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Can this couple save for a wedding, repay debt, plan a family & retire?

posted by The Mortgage Associates    |   November 13, 2014 09:08

Can this couple save for a wedding, repay debt, plan a family and retire?

Article by Dianne Maley, Special to the Globe and Mail, November 3, 2014

"As their wedding date approaches, Ruth and Cameron are looking for a financial road map to guide them through the various stages of their lives, from paying off debts to raising a family to long-term financial security.

At least Ruth is. Cameron seems a bit of a spendthrift.

Ruth is 30, Cameron 33. Both have good jobs, bringing in $260,000 a year including bonuses. They have a home in Toronto and a rental property, both with substantial mortgages. As well, Cameron has $27,000 in consumer debts.

“We’re trying to save for a wedding, a hypothetical maternity leave and pay off my boyfriend’s consumer debt – all while saving for retirement,” Ruth writes in an e-mail. “I’m worried that we’re not paying down his debt aggressively enough, yet he wants a lavish wedding,” she adds. “Obviously, we’re not seeing eye to eye when it comes to household finances.”

Longer term, they want to upgrade their house and eventually move to a larger one.

“Please help us create a strategy to balance short-term financial commitments, pay off consumer debt and plan for both a family and an early retirement,” Ruth writes.

We asked Ngoc Day, a financial planner at Macdonald Shymko & Co. Ltd. in Vancouver, to look at Ruth and Cameron’s situation.

What the expert says

Ruth and Cameron need to make paying off debt a priority, Ms. Day says. They should also take full advantage of the tax savings offered by their registered retirement savings plans.

Cameron could consider selling his $2,100 in stock and liquidating his $6,000 tax-free savings account to pay off his $8,000 credit card balance, the planner says. They are putting aside $500 a month for their wedding, so they will have saved $6,000 by next September. That, plus Ruth’s TFSA, will give them $11,700 for the wedding, short of their target.

They should scrutinize their wedding budget to find ways to reduce expenses, Ms. Day says, so they don’t allow the wedding expenses to create additional debts.

Any extra cash flow (beyond RRSP contributions, wedding savings, emergency funds and home renovations) should be directed immediately to paying down Cameron’s personal loan, the planner says. She suggests they transfer $2,000 a month directly from their chequing account to the personal loan each month. As well, the car loan will be paid off in January, at which point the car payment of $597 a month should be redirected to the personal loan. This approach forces discipline to pay off their consumer debts."

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