July 2015 Questions & Answers

 


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.

 

S Wrote:  I have been married to my husband since last October. It was always fairly well known that his mother’s small business of now 7 years, was not making any money, but we were at lead to believe it was at least breaking even. We recently were told by his step father (more or less his father) that his mother was not only not making any money, but also in a mountain of debt. I don't know the specific number, but I know that her interest alone is $25 a day. Over $9,000 a year. The step father and she keeps peerage accounts, as they never married, though have been together 20 years. He has already once given her ten thousand dollars to put towards her debt; he has revealed to us that upon investigation, she did not put that entire amount towards the debt.

I have done some research and know that unless he signed for some of her loans, he is not responsible for her debt, nor would my husband and I if something happened (God forbid) to her. I am just seeking advice on how to tactfully deal with this, as my mother in law is driving herself into a huge amount of debt. It bothers my husband a great deal, as his step dad has done so much financially for him over his years as a child and teenager giving him things that if he had only grown up with his mom, he never would have had. We feel as though she is selfish and irresponsible, and hurting herself and her common law spouse. We know his mother will never give up the business, until someone forces her. Her image in society, even though it is based on a lie as her business is not successful, is very important to her.  What should we do?

Gail Says:  It's hard to watch someone you love self-destruct. Ultimately, if a person is determined to destroy themselves financially there isn't too much you can do about it. How does your FIN feel about giving your MIL an ultimatum about the business; he's the guy with the most to lose after all. If he's not going to call her on it, there's not too much the rest of you can do except make it clear that a) you will not be stepping in to save her later when the caca hits the fan and b) you're going to distance yourself from her financially so you don't get hit by the blowback.

If you haven't already tried an intervention with your MIL, and you can all get on the same page about what you want to say, sit her down and tell her the God's honest truth: you're worried, she's making a hellovamess; you want to see things get better. Ask her if her "image" is more important that the people she loves.

If she refuses to stop and your FIL continues to bale her out I suggest you gird yourself for the tears and wringing of hands that will eventually come. Your husband will have to come to terms with what he will or won't do for his mother when it all falls apart.

 

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!

 

C Wrote:  I have a specific question regarding calculating my family income. My husband works season work, 8+ months out of the year, the remainder of which he receives unemployment benefits. Since there is a significant drop in income for those 4 remaining months I don't know how to come up with an accurate monthly amount. Please help!

Gail Says:  Add the year's income together. Divide by 12. That's your average monthly income. So if in the good months he makes $3,000 a month that would be 3,000 x 8 = $24,000. In the other 4 months if he makes $1000 a month, that would be 1000 x 4 = $4,000. Added together that makes $28,000. Divided by 12 = $2,333 a month. So you would base your budget on an income (I always work in what goes into the bank, so after tax income) of $2,333 a month. In the good months, you would put the difference ($3,000 - 2,333 = $667) in the bank for use during the lower-income months.

Doing this evens out your cash flow so that you can plan more productively. And you're always living within your means instead of feasting and then fasting.

 

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.

 

S Wrote:  I am in a really bad situation at the moment and I don't know what to do.
I quit my minimum wage, dead-end job late last year to focus on schooling and getting to college. At the time, my husband was making a great income and living on one income, while saving and paying off debts, was a breeze.  Since then, everything has fallen apart. We were able to pay off a couple of smaller debts, but my husband has seen a HUGE pay cut and we have been using our savings to bridge the gaps - we have less and less of a nest egg all the time, and I laugh at the idea of having spare money to pay off debts and/or return any money to savings. I abandoned my plans to return to school at the moment and started looking frantically for a new job, but a (surprise) pregnancy test threw a wrench into that plan. I am now 2 1/2 months pregnant and I've been told by employment counselors that I likely won't see the end of probation at any job because any employers will clue into my 'condition' before then and fire me.  That said, my husband still has outstanding debts and hasn't filed his taxes in several years (he will owe a lot). I have no idea where to start trying to pick up the pieces - we can barely afford ourselves, how can we possibly manage a baby, debts, or savings?!
Any advice would be appreciated. I'm really upset and anxious and I'm not sure where to begin or where to turn for trying to figure this mess out. Thanks for taking the time to read and consider my problems.

Gail Says:  First you need to stop reacting and start acting. There's work involved. You need to know what you've been doing with your money (a spending analysis) and where you money must go to keep things together (a budget.) Your mate needs to pull his head out of the sand and do his tax returns. (The government has the right to go into your accounts and take their money if you do not file a return, based on what they "think" you made.) And you need to create a debt repayment plan that has an end-date for the debt. You're right, going to school, having a baby, living a balanced life is next to impossible until you get a handle on what you're doing with your money. Head over to MyMoneyMyChoices.com and see the road map I've laid out. Get to work!

 

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.   

 

K Wrote:  My husband and I have been operating a successful HVAC business for 20 years. We are current with the CRA and our wholesalers. We have credit scores of 684 and 750. We recently renewed our mortgage and took out an additional $30 000 so that we could get a secured line of credit for $30 000 for our business. We approached our bank manager and proposed to purchase $30 000 in GICs and use them as secured collateral against the line of credit. We thought this would be a low/non risk investment for the bank because if for some reason we defaulted on the SLOC, they would have the GICs. We were refused on the basis that our credit scores were too low. Is this reason legitimate or is there something else going on? Does being self-employed play a factor?

Gail Says:  You offered to fully collateralize a line of credit and the bank turned you down? This is just another example of the stupid results that come with relying so heavily on credit scores for lending decisions. That being said, if you have $30,000 in cash, why do you need a line of credit? Loan the $30,000 to the company and make the company pay you interest on it. Put the money in the bank (a different bank would make sense to me) and use it as your line, paying the interest you would have paid for the line, but back to the savings account.