| Buyers

***Next First Time Buyer Seminar is scheduled for March 6th, 2013, details to follow soon***

My first time buyer seminar wouldn’t have been a huge success without having Shannon Lee Simmons (certified financial planner) on board, who was so kind enough to donate her time and knowledge for my seminar. Just in case you don’t know who Shannon is, she is the financial guru and brains behind the New School of Finance, spreading the financial word across the city in an easy and fun to understand way. It all started when Shannon decided to quit her Bay St job and start the Barter Babes Project, where she gave financial advice to 310 women for a bartered good or service instead of cash. The project wrapped up in November 2011 and now Shannon runs The New School of Finance where she gives affordable financial advice and runs workshops. She has been featured in various print and TV outlets and also does Money Awesomeness videos with Coral TV. Shannon is a true example of setting your mind to doing something you are passionate about and being successful at it.

During the first time buyer seminar, Shannon taught us how to save for a down payment and how not to be house poor. Here are some key take away notes from her presentation….

TFSA (Tax Free Savings Account) vs. RRSP

TFSA

  • a bank account where you can put money away/save and earn interest and not be charged taxes on the amount saved or interest earned
  • great place to save for a down payment for your home
  • total annual contribution allowed to this account is $5,000
  • if you haven’t opened one yet, then technically you’re allowed to deposit $5,000 for every year since 2009 which gives you a grand total of $20,000, but you don’t HAVE too, just start with any amount
  • you can withdraw the funds at any time without being taxed, another great reason to use it for saving for a down payment
  • cannot use the amount saved in this account as a deductible to your income for tax purposes

RRSP

  • to save money for your retirement, but also commonly used as funds for a down payment
  • RRSP contributions are deductible and reduce your income for tax purposes
  • it’s taxed as part of your income when it’s withdrawn, unless it’s withdrawn for down payment purposes
  • you can only withdraw from your RRSP’s once to use the money for a down payment on a home purchase
  • only allows first time buyers to withdraw a maximum of $25,000 ($50,000 for couples) under the Home Buyers Plan, to use towards their down payment without penalty, essentially a 0% interest loan to yourself
  • the amount borrowed from your RRSP must be repaid within 15 years with a minimum annual payment of 1/15th of the amount withdrawn
  • the RRSP amount withdrawn for your down payment is not taxable as long as you repay it within the 15 years

So the lesson learned here is that TFSA is amazing and should be used for savings in conjunction with your RRSP!

Avoiding Being House Poor

  • when budgeting always use your “after tax income” and not gross income (before taxes)
  • your fixed monthly costs should only equal to 50%-60% of your after tax income…paycheque
  • fixed monthly costs include housing costs (mortgage payment, house insurance, etc), utilities, transportation, debt payment, groceries, toiletries, etc
  • this leaves you with 40%-50% of your pay cheque to spend on whatever you want or save
  • Shannon reminds us that we want to live our lives happy and that we like spending money on dinners, drinks, etc, so it’s best to have that 40%-50% cushion to do the things that we like to do, otherwise we will end up miserable and in debt, it’s inevitable
So remember Shannon’s key budgeting rule……

Shannon’s Rule

  • 50, 30, 20 
  • 50%-60% of your after tax income towards fixed monthly costs
  • 30% of your after tax income towards this thing called life
  • 10%-20% for savings

Thanks so much Shannon for teaching all of us a thing or two about life and budgeting, it truly was an eye opener for me and made me re evaluate my finances.

For more information about Shannon Lee Simmons, you can check her out on the web by clicking here, follow her on Twitter @ShanLeeSimmons, and Facebook and catch all her informative, yet funny finance videos over on Coral TV 

Also if you missed Part 1 of the notes from my first time buyer seminar, no worries, just click here. And for any questions, just submit them below:

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