Newbie**sold house, have $150,000 cash. Now what? | Page 2 | General financial discussion | Discussion forum

Great points, Loonie. As far as priorities go, disability and life insurance are important considerations but given the looming period of (hopefully) short-term unemployment, I'd put this on the "back burner" for now and revisit it later, ideally with some sort of term life insurance. Stay away from "whole life insurance," where the insurance agent often earns a generous commission and the "cash surrender value" is often paltry compared to the premiums paid. My grandma has one that she is paying the premiums on just so as to get something out when she passes away (it's a $25,000 policy) but she's paying into it for a couple decades, at least, and if she stops now, I think she'd only get like $2000-3000. 😉

Not sure I heard johnny mention rental properties but I'm also not enthusiastic about this - there are realtor commissions, closing costs (i.e., legal fees or discharge fees) and any money you spend in renovations, unless you're "flipping" the house right away, is just "dead money" as by the time you sell it, it'll need a renovation again to "boost" its perceived fair market value. It's also "putting too many 'eggs' into one basket" by, essentially, having an undiversified portfolio. Unless you use a property management company, which will take a minimum of 10% right off the top each month besides other property expenses and mortgage interest, you're subject to "bad tenant risk". I'd recommend checking out the local library and picking up a copy of Alex Avery's book, "The Wealthy Renter" in which he delves into all of those issues and more. I haven't read it yet but I plan to!

I also didn't hear him say he has an interest-free loan on his truck but if he did, I agree with Loonie. A vehicle is mode of transportation - to get from point A to point B. Unless you're Jay Leno with a luxury car collection that appreciates in value, it will depreciate rapidly. If it's an interest-free loan from a family member, that's fine but if it's not, I'd pay that off first but I wouldn't necessarily put a large chunk of cash on the mortgage either - your loan-to-value ratio is reasonable. Where you are lacking is definitely in long-term retirement savings.

You could park your savings in a TFSA but keep track of your contributions as when you withdraw it when you're working later (don't transfer it out, to avoid any "transfer out fee" charged by the "leaving FI"), you know how much you can re-contribute the following year into a diversified portfolio of ETFs, for which I'm reluctant to give you a specific asset allocation as I don't yet know your tolerance for risk, what your personal & financial circumstances will be when you and/or your spouse resume working but I hope that the questions I've given you are helpful and, when you're in a better position vis-a-vis income security, I'd be in a better position to give you some help on asset allocation. However, asset allocation is probably the most important investing decision one has to make, especially when investing in ETFs or funds that track market indices as there are no opportunities to try and "outperform" so all I'd want to do is give you as much information as I can or steer you to a professional, ideally, portfolio manager who can assist you in making that decision or help you to make the decision on your own. 🙂

For the model portfolios, basically, you can use this link (http://www.canadianportfolioma.....ortfolios/) and, if you think interest rates are going to rise in the next 5-10 years, I'd go with the "short-term bonds" option at the top otherwise if you think interest rates, broadly speaking, will stay flat to decline (from their low 0.50% base in Canada) in the next 10 years, you might want to consider the "broad market bonds" option below. In terms of "riskiness" of the portfolios, generally speaking, if you go "left to right," with the left most one generally bearing the lowest volatility and being more 'sleep at night' and working your way right until you find the portfolio you can be comfortable with. That's really broad strokes though and I would caution against making any investment decision based on this alone. 🙂

Cheers,
Doug

jonny5oh said
So on my closing day, my lawyer will deposit near 150g in my CIBC bank account...
So I assume from reading my first plan should be Alterna...but which?
They have 3 savings accounts?
-No Fee eChequing Account <<which looks like a normal bank account?
-High Interest Esavings account paying 1.95% and appears to work the same as a regular bank account?
-TFSA esavings account, pay 1.95% but I have no idea how it works?!

So get the money out of the CIBC right away into Alterna? But which?  

Those are all great options. Alterna does have branches that their Credit Union and Bank customers can utilize but not for those accounts, day-to-day transaction-wise, though they should be able to assist with things like updating your address, opening additional products, verifying your ID (if needed), etc. For transfers between CIBC and Alterna Bank, basically, there's a Me-to-Me Transfer Authorization Form on Alterna's website. Fill it out including your CIBC chequing or savings account information. If you have CIBC cheques, use one of them and send it in with your initial deposit cheque along with the completed form and that'll both verify your identity (along with a credit report that they'll pull) and link the account for you to transfer funds to/from CIBC, subject to Alterna's daily/weekly limits, from Alterna's online banking. You can also link your Alterna Bank account on the CIBC end, I'm sure, but I'm not sure what their process is - look and see if they have a "bank-to-bank transfer option" and what their setup process is. If you want to directly link your Alterna eSavings account so you don't need to transfer the funds to the Alterna eChequing account first and if CIBC requires a stamped Account Verification Form, Alterna should be able to mail one out to you (or scan+e-mail it) if you call them or visit a branch. Likewise, if you have a CIBC savings account, you can ask any CIBC CSR for a bank-stamped Account Verification Form in place of the VOID cheque. 🙂

To get around "transfer limits," if you don't mind using up one of your cheques and the funds are in your CIBC chequing account, write a cheque payable to yourself or to your wife and deposit it into your joint Alterna Bank eChequing or eSavings account, as applicable, at any Exchange Network ATM, which includes most credit unions in Canada, HSBC Bank Canada, National Bank of Canada or Alterna Bank, among others. It can then be for any amount in one shot. 🙂

Transfer time wise - let's say you initiate a transfer before 6 pm Eastern time on a business day (Monday through Friday) from within Alterna or CIBC online banking, with Alterna, you should see the funds in your account straight away, subject to a standard 5 business day hold period and your "access to deposited funds limit" (see Alterna Bank for what that limit is), and the debit to your CIBC account should be processed on the next business day (or 2 business days at the latest). Add 1 extra day if you do things after cut-off time on a business day or on a Sunday (2 days if done on a Saturday). 🙂

For simplicity's sake, because of the TFSA contribution+withdrawal rules and the fact this is short-term savings, for now, as well as the fact you'll be in the lowest tax bracket when you leave your job, I'd probably just park the funds in a non-registered account as I don't want to see you make a mistake when it comes time to withdraw it, say, next year, and you might actually have to wait until 2019 to re-contribute the funds (because of the rules).

If you open the Alterna Bank eChequing account, you might even be able to ditch your CIBC account entirely if you don't need a branch often as you could have them even take your mortgage payments from your Alterna Bank eChequing account (they'll love you for that! *sarcasm*) and ditch those pesky monthyl fees but I might wait until you get all your payroll deposits switched over. Something to think about anyway.

As far as your wife's child support income, is this manually or direct deposited? Keep in mind if a payment is missed, that could affect your cash flow to some degree. What are your mortgage payments? Does her small income cover the mortgage payments + annual property taxes and the utilities? If so, you may only need to dip into your "savings" or low rate line of credit for essential food and may not go too far "behind the eight ball," so to speak. 😉

Hope that helps,
Doug

I want to summarize what I consider to be the salient points of your situation:

You are 43, married, with some degree of responsibility for 2 children.
Wife does not have a paid job but has income of about 1500/mo.
You will net 150K cash after house purchase, which looks like a lot of money to you.
You have a mortgage of 189K at 2.64 (term, amortization and pay-down options not stated) and an unspecified vehicle debt for a new truck. You have various other kinds of vehicles, paid for but must be insured and maintained.
You have no savings, line of credit, credit card debt, life insurance(?), and will be unable to get disability insurance once you stop working.
You have no experience with the world of investing etc.
Your goals are to stop working for almost a year, to renovate your kitchen, take 2 family vacations, wife continues to not seek outside employment, using about 50K of your 150K for expenses before returning to work as you are inclined to "'use the money now' sorta thing and just have the small payment for a mortgage".
You ability to get another suitable job after a year is unclear.

My diagnosis is very clear. You are in debt (it doesn't matter whether you are paying interest on that truck or what kind of a great deal you may have got; you owe money on a depreciating asset). You have responsibilities - a mortgage, a family, and an obligation to yourself for your own future solvency and retirement.

I agree with most of what Doug has said as generic advice, but I can't apply it to someone in your circumstances. Your financial situation is marginal, despite how nice it feels to have gotten rid of your credit card debts etc. You are not as young as some people think. Another year, not working, and you'll be 44. Pretty soon you'll be officially middle-aged.

Just taking a year off is not a plan. How will you use that year to enhance your future value as a human being? One rule of thumb which hasn't been mentioned yet is "invest in yourself". You have very little in the way of a safety net. Your net worth (assets minus debts) is low - I'm guessing around 160K. Some of those assets will deteriorate in value over the next year, and you intend to spend a significant amount of your money on living expenses, vacations, reno, during the next year. I would estimate that after a year you will have net worth of roughly 100K and will still be carrying a mortgage that is almost as big as it is now and also fixed payments due on the vehicle. You will not have any disability or life insurance to fall back on. This ought to be a big red flag.

What happens if you have an accident (especially one of your own making - you fall and slip on the ice and crack your head open, for example) or get cancer or run into some other unforeseen circumstance? Think about it! How will your family meet its financial obligations for the rest of your and your wife's lives? This is a primary responsibility. If you run into trouble, you will be thanking your lucky stars if your mortgage is paid down.

Those of us who are of a certain age are often more conservative about such plans. When we were younger, a great many of us had our mortgages paid off at your age and also had money in the bank in RSPs or savings. When there was the inevitable downturn in the economy, we could handle it. There has been a huge attitude shift, which is reflected both in individual decision-making and in the attitude of bankers who seem to think it's just fine to carry debt more or less indefinitely as long as they are making money off it and you are paying for it.

Your inclination to "use the money now" is putting you at risk. I think you set things up with this in mind when you decided to only put down the minimum to avoid CMHC. So you don't want to hear that this might not be the best thing. You are attracted to Doug's plans because they allow you to make this your priority, but they will not provide the safety you and your family need over the next year.

You don't say what your monthly mortgage payments are but I am guessing about 1000/mo. + taxes and utilities, then there's the truck, perhaps 600/mo. Then there's insurance on the house, life insurance (which you need as your wife doesn't have an outside job), insurance on your various vehicles, maintenance on house and vehicles, food and entertainment, vacations, entertainment, telecommunications, Christmas, etc etc. before you even consider renovations (which always cost more than anticipated). And you plan to finance all of this for a year from your wife's child support and the money you are about to receive, leaving you with less money and not much debt improvement at the end of a year? You may invest as Doug suggests and you may make some money there, but, then again, you may not, as these are long term strategies and you could easily lose in the short term. You can't afford a loss in the short term. If you end up having to use a line of credit as a result, it will definitely cost you, especially if unsecured, which it will be as you are already maxed out on mortgage.

At your stage of life, you should, if anything, be increasing your net worth, not depleting it. You are almost into what are usually considered to be people's highest earning potential years. Don't miss out on them. This is the time for wealth consolidation and accumulation, not depletion.

It's fine to invest in stocks or ETFs when you can afford to take the risks that they inevitably bring, if that's what you understand and believe in. But these are longer-term investments, and you don't understand any of them enough to believe in them or not or to know which way the wind blows in terms of interest rates (clue: nobody knows). They may not pay off for 10 or 20 years as nobody can predict the future, and even less so in the short term. You can't afford that kind of risk right now as you don't have enough cushion or protection.

So, although you don't want to hear this, you need to look after practical considerations first. You have almost nothing to protect you against a seriously rainy day. Pay down the mortgage, get a job of some kind or enrol in a course or do something else which will improve your employability, don't allow yourself to loaf for a year as this can be a hard habit to break and can lead to marital problems, and is especially problematic when a prospective employer asks you to account for that year, and buy life insurance (term, as Doug suggested). Keep the CIBC account but put most of the money that remains after you pay down the mortgage into Alterna in joint account . It doesn't sound like you'll be paying any income tax, so the tax shelter of TFSAs doesn't really matter right now (I've revised my opinion on that - I previously thought TFSA would be a good idea. Save it for when you're working again.)

And use this time off to educate yourself on money. You might start with something by Gail Van Oxlade (she writes advice on planning, dealing with debt etc.), Gordon Pape's book on TFSAs (Tax Free Savings Accounts - get the second edition, 2013), Fight Back by Ellen Roseman (on how to be a savvy financial consumer) and, after you've read the others, The Wealthy Barber Returns for a good start on your future investment planning.

One other thought. Can you get a leave of absence from your employer, rather than just quitting the job? This would give you another possible safety net. Even a few months would be long enough to get your head around some of these ideas. You can still quit later if that's what you want.

I have to totally disagree with Jon on Indian and gold investments. These may bear great fruit, who knows, but they are not for the novice with little money to spare. Too much risk. And there are more alternatives and complications than simply inflation or Trump success for the future. Gold has been in the doldrums for about 20 years as I recall though; might be due for a spike. It may be a suitable investment for Jon but it is not for you at this time.

I probably won't comment further unless something new comes up in this thread. I kind of think you have already made up your mind so I won't spend any more energy trying to dissuade you.

Good luck!

Yes, that's fair. I won't get into responding to the details as a great deal has been posted and it's getting confusing.
Cost of house 238K, I believe; down payment 59,500: 25%
In general, I think I was referring to your first post, and extensive talk about investments which I would consider premature, but did not read all the details.
Agree with the austerity budget. Gail may help with that. Fits with my thoughts about a part time job. Goal is to try to preserve capital over the year although will likely still lose to inflation - 2% last month is 3K on 150K.

Why would you prefer to pay off the no-interest auto loan over the mortgage at almost 2.64%? The former is a deteriorating asset, but it's all just dollars out of your pocket in the end, and the mortgage is costing more of them because of the interest.

One other idea. Try to not quit your job until May or June if you must. This enables you to get lower income tax rate for half a year's work. At 65K/yr, it will come down to perhaps only about 2K for half a year, depending on tax credits. If you quit sooner, you won't get as much income at the low rate.

Thanks Loonie for your reply - the reason I suggested paying off the 0% auto loan as I didn't know the term of the auto loan - when it matures, what will the new rate be (likely higher than the mortgage)?

To johnny, as the auto loan is $50,000 (sorry didn't realize that much was owing), I'd agree with Loonie in not prioritizing payment there for now but, once you're working again, try and "double up" your payments or at least adjust its amortization such that it's paid off within 5 years. The house is an asset that, in all likelihood, will appreciate - the extent of that is to be determined and can be debated (the S&P 500 historically has outperformed most Canadian real estate markets over the really long term - again, read "The Wealthy Renter") and that's why I'm OK with paying interest on the mortgage so long as you don't continuously "trade up" in the housing market and add to the debt as, eventually, it'll be paid off.

OK, I see why you're quitting your job now. 150km is too far for a daily commute, I agree - I'd say the "upper limit" to a long but doable commute by private automobile would be 50-75 kilometres one way. It sounds like you guys decided to move to a new location where housing prices are lower, correct? The only thing is you did this before you found a new job, hence the need to quit. What's done is done - in hindsight, I'd have preferred to see you line up a new job in a lower cost (of housing) location first, rent for awhile (i.e., 12-18 months, at the most, hopefully) and save the house proceeds from the house sale for a future house purchase + establishing long-term retirement plans.

At any rate, what I'd like to see you do first, in this order:
1. Establish your "austerity budget" where both of you will be out of work, take into account the non-employment income your wife receives and also "double check" your previous job(s) you've had - did you have group RRSPs or defined contribution pension plans you might've forgotten about and left at a previous employer?
2. As part of the "austerity budget"'s expenditures, figure out the essentials you, your wife and her kids cannot live without. It sounds like Internet access would be crucial for their homework so I'd probably keep that but, if you're not locked into a cable package, look into the lowest cost DSL package (i.e., TekSavvy as one example) or satellite Internet if in a rural location (i.e., Xplornet is fairly reasonable). Look at keeping Netflix for some form of low cost entertainment (it's cheaper than going out) but can you axe your cable TV package for a year without a huge penalty? Figure out a good way to explain this to the kids so they'll understand, accept it and support you and your wife. Comparison shop, "coupon", take full advantage of grocery store rewards on your credit card or otherwise, buy No Name brand stuff like their Macaroni and suffer through it for 10-12 months and tell yourself, "OK, I can buy brand name Kraft Dinner in another 4 months."
3. Establish your chosen HISA, say, Alterna Bank using the aforementioned "tips" and step-by-step guide. Park all the house proceeds and try setting up a pre-authorized withdrawal from that account to your CIBC account (assuming you stay with CIBC) on a biweekly or semi-monthly basis with the smallest amount you can imagine at first (a sort of "reverse monthly investment plan," if you will ), say $500 twice a month (24 payments a year) and then increase it to $500 every 2 weeks (26 payments a year) if you found yourself "dipping into" the funds an extra time that month. If you're still doing the "extra dip" after a second month, then increase the regular payment amount by, say, $100. You might be surprised on how little you can live on!
4. Also, for clothing, look at Value Village or other thrift stores (except maybe underwear because that's, well, kind of "ewww!" ). I was in Value Village recently as impressed with their pricing - the quality of the used clothes was amazing that I had to think, "are these really used or did they buy some manufacturer's over-run or a retail close-out!?" I couldn't believe it because I wear my clothes till they're practically threadbare (or "see-through," in the case of my cotton and/or flannel pyjamas )...I thought, "well now I don't have to feel bad if I donate my clothes and they get torn up for oil rags due to their deteriorated condition!"
5. When you're working again, evaluate what you have left, set up TFSAs and/or RRSPs for you and your wife and contribute at least half of what you have left to each (or more, if possible). Set up a pre-authorized contribution plan to yours and/or to your wife's as well (if she's working, for the RRSP, that is) of, ideally, an amount roughly equal to 15-20% of your gross (before tax) earnings each pay period. If it's to RRSP, fulfill your TFSAs first and then don't exceed 18% of your gross pretax earnings to any RRSP. Given you're a "newbie" to investing, I'd strongly recommend the robo-advisor approach. "All in" in terms of ETF MER/TER (trading expense ratio) of the underlying ETFs and your portfolio management fee, you're looking at between 0.60-0.75% for passive investment management but more robust financial planning, tax loss harvesting, dividend reinvestment and wealth+estate planning in some cases you'd normally pay a fee-only financial planner $1000 a shot - you don't get that from a bank mutual funds sales rep (I speak from experience - I was licensed previously as a Mutual Funds Advisor (within B.C.) with HSBC's investment funds distribution "arm," HSBC Investment Funds (Canada) Inc) where you'd be paying 2-2.25% in MER (management expense ratio) alone! 🙁

Also: look into getting that line of credit approved, secured or unsecured, from CIBC, before you quit, but don't tap it unless an emergency. 🙂

Hope that helps!

Cheers,
Doug

Thanks for all the additional info, Johnny.
With that in mind, I have no serious objection to Doug's plan for you.
I would just add though, that I wouldn't recommend skimping on good quality food. NO KD on my menu, no frills or otherwise!
I recommend putting in a vegetable garden, and make it a family project. Start with the easy stuff - tomatoes, peas and beans, leaf lettuce, herbs.
And read those books!

When you can afford to do so, which it appears you can as you and your wife have good job prospects, it can be very valuable to take some time off and get a bit of perspective on life. But do try to put some structure into your time off. Learn something new, be a volunteer, etc. It's a great opportunity to get to know your new community and plug into it.

Definitely get that line of credit, even uninsured, while you can (i.e. while you're working). The time you need it is when you can't get it. It doesn't cost anything to have it, only if you need to use it, in which case you'll be glad.

And get the life insurance NOW if you don't have it. Tomorrow may be too late, as you never know...

TFSAs and RSPs can wait until you have the income again to make them worthwhile. Put the money in the TFSAs before RSPs, but make sure you learn all the rules for both of these before you start. Some of us (me!) don't think RSPs are such a great deal anymore and would not do it again if we had the chance, but you need to make up your own mind. Those are discussions for later.

For now, just stick with Alterna and CIBC. You might also keep your eyes on this space for new, superior, offers coming along. As someone mentioned, Tangerine and PC often have such offers, which can be very good, but they are temporary and require your active management. Alterna is best for your ongoing needs at the moment. If your wife starts working in September, she should start a TFSA probably in January so as to avoid taxation on the income next year, assuming she will have taxable icome.