When you’re young, earning a good salary and have a host of projects in mind, you need to make a game plan to make informed decisions. But where to turn?
The situation
Guillaume*, 33, has a salary in the six figures with a pension fund from his employer. He bought a condominium three years ago that has already gone up to around $50,000 in value. For the down payment, he used the Home Buyers’ Plan (HBP).
He now has other projects in mind. For example, he thinks of buying a more spacious residence. But he wonders if he has enough cash to keep his condo and rent it out, or if he should sell it in order to have a bigger down payment for his next residence. He also wants to buy a new vehicle. He doesn’t know if he should finance it by remortgaging his condo, taking out a high-interest loan from the dealership, or dipping into his savings.
“Right now, I have several tens of thousands of dollars sitting in a high interest account, but not really growing,” he says. I wonder if I should invest that money elsewhere. I imagine that will depend on the decisions I make regarding my projects. But I don’t know which specialist to turn to to see more clearly. »
I had very bad experiences at my financial institution, where the person looking after me constantly changed and never answered my questions. Besides, I don’t even know how these people are trained. I don’t trust them to plan my future.
William, 33 years old
The answer
PHOTO MARTIN CHAMBERLAND, LA PRESSE ARCHIVES
André Lacasse, financial planner and financial security advisor at Services financiers Lacasse
Guillaume wonders about several elements, including his financial capacity, the types of loans and the types of investments he could choose. A first step would be to go see a financial planner since he will be able to paint an overall picture of his situation. These professionals look at seven areas: finance, taxation, investments, retirement, succession, legal aspects, as well as insurance and risk management.
“The financial planner will make him a retirement plan to see if his pension fund will give him enough money or if he should save more, then he will assess his income and expenses and help him prioritize his plans. says André Lacasse, financial planner and financial security advisor at Services financiers Lacasse.
Often, the financial planner accumulates different titles, as is the case with André Lacasse, who is also a mutual fund representative attached to PEAK Investment Services Inc., which means that he can also offer mutual funds and exchange-traded funds. But if necessary, the financial planner could recommend that Guillaume meet with other professionals, such as a mortgage broker. To help you find your way around, the Autorité des marchés financiers keeps an online register of individuals authorized to carry out the various activities related to the advice or sale of financial products.
“Guillaume can ask his financial institution to meet with a financial planner, or go to a self-employed worker,” specifies André Lacasse. It is true that in a financial institution, there is generally movement in the personnel, in particular when an adviser obtains a promotion, then the customers are often reallocated between colleagues. Before choosing your financial planner, regardless of their business model, ask them what service you can expect in the long term. »
Renting the condo: a good idea?
Once Guillaume has his overall portrait, he can see if he can keep his condo and rent it out when he buys a more spacious property. To achieve this, he will have to determine the price range of the property he wishes to purchase. The down payment will be very different if we are talking about a $500,000 property or a $1 million one.
If Guillaume can afford to keep the condo to rent it, it could be a good idea from a financial point of view, believes André Lacasse. “Property values have always gone up over the long term,” he says.
But, Guillaume still has to want to take care of it, for example if a tap runs or if a tenant does not pay. It would also be necessary to ensure that he keeps an emergency fund in case there is ever a problem with the rental condo.
André Lacasse, financial planner and financial security advisor at Services financiers Lacasse
Borrow to buy a vehicle?
The purchase of the new vehicle also comes with some questions. Are we talking about a $35,000 or $65,000 vehicle? “I definitely wouldn’t advise him to remortgage his condo to buy a vehicle, because that would mean he would be paying for it for 20 years,” says André Lacasse. He wouldn’t even have the vehicle anymore, but he would still pay for it! »
If the vehicle is a priority and his residential project is not taking all of his savings, the financial planner would advise him to consider dipping into his high-interest account to purchase it.
It’s better to use your savings than to go into debt to buy a vehicle. If he does not have all the necessary funds, he can also shop for a small loan, for example over two years.
André Lacasse, financial planner and financial security advisor at Services financiers Lacasse
Which investments to choose?
Once he has put his priorities in order, Guillaume will be able to choose suitable investments. “If he has to invest money for his retirement in an RRSP, he could probably go for a growth portfolio, since he’s young and he won’t withdraw these sums for 30 years,” explains André Lacasse. So, if the markets go down as they are now, they will have time to go up. »
On the other hand, it is different for his savings in his high interest account since he thinks of withdrawing them in the short term to carry out his projects. “I would recommend that he not put them at risk or freeze them,” says the financial planner. His options for the short term are more limited. He could leave his savings there, or if it’s more advantageous, go to Épargne Placements Québec, which offers the Épargne Flexi-Plus high-interest account with a current rate of 3.25%. And I would advise him to save this amount in a TFSA to avoid being taxed on the interest. »
Thus, all the decisions that Guillaume will have to make will depend on the priorities that he will establish. “That’s why I advise him to choose someone qualified to make a plan with him that will allow him to see clearly,” says André Lacasse. And, of course, someone he trusts. »
* Although the case highlighted in this section is real, the first name used is fictitious.