# Debt Free! now what?



## WHR_SPUR (Apr 9, 2014)

Hello,

So just last month I made my final payment on my personal line of credit. This debt was accumulated through living outside of my means and has taken me 4 years to pay off. Now I’m trying to figure out what is the best approach for reaching my financial goals with the money which I no longer have to use for debt repayment. I'm 28 years old and make roughly $65,000 a year plus a small bonus. I contribute 4% to my company pension every pay and my employer matches 4.25%, current balance on the pension is about $12,000 . RRSP I contribute 6% every pay and employer matches 3% of pay, current balance is about $7,000 and contribution room of roughly $50,000. I have never previously contributed to a TFSA therefore my contribution room for 2014 is $31,000.

I currently have an amazing deal with a friend in which I live rent free in his basement suite. The house is given to him by his employer, and in exchange for living in his basement I just have to help out occasionally. Because of this I am able to now save an average of $1,500 a month, some months are more, some months less as until now I didn’t have any savings for things like new tires.

My financial goals are as follows and are not in order of importance to me: 

•	Save up for a down payment for a house. I live in Calgary area so this is a bit daunting. I am thinking of using the RRSP First Time Home Buyers Plan for part of this. I do not have a set time period to get into the housing market at present. Mostly because I feel the market in Calgary is overpriced and I don’t see the value of the homes being this high. Also, as I’m currently not in the market, I’m hopeful with the rise of interest rates in the future those individuals who maxed themselves out will cause the market to decrease even slightly and allow me to enter at a reasonable point.
•	Establish an emergency fund. I feel $15,000 or roughly 3 months gross pay is good for now which would likely be saved in a high interest TFSA at 3% with Peoples Trust with the exception of below. I do still have the line of credit open with $17,500 available but don’t believe relying on this as an emergency fund is a good idea.
•	Save $3,000 to maintain this as a balance in my bank account to waive the $12.95/ month fee. I have been with this bank since I was a young kid and feel that there will be a benefit in the future to being with a “brick and mortar” institution. This $3,000 would be considered in the balance of my emergency fund.
•	Open a TD e-series TFSA account to complement my pension and RRSP’s. Investing in Index Funds.

From now until the end of the year I will be able to save roughly $15,000. I know my first goal is going to be saving the $3,000 to waive my bank fees every month, and I should be able to achieve this by July 1st . After this I need to save a minimum of $1,000 to open a high interest TFSA with people trust. Due to my best friend having his stag in Las Vegas in July ($1,200), and my pay being semimonthly, I project that I will have $2,400 to deposit and open the account August 15th.

My questions are therefore

1.	Should I be building my emergency fund exclusively first? Or should I use the freed up money to contribute to multiple things at once like emergency fund, TFSA for retirement, and possibly additional RRSP contributions once I have enough saved to open the TFSA with Peoples Trust. I’m conscious of the effect of compounding for my retirement and savings so I’m worried I am losing out if I don’t.
2.	Is my plan so far a good one?

All comments and suggestions are welcome.

Thanks


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## Butters (Apr 20, 2012)

You are doing great!

1. 3k bank, then 3% TFSA, if you think you'll be buying a house and using home buyers, you may want to start say 4k in 2014, 6k in 2015 or something to get closer to the 25k allowed... also if you plan to buy a house within the next 4 years or so, the markets might not be the best place to store your money, but 10+ years market all the way!

2. Very good plan! Although you say you have 1.5k extra a month now with no rent, once you buy a house that money will disappear quick. Do you eat out often? Alcohol? I'd like to see that number over 2k


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## randomthoughts (May 23, 2010)

Sounds like you have your stuff together. You've got an enviable living situation and seem to be making the most of it. You didn't provide quite enough to run the numbers, but in broad strokes it looks like you're doing well.

Personally, I wouldn't stress over the $3k to waive the bank fees. I disagree with the need for a physical bank (the age of getting favors because you're a long time customer seems over) - however, if you're keeping it, the $3000 you keep there will save you $5.45/month compared to sticking it in the PTO TFSA savings account at 3%.

But all that is just details - I think as long as you're saving money, you can't go far wrong.


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## crabstampede (Feb 28, 2014)

Looks like you're in quite a comparable situation to me. However, I own my own house already (in Lethbridge), and I just thought I'd say this to you:

Get a house where you can rent the basement out if you must have one.

Adding up all the expenses like taxes, maintenance, utilities, insurance, etc. makes owning a house quite expensive. Truthfully, it costs about the same as staying in a (cheap) hotel every night, except you keep it and have to fix everything.


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## gladaki (Feb 23, 2014)

crabstampede said:


> Looks like you're in quite a comparable situation to me. However, I own my own house already (in Lethbridge), and I just thought I'd say this to you:
> 
> Get a house where you can rent the basement out if you must have one.
> 
> Adding up all the expenses like taxes, maintenance, utilities, insurance, etc. makes owning a house quite expensive. Truthfully, it costs about the same as staying in a (cheap) hotel every night, except you keep it and have to fix everything.


I am 30 bit older than you 
quite similar position like you only difference is I am married ..and spouse is in school.
Though net assets is 2k$ for me and 27k$ for spouse..RRSP 2000$
rent is 1000


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

This sounds very good. Congrats on paying off your loans. Hopefully the debt will not be repeated in the future. Now your disposable income can go towards savings rather than paying debt. 

I agree that housing should be a low priority for you. It's too expensive right now and the costs and effort of maintenance basically constitute a second job merely to maintain what you have. No thanks. I am quite fond of the relative freedom of renting. But that does NOT mean to become a landlord and rent out property as suggested above. That is a whole other topic that should not be a consideration for you, given you know NOTHING about this.

I am glad you see the importance of an emergency fund. We agree that this is very important (and even moreso if buying a house) but 3 months is nowhere near enough. 6-12 months is a better goal to have. See my sig file for a discussion about tiered savings. Saving that up will take you a while. In the meantime, ignore the oft-repeated rhetoric that money in a savings account is being wasted. For your emergency fund it must be cash.

If you are interested in investing (but remember saving up your emergency fund must come first AND those funds must be separate from investing play money) I feel it is worth spending the time to learn about investing in stocks rather than passive index funds at this point. Use your age to its advantage.

Good luck.


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## crabstampede (Feb 28, 2014)

the-royal-mail said:


> But that does NOT mean to become a landlord and rent out property as suggested above. That is a whole other topic that should not be a consideration for you, given you know NOTHING about this.


I don't see what is so special about stock investing that makes it worth learning NOW over how to collect a rent cheque and not get sued. The complexity of the stock market is much much greater than the relative common sense of property management. It would frankly be foolish to not at least consider it.


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## Marguerite Gilmore (Apr 10, 2014)

You are doing great and all the best for your future...


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## carverman (Nov 8, 2010)

This CMF reply thing is BROKEN Unable to do a reply with QUOTES. ONLy get a blank page....like a clean sheet of paper to reply.

TO: the OP: This is coming from a retiree...who got screwed by company (DB pension) an ex-wife that took me to the cleaners and then wanted to bury me financially and a surprise mid-life
health crisis.....PUT AS MUCH AS YOU CAN AFFORD INTO THE TFSA....you will be glad you did...if you have $14,000? of contribution room..use it as much as you can and build up that TFSA
so you can use it as a "working fund" when necessary for any reason you need to withdraw from it. Sure, it doesn't pay diddly squat compared to some other investments out there..
BUT when you need some money for house repairs (like in my case this year) or appliances etc..you got money without those hassles of trying to get it back from investors.

As the "Orange Dutch guy" used to say on the TB commerciaks...'SAVE YOUR MONEY!"


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## Abbie Darcy (Apr 10, 2014)

No matter what your situation, you should strive...


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