February 2010 Questions & Answers

 

 


I'm 19 years old and im in debt by $3500. I need to know what i can do to get out of this mess. I have a huge problem saving money, i like to spend every last cent i make, and i only bring in $1400 a month and my boyfriend brings in $1800 a month. what do i do? i need help!!! please! :)

Name Withheld

You're just the kind of person who needs to make savings automatic so the money is put away before you can spend it. Figure out how much you can afford to save each month and then set up an automatic debit from your regular account to your savings account. So if you decide on $50 a month, every month on the same day of the month, $50 would move from your account to your savings. It's easy and it works!

 

Because of you Gail, and your show my husband and I were debt free when we bought our dreamhouse over two years ago. We saved up and paid cash for all the renovations which totalled roughly 30 thousand dollars. Now my husband has been transfered to a different city and we need to move. With the market today we may not even get our reno investment back when we sell let alone make a profit to recoup our downpayment. Moving costs are also a concern. My question is when we move would it be wise to buy another house in the new city or rent for awhile and build up our cash flow again. When we move I'll be out of a job for awhile too. I'm wondering if home ownership is too costly if we can't get the price we need from the sale of our present home??? We love your show and you've taught us and our children so much thank you !!!!

Name Withheld

This is a tough question to answer because there are so many variables involved. That being said, there are a few things that I want you to think about:

1. If you think you'll likely move again in five years or less, buying may cost more than it's worth when you take into account all the expenses.

2. If you won't have a job for a while, how much house will you be able to carry on just your husband's income?

3. If moving puts you behind the 8-ball financially, will you still have enough emergency fund to see you through any caca that may come up?

I think focusing on being financially stable would be a very very good idea. Home ownership comes next.

 

Hello Gail, I have a question about financial advisors. I am married, just started working full-time, and in my mid twenties. My husband and I have put some money away in RRSPs every year and also contribute weekly to RRSP (in his name). We have a financial advisor through desjardins, but we are really not happy with him and would like to move to someone who really understands our wants/needs.

I like to think we have a good start on our savings, however I am not comfortable enough to make choices as to what funds are right for us, and how we should diversify.

My first concern is: I am not sure how to go about finding an advisor who is independent of an institution, but is still trustworthy.

Secondly: how do advisors get paid, with desjardins we did not pay our advisor directly, I believe he was paid because we purchased their products (which might be the problem). But how should I know what is a reasonable amount to pay an advisor.

Thanks for your help,
Katie

Katie, finding someone you can work with sometimes takes a bit of time. Start by asking friends and family who they deal with. Check out the people in your community, or those who may work with community organizations (churches, clubs, etc.) to which you may belong. Ask your boss who he or she uses. Set up a meeting, explain what you're looking for and see if there's a fit.

Advisors are compensated in a bunch of different ways. Some work for a fee only. Some work for a combination of a fee along with the commission they may get from selling a particular product. Some seem to be FREE because they earn all their money from the products and services they sell.

The person -- not how they are paid -- is the most important thing. If there's a fit with you, if they understand what you want and work to meet YOUR needs, that takes precedence.

 

Someone at CRA told me previous RRSP contributions could be reassigned to spousal. Do you know how?

Name Withheld

As far as I am aware, this can only happen due to the separation of assets when a relationship ends ... like a divorce or when assets are rolled over because of the death of one partner.

 

I just had the first honest discussion about money with my wife of 10 years, this afternoon. Until now, she's always blown a gasket at the first mention of our finances, so I've been managing everything on my own. I have a six figure salary, and yearly bonus that bring us just over $6,000 a month, take home plus $8,000 in bonus once a year.

Here's the problem... Our younger son has Autism, and my wife stays at home to manage his program and take him to school and back. He needs $1500-2000 a month for therapy, and supplements, minimum. We would spend more if we could. Our debt has piled to over $50,000 plus our $290,000 mortgage. Our house is worth around $425,000. We are managing to make all of the payments and our credit scores are good, but the amount of debt is making us sick. Should we sell our house and move "down" to something less expensive, paying off all the debt and starting over? I fear that we'll just be in the same place again in 5 years. We are not living below our means. Thanks for your help.

Name Withheld

I know how easy it is to get carried away with taking care of today's needs, particularly when you have a high-needs child. I have a son with Asperger's Syndrome, and while I am not in your wife's position, I think I understand where your heads are at. That being said, going bust isn't the answer. And if his needs are long term, you need to be taking care of today and setting aside some money for the future. You can use a registered disability savings plan (see this blog: http://gailvazoxlade.com/blog/archives/338) to set aside money for your son once you've dug yourself out of the hole. The most important thing is to get your costs under control and get rid of the debt. And if downsizing does that for you, it's a good option. Your road is not an easy one. Adding debt to the weight you must carry won't make it easier.

 

Hello Gail,

Just wondering if you have any suggestions on how to cut our housing costs from 56% to the s/b 35%? We are on track everywhere else, but seem to be way off on housing. Any suggestions would be appreciated.

Thanks! Blair

Blair, you could downsize, take in a room-mate, make more money. Keep in mind that if you have no debt, that 15% can go to housing. And if your transportation costs are below 15%, the extra can go to housing. The overall amount can't be about 100%, obviously, but you can move within the categories.

 

My mother in her eighties and over the past 20 years has accumulated about $25,000 in debts. She rents an apartment and has no savings or extra money. What happens to her debts when she dies? There is no money in the estate. Would her family be responsible to cover the amount?

Name Withheld

When she dies if she has no assets her debts have to be "eaten" by her creditors. No one else is liable unless they have personally signed on her behalf.

 

Hi Gail. I am 27 and just recently just used my savings and paid off a portion of my student loan. I now currently owe only $7200 on it and it is the ONLY debt I owe. With all my living expenses in check (including my RRSP contribution), I’m left with approx $700 a month of expendable money a month. The reason I’m writing to you is because I need a car (I'm not picky, just want to get to point a to point b!), but am wondering if it would be wiser to pay off the other portion of my student debt first, or if you think it would be ok to get a small bank loan to purchase a used car?

Thanks, Sarah

Sarah, why don't you trying getting a car from a dealership where there is no financing charge. Many dealers are offering loans with 0% interest rate, so you're just paying the car off over time, at no additional cost. Make sure you split the extra money you have between debt repayment and emergency savings. I know being this close to the end can be intoxicating, but don't let the buzz stop you from being ready should crap hit the fan.

 

Hi Gail. Thank you for doing such a show. My husband and I love watching your show. It really helps us have discussions. Prior to your show, we were living like 'poppers', thinking we don't have money for anything. By keeping our receipts we now know where our money goes & realize we do have room to breath. My question is regarding student loans. The only debt we have remaining is $10,000 of a student loan. We make payments of more than the minimum every month, but probably could do more. The government gives interest tax relief credit for the student loan, which reduces our taxable income. We debate if we should rush to pay down the student loan, or put more towards our mortgage/savings. What do you think?

Linda

Linda, You should make sure you have a pretty healthy emergency fund and then focus on getting the student loan paid off. Take the amount you owe and multiply by the interest rate and divide by 12. So the $10,000 at 7% would have a monthly interest cost of about $59. Then take the principal and divide by the amount of months in which you want to get the loan paid off. So if you decide to pay off the student loan in 36 months, you'd have to repay $278 a month. Add the two together: 278 + 59 = $337. That's the amount of monthly payment that will get you out of debt in under 3 years. As for the tax-deductibility of the interest, while it's nice to have, that tax deductibility should not reduce your focus on getting rid of that debt. Once the student debt is paid off you can take all or some of that money you were using to pay it off and apply it to your mortgage/savings.

 

Hi Gail, I am confused about the benefits of putting some of my savings into a TFSA versus an RRSP. Right now I have split my savings equally between a GIC, a TFSA, and an RRSP. My monthly income is approximately $3900 (gross), my living expenses are quite low, and I do not have any debt. I am 25 and I would like to make a down payment on a home using the first-time home buyers plan in a few years (I still have quite a ways to go before I will have saved enough money to afford this). Should I be concentrating on putting my savings into the RRSP with the eventual goal of buying a home? Or should I continue to divide my savings somewhat equally into the various accounts? I noticed in your answer to another individual's question that you recommended that he put the maximum yearly contribution amount of $5000 into a TFSA. Would that advice apply to my situation as well, even though I am nowhere near the maximum contribution limit for my RRSP? (In other words, should I contribute the maximum amount to my RRSP before worrying about the TFSA?)

Lauren

Lauren, I often recommend people use their TFSAs as an emergency fund and their RRSPs for longer term saving. I'm not sure why you also have a separate GIC. That money could easily go into either the TFSA or the RRSP. When you have six months' worth of essential expenses saved up in the TFSA, then you can pour all the rest into your longer term savings. Good luck, and good girl being on track with savings!

 

Gail, I have often heard you say that mortgage is a "good debt". But I wonder at what age should a person realistically be "mortgage free". Speaking for myself, I know that I am obsessed with paying off the mortgage as both my husband and myself are 47 years old and my goal is to have it paid off before we turn 50... Does this make sense because I find it very tight to pay $800 every two weeks to my mortgage payment and make a $500 payment (which is what I am currently doing). Even then it appears that our mortgage will be paid off in 3 yrs 10 months :( I do not know if a car loan is considered "consumer debt" but that is all we have other than our mortgage.

To come to my real question, I took a $10,000 RSP loan this year to avoid paying taxes on my income and I am still paying it off. It was from my line of credit at prime. Does it make sense to pay off the mortgage the way I have been or to pay off the LOC. Currently, I am paying $100.00 a week towards the LOC but it has a long way to go (about 7,000 left).

I am despairing as I cannot seem to get rid of both these debts - the mortgage and the LOC (not to mention my car loan at 1.9% which will be done in 2011). Gail, I need your help... I want to be debt free but don’t know where to channel my resources and what to do? I spend sleepless nights worrying about these debts. It would be nice to be totally debt free as both my husband and I are not young anymore and want to spend at least the next 10 years (before we retire) building up our retirement funds. What should we do?

Name Withheld

First off, stop all that "old people" talk... I'm older than you and I am definitely still "young". As for when you should have your mortgage paid off, I tell people that to aim to have the mortgage gone prior to retirement so as you move into a lower income period of your life you have fewer expenses. I'm not a fan of RRSP loans (read my blog and you'll see why) and I would put my focus on repaying the LOC before pre-paying anything else. Next time, to avoid loan payments on an RSP loan, get yourself on an auto-savings program and use those "loan payments" as monthly contributions to your RRSP. I'm not sure why you set a goal of being mortgage free by 50 unless that's your planned retirement age. If you will still be working, cut yourself some slack and have a life now too. Sometimes I think we place TOO MUCH focus on the future. Yes, we need to look forward and plan, but things should not all be deferred until some date in the future. Life in NOW. Have some fun girl.

 

My husband and I LOVE your show! Maybe baby? My husband is 33 and I am 27. We really want to start a family. We have $30,000 in LOC debt and a $30,000 car loan as well- we pay monthly payments of $370.00 on the car loan. We also have a mortgage-payments, with taxes are close to $2000 a month. We take home between $7-8000/month. We really want to pay off our debts but waiting 2-3 years to start a family seems like along time! Any thoughts on this would be great as we are really torn as what to do, and my husband says he's not getting any younger!! Should we pay off a certain amt first? Thanks Gail- you help millions!!!!!

Name Withheld

To test out the waters in terms of coping with a baby here's what you should do:

1. Since you're going to be living on significantly less while you're on maternity, figure out what that amount will be.
2. Redo your budget so that you're spending only what you make on mat leave and your partner's income
3. Bank the difference.

You can use the "bank the difference" money to:
a) pay down your debt faster
b) build up a contingency fund for baby and for while you're on mat leave
c) catch up on RRSP and emergency savings

If you can't manage on your current income with your current debt load then you'll know it's too soon, and you must do whatever it takes to get that debt paid off as fast as possible. Whether you take on extra work or find ways to work from home, you'll find the money if having a baby sooner is really as important as you say it is.