Author Topic: Finish paying debt or start RRSP/TFSA at same time? (Canada)  (Read 1095 times)

Kexxis

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Hello everyone!

I am looking for some advice on the best financial path for my future. I am unsure if I should start my RRSP/TFSA now or wait until my debt is paid off. Here are the details:

Salary:

60k (take home pay is around $3050 per month assuming two pay period month)That number is after they subtract the company RRSP. I opted in for the company RRSP for now because they match 2% if I put in 3%.

Debt:

$7500 bank loan at 7.99% No credit card debt

Monthly expenses:

Rent (including all utilities and extras): $400, currently house sitting my parents place and they give me a very affordable rent I am thankful for.
Car: $450/month until my lease ends June 2016. It was a 0% lease. I plan to purchase the vehicle out after the lease ends with a residual around 11k. This was certainly my biggest financial mistake after getting my first real job out of university. But I plan to drive it for a long time and accept that.
Insurance: $80/month
Gas: $125/month
Phone: $48/month ($33 dollar plan plus $15 Dollar tab for 2 years)
Food: $300/month (I eat a fair amount of meat for my fitness goal - could likely improve this?)
Haircut: $25/month
Toiletries and cleaning supplies: $30/month (guess)

Trying to think of other expenses but those are the main things that come to mind.

So that comes to a about $1500/month in expenses. Leaving me with about $1500/month to pay off my debt or do other things with.
My goals are to start my own RRSP on top the company one. Start a TFSA. And I would be looking into purchasing a house in the next two years. I also need a new bed.

I'm 27/single if that helps at all with any planning
« Last Edit: July 16, 2015, 12:21:23 PM by Kexxis »

J.Milly

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Re: Finish paying debt or start RRSP/TFSA at same time? (Canada)
« Reply #1 on: July 16, 2015, 11:37:27 PM »
Everyone here will say the debt. Good going with the RRSP contribution to get the match, but paying down the high interest loan is better than the TFSA, you could have it crushed in 5 months at 1500/month. If you had invested and made 5% but were paying 7% in interest then you've lost out.

Do you have an emergency fund? Most people keep a month or two's worth in cash just in case (or have a LOC). If not maybe 500 to that and 1k/month to the loan, but as MMM says, think of the debt as your hair being on fire, get it out as soon as you can!

sleepyguy

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Re: Finish paying debt or start RRSP/TFSA at same time? (Canada)
« Reply #2 on: July 17, 2015, 10:18:49 AM »
Continue to max out your company matching plan because that is 50% to 100% gains right there.

After that... pay off that 8% debt as quickly as possible.  Now the rest is up to you... personally I prefer TSFA over RRSP but read up and see what investment account suits your more.

If you are stone set on buying a house, RRSP is probably going to be better for you because of the homes buyers plan you can use on your 1st home purchase, so keep that in mind.

Good luck!

nobodyspecial

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Re: Finish paying debt or start RRSP/TFSA at same time? (Canada)
« Reply #3 on: July 17, 2015, 12:26:27 PM »
Another vote for paying the loan.
Remember that your unused RRSP and TFSA room builds up. So if you think you will be earning more in the future (Canada higher tax kicks in around 75-80K) you could wait until then to pay extra RRSP contributions and get a bigger tax break.

TFSA is worth filling as soon as you are out of debt, you can take money out with no tax/penalty at any time and can put the same money back in future years