Personal Finance

General financial advice needed, details enclosed :)

  • Last Updated:
  • Jan 6th, 2021 8:18 pm
[OP]
Newbie
Dec 27, 2020
9 posts

General financial advice needed, details enclosed :)

Hi everyone! I expect to receive a $40K bonus (gross) in a couple of months, and I'm wondering what I should do with the funds (i.e. should I invest in an RRSP, pay off my HELOC, or something else entirely?). I'm also thinking that I should use my HELOC to buy out my car loan (to reduce interest from 5.99% to 2.65%). I'd also appreciate any general financial advice on what I could be doing to set myself up for future success (e.g. should I be leveraging my HELOC to invest?). Here are some of my details:

INCOME:
  • $135K/yr = Base Salary
  • 0% to 30% = Bonus (depending on personal & company performance)

MISCELLANEOUS INFO:
  • 36 years old, single
  • $78K = Unused RRSP Contribution Room
  • $71K = Unused TFSA Contribution Room
  • 13.5% = Company Pension Contributions

ASSETS:
  • $700K = House (Market Value)
  • $50K = Car (Market Value)
  • $215K = Pension (Market Value)
  • $16K = RRSP (Individual Stocks)

LIABILITIES:
  • $307K = Mortgage (2.39%, renews August 2022)
  • $53K = HELOC Balance (2.65%, can borrow up to $133K total)
  • $33K = Car Loan (5.99%)

Thanks! :)
35 replies
Deal Addict
Dec 12, 2009
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Get yourself a financial planner that bills by the hour.
Sr. Member
Jun 25, 2017
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Invest in Bitcoin ( wait for the drop though )

Side question ; what profession/ industry pays a bonus like that ? Especially after the year we’ve had ....
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May 18, 2019
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Pay off your debt first. If paying down your car loan will save you on interest then pay that one first. If not and you are paying a fixed amount for your car no matter if you pay it sooner or later then pay off your HELOC.
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Dec 27, 2007
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I agree with above.

Pat off debts first, then decide on investment
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May 22, 2003
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I disagree with paying off all debts first before investing. I would pay off the car loan with the HELOC to lower the interest rate. But with your other interest rates below 3%, I'd say invest the rest. Not hard to put together a solid dividend paying portfolio generating over 6% right now.
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Feb 8, 2014
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I agree with the advice to find a good fee based financial planner.

That said your interest rates are low but it is a fair amount of debt.
The best things you can do for yourself here is to live well within your income (no living paycheck to paycheck nonsense), save a good percentage of your income for investment and paying off debt and not accumulating more debt in the first place.

You are failing to utilize RRSP and TFSA room. The financial planner can help you fix this.
As for the debt the car loan can be paid quickly, and the mortgage and HELOC should be tackled, though they are pretty cheap. You may be able to refinance at least the mortgage to a much lower rate even if there is a penalty. Look into this. Your medium term goal should be to pay off all your non mortgage debts and never need credit again. At your income level this can be accomplished. The mortgage i would consider tackling at an accelerated rate, get the planner to run the numbers.

That said you also want to build up an emergency fund of liquid assets and save up for you next vehicle so you can buy it with cash.
I am hesitant to give you direct advice for the 40K bonus at this point, i would suggest that a financial planner who crunches your numbers will give you the best advice as i would want to ask you many more questions before giving an opinion.

The last thing you want is to be house rich and cash poor.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
[OP]
Newbie
Dec 27, 2020
9 posts
Thanks for the thoughtful advice!

I'm going to look into a fee-for-service financial planner. I'm quite good with numbers and track all of my income/expenses in detail, but I don't know how to optimize my use of tax shelters (which is increasingly important when taxes eat up nearly half of my marginal income). Is there a directory or something available of reputable fee-for-service financial planners in Ontario?

To elaborate a little on my HELOC balance, it's somewhat high because I did some "sweat equity" projects since the pandemic started (since it's not like I'm doing anything fun evenings/weekends!) -- all of that money went into my house, and increased my house value by about $100K (conservative estimate) so I'm not as concerned about it being considered "bad debt". The car is certainly "bad debt", but I love cars so that's my one vice :P Other than that, I really don't spend much on frivolous things. If you'd like to know my expenses in any specific categories I could share that info.

My next steps:

  • Try to find a fee-for-service Financial Planner
  • Look into the mortgage refinance as suggested by Quentin5
  • Buy out my car loan using my HELOC
  • Start saving more and paying down the HELOC

Any other advice is welcomed :)
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Feb 8, 2014
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The thing with using your HELOC to lower the interest on your car is that if you get the itch to buy another car before the car portion of it is paid off then you would have a new car loan plus your old one your still paying but its being hidden and you don't realize your paying two car loans.
I am curious what percent your credit utilization is? Above 30% affects your credit rating, though its not likely you need another mortgage anytime soon, and the car hopefully lasts quite a while.

It is great that you track your cash outlays, what percent of your income are you spending per year? Is that going to remain stable?
What are your career plans, is your job secure in the time of covid and beyond covid? Are you going to stay at your company or move around? Between jobs is gaps common in your industry? Are you going to change careers before retirement? What is your projected retirement age? Will your income brackets be lower or higher at retirement age? Are you planning on taking time (months or years) off work? Are you planning on having a family? Do you have dependents or parents to support in the near or distant future?
These questions matter because they help determine how to invest, how to pay off debt, how much liquid cash you should keep on hand, and what your next and long term moves should be.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
Deal Addict
Apr 21, 2014
2282 posts
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StrongAndFree wrote: Hi everyone! I expect to receive a $40K bonus (gross) in a couple of months, and I'm wondering what I should do with the funds (i.e. should I invest in an RRSP, pay off my HELOC, or something else entirely?). I'm also thinking that I should use my HELOC to buy out my car loan (to reduce interest from 5.99% to 2.65%). I'd also appreciate any general financial advice on what I could be doing to set myself up for future success (e.g. should I be leveraging my HELOC to invest?). Here are some of my details:

INCOME:
  • $135K/yr = Base Salary
  • 0% to 30% = Bonus (depending on personal & company performance)

MISCELLANEOUS INFO:
  • 36 years old, single
  • $78K = Unused RRSP Contribution Room
  • $71K = Unused TFSA Contribution Room
  • 13.5% = Company Pension Contributions

ASSETS:
  • $700K = House (Market Value)
  • $50K = Car (Market Value)
  • $215K = Pension (Market Value)
  • $16K = RRSP (Individual Stocks)

LIABILITIES:
  • $307K = Mortgage (2.39%, renews August 2022)
  • $53K = HELOC Balance (2.65%, can borrow up to $133K total)
  • $33K = Car Loan (5.99%)

Thanks! :)
Pretty easy decision here considering you being in your 30s and single.

1) pay off the car loan with the HELOC. Now you have lowered your interest rate and increased cash flow by turning an amortized loan into a simple interest loan.

2). Given your very low HELOC rate and already having to invest in pension plan. I would put the entire amount into your TFSA and invest it in index funds or other mutual funds. You have a lot of time for that money to grow tax free.

Given your 135K income with no family obligations you should have plenty of disposable income to max out at least your tfsa each year.
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abc123yyz wrote: 2). Given your very low HELOC rate and already having to invest in pension plan. I would put the entire amount into your TFSA and invest it in index funds or other mutual funds. You have a lot of time for that money to grow tax free.
Considering he is in the almost top tax bracket putting money into RRSPs makes more sense for the tax rebate (which can be used to build an emergency fund or pay off loans or TFSAs).
That said his future plans come into play because if he wants a new car every 3 years for example then he is going to be paying two car loans. That is very inefficient. If he has cash then there is no second loan and he can fully pay off the first one and not just transfer it to a lower interest rate.
If his job is unstable he should have more liquid cash (and even plan possible early RRSP withdrawals). If his job is very stable less liquid cash and more loan payment can make a lot of sense.
Hence the whole picture needs to be considered.
Last edited by Quentin5 on Dec 29th, 2020 11:47 pm, edited 1 time in total.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
Sr. Member
Jun 25, 2017
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Still curious what industry/company can afford a 40k bonus.... man am I ever in the wrong sector
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Quentin5 wrote: Considering he is in the almost top tax bracket putting money into RRSPs makes more sense for the tax rebate (which can be used to build an emergency fund or pay off loans or TFSAs).
That said his future plans come into play because if he wants a new car every 3 years for example then he is going to be paying two car loans. That is very inefficient. If he has cash then there is no second loan and he can fully pay off the first one and not just transfer it to a lower interest rate.
If his job is unstable he should have more liquid cash (and even plan possible early RRSP withdrawals). If his job is very stable less liquid cash and more loan payment can make a lot of sense.
Hence the whole picture needs to be considered.
Yes but he has 13.5 percent already going in, if he is going to need some money before the traditional retirement age he has no access. It’s not wise to lock up everything in retirement accounts.
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Master2031 wrote: Still curious what industry/company can afford a 40k bonus.... man am I ever in the wrong sector
I am in the construction/resources industry and from what I’ve been told we are getting our full bonuses this year.
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abc123yyz wrote: Yes but he has 13.5 percent already going in, if he is going to need some money before the traditional retirement age he has no access. It’s not wise to lock up everything in retirement accounts.
I agree to a point, which is why we need the whole picture to make proper recommendations.
But bear in mind that locking into RRSPs is not a thing, one can withdraw it at any time.
You pay the taxes of course and if you plan badly you screw yourself by paying a higher rate than you need to.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
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Jan 2, 2015
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NOT centre of Univer…
@StrongAndFree My recommendations
- pay car loan with HELOC to save on interest
- it $40 k into RRSP due to the higher tax brackets. Should result in about $18k tax savings
- put $18k tax savings into TSFA assuming you can invest in 3% or higher

That’s just playing the numbers.
StrongAndFree wrote:
  • Try to find a fee-for-service Financial Planner
  • Look into the mortgage refinance as suggested by Quentin5
  • Buy out my car loan using my HELOC
  • Start saving more and paying down the HELOC

Any other advice is welcomed :)
Some additional advice...
If you add the car loan to the HELOC, then I would make the same or larger payments between the two (don’t reduce because it’s consolidated)
Because of the bonus and the tax bracket, I would continue to put the bonus in the RRSPs or at least the amount to get you below the $150k bracket (assuming you are in ON. Then put refunds into your tsfa. Use your TFSA as your emergency fund and buy your net car outright (ideally get cheaper cars).

Get your your loans paid off, and savings up. When things happen, you will be happy you did so.

My other thoughts is contrary here is I would get a FA that you trust. Pay the silly fees at first and learn everything you can. If you pay 2-3k for a one time advisor, that’s great it you are just starting out in your investments so it’s a big chunk. Ever if you pay 3% MERs your investments under $50k are still ahead. When I first started out, I had a great TRUSTED advisor, though family that help me set up. I was probably invested only $1k a month. I asked no load funds, with no commitment. I spoke to my advisor 2-3 times a year particularly to learn. When my portfolio was larger i stayed until he no longer gave me the returns and then moved. This strategy did work expect you have To find someone you trust, learn from them and don’t stay to long. This may not be reasonable, now as I got in because my family had a very larger portfolio with the guy.

The other consideration is if you are not looking for investment advice but rather tax advice, an accountant to can help you navigate through how much to to put in where based on your situation. No investments though.

The other way is to learn these things yourself. There is lots of information out there.
Last edited by Macx2mommy on Dec 30th, 2020 10:15 am, edited 2 times in total.
On a 'smart' device that isn't always so smart. So please forgive the autocorrects and typos. If it bothers you, then don't read my posts, but don't waste my time correcting me. If you can get past the typos, then my posts generally have some value.
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Macx2mommy wrote: @StrongAndFree My recommendations
- pay car loan with HELOC to save on interest
- it $40 k into RRSP due to the higher tax brackets. Should result in about $18k tax savings
- put $18k tax savings into TSFA assuming you can invest in 3% or higher

That’s just playing the numbers.

The bigger question is why is your HELOC $ 53 k. What did you spend it on? If it’s consumer crap, then you have a spending problem. At your income, there should be no reason use a HELOC unless you were using it for investing In which you should not blend your car debt as it will make it harder to write off the interest. If it was for emergency medical, or student loans, that might be okay. If it was to buy stuff, I would make a different recommendation.
OP mentioned his HELOC is that high because he spent this year doing renovations to the house(sweat equity).
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Jan 2, 2015
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abc123yyz wrote: OP mentioned his HELOC is that high because he spent this year doing renovations to the house(sweat equity).
Thanks, I missed the second post. I will revise my recommendation slightly.
On a 'smart' device that isn't always so smart. So please forgive the autocorrects and typos. If it bothers you, then don't read my posts, but don't waste my time correcting me. If you can get past the typos, then my posts generally have some value.
[OP]
Newbie
Dec 27, 2020
9 posts
Quentin5 wrote: The thing with using your HELOC to lower the interest on your car is that if you get the itch to buy another car before the car portion of it is paid off then you would have a new car loan plus your old one your still paying but its being hidden and you don't realize your paying two car loans.
That's not really a concern for me -- although the car loan would be rolled into my HELOC, I would still track the car balance separately in Quicken :)

Quentin5 wrote: I am curious what percent your credit utilization is? Above 30% affects your credit rating, though its not likely you need another mortgage anytime soon, and the car hopefully lasts quite a while.
I'm not entirely sure what my utilization ratio is, but I have some old credit cards that I didn't close (for Credit Score purposes). I'm probably beyond 30%, but not enough that it's concerning. I just checked and my TransUnion credit score is 830. My Equifax score was in the mid-800s when I checked about 3MO ago.

Quentin5 wrote: It is great that you track your cash outlays, what percent of your income are you spending per year? Is that going to remain stable?
What are your career plans, is your job secure in the time of covid and beyond covid? Are you going to stay at your company or move around? Between jobs is gaps common in your industry? Are you going to change careers before retirement? What is your projected retirement age? Will your income brackets be lower or higher at retirement age? Are you planning on taking time (months or years) off work? Are you planning on having a family? Do you have dependents or parents to support in the near or distant future?
These questions matter because they help determine how to invest, how to pay off debt, how much liquid cash you should keep on hand, and what your next and long term moves should be.
I appreciate your help! I've answered all of your questions below :)

  • What percent of your income are you spending per year? Is that going to remain stable? Excluding any larger purchases (e.g. home renos, new laptop, etc.), I'm currently spending about $64K of my $88K base take-home pay (73%), which doesn't include any bonus I might get or any tax returns received. I see my expenses remaining stable and a rough breakdown is provided below (but I can provide more detail if needed).
    • $2K -- Auto Insurance
    • $2K -- Parking (but not currently paying this due to COVID and working from home)
    • $4K -- Groceries and Household Items
    • $4K -- Restaurants and Entertainment (I often treat others)
    • $1K -- Personal Care (Hair Cut, Chiro, etc.)
    • $11K -- House Carrying Costs (Utilities, Internet, Insurance, Property Tax)
    • $9K -- Charitable Donations
    • $11K -- Car Payments
    • $20K -- Mortgage Payments
  • What are your career plans, is your job secure in the time of covid and beyond covid? I don't plan to change jobs any time in the foreseeable future. My job is quite secure during COVID and beyond.
  • Are you going to stay at your company or move around? Between jobs is gaps common in your industry? I've been with the same company for over 10 years in roles of increasing responsibility, and I don't plan to move to another company. Between-job gaps are very uncommon in my field since there's a lot of competition for experienced talent, and the demand for people in my field is increasing each year.
  • Are you going to change careers before retirement? I won't change careers, but I could consider a lateral move within the same company.
  • What is your projected retirement age? This is where my planning sucks -- I haven't given it much thought, but I would retire when I could comfortably do so (which I've always assumed to be 60-65yo).
  • Will your income brackets be lower or higher at retirement age? My income would almost certainly be lower in retirement than it is now, but I haven't thought much abotu what my target retirement income should be for a comfortable living.
  • Are you planning on taking time (months or years) off work? I'm not planning on it -- vacation time is sufficient for me to unwind.
  • Are you planning on having a family? Do you have dependents or parents to support in the near or distant future? Not planning on it currently. I have no dependents and my parents are comfortably living on their own retirement savings.
[OP]
Newbie
Dec 27, 2020
9 posts
Quentin5 wrote: I agree to a point, which is why we need the whole picture to make proper recommendations.
But bear in mind that locking into RRSPs is not a thing, one can withdraw it at any time.
You pay the taxes of course and if you plan badly you screw yourself by paying a higher rate than you need to.
I feel like I'm pretty safe to at least contribute enough to my RRSP to reduce my total taxable income (base + bonus) down to $150K? So if I'm at $175K income in 2021, I could consider $25K of my gross bonus to my RRSP, and $15K of my gross bonus (which would be taxed down to about $8K) to my HELOC? And then maybe each year I could do the same thing until I've used up all of my unused RRSP contribution room?

Macx2mommy wrote: @StrongAndFree My recommendations
- pay car loan with HELOC to save on interest
- it $40 k into RRSP due to the higher tax brackets. Should result in about $18k tax savings
- put $18k tax savings into TSFA assuming you can invest in 3% or higher

That’s just playing the numbers.
Perhaps I'm misunderstsanding something, but if I put my $40K gross bonus into an RRSP, then the $18K tax savings is already part of my $40K RRSP contribution (in other words, I won't get an additional $18K tax return to invest in a TFSA like you described). Perhaps you thought my $40K bonus was net of taxes?

Macx2mommy wrote: Some additional advice...
If you add the car loan to the HELOC, then I would make the same or larger payments between the two (don’t reduce because it’s consolidated)
Because of the bonus and the tax bracket, I would continue to put the bonus in the RRSPs or at least the amount to get you below the $150k bracket (assuming you are in ON. Then put refunds into your tsfa. Use your TFSA as your emergency fund and buy your net car outright (ideally get cheaper cars).

Get your your loans paid off, and savings up. When things happen, you will be happy you did so.
I just realized that what you described is pretty much what I described to Quentin5 above haha! :) IIUC, with my savings each month I could either invest within a TFSA or pay down my HELOC -- both actions would free up emergency funds (either in investments that could be liquidated or in extra HELOC room).

Also, once I buy out my car loan using the HELOC, I will continue the same monthly "car payments" to the HELOC -- the interest savings of ~$100/mo would simply pay down my HELOC faster.

Macx2mommy wrote: My other thoughts is contrary here is I would get a FA that you trust. Pay the silly fees at first and learn everything you can. If you pay 2-3k for a one time advisor, that’s great it you are just starting out in your investments so it’s a big chunk. Ever if you pay 3% MERs your investments under $50k are still ahead. When I first started out, I had a great TRUSTED advisor, though family that help me set up. I was probably invested only $1k a month. I asked no load funds, with no commitment. I spoke to my advisor 2-3 times a year particularly to learn. When my portfolio was larger i stayed until he no longer gave me the returns and then moved. This strategy did work expect you have To find someone you trust, learn from them and don’t stay to long. This may not be reasonable, now as I got in because my family had a very larger portfolio with the guy.

The other consideration is if you are not looking for investment advice but rather tax advice, an accountant to can help you navigate through how much to to put in where based on your situation. No investments though.

The other way is to learn these things yourself. There is lots of information out there.
I think that at this point, I'm primarily looking for tax advice (since I'm not taking advantage of what's available like RRSP and TFSA). Eventually I'd like to get more into investments (like leveraged investing using my HELOC, which also has tax implications related ot the interest paid). In terms of stock selections and that sort of thing, I'd probably prefer to do something simple like investing in index funds (and I can learn about "Couch Potatoe" investing online pretty easily I think). It's all the tax stuff that I find more tricky to navigate!

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