As a recent grad how do I work towards buying a house and saving for retirement?

Do you have a question for Mike Sullivan? Click hereView other questions and answers about personal finance: Click hereI am a recent graduate, single and just starting out in practice as a staff pharmacist. I am currently renting and would like to buy a home within the next 5 years, but also think I should start saving for retirement. What do you think are the best options for doing this?The first thing I would do is look at your cash flow. There is a very useful website www.taxtips.ca/calculators/taxcalculator.htm that will help you assess your monthly after tax cash flows. For example, if you are living in Ontario and making $95,000 per year as a single individual, you can calculate that your take home pay is approximately $67,000 assuming you have not made any RRSP contributions in that year.That works out to approximately $5,500 after-tax per month. From here you can start to do some math to see what your monthly expenses are now, what kind of mortgage payment you could afford (which will help identify what kind of real estate will be within your reach), and how much you would have left over to save.Many people make the mistake of thinking they can afford a much bigger mortgage than they should be looking at, and they end up sacrificing the ability to start investing for retirement. As a result, most of their net worth gets tied into their home over time.I am a very big believer in the need to invest in an RRSP and/or TFSA early on so you can start to benefit from the magic of compound interest. If you don’t start the discipline of saving early, it can have a profound impact on your future.For example, let’s say you were able to put $1,000 away in savings every month and contributed $12,000 per year into an RRSP (leaving you with $4,500 after tax to play with per month plus the amount you would receive back as a tax credit for contributing to an RRSP). If you assumed an average return of 7% per year, if you start at age 27, by age 65 you would accumulate $2,070,732 in your RRSP.If you waited until 35 to start investing, by following the same $12,000 per year RRSP contribution as above, you would only end up with $1,133,530 in your RRSP.Look at the difference—by waiting seven years to get serious about saving, you cost yourself nearly $1 million by age 65!! Most people really do not appreciate the power of compound interest... the earlier you start saving, the better of youwil be.If you are looking to by real estate, be careful not to buy something that puts too much pressure on your monthly budget so that you have no room to save and invest elsewhere. Many of the banks (i.e. TD CanadaTrust and RBC) have online calculators that will allow you to see what you can afford mortgage wise.Some real estate purchases are great deals, and others aren’t so great —especially in red hot real estate markets like Toronto and Vancouver where prices are increasing at a rate that far exceeds the rate of growth of people’s earnings, so be careful and take your time in finding the right real estate investment.The other thing is that if you start investing in an RRSP now, if you needed to, you could withdraw money from your RRSP tax free in three or five years time to put as a downpayment towards your first house (provided you pay that amount back to your RRSP over next 15 years).Good luck!Experts are available on a variety of pharmacy-related topics. Click here

As a recent grad how do I work towards buying a house and saving for retirement?

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