October 2008 Questions & Answers

 


Hi Gail, My fiancee and I are about to get married, and plan to use the monetary gifts we receive to pay down some debt (Student loans and credit cards - the wedding is already paid for) and finally get an emergency fund started (we desperately need this - the past year saw a car accident, job loss and a reduction in salary due to STD - and we were STUCK!). What do you recommend having in this fund? (We rent an apt and have a new car that we financed back in Feb, no children) Our plan is to put in a lump sum post wedding to get it started, then contribute monthly to boost it further. We have RRSP savings started (my work matches 100% of my contribution (5% of salary) - so we've got a nice start there already).

The debt will be paid off by the highest interest rates first - grr credit cards! Longer Term Plan: We plan to pay down debt/repair credit over the next year (we even vetoed having a honeymoon to save some money) - with the hope of being able to purchase a home in 18-24 months.

Thanks! Jacqueline Emes      
  
Jacquie, it sounds like you have a solid plan. For your emergency fund, I’d look into the new Tax Free Savings Account. You and your hubby can each have one, contribute up to $5,000 a year, and all the income earned is tax free. ING has one available. Have a happy life.

 

I am wondering if going back to work is an option for me? I need to find a way to figure out whether going back to work will be financially viable? I am a 43-year-old stay-at-home mom for the last 17 years. I was a registered nurse, but gave up my career to raise my family. Now that my family is becoming independent, I am wondering if going back to work will make money, or cost me money? My husband and I own our home, but we recently purchased a new car, and owe about $30,000 on that. This is our only debt at present. However, my husband plans to retire in five years, and we would like to replace our second vehicle before he retires. That means quickly paying off this one.

We have RESPs for our kids, but with them being in grades 12, 10 and 6, college is quickly approaching, and having extra money might come in handy then. I believe that once my husband retires (he has a company pension, and we both have RRSPs), I would quit working again, as we would like to do a little travelling while our health is still good. If my husband could make $100,000/year, what is the minimum amount I would need to earn, to make going back to work a viable decision??

**I have looked back in the past questions, but saw nothing along these lines. If you, Gail, are not able to answer my question, is there some resource that you can point me to that will help me to make a decision?? Thanks for a great show!! I even have my teens watching you now!!

Mary

Mary, your question can only be answered by doing the math. First, figure out how much you’ll pay in taxes. Here is an easy-to-use calculator. http://lsminsurance.ca/calculators/canada/income-tax You’ll have to be able to get to and from work. If you live further than walking distance to where you work, it could be as inexpensive as public transportation. If you’re driving, you’ll have to not only figure out the cost of gas, but the additional wear and tear on the car, resulting in a higher maintenance costs.

Next, what’s it going to cost to keep you shod? Uniforms cost money. How many will you need? Will you take your lunch to work? Will you need to hire someone to do the vacuuming? Even if it’s twice a month, it’s an expense for which you need to budget.


 

Hi Gail. What is the proper way to deal with wedding gifts?

I'm invited to a 2nd cousin's wedding and I don't know how much I should spend on a gift. I have asked some friends and they say I should spend at least the amount of our dinners plus! WOW!! That's a lot of money. I already have to drive 4 hours to get to the wedding as well as spend money on a 2 night hotel and all meals out! I'm already stressing my budget just to go. I always thought that the point is that I'm there to share the special day not to spend a fortune?!!

Tamarha     
   

Boy oh boy, this is a tough one, and it shouldn’t be. You’re right when you say “I always thought that the point is that I'm there to share the special day not to spend a fortune?!!”, but the reality is that there are expectations that come with the receipt of a wedding invitation. You could, of course, decline to attend and that’d be that. If you decide to go, and the idea of laying out the money for a trip and the present seems like too much, then perhaps you can find a way to create a very unique and personal wedding present that would be worth far more than its financial value. Aren’t these always the best presents? Put on your thinking cap girl. How can you create a gift that’ll blow your cousin’s mind without going to the poor house? If you can’t, perhaps you can offer a service in place of a gift: take her pictures, arrange her flowers, do her make-up and hair.

 

I am 52 years old. My wife 49.  We own our home. We both work for the NB Provincial Government, making approx. $115,000 Gross Income (my salary $77,000 and my wife $38,000).  We have no RRSPs.  We both will benefit from a government pension plan. Currently one child (20 year old) living at home, going to University.  I am looking at retirement within 5 years.  My wife probably 7 or 8. We have a line of credit on our home ($57,000 at 4.75%) that we are trying hard to pay off before I retire.  No other debts, but living paycheck to paycheck.  Currently trying hard to pay $750.00 per pay (26 pay periods per year) on the line of credit.

Would it be beneficial for us to take, let's say $375.00 from the $750.00, to invest in a Spousal RRSP rather than trying to drastically pay off our line of credit debt before I retire?

My plan would be to reinvest my tax savings and then once my wife retires, gradually use the funds invested to pay off whatever would be left on the line of credit. By the way, love your show.

Maurice

Maurice, since both you and your wife will have government pension plans, if it were me I’d focus completely on the elimination of that line of credit. You’re currently repaying $19,500 a year, $2712 of which is going to interest, so it’ll take you about 3.4 years to become debt free... Just in time to retire. You’re on the right track. Just stick with it.        

 

My husband and I have been trying to get our financial future set up.  We have 3 children and finally got our wills set up, and my husband has applied for and been approved for a life insurance policy that is acceptable.  I, on the other hand, have been unable to get life insurance due to my medical history. What is the best way to go about ensuring we are prepared for the remote possibility that something happens to me while the kids are still young, when I am unable to get life insurance?
 
Name withheld    
    

It is MASSIVELY important that you have a healthy emergency fund so that if the worst were to happen, your husband and children would have enough of a buffer in the bank to help them cope. I suggest that you not only set aside a regular amount for every-day emergencies, as I recommend for everyone, but that you also figure out how much of a life insurance premium you would be paying, triple it, and sock it away just in case.

 

My question is about charity and tithing. My husband makes about 65,000/year and I'm unemployed (trying very hard, but it looks bleak, not even McDonald's would hire me). He feels we should give 10% of our income to church or charity.  I've worked very hard to cut our grocery bill down to under $300/month for the two of us, and it's very frustrating to me that we're giving away double that each month.  I've cut down on so many things to save money, and our budget is so tight.  We both have huge student loans (about $100,000 combined) plus about $8000 credit card debt.  We're working at paying all this down.  We put about $1500/month into paying off his student loans and the credit cards.  That extra money we're giving away would let us pay off the credit cards much faster and give us some breathing room.  But it's technically his money, and I don't want him to feel like I'm trying to change his religious beliefs. I agree with tithing in principle, I just want to pay down some of our debt before we start giving so much to others. Am I right to be upset about this?

Catherine      
  

Catherine, if you are tithing 10% of your gross (which I think you probably are) it is too much. You don’t make $65K... You and the government make $65K together... You should be calculating your tithing on your net income. While I don’t like to get between people and their religious beliefs, I also do not think it is wise to be tithing and using credit. If you don’t make enough money to tithe and stay in the black you should either stop tithing or find a way to make more money. Using CREDIT isn’t the answer. And if you’re going into debt, there is no-one, particularly not God, who would say THAT is a good idea.


Hi Gail!  When financial experts (such as yourself) recommended that people have 3-6 months salary saved in an emergency fund, does this mean cash in a saving account, or could it come from other sources such as RRSPs or an unused line of credit.  For my family, 3 months salary would be about $18000.00 and that seems like a lot to save to just have sitting in an account for 'just in case'.  

Name witheld        

A lot of people have your concern about keeping so much money liquid. And there are people who put all their extra money into an RRSP with the plan to tap the RRSP should the worst happen. Assuming you are making your maximum RRSP contribution every year, and have loads of time on your side (you’re younger than 45) then this might work. However, it’s important to realize that whatever you take out of an RRSP cannot be replaced, so a withdrawal will not only be taxed, it’ll reduce your long-term savings. In the best of all worlds you would maximize your RRSP and have an emergency fund that’s pretty liquid. (If you are using the RRSP, the money can’t be invested in anything long-term, so you’re still looking at a “savings” style investment.) When it comes to an emergency fund, cash is king... which, by default, means a lower rate of return so scout around for the highest return on a savings account.


I noticed that when I got a raise at work, my income stayed really close to the same. Is it really worth getting a raise when you just get more taken off by the government? Would I save money if I stay at a lower income?  

Megan        

Megan, I know it can seem like two steps forward and one back when you get a raise only to find most of it disappears to taxes. It means you have been pushed into a higher tax bracket, making it more important than ever to set aside some money for savings. If you use an RRSP to save (if you are in Canada), then you will be able to reduce the amount of tax deducted at source, so that while it looks like you’re coming out even in your bank account, you’re actually ahead because of your long-term savings. The next raise won’t incur as much tax because you’ll already be in a higher bracket.