This & That: Happy, Happy Edition

M Wrote: I would like to first say I am a huge fan of your show Prince$$ and from getting some of your tips for girls (such as myself) most in their early 20’s, I have successfully landed a fulltime job as a field support representative.

I am 20 years old and I am looking to make a long term plan to move out and pay off my debt and also take a vacation. I get paid $420 every week with tax reductions made. I have started putting $200 per week to pay off my $10,000 dollar student loan. Is this a good percentage to put towards my debt?

I also read your article in the Metro the other day about putting 6% towards your retirement. I plan on doing this after I pay off the $10,000.

How much should I save up before I get a bachelor apartment? What would a good realistic time line be for this process??

I look forward to hearing from you Gail. As you always say, “If you don’t have a time line, it’s a fantasy”. You are right.

Thank you for everything you have taught me. I used to be a very bad shopaholic but now that I’ve started budgeting I want to get an air miles credit card. What do you think?

Gail Says: I love, Love, LOVE getting letters like these. What a very smart girl you are to focus on getting that student debt gone. I’m very pleased to see your focus. You’ll be debt free in less than a year and can start life fully focused on what you want to achieve next. If you want to step off into independence with a solid footing, figure out not only how much your apartment will cost, but all the other costs associated with living on your own: transportation, internet, cell phone, and the like. Aim to have six months’ worth of those expenses tucked away. You’ll need to use some for first/last months’ rent, but can rebuild your emergency fund from there. Also make a list of the things you’ll need for your new place: at the very minimum a place to sleep, some pots and pans, maybe a chair and table, and your first big grocery shop so you can set up home. Have that saved too.

 

H Wrote: Can you recommend children’s books on financial literacy? Especially for very little kids – toddlers – to get them familiar with the concept of money?

Gail Says: What a great question. Here are some ideas for kids aged 4-8. Toddling is a bit young yet. Enjoy:

Jenny Found a Penny by Trudy Harris
Sheep in a Shop by Nancy Shaw
Benny’s Pennies by Pat Brisson
One Cent, Two Cents, Old Cent, New Cent by Bonnie Worth
A Chair for My Mother by Vera Williams
The Money We’ll Save by Brock Cole
Alexander, Who Used to Be Rich Last Sunday by Judith Viorst
My Rows and Piles of Coins by Tololwa Mollel

 

C Wrote: Firstly, thank you for all of your assistance to this point. I am a devoted blog follower and although my hubby is reluctant to read the blog he has been influenced by your messages because I’ve been instituting some of your rules and he’s come along and been awesome!!

That being said, we’re just in the last few months of our debt repayment plan. We will be debt free with the exception of our mortgage by May!! Yahoo!!! That means that in 3 years we’ve taken 18 months off the one car loan (8.5%), paid the other off on schedule (1.9%), paid off our credit card – $25K at 12.2% and managed to increase our mortgage payments to the point of taking another 6 years off our mortgage span. All the while still contributing to our Emergency Fund which is at about $8k right now and continuing to add to my RSPs and his pension plan.

In May we will be left with only our mortgage and our regular life bills. I have conquered some significant health issues which had me not well from 2011 to early 2014 and that had me face 2 major surgeries. For the last year my focus has been on getting myself into a physical condition that I am happy with (the bonus of this has been less time for frivolous spending). Since we will be able to live very well on my husband’s income we plan to save my income for the remainder of 2015 so I can take up to a year off of work and enjoy life and conquer some of my bucket list items before any more of my body parts need revamping.

My question is this: What sort of financial vehicle could we use to save these funds so that they are accessible during 2016 for items (travel, classes, equipment) that are outside the scope of our regular day to day items? If we portion a bit out of the ‘savings’ fund to do some home improvement ($5K) that should leave us with $32K to invest.

Personal stats for consideration: Both mid 40’s, currently each have about $120k towards retirement savings and building, home value of $620k will be mortgage free by 50, 2 relatively new vehicles and only the daily driver may need replacing in 7-10yrs. The other is a truck that will likely last another 20 since it’s a highway driver of great quality.

Thank you for any direction you can give on this. I do plan to speak with my usual investment advisor on this matter, but I do value going into those discussions with plenty of research.

Gail Says: Congrats on so many fronts. It’s great to hear how well you are doing. You do me proud. And continued success with your physical recovery.

Since you have a very short-term investment horizon, you must stick with something that keeps your money very liquid (so it’s not in a down market just when you want to use it.) search around for a high interest savings account that pays a decent return. Some like Achieve offer a good rate all year round (1.8% last time I looked) while others like Tangerine offer bonus interest for specific periods (2.5% right now on new deposits). You can always move it electronically later when the best rate expires.

 

T Wrote: I have read many of your posts, your books and have been using jars and your budget sheet for a few years now. I have a question and I did search and don’t think it has been asked before, if so I apologize for my oversight.

As I write this note, I am still in shock from being laid off from work. After 25 years with the same company and working since I was 16 I have a journey ahead of me. The good news is my husband is still employed and he and I own (ok the bank owns most of it) our own home with our 12 year old son.

I am fortunate to have been offered a salary continuation severance package for the next year and a half. Given our current economy and job market where we live it is realistic to assume I will not find a new job that replaces my current income within that time frame. So I am wondering financially, what is the best course of action? I am thinking that I should save as much money as possible over the year and a half. In other words start living now as if all we have is my husband’s salary. Emotionally that may take off some of the possible future stress if I am unable to secure similar income. Would you recommend that or would you have other suggestions? I realize it is difficult without a complete picture. We do have healthy RRSP savings as well as I anticipate to soon have information on my pension funds that will be transferred to me. We do not have credit card debt, only our mortgage and our vehicles have outstanding balances. We also have an RESP on the go for our son. Any recommendations or considerations you have would be very much appreciated.

Gail Says: Given the stress you must be under I am happy to see you thinking so clearly. Yes, you are absolutely right, you should now learn to live on one income, banking as much of your salary continuation as you can which you can a) use to build up your emergency fund, b) pay down your mortgage principal and c) fund your transition to your next income. You will likely be entitled to EI after your salary continuation ends, so you’re looking at about 2 years to plan and execute your next transition. So think about it. What would you like to do next? Start a small business (not one you have to spend heaps of money setting up, but one based on services you can render, perhaps)? Retrain to a field for which there is demand in your area? You are in a unique position in having time and money to make some decisions. Good luck.

 

A Wrote: I am hoping you can help me figure out why it seems like paying off debt faster is actually less effective—doesn’t make any sense right? Can you please help me?

My situation: I’m a new grad who recently started a good job grossing $63K a year. I have no debts outside of my $24245 federal student loan at a floating interest of 5.5%. I am looking at repayment options and drafting up budgets; my grace period ends at the end of this month. I can afford $1300/pay towards the student loan. I have $5070 savings (outside a 6 month emergency fund) that I can put towards the student loan as a lump sum.

Using the methodology for calculating payments on the website, I have done the following comparisons. As paying on a bi-weekly basis fits better with my cash flow, speeds up and reduces interest costs, I have modified the calculations for bi-weekly payments.

Tables don’t display well in the web form so please refer to the link below (I’ve left the link out to protect A’s privacy).

Gail Says: Good to see such a thoughtful plan. The thing you have not considered, which will work to your advantage, is that you’re paying interest on a declining balance. This means that as your balance goes down the amount of each payment going to interest also goes down, leaving more to pay principal. That means the sooner you make the payment, the more you save in interest and the faster you get to debt free. I also noticed that you have a savings account with an interest rate that you can better. Check out Tangerine, Manulife Bank and Achieva for better returns. Every mickle makes a muckle!

 

K Wrote: I’m 25 and have been out of school for a couple of years. I will soon be receiving an inheritance totalling a little over $60,000 and have been mulling over how wisely allocate this money. I have 5k in remaining student loans and a car loan totalling 22k to which I want to put 5k towards (I’m going to be moving soon and plan on selling the car and using public transit instead – I’m hoping that I can recoup close to the remaining 17k owed). I want to max out my RRSP room with 13k (currently at $600), and put 25k into my TFSA (currently at $2,100). I want to put aside around 6k for my moving expenses, including first/last, furniture, and anything else I’ll need (a few months of hydro/internet). I want a pool of 2k just in case some of my numbers don’t add up, and I want to leave myself 5k to have fun with and put together the beginnings of a travel fund. Any remaining amount will be lumped into my TFSA.

 

I’ve been putting a lot of thought into this, and am wondering if you think that this is a wise way to allocate this money! Any advice would be greatly appreciated!

Gail Says: What a delight it is to get your letter. I can see you have put a lot of thought into how you will best use this money and I think you’ve made a great plan. Go girl! Have fun on your travels and good luck with the big move.