Savings Order of Priority

Monday, 21 January 2019

The New Year now has 21 days under its belt and if you're any kind of regularly paid employee, the year's first paycheck is in the bank. If you're a commissioned or bonus-eligible employee, it's only a matter of time before the payments for 2018 start rolling in. Factor in the potential for a tax refund and it's easy to see that the first few months of the year will bring with them some monetary bonuses that are not part of the monthly budget.

So what do you do with all that "extra" money?

Another totally unrelated picture from my trip to Puerto Rico

I find that for me, it's always going to be spent; GONE! The question to be answered is "Spent on what?" And that's where my savings order of priority comes in. It's where I list the places that any spare cash for the year will go to. Without that list, it's very easy to be aimless with bonuses and suffer from regrets after the fact. So evaluating our current needs and situation as a family, here's what our savings order of priority looks like

  1. Education savings for kids. In Canada, this is their RESP. We don't make monthly contributions so whenever a lump sum payment comes along, this is the first savings plan that gets funded.
  2. Tax Free Spending Accounts. This is the mid-term savings vehicle for us. It's where things like new car purchases will be funded from
  3. Additional mortgage payments. Interest rates are rising and I expect that by the time our mortgage is due for renewal, the rates will be higher than what we currently have now. The sooner we can clear this debt, the better. 
What's not on this list and why?
  • Retirement savings: because that's being done via employer deductions into a deferred plan. If this was not in place, retirement savings will be number 1 on the list above.
What about you? Do you set your savings order of priority at the beginning of each year? What does that look like?

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