This & That: Planning Edition

D wrote:  Hi Gail I love your show here in Texas.  I have started the jar trick myself.  I searched your Q&A but couldn't find any questions similar to mine.  I have this problem that I always want to help people out.  Not a bad thing, but usually hire them whether being for house work, yard work, or what have you, when in reality things I could do myself (and save money which I need to) but for reasons unknown to me I want to help people, hire friends and family do these jobs.  How could I stop doing this, when in all truth am not rich, I have a decent job, but in all honesty have bills that need to be paid myself.  How I can I stop doing this?  Help in Texas.  Thanks.

Gail says:  When your good heart comes into conflict with your empty wallet, the best thing to do is to PLAN to help, as opposed to just doing it reactively.  So you start a "Sharing Jar" or put a category in your budget for helping people out.  You allocate a specific amount you want to be able to share and then you stick with that amount.  You know that if you go over that amount, you aren't sharing consciously, you're just reacting, which is no different that impulse shopping.  If, in a particular month, you don't spend all the money, you can accumulate it until you do need to spend it, like you would the money for your car maintenance or property taxes.  Now you have a PLAN.  You know how much you can share without putting your own financial situation at risk.  And you know you're no longer going to do things "on the fly" because you're more conscious about your plan.

H wrote:  I've been working with your online sheets trying to 'build a budget that works'.  It's been difficult though due to the fact that I am self-employed and have larger one time payments throughout the year for work, have income tax and HST remittance to also consider.  Oh, I also have student loans. Everything I seem to have in order, or think I do, I end up coming out in the red.  Needless to say, I'm getting a little stressed.  Can you give me some guidance as to what to do?  Do I continue to save or do I stop and put all my money towards my student loans?  Should I consolidate my loans?  What is the best way to accumulate money for my income and HST payments?  I'm feeling overwhelmed and worried that I will never have things right.

Gail wrote:  You actually collect the HST you have to remit so stop counting it as income.  When you bill for and collect that money, move the HST portion to a separate savings account.  Then when you're ready to write the cheque to the tax man, move it back into your account to cover the cheque. Ditto your income taxes.  Figure out how much you need to pay, divide it by the number of months left until you have to pay it, and set it aside in your tax account.

People are always counting their gross income in their business as their money to spend.  I get this issue a lot from self-employed people.  You actually have to turn your perspective around so that you accept that the money you collect belongs to your business.  You take an income from that business. You must remit taxes and cover the other expenses of the business FIRST.  If you can wrap your head around the fact that you are two separate entities, this will actually get easier for you.

J wrote:  I'm a single 37 year old female who owns her own home and nets $40 000/year.  My house is 2/3 paid off (I owe $120 000), and I have about $35 000 saved in RRSPs.  I work for the gov't, so I pay into a pension.  Other than that, I have a 5 year old car that is paid for.  I have one credit card, which is paid in full each month.  I owe $30 000 on my line of credit, as a result of unexpected but necessary repairs to my house.  If I continue to follow your program (and no further major repairs are necessary), this will be paid off in 2.5 years.

Until recently, I've always focussed on paying off the house first, instead of saving for retirement or emergency funds.  This worked fine until I bought my current home and was faced with so many unexpected problems.  Now I see the problem with not having an emergency fund. All that build up is to say that I've recently been given a promotion, and a $10 000 (gross) pay raise. After reading Debt Free Forever, I'm no longer convinced that the additional money should be paid towards the mortgage.  I need an emergency fund, but I'm torn between that and paying off my debt sooner.  It bothers me that I'm unlikely to make as much interest with the emergency fund as I'd save by paying off my debt sooner.  I talked to the representative at my bank, and a few financial advisors, but I always walk away feeling as though their focus is not on helping me to make the best decisions, but on selling their product du jour, so I really hope that you can answer my questions, and point me in the right direction. My questions are:  Is there a way to set aside the emergency fund and invest it so that it makes a reasonable interest but remains (fairly) readily available?  Would it be wrong to invest my emergency fund in a TFSA?  Or, should I just put it into a savings account and consider the lost interest the cost of having peace of mind? Any other advice that you may have would be very welcome.  Thank you very much.

Gail says:  First off, a TFSA, like an RRSP, is simply a plan registration that tells the government that the money in the account gets special tax treatment.  In the case of the TFSA, it's telling the tax man to keep his hands off your money.  But within the TFSA you can hold all the same types of investments that you can hold in an RRSP: savings accounts, GICs, mutual funds, bonds, stocks, and the index. What you choose to invest in depends on three things:  your knowledge, your investment time horizon (how long the money will be invested) and your risk profile (how much volatility and loss can you stand).

I like TFSAs for emergency funds because if you have to use the money, you can put it back into the TFSA in a subsequent year.  But if you're going to use your TFSA as an emergency fund, you're stuck with a savings account — and the accompanying lower return — because you might need that money at any time and that's a short-term investment time horizon.

That being said, your first priority should be to make a plan to get that line of credit paid off.  Yes, get your emergency fund started, but bust your butt to pay off that line.  Interest rates are only going to go up from here.

As for paying off your mortgage, relax.  You have done very well so far.  Your line of credit debt is far more of "issue" than your mortgage.  And I hope you're having a great life too.

S wrote:  My husband has retired at 55 years old due to a heart condition.  I am working three jobs to pay the mortgage.  I have nine more years to go before I can retire.   My husband pays for other bills like the car payments, insurance, utilities, and food but does not contribute to the mortgage.  We have about $79,000 left on the mortgage. Is it worthwhile to refinance?

Gail says:  On a 79K mortgage at a five year rate of 4.3%, amortized over 10 years (so it's paid off by the time [you? and] he turns 65), your monthly payment would be $809.  If you needed the payment to be lower, you could amortize for 15 years and the payment would drop to just under $600 a month.  That might give you the breathing room you need.  You should go to your current lender, explain the change in your circumstances, and ask them to work with you to make the mortgage payment manageable.  While I'm a big believer in being debt-free by the time you're retired, you need to find a way to live without killing yourself.

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