December 2015 Questions & Answers


J Wrote:  I have just retired and I want to know if I can still buy an RRSP?  Is pension considered earned income?

Gail Says:  Sorry babe, pension income is NOT considered earned income when it comes to calculating contribution room for an RRSP. If you have other sources of earned income, you can continue to buy RRSPs until the year you turn 71. RRSPs have to be rolled over to something else -- usually a RRIF -- by the end of the year in which you turn 71. If you have a younger spouse you can contribute to a spousal RRSP until your spouse turns 71.


C Wrote:  I just came off maternity leave with some debt and then found out I owe the CRA a big amount of money. Is it ok to take money out of my TFSA to help pay off the debt?

Gail Says:  Sorry to hear about the big tax bill to the tax man. It sounds like it was a shocker. Is it from past years, or did you simply not calculate the tax you would owe during your mat leave accurately?

You can take the money out of your TFSA at any time without tax consequences, so if you think this is the best way to deal with the tax bill by all means go ahead. Keep in mind that if you choose to, you can put previously withdrawn contributions back into your TFSA in a subsequent calendar year.


C Wrote:  Here's a little background...I operated my own small staffing agency for approximately seven years. The business folded in 2009 and I returned to the corporate work environment with approximately $50,000 in business debt and $28,000 in personal debt (my husband and I). Today, all of our debt has been paid with the exception of $7,000 in personal debt. We own a small condo (our primary residence), and have retirement savings of approximately $20,000 between the two of us - we sacrificed savings in favor of clearing the debt.

Here's my question. I have wanted to purchase a Mac Book for a number of years. It is not a need, but purely a want/desire (we currently have two older laptops, and can get a 'newer' used machine from my hubby's work). This month I have an unexpected $2000 coming to me that I'd like to use to purchase the Mac Book. My husband thinks that you would suggest otherwise, asking sarcastically, "What would Gail say?" His preference is that I put the money toward the remaining debt. My preference is to use the money to purchase the Mac Book, and continue with the repayment plan I have in place that will see the last $7,000 paid off in the next 3-4 months.  So, what do you say, Gail? Should I treat myself or apply it to the debt?

Gail Says:  Of course your preference is to get the new laptop. That's fun. But it's not the right thing to do. With $7,000 remaining in personal debt and very little in savings, your first priority is to get your personal economy stable. That means paying down the debt lickety-split. Then you can take the money you were using for debt repayment and divide it, saving half and incorporating the other half back into cash flow. You may be feeling financially "safe" because you've done such a good job of getting rid of your debt to this point. And you may feel you're deserving of a "reward." But until that debt is gone, gone, gone, you are not safe. And your reward -- your biggest triumph -- will be when you get to Debt Free Forever. Stick it out to the end babe. And tell the husband he can quote me anytime, but not sarcastically!


R wrote: How do you handle the spending analysis if your expenses are both in US & CDN currency and the income you make is in US currency. I have to pay my mortgage in Canada, but I buy half my food in the U.S. and the other half in Canada. I'm trying to compensate for a daily fluctuating exchange rate.  We live in a border city so expenses are split between US & Canada.

Gail Says: It only matter what hits the bank. So if you're operating in Canadian dollars calculate your income after exchange to Canada based on the worst exchange rate and do the budget based on that. When times are good and you benefit from the exchange rate, use the difference at the end of each month to boost nice-to-have planned spending: vacations, clothes, extra entertainment, and the like.

Expenses would go through for the spending journal and budget at the exchange rate when they went through your account/credit card to keep it real. You could enter the amount you spend each time you spend in the SJ and add a line each week for "exchange" at which point you'd compare what you entered with what really went though the bank and do a + or - to the SJ balance. So, let's say you bought $100 in groceries in the U.S. on your credit card. You'd enter $100 in your SJ and then when the charge came through on your credit card you'd enter the difference between that $100 and the actual amount on the credit card (it might be slightly higher or lower depending on the exchange rate) in your "exchange rate" line on your budget.

Alternatively, you could keep all your money in a U.S. account and use a U.S. credit card for your U.S. purchases and do your budget in U.S. dollars. Then you could transfer only what you need to cover your Canadian bills to your Canadian account, immediately incorporating the exchange rate. So let's say each month you pay $2,000 in Canadian bills. You might transfer $1,000 each of your two semi-monthly pays. On the 15th it might cost you $2,007 and on the 30th it might cost you $1999. So you'd have a difference of $6 that you'd put in your "exchange rate" line to account for the move from U.S. to Canadian funds.


M Wrote:  Due to declining health I am no longer able to work at all! I have bill collectors constantly contacting me about repayment of what I owe and yes! I do owe it but my wife and I survive on $876.00 monthly. I would love to be cleared of the debts I owe but I am truly unable to do so! Would you be able to give my wife and me a solution to our problem?

Gail Says:  I'm sorry you've not been well and I hope that you get stronger with care. The reason I tell people that debt is a trap is perfectly demonstrated in your situation. For while debt may be "manageable" if anything changes it quickly becomes a huge problem. You don't say how much you owe or own so I'm not sure if bankruptcy is even an option for you. If you have no assets, bankruptcy would wipe out the debt and with your low income that would be pretty much that. But it'll cost $1,000 + to go through the process.


N Wrote:  I am 32 years old, and I live in Victoria BC. My question to you is; I am very happy with my working carrier at the moment, I am a pipelayer for the City of Victoria, and I am a journeyman plumber with a small side job business, however I have come to a situation in my life were I met my girlfriend K, she is from Sapporo, Japan. We are currently hashing out a plan to be together, she will move here because my job is good for us both, (benefits, pension, my training/skills) and plumbers don't make good money in Japan. The plan will require us to save $20,000 CDN each in the next two years, believe me when I say I am doing every single thing I can think of to save my money because after my paycheck, pension contributions aside I'm not left with a huge amount of money at the end of it. I park the truck to take the bus the majority of the time, comparative shopping wearing my sewn up camo shorts, way to long, packing lunches etc...My question is really about staying happy and committed to such a huge goal. We have budgeted and set a plan for two holidays at $2,000CDN each, but I feel like I'm doing so much to save that I'm getting bummed out.  I feel like I can't or shouldn't do things and then in turn I question why am I putting my life on hold for 2 years, I can't see her until September because of her job in Japan so it's a long time. I do spend a lot of time on weekends hiking but, it's starting to become not enough. I didn't take my holidays this year so I could cash out the money and save it, so without sobbing about it, what would be some pointers that I might not be thinking about, we are both sacrificing a lot to make this happen, 2 years is along time but when you consider I'm going to Japan to marry her, the ring and our honeymoon, and then I want us to have some money saved between the two of us to start our life together it gets burnt up pretty fast. I think big and this is no easy task but, my alternative was her plan which was to get marred in 9 months because of the paper work (Canadian immigration) and not really have anything saved. I don't want to start our lives together like that. Not to mention the cultural difference between us, for her being Japanese she's ready to dive right into this, I am also but not that fast, I like to take my time and think my plans out as best I can, we want to be together so for me there is no rush.

Gail Says:  You say, "I feel like I'm doing so much to save that I'm getting bummed out, because I feel like I can't or shouldn't do things and then in turn I question why am I putting my life on hold for 2 years." Why indeed? The things you are saving for are:

• two holidays for $2,000CDN each
• going to Japan to marry her
• the ring
• our honeymoon

So, in the present, you are wearing raggy clothes, parking your truck, and having no life so that you can have 2 holidays, a honeymoon and a ring after travelling to Japan to get married.

Is this what you really want? If it is, stop whining. You've made the choice and now you're going to follow through.

If it is not, then why are you giving up so much in the present for "stuff" in the future? None of the things you are saving for (other than the trip to get married) are lasting. If you are not enjoying anticipating them, then your energy is being wasted.

If you were not saving for those things, what would you be using your money for? Would spending your money on those other parts of life bring you more pleasure in the long run?

You sound like a sensible, hardworking man. I could understand saving $40,000 to start your life together with a strong asset base. Only you can say if saving $40,000 for vacations and a ring is worth it; it's your money it's your choice.

BTW, have you considered how long it may take for your new bride to acclimatize to Canada and get a job? That should be part of your consideration since you will be the sole breadwinner during that time.


M Wrote:  My husband and I borrowed money from our RRSP this year, $2000. We are wondering if it is best to replace that money or use the money to build our savings. At this time we don't have a savings, so we are just not sure which would be the better choice.

Thank you so much for all of your resources, this is our year to get these finances fixed!!

Gail Says:  Technically you cannot "replace" the money in the RRSP (as you can with a TFSA). In withdrawing money, you've actually lost the contribution room. You can make a new contribution and claim a new deduction. But that doesn't make sense if you're going to tap your RRSP when you run out of money. Why not use a TFSA to save in the short term. If you need access to the money, you can have it, no problem. Once you get to a certain level, say $5,000, use half the money for an RSP contribution (and save on taxes) and then rebuild the TFSA. Or you could just stick with a TFSA completely if you're in a low tax bracket or have a pension plan at work.

You must be setting aside something for your future if you want to be living on more than $12,000 a year (in today's $$) when you retire. That's about as much as you'll get (each) from the government.


S Wrote:  We are considering moving out of a wealthier part of town, selling our house and moving to a more modest house in a less wealthy neighborhood. Hopefully we would completely eliminate our mortgage. In the process I would take a year off to deal with some health issues. Some of our friends think we are crazy, to leave the neighborhood , but my husband and I are getting a little tired of all the condos and the construction around us, not to mention being on the lower end of income earners in a wealthy area. What we are having problems with is trying to choose a new neighborhood. I look at schools in the area, existing infrastructure, services like Libraries and Community Centers. And though I have done the math I keep worrying that I have missed some important factors. I would be happy to give you are numbers to see if you could tell me I have missed something. I have watched all of your shows, read your books and am pretty frugal by nature. I just don't want to have some kind of avoidable nasty surprise just because I missed something. Our house is worth around 650K; our existing Mortgage is 225K ad we are looking at houses in the 350-450K range.

Gail Says:  So you want to downsize now to be debt-free so you can take some time to heal yourself. And you've done all the research so you can choose a neighborhood with which you'll be happy. You're also a little tired of being the poor mouse in your neighborhood. The only surprises you might get would be if you chose a neighborhood that isn't in keeping with what you want from your life: if you chose, for example, a very "busy neighborhood" when you wanted more quiet, or a "driving neighborhood" when you wanted to be able to walk.

The money part of it is straightforward: Calculate all your costs for selling so you know how much money you'll have to pay off your mortgage. Make sure to take into account the penalty for early repayment that the bank will likely charge.