Weekend Reading: TFSA Snowball Edition

I’ve been toying with a savings concept that I’m tentatively calling the TFSA snowball. It’s a play on Dave Ramsay’s “debt snowball” method (his one positive contribution to society) where borrowers pay off their smallest loan balance first, then roll those freed-up payments into the next smallest balance. Rinse and repeat until debt free.

Related: I prefer the debt avalanche where you tackle the highest interest rate balance first.

While it’s rare for my clients to be that heavily indebted, many of them are striving to catch-up on unused TFSA contribution room. After all, money is finite and we can’t do everything all at once. Heck, my wife and I are on our third game of playing TFSA catch-up in the last 15 years!

Indeed, you might have a period of income interruption from a parental leave or career change. Maybe you financed a vehicle and had to temporarily pause TFSA contributions. Perhaps you just had other spending or saving priorities and the TFSA got neglected.

Whatever the case, the TFSA snowball concept is meant to treat your unused contribution room like a five-alarm emergency. That’s right, you’ll aggressively attack these contributions as if you were paying off high interest credit card debt. Within reason, you’re going to throw everything you have at your TFSA until you’ve caught up on all of that unused contribution room.

What’s the payoff? Well, it’s a similar feeling to paying off your consumer debt. All of the money you were allocating towards debt repayment can now be redirected towards savings goals. Same with the TFSA.

Once your TFSA is fully maxed out, you can only contribute the annual limit afterwards – which will feel like a modest amount compared to your previously aggressive contributions.

The extra cash flow is now freed-up to fund other goals, like a new car, dream vacation, extra mortgage payments, lifestyle creep, non-registered investments, etc. The choice is yours!

*this chart presumes the annual TFSA limit increases by $500 in 2026 (to $7,500) and then again in 2029 (to $8,000)

The table above is our own TFSA snowball plan. Aggressive contributions of $28,000 per year (each) for the next three years, followed by a $13,000 contribution (each) in 2028 to fully max our TFSAs.

The payoff after three-and-a-half more years of TFSA catch-up is that we’d only have to contribute the annual limit from 2029 onwards and can redirect those extra catch-up contributions towards other goals.

Right now that’s loosely earmarked for the mortgage – extra lump sum payments to pay off the balance earlier. But the timing also coincides with our kids entering post-secondary years (yikes!) and so we might not want to commit all of those funds until we know exactly where the kids are going and what their funding requirements will be.

We could also simply pay ourselves less, since we topped-up our personal income to do the TFSA snowball in the first place.

Or, without the pressure to save more, we could decide to work a bit less and intentionally earn less income. Like a Coast Fire plan.

There’s also a vehicle purchase to consider – or some modest home renovations.

Who am I kidding? The funds will probably go towards enhancing our travel budget!

In summary, like an aggressive debt repayment plan, a conscious effort to catch-up on unused TFSA contribution room for a few years can dramatically improve your financial picture and give you a host of options to consider afterward.

What are your thoughts on treating your unused TFSA room like a five-alarm emergency? Let me know in the comments.

This Week’s Recap:

I’ve updated my annual reminder on how to crush your RRSP contributions next year by using the T1213 form to reduce withholding taxes at the source. This is a secret weapon for many of my higher-earning clients who contribute significantly to their RRSP each year. Why not get your tax refund upfront on every paycheque instead of waiting until you file your taxes?

Last week I wrote about lifestyle creep not necessarily being a bad thing.

We’re off to our favourite city in the world – Edinburgh – next week for a 10-day holiday. It’ll be our fourth time back to “the most beautiful of all the capitals of Europe.” We can’t wait!

“This is a city of shifting light, of changing skies, of sudden vistas. A city so beautiful it breaks the heart again and again.” – Alexander McCall Smith

Weekend Reading:

If you’re still working and contributing to CPP, or if you’re retired and still waiting to take CPP, your expected CPP benefits increase based on wage inflation. But if you’re already receiving CPP benefits, your annual increase is based on price inflation.

Typically, wage inflation is about 1% higher than price inflation. But that was not the case in 2022 when prices rose faster than wages. That year, Fred Vettese pointed out, was an anomaly where you would have been better off taking CPP in December instead of January so you’d benefit from the price inflation bump instead of the wage inflation bump.

Complicated stuff, right? So what about this year? Fred Vettese is back to answer that question now that the data is out. 

Of Dollars and Data blogger Nick Maggiulli is doing the lord’s work busting the persistent myth that Vanguard, BlackRock, and State Street are a secret cabal that control the world.

Here’s what football (soccer) fans can teach investors:

“One of the biggest behavioural challenges fans and investors face is the tendency to overreact. Fans often make snap judgments, calling for managerial changes or criticising players after just one bad game. Investors, too, can fall into the trap of panic-selling during a market downturn or impulsively chasing after the latest “hot” stock, fund or theme.”

How do people react to financial advice? It depends on who is receiving it, who is giving it, and what it consists of.

Money Architect’s Russell Sawatsky tackles a thorny issue for DIY investors – at what age do you hand over the reigns?

Will buying a home make you happier? The evidence is mixed, at best:

A Wealth of Common Sense blogger Ben Carlson answers a reader question about whether they need five years of cash reserves in retirement.

Here’s Carlson again discussing the perils of planning for early retirement:

“Your two best forms of risk management in retirement are diversification and flexibility with your plan. Every strategy comes with trade-offs. Unfortunately, there is no investment panacea that offers 100% certainty during retirement.”

Finally, here’s Jason Heath with the ins and outs of consolidating your registered accounts for retirement income.

Happy Thanksgiving, and have a great weekend!