You may have recalled that I started blogging on January 16th, 2016, about 1 month after my husband and I became completely debt free. In hindsight I should have created this blog when I was going through my debt repayment journey instead of after and capture the highs and lows of that 2.5-year experience. However, I don’t think I was in the right mental space to do so and blogging was not even in my thought radar at the time. Oh well, you live and learn.
The exact date we finished paying off our $120k of student loan debt was Dec 15, 2015 paycheque. I remember, that day. It was a pretty great day. We decided the splurge our Dec 30th paycheque and the amount we would normally put towards debt repayment we enjoyed spending during the Christmas & New Year’s holiday.
Even though we had nothing in savings, we had no debt either, and that was a great feeling. However, now we are both ready to take on 2016 with the same determination and drive we had in accomplishing our debt repayment goals, but instead of paying off debt, we would use that money to save for the future.
In the beginning of 2016 we both found ourselves at 30 years old, no debt and a net worth of about $7,000 combined (from retirement savings through old employers). We both felt like we had a lot of catching up to do in the savings department. If we were going to make paying off $120k in debt over 2.5 years’ worth it we would need to catch up on lost time and make the savings part as aggressive as the debt repayment.
So we decided to have a 2016 savings goal of approximately $43,000 (or $42,944 to be exact).
With no kids, a dual income and a very frugal lifestyle by most standards, we felt that this is more than doable. Obviously this is dependent on both of us working throughout 2016 and our incomes not going down.
To breakdown things a bit further, this $42,944 consists of $21,944 in long-term savings (i.e. retirement) and $21,000 in short term savings/planned spending.
Here is the breakdown of the goals and the year to date for me and my husband:
Short-term savings/ planned spending:
2016 Savings Goals
|1. Emergency fund||$10,000||$10,000|
|2. Vacation fund||$3,000||$ 3,000|
|3. Starter baby fund||$5,000||$ 1,000|
|4. Education fund||$3,000||$ 1,000|
2016 Savings Goals
|5.Retirement savings thru work (includes matching)||$10,776||$3,468.75|
|6.Tax Free Savings Account||$10,000||$0|
|7.Critical Illness (self-insure)||$1,168||$292.00|
|TOTAL SAVINGS YEAR TO DATE||$42,944||$18,614.75|
- Emergency fund: as mentioned before this $10k in emergency fund was partially funded by a tax refund in March 2016. This helped us to quickly expedite our savings. The emergency fund is set aside for unplanned expenses like an illness, job loss etc. Because we need this money to be readily available, we used the GIC/CD deposit laddering strategy to take advantage of varies interest rate while eliminating risk
- Vacation fund: We are planning on taking a vacation to Hawaii this October. This would be our first vacation in 3 years since we began paying off our debts. All of our vacations since then have been ‘staycations’. These monies stay in a basic saving account with an online bank earning 1.81% promotional interest rate which will go down to 0.80% after July 31,2016.
- Starter baby fund: babies are expensive and although I don’t think this $5k will take us too far, it’s a start. On the bright side I have a lot of siblings and family who have already had children and I hope to get a lot of the clothes, car seat, stroller etc. donated. These monies stay in a basic saving account with an online bank earning 1.81% promotional interest rate which will go down to 0.80% after July 31, 2016.
- Education fund: these monies are set aside for courses we would like to take to help grow professionally or even out of interest. This account will also cover any costs I will incur when growing my blog site. At this current point, these costs have been minimal but I want to make sure the monies are there in the event we need to use them.
- Retirement savings through work: Our Registered Retirement Savings Plan (similar to a 401k in the U.S.) is one avenue we use to save for retirement. We put the maximum amount our company will match and direct the rest to our TFSA. Because we are still young we have a more aggressive portfolio so we can maximize returns in the long run. Our contributions towards this plan will result in even more savings when we claim our contributions as deductions on our tax return which would lower our taxable income increase our refund. This refund will be 100% invested into our TFSA accounts.
- Tax free savings account (TFSA): the TFSA is an account registered with the government of Canada that allows Canadian residents over the age of 18 to put money in this account and any growth in never taxed. The TFSA was started in 2009 and allows Canadian residents over the age of 18 to contribute monies up to a maximum each year towards this account. Any funds not contributed could be carried forward and contributed in future years. As of 2016 a maximum of $46,500/person can be put into a TFSA (assuming one had never contributed before) and the growth is never taxed. Monies in a TFSA can be invested in almost anything from stock/bonds to GIC or a basic savings account. We plan on taking advantage of this great retirement tool by working towards maximizing this room as the year’s progress. Of course all monies in our TFSA will be invested in stocks, bonds and some fixed income, with a long term position in mind. We will hopefully begin putting money in our TFSA by mid July 2016.
- Critical Illness (self-insure): a few months ago I did a post on how my husband and I got term to 65 life insurance of $750k each. Not knowing how much it would cost us, we had budgeted to spend no more than $250/month on life insurance for the both of us. This was an amount that we felt our budget would allow without impeding our other long term goals. Well our monthly rate after being insured came up to $104/month for the both of us. Now before deciding to go with just term 65 life insurance, we had wanted to also add critical illness to 65 for $50k each as well. For these two plan for the both of us, we were given a rate of $213/month. Now after doing some more research on critical illness and going through our family health history (generally good health on both sides), we decided against it. Instead, we decided to self-insure the difference of $250/month (what we budgeted) and $104/month (what we pay for life insurance) which is $146/month ($250-$104) to put towards a critical illness fund.
Why did we decide to self-insure for critical illness?
- Both me and my husband are healthy people and so are generally most of our family. Because we did not recall our family history suffering from any major illness before the age of 65, we were willing to not get insured for critical illness.
- Getting insured for critical illness costs a lot more than getting insured for life insurance if you compare what you are paying for versus what you are getting. We pay $104/month combined for a term to 65 life insurance policy of $750,000 each. Compare that to paying $109/month combined for critical illness coverage of only $50,000 each. Now $50k is a lot of money, but to pay $109/month for the next 35 years (from age 30 to 65) and possibly never need to use it seems like a waste to me.
- Compare that to banking it and investing/savings it yourself. If we put $146/month for 35 years (until age 65), that’s $61,320 ($140 X 12 months X 35 years). This amount doesn’t even factor in growth, just the principal savings. We plan on investing these monies as well once they grow to a certain amount. If we ever need monies for CI (for expenses not covered by the government) than we could pull it from this fund, if we don’t by the age of 65 than that’s just more money towards our retirement
So overall we have made a 71% progress towards achieving our short term savings goals 17% towards our long term goals. Our long term goals is where the real excitement is for us because I know that monies in these accounts will not be touched for decades to come so the growth potential is exciting. Any semi-annual bonuses from my husband work will 100% go towards our long term retirement goals, but I have not included these amounts as they vary each time. The first half of 2016 was largely spent on funding our short-term savings goals. But now that we are approaching the second half of 2016, I am looking forward to focusing our efforts towards our long term goals.
The idea is that by 2017, most of our short term savings goals will be fully funded and would not need replenishing for some time. This will allow us to put over 80% or more of our savings towards our long term goals in 2017. We will see how it goes.
How do you allocate your savings? How is your progress coming along?