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Metro’s Money Makeover: Yolanda’s Surprise Discovery

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The challenge: Metro’s finance guru Lesley-Anne Scorgie has 11 weeks remaining to transform the finances of two recent graduates — Annick, 24, and Yolanda, 27 — by helping them get out of debt, save money and track their spending. This week we’ll focus on Yolanda.

A web communications specialist, Yolanda makes $42,000 per year and spends $750 a month on rent. Her goals are to save a $25,000 down payment for a condo purchase in three years, grow her retirement savings and go on a trip each year.

Yolanda has traded in a higher paycheque for a job that she’s passionate about with a national charity that helps children in developing countries. She’s learned to live within her means, but we’ve recently discovered she’s a binge saver. Yolanda contributes regularly to her RRSP and TFSA, and then in moments of weakness, drains the accounts for clothes, travel and entertainment.

In our money coaching session last week, Yolanda learned that every time she withdraws from her RRSP before retirement, she loses the contribution room permanently and pays a withholding tax to the government — ouch!

Her TFSA withdrawals are less of a problem because she can retain her contribution room and doesn’t pay taxes when she withdraws her money.

In both cases, however, dipping into her RRSP or TFSA accounts prematurely means Yolanda won’t capitalize on each account’s tax-advantages and she won’t grow her down payment and retirement savings.

The lesson: Yolanda is using her RRSP and TFSA like a bank account rather than for long-term savings.

Yolanda has the right idea, which is to save through regular monthly contributions to her RRSP and TFSA, but she’s over contributing and not leaving enough cash in her chequing account to pay for day-to-day expenses. So when something like a wedding creeps up, she’s forced to liquidate her RRSP and TFSA to pay for a gift.

Yolanda needs to contribute less to her RRSP and TFSA to free up monthly cash flow for regular expenses. She will drop her RRSP contribution to $150 from $200 and TFSA contribution to $250 from $350. This action will free up $150 per month. Yolanda will transfer $50 of that money into a savings account for smaller one-off purchases.

This plan ensures Yolanda uses the right accounts for her short-term spending and long-term saving.

A surprise: After closer examination of Yolanda’s finances, we learned that her defined contribution pension is worth three times what she’d originally thought thanks to her employer matching her contributions to the plan.

Next week: Annick owes money on her credit cards, to her family, and the government for her student loans. Who should she pay off first?

Lesley-Anne Scorgie is a bestselling author and Founder of MeVest, a money coaching service for Canadians. Follow her @LesleyScorgie. See this article published in Metro News January 25, 2016: http://www.metronews.ca/life/money/2016/01/25/metro-money-makeover-yolanda-learns-lesson-and-gets-surprise.html