December 2011 Questions & Answers
- What do you advise for those that are legitimately only buying necessities like gas, groceries (not take out or fast food), bare minimum clothes, utilities, rent, other bills, debts, insurance, etc and only coming out with $200 after all that for debt repayment and savings??
- My feeling is that home ownership may not be the best option for everybody. I hear from the internet, news, books, radio, friends, family and almost anyone out there that you must buy. I feel I missed the boat and that prices are too high even with low interest rates making it easier to make the payments.
- What are your thoughts on the life insurance I have purchased? I am purchasing $50K whole life insurance for my 4 year old son as well as critical illness insurance.
- Neither Jeff nor I really have a head for money talk and when we went to go talk to our bank, she just kept throwing numbers and terms we didn’t understand and left feeling frustrated, so what do we do now?
- Also, my cerebral palsy and diabetes makes me ineligible for CI and most life insurance as I understand it, is there "the right kind of insurance" for me?
- I have a 4 month old, and was wondering at what point do you start to give children and allowance?
- Should I start my retirement savings in a tax free savings account and then move to an RRSP when I've max out the TFSA?
- Government Bonds vs RRSPs? What are the risks and what are the benefits of each?
- How do you set up the office in a box system? And what falls in the life category of the jars (I'm a bit confused on how to distinguish it from entertainment? Also what are considered housing and life cost for - housing 35%, saving 10%, life 25%, debt 15% transport 15%) system.
Gail, thank you so much for taking time to answer questions and give us your attention. On Til Debt Do Us Part most of the couples have a substantial income or lots of wiggle room to cut back their spending with. What do you advise for those that are legitimately only buying necessities like gas, groceries (not take out or fast food), bare minimum clothes, utilities, rent, other bills, debts, insurance, etc and only coming out with $200 after all that for debt repayment and savings?? I know most people say make more money but what if that really isn't an option at this point?
Some of the couples have very limited incomes, and the first thing I told them was they might have to make more money. If that isn’t an option for you, m’love, then I’m not sure what to say since the rule is Income-Expenses=Zero. (Savings would be considered an expense.) Why do you feel you have no room to make more money? Are you already working two jobs? Loads of people work 50, 60, or 70 hours a week to make enough to dig themselves out of debt. If that’s not an option for you, then you may have to get used to a very simple life.
You are the robust bouquet or flavor, color, and smell to our financial lives. Thank you for doing this Q&A and for all your efforts on the blog and in your shows to support us. I have come a long way. I have 0 debt; pay off all my cards before the statement even comes out so that my credit report shows 0 balance for all accounts. I have an emergency fund and a healthy down-payment of 25% for a small condo. Well I should say tiny the way they build them today. My feeling is that home ownership may not be the best option for everybody. I hear from the internet, news, books, radio, friends, family and almost anyone out there that you must buy. I feel I missed the boat and that prices are too high even with low interest rates making it easier to make the payments. I have always gone against traffic. My thinking is rent below my means for life and invest the difference. I don't know if I will be ahead or not? I have 30+ years until retirement and will work at least part time then. So I am investing aggressively on a weekly basis equally in Canada, USA, and the World. As well I buy extra in times when there is a panic. (ie. Japan) My hope is it all balances out by the time I need the money.
Wow, I’m very flattered. As for homeownership being the only option, that’s nonsense. It doesn’t suit some people, and some just can’t afford it. Here’s a blog I did on the subject: http://gailvazoxlade.com/blog/archives/201. I think you should do what works for YOU.
What are your thoughts on the life insurance I have purchased? I am purchasing $50K whole life insurance for my 4 year old son as well as critical illness insurance. The CI insurance from Sun Life is working as a savings plan as well (when he turns a certain age, I receive 75% of the premiums back and he will carry on the policy in his own name. If it is ever cancelled or he dies (god forbid) the premiums are also returned. As for myself, I have term life insurance and have just purchased a small whole life policy for myself as well. Is there ever a monetary/budget reason to reduce or eliminate your insurance? Example: my insurance costs for what I've described is approximately $125 per month - and that's a large chunk of my monthly income (I'm a small business owner, single mom and newly separated so I have VERY limited cash). Should I ever consider reducing/removing my insurance or is it like savings - you just do it and fit everything else around it?
I’m not sure why you bought life insurance on your son unless you have some concern about future insurability, in which case it’s a good idea. I don’t expect the policy is costing you very much, but if you bought for any other reason, you might want to rethink your strategy. As for the whole life policy you bought for yourself, is it to supplement your existing term, or is it for some other reason? Life insurance is a very personal product; each of us has unique needs and choose to address them in unique ways. But if you think you may be over-insured, perhaps you need to review your coverage and think about why you’re doing what you’re doing. See an independent life insurance broker (Glenn who advertises on my site is a great guy, which is why he gets to advertise on my site…have you noticed how few ads I have? That’s by choice.) That way you won’t be “sold” something by a body looking to make his targets for the month.
I am 23 and about to get married to my 22 year old fiancé, and the wedding will be completely paid in cash. I just finished school and Jeff (fiancé) is about to be done as well. In order to be able to put us through school and a wedding, we've lived in a 1 1/2 for the past year and are about to do it for one more year in order to save as much money as possible. We have about $10,000 in bonds and savings, but here is our question: What do we do from here? What are the next steps to our lives? Neither Jeff nor I really have a head for money talk and when we went to go talk to our bank, she just kept throwing numbers and terms we didn’t understand and left feeling frustrated, so what do we do now?
Congrats on the wedding and the plan to have it all paid for. Well done! Here’s a blog that will lead you to a series of other articles/blogs about starting out together: http://gailvazoxlade.com/blog/archives/23. Keep up the good work.
I'm a 23-year-old second-year law student with a permanent disability. I am on gov’t disability pension (PWD), working a bit, and have about $9000 in an RDSP, most of which can't be used for 10+ years or I'll lose the grants. I didn't have any student loans throughout undergrad (yeah for scholarships and bursaries), and Law school is shaping up to be about 11K total in debt, but making 50k straight out, I hope to have that paid off in a year. My questions are a little complicated. Living in Downtown Vancouver is ridiculously expensive. If I ever hope to move out of my parents place, I have to build my own condo to make it accessible, since wheelchair-friendly places only exist in subsidized rental housing if you remain underemployed and on PWD. RRSP (which I'm not allowed to have until after school, 'cause I'll get kicked off of PWD, same with a TFSA) HomeBuyers' Plan only works if you're actually buying a place, right, not just hiring a developer? How do I best save then, once I'm allowed to? Also, my cerebral palsy and diabetes makes me ineligible for CI and most life insurance as I understand it, is there "the right kind of insurance" for me? Am I forgetting anything in my early financial life? I guess then my question boils down to the same as Cynthia's: where do I go from here?
Insurance first. You’re out of luck. Nobody’s gonna touch you. So you need to have a really healthy emergency fund. Now on to home buying: why are you determined to own? Are you ready for all the costs associated with maintenance and upkeep? Vancouver, as you rightly say, it’s ridiculously expensive and shows no signs of correcting. So are you planning to move away from your parents? As for being able to use the HBP, sure you can. People with disabilities or people buying a home on behalf of a related person with a disability can withdraw up to $25,000 from their RRSP to buy or build a qualifying home.
I have a 4 month old, and was wondering at what point do you start to give children and allowance? I saw an episode of Til Debt Do Us Part where you explained your opinion of what an allowance should be, but am unsure at what point you start giving it to your child.
I’d wait until your child is about six to start the allowance. Get a copy of MoneySmart Kids as an e-book. I believe the price is just $2.99. It’s a short and solid guide to teaching kids about money.
Watching your show years ago totally changed the way I thought about money. I recently received some advice from a financial advisor regarding starting an RRSP. I'm 27, and aside from some student loans which will be paid off soon, I have no consumer debt. I spoke to a financial advisor about starting to put some of my extra money into an RRSP instead of just my saving account. She suggested, because of my age that it would be better to put the money in a tax free savings account and max my yearly contribution out on that before going to an RRSP. The end goal for that money is retirement savings, no matter what account it is in, her logic is that I won't get dinged paying income tax on the money when I'm older. I'm looking for a financial second opinion. Should I start my retirement savings in a tax free savings account and then move to an RRSP when I've max out the TFSA?
I’m so glad the show’s been a help to you. I still believe that an RRSP is the best way to save for retirement. While you will have to pay tax on the money you take out, you’ll have saved on taxes because your contributions are tax-deductible, giving you more money in your pocket to work with. If you’re not making a lot of money now so you’re not paying a lot in tax, you can hold off on the deduction until you’re in a higher tax bracket. If you think that you’ll always be in a lower bracket, or if you belong to a company pension plan, go with the TFSA.
LOVE the show, think it should be mandatory in schools :). Question: family of 2, 33 and 45 years old, no kids, both employed, mortgage, student loans (just a bit left for one of us, another one doesn’t have them at all), not much other debt. Only now planning to start retirement savings (unfortunately). Government Bonds vs RRSPs? What are the risks and what are the benefits of each?
Glad you enjoy it so much. First off, an RRSP isn’t an investment. It’s a savings plan. So you can’t compare it to a government bond, which is an investment. In fact, you can hold the government bond inside the RRSP. If you’re interested in learning about investing, I have a whole category on my blog that covers investing. Head over and look under the category “Investing.” Then you can learn all about bonds and all sorts of other investments you can hold inside and outside an RRSP.
I've been watching your show since high school and you’re the main reason I will graduate with no debt and I thank you for that. I wanted to ask a few clarification questions to ensure I stay on the right track: How do you set up the office in a box system? And what falls in the life category of the jars (I'm a bit confused on how to distinguish it from entertainment? Also what are considered housing and life cost for - housing 35%, saving 10%, life 25%, debt 15% transport 15%) system. Also, in one of your episodes you had a couple use their bank account instead of the jars, how would that system work to keep track of how much you’re spending in each category? Or is it just one lump sum over all? For the 3%-5% of the house value that you say to put away for home maintenance is that per year? And are these costs outside of housing cost? How do you budget a when your only expense is a cell phone expense account to pay off school? Like how much to save for retirement, emergency, etc. Sorry for brain dump, but any insight you could provide would be greatly appreciated.
I am so so so happy to hear that you took what I had to say to heart and graduated with no debt. Well done! You’ve written me about a zillion questions here. Let’s go at them one at a time. Office in a box: http://gailvazoxlade.com/blog/archives/172, LIFE is everything (including entertainment) that’s not in the other categories. Housing is rent/mortgage, property taxes, utilities, insurance, and maintenance. To track not using cash, you need to set up a Spending Journal. As for the rest of your questions, you need to slow down and breathe. Too much going on in your head. Sit down and start at the beginning, doing a budget for how you plan to spend your income. Move on from there.