Almost every financial planner will tell you that you should set aside money for a rainy day. It’s like a golden rule that you must have a rainy day fund. Some advisors say 3 months income, others 6 months. Some even say a year’s income should be stored in cash or cash-like savings just in case you lose your job, have a massive car repair bill, a dead fridge, or you suddenly need to go on a trip to Belize.
Fortunately I’m not a financial planner so I can say whatever I want and I’m going to tell you that unless you’re in a very special circumstance you shouldn’t have a rainy day fund.
Rainy day funds enable random trips to Belize
I’m sure you noticed that one of the emergencies I just rattled off was kind of different. To paraphrase high-quality children’s television, it just wasn’t the same as the others. Look, I’ve got nothing against Belize but the first thing you have to realize about yourself is that when given a large quantity of cash you’re very likely to spend it either on a big stupid purchase or many small stupid purchases. Maybe you’re the one person who absolutely won’t under any circumstance succumb to the immense pressure of a lump of cash equal to several months of income. Don’t lie to yourself, you’re probably not. You’re probably thinking “Dean it’s my savings, I can do what I want.” Sure. Just don’t lie to yourself about your real motives— call it savings for a random trip to Belize, not an rainy day fund. Continue reading Rainy day funds: don’t save for an emergency→
A few days ago I gave you all a crash-course in RRSPs. You had a blast reading it but then I threw in another acronym at the end: TFSA. You were probably like “where did that come from, Dean?”. Now I’m going to tell you. The TFSA is the Tax-Free Savings Account. It was introduced by the Conservative government in 2009 as yet another way to help us pay less taxes on our savings even though Canadians don’t seem to save that much. Also, they hadn’t met their quota for acronyms (seriously we have IPP, RRSP, RRIF, RESP, RDSP, they’re even talking about introducing a PRPP and that’s not all of them).
If you are ignoring TFSAs because you’re deeply in love with RRSPs or you’re just too lazy to learn, listen up. TFSAs KILL. They’re awesome. They will turbo-charge and nitro your financial position if you use them correctly. If you have a modest but solid income and savings tendencies, a TFSA will change your life. Continue reading TFSA: what it is and why you need one→
Today I want to talk about something that confuses a lot of people: the registered retirement savings plan or RRSP. The RRSP is a quintessentially Canadian retirement-savings tool that was introduced by the Liberal government in 1957. Some of you may be asking why I am talking about RRSPs literally days before the end of the RRSP “season”. There are two reasons. The first is that it’s bad practice to pay attention to RRSP seasons because you’ll get better return for your dollar, save money and have less stress in your life if you’re contributing year-round because of dollar-cost averaging. Secondly, I want to make sure you take the time to understand the RRSP instead of quickly skimming this and then making hasty decisions. Continue reading What is an RRSP and how does it work?→