January 2015 Questions & Answers

 


 J Wrote:  How do I get out of a payday loan fog? I have 6 at one time and can't catch up and always have to re-borrow from them. I'm getting no where fast and feeling stressed and depressed from all this debt.

Gail Says:  I'm not surprised that you are stressed. After they did the first 1, 2, 3, 4, did you not think it was going nowhere fast? The only way to get out now is to find a way to make more money AND cut your spending back to the bare bones. Ultimately, there's no easy answer. If you have to work 2 or 3 jobs, so be it. And if you can't spend more than $75 a month on food, you'll have to get creative until those payday loans are gone. Hopefully you'll have learned the lesson.

 

L Wrote:  I am divorced and grateful to have watched your shows and read your books, they have been so important to help me get my life in order, to where I clearly see my future. I have my emergency fund in place now, no consumer debt, my oldest in college now, and a forecast to burn my mortgage papers in seven years!!! My partner, soon to be my husband faces the challenge of how he is to note the current child support he pays? Should he list it in the income section as a negative because it comes first before any expenses he has for his home, life and children while they are with him? He has followed so many points you present, but finalizing his worksheet is confusing.

Gail Says:  You're a smart girl. That's exactly the right thing to do.

 

L Wrote:  I have recently had my first child. What do you recommend is an appropriate amount of life insurance each my husband and I should have in order to protect each other's and our daughter's future in the event something would happen to us? We have about a 250k mortgage and our only other debt is a car loan of approx $7500. We have good jobs with a combined income of about 120k annually (when I'm not on mat leave). Our incomes are fairly equal.

Furthermore, what do you recommend we set up for her financially? We plan to start an education savings plan with about 50 dollars per month. What is the ideal way to do this and is there anything else we should start for her from a financial perspective? 

Gail Says:  Nice thinking ahead. Use an individual RESP (from a bank or other financial institution) not a group or scholarship trust plan. Aim to get the max free money -- it's called the Canada Education Savings Grant -- each year. You can get up to $500 a year if you put in up to $2,500…so start with your $50 a month and grow the contributions when you can.

As for the life insurance, you need to a) cover your debt and b) provide enough cash to see your mate through the transition in dealing with your loss of income (regardless of which of you goes first). If you only want to protect your kids until a certain date, then term insurance will likely do the trick. If you want to keep the insurance in place longer than, say, 20 years, look at permanent insurance. While the premiums are higher initially, they're usually less expensive than continuing to renew term past that 20-yr mark.

If you don't have an insurance broker who can explain all this to you, check out Glenn Cooke http://www.lifeinsurancecanada.com I like the man and he makes good sense.

 

A Wrote:  My husband and I in our mid-30's and make approx $165K a year between the two of us. Our only debt is our $215K mortgage and $10K owing on a car loan (with 0% interest). We make extra payments to our mortgage and expect to pay it off in 12 yrs.

My husband has been fantasizing about getting a pickup truck at the cost of approx. $40K. He commutes 100km a day to/from work and right now only spends about $200/month on gas. I expect that will at least double with a truck. To me, it makes no financial sense whatsoever to buy a fuel guzzling vehicle that will cost more in insurance, gas, and payments. I told him to wait until he pays off his current vehicle so there is some trade-in value to it and we can re-evaluate at that time (2.5 yrs worth of payments left), but to him that's too far away.

We have approx $15K in savings; have an emergency fund of $15K and RRSPs, pensions at work etc.

Financially we could manage the additional $500/month in gas/car payments but I think it is the dumbest thing ever. We have 2 young kids and pay for daycare etc. I see that money better spent giving them life experiences and things to do as a family rather than a truck for him.

Is there a point where you think if we can afford it - just do it? I just can't wrap my head around it, but am not sure it's worth the (almost) daily fight in our marriage. I'm just wondering if there is any other way I should be looking at it from a financial standpoint.

Gail Says:  The rule of thumb is to not spend more than 15% of your take-home pay on transportation costs: vehicle loans, insurance, gas, maintenance. If the new vehicle goes over this, then show him your budget (you do have a budget including what you want to spend on the kids' activities and experiences, right?) and ask him where he thinks the money should come from. It's easy to prioritize wants when you don't have to deal with the consequences of what you'll have to give up, to get those wants. Asking him to choose what you won't buy so he can have his truck will help I think.

 

S Wrote:  My husband operates a business in Toronto.  We are in retail and service, auto related business. Things have not been prospering for the last few years, and competition has been increasing. We are having a cash flow problem not to mention high rent.  My husband is extremely stressed and at his wits end. He has also been trying to sell the business with little or luck. He has invested time, blood, sweat and now tears for over 10 years.  We are waiting for the economy to turn around and he is now not sure what to do.  To continue in the business that may drain us financially or ??? We do not want to declare bankruptcy.  The business is incorporated, but we are still unsure how it will affect us personally with our home and personal finances.  Not sure where to go for help? We are desperate and looking for direction and advice.

Gail Says:  I'm hearing this a lot lately. People are telling me things are very tight, despite the positive stuff we read in the newspapers about the economy. I'm sorry it's a tough time for you.

If you and your husband are not signed personally for the company's debt, it will not affect you personally. However, if you have guaranteed the company's loans, the lenders will seek compensation from you personally. You might want to visit a bankruptcy trustee to see what your options are. You're in TO so I'm going to recommend Doug Hoyes (http://www.hoyes.com/hoyes-licensed-bankruptcy-trustee.htm) since I know him to be reputable. The first visit should be free.

 

S Wrote:  My boyfriend moved into my house that I own. We both have spending problems but with different items. He lived with his mother for quite awhile and paid $600/month inclusively. He is paying the same at my house and I have asked him to start paying $700/month. I can get pretty cranky because of my debt. So I'm not sure if I have a right to feel angry at him because he seems more like a renter instead of a partner. Is it wrong to expect him to pay half? Before groceries, gas, insurance (he also drives my vehicle), my house costs are just over 1,750/month.

Gail Says:  I usually tell couples to split their joint expenses proportionate to income. If you make 65% of the household income, you pay 65% of the joint expenses (housing, food, utilities). Since he's also driving your car, include the car expenses (payment, insurance, maintenance, gas) in the joint expenses. If he doesn't want to pay his fare share, he doesn't get to live the lifestyle.

As for your debt/spending problems, I strongly urge you to take control of that now before you have to write to me again and tell me that you're at your wit's end. Start by doing a spending analysis to see where you have each been spending your money. Then do up a budget that shows what you'll realistically spend in each area. Make sure savings are part of the plan.

 

M Wrote:  My question is regarding common law. I divorced a couple of years ago which was very tough emotionally and financially. The money I had left after the divorce I saved in a high interest savings account to hopefully be able to buy a place one day which has been tough so far. I'm currently living with my girlfriend for almost a year now. Things are not going so well and I'm scared that she might try to get money from me if we break up. I'm a little confused with common law rules but is she able to get anything from me? I've already been through a tough time with divorce a couple of years ago and the last thing I want is to lose any of the savings I have left. Can you shed some light on my situation?

Gail Says:  It depends on where you are since divorce comes under provincial/regional laws. Everywhere except BC common-law is NOT the same as married. She would not be able to touch your money. She might make a claim if she has receipts to show she has contributed (if she bought furniture, for example, or paid for a new roof) and you'd have to compensate her for that. But your income and assets are pretty safe. BC passed fresh legislation giving common law partners the same rights as those who are married, so that's a whole different ballgame.

 

J Wrote:  A friend of mine is considering a $350,000 mortgage. He also has a lot of debt (credit card, student loan and expenses for his business). He was advised to combine all the debt into the mortgage. Is that a good idea? It seemed a little scary to me - - -the idea of taking 30 years to pay off credit card debt??

Gail Says:  Combining high cost debt into a mortgage where the interest rate is much lower does make sense if you do it to save on interest cost. But you're absolutely right when you say taking 30 years to pay off a credit card is not saving any money at all. The right way to do this is to figure out how much it would take per month to pay off that consolidated debt in 36 months or less. So if he has $32,000 in debt that he is consolidating to the mortgage, he would divide $32,000 by 36 (months) = $889 a month. The next step is to set up a high interest savings account and transfer that $889 a month to the account for the purpose of making a principal pre-payment against the mortgage. That will get the consolidated debt off the mortgage fast enough for the interest savings to have actually been worthwhile. It may be a tough three years with little extra money beyond the basics. But your friend already spent money and had the benefit, and now it's time to pay it back. If all dude is doing is freeing up cash flow so he can go spending again, then he's going to be back in trouble in no time.