Canada Debt Consolidation Loan

New grads need help in life's financial test

George and Christine are young, well educated, ambitious and in debt.

At 29, fresh out of graduate school in the United States and with new jobs, they want to have a well thought out savings and investment plan, George writes in an e-mail. They have a condo in downtown Toronto with a mortgage and a vacation rental outside of Canada in which they have net equity of about $90,000.

“Some of the questions we are struggling with include how much to invest in RRSPs and efficient debt consolidation strategies,” George writes. Their goals include saving for a comfortable retirement 35 years hence, for the education of their future children, for a new home purchase in three to five years (trading up from a condo to a house) and for buying another investment property some time in the future. They are eager to pay off the $76,000 borrowed to pay for George’s degrees.

Together they earn about $145,000 in salary plus some rental income from their vacation property. George will be eligible to join his employer’s pension plan (a hybrid of defined benefit and defined contribution) in two years while Christine is part of her company’s defined contribution plan (capped at 3 per cent of her salary with the company contributing another 2 per cent). Given that they are just starting out in their careers, neither is sure they will spend the rest of their lives at their current job.

We asked Bryson Milley, financial adviser and associate portfolio manager at Rogers Group Financial in Vancouver, to look at the couple’s situation.

What the expert says

Christine and George’s short term goals include paying off their loan, saving $3,000 for holidays this year and next, saving $100,000 for a house purchase by the fall of 2015 and saving enough both in their company plans and their registered retirement savings plans to generate net monthly income of $5,000 when they finally put their feet up and retire.

“These goals may seem lofty, but they have three key ingredients working for them,” Mr. Milley says: solid and growing income, reasonable expenses and the desire to save. Thus their goals should be achievable, “albeit with some effort,” the planner says. The keys are good cash-flow management – they have a monthly surplus of income over expenses of $3,565 – and “being efficient with your debts and investments.”

Short term, Mr. Milley recommends Christine and George direct some of their surplus to a high interest savings account with no fees, such as the one offered by ING Direct. This money could be used for emergencies or travel expenses, he says. “Strive to always have $10,000 earmarked for an emergency fund.

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