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carrick on money

Mastery of money is built on understanding the interplay of income, spending and saving. For some people, a budget is a helpful part of the process.

Not me, mind you. I use a different system of having money automatically transferred for savings and bill payments each time I’m paid. What’s left, we spend. Budgeting does work for many people, but it’s often more complex than it sounds.

For example, a reader recently asked for help in deciding how much of her household’s income can be used for discretionary spending each month. “How many ‘treats’ or extras does one award oneself? Are new sheets and mattress toppers for the kids rather uncomfortable beds a necessity or a splurge? Is fixing the broken front step and other landscaping needs a priority or a ‘wait ‘til later’ item? If you can offer any advice or guidance, I would be most grateful!”

I’m turning to readers of the newsletter for some thoughts on this. Send them to me at Here are some numbers supplied by this reader:

  • Net income of $10,000 per month
  • Housing related costs of $3,100 per month – mortgage, property taxes, utilities
  • Food for the family costs $1,500 per month
  • Vacation savings of $1,500 per month
  • Debt payments of $1,500 per month – a consolidation loan covering various outstanding debts

Among her questions are how much she should contribute to a group registered retirement savings plan at work, and whether she should be doing anything else with her monthly income.

Based on the numbers above, she has $2,400 per month in net income available after meeting basic costs. Contributing to the group RRSP sounds like a must because these plans typically involved matching money from employers. If this family doesn’t have a Plan B fund for emergencies, it’s a top priority to start building one gradually.

As to treats and extras, what about setting aside a few hundred dollars every month for an “extras fund” – money that can be used for repairs to the front steps (sounds like a priority, if only for safety).

As for the new sheets, that kind of sounds like a necessity and not a luxury. I once read a personal finance blogger make a case for splurging on a great mattress because of the dividends it pays in letting you sleep well. The same should apply to sheets, right?

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Rob’s personal finance reading list

How much should you have saved for retirement at ages 20 through 60?

The Savvy New Canadians blog provides some guidance on retirement saving through the decades of your life. Lots of suggestions on how to get your retirement savings on track if you don’t think you have enough put away.

Canada is running out of land

Why are houses soaring at a pace that is way ahead of income growth? One answer is that not enough houses are being built in urban areas. In fact, some cities are running out land for building single-family homes. “I’m hard pressed to think of any major global city where a single-detached home near the core urban area is affordable,” an economist says here.

How hot housing hurts renters

In Brantford, Ont., landlords are taking advantage of rising house prices to sell. There’s such a scramble for rental units that bidding wars are breaking out. Yes, bidding wars for rentals.

Best and worst loyalty programs

The blog post names names – the best and worst drugstore loyalty, travel and hotel reward programs. Aeroplan over Air Miles.

Ask Rob

Q: You’ve consistently pointed out how important it is to have bonds in one’s portfolio in spite of the fact that, in some cases, after paying taxes, one loses. I don’t think I’ve heard you talk about substituting some of those bonds with preferred shares. Wouldn’t preferred shares be a reasonable alternative to bonds?

A: My take is that preferred shares are not a bond substitute. Bonds take the edge of stock market declines – that’s the main reason to hold them. Preferred shares have been hit very hard in the past two stock market crashes. Now, if we’re talking strictly about generating tax-efficient investment income in a non-registered accounts, pref shares do have advantages over bonds thanks to the dividend tax credit.

Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

This calculator helps you measure the performance of your portfolio compared to relevant benchmarks.

The money-free zone

Call me skeptical of a new development in food technology – the vending machine dispensing hot pizzas. There’s one in Ottawa, where I live, and Rome has them, too. Anyone recommend trying this?

In case you missed these Globe and Mail personal finance-related stories

More Rob Carrick and money coverage

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