How were your finances in 2019? Did you find yourself moving forward or did you feel a bit stuck? There’s a lot that goes into managing money and making the right decisions is not always easy. Thankfully, my guest this week is here to help. Rob Carrick is a longtime personal finance columnist with The Globe and Mail. He came prepared with a number of great tips that will help you get out of debt and increase your savings in 2020.

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. This week’s episode was brought to you by EQ Bank. Did you know? You can now transfer money overseas with TransferWise directly from your EQ Bank Savings Plus account. Not only will you benefit from earning 2.3% interest on your savings, but you’ll pay far less for international money transfers. While other banks have a habit of sneaking in markups and extra charges, that’s not something you’ll have to worry about with EQ Bank. Visit maplemoney.com/eqbank and save money today. Now let’s chat with Rob…

Tom: Hi, Rob, welcome to the Maple Money Show.

Rob: Thanks, Tom.

Tom: We’re in the New Year and I wanted to do a bit of a checklist. Just in the past episode, my guest Mike and I both said New Year’s resolutions aren’t necessarily the best thing so if you’re going to say today is the best day, it’s still the same thing in this case. I was hoping we could run through a bit of a checklist on things people could do in order to improve their finances while they’re interested. On my site I see a search traffic spike on that because people want to tackle some of these issues as a New Year’s resolution. Just to jump right into it, what do you think is the most important thing someone should do when they’re starting to look at this?

Rob: For the past 18 months, I have seen a consistent flow of survey and poll data showing people are really stressed about their money. It’s sort of a shapeless, amorphous thing in the polls. But I think what it comes down to it is a two-pronged anxiety. One prong is; I’ve got a lot of debt and I’m worried about that. The other prong is; I’m not saving enough. I know I should be saving more but I can’t seem to do it. I think for the New Year, what people need to do is hone in on those two issues; debt levels and savings levels. The number one thing to do is to look at your debts and figure out what can I do to get control. It may be to do a budget. It may be to figure out which debts you’re going to pay down. Obviously, the higher rate—the credit card debt must be addressed first. And you need to strategize on how you’re going to do it. Those are the two things where I think you really want to put your focus. There is so much more you could be doing with your investments and all that stuff. But I think financial health flows from spending less than you take in. And if you have debts, you’re going to get away from that. That’s sort of where the first gage comes in.

Tom: It sounds like you come down the same way I do about debt. I’ve heard some people say you should start investing even while you’re paying off your debt just to get in the habit. But I’m kind of a math guy. Like you said, if you’re paying 20 percent interest on a credit card that should be the number one priority.

Rob: Well, let’s look at where the stock market is. It had a fabulous, unbelievable year in 2019. Maybe another great year is coming but I tend to think at some point a consistent downtrend is going to happen for stocks. So what kind of a return are you going to get in the stock market over the next 12 months? It could be good. But I think you’re going to be challenged to get as good a return as you’d get by paying down debt. People think that with low interest rates they can make a way better return investing but I question that. Are you going to make (after fees and taxes) a return that is going to beat the rate on your debt? Even home equity lines of credit are in the 4.5 percent, 5 percent range. Loans can be higher than that. Mortgages are going to be—I don’t really worry too much about mortgages because people are going to pay those off because of the amortization that your lender puts on. It’s the other debts that are floating along, like your credit card debt. I think those are the ones you need to address. And I question whether you’re going to make you better return on investment. Give up on investing for 12 months. Take a break and use that money to pay down your debts.

Tom: I totally agree. That’s my number one item to check off the list. Now, you mentioned, as part of this paying off debt, starting a budget. How do you see people getting into that the easiest way? Should they use software, paper or envelope systems?

Rob: I think technology should be harnessed to help with this. I suggest going online. There are a lot of free budgeting spreadsheets available online. Google has free budgeting spreadsheets. There are Canadian versions and U.S. versions—almost anything you want. There are some apps. Mint.com is helpful and it’s free. There’s YNAB. You need a budget. You have to pay a subscription fee for that. But I have heard people (including financial planners) say it is a killer app that is very helpful for tracking spending. There’s a free app I came across on the other day. I forget what it’s called but if you just Google free budgeting apps they’ll have an Apple and Android version. Basically, every spend something you’re supposed to call this app and enter it. And then gradually it starts to build this picture of where all your money is going. If you’re mystified about why you’re having financial problems and where all the money is going, tracking it could be very, very useful. Sometimes it’s a revelation when you see how much you spent of groceries, restaurants, bars, clothes or travel. That can be eye-opening. I don’t think I want to tell people it is a panacea, though. Sometimes you see where the money is going, but that doesn’t affect the behavior that makes you spend the money. So don’t expect it to cure the problem but it could certainly be a help. If you’re wondering where to start, go for it. Use technology and bring that to bear in helping to track your spending.

Tom: Starting a budget helped me a lot early on in paying off my debt. I’m less on the budget side now. Once you hit a comfortable level where you’re doing predictable spending… In a way I’m living a budget anyway because we’re not doing this wild spending anymore. But early on, to see what year you’re spending is huge. It’s like the latte factor where you’re spending $5 on a coffee. If you’re spending it every day, to see that as an annual number, it starts to make a difference.

Rob: Yeah, that’s true. I like to encourage people to focus on the big expenses rather than the little ones because the latte factor is serious but I don’t know what people’s latte habits are. I don’t like lattes but I do buy coffee every day. It can add up and it can be a serious amount of money but I think the bigger issues are on, rent, mortgage payments and that sort of thing. Those are the ones that show in your budget. Sometimes nothing can be done about them. If you rent in an expensive city to live in, you’re going to pay a lot rent and that’s just the deal you have. You can look at alternatives, but for some people that’s just not going to work. For big expenses, like a car, could you get by without a car? Those are the kind of difference makers I would look at first, Tom.

Tom: The other thing that really helped me when I was getting out of debt was coming up with a side-gig. In this case, it was my blog. But nowadays there are many, many options available to people online and everything. And there’s still the traditional way of just getting yourself a raise, whether it’s a promotion just proving you deserve it. What are your thoughts on different ways to boost your income to get ahead?

Rob: Well, the raise you mentioned is very interesting to me and I’ll tell you why. If you look at the latest data on wage increases, it’s surprisingly encouraging. Late in 2019 were coming in the 4.2, 4.3 percent range. I was talking to people about this and a lot of them said, “I don’t know who is getting that. I’m not getting that.” Statistics Canada says a bunch of people are and that’s the average. Some people are getting more than that. Let’s back up a second and point out that the inflation rate is around 2 percent. So you’re getting double inflation. That is the kind of raise that helps you get ahead. That’s what people crave. So if those kinds of raises are out there employers are sort of realizing they have to come across the increases to keep good people. There are pressures in the economy that are driving wages higher so take advantage. Now is probably the best time in ages to go ask for a raise. If you’ve got gain and your employer likes you and wants to keep you, press that advantage. As for the side-hustle, that, for me is an easy one to talk about. But a lot of people are going to find it hard to—for people in the finance blogging world, it’s an obvious way to raise extra money. But if that’s not your scene, I question how universally applicable it is. There may be many ways that you can harness technology to make a buck on the side, but a lot of people have their hands full with their kids, their jobs and all the activities they do. A side-hustle is probably just the kind of thing that’s going to put them over the edge and just add stress to their lifestyle. Use that avenue if you can but don’t be surprised if you can’t. On the raise side, now might be the best time ever, in this whole economic cycle, to ask for that.

Tom: Yeah, that’s interesting because it’s probably in about a year ago now, but I had Robb Engen on my show and we were both agreeing we were getting these inflation raises. You get the 2 percent a year and it doesn’t really feel like you’re getting anything at all.

Rob: From the end of the last recession up until about 2019, people were falling behind and badly. So it’s a real decisive U-turn in wages. And I do not know how long this trend will last because even though it rose a bit in late 2019, there was that big loss of 71,000 jobs in November. I don’t know which way the employment market’s going. It could just be an anomaly so we don’t know. But I would jump on this wage increase trend while you can because it soon ends.

Tom: I want to get into the traditional thing people think of us as we go into the spring here; the first one being the RRSP deadline. I know people love to wait until the very last minute to put money into their RRSP. What are your thoughts about RRSP?

Rob: I think a lot of the younger viewers would probably be better off with TFSAs over RRSPs. I know RRSPs can be top of mind for two reasons. One is that people see them as a place to store money for your house down payment until you get the tax advantage. People forget about the tax refund you get from your RRSPs. You’re going to have to pay taxes when you take money out of the RRSP in retirement. Retirees go berserk over having to pay taxes on their RRSPs. They forgot, but they had them tax-free from when they made the contribution. Next to the OAS claw-back, it’s the number one irritation of Canadian retirees. So bear that in mind. If you’re making a good wage and expect that when you retire you’ll have less and be in a lower tax bracket, RRSPs make good sense. But for the younger people who are yet to approach their earnings peak, I think TFSAs are a very good way to go. But that said, the whole idea of RRSP and TFSA season is all personal finance. New personal finance is to just to get you onto a regular investment plan. Every time you get paid, money goes into your robo-advisor accounts, online brokerage account, or with your investment advisor. The money gets invested. You’re dollar cost averaging and you’re never thinking, “Is it a good time to invest? Is it a bad time to invest?” The money goes every month. If you have money siphoned out of your checking account into your investment account on your pay day, you’ll never miss the money. And when RRSP season comes you’ll look at your 12 month total and you will have made up your usual annual amount in 26 increments that were very variable. It’s a lot better way to do business than trying to find a block of money to put in. People borrow and do all kinds of things, going through all kinds of contortions. Sometimes they throw up their hands thinking they can’t do anything. Do it gradually. It’s way easier.

Tom: I like your advice about the TFSAs. When they came out in 2009 I was still just getting into personal finance at that time. Back then I looked at it thinking, “That’s $5,000. It’s not going to go that far. But I’ve seen my account increase so it’s starting to be a lot more meaningful investment option.

Rob: TFSAs resonate with people because of the pure simplicity. You put money in and from there on you do not have to worry about taxation. Now, if you take money out and put it back in again, you can run into it into problems with over contributions. But for the most part, that really resonates with people; the idea being that my tax obligations are over when the money goes into the TFSA. It is a savings vehicle people just automatically really like. I have never heard anyone say they regretted putting money into a TFSA. But I’ve heard plenty of people tell me they regret putting money into RRSPs. Now, the reasoning for that I don’t think is very sound. But on the other hand, they do feel it.

Tom: I had used the homebuyers plan when I bought my house. In that sense, I pulled money out of an RRSP, obviously, without the hurt of any tax issues but it was money that was out when it could have been growing. So I didn’t take a hit that way.

Rob: Right. My wife and I used the RRSP homebuyers program back in its early days and we paid the money back over time. I like TFSAs much better for home savings programs because to me, an RRSP is a retirement savings vehicle. If young people are fortunate enough to have money in RRSPs at a young age, why undercut that? Take the money out. You’ve done this great thing by putting money away for retirement in your 20s or early 30s where you’ve done all this good personal finance stuff and you’re just going to put it into your house? A house isn’t a retirement fund. People need to understand that houses have nothing to do with retirement. They don’t fund retirements unless you live in a house in Toronto, sell it when you retire and then move to a small town. That’s the only way you’re going to monetize your house and make it useful for retirement.

Tom: Yes, otherwise, it’s just all on paper. If you bought your house for $300,000 and it happens to be worth a million now, but you never sell it…

Rob: But everybody else’s house is gone up too. So, if you’re going to move, the next place you’re going to buy went up in price, too. So it’s really paper money.

Tom: While we’re on this subject, what are your thoughts of RRSPs maybe being a little more untouchable? Are there a lot of people taking money out of the TFSA too easily or are they pretty good with it?

Rob: Well, that’s a really good point. With the RRSP there is a lot more friction. There is the withholding tax. When you take money out of an RRSP, you can’t just go, click, click, click in your online account and the money is there. With an RRSP you actually have to make that withdrawal. It’s a whole big rigmarole. So that’s really useful. But you should know that there is a constant flood of money out of RRSPs. It’s hard to get money out but people are still doing it. We should not underestimate how much money is coming out of RRSPs just like it’s coming out of TFSAs. I actually looked at TFSA money flows at the end of 2019 and there is a firm, positive trend. More money is going in. People are accumulating and not taking money out. There’s just no question that it’s an in-out sort of thing. But there’s much more going in, and I think the overall usage patterns are very positive. They’re being used to accumulate money. They’re not and in-and-out kind of thing where no one is actually getting further ahead.

Tom: Is there a certain time where it’s okay to take money out of an RRSP? Obviously, the homebuyers plan and the learning one—the name escapes me right now—

Rob: It’s the Lifelong Learning Plan.

Tom: That’s it.

Rob: To me, the idea is, if you’re going to take money of your RRSP, there has to be a darned good reason. Now, to upgrade your education where there is no other source for money and you think this will add to your personal net worth over time because you will be making much more money and it’s an investment that will build wealth, I’m open to it. Houses… I understand how hard it is to afford a house. You need all the resources you can get. Personally, I think it’s stupid to raid your retirement savings to buy a house. Find the money elsewhere. But, if that’s what you need to do, then okay. To me, the only other time that it makes sense to raid your RRSP is a flat out emergency like you’ve lost your job, lost hours and you need to keep the mortgage payments going, need to buy food, that sort of thing, then yes, of course you want to use some of your RRSPs. You don’t want to go into debt. You want to burn down your RRSP before you go into debt. But I think there should be a mental brick wall in front of that RRSP money where you need to get a sledgehammer to break through it to get the money. That should actually be your mental image.

Tom: Yeah, it’s like putting your credit cards in ice—the old trick. Maybe that doesn’t work as well anymore since everything is digital. The other common deadline is the tax deadline. What are your thoughts leading into this? How can people be prepared for tax season? Is there anything they can do at this point in the New Year to improve their tax situation? Or is it kind of all done in the past year?

Rob: There are not really a lot of measures people can do to lower their taxes. RRSP contributions, you’ll get a tax refund that way. If you’re in your peak earning years, then maybe getting on a biweekly RRSP contribution program is a great way to make sure you have that RRSP tax deduction in your back pocket at the end of the year rather than scrambling in February to find the money. Pay more attention to charitable donations. The data on charitable donations in Canada is just pathetic. People are just not giving. I just saw some information at the end of the year comparing us to Americans. And they’re giving away far more. It’s not a dramatic tax savings from giving charitable donations. But if you were to put away a little bit of money every month, pick some good charities and give them a small amount of money on a regular basis, I think at the end of the year you would save a little bit of tax on that basis as well. I think it’s just the simple discipline of making sure to collect on any particular tax credits or tax breaks you’re eligible for. Like if you have kids, it could just be a matter of Googling that to find out what’s available—make sure you’re getting the max.

Tom: I always found it interesting with the charitable donations that political donations actually get you a bigger tax refund, yet they’re setting the rules.

Rob: You know, that’s a strange quirk in the system. If there were a referendum in the country I don’t think that would be supported. But anyway, political parties do need to raise money and there are stricter rules than there used to be on how they do it. So maybe that makes sense. I don’t know. But I do believe people have the wherewithal to give more, and that will give you a tax benefit too.

Tom: A question I’ve heard about this is, when it comes to giving to charity, it’s not like you’re getting 100 percent back. If someone really doesn’t have a cause mathematically, aren’t they still just better to keep the money for themselves?

Rob: There’s a cost. There’s a cost for everybody. There’s good you can do. You can do it locally by giving to your food bank. You internationally. You could do it nationally. Do you care about animals? Do you care about starving children? Do you care about any cause? There’s got to be something that gets your social conscience activated and there are charities for that. The issue I hear raised most often when talking about donations is people think charities are wasteful, that they’re just wasting the money and not enough is going to people. But there are good websites out there that will help you select charities that are very effective. I think one is called, Charity Intelligence. They actually do ratings of the charities. They break the ratings down to show what percentage of the revenues go towards the cause versus that administration—that sort of thing. I think if you’re troubled by wastage, find the ones with good ratings. There are plenty of well-run ones out there.

Tom: Perfect. Something I wanted to do just for fun is get some predictions from you being it’s a new year. Maybe we’ll check back in a year. How do you see 2020 shaping up? How do you think the year is going to go on any topic you want?

Rob: It’s an interesting question, Tom, because for the last few years I’ve seen signs in the beginning of the year that made me think this could be a tough year. And we really haven’t had that. The stock market had a bad year in 2018, but big deal. That really doesn’t have any bearing on people’s lives. The economy’s been sort saw-tooth. It goes up a bit then goes down a bit. But the general trend is sort of flat. I’m going to make a prediction that in 2020 we see a break out of that pattern. Things may get a little bit more tense in Canada. I’m going to go out on a limb and say the trend we saw late in the year; more joblessness, loss of jobs, the spike higher in insolvencies, is going to gain a bit of traction. I’m not predicting a recession or anything like that but I’m predicting that more people will be facing financial stress. There’ll be issues with their job reduced hours. There could be layoffs. More people are going to be insolvent. So I would encourage people who feel any sort of vulnerability in their personal finances to jump on this in January. Start thinking about what you can do to prepare for harder times ahead. How can you reduce the stress level two clicks lower? That might be the difference maker for them.

Tom: That’s great advice. I’ve seen it happen. People get laid off then start to look at it how they’ve got all this debt, realizing they don’t have their spending under control. Why not just do that now? That way you’re just a little more prepared for what comes in the future.

Rob: Be proactive rather than reactive. Work at getting things in better shape while you are not under the direct stress where you’ve already lost the job or been told your hours have been cut in half.

Tom: Great advice. Well, thanks for being on the show. Can you tell people where they can find you?

Rob: I’m at the globeandmail.com. Just Google me. All my various enterprises for the Globe and Mail will appear in front of you. I do columns in the Globe and Mail. I’m on social media, Twitter and Facebook. I do an email newsletter; Carrick on Money. You can subscribe, it’s free. It comes out twice a week and people really seem to like it.

Tom: Thanks for being on the show.

Rob: Thanks, Tom.

Thanks, Rob, for providing some great tips on how we can get our finances in order this year. You can find the show notes for this episode at maplemoney.com/robcarrick. I want to wish you a happy New Year to the Maple Money Show Facebook community. If you haven’t joined yet, I’d love to connect with you there. It’s a great place to ask a question or share a recent money win to encourage others. Head on over to maplemoney.com/community to share with the group. Thanks for listening. I look forward to having you back each Wednesday for more great episodes in 2020.