Afterwards Hilarity Ensued wrote:
- quote -

I'm Canadian, but live in the US. I'm going to advise balance. You
have alot in ER fund, but if you were ever to lose your job or get sick
(aka unable to work since health costs are not an issue in Canada),
then that could be eaten up quickly.

Since you want to buy a house (even if it's 5 years from now), you'd be
wise to start saving for the DP now. I don't know what province you're
in, but housing costs vary considerably. If you're in places like
Calgary, Vancouver or Toronto, housing costs are through the roof.
However, places like Winterpeg and other smaller cities, you can still
get a house reasonably priced.

The reason I suggest you start saving for your house DP now is that
when you take out a mortgage in Canada, unless you have 25% DP, then
the loan would be subject to CMHC (Canadian Mortgage Housing
Commission) insurance and that would be on top of your mortgage
payment. It would be a good idea for you to have at least a 25% DP to
avoid this cost over and above the mortgage.

As for putting ER's on your credit card, I wouldn't do that unless you
have no ER funds. I wouldn't touch your ER fund unless it's a true ER.
You have enough income left over after expenses where you can save
for a house and do some decent investing without touching your savings.


As an alternative, if you have RRSP's, you can borrow from them for
your house downpayment as long as you're a first time buyer. The catch
is you must pay them back within 15 years, but the loan from your
RRSP's is not taxed and you are not penalized like you would be if you
cashed out your RRSP's. However, considering your solid financial
situation, I don't think you'd have to do that. It is a good way to
borrow from yourself, but the downside is you lose the growth of those
investments.

- quote -

Maybe bring the home ownership forward ... that [30%] on your savings
interest could be 5% on the equity in the home. Assuming you'll have
some sort of mortgage (maybe not) I don't think morgage rates will be
going down in future (5 years)? And you'll use that RSP towards that
1st home (I assume)? If it was me, I'd do the math on buying sooner vs
later.

And you know what ... if you're up for it, a boarder or two really pays
big dividends.

"Afterwards Hilarity Ensued" <Idunno[at]canItrustyou.net.easynews.com> writes:

- quote -

Instead of dividing your assets into "emergency fund" and "investing
towards goals", you might think of implementing a layered approach of
assets you can tap in increasing desperation. E.g., in addition to
cash and some long-term investments in equities, I have a chunk of
money in a muni bond fund I could tap into in an emergency -- at some
risk of losing a little money -- if my cash reserves aren't enough.
Hopefully that will never happen, but in the meantime, that chunk of
money also serves as part of my long-term asset allocation and
retirement planning strategy. For some people, a home equity line of
credit could also serve as that kind of intermediate asset; it's not
something you ever really *want* to tap into, but it's something you
could use in a true "emergency".

Frankly, it also sounds like you're already doing the most important
thing for planning for a financial "emergency" -- living modestly and
staying out of debt. :-)

-Sandra

In article <ug3eh.326280$E_2.73069[at]fe03.news.easynews.com> ,
"Afterwards Hilarity Ensued" <Idunno[at]canItrustyou.net.easynews.comwrote:

- quote -

The deciding factor here is how long before you want to buy that house.
Investing means a long time horizon, at least 5 years. If you are
looking to buy this house within 5 years, then I would rename your
emergency fund to be your house downpayment fund. If the house is
more than 5 years out, then invest it all, and use your earning
power as your emergency fund. After all, that 50% of your salary
each month that you have available is larger than the emergency
fund that most people actually have.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

I will keep some emergency cash in high-yield saving account. As a
compensation, I ususally won't by fixed income (e.g bond) in my
investment portfolio, i.e. I treat the saving account as the fixed
income party of my strategy.

I agree with jIM, except I'd lean closer to 5 months to a
year in cash/laddered CDs/money markets. View this money as
kind of a surge tank for managing your financial affairs. I
think one sleeps better when one knows one can readily buy
some shares of xyz mutual fund should the market correct; or
can easily pay for a major car repair; can always pay the
monthly bills without having to juggle and wait for the next
paycheck; etc.

The thought of paying for these emergencies with a credit
card, and possibly having to pay the exorbitant interest
credit card companies charge, is abhorrent to me. Even that
9% interest line of credit is unattractive. Four percent or
so (albeit taxed at 30% in your case, you say) is IMO a
perfectly good return for a conservative portion of one's
portfolio today.

Ultimately, you have to identify your risk tolerance. I
won't condemn anyone for relying on their credit card for
their emergency fund. It's simply not what would let me
sleep at night. Besides, since I own stock positions in a
few banks, those who do pay monthly interest on their credit
card bills are paying for my ski lift tickets.

Your presentation of your financial situation was perfect,
BTW. Good to note that you are in Canada and so personal
health costs simply are not the huge concern, financially,
that it is in the U.S.

Afterwards Hilarity Ensued wrote:
- quote -

My suggestion is 2 months expenses in cash accounts.

How much would a house cost, and what would expected downpayment be?
The house down payment might be wise to have in cash as well- being
that this purchase is 5 years away.

I think 2 months expenses at minimum in cash is expected... as the
average comment from most responses you will get. Some might suggest 6
months expenses in cash. A few others might suggest no cash-invest it
all.


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

This question has come up a couple times the last few days and it's confused
me....

Here is my situation:

I live on 50% of my take home pay meaning I have 50% (this includes after
some luxuries and entertainment and some disposable splurging)

I have 0 debt. No credit card debts, no car loan, no school debts.

I do have a $20 000 line of credit that is at 9% interest If I wanted. I
have $8000 in available credit card credit that is 19.5% and a grace period
of 19 days. My balance owing on both the credit account and the credit
cards is $0.00

I have no kids no mortgage and rent and utilities are little less than 20%
of my take home pay.

I am 30 years of age so lets say retirement at 60 and home ownership at 35.

I am in Canada so health insurance is not as big as of a concern as it is in
the USA. We are covered for major illnesses and emergencies up here, as
least medical bill wise.

Now I have about 10 months living expenses saved in high interest savings
accounts. but since I am living on 50% of my income, this emergency fund
grows equally with my expenses.

Should I take ALL of my emergency fund and invest it and rely on my credit
as insurance for what it's and rebuild the emergency fund? I can use as my
investments as the emergency fund of sorts, as long I didn't pick losers.

With my current savings rate of 50% (which I don't see changing for another
year or more, knock on wood) I should be able to pay off debt quickly should
an emergency arise. Am I saving too much money in emergency funds? With my
income and expense status, my age, and retirement far off am I being too
conservative in keeping savings? I just started investing a few months ago
with a financial planner but I only give him about 40% of my monthly
savings. I still have 60% of my monthly savings to do my own investing.

One other thing I do not have parents or other family members to help me out
if something happens. I'd be on my own if a financial emergency came up.

I have no idea what to do with this emergency fund, how high or low to keep
it. It's earning 4.10% interest yearly, taxable at approx 30%. At what
point do you stop contributing to an emergency fund and jump into investing
towards your goals? I have researched a number of mutual funds and think I
have a possible portfolio I would like to work on. I have decided my risk
tolerance so I think I know what I can lose without crying...

Sincerely New Investor....