Working with Princesses has really brought home just how much people buy into the “image” message. I’ve met chicks with thousands of dollars worth of designer shoes and not a penny in emergency or long-term savings. Looking good seems to have replaced common sense. Oy!

Once upon a time when you saw a doll in a snappy Diane Von F. dress sporting a pair of designer heels, you could assume she was making (or married to) some pretty big bucks. And if himself sped by in a BMW, you knew he made enough to be able to afford the mortgage-high lease rate. Not any more. Now Poor Joes and Shopgirl Susies are sporting the most expensive toys. And they’re doing it on credit. So not only do they have nothing saved, they’re actually mortgaging their futures to maintain the images they so wish they could actually afford.

The biggest stumbling block to becoming wealthy is pretending you are. The cost of keeping up the image of success – the cool digs, the snappy clothes, the fancy dining – erodes the saving you have to do to put a positive spin on your balance sheet.

Wealth doesn’t just happen. It takes conscious effort. The truth is that while most people say they want to be wealthy — or even debt-free —  they really just want other people to think they are. And so we have a culture of designer wear being sported be a crop of Wannabes.

People are always saying one thing and doing another with their money. Whenever I write about how important it is to save up a 20% downpayment for a home, it’s often followed by a barrage of email from people who say they’ll never be able to buy a home because they can’t afford that high a downpayment. Yet if you look at what they’re spending their money on, the reason they can’t save becomes pretty clear: they’re so busy shopping they have nothing left to save. If they cut back on their spending, and set a reasonable expectation for their first home, they could own their first home in about five years.

Now comes pressure from the Big Five Banks for the government to change legislation to make minimum downpayments higher and maximum amortizations lower. Hmmm. Seems we don’t have the good sense God gave a goose and we need new legislation to protect us from ourselves. Ouch!

Books have been written about the Invisible Rich: the people who live simply but have a bucketful of money stashed away. These people do not feel the need to define themselves by an expensive car, shoes that cost the equivalent of a mortgage payment or table-service at the snazziest club in town. They know that the only way to build wealth is to live well below their means. They put their financial independence well ahead of creating the right social image. And they work hard.

Frugality isn’t a dirty word among people who desire to be wealthy. They would rather live within their means and save a substantial portion of their income than bathe in the covetous attention of their friends and family.

Hey, if you’re happy spending every red cent you make, then you should do what makes you happy. But you can’t then whine about it when crap hits the fan and you have no cushion, no options. And if you’re determined that this is the year you finally take control of your money and your future, then it’s time to walk the walk instead of just talking the talk.

We all have the option of taking immediate gratification over the long term security that setting aside money brings. And yes, a shiny new car is a lovely thing. But it doesn’t beat having a big, fat F-U account. Like the ad says, “Sleeping well at night: Priceless.”

1. Who do you have your primary account with. On a scale of 1-100 (100 being I’m thrilled with my service) how would you rank this FI?
2. What service(s) do you use at your primary FI? (mortgage, bank accounts, overdraft protection, line of credit, credit card,, etc.) List them all, or list them by FI if you deal with more than one.
3. Of the different FIs you deal with (if more than one) who do you like the best and why?
4. If you are not happy with your primary FI, give an example of what transpired to make you unhappy, angry, sad.
5. What does your FI do that you wish they didn’t?
6. What don’t they do that you wish they did?
7. On a scale of 1-100, how much do you trust your FI representative(s)?
8. If you’ve thought about switching, what’s stopped you?
9. When was the last time you felt your FI did something for YOU? (as opposed to for themselves)
10. How has your FI helped you achieve a goal?
11. What have you learned from your FI?
12. What seven words would you use to describe your primary FI?
13. What would it take to make you switch to another FI?
14. In what country are you banking?

I want to get a many people answering this survey as possible, so pass it on. I’m going to offer a copy of Debt-Free Forever to the person who makes the most referrals on this survey. The person you tell must put your name at the top of their response to the survey like this: “DOREEN SENT ME”. If you wish to respond privately to this survey, you may do so by copying it and emailing it to me at getgvo@gmail.com with the word SURVEY in the subject line.

I can’t wait to see the results of this…. I’m very interested in seeing just how happy (or not) we are with our financial experiences.

Young women blow astronomical amounts of money imitating the looks of their favorite TV personalities. They want the same hair, clothes, and jewelry despite earning a fraction of the income. They blow gobs of cash emulating the image, often going into debt for a brand they have no business buying at their income level. They even go out and buy themselves designer dogs when they can barely afford to feed themselves.

We seem to have lost the ability to distinguish between our reality and the fantasy served up as reality on television. Is it normal to spend $1,600 for a pair of shoes? Maybe for a chick who has a daddy with deep pockets or earns a couple of million a year doing endorsements, but not for a run-of-the-mill shop girl. And yet there are loads of ladies who want to own the same brands, to wear the same names, and to live the same lives as the boob-tube babes.

Fantasy is fantasy, and that’s what TV and magazines are so good at creating. When a fashion rag spends endless pages deconstructing the outfits being worn by the latest hotties, it’s feeding fantasy.  And while it’s nice to imagine that those fairytale lives could be ours, I’m here to burst your bubble. Not only are the fantasy lives we are watching lustily quite rare, most of those babes aren’t any happier for having the latest fashions at their fingertips or the hottest guy on their arms.

What a disappointment life turns out to be.  Having imagined Prince Charming arriving on his trusty charger to carry you off into the sunset, we feel less blessed when Prince Charming arrives in a Dodge holding a beer. Hmmm. And if you thought that Princess was the woman of your dreams, imagine the shock when you wake up to find a wife who is exhausted from holding down a day job and cleaning up after the kids.

If you’re waiting for Mr. or Ms Right to come along to complete your perfect life, you are likely to be very disappointed. And if you’re waiting for the boy or girl you married to magically mutate into the fairytale spouse you image you should have, well, maybe it’s time to wake up and smell the coffee. None of us is perfect and you can’t change your frog into a prince no matter how hard you try. Nor can you take a regular life and make it into a superstar existence by buying all the stuff those richy-riches have.

Life holds lots of surprises. Many of us find ourselves in places we never could have imagined. Some of us are divorced. Some of us have been brutalized by angry mates. Some of us are just barely making ends meet and wondering how the hell other people always seems to do better. It can be very disheartening, particularly if you’re measuring yourself against all the pretty pictures that are designed to make you want another life.

You can waste your energy pining for a fantasy or you can recognize that having a great life does not mean having all the stuff other people have. It means making the most of what YOU have, and seeing the joy in what you’ve created for yourself.

If you buy a $2,300 couch using your credit card and you pay only the minimum on the card at 18.99% interest, how long will it take you to pay it off?

3 years           6 years

7 years           10 years

What will the couch cost you by the time it’s paid off?

$2,800                        $3,200

$3,600                        $4,300

Short test. Let’s see how you did.

If you buy a $2,300 couch using your credit card and you pay only the minimum on the card at 18.99% interest, it will take you 9.9 years to pay it off and you’ll pay $1,998 in interest, taking the cost of the couch to just under $4,300 once it’s paid in full.

No doubt the couch looks a little ratty, and you may be wondering why you paid almost twice as much as the store said you would as you look at it disintegrating even before it’s paid off. Hey, that’s the power of interest working against you.

Sick and tired of being in debt? Ready to cut off the credit card company and put your money to work for you, instead of for them?

1. Make a plan. Without a plan, you’re simply throwing money at the problem debt without a clear sense of what you’re trying to accomplish. Start by making a list of all the people to whom you owe money – your creditors. Put the list in order from highest interest rate to lowest. Make sure you’re putting your greatest effort at repayment against the debt with the highest rate.

2. Call and negotiate. If you have extremely high rates on your cards, it’s time to put your negotiating skills to work. Call and describe the pickle you’re in. Ask if they’d be willing to eliminate the late fee and interest for a month or two. Try and get them to lower the rate on your card. If they won’t ask if there’s another card that they can give you that has a lower interest rate, and transfer the balance.

3. Pay on time. Pay at least the minimum on all your debts, and make those payments on time. That will not only help you avoid fees, it’ll stop the interest rate from bouncing up because you’ve broken the rules. And it’ll improve your credit history laying the groundwork for future rate negotiations.

4. Pay more. If you commit to paying at least 10% of your balance every month, you’ll be out of the hole in about three years, before debt fatigue has a chance to take hold. Can’t come up with 10%? Get a second job, or a third job, or a better job. Do whatever it takes. You spent the money. Now it’s time to pay it back. And the longer it takes you, the more painful and costly it will be, so bust your butt to make that debt go away.

5. Set specific goals. If you want to stay motivated, set milestones that are achievable and for which you can pat yourself on the back. Maybe you’ll have that department store card paid off in six months. Perhaps you want to be debt-free before your wedding. Whatever goal you set, write it down and hang it where you can see it every day. As you get closer to your goal, the motivation to hit your target will carry you forward.

None of this will work if you keep using your credit cards so freeze them, chop ‘em up, or hide them behind the washing machine. Find something positive to do with the time you used to spend shopping. Avoid magazines and catalogue that may leave you salivating. Focus on your goal. And if you need a debt-mate to talk you through your spending withdrawal, find a friend who can help steer you clear of the mall and the temptation to spend. That’s what true friends are for.

Unfortunately, most of the people with whom I work are totally undiscriminating about what they’ll spend their money on. From bras to booze, from expensive shoes to a snazzy car, from huge homes to holidays, they want it all. And this is where people often run into problems. You just have to take a look at the huge debt holes we’ve dug for ourselves to see that we’re crazy about spending.

I’m one of those people who believe if you’re carrying consumer debt, you may have to put a wholelottafun on hold for a few months until you’ve dug yourself out. After all, you done had your fun and it’s now haunting your credit card or line of credit. Time to pay for past mistakes and get back into the black.

But what if you’re not walking around with debt. Is it okay to blow a wad of cash on a new mountain bike? How about a bigger house? A fancy car? One of those name-brand handbags that cost an arm and a leg?

Hey, listen, it’s your money. You can do whatever you want with it. My beef is with the folks who are using someone else’s money to sponsor their over-the-top life. Of course, I also think you need to be doing the details of sound money management: saving for the future, creating an emergency fund and mitigating your risks. But if you’ve got your bases covered, by all means go… have a great life!

I recently got into a discussion with a friend of mine whose daughter likes to live the large life. She’s pulling her hair out because she thinks her kid is going to hell.  “She won’t buy a home,” her mother bemoaned. “She’s travelling all over the place: China, Malaysia, Brazil, the islands. She should be saving for a downpayment.”

Grace, ‘cos that’s what we’ll call her, isn’t a total gadabout. She has a good pension plan at work. She’s still single with no kids. She’s got a healthy emergency fund, and last year I talked to her about buying some private insurance to supplement the plans at work, which she did. She’s got her I’s dotted and her T’s crossed. But she’s not ready to “settle down” yet. She wants to play. She works hard, does the detail and thinks she deserves to have some fun. Her mom, who comes from a very “responsible” place, wants her to play less and save more.

Everyday people make choices about how they want to use their money. Some people want to live in a beautiful home because that’s more important than the car they drive or the labels on their clothes. Some people are perfectly happy living in comfy cottages because they want to be able to travel. Some people just want to save all their money. Hey, man, whatever floats your boat.

It is of no import whatsoever what anyone else thinks you should be doing with YOUR money, (assuming you’ve covered your butt). It’s YOUR money. The important thing is only that you know what it is you want. Or maybe, what it is you don’t want.

It’s an interesting question: What won’t you spend money on? I spend $45 a week to have someone vacuum, dust and wash my floors. It’s the best $45 I spend every week. I hate those jobs and finding someone else to do them means I don’t have to a) do them and hate it, or b) ignore them and live in a pigsty. Another body wouldn’t dream of “wasting” $45 a week on a cleaning. They’d much rather spend that money going to the movies, buying a book or saving up for a family vacation. But I’d rather cut back on shoes and perfume. So to the question, “What wouldn’t I spend my money on?” there are a whole bunch of things that leave lots of money for the stuff I really think is important.

I’ve tried asking more than a couple of people “What wouldn’t you spend money on?” Often I get good answers. But just as often I get blank stares. Here are people who have never considered what they’d buy a lower quality on, or not buy at all, in order to have the things or experiences they truly want.

I think it’s just as important to be clear on what you don’t think is important as what you do consider important. After all, if you can’t do that, how can you prioritize?

So, what’s not important to you? What wouldn’t you spend money on? And what would you be willing to spend less on to have something else that is of value to you?

One of the best ways of keeping in focus is to create something called a Belief Board.  I’ve done similar things to this, creating life-affirming statements or mantras that I regularly use to help me refocus on what’s important. But when I came across this idea of a Belief Board it seemed like a great idea, so I’m moving from my post-it-note approach to focus to this more highly visual and immediately apparent approach.

Your Belief Board is a whiteboard, corkboard, magnetic board, poster – whatever works for you — hung on the wall in front of your desk, or wherever else is highly visual at home or work, so that your brain is constantly exposed to the messages you’re delivering to yourself. Uncluttered and clear, this board holds the statements and pictures that you are trying to make your new reality.

During my last life transition I found myself on sandy ground and needed a way to focus on what I really wanted. I came up with this:

What I Want

I want to be happy

I want to love and be loved

I want interesting work and to be useful

I want to learn new things

I want to learn to live in The Now

By creating this list of what I wanted, printing it, and putting it where I could see it every time I looked up from my keyboard, I slowly but surely started to take the steps to make these Wants my new reality.  Since I believe that my subconscious mind can be conditioned to new beliefs – that my plastic brain is highly programmable and that I can do the programming just as well as that advertising hot-shot – I choose to keep exposing my brain to the messages that I think are important.

You can try this too. Whether you’re setting a new goal, or simply trying to maintain your positive focus so you can stay in a good place, create a Belief Board to help you get there by reprogramming your brain to BELIEVE.  It doesn’t take long to create your Belief Board.  And the benefits can be quite something.

Whether you’re determined to be debt free, in your own home within three years, or on your way to self-employment, knowing what you want, writing it down, and then putting it in a highly visible place is a great way to help stay focused.

Okay, now I want to hear from y’all. What do you do to stay focused? How do you keep reminding your brain of what you REALLY want? What works best for you?

Gail, what the dickens are you going on about?

Lots of people who are trying to get out of debt want it gone NOW. But it took a while to dig the hole and it’s going to take a while to get out of the whole. I do recommend strongly that if you’re carrying consumer debt that you focus on getting that consumer debt paid off in under three years so you don’t end up with debt fatigue. But there are lots of other kids of debt: mortgages, car loans, and student loans just to name a few.  And sometimes, if the debt is significant, it may take a little longer to get to the end.

This is where tortoising comes in. As Confucius said:

“It does not matter how slowly you go so long as you do not stop.”

While jumping on the fast track to debt-free forever may feel exhilarating as you start out, it will take persistence and tenacity to get to where you want to be. If you don’t have the courage or the backbone to do the hard stuff, if you don’t have the stay-with-it-ness to stick with the program, you’ll be back in debt in no time flat.

There will be times when you get into very tight spots. It will seem as if everything is conspiring against your plan to become debt-free forever. But you must stick with it. Yes, you may have to adjust your plan to accommodate whatever boulder has appeared in your way, but if you keep moving like the determined tortoise you are,  you’ll eventually get around the boulder and back on track.

You must also have faith in yourself. When the tortoise went up against the hare, he didn’t start the race saying to himself, “This is ridiculous. I can’t possibly hope to beat this hare. I’m wasting my time.” Nope. He just got on the road and started plodding to the end. And if you want to be debt free, you’ve got to get on the road too.

If you make mistakes along the way, don’t fret. There’s always tomorrow. You’ll get a chance to figure out what you did wrong and make it right. Everyone makes mistakes. Everyone. Stop beating yourself up over these mistakes. Learn and keep moving.

I often talk about the need to have “gumption” when you’re facing a hard task. While others around you throw up their arms in despair or frustration, you and your gumption keep on truckin’. You know you will be debt free. You can smell it. And you’re not going to stop until you get there.

Inspirational quotes on persistence abound. From Dale Carnegies “Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all” to Franklin D. Roosevelt’s “When you come to the end of your rope, tie a knot and hang on.” You can find something that will speak to you and help keep you focused. Get on the internet and search for “persistence” and “quotes”. You’ll be astounded at what pops up.

I’ll leave you with one more that I love.  This one is from Marian Wright Edelman, the first African American admitted to the bar and an activist for children’s rights. She founded the Children’s Defense Fund in 1973. She says:

“You’re not obligated to win. You’re obligated to keep trying to do the best you can every day.”

Go. Do your best!

One of the best ways to prepare for a significant change in your life – assuming you can see it coming – is to play Let’s Pretend. But instead of it all being in your head, you make it as real as you can so you can actually feel the experience you’re headed to.

You’ve seen me do this with couples on TDDUP. If they’re planning to have a baby, I make ‘em live on their mat leave income  so they can see what it will feel like living on less. By practicing living in their new circumstances, people can develop a feel for what it will be like and be ready to make the adjustments necessary. I’ve done it with couples who have no retirement savings too. And I’ve recommended it in my blog for people who are thinking of buying their first home.

By simulating life in the new situation, not only will you see how you will feel, you’ll experience what you’ll have to do to make it work. Let’s take the example of people getting ready for retirement to show you how this is done.

First you’d have to figure out how much you’ll have as a monthly income during retirement. Once you come up with a figure, you’d actually have to live on that money, cutting back where necessary to make the money come out even. Impossible? Well, now you at least know how much extra you’ll need, which will lead to how much you must save to have the income you’ll need in retirement.

Living the retirement experience is important because people operate with a set of myths that may have no bearing on their reality. People often think their costs will immediately go down in retirement. Research shows that’s not true, at least for the first few years. Since people have a load of pent-up “I wanna’s”, they often spend time and money doing those things, throwing their spending plans out of whack. Whether it’s travel, home improvements, or a slew of new hobbies, the early days of retirement often prove to cost more than we anticipate.

By living the experience, you’ll also come up with some new info you may have overlooked. Most people never even think about income tax since it’s automatically deducted from their paycheques. But when you retire, you’re responsible for making sure your taxes get to the Tax Man on time. Will it be better for your cash flow to do it monthly or quarterly? How much will you have to remit? And what exactly do you have to pay tax on when you’re retired?

Ditto your insurance needs. With no mortgage (you did plan to retire without a mortgage, right?) and no dependent children, you may not need as much life insurance. But you may need long-term care insurance or to replace your health care benefits that used to be covered at work.

Playing Let’s Pretend will also give you an opportunity to think about what you want from your retirement. You get to visualize what retirement life will be like for you. Do you plan to travel? Will you spend time Volunteering? Will you work part time? And is it important to get to retirement by a specific date, or are you will to delay retirement so you can save more – and live more comfortably – later on?

Let’s Pretend helps you avoid the miscalculations and misrepresentions most people make when they make retirement plans, plans to have a family, or plans for home ownership. Living out the “what-if’s” is a concrete way of gaining a clear sense of what life will be like so you can make good decisions about how you’ll do it when the time comes to execute your plan.

I’m a pet person without a pet, and I miss it like all get out. But the timing isn’t right and my current circumstances won’t let me make the commitment to a puppy just yet. Because I travel a couple of days every week, and Alex is headed off to university in less than a year, getting a puppy right now doesn’t make sense. Course, it gives me something to look forward to the next time I get fired!

While animals bring great joy, they also bring additional expenses. How do you keep those costs in line is the key to not going bust over Buster.

Know your financial limits. If you can’t afford to spend gobs of money on a critter, then be careful what kind of critter you choose. I’ve owned birds, rabbits, fish, dogs, cats, horses, a llama, a pony, and each has come with it’s own set of expenses. You can spend $1200 on a puppy or you can rescue a pup and for 1/10 the cost for shots, a neuter fee and a license, and you’re in business. Some animals come loaded with expenses: horses have to be fed in the winter and unless you grow and bale your own hay, that cost can be prohibitive. Bearded dragons need only a few grasshoppers.

Know your time constraints. This is my biggie right now, but most people jump into pet ownership without really considering the time it’ll take. And so is born doggie-day-care and the pet-walking service. Can you imagine your grandmother’s face if you ever suggested spending packets of money sending the dog to day-care? Hold that thought. If you can’t walk your own dog, maybe you shouldn’t have a dog.

Build a pet-care network. From time to time you may need a place to put your pet while you go on an extended business trip, take a vacation, or have to deal with a family crisis. This is where having a pet-care network can really pay off. Find friends who have creatures of their own and agree to be a back-up for emergencies and travel. Make sure your pets will be compatible before you do this since your Siamese may not thank you for bringing that Great Dane into her space. The upside – other than saving on boarding fees – is that since your pet knows your friends, she may be less stressed out by your absense.

Shop second hand. Everything you need for your pet is being sold by someone who is getting out of the pet ownership business. Whether you’re looking for a puppy crate or a kitty scratching post, a fish-tank or a cage for your new budgies, it’s being sold second hand for a fraction of the cost. Visit a swap site or Craigslist or check out the local supermarket bulletin board or the newspaper for great stuff for a fraction of the cost.

Be Food Savvy. Maybe the thing people spend the biggest bucks on when it comes to their pets is food. I’ve met people who feed their animals human-grade organic meat at a whopping cost. Hey, if you’ve got the money and that’s what you want to do with it, that’s your business. But a high-quality diet which prevents long-term medical problems doesn’t have to come with a huge price tag. Make sure you read the label so you can avoid known allergens (like corn). And don’t let your pet set the agenda on feeding or you could end up with a overstuffed omnivore.

Grooming can run into big bucks too. If you have to shell out $50 a month for a shampoo and cut, learning to do it at home can be a budget-saver. Invest in a good shampoo, a quality brush and a pair of scissors. You’ll also need some nail clippers. And some practice.

Shop sensibly. Where you buy your pet supplies will play a big part in how much you pay for everything from flea treatments to food. Pet accessories are a huge business and people seem willing to drop buckets of money on outfits, jewelry and toys for their animals. When I was growing up, an old tennis ball would do. Now there are aisles and aisles of stuff we can buy to entertain our furry friends. Purists will always come up with a good reason why a sock full of catnip isn’t a good idea. But if you’re dropping money on a critter when you have debt, have no savings or have no emergency fund, then you’re just using your pet as an excuse to shop.

Get pet insurance. And, while you’re at it, make sure you set a limit in terms of what you’ll spend for medical intervention. Years ago we had a cat who got very ill. The vet convinced my husband to leave her overnight and do a bunch of medical tests. Natasha died a couple of days later leaving a whopping vet bill. If you can’t afford to drop thousands of dollars on medical care, then you should know when it’s time to put your pet down. Going into debt for a pet isn’t going to make your life easier down the road and will negate all the “emotional” and “stress” benefits you’re supposed to derive from pet ownership.

Make a budget. Yup, your pet should live on a budget just like you do. If this month’s medical costs are up because Fido got an ear infection that needed a visit to the vet, that means less money available for that snappy new coat you’ve had your eye on for him for winter.

People, pass it on. Group RESPs are a bad idea. Read on and you’ll see why.

Jamie-Lee wrote: We purchased RESPs for both our children (3 and 1) through “USC”. When we met with the rep and talked, My husband and I made sure to ask about what happens if we need the money for an emergency, and were told that we could take it all back out, minus the interest and government grants the accounts had accumulated. So, times are hard and i had to make that phone call to cancel the RESPs and withdraw the thousands it had accumulated (we have been paying $103 a month for each child). To my surprise, they said i would get 0$ back as all of the “administrative fees” were lumped together off the top. So all of the money weve been paying have gone to pay for administration fees for years that havent even passed us by. I cant imagine closing the accounts and loosing those thousands of dollars weve scraped up to help our children when they go to school, but i cant afford the monthly payments right now. They let me put it on “hold” for two months while i straightened things out, but it just wasnt enough. Do you suggest closing the accounts all together, taking our loss and thinking twice about RESPs next time, or should i make my payments as low as possible (i think they have $20 a month plans) and see what we come out with in the end?

Jamie-Lee, you have just described why I am not a fan of Group RESPs. I’ve written about them on my site, and have urged people to choose individual or family plans as alternatives. The problem is not with RESPs, it is with the provider you’ve chosen. Many people have had similar experiences and I’m sorry you got so badly burned. Perhaps you’ll tell your friends of your experience and urge them to pass on your story so others aren’t affected as you have been. I don’t have a solution to this problem for you. You were deceived, and that’s the sad reality. If you decide to open RESPs in the future, I strongly urge you to do so at a financial institution that offers individual or family plans and steer clear of group plans.

J wrote: I have a question I hope you can answer. I do live in Australia but still hope that the question is a global one and not a Canada based one.   I watch your show whenever it is on here and am an avid follower of your blog. I have saved $27 000 and intend that it be used for my child’s future. He is seven years old and I hope that by the time he has finished high school it will have grown to $100 000. That is the plan anyway! Some years I will be able to save lots and other years it will have to be scaled back.  What is the best way to deal with this money? Should I invest it or is leaving it in term deposits a good idea too? The whole stock market goes over my head so I feel uneasy about doing that and am quite happy to leave it in the term deposits but will I be doing my son out of a lot of money but not being adventurous?

J, if you son is 7 now, that means he has about 10 years before he’ll need that money, right? That takes you out of the “growth” arena — think stocks — since the money wouldn’t have time to recover should the markets take a dive between now and then. You are also pretty conservative in your investment personality… “The whole stock market goes over my head so I feel uneasy about doing that and am quite happy to leave it in the term deposits.” So will you be doing your son out of lots of money by being conservative? Maybe. If you were to dump all your money into the market today and if it were to rise 12% a year for the next ten years, he’d have a LOT of money. But the key word in that sentence is “IF.” There are no guarantees in life, and certainly not in investing, unless you buy them… and you pay for guarantees with a lower rate of return. Being more conservative makes sense when you’re counting on the money. (Hmmm. Are we ever not counting on the money?) You must choose investments that you feel comfortable with so you can sleep at night. Never mind keeping up with the Investment Joneses. Do what is right for you and your boy.

Lynne wrote:  Hi Gail, Thanks for ALL you do! My youngest daughter (age 14) receives a monthly allowance. She will soon be working a part-time “real” job with regular hours and regular pay cheques. She is a good saver. In your opinion, what should we do about continuing the allowance? Should we now put it into her RESP? Or is “taking it away” once she is working a punishment for being productive? I’m VERY interested to hear your opinion and you can be sure your advice will be eagerly received by many other parents I know! All the VERY best to you, Lynne from Calgary

Lynne, my daughter, Alex, and I had this same discussion several months ago just before she started her first job. She wanted to know if I would take away her allowance. I said, “You mean dis-incent you to work?” I think removing the allowance would be, as you say, “a punishment for being productive.” Alex and I talked about why she’s working and what she’s trying to accomplish. She needs to save up her share of her first-year costs for university. I suggested a 30/70 split for spending versus saving so she could accumulate the money she needed. She decided to go with a 20/80 split since as she said, “my allowance is enough to meet most of my needs.” I think if you have the resources and can use this as a lesson in how to meet long, medium and short-term goals, that’s what you should do. Not all of us have the resources to help our children, but those of us who do are lucky and should take full advantage of the important lessons we can teach.

Kerri wrote: My Ex has paid $200/mth into a Investor’s Group RESP for our daughter (Sami) since she was 6, she’s now 18.  My husband and I are now wondering if this money should go into a Mutual Fund Acct since she has approx $20,000 in the RESP and no interest in furthering her education (The Ex has not mentioned discontinuing these payments). At 15 Sami started putting $300/mth (She works for us and earns approx $15,000/yr) into mutual funds and used the money this past Apr to purchase her 1st car $10,000 down and making $300/mth payments to us as the loan comes out of our acct because she was too young to get a loan for the remainder. Which leads to another question sorry! Should we pay the $400 to transfer the paperwork into her name fully or allow her to get a credit card to build her credit rating  (she has just started watching the show and raised these Q’s herself)  Thank You in advance

You have a bunch of questions here and I’m going to start at the end and work backwards Kerri. Do not waste $400 transferring the car to her name. But she can get a credit card in her name, use it, pay it off in full every month and start building a credit history that way. Now, to the RESP question.

When your child does NOT use the money in an RESP, the principal can be returned tax free to the original contributors. However any grant money received from the government would have to be returned. And the income earned on the plan will also be taxed. You could wait a while if you think she may want to continue studying later since RESP accounts can remain open for up to 36 years. If either you or your husband has unused RRSP room, you can transfer the money to a RRSP to help you save for retirement. So you could put off making your RRSP contributions for the next couple of years to create this room if need be.

E wrote: Really love your show and have learned a lot from watching you. I am now a great aunt and godmother to a beautiful baby girl. I checked your blogs and could not find anything written about RESP. I would like to contribute to a RESP for her and would like some more info. Am I able to set it up or do the parents have to do this. How much do I need to start? I plan on contributing on a monthly basis so I need some info. Where do I do this-a bank or insurance company? Any help would be appreciated.

E, you can most certainly contribute to an RESP on your granddaughter’s behalf. You need only her name and her social insurance number, which her parents must apply for. Please stick with an individual RESP available at your local bank. Group RESP, sometimes called “scholarship trust RESPs” aren’t such a great deal, according to a recent government study.

S wrote: I was hoping for some *clear* advice regarding Registered Educational Savings Plans. I would like to make some donations to young people by setting up RESP’s for them in order to take advantage of the government’s 20% matching program, BUT everything I have read says I must be related to the child by blood or adoption; and that I need to know the child’s Social Insurance Number. I’m in a position to give back and I thought this was one way to do it, perhaps for members of the local Boys & Girls Clubs or kids in foster care in order to give them a head start on university or college educations. So….is there any way to set up “arm’s length” RESPs for kids I am not related to? I really think this is a good vehicle to save for kids educational futures, if one starts early enough and contributes enough. Thanx very much for your help!

S: Anyone can contribute to an individual RESP for a child. The only time contributions are restricted to “family” is if a Family Plan is opened where more than one child in a family can benefit. Please do not consider using a Group RESP since the government has published a report that says there are significant problems with these types of RESPs. Stick with individual RESPs offered by most major financial institutions. Some of these FIs also offer an RESP gift card or gift cheques that can be used to invest in new or existing RESP account at that institution. Here’s a link you can follow to see an example of what I mean.

Pop over to CanadianCapitalist. He has a link up to a Frontline show on credit card companies and how they managed to grab so many people and haul them into debt! Many of these same practices have been imported into Canada. And many of the U.S. companies that seek to trap what they term as “profitable” customers are targeting Canadians. I’ve written about this before when I had trouble with my HBC credit card and decided to cancel it. I had to report the card lost because they would not cancel the card.

Now comes a study out of the U.S., which finds that retirees who continue to work after they’ve officially retired end up with fewer major diseases and can function better on a day-to-day basis than those who stop working completely.  This holds true regardless of the person’s health before retirement.

Reported in the October 2009 issue of the Journal of Occupational Health Psychology, published by the American Psychological Association, Mo Wang, PhD, of the University of Maryland and his fellow researchers looked at the National Health and Retirement Study, which is sponsored by the National Institute on Aging.

People who continued to work in a field that was related to their previous careers reported better mental health than those who fully retired. For people who changed jobs, the mental health improvements were not there, perhaps because adapting to different work brings its own stress.

While people like to focus on the financial aspect of retirement – will I have enough money? – this is only a part of the equation and it makes sense to look at the big picture, not just at the dollars. When I wrote The Retirement Answer Book almost 15 years ago, one of the chapters focused on “To Retire or Not to Retire” and discussed issues such as how to know if you’re ready to retire, how big a part work plays in your self-image and how to restyle your life, if the idea of just stopping on a dime seems weird to you.

Here are some questions you can ask to help you determine if you’ll quit working cold turkey, or ease your way into the rocking chair:

• Are you in a financial position to maintain your lifestyle and achieve what you want for your retirement?
• How important is your work to you? Does your work provide status and identity? Are you mentally ready to change from a work lifestyle to a full-stop retirement lifestyle?
• Do you depend on your work environment for the majority of your social contacts? How ill you replace these when you retire?
• Do you need something external to structure your time?
• What types of interests do you have outside work? Are these interest involving and fulfilling? Can you expend the time you spend in these interests? Do your plans include your partner’s interest?
• How do you currently spend your leisure time? Do you become restless on weekends or during holidays? Will you be able to use your time in a way that will make you happy during retirement?
• Is your current home appropriate for retirement? Do you plan to stay in your community? If you plan to move, are you familiar with the new community?

If you don’t take the time to answer these questions you may find yourself in the a similar spot to D who wrote me to say:

I am in a quandry and need an objective viewpoint ASAP. Turning 60 in November, last year I sold my home and mostly everything I owned to divest myself of things and make my move from Calgary to Kitchener, Ontario a little easier. Since then I have stayed with family and then rented from a landlady who was being foreclosed on when she rented to me. Her utilities were being disconnected because she didn’t pay them. …I moved here because I have family, think I disillusioned myself, my family have their own lives, my friends are out west, some are retiring elsewhere. I know I have more buying power for a residence here versus Calgary, I just feel stuck. I would have to ship my possessions back to Calgary and would divest myself of the furniture I have currently. Debating whether to move back to Calgary and try to find a job and a home. The home prices are high there and they seem to rising steadily here in southwestern Ontario. I have considered renting, checking on line, the rents seem very high in Calgary and they are high here as well. Trying to be objective when you have to make all the decisions without assistance is difficult. Currently, I don’t have a place to stay and am paying a hotel bill.

D, it’s not unusual for people who are retiring to try and move closer to family, only to find that, as you say, “they have a life of their own.” I think this is one of the biggest illusions about retirement. I think it would compound the problem if you were to buy now before you decided where you actually want to live. You seem to still be vacillating between Kitchner and Calgary. And if you sink your assets into property, that doesn’t leave you with a lot of “spending” money. Your pension is small, and even if you get the max from CPP/OAS, if you take it early there will be a penalty. While your first renting experience hasn’t been a good one, I would suggest that if you can find a shared accommodation that works for you — you rent and get a room-mate or you find someone who needs a roommate — this would reduce your housing costs substantially. Or you could choose a different part of the country completely. Is there anywhere else in the country you’ve always wished you could try on? This would be the time to do it. As for the stuff, if you have to stick it in storage for a few months while you figure out where you want to root yourself next, that will be cheaper than shipping it around with you as you figure out what you want to do. There’s no point in heading back to Calgary if your friends are all in the process of cashing out and moving elsewhere, so don’t leap to that as your first option. Take it slow. This is a big decision.

You have a lot to think about. The first thing to do is find a place to live that doesn’t charge hotel rates. You need to be able to think without worrying over the clock ticking and your money evaporating.

Remember that I’ll be at the Indigo Books in the Manulife Centre on Bloor Street this Wednesday night from 7-9 p.m. See you there!

This week’s poll is on kids’ and allowances. Go vote!

You’ve just gone over your budget and realized you have a bit of cash left every month and you’re trying to decide what to do with it. Sure, you could boost your savings even further, but you’re thinking maybe there are better things you could do with that money.

Like buy a big screen TV. Or a new car. Or a whole bunch of new clothes.

Now hang on a sec, before you go acquiring (which is fine if that’s what you really want to do), think for a minute. Are there some things you could DO with that money that would increase your happiness factor?

Like what?

Well, like having some fun. If you’ve been single-minded about balancing your budget and creating a sound financial foundation, you may have forgotten just how much fun FUN is. What do you love to do? Maybe you miss hunting through flea markets with your best friend, sipping coffee with your sister or experimenting in the kitchen (my funnest thing). Haven’t been skiing in dogs’ years? Want to make that new quilt you’ve been talking about but reluctant to shell out money to start? Hey, this may be the perfect time to do those things that bring you joy, teach you something new, or let you share with someone you love.

Using your money to strengthen bonds with family and friends is a great way to increase your happiness quotient. Studies have shown that close relationships have a lot to do with how happy we feel. So maybe it’s time to spring for a trip to see your old high-school chums or university roommate. Or you could offer to bring your sister and her family to your place for visit. I find saying, “My treat” let’s people who are themselves financially strapped consider doing things that they’d love but simply couldn’t afford.

Using your money to reduce your stress is also a good “investment.” If you and your partner are working hard, busy with the kids, and can’t find time to do the vacuuming, maybe spending a little of that extra money to come home to a clean house will be worth it to you. And if you’re tired of yelling at your mate to get the garage, the basement, the shed cleaned up, hiring someone to do the dirty would eliminate the need to nag.

You could also take some of that money and spend it on someone else. Making other people happy has this fabulous rebound effect. If you could help ease someone else’s burden, or just bring a little unexpected joy to another’s very difficult life, the gift you give will be returned to you in spades. Would you child’s teacher appreciate a gift of some new books? Would the elderly in the local home appreciate a bunch of new movies to wile away their countless hours? How about building a treat basket for less well-advantaged neighbours and leaving it on the doorstep with a note that says, “I’m having a great day, hope you have one too!”

Whatever you decide to do with your money, it should be something that will truly make YOU happy. Never mind what turns anyone else’s crank, this is about using your money to fill your life with joy.  Figure out what makes you happy, and then use your money to fill your life full.

Here’s a letter typical of those I get from people who don’t know where to turn for answers:

I have been reading your advice and watching your show for quite some time now, thank you! My question is this, for RESP’s what do you recommend for someone who has been reading and doing research, I still don’t feel I understand the fee structure and the language they are using…I have been burned before even when I think I am asking the right questions, and trying to understand. I don’t trust what anyone is telling me and I end up leaving the money in a savings account. How can I find the right person to advise me if no one I know has a person, and our insurance person and bank people are only selling their products. Who are the legit players, how do you find someone who actually knows vs. pretends to know. I want to get the money I have saved working and growing for my girls while they are little…I am so scared of messing up and wasting money. I don’t want them to go through what I did with student loans and no advice. Any suggestions? Thank you,

This woman has a couple of issues. First, there’s the issue of what RESPs are and how they work. This isn’t a difficult product to understand, although there are some twists and turns with the grant money available. And since Group RESPs (Boo! Hiss!) have done so much to undermine the reputation of the product, lots of people are left doubting a savings alternative that is, in fact, a very good choice.

The short story is you shouldn’t buy a Group RESP. Even the government thinks they suck. When you do buy an RESP, start with an individual plan for each of your children. You can always move to a family plan later (but you can’t move the other way.) Try and put away as much as you can to get all the grant to which you’re entitled. And when it comes to investing  the money, make sure you’re comfortable with the alternatives you’re being offered and the timeframe until your child will need the money. If you’re not, then stick with the tried and true, even if the returns are lower. You’ll have received the grant money and that will have given your savings a nice boost.

The second issue this woman is bringing forth in her letter is the whole “who do I trust” issue. This is biggie. It’s a real shame that we don’t know who we can trust when it comes to our money management. Once upon a time the financial institutions in Canada took their “fiduciary” responsibilities seriously and knew the importance of giving sound customer-focused advice. Sure, they were a little paternalistic. But hey, they never handed credit to anyone who couldn’t pay it back, and they never suggest people invest in things they didn’t understand. Now with KYC (Know Your Client) forms all checked off and their butts covered, they let the blind lead the blind.

If you’re a banker, don’t go getting on your high horse and writing me scathing emails about slandering what you do. Good advisors know who you are, have customers that are happy to refer friends and family, and nothing I say bothers them. They’re damn good at their jobs and don’t have to justify their existence to anyone. They take real pleasure from helping their customers and they – and their clients – know they are trustworthy.

But for every one of you guys, there are a dozen Joes who are doing it for the commission or to meet the sales targets. All you have to do is look at how unhappy clients are with their experiences to see just how much damage has been done by putting sales targets first and giving bad advice.

When I walk into a bank, asked to have my account changed from statement (with a fee) to passbook (with no fee), and the salesperson is so busy selling me overdraft (which I do not want) that she can’t get the original request done right, that’s failure. When a young Princess who makes $1600 a month gets a credit card with a $5,000 balance, which she has no hope of every being able to repay, that’s a failure. When a woman watches her retired husband come home in a bank-financed new vehicle that will eat virtually all this pension income in payments, that’s a failure. And I have about a thousand similar stories.

The best advice I can give is to tell you that you need to find a body you trust who has a body they trust, and then ask that trusted advisor to help you too. There are wonderful people in the financial services sector who are great at what they do and would love to help you. If you don’t know who they are, you need to get a recommendation. Ultimately, they say, the cream comes to the top. If we’re all determined to find people who are good at what they do, and shun the pathetic wanna-be’s that get thrown at us in our daily experiences, then we can ferret out the good ones.

I have an investment advisor who I know I can trust. Patrick is not only thorough, he’s sensible. I have an insurance advisor who is on the money. While Nathan is young, he’s focused and great at what he does. Age and experience can be important. But they’re not the be-all and end-all.

Ultimately, the best advice I can give you is to tell you to stop taking crap from people. When you feel like you’ve received bad advice, don’t just walk away grumbling. Escallate the issue to the next level of management and demand good advice. If you have to go all the way to the Vice-President, do it! The only way insitutitons will stop putting ineffectual representatives in your way is if you make ‘em. So stop buying the bull and demand the best. You work hard for your money. You’re ENTITLED!

Everyone wishes they could take a mulligan for something that they’ve done with their money. Mine would be to have taken a pass on Nortel, and a couple of other loser investments that seemed like pretty good ideas at the time, even to my investment adviser. Happily I’ve also had some good luck in the markets that have offset the downers. But I’d take the Mulligan on Nortel if given half a chance.

I don’t spend a lot of energy on regret. It’s a wasted emotion as far as I’m concern. But that doesn’t mean I wouldn’t take a Mulligan here and there if I could. A do-over would have been a godsend when, at 20, I found myself in Australia married to a guy who was determined to control my every move and knock the crap out of me when I didn’t comply. Maybe that’s why I’m so determined never to let someone dictate the terms of my life today.

A Mulligan is different from regret. I don’t regret being married to my first husband, as painful as the experience was. I learned some very important lessons in the process, lessons that informed the rest of my life. Those lessons went a long way to creating my “don’t judge” attitude. Having walked that road, I know how it feels. But I’d take a Mulligan not to have walked around with the residue of an abusive relationship permeating my being for years after.

I’d probably take a Mulligan on how long I waited to leave my last ex. I was trying to balance the needs of both my children. Alex was in constant conflict with her father; Malcolm, with his special needs, needed the maturity time would bring to be able to cope with the change. I waited a tad too long. I’d take a Mulligan on the timing.

So, do you have something in your life you’d take a Mulligan on? How about some financial step you took that you’d call “do-over” on?

I was chatting with a young lady in Walmart recently who said she really loved what I’d written about regret, but still wished she had been a little less myopic when it came to her university years. She told me she was having a lot of fun, and had the attitude that this was the last time she’d be this kind of “free” so she went at life with gusto. A little too much gusto. It ended up taking her five years to get her four-year degree an she had a lot of debt to show for all her play.  If she had a Mulligan, she’d have paid more attention to how her decisions today were going to affect her tomorrow.

Knowing what you’d change is the answer to, “Did you learn the lesson?” Spending time whining about what’s wrong with your life or the mistakes you may have made doesn’t get you closer to where you want to be next. But knowing what NOT to do AGAIN… that’s priceless. The longer you live, the more Mulligans you rack up because of all the lessons you learn. But the longer you live, the more you also know that the only person who can change what’s wrong with your life is you. And experience’s big lesson is that you CAN change what isn’t working for you.

Okay, it’s your turn. Fess up. What would you take a Mulligan on, be it a life or a financial decision? And what lesson have you learned along the way that you’d pass on to someone who asked?

Sometimes referred to as “balancing your bank account,” reconciling is the process of matching what you think you have with what the bank says you have in your account. Some people reconcile monthly – if you run a small biz (or a big one for that matter) you should do it at least this often. Other people who are good at tracking their money only reconcile quarterly to as a check-and-balance on their record-keeping. The more often you reconcile the easier it is.

Why should you take the time to reconcile your bank account(s)? Well…

If you don’t, you’re at the mercy of whatever the bank says is in your account.

Reconciling also means you’re less likely to go into overdraft and rack up the fees associated since you’ll know what still has to clear your account and you won’t spend that money on something else.

It’s a great way to catch unauthorized charges or mistakes on your account.

And it means you’re much more likely to pay attention to what you’re spending your hard-earned money on because you’re regularly looking at all those debits!

I reconcile my business account and my personal chequing account monthly… usually. And I sometimes find a small thing that I’ve overlooked in my record-keeping: the interest that I need to credit, a bank charge for some one-time thing I did that made me go over my monthly fee, or an auto-debit where the amount changed unexpectedly. Yes, this can happen.

When you reconcile you’re matching what you know with what the bank knows, and taking into account any discrepancies. If you do it routinely, you’ll always know just where you stand and you’ll also know if someone has made a mistake somewhere along the way.

To reconcile:

1.  Take a piece of paper and divide it into two columns. Title the left side MY RECORDS. Title the right side BANK. Or you can bookmark the Reconciling Your Bank Account Worksheet under Resources and it’ll do all the adding up and subtracting for you.

2. Under MY RECORDS, write the amount you have in your account according to your records as of the date of your last statement. So if your statement date is November 28th, then you would write under MY RECORDS the balance you have in your records as of November  28th. Be careful not to accidentally add in things dated later because you’ll throw the numbers off.

3. Under BANK, write the final balance that your bank statement shows.

4. Check off all of the items in your records against all of the items on your bank statement that match. Again, be careful. I’ve had months where I’ve had debits for exactly the same amount twice in the month, so you have to check both the amount and the payee.

5. Under MY RECORDS list any items from your bank statement that you don’t have in your records. Bank fees and interest are the two most common ones, but there may also be overdraft interest and fees, and bank machine fees (say it isn’t so!) you may not have kept track of. Or you may have forgotten to deduct that cheque for piano lessons.

6.  Under BANK, list anything in your records that doesn’t appear on your statement. It is possible that the cheque you wrote on November 24th for your carpet cleaning has not yet cleared your account. There might be several cheques that have not cleared. Or there might be deposits that you’ve just put into the account that don’t yet show up on the statement.

7. Total the two columns. Remember: If it is a credit (i.e., a deposit), you add it to your balance. If it is a debit (i.e., a cheque you wrote or a debit or credit card transaction), you subtract it from your balance.

8.  If the two amounts are the same, you’ve reconciled, your account is balanced and your job is done. If there is a difference, you know something is wrong. You’ll have to dig a little deeper. You may have miscalculated (if the difference is divisible by 9, you may have reversed your numbers). Or there may be a mistake on the statement or in your records. Verify everything until you balance.

9.  Make any corrections/additions/deletions to your records to bring them up to date.

If you do this every month, you’ll find it a lot easier to keep track of stuff. Wait a couple of months and the mistake you made back when won’t be as easy to find. Get into the habit of reconciling when you get your bank statement or updating your budget tracking each month and in no time at all you’ll have the system down and it’ll take just minutes to complete.