Bob and Linda feel they have just been keeping their heads above water for the last few years. Parents of three young children, including twins, they've largely been living on one income.
"My wife used to have a good job working for the government, and then we found out we're having twins, so she had to quit that job to stay home because the daycare would have been more than her earnings," said Bob, a manager in the financial-services industry who is in his late 30s.
"So we bit the bullet and decided that she would stay home about six years until they're in school full time."
Living off about $60,000 in combined income a year (Linda earns about $700 a month), they're in relatively good shape. Although they do have an unsecured line-of-credit loan worth about $2,700 with an interest rate of about six per cent, they also have more than $100,000 in equity on their home worth about $250,000.
Their biggest worry these days is unforeseen costs, so they have just started putting some money aside for emergencies.
They expect big-ticket expenses a short way down the road, too. "We have two older cars that are going to die in the next year, so we will need car loans, which we can't afford right now," Bob said. "With the kids' school and other activities, it's about making our money work now while trying to save for retirement."
Once all their children are in school full time in about another year, Linda will return to work -- earning about $30,000 a year -- so they will have a lot more wiggle room.
They want advice to make the most of what they have now and in the future.
"We'd like to get an idea of where we should be focusing our attentions with any extra money we have -- should we be putting away extra money for cars, or should we be putting extra money down on the mortgage?" Bob said. "Or, should we be putting more money toward retirement savings?"
Certified financial planner Jamie Kraemer, also an accountant with a FCA designation, said Bob and Linda are doing more than treading water with their finances.
Based on the budget numbers, they've got their financial ship on course to save about $800 a month.
"They're on a very good track," said Kraemer, an investment adviser with TFI Financial Services in Winnipeg. "It looks like they'll be debt-free very shortly, and they're certainly not living beyond their means."
As they already know, the key to their future success is making the most of this money. The first step should be eliminating their debt.
One way to facilitate this is to ensure they are paying the lowest interest-rate possible on what they owe. While they have a line of credit, it bears a higher interest rate because it isn't secured against the home. If they set up a home-equity line of credit, the interest rate would be a little more than half of what they are paying now.
Furthermore, Kraemer said, they can use this line of credit as their emergency fund while focusing on saving for the long term instead. "It doesn't make any sense to save when you're paying more interest on the debt than you are earning on savings," he said, adding their debt is costing them six per cent a year while they're earning about one per cent on their savings.
As for their current emergency fund, that money could go toward paying down their debt, providing an instant six per cent return on their money -- the current interest they're paying -- as opposed to a one per cent return in savings.
Going forward, their monthly surplus can be used to pay off the remainder in about three months.
Afterward, they should focus on saving in their TFSAs, which they have yet to use, so their savings can grow tax-free.
Kraemer said Bob and Linda should also use some of their monthly surplus cash to invest in a RESP for their children's post-secondary education.
"Some people say 'I paid for my education. My kids can pay for theirs.' What I'm saying is RESPs are not a bad way to save to give your kids a good head start -- plus you get free money from the government," he said, adding the feds will provide a 20 per cent grant on contributions up to $2,500 a year per child.
Parents don't even have to give their children all the money from an RESP. They can take back the principal, without penalty, and then give their children the grant money and income earned in the account, which would be taxed in the children's hands resulting in very little or no taxes paid.
As for emergencies, they can use their home-equity line of credit as long as they have a plan to pay it off.
"If the emergencies come, you use your line of credit in the short term and then stop contributing to the TFSAs and RESPs for a little while until you pay off that debt," he said.
When they do require a new car, they could simply aim to buy one with a monthly payment that fits into their budget.
Furthermore, with savings in their TFSAs, they could use these sources of wealth, too, in a pinch.
Contributions to these accounts ideally should be invested for medium- and long-term goals so the capital has an opportunity to grow substantially, providing a tax-free source of cash later in life.
"GICs would be the wrong investment here because they want something that's fairly liquid."
While a short-term GIC would provide easy access -- liquidity -- it wouldn't pay a return that's any better than a high-interest savings account, and a five-year GIC would lock their money in for too long. It would be inaccessible if things go sideways.
"Something like a floating-rate income fund or a corporate-bond fund can be very liquid and should earn about four per cent a year," Kraemer offers as investment options that might suit their needs.
What they want are investments that can serve both short- and long-term goals -- not so conservative returns don't keep pace with inflation, but not so risky they could lose a large chunk of money if, for example, there's a stock market crash.
Kraemer said it's a calculated risk, but as they move closer to Linda returning to work full time, the chances of needing that cash sooner than later become less and less.
And once she's back at work, they can develop a three-pronged savings strategy that sets aside money for their TFSAs, RRSPs and RESPs.
"Going forward, they should be quite comfortable achieving their goals by having money to save every month."