# save, save, save



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

I am doing well towards my goal of having a minimum of 3 savings tiers set aside, which includes emergency savings as well as retirement savings. But it's not nearly enough. I never realized how much money I really needed until I started segmenting things by tier:

*tier 1*: goal of $15K will be met by end of 2011 (all things remaining equal)
*tier 2*: immediate goal of $15K met, will be increased by $5K in 2012. TFSA holds my tier 2 money.
*tier 3*: RRSP as an investment has performed well but really needs to be beefed up in terms of my contributions. 
*tier 4*: this is the one that worries me. I've spent the last 2 years saving hard for tiers 1 and 2, and have been unable to put anything into tier 3 or into phantom tier 4. I am going to start thinking about this in the years ahead and basically planning and saving as though I wanted to put 20% down on a $250K house. As much as I like my apartment, this could become a desire of mine. That means I need to save $50K. Wow.

Also, the car may need replacing at some point.

Sheesh. Life is so expensive. I consider myself to be a good saver but I just don't get why so many people are able to get themselves into big mortgages, babies and mega toys when I'm finding it so difficult to save for these things. No wonder there's so much debt in this country.

In any case, I'll keep at it.

Anyone else on a similar track?


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## jamesbe (May 8, 2010)

Tier 1: I have 20k saved up I think I'm good for now 
Tier 2: Well nothing but it's all in Tier 1, does that make sense? Should have $20k in both tiers by year end
Tier 3: Doing well here, I've almost completely maxed out my carry overs from previous years. 

Tier 4: Not sure what this is? Home? If so I own a home but have a rather large mortgage, I "own" 70% of it.


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

Thanks for participating in this thread, jamesbe.

Just curious as to where you have your tier 1 and 2 money stored? POSA? TFSA?

Tier 4 is my tier for when you have something specific you want to save for. I frequently respond to posts from people who want to have a baby and ask if they can afford it. My first question is how well fortified they are with standard 3 tiers of savings, and then I suggest they start a 4th tier for the baby, so the arrival of junior does not impact their standard e savings.

In your case, it probably isn't necessary if you don't anticipate any big ticket purchases over the next couple of years. But if you think you need a new car or want to renovate your bathroom, that's what you can start to save for. Basically save the money first, THEN spend it. Rather than spend and rack up debt and forever be paying off debt.


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## jamesbe (May 8, 2010)

May I suggest you define your Tiers at the top of your first post so others understand exactly?

Currently Tier1 and Tier 2 are sitting in e-savings accounts at the bank. I plan on moving money from the e-savings into my TFSA (slightly higher interest and no tax of course) as soon as my new home purchase closes and all expenses are accounted for.

Since your definition of Tier 4 is something you are saving for. I don't really have a Tier 4 right now. We just bought a new home so no renovating on any large scale, have 2 cars in good shape so I'm good there.

I may want to buy a trailer or something in a few years. But I always pay cash for things, I typically draw out of Tier 1 / 2 which is something I want to stop doing. So I'll have to create that Tier as well, thanks for making me think about that!


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

Good point james. For so long I've operated on a 3-tier principle but I'm starting to think 4 tiers would make more sense. Almost everyone in the workforce has an idea of what their big ticket short term goals are for the next 5 years. But don't feel bad. I had to buy a new car last summer when I was in the middle of establishing my 3 tiers and I ended up using up my tier 2 money so I could get rid of the payments. That money has now been replenished, at the expense of my safety over the past few months. ie. I would have had less cushion against job loss or roof repairs with that new car in the driveway. Adversity tends to happen all at the same time.

For the record, it seems to be a formidable but very difficult thing for the average person to fortify all 4 tiers. I admit that. I've been at this for 2 years and bet I have another 2 years to go before I am properly fortified. Anything can happen between now and then to interfere with that goal.


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## HaroldCrump (Jun 10, 2009)

Good thread and great goals.

I have my own savings tiers set up as follows:
Tier 1 : living expenses for at least 1 year
Tier 2 : large expenses fund (car renewal, home repair/maintenance, etc.)
Tier 3 : house downpayment and/or mortgage payoff fund

I don't have a separate "fund" set up for savings like RRSP, TFSA, RESP etc. because I try to do them on a year-by-year basis.
So far, TFSA is maxed out but still have some catching up to do on RESP and RRSP.

Tier 1 will be complete at some point this year (hopefully within the next couple of months).
Tier 2 has a small amount in it (2K) but requires much more (target is $25K).
Tier 3 is one of the TFSAs (15K) but obviously has a long way to go (target is $75K).

My plan is that once Tier 1 is done, that'll free up cash for the other 2 funds and I can accelerate them.


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## Four Pillars (Apr 5, 2009)

I had to look up your tier system to see where I stand. 

Tier 1 - $20,000 - This is my basic emergency fund. (in TFSA, high interest savings account)

As far as I'm concerned it's fully funded. I think we could live for 6 months on this if we had to.

Tier 2 - $0.00 - I'm not too clear on the difference between Tier 1 & 2 - both are for unexpected events? Seems like Tier 1 & 2 could easily be combined.

Tier 3 - Retirement savings - we're doing pretty good on this, although my goal is get all of my extra RRSP room used up over the next 3 or 4 years. Not easy to do. I wish they would lower the RRSP contribution limits. 

I can see perhaps increasing our basic savings at some point if we want to buy a new car or get the basement finished or do an expensive vacation. I guess this would be tier 4.

We've been focusing on paying down the mortgage (paying down debt is a form of saving). Once that is done, things like retirement savings and more non-registered savings will be much easier.


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

You are both doing EXCEPTIONALLY well - wow, an inspiration for sure.

To clarify, the difference between tiers 1 and 2 is that *tier 1* is the money for you to eat, pay rent, pay hydro bills, put gas in the car and other basic *operationa*l life expenses. Consider your monthly budget and the money that goes out. If you lost your income tomorrow, this is the fund that would replace it. *Tier 2* is for unexpected _*capital*_ expenses such as sudden new car purchase (if your car was in a wreck tomorrow), repairing a sudden roof leak, unxpected child or expensive car repairs, basement flood, kitchen stove gives out suddenly and the like.

Tier 4 differs from this because it is for planned, expected expenses such as your family vacation to Australia next November. Tiers 1 and 2 are for the unexpected life situations, and both must be fortified separately in case the roof springs a leak after you just had a car wreck and lost your job, for example.


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## Plugging Along (Jan 3, 2011)

This has been a really interesting question. Taking the time for me to type it out, has allowed me to think things through more clearly where I stand, and where I can make some changes.

We’ve combined what you consider Tier 1, 2 & 4 altogether. Our expenses are rather high when both my spouse and I are working. For us to keep that much in cash in 3 separate funds for each tier, doesn’t make sense for us. We’re able to keep the amount lower in cash by combining these 3 into one account, and invest the rest until needed. It is a very highly unlikely that we would even need all three at the same time. We would adjust our spending accordingly depending on the situation. 

My equivalent would be something like this
Tier 1 – ~ $20+K sitting in our regular checking account, we have high monthly expenses, and cashflow, so we keep this balance high. In case of an emergency, we would cut our expenses back to survival mode. This amount still wouldn’t be enough to last for 6 month at the ‘survival expenses’, we would go to the next tier if necessary. 
Tier 2 & 4 – For most Tier 2 items under $10 K (I don’t know the exact amount), we can usually just cover off with our salaries. I can’t think of many unexpected items that we didn’t have any forewarning that would be more than $10k. We would just stop spending unnecessarily for a couple of months. In the case that it would be larger than that, then we do have other funds that we keep on hand. This would cover any shortfalls in Tier 1, in case of an emergency. In case of income lost for both of us (which is high unlikely, but did happen once), then we still have enough to cover our operational emergencies and our unexpected emergencies. For things in your Tier 4, vacation, vehicle replacement, unexpected investment opportunities. etc, when we decide we’re going to need one, we plan well in advance, and we do start putting a separate fund away if it’s going to be large, if not, we add it into our other savings. In case of an emergency, we cut all Tier 4 spending out until our situation has changed. Our money is in cash, HISA, ETFs, MFs, and stored in our own business (which we can pull out very easily any time, so like cash), No TSFA, only because I haven’t gotten around on it. Between all of these, we are into the 6 figures here, so aren’t too worried that not everything is liquid. 
Tier 3 – we have our RRSP & I include RESPs as this is separate from everything else. We’re closed to maxed out, and both spouse and I are each in the 6 figure range. We do have a little catching up to do, but have a strategy to do that when we pay off one of our mortgages this year. We never withdraw, but in case of an emergency, we stop contributing (which is why we have some catching up)

For us, if we had three separate accounts for Tier 1, 2, 4, we would need well over ~$150K sitting around in cash all the time.


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## HaroldCrump (Jun 10, 2009)

The number of accounts you spread the "tiers" across should not be a factor.
Different approach will make sense for different people.
In our case, Tier 1 and 2 are the same account.
Tier 3 is separate.

You are doing great.
Yes, in your case with dual incomes, it doesn't make sense calculating the tiers separately for each spouse.
If you can switch to a lower consumption mode without undue hardship, then it doesn't make sense to have several months of emergency savings.
Too much risk aversion will hurt your investment returns.


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

Thanks PA for your input and Harold for the additional comments. You guys are truly inspiring. It's so encouraging to see this being posted. I don't have a problem with where PA is keeping his money, as long as the tier 1 money remains in some sort of quickly-available cash account (ie. not in an RRSP where it's locked in). Yes, tier 4 is not necessarily full at all times. I don't have a tier 4 account. As PA says, if I need one, I'll start one. It's anybody's guess where the money will actually sit. POSA? GIC? 

tier 2 money can't be RRSP and shouldn't be stale growth like in a POSA. This is a perfect application for your TFSA, which is useful for both tier 1 and 2 money. PA's goal of $75K can't all be placed in TFSAs, but as we continue reaching $5K annual increases, the TFSA will become more and more useful. Then you can withdraw the money whenever you need to, but can also enjoy investment growth without the restrictions of the RRSP money.


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## Plugging Along (Jan 3, 2011)

HaroldCrump said:


> The number of accounts you spread the "tiers" across should not be a factor.
> Different approach will make sense for different people.
> In our case, Tier 1 and 2 are the same account.
> Tier 3 is separate.
> ...


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## Jon_Snow (May 20, 2009)

This talk of tiers of savings is interesting... I've never thought about savings in this manner. The more I think about it, our savings strategy is quite aimless...


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## Sampson (Apr 3, 2009)

While I can respect people thinking/following this tiered system of savings, I have never thought it useful for our situation.

We are very fortunate, with excellent steady jobs, and very very good savings. Neither my wife nor I have ever had troubles saving money or over spending. For us, it is more a question of cash flow. We max all registered accounts (basically Jan 1st of each year) and have healthy registered accounts also.

We budget and plan for vacations, but simply use the positive cash flow to fund them.

While I understand we are very fortunate, like Jon_Snow, our savings strategy is somewhat poorly defined, save until we reach financial freedom based on the 4% rule, then semi-retire. Perhaps we need to enjoy our hard work a little more on a day-to-day basis.


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## Plugging Along (Jan 3, 2011)

I think in terms of Royal's three (or four tiers), its more of have enough for an emergency fund for at least 12 months with no income, then have enough for to cover those unexpected emergencies, put some for retirement, and don't forget to save for those other things. I think these are all sound strategies.

That's why our 'Tier 1, 2, 4' are really combined into our overall savings, plus we have retirement.

I think for many people who may be just starting out, do not have high incomes, have little savings, etc, need to make sure that they have all their bases covered.

There are many people out their without any savings, hence any 'tiers', then there are those with savings but with out enough, then there are those who have an emergency fund, but then it gets wiped out by the 'unexpected' (repairs, maintenance, medical, etc), or there are those who have locked in retirement funds, that don't have the other two, then there are those who have money for the unpected, but never thought about the vacation, or the new car, and use one of their other funds for it. For many of these people, they don't realize that really to be financially okay they need to be able to fund all of these items, and don't do anything about it. In Royals case, he doesn't have all of his savings set yet, but is working towards and will get there, the majority won't know what's wrong until they get hit.

We're also like Sampson, and Jon Snow, our savings wasn't clearly defined, but we are fortunate enough that we have strong savings and good salaries that in most cases we know we would be fine. It wasn't until I actually responded to this thread that I really thought about how we would use the money in different situations - so thank to RM for that one. Our strategy was make really good money, spend less than that, always put money aside for RRSP, RESP, and for bigger 'stuff' as it may arise, plan for bigger purchases before buying impulsively, pay off our mortgage, keep investing, and retire when the kids are independant. 

For those who are just starting out their savings, looking at it this way make help them prioritize how to do their savings.


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

Jon_Snow said:


> This talk of tiers of savings is interesting... I've never thought about savings in this manner. The more I think about it, our savings strategy is quite aimless...


My savings were the exact same way -- until I signed on to CMF and started learning about personal finance and discussing with all the fine people around here. At first, I thought I had too much money and was puzzling over what to do with it. Then someone here mentioned a 3-tier savings plan they had read about someplace. I latched onto that after reviewing my savings. Well, 1-2 years later and I can clearly see I had nowhere near enough money to protect me in case of emergency. Today, I still have 2 solid years of saving to go before I can really consider myself safely armoured and ready for any curveball life may throw my way. You just never know.

PA, while I totally understand and respect your concept of mixed funds and not actually separate as the tiers would suggest, please consider this. My tiers are quite similar to this (except for tier 3 money which is isolated in RRSP) but I use excel to keep track in a simple cheat-sheet format as to where I am. I can launch this file from my desktop anytime and see how much money is in each of the accounts. I also have additional (and very simple) tabs that I use to track the accounts' historical performance and the like. Is this something you could do? Would you be interested in the visibility of your savings, in terms of tiers as explained in my sig file?

The reason I suggest this is because it is a real eye opener when you tier your savings and realize you have an empty tier that needs work. This information is golden.

Thoughts?


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## Sampson (Apr 3, 2009)

Plugging Along said:


> For those who are just starting out their savings, looking at it this way make help them prioritize how to do their savings.


Completely agree, but it really is just a way of thinking about money, not necessarily a plan.

The tiers emphasize the importance of two things, emergency savings for unexpected events, and saving up before making discretionary purchases. Both very much lacking in most people so that's why I prefaced by saying that if it helps with your visualization, wonderful.

In the end, the higher tiers, retirement savings, pure discretionary spending (like crazy vacations) meld together (as you describe) since one could always choose to retire at 66 instead of 65 and take that once in a lifetime vacation, or buy a luxury vs. a normal car, or skip the trip and retire slightly earlier.


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

Hi Sampson, I didn't mean to ignore your earlier post. But what you say also makes sense and I would like to add to your excellent thoughts. The tiers can be defined as simply entries in an offline excel sheet. I just suggest caution however that money from tiers 1 and 2 not be placed in risky or locked in investments such as RRSPs and non-cashable GICs. During an emergency you never want to have an internal battle about not wanting to "touch" certain investments. If an e happens, use the money in tiers 1 and 2 - that's the money you need to eat!

Thing pessemistically about this: you lose your job, roof springs leaks, junior needs $5K worth of dental work all at the same time. And it's January and the wife is depressed and wants to go someplace warm and sunny. At that point only a savings plan with money fortified in all 4 tiers will save your family.

Will all of those events happen to you all at once? Maybe, maybe not, but why not save the money when times are good, just in case? It is just not worth the risk in the event that the sky falls on you and your family. Having extra cash is always a good thing. 

For the record, and I'm not going to be more specific than I've already been, but I've had all sorts of life crisis occur to me over the past several years, and in every case the only thing that saved my butt was the wall of cash I had built up around me. It was never tiered like it is now, and the longer times continue to be good for me, the more cash I can save and minimize the disruption of any future emergency.

Good discussion!


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## KaeJS (Sep 28, 2010)

*Tier 1:* $1,200
*Tier 2:* $16,100
*Tier 3:* $9,100
*Tier 4:* $11,000

I don't hold a lot of money in *Tier 1*. If I need cash, I have $5,000 availabe on my VISA that I will find a way to pay for before the monthly due date. It is not likely that I incur more than $1000 worth of "issues". I also own two cars, so if I wrote one off, I could always just use the other, if needed.

*Tier 2* is the TFSA/"Oh sh!t" money in case something extremely bad happens like writing off a car and losing my job at the same time.

Obviously, my *Tier 3* is my RRSP.

*Tier 4* is investments that will hopefully be used in the purchase of a home down the road, but could also be liquidated immediately to fill any spots for Tier 1, if needed, providing I did not want to touch Tier 2.


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## Sampson (Apr 3, 2009)

Don't get me wrong, I think having emergency funds are critical, but we only barely have 3 months of pure cash in the 'emergency' fund.

However, we do have access to more cash in our tier 3 monies, this money is actually ear-marked to create diversification in our portfolio and take advantage of investment opportunities with higher potential returns, i.e. market corrections/crashes etc.

This, along with our fixed income allocations would allow plenty of flexibility if anything bad arose, so separating into 'tiers' just doesn't do anything for us.

We often top up our mortgage payments to the tune of 3 months expenses every year, so to me, why would we not top up the mortgage payment and shave 2-5 years off the mortgage just so I can fill tier 1 to 6-12 months of expenses. The idle money would simply hurt us in the future.

Like I describe before, we are fortunate, but it makes more sense for us to invest some of this extra and reach longer term goals (10-15 years down the road), rather than having an arbitrary amount of cash on hand.


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## Jon_Snow (May 20, 2009)

And here I sit with about 7.5 years worth of cash in our "emergency fund"... that would be one heck of an emergency.


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## Plugging Along (Jan 3, 2011)

the-royal-mail said:


> At first, I thought I had too much money and was puzzling over what to do with it. Then someone here mentioned a 3-tier savings plan they had read about someplace. I latched onto that after reviewing my savings. Well, 1-2 years later and I can clearly see I had nowhere near enough money to protect me in case of emergency. Today, I still have 2 solid years of saving to go before I can really consider myself safely armoured and ready for any curveball life may throw my way. You just never know.
> 
> 
> 
> ...


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## Financial Cents (Jul 22, 2010)

Here's how we roll...

Tier 1 - daily expenses, mortgage, food, bills, etc. = $5,000 balance
Tier 2 - savings for planned capital expenses, try to save whatever we need to buy in cash what we need or want (new fridge, dining table, sump pump, etc.)
Tier 3 - emergency fund, working towards keeping $10,000 balance
Tier 4 - investments.

Like Mike Holman, we've been focusing on paying down our mortgage (a few hundred extra a month) and investing in our TFSAs, RRSPs for our future.


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## Sherlock (Apr 18, 2010)

I see a two issues that I'd like to bring up:

Some mention using their TFSA for emergency savings and they also mention they keep those emergency savings in a HISA. But isn't it a really bad idea to have a HISA in a TFSA? IMHO your TFSA is intended for aggressive growers. It's a big waste to use it for anythign else. If you insist on having some savings in a HISA (I don't, I keep even my emergency savings in mutual funds) it should be in a non-registered account.

It has been suggested that a RRSP is no good to store your emergency fund. However, if you lose your job you'd have no income so any income you withdraw from your RRSP (up to $14,000 or whatever the lowest tax bracket is) is tax-free. Isn't that correct? If I lost my job I could withdraw money from my RRSP tax-free (assuming my total income for that year was low, which it would be if I lost my job) so it seems to me like the RRSP is actually a great place to store money intended to cover you incase of job loss. Similarly if you decide to take a year off work for an extended vacation, you could fund that with your RRSP with no penalty (except the lost contribution room). Or am I missing something?


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## steve41 (Apr 18, 2009)

Sherlock said:


> It has been suggested that a RRSP is no good to store your emergency fund. However, if you lose your job you'd have no income so any income you withdraw from your RRSP (up to $14,000 or whatever the lowest tax bracket is) is tax-free. Isn't that correct? If I lost my job I could withdraw money from my RRSP tax-free (assuming my total income for that year was low, which it would be if I lost my job) so it seems to me like the RRSP is actually a great place to store money intended to cover you in case of job loss. Similarly if you decide to take a year off work for an extended vacation, you could fund that with your RRSP with no penalty (except the lost contribution room). Or am I missing something?


No sh*t Sherlock. The poor benighted RRSP can still prove valuable even in non-retirement situations.


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## HaroldCrump (Jun 10, 2009)

Sherlock said:


> It has been suggested that a RRSP is no good to store your emergency fund. However, if you lose your job you'd have no income so any income you withdraw from your RRSP (up to $14,000 or whatever the lowest tax bracket is) is tax-free. Isn't that correct? If I lost my job I could withdraw money from my RRSP tax-free (assuming my total income for that year was low, which it would be if I lost my job) so it seems to me like the RRSP is actually a great place to store money intended to cover you incase of job loss. Similarly if you decide to take a year off work for an extended vacation, you could fund that with your RRSP with no penalty (except the lost contribution room). Or am I missing something?


That is true, but timing will be important.
If someone lost job 6 months into a year and then had to withdraw emergency cash for the _next_ 6 months from the RRSP, they will push the annual income over the limit at which point the RRSP withdrawal will become taxable.
Ditto for the sabbatical, unless you are able to start it exactly in Jan.


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## brad (May 22, 2009)

Sherlock said:


> But isn't it a really bad idea to have a HISA in a TFSA? IMHO your TFSA is intended for aggressive growers. It's a big waste to use it for anythign else.


Not necessarily, because above everything you want your emergency fund to be liquid and easily accessible so you can access it immediately if you need it for, um, an emergency.

My approach is to keep my emergency fund in a high-interest savings account in my TFSA, contributing to it each year until I've reached my target level for my emergency fund. Once I hit that target, I will start a separate TFSA for "aggressive growth," or "gambling" or whatever you want to call it, and contribute to that each year instead. You can have it both ways. 

I am 100% comfortable with the idea that I'm missing an opportunity to make a lot more money in my TFSA by keeping my emergency fund there in a HISA. I've deliberately given a miss to many financial opportunities in my life. Having a readily accessible emergency fund without paying tax on the interest I earn and without having to deal with any accounting hassles at tax time is worth more to me than the possibility of tripling or quadrupling my earnings. It makes no financial sense, but in my particular hierarchy of priorities and goals, it makes perfect personal sense.


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## HaroldCrump (Jun 10, 2009)

brad said:


> I am 100% comfortable with the idea that I'm missing an opportunity to make a lot more money in my TFSA by keeping my emergency fund there in a HISA. I've deliberately given a miss to many financial opportunities in my life. Having a readily accessible emergency fund without paying tax on the interest I earn and without having to deal with any accounting hassles at tax time is worth more to me than the possibility of tripling or quadrupling my earnings. It makes no financial sense, but in my particular hierarchy of priorities and goals, it makes perfect personal sense.


Very true, good post.
We have modeled one of our TFSAs as emergency funds (for now) for precisely that reasoning.


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## hboy43 (May 10, 2009)

Hi:

I am not familiar with this tier emergency fund idea. Presumably some combination of ease of access and type of possible emergency.

I have more of a tier of emergency attitudes.

I can always sell investments, cash RRSP.
I can always grow more food.
I can always harvest more firewood and sell it.
I can always take a bicycle to town if the car has to go. Or barter a ride with a neighbour.
I can (shudder) always get a job.
I can always defer discretionary spending.

You get the idea. I am very lifestyle flexible. My complete lack of pride must be equal to tens of thousands of dollars in an emergency fund. My ultimate backup is a Darwinian attitude, I adapt to the environment.

It seems to me that the opportunity cost of having all this cash lying about is huge given the probabilities of the various disaster scenarios, especially simultaneous disaster scenarios. Imagining a possibility without estimating its probability is weak planning IMHO and leads to sub optimal results. The cost of taking all uncertainty out of life is just too high. Cover reasonable possibilities with a reasonable funding plan and call it a day.

As a rule we have $2K to $5K cash at any time in our bank accounts. Outside that range, we add to or subtract from debt/investments.

hboy43


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## Sampson (Apr 3, 2009)

@hboy43,

A physical or emotional accident could cripple your ability to do all of those things.


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## andrewf (Mar 1, 2010)

hboy: it's an insurance idea. Theoretically, having giant piles of cash might be safer than a smaller pile and lots of productive investments. The cost of that additional insurance is the opportunity cost of that cash pile. If an equity investment earns ~7% pa and cash earns ~2%, then every $1000 in emergency fund 'insurance' costs $50 per year. A $50k emergency fund would cost $2500 per year in foregone investment return.

It's up to you to decide what level of insurance is appropriate for your risk profile and tolerance.


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## Sherlock (Apr 18, 2010)

brad said:


> Not necessarily, because above everything you want your emergency fund to be liquid and easily accessible so you can access it immediately if you need it for, um, an emergency.
> 
> My approach is to keep my emergency fund in a high-interest savings account in my TFSA, contributing to it each year until I've reached my target level for my emergency fund. Once I hit that target, I will start a separate TFSA for "aggressive growth," or "gambling" or whatever you want to call it, and contribute to that each year instead. You can have it both ways.
> 
> I am 100% comfortable with the idea that I'm missing an opportunity to make a lot more money in my TFSA by keeping my emergency fund there in a HISA. I've deliberately given a miss to many financial opportunities in my life. Having a readily accessible emergency fund without paying tax on the interest I earn and without having to deal with any accounting hassles at tax time is worth more to me than the possibility of tripling or quadrupling my earnings. It makes no financial sense, but in my particular hierarchy of priorities and goals, it makes perfect personal sense.


If you insist on having some money in a HISA for emergencies, why not just keep that HISA in a non-registered account so that you can still use the full 15k in your TFSA for aggressive growers? Surely the miniscule amount of tax you save by having that 1.5% interest earned in your HISA be tax free is nothing compared to the extra money you could earn by putting more equities in your TFSA? The way I see it, we have a very limited amount of room in our TFSAs so none of it should be wasted on something that doesn't grow fast.


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## brad (May 22, 2009)

Sherlock said:


> The way I see it, we have a very limited amount of room in our TFSAs so none of it should be wasted on something that doesn't grow fast.


Good point, although I plan to maintain my emergency fund for at least the next 30-35 years, depending on how long I live, and over time the total tax savings will be significant -- especially given that I'm currently in the 48% marginal tax bracket.

The other thing to remember is that "something that grows fast" equates to "something that is risky" and thus has a decent chance of shrinking instead of growing. Sure we've seen people in the short history of the TFSA who have seen their investments grow dramatically, but let's revisit in 10 years and see how many have been able to sustain that growth, and look at the net result. I guess it depends on what you want to do with the money you make in your TFSA and how reliable you want the growth to be.

I guess I'm viewing mine as a portfolio, and I've simply started with the fixed-income portion...once I've reached my target allocation for that I'll move on to the riskier investments.


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## Four Pillars (Apr 5, 2009)

Sherlock said:


> If you insist on having some money in a HISA for emergencies, why not just keep that HISA in a non-registered account so that you can still use the full 15k in your TFSA for aggressive growers? Surely the miniscule amount of tax you save by having that 1.5% interest earned in your HISA be tax free is nothing compared to the extra money you could earn by putting more equities in your TFSA? The way I see it, we have a very limited amount of room in our TFSAs so none of it should be wasted on something that doesn't grow fast.


I agree with your strategy - but it only applies for people who want to use the TFSA for something other than an emergency fund.

In my case - the RRSP is a no-brainer for retirement savings. All my retirement savings contributions go there. Since I haven't maxed out the RRSP, there is no reason for me to put any retirement savings into a TFSA.

I don't do any short term trading, so there is no reason for someone like myself to put any equities in a TFSA.

Once I get to the point when my RRSP is maxed and if I want to have more equities - then yes - your point will apply and I should make sure the equities are in the TFSA and the HISA is in a non-reg.

My point is that not everyone is in the same situation, so you can't make blanket rules.


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## PrairieGal (Apr 2, 2011)

I am brand new here, and this concept of tiers is new to me. But this got me thinking, and this is what I came up with.

Tier one - Emergency fund (job loss, etc). 6 month's living expenses. $20,000. ($15,000 in TFSA and $2000 in HISA.)

Tier Two - Large Purchase Fund (new car, etc.) Goal $15,000. Currently $2000 in HISA. Need to start contributing more regularly to this.

Tier Three - Retirement Savings. Goal $300,000. Currently about $36,000. Contributing $700/month to this. Used to be more before I went through a job change that resulted in a cut in pay, but more job satisfaction. My RRSP's are a mix of mutual funds, GIC's and HISA. 

Tier Four - I guess this would be our vacation savings. We take several fairly expensive vacations a year now that the kids are grown. We put $700/month into this fund, but we also use it as we go along, so never really much in there, however our vacations are always fully paid before we go. (Learned that lesson early in life.) 

Our house will be paid off in another four years, and then we can contibute to the RRSP's more heavily.


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## HaroldCrump (Jun 10, 2009)

I thought I'd post the following article here.

Nothing dramatically new for most folks here (I think), and much of the material is derived form the _The Millionaire Next Door_, however, it's worth reiterating how important pure savings are.
Also, the emphasis on cash savings and buying things for cash is really refreshing to see.

Esp. in this day and age when there are so many forces at play that make it easy for us to spend and not save, or even invest without first saving.

*Wealth Is What You Save, Not What You Spend*
http://financiallyfit.yahoo.com/fin...t-millionaires-have-in-common?ywaad=ad0035&nc


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

Thank you Harold. Your last statement is especially true. Monthly/time payments IMO are a cancer on your wallet. When someone says "just $x per month" I x 12 to get the yearly cost. Then I ask myself, is it worth $y to have this item? Same thing with investing. They're always trying to get me to make a "low monthly payment" to RRSPs or whatever. I just don't do things that way. I save FIRST, THEN I look at the cash in my POSA and decide how to allocate it. 

If we could get people to adjust their actions to saving first for future purposes (instead of spending and forever fighting debt and paying interest and fees) we would be SO much better off. I can dream can't I? 

Nobody wants to wait or do without.


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## Jon_Snow (May 20, 2009)

My wife and I wouldn't have crossed the million-net worth plateau if we had been living a "millionaire" lifestyle... its funny, any outside observer of our daily lives would never guess at the extent of our little financial "empire". 

We are really obsessive savers, to the tune of 5k per month.... it adds up quickly. 

We have great difficulty in buying big ticket items, though we have the means to do so with little financial impact.

The more I wander around cyberspace, I think we are the exception, not the rule.


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## I'm Howard (Oct 13, 2010)

Jon I am really glad My 92 year old Father thinks like you,kinda compensates for my not so spendthrift lifestyle but I do know what wine goes best with a meal and have lived in some very nice areas.

I really hope Dad makes it to a 100, time and compounding.


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