August 2012 Questions & Answers

 

 


M Wrote: I'm just recently separated and looking to downsize into a smaller home. I've done your budget calculator and for the income category I entered an amount for child support that I'll be receiving every month. My question is: should I be basing my budget on that child support or should that just be extra money? I'm asking because what if the child arrangements change & I'm not entitled to that support anymore? Then I'll be struggling because I relied on that money for all my finances.

 

Gail Says: You're very smart to have asked this question, and you're equally smart to have known the answer. Since you can't be DEAD CERTAIN that your partner will pay child support, you can't count on it. You can use it to build savings, pay for the extras and even cover things like your emergency fund and entertainment... costs that if required can be suspended temporarily. Create a budget where you cover all the Must Haves, and allocate the child support to the nice-to-haves. Some categories will be a split. Let's take clothes as an example. With a growing child, perhaps you would allocate $60 a month to must have clothing to cover things like large-sized clothing, new shoes, winter-wear, etc. Then you might have an additional clothing category that would be covered by your child support for nice-to-have extra clothes. Get my drift?

 

M Wrote: I love your show and have learned a great deal. We are set up and doing our budget your way. Currently my husband makes a good living. We made an addition to our home and now have a line of credit to pay off of $118,000. Because my husband is 68 and a smoker I have been planning a budget for the future when I may be on my own. He has $50,000 in life insurance. Should he take out $50,000 more? I am concerned about the debt. Our home is valued at a million or more but changing values make that uncertain. I most certainly need to consider selling if I were on my own. My budget that I designed for myself shows me I would need to make at least $2000/month. I believe I can do that between the woodworking and my counseling.

I am a Registered Counselor and can make between $60-$80 per hour. I am setting up a business in my home as we speak. We also have a refinishing business that we make about $12,000 per year.

 

Gail Says: I think at 68 and smoking your husband would find the premiums on life insurance prohibitive. With a $1 million-dollar home, I don't think you should worry hugely about the $118K in debt. Even if house values were to drop off by 20%, your home would be worth $800K less the $100K you owe, leaving you with an asset in the range of $700K. If you sold and moved (you say you would be willing to, but in the next breath you talking about your refinishing business which I'm anticipating is tied to your home, so think about that) you could potentially put a $200-$300K in the bank to generate a revenue.

You don't mention if you have any pension plan or retirement savings tucked away. Consider reading Never Too Late and working through the process of figuring out just what you'll need step by step. I think it'll help ease your mind or show you what steps to take next.

 

E Wrote: I am considering trading in my 2010 vehicle for a new vehicle to save on gas consumption. My Jeep is sucking up gas like crazy and I've found a brand-new vehicle that is said to be very fuel efficient. The payments on my Jeep are HUGE! $332.16 bi-weekly, because I traded in another vehicle that I owed a lot on for the Jeep. Now, I'm stuck with this huge expense of payments and gas and I don't know what to do. PLUS!! I have about $2000 in collections. My husband and I are now working on building a budget to pay these bills off, but in the meantime, we're really stretched for gas, groceries and just about everything else. HELP! What should I do? Keep or trade the Jeep? Sell it and pay off the remaining debt?

Gail Says: First off you were a dope to take the debt from one vehicle and roll it into another. That's why your payments are so high. And when you have debt like that you have fewer choices. I'm not going to tell you want to do (Suze does that, not me). I am going to tell you to work out the numbers and see what works best for you. Will selling the Jeep get you back to even? (I think not) What about getting a second PT job to make some extra money to get that puppy paid off faster so you can get back to even? How about carpooling with co-workers so you drive less often? Or offer others to ride with you if they share the cost of gas. Get creative. Deal with the problem. And don't ever roll debt over from one place to another like that again. It just means you end up in a bigger mess down the road.

 

K Wrote: My boyfriend and I are ten years apart, I’m 21 and he is 31. We have been together for about 4 years and it is in my opinion that we are in completely different stages of the game. We often fight about money and who pays "more". I have been saving money to go to New Zealand since I was about 18 and now that I'm well on my way to my goal that I wanted to save my boyfriend is making me feel somewhat guilty because I don’t have enough money saved for the both of us to go. He keeps asking what about me? Can you please offer me some advice on this whole situation? I feel as if I'm paying for his debt that he had before we got together. I’m 21 years old and I haven't even had a chance to create my own debt (which is good) but I don't find it fair that I’m paying his debt when I’m just starting my adult life. He works really hard (as do I) but it just seems like we can never get ahead.

Gail Says: First off, you should not be responsible for his debt. He dug the hole and he should dig himself out. And if that means working a second or third job and devoting all that income to debt repayment, that's what has to happen. As for "what about me?" and your trip to New Zealand, tell him to stop whining. Does he really expect you, someone working 10 years less than he has been to pony up to take you along. Cripes! Doesn't he have any pride? He needs to decide what's really important to him. You know what you want and you're working towards it with a vengeance. Good for you! Don't let him distract you. If you both work really hard and he can't seem to save anything the place to look is at his spending. If he's serious about your relationship he will be willing to take a good hard look at the money. That means doing a spending analysis and making a realistic budget. If he's not ready to do that, he hasn't grown up yet.

Both my book Debt-Free Forever (see if they have it at the library) and The Gail Way available on my site for $4.99 have explanations for how to do the spending analysis and the budget. If he isn't ready, you may have to make some tough decisions about if you're ready to commit long term to someone who won't face reality.

 

R Wrote: I contribute to my RRSP account monthly, and every year when I do my taxes I claim the entire amount. I recently watched your ING 35 min video on love and money, and I would like a little more information on the part about not claiming all my RRSP contributions when I am new in my career and not making as much money, but to save them for the future when I will be making more. What is the benefit of not claiming them now vs later?

Gail Says: While most people do take the deduction for their RRSP contribution from the get-go, there’s no rule that says you can’t hold off. In fact, holding off makes sense when you’ll end up getting more money back from the taxman by delaying your gratification. So if you’re just starting out and earning not-so-much, don’t bother claiming the deduction… save ‘em up until you’re in a higher tax bracket when you’ll get a bigger bang for your buck.

Life changes are another reason to pause and think… Think…THINK…Take the case of a woman who goes off on maternity leave in the middle of the year. Since her income is dramatically reduced for that year, her marginal tax rate will also be lower. Claiming the deduction for her RRSP would mean frittering away a perfectly good deduction on a low-income year. Better to hold the deduction for a year when her taxable income is back up. Then, even though her RRSP contribution limit would be less (based on the previous year’s earned income, which may have been smaller), giving her little room to maneuver when trying to minimize her taxes, her undeducted contribution from the previous year will come in very handy.

Whether you’re having a baby, taking a year off to get an MBA or planning a sabbatical, knowing you can delay claiming your deduction without losing it means you can plan to make those RRSP contributions work even harder in terms of the deduction you’ll eventually receive. They also eliminate the excuse, “What’s the point, I don’t pay that much tax now anyway.”

 

B Wrote: I started watching your show last October and you have changed my entire life and way of thinking. I have cut expenses, stopped impulse spending and made extra income to aggressively pay down my consumer debt. I don't have many cheerleader type people in my life but I know you would be proud of me. I can't thank you enough and will send you another thank you when I am paid off in 2 yrs 4 months. : ) You saved me!

Gail Says: I am proud of you. I love that you took what I was offering and used it to make your life better. You're strong and sensible and I know you'll keep moving forward towards your goals. Well done.

 

M Wrote: I am a student and I've always been able to balance my budget, thanks to your helpful tips. I've been able to manage my money so well, other family members have leaned on me financially i.e. my credit card limit. I've always lent the money, and they've always paid me back on time (and with a little badgering) until recently. There have been enormous family pressures because of my sick aunt. I've felt guilty pushing my family moreso my parents for the money back.

I'm in a bit of a rut, but nothing a lot of elbow grease can't fix. How do I nicely tell my family that I'm cutting off the purse strings without going on a rampage?

Gail Says: Like this: Listen folks, I'm a poor student trying to get through my life without racking up too much debt. I have helped as much as I can but I'm in no position to give more money without harming my own financial situation, and I'm not prepared to do that. So I'm afraid this is me saying that while I love you a lot, I don't love you so much that I'd actually commit financial suicide. Please understand that when I have more money, I'm happy to help. But I'm not going to sabotage my own life out of guilt. I love you, and I hope you love me enough to accept that this is hard for me to do, but I must to take care of myself.

 

M Wrote: I have just recently (as of January 2012) become Debt free! I have started to beef up my contribution to my TFSA and have joined the Pension plan at work (which is calculated at 7%) as well as opened a "spare cash" savings account.

My question is this: I drive a 2001 vehicle that now has 382,000 km on it. I know it won't last forever (shame, it’s an awesome car!) and I know that there are pros and cons to buying new/used. (I bought this one used). Anyway, because I already have no debt, if I were to buy new (looking at a vehicle that may be just under $23,000) do I count the monthly payment under my "debt" and "transportation" area? (I’m thinking of the percentages in the life pie!) If the amount is more than the 15% transportation allocation, would I just beef it to 25% to include the debt area as well, as it would be financed (hopefully at 0%!!!)

I NET about $2652 per month, and that is MINUS the pension contribution which is about $284 per month.

I have been thinking on this A LOT and am not about to jump into this blindly. I just REALLY have been checking out this certain vehicle and know that mine won't live forever! Any advice would be more than appreciated-because you are the guru.

Gail Says: You would account for the car payment under transportation, and you are right about the fact that if you have no debt you could use that 15% anywhere else you wanted in your budget.