I embraced the tax free savings account with open arms when it was first introduced back in 2009. I made the maximum $5,000 contribution in 2009 and again in 2010. My TFSA game was strong, indeed, as I invested those funds in Canadian dividend paying stocks and quickly turned $10,000 into $15,000.

But then I raided my TFSA to top-up our house downpayment in the summer of 2011 and, after just a couple of one-time deposits in the last five years, the account sits today at less than $4,500.

So now my TFSA contribution room is a lofty $50,500 and I confess that I’ve felt a bit paralyzed about how to treat this account going forward.

My TFSA fail

My TFSA Dilemma

The beautiful thing about TFSAs is that they can be used for just about anything. Emergency fund? There’s a TFSA Savings Account for that. Prefer something that pays a higher interest rate for 1-3 years? Lock into a TFSA GIC. Looking for long-term results? Use your TFSA to invest in individual stocks, ETFS, bonds, or mutual funds.

But all of that flexibility can mean difficult choices for savers and investors who are looking to get the most out of their TFSA.

I didn’t necessarily start saving inside my TFSA with the intention of cashing out two years later. If I did, I would have put my money into a savings account or GIC instead of into the stock market. As it turned out, my investments were up big and I decided to use that money to top-up our downpayment and avoid costly CMHC premiums.

Five years later and it’s clear I haven’t prioritized TFSA contributions at all. Instead, we bought a car, developed the basement in our new home, and poured our savings into my RRSP and into the kids’ RESPs.

I was paralyzed by the large amount of contribution room available – nearly $100,000 when you consider my wife’s unused TFSA room. I felt like I needed to make big TFSA contributions each year or it wouldn’t be worthwhile.

Not only that, I had to decide whether my TFSA should be used for short-term, medium-term, or long-term savings, and how that would fit into our financial plan.

My TFSA solution

Of course, I’m familiar with terms like ‘pay yourself first‘, or ‘the best time to start saving is now‘. I know I should have simply started contributing $25 or $50 a month towards my TFSA back in 2012. I wouldn’t have missed the money at all, in fact, I probably would have upped the contributions each year like I’ve done with our RESPs. But here we are.

My plan is to turn our $825 monthly car payment – which ends in October – into future tax free savings account contributions, starting in January 2017. That’s $10,000 per year to stash inside my TFSA, which at that rate would catch-up all of my unused room by 2027.

I’ve decided to treat my TFSA as a long-term retirement savings plan (part of a three-pronged approach to developing retirement income streams from my defined benefit pension plan, RRSP, and TFSA).

My long-term investments are held in just two ETFs – Vanguard’s VCN and VXC – which means I’ll be buying VCN inside my TFSA and keeping VXC and a bit of VCN inside my RRSP to achieve an overall mix of 25% Canadian, 75% U.S. and International investments.

Final thoughts

I’ve committed a cardinal sin by neglecting my TFSA for the last five years and letting other financial priorities get in the way. I thought that starting small wouldn’t be worthwhile – that I needed to make BIG contributions or I shouldn’t even bother. I also wasn’t entirely sure if I should go all-in with a long-term ETF approach inside my TFSA or keep a bit of cash on-hand for shorter-term goals.

Now I finally have some clarity about what to do with my TFSA going forward. The source of funding these contributions will be freed-up in a few short months, I have a solid plan in place, and I can’t wait to start building up my tax free savings account again!

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