Nearly everyone agrees that if you were fortunate enough to have an extra $15,000, you shouldn’t keep the money in a chequing account.
In a recent Carrick on Money poll, I passed along a reader question about where to put an extra $15,000 – use it to pay down a mortgage, contribute to a tax-free savings account or put it in a chequing account. The 3,505 responses divided this way:
- TFSA: 53 per cent
- Mortgage: 46.2 per cent
- Chequing account: 0.8 per cent
The small gap between TFSAs and mortgages highlights how hard it is for people to decide whether extra cash should go toward what is likely to be their biggest debt, or to invest for the future. As mentioned previously, I lean to investing over a mortgage paydown. But, as you’ll see in some astute comments made by poll participants, either choice can be justifiable for your personal situation. Here’s a sample of what readers said:
TFSA:
- ”Invest in the TFSA as long as the return exceeds the mortgage rate.”
- ”The mortgage can wait, assuming you’re between 18 and 50. After 50, I think the mortgage starts to be a priority as debt-free at retirement is the goal.”
- ”Buy quality equities that pay a steady dividend, use the dividend income to make a yearly bulk payment applied to your mortgage principal.”
- ”The TFSA is likely to earn a bit more, and you have the flexibility to access the $15,000 if need be.”
- ”Better return – assuming the investor doesn’t have the personality that will lose sleep over every market dip.”
- ”Your mortgage will eventually be paid off, anyway. Upon retirement, your home is not a liquid asset and therefore more difficult to use to fund your expenses. The TFSA can be invested strategically in well-performing stocks that pay regular dividends and will grow steadily. Upon retirement, the TFSA funds are liquid and readily accessible for use.”
Mortgage:
- ”The faster you pay off your mortgage, the better. When you don’t have mortgage payments, you will have money for investments.”
- ”There is more certainty in paying down the mortgage than in investing.”
- ”This is riskless and attractive after tax return.”
- ”Pay down your debt. You never know what the future may hold.”
- ”I always lean toward getting rid of any debt I have.”
- ”If the mortgage is at current rates, then it’s a no-brainer to pay it off ASAP.”
Other:
- ”I would actually split it, with majority to mortgage and the rest to the TFSA.”
- ”If no emergency account is established, I’d put the money in a TFSA high interest savings for easy access, risk free.”
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Rob’s personal finance reading list
The Quebec government tables a bill that requires businesses to calculate tips based on the price of a meal or drinks before sales tax. Here’s what customers and wait staff think about this change.
Top earners have long paid less tax on capital gains than eligible dividends, but this could change in a few provinces as a result of changes to capital gains tax.
A student chooses her first credit card
A second-year college student writes about her journey selecting a first credit card. Interesting to see that the mobile app was an important consideration.
Attention, seniors with mobility issues
The disability tax credit is available to people with disabilities and can help reduce the amount of tax they must pay. In this article aimed primarily at financial advisers, experts encourage people with physical limitations to apply for the DTC. Part of the process is having a medical practitioner fill out a detailed 16-page application.
Podcast fans
Subscribe to Stress Test on Apple podcasts or Spotify.
Callout
Globe reporter Salmaan Farooqui is looking into instances where people were charged the incorrect amount of duties on online purchases from the U.S. or other countries. He’s looking to hear from people who’ve dealt with this, especially if they were unable to get an adjustment or refund from the CBSA or the retailer. E-mail your stories to Salmaan at sfarooqui@globeandmail.com.
Ask Rob
Q: I have a teen with attention deficit hyperactivity disorder. What’s the best approach to teaching him about money and investing?
A: Have you taken a look at the MyDoh app? Money management tools that parents and kids can use together, with a prepaid Visa card for spending.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools and guides
Topical, given the big change this week to mortgage down payment rules: A 20-year history of mortgage rule changes
In the social sphere
Social media: An unofficial prediction on the 2025 contribution limit for tax-free savings accounts.
Listen: My conversation with Jean Blacklock of the Beyond the Bank wealth management podcast. We covered a lot of ground – financial planning, how financial challenges differ for various generations and the impact of consumerism on saving.
Money-Free Zone: A slow build in a song works for me, but there’s something to be said for starting at full throttle. That’s how I think of the mid-1960s song Somebody to Love, popularized by Jefferson Airplane and sung by power voiced Grace Slick. I recently came across the original version of this tune, also sung by Slick, in her first band, The Great Society. It’s slower and not nearly as heavy as the Airplane take, but fantastic in its own way.
More PF from The Globe
- By the numbers: How the new mortgage rules could change the math for homebuyers
- There is no such thing as immaculate home-buying, so let’s welcome the new mortgage rules
- A divorce between 40 and 55 can delay retirement by as much as 10 years. Here’s how to best plan your finances
- Stop treating your home as an investment, a nest egg and a retirement plan. It’s just a place to live
- A bold new tool is targeting money laundering. But it may be violating Canadians’ basic rights
