Lifestyle | The chance to regain control financially

Even if we have already multiplied the bad financial choices, it is possible to take control. And sometimes life gives good opportunities to improve one’s lot. Just enter them.

Martine Letarte
special collaboration

The situation

Nadine* didn’t have the chance to learn good habits for managing her personal finances when she was young. “My parents always struggled to make ends meet and saving was not part of our vocabulary at home,” she says. I started working very young, but I didn’t know how to manage my income. »

From university, she got into debt by multiplying credit cards, by getting a “huge” student loan, by taking out high-interest personal loans, etc. At 40, she made a consumer proposal. “I got out of it, I am now more disciplined in the management of my finances and I even manage to save. »

Nadine has worked as a healthcare professional for 22 years and contributes to the Government and Public Employees Retirement Plan (RREGOP). She got a raise this year, retroactive income of more than $34,000 as a result of union negotiations under the Pay Equity Actin addition to bonuses related to COVID-19.

Nadine is the mother of a young adult who has just moved into an apartment and a teenager who will be 16 in the fall. She would like to contribute to the Registered Education Savings Plan (RESP) for him, but wonders if it’s too late. She also plans to help her daughter pay for her master’s degree, which she will begin in September.

In three years, she wants to buy a triplex in Montreal worth about 1 million in which she wants to live to have access to a courtyard. His daughter would own 25% and his son could also buy 25% of the building when he could afford it. “I wonder if this is a realistic project. »

The answer

After having lived through more difficult years financially, several possibilities are available to Nadine. “She has made great efforts to straighten out her finances and with her budgetary rigor, she is on the right track,” says Julie Paquin, financial planner and vice-president, private management, at Optimum Gestion de Placements.

On the other hand, for the RESP, it is too late for Nadine. “She should have contributed in her case at least $2,000 last year, because to receive the basic government grants of 30%, the child must be 15 years old on December 31 of the year of the contribution” , says Julie Paquin.

Reduce your taxable income

As Nadine’s taxable income has jumped this year due to her salary increase and retroactive pay equity payment of over $34,000, her marginal tax rate will increase from 37.12% to 47.46%. , according to Julie Paquin.

The financial planner also suggests that she increase her automatic payments to $185 in her RRSP for the next two years. “Then, she can add this amount to her TFSA contributions,” she says. This will allow him to take advantage of his unused rights in his RRSP and continue to save for the down payment in order to become a homeowner. »

Maximize the TFSA

To achieve her goals, Nadine also has an interest in setting up an automatic payment every two weeks in her TFSA.

“I advise him to transfer $200 every two weeks,” says Julie Paquin. The TFSA is attractive because returns and withdrawals are not taxable. »

She also advises Nadine to keep part of her TFSA as an emergency fund, the equivalent of about three months of expenses. “A financial cushion gives you peace of mind,” says the financial planner. However, several factors can influence the amount needed, such as the details of his disability insurance. It must also invest this sum in safe and flexible investments in order to be able to withdraw sums if necessary. »

Evaluate the feasibility of the triplex project

For the question of the triplex, Nadine and her daughter will have to go see their financial institution to assess their borrowing capacity and get prequalified for a certain sum. “This will be a good indicator of the realism of the project,” says Julie Paquin.

For a $1 million building, a 20% down payment is required if you want to avoid paying the mortgage loan insurance premium from the Canada Mortgage and Housing Corporation (CMHC). “We are therefore talking about $200,000 in down payment and $4,652 in mortgage payments per month with a simulated interest rate of 5%, assesses Julie Paquin. Nadine could also opt for the minimum down payment for a triplex which is 10%, but she would then have to pay the CMHC premium and, of course, a lower down payment means having to borrow a larger sum, and therefore more installments. higher mortgages. »

According to the savings scenario proposed by the financial planner, Nadine will have nearly $33,000 in TFSAs in 2026 and she will be able to take advantage of the Home Buyers’ Plan (HBP) by withdrawing the maximum allowed in her RRSP, i.e. $35,000.

While buying an income property can be attractive, it also comes with a lot of responsibilities to consider. “According to the retirement analysis carried out, Nadine will be able to retire at age 60 without buying property with a cost of living of $44,000,” says Julie Paquin. Nadine could also decide to delay the purchase of the triplex, or to look at other options, such as buying a condo with a courtyard. One thing is certain, it is important that she be accompanied by experts in real estate and personal finance to make the best choices and maintain her budgetary rigor. »

*Although the case highlighted in this section is real, the first name used is fictitious.