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Question from Al, 28, of Burlington, Ont.: I’m a teacher and I just bought my first house, a detached bungalow. I’ve found two tenants to rent out rooms. This rental income will cover my mortgage and expenses for the house. I make about $3,000 net monthly from teaching, and another $800 from tutoring. What should I be doing with this roughly $3,500 a month in extra cash? Should I be stashing it away in a TFSA and keeping it liquid for emergencies? What investments should I be looking at that keep my money accessible but also growing?

Ms. Stafford works with single people, couples and families to turn financial concepts into concrete financial plans.

Alison Stafford is Vancouver-based certified financial planner and a fee-for-service money coach.

Answer: Having extra cash is a great opportunity to shore up your finances and build wealth – it can also be a place where it’s easy to get stuck, considering all the possibilities. Taking a methodical approach helps, focusing on building a solid financial base first, and then moving on to longer-term planning. Here are a few suggestions for your surplus cash:

1. Figure out what you spend each year on the irregular annual expenses we all have. So things that happen each year but not necessarily every month. Common ones are home repairs (replacing appliances, electrical, leaky faucets, etc.), clothing, travel, gifts, hobbies, seasonal activities, and annual memberships or professional fees. Break down the total and set aside an amount each month to cover these expenses when they come up. This is spending money that you will need to access throughout the year so it should be kept in cash, ideally separate from your day-to-day spending money. High-interest saving accounts work well. Do not keep this in a TFSA because tracking the deposits and withdrawals to make sure you don’t exceed your TFSA limit will drive you crazy.

2. Since we have just gone through tax season, you may know how your rental income affects your taxes. However, if this is a new situation and you’re not yet sure what to report for rental income and how to claim related deductions, get advice from an accountant about tax planning. If you’ll owe additional taxes, plan to save some of your surplus for that or possibly for an annual RRSP contribution so you can use the deduction to offset your rental income.

3. Once you have carved out money for your known expenses and tax plan, you’ll know what you have left over for building a contingency fund. The amount will depend on your own situation, of course. Aim for saving up to six months of your monthly expenses, including the mortgage and housing costs. It’s conservative, but life is unpredictable and if you find yourself without income or roommates, it will buy you some time to figure out your next move and get back on track. It’s a significant goal, so approach it in stages. First, save one month of expenses. When that’s accomplished, set a goal to save the next month’s worth. This emergency fund could be kept in a TFSA for now, depending on your available contribution room.

4. After your emergency fund is taken care of, you can redirect those savings towards longer-term investing, likely a mix of fixed income and equities investments in your TFSA and/or RRSP. How you use these two types of accounts to your best advantage depends mainly on your income and taxes, so you will need to figure that out - or get advice about that. Keep in mind that if accessibility is important to you, TFSAs offer more flexibility in that you can take money from them any time without paying tax on the withdrawals, plus the contribution room becomes available to you again the following calendar year. Before investing, find out the costs to buying, owning, and selling the products you are considering. Also ask if you have to leave the money in the investment for a contracted length of time in order to reap the benefits of the product.

This interview has been edited and condensed.

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