How to balance financial priorities

Many 30-something's struggle to balance their financial priorities.  Finding the money to pay down debt, build an emergency fund, and make RRSP, TFSA and RESP contributions is a stretch for most Canadians.  Managing these priorities while raising a young family can be even more difficult.

Here is a  plan to help balance your financial priorities in your 30’s:

Streamline your mortgage: Change your mortgage payments from monthly to bi-weekly.  You’ll save thousands of dollars while knocking more than 5 years off a 30-year amortization schedule.

Switch to a variable rate, but keep your mortgage payments at the fixed rate.  Using this technique while interest rates remain low will reduce the principal on your mortgage while still leaving a cushion when interest rates start to rise.

Make use of  your TFSA:  Canadians can contribute up to $5,000 per year to a  Tax-free Savings Account and withdraw money tax-free at any time.  This is perfect for many short term savings goals.

As a couple, make it a priority to fully fund one of your Tax Free Savings Accounts each year.  Agree on a list of short term goals that should be addressed in one-to-three years and then withdraw from your TFSA to pay for these items in cash.  Don’t go into debt buying something that can easily be planned for in advance.

Hold back on RESP contributions: A common mistake  is to try and maximize RESP contributions before getting your finances under control.

Open an RESP immediately after your child is born and take advantage of grants like the $500 Canada Learning Bond.  From there, just contribute what you can afford until your finances are in better shape.

Start saving for retirement: Many 30-somethings put their retirement savings on hold and focus on shorter term priorities.  While there’s still plenty of time to catch up, you want to start early and get compound interest working on your side.

Set up an RRSP and invest in low-cost index funds like TD E-Series, where you can contribute as little as $100 per month.  Start with what you can afford, and slowly increase contributions until you’re saving 10 per cent of your income.

It’s important for 30-somethings to find the right balance when managing their financial priorities.  Make simple changes that improve your finances without too much pain so you can focus on raising your family.

Is having kids really a $243,000 question?

Robb Engen is half of the Boomer & Echo personal finance blogging team with his mother, a former financial advisor.  Reach him at robbengen@gmail.com