The Dominos pay their household bills and everyday expenses from their joint chequing account, which has a current balance of $4,200. They both opened Tax Free Savings Accounts and deposited the maximum in both 2009 and 2010. They have, at the end of 2010, contributed $20,000 to their TFSAs some of which is liquid, some of which they consider to be "Non-Registered Investments" as described below.
• One TFSA was set up in 2009 to hold emergency funds. It now has a balance of $3,045 ($3,000 contribution, $45 interest income for two years). Since they want to keep these funds l iquid, they expect to continue to earn only 2.0% while inflation is 1.25%.
• They also have a savings account with a balance of $4,500 which they estimate they will spend now, in early 2011, on financial planning advice. They have been saving about $600 a year in order to be able to get this advice. Beginning in 2012, they plan to save $500 a year in a TFSA so that, every four or five years in the future, they can return to their financial planner to assess their position in detail.
Hint: They will spend the $4,500 this year for their first comprehensive financial plan. They have saved for this and will use their financial planning savings to pay for it. Do not show as coming from their cashflows - their financial planning savings will be used up and at the end of 2012 and in future years, they will save $500 for future advice.
• Beginning in 2012, after the car lease is paid, they want to save $300 a month, also in a TFSA, so they can pay cash for their next car. This account will earn a modest 2% a year. As emergency funds, Leonard has $9,000 in Canada Savings Bonds (CSBs) which earn 3.0% before tax. Rose has $7,000 invested in a 1-year Guaranteed Investment Certificate (GIC) which earns 4.0% and matures at the end of February, 2011. She plans to reinvest the funds in GICs when they mature and expects to make the same return. These two accounts will not be moved to TFSAs and, as a result, the annual income is taxable.