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This article was published 20/4/2012 (1556 days ago), so information in it may no longer be current.
Usually the term "double income, no kids" refers to an upwardly mobile, early-30s couple. But it also applies to Fannie.
The health-care professional works full time during the day, earning about $83,000 a year, netting $3,978 a month.
Then she works part time, also in health care, netting from $780 to $2,000 a month.
Just 28 years old, Fannie has a lot of life ahead of her. She'd like to get married, have kids and maybe retire between 55 and 60.
She loves to travel, spending about $4,000 a year. And she is a saver, having stashed away $20,000 in a TFSA since last summer when she started her full-time job.
"I'm looking to buy a home, which is part of the reason for doing this makeover," she says, adding she'd prefer a new home because she's not handy.
Fannie wants to have an idea of how much she can afford for a mortgage, and plans to buy a home next year. By then, she expects to have saved about $50,000 for a down payment.
"What I know is that I don't want to be house poor."
Fannie says she wants to maintain her current lifestyle, which includes spending about $350 a month on dinners out and $200 a month on clothing. And she wants to save for the future.
"Should I be investing in something?" she asks. "I would like a long-term strategy for saving."
Certified financial planner James Kirk says Fannie is a financial planner's dream client, because not only does she earn a healthy income -- always a good thing -- but she is a saver.
When creating a plan, these factors provide her with a lot of leeway, says the planner, with Sweatman Insurance and Retirement Services in Winnipeg. Financial wiggle room is a good thing for a single-income earner seeking a new home in an inflated real estate market.
Fannie could probably qualify for a monthly mortgage payment of more than $2,500, but Kirk says it's much better if she is conservative in her borrowing, looking for a mortgage of about $250,000.
That said, finding a new home in Winnipeg for $300,000 is a challenge. The average price of a new home is about $400,000.
She might be better off buying an older home that needs a little work. Even though she's not handy, she could use money she saves on the purchase of a less costly home to pay for renovations.
Kirk says with a five-year fixed mortgage at a five per cent interest rate, her monthly payment for a $250,000 mortgage would be about $1,640 with a 20-year amortization. She could certainly find a lower rate, but five per cent is a good baseline to plan future costs of owning a home.
Fannie could also easily afford a larger mortgage -- about $350,000, which would cost her about $2,000 in payments a month -- but she may want to wait longer to save for a larger down payment. And she would likely be looking at a 25-year amortization.
Considering she is single and looking to buy her first home, however, something more modest -- and older -- would give her more flexibility in her budget.
For example, with a $1,640 mortgage payment, she could also save about $650 a month to maximize her RRSP while contributing the remaining amount to a TFSA. By about the time she retires, she'd have more than $480,000 in savings, based on a five per cent annual return.
With her mortgage, the increased costs associated with home ownership (property taxes, maintenance, home insurance, and higher utilities costs) and the RRSP and TFSA contributions, her monthly costs would be about $4,571. Her current monthly expenses are about $2,440.
Her full-time and part-time incomes combined are about $4,758, leaving her with some additional cash flow every month. But Kirk only included the minimum earnings from her second job -- $780 a month -- in the calculation, so it's likely she will have more cash to spare.
"Any money she earns from her part-time job over that amount could be used to pay off the mortgage faster, for retirement savings or an emergency fund."
But if Fannie is set on buying a new home with a larger mortgage, she could reduce her monthly savings contributions and instead contribute to her RRSP and TFSA using additional money from her part-time job.
For instance, she could afford a $400,000 mortgage, making weekly payments of about $580 with about a 21-year amortization.
This scenario would likely leave her with much less for savings. But she will still have her work pension, about $4,600 a month if she retires at age 55.
Regarding how to invest her free cash flow for the long term, Kirk says Fannie should consider a strategy slanted toward equities. Right now, her $2,000 RRSP, a contribution made for tax purposes, is invested in a GIC.
"At her age for an RRSP or TFSA, I would suggest about 75 per cent equities and 25 per cent fixed income," he says. As she ages, Fannie can then adjust the allocation to reflect her age so, for example, her portfolio might be 60 per cent invested in the stock market and 40 per cent invested in bonds when she reaches age 40.
Until she builds up enough capital, about $100,000, she is best off investing in mutual funds, which can diversify her money at a relatively low cost.
She should look for low-fee mutual funds with a good track record, which a financial adviser should be able to help her find. Online websites such as Morningstar.ca also offer data on mutual-fund performance.
Kirk says Fannie doesn't need to be ultra-conservative with her investments nor does she need to be highly aggressive. She can take a balanced approach that focuses on established companies that pay a dividend, because by the time she retires, her RRSP and TFSA will likely be icing on the cake, as her work pension will make up the bulk of her wealth.
On top of that, she's young and has great savings habits.
"Wow! At 28, with that capacity to save, she has a great future."