This & That: Fine-Tuning The Plan Edition
Posted by Gail | Filed under This & That
Lots of people are writing to me to tell me they are doing well. It’s nice to hear. Many just want to tweak their plan or check to make sure they’re on the right track. Some are being influenced to do things their instincts say would throw them off course. Hey, I’m all for getting more info and for listening carefully to your little voice.
C wrote:
Hi Gail! I’m 31 years old and just finishing up a 2 and a half year work project. At the end of this program in March of 2010 I will have saved over $100,000. I have the money in a high interest bank account 0 I think 4%. I have a work group RRSP that will be about worth about $6000. That’s all the savings I have. I have no debt. I want to buy a house in Spring of 2010. I’m not really sure how to break up this $100,000. Can you help me with what % to put away for retirement, how much to put into the house, and what to save just in case?
C, good for you for being such vigilant saver. Congrats girl! Your first priority should be an emergency fund. You need to have six months’ worth of essential emergency expenses set aside just in case, especially in light of the fact that you’re on contract. As for how much you need for a downpayment and to slot away for retirement, that depends. You should have a 20% downpayment for your home purchase, so you first need to figure out how much you plan to spend on your home. And as far as the RRSP goes, how much room do you have for contributions. At your age with only about $6,000 saved, you need to ramp up your long-term savings effort. So maximizing your RRSP should become a priority.
You have some homework to do:
1. Max this year’s TFSA ($5,000) for your emergency fund. And get ready to do it again in Jan for 2010.
2. Figure out how much you’ll need in total for emergencies by calculating your essential emergency expenses (see my blog for more info.)
3. Decide how much you’ll need for a downpayment and closing costs (again, check the blog).
4. Find out what your unused RRSP contribution room is… look at your last communication from the tax man after you filed your return since it should be there.
Now you have to prioritize and decide how much is going to go where.
Heather wrote:
I really value your opinion and you have been very helpful in the past. We are in need of a new vehicle. We keep our vehicles for a very long time (we currently have nothing from this millenium) and my husband does all the repairs, which saves gobs of money. My question is should we buy a brand new vehicle at 0%, $39,000 on the road,(which will not need repairs for a while) or buy an older vehicle (2002, 177,000 km), which is less money upfront, but will have to go on our LOC at 3.95% . Our budget allows for a car payment, but the monthly amount will be the same (655.00) for 5 years. The LOC payments gradually decrease, but if I put the same amount on, it will be paid off faster. I don’t want to waste money on a clunker,and it would be nice to have something that doesn’t need fixing for a while, but I don’t want to spend too much money if I don’t have to. Also, the 0% financing won’t be around forever. What would you do? Thanks for your help.
Heather, the new car with no financing charge will take longer to pay off, but will not cost you anything in finance charges. The other car will cost you in financing, but since you haven’t said what the purchase price is, you’ll have to figure it out by multiplying the purchase price by the interest rate times the amount of time it takes to pay it off. While the new car will depreciate almost immediately when you take it home, you will have to weigh that against the no-finance-cost versus the cost of financing the older car, as well as building in the “repair” costs. I know your hubby is handy, but parts still cost something right?
S wrote:
All of your shows you make the couples work on a cash budget. For me this doesn’t work because I will never earn free airmiles for flights if I never charge anything on a credit card. I do pay my full balance off at the end of every statement but it makes it so difficult to budget while charging and trying to earn miles. I really can’t let go of that: we have already got 7 free plane tickets by charging and this makes for a great family get away that is cost effective. What solution would you have to this NON CASH budget? Thanks
S, get yourself a separate jar (or account) and each time you spend money on your points cc move the money to the jar/account. Now you’re working within the structure of the jars so you can only spend what you’ve allocated, but can still use your cc, paying it off with the money you set aside each time you move money into the CC Jar/Account. Let me know how it works for you.
Rebecca wrote:
Gail I LOVE your show (I PVR every episode!!). I have a question about the savings and emergency fund component. You always have people set aside money for “savings” and “emergencies”. It looks like the “savings” part is RRSP’s. Where do you account for other long term savings (such as weddings or down payments?) Is that above and beyond the savings portion and if so, how much should I contribute? In my case I have a defined benefit pension so I do not have much RRSP room to work with in the first place. Thank you in advance – Rebecca (who will be debt free in 21 months thanks to your show!!!)
Rebecca, when you are accumulating money to spend I don’t consider that to be savings, but “planned spending” and it needs it’s own category on your budget. So you might set up a “wedding” category and allocate $100 a month to it, or a “down payment” category and allocate $200 a month to it. That money would then move automatically (you have to get a savings account and ask for the auto-transfer to be set up) from your transaction account to your “savings” account where it could pile up. Go read Four Piles of Money.
C wrote:
We have a mortgage of $175,000($810/month) and a personal loan of $80,000 ($600/month). Each week we contribute $25/week in RRSP’s, $20/week in a TFSA account, and $25/week in a mutual fund (which we use for vacation money). No credit card debt. I am filling out the budget system and will be using the money jar system. My percentages in the budget appears to be fine (I’ve realized that trying to pay off all the debt created more debt). In any event, should I try to put more into RRSP’s (my husband and I will have a healthy pension from our companies)? We are in our 40’s and have personally contributed around $10,000 each as of now. We never seem to have the money to contribute the maximum. I’ve heard that borrowing to max out is not always wise. Or should we pay an extra $100/month on the mortgage? Basically, we will have an extra $500/month once we start the cash only budget. Where should we put the extra money?
C, if you have a healthy pension plan, saving more for retirement is a choice more than a MUST DO. You don’t say how much you have built up in your TFSA, but this would be my first priority at your age in your circumstances. Unless you are in a high tax bracket and need the RRSP deduction, the TFSA will give you more flexibility at this point, I think. If you are in a high tax bracket, use the RRSP and then use the refund you get (or the reduced taxes) to pay down the mortgage. In the mean time, you still need to make sure you have a healthy emergency fund, so I’d split the contribution evenly between the RRSP and the TFSA.
K wrote:
We live in a housing cooperative paying only $907/month (none-subsidized) + utilities for a 3 bedroom 23 year old townhouse of 1100 sq. feet (no yard). My family is putting a lot of pressure on us to buy right now, basically letting us know we are idiots if we don’t. We make a total gross income of $95,000/yr and can manage a down payment of $80,000 (my parents offered $50,000 as we had the world’s cheapest wedding). The problem is, while prices are currently down a bit now, if we want to buy anything equivalent to what we now live in (+ a small yard as we do have two small kids) we would need to move to an area about an hour and a half commute one way for both of us (and we work in completely different areas of the city, requiring us to take very different routes and making getting the kids to daycare challenging and picking them up on time within the 10 hour limit almost impossible). Even with that distance, we would be coughing up a mortgage of at least 1500/month (not including strata fees, taxes, utilities, and insurance), which doesn’t seem to fall within your 2.5 x gross income calculations. Add to that and we have $1250 in daycare fees per month. Also, my husband owes $20,000 in student loans and I’ll be starting up a graduate degree soon, part time. We do actually want to own, but can’t see how we can do it without great danger to our finances and major stress. We can’t work more as we already work a lot and would like to see our children some of the time. I know the situation in the city is relatively unique – almost everybody purchases way above your 2.5 x gross income, obviously (otherwise no one here would be able to buy anything). So, 1) Should we just suck it up, take the financial risk, suffer the commute, and jump in (otherwise we never will?), or would we be better off investing the $30,000 we have saved somewhere else (and continue to save $500/month). We only get the $50,000 from my parents if we are buying real estate. Also, 2) if we were to buy, do you happen to know if older townhouses (e.g. early ’80s and earlier) are not worth purchasing because of depreciation? Help please!
K, listen to the words you are using: “suck it up”, “financial risk”, “suffer”. Why would you choose an option with those outcomes? There is no shame in renting if you are also building assets elsewhere. Yes, real estate is considered a good investment, but the return is not so spectacular that it outstrips all other forms of investing. As to your second question about buying an older townhouse, I don’t think depreciation is the issue you need to address. The issue will be how well maintained the property is. Make sure if you’re considering an older home that you get a home inspection from a very reputable person (pay for it and don’t whine) so you know where the potential holes are and can negotiate for some consideration on things that may need attention right away. When I bought my last home (15 years old) I knew it needed a new roof almost immediately and negotiated the cost of the roof off the purchase price. I know we’re obsessed with “new”… but new isn’t the only way to go.
September 23, 2009 at 6:00 am
[...] Random Feed wrote an interesting post today onHere’s a quick excerptLots of people are writing to me to tell me they are doing well. It’s nice to hear. Many just want to tweak their plan or check to make sure they’re on the right track. Some are being influenced to do things their instincts say would throw them off course. Hey, I’m all for getting more info and for listening carefully to your little voice. C wrote: Hi Gail! I’m 31 years old and just finishing up a 2 and a half year work project. At the end of this program in March of 2010 I will have saved [...]
September 23, 2009 at 6:31 am
For the credit card/jar thing, what I’ve done finally this month was to deposit bi-weekly grocery money into the card as well as monthly gas and cell/cable charges as I know they’re in the cc as well. This way I’m always paid up what I’ve put on the card before the bill is due, and have had a positive amount on the card for a couple of days as well. If I use my card for entertainment, I transfer the money over immediately from my entertainment bank account. For medical, as soon as the reimbursement cheque is deposited into my account off to the credit card it goes.
Life is soooo much simpler this way for me I’ve discovered. No cash in the house means no “ahhh, I’ve got $X, let’s just order out tonight” moments!
September 23, 2009 at 7:04 am
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September 23, 2009 at 7:06 am
I do the same thing with my c/c…charge for the points and pay it in full each and every month…one of my downfalls has always been that cash feels like “free” money and I don’t think twice about spending it…but to have a big c/c bill looming keeps me on track to make sure it’s paid in full ( I also keep the limit low as well so there is no way I can spend more than I make on it!)…strange but it works for me!
September 23, 2009 at 9:06 am
Cash never works for us either. We feel it is too much like free money. But both of us (dh & I) hate thinking and seeing the balance go down in the chequing account, so I cringe every time I have to pull out the debit card, even when it’s for a totally planned category like groceries or gas. I guess everyone’s different.
September 23, 2009 at 9:41 am
We don’t use cash either—in fact, we rarely use our debit cards at all—and put everything on our credit card to earn rewards. But I first did our budget using Gail’s site, and trimmed it WAY down from what we were spending before (I went through all our bank statements and credit cards for the previous year…that was an eye-opener!). I use an excel spreadsheet and a paper notebook to keep track as we go through the month—the spreadsheet for hubby the technophile, the notebook for me, the Luddite. This also gives us a double-check, as the spreadsheet and notebook need to match. A bit redundant perhaps, but it’s working for us. We are in the black every month so far (we’ve been tracking for 4 months) and I still get our credit card rewards.
On the other hand, I just read in a book yesterday about a study showing that folks using credit cards spend about 30% more in stores than folks paying cash. And let’s face it, no credit card reward system comes close to that. This study was done when credit cards first came out to convince retailers to use them, despite having to pay a 2-5% fee to Visa. Food for thought.
September 23, 2009 at 9:51 am
Cash has never worked for me, It’s a tough statement for me to make. but I find if it’s there I’ll spend it quickly. If I have cash I blow through it fast. That said I don’t think having a credit card is the answer either. Sure I have one that I’ve finally finished paying off. So I tend to use the Debit card. This isn’t all that bad, because we track everything. Every penny we spend is tracked in software we have and it reports back how much we have remaining in our “jars” Also with the number of people that are coming through our house every week caring for my wife, it really doesn’t make sense to have cash lying around.
I think the biggest thing to do, whether it’s cash or credit card or debit card, is to track everything you spend. Jars are a very good visual way of seeing what remains in a category.
September 23, 2009 at 10:10 am
I set up a budget for our family in excel and started tracking all our expenses. I find using online banking to get the details on our daily/weekly purchases works great. With cash I would soon start to forget to keep receipts and write things down. I have found that since we starting doing this it has been a real eye opener on where our money is going. Groceries, with three grown/almost grown teenage boys at home, is one of our biggest expenses.
Where can you find a savings account at 4%? I have reverted to setting up a non-registered mutual fund – for canadian bonds – to get a decent interest rate as the highest rate I can find was Canadian Tire Bank at 1.2% (but with a 3 month bonus of 1%).
September 23, 2009 at 10:13 am
C’s comments remind me that today’s “good” pension might not be so good tomorrow — think of all of the people who’ve totally lost their pensions in the recent meltdown. In the pension plan I belong to, which is pretty healthy (public sector union), retirees just lost their health and dental benefits, and inflation protection probably won’t be there for more than 12 or 15 years. Whether we get the tax credit for RRSPS or not, we need to save for the future!
September 23, 2009 at 11:43 am
I tried one month to use the credit card for everything thinking that I would pay it all off.. but I have learnt that I am 100% a visual person and without actually seeing things add up (or deplete with cash) spending runs away from me.. I traded my “points” credit card for a no fee 11% visa that is a much better fit.. I had never actually accumulated enough points to get anywhere anyhow.
In terms of the cash I dont’ even write everything down – the only category we have where we could potentially spend more than intended is our “misc”/entertainment etc fund.. each payday (biweekly) my husband and I each get $100- this is the money we use for “spending” money until the next payday- it’s totally up to each partner how they spend it.. my husband likes to go out for lunch almost everyday with it and treat the kids to slurpees after school- me I take my lunch everyday and treat myself to starbucks once a week and use the rest for my “want” spending… things like books -which I am seriously addicted to – or my bubble bath from bath and body..
In watching the cash vanish both of us think long and hard before handing over part of our stash and potentially being out of cash until the next payday..
September 23, 2009 at 11:44 am
The language of the various e-mails suggests that we are covertly being convinced that overconsumption-type consumption is a good thing. We consume to stay alive, but overconsuming will lead to debt.
“K, listen to the words you are using: “suck it up”, “financial risk”, “suffer”. Why would you choose an option with those outcomes?”
We aren’t taught in school at all about financial concepts and we are expected to be fed to the wolves after we graduate. My wife and I don’t use terms like that, as we can see through the sell-pitch and see that the debt anchor around the neck keeps getting bigger and bigger for those who ’suck it up’ and buy something they cannot even afford.
September 23, 2009 at 12:14 pm
I love these posts that focus on answering peoples’ letters!
Heather – hold on. $39,000 for a new car? what are you buying? I just bought a brand new car, because with all the discounts that GM is offering on certain vehicles, it became only a few thousand dollars more expensive than an older vehicle with a bunch of miles on it, and after factoring in the need for repairs, the new car turned out to be the better deal. But it was less than half the price of the car you’re looking at. Why do you need a car that is so expensive?
S – another way to do it is just to record what you’re spending and make sure you stick to your budget. You can always pay your cc off at the end of each purchase, every single day, or do it at the end of the week. I use my cc too, but I write down my purchases in an excel spreadsheet so I know exactly where I’m at and how much I have left to spend. I don’t feel tempted to spend more on a cc because i know it has to get written down and i dont want to go over my budget.
K – your letter sounds more like an explanation than a question. You shouldn’t feel like you need to justify these choices to anyone, or even need Gail to back your choices. You have your reasons, and they are all sound. REmember that it’s okay to go a different route than other people. The answers in life are not always the same for everyone. If your parents and peers think you’re making a bad decision, it’s really not your problem. THey go their way, and you can go yours. Sometimes it’s tough to go against the grain, but it will also mean a better life for you and your family.
September 23, 2009 at 12:58 pm
Gail, that first situation is exactly the same for me. I guess when people hit their late 20’s, or early 30’s, that question looms strongly – mortgage or RRSP. I’m currently saving (38% net) equally between RRSP (I also have a DCPP with work) and non-RRSP (my made-it-big fund as the Wealthy Barber calls it – or mortgage fund more realistically). However, I’m not maxing out my RRSP limit and been currently agonizing whether I should do that and then focus on a mortgage downpayment (should the day come) – my e-fund is set by the way.
You didn’t really specify with that first letter what your preference would be. If anything it seemed like you gave a priority to mortgage savings over RRSP. Can you maybe clarify your perspective on this debate? It seems with housing prices in the main centres, getting that 20% is really a challenge these days, especially when single.
September 23, 2009 at 1:55 pm
I now also use a credit card to get dividend points – a cash credit at the end of each year. In the beginning we only dared to use the jars and cash but now we are both such experts at keeping our eye on the ball (only took years!!!) that we can risk not using actual cash. We pay the card off in full every month which means that we are finally getting the best of the credit card companies instead of paying them a fortune in interest. They pay us to use their card.
The way that I keep track and on budget is to simply use a sheet of paper each month. At the top of the page I write the jar headings and the amount budgeted for each category – groceries, gas, pet food etc.
When we buy gas on the credit card we enter the amount of the purchase under the Gas heading and subtract it from the budgeted amount. This way we always know how much gas money we have left to spend. Ditto for the other jar categories. When we get the credit card statement I just check off the charges and pay the total.
To start a new month I add whatever money was left over from the previous month to the new budget amount. For example: August gas money left $11.25 plus Sept $100.00 equals $111.25 for September.
The only one we have ever had to watch carefully is the groceries. You have to know how much you have left BEFORE you shop and you have to add things up as you throw them into your cart. It is also important to keep a little grocery cash for those time you have to just run in and buy a loaf of bread or 35 cents worth of bay leaves.
September 23, 2009 at 2:04 pm
To K,
Don’t let other people decide what’s best for you and your family. Trust your self and don’t let anybody bully or bribe you into doing somthing that causes you stress. You have the power to make it stop.
Good Luck!
September 23, 2009 at 2:10 pm
Heather – vehicle wise can you look for something half way between brand new and 2002? In May we finally replaced our 1997 Suburban, 400,000+km (with the 200L gas tank, ouch) with smaller and more efficient Dodge Durango – yes that’s still a massive SUV by lots of people’s standards. It’s a 2005, 60,000km and was $16k. I just “built” and priced a brand new one on the Dodge website for $43,420! Ours has lots of life left in it, looks brand new and even has some warranty left on some things. If it weren’t for towing our camping trailer we’d have bought a second commuter type car like my 2000 Civic, but if we’re going to continue camping we have to have the vehicle to go with it. To balance the extra gas it uses, my husband uses it to commute one day a week and drives my car the other 4 (I work from home at the moment). We use once on the weekends to do all our errands. I figure buying a car just off a 3hr lease is a good balance. You let someone else pay the depreciation, but the car still has a lot of life left in it. My DH also does all our repairs and we’ll drive this thing for the next 8 years, which about how long our youngest (8) will still want to camp with Mom and Dad.
On the cash vs. CC with point thing, I definitely do the CC thing, but as others above have noted the critical part of any system we use is the tracking of the details. I have an Excel spread sheet with every planned expense laid out week by week. I pay off the credit card every WEEK and the items which show on the spreadsheet are just updated with the real amount instead of the budgetted amount and paid on the card. The indvidual items still show on the sheet just the method of payment changes. By balancing up every week I find it much easier to keep on top of things and I absolutely never pay an interest payment. It bugs me to ever pay cash – I always see it as missed miles. We used to budget $80/week in pocket money – to spend as we liked. Mine was mostly left at Tim Hortons… Since I began working from home I don’t have the opportunity to spend money most week days and that $80 only gets withdrawn every 3-4 weeks now. We used to take out $160 a week; my DH was laid off 3 yrs ago and we cut that to $100 a week and never missed the extra. This year I cut it to $80 and because of the work-at-home situation we’re not even using that. I checked the cash (untracked misc) from Jan-July of this year and it’s under $1200 total for the two of us for 7 months. Since watching the show I did start paying closer attention to where that miscellaneous cash was going. We got ourselves those Tim cards which we load online with our VISA so now I know exactly how much I’m spending on misc. coffee, plus I get the points (they won’t take the card in the store, so this is my workaround). With coffee now visible and not an untracked pocket change item we really have nothing else we spend cash on. If I continue to work from home I may cut the weekly pocket cash budget to $20 for 2010!
On the home purchase front, I agree with the comments of others. The offer of the $50k is very generous, but you are ultimately the one left paying the bills. There’s nothing wrong with an older home, in fact there is plenty that’s better. They are often in established neighbourhoods with mature trees and wider lots. Often the older places often have been upgraded with the things you admire in the new places. If not, then you can chose to do only the upgrades that really matter to you. I regularly see adds for places with “fabulous gourmet kitchen” only to look and realize they picked the exact opposite of what I like. So for me it’s not an advantage or something I want to pay extra for. Somepeople find it hard to look past awful decorating or clutter in an older home, and are wowed by the model home. If you have no imagination on what a place could be, take along a friend with a creative eye. We bought our first home (townhouse) in 1984. It had been the model home for the neighbourhood in the early 70’s. Nothing had been changed. Remember 70’s decorating? Ick. We spend weeks scraping off orange, gold, and avocado green wallpaper from every room. To add to that the previous owner was a heavy smoker and every ceiling was yellow. If we’d been the least bit unimaginative we’d have run screaming out the door, but we focused on what it could be and were very happy there.
In the end do what works for you and your family, and that may be to continue with exactly what you’re already doing.
September 23, 2009 at 2:48 pm
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September 23, 2009 at 3:52 pm
K,
Do what makes you feel stress free (money isn’t everything but peace of mind is).
Cheers.
September 23, 2009 at 4:39 pm
@K – I agree with the others here. The $50,000. is indeed very generous, but, it comes with a price your parents don’t have to pay. Do what feels comfortable for you – it’s you who has cope. Remember the expression ‘if mama ain’t happy, nobody’s happy’.
From November till July I was a cash only girl. Summer is always more difficult for us and things got put on the credit cards. That being said, the credit cards were paid off the end of each month – no interest paid. And, like Maureen, I’m expecting some cash back from Visa in January.
Went to the bank today to check out info. re: real estate LOC (letter we got the other day). Sounds like it would save me $200. total to lock it in for 1 year. However, if before the year is up (it starts Nov. 16th) we decide to move, which we are thinking of – we would have to pay a penalty. So, I’m opting to keep things as they are (flexible for me) as I don’t think the interest rates will go back up to 18% over night. And, the lady at the bank said I am VERY aggressive in making over the top payments and compared to other people have very little debt. I really wanted to say ‘yes, but you see, Gail has taught me how to kick ***!
On the way home I told hubby we were going back to cash only on pay day next week. I always had money left over in each category. But, opposite to what Maureen said, I subtract what is left over from the amount allotted and put the accumulated ‘left overs’ from all the categories on our LOC.
September 23, 2009 at 5:23 pm
I previously had a job where I had to drive 1.5 hours each way and it was utterly miserable. I would encourage K. to stand her ground and keep renting rather than take the money and buy a house that sounds like it will be more stress than it’s worth to her.
I can’t use credit cards because I lose track of what I’ve spent, so cash is better for me.
September 23, 2009 at 6:32 pm
K: I’ll chime in with everyone else, buying a house when you feel it will make you nervous, stressed and unhappy is not a good idea. I wouldn’t (well, I don’t, despite my parents’ strong suggestions) buy a house if I didn’t feel comfortable with the terms or confident in my ability to pay off the mortgage and still sleep at night. And the commute sounds really bad. If time is money, that’s a lot of cost.
On cash vs. credit/debit cards:
I found that the smaller the pile the harder I find it to part with any of it, so I budget for a year, but give myself only a weekly cash allowance for day-to-day expenses. If I pay for any of that with credit/debit card (e.g. buying online, or needing gas on Friday) it counts against next week’s allowance.
I also keep enough cash in the house to ride out some trouble: lost purse, bad flu, catsitter has to take the cat to the vet while I’m away… . The box it taped shut so the cash doesn’t sneak out.
September 23, 2009 at 7:34 pm
Heather: The car payments seem extreme to me! If you tucked away $655/month and bought a reliable “clunker” you would have gobs of money saved up for repairs in no time (especially with a handy husband). Of course if you NEED a new car to keep your job, that can explain it as a work expense. Don’t forget the extra insurance costs on a vehicle that has a lein on it! But, that amount looks like a small mortgage to me…. I am the first to admit I may be out of touch as all my vehicles are not from this millenium either (and are driving around with dirt-cheap insurance too).
Side note: I was robbed once and they took our piggy banks (among other things), so cash in the house is always stressful for me.
September 23, 2009 at 10:18 pm
I don’t use cash at all either, but set up a spreadsheet based on the jars, enter in my transactions and it automatically calculates the balance in each category so I know exactly how much is left. I put groceries etc. on my airmiles card, then move the money right away from my chequing to the card, and account for it in the spreadsheet. That way the credit card never carries a balance. Online banking makes it easy.
I then use up all the airmiles in October by turning them in for gift cards for a nice dinner out (we happen to love the Keg), gift cards for bookstores, gift cards for movies and give them as christmas gifts.
I buy household furnishings and terrific gifts for my family throughout the year by going to auctions. You’d be amazed at how little very expensive, barely used things go for at auctions – I once bid $60 on a Baccarat crystal vase and got it – the same vase retails for well over $500. The trick is to go with an amount you are going to spend, and go to auctions where dealers are present. They’ll only go so far in the bidding because at some point the cost starts to eat into the profit they can get on resale. You only get into trouble when you really want something and there’s someone there who wants it just as bad as you…
September 24, 2009 at 8:00 am
I kept the same send hand car for 11 and 1/2 years. I bought a brand new one recently from a company who gave me 1,000.00 for my beater, and I got 0.9% finanicing for 60 months. My payements are less than mortgage and I’m planning on keeping the new vehicle for 10 years.
The first set of papers they showed me had 3.9% for 72 months. I saw the interest costs and the lenght and said no way, that’s way too long to pay for a vehicle. The interest for the 72 months were over 3,000.00. Thanks to this web site, I’m only going to be paying 808.00 in interest for the term of my loan. ( My plan is to stash the money away when the vehicle is paid off and save towards a BMW for my 50th birthday).
I was going to buy used again, but where I travel so much now for work, it made better sense to buy a vehicle that had a warranty. I had gone to other dealerships and was really interested in another vehicle, but they company refused to honor the rest of the warranty, or give me any money for my beater.
I’m glad I started reading this blog and am every so slowly making changes!
September 24, 2009 at 12:05 pm
Hi Catherine: Actually that is what kind of happens to our monthly left overs too. After just doing the jar thing for a few months we ended up with a lot of left over cash in all the categories. The first thing we did was create what we call the transfer jar. Eventually put $100 in it to be moved around and used at our discretion when we ran short in any of the other categories – i.e. unexpected company for a week so some extra groceries and a prescription that cost the ridiculous amount of over $700.
We just kept accumulating left overs to the point that eventually we had double the budgeted amount in each category – which was terrific because that meant that we had duplicate jars. With the duplicate jars we were able to stop living pay to pay because the money for this month was already sitting there so what we earned in this month was for next month. Made budgeting a snap.
We eventually funneled all extra money (tax refund, overtime, garage sales) into our budget so that we had the entire amount needed for our monthly expenses sitting in the bank at the first of the month and what we earned in that month was then easily budgeted for the next month. What a stress reliever – never have to worry about an NSF cheque again or getting to the bank with my pay cheque on time.
This also made it a lot easier to find even more money to put down on our debts.
We are debt free now (except for the car and mortgage) and will never live any other way but the Gail way again. No kidding. People tell me that I look younger and I know it is because I am not stressed to the breaking (wrinkling!) point anymore.
September 24, 2009 at 12:54 pm
Hi Pol: Cash in the house is also stressful for me. We have not been robbed (knock wood) but all our neighbours except for one have been robbed. We were told by the RCMP that we were not targeted because of the big dogs and the RCMP who told us this is the other neighbour who was not robbed. In his case he has 3 dogs plus a police cruiser that sits in his driveway. Oh yeah – and a wife who would also not hesitate to bite the burglars.
However I think it is important to have some cash that you can get to immediately. Where we live we quite often have power failures and when that happens there is no way to get money. The banks shut their doors, the ATMs don’t work and credit cards and debit cards don’t work. Most of the stores close down as well but some stay open and they accept only cash. Ditto for those gas stations that have generators for their pumps. In the case of a long term emergency the only thing you can count on is cash.
We have cash stashed at home. Don’t tell the burglars. It is so well hidden that I cannot remember where it is so had to make a treasure map and mail it to my sister. In the case of an emergency I will tear the house apart playing hide and seek but if that doesn’t work at least I can get her to tell me where to look. That is if she can find the map.
October 2, 2009 at 11:46 pm
I would love to see you do a show with people and money how it either is working or not. Or maybe do a til Debt do us part successes about people who managed to figure out their finances. Take two couples (with similar incomes), for example and show how one is having money work for them and the other a slave to the debt they have created. Having people of similar incomes and how they live their lives either through sacrificing some parts or through spending at whim would be really interesting that way people could see what works in the real world and how people get to either the good bad or ugly aspects of finance. And further adding the comments myths and misunderstandings that people receive about where they are financially. Like self talk such as “oh you always have debt anyway” or “well you’re just lucky with money” or “I want to be like you but….” or “Oh I could never live in a smaller home” or “I”m not good at math so I just don’t think about it.”
October 5, 2009 at 1:52 pm
Hi All… this is an old post but I just had to comment on the “0% financing”. There is no such thing as “0% financing”… it is simply a scam by the auto companies. If you look at the fine print you will notice that you can always buy the vehicle with cash for a substantial discount. Recently the government forced the car companies to spell out the detail of the “equivalent interest rate” by calculating the difference in the cash purchase price vs. the financed purchase price and treating that as an interest cost over the life of the loan. So, there is likely no different in interest rate between financing via the LOC and getting the loan from the auto company. Personally, I’m still waiting the government to complete outlaw this type of misleading advertising.