Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Facelift Prudent pair want to loosen up a bit

Fernando Morales/The Globe and Mail

If you'd like to get your own anonymous Financial Facelift contact

Like most young couples with a child and a mortgage, Leah and Ezra are feeling constrained by their tight budget.

They have shown themselves to be prudent money managers, paying off Leah's student loan, making regular payments on the loan from Ezra's parents for a down payment on their southern Ontario home, and tucking away as much as they can each month into their various savings plans.

Story continues below advertisement

Leah, who is 26, has just returned from maternity leave to her teaching job. Ezra, 27, works as a financial analyst but is planning to join his father in the family business next year.

"We haven't taken a real vacation or bought anything for our house or ourselves," Ezra says in an e-mail. Most of their furniture was handed down.

If they could free up a little cash, they'd finish renovating their basement. They'd like to have a second child soon. And they'd love to have $3,000 or so to take a vacation.

Their question: "How can we free up our cash flow to spend a little now to live life, while also paying down debt and saving for retirement?"

We asked Ngoc Day, financial planner at Macdonald, Shymko & Co. in Vancouver, to look at their situation.

What Our Expert Says

It's a fine balance, Ms. Day says. "There's not much fat to trim."

Story continues below advertisement

Leah and Ezra have made sound financial decisions and have begun their married life on a solid financial footing, Ms. Day says.

"They should be proud that they have achieved what many people find difficult: living within their means."

At the heart of their dilemma is the old familiar tradeoff between funding short-term lifestyle expenses and saving for the future.

Need a new online broker? See the Globe's 11th Annual Online Broker Rankings:

The key, the planner says, is discipline - and making any savings the couple can find as tax-effective as possible by contributing them first to a registered retirement savings plan (RRSP) and spending the refund.

While Leah has a defined-benefit pension plan, Ezra has a defined-contribution one. His employer has been contributing 3 per cent of Ezra's monthly income to a group RRSP. Ezra has been contributing the same amount, although there is no requirement for him to do so. He also plans to put his $6,000 bonus into this group RRSP.

Putting his bonus into his RRSP may further constrict the couple's cash flow, Ms. Day notes.

Story continues below advertisement

The couple lease two vehicles, but they intend to drop one next summer when Ezra will be able to catch a ride to work with his father. This will free up about $300 a month.

In their haste to pay down their mortgage, Ezra and Leah have chosen a 17-year amortization rather than the usual 25 years, Ms. Day says. While this will save them a bundle on interest over the life of the mortgage, it means their monthly payments are about $200 higher than they would be with the longer amortization.

"If the mortgage was amortized over 25 years, Ezra and Leah may have the extra wiggle room in their monthly budget that they so desire."

Ms. Day suggests that Leah and Ezra negotiate with their bank to increase the amortization, freeing up $200 a month. They could then direct that money to Ezra's RRSP.

Given Ezra's current RRSP contributions of $500 a month (which includes his company's monthly contributions of about $300 and his own of $200), the extra $200 from the lower mortgage payment and $300 from dropping one car, Ezra could meet his goal of contributing $11,000 to his RRSP each year without investing his bonus, Ms. Day says. His tax savings would be about $3,600 a year - enough to enable them to finish their basement renovation or take a long-awaited vacation.

But not both.

Story continues below advertisement

As well, Ezra might want to consider making all his contributions to his own self-directed RRSP account, where he may have more investment choices than with the company plan, she adds.

She suggests he invest in exchange-traded funds rather than mutual funds because of the lower management expenses.

"Given Ezra's age, any cost reduction compounded over the long horizon of investing until retirement could add significantly to his return over time."

As well, the couple could use a line of credit for their emergency fund and put the $3,000 they have in their savings account toward Ezra's RRSP for still-greater tax savings.

As for insurance, both Leah and Ezra have life and disability insurance coverage through their employers' group benefit plans. They also have mortgage insurance.

When Ezra quits his current job to join his father, the couple will have to review their insurance coverage to see what his father's firm offers, Ms. Day says.

Story continues below advertisement

They also may want to consider replacing their mortgage insurance coverage with a term life policy. The big disadvantage with mortgage insurance is that while the maximum death benefit is based on the declining mortgage balance, the premium does not decline over time, she says.

Short term, Leah and Ezra have to strike a balance between living for today and paying down debts and saving for the future, Ms. Day says.

If a second child arrives next year, the family's expenses would likely rise and their saving capacity fall. "This is not unusual given the couple's season in life."

Over time, though, their income can be expected to rise as they advance in their respective careers, so their budget constraints will ease, the planner adds.

Client Situation:

The People:

Ezra, 27, and Leah, 26

The Problem:

How to afford things today while paying down debt and saving for retirement.

The Plan:

Drop a car, renegotiate the mortgage and take full advantage of tax savings offered by RRSPs.

The Payoff:

A better balance between living for today and saving for the future.

Monthly after-tax income:



House $260,000; RRSP $2,900; RESP $1,900; defined contribution pension $3,100; savings account $3,000. Total $270,900

Monthly disbursements:

Mortgage and property taxes $1,625; loan from parents $500; truck lease $480; car lease $235; home and auto insurance $140; daycare $890; utilities $280; cellphone, Internet and cable $195; groceries $900; gasoline $350; clothing and gifts $250; pet care $100; dining out/entertainment $100; personal care $105; RRSP $200; work RRSP $150; RESP $100; savings $100. Total $6,700


Mortgage $183,000; home loan $41,000. Total $224,000

Special to The Globe and Mail

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies