February 2012 Questions & Answers

 

 


G Wrote:
My question is can I split my RRSP-GIC in two accounts and stay with the same bank and still be covered with CDIC? Can the same bank be able to offer me separate accounts that are both CDIC insured?

Gail Says:
Some banks have multiple companies registered with CDIC so you would be able to do this. But you'll have to check directly with your bank to make sure you'd be fully covered.

 

B Wrote:
My boyfriend and I are planning to move in together. What financial questions should we be asking each other? Should we have joint accounts or separate accounts?

We both own our homes, but I will either be selling or renting mine out. How should we split the bills and his mortgage?

Gail Says:
1. Who is going to manage the money? I’m not a big proponent of one person taking on all the financial responsibility in a household. Nope. That’s a recipe for resentment, abdication and disaster. So talk about who is going to manage which aspects of the money, how, when, where, and how that body is going to keep the other body up-to-date on what’s going on.

2. Who’s bringing in the money? Will you both work? Full-time or part-time? Doing what and making how much? What are your plans for further schooling? For when the babies start arriving? Will one parent stay home? Who? For how long? Will you use daycare or a nanny or family care or something else for childcare? Life can be very expensive and many couples choose to use the early years of marriage to establish themselves financially. Others plunge right into the baby game, often without having giving a moment’s thought to the financial implications. If you don’t know how much income you’re going to have, you’re asking for trouble.

3. How will we handle the household expenses? A lot of couples have trouble with this question. It raises power and control issues people would rather ignore until later. Ignore at your own risk. You have a bunch of options here. You can:

split everything fifty-fifty, which is completely fair if you make exactly the same amount of money, and until one of you starts making more or less, or you have babies, or someone gets sick, or someone has the opportunity for a career move that also moves the family

split the expenses proportionately. He makes $50,000. She makes $75,000. So he pays forty percent of the expenses, and she pays sixty. Again, great, as long as you continue to monitor the incomes and proportion of expenses you’re assuming, and adjust as your incomes change

pool all the money, set your goals together, and take a “mad money” amount for your individual indulgences.

4. How much personal spending money should each of us have that doesn't have to be accounted for? Couples often leave this out of their budgets. The reality is that you each need some money of your own or you’ll drive each other crazy.

5. How much can we spend on a purchase without needing consent from the other person? People go out and shop up a storm and then come home and lie about how much they spent to keep their partners off their backs. Great! A relationship built on trust! Or people go out and spend up a storm, and then come home and tell their partners who then believe they have permission to go out and spend up a storm in retaliation. Great! A relationship based on equality! Can you see the problem?

Set a limit on how much either of you can spend before consulting with each other. If your budget is tight, this may be as little as $20; for others it might be $500. If one of you is a shop-a-holic, make the number low. If one of you is a miser, negotiate a slightly higher number. Decide on an amount that won’t throw your budget totally out of whack and won’t create resentment.

6. What is your attitude toward money? How much do you need in your wallet, in your bank account, in your shoe, to feel safe? How does spending make you feel? What’s more important, having a dollar or spending a dollar? How much debt is too much debt? If you are just the same, you may be fine, or you may find yourself supporting your significant other in some bad habits. If you are completely different you may be fine or you may find yourself butting heads with your partner on a too-regular basis. Ultimately, whether you are fine or not depends on how well you understand yourself and your partner.

7. What assets and liabilities are you bringing to the relationship? If you can’t tell each other the truth about your money, don’t bother hooking up because you’re already doomed. If you don’t know how much your buddy makes, how much he spends, how much she owns and how he deals with his bills, you’re a dope. Please don't be so dumb-in-love that you’d marry a money moron!

Each partner needs to know exactly what the other person is bringing to the table: how much is in your chequing account, savings account, retirement account; how much you have in student loans, car loans, other loans, your line of credit and on your credit cards – all of them; what your credit histories looks like; and, of course, how much you make and where it goes.

8. How will we cope if the ca-ca hits the fan? Crap happens. People get sick. People die. Businesses fail. Jobs are lost. His mother becomes a dependant. Her brother needs to be bailed out, yet again. How will you deal with the myriad changes in financial circumstances that come with a long life lived together. It’s all well and good to think that as long as you keep your house in order, you’ll be fine. But it just ain’t so. Just when you think everything is going smoothly, reality bites! If you don’t have a plan for dealing with life’s ups and downs, you’re asking for more stress than you can handle. Do you each have any/enough life insurance? Disability insurance? You’ve got your wills done? You’re willing to name your new partner as your power of attorney for both financial and medical emergencies? And you’re talking about how you’ll deal with your elders as they become more elderly? How much will you set aside each month for emergencies?

That should get you started.

 

C Wrote:
My husband has 2 children from a previous marriage that live with their mother primarily due to geography. We have avidly saved money in RESPs for their education and want to ensure that they money is available to them when they need it most.

The kids are pretty good, but let's face it - we have all slipped in our early impressionable years! Would you recommend that we:

(a) pay for their education via the RESP's up front, or
(b) pay off a student loan with the RESP money once they have completed their education?
We are not sure how the loans and RESPs are treated so not sure if (b) is even an option.

We are also contemplating paying part of their debt if they drop out (should they have a loan in place). For example, if they were to drop out in the first year of a 4 year program, we would only pay 25% of the first year. If they completed 2 of the 4yr program, we would pay 50% and so on to paying 100% of a 4 year program. This way we each have skin in the game. What are your thoughts on this?

Once again, thanks Gail for your honesty and creativity!

Gail Says:
Your step kids may not even qualify for student loans, so don't bank on them. I made an agreement with my daughter (and have been prepping my son for the same agreement) that I would pay 2/3s of costs, but she would be responsible for the other 1/3 (so she'd have to work). I did agree to carry her loan interest free for a specific number of years (3 for an undergrad degree, 5 for an MA 10 for a Phd or professional degree). If she fails a credit, she has to pay for the next one in full. If she doesn't carry a B average, she doesn't get my share of the money the following year. You're the only ones that can decide what will work for you and the kids, but I think it's important that you have expectations and that you follow through on consequences.

 

J Wrote:
I have done very well following your book and things are going okay for me: 15k student loan paid off and 17K in RRSP in 4 years on less than 40k annual income. Now, I am ready for the next step of my life and have at last at 34 years old met the man of my dreams. We are thinking of moving in together. The only issue is that he is finalizing a divorce right now and he has had to liquidate most of his RRSPs and other assets in order to meet his support obligations and make good on his legal fees. We think we have a workable budget going forward (although with perhaps less room for savings than I might prefer, given his ongoing need for occasional legal support and my desire for a baby) and should be okay as far as paying bills and living our life. But he'll be starting retirement, house fund, asset building etc. from scratch. Will we be okay given our ages? Do you have any advice for people who are pretty much starting from nothing at 35 years old?

Gail Says:
I don't think you need be concerned about the age factor. I'm not sure why people think life is a race... if you're happy together, living within your means and working towards common goals you're way better off than folks who "have it all" and are constantly fighting over the stress their debt is causing. Make sure you plan carefully for that baby. If he has child support responsibilities, take those off his income right off the top. Then apportion your expenses proportionate to the remaining income. You sound like a sensible woman, and I'm happy that you've found your soul mate.

 

A Wrote:
I have some really close friends, who I love dearly, and who are like second mothers to my kids. These women all shop regularly and ONLY buy brand names when it comes to clothing and other electronic type items. Between them all they have probably kept Lululemon and Bench in business. They all work either part or full time and all of their husbands have good paying jobs. Here is my beef...my husband and I both have great paying jobs but refuse to get caught up in the hype of all the brand name hoopla that gets thrown around. Honestly, does a 10-11 year old girl really need a closet full of over priced Lululemon and Bench clothing? That's all these girls talk about and it's getting a little out of control in my opinion. These young girls and many of their classmates are all over who has what and what's the newest trend, etc. I understand that that is part of growing up and it's happened to all of us. I was there too way back in the 70's and 80's but even back then my parents made me work for what I wanted. One of these young girls recently got a cell phone for her birthday and now all of them have a cell phone on their Christmas list! None of these girls have done anything to earn any of this stuff. They get it year round, not just for birthdays or for Christmas. When one gets something within a week the others have it too. What frustrates us is that we are trying to teach our kids to be responsible with their money but when they see their friends getting all of this stuff without working or saving for it they feel jilted sometimes. We have had our kids on a money jar for a couple years now and we feel we have been extremely successful with it. Our kids have almost enough saved each to pay for their own Netbooks and all the software and we agreed to take them shopping on Boxing Day to see if we can get any good deals. They have bought some of their own clothes and have also paid for all their own slushies and treats at the arena and ball park over the past year. They have bought their own books from the book fair at school and have pretty much stopped asking us for money but when they do, we tell them they better get their money jar out and then they decide they don't need it. (Just so you know we give them $5/week each and the rest they either earn by doing specific chores or they do get a little bit of money for Christmas from their grandparents, $25-$50 each). They both know the difference between a need and a want and even when my oldest was offered a pair of LuLu's on the Clearance rack my daughter said "no thanks"! They weren't worth the money even though her dad was willing to buy them for her! She does own one Lululemon sweater which she paid for with her own money and one Bench t-shirt that she also paid for with her own money. By having those two items it seems to have got her off the hook when it comes to being teased by the girls at school. I have actually had sales people in stores ask me what my girls are talking about when they are discussing whether they need another shirt in the same color, or another pair of jeans that look so similar to a pair they already have. I don't think the sales people had ever seen that before! Don't get me wrong...I completely agree with buying good quality clothing, etc. and in some cases you get what you pay for but honestly, $89.00 for a pair of yoga pants??? $120 for a sweatshirt!?! Why must these mothers feel the need to fill their kid’s closets with this overpriced workout wear? What are they really teaching their children? We just hope we are teaching our girls to be responsible with their money. Recently, I had another money discussion with my oldest because my youngest was $80 closer to the Netbook she wants because she chose last month not to buy any new clothes when we were shopping. My oldest is $100 short and may not have enough money in her money jar come Boxing Day. So together we figured out how she could earn the extra money based on $5/hour for 20 hours. I gave her a list of chores (or grunt work...hee hee) from me and said if she completed it by Christmas we would pay her the $100. These chores aren't easy. She scrubbed our bathroom floor with a scrub brush, on her hands and knees for over two hours (this is the second time she has done that job for money), she has to wash down our baseboards and all the light switches in the house, clean and vacuum the car, clean out the dead leaves in the flower beds, and make lunches for me for 28 days (a task I despise doing), and polish our bannisters, etc. We have a time card going and so far, she is over half way to her goal. Are we being too extreme or is this completely fair? I know some of our friend’s think we are nuts for making our girls work like that and if I ever walked out my door with a Lulu on I would feel like the biggest hypocrite because they know how I feel about it. I am sure I would be raked over the coals if I ever put one on because I have made my opinions quite clear about the whole thing. So I guess my question is this...are we doing the right thing by making our girls work this hard for these things? Should they even own them at this age? What is going to happen to the other girls as they get older? I have purchased your Money and Kids e-book and LOVE it and have gotten many great ideas from it. I have learned so much reading through all the postings and through everything else on your website. I have convinced some of my friends to take a look so hopefully, they will learn something from it. My daughter's teacher just bought the e-book too after we discussed it at her Parent/Teacher interview! Thanks again Gail for all that you offer.

Gail Says:
Girl, you are absolutely doing the right thing. Working with the Princesses as I have been, I've seen the implications of doing it the way your friends are doing it and it isn't pretty. I think that when children come to expect that they'll get everything they want when they want it, they stop appreciating things. My own children have been on an allowance (you might want to increase that a bit) of $1 per age per week... so when Alex was $11 she got $11 a week. She had to put 10% in savings, 5% in "sharing", and the rest went to whatever she wanted. When she was 12, I increased her allowance by $50 a month, and she had to buy everything but outerwear and footwear. She had to learn to make choices and to accumulate money (defer gratification) for things she really wanted.

Keep on doing what you're doing. Your children will learn the value of working for what they want, so they will treat each acquisition with more respect because they recognize the energy that went into getting it.

I've worked with over 40 Princesses at this point, and they are wearing me out. But when I lay down the law, show them that Stuff is less important than having goals, and ask them to stand independently and be accountable, about 75% of them do. I am the first person to have any expectations of them.... everyone else just kept giving in. Wanting to raise children that are responsible and independent is a good thing. Doing it isn't always easy. But that's what being a PARENT is about. Keep it up.

 

J Wrote:
I am on a maternity leave, and my husband and I are currently investing $1000.00 a month for retirement, aside from our contributions through work. I am a teacher and have a pretty good pension through work, and my husband has RRSP's that are purchased for him through his employer (7% of his income). We also invest $400.00 a month into RESP's ($200.00 per child). We currently pay $770.00 every 2 weeks towards our mortgage. Our Mortgage is a 35 year mortgage (29.1 years accelerated biweekly) with 27 years remaining. Our mortgage has a fairly low interest rate -3.79%. When I return to work next September we will have a surplus of $3015.00 a month to invest on top of our current contributions. We have no debt, except for our mortgage. Should we start doubling up our mortgage payments, or increase our investments or both????

Gail Says:
You're both being very diligent and I applaud you. I hope you're having some fun too. When your cash flow improves, split the amount 2/3 to the mortgage, 1/3 to increased savings... but make sure you're putting some money aside in your budget for fun experiences.

 

V Wrote:
I am a first year University Student, fresh out of high school. As a high school student I worked quite a bit, but I wasn't smart about my savings, and now I'm running out of cash already. I have to rent a place in the city in order to go to school, so my cost of living is just as much, if not more as tuition. I'm taking full course load in order to get my school done as quickly as possible, and I’m planning on working full time in the summer back in my hometown. However, taking a full course load does not give me enough time to have a part-time job, and thus I have to go into debt. I’m paying for almost everything myself, so I want to make smart decisions, so my future will be easier. My question is: from a financial perspective, should I take a full course load, and get my schooling done quickly and, go into more debt, or should I take fewer classes, have a part-time job, and go to less debt? Please help!

Gail Says:
This is a personal decision. Do you think that when you graduate, you'll have the income to have a life and deal with the debt you've accumulated? How will you feel "dragging out" your education? How will you feel building up the debt as you go (yes, it'll have an emotional toll)? You need to think about what's most important to you and follow that instinct. This is your life. You get to decide, having thought through the implications of each option. You're a big girl; you can make this decision for yourself.

 

L Wrote:
I have heard that if you have a store specific credit card (like an HBC, Sears, or Canadian Tire credit card), this actually works against you when you apply for a mortgage, even if you have an excellent line of credit. Is this true? (Note: I'm not referring to credit cards that give you store points, like a Shoppers Optimum Credit Card, I'm speaking specifically about credit cards that are store specific). If this is true, should I cancel those cards?

Gail Says:
The fact that a card is a store-specific card doesn't work against you. The fact that you have dozens of them, all with limits of their own might. As to your real question: should you cancel the cards? ABSOLUTELY. Those cards come with some of the highest interest rates. And from personal experience, they don't always follow the rules. Get rid of 'em and stick with Visa, MC or Amex.