Emergency fund primer

The need for an emergency fund is essential and cannot be overemphasized.

This fund should be in very liquid form and can be readily accessible.

So how much should be set aside for emergency living expenses?   Financial experts all agree it needs to be a minimum of 3 months’ worth, increasing to as many as 9 months’ worth of living expenses.  That is because the last thing you want is to borrow at a high rate (like credit card charges) for living expenses, or draw from long term investments at the wrong time.

Depending on your circumstance and lifestyle, here are some factors to take into consideration when determining how much and for how long the fund should support you –
1)  size of your household you are supporting and dependent on you;
2)  other cash that’s readily accessible, like money saved in your TFSA (tax free savings account);
3)  how much of other sourced income will be coming in, like EI (employment insurance) and short term disability benefits.

Ask yourself –
1)  am I in a high risk, vulnerable area of employment where replacement work may be difficult to come by?
2)  do I lack other sources of income during this period?
3)  do I lack other savings to access during this period?
If the answer is yes to these questions, you will need to consider a larger emergency fund.

My suggestion on how to estimate the fund amount:
– determine your basic monthly living expenses;
– multiply by the number of months you will likely need to access this fund;
– add 10% contingency to the total;
– less any liquid savings you can access;
– this will equal to the fund size you should consider setting aside for your rainy day account.


TFSA accumulated savings – an update

Here’s an update of my post from January 2015 on TFSA (Tax Free Savings Account) accumulation.
Since 2009, one can contribute to a TFSA and any investment income earned is tax free.

Assuming a 4% annual return, and the maximum is contributed each year at the beginning of each year, one can expect to have almost $63,000 by the end of 2017!   The magic of compounding and accumulation.


Year Maximum allowed Year-start balance Contribution on Jan 1st Interest    rate Interest earned Year-end balance saved
2009 5,000.00 0.00 5,000.00 4.0% 200.00 5,200.00
2010 5,000.00 5,200.00 5,000.00 4.0% 408.00 10,608.00
2011 5,000.00 10,608.00 5,000.00 4.0% 624.32 16,232.32
2012 5,000.00 16,232.32 5,000.00 4.0% 849.29 22,081.61
2013 5,500.00 22,081.61 5,500.00 4.0% 1,103.26 28,684.88
2014 5,500.00 28,684.88 5,500.00 4.0% 1,367.40 35,552.27
2015 10,000.00 35,552.27 10,000.00 4.0% 1,822.09 47,374.36
2016 5,500.00 47,374.36 5,500.00 4.0% 2,114.97 54,989.34
2017 5,500.00 54,989.34 5,500.00 4.0% 2,419.57 62,908.91

TFSA tax free $ accumulation – how cool is that!

I can’t think of a better way than the chart below to illustrate the power of tax free savings accumulation.

If the maximum contribution to a TFSA (Tax Free Savings Account) has been saved since its inception in 2009, one can expect to have almost $42,700 by the end of 2015!   This is assuming only a 4% rate of return.   If the investments in the TFSA yield a higher return, the accumulation would be even higher.



Cloud warning …

photo credit - click

We’ve been encouraged to get on board with cloud computing technology, at the same time when we’re reading about celebrities’ accounts in the cloud being hacked and content compromised.    The message is clear in my mind.   Cloud is convenient and easy to use but be very, very cautious how and what you use the cloud for.

It’s best to keep in mind that when you use the cloud, you’re really storing your information on someone else’ computer.   That computer is very big with many potential access points (servers).   It would be wise not to use the cloud beyond storing non-confidential content, such as family photos that you would be willing to share with family and friends.

I would suggest that backup of personal and confidential information on your computer should remain within your own sphere, including hard drive and paper backups.   This will minimize the possibility of information inadvertently end up in the wrong hands and that they are under your control in most cases.

Here’s a good article for small business advice on cloud computing –  http://soho.ca/index.php/what-every-startup-needs-to-know-before-moving-to-the-cloud/.  A number of the cautions mentioned also applies to individuals using the cloud.

So happy (cloud) computing, but beware of those unexpected thunderstorms!!!




Automate your financial life

automate to organize

Life’s not always a beach.   There’s work to be done and things to plan for before you play.   So let’s start the new year off on the right foot, and make a simple plan for your 2014 saving plan.

Don’t want to have to scramble (again) to deal with last minute financial tasks, like RRSP contribution and tax filing organization?   Well, you can make life easier on yourself by sparing a few moments now to plan ahead.    Here is a financial 5’er list on what to automate now to simplify your life for the rest of the year.

  1. Automate your files for your tax filing papers:   Set up a few folders to handle all the tax papers that should be arriving soon for this year’s tax filing – tax slips, investment activities summaries; donations, medical and other receipts, etc.  Keep these paperwork organized by keeping receipts categorized using envelops and folders.   Make sure you mark them clearly to indicate their paper contents.   A good starting point is to see what receipts were used from your previous year’s filing.
  2. Automate your RRSP contributions (*) for this year:  For many tax filers, this is still a good way to save money and defer/reduce tax at the same time.   Setting up an automatic savings plan for as little as $50 a week will yield you at least $2,600 a year in contributions!;
  3. Automate to maximize your TFSA contributions (*) for this year:  Although your contributions are not tax deductible, the income generated is tax free.   You can save your annual contribution limit of $5,500 by setting up an automatic savings plan of only $106 a week.;
  4. Automate to maximize your RESP contributions (*) for this year:   There’s free money from the government (grants) to help with your child or grandchild’s post secondary education.  Up to 20% of your contributions to a maximum of $500 a year is available per child.   By setting up an automatic contribution of $50 a week will add up to $2,500 a year, and the plan will also be entitled to the maximum $500 grant.;
  5. Automate your donations for this year:  Registered charities prefer receiving regular donations from their supporters than one time donations.   It helps them to budget their operations better and for you, it is a no-brainer way to donate.   You can set up as little as $20 a month automatic donation to yield you a $240 donation receipt at the end of the year.   Check here for information on the super credit available for first time donors.


It’s a good idea to set up these automatic savings and out-transfers at the same time as when your paycheques are deposited into your chequing account.   That way, you’ll be more likely to reduce your spending because the money is not in the account anymore.

Now pat yourself on the back for a job well done.   You’re set for a more organized and well planned out 2014!


*    You are strongly advised to meet with your financial advisor/accountant/tax preparer to determine your optimal contributions level for your specific circumstance.

Rethink New Year Resolutions

Many of us think to make resolutions for the new year and that’s a good thing.   But instead of the popular “I want to lose weight” or “I’m going to quit smoking (drinking, etc. …)”, go one step further by adding 2 measurable perimeters to your resolution.

The first is to give it an amount that is a number.    For example, instead of “I want to lose weight”, your resolution need to include “20 lbs (weight)”.

The second perimeter is to give the resolution a deadline.       So if your resolution is to “Quit smoking”, state “I want to completely stop my one-pack-a-day cigarette smoking habit by June 30, 2014”.

These two perimeters help you define further your goals and how to achieve them.   They are measurable and you can monitor them as your progress.

Of course, don’t be too hard on yourself with resolutions.   Don’t beat yourself up if you didn’t lose the 20 lbs by June 30th (bikini season), instead celebrate your achievement of losing 10.   Revisit your resolution and reset your goal.   Was it a bit too ambitious?   Was it realistic?

The bottom line is to make new year resolutions that are right for you, and are achievable and measurable.  Than put in some hard work and keep your eye on the prize (resolution goal).    And don’t forget to celebrate the milestones along the way.

So what is your New Year resolution for 2014?

Best kept secret in retirement contribution investing … the SPP!

Did you know that you can contribute to a Saskatchewan Pension Plan (SPP) even if you don’t live in Saskatchewan?   Yes folks, this is absolutely true.

It is a plan that’s available to all Canadians who has RRSP contribution room.  You can contribute up to $2,500 a year.   In addition, you can also transfer in up to $10,000 a year from an existing RRSP plan.

Why SPP?

I like this plan because:
1)  it is easy to join;
2)  it is easy to contribute – you can opt for monthly contributions using your credit card;
3)  their management fees are attractively low;
4)  their balanced fund return is decent.   Check out the history here.   (Of course, you need to keep in mind that these rates are not guaranteed going forward.   They just show the plan’s past performance in investment returns.)

So give the SPP some serious consideration, and happy retirement planning!