July 2012 Questions & Answers

 


M Wrote:
What is your opinion of Loan Protection insurance?

Gail Says:
I think it's a crappy product designed to steal your money.

 

A Wrote:
My Boyfriend and I are both 23 and have been together for 3 years. He has just graduated from the RN program and I have just been accepted into a Diagnostic Medical Sonography program. My program requires me to relocate to a city about 2 hours away and the two of us have made plans to move there and move in together. He has offered to fully financially support me while I am in school because I will be unable to have even a part time job because of my workload while in school. I have been receiving mixed feedback from family and friends over whether this is a good idea or not. I personally feel that it is dangerous because an uneven dynamic might form between us and cause a lot of conflict, however we are very committed to each other and talk about marriage so realistically there is not much point of me going into debt to cover my half of the expenses while I am in school if he is able to comfortably cover them for me since when we get married all of my debt will become his debt anyways. I would just like to know your thoughts on my situation. I have been following you for years and really value your advice.

Gail Says:
I think that in every relationship there will be times when one partner is financially stronger than the other, and that over the very long term it will work out even. If, as you say, you are committed to each other, and he is quite willing to "cover the expenses" eliminating the student debt you would have to deal with down the road (together), then by all means take advantage of each other's strengths. There may be a time down the road when he wants some time off and you will need you to pick up the slack financially. Or he may want to relocate for his career and you will go with him.

If you're worried about what you may "owe" him, talk about it with him. Perhaps you'll agree that once you're working full time you will put a percentage of your salary above and beyond the living expenses into a "fun" fund that he can enjoy (along with you), fully funded by you. But talk. You should not feel you are beholding for this, nor should you feel entitled. If you are planning to be long-term mates, this is part of how you cover each other's backs.

 

H Wrote:
I have a Hudson Bay card which seems to now be taken over by Capital One. I owe nothing on it. The interest is set at 29.9% which seems more than ridiculous. Is it better for me to call and cancel the account or just not ever use it? My credit is pretty good.

Gail Says:
If you haven't used the card for a while, there won't be much history on it. And, as you say, you don't want a card with a 30% interest rate, so close the sucker.

 

S Wrote:
My fiancé and I are huge fans of both Til Debt Do Us Part and Princess. I’m wondering if you have the time to give me a few pieces of advice. When I was younger (18-20) I was definitely the Princess type, racked up big balances on my credit cards buying clothes and taking cash advances to go to the bar every night when I was only working part-time. When I got a job as personal banker I did a complete 180, because I saw how badly some people screwed themselves with their debt and did not want that.

My question is: Is it possible to be too obsessed with financial security and what can I do about it?

I’m now 25, I paid off all my debt, I have an excellent credit score, pay off my visa bi-weekly when I get paid, contribute bi-weekly to my TFSA, RSP, pension, etc. Make pre-payments to the mortgage on top of the regular payment, even though we only amortized it over 18 years. Everything is on track I can retire very comfortably at 55. We have more than adequate life insurance on both of us; I have several savings accounts (sort of like the jar system but online, with accounts for Christmas, emergencies, honeymoon, house improvement, etc. I can do this because I don’t have bank charges since I work for the bank.) I constantly obsess over ways to make more money, I was working 2 jobs for several months having no days off for 2 months until I became burnt out and sick and my fiancé asked me to quit my second job. I then instead focused on just making more money and getting promoted at my day job and got a promotion to an auditor from personal banker. I put pressure on my fiancé to try to find ways to make more money even though I really have nothing to worry about...and now I am ABSOLUTELY TERRIFIED of taking on any debt for any reason and it drives my fiancé crazy. We saved up and bought a house well with-in our price range (We were pre-approved for $350k and bought for $227k) with a good down-payment but he wants to renovate it as some things are pretty outdated and somewhat damaged (still function, but look really ugly, old flooring coming apart, etc). We want to fix and update it, but some of the cost will have to go onto our Line of Credit as we do not have enough saved up to tear out and re-do our bathroom and kitchen. The idea of carrying any balance of debt completely terrifies me. Even though we can easily pay it off in 18-24 months, I lose sleep over it and check our online banking more than once a day looking at the balance owing for the supplies that have already been bought.

I am being completely unreasonable and I know it, but I can’t help obsessing over it. We are getting a steal of a deal on the renos as my fiancé and his friends are all tradesmen and doing the work themselves and getting us contractor's deals on supplies. And we need to get the renos done now, as we plan to start a family after our wedding in 11 months and it would make more sense to do the renos before baby comes. (There is already an extensive budget for the wedding costs and maternity leave, I already contacted my works HR department to see what my benefits would be even though I don’t plan on getting pregnant for 11 months.)

How do I stop obsessing about this $h!t?? Help!

Gail Says:
Okay, girlfriend, the first thing you have to do is take a deep breath. Now smile. There, that's better already. Now to all your financial insecurities:

1. I get that you made some mistakes and have now done 180, but swinging too far in any direction isn't healthy. You need a marker by which to measure your progress so you have a sense of how well you are doing. Today I'd like you to make a net worth statement so you have a sense of where you stand. You'll update it (preferably on an excel spread sheet so you can track your progress) every six months. Include all the money you have, even the money you plan to spend because until it is spent it is money in the bank. Make it realistic: no personal possessions like jewelry or stuff, only the black book on vehicles. Now you know where you are. Looks pretty good from where I sit.

2. The reason you're obsessing is that you don't have a concrete plan...it's all swirling around in your brain and that feels dangerous to you given your past. BTW, no plan is dangerous. So the next thing you're going to do is figure out what EXACTLY you're going to do to the house, along with a budget for each component. Please do NOT bank of "free friends". Budget in the labour and if you end up saving in that area, that's a blessing.

Include in your plan for each individual component of the renovation:

What will be done?
What materials will cost?
What labour will cost?
And if you're going to finance any of it, what the cost of financing will be. So if you put $5,000 on your line for 2 years at ??%, what will the total financing cost be for that component?
What will that component add in additional value to your home? Realistic #s please. No 100%...no renovation translates into 100% increase in value

3. Finally, you are going to prioritize your components: A, B, C. A's are things you think you absolutely have to do now...these relate to infrastructure, safety and ongoing maintenance things... you can't do cosmetic things til these are done. B are the things that will add the most value: things that will make your life more comfortable (like that bathroom) or will be of biggest benefit to the family (If you plan to stay in this house, reno "investments" aren't since the things you do will be "old" by the time you finally do sell.) C's are the nice to haves. You never put nice to haves on credit. Them's the things you save for and then pay for (you can start another of those savings account you love so much.)

With a concrete plan in hand, you can move forward with knowledge at your back. That means you'll have made informed decisions and choices about what's most important and just how much debt you're willing to take on. Oh, and BTW, watch your other spending as you do this spending. Dropping $35,000 on a new kitchen tends to make a $250 pair of boots look like a drop in the bucket.

If you have more questions, write again. Best of luck. You can name the baby after me!

 

J Wrote:
I am a single mom, and have decided to take the next step with my boyfriend. We are moving in together. I know how couples are supposed to split finances when moving in together. They split it by a percentage of income. What happens when children are involved? He thinks he should pay one quarter. He also feels he should not pay any additional costs like community fees or insurance because I own the house, not him.

Gail Says:
Split out the kids' only costs (some food, clothes, extra curricular etc.) and put them into their own budget. Then split the rest of the costs as if you're a couple. As for not paying insur/community fees, these are part of the shelter component, so he should most certainly contribute. Or you could come up with a "rent" amount for a home like the one you're living in and he can contribute his share of that.

 

E Wrote:
When we purchased the home we currently are at, we didn't really think of the "investment" aspect, but mostly, where we wanted to live for a very long time. We love this neighborhood (you actually filmed in a house in the same complex, it was a Townhouse, very modern, north of the Promenade Mall, I noticed that on one of the Princess Episodes - what a small world! The home is worth 650K, we owe 295K (paid 460K back in 2007, moved in 2009). We've added extra mortgage payments, and we are currently looking at paying what's left in about 10 to 12 years. Some of our friends are telling us to sell, make the "profit" and move.... but I am not sure what to do. I know you will not give me the answer of what to do, or not... but for some reason, I don't want to detach from this home, but at the same time I feel that I could make a lot of money if we sell. Sometimes I feel that life could be better mortgage free, but other times I love the convenience of how easy access we have to so many things that are around here. We only have 1 car, so I do rely on Public Transit when we don't commute together. My wife is working close so living in this area allows us time to enjoy our family, and not spend it on the road. I do admit that our "carrying" and living cost equal to 45% of our income (and you would have freaked on us about this), but since we don't owe anything else besides our home, and our TFSA's and RRSP are all topped out to the max, we agree that our indulgence is our home. We live a nice life, and enjoy what we can, when we save the money. Our kids are 4 and 1, and we think that having this roof in a nice neighborhood, near the school, church, and amenities compensates for the extra 10% on housing.

If it was you...would you sell? Would you rent out for a bit until the market goes down the drain, or since we have so much equity, do you think we can weather the storm? (By the way, our EF is sitting at 7 months now).

Gail Says:
Isn't it funny how we can know what we want until other people start messing with our heads. Here are your words:

for some reason, I don't want to detach from this home
I love the convenience of how easy access we have to so many things that are around here.
My wife is working close so living in this area allows us time to enjoy our family, and not spend it on the road.
We agree that our indulgence is our home.
We think that having this roof in a nice neighborhood, near the school, church, and amenities compensates for the extra 10% on housing.

You've already answered this question for yourself m'love.

As for: I do admit that our "carrying" and living cost equal to 45% of our income (and you would have freaked on us about this), I WOULD NOT FREAK OUT BECAUSE YOU ALSO SAY: but since we don't owe anything else besides our home, and our TFSA's and RRSP are all topped out to the max. SINCE YOU NEED TO PUT NOTHING TO DEBT REPAYMENT you have an extra 15% you can allocate anywhere in your budget.

AND NOW TO: I feel that I could make a lot of money if we sell...PERHAPS, BUT AT WHAT COST TO YOUR LIFE AND YOUR PLEASURE. And would it really be a lot of money since you're going to have to put a roof over your heads somewhere, you'll have to pay the costs to sell (have you figured the commission) and buy again (and land transfer tax). I'm not even going to hazard a guess at what the market will do. I've been wrong too many times. No one knows. Dot your Is and cross your Ts (which you have done) and live your life in the NOW.

Don't listen to the blah blah blah...you know what kind of life you want. You and your wife have worked hard and had each other's backs through ups and downs. Enjoy your life the way you want it to be.

 

N Wrote:
My husband and I are both Canadian citizens, but we are living and working in the U.S - we do not have U.S. citizenship (although our children have dual).

My question pertains to retirement... when planning for future retirement, we plan on retiring back home in Canada but are concerned about how we will be taxed (in Canada) regards to our U.S. social security funds, 401K, and ROTH IRA plans.

Also, when we move back to Canada, do we automatically get the Old Age pension or Canada pension? We both worked in Canada for a short time prior to moving to the States 10 years ago.

Gail Says:
You might be able to rollover your U.S. retirement accounts to a Canadian RRS if the payments to the U.S. pension plans were made while you were NOT a resident of Canada. The process can be tricky because the tax systems in Canada and the U.S. are different so check with a specialist. You may not be eligible for either of OAS or CPP. The first requires you to have lived in Canada for 40 years so if you don't meet the criteria you're not eligible for the full OAS. The second is a contributory plan; if you didn't pay in, you won't get out. And there are time limit restrictions as well.

 

S Wrote:
I have been a huge Dave Ramsey fan since 2007. We became debt free (except our mortgage) on 12/12/08 thanks to his teachings. Over the last year or so my family has become a huge fan of yours as well and I absolutely love both of your shows. Our 7 year old daughter and I watch Princess together and she will get upset if I delete it off of TIVO so you have a 7 year old fan as well.

My question is this. Since we are debt free (except mortgage) and have been for almost 4 years and will stay that way from here on out, when looking at the %s. 15% Debt repayment, where should we be applying that percentage to? Needs, Wants, Savings or a little towards all of them?

I would love to have you look at our budget someday. I just ran the percentages and our wants are way too high.

I pray for your continued success in helping people get debt free. This way of life is so worth it. There is nothing I want more than to never feel the stress of debt again.

Gail Says:
You can put that extra 15% wherever you want to m'love. If you think you're saving enough, it could go into your LIFE category, or you could use it to further reduce your mortgage and become mortgage free that much faster (reducing your needs category). As for Wants being too high, as long as you're doing the right things with your money: living debt free, working to pay off mortgage, saving for your future and your children's futures (education), then there's no downside to enjoying your money. So have some fun.