Rent vs. Buy - the ultimate debate

In cities such as Victoria, BC, buying a place to live requires a large amount of cash (via the lottery, generous parents or equity in your previous home) and the stomach for a very large mortgage. Some say that housing prices are completely overvalued and some cities are severely unaffordable to live in (like Vancouver) and it sure seems that way in this town. Speaking with a mortgage broker is the best way to determine whether you can even qualify to be a homeowner but if they show you how you can squeak into the market, you may want a second opinion. Calculators such as Renting vs. Buying a Home are quite popular with owners and renters to see if you should be in the others' shoes. It shows your total costs between buying (mortgage + expenses) and renting. It assumes you invest the difference between your rent and mortgage...if you don't have the money to invest, then you probably don't have the money to buy. *Make sure you don't check the Federal tax boxes - in Canada there is no capital gains tax on the sale of your principle residence and the mortgage interest is not deductible. The government provides handy calculators as well.

"Shall I rent or shall I buy?" is a hot question these days as housing prices continue to climb (I've been hearing talk of a bubble burst for a while...I have yet to see it, but when I do, my cash will be ready!) and rent seems to be fairly stable (and affordable).

Ben Rabidoux, financial adviser, real estate expert and author of the website The Economic Analyst (www.TheEconomicAnalyst.com) says it best: "The reality is that the majority of new home 'owners' are still renters; they've just gone from renting space to renting money."

RDSPs

A registered disability savings plan can help parents of a child with a disability save for care of their child in the future.

Read More

TFSAs

Tax-Free Savings Accounts (TFSAs) were introduced starting January 2009 by the Canadian government to help Canadians save more.

Read More

RESPs

A Registered Education Savings Plan is similar to an RRSP in that it uses "registered" savings to tax-defer the growth in the plan. An RESP is often used for children to save for their post-secondary education, but can be used for anyone planning to attend a qualifying program.

For children's RESPs, the governement also contributes between 20-40% (to a maximum) through the Canada Education Savings Grant (CESG). As with the RRSP, the earlier you open an RESP, the longer your savings have to grow.

While it's not crucial that you use an RESP to save for education costs, it is important to plan how and who will be covering the cost. As The Globe and Mail shows, the cost of a post-secondary degree is climbing and with inflation, it's a whopping big number.

For more information, visit:
Government of Canada Guide to RESPs

RRSPs

A Registered Retirement Savings Plan (RRSP) is a tax-sheltered vehicle designed to save for retirement. You or your spouse (or common-law partner) can contribute to your RRSP each year up to a maximum of 18% of your earned income or $20,000 (2008) - whichever is less. Any savings in your RRSP is allowed to grow, without taxation, until the money is withdrawn. As of 2007, you can contribute to your RRSP until December 31st of the year you turn 71.

Setting up an RRSP is easy and we can help you do it. You can even set up a monthly transfer to your RRSP, such as $50 per month. Once your RRSP is established, you need to decide what investments you want. Common investments include mutual funds, segregated funds, stocks, bonds and GICs.

For more information, visit: Canada Revenue Agency Guide to RRSPs

Turning 30

It’s time to get serious and have a plan, folks!

This month I celebrated the big 3-0. Like your sweet sixteen, turning 25, turning 4-0 or 5-0 (over the hill?), turning 30 is a major milestone. Unlike turning 16 (have I been kissed yet?) or 25 (do I have a job?), 30 brought on a host of other reflections. Bad memories of grade 12 came flooding back: I had imagined my life 10 years in the future (to my age 27) and saw it on a tree-lined street in Oak Bay, two BMWs in the driveway and a couple kids, adorable like my husband and our puppy. I can assure you that my life on my 30th birthday did not resemble that vision at all. Sparing you the details, the reality is that I live in Victoria –the most beautiful and least affordable city my parents encouraged me to come back to after jetting around the world (oh, so that’s what I was doing in my 20s instead of fulfilling my vision). I don’t regret anything I’ve done up to this point although I could have done some things differently for sure.
Others have given advice when faced with the same conundrum: I’ve turned 30…what do I do? Such as “Consider your car nothing but the rapidly depreciating lifestyle appliance it is.”

Here are some things I would recommend to help meet your vision:
Teen years:

  • Get a part-time job (full-time in the summer) and pay for as much university/college/tradeschool tuition as possible.
  • At age 18, start contributing to an RRSP (tax-wise, it doesn’t matter but getting in the habit does). If you need every penny for school in the next year, contribute to a TSFA.
  • Go to school as soon as you’re ready (this may not be age 18); have the money available. You can borrow up to $20,000 from your RRSP to pay for school.

Twenties:

  • Go to school to learn a skill, not just for the letters after your name.
  • Get a credit card ($500 limit) and pay it off in full every month.
  • If you have the means, buy real estate (this is much easier if you’ve been saving since age 18…you can borrow up to $25,000 from your RRSP as a first-time homebuyer).
  • Travel: this doesn’t need to be extravagant but the act of saving for this goal is important (so is the reward!).
  • Maintain a good credit rating: get a credit card (and pay it in full), pay your bills (even if you really dislike your cell phone provider), don’t apply for credit cards at events just for the free stuff (multiple hits affect your score), don’t go over your limit.
  • Look into permanent life insurance and health insurance and buy what you can afford.

Thirties (time to do the stuff you should have done 5 years ago):

  • Buy or upgrade your home
  • Buy life/health insurance
  • Pay off your debts by setting up automatic payments
  • Make a plan for saving for retirement
  • When you have kids, set up savings plans for them (hint, hint gradparents!)

It’s never too late to start! I am thankful to live in this wonderful city surrounded by family and friends with a roof over my head and a career I love. Here’s to my 1st anniversary of my 29th birthday!