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[cm24]

I plan to become a full time investor one day, but it seems like a long road from here.

My wife and I have around $42,000 in what I consider bad debt (ie: vehicle, student loan, line of credit). We have been a single income family for almost 4 years, however my wife is beggining to make money as a personal trainer, and my job pays approx. $73,000 a year.

Currently we put $100 into a low risk mutual fund, and apply $200 to our debt each month. Any extra income goes into a "emergency fund" that we use for clothes for the kids, or unexpected and over-budget items.

Our plan is to pay off our bad debts, and save three month`s expenses and enough for a down payment before starting to invest. We made a Sophisticated Investor Binder, and took it to our bank, just to see what we could do with things the way they are. She said that we need to lower our TDS before we could do anything, which is an answer I have heard before.

Are we doing things right? Is there anything else we could do to help? Any comments would be appreciated.

Thanks!

 

[kboughen]

QUOTE (cm24 @ Jan 1 2010, 09:52 AM) Are we doing things right? Is there anything else we could do to help? Any comments would be appreciated.
Thanks!
TDS is actually a ratio of income and all debt payments. So, the monthly payments on your debt are more important than the debt balance, for your TDS calculation.

Your TDS also includes your rent payment if you are renting, or, the principle and interest payment if you have a mortgage. TDS also includes "good" debt, such as monthly payments on a HELOC being used to purchase investments.

Potential rental income can also be used to improve the TDS. The following link provides some good information to assist you in understanding your TDS, both as it looks now, and how a rental property would impact the TDS.

http://www.cmhc-schl.gc.ca/en/hoficlincl/m...olointo_004.cfm

Debt repayment, investment contributions and emergency fund savings are a fine balancing act, and the right answer for you will depend lot on your risk tolerance and personal objectives.

All the best in 2010.

 

[NiagaraInvestor]

QUOTE (cm24 @ Jan 1 2010, 08:52 AM) I plan to become a full time investor one day, but it seems like a long road from here.

My wife and I have around $42,000 in what I consider bad debt (ie: vehicle, student loan, line of credit). We have been a single income family for almost 4 years, however my wife is beggining to make money as a personal trainer, and my job pays approx. $73,000 a year.

Currently we put $100 into a low risk mutual fund, and apply $200 to our debt each month. Any extra income goes into a "emergency fund" that we use for clothes for the kids, or unexpected and over-budget items.

Our plan is to pay off our bad debts, and save three month`s expenses and enough for a down payment before starting to invest. We made a Sophisticated Investor Binder, and took it to our bank, just to see what we could do with things the way they are. She said that we need to lower our TDS before we could do anything, which is an answer I have heard before.

Are we doing things right? Is there anything else we could do to help? Any comments would be appreciated.

Thanks!
You have the right ideas!  Pay debt, consolidate loans, save for a rainy day and invest.

From what you`ve told us about your meeting with your current bank I`d considering going to others.  I`m assuming you have most if not all of your investments and debts with one bank. If this is the case,  your bank is making a fortune off you in mutual fund fees and interest on your car, student loans and the LOC.  They have little interest in refinancing your various loans into one low interest.

Even if you if the loans are dispersed among different lenders I`d look for a bank that will roll all of your debts into one low interest loan that will save on carrying costs.  Your current bank says "no dice" so go elsewhere.

With your mutual funds, you should probably figure out if the if you`re making more than it`s costing you to carry your debts.  If you`re "low risk" mutual funds are not earning more interest than your debts, then maybe you should reconsider that investment and contribute more to debt repayment.

The emergency fund is a sound idea maybe though it should be a fixed amount each month with surpluses going towards paying debt..

Hope this helps..

 

[cm24]

QUOTE (NiagaraInvestor @ Jan 1 2010, 01:38 PM) From what you`ve told us about your meeting with your current bank I`d considering going to others.


Yes, I won`t be going to that bank for investing, as I realized later that they are only one lender, were as a broker will be a voice for many lenders, doing legwork for me.

Thanks!!

 

[Thomas Beyer]

QUOTE (cm24 @ Jan 1 2010, 07:52 AM) ..
Are we doing things right? Is there anything else we could do to help? Any comments would be appreciated.
makes sense ..

do you own your own home ? if not, why not ? if so, perhaps add`l income could be generated through renting a room or 2 or a suite ?

A personal trainer sounds like a fun, but low income job .. could this be improved ?

Educate yourself .. and start looking for investment areas that interest you: real estate ? a franchise ? stocks ?

 

[JessaK]

Good for you for getting your Investor binder together and taking it to the bank!
Also congrats on paying down your debt each month the $200.

I would go along with NiagaraInvestor`s advice re:mutual funds. Depending on how much you are making on them, and how much interest your $42,000 is costing you, you may want to put that $100 a month into the debt repayment instead. Just IMHO.

I also second Thomas Beyer`s advice re:renting out a room for extra income. My husband and I have taken in a boarder twice for periods of 4-9 months in four years, and are currently looking for another one. I know it can be an inconvience but it sure is nice to have the extra cash, and be able to help with paying down debt. You can also sometimes house international students through a homestay program (google `homestay`) if you live near a college/university. They can often pay up to $650-700 for full room and board. You still have expenses for that but you can easily net $4-500 a month on that. Regular boarders will pay less but it all depends on where you live, what kind of room size, etc,etc,etc.

Also, that is great that you are paying off $200 a month. However, I wonder if you could make a few changes to your standard of living to find extra money to help repay debt.

If I`m understanding you correctly, here are some quick numbers...

At your current rate of debt repayment. $200/month x 12 months = $2400
Total `bad` debt: $42,000 / 2400 = 17.5 years to pay that off ( not including interest...)

Time needed to save downpayment (ex. $20,000) at same rate of debt repayment = $20,000 /$2,400 = 8.3 years
Total Time for debt repayment and downpayment:17.5 + 8.3 = 25.8 years

Possibly shop second-hand (clothes, furnishings, vehicles), possibly put your wifes income entirely towards debt since you are used to having one income, eat at home more, make a spending plan, cut back on extracurricular activities, cut back on some phone/cable/internet services that aren`t necessary, etc.
The sky is the limit! It can go a long way to reduce your at-home expenses and can really be worth it!
I hope you find your way - RE investing is really a wonderful vehicle to become financially free- that`s why we`re doing it!

 

[AndyLuchies]

All great advice above.
One thing I might say (and of course, take it with a grain of salt as I know nothing of your past) is that, assuming you`ve had this job for a little while. It would seem as though you may have gotten used to a life that may be above your means. My own believe is that if I cannot put 10% of what I make into some kind of savings/investments, than I am borrowing from the future to make today better, and you want it to be the other way around.
I would suggest that if you are serious about making a future for yourself that includes investing in real estate, the first step is to take into consideration that some dramatic financial changes MAY be in order to get things on track.

As the person above mentioned, you could find ways to pay off that $42,000 sooner than 20 years (actually, by my calculations, assuming only 4% interest on those loans over the next 20 years, it will take you around 40 years to pay off that debt completely!).

It might be wise to sit down with your wife and draw 3 columns on a sheet of paper and do as follows.
In the first column, write what you`re realistic expenses are now, and what you are saving/paying down debt now.
In the second column, write what you could cut out of your expenses if your life depended on it (be ruthless, JUST necessities--it may help to bring in a third party that you trust to help be objective for this column).
In the third column, after being brutally honest in the first two, agree at a reasonable middle ground that works for you.

Then you can call a family meeting to announce your news plans to the kids and get their input. You might be surprised at how willing some kids are to get on board if they know the whole idea behind it.

It may be that after seeing that you`re currently spending around $75,000, but you think you could barely survive on $40,000, you may decide to go with $55,000 and by cutting down your lifestyle, essentially be saving $20,000 a year....that means debt free inside of 3 years!!

Just a thought... it may do you and your wife good to daydream about the possibilities.
(but again, I know very little about your situation)

I`ll always remember a quote told to me by a military sargent a few years ago, "the odds are good that the necessities of life are a lot fewer than you think."

my $0.02

 

[invst4profit]

Andy makes a lot of sense. Although your path is good you really need to assess how serious you are about achieving your goals.
Considering your income level and the ability to increase it through your wife you need to establish higher goals.
Staying on path is far easier than getting ahead which usually involves personal pain.

 

[RobMacdonald]

Make sure that your lender really understands what your long term goals are, and that their policies support your quest for rental properties. Saying your tds is high, doesn`t really mean too much. They should be able to assist you with the plan in getting things on track.

Here are some options:
1. Debt consolidation
2. Re-amortizing existing debt payments
3. Purchase a residence with rental suite to assist in qualifying
4. Arranging co-signors to assist with qualifying

There are a number of different paths you can take, with all or some of the above being considered.