May 2015 Questions & Answers


B Writes: I just turned 30. How much should I have put away by now in my 401k? I am currently making about 45,000 per year. My employer matches 50 cents on the dollar up to 6%.

Gail Says: Your net worth should be the equivalent of 1 year salary so about $45K. I hope you're taking full advantage of that savings matching program at work. 


J Wrote:  I was laid off from my oil industry job in October 2013 with an excellent severance package. Since I will turn 65 in June 2014 my financial advisor says I can afford to retire now and maintain a modest standard of living with monthly withdraws from my RIF that would leave about $100,000 in my RIF account by the time I turn 90. Income from OAS and CPP will be about $1500 per month. My home is paid off; I own a new car and have no debt, so I think I have done everything right. But I can't get past a life-long need to save and plan for a financial future! How can I get past the need to be hoarding my money? I find myself frightened to spend anything!

Gail Says:  The savings 'habit' can be a tough one to shake when it comes time to stop saving. When I went through a difficult time and found myself in "super saving" mode, I actually had to add a line to my budget called "Pleasures" and make myself spend that money. It took a little time, but my mindset adjusted. And that's what you need: some time so your mindset can adjust. Hey if you're going to have $100,000 left in your RRIF at 90, you're fine.

Do up a budget for retirement. Figure out how much of your income will go to "needs" and how much you'll be spending on "wants". Knowing that there are places you can trim back should you need to (if the caca hits the fan in some way) will help bring you some peace of mind.

Make sure you allocate for taxes on your income, maintenance for your home, and whatever else you typically include in "planned spending" like clothes, travel, property taxes and the like. Each month, put this money in a high interest savings account. You'll feel like you're saving, but you're simply making sure the money earns some return while you're not using it. When you need to pay your property taxes, buy a new outfit or fix a window, you transfer the money back to your chequing account.

You've worked hard, planned well and done a good job of taking care of the future. It's here now, so enjoy it!


D Wrote:  Please Gail, my mom’s a quarter of a million dollars in debt and I'm only 14 please help!

Gail Says:  Oh sweetheart, I'm so sorry you are stressed out by this. I'm sorry my love, your mom has to figure out what to do next. But you have an important lesson to learn too. You know how bad this feels, so make sure you don't do this to yourself when you become an adult and responsible for yourself (and kid’s maybe?). If you have the resolve to walk a different path, to be in charge of your money and live within your means, you will have a different life. I'm sending you a huge hug. I won't tell you not to worry, because you're going to anyway. I will tell you that you are still a child so this is not your problem to fix. When you do become an adult, don't make this be a problem your daughter has to write me about, k?


T Wrote:  How do I get myself out of debt? I'm $4000 in debt, mostly from school expenses I had to put on credit cards when OSAP alone couldn’t cut it come textbook season. I don't make much because I'm a student who doesn't have much time to work and it feels like all of the little money that I do make goes into paying interest, I barely even make a dent in what I actually owe. Is there any way out of this?

Gail Says:  The only way out of debt is to make enough money to pay it off. If you don't have time to work in traditional jobs, can you find one that pays you while you do your homework… think gas station attendant, over-night care-giver, and the like. If there's no way to solve this while you're a student, at least keep up with the minimum payments and then bust your butt to get the debt paid off ASAP when you're done school. Or take extra work over the holidays to get back in the black before your next semester starts.


C Wrote:  Never Too Late refers to having 11 times your salary saved by the time you hit 60.  Is that your net or gross salary?

Gail Says:  If you are saving inside an RSP then it would be gross since you're going to have to pay tax on the money when it comes out. If your savings are non-taxable, and you have no other "taxable income" that would drive up your tax bill, then you could base it on net… but gross is safer.


C Wrote:  Is the 6% retirement savings rule (starting in your 20’s) or 10% (in your 30's) apply to your gross or net income?

By the time I hit my 50’s, I should have 8 times my salary saved. Does that include assets like the equity in my house because I live in Vancouver, and my house is worth a ridiculous amount of money?
Gail Says:  The savings rule applies to your net income. As for the house, yes, as long as you plan to sell it and use some of the money for retirement income.


M Wrote:  I'm a 24 year old recent grad trying to pay off my lovely $25 000 dollar student loan.

Right now I'm working a full-time job making $45,000 annually before taxes. I'm also working a part-time job making roughly $5000 annually. I've researched up and down about how to not owe money when it comes to tax time.

On my full-time position I've asked to take an additional $10 off each pay period. But my question is what should I do with my other job? And could you offer any advice on how not to owe?

Gail Says:  What a great question. There are income tax calculators out there that will tell you how much tax you'll have to pay on your gross (before tax) income. This one's my favourite because it's so simple to use.

On a regular income (not dividends, capital gains) on a $50,000 income you'll have to pay $8,694 in income tax if you live in Ontario. (There are breakouts for every province/territory). So that would mean withholding (or setting aside) $724.50 a month so you can be square with the tax man. You can ask for that money to be deducted and remitted on your behalf, or set up a high interest savings account, pile it up yourself and be ready with a cheque when you file your taxes next year.

Now next year (because the RRSP contribution limit is based on 'previous year's' income) if you contribute $5,000 to an RRSP (that's 10% right?) your taxes will be less since the contribution amount isn't taxed. Based on this year's numbers the taxes would fall to $7137 keeping an extra $1,557 in your pocket. Stick that in a Tax Free Savings Account or use it to boost next years RRSP contribution and you're laughing all the way to the bank.


H Wrote:  After my divorce in 2010, I declared bankruptcy. I've worked very hard to get back on my feet since then and have been trying to rebuild my credit. I have one credit card with a small limit which is paid in full and have several utilities in my name which are also paid in full each month. I recently ordered my credit report and noticed that many of the credit cards from my marriage, which I had assumed were part of my bankruptcy, are still listed as revolving accounts. Is this normal? What can I do to remove these items from my report?

Gail Says:  If, in fact, the accounts have been closed, you can write to the credit card companies and the credit bureaus and ask that they be removed. If they haven't been closed (hey, who knows) then write and ask for them to be closed and then watch your credit history. Follow up in three months if nothing has happened.