Mrs. J, a subscriber of MDJ, has emailed me with a load of questions on how to get started with her finances. I sometimes forget that a lot of my readers are just starting out where a lot of my writing is geared towards intermediate/advanced topics. Not today though, back to the basics for the personal finance babe in the woods.
Here is some information about Mrs. J (and her husband):
- We are both 38
- Family income is $72k
- We live in NT
- We have 3 children
Here are some of her questions
- Should we continue renting or buy a house?
- Why would I need an RRSP AND a savings account?
- What books would you recommend that I read? Is Rich Dad Poor Dad Recommended?
If you haven’t done so already, I would suggest that you start an “emergency fund” because you never know what can come up. How much? Some suggest to have around 3-12 months worth of expenses. Personally, I keep enough in my savings account to cover the worst case scenario accounting for insurance/EI benefits etc. Alternatively, you could get a line of credit as your emergency fund.
Once you have a “cushion” to work with, you and your husband should consider getting aggressive with your retirement savings. As your husband is in a higher tax bracket (for NT), he should start his RRSP. For every dollar that he puts into his RRSP, he’ll get around 34% of it back when tax refunds come around. On top of that, with a large discrepancy between your incomes, you should consider Spousal RRSP’s which will allow you to income split when you both retire. When you do get to contributing to your RRSP’s, look into investing in low MER INDEX funds/ETF’s.
As to the question regarding renting vs owning, that is a question with many opinions. It really depends on your situation and where you live. Are the prices of houses in your area ridiculously high? Would the mortgage payments be significantly higher than the rent that you’re paying now? If so, it makes sense to rent. For example, in Vancouver, the difference between mortgage and rent payments is substantial thus the reason why even people with high incomes rent there. If house prices are crazy high in your area, I’m a believer in the rent low and invest the rest.
In terms of which books to get started, my favorite beginner book is “The Wealthy Barber“. Rich Dad Poor Dad is also good book to read to get you started. It’s not a “how to” book, but a book to help you get in the frame of mind of how a wealthy person thinks. Another great Canadian read is: Spend Smarter, Save Bigger.
When it comes down to it, it really depends on what your financial goals are for the future. Does your husband want to retire when he’s 65 or earlier? At what income? It all boils down to one mantra, and that is to live below your means.
So, as per the regular routine, I’m going to pass the buck to you, the reader. What advice would you give Mrs. J to get started?
Note that i’m not a financial advisor so please consult a financial professional before using any of the info given in this article.
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