Example of Emy, who Saves up for the Down Payment for her Condo
Let's take a look at Emy's case, who wants to buy a condo. Let's find out which strategy she will use to save up for her down payment.
This year, Emy saved $3000 by setting up automatic transfers. This is what she could afford, based on her
budget. She could place that money in a tax-free savings account (TFSA), but since she wants to buy a condo in 5 to 10 years, she knows there is a better option for her.
Therefore, she opens a
first home savings account (FHSA) and invests her money in a
balanced mutual fund. Why an
FHSA? Because it reduces the income she pays tax on, which is a big advantage.
After filing her income tax return, she will receive a refund of around $945 (based on the 2024 tax bracket) because her savings will have reduced the income on which she paid tax by $3000. In this case, the amount of $945 corresponds to a tax overpayment. Please note that a tax refund is always calculated according to the income tax rate that applies to the total income for the year.
In five years, if Emy keeps up her savings pace and reinvests her tax refunds, she will have accumulated around $22 000! Saving will have required her to make choices, but her strategy and efforts will have helped her reach her goal. She will have a nice down payment for her condo!