May 2014 Questions & Answers


T Wrote:  Recently I finally finished paying off a loan, the only debt I now have is about $2500 in credit card with 3.4% interest (Capital One). I have an untouched line of credit for emergencies ($10K - 6.4% interest) as well as about $6000 in TFSA and $19000 in an RRSP (low interest in both of these accounts. The money I was using to pay off the loan I'm putting it now in the TFSA. I withdraw from it on occasion if needed. I try to make payments to the credit card biweekly, approx. $75 to $125 depending on other expenses. My question is: should I pay off the credit card using TFSA or continue what I'm doing? If no credit card payment due, I would increase the deposits to the TFSA accordingly.

Gail Says:  You owe only $2,500, so you could pay it off and still have some money in your TFSA for emergencies. Use the money you were using to repay debt to top up the TFSA until it's back to even. As for an untouched line of credit for emergencies, girl, lean forward so I can give you a slap. A line of credit is NOT an emergency fund. So you have a crisis, you go into debt, and that helps, how? If you want the security of an emergency fund, that is CASH IN THE BANK.


K Wrote:  Soon we will have all of our debt paid off except for one truck and our home. We will owe $70000 on our home at 7% (9 years amortization) and $35000 on the truck at 0% (4 years left on the loan). I know you usually recommend that people pay off the vehicle before the house because the house is an appreciating asset while the vehicle is not; however, we live in a mobile home and don't own the land it is on (that's why the interest is so high. There is no traditional mortgage on a mobile home unless you also own the land). We have found that mobile homes tend to decrease in value quickly and we would be very lucky to get what we owe out of it if we were to sell it, even though we live in an area with a very strong real estate market. We are planning on selling within the next three years and buying a house. My question is, in this case, would it be better to concentrate on paying the house down over the vehicle so we have at least a little value in it when we sell it?

Gail Says:  Your car loan has no interest cost so there is no savings by paying it off faster. The mobile home, on the other hand, carries a hefty price tag. So you're perfectly right to focus on getting it paid down asap.


H Wrote:  I am preparing a budget for my family as although we are financially stable I would like to save up for vacations and also my husband has decided he wants a new truck (grrr).

We contribute a large amount to RRSP's (I personally contribute over $400/month) and I am just wanting to confirm that in the 'savings' portion of the budget that I would include this amount.

I am just not sure that is what you mean by 'Saving' and you say that a person should be saving at least 10% of their income. My RRSP contributions come to about 15% of my monthly income if they count towards the 'saving portion'.

If the RRSP contributions are 'Saving' it will allow me to create a 'vacation' account and leave the savings as it stands.

Gail Says:  Yes, long-term retirement savings go into the savings line, so that's your RRSP, company pension plan, anything you're using for your long-term savings. Emergency fund, school savings and the like accumulate elsewhere. As for how much to save, the general rule of thumb is if you're in your 20's you can save 6% of your income. If you're starting in your 30s, it's 10%. If you're starting in your 40's it's 18%.


T Wrote:  I'm new to making a budget and I was trying to follow your online budget maker. I use both my debit and credit card to make monthly purchases, so am I to add up all of the expenses from these two accounts to fill in the budget? Also, if I take money out of my account every month to pay off the visa in full, I would put that amount into debt repayment? If I do that, wouldn't that be like paying for the same groceries twice - at least when put into the budget? Please help me make sense of this!

Gail Says:  If you are simply paying for the transactions you've made on your CC, that's not "debt repayment" since you never let it turn into debt by carrying a balance. So only the amounts in the various categories would go into your budget, not the payment made to the CC.


T Wrote:  I was reading "Debt-Free Forever" and read about the jars, and as of my next pay, I was going to start the jar system. However, a thought came to mind; that I think would work, if you hear me out. I have had bad credit for years, and would like to fix it and was told the best way to fix it is with frequent use of the credit cards you use, if used correctly. So, I used the interactive spreadsheet off your site and found the Total Variable Expenses for each month. I then went and got a "Budget Book" to track all expenses I would use in the categories you mentioned for the jars, but instead of putting them in jars, I would put the total on my card and use from there, tracking all I use on that card. Would this be a smart move? It would help fix/build my credit again, hopefully, and with the tracking of my spending both on my credit card statements and the "budget book" I have bought, I can watch what I am spending on a regular basis. What do you think Gail?

Gail Says:  The Gail Way is what you're describing: tracking every penny and making it work in the context of a realistic budget. As for using a credit card and paying it off in full every month, that's EXACTLY the way to do it. But you must be diligent about tracking your spending so you don't end up putting more on the card than you can afford to pay back.


T Wrote:  I am a bit confused on placing my money where. I just received my nursing degree and have been working full time for 9 months.  The only debt I have is a student line of credit of $10,950.00. (Interest is 4% so I pay $40.00 a month) my goal is to pay this off in one year.  It costs me about $1000.00 to live and that includes rent, bills, food, entertainment (that is keeping to a tight budget) I make approx. $1750.00 every two weeks. I recently was talking to my banker and I started putting bi weekly $100 to RSP and $100 to TFSA ($400 a month). I am a bit confused because I know retirement is important and as a student I would put small amount in those accounts and now I am making more.  However, should I make larger amounts to pay off my line of credit and contribute more to my savings as I am putting small amounts each month or should I still contribute those amounts to my retirement and make smaller amounts to my line of credit and saving and pay off my debt slower?

Gail Says:  If it were my money, I'd stick with what you're doing with the RRSP/TFSA right now and bang away at the debt to get it gone as soon as possible. Then I'd split the diff: put half of what I was using for debt repayment into my savings and have some fun with the other half. Since you are still young and healthy, please, please look into individual disability insurance so that if are hurt doing your job your life doesn't disintegrate financially. If you don't know where to start, check my website. Or call Glenn Cooke at (866) 662-5433. He's a good guy.


L Wrote:  I have been coasting by for quite a while now. I have no consumer debt. My boyfriend of 9 years who lives with me also has no debt.  I however, have little to show for it. I make $14.00hr and work a little over 44hrs a week - 6days a week. I have recently purchased a home with a $90,000.00 mortgage. My parents gifted me $30,000.00 and I had $8,000.00 of savings and family inheritance for downpayment. It is my mortgage. My boyfriend is contributing for the household expenses. He is currently on accident disability after a car accident almost a year ago and brings in limited money. My question is not about debt - It is about savings. I only have $3100.00 in RRSP. My boyfriend has meager TFSA. I want us to be okay for the future. I am wondering how my boyfriend can go about saving on such a small income with no way of making more. I also want to save some while putting a bit aside to pay my parents back - this was not part of the arrangement we made – it’s just something I want to do for them.

Gail Says:  You can't save if you have no financial resources and no income earning potential. How long is your BF likely to be off work? What are his future prospects? If it is likely that his income will be limited for the long-term, saving for the future probably won't be something he can do; he'll have to get used to living on a small income and then count on government assistance when he retires. As for your savings, if you're making about $30K a year you have about $5,500 in RRSP contribution room. But you're not in a high tax bracket so you have some choices: you could use an RRSP and take the tax refund to do with as you please, but pay tax on the money later when you take it out of the RRSP or you could make a $5,500 contribution to a tax-free savings account TFSA and when you go to take the money out there won't be a tax bill. You should be striving to put a little sumthin' sumthin' away for the future; you should also have an emergency fund (since you're the only solid income in your household).


C Wrote:  I am a little different than most people you deal with. I am mid 50's, own my home and have no debt and have about $125,000 in savings and RRSP's not including the value of my home. My major problem is that I don't want to live as a pauper the last few years of working. I want to spend the majority of my money travelling when I can afford it. But this is probably not the best choice for my financial future.  I hope to retire in the next 2 or 3 years and know when I retire travel is not going to be possible. Is there something I am missing that I should be saving for that I have over looked? I made about $40,000 a year and will have a pension of about $1,000 a month. I am on my own so I only have to support myself. I will retire when I am 60 so I will be able to get my CPP.

Gail Says:  So here's what you do. Starting now, except for the travelling, practise living on the $1000 plus CPP that you'll have when you retire. This will tell you if you are able to manage on that money, or if you'll need to save more. It'll also give you some insight into whether you'll have to sell your home to use those resources to supplement your retirement income. If you can swing living on the $1000+, feel free to spend your money. Keep in mind that the longer you're retired, the more income you'll need to keep up with inflation, so don't plan on touching those RRSP dollars for anything other than inflation protection.