Money Matters

#MoneyMasterClass Recap-Week 47

This week, Gail continued to answer participant questions. She also talked a bit about feelings–feelings of denial, entitlement, and what we deserve.

Adaptability

So much of what Gail has been trying to teach us this year can be summed up in this quote:

“Things never stay the same. If you want to be in a better place tomorrow, face your reality today and start making plans.” – Gail Vaz-Oxlade

Denial

Pretending things aren’t what they are is not a helpful way to create change in our lives. Gail talks a bit about that truth this week.

Entitlement

What do you Deserve?

Similar to evaluating whether you are entitled, it’s important to be able to make educated decisions about what you deserve and can afford.

Credit Cards

There was a little side conversation this week about how using a credit card does have benefits. It needs to be said, though, if you don’t have the discipline to be paying off your credit card every month, it is not worth using them.

If you can pay off your credit card and use it without accruing more debt, they can help you keep your debit fees down and, my personal favourite, they can earn you cash back or loyalty points.

November Questions

Gail continues to answer Money Master Class participant questions. As with the previous weeks, I’ll type out the Q & A’s below the embedded tweet so that they are easier to read.

Question:

I’m single, 37, debt free, I have a retirement plan through my job, I have six months worth of income in my emergency fund. I don’t want to buy a house, it’s not practical in my area. I feel like I’ve accomplished a lot of my financial goals but I don’t know what comes next?

Gail’s Answer:

You’re a smart woman! Nice position to be in doll. What lights up your eyes when you think about it? Do you want to travel (when all this caca is over)? Do you want to help young people learn to read? Do you want to learn to do something new? Life is so much more than just making and spending money, and doing things that expand your heard and your mind are how you achieve that elusive “happy” everyone is chasing. Take some time to think. I suggest you start by grabbing a piece of paper and jotting down everything you can think of that’s important to you. It doesn’t have to be organized. You’re coming up with ideas…all kinds of crazy, beautiful, interesting, frightening ideas. Once you’ve got a list of things that interest you, grab your core values list and make sure the thing(s) you choose is in keeping with what’s really, really important to you. If you want to talk about this some more, write back with your Qs or thoughts.

Question:

My wife and I had our first child at the beginning of the month. We are trying to decide what’s best for him opening an RESP or a bank account. Hope you can let us know what you prefer; thank you for your time today, and in the past.

Gail’s Answer:

You can open up an RESP at a financial institution (no group RESP please) and contribute up to $2500 a year and the government will gift you an additional 20%, or up to $500, for your new babe. That’s what I suggest.

Question:

Can you explain how to diversify a [portfolio]. If I decide to invest in real [estate] and rent how do I know this is a good investment? Would CRA claw back capital gains?

I wanted to also take the opportunity to thank you. I arrived to this country with the luggage in my hands. I lived in poverty and worked hard to get a job. I discovered your shows and even went to see you in person. I’m super grateful to you because your knowledge helped me [achieve] many things like savings, paying down my mortgage and living debt free. From the bottom of my heart thank you, you empowered me through the screen.

Gail’s Answer:

I am so happy to hear things have gone well for you.

Diversification means splitting your eggs among many baskets so that if one basket breaks you won’t lose all the eggs at once. When it comes to real estate, you would have to have many properties to achieve diversification; one property cannot be diversified. Yes, you would have to pay capital gains on that property if you sold it having never lived in it because it wasn’t your principal residence, which is the only way to avoid capital gains tax. As for whether it is a good investment or not, that would depend on many factors, including how much income you could earn from the rental units(s), how much of your carrying costs would be covered, how long you plan to hold the property and how much of your day to day cash flow would be affected if unit(s) were unrented for any period of time, among other things. I suggest doing some deep research before jumping in.

Question:

When putting money aside for retirement, is it better to use an RRSP or would it be better to use a TFSA?

Gail’s Answer:

Both RRSPs and TFSA give you a wide range of options for investments. That’s a draw. Both let you earn income without paying the tax-man immediately. Another draw. RRSPs have higher limits: a win. And there’s that tax deduction you can take if you’re in a tax bracket you wish you weren’t.

The offset argument to this is that you might pay as much tax when you’re retired, making the deduction no so clear a win. But consider what you did with the money you saved in taxes? If you paid down your debt/mortgage, that’d be a win. Ditto boosting your next year’s RRSP contribution or using your RRSP refund to fund your TFSA.

TFSAs have tax-free income for EVER: that’s a definite win, particularly for people who will rely on government benefits, people who have good company pension plans or if you’re concerned about the Old Age Security claw back, which kicks in if you make over $79K a year. TFSA are also the right choice if you’re 15 yrs away from retirement (or less) and have just started saving for retirement or if you’re in a lower tax bracket.

Question:

My wife and I had a lawyer prepare wills before we had kids. The lawyer seemed wise to make them generic enough to consider the cases where one or both of us passed, and regardless of how many kids we had, and regardless of our assets. It’s now over 20 years later. I there anything money-wise or legally to suggest we have them prepared again?

Gail’s Answer:

New wills are usually necessary when family circumstances change…new kids, new mate, and the like. Nothing may have changed for you but something may have changed in estate law that would leave you better served with a new will. The general rule of thumb is to update every 5 years or so. Perhaps make an appointment just to review your will with an estates lawyer to see if anything needs to be changed.

Question:

I’ve been using the Gail Way since 2014, debt-free since 2016. I’m planning to take what I’m calling a ‘sabbatical from my life’ come January 1 when a work contract ends so I can devote some time to myself and care of my family. Based on my calculations, I think I’ve socked away about 6 months’ worth of savings to cover all my day-to-day bills. I’m going to assume I won’t have any government assistance and will coast on those savings and some dividends. What haven’t I thought of? Am I missing anything? I need the break for my mental health and am hoping not to have to dip into my “real” savings.

Gail’s Answer:

I am so pleased that you did what it takes to have the money in the bank so you have options. This is exactly what I’m talking about when I tell people $$ = OPTIONS. You’ve done what you need to in preparing for your sabbatical. And it’s actually a sabbatical FOR your life, because it is exactly what your life needs now. Happy Days on your sabbatical.

Question:

We are a married couple, almost 40 with a 4 year old daughter. My wife has a good pension with work and RRSP contributions. I am a sole proprietor Social Worker/Psychotherapist with 50K in my RRSP. We contribute to an RESP monthly for our daughter since her birth.

Our current debt is our mortgage (About 40% paid off) and a car loan. My father recently passed away and I will be the sole beneficiary of an estate worth about 400-50K (once we get through all the fees and costs associated.) My first priority is to pay the car loan, then replenish the Emergency Fund as it took a hit at the beginning of Covid. After that am I better off investing in RRSP (and switching from investors group to a fancy “wealth management” professional” or putting a down payment on a unique space around the corner that would have 2 residential units and an open space that could be used for my business (I currently pay almost 1K per month for my office.) If I put down 300K on the property and tenants pay utilities it looks like it would be close to what I’m paying now–while factoring in upkeep, property taxes and related costs.

Gail’s Answer:

I’m sorry about your dad. Paying off the car loan and building up your emergency fund are good first steps. I’d make sure to max both yours and your mate’s TFSAs, catching up all unused room.

Property may be one way of building up your retirement plan (if you don’t need the RRSP deduction to offset taxes) but I urge you to be v careful. First, I wouldn’t buy a dog house in this current real estate market. You don’t say what the property’s sale price is so I don’t know how much debt you’re planning to take on. I do know that this is NOT the time to a) take on debt and b) assume your renters will pay their rent.

As for a fancy wealth management professional, well, you’re probably paying more now with your current mutual funds provider.

Question:

I am in my late 50s, hubby is early 60s. He had planned to work for 5 more years. I planned 6-7 years. Empty nesters with no mortgage, but we do have new car debt.

This summer, he was given a buy out deal, COVID-related. He has been let go but is getting paid til end of Jan 2020. We thought with his experience, a job wouldn’t take long to find. Wrong, still looking.

I have paid off $1,000 in debt this year thanks to your challenge–our older car and line of credit–but we still have $21,000 new car debt. We have $250,000 in RRSPs, about $25000 in tax free savings, and have continued automatic withdrawals for those.

Our original plan was to pay off the debt AND then ratchet up retirement savings for the next 5 years.

Now were going from his $100,000 annual salary to a likely combo of EI and my $2800 monthly take home. We can still pay the bills and have money left over for some savings, but not as much for retirement savings as we planned.

Finally, the questions(s): Am I still concentrating on paying debt off first, but therefore allotting lower retirement savings? Or should I pull back on the debt payment (still more than minimum payments) but putting more money into savings? What’s the best use of our money?

Gail’s Answer:

This is your opportunity to live as if you were already retired, on the income you think you’ll have for the rest of your lives. I think that car should be paid off as quickly as possible. I also think as you work through your final working years, you should be socking away as much as you can for the future, but not to the detriment of your current life, considering the big change you’re dealing with.

So time to start practicing. Figure out what your income will be during retirement based on your various sources including OAS, CPP, and any pensions you might have. Make a budget to live ON THAT AMOUNT while you’re transitioning to full retirement. You can use any extra money to a) pay off the car and b) continue to accumulate for those retirement years.

If you find that you can’t live on the amount you’ve got coming in without touching your RSP/TFSA, you’ll learn what needs to go and how much longer you’ll have to work to come up with enough. Go get a copy of Never Too Late from the library. It’s old, but don’t be put off by that, it has some great stuff to consider.

So many topics get covered in these scenarios, I love it! What stood out to you this week?

Missed last week? Check out my recap here: Week 46

New to the Money Master Class? There’s still time to get started!
Check out this Twitter Archive to see all of Gail Vaz-Oxlade’s #MoneyMasterClass tweets from the start.
Find the resources, spreadsheets, and quizzes here: Money Master Class
Check out my weekly recaps to get caught up.
Start here with the Money Master Class Intro and Week One Recap

Check out Gail Vaz Oxlade’s books here:*

Money Rules
Debt Free Forever
CEO of Everything
Money Smart Kids

4 Comments

  • A in Tx

    Hi there, I have dropped off reading blogs as I recover from Covid & just thought I’ll just read a few posts now. I’m still glad that you are doing the weekly recaps. Thank you for doing that .

    • A Sustainably Simple Life

      I’m so sorry you’ve been sick with Covid! I hope you’re recovering well. Take good care of yourself. The recaps will be here anytime for you! I’m happy to help out with any questions you have if I can too 🙂

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