January 2010 Questions & Answers

 

 


Hello! To start I must tell you that I love your show. My husband and I are very aware of our finances and live accordingly. I hate debt and love saving. We have three kids (ages 3.5 to 8 months) and I am currently staying at home with them. I am always looking for ways for us to cut back on our spending. Our current annual income is $85,000. We are currently renting a house for $1590.00/month and have a vehicle payment of $422.00/month. We don't have credit card debt and put $1000.00 into saving per month for ourselves and the kids' school fund. What would you say is a good budget for groceries for our family of 5?? We are currently spending $1100+ per month and feel that is too much.

Name Withheld

I get this question all the time. How much you spend on food and personal care is very dependent on what you eat and how much you make. If you want to trim back on your food costs, first you should make sure you're shopping with a list, buying only what you need for your planned meals, and assessing how much waste you're throwing out. If you're spending that much because that's what it takes to feed your family of 5 (I'm assuming laundry soap and diapers are in there too), then reconcile yourself to that and look for small ways to trim: can you use coupons? can you stock up when things are on sale? can you make a "meatless" day to save money. The internet abounds with ways to cut food bills. But be careful of your expectations. Many sites are U.S. sites and food costs are considerably lower in the States, so don't use their numbers as a benchmark. According to the Stats Man, in 2007, the average couple with kids spent about $194 a week on food.

 

Hi Gail. First things first, love your show. It has helped my husband and I so much. By taking over the finanaces myself, I have paid off 3 out of 4 credit cards in 2 MONTHS!!! Thank you.

Now, I have a question about what to do with our friends. Our best friends' are very bad when it comes to money - well the wife is. They are EXACTLY like your past clients, Lisa and Tom. She doesn't want to work, and yet expects the best because she's always had it handed to her. It's sad to see him work his butt off, and her do nothing. He pays for everything (mortgage, truck, ALL the bills)!! I guess the biggest issue we have with them is they don't cook - EVER!!! They always want us to go out for dinner, and when we say no because it's a huge waste of money, they either get really upset, or they show up at our house as a "surprise" and expect to be fed. What's up with that? Both our husbands made $100,000.00 last year, but they have NO savings accounts (RRSP, mutual funds, etc). They admit to us that they're bad with saving. We worry about them because he doesn't know what she really spends because he works out of town. We can't see this ended well in the long run. It's really straining our friendship. We want to talk with them about their priorities, but she gets SO emotional because she hates hearing the truth. Is this something we should try and talk to them about, or just bud out and let them worry about it? Please help!

Name Withheld

You're a good friend to want to help your pals, but this is really their issue to deal with and I don't think they're going to be able to hear you unless you SHOUT! That may cost you the friendship. You and your husband should decide if these people are important enough to you that you'll risk their friendship to help them.

As for them dropping in and expecting to be fed, those would be the nights I'd offer a large salad and tall glasses of water because you and your husband have chosen to do one Light Night a week to keep your budget in balance. (A late night snack before bed, nibbled as you giggle in the dark, may help get you to breakfast!)

 

Hi Gail! My husband and I love your show! I believe that we handle our money very well considering we both work on an "on-call" basis. I am a supply teacher and he is an on-call mailman. We are both hoping to secure contract positions sooner rather than later. So due to our ever changing work schedules, our paychecks also vary greatly. We purchased a home 2 years ago and are making the payments just fine. In the next couple of years, once our work situation is more stable, we would like to upgrade to a bigger house. My question is: should we focus on paying down the principle of the mortgage we are currently in (extra payments) or set money aside in a savings account to use towards the next down payment or is it basically the same thing? Thanks a lot!

Tammy

Tammy, work to pay down your mortgage. The equity you build up in your existing house will help to lower the financing on your new house. By putting the money directly against your mortgage, you're making it work harder than it would in a savings account since as soon as you make a payment, the interest clock stops on that amount, saving you gobs.

 

I am trying to be a grown up (at 38)!! My first step is to get out of debt (it's substantial and quite embarassing)! I'm working on the interactive budget worksheet and I don't know where I should be putting funds that I invest and RESP amounts. I net 2730.00 a month and contribute 60.00 monthly to my daughter's RESP and 280.00 monthly for investments. Do I have to put funds aside for saving as well (as indicated on the interactive budget worksheet) or does this cover it?) Also, how much should I be putting aside for "emergency"? Thank you!

Name Withheld

The money you are currently setting aside in investments and RESPs goes under savings. You do also need to be setting aside something for emergencies. Consider starting with $100 a month, and building from there. Your goal would be to have 6 months' of essential expenses at the ready just in case.


If one has an ITA that they started when the child was small and now the child is an irresponsible teen, wouldn't it be irresponsible to let them just have the money to blow it all frivolously away? To dispose of an ITA, does that simply mean you transfer it back to yourself, the parent, and take the full hit on the full amount on your own income taxes? If yes, then that is fine as I think giving an irresponsible teen money would be a serious mistake. On the other hand, can this ITA release date be changed to 21 instead of 18 years of age? P.S Love the show. I have lived on a budget since I was 16 years old believe it or not.

Name Withheld

I suggest you go to the institution where you set up the ITA and get them to verify the rules, since I don't actually know the answer to your question. Sorry I can't be of more help.


Gail, your show gives me inspiration to get my life and debt in order. My husband and I have been married for 14 years, own a home (with a mortgage) and have 2 kids 7 and 10 years old. He is a teacher, and I have a professional corporation, and co-own a fledgling health-care clinic. We do not have wills. I know we need them, and was wondering if you have advice about wills like arrangements for the children. My corporation is in my name only, and being a part-owner of another corporation-how do we delineate all this in a will? Do my shares of the clinic go automatically to him? Do we designate 1/3 of our estate to the kids in trust, 1/3 of the estate for their current needs? This is something we've been obviously putting off because we don't know the best way to do it. Could you give us some direction? Thanks

Name Withheld

I've just gone through this myself, and I'm going to tell you it's complicated as all get out trying to figure out what you want to do. There are no right or wrong answers. You have a mate who would naturally assume responsibility for the children, so what you're really looking for is guidance as in the event you both die at the same time. You have to:

a) make sure the kids' immediate needs are met; there has to be money to get them through until they are 18 and can assume responsibility for themselves. You also have to name a guardian for them.

b) you then have to decide how long you want to control their access to the money from beyond the grave. Some parents put in provisions for distributions at 18, 21, 25, and 30.... some extend the control even longer. Me, I'm of the opinion that I've done my best job raising them, and trying to manage them from the great beyond is dumb. However, if you have a child who would "blow" through the money in no time flat, setting up a trust might make sense.

When I was making my will, I found it very useful to speak with an estate specialist to help me work through the things I needed to consider. Her name was Louise Boston and she's with RBC at 416-313-8833. I think having someone in the know to bounce ideas off and help clarify priorities makes sense when you're dealing in an area in which you have little expertise.


My wife and I spent a great deal of time in University and by the time we had both finished, we had racked up about $180,000 in student debt. We were late bloomers when it came to school. We are in our late 30s. It has been three years since we started paying off the loans and we are now down to about $40,000 (It was A LOT of work and planning). We basically put everything towards the debt. We have also put about $60,000 into RRSP's. Our RRSP is sitting in a savings account with an interest rate of 0.5%. We originally thought we would use the RRSP's for a down payment on a house but now our financial situation has changed a bit (a newborn will do that by preventing your wife from working.... but that's a good thing!) Well, my question is this: do you think it is wiser to keep the RRSP's (thinking in the future we'll possibly use them for the down payment) or should we take the money (with the tax hit) and pay down the student loans/line of credit? (I earn about $39,000 per year after taxes and we pay $1000/month in rent). Thanks for the advice. PS Love the show

Name Withheld

Don't cash in the RRSPs. The tax hit would be huge. Leave that money to grow and keep plugging away at the student loan debt. You've done remarkably well so far. I would suggest that you and your wife start practicing living on her mat leave income now, stashing the rest away as a slush. If you don't need it later, you can always stick it against your debt. But the practice of living on less will set the stage for what you'll experience once baby arrives.


Hi Gail: I am currently addicted to your show, and can catch it 4 times a day (and often do!) I have learned a lot, especially to feel sick to my stomach when I look at my financial situation. Never used to feel that way.

Anyhow am wondering 2 things - where would I put RESP savings for my kids? Do all savings of all kinds get lumped under savings and then tracked with a ledger or something?

SECONDLY - should I be using my mutual fund investments which have lost money since the initial investment, to get out of debt, and then rebuild them once I am on a level 'paying' field?

Wish I could apply to be on your show, but live near Parry Sound (2 hours north of the GTA, am single mom, and don't need to rescue a relationship!) Oh well, I'll keep watching and see what else I can learn. Thank you!

Jill

I suggest people buy their RESPs from institutions that sell "individual" or "family" RESPs, but NOT "group" RESPs. All savings do not have to be lumped together (except on the budget itself), but can be split up into seperate savings accounts. And if those investments are not registered, so they're not an RRSP, then yes, use them to pay off your debt. Unless you expect to earn a return that exceeds the interest you're paying on your loans, you're in a losing game otherwise.


Hi Gail, Love, love, love your show.

My husband and I are in debt. Oh, are we ever! We have a $380K mortgage, a $55,000 line of credit (LOC) debt and from a few emergency purchases and poor planning these last few months we've depleted our savings to about $100 and increased our credit card debt to almost $5,000. To top it all off, I owe $1,000 in taxes. We've had a rude awakening, but an awakening nonetheless!

We can manage this, but just barely. We're on a strict diet to get the taxes paid off in 8 weeks, then the credit card and then back to chipping away at the mortgage and the LOC.

My question to you is: When you're so focused on the present--paying down debt, trying to save for emergencies or the next big expense (house/car insurance, new appliance, house repair) how do you find the money for your future like RRSPs and RESPs? We haven't been able to get to the point where we can do some real long term financial planning.

Name Withheld

It can be very difficult to focus on the long term future when your present is in such a mess. But you're doing it. You've created a plan and you're busting your butt. Once the credit card/taxes are out of the way, start small -- $50 or $100 a month in an RRSP. As you get the rest of your debt paid off, put 1/3 of what you were using for debt repayment back into your budget, use 1/3 for planned spending (so you won't need credit), and the last 1/3 goes to long-term savings. You should aim to save 10% a year of your net income. (Company pension benefits count towards saving.)


Hi Gail, My husband and I are both teachers in Williams Lake, BC. We own our home, and my car, and are making payments on his truck! The only debt (other than our home and Truck) are my student loans (about $8000). I really enjoy watching your show. It encourages me to continue to think about money and budget now, when we feel like we are doing well with money and have a fair amount of it, so that when something in the future happens, and we don't have enough money, we are prepared!

My question is, how many accounts do I need to have? My husband and I are both only paid for 10 months of the year, during the summer we do not work. During the year we work really hard to save our money so we can enjoy our summer vacations. Each summer we safe about $10 000. Last summer we even saved enough to pay for our simple wedding in cash too! We currently have one chequing account that we use for all of our everyday banking, and one high interest Saving account that we put money into for our summer savings. Do I also need to have an account for emergency savings, and for long term savings? This is starting to feel like a lot of accounts to manage! Would I also have to pay bank fees on those extra accounts?

Thanks for inspiring me to think about money, I can't wait to pass this knowledge on in the future!

Name Withheld

It sounds like you've got your stuff together. You're doing fine. I'd add a Tax Free Savings Account for emergencies, and try to make the max ($5,000) per year eventually. Start where you can right now. You don't need to worry too much about retirements... you have a pension everyone else in the country envies.


Hi Gail, My question to you is if a creditor closed your account for late payments and you make arrangments to pay off the balance owning are they allowed to still accure interest even if they closed the account.

By the way love you show, maybe you start a new for just single people.

Name Withheld

As long as you owe money, they can continue to accrue interest.


We were wondering what your spending journal looks like. What is included, how is it broken down, how is it set up? Would you be able to put a template on your website that we would be able to print out and use? If it is already there and we missed it would you be able to give us the link to the page?

P.S. We love the show it gives us inspiration

Name Withheld

My spending journal doesn't look like anything special. It's a notebook -- any notebook will do. Put your balance at the top of the first page and then track every cent you spend manually so you always know exactly how much money is in your account. Whether you use a debit card or a credit card, deduct the amount you’ve spent from your balance so you’re not tempted to spend the same money twice. Keeping track of what you’re spending takes a little getting used to. But it’s well worth it to keep your accounts in balance and your impulses in check.