Questions, Questions, Questions
Posted by John Draper | Filed under This & That
Y’all know how much I hate answering the same questions time and again. I’m still getting tons of requests for personal consultations. People, if I were to personally consult with y’all, when would I have time to make a living? See my children? Sleep? So, no, I’m not going to meet with you no matter how much trouble you’re in (I don’t do guilt) or how much money you say you’ll pay (or greed either.)
I’m getting a lot of requests from people for advisors they can trust. I don’t give referrals. I’d be nuts to, since my stamp of approval would mean you wouldn’t have to do your homework checking references, asking questions, and making sure the fit was right for you.
Tracy asks:
I’m so glad for this opportunity ask you a question about an issue that’s keeping me up at night. I’m 36 years old, and have a $23,000.00 line of credit debt, at 8.5% interest. …what do you think about ‘cashing in’ an RSP to get rid of the debt? I am currently paying approximately $500.00 per month toward the debt, but it’s really wearing on me, having this over my head. Your thoughts?
Tracy, I can’t begin to count how many times a week I get this question. Now that the caca has hit the fan, everyone wants to pay off their debt. But not all sources of cash are appropriate for debt repayment. It’s never a good idea to cash in registered assets to pay off debt because when you take money out of an RSP you trigger taxes on that money. It doesn’t matter how much discomfort you’re experiencing, that’s good. It’s what will keep you focused on paying off your debt. If you want to get rid of it faster, get another job and double your monthly payment.
Shari wrote:
I just finished watching your show today …You advised them at the end of the show that if they put 200.00/month away for retirement (I’m assuming they were about 30 years old so I guess we’re talking 35 years) at (you usually use 5%) they would have 500,000 dollars.
I watch your show all the time and I love it. However I often take your advice at the end and pop the figures into ING’s savings tool for the allotted years and interest rate and it never comes out to your numbers. Your numbers are always so much higher; meaning the final numbers at retirement that you give are usually hundreds of thousands of dollars more than what I can come up with on the ING tool calculator.
What am I doing wrong??? I‘m careful to put in the interest rate you choose and the amounts per month and for how many months, but it never comes out near to what you get. I would love to know how you are calculating these numbers.
Shari, I get this question all the time. When I calculate a couple’s long-term savings, it is based on an average rate of return of 7% (it was 5%, but I took it up to represent 25-year market averages for a balanced portfolio) inside an RRSP, where it will grow on a tax-deferred basis. And YES, the return inside an RRSP is that much greater than outside an RSP where you have to pay tax on the income you earn. Compounding return is the true magic of investing. I also assume the tax refund received as a result of the contribution will be reinvested to boost the RRSP savings.
You would need to use a retirement calculator (not a savings calculator) to get close to my figures. And to all those people who want to know where to get better than 2.5% on their money, you’re using the most obvious option: The Savings Account. There’s a whole world of investment options out there from which you can choose. I’m about to start talking about some of the basics shortly, so stay tuned.
Pam asked:
If you have no other debt than your house – is it “safe” or “ok” if your percentage of income that goes to housing is higher than 35%? (Still with a healthy balance in life/savings/transportation etc.)
Absolutely, Pam. If you have no debt, then the 15% that’s applied to debt repayment on the Budget Pie could be reallocated anywhere you wish. The Pie is a guide. Ultimately the only unbreakable rules are that you can’t spend more money than you make and you must save some!
A lot.. and I mean a LOT… of people write to me desperate because they don’t have enough money. This makes me sad for two reasons. First, I’m not a magician so you have to have money for me to work with when it comes to giving you financial guidance. I can’t pull money out of the air for you. Second, I hate yelling at desperate people.
Greg wrote:
What options are there to non-custodial parents that in a lot of cases are living below the poverty line and incur debt trying to survive and provide for their children.
Greg, my only advice at this point is to find a way to Make More Money. No money, no options. Ultimately, if you don’t have the resources to get to the end of the month before you get to the end of the money, there’s nothing I can tell you that’s going to make things work for you.
Dagmar wrote:
What are your thoughts about the Smith Maneuver?
I’ve had this question a dozen or fifty times. And I’ve avoided it because it’s complicated. But I’m weighing in today with the short version answer: I think it is very dangerous for all but the most sophisticated investors. Most people don’t understand how it works, and the potential losses from leveraging are huge.
Three more things:
I’m moving Friday, December 5th so I won’t blog that day. Hope to be back Monday, but don’t panic since I have to have new services hooked up. They are supposed to be ready by then, but ya never know.
How would y’all like to weigh in on a couple of “case studies”… questions I believe you could help with by sharing your experience and knowledge. If you’d like to do this, I’ll let you all have your say, and then I’ll give a nod or nix what needs nixing so the body who asked the question is given sound advice. What say you?
November 28, 2008 at 1:27 pm
I just wanted to wish you good luck with your move! I hope it goes as smoothly as it possibly can.
As for the “case studies”, if you mean you’ll share something on the blog and we will comment, then I’m game.
November 28, 2008 at 1:48 pm
I’m up for the case studies! I think it sounds like a great idea.
Good luck on your move!
November 28, 2008 at 2:09 pm
Smooth transitions on your move… I guess I will have to survive without my dose of Gail wisdom for a few days.
About answering the same things over and over… don’t dispair, people learn best through repetition, for those of us who have read your answers before, it is just compounding the education!!!
November 28, 2008 at 3:50 pm
Good luck and smooth transitions with the move Gail. That makes two of us moving to a different place.
As for the case study question, I think that is a great idea. Perhaps setup it up like the personal story section. It may be helpful, and the case study method makes for a more realistic way to address problems and learn – just look at Harvard business school.
I do have an unrelated suggestion – being this post is about “This and That as you name it typically. You should write about the new TFSA rules coming up in the new year. From the basics I read about it, it seems like a great idea for savers, which of course is perfect for the people who read your blog daily. I’m sure your “Gail’s Army” would appreciate it since you haven’t covered that topic on any of your postings as of yet.
November 28, 2008 at 5:17 pm
Case Studies are a terrific way to better learn stuff. Many people remember ’stories’ better than facts. So you’ve got my vote in this direction.
Best wishes with the move.
November 28, 2008 at 6:39 pm
Gail, have a safe and uneventful move.
I think the Case Studies is a great idea. I’m looking forward to seeing what that looks like.
November 28, 2008 at 6:48 pm
Good luck on the move – fingers crossed that the weather is uneventful!
Yes I would love the case studies!
November 28, 2008 at 8:09 pm
Fingers crossed for a smooth move Gail. Of course, how could it be anything else? We all know you don’t have much ’stuff’ ;o)
I’ve been thinking about your pony….I do hope your pet will be moving with you…..he/she seems to relax you.
I’m jar crazy here….not only do I have the Gail jars, but, today I made quart jars – 3 each – of chocolate chip cookie mix and chewy brownie mix – all done up for Christmas gifts!
November 28, 2008 at 8:50 pm
case studies is a great idea to test our knowledge about money etc.
November 28, 2008 at 9:49 pm
Looking forward to what you have to say about various investment options. I have been contributing to RRSP for a while. I have just stuck too two mutual funds, a balanced growth and dividend fund (both have tanked this fall…what hasn’t) but even before the “economic crisis” I wasn’t seeing 7%. I think its time for me to do some more research!
Good luck with the move! R
November 28, 2008 at 9:58 pm
I am very keen for more investing advice.
I am fairly new to this and have so far only tried mutual funds, as they seem to suit my needs best. I also feel very strongly about trying to do ethical investing, so that has to factor into my investing decisions as well.
However, like Robin, I wasn’t seeing anywhere near 7% returns even before the market meltdown. I’m using a target date balanced mutual fund at the moment, and the one thing I really don’t like about it is the fairly high MER.
So, lots of questions here about stuff like that.
And lots more research needed, too, I guess.
I look forward to those posts, Gail!
Happy moving!
November 29, 2008 at 3:16 am
Case studies sound great!
Ever do any couples on your show from the Wet coast?
Good luck on the move.
November 29, 2008 at 1:21 pm
Case studies sound like a great idea, I’m in!
November 29, 2008 at 3:19 pm
Thanks again for the TDDUP book. I have ordered one for hubby and I, and for a friend who is really excited about having a tool to learn how to budget. Hubby and I do an annual planning session where we map out our financial purchases for the year and I’m looking forward to incorporating things like smarter savings and debt repayment.
Thanks again! I think you’re the cat’s meow!
November 30, 2008 at 2:22 pm
Great idea about the case studies, Gail!
November 30, 2008 at 5:27 pm
Hi Gail,
Looks like what I have been doing on my own has been pretty close to what you suggest, I just wanted some clarity on one point. What you call “savings”, is that retirement savings only, or is that “I eventually want a bigger house savings”? The rule is 10% of my income to savings, but I just want to know what I am saving for.
Thanks for your great advice and helpful website!
December 1, 2008 at 1:05 pm
Sara F: The 10% rule applies to retirement savings. Saving for a home is actually “planned spending” because you’re planning on spending the money on a house… or a car… a vacation… a new whatever you’re accumulating the money for. g
December 2, 2008 at 8:54 pm
Ten years ago, I was where many of those posting comments are today – trying to figure out how to invest my savings. I ‘ve learned a lot since then and recently sekf-published a book on what I learned since taking control of my money: No Hype – The Straight Goods on Investing Your Money. It covers all the investing basics for Canadians from the viewpoint of an independent investor, a savvy financial industry outsider. I think many reading this blog would find my book useful. You can find out more and buy online at http://www.nohypeinvesting.com.