April 2013 Questions & Answers



D Wrote: I just wanted to say thanks first. I love your show and now am enjoying your books, just wish I would have got all this knowledge and wisdom a long time ago, oh well, better late than never, right? I want your advice on a pre-retirement plan. I work full time, have good pension plan (Gov't plan), and my husband now works part time and has a lump retirement fund which he has not accessed. I am 54 and he is 56. I am in no hurry to retire but am trying to put plan in place. We have good net worth, home, cottage and rental property (shared with daughter). We do have a Home Equity loan as debt. My husband would like to use some of his retirement savings each year for next few years to pay off our HEL to be debt free when we retire. He wouldn't have to pay income tax as he doesn't make that much. Do you think this is advisable?

Gail Says: As long as you replace those funds he'll need for retirement, the plan is a good one. Make sure he stays in a low tax bracket, so do it slowly so he doesn't pop up a level. And when he's done, he should take the money you were using to pay off the line (like a mortgage payment, right?) and contribute it to max out his TFSA and then your TFSA. That should bring you back to even lickety split.


S Wrote: I am 26, and 2012 is the first year I have done and kept a monthly budget. I would like to now do a year end review to make sure that I spent within my means and spent my pay wisely. However I have no idea how to start the process and nothing I found online was helpful. Could you please write an article about how to create a year end review? Or can you please pass on some advice on how to start the process.

Gail Says: Essentially what you're describing is a spending analysis and I've describe how to do it in detail in Debt-Free Forever. For future reference, if you create a spread sheet budget and enter your amounts monthly, at the end of the year you can average your entries to come up with the next year's starter info. If you don't know how to do this, check out The Gail Way on my website.


S Wrote: My husband and I both have our TFSA Mutual Fund maxed out. With the New Year approaching, we are getting ready to contribute for 2013. We currently have the money put aside and were planning to do lump sum payments in early January. I spoke to someone at our bank and they suggested doing weekly contributions instead. I forget the term they used, but basically they said that by buying more frequently, you get a variety of rates instead of buying $5500 worth of funds at a single price. It made sense to me at the time so I set it up to do it this way. However, I was just browsing another institutions website and they had an article that suggested that if able, doing a lump sum at the beginning of the year so it has an opportunity to grow throughout the year. Now I am confused as to what is the best thing to do because to me, they both make sense. Help please!

Gail Says: Make the lump sum amount right at the beginning of the year so the money is inside the TFSA where it can earn its return without any tax consequences. I have no idea why the idiot child at the bank told you to hold off when you already had the money accumulated.


G Wrote: My wife and I have been on the road to recovery from great financial failure over the better part of the last 4 years. We've managed to pay down close to $50,000 worth of debt in due part because I worked as a freelancer on weeknights and weekends in order to achieve our goals.

The past year hasn't been kind to us with our newborn being allergic to milk protein and insurances unwilling to cover the extreme cost of her very specific baby formula (close to $1000 a month). My wife is on mat leave since April and is only getting 55% of her regular pay. Let's just say it's been a high pressure and hectic year. I was forced to do more work and sell my man cave toy (pinball machine) in order to try to keep the boat afloat. I've put in insane hours. My wife is going back to work early from Maternity leave in order to put an end to this insane workload. Which will stabilize the finances.

Finally to my question. Since the better part of this ordeal is over and I choose to make extra money on the side for the family by doing contracts and so forth. Should I entitle myself to a portion of the winnings for my own pleasure and indulgements? My wife and I have come to a crossroad on the subject. She believes all the money should be divided equally while I feel since I put the sweat equity into it that I should get a piece of the pie and spend it on what I see fit. P.S. Your show saved us.

Gail Says: If you were dealing with a mess that had to be cleaned up I would say all to the pot. But if this is "extra" money moving forward, I think you need to think about creating a little incentive to keep doing what you're doing. As far as you putting the sweat equity in, that's not what makes me say this, since if you and your wife have agreed she will be home with the babe, that's both your decisions and that means a 50/50 split. However, if you are giving up time you would normally spend on your own pleasures in order to create a bigger pool of funds, a small compensation to you for the loss of that pleasure time isn't out in left field. Now you'll have to negotiate a number that works for you both. Good luck!


M Wrote: I would really appreciate any input you could give. I've have begged my husband to sign up for one of your shows but he is too private to be on television. We would really like to get our money straight and know that we are doing the right things.

We are 31 and 29 and have a 16 month old son. I have decided to become a stay at home mom, and my husband makes $90 000 per year (I used to make about $40 000, so we are adjusting to the change). We did have some loan and credit card debt but got rid of it recently through consolidating with our mortgage. We have owned our house for a little over 5 years. We have 30 years left and owe about $275 000. The house is worth about $325 000. To get out of renting, we got one of those 0% downpayment, 40 year mortgages when we originally bought the house. We have two vehicles and one is paid off. We each have an RRSP and contribute $400/month. Including one car loan, RRSP, all bills, mortgage, utilities, etc., we have about $1580 every two weeks in fixed expenses. There should be a lot left, yet, we still feel like we are living paycheque to paycheque at times. Even though it seems at other times that we are spending a lot of money.

How much should we be saving? How much should we put away for retirement? I don't want to look back at the end of life and feel as though we haven't done anything with our money. My big passion is travel and we always seem to come up with money to do so through bonuses, tax returns, and side work, etc. and it is something I'd like to continue to do. Thanks for any input you can give. Your opinion is so valuable to me!

Gail Says: When you say, "There should be a lot left, yet, we still feel like we are living paycheque to paycheque at times" I know you don't have a complete budget and you aren't tracking your spending. Go to my website and buy The Gail Way and follow the instructions. This takes discipline and commitment, but you will know where every red cent is going, and you can then plan for those vacations instead of having to "come up with the money".

As for how much you should be saving for retirement, start with 10% of your net income (after taxes). You'll also need to build an emergency fund and start saving for baby's future (individual RESP, NOT group RESP).



S Wrote: My wife and I have recently cleared up all of our LOC and Credit Card Debt of about $27,000 in just under two years (our first two years of marriage) using your methods combined with some financial tracking software. Thanks for the map to discipline and the kick in the shorts to get there. Now we don't know what to do or how to plan best.

My question is this...

We currently make $5600/month net with, $1100 rent, and two car payments totaling $855/month (basically just over the 35% you would normally recommend for housing which isn't that bad?). My wife would like to go back to school September 2013 to almost double her income, but not for 5 years.

By August 2013, we will have $7000 in savings and still rent and the 2 car payments. School will take 5 years with a cost of $5000 year 1, and $7500 in years 2-5 ($35,000) total.

Should we reload our LOC's @ 7% etc. and just pay them off when her income doubles in 5 years perhaps using the surplus net while maintaining today’s current budget? Should we focus on being way more tight and her working, etc? I don't want to over work her and jeopardize the success of the better income in the future. When I think about it, her new job will likely create $2500 extra net per month. Would it be a bad plan to wait until year 6 and the new job and put $2500/month against the student debt? That would allow a pay down of $30,000 year 1 and less than 6 months to pay off the remaining $5000 and interest.

Comments? Ideas? What I should do with our money after that is a whole other question that you'll see from me in 6 years. Wow are we ever ill equipped as a society to manage our money even when we want to do what is right.

Gail Says: You've shown me the costs of school, but haven't addressed how you're going to deal with the loss of her income while she is in school. Or is that in the numbers you've shown me (it doesn't look like it to me)? How will you deal with that rent, those car payments, insurance, food, life while she's not earning an income for 5 years? You need to make a budget for when she's in school to see how deep the debt hole will actually be, not just accounting for the school fees, but also for living.

Whatever you decide, your plan to put all her income to the debt you rack up will be a good one. But you must know the reality of how long it will take to get to debt-free. I'm all for increasing your earning potential and improving your circumstances. Just be prepared with real numbers so you aren't frustrated when it comes time to pay the piper.


S Wrote: I am 27 years old performer so I don't have a pension to rely on. I am considering using my RRSPs towards a down payment on a house. I am concerned because I don't want to throw away these years for compound interest. What is should I do?

Gail Says: This is a case of not being able to have your cake and eat it too. You have three choices m'girl:

1. Use the money for the home you want to buy and forgo the growth on those RRSP assets for as long as the money is out of the plan,
2. Keep the money in the RRSP and save your downpayment outside your RRSP,
3. Split the diff: saving half the downpayment (or some such percentage) and use the remaining from your RRSP.

Before you launch into home ownership, make sure that when you do buy you will not only be able to meet your home commitments but also continue to contribute to your retirement savings for the future. I you strap yourself so tight that your home eats up all your future retirement savings, you will have to sell the home when you retire, and pray the housing market gives you the retirement assets you need.


D Wrote: I make $95, 000 per year. I have credit card debts of $17, 000, student loan of $13, 000, mortgage of $21,000. I have a 14 year old and a disabled parent. I have $7, 5000 locked in an RRSP and just over $50,000 in a Regular RRSP. I contribute approximately $800 per month to my OMERS plan and my employer matches it. I am now 52 years old. My question is regarding withdrawing RRSP funds to pay down my credit card and line of credit $2,000. I am very nervous about owing so much. What do you think?

Gail Says: I think you should stop using your credit card. You make a good income, why the hell are you racking up debt? It's time to take stock of where your money is going. Do a spending analysis: review your last six months' spending and detail where every penny went. Make a budget. Don't touch your RRSP’s because you'll lose a huge amount to taxes with your current income. If you’re nervous, that's good. If you're stagnant, or looking for an easy way out, that's bad.


B Wrote: I am recently engaged and my fiancé and I have been debating on what is the best way to setup our finances. Currently, we each have our own separate accounts and have also setup a joint account. However, we are unsure what the best way is to utilize it. Right now, our thoughts are to each put in a certain percentage of our income into that account and then have all of our daily living from taxes, insurances, fuel, groceries, utilities, etc taken out of that account. What do you suggest to young couples?

A couple of other things that may help to answer our question: we have been living together for about 7 months and currently we pay for our own vehicle insurances and fuel, he pays for all utilities, taxes, etc for the house and I pay all groceries and other housing purchases. He has 0 debt but I am still paying off my vehicle which I feel is my own responsibility to keep paying off. At times he feels that because he has a much more substantial income than I do that he should carry majority of the living expenses but I want to feel like I am contributing also which is why I want to see our joint account more active. What do you suggest for us?

Gail Says: You should be responsible for yourself and I applaud your good sense in knowing so. As far as keeping things "fair," you can contribute to that joint account proportionate to your income. So if he brings home 2/3 of the income, he'd pay 2/3 of all the joint expenses. That would leave you with a little more money for working towards your own goals and fun. How does that sound?


J Wrote: What are your thoughts on mortgaging an inground swimming pool? We have zeroed our debt down and have a manageable mortgage which we pay weekly. We do not vacation and the pool would be a nice family-orientated leisure spot for us all to enjoy. HOWEVER it also seems that it may be a silly waste of $ as in Canada it can only be used for a short period of the year.

Gail Says: Would you mortgage for a vacation? You're comparing your inground pool to a life-time of vacations, so the big question is, are you prepared to pay all the interest that will accrue on that "pool purchase"? Why not save the money for the pool by making extra payments to a "pool" fund automatically each month? That's how I'd do it.