Lee and Marina are both 31 and have two children, ages 4 and 6. Marina has recently returned to work full-time after taking an extended maternity leave. Now that they have a second income coming in, Lee and Marina want to re-focus on their financial plans. While they have done a good job of keeping their debt under control, they haven’t started saving on a regular basis. Their financial goals include paying down their mortgage as quickly as possible while at the same time, saving for their retirement. Paying for their children’s education is also an important financial goal for them.

Solution

The first step in preparing their financial plan was for Lee and Marina to complete the Cash Flow Worksheet. This was a useful exercise because they were able to quickly identify areas where their discretionary expenses had gotten out of control. They were still pleasantly surprised to see that they have $5,631 of annual surplus cash with which to invest. If Lee and Marina were to start making regular annual RRSP contributions of $2,500 and $1,500 respectively, they would realize tax savings of approximately $1,500. could then direct these tax savings to paying down their mortgage. Annual lump sum payments of $1,500 on a $200,000 mortgage carrying a 5.5% interest rate would result in their mortgage being paid off four years earlier than planned.

Lee and Marina also want to save for their children’s education. They can set up an RESP and make automatic investment contributions of $100/month. These savings will grow tax-free until the children need the money for their post-secondary education. The contributions also qualify for the Canada Education Savings Grant which adds 20% for every $1 contributed (to an annual maximum grant of $500 per child).

Lee and Marina are well on their way to building a solid financial plan and realizing their personal financial goals.