Roth Ira TFSA Challenge

The Roth IRA… I mean TFSA Challenge

Today’s post comes from my blogger friend, Tawcan. He’s a fellow parent with two children. He’s also an all-around awesome and fascinating guy. In his spare time, he adventures outside, writes cookbooks, does some amazing photography, and blogs over at Tawcan on the journey to financial independence, dividend paying stocks, and living a good life. Tawcan also lives in Canada (our next door neighbor!) and he comes today with his Canadian perspective. Take it away Tawcan!

When Maggie asked me to write about the Roth IRA Challenge I thought she had lost her mind completely. In this hockey-playing-toque-wearing-polar-bear-riding-igloo-living-poutine-eating country that we call Canada, we don’t have anything called the Roth IRA. So I was confused why she wanted a Canadian to write about the Roth IRA Challenge. Did she think that Canada has become a part of the US? After chatting with Maggie a bit more, I realized that the challenge isn’t tied to Americans only. The challenge has more to do with… how do you save $5,500 or more each year so you can put that money toward a tax-free savings account?

Lucky for us Canadians, we have an account that is very similar to the Roth IRA. This account is called Tax Free Savings Account. Boy us Canadians sure are original when it comes to names eh?

The TFSA program began in 2009. If you’re a Canadian citizen or a Canadian resident age 18 and older, you are eligible to contribute a set amount of limit each year. The contribution rooms since 2009 are as below:

$5,000 for 2009, 2010, 2011, and 2012

$5,500 for 2013 and 2014

$10,000 for 2015 (The Harper Conservative government thought this would buy them some votes but it didn’t work)

$5,500 for 2016

The contribution room is indexed to inflation so it can increase over time. Unlike Roth IRA, the TFSA contribution room is not based on income and can be carried forward indefinitely. In addition, you can withdraw from TFSA any time and withdrawals are completely tax free. The flexibility makes TFSA the perfect savings vehicle.

While many people consider TFSA as a vehicle for short-term savings, I see TFSA as the perfect account for retirement savings, because whatever money you make and withdraw is tax-free! This is why TFSA plays an important role when we made our financial independence assumptions.

Because I was a Canadian citizen and older than 18 when TFSA started, I am eligible to put $46,500 into the account. Because Mrs. T is from land of the Vikings and did not become a Canadian permanent resident until 2011, she is only eligible to contribute $36,500.

One important thing to watch out when it comes to TFSA is not to over contribute. Unfortunately we made the mistake of over-contributing Mrs. T’s TFSA and had to beg for forgiveness to avoid a hefty 1% per month penalty.  Over the years, we have maxed out our eligible TFSA contribution limits each and every year. In total, we have saved and put aside $83,000 in our TFSAs as part of our retirement savings. Unlike many Canadians who simply buy GICs with their TFSA money, we invest our TFSA money in dividend growth stocks and index ETFs. By investing stocks in TFSA, the Registered Retirement Saving Plan (RRSP), and the plain-vanilla-taxable accounts, we have created a sizable dividend portfolio currently generating over $1,000 of dividend income each month in 2016. What makes this so cool is that our money is working hard for us so we don’t have to.

How do we manage to save and set aside money each year given that we are a single-income family with a modest income? (I would love to make a million dollar a year but I don’t). It comes down to three simple but not easy steps.

Step 1: Paying yourself first

I think this is the most important step of all. With our budget system, we set aside a certain percentage of our income each month. The money is then invested to help growing our net worth. What we can’t see we can’t spend, simple as that.

Paying yourself first is a better way to save money than saving after all the expenses are taken care of.


Because when you see $1,000 in your bank account, there’s a natural tendency to want to spend most of it. If you end up with only $50 after all the expenses like rent, groceries, utilities, childcare, and dine out by end of the month, you can only put $50 toward saving. On the other hand, if you pay yourself first by putting aside $200 first, you only see $800 in your bank account. Because you only see $800 in your bank account, the natural tendency is to spend $800 or less.

This concept is so simple yet extremely powerful. In 5 years our net worth has increased by 250%.

Side Note: I know there’s such thing called credit cards which means you can spend more than what you earn… but that’s only if you are irresponsible. You should treat credit card like a debit card and always pay the balance in full.

Step 2: Practice frugality

Setting a certain amount of money aside each month is great but it will only get you so far. You can accelerate your savings by practice frugality. By being frugal, you might not spend all of the $800 you have. What happens if you only spend $450? You end up with an extra $350 that can go toward savings.

Fortunately, frugality runs deep in both Mrs. T and my blood due to how we were both raised. On a daily basis we find frugal alternatives to save money. By doing simple 15 things each month, we have been able to save $5501.10 so far in 2016.  It also helps when both of us are quite handy and do a lot of DIYs to save money. For example, we managed to get married 3 times, twice in Vancouver, once in Denmark, for a grand total of $8,812. This is 27.8% of the Canadian national average wedding cost of $31,685.

There is a huge different between being naturally frugal and trendy frugal. Frugality is a lifestyle, not a fad. One needs to practice frugality so it is engrained in your day-to-day life that it becomes a permanent lifestyle.

Step 3: Stop caring what others think about you

Keeping up with the Joneses is a dangerous game to play. Many people play this game because they care what others think about them. Want to stop playing this game? Simple, stop caring what others think about you. Ask yourself, do the choices you make in life make you a happier person?

Many years ago, I learned to stop caring what others think about me. People will continue to judge me based on what I do and say, but because I stopped caring, I have been liberated.

I chuckled when my parents called me boring; I laughed when someone told me that I should upgrade my car after a work promotion to show my status. When I stopped caring what others think about me, I learned to see things based on their values, rather than their price tags. I also learned what creates happiness for me, so I can find what’s important in my life.

Do these three simple steps work?


By practicing these three simple steps, we managed to save over $40,000 so far this year and used that money to buy more dividend stocks, which in terms will generate more money for us. $40,000 might not sound like a lot of money but when you compound it over 25 years with a growth rate of 8% (historical annualized stock growth), you end up with over $273k. If you just add $5,500 each year, you end up with over $708k at end of 25 years. Saving and investing money now is like planting a fruit tree. Years down the road you get to enjoy the benefits. So start today and start saving and investing your money! Yes we can! (I couldn’t resist using Barack Obama’s slogan given it is an election year :p)


October 2016 Plan Update


It’s Time to Face Your Financial Reality


  1. Great tips Tawcan. Really this is just a great example of how little steps can really add up. Little savings here and there might not seem like all that much. but add it up, let it compound, and then you’ve got a huge number.

    Paying yourself first is a great tip as well. When you pay yourself first, you don’t see the money, and then you’ll just be used to living on less. I know I’ve been putting money away for some time and I just never realize it since I don’t see it in my paycheck.

    • MaggieBanks

      I completely agree… and I struggle with this as a contractor because I get a physical check in the mail, so I have to take money off the top immediately upon deposit instead of it being taken out automatically. Much more tempting to not pay myself first!

    • Little savings here and there definitely add up quick. I’m glad that I learned about paying yourself first concept when I was young.

  2. Good tips, especially pay yourself first. I shoot for a 0 cashflow month on my budget. That doesn’t mean I spend to 0. That means I try to ensure every dollar I’m not going to spend is allocated to savings before hand so it doesn’t tempt me. Very similar to your pay yourself first view.

  3. Katrina

    Fellow Canadian (and fellow Vancouverite!) here. The TFSA is a great (but seriously underappreciated and underutilized) savings tool, especially for those pursuing early retirement. I so wish that $10,000 annual limit had stuck around!

    Your tips for increasing your savings are great! I personally think the most powerful one is not caring what other people think of you. I think once you’ve managed to do that, your spending almost automatically falls in line with your values, because you’re not trying to impress anyone else, just doing what you actually want to do and what makes you happy.

    • MaggieBanks

      I agree with your that ignoring other people is definitely important. I love that you emphasize that you don’t truly find what makes you happy until you learn to ignore other people!

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