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Thread: Saving vs paying extra on mortgage

  1. #41
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    Quote Originally Posted by roopi View Post
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    How much food do you have in your underground bunker though?
    Skip the dishes. Bro.

    I guess it's circumstantial too. If my boss canned me there are only so many CFO level jobs available. I estimate it would take 12 - 18 months to find a comparable role.

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    Quote Originally Posted by Chandler_Racing View Post
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    With that said, I am amazed at how calm people are with minimal savings. I keep ~3 years of cash on hand but maybe it's the accountant in me...
    Why would you?

    3 years cash, let's say 50k a year so 150k just sitting in a bank savings account?

    Toss that in VRGO and you would've had ~18% return this year. That's 27k$ you missed out on just this year because you didn't do something with it. You can toss it in an investment account and still have access to it. If I pull from one of my accounts it takes say a week to withdraw and transfer to my main bank. So why keep years on hand when a few months is plenty.

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    Quote Originally Posted by sikid111 View Post
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    So this has come up a few times with the wife and I, we keep about $1000 in savings, and anything above that gets transferred directly to the mortgage.

    Our thought is, why save when were paying the bank interest on the mortgage and we can chew that down over time.

    Were debt free, and have loc and cc for backup.

    What would you do in our case? Should we have a better "pillow" of savings?

    Thoughts?
    If you think you can beat 2x your mortgage rate, invest.

    If you don't think you can beat that, pay off mortgage.

    If you are in the 1st 12 years of mortgage, paying it off early does reduce interest you owe at the end. If you are on the last 12-13 years of mortgage, the impact isn't as huge.

    If you need liquidity for your biz, TFSA > RRSP. But if you/wife have sizable income over the 90k bracket, and have enough liquidity, throw a bit at RRSP isn't bad idea either.

    Quote Originally Posted by pheoxs View Post
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    Why would you?

    3 years cash, let's say 50k a year so 150k just sitting in a bank savings account?

    Toss that in VRGO and you would've had ~18% return this year. That's 27k$ you missed out on just this year because you didn't do something with it. You can toss it in an investment account and still have access to it. If I pull from one of my accounts it takes say a week to withdraw and transfer to my main bank. So why keep years on hand when a few months is plenty.
    Well, not every year will yield 18%. If you believe the market got nowhere to go but down in 2020, divesting a bit else where or pay off debt isn't a bad idea. Or we may get hit with a 2008 style 30% cut and a lot of people probably don't have enough working years left to absorb that kind of hit.
    Last edited by Xtrema; 01-24-2020 at 04:04 PM.

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    Lots of great info coming in, were already adjusting our savings to at least 5k.

    I'll do some research on TSFA vs Rrsp. This is all green to me...

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    Quote Originally Posted by Xtrema View Post
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    Well, not every year will yield 18%. If you believe the market got nowhere to go but down in 2020, divesting a bit else where or pay off debt isn't a bad idea. Or we may get hit with a 2008 style 30% cut and a lot of people probably don't have enough working years left to absorb that kind of hit.
    Of course, I didn't say every year will get that. But one year at 18% and no gains after versus 2% per year from a savings account will take a long time to break even. Even if the market tanks 10% next year you would still be ahead. Unless you need the money for something specific in the next 5ish years you'd be better off taking the chance and investing it

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    Quote Originally Posted by pheoxs View Post
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    Why would you?

    3 years cash, let's say 50k a year so 150k just sitting in a bank savings account?

    Toss that in VRGO and you would've had ~18% return this year. That's 27k$ you missed out on just this year because you didn't do something with it. You can toss it in an investment account and still have access to it. If I pull from one of my accounts it takes say a week to withdraw and transfer to my main bank. So why keep years on hand when a few months is plenty.
    Yes, because I don't have a single worry about cash or things coming up. Peace of mind / stress free is worth more than a hypothetical $27,000 return per year to me.

    Though, what about the year when we see a 30% correction and you've just lost your job. Now you only have $105,000 and a 12-18 month horizon to find gainful employment in my case.

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    Without speaking to how much cash I think you should have, that's if you think that any lesser role is beneath you now that you've been a CFO.

    You're not exactly going to have zero income if you can somehow muster the strength to take another job that isn't executive level if having income is important enough to you.

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    Why not have 3 years of expenses sitting on a bond ETF like ZAG or ZLC or something, where at least you are gaining an appreciable amount of interest vs. nothing?

    Or having a portion in preferred shares of a safe income stock, like BEP or something.

    I couldn't fathom having $100k+ in cash in a HISA unless I already had 7 figures of investments AND the expenses necessary to justify that level of stale capital.

    But as an accountant, I'm sure you already thought of all that. I hope it's at least indexed to inflation.

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    I don't understand the dispute here.

    I presume people have some sort of float that is commensurate with their short term cash needs.

    Then you have some allotment of non-registered investments in cash/hisa/securities that function as your cash in case you need it.

    This assumes you either have maxed out your RRSP or have otherwise decided not to have your RRSP suck up all of your liquidity....which your probably shouldn't.

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    Why do you care so much about your rsp liquidity? If you’re laid off your taxable income will be lower and there for pulling from an rsp is at worse a wash

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    Quote Originally Posted by ercchry View Post
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    Why do you care so much about your rsp liquidity? If you’re laid off your taxable income will be lower and there for pulling from an rsp is at worse a wash
    Because you never get that room back.

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    Quote Originally Posted by Buster View Post
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    Because you never get that room back.
    I guess... but long term you will want to eventually move as much over to tfsa as you can... so might as well move some out when income dips as you will still have the tax benefit from when you first put it in there which is the entire point

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    Quote Originally Posted by Buster View Post
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    I don't understand the dispute here.

    I presume people have some sort of float that is commensurate with their short term cash needs.

    Then you have some allotment of non-registered investments in cash/hisa/securities that function as your cash in case you need it.

    This assumes you either have maxed out your RRSP or have otherwise decided not to have your RRSP suck up all of your liquidity....which your probably shouldn't.
    Right, but Chandler is saying he's got 3 years of living expenses as cash. That's not the same as having it in non-registered investments that can be liquidated.

    In all likelihood, it's in a HISA generating 2% interest. It's just an odd choice given you could have, say, a year's worth of cash saved up in an HISA and then another two years of expenses in a bond etf/low-risk investment yielding more than 2%. It feels like a weird choice and I don't understand the logic.

    The only scenario where I can see having 3 years of expenses in cash that makes sense is if you've already got a bunch of investments, sizable equity in your RE (or paid off), etc. and thus you're diversifying where your capital sits.

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    Quote Originally Posted by ercchry View Post
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    I guess... but long term you will want to eventually move as much over to tfsa as you can... so might as well move some out when income dips as you will still have the tax benefit from when you first put it in there which is the entire point
    I assume the TFSA is already used/depleted as part of the emergency cash burn.

    As for the benefit of the RRSP, you would need to determine if the short term tax savings and tax free growth are worth the risk of losing, potentially, decades of tax free gains burning that portion of the RRSP contribution room permanently.

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    But it’s still taxed eventually when you withdraw it, I guess it really would come down to how much emergency cash you need when laid off vs what you need to maintain later years... unless you don’t use it at all and get hit with a massive tax bill when you have to convert it

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    Quote Originally Posted by ercchry View Post
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    But it’s still taxed eventually when you withdraw it, I guess it really would come down to how much emergency cash you need when laid off vs what you need to maintain later years... unless you don’t use it at all and get hit with a massive tax bill when you have to convert it
    In the end, all of this stuff is so individual, it's almost not worth discussing.

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    Quote Originally Posted by Buster View Post
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    In the end, all of this stuff is so individual, it's almost not worth discussing.
    Was just thinking that.... lol

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    Eh... at least it’s being discussed... more options so people are more informed.... it’s not like this shit is part of any mandatory curriculum, which is ridiculous. It’s amazing how hereditary financial literacy is

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    Did there used to be only five avatars to pick from, here??! DaFuq am I supposed to figure out who the fuck is who while skimming through when at least two others have same Avatar as OP?¿!?!

    I am leaning towards Buster's response along the lines of "neither is wrong so just pick one" because the benefits of one vs the other are so slim that the time you waste debating about it could've tipped the scales back the other way.

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    Quote Originally Posted by Chandler_Racing View Post
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    Yes, because I don't have a single worry about cash or things coming up. Peace of mind / stress free is worth more than a hypothetical $27,000 return per year to me.

    Though, what about the year when we see a 30% correction and you've just lost your job. Now you only have $105,000 and a 12-18 month horizon to find gainful employment in my case.
    Did you factor in severance into the calculation? Not to say that I know your situation, but presumably you are let go without cause, you'd have access to a decent severance package at that level and potentially accelerated vesting on equity (assuming you have some), etc.

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