Reader Questions â What are you saving for?
Thanks again good readers.Â 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.Â Heck, there are probably far better ways to save and invest than what weâre doing.
This isnât a request to stop reading!
What I mean is, overall, I feel weâre doing a few things right:
- Weâve worked hard to get into and keep good paying jobs. We donât take them for granted.Â They could disappear.
- We pay ourselves first every year â 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 weâre working on that).
- We put a high priority onÂ killing our mortgage â 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.Â Â You gotta enjoy it while you can â 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.Â Where I could, I used verbatim wording from the emails.Â Let me know in a comment if you agree or disagree on these perspectives.Â 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.Â I wish I found your site much earlier!Â I didnât know how to invest or where for that matter, so I have moved a few times from broker to broker.Â Iâm coming in late in the stage at this point with so much time already wasted, so I donât have the long-term 20+ years that other people have.Â Iâd 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.Â My mortgage should be paid off in about 2 years.Â Iâm considering buying ETFs and dividend stocks.Â I have been reading/following your posts to try and catch up and learn whatâs best.Â Where do I start?Â
Well, first of all, congrats on almost being debt-free and having some savings for retirement set aside.
Where to start?Â Thereâs 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.Â (They work for me.)Â Â Rather, I think once youâve 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 whatâs best for you.Â Whatâs best for others might not be best for you.Â 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. Â Â This is not an exhaustive list by any means but a starting point.
My other perspective?Â Consider buying some books and reading up on what ETFs are, how they could work for you.Â Iâve got some of my favourite books listed here.
Finally, I have a landing page for some links to various ETF posts.Â Â I will be updating my previous articles about my top-ETFs over this summer â at least thatâs the plan.Â Stay tuned.
Hey, I love what I read on your blog but Iâm struggling to put it all together. I have my RRSP but itâs just sitting there in cash thus far. WouldÂ like to get it invested âŚ I know I want to read your DRIP section a little more!Â 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.Â Â I know I can do this but just need some help.
I can totally appreciate where you are coming from.Â I was thereâŚI too started investing using my RRSP (decades ago mind you) when the TFSA wasnât even a glimmer in the Finance Ministerâs eye.Â Â I also held mutual funds in my RRSP, for many years in fact, until I made the switch.
For what itâs worth, consider your RRSP one of the best tax-deferred investment accounts available.Â What should you hold in your RRSP?Â I canât 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.Â I feel I need diversification beyond Canadaâs 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 âon saleâ.
Mark, what are you and your wife saving for?Â By the way â the investing industry makes everything so complex â itâs frustrating.Â Thoughts?
You have a point.Â I mean, the financial industry is a massive, no, more like a ridiculously HUGE machine.Â 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. Â 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.Â This is good.Â Sure, these robo-firms are striving to make a profit, why wouldnât they (?), but they are also demystifying the investment process for consumers.
On that note, getting a handle on your savings plan for retirement purposes doesnât need to be complicated.Â Itâs about knowing the basics and getting the basics right more often than not.Â Itâs also about behaviour.Â I mean, it doesnât really matter what dental floss you buy.Â Why?Â Itâs more important you floss â period.Â Â See what I mean?
Investing is the same thing.Â Build up your knowledge about various accounts that can help you and your family.Â Iâve written and linked to the TFSA and RRSP above but there is also the RESP to consider for your kidsâ education.Â Donât forget about that one.
To your question, why are we saving? Â What is our money for? Â Weâre 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. Â We need money for that.
- We enjoy experiences, going to local festivals â 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 âhome baseâ.Â As we have gotten older and have matured our thinking, we realize we really donât need as much stuff.Â In fact, having a bunch of stuff to maintain doesnât make us happy.
- We enjoy hobbies. Mine is mountain biking and golfing in the summer.Â 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.Â Good food can be expensive at times but itâs something weâre willing to pay for.
Those are just a few of the reasons why we save.
Image courtesy ofÂ Behavior Gap
Iâve often mentioned itâs not the plan thatâs important in your financial life but the process of planning (and re-planning) that will help get you to where you want to go.Â In that light, here are some elements of that process you can consider for your journey â aligned to my responses to readers above:
- Articulate your money goals. What is your money for?Â Why?
- Acquire some knowledge about an account (RRSP, TFSA, RESP, other â 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 â 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.Â 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?Â Share away!Â I look forward to reading all of them.Â Mark
First published at https://www.myownadvisor.ca/reader-questions-what-are-you-saving-for/