Gails Blog

Okay, I’ve done it. A Woman of Independent Means has been updated, edited, uploaded…

and now it’s ready to be purchased. You asked for it, so BUY IT!

 

When I started this website a half-year ago, I promised I’d answer one of your questions every week. I’ve been inundated with questions, and have been responding to two a week. But there are times when I’ve got so many great questions that need to be answered, that I just take a couple of hours and fire-through them. Here’s what I have for you today.

rinkrat_hockeymom wrote:

One of my employers is not taking enough tax from my paycheck. I have been having an extra $50 a pay taken out to cover this since the beginning of the year. I was telling a friend about this, and he suggested it would be more beneficial to take that $50 and put it into an RRSP and I would get thed same result, plus be able to save my own money instead of lending it to the government for a year. Is he correct?

Not quite. While every dollar you put in your RRSP is not taxable, you’d have to put the entire income you’re earning from your second employer into an RRSP to achieve the result your friend is suggesting. I’m all for that… but I don’t think that’s what you’re trying to achieve. So you’re doing the right thing.

If you want to calculate your tax exactly, you can go to Taxtips for a really thorough calculator. If that one makes your head spin, here’s a simpler one that will give you a basic of idea of how much tax you should pay.

 

L from B.C. wrote:

I have just come into to some money — $35,000.00 — and I am wondering what I should do with this money. I currently don’t own my place (renting) and just finished paying off my line of credit ($25,000.00) at the bank as well as my credit card ($25,000.00). I have been working as a cashier for six months at $10.00 an hour. I am looking for a better paying job right now. Can you give me any advice for this $35,000.00. Should I invest this money or maybe put the money into an ING Direct account at 4.5%? I don’t think I am eligible for a mortgage just yet…?

I get a lot of notes like this with people asking for advice on what they should do with a lump of money that’s just fallen into their laps. I like to tell people to:

1. Take care of past mistakes,

2. Have some fun in the present, and

3. Plan for the future.

So, L, on the Take Care of Past Mistakes front, congrats on getting all that debt paid off! Wow! You’re one determined young woman. You’re in a much better place now and you should be very proud of your accomplishment.

On the Plan for the Future front, you’re right when you say you aren’t ready for a mortgage yet, particularly in your neck of the woods.  But you are ready to set up an emergency fund, start an RRSP, even with just a couple of thousand bucks, and begin building your downpayment. As for where to invest the money for your downpayment to grow, you’ll need a financial guide for that. Ask friends/family for a referral to their GREAT financial advisor. Don’t settle for anything less than GREAT!

Using a high-interest account is smart. Making sure you know what you want to accomplish with the money is smart too. So ask yourself what’s important to you and by when you’d like to achieve that goal. Plan from there.

As for my number 2 point: have some fun in the present, don’t go nuts, but take some of your money and treat yourself and someone you love to a Nicey: Dinner out, a fun weekend of movies, a new piece of furniture you’ve been wanting, or a lovely new dress. Or you could decide to set up a Mad Money Account, putting $500 or $600 aside that you can spend on anything you want whenever you want, just for the hell of it.  Have a ball.

 

On a similar theme, K wrote:

I have an inheritance if 60,000 and wondered if I should double up on my mortgage payments each week (that is the maximum allowed) or wait put the money in a high interest account until the mortgage is up for renewal this December 2008 to bay off a chunk of the 120,000 principle?

The faster you put the money to work against the mortgage, the more you’ll save in interest. And any interest you earn is taxable, but the interest you save is not. So double-up and then use whatever is left to make the principal pre-payment at the end.

 

Carman wrote:

What is your opinion for a person to use RRSP savings to pay down debt? We have enough RRSP savings to pay off our debt (excluding Mortgage). Thanks for all you teach on your show, I think everyone could learn something.

I’ve answered this one before, but I’m going to answer it one last time since I get this question every week. Really.

The answer is: DON’T DO IT! I know there are some people who say this is a good idea, but it’s a terrible idea. A really terrible idea. First, there’s the tax you’ll end up paying on the withdrawal from the RRSP, and then there’s the tax you’ll owe because the amount withheld won’t have been enough.

If you’re determined to get rid of your debt, then you’re going to have to bite the bullet, tighten your belt and put your shoulder to the grindstone. If that’s not enough metaphors for you, I have plenty more!

 

T wrote:

hi gail i watch your show all the time and i was just wondering i am 17 and still going to school and planning to go to university soon i am extremely good with money and saving and i have about 7000.00 in my bank account right now. would u recommand when i turn 18 to get a credit card and always pay it off in order to get my credit rating started. i would never spend more than what i have or even come close to spending all i got so i dont think it wud be a problem but just asking for ur advice.

T, if you swear on your Mom’s head that you’ll never spend more money than you have, then I say getting a credit card to build a credit history is a good idea. I’ve seen a lot of kids (and elders) start out with the best intentions and then fall into the carrying-a-balance trap. But if you promise not to be one of the dopes, then I’d say go for the card, Bud, and build yourself a fabulous financial history.

 

Sarah wrote:

My husband and I love your show - yes I said both of us - you’ve got us talking about our finances - YAY! Our question is in regards to student loan debt. I’m in the process of finishing my PhD and my husband and I each have 3 degrees. Our combined students debt is $62,000 (not bad considering) and we have a new mortgage of $120,000. So many of our friends have just followed the plan offered by the bank/government - but 12 years to pay it off??  We gross $76K a year but we’re going to be starting a family soon and our plan right now was to add $200/month as a prepayment to our mortgage. What do you suggest - balance pre-payments and extra student loan payments? Should we make one a priority over the other (student loan interest is prime +1, mortgage 6.3 locked for 10 years)?  We would really appreciate your advice - the bank always says “follow the plan, then you have more disposable income” - yes and they make more money in interest! love your show and your kick-butt attitude.

Ah, yes, there are those Pesky Bankers again, telling you to keep more disposable income so they can rake in more interest. Hmmm. Is it any wonder Canadian’s don’t trust their advisors?

Sarah, leave your mortgage payments as they are, and use all your extra money to pay off your student loans, which is your more expensive debt. Once that is paid off, you can balance mortgage prepayment with long-term saving. As for starting a fam soon, have a great time with that. And while you’re preggers, live on the one income you’ll have during your mat leave so that you

a) get used to having a smaller income, and

b) have a nice pool of savings set aside for when baby gets here.

 

Kerry wrote:

I am a 21 year old full time worker. I graduated with a 2-year diploma in Bus Adm (major accounting) and have taking Intro to Financial Planning as well. After graduating from college with WAY MORE DEBT than I ever imagined from 2 years of school, I have got myself back on track by my own means and would like to offer a credit/debt counseling service outside of my full time job (which I love). I want to educate people before they make the same mistakes I did, and/or repair the mistakes already made. Only problem I have found in my plan is, how do you charge a fee when your clients are already living paycheque to paycheque? PS your show and outstanding way of making the obvious PAINFULLY obvious has changed my life and influenced my (hopefully!) future career path immensely!

Hey, Kerry, that’s a darned good question. Some people who work in debt management affiliate themselves with a company that will allow them to do debt-counseling. Credit counselors, for example, are often not-for-profit organizations that help clients consolidate their debt and set-up repayment plans. And I do know of at least one private company that builds their fee into the “consolidation” loan. You might want to look at that as an option.

So, all you debtors out there, what would you be willing to pay to have someone dig you out of a hole, and how would you come up with the moolah?

 

Mercedes wrote:

I am a 24 year old university student living on my own and paying all of my bills yet have still managed to save about 15000.00 in the past 2 years. I have no debts and am wondering what to do with this money to make it grow for the future. I feel as though it’s just sitting there. How much should I set aside for a rainy day/emergency fund? Thanks!

Okay, all you student debtors who tell me you can’t possibly save any money while going to school, heads up to this.

Mercedes, you are a shining light. Congrats!

As to what to do with the money, set side at least $5,000 in a high interest account for emergencies. Ultimately, you want to have 3-6 months’ worth of living expenses covered. As for the rest, it’s time to learn to invest. Read about investing. Choose a couple you think might work for you and watch them for a while to develop a comfort level. When you think you’re ready, take the plunge. Don’t be too aggressive too quickly. And never invest in anything you can pronounce or don’t understand.

 

Carrie wrote:

I am currently on mat leave with 2nd baby. We figured out if I return to work I will be contributing 2/3 of my take home pay to working expenses and only contributing 1/3 of my take home pay to the household. Does this make it worthwhile for me to return to work? Or is the smart thing to try to find a part time job to make up the money we are short? Or, with only about 6 years left on our mortgage, should we reduce our mortgage payments in order to live, until I can return full time in about 5 years?

You seem like a clear-thinking girl. You’ve certainly outlined your options well. Here are my answers

Does this make it worthwhile for me to return to work? Yes, if you need the 1/3 to make ends meet.

Or is the smart thing to try to find a part time job to make up the money we are short? Really? This is a question? Work less to make the same? Where’s the question?

Or, with only about 6 years left on our mortgage, should we reduce our mortgage payments in order to live, until I can return full time in about 5 years? This, too, is an option, if you’re prepared for the extra interest cost over the life of the mortgage. You don’t say how old you are, but how old could you be with a second baby just here? So you have lots of time to get this mortgage paid off.

Now, the question is, what do YOU think you should do?

 

S wrote:

I work part time as a nurse, so I actually bring home more money per hour with my liue of benefits. Is it better for me to work full time and “bring home” less money, but have job security, sick time and vacation? I am 41 married with two school age children. Thanks and I love your show-your sense of humour really makes it!

It’s hard to answer this question when I don’t know how much less you’d be bringing home, or how that would impact your cash flow. Assuming you don’t NEED the extra for essentials, then the security of full-time with benefits would be a huge blessing, particularly with young kids. However, if the extra money you’re bringing in is essential to your budget, then maybe not. What do you think?

 

Erin wrote

On your show, you give your clients an “office in a box” with all kinds of file folders and coloured tabs. I tried making my own and it doesn’t look as nearly detailed or full as yours. What categories do you have in your box?

Go read 12 Steps to Getting Financially Organized and the blog Paper Chase.

 

For Lynn who wrote:

How long should you keep your paperwork, such as bill statements, payments and income tax forms

Ditto

 

A wrote:

If I have a defined benefit pension plan with my employer, do I really need to contribute to an RRSP? Also, how do I figure out my “tax bracket” as I am planning to withdraw $10,000 from my RRSP to pay down debt - if the withholding tax is 30% then how do I estimate the additional tax I will pay next April - my gross income is about $60,000…

A, you likely don’t need an RRSP if you have a defined benefit plan. I’d be very surprised if you have much contribution room at all. If you do, then I would use it up, but not break your neck to do so. As for writhdrawing money from your RRSP to pay off debt: DON’T DO IT!

 

Tammy wrote:

I have 2 children: a son who is 20 and has finished 3 years of university and a daughter 19 who has finished 1 year of college. We have paid for the tuition and book for the 3 years for my son and paid the 1st year of college for my daughter and have enough to pay for her 2nd year, her course is 2 years long. I do not want my kids to finish school and owe money but my husband and I find that most of our money goes to the kids and there is none left over for us. We have been putting a lot of things for them on our line of credit and it just keeps going up, I know I need to stop but I don’t want to see them acquire any debt but I just feel that my husband and I are sinking further and further into debt and we have been arguing over the money spend on the kids. If you any suggestions on how we can work this out I would really appreciate it.

It’s nice that you don’t want your kids to graduate with debt, but you’re accumulating debt and that’s no good either. I hope your kids are contributing to their own education. If they are not, that’s the first place to start. There is no such thing as a free ride in life, and 19 and 20 are plenty old enough to start dealing with life’s realities. Help your kids. That’ great. Don’t do yourself damage in the process. That’s dumb!

 

Victoria wrote:

Hello. Congratulations with the show. I have been watching it daily for some time now. I have put my husband on a $200 a month budget. This money includes his gas and extra spending. We have been using the jars for three weeks now. So far so good. I am currently on maternity leave and working one day a week that I am allowed. I am making $430 every two weeks. I am trying to save this for our vacation at Christmas. Do you think it would be better to put this money onto the line of credit and then take it back out when we need it? Also, we just did a balance transfer on our one credit card. We have an interest rate of 1.9% until November. Should we penny pinch and put every last cent on it so it is paid off by then? Thanks so much and keep up the great work.

First the credit card question: Absolutely pinch every penny so the card is paid off before your great rate expires in November.

Now the line of credit question: Yes you should put it to the line first, and then take it back off when you need to, to minimize your interest costs. But I don’t think a fam on mat leave with a balance outstanding on their line of credit should be prioritizing a holiday over debt repayment. Once you return to work full time, I can see saving the money for a holiday. But while you’re living on a reduced income, and have debt, your focus should be on getting out of the red.

Are you sorry you asked?

 

M wrote:

My husband says that it’s not smart to start a RRSP because I owe $50,000 in student loans, which I am paying the minimum right now. I work part time as a RN and I have 2 kids. I’m 38 years old and I feel that I have to get started. What should I do?

You should get started, you’re right. But your husband is right too. Since you’re only working part time, your marginal tax rate isn’t high, and paying only the minimum on a $50K student loan is stupid. You’ll pay way too much in interest. So:

1. Up your student loan repayment amount to an amount that’ll have you debt free in five years or less, and

2. Start contributing $200 a month to an RRSP.

If you don’t have enough to do both, you’re going to have to find a way to make more money.

 

S wrote:

I would like to know if there is a way to save money on a disability pension.

I’m surprised by how often I get this (or a similar) question. There are a lot of people out there trying to make do on disability income, which should be a heads-up for all the people who don’t yet have disability insurance. As for this question, the answer is quite simple: If you have extra money after all your basic needs are met, you can save some. If you don’t, you can’t.

I’m sorry that there seem to be so many people living a marginal life on less income than they need. It’s a tough haul and you have my admiration for making a go of it.

 

Another M wrote:

My wife and I are a one-income family and even with a very tight budget our expenses are always more than our costs every month. I have mentioned taking some of the equity from our home (either re-mortgaging or a straight loan) to ease some of the expenses until my wife gets back to work. So, I was wondering, is it ever a good idea to take a home equity loan?

You don’t say why your wife is off work, or how long it may be until she’s fully employed again, and that affects the answer. If this is a short-term thing, then I’d say do the refinance and un-strap your budget. If it’s a long-term thing, you may have to sell your home to make it through. Good luck.

 

Karen wrote:

My relationship with my boyfriend of 8 years is strained to say the least because of this debt and not knowing how to budget. We have thought of calling it quits. I think the icing on the cake was when I was offered a job but would have to take a 14k cut in pay for 2 years from what I am making now, but then would make over 100k a year after that. I had to turn it down because each month I am going further and further into debt AND with a 14k a year cut in that!??! How would I make ends meet? Help! Please point me in the right direction.

I don’t often say this, but are you sure you’re in the right relationship? After all, is this the way you want to spend the rest of your life: giving up your hopes and dreams because your partner can’t get outside himself long enough to stop going into debt for crap? If you’re determined to stay in the relationship, then I’d separate the money - yes, you heard me say “separate the money” - and make the Boy Man responsible for himself. If he can’t do it, then either reconcile yourself to a life of misery with him, or get the hell out!

 

RC wrote:

What is the best way to invest money that I am intending to use toward the purchase of a home/condo, in one years’ time. I would be a first time buyer.

Since your time horizon is very short, you need to stick with something that has no volatility at all. Go with a term deposit, GIC, high-interest savings account… wherever you can get the best rate for one year.

 

Carol wrote:

I am 55 years old and will retire at age 64 with a good Omers Hydro pension. I was a single mother raising 3 children for most of their lives, so savings and retirement planning were not a priority. However, as my children are now grown I have more disposable income. Is it too late to start RSP’s or should I concentrate on paying off my mortgage?

Since you’re over 50 and have a good pension, I’d focus on paying off that mortgage so you’re retiring mortgage free. If you still have money left over, you can take me out for dinner.

 

Cynthia wrote:

I watch your show all the time and I noticed that you always talk in terms of household income and don’t discuss the differences in the amount each person makes. My boyfriend and I recently purchased a home, but we still have totally seperate finances, we live like roommates, simply splitting the common expenses in half and then we each pay our own credit cards etc. I would like us to be a more equal partnership, but he still thinks in terms of “your money” and “my money.” Is there a proper way to start combining finances?

Girl, you and your honey need to get on the same page. Go and read To Consolidate or Not to Consolidate and So You’re Getting Married even if you’re not.

 

Brett wrote:

My wife and I have recently realized that our parents are in rough financial shape, planning on relying solely on a single pension in retirement (no RRSPS). How can we approach them to talk about it and get them doing something about it? We feel as if we will be burdened by our parents within the next 15 years, and need help to get this situation under control!

Sorry Brett, it might already be too late if they have not been planning and are pretty close to retirement, with not enough money. Do they have assets they can liquidate to provide an income? Can they move to a less expensive community to cut costs? In terms of just approaching them about the issue, read Aging Parents: Talking about the Money. 

 

Okay, that’s it. My brain is mush and my fingers are cold from the breeze created as they’re flying across the keyboard! Ha! 

 

BTW: I’m planning to put up a series of articles on home buying. Are there any special topics y’all want me to cover? Speak now.

I was intrigued to read in USA Today that baby boomers are losing confidence in retirement savings. While 20% of those surveyed felt they were “equally confident”, a whopping 56% are “less confident.” With the financial marketplace in a constant swirl, it’s no wonder really.

Are interest rates going up or down? Can you trust investments that have been previously touted as “secure” when 32  BILLION DOLLARS in asset-backed commercial paper are frozen?  And remember when they said gold would never see $800 again? Ha! Never say “never.”

The uncertainty about what we can trust has sent sales of money market funds through the roof. While Canadians continue to pour gobs of money — $2.6 billion in net sales per month - into the mutual fund sector, according to the Globe and Mail, in March ALL of it went into money market funds, which now hold over $66 billion of our hard-earned dollars. People are parking their money in the hope that some clear signal will come from above telling us its safe to invest our money again.

There are a lot of people who are saving (or planning to save) for retirement, but just don’t have a clue where they should be putting their money. I keep saying, “Get a handy-dandy advisor; I have one.” But I’m beginning to think the questions I’m getting are even more fundamental than “where.” So I’m going to do a series of articles for you on how to save to retirement.

The decision on where to invest is at once complicated and simple.

“How much do you want to have saved when you retire?”  seems like a simple enough question, right? But if it were, then there wouldn’t be this constant chatter about how much you’ll need, and the fact that a million bucks won’t cut it in the future. And there wouldn’t be this quiet sense of desperation on the part of people who believe they are doomed, so they might as well just stick their heads in the sand and pray nothing creeps up behind them and bites them on the butt.

“How greedy are you?”  would be another of those simple questions that has a ton of implications. If you’re content to hold an investment paying you a 2% return, and can stand the scorn of all your friends and relatives at your niativité, your lack of ambition, or your sheer stupidity, then you’d been pretty low on the Greedy Scale. If you’re insisting on an investment that will turn your $1,000 into the Magic Million in ten-seconds-flat, then you’d be right up there with Gordon Gecko.

“How committed are you?”  is a simple question, that has a wide range of answers from  not at all committed, to somewhat committed, committed, very committed, and passionately committed. Do you know what you are?

“How much time do you have?”  How long you’re planning to invest has a big impact on the investment alternative you might choose. Pick the wrong time-line and you could find yourself a little sad when cash-out time comes.

Along the way, you’ll have to learn what an RRSP  is, the various types of investments available to you and where they fit on the Investment Pyramid, and how to diversify your portfolio to create the Asset Mix  that’s right for you.

 

These articles cover the basics of what you have to think about as you plan for the future. Whether you’re investing for the long-term for your retirement, or for the medium-term to send your kids to university, or for the short-term  to buy a home, the fundamental issues remain the same:

• know how much you’ll need,
• know how long you have,
• know how brave or chicken you are,
• know what you know - and DON’T know, and
• mix it up a bit.

 

With a little determination, you CAN have what you want.

 

 

It’s a beautiful Saturday morning. We are buried in snow here at Wits End (yes, I named my house), and all is well. Pony and Llama have been feed, as have the deck-cats. The birds are yelling at me, but they’ll have to wait a minute or four. I’ve got two squashes roasting in the oven to make squash soup (one with mango, the other with curry & coconut milk), and I’m almost all caught up on the laundry. Wow!

 

I’m sorry I can’t answer all the questions I’ve been receiving. There are just too many of them and not enough of me. One question I will answer is about my plans to travel and do more speaking engagements. Credential and I are talking about doing some more gad-abouts in the Fall, maybe down East. But I’m about to go back into production for the TV show and it’s hard to do a lot of traveling when I’m shooting.  It’s bad enough being away from my kids as it is, so I limit my time (usually) to just two days a week. TV uses that up during production, so anything extra I do is at significant personal cost. That’s why I’m not doing tons of speaking.

 

When I do speak, it has to be for an organization that is willing to let me be who I am. That’s not always easy to find. Most times, organizations have an agenda that is somewhat different from mine. I’m about telling the truth and educating people. If I think something is a good idea, I say so. If I think it’s a bad idea, I say that too. Most organizations can’t deal with it. I’m very happy to say Credential could, and I thoroughly enjoy my relationship with them. 

  

Lots of people are writing to asking me what they should do with their money. Here’s my answer: I DON’T KNOW. I don’t know you. I don’t know your circumstances. I don’t know your goals. Geeze Louise! Go find someone who can get to know you so that you can start building a relationship with THEM and they can start getting to know YOU.

 

I know, I know, whom are you supposed to trust? It’s a good question. Start by asking family and friends who they turn to for advice and how happy they are. No luck there? Then ask at work. Ask your boss (you’ll look proactive and future-focused, both good attributes as an employee.) I can’t believe nobody you know has a good advisor.

 

I take that back. I can believe it. Because I get a lot of questions every day – I can’t answer them all, but I’ll deal with some of the “major issues” in my blog. YOU also have to take some initiative. Search my blog. Search my site. Look to see if I’ve answered the question you’re asking before (I may have, since there’s lots of stuff here.) If I get a question I’ve received before, I’m not going to repeat myself. So look around.

 

There are some good advisors out there. I’ve met some of them (sorry, no referrals). My best advice is to go to your community-based financial institution and build a relationship there. Community-based? What’s that? It’s a financial institution where you know the people because you live and work with them. You’ll hold them accountable and they’ll do the same to you. They’re genuinely interested in helping you do well, and they take great satisfaction from their role as guide.

 

If you feel you’re not important to your financial institution, then you aren’t. If you don’t feel special, you’re not. If you don’t enjoy your interactions, if you aren’t greeted warmly, if you don’t have a sense that you come first – not just a slogan, people, really come first – then you should find yourself another financial partner.

 

Some people want to know what’s in an office in a box. Y’know, you probably have most of the stuff you need at home, but here’s a list of things you might want to include.

 

• Box of file folders
• Box of hanging folders + tabs
• Box to hang folders in
• Labels
• Pens coloured
• Pencils plain
• Eraser
• Small stapler
• Staple remover
• Scissors
• Scotch tape
• Paperclips
• IN box tray x 2
• Post-it notes
• Calculator
• Envelopes
• Stamps
• Accounting book (sometimes described as “columnar book” for WRITING IT DOWN!

As for making the interactive budget downloadable, Marnie, it’s simply an excel spreadsheet. If you want to keep your budget on your computer, use mine as a model and create your own. 

 

And finally, since we are in RRSP season and I’ve gotten several questions about RRSP loans, here’s my take:

 

• If you were in a really high tax bracket last year and hadn’t done any RRSP saving — but you’re all ready to be a good toad this year — then go ahead and get an RRSP loan, make your maximum contribution, get your tax back (or don’t pay the tax you would have to). Then pay off the loan within six months. If you can’t do that, don’t do it at all.
• If you’re thinking of taking out a whopping loan to catch up on unused RRSP contribution room, think again. Instead of paying interest on a loan, simply make the payments you would have made on your loan directly to your RRSP as contributions. You’ll be caught up in no time, and you won’t have paid a penny in interest.
• If you’re trying to figure out how to make a bigger RRSP contribution when you barely have enough to get to the end of the month — and you already have a third job — try this: when you get your tax refund from making your RRSP contribution (and whatever else you’ve done to minimize your taxes), add that refund to your next RRSP contribution. There. You’ve increased your RRSP savings and it hasn’t cost you a cent more from your cash flow.

If you haven’t made an RRSP contribution for 2007, let 2008 be the year you put inertia to work for you. Go to your financial institution today and set up an automatic savings plan. However much you choose, have it deducted from your main account and automatically contributed to an RRSP.   If your next question is, “So what should I be investing my RRSP money in?” we’re right back where we started. GO FIND AN ADVISOR.

 

 

 

It’s the height of RRSP season and everywhere I go people are asking RRSP questions. For our American cousins, an RRSP is like your 401K… it’s a retirement savings plan.

One woman wrote to say she’s expecting a pretty hefty bonus in a couple of years, and her financial advisor has told her to hold off on making contributions to her retirement savings so she can save up her contribution room for when she gets her bonus, reducing her tax then. But since she’s saving enough to max out her RRSP, and she has no consumer debt, she’s of two minds. Hmm.

I’m with you, chick. I don’t understand why your advisor would tell you to save the room now if you would benefit from the tax deduction now. If you wouldn’t, you could still put the money in the RRSP based on your current contribution level, get the money earning a tax-deferred return, and claim the deduction when your marginal tax rate is higher - say, when you get the bonus. The problem I have with the advice you receive is that it completely ignores the fact that the compounding return is the true magic of contributing to a retirement plan of any kind. Without knowing more such as what your current income is, and what the amount of your bonus will be, I can’t add any more.

Marijke wrote that she has heard that paying down a mortgage a little every year helps more than purchasing RRSPs and wants to know if this true. Her issue is further complicated by the fact that she wants to make sure her money isn’t “tied up” in case she needs it for an emergency.

Marijke asks two questions that I get all the time. The first question about paying down the mortgage versus contributing to an RRSP, is easy: do both. Contribute as much as you can to your RRSP and then take your tax refund and use that as a principal prepayment against your mortgage. See, who says you can’t have your cake and eat it too?

The second question is also one that swims around in lots of people’s minds: how to balance short term needs (for an emergency fund, for example) with long term needs for saving. The answer to this question is exactly the same as for the first question: do both. You need an emergency fund. But you also need to do some long term planning. If you don’t, then you’ll just end up OLD and POOR! Yuck!

Another question I get often is this: does it make sense to take the money out of my RRSP to pay down debt. The answer is NO, NO, NO, NO, NO, NO, NO. The tax implications of deregistering the RRSP are too frightening to even think about. I know people who have taken money out of their RRSPs and they are NEVER prepared for the amount of tax they will have to pay on those withdrawals. Of course, if you have unregistered investments - mutual funds, GICs, and the like that are not in an RRSP - and expensive consumer debt, then it makes sense to sell those investments and pay off the debt. Then rebuild your investments. Take the money you would have used monthly for debt repayment and start an automatic investment plan.

A lot of people have been asking about the office in a box and how to get financially organized. Go and read Gail’s 12 Steps to Getting Organized Financially. As for what goes into the office in a box, you should decide that based on what you think you will use. Just take a walk down the aisle of your local business supply store and make a list, price it out, and then budget for it.