RRSP Season
We are just into February and I am sure you are being bombarded with advertising about RRSPs. I received my Money Sense magazine earlier in the week and I wanted to share a portion of the article about RRSPs.
Q. I have a pension. Do I need an RRSP too?
A. For most people the answer is yes – although if you have a good pension at work you can certainly contribute less to your RRSP than someone without one. With no pension, you can contribute up to 18% of your income to an RRSP each year. If you have a private pension, then the amount you are allowed to contribute to your RRSP will be reduced, to reflect the fact that you are also contributing to your retirement 
income through your pension at work.
There is one group that doesn’t need RRSPs at all: government workers. Teachers, police officers and other civil servants have among the best pension plans available and won’t need help from RRSPs to retire comfortably. For instance a couple who are both government workers can expect to enjoy a combined annual pension income of at least $50,000 with is roughly the kind of income that a million dollar portfolio would generate
Q Which should I contribute to first: my mortgage or my RRSP?
A. Financial planners have debated it for years, but from a pure dollars-and-cents perspective the correct answer is usually to pay your mortgage down first. Every time you make an extra mortgage payment you reduce the amount owed on the principal. If you mortgage interest rate is 5%, paying it off faster is like getting a guaranteed 5% return. yes, you can get a better return than that in the stock market (if you’re lucky), but it’s no guaranteed. So unless you can find GICs that pay 5% you may want to attack the mortgage first.
I want to add a couple of comments to these points. If you are carrying a balance on any high interest debts such as credit cards or loans you are better off paying them before your RRSP and mortgage. Those who are involved in a group RRSP plan where your employer matches your contributions should contribute to these plans before making additional mortgage payments.
What do you plan to do this year, pay down your mortgage or contribute to your RRSP?
Mortgage Questions & Answers
Since I began my blog in June 09 I have spent some time in different forums reading, learning, and answering questions, specifically in relation to mortgages and the calculations involved in comparing different scenarios. I have learned that very few people, including some experts do mortgage calculations properly. While I am confident that errors are occurring due to minor oversights or assumptions they have the potential to cost you hundreds, if not thousands of dollars. In the past, I have provided accurate information to people to be helpful, because I enjoy working with numbers and saving people money. It has recently occurred to me that my responses can be time consuming and of value to people.
If you have a question about the $$$ savings you may experience by refinancing your mortgage for a lower rate, consolidating debt or are comparing different offers from lenders please feel free to email me at mortgagemath@debtfreeby43.com . You will receive a reply within 48 hours. Your email address will only be used to reply to your question and will not be added to any mailing lists now or in the future!
I have set up this email address to send an auto response that will include a link to make a donation to Debt Free by 43. Although a donation is required to have your question answered there is no minimum donation. Simply donate what you feel an answer to your question is worth. It is that easy!
I won’t get rich, but it is my hope that I can generate some cash every month to take my better half out for a nice dinner. That may decrease the number of times she refers to herself as an “Excel widow.” I do love working with the numbers. If you need some help please feel free to email me at the address above. I appreciate your continued support.
Bank Fee Savings
A quick look at our banking fees revealed that we paid $84 in 2009. This amount could easily be eliminated by getting another product from RBC (multi product discount) or switching to PC Financial’s no fee banking. It was a quick discussion and my better half did not want to give up this account because it was her original bank account. She is comfortable with it and the $84 is worth being able to go into an actual branch and speak to an actual person. Perhaps I will bring this up another time and attempt to catch her off guard, but I am fine with the $84 a year.
Estimated yearly savings: $84
Total yearly savings for implemented strategies: $$2,040
Total savings missed for strategies not implemented: $322
Difference: $1,726
January 2010 Mortgage Reduction Report
We have just sat down and made our final prepayment for the month of January. I am happy to say that we were able to come up with $5,500 this month to put towards the mortgage. That is $778 more than what is needed to meet our goal. I changed our board and we have now saved $160,000 in interest on our mortgage. That is simply incredible!
Febuary, March and April may be tight months and I an not anticipating being able to make extra mortgage payments. I do want to hold off as we have a big bill coming in March, a vacation to pay for and I am anticipating a fairly hefty tax bill. Such is life!
Drink Savings
Last weekend I spent close to $40 on alcohol. That is a little out of the norm for me, but it does happen once and while. I began thinking that I was dumping a great deal of money down my throat for no other purpose than to be social. I then thought of other drinks that I have on occasion such as, coffee, milk shakes, pop, milk etc. This stuff can really and up $$$ wise and some if it is not exactly healthy either. My plan is to only drink tap water (cheapest), milk and I don’t want to cut out my diet Dr. Pepper because I love it. It is difficult to estimate my savings if I only drink water, milk and diet DP for a year but based on some spending habits I have looked at it could be upwards of around $2,000. I am going to be conservative and use $1,500.
I am not going to push this on the rest of the family as it is a personal choice I am making and I don’t feel it would be fair for me to ask them to make the sacrifice. After a beer or two tonight I will begin fresh tomorrow morning.
Estimated yearly savings: $1,500
Total yearly savings for implemented strategies: $$2,040
Total savings missed for strategies not implemented: $240
Difference: $1,800