Summary II
As with the accessories added to a snowman, you could choose to go out to the store and purchase everything you need. You could also choose to do it yourself by crafting material found around the yard or house into suitable fittings. The same applies to the topics covered in part II. You can pay fees to advisors and fund managers who will help to increase the quality of your overall portfolio. The downside to this option is the costs that decrease the amount of money you have remaining to invest. You may not have the desire or ability to do everything yourself. However, the less you pay in fees, the more you can put toward your goals.
The accessories we’ve covered can be added to the foundation discussed in part I of this blog. Getting to your money first and setting aside savings is easier if you’ve lowered your expenses and set up a budget. Maximizing your expected growth rate is possible through investing in stocks in a registered account, like the TFSA or RRSP.
A Financial Roadmap
To help see how these topics can come together, we’ll observe Sam as he progresses with his finances over time:
For savings up until Sam turns eighteen, he uses a high-interest savings account from a local financial institution.
Once of age, he opens a TFSA and transfers his money into the account to avoid taxes going forward.
Since Sam’s not ready to invest on a long-term basis, he still uses a high-interest savings product in his TFSA.
At the same time, he opens a student credit card to begin building credit and only spends money he already has.
As Sam starts his career, he sets up an automatic transfer into his savings account after each paycheque.
When he receives his first raise, he increases his transfer to his savings account before increasing his spending.
He begins investing his money in his TFSA for longer-term goals, such as buying a house and retirement.
He chooses a few low-cost funds to minimize the fees he’s paying while taking on an appropriate amount of risk.
Sam switches jobs to an employer that offers a retirement plan and contributes the required amount to max out the matching.
Due to higher income and minimal room left to contribute to his TFSA, Sam opens an RRSP and starts depositing.
After years of saving for a down payment, he decides to buy a house after a careful assessment of the pros and cons.
He uses money from his RRSP through the HBP and takes advantage of several tax breaks for first-time home buyers.
With the purchase of a new house and a child shortly after, Sam buys insurance to protect against the unknown.
He also sets up a will to oversee his estate if he passes away.
To help provide education savings for his child, Sam opens an RESP and starts setting aside money early.
As Sam’s retirement approaches, he sells some of his stocks, buys more fixed income and eventually switches his RRSP to a RRIF.
The accessories mentioned in part II may not be relevant for your immediate needs. Now that you have a foundational understanding of them, you can return to this section in the future. From time to time, it’s worth checking back to see if there are new opportunities to expand your financial plan. For ease of future reference, the following table outlines the accessories discussed and key takeaways for each.
The topics we’ve covered range from a ten-year-old saving some of their part-time income to someone entering retirement. You can add the accessories that apply to your current situation and expand your plan over time. With a strong grasp of personal finance in hand, it’s time to move on to the final part of the blog to see what’s next from here.
This blog is a duplicate of the recently self-published book The Snowman’s Guide to Personal Finance available for purchase here.