This & That: If It Were My Money Edition

D Wrote: I have recently received $20,000 from an inheritance and I will be receiving approximately $60,000 in July from the proceeds of the sale of my home. I have a $30k car loan @ 5.8% which is from February and no other debt. I have moved in with my girlfriend and I will be paying half the monthly expenses. Would it be prudent to pay off the car loan and save myself $500/month or have $10,000 in my TFSA and $8000 in an emergency fund? I make $75,000 year and have monthly expenses of about $3000. I net $4000/month. You are the trusted voice of personal finance in my world. I watch your show all the time. I don’t want to be a Money Moron!

Gail Says: If it were my money, I would pay off the car loan and then make the same monthly payments as the car loan back to a high interest savings account  (likely inside a TFSA) until I rebuilt the money (saving myself the interest, but rebuilding the capital). 

 

C Wrote: I love your shows and watch one every morning while having my coffee. I have $10,000.00 saved up. The only loans I have are my mortgage ($200 000.00 @ 2.89%) and my car ($10 000 at 4%). My financial advisor says put it on my mortgage, don’t pay off my car, it will be better in the long run. I would like your advice on this please.

Gail Says: If it were my money I’d pay off the car and then use the car payment money to rebuild my savings. Each year I would take a portion of those savings and make a principal prepayment against my mortgage.

 

M Wrote: I’m hoping you can help me. I recently received a small inheritance of 55k. We are a single income family grossing 85k yearly. We have 3 years left on our mortgage 40k at 2.74% 5 year variable (up for renewal next month). We have about 25k in a savings account. We have two teenage sons preparing for post-secondary that we would like to offer assistance with. One this coming September and the other the following year. Do we pay off the mortgage with the inheritance or keep it in savings, so that the money is available to help pay for college? Feeling very confused!

Gail Says: If you pay off the mortgage, you’ll have about 15K left over that you can use to fund Boyo’s first year of post-secondary. You will also then have extra cash flow (those old mortgage payments) that you can use to save for the next round of schooling. And you’ll save on interest. Sounds like a plan to me. 

 

L Wrote: I am 52 years old. My husband recently passed away. He had about $600,000.00 in life insurance. We do not have any debt at the moment except for our mortgage and we are currently putting $2000.00 a month into our retirement funds. I have a net income of about $5000.00 a month. Currently our mortgage is $130,000.00. I am wondering if you would advise paying of the mortgage on our home and investing the remaining life insurance in retirement savings or invest the $600,000.00 in retirement savings and continue to pay down the mortgage on a monthly basis.

Gail Says: It if were my money, I’d pay off the mortgage to save on the interest. Please make sure you understand whatever it is you’re investing it. Don’t stick with the portfolio your husband built…you need to be fully in the know about what you’re buying and why. If you’re not, stay with conservative investments so you don’t end up losing money at this stage of life. As you grow more knowledgeable you can spread your wings. 

K Wrote: I’ve been watching for years and feel I have a great plan to maximize my spending and saving. My question is more a ‘life’ item. I have a great employer. I’m a 28 year old male, gross $54K, full benefits, laptop and cell phone covered, 5 weeks’ vacation + Christmas (we shut down for a week), and the easiness of taking a day or two anytime I want/need without hassle. Perhaps the best part, I have a permanent position and contribute 8.31% to the pension with my employer contributing 14.85%. (Yep, 23.16% of my gross income enters the pension every payday) I’m no financial guru, but I feel pretty strongly that I’ve got one of the best deals in town, on paper. The problem – the actual work I do every day is mundane, stressful at times, and I don’t enjoy it. I’m still at a stage in life where my peers are having crazy traveling adventures and I long for it badly. My only debt is a mortgage, and I do not have any intent on marriage or kids anytime soon (if ever). I want to break free! (Quarter-Life Crisis?) My primary hesitation is that if I give up what I’ve currently got, I’ll never get it again and my future self will have huge remorse. Can you offer what you might evaluate to make such a risky decision?

Gail Says: Wow, that’s a pretty big question dude. The best I can do is tell you what I’d do given similar circumstances. 

1) I’d make sure that in preparation of time off, a sabbatical, the search for new work, I’d make sure I have a big fat emergency fund: not the usual 6 months, but maybe a year’s worth of money at my fingertips.

2) I’d decide what the things are that I feel I’m missing: since you’ve got a great job with fabulous vacation time, if you want to travel you can even as you keep the job. So it’s got to be more than that. 

3) Remember that there are 24 hours in a day. I raised two kids, had a full time career, wrote books, read heaps, blogged, and had a wonderful life because I used all my time with care. Yes, I slept. (I love sleep). But I didn’t “waste” time. If I watched TV it was shows I truly enjoyed. If I had to drive, I listened to books along the way so it was less about the driving and more like sitting in my living room, sipping tea and listening to a great story. How are you using your time now? How could you be using your time to keep you stimulated outside of work?

4) What kind of work do you think will make your heart sing? Can you do that kind of work on a part-time (business or volunteer) basis to offset the boring job, even as you prepare for whatever comes next?

5) What kinds of contacts can you start making now so that when you are ready to transition, you have people who can help you a) find new work, b) create new challenges c) support you in your decision making. If you can leave a cushy full-time job with money in the bank and a part-time contract in hand, along with the potential for more opportunity down the road, that’ll feel pretty good.

How will you know when you’re ready to make a move? Same way I always knew when I was ready to leave a marriage: when the staying was worse than the going, the decision is easy peasy. 

 

A Wrote: I have an autoimmune disease and with my prognosis/family history, while I’m still working now I don’t think I will be able to work right up to normal retirement age. Does it still make sense to use an RRSP for my long term savings or should I focus on TFSA? Due to existing debt I put $50/bi-weekly into an RRSP presently but only have a little under $5,000 saved at almost 35. My mom and sister both have the same condition, mom was able to work until 59 and sister until 34. I think I’m more like my mom though as she always struggled through and kept going while my sister never handled being sick very well. I want to up my contributions to 10% within the year which would be about $70/week if based on net income or $90/week based on gross.

Gail Says: Unless you are making more than $45,000 a year and would benefit from the tax refund, you’ll be best off with a Tax Free Savings Account. If you do the RSP, use your tax savings to fund your TFSA so you’re ahead of the game.