Where should I park my extra cash?
January 28, 2013 9:39 AM Subscribe
I'll soon be debt free. How do I make the most of it?
In a couple of months my student loans will be paid in full and I will be debt free. I'll be beefing up my emergency fund once this happens, but after that, I'm kind of at a loss over how to proceed with regards to savings and investments.
I live in Canada and take home about 4k a month after taxes. I am in a long term relationship (7 years) and we have no plans for a wedding or kids. My own fixed expenses (rent, utilities, phone/internet, car payments, car/tenant insurance, gas, fitness classes) total about 1,600/month. Although we're certainly open to home ownership in the future, it is not a priority for us in the next few years. We're happy in a small space and have everything we need or want.
I read lots of personal finance blogs (especially ones with a Canadian context) but I'm still not sure what my next move should be. I have a TFSA already and am depositing into that. Should I be contributing to an RRSP as well? Is the Home Buyer's Plan likely to help me a lot down the road if I do want to buy a home? In short, where is the best place for me to park my extra money?
Answers to these questions would be appreciated, as would suggestions of additional resources (books, blogs) to help me learn to save wisely.
In a couple of months my student loans will be paid in full and I will be debt free. I'll be beefing up my emergency fund once this happens, but after that, I'm kind of at a loss over how to proceed with regards to savings and investments.
I live in Canada and take home about 4k a month after taxes. I am in a long term relationship (7 years) and we have no plans for a wedding or kids. My own fixed expenses (rent, utilities, phone/internet, car payments, car/tenant insurance, gas, fitness classes) total about 1,600/month. Although we're certainly open to home ownership in the future, it is not a priority for us in the next few years. We're happy in a small space and have everything we need or want.
I read lots of personal finance blogs (especially ones with a Canadian context) but I'm still not sure what my next move should be. I have a TFSA already and am depositing into that. Should I be contributing to an RRSP as well? Is the Home Buyer's Plan likely to help me a lot down the road if I do want to buy a home? In short, where is the best place for me to park my extra money?
Answers to these questions would be appreciated, as would suggestions of additional resources (books, blogs) to help me learn to save wisely.
I'd try and just get a decent savings account built up, ideally six months to a year of living expenses before getting too much into RRSPs. I dunno if that is what your emergency fund is like or not but with that kind of scratch coming in that's what I'd do. "They" always say nothing lasts forever so it's nice to be able to keep living well even if your job disappears. EI would barely cover living expenses right now.
The TFSA seems like a good thing to max out every year. If you have some sort of pension or ever do get a job with a pension, they can affect RRSPs a lot. Regular mutual funds can be a great place to park money for the long term and you can take the money out without paying tax on it.
The banks up here tend to have decent financial advisers, they can be pretty helpful setting up mutual funds and stuff for you and TD does a decent job of assessing your risk tolerance.
posted by glip at 12:32 PM on January 28, 2013
The TFSA seems like a good thing to max out every year. If you have some sort of pension or ever do get a job with a pension, they can affect RRSPs a lot. Regular mutual funds can be a great place to park money for the long term and you can take the money out without paying tax on it.
The banks up here tend to have decent financial advisers, they can be pretty helpful setting up mutual funds and stuff for you and TD does a decent job of assessing your risk tolerance.
posted by glip at 12:32 PM on January 28, 2013
Best answer: After you have 3 months of emergency funds or so saved I would start to max out the rrsp contributions. Then use the sweet tax refund to further beef up your emergency/tsfa savings. Win, win!! Also check to see if your employer offers an rrsp match or retirement savings program. No point missing out on free money. The earlier you get started on your rrsp savings the greater success you will see. And again, the tax savings are a huge benefit.
We used etf mutual funds with TD and were happy with the low carrying costs and the easy direct deposits. We started with regular deposits each paycheque and increased the amount yearly/with each raise.
posted by saradarlin at 11:21 PM on January 28, 2013
We used etf mutual funds with TD and were happy with the low carrying costs and the easy direct deposits. We started with regular deposits each paycheque and increased the amount yearly/with each raise.
posted by saradarlin at 11:21 PM on January 28, 2013
Best answer: The Wealthy Barber Returns is often cited as the go-to book for introductory personal finance in Canada. Highly, highly recommended. The book explains TFSA versus RRSP very well (the likely answer for you: max out the TFSA first then invest into an RRSP. It's not that simple though - the correct answer really depends on your unique situation). It also talks about investing in index funds which is an important investment tool to learn about.
Once you've read that book, look into the resources on Bylo Selhi's Website. Once you have a bit more knowledge about investments, index funds, and other things, reading through Shakespeare's Investment Primer will give you further insight into investing in Canada.
Before taking the advice of anybody, whether it be a financial advisor or a stranger on the internet like myself, remember that the person who cares the most about your money is yourself. Don't delegate the understanding of investing to someone else. Many financial planners have a conflict of interest because they make commissions off of selling you investments, or at the very least get paid by the companies that profit from the purchases you make. I'm not saying that a financial planner isn't worth it as many are, but be cautious. When you buy mutual funds there are hidden fees called management expense ratios that eat into your investments. Make sure to understand what a management expense ratio is when you start investing in mutual funds.
At first it may seem a little overwhelming, but there are a lot more complicated things out there. Learning about investing may actually be the best investment you will make! Best of luck!
posted by ajackson at 11:51 PM on January 29, 2013
Once you've read that book, look into the resources on Bylo Selhi's Website. Once you have a bit more knowledge about investments, index funds, and other things, reading through Shakespeare's Investment Primer will give you further insight into investing in Canada.
Before taking the advice of anybody, whether it be a financial advisor or a stranger on the internet like myself, remember that the person who cares the most about your money is yourself. Don't delegate the understanding of investing to someone else. Many financial planners have a conflict of interest because they make commissions off of selling you investments, or at the very least get paid by the companies that profit from the purchases you make. I'm not saying that a financial planner isn't worth it as many are, but be cautious. When you buy mutual funds there are hidden fees called management expense ratios that eat into your investments. Make sure to understand what a management expense ratio is when you start investing in mutual funds.
At first it may seem a little overwhelming, but there are a lot more complicated things out there. Learning about investing may actually be the best investment you will make! Best of luck!
posted by ajackson at 11:51 PM on January 29, 2013
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I'm assuming the TFSA is about the same as the IRA in the United States, yes? If so - is there a limit to how much you are allowed to contribute to that account each year? I'd get close to that maximum -- or up to that maximum - if possible.
After that - well, one of my best friends advocated the importance of an "I'm Worth It" account - a savings account expressly for fun stuff. It's important to let yourself enjoy yourself now and then, too, and it's hard to remember to do that when you've been budgeted so tight to the bone for so long. And you don't need to go too nuts with it; but you'll find that even just 30 dollars a week set aside and suddenly, hey, look at that, you can afford that extra night in the hotel you'd planned for your vacation after all. (or whatever.)
maybe not the investment advice you're looking for, but - remenbering to budget for fun is really, really important, and a real revelation when you've been tryng so hard to budget just for grownup stuff for so long.
Good luck and congrats.
posted by EmpressCallipygos at 9:48 AM on January 28, 2013