Financial Planning with Jay Papernick
In today’s housing market, with new mortgage rules and the realities of affordability shifting, Canadians need to be savvier than ever with their financial planning. Whether you are contemplating a move this year or hoping to break into the market for the first time, understanding your personal finances and how to best plan for the future is fundamental when beginning the home buying process.
Financial planning can be daunting for some, especially if you’re unsure of which options make most sense for your lifestyle, budget and investment goals. I am so thankful to have my trusted friend, Jay Papernick, Senior Financial Advisor and Branch Owner at Assante Wealth Management, offer to shed some light on common real estate investment questions and provide advice for future buyers. I love being able to share insights from my professional network with my clients, as always please reach out if you have any questions at all!
With RRSP season upon us, many Canadian homeowners will be wondering whether they are better off contributing to their retirement savings or paying down their mortgage. As every household situation will be slightly different, weighing the benefits of immediate savings versus eliminating debt has some nuances. However, the traditional answer has always been to max out RRSP contributions to increase your potential tax return, then pay down your mortgage with the return.
“The problem with this answer is in the execution,” says Jay Papernick, “people just don’t do it!” While theoretically, increased savings yielding an increased return, means that a homeowner can actually do both – contribute to their RRSP and pay down their mortgage – but this requires follow-through.
“You need to know yourself and your spending habits,” explains Jay. “If you’re going to receive the refund cheque in the mail and spend it on something outside your budget, then paying down your mortgage makes more sense. If you have a disciplined approach to your finances, then it all works.”
Another factor that could influence this answer, is your current stage of life and maturity of investments. Earlier contributions to an RRSP allow for more time to let the investments grow tax-free, while paying down a mortgage closer to retirement makes more sense so that you can ultimately retire without debt.
Retirement may still seem far-off for first-time buyers who are itching to get into the market – but this doesn’t mean RRSP contributions aren’t important. In fact, the Home Buyer’s Plan allows each first-time buyer to withdraw up to $25,000 from their RRSP to use toward their down payment, making it the perfect tool for saving. “Remember, this is a tax-free loan to yourself,” says Jay. “You will need to pay it back over time, so understanding the conditions before you start is important.”
With housing prices continuing to increase, as to down payment requirements. Assistance from family members is another fund source that first-time buyers often rely on. If you’re fortunate enough to have parents or grandparents who can lend a hand when gathering your down payment, make sure the agreement is put in writing. While these offers of help are incredibly generous, family loans can sometimes lead to complicated situations. “Make sure the terms and conditions are clearly laid out and signed off on,” recommends Jay.
So, you’ve got your down payment and have estimated operating costs, what else do new owners need to consider when saving? The truth is, all homes – old or new – can surprise us with immediate expenses. Whether it’s a leak in the roof, furnace maintenance, or hazardous tree removal, these unexpected costs have a way of cropping up at the least convenient times.
Creating an emergency fund for such instances is a must! As Jay suggests, “a good rule of thumb is to have 3-6 months’ worth of life expenses in the bank. This means cash – not invested, with no risk associated.” While some households view access to a line of credit as their “emergency fund”, Jay cautions against relying on credit as it can be taken away in times when the economy is struggling. Incorporating this emergency fund into your overall financial plan is a great goal and will provide peace of mind for all homeowners.
Creating a blueprint of your financial plan before beginning the house-hunting process will set you up with confidence and realistic goals. And by realistic, this means understanding where your money currently goes.
“When we do financial planning with clients, we walk through all expenses and figure out how much is being spent and on what,” explains Jay. “It’s not a sexy process, but if you want to figure out how much you can realistically spend on something, the only way to get a full picture is to track your expense and analyze them.”
Once you’ve got an idea of what your monthly spending looks like, along with regular income and any investments, its much easier to run scenarios to assess affordability that take factors such as higher interest rates, fluctuating utilities and lifestyle goals into consideration. Regardless of your investment or real estate aspirations, there is no better time than now to start setting yourself up for financial stability in the future!