This & That: Bizarre Behaviour Edition
Posted by Gail | Filed under Money Management, This & That
A Wrote: Thank you so much for all of your great work you’ve done to help people everywhere especially the young women. I’m a mother and wife with two sons under the age of 4. Our household income is approx. 100k but I’m currently on mat leave. We have the regular debt of:
- Mortgage = 370k
- Student Loan = 40k
- Credit Card = 15k
Question: Please give me some advice as I’ve just been awarded $2 million in a legal settlement (1 million awarded to the kids and 1 million to myself) and know that it can be easily mismanaged. Please let us know what our next move should be we will definitely continue to work and maintain our household income (or most of it as I may return as a part-time employee).
Gail Says: You’re very wise to acknowledge that large amounts of money suddenly appearing bring truly bizarre behaviour. The children’s money should be protected so that it’s available for schooling and to meet their other life goals. Don’t do anything fancy. Look to top quality bonds and GICs with laddered maturities (one year, two year, three year, etc.) so the money is there when you need it. (Make sure you split the money evenly among all children please.) As for your money, you now have the opportunity to clean up some past mistakes, have some fun in the present and take care of the future. 1) Pay off the CC debt and the student loan immediately. 2) Have a discussion with your spouse about paying off the mortgage. You want to do it with the least amount of interest penalty, so do some research. 3) Catch up any unused RRSP, RESP and TFSA room that have gone unused. Once you’ve done all that, think about what you want from your life and how you’ll use your money to accomplish your goals. Perhaps you’ll invest the money to provide an income to supplement the family income so you have a great life now, but have the principal nice and safe for the future. Whatever you decide, before you take any action, always let there be a thinking or “cooling off” period. If you twitch and spend, twitch and spend, the money will be gone in no time flat.
W Wrote: I’m a huge fan! I love what you do and the way that you do it. What you’ve accomplished in educating people about money is inspiring.
I’m having a problem with money, but it may not be one that you hear about a lot (yes, everyone thinks their story is “different”, don’t they?). I’m deathly afraid to spend money, and I fear it’s taking a toll on my well being. I refuse to buy anything for myself unless it’s absolutely necessary, and even then it’s a struggle. I’ve isolated myself from all my hobbies and passions because they cost money. This is of course not making me happy, yet I still seem unable to make any change.
I’m 35, my wife is 37 and we have both been self-employed in our own business that’s been running for 8 years. We have worked hard and sacrificed to eliminate all personal debt, all business debt, and the only debt we currently carry is our two mortgages. Our residence has $84k remaining (home value ~$145k) and a cottage/investment property has $69k owing (purchased and renovated for $80k, current value ~$135k). Our business was valued at approximately $175k. We have less than $10k in cash/savings, not much else for real assets. Our home is currently on the market and when it sells we are buying a house with a basement apartment to further reduce our living costs.
I do all the maintenance on our properties and cars (a ‘97 Civic and an ‘89 Caravan) so that we don’t have to pay for professional services in most cases. I enjoy Real Estate and hope to own some income properties to help with a retirement fund. I’m very leery of investing in markets, and feel more comfortable investing in things I understand such as Real Estate or my own business.
I am quite conflicted though when it comes to investing in my own “happiness”. I know that money doesn’t buy happiness, but deprivation doesn’t necessarily get you there either. I spend a lot of time thinking about my hobbies, but just won’t take them up again due to cost.
Incidentally, I’ve tried a number of cheap and free hobbies, but unfortunately none seem to pique my interest. I just can’t shift gears out of this fear of poverty mode, and as my wife will attest to, it’s not made me a fun person to be around. No matter how I look at it, I feel like I’m broke, and way off the track to a comfortable retirement. Working without reward has taken its toll on my motivation as well, and I’ve seen resent start to creep in to my feelings about work, as I feel like I’m working for nothing.
I have a project I have wanted to complete for a decade now, and I’ve set a budget of $15,000. In the end, I’ll have an asset that could be worth as little as $10k (it’s a classic car restoration, my experience has been that although you can end up with something worth more than you spent on it, that’s the exception to the rule). It’s a labour of love, and certainly not a smart place to invest your money if you want a return. No matter how I look at that money, either as a lump sum or a monthly payment ($300/month to “repay” over 5 yrs) I can only equate that going towards a down payment or mortgage payments on an income property.
How do I know when it’s OK to spend money on me? I know this is probably a question best left for a psychiatrist, but I thought I’d run it by you. I understand there are many more questions you receive that have a broader appeal, so I certainly understand if you aren’t able to answer. Thanks for taking the time to read this. All the best, and please keep up your great work!
Gail Says: There’s a big difference between “wasting” money and “enjoying” money. I think money should bring you satisfaction in your life, once all your needs are taken care of. It sounds to me like you’re in a very solid place financially, and now you must learn to enjoy your money. If all you’re doing is working to pile it up, your quality of life will suffer. It sounds like you’ve realized that … perhaps with some encouragement from your wife!
Learning to spend money to create powerful and meaningful experiences is a little like learning to save: you have to set a goal, you’ve got to take it in small steps and you’ve got to reward yourself for your progress. I’m going to assume from your letter that you have a positive cash flow, and the $300 a month won’t cause a hiccup. I’m also going to assume that your wife has things she likes to do, and you don’t stand in her way.
Step 1: Sit down and talk to her about what she spends on her self-indulgences. Make a plan to budget in “pleasures” into your budget which you split in a way you feel is fair… probably 50/50 since you work together in your business.
Step 2: Transfer the money that’s your share of the “pleasures” amount to your account, and keep a notebook. You must spend this money every month. Whether it is on your car project, taking your wife out for dinner or having fun in some other way, you MUST spend this money every month.
Step 3: If you need to accumulate some of this money for a particularly big buy — planned spending — then have a separate savings for your Pleasure Money… and transfer it to that account. Spend it when you’ve reached your accumulation goal. If you delay spending it because you’d rather keep piling up the money, tell your wife to make you do double the household chores (all the cooking, and the bathrooms) as a penalty. If you stay on track with your pleasure spending, you can set a new “wealth accumulation” goal and start working towards that. However, you cannot use your Pleasure Money for that new goal.
A Wrote: When do you know it is time to leave a job? Do you think you should keep a job because you have debt (less than 10K) even though it makes you miserable, physically gives you headaches, everyone in the building is on edge as they are laying off and firing almost weekly. We were told that we will all be replaced as soon as they find full-time replacements for us (most of us are moms working 24-30 hours). We work hard (therapists and assistants). I loved my job and thought only 2 months ago that I would be there until I left the field. (Therapy is a time limited career; boy I wish I knew that in college 22 years of lifting people is starting to hurt me). My coworkers are like sisters to me but the overall environment is so unhappy. I have been following you for years and have been working on balance in my life. Christmas is coming and I was trying to hold out but now I don’t think I can. I had bought plane tickets to take my kids away next summer as a holiday gift. I would still have 8 months to save for the hotel. The tickets are paid in full (thanks to you). I have been carrying around my letter for days to hand in but have not had the guts. Any advice?
Gail Says: You NEVER quit a job until you have another one in hand unless you know you can provide for your family in the meantime — meaning a big fat emergency fund with gobs and gobs of cash sitting in it. I know it’s hard to stick it out. But that’s what responsible grown-ups do. In the meantime, take your sick days, your unused holidays and any other time you can, and get busy finding another job.
K Wrote: My boyfriend is very frugal and that makes me happy that he really watches his money. But I wish you would feature a couple that is complete opposites. E.g. He is so tight with his money that he would bath in his daughters bath water after she is done to save water, sorry but if I am planning to blend my family, my kids will not share the same bath water or that he doesn’t flush the toilet because he is saving the water bill….I mean these are valid points but they are extreme. I could point another one…Food he isn’t picky and will eat expired or close to rotting food, I can’t and he is saving money yes, but that is gross….I need you to have a show about a person who is compulsive with their money.
See, he had to live on the streets and has probably over $15,000.00 stocked away for a rainy day and I think that is great, but we only live once, sorry I am not that cheap or willing to get my kids sick over half stale food or things like that. I hope you get my point, I could go on, but if you had a show like that. I really care for this guy, but this is a turn off, yes we could have nice things but he is too stingy with his money and to me you have to enjoy life as well….Thank you, please help if possible. Opposites attract but I am a Capricorn and don’t have real debt and hopefully I don’t end up on the streets someday because I can’t lower my standards.
Gail Says: Sometimes it can be very difficult for people who have come from different life experiences to get on the same page with their money. You are right when you describe your boyfriend as an “extreme” example of frugal. And you do not have to have the same commitment to frugality, if you can a) afford a hire standard of living, and b) are willing to make choices that prioritizes the things you speak of. However, getting your boy off Planet Frugal will be a tough task based on his life experiences. And if you have no savings, if you’re carrying any debt, if you’re doing anything that is “bad” with your money, you’re not going to have a leg to stand on when it comes to showing him that there can be another way. If you have all your ducks in a row, you can start calling attention to the fact that you’ve built a solid financial foundation but can spend some money on things you think are important. Good luck.
May 31, 2012 at 8:21 am
I love when you post questions and answers. Great advice for A. Way too many people quit their job without having a plan.
May 31, 2012 at 10:09 am
For the first person, how can you recommend GIC’s? The rate is atrocious, I know it won’t get eaten by taxes as the kids have no income but really? GIC rates don’t even cover inflation. Read the new edition of the Wealthy Barber and then subscribe to Canadian Moneysaver and you’ll really start to learn what to do with the money. If you hire someone to help you, hire someone that is a fee based not commission based manager.
Best of luck with your windfall.
May 31, 2012 at 10:24 am
Thanks for the great Q & A. I am also a big fan of this format. Another suggestion for “K”, one you have used before, is to keep your money separate. Agree on a shared budget for food, utilities and other expenses. Then you each spend the rest on what you want. This has worked well for me in my second marriage. I am the saver and dh is the spender. A good honest money discussion every couple of weeks keeps us on track.
May 31, 2012 at 10:39 am
@ Alberta
I think it all comes down to your risk level, and your knowledge of investments.
Yes, I know the rates of GICs are sickenly low, BUT the principle is guaranteed – you will not lose your principle. People push for mutual funds and EFTs as their returns are “higher”, but those same people neglect to mention the MERs and the whole front-loaded and back-loaded fees….not to mention that nothing is guaranteed — you could double your money or lose it all.
May 31, 2012 at 10:58 am
@W, I hear what you are saying spending $15k to restore a car that will only be worth $10K in the end. Look at it less like a “self indulgent project” (which is how I think you see it) and more of a “Mental Health” project (which it might well be). You get pleasure, relaxation and Joy. Just looking at the $5k loss, If the project takes you 2 years. That is $2500 a year, or just over $200 a month. If you can afford to do it, and your wife agrees (really important) is the cost that high?
Spread it over 3 years, and find a buddy with the same kind of hobby. You can share some of the costs and also alot of the appreciation .
May 31, 2012 at 11:03 am
I too find it difficult to spend money on myself – all dollars are potential dollars that can be saved or put towards mortgages and other debt.
This is how I manage: every payday, pre-planned amounts leave my account – to the joint account, the joint savings account, my rrsp account, and my tfsa (emerg savings). This covers all the living essentials, household planned spending, and long-term/emerg savings. Whatever’s left, I get to spend on myself – not a huge amount, but enough. If I want to use it to travel, or upgrade an electronic device or whatever, then I save to pay for it from that amount.
I find that donating to charity every so often helps – every time a friend is doing a charity run, or there’s a natural disaster somewhere in the world, I kick in some of my spending money, and I’ve NEVER felt guilty about that kind of spending.
Take care of yourself financially, but don’t sacrifice personal happiness. It sounds morbid, but if I got hit by a bus tomorrow, I’d rather think “I’m glad I took that awesome, prepaid vacation this year, and donated some money to the Red Cross” than “I’m glad I made those extra mortgage payments on TOP of the already accelerated payments and regular double-up payments”.
May 31, 2012 at 11:56 am
K:
If he has $15,000 put aside for a rainy day, that is his EF and he doing great from that point of view. Build up you EF and show him that you are ready for a rainy day as well.
Also, learn the correct quantity of food to buy so that it is used up before the expiry date. This way, you can both work on meal plans that suit both of your desires.
Find out what you can do to make him comfortable financially.
May 31, 2012 at 12:14 pm
@ A : My alarm bells are ringing about your settlement.
Hopefully it is not as a result of a personal injury lawsuit where that money was earmarked for your future care, or the future care of your children. If you are injured and that money was paid to you to compensate you for future medical costs, housekeeping / care etc. you need to speak with a professional.
You may also want to consider a structure for your settlment (McKellar’s is excellent) so that you do not just use it up and leave yourself with nothing when the time of reckoning comes down the road. Please speak with your lawyer about these issues.
May 31, 2012 at 1:04 pm
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May 31, 2012 at 1:59 pm
I love this format too.
I certainly agree that W should feel free to spend some money for enjoyment. I also have a hard time spending money on myself, even though I can afford to spend quite a bit. That’s why I use a budget. It gives me permission to spend a set amount of money on myself, and I know that spending that money won’t prevent me from taking care of my mortgage, bills, savings, etc.
What concerns me about W is that he says they only have 10k in cash and that both he and his wife are self-employed. Personally, I would focus on buidling that emergency fund before taking on such an expensive hobby.
May 31, 2012 at 9:24 pm
K…..I think that you are the one that needs to maybe relax a little? I have 3 small children, and they share the same bath water at night, one after the other. They are all clean and healthy. We also do not flush the toilet unless it is a #2 or if there is company over. Water is not cheap and there is only so much of it available for our usage and it takes a lot of resources to clean it.
Just because a piece of food is close to expiry does not make it “bad”. If it is smelly and rotten, that is one thing, but if there is a spot on it, cut it off!
There are too many people in society that have been spoiled and just waste waste waste because they can. I think a trip to a third world country to live for a few months would show you to better appreciate what you have.
June 5, 2012 at 3:18 pm
K….there is a reality show called “Extreme Cheapskates”. I saw an episode a while back, it highlights some extreme cheap behaviour and tries to make an effort to change the person. I think the show is more for shock value than therapy though….