More answers to burning money questions
THE STACK #4In last week's STACK, I shared PT 1 of the answers to five personal finance questions most people ask.
Here’s PT 2.
THE STACK
How many months of expenses should I save for emergencies?
At the minimum, you need three months of necessities (food, housing, transportation) saved.
You can do this simultaneously with other financial goals.
Should I get a consolidated loan?
It depends on the nature of the consolidated loan.
Ask yourself:
☞ Are you saving a significant amount in interest by consolidating?
☞ How much will you save by consolidating the loan?
☞ Will you be able to afford to pay more than the minimum payments?
☞ Can you afford the minimum payments if you no longer have a job?
☞ Will you have the discipline to not go back into debt?
Most people consolidate their credit card debt which frees up more room for them to spend and end up in more debt.
If you consolidate a loan, close the account or reduce the limit to something much more manageable.
Should I contribute to my RRSP or TFSA?
Always contribute to your Tax-Free Savings Account (TFSA)
The TFSA offers more flexibility and can be used for short to mid-term goals.
You should always have some money in your TFSA.
If you're trying to figure out which of these accounts to prioritize right now, follow this guideline:
☞ If you make below $53,359, focus on contributing to your TFSA
☞ If you earn above $53,359, contribute to your Registered Retirement Savings Plan (RRSP), which will help reduce your taxes.
You can use your refund to contribute to your TFSA (This is a hack I've been using to invest more)
Do both if you can
How much should I be saving for retirement?
Everyone’s retirement needs differ, and it’s hard to predict how much we will need for retirement, especially if we're still far from retiring.
Start with your current expenses and multiply that by 25
Example:
If your annual expenses are $40,000
You will need $40,000 x 25 = $1,000,000 to retire
This is based on a study that shows that you can safely withdraw 4% of your retirement without running out of money for 30 years.
To get to your retirement goal, calculate how much you'll need to invest/month to hit that goal.
Check out THE TOOL section below for the calculator I like using.
Should I invest while paying off debt?
Yes absolutely!
When you invest, you make YOU richer. When you pay off debt, you make your creditors richer.
You should do both if you can.
THE TOOL
Use this Savings Goal Calculator from investor.gov to calculate how much you need to invest every month to get to your desired goal.
You can see that to get to $1,000,000 at age 65; you'll need to invest $255 every month.
(Based on a 35 horizon and a 10% annual interest rate).
They also have a compound interest calculator that lets you calculate the future value of your investments.
I use this calculator at least once every week! 👩🏾💻 #obsessed
THE ACCOUNTABILITY
Log into your CRA account to see what your TFSA limit is for this year
Crosscheck this with past contributions to ensure there are no errors.
Contact the CRA immediately if you notice any inconsistencies.
You'll be surprised how off the CRA can sometimes be!
THE COURAGE
THE KNOWLEDGE
COMPOUND INTEREST
Compound interest is simply the interest you earn on interest.
Example:
You invest $100, and it earns 10% interest annually.
At the end of year one, you will have $110.
By year two, you will earn interest on $110 instead of just your initial $100,
At the end of year two, you will have $121.
At the end of year three, you will have $133.
In 35 years, $100 would have grown to a whopping $2,810.24!!!
This right here is what is known as THE MAGIC OF COMPOUND INTEREST.
That's it for this week's STACK!
Talk to you next week,
But until then...Keep Stacking!
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