Family Finance

[Especially K]

These are the types of problems I like having lol.

Dh and I are lucky enough to be able to sock away a fair chunk of change every month.  We're in a new-ish house and we know the roof will need to be replaced next year but we'll have money set aside for that (hopefully I'm not jinxing myself and something else major will go in the  meantime).  Both of our cars are old - '97 Honda Civic and '99 Volkswagen Passat - both are in good shape (again, knock on wood to avoid the jinx) but we'll probably have to look at replacing at least one in the next year or two.  We do save money each month for RRSP's and RESP's as well.  We each have 2 years of TFSA's, but we'd like to keep that as part of our retirement savings and not touch it unless we're desparate.

So what do we do with the extra money?  Dh would like to keep $10-15,000 available as an 'emergency fund'.  Anything above and beyond that I'd like to put against our mortgage.  Do we:

- look for a 'high interest' savings account, if they do exist?  We have lots of $$$ sitting in savings accounts right now and basically earning nothing

- put the emerg fund in TFSA's

-we don't need that much in an emerg fund since we have the existing TFSA's - aggressively pay down the mortgage since we're paying more in interest on it than we're making on any existing investments.

We do make lump sum payments on the mortgage approximately once a year as well. 

Any advice?  Dh and I are both finally in stable f/t jobs for the first time in awhile and we want to make the most of it. 

TIA

Karen

[max3]

any particular reason you wouldn't want to work towards being mortgage free, faster? Do you know how much of your monthly mortgage payment is interest and how much is principle? 

[1st time Calgarian]

If you think that you may need these funds in the next year or two for either the vehicle, or roof, then you may want to just stick it in your TSFA.  Since you have two years with you and dh, you will have another year left each which equates to $10K, plus in Jan you will each have another $5K.

Also, do you have an emergency fund to fund true emergencies?  The unplannable.  I consider replacing vehicles and roofs as somewhat planable. 

Without having much details, here's some things I would do based on some assumptions

-  What is in your TSFA right now?  Is it cash or equities?  If you're using it to shelter investment gains, then will you have enough to put more in for investments?  If not, then just max out your TSFA with the cash.  You can always pull it out and put in back the following year. 

- if you have mostly cash in your TSFA, then I would just use the money to pay off your mortgage, as the cash in the TSFA is primarily an emergency fund.    You can always top it back up later when you're mortgage is paid off.  I will assume that your mortgage rate is higher than what you're making in the TSFA. 

. 

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[rus07]

Agree with the other two posters.  Depending on your income and therfore deduction rate, I would use the RRSP for retirement and max it out, and the TFSA for emergencies and preferably, for non-registered investments that will have a nice gain, since it's tax free.  You can withdraw, but just need to be careful that you don't re-invest over the limit in the same year.  If you had the money, there's lots of alternatives tho', that pay more than a basic bank account.

However, I think of cars and a new roof and other home repairs, as something to plan for.  Emergency fund is usually to let you live if you're both laid off and not getting an income, or if you suddenly have to fly across the country for something unplanned. 

Paying off your mortgage will cut costs a lot. That's probably a big debt that you're paying for with a lot of interest.   Can you make lump payments on the principal, or just once a year?  Can you increase the payments - ie: paying weekly or bi-monthly cuts a lot of interest?  Then, once your mortgage debt is paid off, you'll have that money for other savings, etc.

[rus07]

If you're using it to shelter investment gains, then will you have enough to put more in for investments? 

I know you're well versed in this stuff, but I thought that you can put in $5K per year, regardless of what your previous year's investment made.   I thought that's the big attraction for using a TFSA for equities or something that will make a nice gain. The gain will be tax free, yet you still get the same $5K allotment the next year.  (I sure hope I'm right!!  tho' I might have misunderstood what you meant).

[straightjacketmommy]

ours sits in a tax free savings account so we can pull it out fast if need be.

[1st time Calgarian]

Not sure how this quick reply works, but I'll give it a try. You are right that you get $5k each year Regardless of previous contributions. I wasn't very clear in my post.

Based on the the op post, it seems like they should have each $5k left in their Tfsa. I was thinking that if they use it for investments like equities, mutuals, etc, then they probably want to continue with the remainder of it for investments. However, I didn't know if they had the money to come up with the money to max their investments in the Tfsa and the emergency fund. Hope that makes sense, it may not without a flow diagram lol

[rus07]

Somehow there's not a Quick Reply to your Quick Reply, so hope this comes in the right place.  Meant as a Reply To your answer to me!!  Thanks...... I get what you're saying now regarding equities in the TFSA plus a liquid emergency fund.  Thanks (and phew...!)

[Especially K]

I appreciate the advice.

I probably should have called the 'emergency fund' our 'extra money' fund; it is there for the roof and the car AND any unexpected things that come up.  That's one of the reasons I am reluctant to put too much on the house at once.  You can always pull it out of TFSA's but you can't get it back from the mortgage.  The thing is, we can usually build up the 'extra money' fund pretty quickly but in the meantime if anything happened we want something available.

TFSA's seem to be the way to go to 'store' the extra money.  We could always split the difference; put some money into TFSA, some onto the house. 

I know it makes the most sense to pay off the mortgage quickly as we are paying more in interest than we're making on any investments, but there's a comfort zone of knowing that money is available too!  Especially after my '97 Civic piddled all over the parking garage at work the other day, sigh, it needs to go for some TLC at the  mechanics on the weekend.  Too many of those types of visits and we'll have to put it down .

Karen

[Little_Red's_Ma]

We have an ING account that is separate and for emergency savings only. Our everyday accounts are with TD and if there was an emergency we could transfer the money within a couple of days. We have also put some of our savings into OSB and GIC's through ING. Our house is paid for and we have very little debt. We set up the ING account about 6 years ago and at the time they had the best rates.