This & That: Link Love Edition
Posted by Gail | Filed under This & That
B Wrote: My wife and I really enjoys watching both Till Debt Do Us Part and Princess….They are a great reminder on how important it is to maintain vigilance and discipline when it comes to spending and finance. But more importantly, it’s inspiring to see when people actually get it and have their lives completely turned around because of it. Keep up the good work and hope there will be many more episodes to come. As for our situation: My wife and I are seriously considering starting a family….ideally 2 children. I’m 37 and she’s 28. Financially, I believe that we are off to a great start. I am very fortunate to have married a super saver like myself. We bring in around 120K, have zero debt, and were able to buy our new house (500K) without a mortgage. Aside from that, we also have 150K in RRSPs, mutual funds, and GIC, 15K in TFSA, and 7K in checking/saving. We agree that having separate accounts works best for us, but uses a joint account for house expenses only (taxes, hydro/gas, TV, internet, phone, groceries).
We did the online budget worksheet on your site and was pleasantly surprised that our housing expenses only account for 15% of our income (the no mortgage really helped), and that we have over 50% leftover for savings.
Now onto my question, I would like to start a budget including a baby maybe two. I know that our income will drop while our expenses increase during that period. We visited a couple of friends who has small children and were astonished at the amount of “stuff” you could buy for your kids. What I would like to know is, what is a reasonable yet realistic budget when having a baby? Everything from RESP to daycare, to diapers, clothes, furniture, and toys. We would not want to be kid poor, and would like to be able to continue building up our savings.
Gail Says: There are so many costs that are variable that it’s hard to have an “average” for this. Will Mommy breastfeed? For how long? Formula is obviously more expensive. Babies can move to cow’s milk at age 1. Will you buy regular (my choice) or organic (way more expensive)? Will you use cloth or disposable diapers? Will you buy new or second hand? Will you get stuff from family and friends who have already had babies or are giving gifts?
Don’t get sucked into buying crap you really don’t need. People swear by diaper genies and I met one couple who had 3, one for each floor of their house. Ridiculous! Put them in the garbage and take the garbage out! Will you use a change table (I never did) or will you throw a change pad on the bed (on the couch, on the floor) and change baby where it’s convenient.
Some baby stuff is invaluable: baby swings! Some baby stuff is just STUFF (wipe warmers). But everyone has to make their own choices based on what they think is important and what’s not.
Here’s a link to a calculator that covers just about everything you can think of: http://www.babycenter.com/baby-cost-calculator. Feel free to put zeros where your first thought is “seriously?”
Since loads of people buy stuff then don’t need it any more, post a request for items on local parenting sites or on Craigslist.ca to see what you can turn up.
Here’s a link to a government website you’ll find useful: http://www.servicecanada.gc.ca/eng/lifeevents/baby.shtml
And here are a couple of articles from my website:
http://www.gailvazoxlade.com/articles/life_happens/gearing_up_for_baby.html
http://gailvazoxlade.com/blog/archives/2894
As for the RESP question, you should aim to put away enough to maximize the amount you get in grant money from the government. Save $2,500 a year and the government will give you an additional $500 (to a maximum of $7,200 over baby’s lifetime). That’s an immediate 20% return on your money.
A Wrote: I’m trying to find a digital version of your book “It’s Your Money” so that I may put it on my Kindle. Do you know where I can find one?
Gail Says: Here’s the response from my publisher:
Yes—it’s up on Amazon.com (the amazon.ca website doesn’t host ebooks, odd as that is).
Ashley should be able to find it directly through her Kindle.
L Wrote: Thank you for offering to send me the information. I watch your shows (Til Debt Do Us Part & Princess) religiously and it is very refreshing to see an honest, no non-sense approach towards personal finance. If you ever want to do a show on helping people set up their financial future, kind of like a step 2 after debt is paid off, I would LOVE to participate. Thanks again for the information and for being a great resource.
Gail Says: Service Canada http://www.servicecanada.gc.ca/eng/isp/common/cricinfo.shtml
has an online service that can help you estimate your OAS and CPP benefits. It takes about 30 minutes to use the calculator all the way through to the end, but if you only want your CPP estimate, that’ll happen faster. You’ll need a copy of your CPP Statement of Contributions, which you can also get online from Service Canada: http://www.servicecanada.gc.ca/eng/isp/common/proceed/socinfo.shtml.
S Wrote: I was first introduced to you when I finished university and bought A Woman of Independent Means over 10 years ago! I just finished reading Debt – Free Forever and I think it has finally clicked! I kept trying to make the budget balance with way too much excess and not enough to my debt repayment…I was so afraid that I couldn’t “live” if I did the snowballing approach but it turns out I can! I do have some extra at the end of the month in the budget approximately $200 do you recommend that I put that toward the debt or into the emergency fund? Thanks so much for inspiring me to finally get my head out of my a$$ and dealing with my debt! It is a lot but I am dedicated to getting it out of my life forever!
Gail Says: I’d use it to get that emergency fund to a healthy point first, then to the debt. BTW, have you considered a Curveball Account so that when small things pop up — not exactly “emergencies” — you don’t through your whole budget off track? Think about it.
S Wrote: Thank you for the quick reply. I will put the excess in the emergency fund, which makes total sense. What exactly is the curveball account and how much % wise should I be allocating to this account?
Gail Says: Read this… http://gailvazoxlade.com/blog/archives/2257 It’s not a percentage, just an amount you build and keep as a pressure valve.
C Wrote: I have been watching you on TV for a while now and it always amazed me that people could be in so much financial trouble. That was until it started happening to my mom.
My mom has been struggling with her finances for years, but always assured myself and my sister that everything was fine. That she was fine. Recently my mom has been diagnosed with cancer and she has been losing her time at work. She is self employed as a house cleaner and when the cancer gets her down, she can’t work. If she can’t work, she doesn’t make money and if she doesn’t make money, she can’t pay her bills.
As a family, we recently sat down and spoke to my mom about her finances. Trying to get some information from her and trying to provide her with information as to how we can start getting her out of debt. Sell the house, pay off the credit cards, get her onto assisted living, disability, etc. She wanted no part of the conversation. She said that we were ganging up on her and turning against her. All I want to do is help my mom and get her back on the right track.
As of right now, this is the information I received from her with regards to her debt load:
- Overdraft account – $14,000
- Visa – $12,000
- Line of Credit – $10,000
That right there is $36,000 in debt. Plus her mortgage which we think is around $170,000 which comes up for renewal in November and her car which is about $11,000.
She is classified as high risk (obviously) and I recently found out that she had to sign on a 1-year mortgage at 5% in order to keep her mortgage but I have a feeling that once it comes up for renewal in a few months, they won’t renew her. And if they don’t renew her, what happens? Where does the house go? Where does she go?
Gail, if you have any advice on how I am to go about this with my mom, please tell me. I don’t know if she will give me access to her accounts to see what the numbers truly are. I am afraid that I will have to take legal action to become the guardian of the property as I truly feel that she does not understand the severity of this.
Gail Says: I’m not sure what you mean you’ll have to take legal action to become the guardian of the property. Are you prepared to declare your mother incapable of managing her own life? Will you assume full responsibility for her at that point? Clearly your mom needs help, but declaring her incapable of managing her own finances is a big step. I don’t have enough info to be able to give you guidance specifically. I don’t know what she makes as an income, and I don’t know how much she has in assets (her home etc.). If she cannot manage the debt she has, you should probably take her to a bankruptcy trustee and let them walk her through her options. If you’re in the Toronto area, Doug Hoyes is a good guy: http://www.hoyes.com/bankruptcy-toronto.htm.
February 14, 2013 at 8:59 am
The lady at my bank told me that RESP money can be put in when the child is older (but before the year they turn 17?) and if you ‘top-up’ contributions then, the government will still match up to the 20% maximum. Anybody know if this is true?
February 14, 2013 at 10:00 am
This is true. However, the age is younger that you must start by and there is an annual maximum. I took the quoted info from the CRA website:
“HRSDC pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.
Every child under age 18 who is a Canadian resident will accumulate $400 (for 1996 to 2006) and $500 (from 2007 and subsequent) of CESG contribution room. Unused CESG contribution room is carried forward and used when RESP contributions are made in future years provided that the specific contribution requirements for beneficiaries who attain 16 or 17 years of age are met.
Beneficiaries qualify for a grant on the contributions made on their behalf up to the end of the calendar year in which they turn 17 years of age.”
Don’t wait until it is too late tho! My friend got excluded by this requirement:
“Since the CESG has been designed to encourage long term savings for post-secondary education, there are specific contribution requirements for beneficiaries who attain 16 or 17 years of age. RESPs for beneficiaries 16 and 17 years of age can only receive CESG if at least one of the following two conditions is met:
a minimum of $2,000 of contributions has been made to, and not withdrawn from, RESPs in respect of the beneficiary before the year in which the beneficiary attains 16 years of age; or
a minimum annual contributions of at least $100 has been made to, and not withdrawn from, RESPs in respect of the beneficiary in any four years before the year in which the beneficiary attains 16 years of age.
This means that you must start to save in RESPs for your child before the end of the calendar year in which the beneficiary attains 15 years of age in order to be eligible for the CESG.”
February 14, 2013 at 10:20 am
You can contribute into an RESP and get the government contribution for ages 16 & 17 if you meet one of the two following criteria:
1. A minimum of $100.00 in annual RESP contributions made and not withdrawn in any four years before the end of the calendar year in which the beneficiary turned 15
OR
2. A minimum of $2000.00 of RESP contributions made and not withdrawn before the end of the calendar year in which the beneficiary turned 15.
Also you should know that the Canada Education Savings Grant (CESG) is retroactive.
February 14, 2013 at 11:09 am
Note about the diapers.
In Toronto, you can green bin them. We keep a separate garbage can in the washroom with a lid (from Ikea) which is only for yellow diapers. Brown diapers go in the kitchen green bin (cleared out more regularly).
For RESP we are doing $210 a month ($2520/year), at age 15 (maxed out the $7200), we might cut back a bit.
February 14, 2013 at 12:01 pm
@B re Baby Expenses. You could ask some recent parents how much they spend on their baby(ies). See if you can borrow a baby gizmo to try it out before buying one. Both my kids lived in the saucer/hoppy chair when they were babies but when my sister in law borrowed it, her daughter used it twice. My daughter was soothed by the baby swing but my son wanted none of it. He was soothed by being put in his removable car seat and rocked hard by my foot.
February 14, 2013 at 1:10 pm
In response to C
Unless your mother is mentally incapacitated you will find it impossible to take control of your mother’s situation without her consent. As far as the law is concerned poor financial management is not a reason to take control of a person’s life away. If she has an official diagnosis such as some sort of dementia that you can prove renders her incapable of managing her life you may get that control. Otherwise I would recommend not even trying. You would damage your relationship with her perhaps beyond repair. She is an adult and no one is responsible for her mistakes except her.
February 14, 2013 at 1:14 pm
As RESPs are tax-deferred, you want to maximize your compounding period. There is a maximum $50,000 in contribution, so if you contribute $3400 per year, you will receive your final $200 CESG payment (recall $7200) the same year you reach the $50k contribution limit (around age 14).
Don’t let the Nice Lady at the Bank talk you into some sort of savings account or group RESP. Open up a brokerage account and buy things that will yield a real return and not cost you a fortune in fees (avoid mutual funds, but Exchange Traded Funds). I have a 50%/50% split between fixed income and equity with the intention to shift toward more fixed income as the RESP gets closer to withdrawals. You could end up with ~$100k for each child when the go to school.
February 14, 2013 at 8:26 pm
Gail – seems like we all love the RESP situation! Would you share a bit more about your experience with Alex? I know you did two previous blogs which are great on the subject of withdrawals.
Maybe even a bit more on how opportunistic OSAP can still be (repayment terms of 114 months!)
Thanks!
February 24, 2013 at 4:51 pm
Gail, in your reply to A, you wrote “(the amazon.ca website doesn’t host ebooks, odd as that is)”.
However, I do see your book there. Kindle ebooks are indeed available on amazon.ca
http://www.amazon.ca/Its-Your-Money-Becoming-Independent/dp/1554688671/ref=sr_1_1?ie=UTF8&qid=1361738752&sr=8-1
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you writing this post and the rest of the site is very good.
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