December 2012 Questions & Answers

 


K Wrote: My two brothers, S and R, are in their late 20s and have been renting an apartment together for the past 3 years. Rent/cable/internet is split equally. About six months ago, R moved his pregnant fiancé in. They have since had the baby and are now a family of three. There was no change in how rent is split. My other brother, S, is now asking for his portion of the rent/expenses to be the equivalent of 1/3, considering there are now three adults living in the same apartment. R has not been receptive to this and isn't speaking to S, even calling him greedy. The word 'fair' has been thrown around a lot. My question, Gail, is what is fair in this situation? When the number of renters in the apartment changed should the amount of rent that each pays have changed to?

Gail Says: Of course the rent needs to be renegotiated. Unless your R's pregnant fiancé never leaves his bedroom. If she uses the bathroom, the kitchen, the living room, she needs to pay her fair share. If she has no money, then R has to pick up her fair share. In all likelihood this isn't going to resolve itself unless the brothers sit down and work it out. Failing a satisfactory resolution, S may have to find another place to live and R may have to take on the responsibility for the whole apartment.

 

M Wrote: First off, I should commend you for doing such a wonderful job. I have been following your show "Till Debt Do US Part" for some time. My husband and I are both very responsible with our money, making sure we have all of our savings in place, etc...

My question is more about my 24 year old brother. He is what I would picture as a Princess, although he does not have the attitude that comes with it. He simply lives a lavish lifestyle, trips with his buddies, fancy meals and drinks with his friends. To finance this, he borrows. He has maxed out his credit card, borrowed from my mom and younger sister and even his friends. I think he genuinely feels bad about this and often people are pushing the loans on him because he is so gosh darn cute and always seems so grateful. This is very true. My mom is especially guilty. She works hard and gives him money because he is a young boy, and she feels sorry for him. She does not even track what she gives him. He certainly can't say no to a night out or a trip with his friends. He has worked part time all through university and has nothing but debt to show for it.

He is graduating this year and he plans on moving to Calgary (at my advice) from Montreal in hopes of finding a job. His degree is in Economics no less. Can you see the irony in that?

Anyhow, as much as I want to wring his tanned little neck, I want to somehow make him realize that he needs to actually take steps to repay these debts and that it is not okay. I don't want him to turn into a dead beat boyfriend or irresponsible husband to some poor girl. He is a great guy but I absolutely have no tolerance for people who live off other people's hard earned money and never repay it.

I am looking to sit him down when he gets here and go through your jars budget with him and put him on a cash budget. I would for sure charge him rent for staying with us. But I'm not sure how to bring this us with him and make him want to repay this debt and actually stick to it. He is an adult. Any suggestions would be very much appreciated.

Gail Says: Sounds to me like you have a Money Moron on your hands. You're a good big sister to take such an interest. And FOR SURE you need to charge him rent: 35% of his net income. Tell him his option is to find somewhere where else. As for how to get through to him here are some ideas:

1) Figure out how much of his money is going to interest every month/year... what else could he buy with that hard-earned money if the debt was gone?

2) Ask him what he wants from his life: a home, a family, to travel? Then ask him:
a) Who the hell will give him a mortgage if he doesn't pay his debts back?
b) Who the hell would want to marry a loser who comes drowning in debt?
c) How he's going to achieve his dreams if he's spending??% of his money on debt repayment

Point out that you're offering him the opportunity to use this grace period to rectify his past mistakes and plan for his future, even as he has a life now. If he blows this opportunity, the future looks very dim.

If he pushes back and says things like, "You can't tell me what to do" or "I'm an adult" say, "Really, because what about your financial situation demonstrates that you're acting responsibly?" Good luck.

 

AM Wrote: I am a twenty-three year old University student. I have one semester left of my undergrad degree, and then it will be time to graduate school and move into the 'real world'. The last few years of my life have revolved around working as hard as I can in the summer and spending as little as possible during the school year.

When I graduate from University, I will have a $3,000 student loan (which is not bad at all), as well as owning my father $14,000 for my car (a little worse). My parents have told me that I can live at their home through the summer, but come the fall I need to be out of the house.

I have no idea how to go about living after that. How do you buy a house? Is that feasible as a single female? I am a piano teacher, so teaching out of my own home ends up saving me a great deal of money (I get approximately 20% more), but I'm not sure if that’s possible? How do I pay off my debt at the same time save up for a downpayment? How expensive of a house should I buy, if I can buy one? How difficult will it be to get approved if I am working for myself?

I know this is something many of my friends are struggling with, and I am starting to get a little nervous.

Gail Says: Take a breath doll, you don't have to rush into anything. It's great that you're parents are giving you the summer to get yourself organized. During that time, how much of your student loan can you get paid off? Don't pour all your money into the debt because you're also going to have to save first and last month's rent. No, you don't have enough time to save a downpayment, and you should rush into home ownership anyway. Take it slowly. Perhaps you can find a house to rent and room-mates who can rent from you (a room here, a basement there) to help cover your costs. Can you estimate how much you will make as a piano teacher? Do you have plans to work at something else too since a freelance income may take a while to establish? Plan on spending 35% of your income on shelter. If you pay off 15% of student debt per month, that'll take 6 months. Then you can take that $450 a month, pay half to your parents for the car loan and put the other half towards building up an emergency fund.

The basis of any sound money management plan is a well crafted budget. Go to my site and download the interactive budget from the resources section. Make a budget that is truly reflective of what you plan to spend. Then track every penny spend. Plot it against your budget. So if you plan to spend $200 a month on food, at the end of every month add up (from your spending journal where you tracked your spending) exactly how much you spent on food. Stay on budget.

If you want to track more closely, use The Gail Way on my website.

This is about making a plan. That's all a budget is. You'll have to tweak the plan as you go along so don't expect it all to be perfect right off the bat. Give yourself some time to experiment.

 

R Wrote: My husband is obsessed with buying a boat. He won't stop talking about it, searches for them online in any moment he has, goes and looks at them in the city, and on and on and on. I have told him a million times that I am not on board with us buying a boat!

Financially, we are in ok shape. We owe $7500 on one of our vehicles (on our LOC) and that is our only debt other than our mortgage. We have about $20,000 in RRSP's (we are 27 and 28) and a small emergency fund that I am working on building. He feels that since there is a lot of room on our home equity LOC that putting a $10,000-$15,000 boat on it is not big deal.

He also thinks that "compared to most people" we have very little debt.

He thinks that we are young, we only live once, yada yada yada. I feel a boat is a luxury item and that to put it on credit is asinine. Especially now that I am a stay at home mom.

I just don't know what to do we cannot come to a resolution on this and keep disagreeing.

Any tips at all?

Gail Says: You're absolutely right! 'Course that's not going to get you anywhere with Hubster. Tell him that if he seriously wants a boat then:

a) He has to come up with a real plan, not just a shopping plan: where will he store the boat in winter? Where will he put the boat into the water in the summer? How will he transport the boat? What will it cost to maintain the boat? How often will he use the boat each year (to calculate the cost per use), AND

b) He has to come up with the first 25% of the money to buy the boat by working a second job... but that won't negate his responsibilities at home. Since this is a toy HE wants, HE has to commit to coming up with the money. And he'll have to qualify for the loan on his own... no co-signing.

If he does all that hon, and it's a workable plan, I say let him have the frickin' boat.

 

N Wrote: Love your shows and the straight-talk, no-nonsense approach. I'm 26, I net $2500 monthly, and I have lived the undergrad lifestyle for 5 years after graduation and so have paid off my $28k in student debt! For purely non-financial reasons I'd very much like to get my own apartment as I'm currently sharing a townhouse with 4 friends and 1 bathroom. My problem lays in the standard budget allocation of 35% for housing costs; that would amount to $875 of my present income - not enough for a standard 1 bedroom near Ottawa's downtown which runs upwards of $1000 a month with utilities. All other inherent expenses (internet) of the move would be offset by transportation savings. My question is - given my debt free state, is it wise/logical/allowed to spend more than 35% of net on housing or should I resign myself to roommate life until a home purchase sometime in the future?

Gail Says: If you have no debt, you have another 15% in your budget to allocate wherever you wish. Go nuts!

 

K Wrote: I have been following your amazing advice for 3 years and I am almost there - had a terrible summer last year that derailed me a bit but I am back on track - the emergency fund never seems big enough when you are the only income with three demanding children ;o)

Anyways - background to my question: My 20 year old son has eschewed school completely in spite of some very heated discussions, battles and pleadings. After 2 years of tension mixed with a heavy dose of love we are both happy with his decision to move out. Whenever I have been reviewing my budget I have redone his and endured the eye-roll. I just do it - I don't nag but I don't bail him out when he doesn't follow it - I've come to the decision that this is all I can do. He works two jobs and is a great employee - has travelled in Asia and Europe in his teens as his father lives overseas and he participated in a student exchange to France and went to Cuba for graduation - he paid the cost for the last two himself ($3500 for the first and $2500 for the second) He and a very together friend have found a place in a crappy neighbourhood for very cheap rent with utilities mainly included (except cable and phone) and they are thrilled so I am thrilled for them. We are getting things ready for access to mom's assets to be cut off - like vehicle! He is riding his bike home from work late at night and arranging his shifts so he can start his job on time. This is good. He, yesterday, filed 3 year's worth of taxes and is happy to see he is getting money back - and received some sharp words from me about regular filing. Had a little look at his bank statements as we built his portable office and went over what needs to be kept, for how long and what to do with it (shred). He spent 1500 on cash and junk food last month, contributed about 30 bucks to gas for my vehicle and another $30 for groceries - the only other thing he did was pay his phone bill. He was overdrawn twice and asked for a loan from his school account (saved by him) twice - this is in a high interest savings account under my name - when he is regularly working he regularly transfers money into this. I refused once when it was clear he was planning a bar trip and hadn't contributed anything to household stuff. He has been quite lazy in getting more work after getting out of a bad work situation (hired to be a delivery driver and pressed into cold call sales) and has not paid rent since January. He seems to lack ambition and chafes at anything sensible about money. "I don't want to put money in jars - if it's there I just want to spend it". "I am happy doing what I am doing (busboy and fast food restaurant worker) - I just want to be happy". Yeah. It’s concerning.

I am getting pressured by family and friends (with their own issues about money) that he will need a credit card to start gaining a credit rating. We are having his phone transferred into his name this week (hopefully) - I have been warned he may need a hefty deposit to do this - which he will pay - does this get him on the grid? Everything I have learned in the past three years tells me not to co-sign - and I won't. He doesn't have a vehicle and I think he should save and pay for this outright rather than a car loan. He will barely make $20,000 this year - he can't afford car payments. Should he have a credit card? Over the past three years I have paid my credit card 3 times while following my plan but have proven myself unworthy to carry one and recently cut it up although the account remains open.

I have read your articles on this - perhaps a secured card? Do all financial institutions have this - we bank with TD.

Anyways - the question is mainly about the credit card - looking for backup but allowing that I may be in the wrong since I am learning too.

His final bit of mommy advice is to stay out of debt and childless until he figures out how to make an income to get him over the poverty line. Do I have it right?

PS - idea for a new show - lazy boys sponging of mom (and dads if they are there) whose main occupation is sleeping, drinking beer, planning fun, not doing chores unless asked and doing just enough to get by and charming enough to get away with it. Somehow opposite of Princess but kinda the same. It could be called Sloth ;o)

Gail Says: You have it soooo right. In light of your description: chaffs at anything sensible about money, thinks if it's there it's to be spent, unwilling to live with a budget your son is NOT a good candidate for a credit card, not even a secured one. If he wants to build a credit history, he should borrow some money (say $1000) to make an RRSP contribution and then pay back the loan in three months. Doing that each year will get his credit history established. But giving him revolving credit will be like putting a gun in his hand and waiting for him to shoot himself in the foot!

If he does not pay his phone bill on time, they will report that to the credit bureau and all his hard work to build a credit history will go into the tank. You most definitely should NEVER co-sign, and he should be contributing to the household. In light of the fact that he's about to move out, I wouldn't sweat the point now.

You have been a good mom, tried to teach the right lessons, and helped him see the way things need to be. There comes a point when we must take our hands off our children so they can take those steps themselves. They may fall and scrape their knees, but they will learn (hopefully!) In the meantime, know that you've done your best.