This & That: Great Questions Edition
Posted by Gail | Filed under This & That
J Wrote: I recently got married, and my husband and I are in a reasonable position: we only have his student loan to pay off. We plan to devote 25% of our income to loan repayment, and we should have it taken care of in less than 6 years.
It’s the home ownership question that is a little more awkward. Currently, we are renting an apartment. I’ve been a homeowner in the past, and HATED every minute of it: the maintenance, the repairs, the expenses! My husband also has zero interest in being a homeowner in the near future (ie. over the next 5 years). He has said ‘Maybe later?’
We have no interest in buying a house. We love renting, and the ease of lifestyle it provides for us. Our parents and family are constantly pressuring us to ‘hurry up’ and buy a house — but we just don’t want to.
Is it acceptable in today’s society to simply rent and invest instead of buying a home? Every time I tell people that we’re not interested in buying a house, people look at us like we are freaks, and the inevitable speech about ‘Renting is simply throwing your money away!’ ensues……
Gail Says: Home ownership isn’t for everyone. Some folks are happier and better off renting. There’s nothing wrong with that choice. And don’t fall for the crap that you’re throwing your life and money away. Just point out that of your best-friend’s $2,100 a month mortgage payment, $2,084 is going to interest at least for the first few years.
Peace of mind, ease of movement and a sense of balance are all important things to have too. And home-ownership as an investment isn’t a sure thing, no matter what the experts (or your family) say. Home ownership does bring the opportunity to grow equity over time, but if you rent and invest wisely, you can achieve much the same end.
S Wrote: We watch your show regularly and love it. We have learned a lot and will be debt free except for our mortgage by the end of February which leads me to my question. I am not sure if once we are done getting rid of our debt we should put our debt repayment money towards savings or paying down the mortgage faster? We just purchased our house in March 2012 and signed up for fixed five year for 2.99% interest. My initial thoughts are to pay down the mortgage faster but if we can invest our money for more than 2.99% than we should do that instead but curious on your professional opinion.
Gail Says: You don’t say how old you are or how far from retirement, both of which factor into the answer. If you’re a young’un (less than 50) then concentrate on building your retirement savings. But you don’t have to do that to the exclusion of your mortgage paydown. If you make an RRSP contribution, you’ll reduce your taxes owed. Take that money and use it to make your mortgage paydowns and you’ll be achieving both goals.
Iffn you’re an older dog, get the mortgage paid off!
N Wrote: I watch your shows and can’t believe how much I don’t know. I made some pretty huge mistakes in the past but I am still in the process of growing up.
Now I am 34 and have my first credit card (seriously) with a $1500 limit….I am looking to purchase a home hopefully fairly soon with my boyfriend and need to know how to build credit.
Part two to my question…my 6 year old daughter said to me the other day…”mom when I grow up I want to be just like you”. That was the scariest thing I have ever heard…I want her to be better and not suffer from silly choices…how does a parent who really is still learning teach her child respect for money and her future?
Gail Says: To have a good credit history and a healthy financial life you must use your credit regularly and pay it off in full every single month. And you should have a couple of different sources of credit; your credit card is one, another might be a very short-term loan to make an RRSP contribution. So you’d have the money in the bank for the RRSP, but you’d take a loan and then over three months repay the loan in full. That’ll register on the credit history and will cost you very little in interest.
As for your concern about your daughter, go and buy Money-Smart Kids, read it, do it. Keep in mind that she’ll learn as much from watching you as from what you say, so keep that in mind.
A Wrote: We are currently debt free having paid off our mortgage, line of credit and we own our vehicles. We have happily done without a lot of things to achieve this goal. Our biggest issue at this time is helping our teenage daughter to understand the value of money. We are thinking of having her manage a set amount of money to buy her clothes, pay for her cell phone, etc. Is there a formula for this based on the family’s income and guidelines that need to be set in place?
Gail Says: There’s no formula or this. If you want your daughter to be smart about money your instincts are correct: you have to give her responsibility for managing money. As to how much money, it’ll be based a) on what you can afford and b) on her needs. When my daughter was 12 (a while ago now) I gave her $50 a month for clothing not including outerwear and footwear. By the time she was 15 or so, she was up to $70 a month.
Take a look at what you think is a reasonable amount for her to cover her needs and a few of her wants. Then set the plan in place. The important thing will be to keep your hand out of your wallet if she blows through her money and needs more for something “important”. That’s the tough part. But it’s the make it or break it part too.
N Wrote: I am a PhD student with at least 2 more years left in my program. I currently owe $10,800 in student loans (OSAP), which is not collecting interest because I am still a student. For Christmas this year my grandparents gave me an unexpected and generous gift of $10,000. My husband and I decided to use part of it (probably about $3000) to pay off some of his outstanding loans. I am now trying to decide what to do with the $7,000 remaining. I am wondering if you would recommend paying it immediately towards the loan (again, which is not collecting any interest at the moment), or whether it is better to put it in a high interest savings account (maybe a TFSA), which will collect interest until I graduate at which point I can pay down the loan in a couple lump sums. Basically, is it better to save it or put it towards the loan immediately?
Gail Says: Since there’s no interest cost on the loan right now, find a high interest savings account and stick the money away until you’re finished school. Then apply it immediately. Don’t wait for the grace period to be over because the interest clock clicks on as soon as you graduate.
L Wrote: I love you and your shows! You’ve helped me pay off most of my debt. I say most because by this time next year I’ll be debt free! I’ve had to sacrifice a lot but it’s worth it.
I have a question if you don’t mind. Should I continue to pay off my debt on a weekly basis (my husband and I live pay cheque to pay cheque) or should I try and get a loan at a bank to pay off my debt. I owe at least $8k in back taxes. I don’t have good credit so I can’t go to any major bank. Actually, I am rebuilding my credit and TD bank approved my car loan in Feb 2012. I haven’t missed a payment since! Hmmm, maybe I should apply for a line of credit through TD or at least see how they can help me. I guess what I’m asking is this. Is it wise to apply for a line of credit to pay off a debt of 8K? Wouldn’t that be redundant? Please help a sista out! I look forward to your suggestions.
Gail Says: It only makes sense to get a consolidation loan to pay off debt (be it through a line or some other way) if you lower your interest rate so that more of your money goes to actually paying off the debt instead of paying interest. As for the back taxes you owe, you can send the tax man post-dated cheques. Call and make and arrangement and then send 12 posted cheques (or fewer if you can) to get even with him.
Piling it all in one place doesn’t make it cheaper unless that interest rate comes down. Do the math.
P Wrote: My girlfriend and I (aged 22-21 respectively) are looking at buying a condo. She makes just over $2400 a month and I make Just about $2000 a month (both with likely increase in the next year). The condo is about $282,567 (GST in), condo fees at $390, Property tax roughly $1300/year. We both have small car payments (mine – $320/mo with 2 yrs remaining)
and hers ($390/mo 6.5 yrs remaining). We have no student or other debt what so ever, and have between 5-6% percent to put down (5% required in AB) with a mortgage rate of 2.94% 5 yr fixed. Lawyer and closing fees waved. Being home broke and in debt is a huge fear. Can we make this happen!?!?
Gail Says: First I’m going to encourage you to put down a larger downpayment if you can. Next, I’m going to tell you that before you buy you should practise living as if you had bought. Here’s how:
You take your housing cost (mortgage payment, property taxes, condo fees, utilities, home insurance) and subtract your current rent to come up with the difference between what you’re paying now and what you’re going to have to fork out when you become home-owners.
I’m not talking about if you can THEORETICALLY come up with the money. I’m talking about taking that money and socking it away every single month for at least six months before you actually buy.
This will teach you to live on less disposable income. You better start practicing before you buy your home so you’re ready for the adjustment in your lifestyle when you do take the big step.
Loads of people buy a home and then keep on spending like they did before they became homeowners… racking up gobs of debt.
The difference that you’re saving is going to build your downpayment.
R Wrote: I’ve been a huge fan of your shows and of you for a long time! My question for you is. I’ve been dating a wonderful man for about 1/2 a year. We have a great relationship, get along well, and have lots of the same interests. However, his spending habits TERRIFY me. I’ve been working my tush off *literally* to pay off my 20K in student loans (I’m 25 and recently graduated), and following a strict budget and debt repayment plan, so I’m not a financial angel by any means, but I closely monitor my finances, and hold no consumer debt at this time. He works a job where he is in camp one week in and out the next, makes great money, but spends frivolously on “stuff.” His excuses are always, “but it’s such a great deal!” I know he has debt (30K in consumer debt to my knowledge), and keeps joking how he plans to put money towards his debt, but then ends up spending it all ordering “stuff” online… Not really funny! He also doesn’t have any assets (i.e. doesn’t own a home in his mid-30’s). I know there wouldn’t be a chance that I would move in with him anytime soon because I know our financial differences would tear our relationship apart, but I feel since we are just dating and not sharing a home that I don’t have a say in his spending, so I keep to myself and just observe. He does talk about wanting to “start saving more in the New Year,” but every time he says that, I just come back to see a kitchen table full of parcels of “stuff” he ordered for himself while away at work. I’m worried that I’ll never be able to move our relationship beyond where it is now because I know I can’t share a life with someone who spends so much without second thought and seems to just ignore his debt. As someone who’s just dating him, is it better for me to express my fears earlier on in this relationship, or should I just run away from this before I invest anymore of my heart into it? What would you honestly tell YOUR DAUGHTER if she found herself in a similar situation?
Gail Says: You have no control over who you fall in love with but you do have some say over whether you hitch your financial wagon to their horse. If you were my kid I would tell you:
a) Do no move in with him until he shows he’s serious about his money and about what’s important to you
b) Never sign anything with him: no co-signed loans, no joint credit, to supplemental credit cards
c) Always keep your personal financial id strong and flexible: good credit history, emergency fund, saving for the long-term, a balanced budget
d) Forget feeling “sorry for them” when they “need help”… people who make big piles of poop despite good advice need to feel the pain of digging out themselves
e) Don’t marry him unless (see a)
If you think that in his mid-30s he’s never going to learn this lesson then you have to decide if you want to be “single” and in a dating relationship for the long term, perhaps even being a single mom, or if you’re not interested in that kind of life biting the bullet, kicking him to the curb and moving on.
M Wrote: I am currently on CPP and a SunLife insurance payment every month. These combined payments are equal to 60% of my salary.
- SunLife $2766.27
- CPP $1255.67
How much should I be putting away for income tax? There are no deductions being taken off at all. I have been trying to get the answer to this but nobody seems to be able to tell me.
I currently have been taking off $600.00 a month and putting it into a separate account that I can not access easily. Is this enough of a deduction to balance my Provincial and Federal deductions? (I live in Ontario). I am terrified of this tax season in Ottawa.
Gail Says: The answer depends on whether your premiums were paid with before taxes or after taxes money. So, were the premiums paid with after-tax dollars? (Were those premiums paid with your after tax income or were they a taxable benefit on your pay slip?) If so then the income is NOT taxable. If it is taxable (which I strongly doubt) then you need to figure out how much your taxable income will be. Go to http://lsminsurance.ca/calculators/canada/income-tax.