Archive for the ‘Reader Questions’ Category

Reader Question: Homemade or Store Bought~ Which is Cheaper?

Posted: November 21, 2012 in Reader Questions
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rolling dough

Mr. CBB has paid me the compliment of inviting me to help answer a reader’s question:

A question I would love to have feedback on from you and your fans is: How do you know when it’s less expensive to make homemade baked goods or buy it pre-made at the store? I’m on a tight budget and I hesitate to try recipes only to find out it’s more expensive with the ingredients and electricity amongst other things. I am sure it’s more nutritious to make my own but right now it’s financial.

The short answer is that bakery goods have among the highest mark up in the grocery store, so home baking is almost always more affordable than an equivalent purchase from the store.

In reality, though, there are some factors that need to be considered, especially if you’re on a tight budget. If you are not already a baker, you’ll need to have some basic equipment on hand to bake and you’ll also need the ingredients called for in the recipe.

My advice?

Do bake at home and make homemade. You’ll recoup your initial investment in ingredients and equipment very quickly.

Tips on getting started with home baking inexpensively

  • Keep your equipment purchases to a minimum, buying only the pans you’ll need.  If your initial plan is to make granola bars and cookies, purchase only a cookie sheet and a rectangular baking pan (if you need it for the bars).  Do spend the money to buy good quality pans.  You’ll be using them again and again. You’ll always need measuring spoons, and measuring cups so do spend money to buy them too but check inexpensive outlets like the dollar store to find them at the lowest price.
  • For the rest of the equipment, make do with what you might already have on hand. If you don’t have a large enough mixing bowl on hand, look around for another item you can use in its place. Do you have a large saucepan?  If you don’t have a wooden spoon, use a serving spoon instead.
  • Begin with a couple of recipes that you know your family will enjoy and that share several common ingredients.  For example, if you’re planning to bake granola bars then oatmeal cookies of some sort would be a good second recipe.
  • If you have no baking ingredients on hand, begin by purchasing small amounts of ingredients until you’ve figured out which recipes your family likes and which recipes you’ll be making over and over.  You can minimize the expense involved in getting started with your first recipe by taking measuring cups and spoons to the store and portioning only the exact amount of ingredients you’ll need from the bulk bins. If the ingredients you need aren’t available in bulk, purchase small packages (unless they are things you know you’ll use for purposes other than baking).
  • If a recipe calls for an expensive ingredient or one that you don’t often use, consider a substitution.  For example, I have several recipes that call for pine nuts. Pine nuts are very expensive so I use sunflower seeds instead.

TIP: If a recipe calls for an expensive ingredient and you can’t make a less expensive substitution, don’t make the recipe.

Once you’re into the swing of homemade baking and have some idea about what your family likes – and what you like to make – begin buying your ingredients in larger quantities. Once you begin stocking up on flour, sugar, baking soda, baking powder, salt, spices, raisins, etc. you’ll start to see an even greater savings.

Good luck and have fun. You’ll love baking homemade in your kitchen once you get started along with saving money.

Guest Post Bio:  Aunt B’s family jokes that she started writing because she just doesn’t know when to be quiet!  In truth, her blogs grew out of a long illness and helped her to keep in touch with the world around her.  She’s interested in everything, and shares her interests at Aunt B on a Budget, A Word from Aunt B, B on Balance  and B-Attitude.

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Reader Question:Is It Savvy To Cash In My RRSP’s To Pay Off Debt?

Posted: October 22, 2012 in Reader Questions, RRSP
Tags: , , , , , , , , , , , , ,
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A Reader Question about whether it was savvy to cash in an RRSP to pay off Debt was submitted to Canadian Budget Binders Ask Mr.CBB. He forwarded it to me to share my opinion on this topic with all of you.

My short answer is that it depends.

There are several factors to consider:

  • The age of the person
  • The withholding tax on the funds withdrawn on the RRSP
  • The amount of debt and its’ interest rate
  • The type of investment held in the RRSP
  • The opportunity cost of the withdrawal

To keep things simple let me say if you are doing this and are under 30 then it might not be a bad thing. At older ages you have a shorter accumulation period and time and the magic of compound interest work against you.

I have always maintained that paying off debt is one of the best investments someone can make.

Let’s say you’re carrying a credit-card balance of $1,000 with 18 percent simple annual interest. That’s $180 a year in charges. Pay off that debt and you’ve saved $180. That’s the same as investing $1,000 in something that earns an 18 percent return after tax.

Tax Withholding Rates

When you withdraw funds from an RRSP there is a tax withholding. This is a credit due for taxes payable on 100% of the withdrawal and is to be paid by April 30th in the year following the withdrawal. You may indeed owe more than the rate withheld if you have a high income.

Withdrawal Amount Tax Withholding
From $0 to $5,000 10%
From $5,001 to $15,000 20%
Greater than $15,000 30%

So let’s assume you have $10,000 in debt. You are paying the minimum of 3% per month to carry the debt or $300 per month. The debt carries an interest rate of 18%.

Approximately $14,300 needs to be withdrawn to net the $10,000 to pay off the debt. Your savings, the cash flow of $300 per month after the debt is eliminated.

However the real cost may be much greater.

What would the $14,300 be worth at age 65 at 6% yield if it had never been withdrawn?

If you were 35 when you did this, the monies would be worth at 65, $83,281 so you are giving up potential growth on this money in addition to the withholding tax.

Ok, I hear the question already: What if we withdraw, pay off the debt, and invest the $300 a month every month to age 65?

If you indeed did do this, your deposits would be worth $294,354. In this example provided you have the discipline to save the $300/mo. it indeed might work out to eliminate the debt first.

What if our client was able to find savings through budgeting etc. and find an additional $300 per month?

In 19 months he/she would be debt free, their RRSP would be intact, and now they can save even more toward their future.

This Calculator is a handy tool. First enter $10,000, then 18%, then monthly payment of $300.

Under step 2, choose minimum payments. This shows the real cost of paying credit cards on a minimum payment basis.

On page 2, change the monthly payment to $600. See the result? You may want to bookmark this calculator.

Ideally this would be the preferred course of action.

If your RRSP’s are earning low rates of return, such as 2% or 3% it makes it easier to withdraw monies and eliminate the debt.

Your opportunity cost (Put another way, the benefits you could have received by taking an alternative action.) is not very great because of the low yield on the investment.

So there you have my analysis on whether you should cash in your RRSP’s to Pay Off Debt!

What is your opinion?

Would you pay off the debt first?

Look for the savings through budgeting and keep the RRSP intact?

Comments and opinions are welcomed below.

Gary B. Gorr, CHFC

About Gary Gorr: What kind of written plan do you have for retirement that ensures you won’t outlive your money? I help people answer that question CONTACT INFORMATION: (905) 202-8430 ext.626 ggorr@ifcg.com or you can follow my blog at Gary’s $$$ and Sense 

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