible income
2) Because I have no investment right now, I have saved up $25,000 of emergency fund in the bank.
3) A member suggest that because I am in my mid 20's, I should put more into high risk/high yield investment

Here is the revised version:
10% entertainment ($220)
15% emergency fund ($330)
35% high risk investment ($770)
40% low risk investment ($880)

Again, all inputs/opinion are welcome, thanks.

[taylor192]

Originally Posted by BeefCake4000

Back on topic: A member stated that I gave too little information for analysis, which I agree. Here is the revised version, hope it helps.

1) After all the expenses, I have $2200 of flexible income
2) Because I have no investment right now, I have saved up $25,000 of emergency fund in the bank.
3) A member suggest that because I am in my mid 20's, I should put more into high risk/high yield investment

Here is the revised version:
10% entertainment ($220)
15% emergency fund ($330)
35% high risk investment ($770)
40% low risk investment ($880)

Again, all inputs/opinion are welcome, thanks.

Numbers are better to work with.

After all expenses includes: rent, gas, grocery, insurance, ...?
If so, you're ONLY budgeting $220 for fun? What about clothes? girls (or guys if you're into that)? booze? travel? hookers? blo? ...

1. If you have $25K you don't need an emergency fund.
2. If you have RRSP room, move that $25K into your RRSP
2a. If you don't have RRSP room, move $10K into a TFSA
3. Max out the 18% RRSP room, and any remaining RRSP room
4. Fill out a T1213 to get your RRSP tax return added back to each paycheque. I'll assume you'll get 30% back.
5. Save the 30% extra on your paycheque in any remaining RRSP room, or TFSA

I'm going to guess you're making $3200/mn after tax, and $4000/mn before tax. Thus 18% is ~$720, and 30% of that is ~$220. Any savings above that is awesome, yet don't sacrifice your life for it. You're doing really well if you have $25K saved and save $1000/mn.

In my mid-20s I held all my investments in high risk, a variety of financial, equity, and foreign. They all go up/down a lot, yet at different times for different reasons so I was OK with that strategy. Just the basic equity funds I held made 40% returns for 2 years, more than offsetting any losses in 2009.

[taylor192]

Originally Posted by BeefCake4000

Not offense taken for going off topic, I am open to all opinions. However, I would like to emphasize that I do take this topic seriously. I am not here to waste RS members valuable time.

NP dude, just it is hard to take very general and vague posts seriously. If you want help we need specifics.

The one thing that is missing is: Why are you saving? Knowing your goals will get you better advice of where/how to invest your money.

[Tapioca]

Originally Posted by mo_bettah

Save as much as you can in your 20s, period.

If you don't have a goal (like a detached house in Vancouver), then it's pointless to save as much as you can in your 20s.

As taylor192 and others have said, the key is balance. The joys of life - whether they be experienced via consumer goods, travels, or good times with friends - are priceless. When you're bald/grey, suffering from stiff joints, etc., you'll look back at your 20s as the best part of your life. I'm in my late 20s and though I have a fairly good life, there are some times when I wish I could jump into my "hot tub time machine" and go back to my early 20s and live life more on the edge. Unfortunately, I cannot do that now because my body doesn't respond like it used to and because of financial obligations.

One investment nobody has mentioned is investing in yourself - a healthy lifestyle, education/training, etc. Your body and mind are your most valuable assets and if you don't take care of these, you won't go anywhere in life. Sure, saving 70% of your after-tax income might net you some cash and assets, but if you're overweight and lack the skills/knowledge to get that promotion, or "win over" a woman, you'll be spending many of your days dusting the vacant rooms in your house.

[MoBettah]

Originally Posted by mikeivb

Well said

Get your head out your ass, you think this is well said but you failed me for saying

Save as much as you can in your 20s, period.

Some good logic there son.

[MoBettah]

Originally Posted by Tapioca

If you don't have a goal (like a detached house in Vancouver), then it's pointless to save as much as you can in your 20s.

As taylor192 and others have said, the key is balance. The joys of life - whether they be experienced via consumer goods, travels, or good times with friends - are priceless. When you're bald/grey, suffering from stiff joints, etc., you'll look back at your 20s as the best part of your life. I'm in my late 20s and though I have a fairly good life, there are some times when I wish I could jump into my "hot tub time machine" and go back to my early 20s and live life more on the edge. Unfortunately, I cannot do that now because my body doesn't respond like it used to and because of financial obligations.

One investment nobody has mentioned is investing in yourself - a healthy lifestyle, education/training, etc. Your body and mind are your most valuable assets and if you don't take care of these, you won't go anywhere in life. Sure, saving 70% of your after-tax income might net you some cash and assets, but if you're overweight and lack the skills/knowledge to get that promotion, or "win over" a woman, you'll be spending many of your days dusting the vacant rooms in your house.

Everybody has goals. When i said save i didn't mean stash in a checking account and forget about it, obviously saving would include investing it with a plan.

Don't you think it's a little ironic you cited the fact that your financial obligations play a large part in preventing you from leading the life you want to be leading(and your still in your 20s)? You think that those obligations lessen into your 30s and 40s?

Saving as much as you can in your early 20s is ideal because even for people "without goals" by the time you near 30 theres alot of unexpected expenses and financial obligations. It's simply the power of compounding, the more you save to invest early on, the less and less you have to contribute later to achieve that snowball effect.

I absolutely agree with you when it comes to health though, it should be the number one priority and there should be no expenses spared when it comes to that.

[Marioo1991]

Originally Posted by mo_bettah

Get your head out your ass, you think this is well said but you failed me for saying




Some good logic there son.

there's a difference between "save as much as you can", and "start early"

"save as much as you can" - I can save over 90% of my income if I dont go out, move back to my parents place, not buy any clothes, eat KD all the time, etc but I would be miserable and wouldnt enjoy my life

I believe you should "start early" by planning your finances so you're in a good position to take advantage of RRSPs, etc