Me and My Money

Bad saver wants redemption

Posted November 25, 2011
Originally Published January 29, 2009

Q: I just started a new job with a significant pay increase. I am really bad at saving money but I want to make a change. What is the best way to save money? How much should I save from each pay? Staci R.

A: You have the income and the will, now you need a system. There’s no one perfect way to save money but try this on for size. Aim for 10 per cent of your net pay. Assuming you have contribution room in your RRSP that isn’t absorbed by a company pension, have 5 percent automatically deposited in that account. Next have automatic withdrawals set up for 2.5 percent to go into a regular savings account and 2.5 percent into a new Tax Free Savings Account (TFSA).

Use your emergency account for unexpected expenses like car repair or for expenses you anticipate down the road, such as a vacation. Think of your TFSA funds as a long term, tax exempt hold. Keep the money in something very safe and boring such as bonds or GICs. In time you may wish to use the money for a major purchase such as a house or use it to pay down a mortgage. Otherwise, think of it as just another form of retirement funds.

Make sure all these withdrawals are set up as automatic debits so you will never see the money sitting there in your chequing account begging to be spent.


Q: I bought a town home in 2006 for 232,000. I listed it last summer for that very same amount and didn’t get one offer. There were 5 other places listed then in my town home complex of 34 units and they are still listed now almost a year later. Now there is a 6th place listed for 185,000 by a bank as some owner went bankrupt.

I just want to get out and go back to renting. My mortgage is at 214,000 now. I have about 15,000 in credit card debt which I don’t mind if I could sell. Now I am thinking that I should go bankrupt as the town home values are most likely down to 190,000, which would bring me 30,000 more in debt.

Is there any way to get rid of a mortgage/home without a 7 year bankruptcy? I make $52,000 a year and there is no risk my job will be lost. Matt

A: You have clearly bitten off more than you can chew financially. Let’s see if I can find a way to help you digest it before you give up and spit it out. A good rule of thumb is to keep your monthly debt payments to 40% of your gross income which, in your case is $1,733. Assuming roughly $400 as the minimum payment on your credit cards leaves you with just a little over $1300 for principle, interest, taxes and condo fees – pretty skinny. However, selling now at a big loss doesn’t make a lot of sense.

Housing goes in cycles and we are likely on the downward spiral for awhile. Your town home may lose even more in value but you need to look to the future and a future with a bankruptcy blemish isn’t pleasant.

Here are some options. Consider taking in a student or a roommate. An extra $400 to $500 a month will keep your investment in your home safe. Think about a part-time job for a year or so. Even one shift a week somewhere will give you some breathing room. Talk to your bank about extending the amortization. Finally, look at your spending and cut 10% from everything but fixed debt payments. So, that’s food, entertainment, cableinternetcell and so on.

Bankruptcy is a last resort. Don’t take the most drastic step first.

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