December 2014 Questions & Answers

 


S Wrote:  I type this email with tears streaming down my face. I am in desperate need of help.

My situation is such that I do not have any debt (house and car are paid for) but I am having a difficult time managing what money I do have so that I can ensure I am not destitute later in life (by difficult, I mean I am not sure I am investing wisely and I don't have an issue with unnecessary spending).

In 2007 I inherited money and used the investment division of a national bank to manage this money. After the market crash and some bad advice from my broker caused a large portion of the investment to be lost, I pulled the remaining money out and placed it in a daily interest savings account.

My profession has seen drastic changes in recent years and as a result, I have gone from middle-class income (40g) to below the poverty line (less than 12g). As I am sure you have heard from many folks, the job market in Ontario (in particular the GTA) is dire.

I have been extremely lucky to have the inheritance money to supplement my income but that money is slowly draining away and I am terrified of the future. Friends have suggested I use the equity in my home but from what I understand this can be very risky.

I continue to apply for jobs but have had no success to date. I am writing to you with the hope that you can provide me some direction so that I can manage what savings I do have in the best way possible.

Gail Says:  You don't say how old you are or how much money you have so it's difficult for me to give you specific advice. It seems your biggest problem right now is the shortfall in income. You may have to choose a different path in order to generate enough income to not keep tapping your nest egg. Just because you are in one profession does not mean you need stay there. And if that work isn't giving you enough to live, you may need to get a second or even a third job to make ends meet and save some money for the future.

I'm sorry you lost so much money. You were very likely in investments you did not understand and for which you did not have the right risk tolerance. But that is now water under the bridge. The important thing is to make a plan for how you will deal moving forward.

I know the job market is tight. I also know lots of people who piece together a full time income from several part-time jobs.   

 

S Wrote:  I am barely 11 years old and I already have over $650 in the bank because of how awesome you and your shows are. Turns out I am richer than practically everyone on your show! 

Gail Says:  Yes m'love, you very well might be. And you're pretty smart too. Good for you. Now let's see how good you are at teaching your friends and family about how to be sensible with their money! You go girl!

 

N Wrote:  I have written to you a few times, but I have not seen an answer to my questions on your web site. I enjoy watching reruns of your shows, and I think I am learning, but my husband and I are having a difficult time. Our income is sky-high (we are in the 1%), yet we cannot manage a monthly budget. We live a life that I fear is beyond our means, and although we save about $60,000 per year, I believe we could be saving 3 times that amount with no pain. We are Money Morons, despite our many degrees. My husband is famous in our small city, and he wants everyone to know how fabulous we are. For example, we have memberships at the Faculty Club, the Royal Glenora and the Derrick Club, plus his health club membership at the Hotel Macdonald. We don't just take luxury holidays; we get the best suite on the boat, and the best suite at the hotel. We have three kids under 5, I am not going back to work, and I worry about the future. My father is a capable financial planner, but I am ashamed to have him know how much we could be saving vs. how little we actually are saving. Even well-off people need your help. Please help us, Gail. I can give up Escada and shop at the Bay. I do not need the extravagant jewelry. I like it, but I don't need it. We need some help getting straightened out.

Gail Says:  You say you fear you are living beyond your means in one breath and then tell me you're saving about $60,000 a year in the next. M'love, if you're debt free and saving $60K a year, you are doing fine. Seriously. But maybe it is that you don't actually know the ins and outs of your finances and that's got you a little creeped out. Could it be that your partner does the money management in your family and you're feeling out of the loop? If so, I suggest you gather up all the paperwork, do a spending analysis, a budget and a net worth statement and see what's what. That should put your mind at ease.  

 

K Wrote:  I've got what I think is a smart financial head on my shoulders thanks to a money-smart upbringing and having a genuine interest in personal finance fuelled in part by your work.

I am a recent graduate and have been worked two separate contract positions since graduation-a three month contract and a current 6 month contract that is over March 28, 2014. Both of these positions allowed me to take home roughly $1,400 per pay, which is quite good for a new grad.

I have already secured a position to start April 7, another contract with likelihood of full time after probation. This position is a major decrease in pay, at $12.50/hour - the upside is that I will be working five minutes away from my condo and not spending $19.15 per day in transit costs to get from Mississauga to Queen's Park.

My common law boyfriend has a secure, full time position at York U and was recently promoted. We split rent 50/50, which is $500 per month total. His expenses: car insurance, gas, cell phone. My expenses: Rogers bill, cell phone and my transit costs. Food is split 50/50.

I have student loans of $23,000 and have been granted repayment assistance so I am not required to make payments until April (with likelihood of extension), with the Government paying my interest so any payments I make go towards principal.

I have no credit card debt, $10,000 in a TFSA and $4000 in general savings that I am using for an emergency fund. (I am 24).

Am I on the right track? Should I be focusing on immediately making payments on my student loans especially with my pay decrease, even though no interest is accruing?

Gail Says:  I think you're doing just fine. Don't come out of interest relief, but start setting aside the money you'll pay monthly once you come out now (using a regular high interest savings account) and when you come out be ready to make those payments. I'd suggest you do NOT default to the minimum since that will keep you in debt for up to 10 years. Work out a debt repayment plan (go here to play with the numbers until you come up with a plan that works for you: http://tools.canlearn.ca/cslgs-scpse/cln-cln/crp-lrc/af.nlindex-eng.do) and then practice now living as if you're making those payments to see how it works for you. If you have to get a part-time job to get out of debt as quickly as possible, that's an investment in energy expended that will pay off in the future when you get to debt-free.

 

I Wrote:  First off, I just want to say that I'm a huge, HUGE fan of all your shows. I use a modified version of your famous jars strategy to do all my finances, and it has completely removed the money stress from my life! I tell everyone about it. I am able to make digital jars using accounts from ING Direct online banking, so I don't have to have cash in an envelope. It's a great system!

I just saw an episode of Money Moron that dealt with a couple with a substantial income gap (I believe it was $32 000 and $56 000). You suggested that in couples, 50/50 isn't always fair. I had never thought of this before! I am in a relationship and my partner and I will be living together soon. I make nearly double what he makes ($43 000 vs my $79 000), and so I think the proportional expense sharing is brilliant because it will actually allow him to save money and be more stable instead of struggling and needing me to help him out all the time.

I was just wondering, when calculating the proportion that each member contributes, do you base this on gross or net income? From a gross income perspective, I would be contributing about 65% to expenses, but I'm not sure what it would be for net income because we are in different income tax brackets. Would this make much of a difference, or is it splitting hairs?

Gail Says:  Net income, m’love; I do all the financial calculations based on the money you're actually getting, not the money you have to share with the government!

 

L Wrote:  I am getting married for the first time at age 46 next year. I own my own home (still have 9 years left on mortgage), have investments and savings and will be receiving a decent pension. My boyfriend moved in with me a few years back and I had him sign a co-habitation agreement. I am planning on having him sign a pre-nuptial agreement as well but, don't really know the pros and cons in Canada to having one. He is self-employed, has a small amount of debt and does not own a home. He signed the co-habitation agreement with no problems and I expect the same from this conversation but, I want to make sure that I am well informed beforehand.

Gail Says:  Marriage is a provincial matter, and marriage contracts can be set aside by court order so having one does not necessarily guarantee protection. As soon as you marry, the home you live in is considered your matrimonial home and, regardless of who bought and paid for it, it's a family asset that may be divided on breakup. You need to see a very smart lawyer if you want this to stick. As long as you do not marry, your home remains yours alone because common law relationships are not treated the same as legal marriages.

 

A Wrote:  I have a question about retirement age in laws. I am 30 years old. I put heavy amounts biweekly into my pension, RRSPs and my daughters RESP. I have a problem where my in laws save nothing and are approaching retirement ages. They have low income; they rent and typically are horrid with saving. I know they will not be able to retire as they have no assets and they rent and have no savings of any kind. I am wondering what will happen to them when they cannot work any longer because they will be old and disabled with age. How will they live? What will happen when they are unable to work? Do they have to go on disability? I am scared they are going to try and get family to support them and that is very stressful. 

Gail Says:  Have you had this conversation with your mate? If you are worrying about this by yourself, that's not going to get you anywhere. You need to sit down with your partner and talk about how you will handle it when his parents retire. There is no magic. There is OAS, CPP and the guaranteed income supplement (GIS), which will add up to about $20,000 a year. If they are low income earners now, they may be able to live on their government benefits. If they can't, you'll have to decide if you're going to watch your mate's parents flounder or kick in some money (are there other siblings who can help with this?) maybe covering the food bill. Ultimately, this is a money talk you must have with your mate.

 

S Wrote:  I have been following your tips and budget builder for a few years now, mind you with some bumps in the road along the way. We are still working towards being debt free FOREVER, but I have a budget type question for you.

Currently it is just myself, hubs, and our 1 year old living in our home. I am a huge couponer and I do save a significant amount. However I CANNOT for the life of me get our grocery bill under $100 a week. I feel like this is a crazy amount for two people. Within that amount I buy our weekly groceries, as well as stock up on certain essentials that are on sale to keep our pantry stocked. But that is never more then $10 or so dollars of our budget... What do you consider a reasonable amount for a family of 2 1/2? That isn't including baby things, as I work very hard to not pay much for diapers, and we cloth diaper as well. We live off our stock pile of toiletries I get with sales and coupons for free, or nearly free. So the $100 really is FOOD, produce, meats, bakery items, and dairy items. So I feel $100 or so is crazy for just the food of our groceries... What do you think?

Gail Says:  I think you're doing great. I wouldn't expect an individual to make it on less than $50 a week. Does this $100 also include cleaning supplies like detergent?  Unless you HAVE to trim because you're going into debt, relax. You're doing fine.