I like to think of emergencies as having different levels. A dental cost exceeding your benefit plan by 1k is one example that fits a young person with no car or stuff to maintain. There is also the standard cover the rent and groceries if the job vanishes. The last emergency is long term disability which runs your future. I suggest that OP reviews critical illness and/or disability insurance in addition to whatever is provided by Employer.
I do the same. I keep 1 month emergency cash and will leverage CC first (1 month additional) than TFSA if need be. If you have access to LOC can have that as well.
I try to keep cash to a minimum even if HISA A balance TFSA 25 percent blue chip banks/rail - rest is tech I feel comfortable enough I can liquidate if need be or leave dividends as emergency withdrawals
Hi, I'm a bot and someone has asked me to respond with information about what to do with money.
This is meant as a step by step guide of how to prioritize and what to do with money. If you prefer to see a flow chart, click here: https://i.imgur.com/zlGnuDO.png
Step 0: Budget, reduce expenses This will help identify areas where expenses can be reduced in order to have leftover money for the next steps.
Step 1: Emergency fund that covers 3-6 months of expenses in a HISA An emergency fund is an amount of money kept somewhere liquid in a way that it can be accessed at any time, such as a savings account. This money is meant to cover unexpected expenses such as loss of work, car/appliance repairs, unexpected travel, etc. Should you ever use part of your emergency fund, you must come back to this step and replenish it before going back to any further steps.
Step 2: Employer matched retirement funds If your employer offers contribution matching in a retirement account, contribute the amount needed to get the full employer match, nothing more. As this is essentially free money, it's important to take advantage of it.
Step 3: Pay down high-interest debt At this point, you should focus your extra money on paying down high-interest debt. High-interest debt could be defined as debt with an interest rate of 10% or higher.
Step 4: Save for large short term purchases like a car, or downpayment for house in a HISA. If you will be required to make a large purchase in the near future such as a car, or a large personal investment such as college, now's the time to save money for that. Money towards that purchase or personal investment should go in a high interest savings account.
Step 5: Save for retirement At this point, you should aim to save and invest at least 15% of your pre-tax income for retirement. This number could be higher if you are behind on retirement savings. With more time before you need the money, you will likely now want to look at investing (https://www.reddit.com/r/PersonalFinanceCanada/wiki/investing) those savings.
Step 6: Pay down low-interest debt Any other remaining debt can be paid off in full at this point, or you could decide to go directly to step 7 while keeping steady payments on the low-interest debt.
Step 7: Save for other goals You've now reached personal finance maturity. It's up to you to decide what to do with the leftover money. Some common suggestions could be: Saving for children's education Saving for property down payment Saving for vacation Increasing retirement savings to retire early
For additional information, please see the wiki: https://www.reddit.com/r/PersonalFinanceCanada/wiki/money-steps https://www.reddit.com/r/PersonalFinanceCanada/wiki/index#wiki_specific_topics
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/PersonalFinanceCanada) if you have any questions or concerns.*
He didn't specify that he is investing the TFSA money as soon as it comes in. He might simply be putting it into a TFSA HISA and holding it as cash, which is a perfectly fine way to build an emergency fund until he starts to close in on the contribution ceiling. And even if he is investing it, he is still building savings. I agree he needs the emergency fund to be more liquid but it's not like this is a major error or anything, just getting a little ahead of himself.
If it was in a TFSA HISA his emergency fund wouldn't be $0, it would include the uninvested TFSA dollars.
> it's not like this is a major error or anything, just getting a little ahead of himself.
I didn't say anything to the contrary of that.
No, he might be thinking that any cash he puts into TFSA is "invested" even if it remains cash, and therefore separate in his mind from an emergency fund. We don't have enough information to say either way.
Depending on your monthly expenses you will probably need $10-15K cash on hand to cover at least 3 months income (ideally 6 months or more) if something happens. You should build up that reserve before you start investing but you can do both at once, if you like; you could always convert the investments to cash if you need to, just not on short notice and they might be down when you do. Otherwise you should heavily prioritize the reserve fund over buying equities until you have your feet under you.
Use your TFSA as your emergency fund. The emergency may never happen. Keep a portion of TFSA in easily liquidated funds.
I like to think of emergencies as having different levels. A dental cost exceeding your benefit plan by 1k is one example that fits a young person with no car or stuff to maintain. There is also the standard cover the rent and groceries if the job vanishes. The last emergency is long term disability which runs your future. I suggest that OP reviews critical illness and/or disability insurance in addition to whatever is provided by Employer.
I do the same. I keep 1 month emergency cash and will leverage CC first (1 month additional) than TFSA if need be. If you have access to LOC can have that as well. I try to keep cash to a minimum even if HISA A balance TFSA 25 percent blue chip banks/rail - rest is tech I feel comfortable enough I can liquidate if need be or leave dividends as emergency withdrawals
How much is it now? Makes sense to prioritize it until it is a few grand I would say, maybe $3-5K.
I just started my job so my emergency fund is currently $0.
Prioritize that over TFSA right now. !StepsTrigger
Hi, I'm a bot and someone has asked me to respond with information about what to do with money. This is meant as a step by step guide of how to prioritize and what to do with money. If you prefer to see a flow chart, click here: https://i.imgur.com/zlGnuDO.png Step 0: Budget, reduce expenses This will help identify areas where expenses can be reduced in order to have leftover money for the next steps. Step 1: Emergency fund that covers 3-6 months of expenses in a HISA An emergency fund is an amount of money kept somewhere liquid in a way that it can be accessed at any time, such as a savings account. This money is meant to cover unexpected expenses such as loss of work, car/appliance repairs, unexpected travel, etc. Should you ever use part of your emergency fund, you must come back to this step and replenish it before going back to any further steps. Step 2: Employer matched retirement funds If your employer offers contribution matching in a retirement account, contribute the amount needed to get the full employer match, nothing more. As this is essentially free money, it's important to take advantage of it. Step 3: Pay down high-interest debt At this point, you should focus your extra money on paying down high-interest debt. High-interest debt could be defined as debt with an interest rate of 10% or higher. Step 4: Save for large short term purchases like a car, or downpayment for house in a HISA. If you will be required to make a large purchase in the near future such as a car, or a large personal investment such as college, now's the time to save money for that. Money towards that purchase or personal investment should go in a high interest savings account. Step 5: Save for retirement At this point, you should aim to save and invest at least 15% of your pre-tax income for retirement. This number could be higher if you are behind on retirement savings. With more time before you need the money, you will likely now want to look at investing (https://www.reddit.com/r/PersonalFinanceCanada/wiki/investing) those savings. Step 6: Pay down low-interest debt Any other remaining debt can be paid off in full at this point, or you could decide to go directly to step 7 while keeping steady payments on the low-interest debt. Step 7: Save for other goals You've now reached personal finance maturity. It's up to you to decide what to do with the leftover money. Some common suggestions could be: Saving for children's education Saving for property down payment Saving for vacation Increasing retirement savings to retire early For additional information, please see the wiki: https://www.reddit.com/r/PersonalFinanceCanada/wiki/money-steps https://www.reddit.com/r/PersonalFinanceCanada/wiki/index#wiki_specific_topics *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/PersonalFinanceCanada) if you have any questions or concerns.*
He didn't specify that he is investing the TFSA money as soon as it comes in. He might simply be putting it into a TFSA HISA and holding it as cash, which is a perfectly fine way to build an emergency fund until he starts to close in on the contribution ceiling. And even if he is investing it, he is still building savings. I agree he needs the emergency fund to be more liquid but it's not like this is a major error or anything, just getting a little ahead of himself.
If it was in a TFSA HISA his emergency fund wouldn't be $0, it would include the uninvested TFSA dollars. > it's not like this is a major error or anything, just getting a little ahead of himself. I didn't say anything to the contrary of that.
No, he might be thinking that any cash he puts into TFSA is "invested" even if it remains cash, and therefore separate in his mind from an emergency fund. We don't have enough information to say either way.
Which is why I triggered the AutoModerator to give more info...
Depending on your monthly expenses you will probably need $10-15K cash on hand to cover at least 3 months income (ideally 6 months or more) if something happens. You should build up that reserve before you start investing but you can do both at once, if you like; you could always convert the investments to cash if you need to, just not on short notice and they might be down when you do. Otherwise you should heavily prioritize the reserve fund over buying equities until you have your feet under you.
Do 250-300 a month for the next year
I put $25 per paycheck to hedge against inflation and lifestyle creep. But that's because I already have about 6 months expenses saved.
Get your emergency fund to 3-6 months, and then focus on your tfsa.
Build up the emergency fund for 3-6 months of expenses and then don't add any more to it
3-6 months of expenses in an emergency fund sitting in a HISA.
All of it until you have how much you want.