# Advice for an Amateur



## petulantfem (Dec 13, 2010)

Hello all!

I am looking for a lot of input over a spectrum of areas. I am 30 next month with 3 children. For a long time, I didn't think too much about finances, except to stress over whether or not we were meeting our day to day expenses.

Now that I am approaching my 30th birthday, I'm getting anxious about not having a plan for the future and worried about how much my head-in-the-sand mentality has damaged my financial outlook.

My goal is to start getting on track, ASAP.

I want to address a few key areas - namely, RRSPs, RESPs, an emergency fund, general savings, life insurance and a will. I currently have none of these things. None. 

Now, I feel incredibly overwhelmed facing all of this. I never learned money management growing up as my parents took care of everything. Once I was out of my own, I screwed up quite a bit before I started figuring things out a little - but by that time I had a credit score in the toilet, several thousands of credit card debt and my first baby relying on me to get my act together.

I have been trying to improve my credit score recently and last time I checked it was 707. I haven't checked my fiance's, though I'm sure it was _terrible_ when we met as he had plenty of credit card debt as well and a cell phone bill in collections. That was 3 years ago and I cleared up the collections immediately, we wiped out his credit card debt and cancelled one of his cards (he had two). Right now we are sitting on roughly somewhere in the range of $2000 of credit debt, but we have been on top of it and pay it regularly (we use our credit cards for gas and incidentals - it is higher because of winter tires and some other car expenses recently). I expect that we will have that paid off within the next two pay periods.

By my calculations, I figure that we have $2000 a month that we can play with in terms of debt/savings.

Between the two of us, we owe $17,000 in student loans and they are currently in repayment. I would like to whittle that down because at the current rate it will take us 10 years to pay off and we will spend half of that in interest.

But I don't know if it is smarter to funnel more money into savings now, since we have none.

I was thinking:

$1000/month into RRSP ($600 for me and $400 for him as he is a few years younger)
$200/month into RESP (my ex will also contribute $200/month)
$200/month into general savings (vacations, furniture, etc)
$600/month into Emergency Fund until it reaches between $9000-$18000 (3-6 months of expenses) - after it is maxed out, $200 of it added to RESP and $300 added to general savings

I was thinking of a Family Plan RESP, but I don't have a lot of information yet. 

My fiance and I both have a TFSA, I was thinking of using one for emergency fund and one for general savings (though I don't know if there are rules for limits that you can add per year?)

Does any of this sound foolish? Essentially, my "income" (it isn't much) covers our rent, vehicle insurance, and school loan repayment right now. One of FH's cheques would be for all of these savings, and the other for other living expenses (gas, groceries, utilities, dental/health, etc). I am going to be making a little extra income for a while as we are planning a $5000 wedding next summer, which we want to pay for in cash. We already know that my parents will give us $5000 as a wedding gift, as can confidently estimate a further $2500 from my maternal family, but I do not want to count on any more than that in gift money. We plan on setting that aside as a start for a home downpayment (we currently rent).

Any advice on types of accounts we will need, how much we should be putting in each and where we should focus our money (debt vs savings)? Our school debt is our only debt aside from the $2000 in credit, which will be wiped out. We have no mortgage and own both our vehicles (bought in cash).

This is really long, I apologize. I realize that I should talk to a financial advisor perhaps, but I just don't know where to start. Given that we have children, I also know that we need to write up a Will and have life insurance - I just don't know the smartest way to contact people about these things or what questions to ask them.

Any advice will be GREATLY appreciated.


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## MoneyGal (Apr 24, 2009)

You are doing GREAT! I know you don't think so, but this is an incredibly responsible post. Take a moment and reflect on what you've accomplished - in terms of learning about finances and making such a comprehensive plan - OK? Seriously, I'm very impressed. 

Specific advice: 

(1) Can the RRSP and RESP contributions until the base savings are established, all debt is repaid (including student loans) and the emergency funds/TFSAs are fully built. Retirement planning is important, but it is a *second-order priority* for you right now. 

(2) Forget about seeing a financial advisor. Most of them will want to sell you financial products on commission, and you don't need those right now (and, uh, ever). Stick around in this forum, keep reading, keep asking questions, and you will be better off than if you met with ONE financial advisor from whom you will get ONE point of view. 

(3) Get the will and life insurance handled as a priority. Ask around for recommendations. I think life insurance amounts have been discussed here in some detail - I know that I've written about the different ways to calculate how much insurance you need. 

In general, a good basic recommendation is for $1M (or more) of joint first-to-die term insurance: this will not be very expensive for you right now. 

As for wills: you need basic wills plus personal directives for your property and health, and your wills need to set up testamentary trusts (to be funded by life insurance) for your kids. Find a lawyer who does wills as part of their basic practice and go from there.


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## MoneyGal (Apr 24, 2009)

p.s. I LOVE the $5,000 wedding! That's about what I spent on my own wedding - I got married at my sister's house. 

The $$$ was for amazing catering plus we had a horse-drawn carriage take our guests out for a ride (it was Dec. 23 and perfect snowy weather) in between the reception and dinner.


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## petulantfem (Dec 13, 2010)

MoneyGal - Thanks for your response! Your wedding sounds like it was lovely - ours will be a BBQ and dance in an old barn. Pretty low key, and no fussy stuff. 

I didn't realize that RRSPs and RESPs should wait - I guess because I was talking to one of my brothers (2 years senior) and he had saved $60,000 in RRSPs already (though he accessed some for a home purchase recently). Hearing his number makes me panic and feel crazy behind. My parents have also ALWAYS been very pro-savings, so I feel a lot of pressure to "catch up".

Also, another thing that stresses me out is that I never finished my post-secondary education and so I am not qualified for any decent paying job. Right now I am home with our youngest and bringing in about $1600/month from EI payments and CCTB ... I want to work desperately, but not confident that any income I could make would offset before/after school care and daycare for the three kids.

Ideally, I'd like to go back to school but that would set us back further in terms of debt/income. 

My fiance makes $17/hour regular time and $25.50/hour OT. We can count on 44 hours RT plus 10 hours travel time paid at RT. Since he started at this job in September, he has gotten crazy amounts of OT with no signs of it letting up, and is netting close to $4000/month. There has been talk of moving him up in positions at work next year (his employer really likes him as he is a hard worker). But I get nervous counting on OT, as, really ... who knows?

I find all of this incredibly worrisome. 

Would it be smarter then, to also allocate the wedding gift money towards debt repayment, rather than setting it aside for a home down payment?


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## humble_pie (Jun 7, 2009)

good. Fern you have quickly got a key person on your team so please do feel a little less anxious, because you are going to go on up from here, your existing plan is broad & well-thought-out, although the overall achievement process might take at least a year or two.

all the right advice is in MG's summary esp the points about pay down debt first, then build tfsas & emergency funds, & only when this stage is in place then move on to rrsps & resps.

life insurance & wills come fairly soon, out of responsibility for the children. The testamentary trusts that should be dealt with in your wills will only come into existence if both you & your husband should die together in some accident - i'm presuming the primary beneficiary would be the spouse, followed by trusts for kids of spouse should predecease.

one detail that is not clear is whether the husband-to-be is the children's father; i don't mean to pry (no need to answer here). However if he is not then whether or not he will legally adopt the children will be significant in your will should you die first; because if he doesn't adopt then the biological father might play a role in the event of your death.

on these details i wonder if racer might be willing to exchange PMs with you, in order to maintain your privacy ... it would be very good of her ...


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## Four Pillars (Apr 5, 2009)

I agree with MG - Get the will and life insurance done first. Save up emergency fund/TFSA. The other stuff can wait.

And yes, you are doing pretty well.

One comment - You don't mention anything about income or net income, but I think your plan might be a bit too optimistic. Saving $2k/month is great, but the wedding might cost more than you think and buying a house will wreck everything. 

Regarding RESP - I think this should be the last thing you worry about, but setting up a GIC/High interest savings RESP at your local bank is the simplest and safest way to get going on an RESP.


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## petulantfem (Dec 13, 2010)

Regarding the children's father - my two oldest are from a previous relationship. My ex is still involved (sees them on holidays and calls them a few times a week) and lives about 8 hours away. He has started paying some child support in the last couple of months, but I have been the primary and residential parent for the last couple of years (the first year that we were split, we did 50/50 custody until he moved away). We have no legal arrangment for custody, only an amicable agreement between the two of us - though he did try to push to have them go live with him for a year or two this past summer (he talked to a lawyer and was told that, without my agreement, he wouldn't be able to force the issue as I have de facto custody).

Our youngest is my fiance's son. I assume that means that if something happens to me, my oldest would first go to my ex and my youngest would stay with my fiance. It makes me sad to think that they could be separated, so I just have to not die. 

But I am not sure how this would affect the will - would my ex have to be present to write the will? I imagine that we would have to appoint guardians, but I am not sure that I have the legal right to make that decision alone as my ex still has joint custody, essentially.

As for being overly optomistic in terms of our income ... I probably am. That is something I am still trying to learn when budgeting. Though I am determined not to go over $5000 for the wedding, as I don't put much value on a "party". The house thing does scare me though, admittedly.


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## Karen (Jul 24, 2010)

I had the same thoughts as MoneyGal when I read your post. Your understanding of what your problems are and the organized manner in which you've been able to break them down and list them is impressive. I think that's half the battle. When I was your age I had an incredibly irresponsible husband, two pre-school children, literally no assets, and, worst of all, no understanding of exactly what my problems were and what I had to do to get out of the mess I was in. You are way ahead of me in that regard - at least ten years ahead. It was turning 40 that shocked me into smartening up. I began with two things - getting rid of the husband and starting an RRSP! I've learned a lot since then and am retired very comfortably, so you still have lots of time and should do very well.



petulantfem said:


> ...My fiance and I both have a TFSA, I was thinking of using one for emergency fund and one for general savings (though I don't know if there are rules for limits that you can add per year?)...


The limit for TFSAs is currently $5000 per year per person, and it accumulates if you don't use your maximum each year.


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## CanadianCapitalist (Mar 31, 2009)

MoneyGal said:


> Specific advice:
> 
> (1) Can the RRSP and RESP contributions until the base savings are established, all debt is repaid (including student loans) and the emergency funds/TFSAs are fully built. Retirement planning is important, but it is a *second-order priority* for you right now.
> 
> ...


+1.

At this point, you don't need a FA. Insurance, wills, savings, paying off debt, emergency funds should be priorities right now. Not sure how much value a FA can add in this situation.


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## MoneyGal (Apr 24, 2009)

PF: also - one quick mnemonic: debt repayment = savings. 

And mortgage = forced savings. 

So if you are wondering, "should I pay down debt or increase savings?" you should realize that mathematically _they are the same thing_. 

As a general rule, you should only save if and when you can expect a greater interest rate on your savings than you are paying on your debt. 

And if you are thinking, "a mortgage will wreck our plans!" - again, you can remember that paying down the mortgage = savings. There are lots of ways to game mortgage payments to increase the forced savings aspect, and be cautious about buying "too much house" (which will game the savings in the other direction).


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## steve41 (Apr 18, 2009)

Before you sweat the small stuff (fine-tune/re- jig my loan, should I max my RRSP/TFSA?, what type of investment to put where).... you should take a look at the bigger picture:
_
"Based on my 'career asset' (salary/pension profile out over time), my current savings, loans, real estate, insurance needs, estate goals, anticipated inheritance, etc... what realistically can I look forward to as an after tax income (lifestyle) before&after retirement, based on a reasonable estimate of rates going forward?"_

Now you have a starting point to determine the scale and timing of your savings regime and allows you to set a spending/saving budget OVER TIME.

Once that is determined, then you can get into the fine tuning... paying down loan on a slower/faster schedule, investing inside or outside your RRSP, investing in real estate....


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## petulantfem (Dec 13, 2010)

Sorry, these responses will probably all be posted really late, but they have to be approved my a moderator each time (is that because I am new, or does that always happen?)

Okay, it's good to know that I don't need an FA ... I really just felt in over my head and wasn't sure if I'd be able to sort everything out, but so far I am feelings much better just reading your responses and advice.

Based on what you are telling me, I am thinking of focusing my money this way:

(Our average monthly net income is $5200. Our monthly expenses are just under $3000. Also, I will look into the Will and Life Insurance immediately.)

Alloting $400/month into each of our TFSAs (so, $800/month) to remain within the $5000/year limit. These two accounts will act as our Emergency Fund and our General Savings ... (could all be considered Emergency Fund money until we have enough in a single TFSA to cover emergencies).

After 1 year, we will have enough in the TFSA accounts combined to cover 3 months expenses in the event of an emergency. Therefore, at that point, I would like to lower the amount that we are contributing to Emergencies/Savings to $400/month ($200 into each account) and begin putting $400/month into an RESP. That way, I should have roughly $126,711 for the three boys education.

$1000/month to debt repayment (OSAP). It will take us approximately 1.5 years to pay off that debt.

In June of 2012, our OSAP debt will be paid off and we will be debt-free. At that point, I would like to take that $1000/month that was previously going to debt and put it towards RRSPs ($600 for me, $400 for my fiance).

Also, in the meantime, we can still be working on our credit scores. I am still calculating our wedding with extra income that I am making (doing some child care) and that still leaves any wedding gift money ($7500+) for a house downpayment in the next couple of years. 

When I am able to start working outside the home again, our income will go up a little. I am just not sure exactly when that will be.

Okay - now. Is this realistic and smart? What should I change? Am I still being foolish with the RESP? I really don't want the boys to be leaving school with mortgage-sized debts when they are young and just starting out.

You know what I am not considering? We require two vehicles (fiance commutes 2 hours daily and I need to have a vehicle with the little ones), and the car is in pretty good shape, but our van might need to be replaced in the next couple years. I mean, probably. It is a 1998, and I am HOPING for two more years out of it. I bought it last year for $1300, but was thinking that when it came time to replace it, I would get a newer vehicle that would (hopefully) last longer. So I haven't factored that in either.


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## MoneyGal (Apr 24, 2009)

[hijack alert] 

Ok, Steve; this is the second (or so) time I've seen you recommend that people add up the discounted value of their human capital over time and use it to form a baseline projection of their retirement spending capacity. 

But how exactly do you propose that people do that? Add up their projected salary over time? What discount rate do you think they should use to get it to today's values? What growth rate? What about adding a "beta" factor to account for the implied volatility in some career paths vs. the stability/security in others? 

And then, once they've gotten the discounted value, how do you propose they use that to determine their expected retirement income/lifestyle, and set a spending budget today? 

Look, I work for a company that has developed and publishes a human capital calculator. I am very comfortable talking about the particular issues associated with valuing human capital. But I think there's a huge leap between saying "here's an estimate of your human capital value in today's terms" and saying "now you can develop a[n accurate] projection of your retirement lifestyle capacity" - especially in a thread entitled "Advice for an Amateur." 

Would you care to share the methodology you suggest others employ in doing this? 

Also: if this sounds snarky, it is not intended to. I genuinely am interested in this discussion and what you think the steps are in carrying out the project you describe. 

[end hijack]


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## steve41 (Apr 18, 2009)

All I am saying is that a financial plan should be inclusive: salary being most important (for early career types), becoming less so as you approach retirement.

I don't actually PV the salary, but rather, I include salary as one of the cash flows in the plan. Most people will have some general idea of where their salary is going... it may limp along or simply increase with inflation, or it may grow at a higher rate than inflation. The salary profile is input accordingly, retirement age being the most important element, but other changes can be entered as well... you may plan for a 3 year sabbatical to go back to school and come back to the workforce at a higher salary, you may plan to take partial retirement, reducing your salary to 50% at age 50, before complete retirement.

What I am emphasizing is that along with investments, the cash flow financial plan should include other non-investment elements such as CPP, OAS, income tax, salary/pension, loans, insurance.... The financial plan should be inclusive.

As an aside, I don't have a data element called 'retirement age' in the program... just a column of numbers representing salary profile. In fact, I don't consider retirement at all... if the program sees more money coming in the door than it needs, it saves, when not enough comes in the door, it removes money from savings. The program can go in and out of the saving/de-saving cycle at will.


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## petulantfem (Dec 13, 2010)

Steve, I don't think that I am well-versed enough in finances yet to follow everything that you are saying. In terms of salary, I am currently a SAHM (with approximately $1500 income from CCTB and EI). My fiance works as an Environmental Technician. He makes $17/hour RT and $25.50 OT. But he is averaging $3500/month net right now. He has only been working at this job for about 3 months. They have spoken about making him a Well Technician Assistant (and then, presumably, a Well Technician), but this process would not begin until at least next year. I have googled and found that a Well Technician makes roughly $25/hour, but not sure what a Well Tech Assistant makes.

I have no idea how to surmise what our annual salary is based on that info. I am calculating my budget based on what we are currently bringing in monthly and what we can safely assume that we will continue to bring in. I am hoping to see an increase in our income over the next while, but I cannot be sure if/when/how much.

With my limited knowledge of finances, I am out of my element with your advice. But I appreciate your attempt at helping me, regardless!


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## MoneyGal (Apr 24, 2009)

petulantfem said:


> Am I still being foolish with the RESP? I really don't want the boys to be leaving school with mortgage-sized debts when they are young and just starting out.


Just food for thought - I am not criticizing your plans and obviously every family has their own priorities. But here's my comment: for the sake of not leaving your boys with "mortgage-sized debt," you are postponing the purchase of your OWN home.


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## steve41 (Apr 18, 2009)

Just for clarity.... a 30 year old grosses $40K and plans to retire at 65. What lifestyle should he expect to enjoy (constant from age 30 to age 95) based on an investment rate of 4% and inflation at 2% under various salary growth trajectories?

salary
growth
% ............ATI

0% ..........22564
1% ..........24838
2% ..........27734
3% ..........31255

Where "ATI" is a measure of the maximum lifestyle (after tax/after inflation) which this individual could enjoy such that he just makes it out to age 95.

This paradigm is infinitely more meaningful than simply PVing those paychecks, as it involves the true effect of income tax (before and after retirement).


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## Four Pillars (Apr 5, 2009)

How old are your kids?


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## petulantfem (Dec 13, 2010)

MG - Good point, I really didn't look at it that way. 

I think that I am just feeling a lot of pressure - like there isn't enough time to remedy all of my financial errors. Maybe I just need to take a deep breath and relax.

Can you look over this plan that I am working on? I have been taking all of your advice to heart and I am trying to focus on priorities. I am working with roughly $2000 at any given time that I can shuffle around towards these different goals (this is the amount that we have consistently been putting on debt each month previously and is what I feel comfortable working with for that reason). I figure that if our financial situation changes at any point, we can adjust things, but as long as I have money focused to the proper places, we will continue to make progress (however quickly or slowly).

PRIORITY 1: WILLS and LIFE INSURANCE

Arrange Wills ASAP and look into appointing guardianship for the boys. Also, Sean and I should each have life insurance plans. We should also consider tenant insurance. We must add these expenses to our budget and also make sure that there is room in the budget for dental/health savings and vehicle maintenance savings (this will be saved into Account "C").

PRIORITY 2: DEBT REPAYMENT

Our current total OSAP debt is $16,594.17. This includes his OSAP debt of $8,203.81 and my OSAP debt of $8,390.36.
His current monthly payment is $90.62 and my current monthly payment is $125.04 for a combined minimum payment of $215.66.

Beginning January 2011, if we continue to make our current monthly miminum payments and also make lump sum payments of $1000.00 each month, alternating the accounts, we will be paying $1215.66 per month on our OSAP debts. Our OSAP debt will be paid off 15 months (1.25 years) in March 2012 and we will have paid $581.37 in interest. In comparison, if we continued to make only the minimum payments, it would take us 96 months (8 years) to pay off our OSAP debt and we would have paid $3,916.01 in interest. 

*Following the wedding in August 2011, expect to have $7,500+ to put into an account for a home downpayment. Between April - December 2012, the $1000/month ($9000 total) that was previously going to OSAP payments can be added to our house fund. ****I do realize that this is optomistic, but it is just a goal to shoot towards ... if our wedding goes over the $5000 that we budgeted for it, for example, I realize that we will have less than I am suggesting for our house fund.

PRIORITY 3: EMERGENCY FUND and SAVINGS

Beginning January 2011: My TFSA may act as an Emergency Fund. I will contribute $400 per month into this account (up to a maximum of $5000 per year). This account will be used ONLY IN AN EMERGENCY and is meant to accumulate 3-6 months worth of living expenses, or $9,000 to $18,000. In the first year (2011), this account will accumulate $4300. An extra $700 can be added at the end of the year to max it out if we have those funds available. By 2013, my TFSA will be the only Emergency Fund, as his TFSA will be re-assigned as General Savings. In January 2013, contributions to this account will diminish to $200 per month so that we can refocus some money elsewhere. In January 2016, this account will have reached it's goal of nearly $18,000. I will continue adding $200.00 per month to it, but this surplus can be considered General Savings as well. 

Beginning January 2011: His TFSA may act as a General Savings Account. In the first year or two, it will also be considered a part of the Emergency Fund, until my TFSA reaches a minimum of $9,000 (by January 2013). At this point, we can designate all money in his TFSA as General Savings. Sean will contribute $400 per month into this account. This account will be considered accessible for exceptional expenses such as: vacations, furniture, legal fees when home-buying, returning to school (me), etc. It is not meant for frivilous spending - that will be covered by our "fun" money in our budget.

PRIORITY 4: RESP (I used an RESP calculator for this)

Step 1 Child/Children(s) information and education details
Ben b. 2003 4 yrs of study at age 18 x $5381/yr Living at Home
Jacob b. 2006 4 yrs of study at age 18 x $5381/yr Living at Home
Nathan b. 2009 4 yrs of study at age 18 x $5381/yr Living at Home
(*Allowing for a 4.4% increase in tuition costs per year)

Step 2 Tell us about your savings plan: This is where you enter information about how much you plan to save
Family Income after taxes: Between $37,178 - $74,357
Year to start Saving: 2013
Total Amount saved so far into RESP: $0.00
How much will Savings grow per year: 2%
(*Include Canada Savings Grant (Maximum $500 per year/$7200 per child))

Step 3 Results: Calculate to show how much you will need to save each year for your child/children's education. 
You will need to save an estimated $5,464.00 a year to pay for your child (ren)'s entire education (this savings estimate includes the 4.4% increase in the cost of education) 
Monthly contribution (beginning January 2013): $455.33

Total contribution from Canadian Education Savings Grant based on this savings plan: $15,494.00 Your Details 
Total cost of your child(ren)'s education: $126,711.92
(*Does not include cost of books, supplies, transportation, personal costs, etc. The boys will be expected to work part time/summers to contribute these amounts.)

Investigate a Family Plan for the three boys, wherein if one of the boys does not go to post-secondary education, the others can use his amounts and where we can access our contributions (less the government's contributions) should there be any money left that they boys do not require for school.

PRIORITY 5: RRSP

Beginning January 2013: Contribute $1000.00 per month to RRSP. 
My contribution: $600 per month.
His contribution: $400 per month.

Not sure if this is way too much or not enough or what ... but on one calculator that I used it told me that this would add up to over $1,000,000 in RRSPs when we retire and that sounds good to me ... is it?

****

So basically, in the beginning the money will be going to pay off our OSAP debt and towards an Emergency Fund. Once the debt is gone, the money will temporarily be reassigned to boost our house fund, and then in January 2013 it will be allocated towards RRSPs. Also, in January 2013, after meeting our Emergency Fund goals, we will re-allocate some of that money towards the boys RESPs.

Now, this is all with a rough $2000 budget for debt/savings. I have another budget that covers our living expenses and gives us some spending money each month (my spending money will be going towards the wedding for the next several months).

I figure if we continue to put money into savings, the first thing that I would like to do with that money is go back to school. I estimate that it will cost me roughly $10,000 but this will likely give me much better job prospects and potential salary once I am ready to return to work. I also realize that a good deal of our savings in the next few years will go towards replacing one of our vehicles (the older one). So by 2016, instead of having $25,000 in savings like we could potentially, we will probably have very little BUT we will have a reliable vehicle that will (partially or mostly) be paid for, and I will have my degree or diploma (undecided yet on if I want to finish degree or get a college diploma instead). And we will have no debt (except, potentially, a mortgage, which would be a good thing). And then within another few years, we could replenish that savings account, all while putting money into our RRSPs and the boys RESPs.

Okay, now, to me - I feel like this addresses all of the areas of my life that give me anxiety (in terms of finances), and I *hope* it is reasonable. But if someone can tell me if there are glaring issues or a better way that I can manage things, please let me know!

Thank you so much for everything so far!


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## petulantfem (Dec 13, 2010)

Four Pillars said:


> How old are your kids?


The oldest is 8 next month, the middle is 5 in February and the youngest will be 2 next summer.


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## petulantfem (Dec 13, 2010)

Steve, I understand your idea of considering the percentage of salary growth, but I really cannot estimate that at this point because I am not familiar enough with my fiance's new job and I am still not certain what career path I will take in the next couple of years. So, until I have more information, I will have to stick with working only with current numbers. I figure that I can adjust things as I go along in the future, but I need a starting point so that I can attack my no-savings problem right now.


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## steve41 (Apr 18, 2009)

Hey. Uncertainty is a key component of any financial plan, whether you were contemplating that big investment in Nortel 15 years ago, or the likelihood that your salary will stay on it's current path, grow, or get severely truncated. The essence of the planning process is to hi-ball, low-ball and 'middle-ball' your future by varying salary expectations, market expectations, even to the extent of randomizing (montecarlo-ing) the market.

It's called 'planning' because you, er, well... 'plan'.


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## Cal (Jun 17, 2009)

Great start in breaking it down into achievable steps/priorities.

When you get to priority 5 you may want to re evaluate things. 

You may find it more useful at that point to use the TFSA to really shelter some investment $, as opposed to have the money sit in 'high' yield savings. And simply use a chequing account for your emergency funds. 

You may at that point want to re-evaluate how the RESP is doing at that point as well, and re-visit how much you need for emergency savings.


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## petulantfem (Dec 13, 2010)

Thanks Cal ... I am completely uninformed when it comes to any sort of investment, as I have never had money to invest.

I am not very comfortable with financial risk-taking, as I have fears about losing what I will have accumulated. But I realize that it would make sense to have some of our money in investments.

I guess what I'm not sure of, as well, is ... do people typically have several accounts to manage all these different allocations of money? All my life I had one chequing account with PC Financial. In the last couple of years, I opened the TFSA with PC as well and this year I opened a CIBC chequing account (as per my ex's request, as he wanted to being paying child support and had a CIBC near his house).

My fiance also only had a PC chequing account and I opened a PC TFSA for him this year as well. 

Those are all the accounts that we have - should we have more/less?

Should I use the CIBC chequing account to house our emergency fund? Should the TFSA accounts strictly be for our savings? At what point should I consider transfering some of my savings into investments - and which investments offer low risk with relatively decent long-term gains?


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## plen (Nov 18, 2010)

The thing you have to remember about the TFSA is every dollar earned via interest (or other means I won't get into quite yet to avoid complicating things) is tax free. 

By using the TFSA as emergency/large purchases account you're going to be eating into the potentially large amount of interest this could eventually earn for your retirement or you'll find yourself constantly trying to meet your maximum contribution room.

Unlike an RRSP withdraws from the TFSA are never taxed, so when it comes time to retire, all the money earned through that account is yours to aid your retirement planning. This might not seem like much at 1.5% interest (or whatever PC gives you) but compounded over 30 years you can bet that maximizing your contributions to both you and your fiance's TFSA can pay off huge in the end.

If you however dip into a TFSA to pay for a vacation or new furnishing and you're unable to catch up to the maximum contribution, you're losing out on a lot of tax free interest earned. Same can even be said for emergency funds.

If you can catch up to contribute the maximum amount after a withdraw within a short amount of time it's not that big of deal, but if you're going to be constantly dipping into and out of it, you are going to feel like you're always catching up.


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## petulantfem (Dec 13, 2010)

Okay, that is something that I didn't account for. Yes, I plan to be dipping into our savings regularly over the next few years - I don't anticipate any vacations over that period, but we will have to replace our vehicle in the next couple of years and I do want to go back to school.

So ... help me to figure this out, please. Should I be dividing up my retirement savings into my RRSP and my TFSA? Ie. rather than putting $600 into my RRSP, should I put $300 into my RRSP and $300 into my TFSA? I can't rely only on the TFSA as a retirement account alone because there is a maximum contribution of $5000 per year, right? I want to do the smartest thing in terms of saving/investing, I'm just not confident that I know enough to make smart decisions.

I guess I am sort of thinking of the TFSA as just a savings account. Should I open just a regular savings account for my short-term savings and one for emergency funds? Should I have a chequing account for emergency funds? Should the TFSA be reserved only for retirement savings?

Should I re-address how I am allocating money in terms of how much into short term savings vs how much into long term savings, or does that bit seem okay?


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## steve41 (Apr 18, 2009)

Countering the TFSA strategy is that, for a given after tax income level, you won't be able to grow your TFSA to the same extent, since the TFSA doesn't provide a tax refund. This near term TFSA tax disadvantage is offset by the far-term tax disadvantage of the RRSP. When you examine the 2 strategies, over time, they end up being fairly close.


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## petulantfem (Dec 13, 2010)

Okay ... given that there appear to be pros and cons for each and since I already have the TFSA account and no RRSP account ... should I stick solely with the TFSA and just pump money into it (though with the RRSP, I had planned to contribute $7200 rather than the $5000 TFSA limit) ... will it pay out in the long run in terms of the tax free money that I will retain when I retire as compared to my $7200 yearly contributions to RRSP and what I would lose to taxes when I retire?

Is there a calculator that can compare these two scenerios so that I can see what would net me a larger gain in the end?


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## plen (Nov 18, 2010)

petulantfem said:


> Okay ... given that there appear to be pros and cons for each and since I already have the TFSA account and no RRSP account ... should I stick solely with the TFSA and just pump money into it (though with the RRSP, I had planned to contribute $7200 rather than the $5000 TFSA limit) ... will it pay out in the long run in terms of the tax free money that I will retain when I retire as compared to my $7200 yearly contributions to RRSP and what I would lose to taxes when I retire?


Keep in mind the contributions to your RRSP can reduce your income tax levels to such an extent that you get a hefty refund cheque which you can then plop down into your TFSA. Reducing your net income by $12,000 could mean around $3500 in refunds if you're family income is around $60k


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## MoneyGal (Apr 24, 2009)

You have a relatively low income. You are planning to invest in your human capital by going back to school. You have very young children, you are planning to get married next summer, and you have yet to buy a house. 

Retirement planning - seriously - should not be on your horizon right now. Get your other goals put into place: pay off your debt, buy a house, establish an emergency fund, replace your car, get that degree or diploma. THEN worry about retirement savings. Trying to do all of this at once will drive you _insane_.


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## MoneyGal (Apr 24, 2009)

Let me put this another way: right now, the game is to get you into a place where saving for retirement is possible. 

That place looks like: you are on your way to paying down your house; you have no other debt (or no other non-deductible debt), and your human capital investments are starting to pay off in the form of sustainable salary at a decent rate. 

THAT'S when you can start seriously saving for retirement. 

So everything you do right now to get yourself into that place *is* retirement planning - it just doesn't necessarily look like it.


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## petulantfem (Dec 13, 2010)

Okay I actually found an RRSP vs TFSA calculator and it is suggesting that if I have $7200 to contribute per year, I am still better off to put that into a TFSA than an RRSP. Can you put $7200 into a TFSA? I thought the limit was $5000 per year? Or is it just that it isn't tax-free beyond $5000, but you can contribute as much as you want? 

I just realized that I know nothing about my own TFSA account.

The calculator that I used was this one: http://www.retirementadvisor.ca/retadv/apps/tfsaRrsp/tfsaRrsp_inputs.jsp?toolsSubMenu=preRet


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## petulantfem (Dec 13, 2010)

Okay, sorry MG, I must have been typing when you posted. I understand what you are saying and I won't start my retirement savings yet (I will focus on the other, more pertinant issues first), but I am curious about the process of retirement saving for when that time comes.

You are making me feel so much better about having time to get things in order though! lol


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## MoneyGal (Apr 24, 2009)

You should do what feels best and right for you! The point of coming to a place like this is to get a diversity of opinions (ideally leading to a consensus over time, or at least a deeper understanding of the issues).


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## CadMan (Apr 16, 2010)

A good book for someone at your stage is called "Total Money Makeover" by Dave Ramsey. It sets out a good, basic plan to get your finances back on track. It's written by an American, so some of the points don't apply, but a lot of the advice is good basic stuff on budgeting, paying off debt, setting up an emergency fund, saving for retirement, etc.


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## steve41 (Apr 18, 2009)

> Okay I actually found an RRSP vs TFSA calculator and it is suggesting that if I have $7200 to contribute per year, I am still better off to put that into a TFSA than an RRSP. Can you put $7200 into a TFSA?


OK.... this is poorly set up. Remember... the RRSP contribution invokes a tax refund, so that $7200 you invest, results in a rebate. For the same amount of aftertax income, you will end up being able to invest more in your RRSP (that $7200 might end up in $8500 actually deposited to the RRSP) The RRSP pot will, as a result, end up growing much larger than the TFSA.


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## Rysto (Nov 22, 2010)

steve41 said:


> OK.... this is poorly set up. Remember... the RRSP contribution invokes a tax refund, so that $7200 you invest, results in a rebate. For the same amount of aftertax income, you will end up being able to invest more in your RRSP (that $7200 might end up in $8500 actually deposited to the RRSP) The RRSP pot will, as a result, end up growing much larger than the TFSA.


Sure, but you pay taxes when you withdraw from the RRSP.


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## MoneyGal (Apr 24, 2009)

Guys: she has no (or almost no) taxable income. There's no (or almost no) refund associated with making RRSP contributions at this point.


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## Karen (Jul 24, 2010)

petulantfem said:


> Okay I actually found an RRSP vs TFSA calculator and it is suggesting that if I have $7200 to contribute per year, I am still better off to put that into a TFSA than an RRSP. Can you put $7200 into a TFSA? I thought the limit was $5000 per year? Or is it just that it isn't tax-free beyond $5000, but you can contribute as much as you want?
> 
> I just realized that I know nothing about my own TFSA account.
> 
> The calculator that I used was this one: http://www.retirementadvisor.ca/retadv/apps/tfsaRrsp/tfsaRrsp_inputs.jsp?toolsSubMenu=preRet


You're right - the limit is $5000 per year unless you have unused contribution room from previous years.


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## Jon_Snow (May 20, 2009)

Its a wonderful thing that you can stay home and raise your children... if and when a time comes that you can enter the work force and bring in another income, you will be amazed how your financial goals will fall in line.

My wife and I are pretty clueless when it comes to investing.... but by keeping monthly expenses around $3000 and bringing in about $8000, its really hard to screw things up.


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## steve41 (Apr 18, 2009)

So, you have $7200 to invest, but you still made less than the $10,382 personal limit? Now _that_ is an aggressive/frugal savings regimen!


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> You have a relatively low income. You are planning to invest in your human capital by going back to school. You have very young children, you are planning to get married next summer, and you have yet to buy a house.
> 
> Retirement planning - seriously - should not be on your horizon right now. Get your other goals put into place: pay off your debt, buy a house, establish an emergency fund, replace your car, get that degree or diploma. THEN worry about retirement savings. Trying to do all of this at once will drive you _insane_.


+1

You are trying to do too much - keep it simple!


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## Four Pillars (Apr 5, 2009)

I have a couple of comments:

Disability insurance - If your hubby doesn't have any with work, he should get some.

Where is the $5000 for the wedding coming from? Are you saving it or will it come from gifts?

Regarding RESP - The RESP doesn't have to pay for every penny - there will be other sources of income. See my article here on this topic:

http://www.moneyville.ca/article/895234--debunking-8-myths-about-university-costs

MG has already stated that RESPs should be on the back burner - I agree.

Remember that RESPs are a good tool for saving for education - the problem is that the cost is uncertain and pretty far in the future. 

There is a lot to be said for ensuring that your family (which of course includes the kids) is in good financial shape. This will help the kids a lot, even if it means not contributing to an RESP until later on (or not at all).


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## petulantfem (Dec 13, 2010)

Thank you, I appreciate all of this advice. Right now my fiance has no disability insurance at work that I am aware of. They are a fairly new company and are still in the process of rolling out things like benefits - I don't know how long to expect those things to take.

I will remember to look into disability insurance with the life insurance.

The wedding money I am saving on the side (doing some child care for extra income). I am not stressing too much about this if we don't come up with exactly enough, as I do know that my parents are gifting us $5000 for our wedding ... I was just hoping to be able to put that in a home downpayment fund, but in the end, I am not going to stress out about it. Either way, the wedding will be paid for fully and will not be a source of additional debt for us.

As advised, I am not going to pursue RRSPs or RESPs at this point. When I first came to this forum, I was panicking about the overwhelming amount of things that I felt like I needed to address immediately, but now I feel more in control of things and like I have a better grasp on what steps to take first and where to focus my energy. So, all of my efforts right now will go to establishing an emergency fund and paying down our OSAP debt. I feel confident that in a year and a half time, we will be completely debt free and have at least 3 months of expenses banked in an emergency fund.

Once the debt is all gone in 2012, I will look at where we are income-wise and reassess what we want to do with our long-term savings goals (RRSPs and RESPs).


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## steve41 (Apr 18, 2009)

As I have said before.... 'just-starting-outs' shouldn't agonize about saving for retirement. I see a lot of plans, from a lot of advisors, and very few clients get seriously into saving until their early-mid 40s. Prior to that, they are paying down loans, mortgages, raising kids, building their careers, etc.


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## petulantfem (Dec 13, 2010)

Four Pillars - I read your article on RESPs and it is very encouraging. I think it is unlikely that all my children will pursue a 4 year degree, and I come from a very large family with siblings in different major cities. For this reason, I feel that the possibility that they will have to live "away from home" to attend school would be highly unlikely. Any of my siblings would be able to house them, and given the variety of cities that they live in - I'm sure whatever path the boys choose they will find a school that offers that program within one of those cities. When we were going through school, the option of staying with any of our aunts and uncles in major cities was also available to us and my oldest sister did live with one of my aunts while in University.

I didn't realize that estimations for post-secondary educations included all of these other factors. I definitely expect all three of the boys to have summer/part time jobs so that they can also contribute to their education expenses to some degree (I am also hoping that this will give them a better understanding of the value of their education/money).

Steve - I see what you are saying about most people not seriously saving for their retirements until they are in their 40s, however, I still cannot shake the idea that I should be at least contributing something within the next couple of years. My parents began retirement savings in their early 20s and paid their mortgage in 5 years - they are very vocal about their belief that we should all be putting money away into savings, and having grown up with that value system, it is hard to ignore.

I do understand that it will be more beneficial for us right now to ensure that a) we have an emergency fund and wipe out our debt so that if an emergency does come up, we will not be facing a financial disaster, and b) we invest in our ability to improve our financial situation by growing savings, potentially investing in real estate and improving job prospects/salary through education.

I won't stress about the RRSP and RESP issues until those more important tasks have been completed and we are on more stable financial ground. But I do have it in the back of my head all of the time.


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## petulantfem (Dec 13, 2010)

MoneyGal said:


> (3) Get the will and life insurance handled as a priority. Ask around for recommendations. I think life insurance amounts have been discussed here in some detail - I know that I've written about the different ways to calculate how much insurance you need.
> 
> In general, a good basic recommendation is for $1M (or more) of joint first-to-die term insurance: this will not be very expensive for you right now.
> 
> As for wills: you need basic wills plus personal directives for your property and health, and your wills need to set up testamentary trusts (to be funded by life insurance) for your kids. Find a lawyer who does wills as part of their basic practice and go from there.


MG, since this is my first step, I would love your advice on how to calculate how much insurance we need. I know that you said that a good starting point is $1M, but I'd like to take a look at any other information that you have as well. I want to be sure that when we go in to talk to someone about this, I have at least a basic understanding of what we are getting into.

I emailed a law firm today that deals with estate planning and am hoping to get a reply shortly to find out the cost and steps required to get this all lined up.

Thanks so much!


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## Four Pillars (Apr 5, 2009)

petulantfem said:


> but I'd like to take a look at any other information that you have as well.


These are just some ideas I had about calculating life insurance:

http://www.getrichslowly.org/blog/2010/03/01/how-much-life-insurance-do-you-really-need/


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## petulantfem (Dec 13, 2010)

Okay, I have gotten a rough idea of what we would need for life insurance ... I guess my next question is - given that our financial situation will likely change quite a bit over the next few years (especially if I go back to school, if we are debt-free, if my fiance gets the promotion next year, if we buy a house in the next few years, etc) this will change a LOT of the numbers that I was calculating with. We will have savings and assets to consider, and a mortgage that we would want to make sure was covered.

If we get life insurance now, based on our current situation, would we be able to change the plan at all as our situation changes? Or should I base the calculation off of our anticipated situation?


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## steve41 (Apr 18, 2009)

I would recommend you see a life insurance professional. Investment advice can be gleaned from forums such as these, but insurance (disability, term, UL, LTC, etc....) gets a lot trickier. Capital needs, estate planning, actuarial issues.... these can get confusing for the beginner.


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## Four Pillars (Apr 5, 2009)

petulantfem said:


> Okay, I have gotten a rough idea of what we would need for life insurance ... I guess my next question is - given that our financial situation will likely change quite a bit over the next few years (especially if I go back to school, if we are debt-free, if my fiance gets the promotion next year, if we buy a house in the next few years, etc) this will change a LOT of the numbers that I was calculating with. We will have savings and assets to consider, and a mortgage that we would want to make sure was covered.
> 
> If we get life insurance now, based on our current situation, would we be able to change the plan at all as our situation changes? Or should I base the calculation off of our anticipated situation?


You can add or reduce your insurance at any time. However, the risk is that if something changes in the future (ie illness) then adding insurance might be expensive or even impossible.

On the other hand, if you get a large amount of insurance now - you run the risk of paying for insurance you don't need for at least a few years and perhaps longer.

I like MG's advice of $1 mill coverage - however, when I got my life insurance, I didn't have a lot of extra money so I tried to calculate a more exact amount in order to save money.

At this point, I think I'm going to have to get more coverage and I wish I had just gotten a million a few years ago.


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## petulantfem (Dec 13, 2010)

I feel like 1M is a comfortable amount ... even if we end up with a mortgage (somewhere in the $150,000-$160,000 range hopefully), 1M seems like a decent amount. The calculating I did gave FH a little over 1M suggestion and myself just a little less than 1M (I was assuming that I would be working and have a modest income for myself in those calculations). Any assets would just be gravy, but I am hoping for no more major debts in our lives aside from a mortgage ... and perhaps a vehicle, though we can always buy a used one that we can afford in cash as we have done in the past.

I am hoping that we will not run into major issues with getting life insurance and that the premiums will be reasonable as we are both healthy, non-smokers, very light drinkers (as in, weddings and holidays) and have no medical issues or anything. I don't know what else will come into play aside from our health.


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