Reader Questions ‚Äď What are you saving for?
Thanks again good readers.¬† I appreciate hearing from you and receiving your saving and investing questions.
Like other blogposts where I answer your questions (or at least offer some perspectives back to you), I want you to know our saving and investing approach might not be suitable to everyone.¬† Heck, there are probably far better ways to save and invest than what we‚Äôre doing.
This isn‚Äôt a request to stop reading!
What I mean is, overall, I feel we‚Äôre doing a few things right:
- We‚Äôve worked hard to get into and keep good paying jobs. We don‚Äôt take them for granted.¬† They could disappear.
- We pay ourselves first every year ‚Äď in January. We put a high priority on maxing out contributions to our Tax Free Savings Accounts (TFSAs).
- We also put a high priority on contributing monthly to our Registered Retirement Savings Plans (RRSPs). (I am out of contribution room now but my wife is not and so we‚Äôre working on that).
- We put a high priority on¬†killing our mortgage ‚Äď there is absolutely a mental side to debt.
- We live our lives. While saving and investing for the future is good, as is paying down debt now, life is short.¬†¬† You gotta enjoy it while you can ‚Äď so we travel, enjoy experiences, and good food and wine.
Over the last few months I received some emails and questions about various blogposts so I decided to write some responses today.¬† Where I could, I used verbatim wording from the emails.¬† Let me know in a comment if you agree or disagree on these perspectives.¬† All respectful opinions are always welcome here.
Mark, I desperately need to transfer my managed RRSP investment of approx. $200,000 to a self-directed account.¬† I wish I found your site much earlier!¬† I didn‚Äôt know how to invest or where for that matter, so I have moved a few times from broker to broker.¬† I‚Äôm coming in late in the stage at this point with so much time already wasted, so I don‚Äôt have the long-term 20+ years that other people have.¬† I‚Äôd like to retire when I get close to 60 which is only 5 years away.
I have a pension plan with my company and have some TFSA of about $25,000.¬† My mortgage should be paid off in about 2 years.¬† I‚Äôm considering buying ETFs and dividend stocks.¬† I have been reading/following your posts to try and catch up and learn what‚Äôs best.¬† Where do I start?¬†
Well, first of all, congrats on almost being debt-free and having some savings for retirement set aside.
Where to start?¬† There‚Äôs a lot to unpack in that email but I would consider taking some time to map out a financial plan before jumping into financial products, not that low-cost ETFs and owning some dividend paying stocks might not fit with your plan.¬† (They work for me.)¬†¬† Rather, I think once you‚Äôve firmed up why you want to invest, what is your money for, how much risk you want to take on for potential financial reward, I believe it becomes easier to figure out what‚Äôs best for you.¬† What‚Äôs best for others might not be best for you.¬† There are some good saving and investing rules of thumb out there.
Back to the plan, here are some considerations about what your financial plan should cover. ¬†¬†This is not an exhaustive list by any means but a starting point.
My other perspective?¬† Consider buying some books and reading up on what ETFs are, how they could work for you.¬† I‚Äôve got some of my favourite books listed here.
Finally, I have a landing page for some links to various ETF posts.¬†¬† I will be updating my previous articles about my top-ETFs over this summer ‚Äď at least that‚Äôs the plan.¬† Stay tuned.
Hey, I love what I read on your blog but I‚Äôm struggling to put it all together. I have my RRSP but it‚Äôs just sitting there in cash thus far. Would¬†like to get it invested ‚Ä¶ I know I want to read your DRIP section a little more!¬† I have mutual funds in my RRSP (which I will probably sell), not much in TFSA (lived out of the country for a while) and want to get started at a later age. I have about $30,000 to invest now which I think will be best in my TFSA along with regular monthly contributions.¬†¬† I know I can do this but just need some help.
I can totally appreciate where you are coming from.¬† I was there‚Ä¶I too started investing using my RRSP (decades ago mind you) when the TFSA wasn‚Äôt even a glimmer in the Finance Minister‚Äôs eye.¬†¬† I also held mutual funds in my RRSP, for many years in fact, until I made the switch.
For what it‚Äôs worth, consider your RRSP one of the best tax-deferred investment accounts available.¬† What should you hold in your RRSP?¬† I can‚Äôt tell you but I can list and link to what I invest in and why.
- I hold U.S. listed ETFs for income and growth.¬† I feel I need diversification beyond Canada‚Äôs borders.
- I hold about 30 Canadian dividend paying stocks for income and growth.
- I keep my cash balance in my RRSP between $3,000-$10,000 in case there is a market correction, so I can buy more stocks and ETFs ‚Äúon sale‚ÄĚ.
Mark, what are you and your wife saving for?¬† By the way ‚Äď the investing industry makes everything so complex ‚Äď it‚Äôs frustrating.¬† Thoughts?
You have a point.¬† I mean, the financial industry is a massive, no, more like a ridiculously HUGE machine.¬† I can appreciate as a retail investor it seems overwhelming.
The scary, overwhelming stuff aside for a moment, I do believe things are changing for the better. ¬†There are more advocates out there (than ever before) striving to clarify the blurred lines between marketing, pushing financial products vs. fiduciary duty.
There are robo-advisors working hard to eat the lunches of established firms, offering more choices and lower cost portfolio solutions.¬† This is good.¬† Sure, these robo-firms are striving to make a profit, why wouldn‚Äôt they (?), but they are also demystifying the investment process for consumers.
On that note, getting a handle on your savings plan for retirement purposes doesn‚Äôt need to be complicated.¬† It‚Äôs about knowing the basics and getting the basics right more often than not.¬† It‚Äôs also about behaviour.¬† I mean, it doesn‚Äôt really matter what dental floss you buy.¬† Why?¬† It‚Äôs more important you floss ‚Äď period.¬†¬† See what I mean?
Investing is the same thing.¬† Build up your knowledge about various accounts that can help you and your family.¬† I‚Äôve written and linked to the TFSA and RRSP above but there is also the RESP to consider for your kids‚Äô education.¬† Don‚Äôt forget about that one.
To your question, why are we saving? ¬†What is our money for? ¬†We‚Äôre saving (including for long-term investment purposes) using our TFSAs, RRSPs and non-registered account for these key reasons:
- We love to travel and want to enjoy visiting different cities and countries around the world. ¬†We need money for that.
- We enjoy experiences, going to local festivals ‚Äď not worrying about driving after a late night out. We need money for that.
- We enjoy having a home, including a future condo to call ‚Äúhome base‚ÄĚ.¬† As we have gotten older and have matured our thinking, we realize we really don‚Äôt need as much stuff.¬† In fact, having a bunch of stuff to maintain doesn‚Äôt make us happy.
- We enjoy hobbies. Mine is mountain biking and golfing in the summer.¬† The former is rather inexpensive, the latter requires some cash.
- We enjoy (and want to keep) our health. We exercise for that, I try and watch my stress, and we also eat well.¬† Good food can be expensive at times but it‚Äôs something we‚Äôre willing to pay for.
Those are just a few of the reasons why we save.
Image courtesy of¬†Behavior Gap
I‚Äôve often mentioned it‚Äôs not the plan that‚Äôs important in your financial life but the process of planning (and re-planning) that will help get you to where you want to go.¬† In that light, here are some elements of that process you can consider for your journey ‚Äď aligned to my responses to readers above:
- Articulate your money goals. What is your money for?¬† Why?
- Acquire some knowledge about an account (RRSP, TFSA, RESP, other ‚Äď maybe all of them!) that can help your realize the money goals.
- Determine how much you can contribute to your money goals. Arguably the more you can save, the more often, the better.
- Determine the products that should be enablers to reach your money goals.
- Where possible, automate the saving and investing process.
- Where possible, over time, once you get into the habit of saving and investing ‚Äď increase your contributions to accelerate your path to money goals.
- Periodically assess where you are on your journey.
- Re-start at #1 since life, and therefore your plans, will change as will the financial environment around you.
I hope this last answer provided some insight into how I/we try and think and behave when it comes to our financial life.¬† I hope you found some words of wisdom in this post or maybe some alternate perspectives for consideration.
Thanks for reading.
Got questions or comments?¬† Share away!¬† I look forward to reading all of them.¬† Mark
First published at https://www.myownadvisor.ca/reader-questions-what-are-you-saving-for/