The Stuff of Dreams

July 3rd, 2009

One of the hardest things to do is let go of a dream. People have all sorts of stuff hanging around their houses taking up space because those folks are still trying to hold on to a dream. Maybe you thought it would be great to learn the guitar. There the guitar sits, in its case, along with music, a tuner and a capo – never used, just taking up space. Or perhaps you planned on sewing new curtains, cushions, comforters for your home.  The sewing machine sits idle reminding you of all the things you should have done or failed to do.

There are all the scrapbooking supplies that you look at wistfully as you wish you had the time to get all those memories organized. There are the umpteen skeins of wool waiting to be made into sweaters, blankets, baby-clothes. There’s the fruit juicer you’re convinced you’ll use one day, the crock-pot that sits empty, the canning bottles that never seem to preserve anything other than a heart-felt desire to make your own jam just like Gramma used to make.

If you have stuff that you bought with great intentions that aren’t serving a useful purpose, perhaps it’s time to shake loose of the dream and get uncluttered. That may be the only way to make space for your new dreams. For as long as you’re holding on to the old ones, you’re stopping yourself from dreaming new dreams. And dreaming is the very beginning of setting goals and making the life you want.

Start by deciding what really matters to you. What do you actually want from your life? And are the things cluttering up your visual landscape (even if they’re buried in boxes, buried in the basement, buried in the garage) moving you toward your dreams or reminding you of what you haven’t yet accomplished. If it’s the latter, they are not feeding your energy in a positive way and it’s time to let them go to someone for whom they WILL be an inspiration.

Some of the stuff we hold on to helps us to dream. People routinely save catalogues and magazines because by flipping through them they can re-enter a world that they have no other way of getting to. It’s a little like buying a lottery ticket, shopping in your imagination for a week on your winnings, and then buying another ticket next week and doing it all again. It’s good fun. But it can become crippling if you become one of those people who actually begins to believe you will win. You defer doing whatever it takes to make a real life because you’re so satisfied by your dream life.

I have a friend that has every catalogue under the sun. She won’t throw them out because there might be something in those dream books that she may need (really, need? Or want?) I’ve tried to convince her that if there is something she really NEEDS, she’ll seek it out and find it. But she can’t let go.

Parents often fall into this trap with their kids’ stuff. Old toys, books, music and movies, clothes, furniture, everything… is saved because they have so many memories (the flipside of a dream) attached, to get rid of them would mean getting rid of the memory… and we just can’t do THAT!

It’s not unusual as we grow up to find that our dreams change. Sometimes, we don’t realize how much WE have changed, and hold on to an old dream that may no longer be realistic. Whatever your reason for holding on to STUFF that’s crowding your life, figuring out how to let go will be the first step in moving from where you are currently stuck to where you actually want to be. How much more could you be accomplishing if you weren’t constantly being reminded of what you have failed to do?

Here’s a great question to ask yourself when trying to decide if something you’re holding on to is really as important to you as you think it is:

“If this object were stolen, would I replace it?”

If the answer is “no”, that’ll give you something to think about.

Years ago I came up with the idea of A Memories Box. This is a box into which I throw the things that have a special place in my heart, that don’t really belong on display: I have an ornament from childhood, gobs of pictures, invitations to parties, ticket stubs from shows, dried flowers, my last pair of ballet shoes, two or three of my children’s outfits. From time to time I go through my Memories Box and toss stuff that doesn’t have the same appeal as when they went into the box. I went to see that show… hmmm…I don’t even remember that… time for it to go! Some things stay in the box forever. Every time I take those ballet toe-shoes out and slip them on, I remember why I quit ballet! My toes hurt! So I let go of that dream (yes, I wanted to be a ballerina) and moved on. But I put the dream away, I didn’t leave the shoes hanging on my wall as a constant reminder of what I didn’t accomplish. Instead, they are a gentle reminder of why I dreamt new dreams, set new goals and walked another path.

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Free at What Price?

July 2nd, 2009

So I’m standing at the Big Screen showing a couple their numbers when I point to the whopping interest rate on a credit card and ask the fellow, “What possessed you to sign up for a credit card with a 18.99% interest rate?”

“The free T-shirt.”

My eyes started popping. “What?”

“I did it for the free T-shirt.” At least he had the grace to look abashed!

The power of FREE has made fools of just about everybody at one time or another. Just hearing that something is free makes some people’s tummies flip in anticipation. Yup, FREE can make us do some pretty weird things.

A study done in 2006 by Kristina Shampan’er and Dan Ariely asked people to choose between:

  • A free gift certificate, and
  • A $20 gift certificate for $7.

Every man jack chose the FREE one, despite the fact that the $7 one was a better value. FREE had done it’s dirty work again!

So, why does FREE work so well? First, when we get something for nuthin’ we feel really smart. And since it’s FREE, there’s no downside. Having paid not a cent, we have nothing to lose. Or do we?

By allowing a FREE T-shirt to influence his decision, my boy is racking up interest on all his other purchases at a significantly higher rate of interest than he needs to be paying. He’s paid about $672 dollar for the T-Shirt so far!

FREE lowers our expectations for what we’re getting. When Google Docs was introduced, if it had come with a high pay-to-access price-tag, it would have begged comparison to a bunch of already well-established word processing programs. By making the product FREE, perception shifted from comparison to automatic acceptance, with a side of “hey, this thing works well considering it’s free!”

In his fascinating book Predictably Irrational, Dan Ariely (who is a Professor of Behavioral Economics at MIT) describes his chocolate-selling experiments to demonstrate the differences between social economics and classic economics with regards to things that are “free.”

In the cafeteria next to the cash register he sold a Lindt truffle for $.15, or a Hershey Kiss for $.01, but you could only choose one. Seventy-three percent of people chose my favorite chocolate: the Lindt. Then Ariely lowered the price of each chocolate by one cent, bringing the Lindt to $.14, and the Kiss to $0. Under a classic economic model since the price differential and opportunity costs of each option were the same, the results should have been the same. But they weren’t. Nope. FREE won the day: 69% chose the Kiss.

FREE is so powerful, we don’t even have to see the word to recognize how good we’ll feel following through. Think of the acronym BOGO… it’s a word unto itself now. Buy-One-Get-One has become synonymous with FREE even when it isn’t. So now retailers using BOGO at half price, giving us a measly 25% off, and we rush to make the deal.

With the economy in tatters and consumerism way down, you can expect to see more FREE offers from retailers looking to lure people into their sphere of influence. Whether it’s free coffee with a meal, or a free gift with purchase, no doubt the full influence of FREE will be brought to bear on us to help us feel better about opening up our wallets.

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Canada Day Edition

July 1st, 2009

Happy Canada Day! No doubt y’all have wonderful plans to celebrate with family and friends, and I hope you have a terrific day.

If you haven’t been to the Globe & Mail “vote for your favorite blogger” event, you should go and see the suggestions for great places to find out more about money. While some moron has tried to hi-jack the voting, that should not detract from the fact that some very good sites have been suggested.

I don’t include a blog-roll on my site because I just can’t keep up with what goes off the air. Very often I click on a blogger’s recommended sites only to find the site is older than Methuselah or defunct, and I hate that! But I do have some fav sites, and I’ve added my two cents’ worth to the Globe.  So pop over and see what other people are reading. And if you have a favorite site that hasn’t been mentioned, you should add it to the list using “comments” and spread your cheer.

I was at my publishers on Monday to go over plans for my new book, which will be coming out in January 2010. Debt Free Forever: Taking Control of Your Money & Your Life takes you through the process I’ve been using with families on Til Debt Do U$ Part so that you –– or someone you know — can go from delusional to In Control! I’ll tell you more as we get closer to the publication date.

While I was at Harper Collins, I picked up four copies of SquawkFox’s book 397 Ways to Save Money and am offering them in a random draw to four people who send me their Success Stories by Friday July 2nd at midnight. Squawkfox also happens to be one of the blogger’s in the Globe & Mail’s blogger event, so it all dove-tails quite nicely, dontcha think?

One of the biggest boo-hoos I get from folks on my website is that I only deal with couples. Well, we’re heading into production on the new show called Princess this fall. Head over to the Princess Facebook page or to Slice’s Casting Call page for more information. (Have you all joined the Til Debt Facebook Group? Since I don’t accept people I don’t know on my Facebook personal page, this is the way to go.)  If you know someone who fits the Princess profile, maybe you’ll want to nominate her (or him) for the show. Since there’s “no partner required” for this show, singles can now get in on the action. But I’m warning you, the process – like Til Debt – will not be a cake-walk.

And, finally, I’m wondering how these blogs are working for y’all. Most blogger’s write shorter daily pieces and I’m wondering if my more verbose style is working for you or if you’d like shorter pieces… sometimes less is more, after all. If I’m being too long-winded let me know and I’ll shorten up a bit. You’ll notice I’ve added links for StumbleUpon, Delicious and Digg to the end of the blogs. I’d appreciate it if you’d vote for any blogs you really like since this opens the site up to more potential readers.

Have a terrific Canada Day!

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The Upside of Credit Cards

June 30th, 2009

I was browsing around on the internet the other day when I came upon a personal finance blog from a while back that said:

Television programs like ‘Til Debt Do Us Part’ etc. often demonize credit cards as an evil that causes debt.

I beg to differ. I have always held that credit cards are a tool. The people who misuse their credit cards don’t have the discipline to use them to their advantage. And the people who give out credit cards often do so without following good lending criteria designed to minimize the risk of putting credit in the wrong people’s hands.

But credit cards themselves aren’t evil. In fact, I love my credit card for a whole bunch of reasons:

#1 Since I pay off my credit card religiously, and I have a no-fee card, there is no cost to using my card no matter how many transactions I do. Many bank accounts come with a debit card transaction limit and once you go over that limit, it can get pretty expensive. (There are some accounts that have no limits at all, but they aren’t always convenient for a body to use.)

#2 Using a credit card for all my transactions saves me having to walk around with gobs of cash. Lose a card and it can be replaced at no cost. Lose cash and you’re very sad.

#3 When I work with families, I ask for six months worth of their credit card statements (along with their bank statements) so I can see where their money has been going. The credit card statements show a very clear picture of what has gone where so you can look back and do an analysis of your spending. When people have been spending tons in cash, there’s no telling where the money went unless they’ve kept meticulous records, which most people don’t!

#4 Every penny I spend on my credit card earns me points that I routinely convert into groceries or other items (like my new barbeque) saving me a not insignificant amount of money.

#5 Some credit cards also offer purchase protection, so if the item is lost or stolen within a specific period – usually 90 days – the card will replace the item. This came in mighty handy one year when I lost my cell phone while I was on book tour our west. Others offer travel insurance of all kinds that can save you big bucks on everything from travel medical coverage, to collision coverage on a rental car, to trip interruption or cancellation coverage. And then there are all the free flights you can rack up just by signing up for the right card.

#6 Traveling with a credit card beats the b’jezus out of pulling money out of foreign ATMs and racking up huge fees. I also travel with a couple of hundred in cash, and then use my credit card for absolutely everything I can. When Alex went to Europe last March on a school trip, she couldn’t help but use cash since she didn’t have a credit card (she’s under age). Each withdrawal came with a hefty fee.

#7  As soon as she’s old enough, Alex will have a credit card so she can practice using it wisely. Why? Well, using a credit card and paying it off in full every month is one of the best ways to build a great credit rating, which will be very useful when it comes to apply for a any kind of future financing.

Credit cards aren’t for everyone. According to the Stats Man, the country’s outstanding credit-card balance has more than tripled, to almost $40 billion, in the last 10 years. So while credit cards can be a terrific tool for the people who have the discipline to use them to advantage, there are a lot of folks out there who have fallen into debt traps using credit cards.

The best way to use a credit card without falling into a debt hole is to only spend money on the card that you know you can pay off when the bill comes in. That means keeping track of how much you’re spending every time you whip out the card.

Keep a notebook with a running balance of what’s in your bank account. Each time you use your credit card, deduct the amount you have spent – as if you’d done a debit – from your notebook. Then, when the bill comes in, you’ll have all the transactions already debited from your balance, so the money’s there to pay off the bill.

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Simple and Straightforward

June 29th, 2009

From time to time when I read the comments on my blog I’m surprised at the vehemence of responses, especially when it comes to the idea of people doing things differently. It is as if we think there is one way to do things, and all people should be doing it that way.

Well, if there is one thing I’ve learned over my half a century it’s that there is no ONE WAY. Each of us must find the path that works for us. Each of us must create the balance that we can use to keep us on track to what we want to achieve. And each of us has the right to judge only ourselves.

While I seem pretty strident on a few of vectors, my push is to get people to realize just how dangerous credit can be when we come to think of it as our means to any end. I believe there are fundamentals that do not change, regardless of how the economy is doing, where the stock market is, or much credit is available.  I do not believe that the basic rules of money have changed in the last 100 years despite the new financial products that have been introduced, and the access people now have to tools never before available to the masses. My big message as always been:

You can have anything you want, as long as you’ve already earned the money you’re going to use to pay for it. You have to save something because if you don’t you’ll be in deep doo doo one day, it’s only a matter of time. If you’re carrying consumer debt, you must do whatever it takes to get out from under because as long as you’re in debt you’re at risk. And if you aren’t taking care of the details and planning like a pessimist, you’re not paying close enough attention and you won’t be prepared when the dog bites you!

Yes, the dog will bite you. That’s life. And while it may be nice to think we can skate through without ever coming anywhere near the dog, you’re pretty delusional if you build your life – and your financial plan – on that premise. Bad things do happen to good people and the only way to survive is to make like a Boy Scout and Be Prepared.

I find it interesting that many financial voices – the Spurts — are singing a different song in this “new economy.”

We have swung from promoting spending more than we make (we live in a consumer-driven economy so we’re counting on you to go shopping honey) to believing we should save upwards of 20% of our income. Hmmm. Seems like a pendulum over-reaction to me.

We’ve gone from buying whatever we want whenever we want regardless of whether we had the cash to pay for it or not, to the New Frugality where even a dinner out once a month is frowned upon because it’s a “waste” of money.

We’ve upped the ante on emergency funds; apparently the old “six months’ worth of expenses isn’t enough any more. Never mind that a whopping number of people don’t even have one month’s worth of emergency money, we’re raising the bar!

We’ve downed the need to pay off our debt; some Spurts are actually suggesting you pay only the minimum because if you pay off more you may lose access to that credit. Hmmm.

It’s time to listen to the little voice in your head, to let common sense take hold of you. It’s time to stop worrying about what other people think, and think about what YOU want.

Hey, if you want to be in debt for the rest of your life, that’s a choice you get to make. Just stop whining about it. And if you want to get out of debt and remain debt free forever, you can do that too.

The most basic rules of money are simple and straightforward. I’m willing to give you that once you get above simple-and-straightforward, things can get pretty confusing. But most people haven’t even mastered simple-and-straightforward yet.

Opining (or listening to opining) on the state of the economy, investment alternatives, and fancy insurance products is posing when you don’t even know how much you’re spending every month. And getting into a discussion on tax tactics and retirement planning strategies is moot if you’re still shopping on credit.

Never mind the Spurts and what they have to say about how the fundamentals have changed. They haven’t. Now it’s time to take charge and take control. If Yahooda Shmooda is investing in gold, who cares? If you’re carrying any consumer debt at all, your focus should be on getting rid of that debt by whatever means it takes. If you don’t have an emergency fund, you must find a way to get one (and it’s not a line of credit) and only you can decide how much is right for you. And if you aren’t saving something for the future, today is the day you start. Never mind whether it’s 10%, 15% or 25% of your income. Set up an automatic savings plan with whatever it is you can afford every week.

It’s your money. It’s your life. You get to make of it whatever you wish. It’s that simple. And if you want it to be straightforward too, you’ll have to make up your mind to start moving in the direction you want to go, and stop waiting for someone else to lay your path for you.

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Ta to My Loveys and a Cool Salad

June 27th, 2009

I’m still getting cards from folks for my birthday, and I want to thank you again for your kind wishes and all that love! Wow! I’m a lucky girl. Back at y’all in spades. And to Tanja and W Kay who went to the Globe site and added my blog as a fav, I really appreciate your votes of confidence. You’re dolls!

Some people have been writing to me about trying to revive the recipe section. So here I offer something to jump-start the process. Enjoy.

Asian Summer Salad

500g of spaghetti noodles (cooked)
1 bag broccoli slaw
3/4 cup thinly sliced red pepper
3/4 cup thinly sliced zucchini
1/3 cup sliced green onion tops (optional)
The meat from 1 roasted chicken chopped into small pieces or finely sliced steak

Dressing
1/3 cup vegetable oil
4 tbsp rice vinegar
3 tbsp soy sauce
2 tsp (heaping) brown sugar
1/4 tsp cayenne pepper
1 tbs finely chopped ginger root or 1 heap tsp ginger powder
1-2 cloves garlic (crushed)
Coarsely chopped almonds or cashews to top

Cook the spaghetti in 2-3 inch pieces. I find two breaks works. Add 1/2 the dressing and let it soak.
Mix the vegies and add the remaining dressing to toss.
Chop up the chicken or slice the steak (left over roast beef works too). When your all done, combine all the ingredients. Refrigerate  for at least 2 hours before serving. Top with nuts before serving

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Perspective is a Funny Thing

June 26th, 2009

People often write to me to ask me how they’re doing.  The give me a list of what they’ve accumulated, their outstanding debt, and a story about how they’re doing.  Some people write to ask me if they’re spending too much on housing? Too much on their cars? Too much on food?

The first question that pops into my head when people ask me how they’re doing, or if they are on track is “relative to what?” Look at this picture:

cicrcles copy

Which orange circle is bigger?

To anyone who hasn’t seen the pictures above before, the answer is easy: the one on the right looks bigger. While, in reality, the two orange circles are exactly the same size, all those little circles around the orange circle on the right make it look bigger than the orange circle surrounded by the bigger circles on the left.  It’s a visual trick. It’s called perspective.

Ditto your money and how you’re doing? What are you comparing yourself to? If your friends and family live in bigger houses, drive nicer cars, go on fancier vacations, your circle may seem pretty small by comparison. If you’re flush and all your amigos are struggling, then you may feel that your circle is pretty big. It’s a matter of comparison and perspective.

Now if the next thought running through your head is, “Gail, we shouldn’t compare ourselves to anyone. We should be happy with what we have,” terrific! But for most people those blue (or are they gray?) circles have a lot to do with size of the orange circles, and they can’t help but draw comparisons. Take this letter I got from M as an example:

Dearest Gail, I’m in trouble. I can’t help feeling that I’m missing something. When I go to my sister’s house, her kids are in the best clothes. I shop for my daughter in a second-hand store.  My brother and his wife have brand new cars ever couple of years and I’m driving a beat-up old rust-bucket. I make a good living, but after rent and food and childcare, I don’t have the money to take my daughter to Disneyworld, no matter how much I wish I could. My girlfriend has taken her kids twice. She’s a single mom and we make about the same money, so what is it that I’m doing wrong? Can you just point me in the right direction? I’m feeling pretty inadequate as a mom and as a person. Why can’t I do more with what I have? What’s wrong with me?

Life and the world as we know it, full of fancy magazines, pretty TV shows, and malls full of shiny stuff makes it pretty hard to ignore those gray (or are they blue?) circles completely. And even when you know the two orange circles are exactly the same size, your brain still interprets the one on the right as bigger. And the fact that many people are financing those big blue circles on credit only serves to further skew our perspective.

There’s nothing wrong with M, but by comparison she’s feeling like a very small orange circle. She can’t exactly dump her family and friends and hook up with a bunch of poorer people to feel better, so what’s an M to do?

If you can take those gray circles and move them from being about what other people have to what YOU want, you can change the dynamic of the comparison. So instead of it being, “Sally has a new car, I have an old car”, it can be “I want to have $6,000 saved for a replacement car, I’ve got $1,200 saved so far.”

It’s hard to live in the world without comparison. We know we shouldn’t. We even coach our children to not value themselves against anyone else’s standards, that their best is good enough. Maybe some of us need to be taking a page from that same playbook. As long as we’re doing our best, we’re doing fine.  We are all works in progress, and as long as we’re making progress, we’re doing well.

The Globe & Mail has posted it’s Best Money Blogs list and I thought I’d let you know so that you can see some examples of stuff other people are writing. Enjoy!

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What Is Your Time Worth?

June 25th, 2009

As our lives have gotten busier, we’re finding it harder and harder to get everything we want to do done. Between long hours at work, schlepping the kids to their various activities, and keeping the house neat and clean, something has to give. Usually it’s our personal time. But for some people, it’s money. Faced with too many things to do, people have been “outsourcing” their chores just to get a good night’s sleep.

People pay to have their houses cleaned, their lawns cut, their driveways shoveled, their hair coloured, their coffee brewed. We order in or drive-thru because we don’t have the time to cook, never mind clean up.  We send clothes to the cleaners because we don’t have time to iron. And we pay people to clean our carpets, paint our rooms, and fix what we break.

So what’s your time worth, and how many of your chores do you outsource either because you’ve run out of time, or because you just hate doing them?

Once upon a time managers had secretaries to do their typing and make their telephone calls. I distinctly remember being at a meeting at a big bank when one senior executive turn to another and said, “I’ll have my girl call your girl.” (I still cringe when I think of it.) Email and voice-mail did away with personal assistants. But even as the corporate world was trimming back on helpers, individual families were ramping up their outsourcing to cope with the greater demands at work.

Outsourcing became a significant engine for our economic growth creating new employment where no such categories had previously existed. As people became more focused on work, and lives became busier, we needed other people to take the load off and a whole new category of business owner was born: the personal service consultant! I’ve met people who cut hair in your home so you don’t have to show up for an appointment. I’ve met people who walk other people’s dogs because those folks can’t make it home in time to relieve their pooches’ bladders in time to avoid a carpet mess. And I’ve met people who shop for clients who can’t find time (or energy) to hit the stores for themselves or their family and friends.

Once upon the time it was only the very wealthy who could afford to hire chauffeurs, maids, gardeners, cooks, and laundresses to do their bidding. In some countries, labour is so cheap that the middle class routinely has people sweep their doorsteps, cook their food and do their laundry. In North America, these people have evolved from being servants to small business owners selling their time and effort to multiple clients, and building their businesses until they have their own employees to do the grunt work.

And what’s the risk to these small business owners in The New Economy. After all, with frugality being rewarded socially and economically, many of us are coming to see these services as indulgences rather than necessities. I’ve heard from more than a few friends who are in the biz of making other people’s lives easier that business is down. It’s as if everyone is holding their breathes to see what happens next.

Maybe it isn’t worth $40 to have Fido’s hair professionally washed and cut anymore. Perhaps $50 to have your home swept and dusted just doesn’t seem like it’s worth it. And if you can save $60 a week by sitting down with your kids to do their homework, as opposed to shipping them off to a tutor, couldn’t that $60 be redirected to their post-secondary education fund?

Is it realistic to think that a family can function with both parents working full-time plus, while keeping all the at-home balls in the air without the help of outside resources? After all, in the traditional model where mom stayed home and dad worked, there was plenty of time to cook from scratch, darn socks and iron sheets! Today, cooking at home means popping a prepared lasagna into the over, holey socks are turned into dusters and sheets never come close to an iron.

As y’all know, I love to cook and I’m fine cleaning up after myself. I like doing laundry. And I’m good at keeping things organized. I’ve painted rooms, wall-papered and cut my own dog’s hair (when she was still with me… I’m dog-free now and missing it!) I dislike vacuuming and dusting, and am not particularly diligent with yard-duties since this is the first time they’ve been on my plate.

So how do you cope? What are you prepared to spend money on to free up time, or to create more balance in your life? And what have you stopped spending money on because you just can justify it any more?

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This & That: Crazy House Edition

June 24th, 2009

Getting your mortgage paid off at all costs while racking up debt on your line of credit or credit cards is one of those Stupid Debt Tricks I sometimes talk about. So is taking on so much house you can’t afford to eat.

A wrote:

I am a stay at home mom of 3 kids (10, 5 and 5mths) My husband is the sole provider. I do work at a salon as a nail tech maybe 3-4 times a month. My husband brings home $3200/mth and our mortgage is $1900/month. Which doesn’t leave much room to pay bills, buy groceries and everything else needed on a mthly basis. I feel like i am not doing my job as a stay at home mom, when i have to tell my family that we can’t do or buy something because we can’t afford it, which of course, puts tension on everyone and i feel like the “BAD GUY” saying no. I find myself transferring money from our line of credit every month just to get us through the month. How can i make my husbands paycheck go further?

A, the reason you can’t make ends meet is because your mortgage is eating almost 60% of your income… never mind house insurance, property taxes, utilities and maintenance. Clearly you can’t afford your home. You can either sell it and move somewhere cheaper, rent some space in it to generate revenue, or open an at-home business so you can at least generate some income and get some tax write-offs. Or you can keep on handing over great gobs of your money and relish in your home while you remain House Poor.

M wrote:

We have a mortgage and a HELOC. Because of recent mortgage rate drops, our HELOC is at a lower rate than our fixed rate mortgage. We are attempting to pay off debt as fast as possible. Should we always pay the higher interest rate debt first (in this case pay the minimums on the HELOC, and make additional payments on the mortgage) or should we pay down the LOC in case of emergency?

M, because your line of credit is consumer debt and is “callable” –meaning the lender can ask for it at any time — even though it may be at a slightly lower rate, it makes more sense to get it paid off in full first and then focus on your mortgage.

Fiona wrote:

My husband (46yrs) is a Pilot and I am a stay-home-mom. He earns a decent income and we are not frivolous people. We are trying to pay off our mortgage ($135,000) faster by shortening our amortization (5yrs) and paying bi- monthly (our current mort rate is 1.5%). We have also been doing renos for the last year (all by ourselves to save cost) and using the line of credit to help fund it, it is at just over $6000 and also at 1.5%. Here finally is my query. Our housing costs eat up over 50% of his income. We have 2 very active boys involved in hockey and summer sports. Your Budget Worksheet shows that we keep coming up with a short fall every month I’m sure due to the fact that our housing is so high. Is it more beneficial for us to skimp even more on everyday living (we don’t do much as it is) or should we give ourselves a break on the mortgage?

Fiona, why are you hell-bent on having your house paid off in 5 years? If it’s strapping you so tightly, you need to revise your goal. Having the mortgage paid off and ending up with money on the line of credit is self-defeating. Sit down with your husband and make a reasonable plan for paying off the debt WHILE YOU HAVE A LIFE. Yes, it’s important to eventually own your home. Doing so at the cost of having a life doesn’t make any sense. Spread your amortization over 15 years, roll in your line of credit, and get some balance into your life.

KK wrote:

I’m a 27 year old, single professional and currently top up my RRSP to the full amount every year, maximize my TFSA and have an emergency fund tucked away to last 6 months (without EI), 10 months (with EI). I have a mortgage with a fixed rate of 4.2% that I locked in 4 years ago that has the option to make down payments every year up to 20% on the anniversary date. I’m not considering breaking my mortgage to get in on the low mortgage rates because the best I can probably find right now is 3.9% for a 5 yr fixed rate. Taking into account the penalty fee (3 months interest) and the slight difference in rates, I don’t think it’s worth the trouble and I am hoping the mortgage rates will stay low when renewal time comes along 1 year from now. Do you think I am making a wise decision on this? Also, with the way things are going (ie. BoC rates staying at 0.25% until at least mid 2010), should I use my TFSA and any extra money I have saved (outside of RRSP/Emerg) to pay down my mortgage? I figure I can pay down the mortgage, which would reduce the bi-weekly accelerated payments and save on interest payments. I also figure the rate difference (4.2 vs. 1.2%) would also mean the money is better utilized to pay down debt than leave it sitting in a bank. I am hesitating because with the economy as it is, I don’t know if I am making the right decision to do this vs. fattening up the emergency fund. What do you think? Also, an alternative to paying down my mortgage is to pay off my car loan (non-secured) which is at 6.8% that I got 3 years ago. I have 2 years left on the loan. Instead of paying down the mortgage, should I pay off the car loan? I know normally on the show you say to “pay off the debt with the highest interest rate first”. I’m confused because when I calculate out how much I could save in payments ($1560) and interest ($798) on the mortgage vs how much I could save in interest payments ($735) on the car loan for the next two years, it looks like I would save more by paying down my mortgage even though it has a lower rate of 4.2%.

KK: What a thoughtful question. It’s nice to see a body thinking so clearly. You’re right when you say that paying down the mortgage gives you the biggest bang for your buck in interest saved over the long term. But if that were the only criteria, then blowing out the mortgage would be the number one goal and that actually doesn’t work when you’re building up debt on the other side (consumer debt). Since your home is likely to appreciate and your car is only going to depreciate, spending money on interest costs on the car is really throwing money away. So if it were my decision to make, I’d pay off the car loan and then, if I was hell bent on getting rid of the mortgage, take the old car payment and use it to make extra payments against the mortgage. Good luck, and good thinking!

EE wrote:

In our family there is an ongoing debate about mortgage debt. My husband and I choose to pay off the mortgage, while my cousin (who is a real estate agent) keeps telling me to stop looking at the mortgage as a debt. We owe about $86,000.00 and we want to have that paid off sooner than later. The debate is that it is silly to pay off your mortgage. My cousin and her husband have just had a $450K renovation done…house is beautiful. Where is the line between good debt and bad debt and are we depriving ourselves of great things by choosing to pay our debt faster?

EE, any time you have to pay interest your costs are higher. So while a mortgage is considered good debt because you’re building assets, that doesn’t mean you should hang on to your mortgage for as long as possible. You and your husband have the right idea. Don’t kill yourself to get the mortgage paid off. Have a life, but keep paying that sucker down!

K wrote:

In the current economic climate, are banks recalling mortgages on homes that are worth less than what the mortgage is at? Should we be concerned about losing our house in the event that this may happen?

K, I haven’t heard of such a thing happening and think it unlikely if the borrowers are up-to-date with their payments since to call the mortgage would necessitate selling the house at less than perhaps is on the mortgage.

Karen wrote:

January 2008 we relocated for work, at the same time I was diagnosed with cancer. I have come through treatment and I am cancer free. However the job the I relocated for is no longer an option for me. I now have to return to my home base, which will be over an hour commute. So we have listed our home to return back to the town we came from. There are a few issues, 1. The market is very high, so it is more expensive to get back in. 2. We want to have a lower mortgage because we want to get rid of our debt. 3. Our penalty for breaking our mortgage is $17,000 unless we keep the same mortgage of $285,000. Should we buy a cheaper house to have a lower monthly payout and pay the penalty or do we get a mortgage of the same amount so we don’t have to pay the penalty?

Karen, congrats on coming through your treatment successfully. I’m sorry there have been some disappointments with work and that you feel strapped now. It won’t be like this forever. You’re wise to want to minimize your mortgage costs, but the only way to get around the interest penalty is to take a mortgage of the same amount or more. If you go with a lower mortgage, there’s no way around the interest penalty. Of course, the fact that you pay a penalty should not drive your decision to buy a bigger home. Buy a house you love, that you can comfortably manage financially and eat the penalty.

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Things We Overpay For

June 23rd, 2009

We’re all guilty of indulging ourselves with small treats that over time really add up. Some of the things we buy are worth every penny because of the pleasure we derive. I love recipe magazines and can create gastronomic masterpieces after an afternoon of browsing Fine Cooking. But at $11 a pop, these can add up quickly. So recently I decided to hold off on more recipe magazines and explore what’s available on the internet instead. What a bonanza!

There are gobs of ways money leaps out of our wallets every day, week, month. And there are equally as many ways to cut back, just a little, so that you can have the things you enjoy while saving a bit of dough.

Yes, taking lunch to work instead of buying lunch can save you a whack. But if you don’t want to cut out lunch with your pals completely, you can still find ways to trim back. Rather than spend $2 a day for bottled water, get yourself filter jug for your desk, or a refillable water bottle, and rehydrate for pennies a glass. And instead of expensive protein bars as an afternoon snack, pack yourself a handful of nuts and some fresh fruit and save a bundle.

Need a caffeine fix? Love that gourmet coffee that runs $5 a cup? Why not splurge on a pound of gourmet coffee and a small drip machine or Bodum. Add a little hot water and you can have fresh brewed whenever you want for pennies on the dollar. Ditto you tea drinkers. Ever compared the price of a cup of tea in the local coffee joint to what you pay for a single bag? You should. You’d be motivated to DIY.

Planning ahead can eliminate the need to buy prepackaged food… all those “convenience” foods that are meant to save you gobs of time, but end up costing gobs of money. Do you really not have the time to slice up some cheese, a couple of pieces of salami, and slap ‘em in a container along with some crackers?  A pre-packed box of sliced vegis and fruit with dip is multi-times more expensive than making it at home. Yes, I have to get up early to pack the kids’ lunches. But it’s worth it to know they’ve got good food and to cut my costs.

Lots of folks rush out to buy the latest CD by their favorite artist even though there are only one or two songs they really like? Instead of ponying up $16 for a CD, why not pay to download just those cuts you really love at just 99 cents a pop.

Car maintenance from the dealership cost way more than at a local mechanic. Once my car came off warranty, I switched to a local guy for routine maintenance and repair. While your dealerships may lead you to believe that certain work can only be done by authorized dealerships, it’s a myth. You need to find an honest and reliable mechanic and save yourself some money.

A night at the movies for two to see a first-run movie costs twice as much as waiting until it goes to a discount house. Better yet, wait until you can rent it at your local video store. And that doesn’t even count the babysitter, and the savings for snacking at home. Willing to wait a little longer for new releases? Then borrow them free from your local library.

ATM Fees, overdraft protection costs, and credit card penalties are a total waste of good money.  No more need be said.

Okay, it’s your turn: How have you found ways to enjoy the things you love for less? And how much are you saving a year by being mindful of your spending? You can use the Continuous Savings Calculator to see how much you’re saving with your smart shopping.

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