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Business & Investment,  Canada Business News

Reader Questions – What are you saving for?

Reader Questions – 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’re doing.

This isn’t a request to stop reading!

What I mean is, overall, I feel we’re doing a few things right:

  • We’ve worked hard to get into and keep good paying jobs. We don’t take them for granted.  They could disappear.
  • We pay ourselves first every year – 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’re working on that).
  • We put a high priority on killing our mortgage – 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 – 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’t know how to invest or where for that matter, so I have moved a few times from broker to broker.  I’m coming in late in the stage at this point with so much time already wasted, so I don’t have the long-term 20+ years that other people have.  I’d 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’m considering buying ETFs and dividend stocks.  I have been reading/following your posts to try and catch up and learn what’s 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’s 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’ve 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’s best for you.  What’s 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’ve got some of my favourite books listed here.

Here are some other free resources and ebooks.

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 – at least that’s the plan.  Stay tuned.

Hey, I love what I read on your blog but I’m struggling to put it all together. I have my RRSP but it’s just sitting there in cash thus far. Would like to get it invested … 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…I too started investing using my RRSP (decades ago mind you) when the TFSA wasn’t even a glimmer in the Finance Minister’s eye.   I also held mutual funds in my RRSP, for many years in fact, until I made the switch.

For what it’s worth, consider your RRSP one of the best tax-deferred investment accounts available.  What should you hold in your RRSP?  I can’t 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’s 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 “on sale”.

You can read about how I built my dividend portfolio here.

You can read about indexing using low-cost ETFs here.

There are great things you can do with your TFSA and this is a reminder about those options available to you.

Mark, what are you and your wife saving for?  By the way – the investing industry makes everything so complex – it’s 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’t 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’t need to be complicated.  It’s about knowing the basics and getting the basics right more often than not.  It’s also about behaviour.  I mean, it doesn’t really matter what dental floss you buy.  Why?  It’s more important you floss – 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’ve written and linked to the TFSA and RRSP above but there is also the RESP to consider for your kids’ education.  Don’t forget about that one.

To your question, why are we saving?  What is our money for?  We’re 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 – 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 “home base”.  As we have gotten older and have matured our thinking, we realize we really don’t need as much stuff.  In fact, having a bunch of stuff to maintain doesn’t 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’s something we’re willing to pay for.

Those are just a few of the reasons why we save.

Saving The Behavior Gap

Image courtesy of Behavior Gap

I’ve often mentioned it’s not the plan that’s 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 – aligned to my responses to readers above:

  1. Articulate your money goals. What is your money for?  Why?
  2. Acquire some knowledge about an account (RRSP, TFSA, RESP, other – maybe all of them!) that can help your realize the money goals.
  3. Determine how much you can contribute to your money goals. Arguably the more you can save, the more often, the better.
  4. Determine the products that should be enablers to reach your money goals.
  5. Where possible, automate the saving and investing process.
  6. Where possible, over time, once you get into the habit of saving and investing – increase your contributions to accelerate your path to money goals.
  7. Periodically assess where you are on your journey.
  8. 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

Mark Seed is the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I’ve grown our portfolio to over $500,000 – but there’s more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

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