# Use of Money Advice



## Dawson (Jul 13, 2011)

Good Afternoon!

I am hoping to get some feedback from the group on how I should best utilize a chunk of money.

I currently have an accumulated balance of about $25k sitting in a bank account (which I know is not a productive use for it!).

My question is what would you do? I have a loan at 4% rate that has about $22k balance left I'm putting about $1000/month towards to pay down. I also have a good chunk or room in unused RRSP space (around $20k). Would you pay off the loan or put $$ towards RRSP space.

Or would you do something different entirely?

I am in the top tax bracket also.

Any feedback/thoughts would be greatly appreciated!


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## m3s (Apr 3, 2010)

I would probably do half and half since you're in the high tax bracket myself. Just don't put so much in RRSP that it takes you into a lower tax bracket, better to save it for the next year if you'll still be in the high bracket. I wouldn't invest $25k all at once either. At $1k/month the debt is paid off this year and then that $1k can go towards RRSP

Paying down the debt is 100% tax free guaranteed 4%, whereas the RRSP is tax differed until withdrawal and unknown return %. Chances are RRSP would do better however you could put $25k on the market all at once and it could correct or be flat for years, whereas the debt is guaranteed 4% savings tax free.. Pretty hard to get guaranteed 4% tax free anywhere


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## jamesbe (May 8, 2010)

Well you are guaranteed a 4% return on the loan if you pay it off... Then you take that $1000 a month and put it in your RRSP.

That's what I would do...


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## Jungle (Feb 17, 2010)

Pay off the loan asap then what ever is left over, dump all that in your RRSP. 

The loan is costing you a lot of money in interest, while your cash is making nothing sitting in a chequing account. 

What ever you have left over, put that in your RSP and use the $1000 payment to put in your RSP. When you get the refunds from the RRSP, put it back in the RRSP, TFSA or pay down your mortgage.


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

I agree with the above. Pay off all debt first. The longer you keep the debt alive, the more you have to pay 4% interest. Why do that when you've got the money to pay it off.

After the debt is paid off, with your ability to save you should be able to implement some savings tiers for yourself. Details in my sig file.


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## Dawson (Jul 13, 2011)

Thank you everyone for your responses. Done and done! Putting the main funds towards the line of credit to get it cleared away.

I will likely post a new reply regarding saving as there are more items to consider after I read some of the details of the other posts.

For example, my current situation is as follows: 

Assets: 
~ 25k RRSP
~ 90k Company Stock (vesting evenly over 4yrs) current vested $20k
~ 600k Cottage Property (no mortgage)
~ $300k Loft ($240k)
~ $22k Vehicle (fully owned)

Liabilities:
~ $240k mortgage

Whats triggering my post is for my age (27) I have a very healthy annual earnings (average $140k/yr) which will top $200k this year (one off banner year). I am very stable in my job. I will also likely receive another $75k in company stock this year based on my performance(again vesting evenly every quarter over 4 years).

I'm trying to decide what my investment strategy should be and where I should be putting it. I do have a healthy acceptance for risk (I understand I am young and single and afford to take a loss).

Any thoughts from others based on their life experiences?

After reading some of the posts from this board there is a great amount of solid advice. Looking forward to any comments on where I stand!

Thanks!!


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## slacker (Mar 8, 2010)

4% GUARANTEED after tax return on investment, equates to maybe 6-7% before-tax return? Not a bad deal. You will not find a better investment on a risk adjusted basis.


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## Abha (Jun 26, 2011)

Pay the loan out entirely. Maximize the TFSA contribution room first, then RRSP. 

IF you still have money left over and you have a spouse, consider doing a spousal contribution to the same aforementioned accounts.


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## KaeJS (Sep 28, 2010)

Abha said:


> Pay the loan out entirely. Maximize the TFSA contribution room first, then RRSP.
> 
> IF you still have money left over and you have a spouse, consider doing a spousal contribution to the same aforementioned accounts.


I would try to hit the RRSP before the TFSA, just because you're in the highest tax bracket, it could be very beneficial for you on a tax-deferral standpoint.

The TFSA is a great investment, but you could probably save more in taxes putting your money towards the RRSP. The money you save in taxes could be used for your TFSA contributions. 

For people like myself (33k/year) TFSA is a better option than RRSP, but for yourself, since you are in the highest bracket... I wouldn't be so sure.


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## Jungle (Feb 17, 2010)

He already mentioned that he is now paying off the loan, or LOC as he called it, later in the updated post. 

One thing that drew a red flag was having such a large amount of your investments in one company stock. Be sure to dervisify and not have all your eggs in one basket. Be sure to build other investment portfolios to offset having so much money in one stock. 

Check out www.canadiancouchpotato.com for some sample portfolios using index funds.


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## financialnoob (Feb 26, 2011)

I agree with KaeJS. After paying off the loan, RRSP first makes sense since the tax savings could be used to fund the TFSA.

Question about your RRSP room. You mentioned you have around $20K room. For someone with your income level, you should have a lot of room from previous years carried forward though since you have $25K in RRSPs. Am I missing something? I'm guessing maybe some money was put in but pulled out for the properties?

I like the idea of selling off the vested part of stock. You'll still be heavily invested in your company, but you could use that money to work towards maxing out your RRSPs and TFSA. 

You mentioned you've got a healthy acceptance of risk. One idea might be to use the RRSPs a bit safer, and be more aggressive with the TFSAs since the gains on that will be tax-free even when you pull the money out of your account.


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