by Elizabeth S.
Earnings update
I had a different post drafted explaining how I still don’t know what I’m earning at work this year. I said I’d revisit that topic in February… but my boss finally called last night! Along with a very nice letter commending my contributions in 2019, I found out I will be earning a little over $95k this year, retro to January 1. That’s an increase of almost 16%! I’m really happy with this number. He also advised that my bonus for 2019, while not yet approved, would be a bit above my contractual maximum of 10% of my salary (which was $82k in 2019).
My boss called at 8:30PM last night and I haven’t had a chance to really work with these numbers yet. However, the biggest takeaway for me is that I want to save my new additional salary in an RRSP. Registered Retirement Savings Plans are the Canadian equivalent of a 401k. A person can borrow from them tax-free for a downpayment on a first home. The person then has 15 years to pay it back, and this is generally considered a sound financial plan.
So, I won’t be taking home any additional money with this raise. In fact, I plan to live on even less than I did in 2019, seeing as I’m still pretty frivolous about spending.
Plan for my bonus
I am assuming my bonus will be around 9k (it could be more – to be announced “soon”). My deductions are usually around 30% of my paycheck (between income tax, Employment Insurance, Canada Pension Plan, life insurance, and my RRSP contributions). I’ll apply that 30% number here as a (really, really) rough guess. Let’s say I’m taking home $6,200.
My student loan balance is $3,662 (and by the time bonuses are paid out, it will be around $3,400). I’d like to pay this off first, as the rate of interest can fluctuate. It has even gone as high as 7% in the past (it’s currently at 4.65%). Being done with this debt will leave me with an additional $200 to put towards my line of credit each month!
I’ve decided to put $2,000 of this money aside for a proper vacation to see family this year. Seeing my family is the most important thing I can do with money other than save for a house. I’m certain many will have differing opinions. Hope is getting some flack in a recent post about travel. I can see both sides of the equation, but we each have our own priorities. I stated at the beginning that I was going to eliminate debt in a balanced, moderate way. I’m hoping to demonstrate that a person can enjoy nice things while lowering their debt each month and adding to savings.
Everything else will go to my line of credit, which will have a balance of around $8,000 at that time. That account has an interest rate of 4.99% until November. I’ll then spend the remainder of 2020 killing the line of credit debt before my interest rate goes back up.
The last couple of days of vacation
News about work couldn’t have come at a more relaxed time. It must be being around my mum – guys, I’ve slept over 7.5 hours a night each night I’ve been here. On top of that, my Apple Watch is showing my sleep is deep and uninterrupted! I feel like a new person. We’ve been hiking, birdwatching, and going to the beach, all of which must help with the sleep quality.
Yesterday, we went swimming at an incredible municipal wellness facility (that has a lazy river and waterslide!). Running around with my nephew is certainly keeping me busy.
That’s it from me for now. I’m glad to finally have the numbers from work and now I need to finalize the budget. I realize this is going to take true commitment and time. I’m returning to Ontario refreshed and motivated to have my best financial year yet!
Elizabeth is a single woman in her early 30s, working as a manager at a software company and living in the most expensive city in Canada. She hopes to blog about her journey to eliminate debt and build savings for home ownership someday. Whenever she has taken two financial steps forward, she’s always taken a step back with a bad credit card purchase (we’re looking at you, unnecessary iPhone of May 2019). Elizabeth lives alone with her fur kids, a dog and cat, and when she’s not in front of the computer, she enjoys running, camping, reading, and baseball.
I’ll give you some flack on your vacation plan. If you use the extra cash and cash flow to pay off the line of credit, then you can use the minimum payment to build up your emergency fund. Your lack of urgency around this debt is going to leave you with a nasty interest bill when your promotional rate is up.
I don’t think you’re treating it with the urgency it deserves while justifying literally any expense that pops up along the way.
Since you’re on vacation now, it’ll presumably be a few months until you need that vacation cash. Plenty of time to save up.
I’m glad you are going to pay off your student loan! I’d like to see you take the rest of your bonus and put it towards your line of credit – what a chunk that would take out of your debt!
I understand the need to travel to visit family. Your desire to visit will spur you to stop the frivolous spending and encourage major savings – having this incentive to save would really help with your mindset (in my opinion).
Happy New Year!
I think these all sound like reasonable steps forward and I think it is a great approach with the retirement savings.
Congrats on the raise! Got to feel really good. I’m glad you are not inflating your lifestyle to meet the new income. Retirement savings is important! I don’t think your bonus spending is crazy. I wonder if there is a middle point between what walnut said. Could you maybe put $1000 towards your travel ($2000 just seems indulgent but I don’t know what all you budgeted so maybe it’s just right) and then use the extra $200 you have from paying off your CC to add to that travel budget?
I’m not one who believes you must be “gazelle intense” and have debt as this burning tire around your neck. Everything in moderation. You have to enjoy the present as well. I do think the more you can put to your LOC upfront the less likely you will face the interest hike.
The other thought is why not take the $200 AND the salary increase and funnel it into your LOC. Adding those 2 to your normal payments, you might be able to pay the whole thing off this year. Think how freeing that would be! You would still put the $1000 aside for travel but every single other penny will go towards that, then you can really beef up your retirement.
Just wanted to share some other angles.
Enjoy the feeling. This is a good problem to have
Congratulations on the raise/bonus, it’s great news and I’m sure it feels good to have your hard work recognized!
I would echo the above thought that you should take the $2000 vacation funds and put it into the LOC immediately . Then re-save that $2000 from now until you are planning on taking that vacation. There is a financial benefit of lessening your total burden of interest (although this is not a ton of money, every bit counts) that you end up paying. I agree that it hopefully will also perhaps force you to sharpen your savings instincts.
I am a huge supporter of vacations both to visit family and to go on with your family. My dad passed away very unexpectedly 8 months ago at age 60. I have huge regrets of not spending more time with my dad. I don’t think anyone should regret spending the time with family and making the memories. We are not “gazelle intense” paying off our debt but we do cash flow 2 vacations a year, one as a family with our kids and one to visit my mom who is a 5 hour drive away and had a brain injury 2 years ago.
I would suggest you pull your statements and add up the costs to visit family that you spent in 2019. Is $2000 higher or lower and why? $2,000 seems like a lot off the bat. I mean, we’re just talking plane tickets, some spending money, and free lodging. You can make it clear you’re focused on debt repayment and skip the fancy dinners out and presents in lieu of something cheaper. I’m sure your parents will support it! As you discovered on the trip to visit your mom, the real blessing is the time you can spend with family, not the money.
It would be a quick win paying off your student loans. That could be very motivating. But risk-wise, the best choice would be to put all of the bonus money against your line of credit. It’s very concerning that you aren’t planning to have it paid off at the end of the promo period. Do you have a payoff schedule planned for it yet? You should use the end of the promo as a deadline to have it paid off. (Forgive me if I read into it wrong and you actually are planning to finish by Nov.)
It’s a personal decision, what is more important to you:
Have a quick win (pay off SL)
Lower interest paid overall (pay down LOC)
Having better cashflow (pay off SL) – This doesn’t help much unless you have a big bill with no e-fund or lose your job.
What’s crazy is that traveling within Canada is so expensive :/ Going out east could very well cost a lot, but I don’t know if it would cost $1000. I believe she treats her family to a lot of nice stuff/experiences, and maybe even will pay for groceries and that could account for the costs?
My flight out east was $328 all in, taxes included. That’s round trip direct. I could have gone cheaper but refuse to waste hours on an in-direct flight to save $40.
You could consider putting the $2000 aside in account earmarked for the vacation, but also challenge yourself to try to save up the money for the trip anyway. If you save it up, you can then take the money already set aside and pay down that line of credit.
It would be a good way to get in the habit and practice of saving for a goal, while also knowing that the vacation can happen (and not go on a credit card) even if you fall short.