Over the months, I have noticed that there are some very smart readers on this blog. The comments that are posted on my articles are proof that my readers really know their stuff.

Last week, I received an email from Pastor Brad who currently resides in Calgary. He wrote me about his financial situation and how he could improve/optimize it. As I’m not a financial planner, I didn’t feel comfortable giving financial advice to him, but I told him what I would do if I were in his situation.

The reason why I’m posting this is because I’m hoping that YOU, the intelligent reader, could add any insights that would help Brad out.

Brad’s Situation (30 years old):

Here is my net worth and expenses:

RRSP’s – $10k – $250 a month goes into an account which can be changed Home – $340k – Mortgage @ $210k (home worth $430k b/c of Calgary market)

My taxable combined income is Approx. 35k Because of allowances I take home $4200 month.

My wife and I can usually save approx. $500 – $600 a month which has been used to pay off our debt (which is now 0 as of today – no car payments or CC)

I’m at a loss as to what to do now. We have been looking at manulife one mortgage because we can save money every month and pay down our mortgage with the flexibility of taking money out when needed, but we have a $4000 penalty if we do so, and @ 6% I’m not sure what’s best. We also don’t have a “rainy day fund” to use for vacation or emergency, but we do have a 10k line of credit for such as these.

I have to tell you – I am a NEWBIE in the world of investments. I don’t know what is WISE. You probably don’t have time for this, but if you could squeeze out some wisdom (knowing your NOT a financial advisor) I’d love to hear it. I do have another question – You talk about your passive income – do you have any wisdom on how someone could look at obtaining some (any)?

We spend approximately $400 – $500 to charitable donations, which we do get back a portion (30%) come tax time. I’m a firm believer that 10% of my wage should go back into God’s work. Some might agree or disagree, but this is a non-negotiable. Some people ask me if I “HAVE” to because I am a pastor … and the answer is “no”. It’s a personal decision.

Thanks man for just sending me your thoughts. And again, I know you’re not a financial advisor!

This was my response:

In Calgary, $35k in taxable income puts you in the lowest tax bracket. Do you expect your taxable income to increase over the years? Or will this be a standard wage for a pastor? Will your wage grow faster than the rate of inflation (2% / year)? The reason I ask is because being in the lowest tax bracket makes the RRSP less effective.

It perhaps would be a better strategy to focus on a non-registered portfolio. When you become more comfortable with investing, you should perhaps look into tapping into your home equity to invest, this is called the Smith Manoeuvre.

Brad, I wouldn’t use the Manulife One mortgage. I would stick with the existing mortgage and pay it down as fast as possible. The M1 mortgage rate is too high without any real benefit to those who can pay down their mortgage themselves. It’s really a big negative once you factor in the penalty you would have to pay to cancel your existing mortgage.

Your passive income strategy would depend on if you expect your income to increase over the years. In Calgary, you can make up to $37100 in employment AND dividend income without paying ANY tax on the dividends. Perhaps starting a non-registered portfolio would be a good idea based on Canadian dividend paying stocks. Since you make $35K, you can make up to $1,448/year in dividends (before gross up) without paying ANY tax on them.

Before jumping into the stock market though, you should do some substantial research. Go to your local library and pick up some books about Warren Buffet and perhaps the Stock Markets for Dummies for Canadians (no offense).

If you are going to look into real estate, there is one big rule, the rental must produce POSITIVE cash flow from day ONE after ALL expenses. This may be a challenging task in Calgary.

I must commend you and your family for giving so much of your income to charity! There should be more people like you.

If you have more questions, feel free to ask away.


Disclaimer: I’m not a financial advisor, this is my opinion only so act upon it at your own risk.

How did I do? Would you have suggested anything different? I look forward to your comments.

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FT I don’t think you gave bad advice. My suggestion though is to concentrate on the mortgage for now – it’s huge for Brad’s income and if interest rates go up or there is a loss of job then it would be a big risk.
Concentrate on the mortgage until it gets down to a more manageable amount say between 100k and 150k? Maybe at that time he can start thinking more long term and getting into dividend stocks/rrsp/non rrsp or whatever. I just don’t think that stuff is as important as the mortgage right now.

Also as your biggest expense make sure you use a mortgage broker and get the best rate possible. And stick to a normal mortgage. M1 is a money-making gimmick.

Kudos on have a good budget – you sound like a great saver which is 90% of the battle.

Two pieces of information are missing for me to add sensible comment: Pastor Brad’s age, and whether he will recieve a pension from his employer. However, paying down his mortgage to reduce that liability is wise. Given his profession, and possibly his future calling, he may have an opportunity to cash out of the Calgary market, and move to another place with much lower housing costs.

He should also have a chat with a financial planner to determine if disposition of allowances, especially if they are non-taxable, should be managed in a different fashion.

And, as described above, take some time to become more knowledgable about investment options, including mortgage strategies.


Pastor Brad mentioned not having any “rainy day fund”, so I would suggest he works on that first. Since he is saving $500-$600 every month, it shouldn’t be too hard (to at least have some). The recommended amount is 3 months wages, and that would take about 2 years to build at their rate of saving.

If I were him, I would build up at least 1 month’s wage in that fund, and then split the savings between the rainy fund and paying off the mortgage.

I am a Christian too, and a pastor’s daughter, and we too pay 10% (actually, some years is a lot more). God is good, and blesses those who give.

Using a line of credit as a “rainy day” fund is a little worrisome for me. Paying down the mortgage is foremost, and putting money into an RRSP for now, makes little sense (IMHO). I think you gave good FREE advice and made the correct statement, that this is only YOUR opinion and that it might be prudent to get PROFESIONAL (sp?) advice. –C8j

Healthy Body: I think that the usual recommendation is to have 3 months EXPENSES in an emergency fund. One’s need for that would vary a lot on job security and benefits. Brad’s expenses are less than $3180 / mo ($4200 less $750 – $850 monthly savings and tithe), so it should take a bit less than a year to accumulate. If he feels secure enough, he could use his Credit Line for that purpose. If you have a good relationship with your banker, they will offer you many options shold you find yourself in a truly unexpected financial state, and need some relief from your mortgage payment.

Brad: I would not use the rainy day fund for vacations — budget for them. IN the short term, I’d choose to put the money you can against the mortgage. The $850 per month will reduce your mortgage by well over the $10,000 you contribute, as your interest costs are reduced. Have a look at the calculators at http://www.dinkytown.net to see how these payments could affect your worth. Given your current financial practices, you should be able to readily manage your retirement savings in a manner that meet your future needs.


Personally I don’t think rainy day funds are the best choice. Why stash a large sum of money somewhere and then have it just sitting there…just in case. What if ‘just in case’ never happens. Meanwhile you could have taken that money and applied it to your mortgage and saved youself thousands in interest. If ‘just in case’ comes along then you can tap into your house which now has built up equity due to paying off extra on it. Just my opinion.

Pastor Brad you should try writing into MoneySense magazine. They run a story in every edition where a person writes in asking for financial advice and then have 2-3 professionals give you advice on what would be some good options to take.

What a day I read this post at 6:45 this morning and I’m finally writing a comment at 9pm. *sigh*

Anyways here’s my ideas.

Step 1) Open a high interest savings account and start putting your savings in there for now (eg: ING Direct)

Step 2) Start your new part time job on reading personal finance books. When your done reading at least 10 books you can start to make up your own mind on what works for you. That should give you enough different points of view to make a decent decision.

My personal thoughts on your situation would be if your not too fond of Calgary cash out your house and move over to Saskatchewan. $200K can buy you a nice house and that would mortgage free that would allow you to really ring up some savings. Otherwise, the RRSP’s are most likely not that useful to you, so I would either pay down the mortgage or start a taxable investment account after you got a bit of savings built up.

I hope that helps and good luck.


Hello to all here!

I am a licensed financial advisor in Toronto and read with interest as well as admiration the postings.
There are some interesting details missing from Pastor Brad’s description; the interest rate of the mortgage for instance. Without it, it is impossible to decide what is better, a line of credit, or a rainy day fund.
But in a general way I must say that the ING Direct is not a good solution in comprison to the Manulife One. The former is not going to provide substantial return on the money and all that it earns is fully taxable, while the line of credit at Manulife (or anywhere else) attracts interest charges only if he uses the money.
As to leveraging the equity in his house, I would encourage that, provided the proceeds are not risked in the stock market. Instead I would recommend tax-efficient investments (dividends, or equity,) in segregated funds, where the capital is guarantied, therefore, losses are minimized.
Finally about the charitable donation. It is indeed real charity only if it involves some sacrifice. That makes it nobler. However, since we are considering here not only the sacrifice, but also the financial wellbeing of the Pastor, we must consider the whole in the form of a long term process. If he would be contracting a life insurance policy to the benefit of his charity then much less money would buy much more benefit to the charity, (while also attracting some tax benefit,) and so both the Pastor as well as the charity would be better off.
Example: 10% of his income, $420 each month is given to charity. If he would buy a life insurance and donate that, then a monthly $150 would probably buy $400,000 life coverage, that would be considered a generous contribution by any charity. (this is more than 10 times his yearly income!) and yet, he could still get a tax refund for it. Be generous, without being foolish.



I did answer your last posting (#10) but it got lost.
Can you check what happened to it?
It only interests me because I had several quotes from PriceWaterhouse and CRA in it and I would hate to start the research for it again.


You might wish to type your longer replies in Notepad, save a copy to your computer, then cut & paste into a blog window. It can save a whole lot of grief.



This morning I posted again (this time following David’s advise, saved the text separately,) but although it did appear immediately on the list, just like the previous one, by now at 4:30 PM it has disappeared. This is very strange. Don’t you think?

I too have been talked to about manulife one , and am wondering about the downsides of it. I like the idea and would as with al canadians love to pay all my debts sooner, would like if any have experiences that could help reason this out?


I have quite a bit of experience with it, because I arranged it, and built it into the SM to many of my clients.
I don’t know what particular questions do you have, but if you send them to me, I shall send you the answers.
My personal opinion is that it is a marvelous device and I haven’t had the slightest of complaints yet from my clients.
I believe, I am the only one here using it in a professional capacity, so probably I have the most experience with it.