By Dominique Lamy
Geneviève, a 37-year-old single parent, wants to become an owner. She, therefore, saves accordingly, and her example may inspire you!
Geneviève, a 37-year-old single parent – ​​she has a 12-year-old daughter – wants to buy a property. Self-employed since 2011, she is now doubling her efforts to build up enough savings to reach her goal. Some of his habits might inspire you!
Geneviève has practically no debts. She has been living with her parents for a few years while waiting to buy the house she covets, valued at $169,000. “I will be solely responsible for the costs associated with buying the house and paying off my mortgage, so it’s a big decision,” she says.
The main lines
Gross annual income before expenses (2015): $34,000
Annual business expenses: $4,000
TFSA: $7,800
Savings account: $2,150
A savings planning model
Geneviève is convinced of the importance of saving, and it has become a habit for her! She automatically transfers $50 to her TFSA and $25 to her savings account each week. “I also put my change and $5 bills in a piggy bank to force myself to save more,” she explains.
In addition, she has recently been contributing $10 per week to an RRSP: on an annual basis, this represents an additional $520, and she could therefore consider taking advantage of the Home Buyers’ Plan (HBP) at the time of the purchase in question. “I don’t quite understand what that means yet,” she admits. And some of my relatives tell me that a TFSA is more profitable than an RRSP. So I’m going to seek advice on that. “.
A modest budget
At the moment, his expenses are not very high. She benefits from “all-inclusive” with her parents for a monthly rent of $500. She doesn’t drink alcohol…but she smokes – “It’s a budgeted expense!” And I hope to stop soon…” she said. “I could also surely save money by going to the hairdresser less often,” she adds with a laugh. Moreover, her self-employed status obliges her to bear the cost of the days not worked herself: “So, if necessary, I’m ready to put a cross on my next vacation to have a greater margin of manoeuvre. »
When asked about her shopping habits (impulse purchases are often one of the main obstacles to saving!), Geneviève doesn’t back down. “I like buying clothes, for myself but also my daughter. I sometimes use my credit card for more or less necessary expenses, but I always pay off the balance in full when I receive my account,” she says.
A three-point action plan
“I think Geneviève will be able to buy her house in September 2016,” says Maud Salomon, mutual fund dealer representative at Mica Capital. Ms Salomon also offered him a three-point action plan.
Obtain an RRSP loan of $2,500 for one year at the rate of 3.50%. Geneviève will therefore have a repayment of $212 to make each month, but this will roughly correspond to her current weekly TFSA payment of $50.
Transfer $1,500 from TFSA to RRSP.
Transfer the amount currently in their savings account to their TFSA.
“The tax refund associated with RRSP contributions will be approximately $1,280 and will have to be paid into his TFSA,” says Salomon.
Geneviève has thus calculated, with the advisor consulted, that when she buys her house, she will have about $14,700 in liquid assets, including $4,000 that will come from her RRSP, since she will benefit from the HBP. However, all the estimated costs related to the house purchase, if we include the minimum down payment required of 5%, will total $12,250.
Once you own…
So, when Geneviève buys her house, she will have about $2,500 left: this is important because buying a home often entails unforeseen expenses. True to form, she will have to be disciplined. The TFSA will serve as a financial cushion in case of need.
For the next 12 months, Geneviève will have to repay her RRSP loan instead of paying the usual amount into her TFSA. Starting in 2019, she will also have to repay the amount borrowed from her RRSP under the HBP, at the rate of approximately $267 per year, for 15 years.
But Geneviève thinks that with a few financial gymnastics and continuing to be disciplined, she will be able to maintain some of her current saving habits after buying her house: “In my budget, saving is not an optional post! “she says. To grow her nest egg, Maud Salomon suggests that she maximize her RRSP contributions and pay as much as possible into her TFSA of the annual tax refund to which she will be entitled.
