mortgages, rrsp's and the 20% rule

[descartes]

Hello.

There`s a great thread that talks about RRSP investments (tis the season) which got me started thinking about investing in a home vs. investing in RRSPs...
fyi:
https://terb.cc/vbulletin/showthread.php?t=105925

First off, I am a big supporter of maxing out one`s RRSP contributions. I have done so in the past, but not every year. Last year I purchased my first home and have a substantial, but (so far) manageable mortgage.

The rule of thumb that I have subscribed to is that if I can invest 20% right off the top of my gross monthly income, I am doing ok - whether that be into registered or non-registered vehicles. Understanding that there are huge tax incentives to invest in RRSPs, let us simply agree for now that there are pros and cons of investing within and outside of an RRSP.

These days it is simply not feasible for me to reach my 20% monthly investment benchmark ON TOP of my mortgage payments. The GDS (Gross Debt Service) ratio for a new mortgage applicant cannot exceed 32% of gross monthly income. Assuming someone (ok, me) is paying 32% a month into my own mortgage, does that not count as a 32% (i.e. more than 20%) investment per month? I am investing in real estate, and hoping to make a healthy return in the long run -- at least comparable to the returns one would expect from say, an equity growth mutual fund.

It would seem quite onerous to earmark 32% of my gross towards the mortgage PLUS another 20% in other investments. That would be 52% of my gross being squirreled away.... after taxes are taken away what I am left with to eat, clothe, and hobby???

Sorry for the convoluted post. I guess I`m just trying to make myself feel better for no longer being able to invest 20% a month. Am I a bad investor? Am I living the life of the grasshopper?

Please discuss and feel free to tell me I`m out to lunch.

Thanks.
D.

 

[fuji]

Part of your mortgage payment certainly can be counted as savings--the part that goes to capital. It is silly to count the money you pay in interest as "savings", though. Let's say your mortgage payment is $1500/month, of which $500 is repayment of principal and $1000 is interest. In that case the $500 counts as your savings.

 

[james t kirk]

Welcome to the club.

It's all nice and everything to be able to say "I think I should save 20% of my salary in RRSPs"

Great if you can do it and live at the same time.

Most of us can not.

If you are single like I am, have a mortgage, a car payment, property taxes, insurance, gas, hydro, bell, water, cable, food, all those pesky one of payments everytime you turn around, there isn't much left.

I have simply resolved that I will keep working till the day I die.

In-Debt?

It's my middle name.

 

[fuji]

...don't forget $ for screwing hot women...

Important to budget for that carefully. In my case that chews up about 20-25% of my after-tax income. Fortunately I am lucky enough to have a good income. Roughly I save 20%, spend another 25% on my home, and pay all my life/vacation expenses out of the other 30-35% (I live a pretty frugal life, other than screwing hot women a couple of times a week).

A couple of years ago I had to get draconian with myself, though, to prevent screwing hot women from chewing up every available dollar. Limiting myself is so painful.