Gails Blog

I hope y’all are having a lovely weekend. It’s pouring here so I’m at my computer fooling around. As I mentioned in a previous blog, I’m working on a series for university students that will hopefully help with planning and dealing with student debt. If there are any specific things you want me to cover, let me know and I’ll try to work them in.

Another question: I’m thinking of making The Money Tree Myth, my book on how to teach kids about money, available at Lulu as I did with A Woman of Independent Means. I’m just trying to ascertain if there’s sufficient interest to be worth the effort. Let me know if you’d find this book useful. 

You’ve all been terrific and have made this one of my favorite things to do. I want it to keep working for you. If you have questions about life, the universe and everything, think about what you would like to know more about, and then ask me a specific question to which I can respond in a blog. If there’s something that makes you go, “Hmmmm” I want to know about it. If there’s something that bugging you, tell me. If there’s something that you just can’t get your head around, throw it at me. I’ll do my best to keep it simple and straightforward.

If there are sites you regularly visit that you’d like to suggest to other readers, please do so.  I have, from time to time, suggested places you might like to visit. But I won’t put up a blogroll because:

1.  I’d have to keep it up-to-date; links expire and I don’t have the time to keep checking back, and
2.  I’d hate to have a site on my blogroll that then posted something I just don’t believe in. So I’ll continue to make suggestions, but those suggestions will be dated in my blog so you’ll know when I last looked at them.

I added the bookmarks below to make it easier for you to keep track of your favorite blogs, but I’m not sure if this is something y’all will actually use. Let me know. If it’s not useful, it’s toast!

Bookmark:   del.icio.us Digg StumbleUpon

I’ve had quite a few comments recently about the fact that many of the fams I work with make tons of money and couldn’t I do a show with people who make less. 

Pearl wrote:

re: the family whose income was $140,000.00 per year. It is a constant source of amazement that people with that kind of income are in debt!!! And don’t seem to know how to get out of it!!! Why don’t you give that $5,000.00 cheque to a more needy family that is in debt??? I would like to see a show where the family’s combined income is barely $55,000.00 per year, and then see how you can help that kind of a family!!!!

And SM wrote:

Why do you not do any individuals and/or couples that only gross 60k or less? It may be easier to help those with high income, however a good portion of Canadians make 60k or less per year.

I’m not sure why people are under the impression that we only work with richy-rich families on the show. If you haven’t caught these episodes, you should, because:

• Elizabeth & Wojceich only had an income of $3,400 month
• Corrina & Jay made less than $3,700 a month
• Kristy & Dean made about $4,300 a month
• Sharon & Dennis made just under $3,200 a month
• Natalie & Matt were earning almost $3,800 a month
• Jared & Christina were making just over $4,200 a month
• Tamara & Brandon made about $3,200 a month
• Andrea & Curtis made about $4,700 a month
• Evan & Jason made about $3,300 a month
• Dawn & David made $4,400 a month  

Several years ago, I had a “financial advisor” over to the apartment, believing that he would help us get on track to good financial health. We instead were convinced to purchase an expensive life insurance coverage, and he said he would support us with financial advice as a next step. I have all along felt good knowing my family is taken care of… but we are still financially sick- and have a huge debt from student loans etc. and have never seen this advisor again. I am NOW FINALLY getting on track with lots of support and information from this site. However this life insurance has always bothered me. Is $75/ month too much to pay for life insurance? It was explained at the time that i should purchase a lot of insurance now while i am young, and the premium would be lower when I am older, and in less financial need of the protection… ???? Have I been as dumb as I suspect?
 

I know you advocate checking your credit score annually or twice per year. I would like to know your thoughts on credit monitoring services? Paying a monthly fee to to Equifax, Experian etc. to keep you up to date on your credit report and score. They run about $15/mo. Is this worthwhile or overkill?
 

I have slowly paid off all my credit cards I was wondering whether to cancel them or put them away because I heard that if you cancel credit cards it will affect your credit score. I would also like to see awesome follow up shows to see if the people that you help are still on track. 
 

Your show is my daily inspiration to live completely debt free, sooner than most of my (lawyer) friends. I am 37, earning $72000 per year. I owe $6000 on my line of credit (used to finance a moderate used car), and $163 000 on my mortgage (my house is probably worth $220K). I am being highly aggressive in my debt repayment strategies: $1400 per month on mtg (PIT) and $1265 monthly on my line of credit. I have no other debt. I want the line of credit balance gone in 6 months, and plan to route the majority of the payment amounts between savings and extra principal payments once it is at a zero balance. I feel conflicted. Should I extend the payments on my PLC to one year in order to lighten up, or is it better to just stay on an extreme budgeted course and get the debt over with? I have some home reno dreams, and vacation dreams and am not sure where these should fit? I am conflicted between rewarding myself in the present or being completely debt-free and “rich” later. Thanks - your show and your website are invaluable.
 

I get a lot of questions from people who are desperate for help. Some people are facing difficult situations for all sorts of reasons not of their own making: a divorce, a disability, a death. And some people just don’t know what to do.

Stephanie wrote:

Gail, I am single. I love what you do for couples, but what about us single folks struggling financially? I make $65K a year, don’t own a home and have 1 credit card $1K and a school loan $4,700, car payment $556 and rent $825. What am I doing wrong?? I really need your help please. Thank you!

Stephanie, what makes you think you’re doing anything wrong? Yes, you have a smidgen of credit card debt, easily taken care of with concerted effort. Your school loan isn’t too bad either, and if you’re focused on getting it paid off, then you’re doing well. You have a hefty car payment, but if you need a car for work or have the money to spend, hey, that’s your call. And you rent. Your rent seems very reasonable. But from your “don’t own a home”, I take it you would like to. So get your debt paid off and then use the money you were using for debt repayment to save for a home.

Sometimes I think we want it all RIGHT NOW! That’s where our sense of dissatisfaction comes in. Even though we have a Just Fine Life, it can’t be enough because someone else has a nicer car, a nicer home, a nicer dress. So what? If what you have makes you happy, then that’s all you NEED.

Desperate Mom wrote:

I have a 30 yr old deaf daughter. She has $30,000.00 student loans. She has had trouble communicating at the banks and we would like to know if we could hire you to help her learn to budget and set up a plan to get out debt and plan for the future. Please let us know if you could and how much.

I’m sorry, Desperate Mom. I don’t deal with private clients because I just don’t have the time. As for your 30-year-old deaf daughter, if she’s made it through university, she probably has the resourcefulness to find a resource to help her work with her banker. There may even be a special service provided by her bank that allows her to deal with a banker who can sign. She should check it out.

Stefanie wrote:

Do you have any tips for students? I am in the process of completing a law degree and financing most of it on student loans and a line of credit. Panic sets in every time I look at my cumulative debt load (which I know I can’t address til I graduate and find work). For now, I am avoiding consumer debt (only use my one credit cards for true emergencies) and trying to stick to a realistic budget. Just curious - do you have any student-specific tips or suggestions? Thanks in advance.

Stefanie, I don’t have anything right now, but based on the number of questions I get from students and ex-students, I should. So I’ll commit to getting a section together on students and their loans by the end of the summer.

Kyle wrote:

I am a self-employed technology consultant. My wife is a federal government employee on mat leave. Her mat leave is up in a couple of months and we’re debating the pros and cons of her staying home.

Our debt is our mortgage and one car loan. Our credit card is very active but we pay it off every month, we use it for the points.

We have been living off of only my salary for the past 6 months and putting my wife’s benefit into savings. The savings account will have a little less than 3 months of my after tax income. Our other savings includes our RRSPs and my tax savings account, which at the end of the year goes towards taxes and RRSPs. My current income covers our expenses, but doesn’t leave a lot of wiggle room. And as a contractor, my current income is not guaranteed. What considerations would you look at when deciding whether to step down to one income or not?

Kyle, I’ll write you a blog on staying home with baby next week. Keep in mind that if she quits her job, you’ll lose her benefits, she’ll lose her pension plan, and you won’t have a back-up income if you go a few weeks without work so you need a HEFTY emergency fund… I’d say no less than six months’ worth of essential expenses. Stay tuned for the blog.

Kerry wrote:

I love your show. Can you take the show on the road and come to Winnipeg and sort out my finances? I am a 36 yr old physician, deeply in debt, 3 kids, drowning in international adoption fees, student loans, house and car costs, and corporate medical practice costs. However, I’m tons of fun and so are my kids, and I will be a very willing guinea pig!

Kerry, the reason the show hasn’t gone on the road is that I visit each family four times in a month, which would be very expensive and a coordination nightmare if I was going across the country.

I would ask why, if you’re drowning in debt, you didn’t wait to do your international adoption(s). I know kids are a great joy, believe me. But their security should be a top priority, and having a ton of debt doesn’t leave them very secure.

EP wrote:

My husband and I are in debt.. and I hate myself for it, because I believe that somehow this is all my fault. We’ve asked the bank for a loan to consolidate all of our debt (which includes a previous consolidation loan and credit card bills) and the bank turned us down because we’ve had done this with them before. But if we have a cosigner they will give us the loan to consolidate all of our debt. I don’t know what to do. We make about 3100 a month, fixed expenses $2400 (rent, car loan, bank loan, insurance, childcare) The other 700 are use to buy food, gas and pay the bills. So, at the end of the month we are struggling. We also have a credit line of $5000, which is always maxed out and the last few month we’ve paid about 50 dollars on overdraft fees. I’m so tired of this I have constant headaches and I’m not sure what to do. Should we go to a consolidation agency? Declare bankruptcy? We are working on bringing some extra money every month. My husband will be doing a newspaper route two times a week which it will bring about 400 dollars extra and I’m going to be doing daycare the two days that I’m at home with my girls. Please HELP us with some guidance.

This is the kind of letter that makes me sad. Here are two people who have made some mistakes getting into debt, but are now busting their butts and can’t seem to get out. But there’s also not enough information here for me to give any good advice. This happens A LOT. Which is why I suggest that people go off and find an advisor they can trust to help through these kinds of situations. I don’t mind answering questions, but when the situation is complicated, it’s impossible for me to do a good job in this venue.

Since I can’t see what you’re spending your money on, EP, I can’t give you any specific advice. Bankruptcy may be an option to get you out from under – though you don’t say how much your debt is, so I’m not sure. Wish I could be of more help.

Wanda wrote:

I have four small children and I had just lost my part time job. With a two houses, line of credits and other debits both my husband and I are on the edge of a break down. Since I lost my job I notice your show on Slice TV and you often say good debit and bad debit. The second house is a revenue property and the other is our own. My question is, how can I make ends meet without losing everything or having to sell one? I live in Montreal and I do understand you don’t visit here but we are in need of help before we break. Please help us. My husband really doesn’t believe we need but looking over the accounts were in the red. Waiting for your reply.

Wanda, you and your husband may have overextended yourselves. Is it the loss of a part-time that has put you in a tail-spin? Or is it all the debt as you juggle lines of credit, houses, and who knows what else? If you don’t want to “lose everything”, then you have to begin by defining what is most important for you to keep. You may not be able to keep it all. It’s time to prioritize.

Anna wrote:

What do you think about USC Education Savings Plans Inc. I have two accounts for my kids but I need to know if it’s a good one (a little too late but it will give me a peace of mind.)

Anna, I do not like group RESPs. I like individual RESPs. I’ve written about these before in the press and each time that I have the people who run these plans come after me with both barrels blasting. I don’t need the aggravation. Suffice to say that I won’t buy one.

S wrote:

Hi! Gail I love your show…it has helped out lots!! My problem is we sold our home 1.5 yrs ago and purchased a new one at that time I was given 12000 to pay off debts which I did but not all of them as I was getting married 5 months later and needed extra money for the wedding. My husband believes I am debt free as he is!! I really think if I told him about my debt now he would leave. He also wants a child, I do too but refuse to with this debt. I have about 23 500 of consumer debt. I have consolidated 13500 of it and owe 10000 in a line of credit. I have been married less than a yr. How do I get rid of this Dark cloud, save my marriage and become a mother all at the same time?? Thank you look forward to hearing from you soon!!

S, are you kidding me? You want to pull the wool over your husband’s eyes, get knocked up, and never have to fess up. You’re a coward. If telling him this would see him walk out the door, then you don’t want to have a family in this situation; it’s simply too fragile. It’s rotten that you deceived your husband. But to continue to deceive him is just as rotten. If you want your relationship to be one based on trust, then it’s time to start trusting him, and it’s time you gave him a partner he can trust. 

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.

Do you guys know how FABULOUS y’all are? I’ve been reading through your blog comments and the comments on the Have Your Say and I think you’re all pretty neat. I love the way you’re talking about money, sharing your ideas and giving advice to each other. That’s exactly why I set up this site, and I’m so glad it’s working.      I’ll be in Niagara Falls at the Meridian Credit Union Annual Meeting on Tuesday evening at the Americana Conference Resort and Spa, 8444 Lundy’s Lane. So if you’re a member, come say “hi” and get a hug.   I’m working on a series of articles on Retirement for y’all. I’ve had so many requests from people who want help figuring out the retirement thang. I think I’ll have 7 articles in all, and I’ll blog when they’re ready. If there are things that you still need that aren’t covered in the articles — you will read the articles BEFORE you ask questions, right? — comment on the blog and I’ll see what I can do for you.   I’ve been enjoying the fine weather here at Wits End. Man, am I ever glad to see the back of winter.  I can’t wait to get my pots started.  Since a big part of the country was hit with a snowstorm, I’m holding off for a while yet. But I’m itching. So much so, I went to my local greenhouse and bought a bunch of succulent, then repotted them into lovely containers for my sunroom and kitchen. I love succulents. I think it’s because they’re wonky-looking. Anyhoo, a morning’s worth of entertainment, and opportunity to get dirt under my nails and a lovely set of arrangements that are going to multiply and require division — more puttering around — in a year or so.   One of the questions I had running through my mind as I played in the dirt is this: How can I spread the word about getting money smart in ways that will draw more people in and will help people see that this isn’t as hard as some think it is?   Remember that old commercial for shampoo where the screen splits and the pretty girl says, “And I told two friends”, and then it splits again, “and we told two friends,” and it splits again, “and so on, and so on, and so on.”  That image has always stayed with me. Malcolm Gladwell calls it “buzz.” I want to find a way to use buzz to get to more people than I’m currently reaching. What do you think?  Do you have any ideas about what we could do, as a money-smart community, to attract more people to financial enlightenment (hey, how’s that for inspirational), and help them recognize that their money can’t be ignored forever?  What do you think it would take to get people focused on fixing their messed-up money?    Well, I’m off to listen to my son, Malcolm, practice guitar. Then I have to get ready for my interview. Hope y’all have a wonderful week.   TTFN    

Well, the book, A Woman of Independent Means, is almost ready for y’all who want to buy it. It’s been a journey, I’ll tell ya! I was determined not to write any more books since a) publishers can’t sell their way out of a paper bag, and b) my last publisher sold the rights to one of my books without even telling me, and then went bankrupt! I thought I was done with publishing. But I love this book. It’s thorough, it’s chock full of information and it’s CANADIAN! So why does Suze Orman sell more books in Canada than I can? Whazzup with that?

Anyhoo, I had a lot of women asking for this book, and decided to bite the bullet and republish it. Nathalie, who went from Continuity Queen and Research Wizard to Madame Director on the show agreed to do my editing. I did a rewrite and Nathalie went through it with her fine-tooth comb. Then I went to Lulu.com and self-published it.

The whole experience was at once interesting and frustrating. Every time I thought I was close to done, something else cropped up.

Hey, isn’t that just the way it is with life. Every time you get close to achieving some end you’ve been longing for, something comes along and pushes you out of the zone. Man, that’s frustrating. At one point, Nathalie called to say there was yet one more thing I had not done right for the upload to Lulu and I responded, “F…, just shoot me now!” (Yes, I swear like a truck-driver… and it has nothing to do with a lack of vocabulary, as y’all well know. I just feel better when I execrate.)

After weeks of work rewriting, editing, formatting, creating a cover, and uploading, I’m happy to say the book is this close to done. I’ve ordered a copy from Lulu to make sure everything is copacetic before I tell you guys were to go to find it and buy it.

If y’all don’t buy it, I won’t bother to do edits and republish the rest: The Retirement Answer Book, The Money Tree Myth (how to teach kids about money) or Dead Cat Bounce (investing). If Woman sells and y’all show interest in any of the other titles, I’ll get to work on one of them this fall.

Speaking of swearing, I got a call from a “collection agency” yesterday. The company that called, NCO Financial Systems, claims I owe $46 to a company I know I haven’t dealt with. When I asked for the details, the young woman on the phone just kept repeating that I owed the money and she was putting it on my credit bureau. Hmmm. Sounds like a threat to me. I guess everyone is so obsessed with their credit score now that they’re even willing to pay bills they don’t owe to keep in the 700’s. I’m not. Finally, she hung up on me. Whazzup with that?

So I called back. I asked to speak to a supervisor who told me his name was “Andrew.” When I asked for a surname, he wouldn’t give it (but he knew mine, does that seem fair?) I told him I needed his name so I could tell the president of NCO Financial who I’d been dealing with when I called. Andrew assured me the president would know who he was by his first name. Ha!

While I was on the phone, Ken looked NCO Financial Systems up on the internet and came up with websites devoted to them. No, not corporate websites. Websites warning the public about them. Here’s a excerpt from one site:

In case you are getting calls from the wonderful people at NCO Financial Systems. You should read some messages people have posted about this company. Apart from having to pay $1.5 million to settle Federal Trade Commission charges that it violated the Fair Credit Reporting Act (FCRA), there are also many claims of state and federal violations of legislation like the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA). The company purchases old debt from people like your cell phone provider, hospitals and the government for pennies on the dollar and then tries to collect it. You may have even already paid the bill, like I had, but that is really a minor irrelevant point. The reality is, much if not most of this debt is so old no one has any obligation to repay any of it, least of all not to NCO. Many people have been harassed for debt belonging to neighbors, relatives, old residents of the same address, and co-workers. Don’t pay NCO a penny.

At NCOFinancialSytemsFraud, there’s a warning that reads:

If you receive a letter from NCO FINANCIAL SYSTEMS, DO NOT use your home phone, your personal cell phone, or your office phone to call this company. NCO will use their Caller ID to record your phone number, and call and harass you daily at whatever number you called from!

There are more websites devoted to the vilification of NCO Financial Systems. I will only say that I won’t deal with anybody who won’t give me his name. I’d recommend that if you get a call from NCO Financial Systems, that you find out as much about their claim as possible before you agree to pay anything. And if they’re trying to collect from you for another family member (older parents seem to be targeted), then you should simply hang up.

You might want to pass this on to family and friends.

Gailvazoxlade.com is about six months old now, and I’m doing a very unscientific survey. I’d like to know how often you visit my site, and what you find most useful. I know y’all want to see some follow-up on my fams so you don’t have to tell me that AGAIN; I’m working on something now for the site. I’d also like to know the three financial topics you’d like to see more info on - anything from investing to estate planning, kids and money to buying a house. Whatever is on your mind and makes you go, “hmmm.”

Well, I’m off to get pretty. I’m hosting the Moon Over Monaco fundraising event for the Northumberland Services for Women. I bought a gown (my first in maybe 30 years) when I was in Florence. Someone asked me what shoes I planned to wear and I realized I’d made no provision for shoes, so I’m going to wing it. The dress is long and will hide all sorts of mis-matches.

Hope y’all have a lovely weekend.

TTFN

There’s nothing like leaving home to remind you how wonderful your life really is. Ken, my husband, loves to quote T. S. Eliot:

We shall not cease from exploration And the end of all our exploring Will be to arrive where we started And know the place for the first time.

Eliot was a genius not just because he could really write, but because he could capture a truth so clearly.

When was the last time you stopped, looked around you and saw your life with fresh eyes? Never mind the goopy stuff on the counters, or the clothes on the floor. Never mind the dust accumulating on the shelves. Never mind the newspapers piled up in the corner, the light bulb you’ve been meaning to replace or the dead leaves on your houseplant.

Close your eyes and think about the least fortunate person you know. It has to be someone you know reasonably well. Okay, now imagine that you’ve given your life to this person. How does she or he see your life? Look through new, more appreciative eyes.

It’s interesting how you can see your life differently if you practice looking through the eyes of someone who appreciates all you have (as opposed to seeing all that’s missing.) So often, we take for granted what we have, and look only at what we have not. Whazzup with that?

As y’all know, if you follow my blog, I’ve been away in Italy for the past two weeks. I arrived home to over 100 new questions. Wow! Y’all have a lot you need help with. Some of you are asking questions I’ve already answered so you have to go and look for the answers, since I’m not going to repeat myself. Some of you want to suggest show ideas, which I’m happy to forward to the producers. Some of you are pretty demanding. I got this from one person:

You have not replied back to me. I would really appreciate you writing back , I realize you have a lot of fan mail. I really enjoy your show I never miss an episode.

Hold your horses, sweetie-pie. I’m going as fast as I can. And I try to answer as many questions as I can. However, I’m just about to start shooting seasons six and seven of the show, and I’m going to be a little busy. There’s no way I can answer all the questions I get, so y’all need to be using the info on the site to find some of the answers to your questions. Use the SEARCH (click on the magnifying glass at the top of the screen), to find what you’re looking for. It’s pretty good.

Here’s an example of searching for what you want. Pamela wrote:

Your show is fantastic and I learn something new with every episode. I have implemented the cash jars into our routine and wow, what a difference it makes to the discipline of spending. The only thing missing for me is “Where can I find that fabulous ‘Office in a Box’”? I have googled all over and can’t seem to find it. Can you point me in the right direction please? Thank you again for such a great show, for opening my eyes and giving us a chance at a debt free future!

Pamela, use the search to look for “office in a box”. You have to search the blog separately (down on the left side of the page). You’ll find what you’re looking for.

I got a great question from Evelyn:

What happens if you start your budget just before a large yearly bill is due? Where does the money for the bill come from? I haven’t had enough time to save yet! For instance, if I start my budget in March, and my car insurance is due May, and I’ve worked out that I need to put aside $40 a month to pay for it yearly, I’ve really only put $80 aside by the time the bill is due after starting my budget. Where does the extra come from?

Well, Evelyn, this is one of the reasons you need to have an emergency fund and some savings set aside - so you can backfill your budget when you need to. Alternatively, you can steal from the categories you haven’t had to use yet like your holiday budget or your home maintenance budget. Failing that, haul in your belt and be ready for a lean month while you suffer through the shortfall caused by the big bill. Take heart, next year will be easier if you stick to the plan.

Here’s another question that brings to light some issues a lot of people have:

I am a single 44 year old woman, no dependants, making 95000 a year beginning to panic because I don’t know if I will be able to retire at 55…my total debt is 75,000 for my mortgage…should I pay my mortgage off and then save like crazy for my retirement? I only have 50,000 in RSPs… or should I simply try and save 1000 a month for the next 14 years. I do have a fairly good pension plan, but feel anxious just the same.. my mortgage is 6 years from completion, but I could cut the length in half with a disciplined pay down…what would you do? any other suggestions?

First, what’s the rush to retire? What are you planning to do with your time once you’re no longer doing the job you’re currently doing? If you’re planning to restyle your life, would a new career, even a part-time job, fit into your retirement picture? Any money you’re able to earn during retirement will reduce the amount you have to save before you leave work.

Second, the mortgage versus RRSP/savings question is one I get all the time. My usual answer is this: Make your maximum RRSP contribution and then use your tax refund to pay down your mortgage. It’s a win-win solution.

Third, quite worrying and find out what your income/expenses will be during retirement. As long as you’re living in I-don’t-know-what-to-expect land, you’ll be wringing your hands. Get the facts and lose the anxiety. That means:

a)     figuring out exactly how much you’ll be getting during retirement from your company pension plan and from government benefits,

b)     figuring out your likely expenses during retirement,

c)     deciding how you’ll fill the gap if there is one. As I mentioned before, you can work to help fill the gap. Or you can save like a mad fiend so you won’t have to. But at least you’ll be dealing with real numbers and not some nebulous anxiety.

Kristi wrote to ask:

I have 2 credit cards - one with an interest rate of 23.50% and one with an interest rate of 19.50%. I have often seen you on your show tell your clients to call the credit card companies and ask for a lower interest rate. I would like to know how I go about doing this. I am unsure what to ask and how to ask. I would like to have the higher of the interest rates lowered significantly but don’t know what to ask/say to have this happen. Any advice that you can offer Gail, would be greatly appreciated.

Okay, go to Oprah’s website and print a copy of the script Jean Chatzky provided for negotiating with your credit card provider. However, please note, because of the current credit situation, negotiation has gotten tougher and you have to be more persistent. You may also have to be willing to switch to another credit provider (assuming someone will have you) that offers a lower-rate option. Good luck.

Matt wrote:

I was watching “MAXED OUT” on the W Network. They were featuring a couple (Gillian and ED) that I knew I had seen before. Then I realized that they were on your show (”Gail force winds” was the name of the episode) Unfortunately, they did not follow your advice and were still in Debt trouble. When they were on your show (about 2 years ago), they were $50000 in debt. Now on the “MAXED OUT” show they are $70000 in debt. Have you though of doing a “follow-up” show, on some of your previous shows, to see how everyone is doing and offering more advice and guidance. I always watch your show and the advice you give.

Okay, Matt, and every one else who wants a follow-up show, the only way to get it is to go to SLICE and bug them. They’re in charge of what we do, so if you want it, than YOU make it happen. They won’t listen to me.

As for Gillian - I loved that show, it was so funny - if you go to the TDDUP Facebook page,  you can see how she responded to a similar comment.

Rhonda wrote to ask:

Do you suggest having separate account for emergency funds and other types of savings (vacation, sports registrations, etc) and I am also concerned about the interest we will have to pay on the money in the bank. Do you have any suggestions until the tax free savings account starts up in January?

First, whether you open up separate accounts or have one account and keep track of the various amounts for each category on paper depends on how organized you are. Since it doesn’t usually cost anything for a savings account, that’s the option you should use if you can’t keep track on paper (or a spreadsheet on your computer).

As for the interest you’ll have to pay tax on, hey, what’s your worry. If you earn $10 in interest and pay $3 in tax, you’re still up seven bucks. Just don’t spend all $10. Set aside some for the taxes.

And from K:

First of all, I love your show. It was the turning point in my view of our finances, and then a huge help in getting my common-law spouse to see where we were heading. It wasn’t as bad as most of the people on your show, but we are SO much better off now than we were before. Anyway, my question was: what is the main difference between and RRIF and a LIF?

Terrific question, K. A RRIF (Registered Retirement Income Fund) is what you use to mature a regular RRSP. A LIF (Life Income Fund) is what you use to mature a locked-in RRSP, which was created with funds from a company pension plan.

A wrote:

On the budget form there are 3 places to fill in taxes. There is the tax rate on the income, property tax and again 4th from the bottom. What type of tax goes in that blank?

A, that’s for any taxes you may owe, which is why it’s with “debt repayment”.

Heather wrote:

At what age would you suggest one start buying life insurance? I’m 26 and single, with no dependents.

Heather, right now would be good, while you’re young and healthy and your insurance premiums will be nice and low.

M wrote:

My fiance and I are planning a wedding but we have no idea what our budget should be, how can we plan a beautiful day without putting us in financial debt?

Go read my blog, “Leah,
this one’s for you” which has a bunch of links for people who are getting married. Mazal tov!

Annieshome wrote:

If you ask the credit card company to lower the interest rate, does it then affect your credit rating? We went to see a company who was able to help us clear all of our credit cards and debt but it would then be reflected on our credit report and would then make it impossible to get a mortgage or loan. Very hesitant to do this. Please help!!!

The answer to this is simple: No, asking for a lower interest rate doesn’t affect your credit rating. And BTW, I don’t like credit counseling services for this exact reason.

S wrote:

I absolutely love your show! I’m a dedicated viewer and we use a lot of your tips and therefore my husband and I are in a great financial position but my father is not. My father is getting older and his health is not the best and I worry that his spending habits are going to be my problem after he passes. Is it true that a parent’s debt must be covered by the family? He does own a home but it is mortgaged to the max and he also has credit card debt. Please let me know if I should be worried.

S: unless someone has co-signed on a debt, the debt is the obligation of the borrower only. No one can be made to repay a debt that they have not signed on. I hope that sets your mind at rest.

And from yet another “S” - what’s with all this anonymity people… what are you afraid of?

We are looking into buying our first home. Gross, we bring in $93,000/year. We have no debt and have over 20K in the bank saved up, but only want to put down 15K and leave the rest for emergencies. Most banks want you to put down 20% for the down payment or pay a lender’s insurance fee. My question is, would it be better to save up the 20% and then buy a home or put down what we have now and pay the insurance fee? It will take us another year to save up the additional money for 20% of a $215,000 home. Do we throw our money away on rent or on this insurance fee?

First, rent is not money thrown away. It’s what you pay to live in a home that you don’t own. As for whether to throw money away on “rent” or on “mortgage insurance”, that’s your call. For my part, I believe in 20% down. If you can’t manage to save that, I don’t believe you’re ready for home ownership and all it’s inherent costs.

G wrote to ask:

Gail, I watch your show faithfully. My husband and I (43 and 42) both make excellent money (approx $9000 monthly take home). We have a $149000 mortgage and have consolidated all of our debts (car, credit cards etc) onto a credit line for a total of $21,000. This all makes me nervous. Our mortgage is up for renewal and we are thinking of rolling this credit line into our mortgage and have a total mortgage of $170000. Would you recommend this? Thank you for any help.

Yes, G, I would because your mortgage has the lowest interest rate and is the most manageable way of dealing with debt. However, I would also recommend that you save some extra money each year to make a principal prepayment to mitigate the extra interest you’ll pay by consolidating your debt on your mortgage.

Lucy wrote:

Hi Gail, First I want to tell you how much I enjoy your show. You offer really good advice. My questions is: I took $20000 from my RSP to put as a down payment on my 1st home. I have 15yrs to pay it back no interest. 1st was that a good choice? And is that a good debt or a bad one?

Sure, that’s one way of getting into a home. Of course, the sooner you get the money back into your RRSP, the faster sit can start growing on a tax deferred basis. And technically, it isn’t debt at all (although it has to be repaid) since it was your money to begin with.

Alicia wrote:

I’m a student in my 4th year of university, and I watch Til Debt Do Us part religiously. I’m not in debt, and I’m very paranoid about spending money, but I was wondering if you’ve ever considered doing a debt prevention episode?

Alicia, all my shows are “debt prevention” shows since my mantra is DON’T SPEND MORE MONEY THAN YOU MAKE.

Stacey wrote:

Hi Gail!!! I love your show! I have my TV timer set for it everyday!!! My husband and I just had a baby and we’re trying to figure out if we can afford for me to stay home after my mat leave is up. Any suggestions on how we can figure this out?

Sure, Stacey. Figure out what your income will be without your job, compare it to your expenses, chop what you can, and see if you balance. If you’re not spending more money than you make - WITHOUT USING CREDIT - then staying home with baby is a go.

Some people who are using the Interactive Budget don’t understand how the numbers for the jars are arrived at. Since the jars are “weekly” and there are 52 weeks in a year, the program takes the monthly amount, multiplies it by 12 to get a yearly amount and then divides by 52 to get a weekly amount. (FYI, on the show, we simply divide by 4 because that’s how long we work with a family.)

A LOT of people are writing to ask about the percentages I r
ecommend for things like housing, debt repayment, and transportation. Go look at the Interactive budget, which has the percentages on it. As for how much you should be spending on individual lines on your budget, I don’t know. Since I don’t know how much you make, how many people are in your fam, and what your other expenses are, I couldn’t even guess. Don’t be lazy. Do up a budget and as long as it balances (you aren’t spending more than you make) you’re fine.

It seems my accent continues to be a topic for discussion and curiosity. I am from the land of wood and water. Good luck with that!

And once again, for all those who haven’t been paying attention, I’m sorry but I do not take private clients. 

CNN Money reported last week that “Americans are ‘financially illiterate’ and caught up in a web of debt.” No, Really?! Talk about being on top of what’s going on in the world. Wow!

The article goes on to say that, “Americans don’t realize they’re unaware of some of the complexities of personal finance - like compound interest.” Hey, if you find compound interest complex, how the hell can you be investing in anything more ’sophisticated’ than a savings account? That rules out having a mortgage, investing in mutual funds, opening a retirement savings plan, using a credit card, and just about every other banking transaction I can think of.

So there’s a professor from Harvard Business School that says credit card companies could help by creating more consumer-friendly credit contracts that plainly spell out what’s going on. Yes, we know, Peter, but it’s not likely that they will since ignorance is profitable.  Which is why it is soooo important that we do two things starting today:

1. We promise not to use any financial tool we don’t understand; that doesn’t mean adopting The Thinker’s pose and sitting still forever; it means committing to knowing what we’re doing.
2.  We promise not to let our children inherit our financial ignorance.

For the record, this is how compound interest is calculated… and where were you when you should have been in Grade 7 math class? Out behind the portables and up to no good, I suspect.

To compound interest:  Let’s say you have $5000 compounding monthly at 6% per year.

1. Calculate 6% of $5000 (multiply 5000 by 6 and divide the total by 100); your answer s/b 300.
2. Divide your answer by 12 (to get the ‘monthly’ interest); your answer s/b 25.
3.  Add the 25 to your original amount of $5000; your answer s/b $5,025.
4.  After month 1 your new balance is $5025. So when you do your second month’s calculation, you’ll start by calculating 6% of $5025. See, you’re calculating interest on the interest you’ve earned… which is exactly what ‘compounding’ means. If you didn’t add it to your balance and calculate interest on the interest, it would be ’simple’ interest instead of ‘compound’ interest. Got it?
5.  Of course, it is waaaaay easier to use an online calculator to calculate compounding return. Fiscal Agents has some good ones. And it’s important to know how often the compounding happens. If your investment compounds daily, you’ll make way more in interest than if it compounds annually. Is this too obvious and am I getting pedantic now? Sorry.

There are people from around the world asking if the percentages I use on the show would apply to their circumstances. I’m going to say yes. I’m not working in those other places, but Canada is a diverse country. What’s happening economically in Vancouver is in no way relevant to the Newfoundland experience or what the people in Alberta are living through right now. And these are guidelines about how your money should be apportioned. So, yes, use the percentages as your guide.

Some people are writing to say they are trying really hard but that the short-falls in their budget just won’t go away. They have a debt that is persistent even as they focus on paying it down. Or their budget keeps getting blown away by unexpected expenses. I’m willing to bet you dogs to donuts that you guys haven’t actually worked out what you’ve been spending and that’s why you can’t get a grip on your money. Yup. Time to stop guessing and keep track. Or go back over the past six months and look at what you’ve been spending on EVERYTHING. This is not something you can guess at. Don’t be lazy. Do the work.

Some people don’t know where to put stuff on the budget worksheet. The big area of confusion is where to put retirement savings. Under “savings” people. If you’re ’saving’ for a vacation, I don’t consider that to be ’savings’… it’s what I call ‘planned spending’ since you’re planning to spend the money. So you’d put that under the ‘vacation’ section of your budget. Ditto your kids education money, your home maintenance, the money you’re putting aside for a new car, or your home downpayment money.  If you’re using my budget worksheet and have things that don’t fit, you’ll have to rename some categories. For example, if  you’re not using the “allowance” category, but are paying for school tuition, just rename the category. It’s still a LIFE category, so that’s fine. Just don’t use a “transportation”, “housing”, “debt” or “savings” category for something that’s a LIFE expense since you’ll bugger up the jars - if you’re using them.

As for why when you put $800 in your budget for food, you only get $184.62 in your jar every week, it’s because the monthly amounts are multiplied by 12 to get an annual, and then divided by 52, which is the number of weeks in a year. If the calculator just divided by 4 (as in 4 weeks in a month) you’d be short 4 weeks every year.

One woman wrote that when she takes the money out of the bank for her envelopes, she has practically no money left in the account until the next pay. She wants to know if this is bad. Does it mean your account becomes overdrawn before your next pay? If so, then it’s bad and you either have to cut your spending or make more money. If you don’t go into overdraft, but you are very uncomfortable spending every cent you make, then you either have to cut your spending or make more money.

Some people who are watching the shows say they can’t relate because most of the couples I work with are in “severe debt.” That’s not completely accurate. I’ve done lots of shows with couples who aren’t yet too far in debt, but are definitely headed there because they are overspending. That’s the crux of the matter for most people: overspending. If you can’t find a way to budget, even though you don’t have lots of debt, I’m willing to bet you a tea bag you’ll be in debt in no time flat since you probably have no idea where your money is going.

Christina who watched the Tamara and Brandon episode said:

I thought that student loan debt wasn’t bankruptable anymore. Is that in certain provinces or am I just wrong on that one?

You’re mostly right. But Brandon’s and Tamara’s “student” loans weren’t the provincial/federal
kind, they were the “bank” kind … lines of credit given as student loans, but not federally or provincially guaranteed. So they’re, in fact, just consumer loans and could be discharged. And official student loans can be discharged in bankruptcy after ten years. However, that number is about to drop to seven years, as soon as the new legislation comes into effect.

As for why I didn’t give them a “budget booster” challenge, I may have and it may not have made it into the show because there was so much else to cover, and we only have 21 minutes of airtime. There’s a lot of stuff that gets left on the floor. It’s the biggest complaint the directors have: figuring out what to leave out.

Then there are the people who want to know what to do if you’ve chosen to live a credit card free life, but want to be able to reserve a hotel room. Hello. This is where all-good-intention hits up against reality. Let me first say that I do NOT consider credit cards to be evil. I see credit cards as a very useful tool I have cards - one for personal, and one for business. And I recently got a third, with a very very low limit, which I use strictly for online purchases to mitigate concerns my husband had about fraud. I will say that if you can’t use a credit card responsibly - PAY IT OFF IN FULL EVERY MONTH - you’re right to not keep one in your wallet. But you can keep it frozen in a bucket of water in the freezer, stuck behind the refrigerator or in some equally inconvenient spot where you can get to it if absolutely necessary.

A lot of people are asking for help personally from me. Sorry, folks, I don’t do private consultations and I don’t have a list of people who do. However, if y’all have the names of people you would be comfortable referring a friend to, I’m happy to let you build a list under this blog. If you choose to use any of the names that have been given here, then ask for at least three references you can check with before you engage the person you’ve been referred to.

One final word: anyone who needs help with their money is not a loser. I don’t care how deep a hole you’ve dug, or how stupid you’ve been in the past, you’re not a loser. Not if you’re now determined to make a new, different, better life. The very fact that you’ve recognized that there is a problem, and that you’re determined to fix the problem, means you are a winner. You’re my kind of winner: gutsy.

TTFN

People keep writing to ask about the percentages I use in the Life Pie - y’know, where I say how much you should be spending on housing, transportation, life, saving and debt repayment. All the percentages are on the Interactive Budget. Look there. As for the questions about how much you should be spending on food, clothing, and all the other stuff that goes into the “life” category, I don’t know. It depends on what you can afford. If you make a little, you spend a little. If you make a lot, you can spend a lot. You have to prioritize. You have to make choices.

I’ve also had a few questions recently from people who owe the taxman money. Oooh! Not good. He’s the guy that can dip into your account at will and take money, even your mortgage or rent money, if you don’t stay on his good side.

My best advice for dealing with the taxman is to write, explain your circumstances, create a repayment plan you and he can live with, follow-through, and get the mess cleaned up. He is one credit who will NOT go away. Deal with it.

Lots of people want to know how to get into the financial advice business. It’s nice that y’all are inspired by the changes you’re seeing people make and want to help. How you go about helping is really a matter of whether you want to be a T-4 Grunt (my husband’s term for an employee - he’s always been a T-4 Grunt) or self-employed.

If you’re just starting out and need to make money while you grow your career, you may have to start by getting a job with a financial institution. Look for one with whom you share values. If you want to help people, and they want you to sell mortgages, you won’t be a happy camper. Try the smaller, community-based institutions - think credit unions, trust companies, and the like. Keep upgrading your professional accreditation and eventually you’ll have the experience and expertise to hang out your own shingle and charge for your financial planning advice.

Keep in mind that most of the people I help, couldn’t afford to pay me. That’s why I do it on TV, where I can hit a huge audience all at once, or for free here on the website.

You could also begin building some experience working with family and friends, setting up “groups” where you watch the show with other people and then work on setting goals and supporting each other as you move through the process together. As a Gail Disciple, you’d be the official butt-kicker and information disseminator.

Which brings me to one of the questions I get most often: What exactly can a financial planner do? And when is it time to speak with a financial planner.

A financial planner is supposed to know everything about money: how to manage your cash, your debt, your investments (not necessarily what to invest in, but how to make the choice), how to mitigate your risks, plan your estate and deal with all the changes life brings. Sounds like a big job, doesn’t it? It is. And, while there are some really good planners out there, there are also a bunch of dopes with designations (letters behind their names that say they know what they are doing) who haven’t got the good sense god gave a goose.

So how do you find a good one? Ask for a referral from friends, family, work mates, your boss, your dentist, your doctor, whomever you know and trust. Should you pay for this advice? How unbiased do you want it to be? If you want to ensure the planner is only interested in what’s good for you, you have to pay her for her advice. After all, she has kids to feed too. If you don’t want to pay for advice, then you can find good planners working for companies who have things to sell. Just be aware of what you’re dealing with.

People have been asking about how I get the numbers I use on the show. When I tell people how much debt they are going to be in five years down the road, I:

• add up all their debt,
• include how much they’re overspending monthly, and
• compound it at 9%.

When I tell people what they’re going to have when they retire, I:

• use the amount I’ve set aside for savings,
• add in any extra I recommend they set aside once their debt is repaid, and
• compound it at 7% for as many years as they have until retirement (age 65).

And finally, to respond to the young person who wrote to tell me that bankers are saying 27 is too young to start an RRSP, I say: They are stupid. You don’t want to deal with any financial institution who is too dumb for words. Here’s my for instance:

Last week I took a cheque into the CIBC to deposit to my CIBC Wood Gundy corporate account. They wouldn’t take it. It was too big to go through the machine and no one behind the counter could figure out how to use the CIBC VISA card I’d been using as my bankcard for the past 10 years. When they finally drew up my information (it took two trips and a discussion with the bank manager), part of the confusion came from the fact that I have a numbered company with an operating name… too many things for the bank to deal with. His recommendation: I should dump my corporate branding and make it easier on the CIBC by only using my numbered-company number. So instead of being the very recognizable Gail, I should become 1234567 Ontario Limited, because that would be easier for CIBC to handle. See what I mean about stupid.

CIBC has been working hard to lose my business. They should be very proud of their accomplishment. Now my challenge is to find a less-stupid financial institution that can actually give me what I want: service. Let’s face it folks, all the products are pretty much the same.

Anybody want the job?

It’s a beautiful Saturday morning. We are buried in snow here at Wits End (yes, I named my house), and all is well. Pony and Llama have been feed, as have the deck-cats. The birds are yelling at me, but they’ll have to wait a minute or four. I’ve got two squashes roasting in the oven to make squash soup (one with mango, the other with curry & coconut milk), and I’m almost all caught up on the laundry. Wow!

I’m sorry I can’t answer all the questions I’ve been receiving. There are just too many of them and not enough of me. One question I will answer is about my plans to travel and do more speaking engagements. Credential and I are talking about doing some more gad-abouts in the Fall, maybe down East. But I’m about to go back into production for the TV show and it’s hard to do a lot of traveling when I’m shooting.  It’s bad enough being away from my kids as it is, so I limit my time (usually) to just two days a week. TV uses that up during production, so anything extra I do is at significant personal cost. That’s why I’m not doing tons of speaking.

When I do speak, it has to be for an organization that is willing to let me be who I am. That’s not always easy to find. Most times, organizations have an agenda that is somewhat different from mine. I’m about telling the truth and educating people. If I think something is a good idea, I say so. If I think it’s a bad idea, I say that too. Most organizations can’t deal with it. I’m very happy to say Credential could, and I thoroughly enjoy my relationship with them. 

Lots of people are writing to asking me what they should do with their money. Here’s my answer: I DON’T KNOW. I don’t know you. I don’t know your circumstances. I don’t know your goals. Geeze Louise! Go find someone who can get to know you so that you can start building a relationship with THEM and they can start getting to know YOU.

I know, I know, whom are you supposed to trust? It’s a good question. Start by asking family and friends who they turn to for advice and how happy they are. No luck there? Then ask at work. Ask your boss (you’ll look proactive and future-focused, both good attributes as an employee.) I can’t believe nobody you know has a good advisor.

I take that back. I can believe it. Because I get a lot of questions every day – I can’t answer them all, but I’ll deal with some of the “major issues” in my blog. YOU also have to take some initiative. Search my blog. Search my site. Look to see if I’ve answered the question you’re asking before (I may have, since there’s lots of stuff here.) If I get a question I’ve received before, I’m not going to repeat myself. So look around.

There are some good advisors out there. I’ve met some of them (sorry, no referrals). My best advice is to go to your community-based financial institution and build a relationship there. Community-based? What’s that? It’s a financial institution where you know the people because you live and work with them. You’ll hold them accountable and they’ll do the same to you. They’re genuinely interested in helping you do well, and they take great satisfaction from their role as guide.

If you feel you’re not important to your financial institution, then you aren’t. If you don’t feel special, you’re not. If you don’t enjoy your interactions, if you aren’t greeted warmly, if you don’t have a sense that you come first – not just a slogan, people, really come first – then you should find yourself another financial partner.

Some people want to know what’s in an office in a box. Y’know, you probably have most of the stuff you need at home, but here’s a list of things you might want to include.

• Box of file folders
• Box of hanging folders + tabs
• Box to hang folders in
• Labels
• Pens coloured
• Pencils plain
• Eraser
• Small stapler
• Staple remover
• Scissors
• Scotch tape
• Paperclips
• IN box tray x 2
• Post-it notes
• Calculator
• Envelopes
• Stamps
• Accounting book (sometimes described as “columnar book” for WRITING IT DOWN!

As for making the interactive budget downloadable, Marnie, it’s simply an excel spreadsheet. If you want to keep your budget on your computer, use mine as a model and create your own. 

And finally, since we are in RRSP season and I’ve gotten several questions about RRSP loans, here’s my take:

• If you were in a really high tax bracket last year and hadn’t done any RRSP saving — but you’re all ready to be a good toad this year — then go ahead and get an RRSP loan, make your maximum contribution, get your tax back (or don’t pay the tax you would have to). Then pay off the loan within six months. If you can’t do that, don’t do it at all.
• If you’re thinking of taking out a whopping loan to catch up on unused RRSP contribution room, think again. Instead of paying interest on a loan, simply make the payments you would have made on your loan directly to your RRSP as contributions. You’ll be caught up in no time, and you won’t have paid a penny in interest.
• If you’re trying to figure out how to make a bigger RRSP contribution when you barely have enough to get to the end of the month — and you already have a third job — try this: when you get your tax refund from making your RRSP contribution (and whatever else you’ve done to minimize your taxes), add that refund to your next RRSP contribution. There. You’ve increased your RRSP savings and it hasn’t cost you a cent more from your cash flow.

If you haven’t made an RRSP contribution for 2007, let 2008 be the year you put inertia to work for you. Go to your financial institution today and set up an automatic savings plan. However much you choose, have it deducted from your main account and automatically contributed to an RRSP.   If your next question is, “So what should I be investing my RRSP money in?” we’re right back where we started. GO FIND AN ADVISOR.