Gails Blog

One of my biggest bugaboos over the years has been the difference in the way men and women deal with money. Some of it boils down to personality (women want more information; men want to score big); some boils down to the differences in our incomes. And while the general consensus is that we’ve pretty much achieved parity, that’s a myth, which is why women MUST start taking better care of themselves financially.

While it may seem as if women are in the workforce as much as men (with breaks for maternity leave), according to Statistics Canada, Women In Canada 5th ed., women have worked for pay for only 75% of their potential years vs. 94% for men. Plus we earned only 71 cents for every dollar a dude earned. Why oh why, in the 21st century would the average salary for female full-time, full-year teachers be just $47,500 while male teachers earned $63,300?

Women also take their roles as caregivers seriously, with almost twice as many women as men are involved in caring for children and elderly relatives. Of course, in order to cope with this caregiving responsibility, we reduce our work hours, refuse promotions and retire early.

While it is true that more women are well-educated – and this should lead to high-paying, professional jobs – the sad reality is that people with a post-secondary education hold 38% cent of Mcjobs, and women hold 2/3 of these jobs. Monica Townson, in New Frontiers of Research on Retirement: New vulnerable groups, says that 40% of jobs held by women are considered to be non-standard (part-time, contract, temporary) with few, if any, benefits.

Most people see our Canada Pension Plan as being a universal benefit, but you might be surprised to learn that the average CPP pension for women in October of 2005 was$334, just 63% of that received by the average male. Since we work for less time and money, our CPP payments, which are based on earnings, are lower. In 2003, the average annual pre-tax income of women age 16 and over was $24,400 — 62% of the figure for men, who had an average income of $39,300 that year.

We hear a lot about the fact that employed women have workplace pension. In 2001, that was true for just under 40% of women, leaving over 60% of women in the workforce without a company pension. And as of 2006, fewer companies are offering pensions.

Sure, but her husband has a pension, so she’ll be fine, right? Give me a break. His pension may be okay while he’s alive but statistically she’s going to outlive him, and have to live on 60% of his benefit. Pension experts suggest this is 10 to 15% less than needed to maintain the same standard of living. And since most workplace pensions are not indexed for inflation, she’s going to lose an additional 2 to 3% in purchasing power per year. Over 15 or 20 years that can really add up.

The government pension at 65 is also woefully inadequate. In 2007, OAS was approximately $492/month. When combined with GIS, given for those with no other income, the amount increased to a whopping $1113. A roof and food? Really? On less than $1200 a month? Women’s average retirement income was approximately $1260/month or $15,120/year. (The After Tax Low Income Cut Off for a single in large urban centers is $17,219, according to the National Council of Welfare.)

Despite the fact that Canada is a country of immigrants, many who have not lived in Canada 40 years between the ages of 18 and 65 are not eligible for full OAS. After 10 years in Canada before 65, they qualify to receive only 1/40th of OAS benefits for each year of residency, even though they are Canadian citizens or Landed Immigrants. Hey, we may be immigrants, but we still have to eat!

The picture is clear: while the government is doing what it can, with more of us retiring, if we don’t take personal responsibility for our futures we’re going to have a crappy last twenty years. I’m not really into dumpster diving, so I’m saving. You should be too.

Back in 1883 when Chancellor Otto Von Bismarck of Germany introduced the concept of retirement at the magical age of 65, hardly anyone lived to collect. The world’s changed a lot since then. According to Statistics Canada, 82.5 years for women and 77.7 years for men. Increased life expectance is one reason retirement planning is such a Big Idea. In 2006, 1,167,310 people were aged 80 years and over, up 25% from 2001.

The struggle to balance building retirement assets for tomorrow against today’s very real demands for cash means that often the Big Idea is pushed to the side. Ooops. There goes the Big Idea, hidden behind “not enough money”, “paying down the mortgage” and “coughing up for university.”

It’s human nature to find overwhelming reasons not to change course. So starting something new, putting the Big Idea into action, takes more effort than not. Curiously, the effort is smallest when the need is furthest away.

A young person starting out can sing the popular tune, “I’ve got no money.” And it’s true. With lower incomes, student debt to pay off and retirement thirty-five or forty years away, who needs the extra pressure? The thing is the pressure never lets up, and recognizing that fact early on can mean establishing a strategy that seeks to create a balance between the present and the future.

Implementing the Big Idea when you’re young has significant benefits. First, spring chickens can set aside a significantly smaller percentage of their income to grow their retirement nest-egg. More importantly, perhaps, with a long, long, long term investment horizon, there are far more investment options available that will do the trick. Want to compensate for a small monthly contribution? Look for an investment that produces a higher-than-average rate of return. Worried that your conservative approach to investing might be limiting your growth? Don’t be. With so much time on your side, conservatism isn’t a dirty word. You can afford to make like the tortoise.

Resist the urge to dip in as you move along life’s path. Going back to school, time spent between jobs and mounting debt can all be tempting reasons to cash in retirement funds. How to overcome temptation? Have a plan.

Plan and stick to a budget that includes an emergency-only cash account, vacation savings account, and the like.

Make sure you’re covered by the right kind of insurance so your retirement assets don’t become your emergency fund.

Establish an automatic investment program.

Plan for big expenses: returning to school, a down-payment on a home, that new car.

It’s one of life’s big jokes that as we earn more money we seem to have less money at our disposal. Like a gas expanding to fill a container, our expenses grow in proportion to our increased incomes. We want to have a family. We need a bigger house. It’s time to trade the compact for a mini-van. But wait! What if you got a raise and the first thing you did was set aside a portion of that raise for the future? Before the Devil Expenses could get their hands on your money, you whisked it away into an investment program.

Here are some tips to stay on track with your plan:

Ignore the “all or nothing” message. You do not have to forgo a life in order to implement the Big Idea. The idea is to balance today’s needs with tomorrows.

Don’t make your plan so grand that you end up defeating yourself with unrealistic expectations. Start small, grow your investments over time, keep your perspective.

Pay off your consumer debt. Every dollar you pay in interest is a dollar lost to your investment portfolio.

Watching the kids go off to university or college can be frightening for parents. Empty Nest Syndrome is a well-documented stress. So, too, is the realization that you may be running out of time. You’ve got to get the mortgage paid off, buy a new car, eliminate that credit card debt, get the kids through university, all while putting together that retirement portfolio you’ve deferred for so many years.

Relax. The nice thing about retirement is you have control over when you do it. The institutionalization of age 65 as the retirement age is simply a holdover of Otto’s idea. Since then we’ve moved many of the sign-posts of life further along the road — we have children later, go to school longer, and live healthily for many more years. So we can also move forward the signpost for retirement to 70, 75, or even later. Escape the mindset that says retirement at 65 is “normal” and you can not only build more accomplishment into your life, you can further feather your nest. Extending your working life also extends your investment horizon, allowing you to maintain your investment strategy.

Things to watch for:

You’re prime filling for the sandwich between your kids’ educational needs and the help your parents may need. Consider the impact of elder-care on your investment portfolio and take the steps to mitigate that impact.

Consider government pensions to be the gravy in your retirement income. While younger Canadians have already come to terms with the fact that they will be responsible for themselves, those of us who have grown up with the security offered to our parents may be less willing to emotionally forgo our “rights.”

Hold your assets wisely: keep your interest-bearing investments inside your RRSP and hold your equities outside to take full advantage of the beneficial tax treatment on capital gains.

A while ago I asked what topics you wanted to hear more about and I got this from Mary:

Topics of interest are women and investing. My husband has a great pension (he’s a teacher) and doesn’t think it necessary to put money aside elsewhere but I want something of my own. His pension is only good to me while he is alive. I can’t survive on a survivor’s pension. Also, we ladies know that “a man is not a plan”. What should I do on my own in terms of retirement savings and insurance.

So, first, kudos to you Mary for recognizing that “a man is not a plan” and that you need to have your own retirement assets. Tell your husband that you don’t relish the idea of living on kd and wieners when he’s off with the angels and you’re left living on a third of his pension (if that!)

Women face some unique challenges when it comes to retirement planning. I talk about these in A Woman of Independent Means, but I’ll plant some ideas here for you:

• You’ve heard me say, “Men die; women get sick.” That’s a reference to the fact that women live longer than men. On average about seven years longer. So our money has to last longer. And since those last seven years will likely also have some medical costs, those last seven may be very expensive years.
• Women earn less than men. Despite all the progress we’ve made in the workplace, we’re still not at parity. And we’re more likely to work part-time. Did you know that 40% of jobs held by women are considered to be non-standard (part-time, contract, temporary) with few, if any, benefits. So we have to put aside a larger percentage of our income to have enough for the future. Or we have to start earlier to put compounding on our side. Or we have to be more aggressive in terms of the investments we choose.
• Women tend to be more risk-averse. I explain why in A Woman of Independent Means. It’s anthropological. It’s dangerous. It means our money doesn’t get the chance to work as hard as it may need to, depending on how much we’re socking away. This despite the fact that women tend to be better at investing than men.
• Women are also more likely than men to take time out of their careers to raise their kids or look after elderly relatives, further reducing their incomes and retirement savings. This also affect their government pension benefits. The average CPP pension for dudettes in October of 2005 was just $334 - a mere  63% of the $527 received by the average dude.

So what do you do if you’re a Goil trying to build a future plan?

Prioritize saving for the future. Unless you plan to throw yourself off a bridge when you hit retirement, you’re going to need enough money to see you through what could be a looooong retirement. And if you’re counting on government benefits, give your head a shake. If you combined your Old Age Security, Guaranteed Income Supplement and the average woman’s Canada Pension Plan benefits,  in 2007 you would have had a whopping $1260 a month!

Keep working to upgrade your skills. Ask for promotions. Don’t be shy about finding ways to increase your earning potential. Sock away what you can - not to the point where you’re having no fun in the present - with a view to ensuring you have a tidy nest-egg come time to hang up your high heels. While you’re studying to upgrade your work skills, study to upgrade your money management skills too. You have to learn what’s available to you, become comfortable with the options, and take advantage of some of the alternatives to really make your money sing.

It doesn’t matter if you’re more risk averse as long as you KNOW you’re more risk averse because then you can do something to counter-act your natural tendancy to duck and hide. Get together with friends from work or other moms or your family members and form your own investment club. Help each other learn. Help each other grow your money.

Don’t let anyone convince you that you don’t need to have your own retirement plan. You do. If you’re a stay-at-home mom and you don’t have any money of your own right now, tell The Hubster you want him to contribute to a spousal RRSP for you. He’ll still get his deduction and you’ll have assets growing in your name. If he balks because he thinks you’re just into him for the money and you’ll dump him when he makes you rich, tell him if you decide to dump him you can get half his retirement assets anyway, so that argument holds no water. Income splitting at retirement time makes good financial sense and that means you each need your own pool of retirement assets.

The time to start planning for retirement is TODAY. Quit fooling around on the net and go open up an RRSP!

 

Okay, I’ve done it. A Woman of Independent Means has been updated, edited, uploaded…

and now it’s ready to be purchased. You asked for it, so BUY IT!

 

When I started this website a half-year ago, I promised I’d answer one of your questions every week. I’ve been inundated with questions, and have been responding to two a week. But there are times when I’ve got so many great questions that need to be answered, that I just take a couple of hours and fire-through them. Here’s what I have for you today.

rinkrat_hockeymom wrote:

One of my employers is not taking enough tax from my paycheck. I have been having an extra $50 a pay taken out to cover this since the beginning of the year. I was telling a friend about this, and he suggested it would be more beneficial to take that $50 and put it into an RRSP and I would get thed same result, plus be able to save my own money instead of lending it to the government for a year. Is he correct?

Not quite. While every dollar you put in your RRSP is not taxable, you’d have to put the entire income you’re earning from your second employer into an RRSP to achieve the result your friend is suggesting. I’m all for that… but I don’t think that’s what you’re trying to achieve. So you’re doing the right thing.

If you want to calculate your tax exactly, you can go to Taxtips for a really thorough calculator. If that one makes your head spin, here’s a simpler one that will give you a basic of idea of how much tax you should pay.

 

L from B.C. wrote:

I have just come into to some money — $35,000.00 — and I am wondering what I should do with this money. I currently don’t own my place (renting) and just finished paying off my line of credit ($25,000.00) at the bank as well as my credit card ($25,000.00). I have been working as a cashier for six months at $10.00 an hour. I am looking for a better paying job right now. Can you give me any advice for this $35,000.00. Should I invest this money or maybe put the money into an ING Direct account at 4.5%? I don’t think I am eligible for a mortgage just yet…?

I get a lot of notes like this with people asking for advice on what they should do with a lump of money that’s just fallen into their laps. I like to tell people to:

1. Take care of past mistakes,

2. Have some fun in the present, and

3. Plan for the future.

So, L, on the Take Care of Past Mistakes front, congrats on getting all that debt paid off! Wow! You’re one determined young woman. You’re in a much better place now and you should be very proud of your accomplishment.

On the Plan for the Future front, you’re right when you say you aren’t ready for a mortgage yet, particularly in your neck of the woods.  But you are ready to set up an emergency fund, start an RRSP, even with just a couple of thousand bucks, and begin building your downpayment. As for where to invest the money for your downpayment to grow, you’ll need a financial guide for that. Ask friends/family for a referral to their GREAT financial advisor. Don’t settle for anything less than GREAT!

Using a high-interest account is smart. Making sure you know what you want to accomplish with the money is smart too. So ask yourself what’s important to you and by when you’d like to achieve that goal. Plan from there.

As for my number 2 point: have some fun in the present, don’t go nuts, but take some of your money and treat yourself and someone you love to a Nicey: Dinner out, a fun weekend of movies, a new piece of furniture you’ve been wanting, or a lovely new dress. Or you could decide to set up a Mad Money Account, putting $500 or $600 aside that you can spend on anything you want whenever you want, just for the hell of it.  Have a ball.

 

On a similar theme, K wrote:

I have an inheritance if 60,000 and wondered if I should double up on my mortgage payments each week (that is the maximum allowed) or wait put the money in a high interest account until the mortgage is up for renewal this December 2008 to bay off a chunk of the 120,000 principle?

The faster you put the money to work against the mortgage, the more you’ll save in interest. And any interest you earn is taxable, but the interest you save is not. So double-up and then use whatever is left to make the principal pre-payment at the end.

 

Carman wrote:

What is your opinion for a person to use RRSP savings to pay down debt? We have enough RRSP savings to pay off our debt (excluding Mortgage). Thanks for all you teach on your show, I think everyone could learn something.

I’ve answered this one before, but I’m going to answer it one last time since I get this question every week. Really.

The answer is: DON’T DO IT! I know there are some people who say this is a good idea, but it’s a terrible idea. A really terrible idea. First, there’s the tax you’ll end up paying on the withdrawal from the RRSP, and then there’s the tax you’ll owe because the amount withheld won’t have been enough.

If you’re determined to get rid of your debt, then you’re going to have to bite the bullet, tighten your belt and put your shoulder to the grindstone. If that’s not enough metaphors for you, I have plenty more!

 

T wrote:

hi gail i watch your show all the time and i was just wondering i am 17 and still going to school and planning to go to university soon i am extremely good with money and saving and i have about 7000.00 in my bank account right now. would u recommand when i turn 18 to get a credit card and always pay it off in order to get my credit rating started. i would never spend more than what i have or even come close to spending all i got so i dont think it wud be a problem but just asking for ur advice.

T, if you swear on your Mom’s head that you’ll never spend more money than you have, then I say getting a credit card to build a credit history is a good idea. I’ve seen a lot of kids (and elders) start out with the best intentions and then fall into the carrying-a-balance trap. But if you promise not to be one of the dopes, then I’d say go for the card, Bud, and build yourself a fabulous financial history.

 

Sarah wrote:

My husband and I love your show - yes I said both of us - you’ve got us talking about our finances - YAY! Our question is in regards to student loan debt. I’m in the process of finishing my PhD and my husband and I each have 3 degrees. Our combined students debt is $62,000 (not bad considering) and we have a new mortgage of $120,000. So many of our friends have just followed the plan offered by the bank/government - but 12 years to pay it off??  We gross $76K a year but we’re going to be starting a family soon and our plan right now was to add $200/month as a prepayment to our mortgage. What do you suggest - balance pre-payments and extra student loan payments? Should we make one a priority over the other (student loan interest is prime +1, mortgage 6.3 locked for 10 years)?  We would really appreciate your advice - the bank always says “follow the plan, then you have more disposable income” - yes and they make more money in interest! love your show and your kick-butt attitude.

Ah, yes, there are those Pesky Bankers again, telling you to keep more disposable income so they can rake in more interest. Hmmm. Is it any wonder Canadian’s don’t trust their advisors?

Sarah, leave your mortgage payments as they are, and use all your extra money to pay off your student loans, which is your more expensive debt. Once that is paid off, you can balance mortgage prepayment with long-term saving. As for starting a fam soon, have a great time with that. And while you’re preggers, live on the one income you’ll have during your mat leave so that you

a) get used to having a smaller income, and

b) have a nice pool of savings set aside for when baby gets here.

 

Kerry wrote:

I am a 21 year old full time worker. I graduated with a 2-year diploma in Bus Adm (major accounting) and have taking Intro to Financial Planning as well. After graduating from college with WAY MORE DEBT than I ever imagined from 2 years of school, I have got myself back on track by my own means and would like to offer a credit/debt counseling service outside of my full time job (which I love). I want to educate people before they make the same mistakes I did, and/or repair the mistakes already made. Only problem I have found in my plan is, how do you charge a fee when your clients are already living paycheque to paycheque? PS your show and outstanding way of making the obvious PAINFULLY obvious has changed my life and influenced my (hopefully!) future career path immensely!

Hey, Kerry, that’s a darned good question. Some people who work in debt management affiliate themselves with a company that will allow them to do debt-counseling. Credit counselors, for example, are often not-for-profit organizations that help clients consolidate their debt and set-up repayment plans. And I do know of at least one private company that builds their fee into the “consolidation” loan. You might want to look at that as an option.

So, all you debtors out there, what would you be willing to pay to have someone dig you out of a hole, and how would you come up with the moolah?

 

Mercedes wrote:

I am a 24 year old university student living on my own and paying all of my bills yet have still managed to save about 15000.00 in the past 2 years. I have no debts and am wondering what to do with this money to make it grow for the future. I feel as though it’s just sitting there. How much should I set aside for a rainy day/emergency fund? Thanks!

Okay, all you student debtors who tell me you can’t possibly save any money while going to school, heads up to this.

Mercedes, you are a shining light. Congrats!

As to what to do with the money, set side at least $5,000 in a high interest account for emergencies. Ultimately, you want to have 3-6 months’ worth of living expenses covered. As for the rest, it’s time to learn to invest. Read about investing. Choose a couple you think might work for you and watch them for a while to develop a comfort level. When you think you’re ready, take the plunge. Don’t be too aggressive too quickly. And never invest in anything you can pronounce or don’t understand.

 

Carrie wrote:

I am currently on mat leave with 2nd baby. We figured out if I return to work I will be contributing 2/3 of my take home pay to working expenses and only contributing 1/3 of my take home pay to the household. Does this make it worthwhile for me to return to work? Or is the smart thing to try to find a part time job to make up the money we are short? Or, with only about 6 years left on our mortgage, should we reduce our mortgage payments in order to live, until I can return full time in about 5 years?

You seem like a clear-thinking girl. You’ve certainly outlined your options well. Here are my answers

Does this make it worthwhile for me to return to work? Yes, if you need the 1/3 to make ends meet.

Or is the smart thing to try to find a part time job to make up the money we are short? Really? This is a question? Work less to make the same? Where’s the question?

Or, with only about 6 years left on our mortgage, should we reduce our mortgage payments in order to live, until I can return full time in about 5 years? This, too, is an option, if you’re prepared for the extra interest cost over the life of the mortgage. You don’t say how old you are, but how old could you be with a second baby just here? So you have lots of time to get this mortgage paid off.

Now, the question is, what do YOU think you should do?

 

S wrote:

I work part time as a nurse, so I actually bring home more money per hour with my liue of benefits. Is it better for me to work full time and “bring home” less money, but have job security, sick time and vacation? I am 41 married with two school age children. Thanks and I love your show-your sense of humour really makes it!

It’s hard to answer this question when I don’t know how much less you’d be bringing home, or how that would impact your cash flow. Assuming you don’t NEED the extra for essentials, then the security of full-time with benefits would be a huge blessing, particularly with young kids. However, if the extra money you’re bringing in is essential to your budget, then maybe not. What do you think?

 

Erin wrote

On your show, you give your clients an “office in a box” with all kinds of file folders and coloured tabs. I tried making my own and it doesn’t look as nearly detailed or full as yours. What categories do you have in your box?

Go read 12 Steps to Getting Financially Organized and the blog Paper Chase.

 

For Lynn who wrote:

How long should you keep your paperwork, such as bill statements, payments and income tax forms

Ditto

 

A wrote:

If I have a defined benefit pension plan with my employer, do I really need to contribute to an RRSP? Also, how do I figure out my “tax bracket” as I am planning to withdraw $10,000 from my RRSP to pay down debt - if the withholding tax is 30% then how do I estimate the additional tax I will pay next April - my gross income is about $60,000…

A, you likely don’t need an RRSP if you have a defined benefit plan. I’d be very surprised if you have much contribution room at all. If you do, then I would use it up, but not break your neck to do so. As for writhdrawing money from your RRSP to pay off debt: DON’T DO IT!

 

Tammy wrote:

I have 2 children: a son who is 20 and has finished 3 years of university and a daughter 19 who has finished 1 year of college. We have paid for the tuition and book for the 3 years for my son and paid the 1st year of college for my daughter and have enough to pay for her 2nd year, her course is 2 years long. I do not want my kids to finish school and owe money but my husband and I find that most of our money goes to the kids and there is none left over for us. We have been putting a lot of things for them on our line of credit and it just keeps going up, I know I need to stop but I don’t want to see them acquire any debt but I just feel that my husband and I are sinking further and further into debt and we have been arguing over the money spend on the kids. If you any suggestions on how we can work this out I would really appreciate it.

It’s nice that you don’t want your kids to graduate with debt, but you’re accumulating debt and that’s no good either. I hope your kids are contributing to their own education. If they are not, that’s the first place to start. There is no such thing as a free ride in life, and 19 and 20 are plenty old enough to start dealing with life’s realities. Help your kids. That’ great. Don’t do yourself damage in the process. That’s dumb!

 

Victoria wrote:

Hello. Congratulations with the show. I have been watching it daily for some time now. I have put my husband on a $200 a month budget. This money includes his gas and extra spending. We have been using the jars for three weeks now. So far so good. I am currently on maternity leave and working one day a week that I am allowed. I am making $430 every two weeks. I am trying to save this for our vacation at Christmas. Do you think it would be better to put this money onto the line of credit and then take it back out when we need it? Also, we just did a balance transfer on our one credit card. We have an interest rate of 1.9% until November. Should we penny pinch and put every last cent on it so it is paid off by then? Thanks so much and keep up the great work.

First the credit card question: Absolutely pinch every penny so the card is paid off before your great rate expires in November.

Now the line of credit question: Yes you should put it to the line first, and then take it back off when you need to, to minimize your interest costs. But I don’t think a fam on mat leave with a balance outstanding on their line of credit should be prioritizing a holiday over debt repayment. Once you return to work full time, I can see saving the money for a holiday. But while you’re living on a reduced income, and have debt, your focus should be on getting out of the red.

Are you sorry you asked?

 

M wrote:

My husband says that it’s not smart to start a RRSP because I owe $50,000 in student loans, which I am paying the minimum right now. I work part time as a RN and I have 2 kids. I’m 38 years old and I feel that I have to get started. What should I do?

You should get started, you’re right. But your husband is right too. Since you’re only working part time, your marginal tax rate isn’t high, and paying only the minimum on a $50K student loan is stupid. You’ll pay way too much in interest. So:

1. Up your student loan repayment amount to an amount that’ll have you debt free in five years or less, and

2. Start contributing $200 a month to an RRSP.

If you don’t have enough to do both, you’re going to have to find a way to make more money.

 

S wrote:

I would like to know if there is a way to save money on a disability pension.

I’m surprised by how often I get this (or a similar) question. There are a lot of people out there trying to make do on disability income, which should be a heads-up for all the people who don’t yet have disability insurance. As for this question, the answer is quite simple: If you have extra money after all your basic needs are met, you can save some. If you don’t, you can’t.

I’m sorry that there seem to be so many people living a marginal life on less income than they need. It’s a tough haul and you have my admiration for making a go of it.

 

Another M wrote:

My wife and I are a one-income family and even with a very tight budget our expenses are always more than our costs every month. I have mentioned taking some of the equity from our home (either re-mortgaging or a straight loan) to ease some of the expenses until my wife gets back to work. So, I was wondering, is it ever a good idea to take a home equity loan?

You don’t say why your wife is off work, or how long it may be until she’s fully employed again, and that affects the answer. If this is a short-term thing, then I’d say do the refinance and un-strap your budget. If it’s a long-term thing, you may have to sell your home to make it through. Good luck.

 

Karen wrote:

My relationship with my boyfriend of 8 years is strained to say the least because of this debt and not knowing how to budget. We have thought of calling it quits. I think the icing on the cake was when I was offered a job but would have to take a 14k cut in pay for 2 years from what I am making now, but then would make over 100k a year after that. I had to turn it down because each month I am going further and further into debt AND with a 14k a year cut in that!??! How would I make ends meet? Help! Please point me in the right direction.

I don’t often say this, but are you sure you’re in the right relationship? After all, is this the way you want to spend the rest of your life: giving up your hopes and dreams because your partner can’t get outside himself long enough to stop going into debt for crap? If you’re determined to stay in the relationship, then I’d separate the money - yes, you heard me say “separate the money” - and make the Boy Man responsible for himself. If he can’t do it, then either reconcile yourself to a life of misery with him, or get the hell out!

 

RC wrote:

What is the best way to invest money that I am intending to use toward the purchase of a home/condo, in one years’ time. I would be a first time buyer.

Since your time horizon is very short, you need to stick with something that has no volatility at all. Go with a term deposit, GIC, high-interest savings account… wherever you can get the best rate for one year.

 

Carol wrote:

I am 55 years old and will retire at age 64 with a good Omers Hydro pension. I was a single mother raising 3 children for most of their lives, so savings and retirement planning were not a priority. However, as my children are now grown I have more disposable income. Is it too late to start RSP’s or should I concentrate on paying off my mortgage?

Since you’re over 50 and have a good pension, I’d focus on paying off that mortgage so you’re retiring mortgage free. If you still have money left over, you can take me out for dinner.

 

Cynthia wrote:

I watch your show all the time and I noticed that you always talk in terms of household income and don’t discuss the differences in the amount each person makes. My boyfriend and I recently purchased a home, but we still have totally seperate finances, we live like roommates, simply splitting the common expenses in half and then we each pay our own credit cards etc. I would like us to be a more equal partnership, but he still thinks in terms of “your money” and “my money.” Is there a proper way to start combining finances?

Girl, you and your honey need to get on the same page. Go and read To Consolidate or Not to Consolidate and So You’re Getting Married even if you’re not.

 

Brett wrote:

My wife and I have recently realized that our parents are in rough financial shape, planning on relying solely on a single pension in retirement (no RRSPS). How can we approach them to talk about it and get them doing something about it? We feel as if we will be burdened by our parents within the next 15 years, and need help to get this situation under control!

Sorry Brett, it might already be too late if they have not been planning and are pretty close to retirement, with not enough money. Do they have assets they can liquidate to provide an income? Can they move to a less expensive community to cut costs? In terms of just approaching them about the issue, read Aging Parents: Talking about the Money. 

 

Okay, that’s it. My brain is mush and my fingers are cold from the breeze created as they’re flying across the keyboard! Ha! 

 

BTW: I’m planning to put up a series of articles on home buying. Are there any special topics y’all want me to cover? Speak now.

I received two questions this week on very different topics that dovetail quite nicely. The first was from a young investor who wanted to know what types of safe investments were available that could return a rate greater than the 3% or so available on a GIC to grow retirement assets at a decent pace. The second came from someone who said:

You said to a couple in one of your shows if they save 500$ a month they will have 700,000$ for their retirement. The couple was around 30. How is this possible? My banker told me it’s not. It doesn’t matter what you do.

 

Ah, yes. Another case of The Banker! Hmmm.

I’m going to answer question number 2 first.

You can most certainly have $700,000 in assets if you start investing in your retirement plan early enough, earn an average return of 7%, and (this is important) reinvest your tax benefit.

A $500/month RRSP contribution adds up to $6,000 a year, resulting in a refund of about $1,800 (at a marginal tax rate of 30%) which then increases your contribution to $7,800. Iin each subsequent year, your refund is slightly larger, pushing up your overall contribution.

I do use an average rate of return of 7% for these calculations, which you should be able to achieve over the long term, with a balanced investment portfolio.

How, when GIC rates are at a pathetic 3%, barely beating inflation? Well, a GIC would be considered a very conservative investment. Remember the investment pyramid? (If you didn’t read these articles, go find them in the retirement section.)

As you move up the investment pyramid, you’re taking more risk, but earning a higher rate of return.

Which brings me to the first question. If you want to earn more than you can get on a GIC, you must look beyond a GIC, and it’s safety, to do so. And even if you decide to stick with a GIC, you’ve got to be more selective about WHERE you buy your GIC. While The Banker may only be offering 3%, there are alternatives today offering as much as 4.7% for the same level of security.

However, the rate of return is only one aspect. The other is how long the money will have to grow. Start investing in your 20s or early 30s and even with a fairly low rate of return, you’ll have a very handsome amount when you’re ready to retire because your return will have had time to compound — earn a return on your return. And — like the idea of using your tax-refund to boost your RRSP contribution each year –this painless growth of your assets can mean BIG BUCKS over the very long term.

Ready to try something new? You need to learn about various alternative investment options - things like bonds, preferred shares, and balanced mutual funds.

I will tell you that using 7% as a rate of return over 35 years (some years will be higher, some lower, this would be the average), $500 invested a month, with tax refunds reinvested, would grow to:

• $107,000 in 10 years
• $204,000 in 15 years
• $338,000 in 20 years
• $528,000 in 25 years
• $793,000 in 30 years

So, yes, it can be done.

I was intrigued to read in USA Today that baby boomers are losing confidence in retirement savings. While 20% of those surveyed felt they were “equally confident”, a whopping 56% are “less confident.” With the financial marketplace in a constant swirl, it’s no wonder really.

Are interest rates going up or down? Can you trust investments that have been previously touted as “secure” when 32  BILLION DOLLARS in asset-backed commercial paper are frozen?  And remember when they said gold would never see $800 again? Ha! Never say “never.”

The uncertainty about what we can trust has sent sales of money market funds through the roof. While Canadians continue to pour gobs of money — $2.6 billion in net sales per month - into the mutual fund sector, according to the Globe and Mail, in March ALL of it went into money market funds, which now hold over $66 billion of our hard-earned dollars. People are parking their money in the hope that some clear signal will come from above telling us its safe to invest our money again.

There are a lot of people who are saving (or planning to save) for retirement, but just don’t have a clue where they should be putting their money. I keep saying, “Get a handy-dandy advisor; I have one.” But I’m beginning to think the questions I’m getting are even more fundamental than “where.” So I’m going to do a series of articles for you on how to save to retirement.

The decision on where to invest is at once complicated and simple.

“How much do you want to have saved when you retire?”  seems like a simple enough question, right? But if it were, then there wouldn’t be this constant chatter about how much you’ll need, and the fact that a million bucks won’t cut it in the future. And there wouldn’t be this quiet sense of desperation on the part of people who believe they are doomed, so they might as well just stick their heads in the sand and pray nothing creeps up behind them and bites them on the butt.

“How greedy are you?”  would be another of those simple questions that has a ton of implications. If you’re content to hold an investment paying you a 2% return, and can stand the scorn of all your friends and relatives at your niativité, your lack of ambition, or your sheer stupidity, then you’d been pretty low on the Greedy Scale. If you’re insisting on an investment that will turn your $1,000 into the Magic Million in ten-seconds-flat, then you’d be right up there with Gordon Gecko.

“How committed are you?”  is a simple question, that has a wide range of answers from  not at all committed, to somewhat committed, committed, very committed, and passionately committed. Do you know what you are?

“How much time do you have?”  How long you’re planning to invest has a big impact on the investment alternative you might choose. Pick the wrong time-line and you could find yourself a little sad when cash-out time comes.

Along the way, you’ll have to learn what an RRSP  is, the various types of investments available to you and where they fit on the Investment Pyramid, and how to diversify your portfolio to create the Asset Mix  that’s right for you.

 

These articles cover the basics of what you have to think about as you plan for the future. Whether you’re investing for the long-term for your retirement, or for the medium-term to send your kids to university, or for the short-term  to buy a home, the fundamental issues remain the same:

• know how much you’ll need,
• know how long you have,
• know how brave or chicken you are,
• know what you know - and DON’T know, and
• mix it up a bit.

 

With a little determination, you CAN have what you want.