July 2011 Questions & Answers



P Wrote: 
I watch your show regularly and saw your interview today on the news regarding answering questions about retirement. I am a single 38 year old female, PhD student, expecting to complete my education within the next year so likely will only need to pay about $3k more in tuition fees. I have no student loans as I have always worked while in school. In my present job I have a pension, and have managed to save about $20k in RSPs. I have $110k in investments, about $90k in equity in my townhouse, with a $240k mortgage at 3.75% fixed rate. I have really tried to practice what you preach in terms of paying off my credit card monthly and buying a used car so I don't have any car loans. While some people may say that I'm "set" financially, I do worry about not having the security of being in a dual-income situation and only having myself to fall back on. Any suggestions for the single-income earner in saving for retirement? 


Gail Says: 
Y'know my love, I get a lot of questions like yours, which ask about "single" money. I've come to realize that I've always seen money as a "single" thing. Since my many husbands have always been considerably older than me, I've never thought about an option other than being on my own. As it turns out, they are gone (not all dead... just gone) and I am a single woman. I am really glad this didn't come as a shock to me or my financial plan.

That being said, you are doing a great job. A PhD with no debt! Well done. A pension plan, some RSP money, some unregistered investments and $90K in equity. Wow!  Now what you have to do is set your mind at ease. Grab a copy of my newest book, Never Too Late, from the library and work through the exercises to see how you're fairing. Also keep in mind that you are only just coming into your peak earning years and you have loads of time before retirement, assuming you put that PhD to good use.

So often people do their money calculations in their heads. Put it on paper and you'll be able to see a very clear picture of how you're doing and what your next steps should be.


J Wrote:
I am 27 getting married in 6 months. I have a full time job with good benefits and make $1300 net every two weeks. Me and my partner are both debt free. We have two cars (I drive for work and she needs a car to get to jobs) and my car will be paid off in May of this year. I can afford $40,000 for a down payment (if we buy a home.) We both live at home and are looking for a place. Her parents are saying we should buy but I think we should rent. I only make $2,600 NET per month and my partner is a teacher looking for a job. She gets supply work every once and while ($150 NET per day) but it is not constant income. I am trying to do a budget for us but I keep getting different advice. And I don’t know where to turn. I do not want to get my self over my head and do something I can’t afford. I think we should rent an apartment for a year until she finds constant work and go from there. (J provided a mock-budget.)

Gail Says: 
You should never allow anyone else's expectations to push you to do something with which you re not comfortable. Your partner is not working full time. You've done up a mock budget that shows you'd be out of your depth. You have your answer.  When you think you're getting close to home-buying time, practice first. Figure out your budget, as you have done here, and live on it a while (putting the difference between what you're spending and your projected spending into a savings account). If you can manage the new budget for 3-6 months and you have an emergency fund established, you're ready to go.


A Wrote: 
I have several questions and the more I search the website and read - the more I come up with. I'll try to be brief:

1) We have no debt (besides mortgage). When I looked over our finances and broke them down into the percentage categories we are really over in LIFE (I totally didn't expect this...) that said, what do you suggest we do with the 15% alloted for debt? Throw it into life or divvy up between life and savings?

2) On the same note, life at 25% came out to about $1850. Our daycare alone is $1200 a month (and that is cheap for our area). That only leaves $650/month for net/phone/cable/groceries... etc. We are spending around $500/month in groceries/toiletries alone. Do you see this often? Any suggestions for how to make this work better?

3) My work pension is around 14% (varies on income levels). Should we focus on 10% of my and my hubby’s income for retirement savings, or should we try to put 10% of his aside above my 14% for better retirement planning?

4) We have started an emergency fund and have $5000 in our TFSA (I'd like to grow it to $10000). I know this cash should be liquid, but I was wondering where the best place to put it is. I wondered if we kept $5000 in cash and threw the rest into RRSPs to benefit from the tax refund now - then if a job is lost and we need to pull out as income, it wouldn't really be a big deal. Thoughts??


Gail Says: 
Wow, your brain has certainly been working hard. Okay, let's do 'em one at a time.
1. Since you have no debt, throw the 15% into life.
2. Yes, parents with kids in daycare do have a lot of trouble getting the LIFE category to come in under 25%. But that's not really the point. The point is to not spend more money than you make. If you can trim from housing, trim from transportation, eliminate debt, you'll have more for LIFE, right. So that has to be your focus. It's not about the 25%... that's just a guideline. It's about the 100%.
3. Since you have a pension at work, you don't have to save any more for YOU. If your hubby does not have a pension, then he should be taking advantage of an RSP. I don't know how old you are or how much you have saved, but if you're in your 30's the 10% rule should work fine for you.
4. You should grow your emergency fund to the equivalent of 6 months' worth of essential expenses. A TFSA works fine. I know the returns aren't great, but you need to keep this money in a very conservative investment and very liquid in case you need it for an... EMERGENCY! If you have RRSP room you can use that, just keep in mind that what you take out of an RRSP can't ever go back in, whereas what you take out of a TFSA can be put back in when you recover financially, as long as you wait till the following calendar year.


A Wrote: 
I desperatley need your help! My family is sinking in debt, I am becoming more and more depressed and feeling like there is no way out. We recently purchased a home that is in major need of repair and we do not have the funds to fix it because our debt load is too big and our income too small. I don’t know how to repay this debt without having to use what we pay on it every month because there is just not enough money to go around.

Everything is maxed out and no room on new mortgage to refinance. We cannot get ahead!!! I just can’t seem to see our way through, I cannot see the how we can survive with all this debt. I am unable to take on a 2nd job as my husband travels for work and is gone for extended periods of time and we have 2 young children at home.

Gail Says: 
My best advice is to go see a bankruptcy trustee. You are in way over your head. When it comes time to renew that mortgage, you may see a monthly increase of as much as $500. However, if you manage to keep your mortgage in good standing and you have no equity built up yet, you'll be able to discharge your other debt while you hang on to the house by declaring bankruptcy. You should never have been approved for so much credit. Please, see a trustee and get some advice on the best way to handle it moving forward.


T Wrote
Previously when my husband has received a bonus from work we have cashed it in because we needed the money. We have a $290,000.00 mortgage. This year I was thinking of cashing his bonus in and putting it towards the mortgage, or is it better off in the long run to just transfer the whole amount into an RRSP? My husband receives his pay weekly and contributes $100.00 towards a pension plan. We have no cash flow savings and live pay check to paycheck. Please advise?

Gail Says: 
A bonus like this is a great opportunity to start an emergency fund. With no money saved for just in case, you're at risk of having to use credit if the caca hits the fan. I strongly recommend you use the bonus money to give yourself a leg-up on the emergency savings. Aim to have six months' worth of essential expenses covered. If you haven't maxed out your TFSAs, that's a great place to put this money.


A Wrote: 
I'm a 28 year old teacher and currently earn $42,125. I recently got married and my husband is a lawyer and has been working for 2 years. His income is roughly $80,000 When we got married he had $50,000 in credit card debt and another $100,000 in student loans.

We spend the first year and a half of our marriage paying off the $50, 000. We currently have roughly $3000-$4000 credit card debt left. I have nothing saved in retirement and neither does he. I was smart enough to invest what I had and bought a home before we got married. I rent out the home, which pays for itself. We however live on rent and are just trying to save up enough to get a mortgage in 2yrs and pay down his debt and have some saving and retirement.

What do you think I should do? I need help figuring out where the money that we save should go? Debt repayment? Mortgage? Retirement? I know we can get a tax break if we put it towards RRSP, but we're young and also want a home of our own soon.

I love your show and respect your opinion please advise me. We bring home a combined monthly income of $8,300, but he has so many debts to pay off our monthly fixed expenses are $3300. Once he pays off OSAP and his American student loans, and car insurance etc, we're left with $2000. What should I do with it?

Gail Says: 
If you are a teacher in Canada, you belong to one of the best pension plans going, so don't sweat your retirement stuff. If he doesn't have a pension plan where he works, then he needs to be using an RRSP to minimize his taxes and save for the future. Keep in mind that you can use some of that RRSP money for the downpayment on a home, so he could save on taxes and save toward a home at the same time. If you have just $4000 in credit card debt, you can get that gone in just two months with your extra $2,000 a month. Do it. Then start contributing monthly to an RRSP: half toward a new home purchase and half to long-term savings. He can actually have his taxes at source reduced (you won't get a tax refund, but you'll have more cash flow) and you can use the additional income to ramp up your savings. You also need an emergency fund if you don't already have one, so you could put that extra cash flow into a TFSA for emergencies if your current EF is non-existent or needs a boost.


S Wrote: 
I love your show! I have a question about the money jars, I have a family of 6 - 2 sets of twins.  If I put $150.00 in the food/grocery jar and say I only us $110.00 that week, do I divide the rest of the money into the other jars, or add the extra to the food/grocery jar for the next week, or in the saving account. We are a very busy family and I am also trying to have my teenage daughters understand thanks for your time. I would love you to come to us and help me with a budget.

Gail Says: 
You could leave the money to build up for a few weeks so you have a bit of a cushion for those extra-expensive weeks. If there's lots of money built up, leave as much as you think you'll need as a cushion and use the difference to boost your emergency fund, add to your savings or just have some fun!


E Wrote
I'm a single 34 year old with no debt, about $19K sitting in a high interest rate savings account. I have about 3K in an RRSP that I've been dragging around for years. I have 3 credit cards and one line of credit. Collectively this credit is making available to me about 40K. I have no plans to buy a house any time soon. I currently rent an apartment, have very little fixed expenses, no dependents, I am in school and am collecting unemployment - I can't wait to get back to work!

My question is about all this credit available - 40K kind of scares me. Does lowering (or even eliminating) credit negatively effect my score? In my situation, I have no debt to consider, for some reason having credit available to me makes me feel a little safer :S - is there a 'safe ratio' for me to have when it comes to credit vs income?

I would love to hear any additional feedback or suggestions you might have for me. Thanks for your time.

Gail Says: 
Well done on having a solid emergency fund and no debt. There actually isn't a "credit-to-income ratio" that you can use to decide how much credit is enough. But if you're uncomfortable with the $40K, call and have it cut back. Since you're not carrying any debt, it won't affect your credit score. I'd trim back on the credit cards and hang onto at least one card and your line of credit, even if you reduce you limit. If you're not sure how much to trim back, do it slowly. Eliminate $5-10K to start, and then if you want to trim back again, you can do so.


J Wrote: 
I have just started using your system for money management. I have set up the budget book with our allowances each week. I also read your information on reconciling your accounts. I am just wondering however, how to start an account book, listing all the debits and credits? Should I just start with $0 under records and put what ever is in the bank at the time I start under bank and then start to carry forward the accounts total? If you could give me an example that would be fantastic.

Gail Says: 
Setting up a spending journal is sooooo easy. Get yourself a notebook. At the top of the page write in the amount in the bank today. As you spend money, collect your receipts -- all of them -- and deduct how much you've spent in your journal. As you get paid, add in how much you received.

In my spending journal, after I get paid, I immediately deduct the "fixed" expenses I know I'll have to pay for that pay period. So if your rent/mortgage paying is due on the 3rd, you'd deduct that from your 30th pay (for example). Having deducted all the fixed expenses, you know what you have left to spend on variables.  Well done on getting your money act together. Take a bow.


M Wrote: 
My husband and I are 58-years-old. I am personally debt-free but my husband has quite a large debt of about $30,000.00. He is a real-estate salesperson who is not making much money.  I claim him as a dependent every year. I am on a generous disability pension of about $2,500 a month. Our rent is very low at $400/month. I have 2 pension plans, one with an investment firm and one with the government both about $60,000 each. My husband is really struggling to keep up with paying off his bills. He owes $2,000 every month. If he doesn't have more money within the next month he will have to declare bankruptcy. Should I take out money from my pension to pay for his business expenses?

Gail Says: 
You absolutely should NOT do that. If he has to declare personal bankruptcy so be it. Do NOT touch your pension to pay for his business stuff.


P Wrote: 
I retired early from the Federal government 1 1/2 years ago.  I worked there for 30 years.  I took a penalty.  On my cheque I clear bi-weekly $810.00.  My husband is on WSIB and receives $1040.00 bi-weekly.  I still have a $37,000.00 mortgage. And have no other loans, just utilities.  I also have a RRSP DISA of $21,000.00 dollars.  I have a $2,000.00 TFSA.  My husband has $6,000.000 TFSA.  And my husband has a $26,000.00 RRSP.  I am almost 55 and my husband is 58.  Should I use all my RRSP DISA to pay my mortgage so I no longer have it because it is $487.00 bi-weekly. Or should I just ride it out? 

Gail Says: 
If you cash out the RRSP all at once, you're going to take a tax hit. You can do one of 2 things: 

1. Ride it out, as you say.

2. Change the mortgage so that you're paying less of your fixed income each month. There will be a longer term cost on the interest, but you'll have a better cash flow by taking a longer amortization than you currently have. Go and see your mortgage lender. Ask for help in restructuring your mortgage so the payments are lower. On a $37,000 mortgage, amortized for 7 years at today's rates (3% or so), your bi-weekly would only be $225. 


K Wrote: 
I love your shows, especially Princess (I like to show my husband to let him know how great I am!)
My husband and I were blessed to have our first child June 28th, 2010. She was very ill and stayed at Sick Kids for 2 months. We knew while pregnant that she would have a hospital stay and surgery, but we had no idea that it would be 2 months before we could take her home. We had thought 3-4 weeks tops. I also had a brief 3-week hospitalization while pregnant.
Because of this we incurred a LOT of expenses, including various hotels, parking, food, transit etc. My dad told me these are tax deductible, but then I heard only up to 3% of your annual income. I searched CRA's website but couldn't find any info.
I am on mat leave so bring in about $1500/month. My husband makes around $85,000/year depending on commission.
Should we claim our expenses from the summer? They are upwards of $5000.

Gail Says: 
Lots of people don’t understand how to claim the medical tax credit on their returns. Not surprising since much of the information that’s available is written in Taxeeze. Since most people don’t speak Taxeeze, they’re left scratching their heads. Let’s see if I can simplify this for you.

First, the claim for medical expenses is a tax credit, not a deduction. See http://gailvazoxlade.com/blog/archives/2345 for the difference.

The 3% to which you refer is the income threshold used to calculate the tax credit. What that means is that you take your total medical expenses (you should group them all together and make one claim for you, your spouse and the kids) and you subtract 3% (or $2024 for 2010, whichever is lower) of your net income before you can begin making a claim.

Since the claim is based on income, the lower income spouse should make the claim, providing they’ve paid enough tax to claim the full amount. So do both calculations and then decide. And remember, you can carry forward some of the expenses from 2010 to 2011 if that works out better for you. How?

Expenses you’ve paid in any 12-month period ending in the tax year for which you’re claiming can be used. So you could use expenses from Jan 2010 to Dec 2010 or claim only some of the expenses in 2010 and the rest in 2011 (from say, September 2010 to June 2011) or depending on what’s more advantageous.