K wrote: We have $42,000.00 of debt that we are trying to pay off. We have a plan, thanks to your show, that should have it paid in three years. We are currently renting and we don’t know if we should use another $6000-$8000 on our line of credit to buy a house. If we bought the house we would be paying about $200 less a month than what we pay in rent. Is it crazy for us to go further in debt to buy a house, should we just keep renting until out debt is paid off?

I would not go further into debt until a healthy chunk of that $42K was gone. If you can’t afford to come up with a downpayment for a home, you probably can’t afford a home and the closing costs. While you may have calculated your carrying costs as less than rent, do they include everything, including maintenance? Read my stuff on buying a home before you jump in, please.

Desiree wrote: I have just purchased a new car, which is financed at 7% over 96 months. Crazy, I know, but hear me out! The payment itself is low enough each month that I can easily pay an extra $200.00 a month on top of the regular payment, and still have a life (I love the jars!). My question is how do I calculate how long it will take to pay out this loan completely? What trips me up is knowing that my regular payment (436/mo) is split between principle and interest, while my extra payments go directly to the principle. Any help is appreciated!

You don’t say how much you paid for the car, Desiree, so you’ll have to do the calculation. Here’s how:

1. Take the principal you paid for the car and multiply it by the interest rate percentage and then divide by 12 for the monthly interest cost (approx). So if you paid $30,000 for the car it would look like this: $30,000 x 7% / 12 = $175. That’s the interest cost.

2. Subtract the interest cost from your monthly payment. The rest goes to principal. Add that to the extra $200 a month you can pay.

3. Take the principal you paid for the car and divide by the number you came up with in step 2. That’s how long it’ll take to pay off the car in months.

Heather wrote: Hi Gail, I watch your show all the time. I am wanting to set up the jar system in my household. The one thing that I am curious about is the handy dandy budget binder. Is there somewhere on your website that you have a sample of that binder. I really think that once we get on the jar system and the binder that things are just going to fall into place. We took the first step to becoming debt free this summer, we like to camp and had a travel trailer that we decided to sell so that we could pay off some of our debt. It was a very hard decision to make but it has been worth it. If it weren’t for your show I don’t know where we would be right now. Looking forward to the budget binder sample. Keep up the great work.

Heather, congrats on the decision to become Debt Free Forever. It’s tough to take the first steps, but then things seem to move well, so stay focused and keep up the good work.

Make sure to read this: http://gailvazoxlade.com/blog/archives/110

Here’s info on the budget binder: http://www.gailvazoxlade.com/answers/answers15.htm?zoom_highlight=budget+binder

Ashley wrote: My husband and I have 2 credit cards and a line of credit. The line of credit has been paid down at this point enough to consolidate our 2 credit cards onto. My question for you is, should we consolidate everything together or continue to keep paying all 3 separate. I think we should consolidate thinking it may save on interest and such but my husband doesn’t see it that way….Please help.

Ashley, your strategy is dead right. Don’t fall into the trap of paying only the minimum on the line. Make sure you work out how much you need to pay to get to debt free in three years or less and then bust your butt to make it so.

Amanda wrote: My husband and I have a $235,000 mortgage and $17,000 in debt on a line of credit and less than $1000 in savings. We have two newer vehicles and a travel trailer that are all paid off. I am at home with our 2 kids (7 weeks and 18 months) and my husband works full time, shift work making $4,000 a month, net. If we keep going as we are now, our debt will be paid off in approx. 5 years. I am wondering if we should sell one of the vehicles and the trailer (we would loose quite a bit) to pay off the debt and purchase an older vehicle for my husband to get to and from work, or should we stay on the track we are on now.

Amanda, my first take is that you don’t have enough debt or a situation dire enough to justify dramatic steps. However, I wonder why you have $17K in debt — how have you been spending your money? And can you only come up with $400 a month to put toward your line of credit? I think you should focus on finding ways to come up with more to get that $17K paid off even faster, rather than looking to sell vehicles (for which the market will not pay well right now). That being said, if the $17K feels like a huge burden and you want to be free from it sooner, then selling one of the vehicles may be the ticket. I’m curious though, how come your husband — who is driving to and from work each day — is the guy who has to sell his newer car?

N wrote: i Gail, love the show, using the jars but have a major question! Should we sell our house? I know you take this seriously and I am getting conflicting advice on this. Our house is worth approx 1.2 million and we have 450,000 debt. 240,000 fixed mtg. 80,000 variable mtg (2.5%) and 130,000 credit line (home equity line), no credit card or car debt. I use the credit line like a bank account when I need it. I feel overwhelmed by the large debt. Our income is $200,000 which I know is good but we have 2 kids at university and life is expensive. Our property tax has just jumped which is killing us. We don’t have a lot left at the end of the month – we also own a cottage in Muskoka and have all those expenses – the actual cottage is paid for however. It would be nice to keep the house but it will take forever to pay off this debt and we are not saving. We are ready to downsize and this would get us out of debt and we could be really saving – we are 50 years old. What do you think?

N, you answered all your own questions. You said:

• I feel overwhelmed by the large debt.
• We are ready to downsize
• This would get us out of debt and we could be really saving

Just do what you know you need to do to fix the situation. You have the answers. Listen to yourself.

O wrote: i purchase a one bed room condo three years ago for $153,400.00 i have a first mortgage at 06.990% balance 114,319.11 i also have a second mortgage balance of $112,477.19 i do not have any credit card debt but i have a dept of $22,ooo my trust company is offering me a equity line visa which will be limited to a maximum of 75%of the value of the condo, i want to take it to do some up grading do you think it is a good move to make?

O, you don’t say how much you make and so it is impossible for me to calculate your debt service ratio and tell you if you can afford to take on more debt. I will say, however, that the fact that you needed a second mortgage likely means you are already carrying more debt than your first lender would let you take on. The idea of adding even more debt to this load should be very scary if, in fact, you’re already at the top of your ability to repay. Please think very carefully about this.

Natasha wrote: I have a question regarding my credit card limits. I have 3 credit cards, 2 that are 5 years old, and one I opened this year to make use of the ‘low balance transfer rate’. I have always paid on time, more than the minimums, and am finally close to being almost paid off. Recently, one older card increased my limit from $2500 to $7500 and the newest one has just upped my limit from $3000 to $4500. I now have over $14000 available in credit! I don’t need this at all, and I won’t use it, but I don’t know if I should call them and have them lowered to their original values (or less) or just leave them be. Will this hurt me if I want to buy a car/home in the next couple of years? I make $30000/year, and have a student loan of $20000.  Thanks for your help!

Natasha, you should call and have them reduce your limits. You’re right when you say you don’t need access to all that credit. Congrats on getting so close to Debt Free Forever. Keep up the good work.

N wrote: I have two credit cards with Citibank and recently received notice that my interest will be going to 29.99% effective 11/29/09. Right now I have 9.9% and 11.25% on the cards. I have been a customer of Citibank for many years and an excellent customer at that, never late on payments, never gone over my credit limit. I can opt out by November 29th and continue to pay the balances off at my current interest rate but Citibank will close my accounts and report it to the credit bureaus “closed per customer request”. My question is: if I opt out and they close my accounts, how will this affect my credit, especially my FICO score? I would greatly appreciate your help. Not sure what to do.

Your bank is being a bully. It’s saying, “pay our exorbitant interest rates or watch your credit score go into the tank!” So much for being a good customer. I suggest you shop around and find another card to which you can transfer your current balances (or a line of credit if that’s an option). Then leave the accounts paid in full for about six months without using them while you build up your new credit history on your new card. Then blow your bank off!

Chris wrote: I am a long time fan of the show and I am hoping that you can provide me some insight. To make a long story short, my sister is going through a separation right now and she recently found out that her spouse had accumulated a large amount of debt before they where married. This debt is not in her name.  There is also some concern that a large amount of debt may have been accumulated after they where married without her knowledge. This debt is also not in her name. In the event that a divorce is the end result to this relationship, is she responsible for this debt under Canadian law? Would debt responsibility change if an annulment was performed (vs. divorce)?

No one can be held accountable for debt they haven’t signed for. However, the assets of the person with the debt are attachable and that can be affected. In other words, if there is equity in a home, for example, that could be “attached” by a creditor trying to collect on a debt. But the debt itself is not attachable to a partner. Re the annulment thing, I doubt there would be any difference but check with a family court lawyer on that.

L wrote: My cousin dropped out of university a few years ago. Today, she is sitting on $20,000 worth of debt. She lives at home with her parents. She works in a Lululemon retail store, perhaps making $2,000 a month if she’s lucky with her full time hours. She wants to go back to school but everyone keeps telling her to pour all her money into her debt. This debt is two line of credits. She also has a bad shopping habit. She’ll put money into her debt but then spends it. She has no savings account and does not see the value in having a savings account. What advice can I give her to help her out so she can at least go back to school or perhaps rent a place of her own? What advice do you have for people in these positions who want to go back to school but sit on a large amount of debt with no savings? Please help me show her the value of managing money.

Your cousin’s debt isn’t the problem, it’s her spending. She could easily have wiped out that debt living at home over the pat few years. But she can’t stop shopping. Until she’s ready to change her life, there’s nothing you can do to help her. If her parents are allowing her to live rent free, they’re contributing to the problem. Sorry, but I don’t have any better news for you. You’ll have to wait until she’s serious. Then she can come on my site, find the tools she needs and take control of her money and her life. You can’t save her. Only she can save herself.

14% of people who responded to the poll are completely debt free. Are you surprised at the number? Did you think it would be higher or lower?

The last survey of this kind came in 2008 when the Certified General Accountants Association of Canada conducted a consumer survey on household debt and consumption in Canada. They found that Household debt is at an all-time high reaching $1.3 trillion in 2008 and the escalation of debt is primarily caused by consumption motives rather than asset accumulation.

Looking at the kinds of debt we’re currently carrying, this seems to still be the case, despite the shake-up in the economy and the lessons we should have learned. Maybe that’s because according to the CGA poll 79% of indebted Canadians are still confident that they can either manage their debt well or take on more debt load. Wow! I don’t know what else to say… just Wow!

According to my survey:

• 6% of people have a buy now pay later
• 9% are carrying a balance on a department store credit card
• 42% are carrying a balance on a Visa or MasterCard

So people still think it’s okay to spend money they haven’t yet earned on STUFF.

In a previous poll I asked you to complete the statement “As soon as your credit card bill comes in you…” Here’s what you said:

• 3% Hide the bill in a drawer…. I can’t afford to make a payment
• 6% Pay the minimum amount
• 32% Pay more than the minimum but not the balance in full
• 53% Pay the balance in full from my bank account
• 5% I don’t have a credit card.
• 1% Make a payment from my line of credit

Speaking of lines of credit, according to my debt poll, 38% say that you are carrying a balance on your line(s) of credit. You better get busy paying those suckers off since rising interest rates will take a bigger bite out of your budgets pretty soon. And if you’re one of the delusional dopes who still considers a PLC to be an emergency fund,  its time to wake up and smell the coffee.

On the fringes using what I refer to as “debt of last resort” – pay advance loans – I report with mixed feelings that only 2 people voted and so the percentage was below 1% and didn’t rank. I’m happy that the number is so low. I’m sad that these financial pariahs still exist and have their hooks in folks. If you’re in this mix, getting their hooks out of you must be your first priority, and you must do whatever it takes.

Some of the feedback came as no surprise at all: 57% of folks have a mortgage and 34% have a vehicle loan. 4% also have “another” vehicle loan… that’d put a strain on your budget, eh? 16% of folks are still into their overdraft — hey people, that’s a loan too! — and 8% have a consolidation loan. 17% have government student loans and 7% have student loans from a lender.

There are a few investors among the people who responded to my poll and some of them are doing their investing with borrowed money:

• 1% have a margin account
• 4% have an investment loan

I wonder if the people with RRSP loans counted themselves among these, or simply didn’t count their RRSP loans because they had an off-setting asset.

You might want to try this at home too. If there is something that you think you can’t live without, pile a mess of it into a knapsack and carry it around with you for about a week. Doesn’t all that stuff get heavy? Better yet, if you have debt, carry a representational amount of it around. So if you owe $30,000, make 1 pound of weight equal $1,000 and carry around 30 pounds of your stuff (or weights). Will you get the message fast.

Our obsession with stuff is unhealthy. If you are shopping to make yourself feel better, to fill a void, or to prove to other people that you’ve made it, you’re shopping for all the wrong reasons. And if every time you see something new, something shinier, you HAVE to have it, you’ve really got it bad. Stuff does nothing to fill our lives with meaning. But it can lead to Debt Hell. If you’re obsessed with needing bigger houses so have the space you need to hold all your stuff, you’re playing a dangerous game.

Shopping to stave off the Screaming Blue Miseries means you’re not dealing with what’s making you unhappy. And doing it on credit is only going to add to your pile of woe. Buying beautifully things for other people to show how much you loooove them is not really saying “love” as much as telling them would, or doing something for them that would truly bring them joy. Simple things like cooking them dinner on a night when they’re at their busiest, or heading over and cutting their lawn and weeding their garden on a weekend when they’re away. Or offering the take the kids overnight so they can have a romantic evening to themselves. There are so many ways to show people you love them that shopping is really the easy way out. And if you’re doing it on credit, you’re not even using your money!

Some people think they have to drop a wad just to have some friends: if they aren’t clubbing or eating out in a restaurant, it can’t be as much fun. Really? In my parents’ day, the basket-party was the thing. Everyone would get all dressed up (no fancy, just fun) fill a basket with their contribution to the eats, and bring along some great music. And they’d have a heap of fun. How did that get replaced with limos and bottle service for a way to hang with friends?

People also get remarkably attached to their stuff. You can take away their right to choose and they’ll let you. You can take away their ability to shop, and they’ll let you. But try to separate them from their stuff and they’ll panic. I’ve seen it over and over. It’s like the stuff has some sort of stranglehold on their psyches.

As you move away from your addiction to stuff you may find yourself reluctant to give something up, even if you don’t really use it. Ask yourself why. What’s holding you back from getting rid of this particular possession? Does the item have an emotional connection?

While we were on vacation last March, I lost a ring that I’d recently bought while swimming in the Caribbean. “Oh” I gasped when I realized it. “I’ve lost my ring.”

“Were you attached to it yet?” asked Alex.

“No” I said.

“Good” said she.

We tend to get emotionally attached to our stuff.  Sometimes we say we “love” our stuff. Really? Love? Sometimes it is because we have lovely memories attached to that stuff. But memories are of the mind; they’re not physical. So why marry the stuff?

Life, not stuff, is what matters. Think about things that you’ve lost, that have been stolen or that have broken. At first you thought you couldn’t live without them. But you got over it. That connection was all in your head. But your life… well, know, that’s a series of moments that is streaming through your consciousness and how you use those moments can create joy, serenity, contentment. Or you can use them to put yourself in an ugly place by measuring them in stuff.

You know the old saying, “You can’t take it with you.” When you sit back and look over your life right now, what do you think about? I’ll bet dogs to donuts that it’s not the stuff. It’s the people and the places, the experiences, the joys and the sorrows, the feelings. What you fill your life with is what truly matters, not the stuff.

How do you deal with the stuff that you’ve become attached to? How much of a hold does your stuff have on you?

Lose a job, have a child get sick, or watch your car die in the middle of a highway and the idea of putting whatever you need on a card and carrying a balance becomes a secondary issue to taking care of the big problem. But what is it that’s changed in our lives to make us think that when whatever we’re putting on our credit cards won’t come home to roost one day? How have we come to delude ourselves so thoroughly? What lets us rack up thousands of dollars in debt without batting an eye? And what lets us carry around balances on our credit cards, at huge interest rates, without losing our minds?

There are people who bemoan their debt while booking their next vacation. I’ve met folks who can’t drive a domestic car; they must drive a car they really can’t afford. And there are heaps of people who can’t seem to find the money to repay their old bad spending habits because they’re too busy traveling (on credit), eating out with friends (on credit) or shopping (on credit.) What makes some people immune to the gut-wrenching stress that other people feel when they owe money?

I believe part one of the problem stems from the fact that so many people are so far in debt that indebtedness has become normal. If your parents are in debt, your brother is in debt, your best friend is in debt, being broke won’t carry the weight for you as it does for the person who has grown up hearing, “debt is bad!”

I believe part two of the problem stems from the invention of the “minimum payment.”  People have stopped adding up what they owe and are focusing instead on how much they’ll have to come up with each month to keep their credit flowing. It is as if The Debt – the big whopping amount owed – doesn’t exist. And because minimum payments aren’t set high enough, it takes a really long time before the pain of not being able to come up with even the minimum hits home. By the time the debt is big enough for all those minimum payments to be a problem, people can’t see any way out, which leads to what I like to call Stupid Debt Tricks.

Stupid Debt Trick #1 is performed by a guy who thinks he has the system beat. He transfers the money for his mortgage payment to his line of credit to meet the minimum payment requirement, and then uses the line to pay his mortgage. The dope isn’t even covering the interest on his line.

Stupid Debt Trick #2 is used by the girl who, finding that she can’t live within her overdraft limit, arranges to have the extra she needs automatically transferred from her high-interest credit card. As if it isn’t bad enough that she’s living in overdraft, she’s taking cash advances to cover her overdraft’s overdraft.

Stupid Debt Trick #3 is executed by the couple who, realizing that they can’t live on the money they bring home each month and have fun, make all their mortgage payments from their line of credit. So while the Smart Money People search for ways to lower their interest cost by even half a point, Mr. and Mrs. No-Self-Control pay the regular interest rate on their mortgage plus the interest rate on their line on every mortgage payment.

Eventually even with the full arsenal of Stupid Debt Tricks at their disposal, the folks who think debt is normal finally run out of room. That’s assuming their circumstances don’t change first, leaving them with less money than they need to make their minimum payments AND buy food.

Debt isn’t normal. It’s anathema to life. Debt means no control, no way to bounce back from whatever pile of poop is reaching up to grab your foot. The sooner we move past “managing our debt” and get debt-free forever, the healthier we all will be.

I say this because of all the people who tell me that they have “found themselves” in trouble. It is as if they just woke up one day in a mess. While they were out buying couches, TVs and their 24^th pair of jeans, they didn’t notice the hole they were digging. Now, at the bottom of they hole, they’re looking up and wondering how to get out. A big flashing sign, “Watch Your Step!” might have been handy, eh?

The early signs are the easiest to miss. Maybe you don’t have any financial goals. Yup, that’s a sign. Maybe you’re not living on a budget. A sign. Perhaps you’re spending money on STUFF instead of paying routine bills. And if you’re using your credit cards to buy food or pay for other necessities because you’re out of money, your “Watch Your Step!” sign should be flashing.

Sometimes the things you do seem less obvious. Maybe you’re lying to your buddy about how much you paid for something. Or you’re avoiding talking about money completely. Amber signs. Ditto if you’re repeatedly dipping into savings to pay regular bills or you have little or no savings because you’re spending all the money you make.

Your warning sign should flash more brightly if you apply for a consolidation loan and are turned down, or if you can’t get your interest rate reduced by negotiating. Hey, that sign looks like it’s changing from amber to red! Watch Your Step!

Did you see how high your last cheques bounced? OMG! Have you been paying late or missing payments completely. Red Alert! And as for moving your debt to your home and then building a new balance on your credit card or line of credit , bells and whistles should be going off all over the place.

Consider your situation critical when you find yourself living in overdraft, missing even your minimum payments, or using credit advances from one card (or from your line) to make payments on other forms of credit. If debt repayment is eating more than 15% of your net income, your Watch Your Step Sign should not only be flashing red, the alarm sounds should be deafening. Can you hear it ringing when you don’t even bother opening your bills? How about when you resort to asking family or friends to bail you out? Or when you hit a pay advance loan store?

This is usually the stage at which people find me. They’re up to their eyeballs and don’t know what to do. But there were lots of signs along the way that things were amiss. Trouble is, some people are so unwilling to see their reality that it takes a two-by-four upside the head (me) to get them focused on the truth of their circumstances.

It doesn’t have to be this way. You can – and should – be watching your money and looking for the signs. Caught early, the problems can be reasonably easy to fix. By the time you get to the critical stage, sometimes only bankruptcy will see you out. Oy!

I meet a lot of people who have expectations that are completely unrealistic, and it makes me wonder where they got their life pictures. Why would a woman who has just graduated from university and hasn’t even got a good job yet think it’s okay to have a baby, buy a house, and throw herself a big wedding? Why would a young couple believe that the beautiful house they bought (that they could barely afford) isn’t good enough and buy a bigger one? And when did the kind of car we drive, the clothes or shoes we wear, or the neighbourhood we live in become such a reflection on us that we’re willing to pretend things are fine when we’re neck-deep in debt?

We’ve grown up with more STUFF than has ever been available before for consumption. TVs get bigger and flatter with better resolution and more fabulous sound. Houses get bigger, with more bedrooms, bathrooms, kitchens. Cars get fancier (I want the one that knows how to parallel park itself!) with leather seats, in-car communications, and more cup-holders!

With all the STUFF just waiting to be bought, the question becomes this: Are you really willing to spend whatever it takes to have it all right now, regardless of the impact on your financial health?

It may be that the lifestyle you have, or want to have, is shaped by what you had when you lived with your parents. Their hard work made it possible for you to grow up in a house, and you can’t imagine living in anything but, despite the fact that you haven’t saved a downpayment. For while it took our parents 10 or 15 years to come up with the money to get into a house, many of us think we’re entitled RIGHT NOW.

Unless you come out of school earning as much as your parents, with the savings to back it up, you can’t buy the same lifestyle they had. Putting yourself into debt and not leaving any money for savings mean you’re setting yourself up financial failure.

I meet a lot of people who want to indulge their every whim either because they were indulged as children and it’s their norm, or because they weren’t and it’s their due! Talk about no way out. Delusional Debtors can always find a good excuse for spending money. That’s a no-brainer. The fact that we’re spending money on credit – spending money we haven’t yet earned – is down-right dopey, particularly when it’s for consumables. Sure, that $200 dinner was great. But once you go home and have a good poop, all you’re left with is the debt on your credit card.

And then there are the people who spend money they know they shouldn’t, experiencing buyers remorse and slapping themselves upside the head for being stupid… who then go out and do it again. What will it take to stop?

It may take revamping the picture you have of your life. If you have painted a picture for yourself that you simply cannot afford, it’s time to paint a new picture – one that  you can feel good about.

It’s lovely to think that a beautiful home, a late-model car, and a cottage, boat, basement full of entertainment equipment is ours for the having, but the reality is that for many people our grasp exceeds our reach. I can’t afford that car that parks itself and I know it. To go out and lease one would mean I’d have to scrimp in other areas – most likely on my saving and my emergency fund – and I’m not prepared to do that.

Ditto an annual vacation. While it’s a lovely idea, and it may be hard to watch others head south while I’m stuck shoveling snow, the reality is putting it on credit isn’t an option for me. So I’ve painted myself a picture that includes a family vacation somewhere wonderful about every three to five years, depending on how I’m doing financially. I save up the money and come back with no regrets.

So, what pictures did you paint that are getting you iton trouble? What did you imagine your life would be like, only to wake up to some hard realities that have you scratching your head? And how do you feel about having to change your expectations? If you aren’t willing to revamp your picture, how are you planning to make it work?

Perhaps the hardest part of taking control of our money and our life is the first step: honesty. We must honestly look at the picture we’ve built and the impact it’s having on our financial stability. If we’re balanced and in a good place then the picture’s a keeper. If we have debt, no savings, no EF, no insurance or worry about paying the hydro bill on time, it time to get out a fresh canvas and start painting a new picture.

Experts have been touting the importance of having an emergency fund since Moses was a lad. So why is it that so many people still don’t have enough (or any?) money set aside just in case? Reasons and rationales abound.

“I’m paying off my debt. That’s the most important thing.”  With the amount of debt people are buried in, it’s no wonder people want to get rid of it as fast as they can. But having a single focus is never a good way to create balance. Money in the bank gives you options – ways to deal – so that you can stay on track with debt repayment even when the caca hits the fan. Having no cash at the ready means you’ll no doubt be forced to use your credit to deal with a broken furnace, unexpected medical bills, or replacing that tire you blew on the highway. Accessible cash means you can keep to your debt-repayment plan and deal with whatever crisis – large or small – that has come knocking on your door.

“I can’t see the point of letting money sit earning next to nothing.”  While it can be a really sad thing to watch thousands of dollars languishing in a savings account, return isn’t the priority with an emergency fund. Access is. Stick that money into the market and it may not be there just when you need it most. Stick it in a high-interest savings account and while you may be irked by the pittance you’re earning in interest, the emergency fund will be at the ready when you hit the wall. The point is to have some wiggle room when the unexpected happens.

“I have $1,000. That’s enough.”  $1,000 may be enough of an emergency fund if you live under a rock. Yes, you’ll need less of a buffer if your home is paid for, you have no debt, you walk everywhere you go, and you’re happy eating ketchup soup three nights a week. If you want a realistic emergency fund – one that actually gets you though the rough – figure our your monthly essential expenses and multiply by six. That’s how much you need.

Unemployment insurance may help fill the gap if you lose your job, but it doesn’t go far. And unemployment isn’t the worst emergency you may face. Get sick and watch your money evaporate. Even if you have good health and disability insurance plans, your cash flow will still take a kicking until your benefits click on.

“Who needs an emergency fund when you can use a line of credit?”  The people telling us to get an LOC is an emergency fund are the same people who let us buy houses without enough money down, offered us ways to satisfy all your whims while spending money we hadn’t yet earned, and continually raised our limits until many of us had enough debt to bury an elephant.

A line of credit is not an emergency fund… it is debt waiting to happen. If you hit a wall and end up racking up tens of thousands in debt on an LOC, how was that diverting disaster?

Perhaps the problem with the whole emergency fund thing is that people don’t like to think they’ll have to deal with “emergencies.” It’s not unlike the folks who won’t make a Will because they don’t want to contemplate their demise, or who won’t buy disability insurance because they can’t imagine becoming disabled.

Maybe we’re just calling it by the wrong name. The whole idea of having to deal with “emergencies” can be a real downer. Maybe what we need is nomenclature that sounds far more proactive and positive. We’ll stop predicting disaster and instead focus on the fact that when you have money at the ready, you also have ways and means to deal with whatever life pitches at you.

Hmmm… a Ways-and-Means Fund… cash in the bank that gives us the means so we can figure out ways of dealing with life’s lumps. Your son breaks his arm playing in the yard, and you have the means – the money – you need to take a day off work, get him to the hospital, and cope in whatever other ways you must. Your partner is downsized and you have the means to pay the mortgage and keep food on the table until he finds new ways of bringing home the bacon. You bang up your car, watch your shingles blow off in a wind-storm, or find yourself in the throes of a divorce, and you have the means to keep the financial boat afloat while you find ways to cope with all the other stress in your life.

Convinced that having The Means offers you more Ways of smoothing out life’s bumps? Now it’s just a matter of coming up with the dough. It takes effort to knead intent into action.

To best way to create your Ways-and-Means Fund is to set up an automatic deduction from your regular account to a high-interest savings account. If you don’t have much to save, it doesn’t matter — the important thing is just to start… to convert your intent into action. As long as you haven’t started, you’re not creating the means for dealing with what life will inevitably throw at you. Commit $25 per pay to your Ways-and-Means Fund. Once you’ve begun, you’re on your way and then it only becomes a matter of how to boost the amount you’re setting aside to grow your stash of cash.

Most people have expenses they can trim to boost the money going to their Ways-and-Means Fund. Do you buy coffee every day on the way to work? Calculate how much you’re spending, cut it in half, and send the difference to your Ways-and-Means Fund. Smoke? If you smoked half as much, how much would you be able to sock away? Pick up the latest magazine at the checkout counter? Subscribe to premium cable? Go out for a drink with your friends after work? Buy your lunch at work? Pick up your favorite “stuff” whenever it’s on sale even though you already have 30 pairs of shoes, white shirts, handbags, DVDs, name your vice here. How quickly could you build your Ways-and-Means Fund by focusing on being safe as opposed to being satiated?

If you’re determined to keep all your small indulgences, try the Tit-for-Tat approach to building your Ways-and-Means Fund. Each time you satisfy a WANT, contribute an equal amount to your Ways-and-Means Fund. Not only will it make you really think about whether you’re going to spend the money –in essence whatever you buy is going to cost your cash flow twice as much – you’ll be giving yourself options for the future while you enjoy yourself today.

After spending ourselves into the hole, there seems to be a major trend to getting all the debt paid off no matter what. While I believe very strongly that you should do whatever it takes to become consumer debt free in three years or less, people are extending the rule to their mortgages, which I think is ridiculous.

I’m all for getting to debt free forever. And being mortgage free by the time you retire is a very good goal to have. But busting your butt and having no fun shouldn’t be the path you take to get to mortgage free. And if you’re in good financial shape and have a partner who wants to have some fun, but you’re always raining on the parade, you may end up splitting all that money you squirreled away in half when your buddy finally has had enough of your miserly ways.

Margaret wrote:

Gail, my husband and I have $100,000.00 left on our mortgage. We will soon be bringing in an extra $600.00 a month since we will have paid off our line of credit. I would like to increase our mortgage payments by $600.00 a month using this money. I am trying to convince my husband that this is the best way to go, but he says he would rather use the money for vacations! Can you tell me how much time we would save on paying back our mortgage if we put in an extra &600.00 a month (we are paying 5.5% interest)?

Margaret, m’love, you would save a lot! But I’m with your husband. If you’re just down to your mortgage, you should be having some fun. Why don’t you compromise. Add an extra $100 a month to your mortgage payment, and set aside the other $500 a month for other things like vacations.

Melanie wrote:

We’re on one income as I left the workforce mid last year to have a baby. A year before the baby was due we planned to sacrifice my whole income into our mortgage (a total of $40K). My husband is still keen to put 50% of our income in the mortgage which means after all fixed expenses we have $1400 for variables. This is ok as it seems enough for us to get by comfortably with our day-to-day living and raising a baby – however as all the extra money is going into the mortgage we don’t have physical “cash” savings. We’ve managed to accumulate over $80k in our mortgage redraw facility due to this commitment. I’m getting concerned now as we are close to paying off the mortgage ($66K to go)… but once it is paid we won’t have the redraw facility in case of emergency. What should we do now? Have we shot ourselves in the foot by being too scrupulous with our mortgage repayments? Also, I’d like to know where/how I should budget for education costs and the associated expenses as I’ve just returned to study?

Melanie, you haven’t shot yourself in the foot and should be very proud of what you’ve accomplished. But it is time to balance your financial foundation. So I would hold off on further mortgage pay-downs… other than regular monthly payments… and focus on building up the emergency fund. Figure out what your essential monthly expenses are (I think you already have a good handle on this) and then set aside six months’ worth of cash in a high interest savings account to cover your butt. As for how to budget for your education costs, I’m not sure what you’re asking me. If you want to know where to put it on your budget, it’s a LIFE expense and you can replace any other LIFE category (like allowances, for example) to make the budget worksheet balance. If you’re asking how to budget for these new expenses, they are planned spending. You need to figure out how much a month it’ll cost and then set aside that amount so the money is available when the payment must be made.

Chloe wrote:

Do you have to ever counsel anyone who is too cautious with money and what would you recommend? I am single, in my thirties and live with a retired parent. I help them financially as they have a very small pension income. I have a mortgage balance left of 70,000 from purchase price $186,000. This was accomplished within 5 years with 25 % down and taking advantage of lump sum payments. I also have an 18-month emergency fund and about 31,000 in RRSP savings. My household income after taxes is about $46,000 so I am not rich. How did I accomplish this? I have not been on vacation in 6 years, work overtime at every opportunity, take advantage of my works RRSP match, limit going out to special occasions only, bring lunches to work, I never grocery shop with out a list and often plan my menu by looking at what is on special that week, saving money is budgeted into my monthly expenses and I shop for new clothes only when needed. I started saving since my early twenties. This probably sounds more like a success post but I have recently started to realize I am missing out on enjoying life. I would love to find the balance between saving and enjoying my self too. I come from a very poor childhood and never went to go through that again so I believe that is what makes me so cautious.

Chloe, the thing you have to do is decide on something you really want to do (or have), set a goal… how long it’ll take you to save the money, how much you’ll set aside each month, etc… and then ENJOY spending the money. You sound like a very responsible girl. What do you do for fun? Do you have a friend who you would like to travel with? Have you ever considered doing something completely out of the blue? Life is not simply duty… there is also beauty to behold. You need to look around and decide what Chloe wants to do and see and hear and experience.

Daphne wrote:

I watch, read and follow your advice and also the advice of Suze Orman. I own a condo in Regina, which was paid in full when I purchased it. (it’s tiny, but it;s mine!) Also, my car is paid in full. However, I have almost $18000.00 in a line of credit. Using the cups idea of yours, I can easily pay $1600.00 a month to debt. (Using your chart of 30% housing expense and 15% debt repayment…because I have little housing, I shifted that over to debt repayment) My question is: lately, Suze Orman has been telling people not to pay consumer debt and instead to put that money in a savings account. You both have always said to pay down credit card and consumer debt as quickly as possible, until now….Should I be more concerned with getting my savings account higher, even if it means longer to pay off my line of credit? (the interest rate is 5.5%).

Daphne, I’m not sure why Suze has changed her tune, but you should still be working hard to get your debt paid off as soon as possible. Your plan makes good sense to me. This assumes you also have an emergency fund in place (you do, right?). If not, then you should be socking away some emergency money every month… start with $500 a month, and once the debt is repaid build your emergency fund to 6 months’ essential emergency expenses. Then have a great life!

L wrote:

My husband and I were in $21000 of credit card debt (some of which was for fertility treatments so we could have our daughter). We really buckled down, due in large part to watching your shows and me basically being totally focused about getting out of debt. This month we we will pay off the remaining balance of this credit card debt. We have a mortgage ($1015 a month), but aside form living expenses we don’t have any other debt (no car payments, loans, etc). I have tracked our budget (using your advice from the shows) and we need $3000 a month to live what we feel is comfortable. This will go down as our ten month old daughter grows and doesn’t need the special $30 16 oz can of formula she’s had to stay on. My husband makes about $4200 net a month and I make $1475 a month. I would really love to be able to stay home with her the next few years and not have to take her to a babysitter. I realize the extra income would further us along financially and give our daughter a better future in that respect, but the maternal and emotional side of me really wants to be home. In your opinion would you think it be possible for me to do this? We currently have $4000 in our emergency fund. Thanks for all your help and advice.

Hey L, you answered your own question my love. His net income is $4200 an your expenses are $3,000. That leaves enough money to save $420 a month for the long term, $120 for your daughter’s future schooling, and $260 a month for emergencies, leaving you with a whopping $400 a month to play! I know that there are a lot of people who are so gung ho on preparing for the future that they are willing to sacrifice everything today. I am NOT one of those people. If you have no debt, if you’re not spending more money than you make, and if you’re saving, in my book you’ve covered the basics and you can make your life anything you want it to be! If you want to be a stay-at-home mom, be a stay-at-home mom. Keep in mind that you don’t have a lot of wiggle room for fancy vacations or expensive toys. And you need to set aside a little money each month to take care of the “big spending” that will eventually creep up… a new vehicle, for example. You should also take the opportunity you have while your daughter is young to build some new skills: learn to sew, build websites, fix trucks, make fancy cakes. Your brain needs to keep expanding, and when you do finally decide you want to return to work, it’d be nice to have some new skills to put to use, wouldn’t it.

Allesha wrote:

I am 30 yrs old and my husband is 32 yrs. We have a 17 month old son. We were married in 2005 and my husband moved here from the USA. We purchased our firts home in 2008, and from the minute we purhase our home we have being having financal problems. My yearly salary is $35,000.00 my husbands salary is $40,000.00. These are our expenses:

• Mortgage that includes Lnds tax & Life and disability insurance $842 bi-weekly
• Daycare $800
• Car payment $432.00
• Car insurance $250.00
• Rogers $300.00
• Gas$ 400.00
• Grocery $500.00
• RESP $100.00
• Credit Cards $500.00
• Life Insurance $200.00
• Hydro $130.00
• Electricity & Water every 3 months $300.00
• If you calculate, our monthly expenses are $5, 296.00.

My husband is always working, we never spend time together as a family because he is always doing overtime so that we can cover all our expenses. I just really need your help and advice as what should we do now. I consider us selling our home and start all over again but that’s not the route I want to go by. My second option is to get a part time job evenings and weekends but then I won’t have anyone to watch the baby. I am slowly having a nervous breakdown and I don’t know what to do know. I am in desperate need for some financial advice.

Okay y’all, it’s your turn. What would you recommend to Allesha? And if you want to weigh in on any of the other comments I made, I know you’ll have loving and supportive words of wisdom that will help!

You’ve probably heard me say this before; it’s one of my mantras: Plan like a pessimist so you can live like an optimist.

Very often people go through life believing everything is always going to be great. In their world, crap doesn’t happen. No one loses jobs. No one gets sick. No one dies. It’s la-la-la, and off to the mall we go because we’s gots money and they’s shoppin’ to be done.

Sadly, there’s a very real possibility that crap will happen. According to the Society of Actuaries and the national Centre of Health Statistics and Transactions (big title… must mean their know their stuff, eh?) every year one in eight people become disabled. And at age 35, the claim incidence is three times greater for women than for men.

According to the American Cancer Society, in 2008 over half a million people died of cancer. Never mind all the people diagnosed who watched their income shrivel as they coped with their treatments. And while The Big C is the thing we are most fear, the incidences of death by heart disease are higher; 1 in 5 (compared to 1 in 7 for cancer).

Here are some more:

• Stroke Lifetime Odds: 1 in 24
• Motor Vehicle Accident Lifetime Odds: 1 in 84
• Suicide Lifetime Odds: 1 in 119
• Falling Lifetime Odds: 1 in 218
• Firearm Assault Lifetime Odds: 1 in 314
• Pedestrian Accident Lifetime Odds: 1 in 626
• Drowning Lifetime Odds: 1 in 1,008
• Motorcycle Accident Lifetime Odds: 1 in 1,020

Among my immediate friends and family, I have lost dear ones to cancer, suicide, car accident, drowning and a motorcycle accident. I know people die. I can die too.

If you know that crap can happen then you should take the steps to ensure that if it does you and your family are adequately protected. Just worrying about the anvil falling on your head is a waste of energy; using that image to motivate you to plan for the worst – to plan like a pessimist – means you can stop worrying because you’ve done all you can. You’ve got your safety net. Time to have fun!

Every step you take, from building an emergency fund, to buying enough insurance, from saving money for the future to executing a well thought-out estate plan, gets you closer a place where you don’t have to worry.

If it’s been a while since you looked over your financial life, today’s the day to make your checklist and get busy putting your Pessimist’s Plan into place so you can forget about the yuckies and live like an optimist:

• Check credit report; fix errors
• Review savings goals; chart progress.
• Establish/review emergency fund goals; chart progress.
• Review life, health, disability insurance coverage; supplement if necessary.
• Update resumé. Plan for your next job review.
• Review your estate plan: wills and powers of attorney, along with guardianship designations for your children.
• Review Debt Free plan; chart progress
• Set a new goal for increasing your financial knowledge. The more you understand about how money works, the less you have to worry about it.

Once you’ve got all your ducks in a row, you need only do a periodic review to see that you’re still on track.  Semi-annually, or each time there’s a significant change in your circumstances, you can go over your checklist and make sure everything is still ticketiboo. Or you can make the changes you need to put things back in order.

Then you can forget about worrying. You’ve done all that you should, and worrying isn’t going to make a scrap of difference. Get busy being happy.

According to The Stats Man, between 1982 and 2001, 47% of Canadians spent more money than they earned. Imagine. Almost half of us were living on credit. This before the real ramp-up in credit offers and the subsequent crap that’s hit the fan. I shudder to think how many people are spending more than they are earning today.

Meet Dick. He’s married to a lovely lass named Debbie. Both are teachers. Debbie helped put Dick through school, earns more, and just had a baby. Dick thinks playing golf, gambling on-line, and having fun with the boys is the be-all of life.  Dick and Debbie are living well beyond their means. Debbie knows this. She’s distraught. Dick thinks Debbie is a tight-ass and wishes she’d loosen up.

I receive letters from the Dicks and Debbies of the world all the time.  Either Dick wants me to get Debbie to relax or Debbie wants me to knock some sense into Dick. I scratch my head.

Do people really know nothing about each other before they choose to marry? Do people honestly believe that if their partner is a Spendmeister before they marry, that they will become something other than a Spendmeister after marriage? Does anybody think that a conversation about goals, values and predispositions might be a good idea before you tie the knot, move in together, or in some other way make a major life commitment?

While we would like to blame credit cards and lines of credit as the culprits in the Oh-my-gawd-look-at-how-much-we-owe dilemma, the reality is that it is our own pre-disposition to spend that gets us in the hole. Yes, I think lenders have been both irresponsible and rapacious in their policies. But it is we, the consumers, who have allowed this to happen by accepting untruths like:

• you will always make more money, so you’ll be able to afford to pay it back,
•  you work hard, you deserve it
• credit is cheap, use it to get what you want and have a great life.

According to The Book of Gail, the number one rule is, “Don’t spend more money than you make.” Course, you’d have to actually know how much you bring home (not that “gross” number people like to banter about) to know how much you have to spend. You’d also have to know what your “nut” is: the basic monthly essential expenses it takes to keep body and soul together.  I’m astounded at the people who know neither.

It should be easy to bring the lesson home to Dick by telling him to make and live on a budget. But like many other Delusional Dicks, he’ll just leave important categories off or ignore expenses because they aren’t always present. “Medical costs, hey, we get those covered, we don’t need anything in this category.” “Home maintenance, hey, the house is practically new, we won’t have to spend a dime.”

The things Spendmeisters won’t give up are their personal pleasures. “Whaddaya mean I can’t go for beer with the boys after the game.” “Whaddaya mean I can’t buy that dress for the party.” “Whaddaya mean there’s no money.”

Delusional Dicks (regardless of their gender) cannot see the risks because they always believe the pie plate will land face up on the carpet. (While some people call this optimism, it’s delusion when it puts people at risk.) They can’t even conceive of anything bad happening, and they refuse to take any steps to protect themselves, never mind their families. Delusional Dicks wise-crack and rationalize their way through life until the two-by-four finally knocks ‘em flat, and then they blame something else, brush themselves off and move on.

So what do you do if you’ve partnered up with a Delusional Dick?

You could run screaming to the exits. A little money spent wisely with a divorce lawyer today could save you tons of debt.

Or you could say, “Hey, I’m taking control of this, you’re a moron.”  You’d assume the role of Mommy or Daddy, while your partner got to keep on being a child, creating problems you’d have to solve.

Or you could separate the money, each contributing to their own upkeep, each doing their own saving and investing. There would be no joint credit, no joint assets.  Delusional Dick would stumble eventually and – here’s the really hard part – you’d have to NOT bail him/her out.  It might not end well, but it might be enough to bring Delusional Dick into the real world. Only time will tell.

I have to admit I’m of two minds on the whole issue of adult kids moving home. Termed “Boomerang kids” by the media and these are adult children who have left home only to return to the nest. Whether the cold hard reality of life on their own was too much to take, or they’ve suffered a significant set-back like unemployment, divorce or some other relationship malady, kids are coming home in record numbers. Some stats hold that the Kids-Moving-Back-Home phenomenon has doubled in the last half-century. And according to the National Survey of Households and Families in the U.S., 10% of all children over the age of 25 live with their parents.

Yup, I’m of two minds:

On the one hand, I think it’s terrific that parents are willing and able to help their children, particularly if the set-back those kids are facing is a result of crap happening. Who could foresee that your daughter’s lovely fiancé would turn into a drinking, gambling fool who couldn’t hold a job? Or that the lovely girl your boy brought home from college can’t keep her hand out of his wallet? If divorce happens, and you can help ease the burden by offering a roof and some emotional support, good for you as parents. Ditto kids who find themselves unexpectedly out of work, or dealing with an illness no one could have foreseen.

On the other hand, I think it’s downright dumb the way some parents let their kids move home, do little or nothing to pull their own weight, pay no rent, and still live high off the hog. There are adults living in their parents’ home who think it’s perfectly fine to eat out four nights out of seven, who don’t lift a finger to do anything to help out around the house, and who won’t cough up a penny to help with the costs of living. There are adults living in their parents’ home who get pregnant when they don’t have the money to put a roof over their own heads. There are adults living in their parents’ home who have no plan for how to get the hell out.

I received a letter from a young lady recently bemoaning the fact that she and her husband are still living in her parents’ basement. After moving home with him because she got pregnant and they didn’t yet have their crap together, they proceeded to have four children! Now she wants to know what she should do? Gosh, if you can’t take care of yourself, why would you think it’s okay to have four kids? What ever happened to “grow up” first?

If you have adult children who are planning to move back, you’ll do them no favours if you let them live the life of a teenager: sleeping late, taking no responsibility for themselves, and expecting everything to be done for them. While this is barely acceptable from a kid, it is totally unacceptable from an adult.

I don’t care how much you love your son or daughter. Adults do not have the right to mooch off their parents because the alternative is hard. If your kids have chosen to stay in school for a decade, why do they get to have all the benefits of your (hard working) life while they are students? And if they’re old enough to bring another life into the world, they’re old enough to put a roof over their own heads, and food in that baby’s belly. Enough with the coddling.

That’s not to say that you should turn your children away with a cold shoulder. But if you’re going to let a young adult move home, then you should at least have some rules about what’s what.

Make sure you have an end game in mind.  How long will they live with you? What’s their move-out date? Failing that, when will you sit down again to assess how they’re doing and set the move-out date? Establish a time line up front so your adult children don’t get the idea this is a permanent arrangement. Your kids shouldn’t have to worry about being kicked out on a whim. Nor should they get so comfortable that life at “home” becomes the status quo.

Talk about the money. If your kids are trying to save the downpayment on a home, have them pay you “rent” that not only covers the increased costs of having them under your roof, but sets aside the amount for the downpayment every month. Ditto kids who are paying off debt; make sure the money is going where it’s supposed to go. Unless your child has absolutely no income, they must accept responsibility for some of the household expenses.  And for those who have very limited incomes or who are busting their butts to get debt paid off, exchange what you have to offer for their skills as garbage collectors, cooks, cleaners, laundresses, snow-shovellers, drivers, and whatever else they can do to make your life easier.

One way or another, your adult children need to pay their way to keep their self-respect and not turn back into your “babies.” Let them off the hook on rent and other financial responsibilities – let them spend their income any ol’ way they want – and you’ll be teaching them to live on a disposable income they’ll never again have.  And let them live at home with no expectations for when they’ll leave and they won’t. Why would they? They’ve got it good and they know it.

 Back to the young lady who wrote me…

Sweetie, if you want to have a life, you’ve got to be prepared to pay for it. Life doesn’t come cheap. And it doesn’t come easy. Independence is a sign of maturity. If you’ve finally reached the point where you’ve recognized the importance of becoming independent, then you’ll do WHATEVER IT TAKES to make it so. Thank your parents and get the hell out of their basement!

APPEARANCE ALERT: I will be speaking at the Sudbury Women’s Show on Sunday, June 14, 2009. For more information, click here.  Come on by and get a hug!

If there’s one thing I’ve learned over my experiences with people and their money it is that it doesn’t matter how much you make, you can be broke. I often get letters from people who are living on significantly reduced incomes because of illnesses, changes in life circumstances or job loss. (Hey, that’s why emergency funds were invented, right?) My heart goes out to them because they’re trying to do their best on very little income. But I get just as many letters from people who make gobs of money and are still up to their eyeballs in debt.

One of the reasons people making lots of money can’t seem to make it last is what I like to call We-Make-Lots-of-Money-So-We-Don’t-Have-to-Worry Syndrome! Clearly if we’re bringing home The Big Bucks, there’s no way we can spend it all. Really? And if we have way more money than it takes to cover our nut, then we can buy whatever we want whenever we want too. Hmmm.

Part of this stems from the fact that most people never bother to figure out what their essential expenses are, convinced they make “enough,” there’s no need to watch the money. Unaware of how much of their money is being eaten up by their overheads, they are willing to blithely whip out their cards and charge it whenever they see something they’d love to own because there will always be more money.

As one lass I worked with put it, “I know I can always make more money. There will always be more money.”

WMLOMSWDHTW Syndrome leads people to act like children, satisfying their desires for candy, unaware of the cumulative effect. Later, when the major tummy-ache sets in, they wonder what they did wrong and whimper as they suffer. As soon as the ache passes, back into the candy bag go those fingers, only to create another major tummy ache.

If you’re spending money without keeping track of where the money is going, if you whip out that credit or debit card for everything you see that you want, if you don’t think twice about the money, you’re a tummy-ache waiting to happen. And if after, once you’ve realized you can’t pay the balance off in full, you resign yourself to anything less than a full payment, but keep using the credit card anyway, you’re the kid who just won’t learn the lesson.

Children can come up with all kinds of reason why they should have just one more piece of candy. And most kids will make themselves sick if they feel they can get away with eating the whole bag. People who shop using credit are doing exactly the same thing.

It doesn’t matter how much money you make, if you don’t keep your eye on the bottom line, you’re suffering from WMLOMSWDHTW Syndrome. You can say you don’t have time. You can say you have more important things to do. You can say it’s because money isn’t important to you. Those are all just excuses that will allow you to stick your hand in the candy-bag unfettered by reason or the need to prioritize.

Money is a limited resource and we can run out of it. If we don’t choose wisely, we can find ourselves in deep doo doo without any reserves to help us dig ourselves out. And if there comes a time when the money supply runs a little low, we’ll be kicking ourselves in the butt for having “wasted” all that money when we had it.

According to a recent report called “Where Has the Money Gone: The State of Canadian Household Debt”, one in four of us is $5,000 away from financial disaster, and one in ten of us couldn’t deal with a $500 emergency. OMG!

Save yourself the butt-kicking. Decide today that, regardless of how much you make, you’re going to start watching where your money goes. Get yourself a notebook and every time you spend a penny, write it down. At the end of the money, add it up by category – coffee, lunches, utilities, communication, etc. – to see where your money went.

You might be surprised at just how much candy you’ve been eating!

When I was growing up, I was fed a steady diet of aphorisms: sayings that delivered the maximum wisdom with the minimum words. I heard things like, “Actions speak louder than words” and “A fool and his money are soon parted.” These words ran like tapes in my head and became a part of my brainscape, a part of who I became, as did:

• You can’t have your cake and eat it too,
• Winners never quit and quitters never win, and
• There’s more than one way to skin cat.

As I grew, my storehouse of aphorisms grew. I added to them from books I read and movies I watched. Any short, pithy wisdom made it into the fold.  One of my favorites is from the Star Wars movies. Remember when Yoda said, “Do, or do not. There is no try.” That one really stuck with me.

I think “trying” is something people do when they’re not really sure they’ll succeed. It’s an out. “I’ll try,” is an admission that you’re not sure that you will, but you want to make the attempt.  Like the mom who says, “I’m going to try and get Baby Girl to use the potty,” the intent is to make an attempt but leave room in case Baby Girl just isn’t ready yet.

The problem with “trying” is that there’s not enough determination behind it to keep you going through the tough spots. It’s easy to wuss out on trying.  I think “trying” is actually a way of saying, “I don’t really think I am strong enough to accomplish this, so I’m hoping to earn some points for my intent.” 

It’s funny the difference between the two small words, “try” and “do.”  Compare the two statements below and think about your gut reaction to them:

• I’m trying to get out of debt
• I’m getting out of debt

Which one do you find more convincing?

When I say that I’m going to do something, I do it. When I say, “I’ll try,” it’s often code for “I don’t think I’ll make it.”

Compare these two statements:

• Sure, I’ll come to your party.
• I’ll try and make it to your party.

Which person is going to show up?

Perhaps the difference between the people who succeed at becoming debt-free and those who don’t is in the very words they use to describe what they are doing. The act of becoming debt free – the doing as opposed to just trying – is what it takes to succeed.

For the next week, eliminate the word “try” from your vocabulary. Each time you hear yourself say, “I’ll try,” stop and rephrase to “I will.” Make some notes about how it works for you.

Each of us has the power to achieve the things we are committed to whether it be debt freedom, career improvement, or curtailing our shopping. Have a look at some of the commitments you think you have made, and decide if you’re determined to do, or just trying. Then stop trying.

Do!

Very often people decide to go into debt without realizing that they’ve decided to go into debt. It begins simply enough. You go out for dinner and put the meal on your credit card. You also put the new suit, a pair of shoes, and the tickets to the game on your card. Then the car blows a tire, so you add the cost of the new tire. And while you’re waiting for the tire to be fixed, you stop in at the store, pick up a couple of cards you need for up-coming birthdays, along with some wrapping paper and a magazine to read while you wait.

Thirty days later the bill arrives and you open it. You’re a little surprised. You remember the tire, but you forgot about the cards, magazine and wrapping paper. Well, it’s only $27.36, no biggie. But when you go to pay off the card, you realize that you also had to pay the kids’ soccer fees this month, so your account is a little short. Well, you’ll just pay half the balance on the card and take care of the rest next month.

Short of cash one month, you decide to cover the difference with credit, and slowly but surely that credit balance grows. Now you’re carrying a couple of thousand dollars, so you decide to pay off the card using your line of credit on which the interest rate is much lower. Smart move. So you do the deed and stick a sparkling clean credit card back in your wallet.

The kids need new shoes for the summer, and the barbeque is a wreck. There’s a special on at the grocery store, so you put the new barbie on the credit card so you can afford to pay for the kids’ runners with cash. But when it comes time to pay the credit card bill, you realize that this is the month the house taxes come out. And next month the car insurance is due. That’s okay, it’ll just be a couple of months and you’ll be back on track.

When you look at the amount you now have to pay on the credit card and on the line of credit, you realize that you’re spending a couple hundred dollars every month to just stay even. If you try to pay more, you run short of money during the month and have to use your credit card to cover the difference. It’s your son’s birthday next month and you’ve promised the kids a trip to the amusement park with four friends as their “party.”  It seemed like such an easy way to have some fun without a mess!

Your husband comes home and tells you that he’s planning on going fishing with the boys for a weekend and you yell at him because you can’t figure out where you’re going to come up with the money for one of his damn weekends. He yells back. He busts his ass all week, and the one time he wants to take a weekend for himself, you’re all over him. So now you’re not only feeling discouraged by the drain the debt is on your finances, you’ve added emotional conflict to the mix.

Coming up with the minimum payment is getting tougher and tougher. Maybe if you put off fixing the crack in the driveway, that’ll buy you some time. Or you could call your sister and tell her that you really don’t think you’ll make it to the family reunion because your husband just has to work.

Or maybe you need to find a better job. You hate your new boss, but with the debt hanging over you, you’ve been afraid to make a move in case that ends up not working out. At least you know where you stand at work, even it it’s knee-deep in crap from your stinky-faced new boss.

Now that your debt repayment is eating up $450 a month in interest and service charges, you’re going to have to stop those automatic savings for both your retirement account and the kids’ educational savings plan. Once you get things straightened around, you’ll start them up again. Maybe. If you can ever get out of the mess and get back on an even keel.

And then the news: Your company has taken a big hit and you’re being asked to take a 15% cut in pay. It’s that or 35 of people are going to lose their jobs. And you’ll be in that 35 because your boss hates you. How will you cope? How will you keep things in check? How did you ever get into such a mess?

It’s really easy to get into debt. It takes no effort at all. And when you do, you narrow your options because the debt becomes not only a stressor, but a major consideration in everything else you do. Falling into debt is as easy as falling off a horse. Both hurt. And both can be avoided if you’re prepared to pick up the reins and take charge. If you’re one of those people to whom all sorts of unexpected things happen that “force” you into debt, maybe it’s time to stop and ask yourself “why?” What’s the lesson you’re NOT getting? And how can you change your behaviour to change your outcome.

Or you can just go on living in misery, falling off the horse. Ouch!

Most people get married without having done a forensic financial investigation into their partner’s life. Passion can be distracting. But having hooked up, with or without the paperwork, you’re eventually going to discover just how good or bad your buddy is with money.

I am often surprised at how willing some partners are to accept their meaningful-other’s shortfalls with statements like, “Oh, yes, (s)he has a ton of debt, but I’m willing to take that on.”

First, let’s clarify some information many people are confused about.

You don’t automatically assume your partner’s level of indebtedness simply because you choose to tie the knot. The only way to be on the hook for your partner’s debt is to actually sign up for it. If you don’t co-sign, co-borrow, or in some way put your John Hancock on the paperwork, nobody can collect the debt from you.

However, if you have joint assets, his or her share of the assets could be affected when the bill collectors want their money back. They can force the sale of joint assets to get their piece of the pie. So the trick would be to not own anything jointly.

And your pal’s crappy credit history could come into play when it comes time to start fulfilling some of your dreams. A lousy history with money may mean your partner becomes dependant on your credit history; you end up doing all the borrowing in your name so you don’t pay exorbitant rates. Now you’re on the hook.

Okay, so that takes care of the liability issues. On to the repayment issues.

Over and over I meet people who having blithely accepted their partner’s failings with money and jumped into the relationship, are filled with seething resentment at all the compromises they have to make because of the debt. There are the vacations that can’t be taken, the house that can’t be bought, the dinners out that they must forgo. It can be wearing after a while. And if the in-debt partner just so happens to earn less than the out-of-debt partner, watch out!

While you did choose each other for better or worse, that usually refers to your circumstances and not your personality make-up. And if you love your partner enough to marry him or her regardless of the debt, then shouldn’t your partner love you enough to want to do everything humanly possible to get rid of that debt?

Don’t whine about how hard it will be, how many extra hours you’ll have to work, how long it will take. Whining is a waste of time. Just make a plan and buckle down to the task at hand.

Sell one car to pay off some of the debt and use the other (if there is another) for everything else. Or trade down.

Rent instead of buying. Yes, I know the one about renting being a waste of money, or a mortgage payment being the same amount as rent, but it isn’t true. When you factor in the property taxes, increased utilities, maintenance, insurance, and all the stuff you house-proudies are going to spend on stuff, renting until the debt is gone makes sense. Besides, nobody said that if you have debt you can afford to rent an expensive place. Rent cheap.

Buy everything second hand until the debt is gone. Ewwwww! Okay, you can buy your undies new if they’re on sale. But that’s it.

The person with the debt must work over-time or part-time on the side to earn extra money to get that debt paid off as fast as possible. This shows the not-in-debt partner that their lover is committed to making things better. It’s like penance. If a partner isn’t willing to do this, they’re not a good partner to have.

Don’t buy anything you don’t NEED. No CDs, DVDs, clothes, electronic toys… nothing that you don’t absotively posolutely need to keep body and soul together.

If you get an income tax refund use it to pay the debt.

Don’t stop saving money. Just because you’re on a debt repayment binge doesn’t mean you don’t need to be stashing away your 10% for long-term savings and some money for your emergency fund.

Try living on one income and using the other for debt repayment. If you’re eventually planning to save for a home and/or have a family, this will be good practice for the future.

But Gail, that sounds like a crappy life. Yup, it can be, if you let it. But if your relationship isn’t strong enough to live through the debt repayment, then you shouldn’t be hooking up at all. This may be hard, but it won’t be the hardest thing you have to do as a couple. And you get to show each other just how committed you are to making a life together. No guts, no glory!