April 2008 Questions & Answers


I have been budgeting with the magic jar system for about 8 months now and am loving it. I am now consistently getting to the end of the month before getting to the end of the money even with paying much more on my debts and saving money!! I do have one question. Why are the percentages in your budget worksheet based on gross income as opposed to net? Won't that set people up for failure as we only pocket as much money as we net, not what we gross? Maybe I am confused?? Cheers!


Yah, you’re confused. The numbers for the budget are based on your net income.

I often find that people think of their income in gross dollars, and their expenses in terms of net dollars, which leaves a gap – the amount they’re often overspending by, which is why I only use net figures for the budget.


My gym is sending my account to collections and I'm wondering if that can ruin my credit. I'm renewing my mortgage and car lease next year, and really don't want this to affect it. What are the consequences to this showing up on my credit report. My score is in the high 700's right now. Thanks!

PS. I enjoy watching your show. I've been feeling pretty bad about my financial situation lately so it's nice to get some inspiration and ideas from you!

Name withheld  

Okay, why did you let the situation deteriorate to the point where they’re sending you to collections? Every negative reported on your credit history has an impact.

That being said, not everyone reports to the credit bureau, and your gym might be one of those companies that doesn’t. So I don’t have a definitive answer for you, sorry.

My best suggestion is to settle the account quickly, and then check your credit history to see what impact the whole thing may have had on your report.


Hi Gail: I'm really glad that you have a website that I can refer to!! My question: my husband travels quite a bit (at least once a month). Although his company (he works for the federal government) pays the airfare upfront, he has to pay for the hotel and then wait to be reimbursed. Currently it takes almost 6 weeks (or more) for the employer to reimburse us...therefore, with almost monthly trips, we are constantly in our overdraft as we are waiting for the hotel costs and meal/incidental money to be reimbursed. To date, we are awaiting $1500, which stems from a February trip and a March trip. We know the money is coming; however it drives me nuts to see us in the red month after month waiting for the reimbursement. Is this just one of those things? Or is my complaint justifiable? My husband works for the government....so you can only imagine how long these things take and I'm not even sure if complaining will make a difference! Let me know your thoughts! Thanks!

Name withheld

This is a tough nut to deal with. Companies have different policies about how long expense reimbursement will take, although six weeks does seem a little long. Are you sure your honey is submitting his expenses as quickly as he can? I know lots of people who put off doing the paperwork to claim expenses, which leads to delays in repayment.

If he's being diligent, then you need to find a way to come up with about $1500 to use as a float for these expenses so they don't keep pushing your budget out of whack, and you into overdraft.

I often recommend that people who have an amount that is constantly on cycle, open an account and accumulate an amount to use as a float for just such expenses.

Alternatively, your husband could have a conversation with his boss and explain his situation and perhaps they can work something out - having the department make the travel arrangements directly so they are billed to the department so you're honey isn't out of pocket as much.


Are the online tax-filing systems (netfile, u file, and quicktax) any good? Are there any differences in them regarding tax deductions or credits? Would it be better to do it by myself on paper first? It's my first time doing my taxes on my own.


I haven't had any direct experience with these online tax-filing systems, but I have heard they work quite well. I don't know if one is any better than another. But I do know there shouldn't be any difference in terms of how they handle deductions and tax credits. I think the differences would relate more to ease of use. As for doing it on paper first, how much of a masochist are you?

Why don't you go to my blog and pose the question there under my income tax blog on April 1. Some of my peeps may have some experience they can share with you. Failing that, search for reviews of those software programs on the net and see what pops up.


My husband and I recently went to the bank to negotiate loan payments. We were given information on a Home Equity Line of Credit (TD Canada Trust). We were told that the interest rate was lower than the rate we were paying on our loan (5.25% versus 9.75%) but I'm not sure it's a good move. Can you tell me exactly what this is and how it works? Thanks!


A home equity line of credit is an LOC that uses the equity in your home to secure the loan. Since the lender has security – if you don’t pay, they’ll take the house and sell it to get their money back – they’re not as worried about default, and so they offer a lower interest rate.

Is it a good idea? Yes, provided you are doing it to lower your costs AND you are actively working to pay off the debt.

Lots of people think that the equity in their homes is a great way to consolidate, and then they run right out and charge up a storm. That’s bad. Ultimately, the goal with any financing is to PAY IT OFF… not find more things to buy.

If you have the right intentions, then the home equity LOC is a good tool to use.


My wife and I are planning on starting a family and building a house in the next 5-10yrs. Knowing the poor state of our finances and thinking we were not making enough money I took on the responsibility of our finances which was originally one of my wife’s duties (just the way it ended up since day one) and discovered many errors. We are both to blame and we have really pulled the reigns in tight. We have downgraded to a house with a smaller mortgage, we are selling one of our two cars (we are keeping the one that IS paid off and more fuel efficient) and I have given us each a $400/mth allowance to take care of everything we need as far as groceries, entertainment etc.

My question: is it safe to temporarily sacrifice payments to our RRSP (they are quite small at the moment and not really helping us) in order to help quickly eliminate our high interests debts? My budget is based on our current wages and since I receive a pay increase of $3/hr per year for the next 5yrs of my apprenticeship I am planning on being able to start making larger payments to our savings once our debts are paid off. In my opinion the high interest debt costs more in the long run then our low interest savings. Thanks

Name withheld   

Congrats of waking up and smelling the coffee. The fact that you’ve tightened up on your budget and gotten things under control is GREAT! And you’re not playing the blame game, which I’m very happy to see. Good on ya.

As to your question: I would not sacrifice savings for debt repayment. The problem with deferring savings is that there’s always a good reason not to save. Right now it’s the expensive debt. Next, it’ll be the house. There will always be things that are “better” use of your money than savings, if you don’t see the absolute necessity of having savings.

Did you ever purchase insurance on line? And is it cheaper?


I have never bought insurance online, nor would I. Insurance is one of those complicated products with loads of rules, obscure language, and loopholes, and if you don’t know what you’re doing, you could end up with a pig in a poke. Whether I’m buying car insurance, house insurance, life insurance, disability insurance… whatever insurance, I make sure I use an insurance advisor who is an expert.

I would advise you to try and get the costs of your debt down. Negotiate with your lenders. Try to get a lower cost form of financing and consolidate. Transfer balances to less costly credit.

Where can you put money to save and make money if your RRSP contributions are maxed out?


Consider looking into the newly proposed Tax Free Savings Account (TFSA). Contributions are made with after-tax dollars, interest is earned tax free, and withdrawals are tax-free. You can contribute up to $5,000 a year, and any withdrawal from the account creates an equal amount of contribution room. Earnings within the account and withdrawals do not affect income-tested benefits such as the Canada Child Tax Benefit or Guaranteed Income Supplement.  And since attribution rules do not apply for income earned within the account, TFSA’s are a great income-splitting device.