This & That: Do The Math Edition
Posted by Gail | Filed under This & That
D Wrote: I’m 48 and recently got our family spending under control, so that now we can live within our means. The problem is I have a $125,000 line of credit costing me $450.00 a month in interest. Aside from a paid off house and $200,000 in RRSP’s I have about $133,000 in an investment account, still down $22,000 from the 2008 hit. It seems obvious to cash it in, pay off the line of credit, and start rebuilding the account, but am I missing something. Is this really the best thing to do?
Gail Says: Is the investment portfolio producing more than the $450 (after taxes) a month it’s costing you to carry the line of credit? If not, get rid of the line.
T Wrote: You are my money GODDESS!! I work at a bank so as much as we have to use our own prescribed worksheets and tools for our clients; I still direct them to you! Now, on to my question; in the process of saving for a house and Christmas and vacation and etc, etc, etc (as you probably already know there is no shortage of things to save for) I have been flirting with the idea of selling some paintings that I do for a little extra cashola. Is there a way that I can calculate if it would be worth my time/energy/supplies and turn out a profit? (A work sheet, perhaps?) Also how would I account for inventory left over on such a budget sheet? And on my own budget sheet, where would the money for supplies fall? Thank you for having such a profound influence in my life Gail!!
Gail Says: You’re a smart girl; you can build a spreadsheet for this. First you’ll have to estimate the costs associated with supplies. Canvas is easy, cos it’s one per. But paint, linseed oil, turp, and all the other “replenishable” supplies will mean you have to estimate how long these last (# of paintings) and divide that into the cost for your supplies. It may take a few months to get a good handle on this, so you might as well start now. And then there are the things you replace less often, like brushes, palate, whatever else you use. Then, of course, you have to account for your time. Will you charge your time at $10/hr, $50/hr? Or will you not price in your time because you would be painting anyway since it rejuvenates your soul? Next comes figuring out what you can sell your “product” for, and if there will be costs associated with selling your finished work. As for inventory, you can price it at the cost of supplies plus your time, if you’ve made a time-count.
R Wrote: My name is Rebecca and I am a 24 year old student in my second year of schooling and I also work between 28-30 hours a week in a retail store as a supervisor making $13.90 an hour. I am having a bit of difficulty with trying to calculate my net income and my gross income. I also have about $8600.00 dollars worth of debt and I was just wondering what the best way to pay that off would be?
Gail Says: Your gross income is what you make before you pay your taxes. You don’t have to calculate this at all. Forgedaboutit. Your net income is what’s really important because it’s the money you have to work with. Look back over your bank statements. Take the last six months’ worth of payroll deposits, add ‘em up, divide by 6, that’s what you average per month in net income. As for getting the debt paid off, you need to make a plan. That entails deciding how long you want to take to pay off the debt, then creating a debt repayment plan to get you there. If you’re a student your first priority should be to pay off any consumer debt you have first. Leave the student debt for when you’re done school, and minimize any more debt.
D Wrote: I have never had the need to ask a direct question but today I was reading a guest post about cars and that got me thinking you may be able to help me with a car related question.
I’m 30, in a great job which I love and make decent money. I don’t have debt; I am working toward an emergency fund and maximing my retirement accounts. I have a plan and I pretty much stick to it while still managing to have fun I currently rent by myself (soon to be with a roomie for company and to share costs) and I am perfectly content taking public transit or walking/biking to and from the places I need to go.
Well now my employer has thrown me a curve ball and I admit I was expecting it. In my position travelling is becoming necessary, mostly by car at this point. He would like to lease me a company vehicle because I don’t own a car and I don’t want to own one. Our company location is downtown and we both feel to keep the car in a parkade all the time while not in use, is not safe. The other option is for me to use it for personal use when I’m not using it for work and park it at my apartment (much safer and free). This is where I have tried to get information and I am very confused. My question is I want to know how much I will have to pay each year to have the company car for personal use. This was not in my budget and while it would be nice to use it, I don’t want the cost to derail my plans. The car we are looking at is about 40g and I’ll only use it personally probably less than 20% of the time. If there is some easy to understand resource out there, please let me know.
Gail Says: This is going to get a little complicated. Let me give you the short answer first, and then I’ll give you the long version.
The short answer: if you take that car home, you’re going to pay a lot more in taxes.
The long answer: If you take the company car home you may end up with two taxable benefits included on your T4 slip for:
1. A stand by charge for your personal use of the car, and
2. An operating cost benefit that applies if your employer pays for the car’s operating costs … think gas and maintenance.
The calculation of the standby benefit differs depending on whether your employer has bought or leased the car.
If the car is purchased, the standby charge will be 2% of the original cost of the vehicle (plus sales taxes) x the number of days the vehicle is made available to you ÷ 30. So if the car cost $40,000 (tax in) and you parked the car at home 365 days a year, you’d have a taxable benefit of ($40,000 x 2%) x 365÷30 = $14,600.
If the car is leased, the standby charge will be the monthly lease cost x the number of months you take the car home.
You can reduce those standby charges if you don’t use the car more than 1,667 km each month, or 20,004 a year and the business use of the car was more than 50% of the km driven. You’ll have to keep a log book to record the personal versus business use of the car and the total number of kms driven. And since driving to and from work is not considered business use, you’d best be on your way to see a client when you leave home, or before you head home to minimize your “personal use”. Keep in mind that as long as the car is parked at your place, the standby charge applies, even if you’re on vacation or out of town on business.
The operating cost benefit is a rate per km to cover the costs of fuel, oil, maintenance, insurance and licensing that your employer pays. If you use the car for business more than 50% of the km driven, you can request in writing to your employer that the operating cost benefit can be a flat 1/2 of the standby charge.
H Wrote: I watch your show regularly. My sister has just lost her husband, she is 50, her home is paid for and she was left a fair amount of money. How can she make her money work for her? Around $300 000 is in his RRSP’s but in mutual funds I think that’s too risky and she hasn’t made any money on that just the bank has made their commission. She has a large chunk that she needs to do something with but with most banks only paying 2% if that? Is there anyway she can live without having to work again? We really need your help. When we talk to the banks they are all about mutual funds and I don’t think this is the economy for that. I would really appreciate your opinion. Please help. I would be more then happy to send you more information if that would help you further.
Gail Says: In the best of all worlds, your sister might be able to get 7% a year on average from her money. That would give her an income of $1,750 a month. Could she live on that? In the real world, with a high need for security, she’s much more likely to get 3.5% right now (if she’s lucky), so her income would be half that. So no, I don’t think your sister can avoid working. She could take in housemates to make some extra money. She could get a part-time job to make the money go further.
As for what it should be invested in, your sister needs to make that decision. Safe investments aren’t paying much about 2% right now, but the principal would be guaranteed. Mutual funds are good if she understands what she’s buying and has a stomach for the ups and downs. If she can’t stand the thought of losing money to market changes, she needs to stick with what’s safe. Alternatively, she can look at segregated mutual funds available through an insurance company. They come with a principal guarantee after 10 years. So if the market is down, while you may have earned no return, you’ll get you dollars back, assuming you get a 100% principal guarantee. There is a cost, of course: lower returns because of the “insurance” aspect.
J Wrote: I’m prone to a mental trap about prices; when I start with a base price, adding smaller prices to the total doesn’t bring any buyers ‘pain’. So I’m like the frog in the pot, I’ll stay and get boiled by high prices, that would make me run away if they had been upfront, because in my mind they were added piecemeal.
Do you have any mental tricks artificially simulate buyer’s pain in this situation? I’ve seen the consequences of this mental trap when it is unchecked and I want to avoid them.
I have a mental trick to guard against the 99 sellers trick. I trained myself to round prices up by looking at the end digits’ value first, deciding if I’ll round up, then looking at the leading digit value.
Gail Says: Since you know this about yourself, you need to put what you know to work for you. Now you will NEVER buy anything until you have added in all the little extras so you see the big number and can feel the appropriate “pain”. That is the only way not to get boiled. All you need is a pencil, paper and calculator to add the extras to the base price and come up with the total price. Then walk away for 24 hours and let your brain decide if it’s worth it to go back and finalize the transaction.
J Wrote: I have a question regarding child care costs. We have a live-out caregiver for our three kids who makes just slightly less than I do at this point, taxes included. In the context of things like trying to get ahead we consider that this cost is becoming prohibitive for us, but my husband is vehemently against any other type of solution, like daycare.
He thinks the nanny solution is the second best thing to a mother staying home; however he keeps talking about how the cost of this caregiver is sucking up half his salary.
I am wondering whether I should be the one to try and work harder and make more, or whether I should work less and find someone to come in on a part time basis. The problem with finding care part time is that most places and most caregivers want a full time contract. And yet, I would not be against working part time for a little longer until the kids are older. What kind of advice would you give to weigh these issues out?
Gail Says: When I had my nanny for my two kids, it took all my income to cover my share of the household expenses and my nanny, but she was worth every penny. You have to decide what your priorities are. If your husband thinks the nanny solution is the second best to you staying home, then tell him to stop whining or you’re going to stay home yourself. You both decided to have three kids. Did it not occur to you that this would severely impact your income and expenses?
Sit down and do the math. Make a budget for:
1. You staying home
2. You working part time
3. The nanny and you working full time (no harder than your husband works, btw)
Then make the decision that best suits your needs and wants. And then everyone shuts up about it. No more whining.