Consultations available by video and phone with electronic signatures.

Ask the experts

Ask the Experts- December 2019

A lot of people don’t feel comfortable talking about money. For many, talking about savings and budgets and spending simply isn’t done. Some people consider it rude, others feel that it’s not a topic to discuss amongst anyone but the closest family members. Some people avoid talking about money because they’re unsure or afraid of making a mistake or saying something incorrect.

However, it’s important to talk about money. If you discuss budgets, savings, and strategies for tracking your spending, you’ll be a lot more likely to get new ideas, be inspired, and make decisions that help your financial future. By discussing money, you learn things you didn’t know which can help you for the rest of your life.

That’s why, each month, we have our financial experts answer questions on money, budgets, and a variety of financial topics. Have a question for our team? Ask us online on FacebookTwitter or through our website.

The questions here have been condensed or rewritten for clarity and simplicity.

I had a large debt that I’m still working on paying down. I’m about halfway there. Should I keep focusing on the debt or turn my attention to building my emergency savings?

First of all, congratulations on focusing on debt repayment and making a significant dent in your debt. Paying down debt is tough to do. It takes planning, dedication, and a lot of hard work. It’s also a positive sign that you’re thinking about building your emergency fund.

Emergency savings are critical since life is unpredictable. Unexpected repairs could be necessary, such as your car breaking down or your refrigerator needing to be replaced. If you don’t have any money saved for emergencies, you may end up having to take out new debt to afford these expenses. As you know firsthand how difficult it is to pay down debt, this likely isn’t something you want to happen. An emergency fund becomes even more important if you lose your job or otherwise become unable to work. If you’re not earning your full income, your emergency fund can help you afford your expenses until you’re earning money again.

As for whether to focus on debt repayment or savings, that will depend on the specifics of your situation. If you have a lot of high-interest debt, you may wish to continue to focus on paying it down. That’s because these debts are likely costing you a lot of money each month.

However, you’ll also want to take the size of your current emergency fund into account. If you currently have a very small emergency fund, or no emergency fund at all, then it could be a good idea to focus on building one. Most experts suggest having at least three-to-six-months of expenses saved for emergencies. Start small and build up from there.

For most people, the best idea is to strike a balance between saving and debt repayment. However, think about your real-life situation and use that information to help determine what makes the most sense for you.

My children are four and two years old. What’s the best way to help them afford to pay for post secondary education when the time comes?

One of the best ways to save for your children’s education is to put money into a Registered Education Savings Plan (RESP). Any money invested into an RESP grows tax free, meaning you don’t pay any tax on the investment as long as it stays in the plan. In addition, the federal government will match your contributions by 20%, up to a maximum of $500 for each child. This means if you contribute $2,500 each year, you will receive the full grant of $500 each year. That’s a good amount of money that you don’t want to pass up.

Your children can take the money out of their RESPs when they enrol in qualifying education plans, such as college or university. You can open an RESP at most financial institutions.

Another option for savings is a Tax-Free Savings Account (TFSA). While most people choose to invest in an RESP first, you can supplement your savings with money in a TFSA. This money can be withdrawn tax-free for any purpose, so it’s a good flexible choice.

It’s a good that you have started to think about education savings while your children are quite young. The earlier you invest, the more time your investment will have to grow, giving your kids more money to spend on their education.