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Rob Carrick answers questions about how to save more money
Canadians facing retirement are being squeezed by weak investment returns, stagnant incomes and the rising cost of everything from food to fuel to housing. What can you do to increase your savings in today's economic climate? Rob Carrick will offer tips in a live chat.
- Hi, I'm Dianne Nice, the Report on Business Communities Editor. Thanks for joining our live discussion with Personal Finance columnist Rob Carrick. Rob will be joining us at noon (ET). You can begin submitting your questions now.
- While we're waiting for Rob, I wanted to point out some helpful calculators on our Personal Finance hub. One is the Pay Yourself First calculator, which shows how small savings can grow over time. Another is the Reduce Spending calculator, which shows how small cuts make a big difference.
- Hi everyone. I'm ready to roll, so let's get to the questions.
- Sorry for the delay, everyone. We are having some technical difficulties.
- While we're waiting, Rob, perhaps you can comment on this remark from a reader of your column. "Why the increase on the variable annual interest rate on unsecured lines of credit...my new variable annual interest rate will be 8.oo%... why is the bank doing this to their little borrowers?"
- If you're having trouble submitting your question for Rob, please refresh or click on this link.
- Re rate increases on unsecured credit lines at TD: Nasty, eh? Out of nowhere, the bank suddenly decides some borrowers must pay more for unsecured credit lines, while a smaller number can pay less. I read this as a re-assessing of risk. Some clients may appear to be less creditworthy than they were before, and thus the bank has decided to charge more. I'd certainly ask the bank to explain itself if I was a customer, and I'd also check out alternativex. 8% is too high.
- Are Canadians being led astray by all the low interest rate talk? Isn't the best way to save to put away cold hard cash that you have earned, and then worry about managing savings rates and investments?
- Yo, Prophet. Wise words. Invest first and pay all your bills. Then see how much you have left over to spend on loan and credit line payments. It's called paying yourself first and it's the best advice out there for keeping your finances on track.
- I am in my late 20s with a well-paying job and no debt. I make about 85k a year. I’m saving as much as I can for a down payment on a house. I have about $55,000 saved so far. Most is with Ally making 2% and I have the max amount in a TFSA with them.
I have an RRSP of $15,000 in RBC’s Canadian dividend fund. I plan to use the RRSP for the first time home buyer’s plan. Since I’m hoping to buy a home within the next 2 years, I’ve realized this fund is probably too risky for me.
Right now I can’t decide whether to transfer the whole RRSP to ING and make 2% in a savings account (they also have a 2.5% 90-day GIC promotion) or to follow RBC’s advice, which is to transfer it into their Cdn short-term income fund which has made about 3% a year on average. It holds mostly bonds and I’m afraid I could make less than 2%. What do you recommend? - Catherine, use a high interest savings account for home downpayment savings and don't use the dividend fund or short-term income fund. Both of these funds can fall in value, whereas the savings account is bulletproof. Low returns, with zero risk as long as you keep within the $100,000 deposit insurance limit per bank. BTW, congrats on being very on top of things.
- Say you've maxed out your RRSPs and TSFAs and you still have a little left over money, should you put away extra savings into a rainy day/emergency fund or put the money towards your mortgage?
- Eddy, I'm a big believer in having the emergency fund. There's something very comforting about knowing you've got a few K in a high interest savings account that you can fall back on if, say, the roof on your house is toast, or the car's engine fries.
- What is your opinion on investment loans?
- Investment loans? Don't. Like. Them. Here's my reasoning:
- It's all about human behaviour. People think they'll be OK with borrowing to invest in up-and-down markets, but a big market plunge too often pushes them to sell at a low point. When you borrow to invest, you lose more than if you invested your own money. You can also make more, but the stress is a killer for lots of people.
- Where do investment counselors get the million plus dollar amount numbers for retirement from? My parents aged 72, and 70 have been retired since mid 90's and they never had anywhere near a million in savings.
- Here's a link to Rob's recent anti-leveraging column
- NG, they get it from their marketing people. That "ya gotta save a million" blather is about scaring people into buying lots of investment products. Plenty of people live on much less in retirement, in part because their day-to-day expenses are quite a bit lower.
- I wondered where the best place to put your temporary savings would be. I have some cash sitting on the sidelines, waiting for slightly better entry points for some stocks (which could take some time) and wondered where that cash should sit in the meantime.
- Engineer, I would look at using one of the high-interest savings account products that are bought and sold like mutual funds. Yields are in the 1.25% range, and they work well in investment, RRSP, TFSA accounts. Renaissance has one, and so does B2B Trust and RBC. Ask your broker or adviser which they offer, and be sure there are no fees to sell.
- Hi Rob,
I am currently paying off my student loan at a very high rate limiting my savings. However, now that I have started a new job, I have been making a lot more money. Should I be putting that towards my debt, making myself debt free in about 4 months time rather than 9? Or should I start creating more savings for personal use? - Vanessa, how about a 50-50 split? Pay your loan off in 6 or 7 months and reward yourself with a bit of ramped up spending to celebrate your new job. One rule for the additional spending: NO DEBT. Pay as you go only. Oh - once the student loan is done, put that money into a regular savings program.
- In order to save more (pay less) are there any service providers that are easier to get discounts from than others (i.e. cable companies, etc)
- David, a couple of years ago my sister in law wised me up about cable bills. She said she called her cable company and basically negotiated her cable bill down by a big percentage. I made the call myself - ask for a relationship manager -- and cut about 25% off our cable bill while also getting a big savings on Internet and some free digital TV boxes. Cell phones are similarly negotiable.
- we both make good money(about 200K) but we can't seem to be on top of things. we have line of credit of 82K, credit card debt of 15k, mortgage of 290k. we have two young kids and no matter what we tried, we can't get the debt level down. we also have RRSP of 200k and RESP of 15k. any advice on how to keep the debt in control and save for retirement and education?
- Here's a recent video Rob did with author David Chilton on why lines of credit are more dangerous than most people realize.
- Tessa, sounds like you're not able to live on what is a very fine level of household income. You've got to cut expenses so that there's something left over each payday to start slashing away at your line of credit and your credit card debt. Great job keeping the RRSP and RESP going - don't change a thing there. What you have to look at is where your takehome pay is going each week. Painful cuts may be ahead, but I guarantee you'll feel better once you're on your way to getting your debts under control.
- I am 24 years old and saving for my retirement using both a TFSA and RRSP, plus my public sector pension plan. Last year I contributed the maximum amount allowable to both my RRSP and TFSA. Since my savings will likely put me in a higher tax bracket when I retire than I am now, should I be using an RRSP?
- Kid, don't change a thing. You're doing everything right, including using both TFSAs and RRSPs. Why guess now which will be better for you 40 years down the road?
- Is it really worth buying mutual funds? I can get 2% on a savings account - no fees, no risk. Not very exciting, but maybe slow and certain is good?
- Slow and certain is good, but fast and uncertain also has its place. Basically speaking, the problem with making 2% is that you have to save more because you're getting such a small amount of investment growth. The stock market over a long period, say 10 years at least, should give you something like 6-7-8%, even while plunging every now and again. But you have to be able to live with your investments. Some people just can't live with stocks or mutual funds, and I get that.
- How much money should you have in your emergency fund?
- Eddy, I've heard three months' pay as a guideline, which would be great if you can swing it. Realistically, even $1,000 is better than having nothing to fall back in if you run into a sudden, serious expense.
- Hi there. I'm 30, married, we've got 20K saved, a 200K mortgate @ 2.35%, a 25K Line of Credit @4% and lots of room for RRSP and no TFSA's. Is the ideal finanncial plan to pay all bills and max out RRSP? And then, if there is money leftover, put into Line of Credit, Mortgage and then TFSA? (rate of descending interest rate) I'm new at this financial planning stuff!
- Confused, what about a two-track plan where you reduce the line of credit and build up your savings in the RRSP and/or TFSA? Leave the mortgage be for now. At 2.25%, your mortgage rate is laughably low. One thing to get straight - the ideal state for your finances is to have a zero balance on the line of credit. One the LOC is paid down, take your monthly payments you've been making and re-route them to savings.
- One of the financial advisors I met with works for World Financial Group. They are advising that we buy what they call permanent life insurance as a tax shelter/investment vehicle. The idea being that at 65, we can take a loan out against the money in the insurance policy tax free to help fund retirement. What makes me uncomfortable with this scenario is taking on debt as a retiree (when my income will be presumably lower). Also, then compound interest would be working against me. I would love to hear your thoughts.
- Call me a skeptic, Breffney. I'd need to see a tonne of data to convince me this approach beats saving the plain, old-fashioned way in TFSAs and RRSPs. Loans, insurance - they are complications, and potentially expensive ones. A quick online check shows World Financial Group is affiliated with a big global insurance company. When insurance is your biz, the financial solutions you offer people tend to involve a lot of insurance. Funny how that works.
- Hi Rob, I have a 20 year old daughter who just entered the workforce and is socking away about 1-2k per month into a TFSA, with hopes of buying a house in the next couple of years. Any advice for her? Thanks.
- Pep, I just wrote a book for your daughter and other young adults just entering the workforce. It's called How Not to Move Back in With Your Parents: The Young Person's Complete Guide to Financial Empowerment, and it's in bookstores at the end of March. Key points: Avoid credit card debt and don't rush into the housing market before you can properly afford to carry the cost of owning a house AND properly saving for retirement. Sounds like your daughter is off to a great start.
- Hello Rob. Credit card companies offer low interest balance transfers (1.9%) that can give you an interest break from higher line of credit loans (6.3%). Do you recommend that people take advantage of these opportunities to save more or are they only lulling people into a false sense of limited debt?
- Edward, these deals exploit people who are terrible with credit and chronically carry card balances. Card companies know that people who take advantage of these offers don't have a hope in hell of paying off their debts before the low rate offer ends. Sure, use of these deals, but only if you have a rock-solid plan to pay off your card balance and not run it up again.
- That's all the time we have for questions today. Rob, is there anything you'd like to add before we sign off?
- Thanks for the questions, everyone. And remember, you can reach me any time on Facebok and Twitter.
- On behalf of our readers, Rob, I'd like to thank you for taking the time to answer these questions. Your advice is always appreciated!
