December 2009 Questions & Answers

 


I've been trying to get a loan to purchase a home, but can't seem to get approved without a co-signer, even with 20% down. I've been completely discharged from my bankruptcy since July/08' and have followed all conditions during that period. Do you have any suggestions on what else I can do? The reason why I've been declined is that, I've not established credit long enough yet, even though I have rrsp loans and credit cards which I keep current.   

Name Withheld

You've done everything you should and now you just have to be patient. Your discharge isn't quite a year old, the credit markets are in a mess, and life generally sucks for anyone with a bad credit history. This is part of the price of bankruptcy. Keep your nose clean, keep building that down payment (along with your retirement savings, and emergency fund). You should also look into joining a credit union and developing a relationship with them. They may offer more options.

 

Hello Gail!
Recently my husband was offered to purchase 10% of the small electrical business he works for. They have given him a price of $100,000 to purchase this. We are in the process of having the income statements reviewed to make sure it is a sound investment and get a rough idea on how long it will take to see the light, but I was wondering if you could provide advice as to the best way to finance this as we do not have that kind of money!

When I spoke to the bank that holds our mortgage they suggested a home line of credit secured by the value of our home, but I am not sure if this is the best or about other possible options. I have heard that you can use business loans as a tax right off so would this work for a Home Line?

Financially we are doing OK, but I am very worried about going into debt considering all the factors - this economy is a big unknown. His company seems to still have a lot of work and has not slowed, but you never know what the future may hold. My job is very stable, so at least that makes one of us! Here is a snapshot of our finances - I hope I have provided enough info:
Mortgage: $268,000 - the tax assessment has it valued at $480,000 - our mortgage payment is $600 accelerated bi-weekly and I pay an additional $200 per payment as double up payments. (I am loving our variable rate of 1.75% right now!) Our monthly TIPP payment of $214
Credit card debt - $3000  
Vehicles - monthly payments of $565 (two years left) & $623 (three years left) - I am completely open to selling one of the vehicles
RV Trailer - $268 monthly
Car Insurance $238 per month for 2 vehicles & trailer
Life & House Insurance - $90.00 per month
Daycare - $950 per month
RRSP's - we have about $15,000 and contribute $400 per month

We both work full time and have a combined income of about $145,000.

Any suggestions on if you think we are crazy to go into that much debt, the best route for taking on the debt, or on anything else we may not even know about would be great...I don't want to have to call when we have already made a bad decision and right now I feel that we don't even know what we don't know!!

Thank you so much for your help! I love love love the show and admit I am slightly addicted to seeing how others manage their money!

Name Withheld

Some questions you need to answer for yourselves:

  • What does a 10% ownership get him? More money? How much more? A piece of the profits? How are those profits calculated, and how much has historically been paid out to shareholders? Are there other shareholders that are the original "family?" How do they feel about the deal?
  • How much debt is the company carrying? When he signs on as a partner of the company, he's also signing on to be responsible for any debt the company may have or may acquire. 
  • Is the company adequately insured against a liability suit? If someone sues for whatever reason, the company and all the owners will be named in the suit. Make sure there is enough liability insurance to cover everybody's butt.
  • If you use a line of credit on the house, you will be able to write off the interest on the portion used to finance the share purchase. However, you will also be using your house for security for that loan. So if anything goes wrong, you will still owe that money, and you'll have to pay or they'll take your house.  

Debt isn't a bad thing if it is being used to build assets; in this case your husband's income potential. However, the decision to buy into that company is a very big one and should be approached strictly from a dollars and cents angle... never mind all the feel good crap of owning a part of the company... that's just ego. This must be a black and white money decision: is there any profit in it? 

 

Hi Gail: I love your show and the way in which you are so tough, yet compassionate with people. I work with people who live on social assistance and sometimes wish that I could be more direct with them about the bad habits like smoking that waste the little money they have.

However, my question is about my own life. My husband is a clergyman, so we've always had to live very frugally. I went back to work 3 years ago after 10 years as a stay at home mom. We manage our money very well and after years of living in church owned housing, we saved and had $60,000 to put towards a down payment on our first home (we're in our 50's). But my problem is that we are TOO frugal. We do all the things you recommend. For years we have kept the sort of budget sheet you recommend and we try really hard not to go beyond the limits we set. But we are constantly stressed about going over and rarely go out and enjoy ourselves. I feel guilty every time I spend a penny, and feel that with all the hard work we do at our jobs, we deserve a break every now and then to go out for a nice meal or see a concert. But we almost never do anything like that. In spite of working hard at my job, I still make every meal we eat.

So my question is: Can you be TOO good at managing money and never allow yourself any fun?  

Name Withheld

You can be so focused on staying on track that you don't allow yourself the fun that is part of what makes a life worth living. I'd recommend that you and your hubby go over that budget of yours and carve out $100 a month for fun: dinner out, a movie with the works, a trip to a concert or theatre, whatever pulls your crank. If you make the $100 work, and still have wiggle room in your budget, make it $150. The idea is to move slowly from saving every penny to having a little fun.

 

Hi Gail, I have been watching your show from the very beginning, and love the many useful tips that I've picked up as a result!  As a new parent, I would love to make sure that my son has a good education about money from the very beginning.  I was hoping to find your book, "The Money Tree Myth", but I can't seem to find it available for order.  Are there any plans for a reprint or ebook version of this title?  Thanks in advance.

Katherine Handcock  

Katherine, I do not have plans to reprint The Money Tree Myth. However, if you look at my blog under Kids & Money, you'll find quite a collection of tips. Enjoy!

 

Hi Gail, I have watched your show for quite a while now, and although I have tried to do what I see on the show, I just can't seem to make the numbers work for me. (I really wish you would travel to the plains to help us out:) ) We have approx. $45000 in debt, that includes car loan, credit card debt and personal loan. My husband makes $28000 a year and I am on maternity leave making $10000. We are considering talking to a trustee. I just feel completely helpless and stuck, and the debt just keeps increasing. Please help.  

Name Withheld

You should speak to a trustee. Based on the numbers you have quoted me here, you may have too much debt to manage on your income. Seeking advice from a trustee at this point makes sense.

 

Dear Gail, Omg, I wish I had listened to you earlier! Thank you, thank you for doing what you do!! I LOVE your show and have been watching for the past 2 years. I always jotted down stuff you said, but never really started to do anything about my overspending problem until recently. (there's a longer story there that I will hope to share when the time is right.) Your website/blog have been a tremendous help! THANK YOU for sharing so much useful information!!

By finally plunking all the numbers in the interactive budget and seeing how the jars actually work and just seeing ALL the numbers, it gave me a HUGE wake up call. Anyways, after I get out of debt (6 more months!!) I would like to start contributing to either an RRSP or TFSA, but don't know which one is more beneficial to me. Sadly, I don't have either. Some background: 30 years old with around $27,000 net income. Thanks so much! Any advice would be greatly appreciated! Keep up your wonderful work. I know if I were ever on your show, I'd be crying non-stop because you would totally kick my butt into gear and I would know it! =)

Thank you Gail, you are absolutely wonderful!!

Name Withheld

Since you should build both an emergency fund and long term savings, you can use both! Use the TFSA for your emergency fund. You can put up to $5,000 a year in it, but even if you start with $50 a month you're on your way. Then use the RSP to save for retirement. Since you are in a pretty low tax bracket, don't claim your RRSP deductions yet. Save them up for when your tax rate goes up and you'll get back more in tax.

 

Thanks Gail!  Just needed to find out if when you're setting up a budget to follow, is it usual to open up a number of bank accounts to save toward whatever it is that you dealing with? (e.g. income tax for next year, property tax pot, or savings, etc.), or do you just save it all in one account, keep tabs on it and disperse it as needed?

Name Withheld

Either option is fine. It all depends what works for you. Make sure if you do open accounts that they are savings accounts with no fees attached.

 

I have a credit card with a balance owing of around $35,000.  I recently received an offer in the mail thru my bank - 1.9% interest on balance transfers of up to $5000.  My question is, does it make sense to use one of those cheques they sent me and make a $5000 payment on the higher balance & interest rate card?  I will then have another credit card in the mix with $5000 owing on it, but the interest rate will be so much lower?  What is your advice?

Name Withheld

You should be doing whatever you can to reduce the interest on your debt. Be careful though. You need to have the balance paid off before the "special rate" expires. Check the fine print to see what happens to the interest rate when the special is over.

 

Hi Gail, we love your show and all your great advice.  The only debt we have remaining is our $85,000 mortgage. I would like to re-negotiate our mortgage from a 5.1% 5-year fixed to a 3.95% 5-year fixed.  We still have 3 years left on our current 5-year term. Our interest is about $480.00/month and there will be a penalty for renewing early (about 3 months interest).  Should we renew or should we just stay put?  Any advice would be greatly appreciated. Thank you.   

Name Withheld
      
Your penalty may not simply be 3 months' interest. Many lenders are invoking the "lost interest compensation" rule for mortgages terms that are being broken. That could put you on the hook for all the interest you would owe to the end of your term. If that's the case, the math may not work to your advantage.


Can you recommend a financial planner in Winnipeg?  Mine was just a little too casual as he told me the $$ was gone.  I had been calling once a month to ask shouldn’t I be doing something different since I am retiring in May 09?  Response was always no, do nothing.  I've seen my savings go from over $300,000 to under $200,000 and feel all my hard work on a salary that was never over $40,000 went up in smoke.  Can I hire you?  Just kidding, can't afford you.  Huge fan, accepting what now is, can't change the loss.  Hard to truest someone now, and hard to trust myself making the right decision with what I have left.   

Name Withheld

I'm sorry, I don't make recommendations. Periodically your investment advisor is required to have you complete and sign a new Know Your Client form that asks if your objectives have changed. If your advisor has not done this, you may have grounds for a complaint and to get some restitution. If you knew your needs were changing, in all likelihood you would not have simply signed the same old form without an update. If you feel you have a complaint, then you should get in touch with the ombudsman's office. Here is the contact information for the Ombudsman for Banking Services and Investments:

Toll-free telephone: 1-888-451-4519
Toll-free fax: 1-888-422-2865
Website: www.obsi.ca
Email: ombudsman@obsi.ca
Regular mail: Ombudsman for Banking Services and Investments PO Box 896, STN Adelaide, Toronto, ON M5C 2K3

Hello Gail. I know your crazy-busy but I really need your advice. First off - I love your show and I think your GREAT!
Ok, so here's my situation. I've been struggling with this for a while now and need your expertise. I am 39yrs old.

I owe $13,000 on my line of credit. Rate of interest is 1.5%. This debt is from a car I bought almost 1yr ago. Aside from my fixed costs like mortgage and utilities I have no other debt nor do I carry credit card debt.

I currently have $12,000 in savings split between non-registered RRSP's and a TFSA. I also have $68,000 in my RRSP account.
Each month I put away $1100.00 into RRSP's, non-reg RRSP's and a savings account.

My question is....do I take out my $12,000 from my non-reg RRSP's and TFSA and pay off the line of credit OR do I just continue paying it off slowly? If I pay it off slowly it will take me just over 12mths to do so. I am torn because the rate of interest is only 1.5% and I am making a bit more than that on my savings. So what do I do?? I'd really appreciate a reply and thanks for reading my email.

Joseph  

Joseph, you answered your own question when you said, "I am torn because the rate of interest is only 1.5% and I am making a bit more than that on my savings." You need those savings as an emergency fund, so don't go spending them! Stay on track with your line of credit repayment and you'll be fine.

I am a financial advisor at a financial institution in Canada. My question is, how are you able to deliver such a frank message to those that you are helping. I know that if I was as forceful towards some of my customers my methods would be questioned by my employer. I have so many customers who say things like, "a $5 latte is a part of my lifestyle." or, " my trip to Jamaica is something I cannot do without." How can I convey an important message of "smarten up" without being perceived as mean?

Name Withheld
  
I can be as blunt as I am because the people I'm dealing with are desperate and came to me for my brand of help. My audience generally loves my straight-talk, although I sometimes get a reprimand from viewers for my "language" or my "attitude." I pretty well ignore them! As for how you can do it, perhaps it would only take a slightly gentler hand: "Mrs. Wiggins, I totally get why that vacation is so important to you. I know how much I'd love to get away in the winter. Tell me, where are you going to get the money to pay for that?"

It's a more gentile version of "Yu have de money to pay f'dat!" which is my line! Ha!

I believe clients want honesty. I believe they want help. I think sometimes they're not sure what else they need or want, and that it is an advisor's job to present the realities of that client's life in a way he/she can relate. You draw a pie. You deduct the pieces in the pie the client has already spent. Then you say, "okay, so where's the money coming from." If the client says that's why they need a loan, you say, "but that's not a good reason to borrow!"

Once upon a time, lenders used the 5 Cs to determine if clients should borrow and could repay. Capacity went out the window. So did Character! It's time to bring them back! 

Sadly, if FIs don't wake up to their new reality, clients are not only going to end up HATING them, they're going to look for ways to punish them.