I’m finally consumer DEBT FREE & can now save 50% of my income but still feel poor!

I became consumer debt free last Friday due to it being a three paycheque month (I get paid bi-weekly). While I am absolutely ecstatic, I still feel poor. I still feel like I am in debt and need to be in austerity mode. I think it is due to being in debt for about 10 years. This is something I know I need to work on.

Now that I am consumer debt free (still have my pesky mortgage so not completely debt free), I can allocate half of my paycheque to savings which is about $2,100 per month. One thing I’m struggling with is how much to save for retirement and savings (house down payment, TFSA, etc.). I don’t get a company pension anymore or RRSP matching so this is all up to me. I read articles saying you should save 10% of gross income and other articles that say 10% of net income. Can you see why I was confused as to what to do?

I was planning on saving $1000/month for RRSPs to aim for early retirement at 55 but then I realized I am now part of a team. I will soon have a husband to help out with retirement savings and I also have CPP and OAS benefits to rely on in retirement. So I’ve decided to halve that amount to $500/month for now and see what happens. Part of me worries if I don’t put $1000/month away for retirement that I’ll end up spending the money.¬† I’ve been obsessively plugging in numbers for different scenarios on the Canadian Retirement Income Calculator¬†and $500/month seems like a good place to start for now given that I have under $100K in my RRSP/LIRA already.

What am I going to do with the rest of my money? I’ve decided to start paying back my family. While I am consumer debt free, I am not technically debt free. I still owe them for lending me money to make stupid decisions with The Ex. My plan was to give them the proceeds from the sale of my condo but I won’t be selling for 3-4 years. In the meantime, I’ll be paying them $500/month. I’ll be saving the remaining $1100/month in a high interest savings account such as EQ Bank. I can always give my family or RRSP a lump sum payment whenever I feel comfortable.

These saving streams are just new “payments” to me and that’s why I still feel poor. Don’t get me wrong. I am extremely happy to be in this situation now. I have never had an opportunity to save this much money before and it’s all new to me. I am so excited to learn so much more and am looking forward to what the future holds!

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Do you talk to your friends about money?

I have developed a tight knit group of friends over the past 10 years. I met most of them during my time as a bank teller. We were all the same age and things clicked instantly. Despite our background in the finance industry, it wasn’t until recently that we started talking about money.

My friends knew I was in debt because of The Ex. I started off by telling them how happy I was with getting my pension lump sum payout and knocking down a huge portion of my debt. Friend A said she was in debt too mainly because of home renovations but was working hard to pay it off. Then she told me she’s on track for early retirement at 55! I was shocked. I had no idea that she was on an aggressive track to retire early.¬† I told her that was awesome. I was so proud of her because she also had some difficulties with her ex early in life that left her as a young, single mother. I felt so lucky to have her as my friend.

I had another conversation with Friend B. She works a Monday to Friday full-time job in addition to a part-time job after she’s finished her hours at her full-time job. I seriously don’t know how she does it but she’s been doing it for years. I asked her if she needed the part-time job to get by and she said yes. Cue sad face from me. She also said her mortgage is now less than $170K. My eyes shot open and the sad face transformed into one of joy. She had bought a house maybe 7 years ago on her own that she paid about $420K. So she didn’t need the part-time job just to get by. She wanted it so she could pay off her house early.

I met Friend C through Friend A. She recently completed her MBA and is obsessively paying it off. I can relate to her because the debt can consume you especially if you are inherently debt averse. She hates debt and is also on an accelerated mortgage payoff schedule and will have her house paid off in the next 9 years. She told me she’ll have her school debt paid off in 2 years. We talk about money all the time and keep each other in check when one of us has an itching to spend cash on something frivolous or unnecessary.

Why am I telling you about Friends A, B and C? Well, I wouldn’t have known about their financial situations had I not opened up about my own. They are all doing something that I want for myself. I want an early retirement. I want to pay off the house we will eventually buy in X amount of years. I’m lucky I don’t have to look far for financial role models. Start talking to your friends about money!

2017 year end update

I started tracking my net worth and spending in November 2014 using The Budgeting Tool . The woman who runs the site is named Sherry from Save. Spend. Splurge.. Sherry is money goals to me. She was once in a shit ton of debt as well but managed to dig herself out. Now her net worth is over $500K! Sherry also comes from an Asian family so I feel like I can relate to her story. She has also dated a money moron in the past but came to her senses quicker than I did. She also is a foodie and has impeccable style. I feel like she is my spirit animal. Haha!

The Budgeting Tool is USD$50 but she matches that amount and gives it to charity. The tool has helped me tremendously. I input my income and expenses and I’m able to track my progress towards debt freedom. The Excel spreadsheets all link together and are pretty much dummy proof.

In November 2014, my net worth was -$31K (eek!). My net worth at the beginning of 2017 was $55K and currently, it is $74K. I admit I haven’t been super strict with my budgeting this year as you can see in the line graph. The little dips are from adjustments I made to my budget or from splurges (yes, I know I can’t afford to splurge if I’m in debt) but the important thing is it is trending upwards. I will need to exude willpower next year for all my money goals. Happy new year, everyone!

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What I am doing with my pension after leaving my job

I finally received my pension paperwork from my previous job from when I “quit” back in February 2017. I basically have the same job but now I’m under my boss’ private company and no longer contribute to a pension or receive Registered Retirement Savings Plan (RRSP) matching. Oh, and I took an $6K pay cut. What a bum deal.

Anyways, the letter says I have two options:
A) I can leave the pension funds there and receive about $731/month when I retire
B) I can transfer the commuted value of $79K to a Locked-In Retirement Account (LIRA) and take $25K as a cash lump sum (this amount was over the taxable limit… err, or something) which I will pay withholding tax on. I originally thought I only had $59K but I guess they add on 2.4%.

I chose option A. Opening up a LIRA was quick and easy on Questrade since I already had an existing Tax Free Savings Account (TFSA) and RRSP account with them. I was fretting about getting a signature from an authorized person at Questrade for my pension form. I went on the Questrade chat and asked what I should do. The person I chatted with sent me his personal email and said he could get the signature for me. I received a response the very next day. I faxed and mailed all the documents off to my pension plan provider so now it’s in their hands.

What will I do with the cash lump sum? I reckon I will receive over $18K after withholding tax. I’m hoping the pension people will process my paperwork next year. The cash lump sum in addition to my salary will bump me up into the next tax bracket and I don’t want to have to pay additional taxes because of it. I plan to throw the whole cash lump sum onto my consumer debt which will bring it down by 50%. I’m so excited!

What will I do with the funds in my LIRA? Uhh…. can I get back to you on that? I have no fucking clue. I have some reading to do. I’ll most likely use the same strategy as in my RRSP: Exchange Traded Funds (ETFs) with low MERs or I’ll just use the Canadian Couch Potato strategy.