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Savings Plan

4051 Views 5 Replies 6 Participants Last post by  The_Number

New to the forum but I've been a reader for a few weeks now and am very pleased to see all the information and opinions made available.

I was wondering if anyone could provide some insight on a savings plan that I hope to put into place once I get myself out of debt (in 3-4 months). Note that I'm 24 and have pretty much put myself into debt since I got a professional job, however since January I have been paying everything off and will be free by summer's end. While I have read about various opinions in regards to saving over paying down debt - it was more important to be to pay everything off, then save.

Having done some research and readings I've thought of something like this (all percentage is monthly):

10% into an Emergency/Travel Fund (I've thought about separating these two)
10% into Long Term Savings
20% into an RRSP
10% into Short Term Savings

A portion of my funds will go into my pocket in addition to some expenses but that still leaves me with over $500 to put somewhere.

What I'm looking for is advice in terms of what accounts to put these funds into? Right now I am with Vancity (and have been since I was 12) but I recently opened a savings account and a US savings account with ING Direct. Should I deem this account to be my long-term, untouchable savings account?

I have no plans of investing yet, but it would be something to look at in 2 or 3 years once I have a cushion.

Short Term Savings: Goal is to have this for purchases - is in the ING Direct account adequate since it gives me access to my money immediately?

Long Term Savings: Same as above, I would use this for savings over a term of 2-3 years for say a down payment on a car or a house/apartment. Is there a better way of yielding a higher interest rate over a fixed term?

RRSP: I will probably open with Vancity, unless anyone has a better alternative?

Emergency/Travel Fund: As I live at home, I don't "need" this but I would like to have something set up for when I move out (2 years tops). Should I split this into two separate saving accounts? Is another account with ING (or another institution sufficient)?

With the extra money that I have left over after expenses, what's my best option to do with that? It will be between 500-700 monthly which I throw into a savings account?

My apologies for asking a lot but I do hope someone can help me out.

Thank You
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Congrats on paying down your debt.

In my opinion you should try to simplify things a bit more. Try not to open so many accounts and have so many ‘baskets’ going at once. First you should determine what your goals are with an emphasis on when you will need the money. The ‘when’ is the most important factor that determines which vehicle you should be using for your money. Minimize the effort that these baskets will require on a regular basis and maximize the separation between short and long term money.
I find that with the exception of a mortgage, if you remain debt free, contribute to your RRSP and keep your credit card balance payed in full every month that you don't need near as much of an emergency fund as the experts say. Unless I'm planning something like a big trip, I rarely keep much more than one months salary in cash. (However, I do keep a certain amount in fixed-income products in my RRSP.)

Also remember to make use of the TFSA so you won't be subject to tax on the interest.
First of all congrats on having your debt paid off (or soon to be paid off)! Being young and debt free is a great start for your future.

I do agree with mg that your structure seems a little complicated, when you first start off saving, I think it may be easier to track your numbers when you have less accounts. If I were you, I would try to consolidate the savings together, and have a regular RRSP contribution on the side.

Spidey also bring up a good point, TFSA is a great tool to save/invest for a down payment if you want to move out in a couple of years. However, if this is your first home purchase, then the Home Buyers Plan may be a better option. Prioritize your goals and save towards that might be a place to start.
I have heard of a few people who use multiple accounts this way to do their personal bookkeeping. It may help you in developing a disciplined savings plan.
Most people, however, would combine some of these "accounts", and simply separate the money either in their heads or in a personal budget worksheet. I think one of these days the banks are going to crack down on people opening multiple accounts unnecessarily too.

In terms of investment vehicles, at the present time your best choice for your short-term savings, long-term savings (only 2-3 yrs), and emergency/travel is probably just a high-interest e-savings account. You may want two accounts - one TFSA and one non-registered, but otherwise there is no need for 3-4 separate accounts for these other than for your personal budgetting reasons.
First of all, congratulations for working on being debt free :) And based on your plan, it looks like you are planning to live on 50% of take home, which I think is a great idea.

In terms of saving plans, I am in a similar situation as you in that I have multiple things to save for. What I do, however, is that I have a single saving account (except RRSP) and keep a note of of how much of that money belongs to which category (e.g., emergency fund, house fund, vacation fund) and put that note in a really obvious place (So it works both as record keeping and goal reminder.) I am thinking about physically creating separate accounts (esp. emergency fund), but so far I'd feel a bit silly to have so many small accounts.
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