May 2010 Questions & Answers

 

 


Hi Gail, I am a Muslim and thus do not believe in interest gains (compound or otherwise) and steer clear from them at any cost. I like the idea of putting away 10% of my income for savings. But how can I maximize my savings so that I have enough when I retire? Should I bump it up to 20%? or even higher? I am 27 years old and currently a third year nursing student in Toronto. Please advise! For all your Muslim viewers who are in the same boat as me. Much appreciated!

Fiza

Fiza, while I am by no means an expert in this area and you should seek guidance from someone who is, I believe that Muslims are allowed to invest in other investment instruments, such as shares, REITs (Real-Estate Investment Trusts), unit trusts and life insurance -- alternatives that have no interest component but do provide income in the form of dividends. Since dividends are also known as profit sharing, you are actually sharing the returns of the company you have invested in. Go on the internet and research "halal investments" for more info.

 

I have a spreadsheet where I record the following for each of my bills: due date, paid date, amount paid, confirmation number (I pay bills online). I organize it with one page per bill and have my account number, contact info for the company etc on the spreadsheet. Do I really need to keep paper copies of all of my bills? While I find it pretty easy to manage my money, I find it difficult to organize and manage paper, and I would rather shred the bills and keep the info in one spread sheet.

Thank you, Heather

Heather, I would not shred the bills immediately. You just never know when you might need to make reference to something. I suggest you keep at least three months' worth of regular bills. You should also file anything the government may need, or that support something you've bought that is under warranty. Consider reading Gail's 12 steps to getting financially organized, and perhaps an Office in a Box.

 

I went bankrupt two years ago and I am trying to rebuild my credit. I have a secured credit card for $300.00 which I pay off on a regular basis...do you think it is wise to keep this card or just get my money back and put it in the bank?

Tammy

Tammy, using and repaying this card every month is the single best way to start rebuilding your credit history. Make sure you don't carry a balance and pay on time.

 

Could you please do an article on inheritance tax and anything else one should know after the death of parent?  

Name Withheld      

There is no inheritance or estate tax in Canada. If your parents had non-registered assets (not in an RRSP or RRIF), those assets are deemed sold at death, except in the case of a bequest to a spouse. A deemed sale means that any capital gains (for equity investments, property and the like) are recognized and become taxable on the final return of the deceased. All other income earned in the year of death (like interest on a fixed-income investment such as a GIC) or on pension, must also be reported on the final return. If the assets are registered and are not passed on under the provisions allowed to a spouse or dependent child, all those assets are deregistered and included in the deceased's income for the year, so there can be a substantial tax hit.

 

Hey Gail, We have watched your show for quite some time now and have started the jar thing. We have recently just got our emergency fund in order and were looking at different options to put it. Just wondering if you have heard of Ally Financial, they have a 2% High interest Savings account but we have never heard of them and would like some feedback if they are a reputable bank to deal with. Thanks!!!

Name Withheld

Whenever you're thinking of putting your money on deposit, the first thing you should check is that the company taking your money is a member of Canada Deposit Insurance Corporation (CDIC) and that your deposit is covered. (I've done a blog on this previously.) Ally's site says that Ally is a "product" of Resmore Trust and Resmore is a member of CDIC.

The true history of Ally Bank is that is was previously known as General Motors Acceptance Corporation (GMAC), a U.S. bank, which was the financial services arm of General Motors. GMAC was rebranded to Ally Bank in 2009. in an attempt to shift away from the GMAC brand with it's associations to the failing auto maker.

As long as you deposit is insured by CMHC your money will be fine. Keep in mind, however, as with ING and PC Financial, the rate offered now may not be the rate you get forever, so keep an eye on what your money is earning. Whenever a new FI is trying to capture new customers, it often offers high "teaser" rates to get you in the door.

 

I am looking into 10 year general obligation zero coupon bonds verses a high yield checking account.  Our marginal tax rate is 25%.  The HYCA is at 4% and is FDIC insured.  I think that means that I would need to earn more than 3% tax free to make it worthwhile and it would not be FDIC insured.  Therefore, I am leaning toward staying with my HYCA.  Am I missing something? Are there other factors to consider that would favor the bonds?
 
Wayne 
      

If you intend to hold the bond to term -- for the whole 10 years -- and are happy with the 4% return then go ahead. If you think you may need your money ahead of the 10 year term and want to sell the bond, then where interest rates go will have an impact. If interest rates go up, you bond will be worth less in the open market because there will be other bonds paying more. If interest rates go down (hmmm? Really?) then you bond would be worth more. 

 

Hi Gail, I am wondering if I should get all my RRSP's savings plans moved into 1 or 2 plans. Right now I have RRSP's at numerous banks ( 9 different funds) and only 1 plan that I continue to contribute to monthly.  Does it make more sense to "consolidate" all these RRSP's into one financial institution? I am having difficulty knowing which one to put all the eggs into and so I do nothing instead out of fear of moving everything into one place and then it performs poorly. Any suggestions would be appreciated. My husband and I are both 45.
  
Justine Mills
      
Consolidation makes perfect sense because managing one pool will be infinitely easier than trying to coordinate 9 pools of money. As for which institution to choose, hey babe, I'm not going anywhere near that one. You must decide who you feel has generated the most consistent performance for you over time and then make the leap. 

 

Gail, I LOVE your show.  I have recently left a marriage of 26 years, hardest thing I ever had to do, 2 children ages 20 and 14, and desperately need your advice.  My husband is a German alcoholic (sorry, no offence to the Germans!).  But he has us in a huge financial crisis - we took out a $100,000 home equity loan to cover his debt and are now stuck with selling the house and working out who owes what.  Lawyers are involved and I just need some good solid advice on what to do.  I have your book Debt Free Forever and read it like a bible!  I guess my question is should I try and get everything I can for child/spousal support and treat it as an income?  In a year from now (my family is kind enough to let me stay with them while this is resolved) I want to buy a townhouse. Is that the right thing to do on my income of 25,000 a year compared to his 62,000? AArrgghh I REALLY need your help.  Not only is this a huge emotional adjustment, but financial as well.  I just really admire you and will be awaiting your reply!!!!!  PLEASE!!!!  Btw I watched your last show and it showed a single mom - we need more shows like that!  Not everyone has a double income....Thanks Gail, hope to hear from you.  It would make my day!   
      
Name Withheld

Child support often ends at 18 or 19 so tying everything to child support means your income will disappear in four years or so. You should try for the maximum child support for your youngest, but also full equalization of all your family assets (you want half of everything, including any pension he may have and you'll want to split your CPP credits so that you have more than you currently do). You may also be able to get spousal support for a period of transition. Make sure there's some life insurance to support the "support orders" so that if he turns up his toes in the short term, your son's support is protected. He can use an existing life insurance policy to do this or get term insurance. See if you can get two year's worth of spousal support. It won't be tons of money, he isn't making a fortune, but even if it's a few hundred a month, it's money you can use to build up a next egg for the future. You should also talk about who will pay (or help with) your younger son's future educational needs. 

 

Hi Gail, I am in desparate need of your help.  I have a younger sister who is 36, living common law with the father of her 2 children aged 11 and 2.  They have ALWAYS had financial trouble and have relied on my parents to bail them out.  They have always been in dire crises where the lights are about to be cut off, the phone is about to be disconnected or the collectors are on the doorstep.  Although my parents should not be bailing them out as it is not teaching them anything, they have seen the toll these financial problems have taken on my sister's health.  There's little or nothing on her frame as she is skin and bones.  It's a never ending story as her common law husband's parents did not know how to manage their money either.  The lost their home when they were close to 50 and both had decent jobs.

The reason for this e-mail is two-fold.  I am very worried about my sister and her family but I am also worried about my father. Both my mom and dad have battled cancer (dad 5 years and mom 2 years) and unfortunately, the disease got the better of our mother and she passed away in February.  It has been a difficult time for all of us but the one glimmer of hope has been that my dad's lymphoma is now in remission again.  My concern is that my sister's power is about to be cut off and she is hounding my dad for money.  He does have the funds to lend them but this is not the answer as they have not learned the lesson.  They truly require the assistance of a financial planner to look at their finances and put them on a strict budget.  They are absolutely out of control and have no idea how much they owe.  My husband and I have tried to help but they say we'd never understand as we have never walked in their shoes.  We have been there when we were first starting out but this does not count, according to her.

Please, please, please Gail - if there's anything at all that you could possibly do or suggest, please send the information along.  I currently reside in Saskatchewan but my sister is in the Halifax area.  I am very worried that this stress is going to take a toll on my father and his remission will not last for long.

Many thanks for your help with this case, Gail

Sincerely
Debbie Sutherland  


I wish I could help. I wish there was some magic that would make your sister better with her money, or your father more able to say no, or your BIL better able to provide for his family. I could go on and on. I’m so sad to report that I get letters like yours EVERY day from people who want desperately to help but don't know what to do. The truth is you can't help. This is something only they can fix. And while people can be horribly self-destructive, other people can't fix it. 

I can only help people who are sure they're prepared to do things differently. You've seen the people I've worked with who aren't, who push back hard, who won't change. I can't help them. I can only teach and guide and encourage. The motivation has to come from within. 

I'm so sorry that you have to watch this. It's really hard. You have my thoughts and best wishes. Maybe this time one (or better still both) of them will wake up and want things to change. In the mean time, you can only send good energy to surround them. 

 

Gail, love your show.  My husband and I have 4 kids ages 8-12.  We are 38 and 39 yrs old and we make $6800 month, net regular income.  My husband also does contract work which we keep seperate to pay for vacations, income taxes, other big toys (we paid cash for our sea-doo), etc. We don't have debt other than our truck payment.  We have $80,000 in the bank from our recent house sale and rent for $1000/mo currently.  $20,000 in tax free saving account.  $115,000 in RRSP and $32,000 in RESP's for the kids.  My 2007 Honda oddysey we paid off from the house money as it was a bit tight (an extra $780/mo).  We are putting 650/mo into savings, my husbands company matches his RRSP contribution to the tune of about $5000 year total, I put $25/mo in to each kids RESP and another $200 into RRSP.  My question, am I doing enough, what should the numbers be each month.  Also, should we build a house or keep renting.  We own a lot that is paid for just down the road a bit?  I'm afraid we might be wasting rent money, won't have enough to retire.  Thank you   
      
Name Withheld

Wow! I love getting letters like this. You are doing a great job of balancing now, the future and the kids. Congrats. Okay, let's look at what you're saving each month: about $1250 in RRSPs which is well over the 10% rule. Plus another $100 a month to the kids' RESPs. You could put more into the RESPs to get more grant money from the government. They'll give you $500 per child for each $2500 per child you contribute... yup, that's an instant 20% return. You don't have to go all the way to the top, but you have lots of room to grab more grant money if you want to. 

As for whether you should build, hey, that all boils down to what you want and what you can afford. Since you already own the land, you're talking about building costs. Have you priced out the house you want? Can you qualify for a building loan? How much of your cash flow will be eaten up by loan payments/mortgage when you're done? Only you can answer these questions m'love and I'm afraid it's a pen and paper (and calculator) exercise. Do the math. Then make the choice that works best for you and your family. 

 

We will be renewing our mortgage in June and are looking around at options. My boyfriends credit is not great but we are working on improving that. The only money we owe outside of our mortgage is his outstanding child support (was $22000 now down to $15000) We both work I make 50000 a year he makes almost 200,000. One of our neighbours recommends Manulife One and says all of his friends have switched to it.  Can you tell me if it is a good option for people to take? Since it is not the normal mortgage and a line of credit it makes me a little uncomfortable.   
      
Darlene

If the idea of either of you being able to tap the equity in your home at a whim makes you uncomfortable, this product is not for you. Hey, if your boyfriend makes almost $200,000 a year why is he taking such a long time paying his outstanding child support? He makes more than enough to live on, pay his child support and save. Whazzup with that?

 

Hi Gail, I am so happy to share with you that I am clear of consumer debt. After receiving a super tax return of $6,000 I've paid off my Line of Credit and my Credit Card!

However, I have $13,000 of student loan to tackle and I'm at a crossroads. I have not been saving at all but rather consistently spending $1400/month (about 47% of my income) on debt repayment. After reading your book, I realize I've been putting myself in a bad position. So I've decided to allocate $400 to savings ($300 long term savings and $100 emergency fund) and $1000 to student loan repayment.

Now the question comes, should I invest my long-term savings (not exactly retirement savings, I'm 25 and want a house) into RRSP to lower my taxes and save for a downpayment or should I put the money into a high interest savings account or should I put it into a TFSA. I'm not sure which option would be best to save for a house and a wedding. Thoughts?

Name Withheld
      
What a smart girl you are! I'm so happy to hear you've found some balance and are putting my book to good use. You can use your RRSP for saving for retirement (yes you should start... even $50 a month) and for saving for a home because you can use the RRSP Home Buyer's Plan to take the money out interest free and without tax consequence as long as you pay back 1/15 a year over 15 years. And you'll be able to defer some taxes along the way. As for saving for the wedding, open up two TFSA. Use one for your emergency fund, and one to save for the wedding. Just don't go over the maximum $5,000 for both together. 

 

Help!  How can I get my husband to realize we need to save for retirement.  We are in a predicament that I'm sure lots of others are in. He's the only one working, I'm disabled and 10 years later I'm still fighting for disability pension. I can't afford a lawyer. And I'm scared to death....God forbid anything should happen to him.

We are making it...just. We don't have any large outstanding credit cards (we only have a $300.00 limit) and I'm keeping it that way...and I think there's only $100 on the card right now..but I pay that religiously.
Thank goodness hubby has benefits as my medication costs us almost $200.00 per week. I have thought about returning to work, but my illness is so unpredicable I'm scared to do that.
Any thoughts?

Thanks for your time,
Melody Middleton  

If, as you say, "you're just making it", what do you expect hubby to save? If he's spending money frivolously, that may mean there's room, but you guys sound like you're just making do. I'm not sure why, if you are disabled, you're having trouble getting your disability pension. I don't know if you're in Canada or the U.S., but the process in Canada is pretty straightforward and you only need your doctor to attest to your disability to qualify under CPP. If you're in the U.S., I'm afraid I don't have any advice because the system is very different. 

If you cannot return to working full time, could you do it part-time? Is there work you could do from home? If you don't have any extra money to save and you want to save then the only option is to find a way to make more money. It sounds like your husband is doing his best. I hope you can find a way to make what you want happen.
 

 

I have been working for a local government for almost exactly 8 years but am quitting to follow my partner to another town ( where I have found a job in the private sector for approx the same income ~ $60K). My question is what to do with my pension? I'm 29 and have about $15,000 is RRSPs.

As I'm vested in the pension my options are ( according to HR):
1. Deferred pension: leave funds in the plan until retirement age.
2. Locked in commuted value: funds must be transferred to a locked-in retirement vehicle.

I don't really know which is the best option, or even where to start to figure it out!
Any advice is appericated!

Thank you.
Cat
      

I can't definitively tell you which one is better because I don't have enough detail. I'll hazard a guess and say that you likely don't have a huge benefit built up in your pension plan based on your years of service, in which case moving the commuted value to a locked-in account (LIRA) will likely make the most sense. You'll then have to manage the money and the investment decisions yourself. Since you already have an RRSP, just follow the same strategy with your LIRA. If you do have substantial pension benefits built up, you might want to stay with the pension. Ask your administrator what your payout will be at retirement and base your decision on that. 

 

Interest-Free Family Debt Fatigue vs. Saving:

I searched your site and read everything on debt fatigue and paying off debt ASAP 3-5yrs.  But not saving enough for old age and emergencies are scarier than the frustration of longer interest-free payments for family debt.  I know family and finances don't mix but I feel like damned if I do - damned if I don't.  I have become extremely disciplined and know I won't accumulate consumer debt again and am very grateful for being bailed out by my sibling - but am I being selfish for trying to save and make debt payments with a long-term view?

Question:
Should I put minimum aside for emergency and old age and aggressively pay off family debt first?  My concern is that with no savings now at 45, is waiting to save until I'm 50 yrs old the best course of action?

Facts:
45 yr old female, single, live alone, no kids.  Manual labour blue collar job.  1992 used toyota corolla, rental apt in line 35% of budget, family debt payments ($300/mnth) 11% and aggressively saving for old age and emergencies 22%.  I have less than $3000 saved so far in RSP and emergency fund combined.  Everything else in budget in line.  Owe $20,000 interest-free family debt to sibling for bailing me out of high-interest consumer debt.  No other debt.  Will never let this happen again!

My sibling doesn't need the money paid off sooner, he is mortgage-free and has significant savings and donates all interest he earns to charity (of course this is none of my business and I am grateful).  But he considers debt is debt and would be happier the sooner its paid off.  He initially agreed to $200/mnth but increased it to $300/mnth.  He doesn't think I should save anything until its paid off.
 
FYI:
I rent and will never own, as I would not be able to afford both saving and costs of owning, and would never have it paid off before my income is reduced from inability to continue in physical job in old age.  I plan to keep working at anything I can get and physically do until I am no longer physically able to, because I won't have enough money to stop any sooner than absolutely necessary and still pay rent.  BTW no playing markets for me, GICs only vehicle in my TFSA or RSP.  I know my own risk-aversion.  Which now applies to my aversion to any interest paid on credit.

Gail,
I just want a respected outside third-party such as yourself, well-versed in this to give me guidance on how to proceed.  After all this background info, what specific percentages do you think I should put toward this debt and saving?  Thank-you.

Name Withheld

You're a lucky girl to have a brother who loves you enough to help you through this mess. And your instincts are right. You do need to start saving now to put time on your side. Stick to your plan. At $300 a month, it'll take you about 5.5 years to pay your brother back. In the mean time, you'll save about $40,000 for your future. Once he's paid off, add the $300 you were giving him to your long-term savings. Assuming a return of 5% on average, and the reinvestment of your RRSP tax savings (either in the RRSP if you have room or in a TFSA if you don't), you should have over $200,000 in 20 years.