This & That: Bizarre Behaviour Edition
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.