# Advise needed



## rinoscar (Jan 26, 2010)

Hello to everyone. Ok here is my situation and I will try to included everything. 

I am 40 with a full time job @38k$ a year. My wife just finished a three year program to become a Dental hygienist and landed a job @36k she's 29 and we have no kids.

Liabilities:
Credit card: approx 1500$
Line of credit: 3600$

Assets:
Mine: Rrsp 40$K(not maxed) No contribution (yet)+ Lira 16K$+ pension fund(from work)5K$+ appr.50$ a month contribution=61 000$
Wife: Rrsp 7k$(not maxed) +50$ a month contribution..Going to increase between 100$ to 150$ a month.
Joint: ING savings accoun. 2000$+restarted a 1000$ a month contribution.
bank account 5000$, but will be depleated in a month or two. (Personal reasons)
Budget: I have done a quick calculation of expenses and they roughly come to 3100$ a month(It should be less but I overpriced a few items). We clear roughly 4000$ a month. 

We are currently renting and looking to buy a home in a year or maximun 2 years. Planning to start a family in one year.

Plan of action: 
-rebuild the ING account to around 6months living expenses. 
-Start contributing to my rrsp. 

This is where I need help, should we instead in putting money into ING savings account, place it in a TSFA? Bring the TSFA to 5000$ and then start saving into ING? WE are not looking at the TSFA for a place to hold stocks or mutual funds, just a place to save money. 

ANy thought, suggestions.

Thank you.


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## Cal (Jun 17, 2009)

You will be able to put 20K into the TFSA. 10K in yours. 10K in wifeys. Next year you can contribute another 5K each. Why would you want ot pay taxes on your savings account?

You can open a TFSA through ING also. I am sure they will be glad to help you set it up.

Otherwise, in a non registered account you pay tax on whatever $ your savings generate.


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

You clear $4000 a month yet you are $5100 in debt?

Why are you putting RRSP savings before debt repayment?

IMO debt repayment needs to come FIRST. AND you need to determine WHY you racked up this debt so that you can prevent a recurrence.

Can you fix these items?

I would also recommend 6-12 months living expenses kept in TFSA in cash. This is your rainy day fund, tier 1.

You also do not have tier 2 of savings, about $15-30K for things like a new car, roof repair or other occasional life emergency.

Tier 3 is already well in hand and being addressed by you, that is the RRSP.

That's how *I* would do things differently. Otherwise you're actually in pretty good shape!


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## rinoscar (Jan 26, 2010)

Cal said:


> You will be able to put 20K into the TFSA. 10K in yours. 10K in wifeys. Next year you can contribute another 5K each. Why would you want ot pay taxes on your savings account?
> 
> You can open a TFSA through ING also. I am sure they will be glad to help you set it up.
> 
> Otherwise, in a non registered account you pay tax on whatever $ your savings generate.


Hi CAl, can you please explain why we can 10k each? When the max per year is 5k?

Thanks


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## rinoscar (Jan 26, 2010)

the-royal-mail said:


> You clear $4000 a month yet you are $5100 in debt?
> 
> Why are you putting RRSP savings before debt repayment?
> 
> ...


Thank you


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## Rob_23 (May 29, 2010)

rinoscar said:


> Hi CAl, can you please explain why we can 10k each? When the max per year is 5k?
> 
> Thanks


You can each put 5K a year into your TFSA. So since you have this year and last year to make up for, you can EACH put 10K into your own TFSA.

I would also recommend ING since your already set up with them, they're currently have a int. rate of 2% and your ING saving account is only earning 1.2%.


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## seven3 (Apr 4, 2009)

My 2 cents...

First step is to eliminate the debt. Free up money by eliminating expenses that you don't need or don't generate any value/enjoyment from. Seeing where you spend your money is a big eye opener.

Then, after you save for a few months you can figure where to put the money (TFSA, etc.)

You mentioned that you don't think you can ever save 15-30k for Tier 2 emergency. Nothing is impossible. Also, no offense, but until you can save this amount, you should not even be considering buying a house.


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## rinoscar (Jan 26, 2010)

seven3 said:


> My 2 cents...
> 
> First step is to eliminate the debtI know the general rule is to get rid of debt, but our combined debt is at 11% interest, but you are right that should be the first order. We are paying off her credit card by shots of 400$ a week and the line of credit 100$ a week. Once CC paid, line of credit becomes main focus and should be paid off in by the fall.. Free up money by eliminating expenses that you don't need or don't generate any value/enjoyment from. Seeing where you spend your money is a big eye opener.I overpriced some items in my budget. Like allocating 400 a month on Miscellaneous items but should probably 200 and there are a few other like that. In reality the 3100$ should read more like 2500$ but I did that for a reason and what ever surpluses we will amasse in our checkings account will go to pay down the debt and or rrsp.
> 
> ...


 Actually I never saw it that way. So a Tier 2 is an emergency fund for the home. Any suggestion where to hold this money?

Thank you


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## rinoscar (Jan 26, 2010)

Rob_23 said:


> You can each put 5K a year into your TFSA. So since you have this year and last year to make up for, you can EACH put 10K into your own TFSA.
> 
> I would also recommend ING since your already set up with them, they're currently have a int. rate of 2% and your ING saving account is only earning 1.2%.


Oh yeah Duh! I forgot about the rollover of unsed contribution

Thanks for the reminder


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

Hi rino, glad to see you participating and responding to the points being made. You're really in great shape but I need to clarify the 3-tier savings plan. 

Tier 1 is supposed to be plain, pure cash (TFSA is a great place for this) and is your first line of defence in case of prolonged job loss, minor accident or other life crisis ONLY. NOT to be used to fund trips, home down payments or other non-emergency items. Goal: 6-12 months total household living expenses unaided (ie. assume the amount needed based on NO UIC or other assistance). After you pay your debt, this needs to be your FIRST savings priority.

I guess you could think of tier 2 as an emergency fund for the home but I would go a bit broader. If your car is in a wreck and written off tomorrow, you may need some extra money to buy a new one, over and above the ins payout. Use tier 2 for this. If the roof needs work on the house, tier 2. If your kid needs $4K worth of dental work, tier 2. If your basement floods and the ins doesn't cover $5K worth of the necessary work, tier 2. NOT to be used to fund a house downpayment (esp with your income and the amount you are able to save), buy consumer goods, go on a trip or other non-essentials. Where to keep the money? Good question. I'm actually not 100% sure on this but I think a cashable GIC (NOT registered) would be a good option. Maybe get the money working for you at 1-2% but keep the GIC cashable since a flooded basement could happen any time. We could honestly start a whole new thread about where to put tier 2 money. Aim to save $15-30K for this. It's important and you will find that when you NEED this money, it won't seem quite so luxurious as it does now. 

Tier 3 is retirement/RRSP and you have that well in hand. I think you should be giving us advice about saving for this fund. 

Please understand these funds need to be independent of each other and fully funded and maintained during good financial times. If you use one of the tiers, replenish it when you get back on your feet. Having these 3 tiers gives you pride, dignity and independence during the worst times life throws your way and allows your survival. With a wife and future family, this is ESSENTIAL. IMO of course.

Lastly, you said you wanted to have a baby in a year and a house within 1-2 years. This is great, good luck!  So these are things you can plan for. What value of house do you want? Down pmt should be a minimum 5-10% PLUS moving expenses and other costs. Make a 4th fund to save for your house downpayment, even if the $ is in a savings account, whatever. Do NOT draw down on any of the above 3 tiers for this, since you could lose your job and wreck your car right after you move into your new house with young child. Then you won't have any money and will be in dire straits real quick.

You should _also_ save for the child _now_, since your wife is not yet expecting and you have time on your side. I have NO idea how much to save for this but save something so that the aformentioned 4 buckets can continue to operate unaffected by this.

If you find that you cannot save the 3 tiers AND items 4 and 5, then you need to make a decision about delaying items 4 and/or 5. Review the books and do a 3- year forecast given the finances you mentioned initially and see if this is possible.

Good luck - enjoy life!


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## OhGreatGuru (May 24, 2009)

the-royal-mail said:


> You clear $4000 a month yet you are $5100 in debt?
> 
> ....



Give him a break Royal. He said _"My wife just finished a three year program to become a Dental hygienist and landed a job @36k ..." _ So their household income only recently doubled, after wife was at school for 3 years. I'm surprised they only have $5100 in debt.

Otherwise, i agree with your advice to pay off the debt - that's the best investment they can make right now. 

At their current tax bracket, and the need to save for house/kids, contributing to RRSPs right now may not be the best strategy. There are a number of threads on this topic.


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## rinoscar (Jan 26, 2010)

the-royal-mail said:


> Hi rino, glad to see you participating and responding to the points being made. You're really in great shape but I need to clarify the 3-tier savings plan.
> 
> Tier 1 is supposed to be plain, pure cash (TFSA is a great place for this) and is your first line of defence in case of prolonged job loss, minor accident or other life crisis ONLY. NOT to be used to fund trips, home down payments or other non-emergency items. Goal: 6-12 months total household living expenses unaided (ie. assume the amount needed based on NO UIC or other assistance). After you pay your debt, this needs to be your FIRST savings priority.Got it, and I forsee no obstacles in achiving this goal
> 
> ...


Thanks for taking the time to clear things up. Frankly when i first read your last post, I saw the light at the end of the tunnel but then it quickly got really dark. I thought about all the things you said and at the end, it all makes sense and althouhg the light is very dim the path is very much straight. Thanks again


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## rinoscar (Jan 26, 2010)

OhGreatGuru said:


> Give him a break Royal. He said _"My wife just finished a three year program to become a Dental hygienist and landed a job @36k ..." _ So their household income only recently doubled, after wife was at school for 3 years. I'm surprised they only have $5100 in debt.
> 
> Otherwise, i agree with your advice to pay off the debt - that's the best investment they can make right now.
> 
> At their current tax bracket, and the need to save for house/kids, contributing to RRSPs right now may not be the best strategy. There are a number of threads on this topic.


When my wife decide to go back to school she was working. She delayed one year of school and we power saved to get us thru the 3 years. That is the reason we are not in debtm well besides the 5100$, but 3/4 of that debt is because of me. I bought myself a bike that was worth 5000$ and slowly paying it off


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

Hi rino,

>I was thinking of using my RRSP to make the downpayment, is this not a good strategy?

Just because you CAN do something, doesn't mean that you should. I do NOT think this is a good strategy. You have a very limited time to pay that money back into your RRSP. Which means that in addition to your mortgage, tax, condo fee and upkeep expenses, you'll have the monthly pmt to pay back your RRSP. My advice remains: start a 4th savings bucket (cash, savings acct) for your downpayment and see where it stands in 6-12-18 months and determine if you have enough for a decent downpayment. Don't touch your RRSP savings thus far. You've made tremendous progress with that, it would be a shame to lose all the traction you've made there and kill your cash flow and investment growth at the same time.

>Can I start an RESP?

Absolutely. But you're at a stage where you need to prioritize your buckets and priorities. IMO the priorities should be (in your case);

1. tier 1
2. tier 2
3. tier 4
4. tier 5 (saving cash for the baby for the immediate expenses when baby is born)
5. ONLY when you have items 1-4 above covered should you go to the RESP option. RESP is for the child's future, 20 years from now. Over the next 20 years, YOU will need as much money as possible as there will be ups and downs. How you prepare for the downs will matter most IMO.

Think of this as building a fort for childhood snowball fights. You need to fortify yourself with a wall of cash as high and sturdy as you possibly can BEFORE you start throwing snowballs and tackling your buddies. 

Keep us posted on your progress? I would love to hear how you are doing.


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## rinoscar (Jan 26, 2010)

Hi Royal,

For the very short term (few months) I am on hold on how to allocate the cash. My wife is traveling back to her home country(Romania) to help her mom sell and find a new place to move. We might need resources to help finance that move, how much we are not sure yet. Depends how much she gets for her place and how much the new place will cost. I am hoping one will cancel the other, but I think we will be more in debt after the move. Hence in my first post the 5000$ in the savings account, is geared for this move.

Royal are you a financial planner? If so are you taking any new clients

Once the debt is cleared, should I only work to get tier1 at full capacity or should I allocate a % to each tier?


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

Hi rino, nope, just an average guy who has had a few really hard knocks in life and a mother who raised me to properly manage money. Plus I've learned a LOT since I joined this forum only a few months ago. I can't take credit for the 3-tier savings plan but I totally believe in it and feel the world would be a far better place for everyone in it if everyone would manage their money, no matter the amount, in this manner. I also believe in Suze Orman. Ever seen her call-in shows? Classic. Post here anytime and I am sure any of us will be happy to help, keeping in mind these are all merely personal opinions and we can't be held responsible if something bad happens.

Anyway, on your post, life is full of surprises like that. The example you gave is a good use of tier 2 funds. If you had that saved, you would be discharging your GIC's now to be able to fund that. I point this out only because it's a very good example of how tier 2 funds should be used. Right now, you have to spend that money, so go ahead and do it and when that situation is behind you pay off the debts ASAP. Step 2 is to then start saving for tier 1 at full capacity as soon as the debts are paid. IMO you've done well enough with tier 3 that you should put further contributions to it on hold* for the next 1-2 years while you get tiers 1 and 2 established. After dealing with the aforementioned situation of course.  Also you might want to make some decisions about future baby and home purchase, with all of these data on hand now.

*some people here will probably disagree -- remember that's my only my own opinion.


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## rinoscar (Jan 26, 2010)

Hi royal,

Sorry for the late reply, crazy long shift's at work! 

My wife really hates you She wanted to be in a home by next year, then I told her about the tier system and she's been cursing your name ever since! Well at leat for the first minute after I told her. We both understand that this is a solid plan to avoid any unforseen event ruin ones finances and more. We both thank you for bringing the tier plan to our attention and more thanks again for really breaking the plan down.

I don't think I will stop my rrsp pension fund from work, it comes off my payy I don't see it and it is around 50$ monthly. My Itrade account, nothing going in. We are going to keep the 50$ monthly for my wife. 

Before she went to school she was working as a dental assistant and she was making way less then what she is making now and we still managed to save approx. 15 000$ in a span of a year to a year and a half and I was putting 200$ a month into my RRSP. 

SO we are still going to allocate some cash(very little) to rrsp's. 

Never eared of Suze Orman, but I will google her and learn more. 
SAme here about this site, I have learned more and a few books have also helped. 

Thanks


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## marina628 (Dec 14, 2010)

I have been watching Suze's show for a year now and she has helped me alot. My only shortfall is my 8 months emergency Fund and I know I need to grow my savings/Investing more aggressively in future.


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