- August 13, 2023
- Posted by: legaleseblogger
- Category: Related News
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Good morning!
I am seeking advice on how to make better financial decisions to maximize my money. I am a teacher in Ontario and currently earning 92k, which will increase to 102k next year. Along with my salary, I have a strong DB pension. My biweekly paychecks amount to around 2100.
My wife works for a university in Ontario, earning approximately 60k. Although she has some form of pension, it is not as good as mine, and I lack knowledge about its details. Her biweekly paychecks amount to about 1600.
Our mortgage has 20 years remaining and is currently at 365k. Fortunately, we locked in our mortgage before the substantial rate increases, resulting in a rate of 3.34 until March 2027. This means that our mortgage payments are around 967 biweekly.
Additionally, we have an emergency fund of 10k, but it currently stands at 7k due to a dog surgery that required 3k. I am gradually replenishing the fund with 600 monthly deposits.
My wife contributes 250/month into an RRSP, separate from her pension, and together we contribute 300/month to our VEQT TFSA. Once the emergency fund is fully restored, we plan to increase our TFSA contributions to 500/month.
We also allocate 250/month to a savings account designated for expenses like car maintenance or housing repairs, and set aside 100/month for a vacation fund.
Despite these allocations, we often find ourselves tight on funds towards the end of the month, but we have never gone into negative balances.
I am eager to know if there are other options available to optimize our financial situation or if our current plan is sufficient.
Furthermore, my wife is currently exploring potential side hustles as her work-from-home lifestyle allows her plenty of free time.
Thank you for your assistance!
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I have some minor tweaking thoughts, but they are opinions and nothing major. Since you are rebuilding your emergency fund, it makes more sense (to me) to redirect RRSP/TFSA/Other savings into rebuilding it rather than spreading it around. Emergency fund seems a bit low as well, just on the assumption teachers strike and so I think you should be in a position to hold the line for ~6 months.
It sounds like you have a fair bit of runway before retirement. But I would look at get a grasp of things like what happens to pensions if one of you dies and the impact on finances. If you haven’t already, it wasn’t till much later that I realized the impact. IE, I have a DB plan but if I die after my retirement my wife continues to get it but only at 50% rate and it’ll be a pretty big hit to our expected retirement income. So my “retirement” savings general goal is more to minimize that impact.
I’ll buck the trend and say that your emergency fund of $10k is plenty. You have a very stable job as a teacher – hard to see massive layoffs in that sector. If you go on strike, you will definitely have to tighten your budget, but that will only be temporary. Plus, the union will give you strike pay. Not much, but enough to cover groceries, I think.
I’m assuming your wife has a somewhat stable job as well, working for a university. But if not, that might influence it. But I think $10k is enough.
As for investing, I like that you’re all in on equities since you can treat your DB pension sort of as the “fixed income” portion of your portfolio. If stocks end up taking a shit, you’ll always have the pension to fall back on.
I would suggest that you, being the higher earner, contribute to an RRSP rather than your wife, as you’ll get a bigger tax break. Or perhaps a Spousal RRSP where you can claim the deduction but the money will be in her name. This way, you won’t have to take income from an RRSP on top of your DB pension, and your wife (at a lower retirement income) can.
One thing to keep in mind is your VEQT. Even though its Canadian Vanguard and even though it is in your tfsa, I was reading you still will be taxed on certain trades/exchanges due to it being in the U.S.
Other people have said the taxation is extremely confusing. My guess is you have no idea and when you actually try to withdraw it you are going to get screwed hardcore.
This is why i stayed far away from this.
Lots of American use VEQT. They wont get taxed depending on their tax shelter.
I would just do some more research into it.
If you live in the GTA i’d argue your money is better spent paying down your mortgage than it is in your VEQT TFSA. What your home makes in equity every year would outperform your TFSA easily especially if your lump summing the mortgage every year.
For the household income, it feels like you’re not saving as much as you could, although you do say it’s tight towards the end. The good news is your savings rate can only go higher (assuming you don’t lifestyle creep as your careers grow)
Work from home does offer opportunities for easy side hustles. For example, look into dog sitting (eg via Rover). You may be able to bring in an extra 2-300 a month for about ~2 weeks of dog care per month. That’s not a ton of money, but it’s also an example of a low impact side hustle which also offers some joy (dogs!)
Focusing on TFSA is a good move, and indeed, keep that in equities like VEQT. My recommendation would be to increase those payments as much as you can so that you can catch up and fill your TFSA room. Then, once full, adjust the payments back down to whatever would fill it each year (in 2023 max is $6,500, so ~540 a month) and keep that steady. A good baseline to hit and then it’s autopilot until retirement.
You gross $54.5k on a $92k salary?
Yes