Gail says: The risk with any variable portion is that as interest rates start to rise, your mortgage interest rate will go up. If you’re not paying close attention, it may go up before you even notice.

The normal variation between a variable rate mortgage and a fixed rate mortgage is about 2 points. I don’t have a problem with split mortgages overall if they are working in your favour. But as with everything else financial, whether a particular strategy will work depends on the situation at the time and what you need.

There is one theory of mortgage management that says if you go with the three year rate consistently, you’ll win on rate. I’ve never tested it.

Georgina wrote: My husband and I have been living in Canada for three years now. We haven’t bought a home yet, but we hope that we will in about two or three years. When I finish my education I will have a higher income. Currently I am making 23k and my husband is making 55k. We have a savings account, each of us has a TFSA and RRSP accounts, and we are saving toward a down payment for a house. However, I am not sure if we should put the saved money (for the down payment) into the RRSP accounts only instead of putting it into savings. How should we optimize our savings?
Gail says: Welcome to Canada! And congrats on taking it slowly so you can do the home-buying thing right. As for how to save for your downpayment, using the RSP Home Buyer’s Plan may work very well for you.

I think using the HBP is a good idea, given your limited resources. Make sure that you put whatever you get back in taxes (if you do) to good use building up your savings for things like closing costs on your home purchase.

Jackie wrote: Will reducing my credit limit on my credit card affect my credit score or have any financial implications on me? I used to have a $20,000 limit, and I’m hoping to get that down to $5,000 at the MOST. Having that much available credit didn’t do me any favours!

Gail says: Reducing your credit limit will affect your score if you’re constantly bumping up against the limit. The rule of thumb to keep a shiny credit score is to not go any higher than 50-60% of your limit. Of course, if you’re paying your balance off in full, and you’re not credit seeking, you can say screw the credit score and just do what’s good for you. You’re right about having access to credit creating the potential for debt! If you’re likely to fall to temptation, lower your limits.

C Wrote:  Hi Gail! I love your attitude and you work! Here is my question in 2009, I was young and stupid and didn’t pay a cell phone bill due to “bill amount discrepancies”. I ignored the bill collectors until 2008 when I matured and realized I needed to clear my credit. I settled with the creditor and paid my dues. When I entered into school for fall 2010, I thought it would be a good idea to see how much my credit has grown. I was shocked to discover that the cell phone company never closed my account and it was still listed as OPEN and under collections. I phoned Rogers and then the creditors and they both blamed each other. When eventually the creditor admitted they forgot to send a note to Equifax. They said they would close it within 30 days. That was about 10 months ago now, and I am disgusted to say it is still listed on my credit report as open and leaving a long black mark even though it has been paid for over 2 years. What do I do? Is there someone who can deal with this for me whose voice actually matters? Can they compensate my 2 years of broken credit? Please help Gail!

Gail Says:  I’m sorry that you’re having such a tough time with this. Your question highlights one of the biggest flaws with the credit reporting system. Lenders and agencies can say anything they want about you and it goes on your credit history. If you dispute it, and they deny it, even if they are lying like rugs you’re the one who gets hurt. And if they don’t take the steps to fix the problems they’ve created in a timely way, there is no consequence. I’ve heard horror stories from bodies whose credit histories (and credit scores) have been trashed by incorrect information. I’ve even had a black mark placed on my credit history for charges that went through on a card that was reported lost.  And since there’s no main credit adjudicator or ombudsman, nothing ever seems to be done to fix the problem. You must keep insisting that the incorrect information is removed from your credit record. While you’re at it, tell the world just how much trouble you’re having. Maybe people will learn from your mistake and bring some pressure to bear on a system that does not function efficiently because it requires no “proof” from lenders before adding a black mark to accounts.

BTW, for those not yet bitten, the worst offenders of incorrect credit history information are the department store credit cards and other retail credit cards. Cut ‘em up. Cancel the accounts. If you must use credit, only use a card issued by a Canadian bank.

B Wrote:  So I was trying to look up information on OPD’s (Orderly Payments of Debt), unfortunately I don’t think you have any (you probably mentioned it once or twice if I recall), but with this OPD (my husband is on) we currently owe $18,000 left at 5% (started at $52,000 end of 2009) so we are going by smoothly and hopefully have it paid by next Aug (July if I can squeeze in extra payments towards it) anyways questions:

1. Being on OPD that does affect his credit rating, so would it stay at a very low number? When we got it checked online (Feb 2011) it said he has a 580…so that’s not bad being he has paid the monthly payments on time since we been on it, but assumed it stayed lower?

2. After the debt it gone (OPD) how will this affect his future credit applications? I’m worried banks might see it as bankruptcy?!?

3. Our mortgage gets renewed next July (Aug is when the last payment should be made to OPD) how will this affect our ability to get a lower interest rate on our mortgage (currently 6.39)?

4. When does this, if ever leave his credit report?

Thank you I really appreciate all the Gailism’s you have given throughout your blog, TV, radios…in person (one day I will see ya).

Gail Says:  An OPD is viewed similarly to a consumer proposal. Available only in certain provinces (Alberta, Saskatchewan, Prince Edward Island, and Nova Scotia) and Orderly Payment of Debts is a consolidation order and will most certainly be viewed by lenders as pretty close to a bankruptcy (it’s an R7 instead of an R9, but the distinction is minor in the eyes of a lender). An OPD differs from a consumer proposal in that you cannot freeze the interest or negotiate a reduction to the principal so you end up paying off all the debt over a longer period of time. In all likelihood, your mortgage interest rate will go up if your lender bothers to check your credit history. Assuming you’ve paid your mortgage on time without a problem, you might squeak by with the rate renewal being pretty typical if they don’t check. The OPD will stay on the credit history for six years from the date of completion.

C Wrote:  I love your show and watch it while I work out in the morning!  My husband and I are 50 years old, and my husband just left his job of 25 years to begin a new career elsewhere, similar pay. He can pull his pension out of his company, which amounts to about $400,000 before taxes. We have an enormous mortgage of $700,000 and although we are making the payments and living fairly comfortable, we have no money left over at the end of every month. My husband wants to invest the pension money with our financial advisor, I would like to take the pension money and put it towards our mortgage, even though we will have to pay taxes if we pull it. I realize interest rates are low, but in this economy I still think it is better than risking it in investments, even if they are fairly conservative investments. What do you think?

Gail Says:  Frankly m’dear, I think you’re nuts. You’ve lost sight of the forest for the trees. If the debt is driving you wild, get rid of it. What are you doing with a $700,000 mortgage at your age? For heaven’s sake don’t pay half of his pension to taxes for the sake of your need to get that mortgage gone. You’d have just over $200,000 to apply to the mortgage leaving you with half a mil in debt. Sell the house and get something that’s more in keeping with your income. If you’re determined to keep the house, you better find a way to make more money.

N Wrote:  I was just watching the baby version of Til Debt do us Part and there was this formula of how to figure out what your monthly payment should be for debt. You put the debt and the interest rate. Then you figure out what the monthly interest is, etc etc. I wanted to know how you figure out what the monthly interest is and what the rest of the formula is.

I know there is the debt repayment formula sheet available that tells you what the monthly payment has to be to get out of debt in 12, 24 and 36 months but this other one seemed more specific about how you figure out the interest.  Does this make any sense?

Gail Says:  Take the balance, multiply by the interest rate, and divide by 12. That’s the monthly interest.  Take the balance; divide by the number of months in which you want to be out of debt. So if your balance is $13,500 and you want to be out of debt in 24 months, it’d be $13,500 ÷ 24. That’ll give you your monthly principal repayment. Add the two together to get your monthly payment. If it’s too much, extend the number of months for the principal repayment calculation. Or make more money.

T Wrote:  We have an $800.00 overdraft on our account how do I budget for that on my budget sheet? We use this all the time and our account is always in the negative. Until our next pay which brings the balance back again. It’s a vicious cycle and I don’t know how to stop it.

Gail Says:  If you want to get out of overdraft and back into the black, it’s gonna take some belt-tightening for a few months. First, list your monthly Fixed Essential Expenses. These are the bills that you have to cover every month like your mortgage and car payment, your minimums on your debt and your childcare expenses. Total it up.

Next, list your monthly Variable Essential Expenses…The costs that you simply can’t avoid, like food and gas — we’re talking the bare minimums to get you through the month. There’s no clothing, no movies, no extras at all on this list. Total it up.

Subtract these two totals from your income. How much do you have left? (If you don’t have enough to cover the unessential expenses in your life – cell phone, satellite service and the like, you can see your problem.) Now it’s time to cut back on the nice-to-haves until you’re out of the hole. Change your services to the most basic you can get away with or ask that they be suspended for a couple of months.

Get ready to live on this very harsh, very tight budget for a month.  Just one month. Take all the rest of the money you make and stick it in an envelope, a jar, or a high interest savings account… as long as you don’t spend it.

You’re not allowed to use your credit during this process. You are, in essence, having a No Shop Month.

At the end of the month, add up how much you’ve got left after all your bills have been paid. Is it enough to cover your overdraft? If it isn’t, then you’ll have to live through this belt-tightening horror for another month (or three) until you’re back in the black.

This week starts the new Other Voices blog on gailvazoxlade.com. I’d like to welcome six bloggers who want to share their journeys with you. I’m going to briefly introduce each to you here, and then post their big intros as their first blogs on their given day of the week. I had loads and loads of people who wanted to have a voice here. I tried to choose people who I though were smart, funny, and easy to relate to, as well as people who would broaden the experience for you. I hope you’ll have a great time listening to some Other Voices.

Welcome Beckie. In her late 30s, with a husband aka “good guy” and two small children, she lives in the ‘burbs of Toronto.  A public librarian, Beckie currently works part-time, about 20 hours per week.  In her free time, according to Beckie, “I am a chauffeur/part-time cook (“good guy” does lots)/boo boo kisser/housecleaner and laundry lady extraordinaire.  Oh yeah, I do most of the household shopping and financial planning.”

Welcome Richard. Thirty and married, Richard and his wife, Jane, don’t have kids yet, but are hopeful. Currently renters, Richard and Jane are saving for a place of their own. Richard recently lost his job. “This was a hard blow to take.” He’s since found a new job. Yeah Richard!

Welcome Jess. A twenty-something full-time university student and wife from the wonderful west coast of Canada, Jess’s husband is also in school full time. They are both part-time coffee slingers at Starbucks. Not surprising, they are in debt. As Jess says,  “We love to say yes to each other, so instead of leaving the store with one book or one movie, we leave with two, or four, or more when there’s a really good sale.”

Welcome Arianne. A single gal who just turned thirty and a first-time home- buyer, Arianne is trying to defeat the monstrous debt she accumulated in her twenties.  “That debt is the result of my biggest and most dangerous vice: Shopping” says Arianne.

Welcome Victoria. Working on finishing up a PhD in Medieval Studies, what Victoria really wants to do is walk around the world and write books. Twenty-nine and single, Victoria lives in Halifax and is trying to balance work and life. She’s lived in sixteen different towns, cities, and hamlets, mostly in Canada, from the High Arctic to Toronto.

Welcome Midwest Mom: A stay-at-home mom managing the family finances, Midwest Mom is our New Voice from south of the 49^th parallel. Married for 19 years with two boys, 11 and 9, she considers herself “a self-help junkie.”

So there they are, the Other Voices, in their own space and with their own stories. Enjoy.

My financial issues have lead to medical issues. I suffer from migraines everyday and the meds, although they help the pain and get me through the day, they make me drowsy. So I am fighting to stay awake. I am tired of being tired, and of being stressed out. My partner is great at placing blame, and not so much at trying to resolve the issue. So I feel like I am basically on my own.

I have school to pay for. Work reimburses only after you complete the courses. With courses costing around 2K each and trying to take 2 per term to complete the program in time, it is expensive. I am now behind on the mortgage and have bill collectors calling me at work and at home at all hours. He works nights and having people coming to the door wakes him up which makes him even more unbearable.

We both work and I am trying to complete school in order to increase my earnings. I am working 2 jobs at the moment. I was working 3 jobs and found that it wasn’t worth it. The more I made, the more I had to give to Rev Can so working 70 hours a week was a waste of time, the only debt I was helping to pay was the governments. By the way, I owe them too now.

This will be our third winter without heat. I can’t do this anymore. We have spent so much money on legal fees and brokerage fees and might have well just put the cash into the fireplace. We are desperate for some help.

With the dogs, there is no way to move to an apartment, and with my credit rating I cannot get refinanced to get a smaller house. That leads to the next dilemma, there are items on my credit report which are incorrect. There is one item that should not be there at all, and there are several items which have been paid in full many years ago which still show outstanding. Everytime I ask how to fix this, I keep getting told that the creditor has to provide them with proof, and of course now that the debts are paid, the creditors don’t care and won’t give me what I need.

I don’t know where to start. Feeling like the walls are crashing down, pretty much sums it up. I would love nothing better than to be able to answer the door, the phone without having my heart pumping. I would love to be able to sleep through the night, and would love to be able to just come home from work, do homework, houseclean, walk the dogs and not enjoy it instead of continually worrying about this crisis which is always on my mind.

What advice do you have for this young lady?

Gail says: You can receive a survivor’s pension at the same time as a retirement benefit and CPP will combine the benefits into a single monthly payment. However, the maximum combined CPP benefits is the maximum retirement pension paid which in early 2010 is $934.17. In other words, she won’t receive a full survivor’s pension while also receiving a full CPP retirement pension.

Peter wrote: Can you help with a basic question re RIF withdrawals — everyone gives me a different answer. If you withdraw only the minimum from RIF spousals are you exempt from the attribution rule of two years? We need and are considering changing several RRSPs to RIFs and withdrawing the minimum from each.

Gail says: As long as only minimum amounts are withdrawn from a spousal RRIF then no attribution rules apply and all income is attributed to the planholder. However, if a withdrawal in excess of the minimum amount is made within three calendar years of a spousal contribution to ANY spousal RRSP, then that income will be attributed back to the spouse who made the contribution.

Jeff wrote: My wife died last year and her employer sent me a cheque representing her unused “sick leave” pay for some 200 days. Will they send me a T4 for this as income, or can it be used as a supplementary income item for her last tax filing?

Gail says: I’m sad for your loss and hope that things are getting easier for you as time passes.

More than one tax return may be filed for a deceased taxpayer, allowing that income from the year of death to be split among different returns.  An “ordinary” return should be filed for January 1st to the date of death but there are up to 3 additional tax returns that can be filed as if the taxpayer is “another person”.  These returns can reduce or eliminate income tax in the year of death, because certain deductions are allowed to be claimed on the ordinary return as well as the optional returns.  The most common extra return is the return for  “rights or things” – income earned but not received at the date of death.  These rights or things include salary and vacation pay owed by the employer at the date of death, for a pay period that ended before the date of death and unpaid employment bonuses.

Sick pay, on the other hand, falls into the “death benefit” category and how it is taxed is based on whom the payment is made to since the death benefit is income of either the estate or the beneficiary who receives it. Up to $10,000 of the total of all death benefits paid  (other than CPP or QPP death benefits) is not taxable. If the cheque was made to you and you are the sole spouse and beneficiary, you get the whole deduction. You must attach a note stating the amount of death benefits you received but did not include in your income to your paper return. If the cheque was made out to your wife or her estate, then it get’s more complicated. Here’s a link to the tax man’s trust guide you might find useful.

Eric wrote: I am 56, own my home (no mortgage), no debt, I have pension (which will be indexed at age 60), which is enough to live comfortably on and will continue till my death. In 4 years, my income will be increased by early Canada Pension.  I have about $150K in my RRSP. I would like to start spending it now on travel and upgrades to my home.  How do I get it out without triggering those massive penalties I hear about.  It seems RRSP is a great idea when you are making the money to save, but at the other end, when you want the money, it is not such a great idea.

Gail says: There aren’t any massive penalties, just tax. Since you put the money into the RRSP on a tax-deferred basis, when you take it out you must pay the tax you owed way back when you earned it. The rationale was that you likely had a higher tax bracket back then AND the money could grow on a tax-deferred basis, which — believe me — makes a huge difference in your growth. Now, when you take it out it’ll be taxed at your marginal tax rate. And if you take too much at once, you might push yourself into a higher tax bracket, and end up paying more tax. Your trick now will be to pull enough for your needs without pushing yourself too high up the tax scale. Find an online calculator and play with the numbers till they work for you or go talk to a tax specialist.

Phillipa wrote: What happens to credit card debt when you die?  I know it is unsecured debt, but will the credit card companies come after your estate or heirs to recover the amount owing?

Gail says: If you die with debt and you have assets in your estate, your creditors have to right to collect what is owed them. If you have no assets in your estate — if for example your life insurance is paid directly to your children and don’t form part of your estate — then the lenders have to eat the loss. Your family/beneficiaries cannot be held responsible unless they signed on the credit as a co-signer or a joint borrower.

Sam wrote: I have recently relocated to a new city and been trough a period of unemployment and now I have three part time jobs.  It is great that I am working but I am trying to figure out what my gross and net income would be but finding it a challenge.  I do support work and the hours are only guaranteed to a point; 2 of the 3 are support work and the 3rd is retail.  Each job pays me a separate rate of pay, on separate pay days in two different accounts.  I have only just started these jobs so I am not sure what the annual numbers will be. Is there a formula to determine these numbers (math and numbers are my nemesis, so this simple thing is a huge monster for me learn and work with, but it is time to fight back)?

Gail says: You can either:

Jocelyn wrote: My father is dying. He has no savings or insurance. What are the costs of burying a loved one? What happens to people who don’t have a penny to their name when they die? It’s their family that foots the bill right? My siblings and I are still young and struggling with our own debts. We’re the only family he has and we don’t have much to offer up to cover these costs. But we love him and he deserves a proper send-off. How do we discern the “wants” from the “needs” in this case?

Gail says: For an adult, full-service funeral, you’re looking at spending about $5000. This includes a professional service charge, transfer-of remains, embalming, other preparation, use of viewing facilities, use of facilities for ceremony, hearse, limousine, and casket. Vault, cemetery and monument charges are additional.  Or you could go with a cremation, which will cost somewhere around $1,000, and then deal with the ashes later. (This is what I’m having done with my body since I think funerals suck!) As for the question of wants versus needs, you only need a pine box. People often want a much fancier coffins so they can travel across the River Styx in style.

You may get some help from the Canada Pension Plan death benefit, which depends on how much, and for how long, your dad paid into CPP. Canada Pension Plan first calculates the amount his retirement pension would be. The death benefit is equal to six months’ worth of this “calculated” retirement pension, up to a maximum of $2,500.

I’ll try this to the end of the year and if you like them, and the readership finds them interesting and useful, I may continue this through 2012.

Here’s the first one:

Hi, Gail. I have read your book Debt-Free Forever and I want to make changes with money. I have graduated from university and have not found a job in my field of study. My fiance and I are currently living together. My fiance has graduated as well and wanting to go to chiropractor school. I currently have $47,000 in student loan debt and he has $40,000. He wants to move to a different city, which is 3 hours away to where the school is located, and it will take him about 4 years. We are planning a wedding that we can not afford and we would have to finance about $10,000. I have tried to live on the jars and really enjoy it, but we have no plan to get out of debt sooner, and it will take us 10 years if we continue to pay the minimum payment, which is about $1,000 a month, and we are living paycheck to paycheck. I am afraid, and worried all the time about our debt, and the debt of our wedding. My fiancee will inquire more debt going back to school as he has no means to pay it outright. He seems to not worry about our debt and tells me to stop worrying about our finances, and believes that it will all be okay, and that I am negative about his decisions. I would love for him to do something he loves but I feel that he doesn’t see my point of view about our debt and he just believes, if he earns more going back to school, we should be able to pay it off. We are currently renting, have $3000 in CC debt and his truck loan is $10,500. No emergency fund. I have tied to talk to him about coming up with a plan to pay for the wedding and pay our debt but he is not interested. I’m also not looking forward to moving. I am really stressed, your book has made me realized that we need to make serious changes, and his solution to our problem is that, we need to make more money. I need advise?

What advice do you have for this young lady?

The job jar is a way to get kids working for money above and beyond the allowance you’re giving. You would create a list of jobs you need done and an amount you’d be willing to pay for each job. (It doesn’t have to be a jar; it can be a list on the fridge, for example.) So, maybe you no longer want to clean the kitty litter and for that you’d be willing to pay $10 a week. As long as the job is done, you pay at the end of the week. Or you need the grass cut, and you’d be willing to pay $20. When the grass is cut, you pay up. Ditto loads of laundry, vacuuming, meal prep, weeding, bathroom cleaning, garbage collecting, dog bathing, garage cleaning, car washing…the list can go on forever… anything you wish someone else would do. Create the list of jobs you’re willing to pay for (this should not be the things they normally have to do as chores because they belong to the family and have responsibilities around the house) and post the list or cut it up and let kids pull it out of a jar for a more random experience.

As for as helping your son plan his spending, get him to commit to something he wants that will take a few weeks’ worth of money and make up a chart with a picture of the thing he wants. Then draw on boxes that represent the money he’ll save each week. So if he wants a new game for this DS, that game might cost $40. If he’s planning to save $5 a week, you would draw on 8 boxes (40÷5). Then each week as he sets aside his $5 (in a jar?) he can check off one of his boxes.

Jen wrote: On your show, you often recommend giving little kids $2 to buy 2 things at the dollar store.  I think it’s a terrific idea because they have to learn to prioritize.  My question is about dealing with sales tax.  In Ontario, one item at a dollar store would actually cost $1.13, and two would cost $2.26.  Would you still give them the $2 but say “you can only pick one item (or spend $1.50 if you can find something for 50 cents)” or would you give them $2.30 initially?  Or, would you let them pick two items and then wait until they get to the register to find out they might have to put one back? (I can hear the tantrum as I type that!) I think tax is something that people (including myself) forget to budget for.  I taught a personal finance course where we had a budget project; some students forgot to account for deductions and sales tax and very quickly found themselves in a deep hole.

I certainly wouldn’t let them find out at the cash register. I’m a big believer in kids succeeding and that would be a failure. Tax is not usually something that very little kids — dollar store shoppers — can wrap their heads around. If you want to introduce the idea of tax, then I would point out the tax I pay when I shop. Since they likely can’t do the multiplication to figure tax out, this would just be an FYI discussion. As they get older and develop the skills to do the math, I’d ask them to calculate the tax on various items I was purchasing so the point would be brought home even further.

As for shopping at the dollar store, let them choose two things and you cover the tax… but point it out to them. “Hey, there’s that tax again. When you’re 10 and can do multiplication, you’ll be able to figure that tax out for yourself.” Something to look forward to!

Calie wrote: I was brought up by parents who didn’t believe kids and money mixed. Family finances were never discussed in front of me. I would love to get some more info on children and money. My four kids (13,11,9,7) have their own saving accounts, however, I have control over these accounts. At what point do I let them control their own money? Is it a good idea to give your teen a credit card (a very small amount of course) so that they learn early on in life on how it all works?

Loads of parents wonder a what point do let their kids control their own money? ?As far as I’m concerned, from the very beginning. If kids don’t have control over their money, it’s not their money, it’s yours and you’re just playing a game. Your job as a parent is to set some expectations, and then take the opportunities to teach the lessons that come from the natural consequences.

As for the idea of giving your teen a credit card so that they learn early on in life on how it all works, it’s a good idea. I’d start young kids (age 12+) out with a credit card on the Bank of Mom. You charge the item for them, you issue them a “statement”, they have to pay you on time or you charge interest and/or repossess their stuff. Later – I believe they have to be 19 — you help them get a credit card with a really low limit so they can build some real experience.

Charlene wrote: You often give percentages for what people should be spending on things like housing and transportation. How much of your income should go towards your child’s extra curricular (e.g., music lessons, figure skating lessons)?

As much as you want and can afford. I don’t think it’s any of my business to tell people how to spend their money. My thing is that people have a balanced financial life, covering all the bases, and not going into debt for crap. As long as you have no consumer debt, are setting aside some money for savings, and are living on a balanced budget, if you want to spend all the extra money that available on your child’s extracurricular activities, have a blast.

Donna wrote: Gail, we’ve successfully implemented the kids’ allowances using the 3 jars (spending, sharing, & long term saving). Our 11 & 7 year olds just love it! Now the question is where should we put the “savings” portion? They only get a penny a month interest while it’s sitting in our bank’s savings account. Where’s the best spot for these kids to leave their money for the next 10-15 years? Thanks!

Have you tried ING?  I believe they were offering a bonus for new chidlren’s accounts. And whatever they pay, it’ll be better than you can get at a bricks-and-mortar bank. Once my daughter had accumulated $1,000 we switched to using GICs. Eventually, when she goes to work, I’m going to have her put the money in her RRSP, and invest it as part of that long-term portfolio.

Here’s the problem.  I am pregnant – not really a problem, but a kink in the financial plan.  Turns out, I am having twins!  I am due in about 6 months.   Our apartment is simply not big enough for our growing family.

So, to rent or to buy?  Our parents have agreed to help us with a down-payment and we have been pre-approved for a mortgage.  However, my husband makes significantly less than I do, and I am worried that on one income (mat leave income is really peanuts, as it turns out) we will not be able to afford mortgage payments, taxes, insurance, etc.  While we might be in a tight spot for as long as I am on mat leave, when I go back, we should be able to afford it alright.

My mother in law has offered childcare twice a week, and my husband would work only 2 days a week.  We are very happy living simply. I have done the math and the mortgage and related costs would only be a few hundred dollars more that what we would have to pay in rent on a 2 or 3 bedroom apartment  (we don’t need a castle!).  We have a low-interest line of credit at our disposal should we run up against it, and we’d be able to pay this off when I am back at work, although neither of us relishes the idea of getting into more debt.  My husband has offered to get a second job…but I don’t know. If only he could stay home and breastfeed!

Gail says: It’s always tough when needs change and you can see the light at the end of the tunnel but you’re wondering if it’s daylight or a train coming at you! Here’s the problem I have with you going into debt while on mat leave, which you most certainly would have to do if your husband doesn’t take more work: what happens if YOU find yourself unable to work and now you’ve got a mortgage and DEBT! It’s great that your parents have offered to help. But I think you will only be safe if you ensure you can carry that mortgage no matter which one of you is working. I take it you have no emergency fund right now either? See, that puts you in a precarious position.

Josie wrote: I’ve always wanted a place of our own and we’ve been married almost 4 years but have been living with my husband’s mom since the beginning. Initially it was because he was a student and only I was working but for 3 years now we’ve both been working and have saved a really solid downpayment for a home. My husband is scared of a mortgage and right now I know the economy isn’t that great, however we both have good jobs. I make about 55K and he makes 65K. We are in our early 30’s and have one child so far.

I want to move out but don’t want to make my husband resent me because of all the expenses and debt home ownership brings. How can I reassure him?

Gail says: Why don’t you make a game of it: a dry run. You find a picture of a home you’d like to live in, figure out what it would cost to move there (purchase cost, closing costs, moving costs, etc.) and live there (mortgage payment, taxes, utilities, maintenance, insurance). Then you take that much money out of your cash flow every month. Put it in a savings account to build up your downpayment even more or to create a good emergency fund. Live like that for about six months. If it’s working for you, he’ll feel more confident making it “real”. If it doesn’t work for you, you can adjust your expectations — the size or location of the home, etc.

Patsy wrote: Our income has dropped by about 60%.  We have done the budget and understand that everything is averaged into jars on a monthly basis. My question is, the money for vacation and items that I have included that come along once twice and three times a year (sports, equipment, Christmas), does that just sit in my jars from week to week?  I am afraid that will get spent before I require it. First I have to try and make up the 1,100 I am shy a month.

Gail says: Open up a savings account and put that money into the savings account every month. You can track what you’re accumulating on paper under several headings like “sports” and “Christmas” or you can open up several savings accounts (they’re free) if that makes it easier for you.

Vern wrote: I work for a company that allows us to put 20% of each paycheck into a shares account. The company then matches it as long as it stays vested for 1 year. This has been a great saving plan for me however I am $17,000 in debt. My question is this, the 20% I put in every paycheck leaves me in the red and therefore I use my credit card. Is it a good idea to lower what I put in to 10% as you suggest in your book or should I keep it at 20% as my company matches that money?

Gail says: Going into the red isn’t a smart move. You have a choice to make. If you really like the savings-matching program, cut back on your spending so the 20% doesn’t drive you to use credit. If you can’t do that, cut back on your savings. BTW, you should not allow that money to accumulate solely in your company’s shares past the one-year mark that you must hold them. Over time, should you do this, your fortunes will be tied to the company’s performance. If it starts to flounder, so will your investment portfolio. Having all your eggs in one basket is NEVER a good idea.

Andi wrote: My husband and I want to have a child in the next couple of years.  We would like to start practicing living on what our income would be when I’m on mat leave and saving the difference in preparation.  Currently we each put 10% of our gross income into out RRSP automatically. I’m having trouble figuring how I will save that much with only 55% of my salary. Our only debt is our mortgage.  We have increased the amount of our bi-weekly payments. Should we be able to keep our savings rate while I’m on leave or can we back off a little with the either the savings or the increased mortgage payments?

Gail says: You should definitely back off on the savings and increased mortgage repayment while you’re on mat leave. Living on substantially less, your goal should be NOT to increase your debt, but to live within your means. As long as you do return to work, the short break won’t harm your plan substantially. If you choose not to return to work, you will have to re-jig your plan to put savings back in.

Gail says:  You need to lay a solid foundation for your future, as well as take care of some details in the presents.

First, you need an emergency fund: six months’ worth of essential expenses. Take that and put it somewhere you can access it easily if the crap hits the fan — a high interest savings account, not at one of the normal banks because even if they call it “high interest” it isn’t. Look at ING, PC or Ally to start.

Next, you can’t do all your equity-building in a home because that’ll leave you with no money to stay in that home when you end up retiring. I know it seems a long way off, but that “long way” is the time it will take to help your assets grow. So:

a) don’t buy too much house for what you really need; we have a tendency to do this, and

b) invest regularly in a TFSA and/or RRSP to make sure you’re building assets for the future.

You don’t say how much you make right now, or what your career prospects are like, so I don’t know if you’ll benefit hugely from RRSP deductions in terms of your taxes. However, if you put money into an RRSP, you don’t have to claim the deduction right away… you can save it for when your income goes up and the tax savings will be more significant. In the mean time your investments will grow on a tax deferred basis. If you are very low income and will need all the government benefits you can get your hands on when you retire, stick with a TFSA.

D Wrote:  I have stopped using my credit cards (and debit besides getting gas) and am other wise strictly cash. I am just wondering when I am applying extra payments, over and above what I already put towards my cards, which is more then the minimum payment, does it matter if when I apply the extra payment as long as my monthly payment is made between the “alotted” time they give? Or should I hold the money till next time to make the payment and make it an even larger payment? ps: Love your show!!

Gail says:  The sooner you put the money on the account, the sooner the interest stops being calculated on what you just paid off! Don’t hold the payment. Slap that sucker where it’ll do you the most good.

B Wrote:  I Love the show and website. But I have to say I get a little spooked when I see people on your show with half the amount of debt I do. I am 27 years old and recently graduated with a Doctor of Pharmacy Degree. I have OSAP debt of $16,000, and a professional student LOC of $80,000 maxed out. No consumer debt. I have a job I will be starting soon making $95,000.

I have been given every bit of advice under the moon from friends and family (i.e. pay it off making min payments, consolidate into a mortgage, Rent and pay off as much as possible, apply for CC and utilize introductory rates, etc, etc.). What are your suggestions on handling my debt and moving on with my life ( i.e buying a home)?!

Gail says:  The rule of thumb is to not take on more student debt than you can earn in salary in a year. You’re fine. As for how to pay it back, you need to pay as much as you can afford to get the debt gone as soon as possible. But this is a huge debt and you also need to have a life, so have some balance. If you don’t intend to take advantage of the “special benefits” of the student loan system (interest deduction, payment deferral in hard times, etc.) then consolidating to a regular loan will be cheaper because the student loan system is actually more expensive than going with a regular lender. Don’t try to get too fancy in your footwork (using credit card introductory rates). Just make a plan and stick to it.

Gail says: You do it by treating your income as if it were for a year. After all, if your contract ends and you do not have another, you’ll need to have some money set aside so you can continue to pay rent and eat. It may mean you have a very tight budget, but it’ll also mean you’ll have some money at the ready just in case. If you can’t live on the money you’re currently making because of what you’re setting aside for the 4 months you aren’t working, you’ll have to look at what you can do to reduce your expenses, like have a roommate.  Or you’ll have to find a way to make more money.

I was at the bank recently. They suggested that it is a good idea for a young person to get a credit card just to establish a credit rating for the future but pay it off at the end of the month. Otherwise they will have a hard time obtaining any loans etc. with no credit rating. I am thinking of my daughter who is 19 going to school and working part time. She has a bank account and pays cash for her expenses. Is it a good idea for her to have a credit card at this point just to create a credit rating?

Gail says: Absolutely, as long as you get a low-balance card and she develops the discipline of keeping track of all her purchases in a notebook and paying of her balance in full every single month.

Here’s how to use the notebook:

1. Write the current balance in her bank account at the top of the page.

2. Each time she uses your credit card, makes a debit using her debit card, or withdrawals cash, deduct the amount spent from the notebook.

3. Each time she gets money – a paycheque, money from the Bank of Mom, she writes it into the notebook. So the notebook has a running account of all her spending.

4. Since she’s already deducted the amount she spent using her credit card from the notebook when she made each transaction, when the bill comes in, she’ll have all the transactions already debited from her balance, so the money’s there to pay off the bill. She simply makes a note beside each transaction that’s come through on her statement. Remember, some transactions may not make it onto the current statement, but they’ll come through on the next one.

I have a question about when all the interest rates are the same – which debt gets paid first – the one with the biggest balance or the one with the smallest?  I have always heard you say highest interest rate first, but I have never heard you say what you should do when the rates are all the same. I have four debts – one is a credit card and the other three are student loans.  The credit card is obviously the one to pay first, since it’s interest rate is more than twice that of the student loans. But once it is paid, which loan do I tackle?

Gail says: If all the interest rates are the same, tackling the lowest balance first and getting it paid off will give you some momentum. Remember to roll the amount you’re using to pay off each debt to the next debt to snowball your payments.

Our home is worth $200,000 with mortgage for $111,000. This includes my student loan for $13,000 that we rolled into the mortgage earlier this year when it came up for renewal. Mortgage rate is 4.13% for next 5 years. We also have $11,000 left on a home equity line of credit, which we used to do a big renovation, interest rate is 3.25%. We own both our vehicles outright, but will need to purchase new ones within the next couple years.  We are 25 and 26 and have $10,000 between us in RRSPs right now, and we have $1600 in our savings/emergency fund right now. We have been focusing so hard on paying down debt: we have paid off about $15,000 in less than a year. As you can tell by our emergency fund, we have been lacking in that aspect.

I am getting a substantial tax refund this year, about $4200 expected to arrive any day.  I am not sure what to do with this refund. We could put it directly on the line of credit, pay in directly to the mortgage to try and make up for the $13,000 we added to it earlier this year, or save it. We want to take maybe $1000-$2000 of it and do a little bit more work to the house and yard. Are we stupid to do that and not pay off our debt with all of this money?

Another question: you caution folks against depleting all of their savings to pay down debt. What about the case where it is revolving debt like a LOC? I figure we should put our savings to the LOC right now too, because we can always advance some money off the LOC again if we need it.

Gail says: I don’t believe that anything (including debt repayment) done to the extreme (eliminating savings) is a good idea. If it were my $4,200, I’d take $4000 and put it into the emergency fund… you really do need a much bigger emergency fund. The remaining $200… have some fun. Hey, all work and no play… spread it out though (don’t spend it all in one place). You’ve done a good job of paying down debt this year, so take a pat on the back. As for the money you want to spend to finish up the house, you can do this when you’ve got the line paid off! That’ll be your reward. Assuming you’ve saved the $2,000 you plan to spend.

PS.  We are trying out your jars for the first time this upcoming month of April! We would like to get our debt (other than mortgage) paid off prior to three years. Oh yes, we also are getting married soon, good thing the cruise is paid for…(long story and no we didn’t have to finance it!)

Gail says:  If you don’t want the child support payments to affect your Life category, remove them from your income at the top of the budget by using a minus sign in front of them and entering them under “spousal/child support”. That’ll show that it’s money going out not coming in.

H Wrote:  I have a son who is 10, and he is a High functioning autistic (yes extremely high), because of the lousy schools he is extremely far behind academically and I am going financially broke fighting the district (lawyers are 300 an hour, and this fight been going on for 2 years), my question is how do I know whether to save for a college fund or for a special needs fund for him. Also would love to educate him on finances, he got the basic down (he told a little boy in the store the other day who was whining for his mother to buy him something, that it wasn’t on sale, and mom didn’t have a coupon so he couldn’t have it), but he struggle with abstract concepts.

Gail says:  I, too, have a high-functioning autistic son who is just finishing his first year of high school. I hear ya mama. I had to assume a lot of the responsibility for helping my son cope with school and develop the skills needed to achieve all he can. I strongly suggest that you stop wasting time fighting a school system that won’t change (lord love a duck) and start spending your money (and time) on providing the supports your son needs to succeed. As for teaching him about money, I have an ebook called Money-Smart Kids. Have a boo.

R Wrote:  I love watching your show! My husband is finally going back to work after 8 months of unemployment. Up until this point in our marriage, we have had no debt aside from our house. We have gone through our entire emergency fund during these last 8 months. It has been an eye opener to us that we need to do better saving. Additionally we were forced to live on our home equity and pulled out $10K of our $100K line (3% interest rate). There have been things we have put off buying while he was unemployed. There are some things we also need to fix on our house like the leaky sun room and the unstable deck. I’m having a hard time prioritizing what we should do first. Obviously we need to restore our savings account and pay back the $10K we borrowed against our home. What percentage of our income should go to savings and debt? Should we wait to fix the leaks and deck until we have the cash to pay for it? Is it ever ok to borrow for household repairs? My husband and I are in disagreement on this issue. He thinks its ok and I think we should wait and pay cash.

Gail says:  I believe you should work hard to re-establish your savings, but not if your home is falling down around your ears. If you have maintenance issues that affect the value of your home (your leaky sunroom, for example), you might want to prioritize that. But you can only do what you can afford to reasonably manage without going too much deeper into debt.

1. Take care of the MUST DOs on the house so that you don’t end up causing more expensive repairs.

2. Delay spending any money that’s not an absolute necessity.

3. Split your additional disposable income between re-establishing your savings and paying down the debt.

Make sure you keep living like you’re on one income (so very frugally) until the debt is gone. Then you can start adding the nice to haves back into your budget.

A Wrote:  I work with the wounded warriors as a financial advisor on Fort Hood, unfortunately I can not share your wonderful show with the soldiers since the streaming videos on your website do not work (could be all the security). I refer to your website constantly, tell them to watch on Saturday nights and discuss the benefits of your jars. Do you have any plans to put your shows on DVD’s? That would be the only way I could share your wonderful stories of young people like them. It makes it so much more real to them to watch the steps of success. Gail, I love your show, your personality and most of all the fact that you care enough to get in their face and not take excuses.

Gail says:  The reason you cannot see the show is because the web versions are made available through the Canadian broadcaster, which you can’t view in the U.S. You should write to CNBC and see if they have any plans to put the show on their website. As for DVDs, while there have been many requests, there are currently no plans.

J Wrote:  I’ve just finished reading Never Too Late. First off, thanks for presenting such a comprehensive guide to retirement savings in such an easy to read format.

The short version of my question – Does money taken from an RRSP during our retirement years count as “income” when considering how much income one makes for the purposes of determining GIS or OAS Spouse’s Allowance?

The long version of my question – I understand that the money removed from an RRSP during our retirement years will be taxable, but I don’t understand if it is considered “income” for the purposes of calculating the GIS or OAS Spouse’s Allowance amounts. We will have no pension income during our retirement years but are well on track with our savings and plan to retire in our early 50’s. Our retirement savings includes maxing out our RRSP and TFSA contributions, some non-registered Mutual funds and some dividend paying stocks. This means during our retirement we will be receiving taxable income from dividends, capital gains as we cash in stocks or non-registered investments, as well as any money we take from our RRSPs (or RIFs when the time comes.) For the purposes of calculating the GIS and OAS SA amounts I assume the dividends and capital gains will count as income, but do not know if the RRSP withdrawls count as income. I would appreciate any insight you could offer to help me understand what income (other than employment) is considered for the government calcuations.

Gail says:  Yes, money taken from your RRSP is considered income for the purpose of calculating government benefits. GIS is income-tested meaning that an individual cannot receive GIS benefits if their income is above the threshold (currently just over $14K). You can only receive GIS if you are 65 or older. And you can only receive the allowance if your partner is receiving GIS or has died.

You have a lot of control over how much you take from your RRSP/RRIF each year. First, you don’t have to convert to a RRIF — so there’s no forced withdrawal — until you’re 69 (and even then you have one-year’s grace since there’s no minimum in the first year.) So you could take only what you need to stay under the threshold from your RRSP.

K Wrote:  I watch your shows all the time – love the new one – Princess! I also just bought your book “Debt free forever” and am getting my six months of expenses into spreadsheets. I need $500 per month in debt repayment in order to be debt free in 3 years – yahoo! I am excited at that prospect – however…….

My question is about my car lease. I leased a Honda Civic last year at $320 per month. I have three years left on the lease. At the time I needed a car in order to get to work, and I was making more money – $500 more per month net. Since then I got laid off from that job and now have another lower paying one that is a term position, due to end at the end of this summer. I continue to look for permanent full time work but actually got told I was over-qualified a few times! It’s tough out there! I moved to a lower rent apartment in order to reduce my living expenses and live in the city where work opportunities are closer and more plentiful.

I do not need this car any more, since I now walk to work and can take public transit if needed for other errands. If I drive to work I have to pay for parking and I do not want to incur that extra $20 per day – so I walk. The payments on this car now keep me working paycheck to paycheck with nothing left for debt repayment.

You often advise people to get rid of unnecessary expenses/vehicles and I am wondering – can this be done with a leased car? Will it affect my credit rating if I break the lease early? I really need this $320 per month for paying down my $25,000 of debt ($5k student loan and $20k line of credit) rather than paying for a car that never leaves the driveway and is more of a liability to my life than an asset, both literally and figuratively. The insurance is coming due and will set me back another $1200 soon.

Can you help please? I really appreciate your advice and will do whatever it takes to become a Gail success story!

Gail says:  There are several services available that may be able to help you out of you lease including leasebusters.com, easyrelease.ca, leaseexperts.ca, and leasetakovers.ca. I’d speak to them all, and see who can get you the best deal. When you’re done, why don’t you write me a guest blog describing what you did and how you did it so others can benefit from your research and smarts!

S Wrote:  We bought a condo last year and I withdrew money from my personal RRSP to use it as part of our downpayment (under the HBP plan). When time comes to repay next year, is it better to use that money ($1,333) to pay off our mortgage instead of paying back the RRSP?

Gail says:  The two things you need to know are…

1. If you don’t pay the money back to your RRSP, that $1333 will be included in your income and taxed at your marginal tax rate, so you will owe tax, and
2. If the money doesn’t go back into the plan, it can’t start growing to build your retirement nest egg.

You’ll have to decide if it’s worth more to you to pay down the mortgage or to avoid the tax and realize the growth in the RRSP. I will caution you not to put all your eggs in one basket in terms of focusing solely on paying off your home. You need to have a balanced portfolio for the future…. not just a home. So temper your desire to be mortgage free with your very real need to build assets other than your home.

Gail says:  The first thing you have to find out is how much is grant money, how much is investment income and how much is original contribution money. Your RESP provider should have paid the income and grants out to you first, before touching the principal invested. Assuming there is just principal left, you can take that out at any time without tax consequence since there was no tax benefit when the money went into the plan.

S Wrote:  We have $35,000 in consumer debt mostly at interest rates of 5.99%. We have paid off over $11,000 in our first year using your 3 year debt repayment plan. My husbands work gives stock out to his level employees every year for the last 3 years and some has just begun to divest. We now have around $20,000 in this stock but only have access to $4,000 or so right now. He will continue to get stock each year in the future. Should we sell this stock or keep it as an emergency fund. We used up our e-fund during my maternity leave last year. My uncle told me we could use the stock as collateral for a low interest loan but our credit union acted like I was crazy when I suggest it. Right now our debt repayment is $1465 a month/25.87% which it very hard for us to stick to our budget with diapers and formula etc… We were hoping for a big bonus for my husband this year to help with the debt but that hasn’t happened. What do you think Gail?

Gail says:  Your stock option cannot be your emergency fund because it’s in a less than 100% secure investment. If you want to free up your cash flow then selling the stock and paying down the debt makes sense as long as it doesn’t screw with your taxes. You need to check with a tax specialist to determine the tax implications of cashing out the employee stock options. Because I don’t know where your hubby works, I don’t know if this is stock that qualifies as an RRSP or TFSA contribution, so ask a specialist and see if you could make a “specie or in-kind contribution” to deal with the tax issue. Then you could use the stock as your “retirement savings” and use your cash to pay down your debt.

J Wrote:  Love your no BS approach. We have been living on a strict cash budget for the past few years and besides the car and mortgage we are debt free. We want to start a family however I keep putting it off as I am obsessed with having 6 months of my husband’s income saved in an emergency fund before having a baby. My husband is self employed in the housing industry and I worry a lot about him losing work. Do you suggest waiting until we have saved the 6 months or am I being too strict?

Gail Says:  A healthy emergency fund is six months’ worth of essential expenses. If you’re planning on having a baby, you may need more depending on how long you plan to stay home with baby. You’re in a good position because you are consumer-debt free. Why not figure out what your “mat leave” budget will be and practice living on that for a few months, socking away what you’re not spending into a) your emergency fund, and then once that’s solid b) your baby fund.

L Wrote:  I’m 23 years old, and I am hope you can answer a few basic questions so that I can plan my finances well. I have just officially paid off my student debt (both a student loan and credit card debt racked up during that time). I work freelance, which puts me in a position where I have to be a little extra careful with my finances because I have less job security than others. So far, I am consistently able to save 20 to 30% of my monthly paycheck after expenses (both the essentials and the extras). I have two questions:

1) The obvious savings goal that comes up often is retirement, but at my age there are other expenses, particularly home ownership, that will pop up first. Also, since I am self-employed, I need to be more careful to have an accessible “emergency” fund, or some savings that are fluid. So, what should I be doing with my savings? TFSA? RSP? Mutual funds, GICS… I don’t understand what options are right for me.

2) As of right now, the only credit I have is in the form of cards. Is there anything beyond just paying my bills on time to improve my credit score? Is getting a line of credit through my banking any different than a credit card?

Gail says:  Well done on being so sensible and so conscientious. Your second question first: there’s no diff… just keep doing what you’re doing.

Now on to your first question: Yes, you have many goals and how you divide your savings is totally dependent on what you’re trying to achieve. You’re right when you say you need a healthy emergency fund: six months’ worth of essential expenses. The division of the rest of your savings between home ownership and the long-term future is a question most people your age face. Seeing retirement as a looooooong way away, makes it easy for some people to put it off. But the longer you put it off, the more you’ll have to save because you’ll have robbed yourself of time and the magic of compounding return. At your age, you need only put 6% away for retirement consistently.

Okay, if it were my money, here’s what I’d do. Assuming I have 20% to save, I’d put the first 6% in an RRSP. If my marginal tax rate isn’t that high right now, I wouldn’t claim the deduction. I’d hold on to it until saving on taxes became more of an option, at which point I’d start claiming those unused deductions. I’d use the remaining 14% to build my emergency fund. Remember, you need six months’ worth of essential expenses: rent, basic food, and car payment, whatever you HAVE to cover every month to stay even. Once that was done, I’d use that 14% to save for my home downpayment.

• Trim it and put it under your dog and cat dishes to stop them scooting all over the kitchen floor.
• Cut them into shapes, letters and numbers for your children to play with.
• Cut them to fit on your table so when the kids are doing their crafts or making play dough creations your tabletop stays safe.
• Keep it in the car for the pooch to sit on.
• Lay it over your dash and steering wheel on really hot days.
• Cut it to line the bottom of your closet or entryway to save your floor from muddy shoes.
• Glue onto the back of a beautiful tile to gift as a trivet.
• Cut rounds to fit under houseplants to provide a barrier between the moisture of the pot (yes even the saucers are moist) and your floor.
• Put it under your litter box to catch all the sand that comes off kitty’s feet when she jumps out.
• Have some very slippery stairs? Trim your old pad into step treads.
• Line the bottom of a pet carrier so your beastie doesn’t slip and slide inside when you’re transporting.
• Trim and use as a mat in the bathtub so children don’t slip.
• Keep it in the car for impromptu picnics or to sit on while you’re watching the kids play soccer. Or they can be moveable bases if your family loves to play baseball.
• Trim them and use them as furniture pads (for the bottoms of future legs) so your floors don’t get scratched. It’ll also help if you have furniture that moves around seemingly all on it’s own!
• Use as draw liners in the kitchen. Or line your shelves and your glasses won’t slide around.

Your turn. What would you with an old yoga mat?