# My finances and goals



## JC NewGrad (Jun 2, 2009)

I thought posting this info might keep me motivated. If you have any input, feel free to let me know!

ME:

I’m 28, live in Toronto, and I currently make $43,000/yr.

I finished school last year and have a $7500 student loan (4.5% interest rate), but no other debts.

I currently have: $2000 in my chequing account (to avoid bank fees); $3000 in my e-series RRSP (just started last year and I do a 25/25/25/25 bond/cdn/US/intl split); $2500 in emergency savings (high interest TFSA); and $1500 in my e-series TFSA (40/20/20/20 bond/cdn/US/intl split).

SAVINGS PLAN OF RIGHT NOW:

I contribute 5% to the company pension plan (a defined-contribution plan that my company matches) and 2% to the share purchase plan.

After those deductions, taxes, EI, CPP, etc., I bring home $1180 every cheque (or $2500/mth).

Expenses usually work out to about $1600-1700/mth.
(This includes my portion of the rent, my $240 student loan payment, phone/net, hydro, groceries, gas, insurance, eating out, etc.)

Every cheque (biweekly), I automatically contribute $100 to my e-series RRSP and $100 to my emergency savings high-interest TFSA. Once a month I automatically contribute $150 to my e-series TFSA.

I know these are smallish amounts, but it works out that I am saving more than 15% of my gross income, not including the pension and share plan contributions. If I made more, I’d contribute more 

GOALS:

My goals are to maintain my current savings level, which means I will get my emergency fund to $5000 by the end of this year, and, when that goal is reached, start contributing $200/chq to my RRSP (instead of 100 to RRSP and 100 to emergency savings).

By the end of next year, I’d like to pay off my student loan (interest rate is 4.5% and tax-deductible, so I’m not in a huge rush), which will free up an additional $240/mth. for RRSP and TFSA contributions.


----------



## the-royal-mail (Dec 11, 2009)

That sounds great - one of the more down to earth plans I've seen. Keep up the great work!!!

Only thing I would mention in passing is that emergency savings should ideally be enough cash on hand quickly to help you make it through 6-12 months (unaided) with no income. Based on how long it takes some people to find work at times that is not as crazy as it sounds. So you may want to consider a goal of having around $15-20K in your emergency/rainy day savings account. RRSP funds do NOT count towards this. Those must be protected at all costs IMO. This amount needs to be cash that is readily available on a moment's notice without major penalty, fees etc. Cashable GICs, TFSA, high interest savings accounts etc.

Also, this amount is NOT to be raided to buy a new car, new electronic toys or other such things. It is an emergency fund ONLY, to cover you in case of job loss, car accident (when you suddenly need to buy a new one), disability or other such adverse life problems. I was also going to add divorce in there but that's a different can of worms.

Lastly, you might enjoy reading a thread I participated in recently, where someone recommmended 3 tiers of savings. It's a good read if you can pull up that thread. Based on the excellent plan you outlined above I think you'll like that discussion.


----------



## JC NewGrad (Jun 2, 2009)

thanks for the input, royal mail. i checked out that thread on 3 tier savings and got a lot of out of it.

to be honest, i have somewhat mixed feelings about emergency funds. i like the security of having extra cash on hand, but i also feel like it is just sitting there doing nothing. to find a balance, i decided to put in $5000 and then move on.

i chose this amount for a few reasons
1. because i have a very secure job.
2. if i had to, i could get my monthly expenses down to about $1000 mth.
3. i also have my TFSA i could dip into and LOC (and my parents...hah) i can go to if cash runs out and i'm desperate.

thanks so much for you comments though. there's lots to consider.


----------



## high octane (Jul 21, 2009)

Maybe it's logistics but I would rather have the higher bond allocation in RRSP vs TFSA (since the TFSA growth is tax free)

At our age 40% bonds seems to be a lot. I am aiming to allocate a lot more to Cdn or US equities, but these are uncertain times


----------



## Spidey (May 11, 2009)

I would say that you are right on track. The best advice I could give is, with the exception of a mortgage, not to run up any non-deductible debt, particularly credit card debt. I would also advise to take out one financial book from the library per month. Not to discount the previous advice, but I think how much of a cash reserve for an emergency fund can be very individual. I've personally found that if I remain debt free that I can easily be comfortable with one or two months salary in cash. In fact when I had a mortgage, I always put any spare cash towards paying that down and kept very little as a reserve. I guess it depends on the security of your employment, what types of emergencies that you would anticipate and if you are saving for something (eg. a car or a down payment).


----------



## Saniokca (Sep 5, 2009)

If I were you I would stop putting money into RRSP and put it into TFSA instead. The reason is taxation. At your income level the taxes are quite low so it doesn't make sense to defer them. This is my personal opinion - maybe others will comment?


----------



## Cal (Jun 17, 2009)

I contribute 5% to the company pension plan (a defined-contribution plan that my company matches) and 2% to the share purchase plan.
Every cheque (biweekly) said:


> Just wondering if the 5% company pension plan contribution was the maximum allowed, and if it was held in an RRSP as well?
> 
> Same with the 2% SPP?


----------



## steve41 (Apr 18, 2009)

I wish the financial institutions, or better yet, the feds, would publish stats on savings rates based on age. Twenty eight year olds shouldn't obsess about their savings rate (or lack of). They should concentrate on securing their career, acquiring a home, raising kids. Most plans I have seen, don't really get into a major savings mode until into their forties. The main driver of this phenomenon is that a person's major asset -their career- is never measured as a single quantum. Your career (paychecks coming at you over time) has a major growth component -well in excess of inflation.

When you take career growth, paying off house mortgage and increased costs of early child rearing, you will find that a classic plan will have little to no savings in early-mid career, and the the bulk will come post 40.

My observations.


----------



## FrugalTrader (Oct 13, 2008)

As your employment is secure and offers a DBP, I would put emergency funds + monthly cash flow into your student loan debt until it's paid off. After that, I would max out the TFSA before RRSP (as Saniokca mentioned). If you retire with a DBP, a TFSA will be much more tax efficient than an RRSP (counting clawbacks etc).


----------



## MoneyGal (Apr 24, 2009)

Here you go, Steve41 - a CANSIM table which allows you to break out data by the age of the saver. But it isn't free, so I don't have the data to share.


----------



## steve41 (Apr 18, 2009)

I wonder if they differentiate by singles, dinks, full-nesters, empty-nesters, renters, home owners. I has to be all over the map, surely.


----------



## JC NewGrad (Jun 2, 2009)

thanks for the feedback, everyone.

your comments have given me some things to think about, especially in regards to the TFSA rather than the RRSP.

i also think steve brought about some good points about savings rates in different stages of life, and i'm sure my plans will go through MANY changes in the next few years. that said, i don't think having some goals and plans in mind at 28 constitutes obsessing so much that it will necessarily interfere with the pursuit of job security and raising a family. but i see what you're getting at...and i agree that keeping the bigger picture in mind is important.

in regards to my pension plan: it's a defined contribution plan, and, yes, 5% is the maximum they will match.


----------



## MoneyGal (Apr 24, 2009)

I keep thinking about one of the assumptions that Steve41 made - that is, that wages will grow faster than inflation (and hence the optimal choice for a 28-year-old is to invest in his human capital and "not worry" about amassing financial capital). 

I'm not suggesting that assumption is wrong - I simply want to point out that it is an assumption. It may well have been true for a previous generation of workers...and it might be true for the current generation of workers, too; I don't know. But I'm not sure I would predicate my personal financial plans _going forward _on an assumption of wage growth in excess of inflation. 

I mean, it's great if it happens. But looking back at my own career (and admittedly, I have NOT had a standard career path), it hasn't been true for me. And I actually think my own path - diverse stints of self-employment plus time off raising kids plus a MAJOR mid-course career change - is becoming the norm. When you spend as much time bouncing around as I have, I would not build in assumptions about consistent wage growth in excess of inflation in my plans. 

There you go, just my opinion. 

(As an aside, I *could* afford to stay out of the workforce for years when my kids were young because of the cash I put aside when I was in my 20s. Cash creates options. I'm never going to diss saving.)


----------



## Sampson (Apr 3, 2009)

MoneyGal said:


> Cash creates options. I'm never going to diss saving.


This is the key.

Just as long as the OP is not sacrificing life fulfillment now to save for later, then its fine. I've been saving my whole life, and I'll look forward to my projected early findependence day. Whether I stop working, shift to part time, I'll have the opportunity to spend more time with loved ones, if I so chose


----------



## the-royal-mail (Dec 11, 2009)

MoneyGal said:


> Cash creates options. I'm never going to diss saving.)


BANG ON.

I really think schools and parents need to do a better job of teaching young people about the importance of saving cash and thus creating options. The more cash you have, the more options you have. No need to deprive and starve yourself. Just manage your money in a way that has some left over at the end of the month, buy small, fun things that you like and pay your bills but ALSO save up in case the car breaks down, you want to buy a house, kids come along etc. If you don't save the cash NOW you WILL have to deprive yourself of some of these things if any of these events should occur.

More cash to your name also gives others less control over you, for instance in the form of loans, high interest and such. If you hate your job you are also not quite as tied to it if you have a mountain of cash sitting in the bank, you can pull the plug if needed and find something else. It just goes on and on.

Options.


----------



## cardhu (May 26, 2009)

JC NewGrad said:


> your comments have given me some things to think about, especially in regards to the TFSA rather than the RRSP.


There is no doubt that TFSA offers greater flexibility than RRSP ... but the suggestion that it necessarily offers greater tax-efficiency than RRSP in your current situation is merely an assumption ... an assumption that may or may not be true, and that cannot be judged based only on the sparse info you’ve provided ... I agree that in your particular circumstances, it MAY be better to focus on using up the TFSA space first before continuing with RRSP, but it also MAY NOT. 

There is a very real chance, in your situation (no DBP) that an RRSP contribution made today would be more tax-efficient than a TFSA contribution made today ... the question, though, is whether delaying RRSP contributions for a few years would offer an even greater degree of improved tax efficiency, compared to TFSA. 

If your expectation is that your income will substantially increase in the future, then it does you no harm to focus on TFSA in the immediate future, and leave the RRSP contributions for later.


----------

