Over the last number of weeks I’ve written a bit about the debt-repayment end of things when it comes to our financial priorities (i.e. Developing Our Annual Cash-Flow Forecasts, my 2019 Goals & Objectives, and Our 100-Month Mortgage Payoff Challenge).
Today, I’m going to look at the savings side of things.
The frugal approach FM and I take with our day-to-day spending has put us in the fortunate position where we can make both savings and accelerated debt repayments an option.
I’m aware that this may not always be the case – in fact it’s almost certain not to be – but for however brief or long that period is, we would rather tackle both than spend frivolously or without care.
Way back in October, I made reference to My 3Rs of Saving in an article about My Personal Finance Guiding Principles.
Our savings are classified into three categories: rainy days, retirement, and rewards. They’re also prioritized in that order.
The rainy days category is basically our emergency fund, which we keep in a high interest savings account. We aim to keep a balance of at least 25% of our net income from the previous year. The money is there to cover things like unforeseen expenses, job losses, and the like.
FM’s maternity leaves have been a perfect example of why we keep this account in place and funded to that level.
With FM being off for 12-months at a time, her income from employment insurance is a fraction of what she earns when collecting a regular paycheque. Couple that with the increased expenses of having another human in the house to pay for and it’s no wonder new parents can find themselves financially strained.
Thankfully some of the reduction in FM’s income has been offset by me getting a promotion and raise just prior to the first maternity leave and a new, higher paying job just prior to the current one.
But even with that being the case, we’ve needed to draw on this fund from time to time over the maternity leave periods. If weren’t for the rainy days fund being topped up, we would have had to make some significant adjustments to our finances that would go far beyond being frugal.
When FM returns to work in a few months, one of our first priorities will be to get this account back up to that 25% of net income target.
Next up is the retirement category, which is pretty self-explanatory.
FM and I save for retirement independently of one-another, so we each have our own approaches that we employ.
FM has opted for an ultra-conservative, but sure-to-generate-income approach of laddering Guaranteed Investment Certificates (GICs) in her Registered Retirement Savings Plan (RRSP) and Tax Free Savings Account (TFSA).
While I’m also fairly risk averse, I take a slightly less certain route and employ a strategy modeled after what I discovered years ago through the Canadian Couch Potato blog by utilizing a combination of Tangerine Investment Funds in both my RRSP and TFSA.
Open a Tangerine account with my Orange Key 17131375S1 and get a $50 bonus!
We each set aside some money from our adult allowances each month that goes to these accounts. As you might expect, that amount takes a substantial hit during maternity leaves. But with the latest one winding down in just a few short months, I expect we’ll be able to increase our contributions to these accounts in the not too distant future.
Finally, the rewards category is for things like travel, the (very) occasional splurge purchase, and home renovations that are on the ‘nice-to-do’ side of things as opposed to the ‘must-do’ type.
We’re not big spenders when it comes to any of these things, so we base our vacation plans, projects, and out-of-the-norm purchases on what our budget allows. Our rainy days and retirement accounts don’t get put off in favour of any of these things
This usually means “staycations” over big, international trips, small-scale projects around the house as opposed to a full-blown room re-modeling, and rare treats to ourselves and the kids such as tickets to concerts, events, or professional sports games.
These funds are also kept in a high-interest savings account to ensure we’re maximizing what little bit of interest we can earn from this remaining savings cash that we set aside.
If you’re fortunate enough to be in a position to set some savings aside, how do you approach it? Do you categorize things like we do or do you lump everything together? Let me know by leaving a comment, sending an email to firstname.lastname@example.org, or by connecting on Twitter, Facebook, and Instagram.
Until next week, thanks for reading and remember to check out the latest in our progress on our Random Pile o’ Recipes Reduction Project!
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Last week’s recipe: Stout-Soaked Porterhouse with Beer Butter
This one landed with a thud. The biggest issue seemed to be the marinade. I followed the directions on the recipe, but the flavours of the Worcestershire Sauce and Dijon mustard were much too strong for our liking. FM only managed to get a single piece of steak down before the taste of the marinade overwhelmed her. Good thing I made lots of potato wedges as the side dish, because that turned into dinner for her that night!
Oddly enough, an extra steak that I made held up pretty well as leftovers the following day, but the damage was done as a dinner option: this one involves a trip to the recycle bin for the recipe sheet.
Oh well, you can’t win them all…or apparently very many – of the four recipes we’ve tried so far, only one has been kept and added to my Recipes page.
This week’s selection: Steak with Crispy Potatoes and Pistachio Pesto (Steak two weeks in a row! Nice!)