September 2012 Questions & Answers

 

 


S Wrote: I have a Mastercard that I owe $3k on and another Mastercard that has no balance. The card with the $3k balance is currently 19.9% interest, where as the other card is only 9.9% interest. Is it worth my while to pay a penalty to have the money transferred from the higher interest card in order to pay it off sooner or should I leave it where it is and continue paying on it?

Gail Says: Why would you have to pay a penalty? I've never heard of such a thing. As long as you have the room on the lower interest card, you should be able to get the balance transferred over using a credit card convenience cheque. Call and ask the lower card company to send you one and write the cheque to pay off the higher cost card.

 

T Wrote: My boyfriend and I have been living together for just over 6 months. Things with us couldn't be better. We let his cousin live in the basement to help out with our mortgage for the first two years. Recently, we found out his cousin has $11,000.00 worth of consumer debt on his credit card where he pays 28.8%. Since we have three vehicles between my boyfriend and me, my boyfriend offered to let his cousin use our extra car, (the cousin would pay for all the expenses with the car, gas, maintenance, repairs, registration, insurance etc.) and he could then sell his motorcycle and his car. With the money from selling the car and the bike he would pay off his credit card.

Do you think this is a good idea? I'm afraid that this won't change anything and it is too much of a hand out. I am also worried that if he uses it for too long he will think it's his and when he moves out he will take it with him when it is still our car. I don't like the car, and I find it is a pain to keep around, but if we can sell it to get $1000.00, we should and put that to our savings not just give it away.

Am I just being too stubborn, and should we help out his cousin? Other than my boyfriend, this cousin doesn't really have much family to go to should he run into financial issues or even just advice for his financial issues. My boyfriend and I have an ok base savings for our ages, so on one hand I feel we should help him out, but on the other, no one helped me in my financial situations; I did it all myself, why can't he?

Gail Says: The real question you have to answer is, do you like this person enough to gift him $1000 so that he, in turn, can change his life? If you don't like him that much, and you're prepared to go to battle with your boyfriend (it's his car and his cousin, right?), then by all means start a fight. If you do like him enough, then gift him the money (in your head) with an expectation of repayment. If he paid you an extra $100 a month in rent (now that he has no consumer debt) he'd be square with you in 10 months.

 

L Wrote: I watch your show regularly so I am not sure what you will think of the "summer adventure/experiment" that my sons have taken on and I have agreed to. Both of my sons (ages 18 and 20) along with two other fellows have moved to Squamish for the summer (about 1.5 hours from my home). Two have jobs and the other two are working hard on handing out resumes. The 4 have rented a townhouse close to their workplaces so they don't need a vehicle. At first I was not very keen on the idea. Spending money on rent rather than staying home and saving as much as possible for college/university, but then I thought why not at this early stage in their lives! What better way to find out the price of TP and toothpaste and on a wage that will make life a wee bit tough. I am not financially supporting this project, they are on their own. Neither of my sons has ever cleaned a toilet or tub and I can hardly wait to hear that story! They both have made their own lunches since elementary school, both do their own laundry, both can make meals and have had chores like cutting the lawn and helping around the house (how they got out of the bathroom I'm not sure now that it has come to light). At this early stage in their lives I am hoping they will have a light bulb moment. I'm not asking for a huge spotlight and I know they are going to have a great time climbing at the Chieftain, but I do hope they gain more of an appreciation of the "Fridge Fairy" and what it takes to keep up a home. I've been a single parent for 14 years and own my own home. It has been a big challenge staying in the home. I've had to learn plumbing, electrical, and more in order to keep the place. Although I have great kids and know I am very lucky to have such loving sons, sometimes they have been a wee bit, as kids often are, selfish and thoughtless. I think it will be a great learning experience for all of us. At the very least I will enjoy a peaceful summer but what I hoping for is that I will learn that they are very capable and they will learn the same (along with the knowledge that those long hot water showers don't come free!).

Gail Says: I think it is both brave and smart of you to let this happen, for all the reasons you describe. Some lessons are worth the cost, and life lessons learned through experience are priceless. Just keep your hand out of your wallet. If you give them so much as a penny you will have screwed up the experiment. Can you hang tough?

 

L Wrote: I am currently paying 19% on my credit card. I put $200 a month down on it but it seems to only be paying the charges from having the $3,000 limit. It is aggravating to see all of your money that you are putting on the credit card going strictly to charges and less than half going on the principal. Do you have any advice on how I can change this?

Gail Says: You should only be paying about $48 in interest a month at 19%. That would mean you're sending over $150 to your principal which will take you 20 months to be paid off. Are there other charges you haven't mentioned? And if you want to get the debt gone faster, are you prepared to do whatever it takes: cut back on other spending, get a second job? This is in your hands.

 

A Wrote: I am planning on going to school in the fall for my masters. I have worked 2 jobs for the last 2 years and managed to save $26 000, and should have at least $30 000 saved by the time I start school. School should cost me anywhere between $15 000 - $30 000 depending on whether or not I get into school locally or have to move for school. If I go to school locally, I will be able to stay at home with my parents and have no fixed payments other than my credit card bill & insurance (car is paid off). So I will have an additional $15 000.

I have always heard that real estate is the best investment, especially with the interest rates the way they are now.

I am just wondering if I should take my money, put it directly towards my education - and graduate with no debt, but no assets/equity either or, if I should take my money and invest it in a property and take out a loan to pay for my education? I may not qualify for a mortgage after graduating.

Gail Says: I know real estate has been lauded as the best way to make a potful of money, but honey, you need to get finished with school and then get busy with life. You've done so well to work and save, why would you go into debt at this point? Imagine graduating from school and having to go a few months without a job (while you find the right one) with a mortgage payment hanging over your head. Even if you rented the place out, there's no guarantee you'd have a steady income. Crap happens. Stay your course. You have plenty of time to buy a home, build a life, and have fun too. And it will be so much easier when you're debt-free.

 

B Wrote: I have a question about saving 10% of your income and budgeting. My employer matches 100% of my RRSP contributions, up to 5% of my salary. I contribute the full 5%, so with the employer matching I am putting away the equivalent of 10% of my salary for retirement annually.

Since my own contributions amount to 5%, can I take that other 5% and put it into another category? Or should I be putting the full 10% in myself and contributing a total of 15%?

I still have 30 years until retirement, and have around $50,000 in RRSPs.

Gail Says: Because of your age and how much you have saved, you need to ramp up your savings, so I'd count the 5% the employer is putting in as a blessing and keep saving the 10% as well.

 

M Wrote: I'm coming off of maternity leave and budgeting for childcare. As calculated with your interactive online budget worksheet, we will be spending about 40% on life due to daycare costs being so high. Thankfully, we have no debt other than a mortgage. But should I be scared silly that our life expenses are so high?

Gail Says: You should only be scared silly if you're spending more money than you make. If you're coming out even you're doing fine. The pie is a guideline. With no debt, you have an additional 15% in your budget... added to the normal 25% for Life, that makes 40%... see, all even-steven.

 

K Wrote: My fiancé and I are getting married in a few months but we are in somewhat different financial situations. He has about $12 000 in debt (student loans and consumer debt), makes about $22 000/year. I'm debt free, and have considerable savings including money from an inheritance. I currently make $70 000/year but expect that to go up to over $150 000/year once I complete additional training (to be done in about 2 years). We currently rent an apartment together ($1400/month) but would like to buy a home within the next 2-4 years. Both of us are fairly frugal and don't make extravagant purchases, and we currently split household expenses (rent, cable, utilities, and food) 50/50.

My questions are:
1) What's the best way to combine our finances/share our expenses fairly while still protecting my assets in case we ever separate?
2) He prefers to split our expenses and our spending on wants like vacations 50/50. I find this difficult because I don't really feel it's fair to him to spend so much more proportional to his income, and I also feel like it delays doing things like vacations or buying a home (i.e. we could do these things sooner if I paid a larger percentage of them, which I feel I can afford to do). What do you think?
3) Once we are married, should I contribute to paying down his debt?

Gail Says: Like you I think the 50/50 split, while "even" isn't "fair". I think doing it proportionate to income makes more sense for joint expenses. But it needs to be based on net income (what you put in the bank), not on gross income. Let's say his net income is $1500 a month and your net income is $4,500 a month. Together you make $6,000. Of that he brings home 25% and you bring home the other 75%, so you would pay 75% of the joint expenses (like rent, food, utilities, and the like) and he would pay 25%.

As for the debt, I think if you want to help him with the student debt, that would be fine (though I should hope with student debt he also has better income prospects down the line). But the consumer debt should be his responsibility. And it should be a priority.

You should do your own saving for retirement. You should have no joint debt (except that mortgage down the road.)

As for splitting expenses like vacations and wants, that's something you're going to have to negotiate. Perhaps you can "gift" him part of your vacations for birthdays and other celebrations where gifting is appropriate. It's murky because people can get so sensitive to "keeping score" issues. You're going to have to work it out between you.