# New Grad Advice? Emergency Funds?



## jackrod3 (Jan 8, 2015)

I recently graduated from university, I'm 22 years of age, living with my parents with an OK paying job. I've been saving money in an RRSP (minimal). I have roughly 1600 saved in mutual funds. I've been wondering whether or not I should take some of that and put into a savings account for EMERGENCY purposes or start from scratch. I'm a firm believer that minimum amount of saving now will help me down the road for my retirement.

Additionally, I'm 26,500 dollars in debt with school (LoC @ 5%) and a car loan(4.95%) for roughly 8500 at the moment. The LoC will soon be in repayment mode. What would be the best one to make larger principal payments on?


Thanks!!!


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## Guban (Jul 5, 2011)

Is there a reason you are saving in your RRSP, instead of your TFSA? I assume that your taxable income will be rising in the near future, since you recently graduated. Contributing to your RRSP later would allow a larger deduction. Plus money in a TFSA is easier to get at as an emergency fund. Taking money out of your RRSP will cost you in increased income taxes payable. 

Do you really need an emergency fund? You still have access to your LoC, don't you? As such, you can use that as an emergency fund, and concentrate on debt repayment. Why pay a higher interest than you will make using cash in an emergency reserve?

As to debt payment, I assume that the LoC interest payments are not eligible to receive the student loan credit amount, so get rid of it first as it has a slightly higher interest rate.


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## My Own Advisor (Sep 24, 2012)

I'm with Guban...

When I was a young grad, other than partying, my focus was:

1. Get out student debt and any other credit card, car loan debt, then after all debts were free and clear, 
2. Have a small emergency fund ($500-$1,000), then
3. Establish my self-directed RRSP.

TFSAs were not around then. I would substitute #3 for the TFSA now.


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## protomok (Jul 9, 2012)

I would stop contributing to the RRSP and redirect that money to a high interest TFSA savings account which will be a much more accessible emergency fund. I use a People's trust TFSA which has a 3% interest rate.

In terms of debt repayment I would focus on the higher interest loan, i.e. the school LOC.

IMHO building an emergency fund is a higher priority than debt repayment but I think splitting the savings into an emergency fund AND debt repayment is fine too.


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## tygrus (Mar 13, 2012)

1. get out of debt as fast as you can

2. don't waste your money on depreciating crap

3. start establishing alternate source of income for yourself. This should be your emergency income, not fund. In case you ever are unemployed or need to switch jobs or eventually in retirement.

Millennials are facing a very uncertain future regarding jobs and funding for all the boomers. Don't assume what your parents did will work for you. You need to create your own income protection now so it will be ready for you in 10-20 years.


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## HaroldCrump (Jun 10, 2009)

tygrus said:


> 3. start establishing alternate source of income for yourself. This should be your emergency income, not fund. In case you ever are unemployed or need to switch jobs or eventually in retirement.
> Millennials are facing a very uncertain future regarding jobs and funding for all the boomers. Don't assume what your parents did will work for you. You need to create your own income protection now so it will be ready for you in 10-20 years.


Very good advice.


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## gibor365 (Apr 1, 2011)

> 1. get out of debt as fast as you can


 should be you number 1 priority..... RRSP can wait... your room will be always available for future contributions


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## tygrus (Mar 13, 2012)

Honestly, I had a very negative experience with the world of work. As a bright eyed grad I was so eager to get out there and make a mark for myself. I found out pretty quick that office politics, type A psychos, unfair policies, lack of advancement and flexibility in addition to a culture that values suck ups torpedoed my dreams pretty quick. I could have accomplished so much if didn't have all that people junk to deal with. Its really demotivating and you can't change it. Either tow the line, or leave, so I left to create my own deal and couldn't be any happier.

Sit back in your chair one day and imagine yourself where you are at age 60. When I did I became so depressed I laid plans for my exit. Now no man will ever give me a stupid order.

If I had to do it all again, I would have put my head down as a new grad and saved every penny until I could exit sometime in my 30s. I did it a different way building a business with debt.


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## donald (Apr 18, 2011)

I honestly don't think there is anything wrong with carrying *good* debt.(few have only all assets and no debt)
I don't mind personally the two prong approach(for the reason of getting in the habit of balancing and allocating and managing money,the reality of life is you are mostly likely going to have this 'challenge' in the near future)
Obviously paying the debt off makes the most sense from a numbers point and the only problem i see in it is the chance the day may never come?(i am not a big fan of waiting for this or that)if that makes any sense.
Prob zero will agree with my but it is a way and it has worked for me
*the danger of waiting till there are blue skies*life often does not work that way.


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## hordak (Jan 8, 2015)

Hi Jackrod3,

With my wife recently back in college and amongst much younger people right out of highschool, I've thought a lot lately about how I would redo things if I were coming out of school, and advice I would give my younger self. All good advice given so far, but here's my two cents.


Create a small emergency fund in a high interest savings account. By the sounds of it, $500-1000 may suffice since you likely have low expenses. I myself am not a fan of using credit as an emergency fund, and would suggest it's best to get in the habit of having a bit of extra cash on hand early on. As you get older, increase this to cover your various emergencies as required. (house maintenance, car maintenance, job loss, etc).

Focus on paying down your debt as fast as you can, with the highest interest debt first. Once you've eliminated this, try to always stay debt free, with the exception of a mortgage. Never carry a balance on your credit cards.

Unless you are earning a high salary, I would not think of RRSPs at this point. The exception being if your work has an RRSP match, then contribute up to the point of match and no more. Try to do some self education on tax brackets, and maybe fool around with some tax software (studiotax is free, for example) just to see the impact of RRSP contributions at various salary levels. You'll more than likely want to save this RRSP room for when you'll be in a higher tax bracket.

Max out your TFSA. (remember it's not just a savings account. you can hold funds/stocks too). I wish this had been around when I was younger, as I would have much more RRSP room today than I have now.

If possible, try to stay living at home for as long as you can stand it (and your parents will let you), to get your debt under control. Even if you pay some rent and contribute.. who knows, they MAY end up giving it back to you as a downpayment for a house down the road if they are financially able to? 

Use a budget to prioritize your spending each payday, and be proactive instead of reactive. For example save money up front for car insurance, and pay it in one shot for the year instead of doing monthly payments. Doing this saves admin fees, plus you can always use this saved cash throughout the year as a quasi-emergency fund if you need....

If personal finance is an interest of yours (obviously, you're here right?) keep reading the various blogs such as this forum, Milliondollarjourney.com, Canadian dream free at 45, etc and you'll get various tips and motivation to stay on track. The job situation is not like it was even 20 years ago. Pensions are few, and jobs are not stable like they used to be. Try to always live below your means, so that you're not caught off guard if/when things happen. If you do things right, you may even be able to make retirement, or reduction to part time employment a possibility by your 40s. That is my plan.

Sorry if this is long winded. Good luck!


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## Tawcan (Aug 3, 2012)

I'd echo what Guban and Mark (My Own Advisor) stated.

-Concentrate on paying off your loans as quickly as possible.
-Focus on TFSA right now instead of RRSP. I'd save up your RRSP contribution limits and use them later once you make more money
-You noted that you're investing in mutual funds. I hope the MER isn't high. If the RRSP is tied to work so you're force to buy mutual funds, make sure to pick something with low MER's.
-If your job is stable and you live at home you can probably go by with a small amount of emergency fund. Best would be to reduce your monthly spending so your spending is WAY less than your income.


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## banjopete (Feb 4, 2014)

All great advice. As an alternative to the classic money talk, in the light of a previous response when I think what I'd say to my younger self: 

1. It's never easier to go to school or get more designations (grad school) post degree tech programs etc than when you're young and living at home (what's two more years of deferred student loan payments interest free right?)
2. Get involved with the free parts of your chosen career path whether it's volunteer groups, professional bodies, local special interest groups etc. These are great places to meet and interact with people of different backgrounds that might or probably are doing things you'd like to do/could do/might get hired to do in the future. Most of the jobs I've had over the years have been through friends and colleagues. This way you can get experience in project planning, small group politics, budgeting, and supervision so when that job comes up with some skills most of your peers might not have had a chance to acquire guess who looks better?
3. Lastly I'll go with the best answer, save early, and save often, make it a habit, and you'll be surprised how fast the money accumulates and the freedom it gives you in so many ways.

Google eff you money too for a kick, there's a guy J. Collins who appeared on a podcast of the madfientist that was an enjoyable listen and for a young fella like you it's a great time to hear it.

Have fun!


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## TobyGossett (Jan 7, 2015)

What tygrus said really hits home. The money you are actually putting away does not have to be a great deal of money – but it is money that you are putting away in case something goes wrong. This is what you need as a buffer, which is vital because you never know what might happen.


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## donald (Apr 18, 2011)

just curious mark and others.
Everybody that says clear debt (which is fine advice)
But you guys that are saying that do you guys carry mortgages?if so why are you funding tfsa accounts with equities?(or is that different?)
Why not put the tfsa on hold and pay off the mortgage in full?
Only reason I say this is it seems contradictory if it's do this but I dont(or is it because your tfsa can generate and curve higher long after your mortgage is paid)


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## Guban (Jul 5, 2011)

^ this is a really good observation.

Besides having cash in a HISA, or the like, funding the TFSA is definitely more aggressive than paying off a mortgage. Putting money against a mortgage represents a safe, guarenteed, tax free return. Investing in equities in a TFSA is betting that you can generate a higher return. Isn't that exactly what the banks do? Take in deposits when people save or buy GICs, and use those funds to try to get a better return?


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## donald (Apr 18, 2011)

guban you said it better than I could of lol 
That is my argument against always taking the "defensive" approach
Aka:always attacking debt
Carrying good(as long as it is managed and tempered)debt doesn't have to be a bad thing and think there is Baum in getting used to carrying some form of it.
I always cringe when the stock answer in personal finance is defense defense,its like a new grad is always in some type of reduction
Paying off student loans,than paying off a vechile,than paying off a wedding etc etc 
I think its good sense to build ones own ledger from the get go
Meaning allocating monies in columns and having a growth component along side debt reduction.


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## Alistein (Jan 8, 2015)

I would highly recommend you to set aside some money for emergency purposes. We have to admit that most people live payday to payday, and there is truly no avoiding it. If we don't have enough savings to cover these emergencies, how are we about to go about then? That is why it is important to have financial goods such as instant payday cash advances accessible for emergency situations. You can always get the cash and help pay for any financial problem you may have, and just repay it on your next paycheck. Most people would see this in a negative way but I still think that they're a great help. They're one of the things you can rely on when you have no extra cash anymore.


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## My Own Advisor (Sep 24, 2012)

donald said:


> just curious mark and others.
> Everybody that says clear debt (which is fine advice)
> But you guys that are saying that do you guys carry mortgages?if so why are you funding tfsa accounts with equities?(or is that different?)
> Why not put the tfsa on hold and pay off the mortgage in full?
> Only reason I say this is it seems contradictory if it's do this but I dont(or is it because your tfsa can generate and curve higher long after your mortgage is paid)


Very fair question Donald 

Yes, we carry a mortgage. But, we are funding our TFSAs and RRSPs to build assets at the same time as killing debt because our current cash flow can sustain it, at least for now. If we had limited cash flow, and had to pick a fat mortgage or investing, if just starting out, I'd pick the debt 9/10.

Debt is a major ball and chain for us.

As I get older and the mortgage debt is coming down, I feel I can start investing more, which I have done. 

Once my mortgage is very low, and if rates remain low, then I will shift even more to investing over debt payment - because I can make more money in TFSA and RRSP via returns vs. the guaranteed rate of return on my mortgage.

Because we are able to have some lump sum payments on our mortgage, and we have some income for our TFSAs and RRSPs, then this is where our balanced approach comes in. 

As a new grad in particular, just starting out, with little assets, best to get out of debt if you can before taking on more (mortgage, car) debt later in life.


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## Rusty O'Toole (Feb 1, 2012)

I'm 63 years old and NEVER had an emergency fund and see no need to have one. Save your money and invest it, certainly. But don't have thousands of dollars sitting idle just in case.

Have I ever had an emergency? Sure I have, and how. So how come I am not dead?

If you have your money invested in stocks, GICs or some other conventional investment, you can get the money in 3 days or less if you have to.

In the meantime, if I need money right now, I have credit cards and lines of credit. I could easily raise $100,000 or more at any time. This facility costs me practically nothing unless I use it. Incidentally, you should be working on your credit rating. Good credit is a valuable asset if you know how to use it for things that make money. Do not use it for things that cost you money.

For major emergencies like a car wreck, house burns down etc. I have insurance.

You should have money put by but it should be working for you. It should not be sitting idle "just in case". Any so called investment adviser who says different has very little credibility.


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