March 2012 Questions & Answers

 


B Wrote:
I am a newlywed and I have two kids from a previous marriage, I own a house and a car. I am a house poor. My husband moved into the house after our marriage. He is not financially stable and does not have any assets, but also he is not as financially oriented as I am, and I am okay with that. My concern is that he was always worried about what is in it for him and pushing to be added to the house title, those red flags always concerned me when we were dating but I decided to ignore it. Now that we are married it is so difficult to manage our budget since we are sharing all of the house and family expenses as well as our income, but he always complains that he is being ripped off. What can I do now to protect my kid’s assets (the house)? Can we have a separate budget where we only share the common expenses? Is that a healthy choice? Believe me it is also very difficult to communicate, for that reason I am the one taking care of all the finances and it is not fun but it is easier than doing it together.

Gail Says:
Let's get some stuff clear right off the bat.

1. It doesn't matter whose name the house is in, once it becomes the matrimonial home (you get married and you both live in it together), it's an asset that is legally shared.

2. You can't "protect" this asset for the children. You can, however, set your budget up so that each of you is contributing in a way that makes the strife go away. But I have some things to say about this too.

When a man (or woman) marries a partner with children, they don't just get the partner, they are responsible for the children too. If they don't want that, they shouldn't get married.

If you are getting child support (you don't say) for the children, then that money should be used exclusively for the children: to pay their share of housing, food, and other kid-related expenses, as well as fun and frolic.

I don't care how much he doesn't think paying attention to his money is important, IT IS. It is childish to think you can just ignore such an important aspect of your life.

It's time to sit down and hammer out all the important issues. You should have had this conversation before you got married, but that's history. Time to do it NOW. You cannot take care of the money on your own without his input because then he doesn't know what's going on and can IMAGINE that you're taking advantage of him. So get it all out on the table: what it costs to live, what you're each going to contribute, how you're going to make decisions. If he wants you to manage all the money, he should understand everything that's going on and kiss you repeatedly for taking on this gargantuan task.

 

S. Wrote:
First off I'd really like to thank you because you are the only good example I have as to how to handle my finances, which is funny because my mother is a financial adviser who doesn't manage her money well. I am currently finishing my undergraduate degree in Genetics, and will graduate debt free. I managed to do this by working and am very thankful to my parents that did help me a lot along the way. I am planning on pursuing a master's degree and am trying to budget what the cost will be if I choose to do this. Through my research I found that tuition for the program that I want is $6880.00 a year (it's a 2 year program) plus books. I would have to live in Toronto to complete this degree. I have looked at apartments and have decided that ideally I would not want to spend more than $850 a month, however I have found a few a little further away at $750, which would be more in my price range. Rent along with utilities, phone, internet, and groceries I've calculated that my cost of living would be around $12,000.00 for the year. I do plan on working while completing this degree to keep my debt to a minimum; however, there does not seem to be a way around taking out a student loan. A starting salary for the career I plan to pursue tends to be a little over $50,000.00. SO I guess my question is this, I am getting in over my head? Would you suggest taking a year off to save more? I have enough right now to cover my tuition costs.

Gail Says:
I think you have done very well so far and are to be commended for being such a sensible girl. My rule of thumb is to graduate with no more than your first year's salary in student debt. Based on having your tuition costs already covered, and your plan to work, I think you'll be in fine shape. If you are uncomfortable with the student debt and wish to work for a year and save, that's fine... if it works for you. But taking on some student debt and paying it back quickly would also be fine, if it meant you'd get to that great job where you were earning a good income faster.

 

A Wrote:
I owe a lot of money on credit card (one) and a line of credit. I used them to purchase a used vehicle and they were used for a down payment on purchasing a house, in total I owe $30,000. I have a full time job (roughly $40,000 a year), my common law pays the mortgage and I pay most of the household bills.

On a call to my bank regarding something else, they told me I could have "peace of mind" by consolidating my credit card and line of credit debt by taking out a loan that would have a lower interest rate and one payment per month. Do you think this is a good or bad idea?

Gail Says:
A lower interest rate cannot be a bad thing, and a fixed monthly payment will give you a concrete date by which you can expect to be debt-free if you do what you're s'posed. Two things to be sure of before you consolidate: first be sure to know that the monthly payment is AFFORDABLE on your current income. You don't want to consolidate all your debt only to find that you can't make your payments. Second, be sure to read all the fine print with your honey. If no big red flags go up, then it sounds like a great idea.

 

A Wrote:
Is there any merit in cashing out our RRSP's and using that money to pay off our mortgage? Then we could use the money we currently pay for our mortgage to start rebuilding our RRSP's. We have about $250,000 in RRSP's and we owe about $160,000 on our mortgage. We make monthly contributions to our RRSP of about $350. Our mortgage is around $1200/month. There is enough in our two RRSP accounts (mine and my husband's) to pay off the mortgage - even after we pay the taxes on the money we would withdraw. What puzzles me is that the interest we pay on our mortgage is about the same as what we tend to earn on our RRSP's so in the end it cancels out our investment earnings. It seems to me that if we paid off our mortgage, we could then start rebuilding our RRSP's with the savings and without the debt load, we would not be "cancelling out" the interest we earn with the interest we end up paying on our mortgage. Does this make sense?

Gail Says:
I wouldn't recommend this for a couple of reasons. The first is that when you make a withdrawal from your RRSP you LOSE all of that contribution room; you can't just put it back when you have room in your budget. It's gone, and it will take you years to replenish your savings. Your withdrawal from your RRSP will also be taxed at your marginal tax rate so you'd lose a whack of that money to the tax man.

If you are feeling some pressure to pay off your mortgage, why not try cutting back in some other area to increase your mortgage payment? It doesn't take a lot of extra money to make a big difference.

 

L Wrote:
Your show has really changed my life. I watch, Till Debt, Princess, and the new baby show religiously. I went from being a careless spender to being an active planner. I use your jars for my weekly expenses and have a very carefully mapped out saving plan.

This being said... My boyfriend and I have different views on finance... He is the man I want to marry (and vice versa) but his financial choices are foreign and scary to me. We are young (me 24, him 27) and are getting ready to spend our lives together but we need financial advice from a professional.

Here's the situation:

I make $42,000/yr (before tax).
I live with my parents and save $800 every 2 weeks toward a down payment for a house.
Currently, I have $15,000 in Tax Free Savings, $7,000 in RRSP's, and $3,000 in general savings.
I am able to set aside money annually for vacations, expenses, and all of my other needs.
I live VERY carefully (I spend very, very little).
I have NO debt.

My boyfriend makes $80,000/yr (before tax).
He currently lives with a roommate (his brother); they each spend $1,200 / month on rent.
He is currently saving money for a mortgage (and will have $30,000 by Sept 2012)
He spends money often (Leafs games, Raptors games, Keg dinners, lunch out daily, etc.)
He has approximately $90,000 in debt (from paying for his MBA)

My boyfriend wants to buy a condo this fall (and already went in and talked to a mortgage advisor who has suggested we could buy a $400,000 condo this fall) instead of paying off his debt (like I think he should). He tells me he wants to "leverage his debt, to build equity..." and assures me paying minimum interest on his debt, while saving for a condo is a smart plan. With this plan he is not paying off any of the principle, and it worries me.

I am worried the interest will become overwhelming, and that the stress of a mortgage, student debt, and planning for an engagement ring/wedding/starting a family is too much...

Is his plan the right thing to do (and I am just over reacting)????

If you don't have time to answer can you suggest someone to talk to (I am worried the mortgage broker is just trying to sell us more debt)...HELP please....PLEASE, please, please, could you suggest someone to talk to in Toronto if you don't have the time to send your suggestion. I am happy paying for a professional assessment if you refer someone... as long as it means getting honest, reliable, financial advice that can help us plan for our future.

Gail Says:
It's typical for lenders to want you to take as much credit as they can shove at you. It is a terrible idea to take on more debt (particularly that much more) on top of that huge amount of debt he already has. Here's what you should do: sit down and figure out how much he needs to pay each month to get that MBA debt gone in 5 years. It'll be $1,500 for the principal, plus the monthly interest. Next, figure out how much mortgage payment he'll be able to afford to carry on whatever he decides to buy (he's already paying way too much in rent considering the fact that he's sharing). I know you love this boy, and that he loves you. But love doesn't buy groceries, and if you can't get this money stuff worked out before you marry, you WILL be in trouble down the road. Biggest hugs, and stay sensible, please.

 

D Wrote:
Loved your show for years, and just discovered your website. I truly love it. So here is my situation.

My husband is currently locked out from his manufacturing job. I have a good job, but will be commencing maternity leave this March with our first child, with a reduced income. I have no idea how long the lock out will go on for and if he will be able to find a new job to replace it. My husband is 31 and I am 30.

The only debt we have right now is a mortgage of $195,000, (5.05% with 17.9 years left, which is up for renewal Sept 2012), and one car payment of $300 a month. (36 months remaining). My currently salary almost covers all our bills. The shortfall is currently being made up of a small savings of $2000 and his lock out pay. (We got married in 2011, and renovated our kitchen in 2011 so the savings are not what they use to be.) My husband has $12,000 in an RRSP and I have $48,000 in an RRSP.

The question is this. If my husband does not go back to work, and cannot collect EI, or cannot find a job within the next 6 months, would it be a good thing or a bad thing to take out some of his RRSP's? Since he will have no income this year, or a severely reduced amount, what kinds of tax implications will he face? Since I am working this year, and my employer slightly tops me up I would prefer not to touch my RRSP's. We would only seek family support if we truly needed it.

Any tips on this type of situation would be greatly appreciated during this stressful time for us.

Gail Says:
The amount of tax he will pay on withdrawals from his RRSP depends on how much he has already earned in the year and his marginal tax rate. Since he will have no income prior to the RRSP withdrawal, he can take up to his personal exemption amount ($10,822 for 2012) out before he will owe taxes. There are two things you need to know: 1) the FI will withhold tax on the RRSP withdrawal... 10% on a withdrawal up to $5,000. 2) If he subsequently gets a job, his income earned during the year will affect the amount of tax owed on the RRSP withdrawal even if he wasn't working when he made the withdrawal. It's also important that once taken out, the money can NOT be put back.

 

H Wrote:
Reading your articles on Moneysense [which I love by the way]. On the latest you wrote about tax free savings accounts and how you say everyone should invest in them. I agree and just have a question on your last paragraph.

All that money sitting in taxable savings accounts should be shuffled into a TFSA lickety-split. Hey, the government’s giving you a perfectly legal way of screwing them out of taxes. Take it!

Are you saying it would make sense to transfer some money yearly from a RRSP [which I have been doing for years] to my TFSA which I have very little in?

Gail Says:
No, I'm saying if you have money in a regular savings account, you should move it to a TFSA. If you take it out of the RRSP, you will have to pay taxes on it. Unless you're in a situation where your tax rate is currently lower than when you put the money into the RRSP, you should leave your RRSP money alone.

 

L Wrote:
I am a 55 year old female, widowed. My only assets besides $11,000 in savings are $210,000 in RRSP's (not locked in) and $75,000 (locked-in RRSP's). I am unemployed, receiving widow's pension of $425 per month. I am renting an apartment $1,000 per month + approx. $450 in expenses for utilities, telephone, internet, life & car insurances, groceries, etc. My question is would it be a good idea to cash in the $210,000 (minus 30% withheld gov't taxes) to purchase a small home to sustain my living accommodations for the remainder of my life.

Gail Says:
For some reason people believe that when they own, their budget is off the hook for shelter. I own my home and it costs me $1,000 a month for things like taxes, maintenance, insurance and utilities. I would NOT cash out the RRSP to buy a home. You're going to need that money for food!