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Starting off on the right foot

5275 Views 14 Replies 11 Participants Last post by  specialk
Hi all,

I'm looking for some advice on how to make sure I start off my financial journey on the right foot. I graduated about 2 years ago and have worked hard to save money by living at home. I'm looking to move out next year (spring/summer) in the KW area.

Some basic info:
Salary: $70k
Savings: $55k (ING savings acct)

Investments (80/20 split of equity/bonds in index funds)
RRSPs: $13k
TFSA: $5k
Non-registered: $12k
Monthly investment purchases: 28% of gross income

I'm debating whether I should look to rent or buy when I move out. I'm skeptical of buying a house (around $250k in KW), because it would require me to reduce my recurring investment purchases (plus the potential instability in the housing market). I'd like to live in a nice place, so it would be around $1000-1100/mo for rent. I could look at buying a condo (monthly cost not much more than renting), but I'd worry that I would not want to live there long enough to make it worth all the fees when I need to sell it.

I know the early years can have a big impact on my financial future, so I look forward to any advice that you can share. I think one of the things I really struggle with is trying to balance saving for the future with living for today. Currently, a large part of me just wants to invest like crazy and accumulate a huge sum of money, but I wonder if later in life I won't regret spending more when I was young.

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Another way to think about these issues is from lifecycle and human capital theory.

The human capital perspective holds that when you are young, your largest asset is your human capital, which can only be monetized slowly over years.

From that perspective, it makes little sense to take your financial capital (a relatively small part of your overall balance sheet, human capital included) and invest it in a large, illiquid, undiversified asset class such as a principal residence.

Instead, you should wait until you have a significant downpayment, so that you aren't overallocated to real estate and human capital from a holistic balance sheet point of view.

Just food for thought. (And if real estate "always goes up," you can capture that growth by investing in REITs.)
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