June 2010 Questions & Answers

 

 


I am so glad to have found your site.  We have been married for twenty years and I am embarassed to say that we have never followed a budget.  I spent the entire weekend working on your easy to work with budget and we are totally committed to getting rid of our debit and credit cards.  Thanks so much for this site.  My question is this  - is it OK to borrow from one jar if one is empty?  And if you do run out of money in a jar, when is it OK to go into your emergency savings?    
      
Name Withheld

It is okay to move money from one jar to another but you must keep in mind that some jars are meant to accumulate. If you have $25 a week in your clothing jar, it's very likely that will have to pile up before you go shopping. And if you're constantly moving money it means you didn't figure out a realistic budget in the first place. As for when it's okay to dip into your emergency fund... that would be in a REAL emergency... job loss, sickness, major catastrophe. If you keep running out of money, it's because your budget isn't working and you need to alot more money to the categories your falling short in or cut back your spending. If you don't have the money to up the amounts, you'll have to make some tough decisions about what you're going to chop or how you'll make more money. 

 

Hi Gail, My name is Gopika Kathiresu, I am 19 years old and I live in Montreal. My family has had bad credit and a lot of debt for as long as I could remember (and I know, I'm only 19). The reason I am writing to you is to ask you a question about something that happened to my mother recently.

Like I said my family has bad credit, so its no surprise that my mother had (and has) many credit problems. A little over 8 years ago, my mom had an account with TD Canada Trust and had a Visa line of credit with them, however being unable to repay the debt her account was closed. Its been a while and my mom needed to reopen an account with TD for convenience sake and after many years of refusing one branch offered her an account. It has been a few months since she has had the account and recently we encountered a problem. My mom went to withdraw cash and noticed that $1250 dollars was missing leaving $50 dollars in her account. When she asked the clerk at the bank they told her that it was taken by TD Visa and did not say more. I don't know, but is this allowed? Can they simply take money from her account without notifying or warning her first? And why this amount? Why not all? I hope you can help. P.S. I watch your show "'Til Debt Do Us Part" and I love it! You're awesome!    

Sincerely, Gopika

Yes they can m'love, they have the right to take money that you owe them out of your account at any time. I blogged about this recently. This is one reason I strongly recommend people keep their accounts in a different place than they borrow from. Your mother should close her account and bank somewhere that she doesn't owe money if she wants to be sure the money stays in the account.

 

Hi Gail, Love your show. My question is I have a 13 year old son, how much allowance should he get a month and what should he have to pay with that money? At the moment he gets $20.00, he has to save $5.00 and give $2.50 to the charity of his choice the rest is his to spend.

Glynnis  
      
My suggestions are guidelines and this is a wholly personal decision you have to make for you and your son. My guideline is $1 per year of age per week. So your 13 year old would get $13 a week. From that he would have to put 10% or $1.30 into long term savings... this isn't money to be spent on a big purchase, it is to be saved FOR EVER. My kids also "share" 5% of their allowances. The rest he can blow or use to save for things he actually wants to buy. So he can spend it all on chips and gum or he can save it over several weeks to buy the things he actually wants. The important thing is that you don't give him any more money. He has to do it from his allowance. I have several blogs on my site on kids and money and you should go have a read.

 

Gail, Debt seems to be taking a grasp on our lives and we really need some advice. My husband is self employed, work 7 days a week but never manages to 'get ahead', as he calls it. My question is 'How do you know when you business is worth continuing?

For a small business can you employ the similar practices as you have set up for personal finances? Where can we find direction to determine if the charges for the work are appropriate? Now, realizing that the job charge has to be realistic, but what about factoring in things like travel expense, material and supplies? Is there a magic percentage of what a business should make after deducting supplies etc for a job?

Name Withheld

I'm afraid there's no magic formula since each type of biz has its own very unique costs. As far as costing your jobs out, if it involves labour then you would determine what a fair "fee" for that labour would be, add in the costs and time associated with travel and supplies, and that would be the cost of doing the job. It's really tough to work hard and feel like you're never getting ahead. You might as well get a job, right? But being self-employed has all sorts of perks if you can get the costing down right. I'm not sure what your husband thinks he's doing wrong but there may be an association or an organization in your community that may be able to help. Or perhaps you know someone who has a good biz brain and would be willing to offer some advice for a nice dinner. I'm afraid that I'm too far away and don't know enough about your line of work to offer more specific advice.

 

Dear Gail, I very much enjoy the wit and wisdom of your TV show. I have a lot to learn, but am having fun learning it. I have only ever held one credit card and am now shopping for another. This summer I began reading your archived blogs and came upon severe warnings against US-based lenders.

Please pardon the foolish question, but: Could you please give me some clarification as to which are “US” and which are “Canadian” credit card companies? My card started as a Canada Trust Mastercard. Following the merger with TD, Citibank bought out  Canada Trust's MasterCard business and clients. Is that a  US or Canadian lender?

I was alarmed to read the following statement in your blog from Tuesday, May 20th, 2008:

“If you have a U.S. credit card – that’s any credit card issued by a U.S. company – take it out of your wallet and cut it up. I don’t care how great a “deal” you think you’re getting, it’s going to bite you in the butt.”

And this entry from Tuesday, March 18th, 2008

“if you’re a Canadian using a U.S. credit card, get rid of it. Get a Canadian card (we have different rules in Canada, and we don’t let our lenders get away with quite as much…”

This makes me wonder what kind of horrific surprises are lurking around the corner.  Now that it’s mid- 2009, do you have any further comment?

I have long held my Citibank Mastercard and it currently has zero balance but a 19% interest rate. (Thanks to you I now scrutinize my statements.) I pay off the balance every month via automatic debit. I want to get a new card from a Canadian company. I worry that Citibank, which has access to my chequing account, will start inventing ridiculous new rate hikes/fees if I leave the charge account open.

Also, are “Company X’s Mastercard” and “Company Y’s Mastercard” related in any way beside the brand name? I am considering a President’s Choice Mastercard.

Thank you very much for all your hard work and patience in helping out the public.

Name Withheld

My comments about American credit cards come from the fact that U.S. Card companies have been rapacious in the way they inflict fees on users. I’ve seen Canadians paying the equivalent of 68% interest when all the fees are added in on an U.S. Card... Very different from how credit cards issued by a Canadian bank operate, although our lenders are learning quickly about things like double cycle billing which is a horrible penalty. That being said, it is always a case of knowing what you’re buying. For example, I had a credit card from a Canadian department store that was subsequently bought by an American company and I was very disappointed with their handling of the account. As far as the difference in brand name goes, each company licenses the use of the card — Visa or Mastercard — but each company sets it’s own rules and regs. So it’s a matter of choosing wisely who you want to deal with.

 

Hi Gail, First of all – I love your show and advice on money.  You inspire my husband and me and our question is regarding our first home.  Here is our situation:

- We have been saving for three years for that BIG purchase
- We live happily in my husband’s parent’s basement.  We all get along great but we both are ready to have our own place soon.
- My husband just received a permanent .5 teaching job in Oakville
- I have been off sick from my employer however trying to go back to my previous employer doing a different job.  Nothing has been set yet.
- We have saved $48,000 that is in a Money Master account at our bank
- We have NO debt
- Every month we do a budget and we TRY to live off of cash, buying our groceries, gas, gifts, etc…  
- We save approx $3,000 a month

It is scary thinking of getting a mortgage and going into dept.  Our question is when should we start house hunting and how do we know how much we can truly spend on our first home?    

Name Withheld

Congrats on your patience and your tenacity. You sound like a sensible couple and it does my heart good to hear how well you are planning. I know it's scary getting a mortgage and going into debt. When I bought my first home I just about puked my brains out the day I signed the offer. But you'll be fine. The best way to know how much house you can afford to to figure out how much mortgage you can afford to carry (leave some room since interest rates will eventually go up) and what your closing costs are likely to be. I have a series you should read. This blog http://gailvazoxlade.com/blog/archives/121 leads to the articles you can use to get armed for your big adventure.

 

Dear Gail, Firstly I want to say I love your show! I am Australian living in Brunei and really enjoy watching you on the Discovery Home & Health channel!!

Now for my question - My husband and I are REALLY trying to get back on to a cash budget. We use our credit cards and pay the total balance each month. The problem is because we use the cards we spend more (As you do!!) but because we pay them in full each month it leaves us with NO cash to start our cash budget!!! How do we go about getting back to cash?

For example this month, our credit card ran over on the 15th of August and we got paid by my husbands company on teh 25th. We paid the full balance of nearly $5000 on the 27th and now have $320 for the month ahead!!!!! We then end up in a cycle of using the card again because we need to live...

How do we get out of this little cycle  do we have a VERY quiet month and try to use only cash so that next month we can start our cash budget jars??

Your help would be greatly appreciated as I am going nuts trying to work out the best way to get ourselves back on track!!!

Many Thanks.  
Name Withheld
      

The first thing you have to do is make a budget and start tracking what you're spending on the cards, keeping your spending to a minimum. This may take a few of months to do. If you have $300 left over at the end of the first month, move that into your jars (don't start using it yet though) and do it again for a second month. Yes you'll have a couple or six very tight months, but in the end you should have your final credit card bill paid and enough money in the jars to get back to cash. 

 

 Well Hello oh smart lady!

I love your style and wit not to mention your excellent advice on your show! Way to go Gail.....sometimes people just have to be told to grow up and grab a brain eh?

I try to live by good financial rules you have talked/written about. I have a few questions though and I hope you can reply.

I just want to make sure I have the right numbers in the right place. In an effort to pay down our mortgage faster we pay the max 25% on top of our mortgage payment bi-weekly.  Does the 25% extra go in the "debt reduction" column or does is stay in the housing section?

Because we stayed well within our means for our house, we were able to buy a cottage (yippy).  We looked at it from a long term investment opportunity and of course, the many great times/memeories we will have over the years. When I put the costs associated to the cottage (small mortgage/utilities/upkeep) into the budget column, do they go under "other"? When I put both the house and cottage together under housing it totals's 42%. This is of course more that you suggest. We are looking at renting the cottage out a few times in the year to cover the taxes but we are still dong the "pros/cons" on that idea.

We both (hubby and I) have excellent pensions and contribute between the two of us, approximately 900.00/month via pay deductions. I believe this dollar value goes into the "saving" column right?

Between the two of us, we make 150K/Yr.  The only debt we have is from the recent total renovation which resulted in $15,000.00 debt.  We agressively pay $1000.00/mo towards that at 4.75% interest.  We pay 0 in bank fees (Yippy).  We drive old vehicles and will likely look at having to replace one in the near future.  We are thinking that we will put the newer car on the line of credit with mininal interest and pay the sucker off fast.  The plan is to pay off the renovation debt first then newer vehicle (we never buy brand new it depreciates too fast when you drive it off the lot). What do you think?

Thanks in advance and keep up the excellent work!

Karen        

Hello oh smart lady right back, Karen. You seem to have everything well in hand. Some answers to your questions:
1. The extra mortgage payment goes under housing
2. The cottage can go under housing (don't worry about the 42% since everything else is well in hand), or you can set up a separate life category for it if you want it under "life". Just use a line on the budget you're not currently using. When you start renting, remember to include that money in your "income" under "other". Renting the cottage is a good idea to minimize the costs associated. I believe in a good location you can get premium dollars for weekly rentals... just make sure you're up for the extra work of "check-in" and "check-out" and any extra maintenance that will be required.
3. Yes, the pension contributions are savings. And you're doing well in this area. Make sure you also have some money going to a TFSA for emergencies...
4. Good for you for getting rid of one big expense before taking on another. You might want to consider all the great financing deals being offered on cars before you go the route of the line. 
Keep up the good work. You're doing well, and you should both take a pat on the back.

 

Hi Gail, Here is a little bit of my story, in 2005 a went to a personal bankruptcy because of a bad marriage. Since 2006 I have back a capital one credit card, I buy new veh finance by daimler chrysler, I know the bankpruptcy still there for 6 years, but it's been 4 years already pass and still refuse for credit while my credit is really good, doing my payments on time everymonth. I saved money at the bank also every week that i receive my paycheck. The only dept I have is my veh, I owe nothing on my credit card at the moment and I pay my rent 475$ a month all inclusive. I still wondering why some furniture or other company refuse me for credit.

An answer will be appreciate. Have a great day. **** I watch your show religiously  
Diane

Diane, you answered your own question when you said, "I know the bankpruptcy still there for 6 years" -- sometimes knowing and understanding are different. Having that bankruptcy on your credit history is a red flag for other creditors. The fact that you got a credit card and financing on a car is something you should be very grateful for... and the fact that you are using the opportunity to rebuild your credit history is great and will stand you in good stead once the bankruptcy falls off your credit history. Until then, I'm afraid life is what it is. 

 

Hi Gail! First off, I love the show.  My question is this; my husband and I have a monthly budget and we are always 800-1000$ in black at the end of the month.  Our debts include a student loan of 16,000 and a credit card debt of 9,000.  What are your suggestions to help us pay off our debts quickly.  I have been paying 200$ a month for the past 8 years on my student loan and we pay 80$ a week on the credit card.  Is tehre an easier way to go about clearing our debts.  

Name Withheld       

If you have that much left over each month, why aren't you working harder at paying down your debt? That money would go a long way to getting you to debt free. Start by paying off the most expensive debt first -- the one with the highest interest rate. Then focus on the student loan. 

 

I have just finished using your budget sheet and have come up slightly on the minus side.  This I am not too bothered about as it it only $200 and I'm confident we can juggle the numbers and have things balance.  What does concern me is that our percentages compared to the recommended percentages are quite different in most cases.  We are way under your recommended percentages for Housing (22%-not spending enough?) and Savings (17.5%-saving too much?!), but way over on Life (46%!-two kids in childcare is very expensive) and Debt (3.25%-we have about $5000 on a line of credit, but no other debt other than mortgage and car payment).  Should we be trying to get our numbers closer to the recommended numbers, even given that it would most likely be at the expense of some of the money we are putting into savings?  And, currently all the money that we are putting into savings is going into RRSPs and RESPs, but not into a reserve fund (which is remaining stagnant at $20000).  Should we be aiming to increase our reserve fund eventhough it would be at the expense of RRSP contributions?  Our combined annual income is about $150000 gross and we are in our early 30s.
Thanks!

Name Withheld
  
My percentages are guidelines. The most important thing is that you not be over 100%, which you're going to deal with. When you have high costs like daycare, it's not unusual to be over in the LIFE category. But since your housing costs are lower, you can manage. And that's the trick: to make it all balance out. You do need to build up an emergency fund that covers six months' worth of essential expenses. If your $20,000 "stagnant" fund is all you need, you don't have to keep adding more. Get that line of credit paid off and I think you guys are in great shape.

 

Hi Gail, Thank-you for your honesty and for sharing your no-none sense knowledge!

I graduated in April with my Bachelors Degree.  The day before graduation I was hired by a stable, dependable company who offers dental/medical, short and long term disability, 2 weeks’ vacation per year, and after 2 years of working there they contribute to group RRSP program.  (due to my time working as a paid intern for 1 year prior to my official position, I have already grandfathered a year and 5months towards that 2 year mark.) Here is my problem.

My student loans:
Canada student loan (interest is prime + 2.5%): $ 26,695.00
(as of Sept 17th interest has brought that amount too:  $ 27,177.89

Alberta student loan (unsure of exact interest but as of Sept 17th was 0.77cents/ day): 12,667.62

I currently have $23,418.35 in my savings account. (I do not think of this money as my own b/c of the student debt I owe.)

I had thought while in school that I was always being soooo good with my money, now that I have set up a budget and see what I owe vs. what I earn, I feel like I was actually very naive ( and yes in denial).
Now that I owe this money I do not want to be a prisoner to it for the next 9 1/2 years.  

Can you please advise me as to what steps I should take first?  I know that I have a good job (although my salary is very low) but I need to have some money in my savings for emergencies or in case I lose my job.
I do not know where to go from here.  I feel lost!

Please help me Gail! Many thanks!

Name Withheld   
      
Good for you for being a great intern and securing a position so quickly. You should take a big pat on the back. Now to the money:

You owe just under $40K, which will cost you a lot in interest and take a long time to pay off. You don't say what your income is, so I'll give you some general advice.

If you take $20K of your "savings" and pay down your student loans you should be able to get them all paid off in 5 years (acceptable for student loans) by making payments of about $420 a month. Since I don't have the exact interest rates you're working with, this is an estimate. But you can find an online student loan calculator and check it out (try www.canlearn.com).

That leaves about $3,400 in savings for an emergency fund. Use that to start your Tax Free Savings Account, which is the best place to accumulate your emergency savings. Some online banks have pretty good rates now so shop around.