Walter (age 36) has met the woman of his dreams, has goals of marriage, purchasing a home and starting a family. Walter met Linda (age 32) at the local pub after a weekly hockey scrimmage with his buddies. After dating for a while, Walter proposed to Linda on Valentine’s Day. Following Walter’s parents suggestion, they met with Len Colman to map out the next few years.
They wondered about the challenge of paying for a wedding, purchasing a home and were both anxious to start a family. Walter who was renting an apartment had $38,000 saved up in his RRSP’s in very aggressive investments in addition to $19,000 in savings. Walter owed $5,000 in a car loan and another $3,000 on a high interest credit card which he had only been making the minimum payment each month. Linda was still living with her parents and had $15,000 in savings and no debts and no RRSPs yet.
Len gathered information from Walter and Linda and provided some recommendations. They included:
- Walter to use some of his savings to pay off the high interest credit card debt. As Walter was not able to claim and deduct his car expenses on his tax return, Len suggested he also pay off the car loan immediately as there was no early payment penalty. This eliminated about $1,100 of interest payments John would have paid over the next year. Walter would need to earn about $1,500 before tax to service this debt.
- The next recommendation was for Walter to switch $25,000 of his aggressive RRSP investments into more conservative investments to preserve the capital to have available to withdraw as a first-time home buyer.
- Walter should switch his fully taxable savings funds into a Tax Free Savings Account (TFSA). Walter had $10,000 available room for contribution. The funds can earn interest tax-free and be taken out to use towards the new home, wedding or other expenses.
- After calculating a projected tax analysis, Linda’s tax savings were optimized by contributing $4,500 into an RRSP which she could later use towards the home purchase (provided the funds were there at least 90 days).
- Linda should then invest most of her remaining savings into a TFSA.
- Down the road, Walter and Linda should get pre-qualified for a mortgage, purchase adequate life and critical illness insurance and establish a reserve to supplement Linda’s income for the time she is on maternity leave and will have reduced income.
The outcome was that Walter & Linda now have a plan to realize their dreams of marriage, purchasing a home and planning for children without the financial fears of being burdened beyond their limits.