In our zeal to qualify for a mortgage, we strive to meet the debt service ratios used by all major mortgage lenders. The rule of thumb the lenders use is your mortgage payments, property taxes and heating bills should be less than 32% of your gross monthly household income.
They also consider other monthly obligations like car payments and credit card payments, and decree your total housing costs and debt payments should be less than 40% of your gross monthly household income.
It always seems to me the standard calculation of household expenses is out of date and does not reflect reality. Every household I encounter in my business has a monthly hydro and water bill for example. They also have cable costs, internet costs, cell phones and often land line phones.
And almost all houses need to be maintained. Who cuts the grass and ploughs the snow? Who fixes things when they break down? And then there are unforeseen major expenses like roof repairs, leaking basements, termite flare ups, ant infestations etc. And if you have a pool, that’s almost $1,000 just to open and close the pool each year, plus weekly cleanings and chemical treatments, and the extra heating and hydro pools while the pool is open.
And what about your children and your pets? Or the aging parent who may live with you? The lenders don’t ask if your teenage son plays hockey five days a week at an annual cost of more than $15,000 after tax dollars! They don’t (at least not obviously) care if you have one child or four – but we all know the monthly financial burden of raising children is not cheap.
They don’t stop to consider whether or not you plan to contribute towards your kids' post secondary education, or the increased costs of medication and care for your elderly parent.
No, the harsh reality is the only person who cares about all this stuff is you.
But we are conditioned to buy as much house as we can possibly afford – using metrics and approaches that are hopelessly out of date and not reflective of life’s realities.
Most home buyers we meet in our business stretch their budgets to the max to get into their ‘dream home’. They have no back up plan, no savings, and are often only one or two hiccups away from financial chaos.
These hiccups inevitably lead to the use of readily available credit such as lines of credit or credit cards. Balances accumulate, often at high interest rates, and a further monthly minimum payment obligation is slapped on top of an already over worked monthly budget.
Ah, budget. Yes, we all talk about “the budget”, but very few households actually have a set budget and even fewer live within the means of that budget.
I am sure that’s why we are seeing record levels of financial stress in Canadian homes – and that is with interest rates at all time low levels. God help us all when they pop higher in the years ahead.
Do yourself a favour, and take an honest hard look at the totality of your monthly obligations, and make sure you are not setting yourselves up for stress and failure. Some enlightened industry experts argue your household expenses should in fact be no more than 25% of your total household income – and they have a valid point.
Every one of our mortgage or credit counselling clients are given a detailed budget and financial framework to work with for going forward. Our concern is not just with fixing the problem of the day, but more importantly, making sure we set you up for success and happiness.
If you don’t take these considerations into account, no one else will. The lenders are protecting their behinds with their outdated approach to assessing your ability to make the mortgage payment – who is watching your back?
Showing posts with label Saving and budgeting. Show all posts
Showing posts with label Saving and budgeting. Show all posts
Wednesday, October 27, 2010
Friday, October 8, 2010
When one of you is a spender, & the other is a saver
This article in the October 05, 2010 Globe and Mail, written by Noreen Rasbach, hit home on a point that many couples grapple with.
Their story, as told by Ms. Velasquez, is common: The Kitchener, Ont., couple, who together earn about $130,000 a year, was constantly short of cash. "I felt for me it was always, 'Well, where's the money?' or 'Where did the money go?'
"It was very stressful."
Ms. Velasquez, 29, and Mr. Verrinder, 42, also had different attitudes toward money: He was a spender, she was more of a saver.
"And when he spends, he spends big," she says.
Theirs is the story with which many Canadian couples can identify. A national survey by Credit Canada and Capital One Canada last year found that 86 per cent of couples say they argue about money and 48 per cent say they don't believe their spouses have the same philosophy when it comes to managing money.
Opposites attract: So say therapists and personal-finance experts, who see the saver-spender divides in a large number of couples. These couples have opposite approaches to money, and can develop strong frustration and resentment toward their spouses.
"I deal with a lot of women across the country, and the perfect emotional financial storm happens when there's misalignment, there's a lack of trust and there are differing financial values," says Patricia Lovett-Reid, senior vice-president with TD Waterhouse Canada Inc.
"I have seen many couples who actually don't understand each other's spending or saving personalities until a year or two into the relationship and then - wow - fireworks," says Alison Griffiths, a personal-finance author and host of television show Maxed Out.
"But I don't believe that finances are like leopards and spots. I do believe that people can alter their financial personalities."
That begins by having a conversation about money, experts say, preferably with a third party who can cut through the intense emotions. "When those conversations start, there is a floodgate of emotions that get unleashed," says Karin Mizgala, a financial planner who also is co-founder of the Women's Financial Learning Centre in Vancouver.
"Typically when the conversation happens, it's a fight. There are pent-up fears and insecurities on the part of the saver, who sees that his or her financial well-being may be jeopardized by their partner. On the spender's part, there can be a real sense that they don't want to be told what to do, that they're tired of having every move being watched."
Those conversations should also touch on how each spouse was raised and what influenced their attitudes about money, says Ed Santana, a psychotherapist and executive-director for the Ontario Association for Marriage and Family Therapy.
"When they understand where the other person is coming from and when they [learn] some of their choices about money, [their fight] becomes less personal," he says.
Mr. Santana and financial experts also agree on some of the ways to bring together spenders and savers to find the middle ground.
The first step: Figure out exactly how much the household spends and what the money goes toward.
The next: Find common goals and let each other know individual goals. Whether it's getting out of debt, or saving for a house, a car or a vacation - setting up a budget and a financial plan to meet those goals can help couples stay on the right path.
It's what Devon Beaton and Kristin Campbell of Calgary did. The couple - she's 20 and he's 22 - are engaged and had planned to get married this past summer. But first they had to sort out their financial differences - he was a saver and she was a spender.
The difference has caused friction at times, she says, but they have learned not to fight and to talk it out.
"I think we've both kind of rubbed off on each other," Ms. Campbell says. "We've both grown to accept each other. He tries to not be a penny pincher and I try not to spend as much. It's a compromise."
The couple talks regularly about what they can and can't afford. In the "can't" category: the summer wedding. When they realized they would have to go into debt for it, Ms. Campbell says, they decided to postpone it.
Ms. Lovett-Reid advises that couples also rotate financial responsibilities, so that each has an intimate knowledge of the household finances.
"If there's a dominant person in the family that handles the money, then switch it for six months, and the other will get a far better appreciation and understanding of how much money is coming in and where it is being spent," she says.
In the case of Ms. Velasquez, getting involved with the family's finances was a huge breakthrough. The couple may have had different attitudes toward money, but she says that she wasn't really taking any responsibility for the finances.
"Things are really good now. I'm more involved. We keep track of everything we spend. We probably talk about [household finances] every week.
"We definitely talk about it more without fighting about it."
The couple followed a lot of the experts' advice - they went to a third party, the Meridian Credit Union, where financial consultant Amie Daminato worked with the couple to come up with a budget plan, a savings plan and a financial wish list.
Ms. Velasquez says having financial goals - such as saving for retirement and their child's education - has made the couple focus on what's really important.
And a few months ago, when the couple's car broke down, they realized just how far they have come.
"It wasn't, 'Oh my God, how are we going to pay for that.' It was, 'Oh, we have money in savings.' It wasn't stressful at all."
Bridging the spender-saver divide
By NOREEN RASBACH
Globe and Mail Update
Globe and Mail Update
Many couples fight about money - here's what experts say you can do to find middle ground
A few years back, Valentina Naranjo Velasquez and her husband Gary Verrinder found themselves in a place that is probably very familiar to a vast majority of Canadian couples: They began to fight about money.
Their story, as told by Ms. Velasquez, is common: The Kitchener, Ont., couple, who together earn about $130,000 a year, was constantly short of cash. "I felt for me it was always, 'Well, where's the money?' or 'Where did the money go?'
"It was very stressful."
Ms. Velasquez, 29, and Mr. Verrinder, 42, also had different attitudes toward money: He was a spender, she was more of a saver.
"And when he spends, he spends big," she says.
Theirs is the story with which many Canadian couples can identify. A national survey by Credit Canada and Capital One Canada last year found that 86 per cent of couples say they argue about money and 48 per cent say they don't believe their spouses have the same philosophy when it comes to managing money.
Opposites attract: So say therapists and personal-finance experts, who see the saver-spender divides in a large number of couples. These couples have opposite approaches to money, and can develop strong frustration and resentment toward their spouses.
"I deal with a lot of women across the country, and the perfect emotional financial storm happens when there's misalignment, there's a lack of trust and there are differing financial values," says Patricia Lovett-Reid, senior vice-president with TD Waterhouse Canada Inc.
"I have seen many couples who actually don't understand each other's spending or saving personalities until a year or two into the relationship and then - wow - fireworks," says Alison Griffiths, a personal-finance author and host of television show Maxed Out.
"But I don't believe that finances are like leopards and spots. I do believe that people can alter their financial personalities."
That begins by having a conversation about money, experts say, preferably with a third party who can cut through the intense emotions. "When those conversations start, there is a floodgate of emotions that get unleashed," says Karin Mizgala, a financial planner who also is co-founder of the Women's Financial Learning Centre in Vancouver.
"Typically when the conversation happens, it's a fight. There are pent-up fears and insecurities on the part of the saver, who sees that his or her financial well-being may be jeopardized by their partner. On the spender's part, there can be a real sense that they don't want to be told what to do, that they're tired of having every move being watched."
Those conversations should also touch on how each spouse was raised and what influenced their attitudes about money, says Ed Santana, a psychotherapist and executive-director for the Ontario Association for Marriage and Family Therapy.
"When they understand where the other person is coming from and when they [learn] some of their choices about money, [their fight] becomes less personal," he says.
Mr. Santana and financial experts also agree on some of the ways to bring together spenders and savers to find the middle ground.
The first step: Figure out exactly how much the household spends and what the money goes toward.
The next: Find common goals and let each other know individual goals. Whether it's getting out of debt, or saving for a house, a car or a vacation - setting up a budget and a financial plan to meet those goals can help couples stay on the right path.
It's what Devon Beaton and Kristin Campbell of Calgary did. The couple - she's 20 and he's 22 - are engaged and had planned to get married this past summer. But first they had to sort out their financial differences - he was a saver and she was a spender.
The difference has caused friction at times, she says, but they have learned not to fight and to talk it out.
"I think we've both kind of rubbed off on each other," Ms. Campbell says. "We've both grown to accept each other. He tries to not be a penny pincher and I try not to spend as much. It's a compromise."
The couple talks regularly about what they can and can't afford. In the "can't" category: the summer wedding. When they realized they would have to go into debt for it, Ms. Campbell says, they decided to postpone it.
Ms. Lovett-Reid advises that couples also rotate financial responsibilities, so that each has an intimate knowledge of the household finances.
"If there's a dominant person in the family that handles the money, then switch it for six months, and the other will get a far better appreciation and understanding of how much money is coming in and where it is being spent," she says.
In the case of Ms. Velasquez, getting involved with the family's finances was a huge breakthrough. The couple may have had different attitudes toward money, but she says that she wasn't really taking any responsibility for the finances.
"Things are really good now. I'm more involved. We keep track of everything we spend. We probably talk about [household finances] every week.
"We definitely talk about it more without fighting about it."
The couple followed a lot of the experts' advice - they went to a third party, the Meridian Credit Union, where financial consultant Amie Daminato worked with the couple to come up with a budget plan, a savings plan and a financial wish list.
Ms. Velasquez says having financial goals - such as saving for retirement and their child's education - has made the couple focus on what's really important.
And a few months ago, when the couple's car broke down, they realized just how far they have come.
"It wasn't, 'Oh my God, how are we going to pay for that.' It was, 'Oh, we have money in savings.' It wasn't stressful at all."
Monday, September 20, 2010
Are you misplacing hundreds of $$ ?
I found this article on www.msn.ca. It was written by By Liz Pulliam Weston, September 17, 2010 - and hits the mark in several places.
Every time you buy a duplicate of something you already own, leave a rebate unclaimed or forget to pay a bill on time, you're burning money.
Nancy Lester Anderson of Sacramento, Calif., just found $100 worth of expired gift cards in her "to do" pile.
Christine Moore of Quincy, Ill., missed out on $300 of manufacturer rebates on her new appliances because she misplaced the paperwork.
Tom Wyatt of Beaverton, Ore., estimates he's spent $100 to $200 replacing tools he already has.
"Every time I need to do something around the house, I have to go buy a new tool," he wrote on my Facebook fan page. His repeated refrain: "I know that I have one of these, I just can't FIND IT!!!!"
The National Association of Professional Organizers has never commissioned a survey on what the typical U.S. household pays for clutter and disorganization, says its president, Laura Leist. But if such a survey were conducted, Leist and I bet the toll would be in the hundreds of dollars a year. For some families, it's in the thousands.
Exhibit A is the self-storage industry, which rakes in $22 billion annually, according to the Self Storage Association. One in 10 U.S. households rents a storage locker, which means an average annual cost of about $2,000 per household for storage.
Easier to find space than time?
There are reasons to rent a storage facility besides being unable to part with your clutter, of course. About 4% of the industry's units are rented by members of the military, who may store stuff while they're deployed. Storage facilities are a handy place to put stuff during a remodel or when you're trying to "stage" your home to sell.
But some of Leist's clients rent "two or three or five" units simply because they can't face the task of sorting through their possessions and discarding what they don't need.
"They don't want to deal with what's inside" the storage units, said Leist, a certified professional organizer and the author of "Eliminate Chaos: The 10-Step Process to Organize Your Home and Life."
That's just the tip of the iceberg of costs we pay for not being sufficiently organized. Consider:
* U.S. credit card issuers will collect more than $7 billion in late fees this year, according to Odysseas Papadimitriou, a former lending executive and the CEO and founder of CardHub.com.
* U.S. banks collected more than $37 billion in overdraft fees last year, according to research firm Moebs Services, before new rules kicked in that restricted such charges. One in four checking accounts had an overdraft fee during another 12-month period, according to a 2008 FDIC survey (.pdf) of 39 banks. Four percent of those banks' accounts had 10 to 19 bounced transactions, paying an average $451 in fees, while 5% had 20 or more, paying a whopping $1,610 on average.
* Each year, hundreds of millions of dollars in U.S. tax refunds expire unclaimed because people fail to file their tax returns within the three-year time limit. The unclaimed refunds typically average between $550 and $600, according to the Internal Revenue Service.
* Unpaid parking tickets and library fines have become big business for collection agencies, which increasingly have taken over dunning duties from municipalities. Municipalities are owed more than $40 billion, according to an estimate by Kaulkin Ginsberg, a collection industry research company. An overlooked ticket or forgotten library book thus can become a collection account on your credit reports, tanking your credit scores and perhaps leading to higher interest rates.
* More than $32 billion of unclaimed property is sitting in U.S. treasurers' escheat offices, waiting for the owners of about 117 million abandoned accounts to claim the money. The accounts range from utility security deposits to life insurance payouts to the contents of safe-deposit boxes (although items of value may be sold and only the money kept; paperwork without commercial value, such as birth certificates and photos, may be shredded).
Not every dollar of these costs is due to lack of organization, granted. But failing to have good systems for dealing with our lives and possessions means many of us end up paying money we shouldn't or simply leaving money on the table.
Paying the price in time and hassle
The costs don't have to be big to be annoying. Christina Brodbeck of Grand Terrace, Calif., spent 20 minutes one morning searching for her 6-year-old son's missing shoe. He'd outgrown his other footwear and was down to one pair that could be worn to school.
"All we had were flip-flops, which are banned at school," Brodbeck confessed. "So, we had to go to the store to buy him a pair of tennis shoes that were proper for school. . . . It was an ugly morning. The kids were late for school (and) I was late for work."
The great thing is that Brodbeck learned something from the experience and changed how her household works.
"Now shoes come off at the front door and go into a bin right beside the door," Brodbeck said. "We also have a backup pair now as well."
In our household, the great clutter catastrophe was missing library books. I spent a small fortune in late fees and replacement costs for children's books that disappeared, sometimes permanently, before developing a system where borrowed books "live" in a canvas bag. The bag doesn't get taken out of the house unless it's on the way back to the library. That worked great -- until I checked out two books for myself, without the bag, and promptly left them on a city bus.
My bus slip-up illustrates what organizer Leist says: It's not enough to set up systems and organize your stuff. You have to maintain those systems -- or create systems that maintain themselves.
Such as automatic banking. Emily Stanley Halla of Wakefield, R.I., said she avoids late fees by having most of her bills auto-debited from her bank account. If you're squeamish about giving a biller direct access to your money, you often can opt to have the bill charged to a credit card.
Bing!
The system that Bethany Thurman Leslie of Kansas City, Mo., has worked out is pretty simple as well: She avoids procrastination. "I pay my bills the day they come in the mail, put laundry away as soon as I take it out of the dryer, put stuff where it goes as soon as I get home from a shopping trip or the library -- so I don't have time to lose things or forget them!"
Karri Doxtad-Wilde of Sioux City, Iowa, has a "10 things" rule. She uses the four D's (do it, delete it, delay it or delegate it) for sorting mail, papers and stuff. "Then I organize my 'do it' pile from highest priority to least and never let it add up to more than 10 things," Doxtad-Wilde wrote. "This seems to work fairly well."
Four keys to getting organized
If you're ready to lower the costs of disorganization and clutter, professional organizers and productivity experts have some tips:
Make the time. Leist warns against waiting until you "find the time" to tackle organization chores. "Make the time, because you're never going to find the time," she said.
Oh, and expect whatever you're organizing to take longer than you think: "If you think it's going to take two hours, it's going to take four or six," Leist said. "Multiply your estimate by two or three."
Tackle first what bugs you the most. This suggestion from organization expert Julie Morgenstern, the author of "Organizing From the Inside Out," allows you to get a sense of accomplishment by fixing a top-of-mind problem.
Don't rely on your brain. Productivity guru David Allen, the author of "Getting Things Done," warns that our brains are poorly structured for remembering lengthy to-do lists and multiple due dates. Our brains will bug us over and over about certain unfinished tasks but won't necessarily remind us in time to pay the light bill, for example. So it's important to set up reminders that actually work, such as e-mail and text alerts. If your phone has a timer, you can set it after you feed a parking meter to remind you to get back before it expires.
Get help. There are books and blogs galore on organizing, many of which are extremely helpful -- although, like anything else, too many can add to your clutter and/or procrastination issues. But if you're really stuck, paying for a professional organizer can help. If such a consultation results in fewer costs from late fees, storage facilities and duplicate purchases, it may even pay for itself.
Every time you buy a duplicate of something you already own, leave a rebate unclaimed or forget to pay a bill on time, you're burning money.
Nancy Lester Anderson of Sacramento, Calif., just found $100 worth of expired gift cards in her "to do" pile.
Christine Moore of Quincy, Ill., missed out on $300 of manufacturer rebates on her new appliances because she misplaced the paperwork.
Tom Wyatt of Beaverton, Ore., estimates he's spent $100 to $200 replacing tools he already has.
"Every time I need to do something around the house, I have to go buy a new tool," he wrote on my Facebook fan page. His repeated refrain: "I know that I have one of these, I just can't FIND IT!!!!"
The National Association of Professional Organizers has never commissioned a survey on what the typical U.S. household pays for clutter and disorganization, says its president, Laura Leist. But if such a survey were conducted, Leist and I bet the toll would be in the hundreds of dollars a year. For some families, it's in the thousands.
Exhibit A is the self-storage industry, which rakes in $22 billion annually, according to the Self Storage Association. One in 10 U.S. households rents a storage locker, which means an average annual cost of about $2,000 per household for storage.
Easier to find space than time?
There are reasons to rent a storage facility besides being unable to part with your clutter, of course. About 4% of the industry's units are rented by members of the military, who may store stuff while they're deployed. Storage facilities are a handy place to put stuff during a remodel or when you're trying to "stage" your home to sell.
But some of Leist's clients rent "two or three or five" units simply because they can't face the task of sorting through their possessions and discarding what they don't need.
"They don't want to deal with what's inside" the storage units, said Leist, a certified professional organizer and the author of "Eliminate Chaos: The 10-Step Process to Organize Your Home and Life."
That's just the tip of the iceberg of costs we pay for not being sufficiently organized. Consider:
* U.S. credit card issuers will collect more than $7 billion in late fees this year, according to Odysseas Papadimitriou, a former lending executive and the CEO and founder of CardHub.com.
* U.S. banks collected more than $37 billion in overdraft fees last year, according to research firm Moebs Services, before new rules kicked in that restricted such charges. One in four checking accounts had an overdraft fee during another 12-month period, according to a 2008 FDIC survey (.pdf) of 39 banks. Four percent of those banks' accounts had 10 to 19 bounced transactions, paying an average $451 in fees, while 5% had 20 or more, paying a whopping $1,610 on average.
* Each year, hundreds of millions of dollars in U.S. tax refunds expire unclaimed because people fail to file their tax returns within the three-year time limit. The unclaimed refunds typically average between $550 and $600, according to the Internal Revenue Service.
* Unpaid parking tickets and library fines have become big business for collection agencies, which increasingly have taken over dunning duties from municipalities. Municipalities are owed more than $40 billion, according to an estimate by Kaulkin Ginsberg, a collection industry research company. An overlooked ticket or forgotten library book thus can become a collection account on your credit reports, tanking your credit scores and perhaps leading to higher interest rates.
* More than $32 billion of unclaimed property is sitting in U.S. treasurers' escheat offices, waiting for the owners of about 117 million abandoned accounts to claim the money. The accounts range from utility security deposits to life insurance payouts to the contents of safe-deposit boxes (although items of value may be sold and only the money kept; paperwork without commercial value, such as birth certificates and photos, may be shredded).
Not every dollar of these costs is due to lack of organization, granted. But failing to have good systems for dealing with our lives and possessions means many of us end up paying money we shouldn't or simply leaving money on the table.
Paying the price in time and hassle
The costs don't have to be big to be annoying. Christina Brodbeck of Grand Terrace, Calif., spent 20 minutes one morning searching for her 6-year-old son's missing shoe. He'd outgrown his other footwear and was down to one pair that could be worn to school.
"All we had were flip-flops, which are banned at school," Brodbeck confessed. "So, we had to go to the store to buy him a pair of tennis shoes that were proper for school. . . . It was an ugly morning. The kids were late for school (and) I was late for work."
The great thing is that Brodbeck learned something from the experience and changed how her household works.
"Now shoes come off at the front door and go into a bin right beside the door," Brodbeck said. "We also have a backup pair now as well."
In our household, the great clutter catastrophe was missing library books. I spent a small fortune in late fees and replacement costs for children's books that disappeared, sometimes permanently, before developing a system where borrowed books "live" in a canvas bag. The bag doesn't get taken out of the house unless it's on the way back to the library. That worked great -- until I checked out two books for myself, without the bag, and promptly left them on a city bus.
My bus slip-up illustrates what organizer Leist says: It's not enough to set up systems and organize your stuff. You have to maintain those systems -- or create systems that maintain themselves.
Such as automatic banking. Emily Stanley Halla of Wakefield, R.I., said she avoids late fees by having most of her bills auto-debited from her bank account. If you're squeamish about giving a biller direct access to your money, you often can opt to have the bill charged to a credit card.
Bing!
The system that Bethany Thurman Leslie of Kansas City, Mo., has worked out is pretty simple as well: She avoids procrastination. "I pay my bills the day they come in the mail, put laundry away as soon as I take it out of the dryer, put stuff where it goes as soon as I get home from a shopping trip or the library -- so I don't have time to lose things or forget them!"
Karri Doxtad-Wilde of Sioux City, Iowa, has a "10 things" rule. She uses the four D's (do it, delete it, delay it or delegate it) for sorting mail, papers and stuff. "Then I organize my 'do it' pile from highest priority to least and never let it add up to more than 10 things," Doxtad-Wilde wrote. "This seems to work fairly well."
Four keys to getting organized
If you're ready to lower the costs of disorganization and clutter, professional organizers and productivity experts have some tips:
Make the time. Leist warns against waiting until you "find the time" to tackle organization chores. "Make the time, because you're never going to find the time," she said.
Oh, and expect whatever you're organizing to take longer than you think: "If you think it's going to take two hours, it's going to take four or six," Leist said. "Multiply your estimate by two or three."
Tackle first what bugs you the most. This suggestion from organization expert Julie Morgenstern, the author of "Organizing From the Inside Out," allows you to get a sense of accomplishment by fixing a top-of-mind problem.
Don't rely on your brain. Productivity guru David Allen, the author of "Getting Things Done," warns that our brains are poorly structured for remembering lengthy to-do lists and multiple due dates. Our brains will bug us over and over about certain unfinished tasks but won't necessarily remind us in time to pay the light bill, for example. So it's important to set up reminders that actually work, such as e-mail and text alerts. If your phone has a timer, you can set it after you feed a parking meter to remind you to get back before it expires.
Get help. There are books and blogs galore on organizing, many of which are extremely helpful -- although, like anything else, too many can add to your clutter and/or procrastination issues. But if you're really stuck, paying for a professional organizer can help. If such a consultation results in fewer costs from late fees, storage facilities and duplicate purchases, it may even pay for itself.
Wednesday, June 16, 2010
Money Top Source of Stress for North American Couples
Money Top Source of Stress for North American Couples, Survey Finds
Partners go to extremes to avoid fighting about finances
American Express 6/16/2010
Partners go to extremes to avoid fighting about finances
American Express 6/16/2010
|
Tuesday, May 11, 2010
The importance of saving
Day to day, in credit counselling, we preach the importance of learning how to save and why it is so important. Today's article in the Globe by Angela Self makes the point very well.
"If you had to finance an unexpected expense of $5,000, could you? One-quarter of us could not, even with the aid of a credit card or line of credit. One in 10 of us would even have difficulty handling an unexpected expense of $500, according to a new report by the Certified General Accountants Association of Canada.
One-third of non-retired Canadians don’t commit resources to any type of regular savings – not even for retirement. This makes surprise expenses hard to handle. But here’s the scarier part: Saving for vacation
and entertainment get higher priority among younger households, compared with saving for education or home down payment. If you’ve got a Hawaii fund before an emergency fund, you’ve got a problem – or you’re likely to have one soon.Starting an emergency fund can be as simple as depositing $100 or less into a high-interest savings account. You can quickly find one that’s right for you at the Financial Consumer Agency of Canada’s site (fcac-acfc.gc.ca/eng/consumers/ITools/CoB/default.asp).
After the account is set up, make it a habit to stash small amounts or unexpected gains into your account instead of your wallet
. If you’re carrying debt, apply the same approach to your credit cards or loans to ensure room for unforeseen emergencies. Setting up regular automatic withdrawals is an even easier approach. Once you’ve reached your savings comfort zone, then you can start planning for your next Hawaiian luau."Angela Self is one of the founders of the Smart Cookies money group. Read her weekly column on managing debt and saving money at globeinvestor.com.
From Tuesday's Globe and Mail Published on Tuesday, May. 11, 2010 10:31AM EDT Last updated on Tuesday, May. 11, 2010 7:13PM EDT
Thursday, April 29, 2010
Are you a 'sandwich boomer'?
I found this article online. The author Robert Powell, talks about the realities of a specific slice of the 'baby boomer' generation. We are 'sandwich boomers'. We not only worry about raising and educating our kids, we also are concerned about our parents, in some cases elderly, who will need care and financial support in the years ahead. Thus, we are caught in the middle - hence the term 'sandwich'.
BOSTON (MarketWatch) -- I spend my nights worrying about my nearly 80-year-old father and stepmother. My wife and I spend our days worrying about funding college bills for four children (expected cost $1 million at Harvard with no scholarships, loans, grants and the like). And in between those worries, I think about saving $3 million (give or take a million) for retirement.
Yes, I am member of the sandwich generation. The good news is that I am not alone. There are millions upon millions of us caught in the middle. And the even better news is that there seem to be experts aplenty ruminating on solutions for this generation.
Consider: In recent weeks and months, AARP, MetLife, Merrill Lynch, Charles Schwab & Co. and likely many others have all released something having to do with the sandwich generation. The surveys don't necessarily reach the same conclusions. But there are nuggets and tips worth sharing.
If you're in the sandwich generation, and especially if you're a woman, and your household has $250,000 or more in investable assets, perhaps you can relate to these findings from the recently released Merrill Lynch Affluent Insights Quarterly. You're probably making some lifestyle sacrifices to support your family, cutting back not just on personal luxuries but also saving less for retirement or delaying retirement or both. What's more, you may have invited your adult children or your parents to move in with you to cut down on expenses.
Meanwhile, many Hispanic boomers who are members of the sandwich generation find themselves stretched pretty thin as well, struggling just like affluent Americans to maintain their own finances and prepare for retirement, AARP recently reported.
And MetLife's Mature Market Institute found in a recent survey that "middle boomers" (the 28 million Americans who are ages 52 to 58) have at least one parent still living and half still have children living at home. Nearly three in four of the middle boomers have been providing financial assistance and support to their children and grandchildren and that's averaged about $38,000 over the past five years. Some 14% are providing care to older parents.
Another survey found that boomer parents aren't spending as much on their adult children, but that it's still significant. Four in 10 sandwich generation parents continue to provide at least some financial support to their young adult children, according to the 2010 Families & Money Survey recently released by Charles Schwab & Co.
So what to make of those findings? What's in the tea leaves?
If you're a certified, genuine member of the sandwich generation and you're caring for elder parents, soul-searching is the first order of business, according to Andy Sieg, head of Bank of America Merrill Lynch Retirement & Philanthropic Services. "You have to do as much soul-searching as you do portfolio planning," Sieg said. "You have to identify your core values and priorities."
In some cases, you might be able to do that on your own. In other cases, you might need a shaman or an adviser who has a good deal of experience dealing with the trials and tribulations of those in the sandwich generation. No matter whether you go it alone or not, you'll need to address the potential issues and trade-offs in as forward-looking and proactive a manner as possible.
In a zero-sum world, fulfilling a responsibility to a parent -- paying for a geriatric-care manager for instance -- means cutting back on your lifestyle or saving less for retirement or for college. "It's no fun talking about trade-offs," said Sieg. So, it helps to talk about the financial realities and priorities in a rational and calm conversation, long before there's a crisis.
Make no mistake about it: You don't want to talk about such things in an emotion-filled moment; It will bring out the worst of your family history and sibling rivalries.
By the way, a good book that could help you get a sense of your values and priorities is "Family: The Compact Among Generations," by James E. Hughes Jr. Hughes is a legend in helping mostly wealthy families get a handle on what's important to them, but even average Americans can benefit from his wisdom. Learn more about Hughes at this website.
Another issue that those caring for elderly parents should address, according to Sieg, is this: As your parents age, it's quite possible that their mental faculties might diminish. And as that happens, you'll find yourself increasingly involved in decisions about their medical care and finances.
Indeed, even though you're not even close to being eligible for Medicare, you'll likely need to become expert in Medicare and all its parts. What's more, you'll need to determine who your parents' doctors, financial advisers and lawyers are and get a sense of the care and advice they are getting. You might find that some professionals don't have as good a handle on your parents' affairs as you might want and have to take matters into your own hands. In some cases, you might need to get a power of attorney and in some cases become your parents' guardian.
The other side of the coin for those in the sandwich generation is raising children and, in some cases, supporting adult children, even up to age 30.
There are reasons why some sandwich-generation parents are helping their adult children. According to Carrie Schwab-Pomerantz, president of Charles Schwab Foundation, some adult children have an overwhelming amount of college debt and are unemployed. But the adult children of sandwich-generation parents are dependent for other reasons as well: Some have overspent and have a tremendous amount of consumer debt.
According to Schwab-Pomerantz, sandwich-generation parents who are supporting adult children need to help their children acquire the money skills necessary for financial independence and they need to create a timeline for their children to achieve that independence. "Parents have to teach their children how to budget and save and live within their means," she said.
For instance, she said parents need to teach their children to save more and reduce their expenses. "They have to find creative ways to make it part of their everyday life, just like brushing their teeth," she said.
In addition, she suggested that parents help their children create résumés and search for a job, even if it's an entry-level job or temp work. "It might not be the ultimate job, but at least it puts food on the table," she said.
Parents have to help their children think rationally about their future; it might be better, for instance, to work in a job you don't love than to be unemployed searching for the job you love.
For parents with adult children living at home, Schwab-Pomerantz also suggested creating a timeline for them to leave the nest. "You want to be fair to your child," she said "But you don't want to enable them."
As for sandwich-generation parents with young children and teenagers, the advice is similar -- with a twist. Besides teaching money skills, Schwab-Pomerantz said parents should make sure their children have chores. "Chores play a role in children becoming financially responsible. In addition, she said there's seems to be a correlation between having summer job and being a stellar saver.
So, you might be in the middle, but there are ways out of this, er, sandwich.
Robert Powell is the editor of Retirement Weekly.
BOSTON (MarketWatch) -- I spend my nights worrying about my nearly 80-year-old father and stepmother. My wife and I spend our days worrying about funding college bills for four children (expected cost $1 million at Harvard with no scholarships, loans, grants and the like). And in between those worries, I think about saving $3 million (give or take a million) for retirement.
Yes, I am member of the sandwich generation. The good news is that I am not alone. There are millions upon millions of us caught in the middle. And the even better news is that there seem to be experts aplenty ruminating on solutions for this generation.
Consider: In recent weeks and months, AARP, MetLife, Merrill Lynch, Charles Schwab & Co. and likely many others have all released something having to do with the sandwich generation. The surveys don't necessarily reach the same conclusions. But there are nuggets and tips worth sharing.
The findings
If you're in the sandwich generation, and especially if you're a woman, and your household has $250,000 or more in investable assets, perhaps you can relate to these findings from the recently released Merrill Lynch Affluent Insights Quarterly. You're probably making some lifestyle sacrifices to support your family, cutting back not just on personal luxuries but also saving less for retirement or delaying retirement or both. What's more, you may have invited your adult children or your parents to move in with you to cut down on expenses.
Meanwhile, many Hispanic boomers who are members of the sandwich generation find themselves stretched pretty thin as well, struggling just like affluent Americans to maintain their own finances and prepare for retirement, AARP recently reported.
And MetLife's Mature Market Institute found in a recent survey that "middle boomers" (the 28 million Americans who are ages 52 to 58) have at least one parent still living and half still have children living at home. Nearly three in four of the middle boomers have been providing financial assistance and support to their children and grandchildren and that's averaged about $38,000 over the past five years. Some 14% are providing care to older parents.
Another survey found that boomer parents aren't spending as much on their adult children, but that it's still significant. Four in 10 sandwich generation parents continue to provide at least some financial support to their young adult children, according to the 2010 Families & Money Survey recently released by Charles Schwab & Co.
Caring for elder parents
So what to make of those findings? What's in the tea leaves?
If you're a certified, genuine member of the sandwich generation and you're caring for elder parents, soul-searching is the first order of business, according to Andy Sieg, head of Bank of America Merrill Lynch Retirement & Philanthropic Services. "You have to do as much soul-searching as you do portfolio planning," Sieg said. "You have to identify your core values and priorities."
In some cases, you might be able to do that on your own. In other cases, you might need a shaman or an adviser who has a good deal of experience dealing with the trials and tribulations of those in the sandwich generation. No matter whether you go it alone or not, you'll need to address the potential issues and trade-offs in as forward-looking and proactive a manner as possible.
In a zero-sum world, fulfilling a responsibility to a parent -- paying for a geriatric-care manager for instance -- means cutting back on your lifestyle or saving less for retirement or for college. "It's no fun talking about trade-offs," said Sieg. So, it helps to talk about the financial realities and priorities in a rational and calm conversation, long before there's a crisis.
Make no mistake about it: You don't want to talk about such things in an emotion-filled moment; It will bring out the worst of your family history and sibling rivalries.
By the way, a good book that could help you get a sense of your values and priorities is "Family: The Compact Among Generations," by James E. Hughes Jr. Hughes is a legend in helping mostly wealthy families get a handle on what's important to them, but even average Americans can benefit from his wisdom. Learn more about Hughes at this website.
Another issue that those caring for elderly parents should address, according to Sieg, is this: As your parents age, it's quite possible that their mental faculties might diminish. And as that happens, you'll find yourself increasingly involved in decisions about their medical care and finances.
Indeed, even though you're not even close to being eligible for Medicare, you'll likely need to become expert in Medicare and all its parts. What's more, you'll need to determine who your parents' doctors, financial advisers and lawyers are and get a sense of the care and advice they are getting. You might find that some professionals don't have as good a handle on your parents' affairs as you might want and have to take matters into your own hands. In some cases, you might need to get a power of attorney and in some cases become your parents' guardian.
Raising children, adult and otherwise
The other side of the coin for those in the sandwich generation is raising children and, in some cases, supporting adult children, even up to age 30.
There are reasons why some sandwich-generation parents are helping their adult children. According to Carrie Schwab-Pomerantz, president of Charles Schwab Foundation, some adult children have an overwhelming amount of college debt and are unemployed. But the adult children of sandwich-generation parents are dependent for other reasons as well: Some have overspent and have a tremendous amount of consumer debt.
According to Schwab-Pomerantz, sandwich-generation parents who are supporting adult children need to help their children acquire the money skills necessary for financial independence and they need to create a timeline for their children to achieve that independence. "Parents have to teach their children how to budget and save and live within their means," she said.
For instance, she said parents need to teach their children to save more and reduce their expenses. "They have to find creative ways to make it part of their everyday life, just like brushing their teeth," she said.
In addition, she suggested that parents help their children create résumés and search for a job, even if it's an entry-level job or temp work. "It might not be the ultimate job, but at least it puts food on the table," she said.
Parents have to help their children think rationally about their future; it might be better, for instance, to work in a job you don't love than to be unemployed searching for the job you love.
For parents with adult children living at home, Schwab-Pomerantz also suggested creating a timeline for them to leave the nest. "You want to be fair to your child," she said "But you don't want to enable them."
As for sandwich-generation parents with young children and teenagers, the advice is similar -- with a twist. Besides teaching money skills, Schwab-Pomerantz said parents should make sure their children have chores. "Chores play a role in children becoming financially responsible. In addition, she said there's seems to be a correlation between having summer job and being a stellar saver.
So, you might be in the middle, but there are ways out of this, er, sandwich.
Robert Powell is the editor of Retirement Weekly.
Saturday, January 16, 2010
Be pessimistic to live optimistically
I read this interview of Gail Vaz-Oxlade in today's Saturday Star - and it really resonated with me. Her mantra is simple yet practical advice for all. The part I liked best was when Gail says you should NOT pay off all your debts before you begin to save.
So with thanks to the Star and Nancy J. White for the reprint of the original interview, here it is.
January 16, 2010
Nancy J. White
Will you be able to manage financially when the caca hits the fan?
That's the concern of Canada's blunt-talking personal finance writer, Gail Vaz-Oxlade. She's the host of the television show Til Debt Do Us Part on Slice and author of a new book, Debt-Free Forever: Take Control of Your Money and Your Life.
Vaz-Oxlade, 50, the mother of two teenagers, lives in Brighton. She spoke to the Star about priority shopping, the long-term pain of credit and the lure of pretty sandals.
Q: Have you ever been in, as you call it, "Debt Hell"?
A: No, never. Debt is an anathema to me. It's impossible for me to imagine spending money I haven't yet earned because I'm always aware caca can happen. It's important that I keep my financial life stable so I can deal with s--- when it hits the fan.
Q: Bit of a pessimist are you?
A: I'm actually incredibly optimistic. My mantra is, "Plan like a pessimist so you can live like an optimist."
Q: How did you get to be a money maven?
A: I fell into it. I started as an educational consultant for the financial services sector, went into freelance writing, book publishing and then television.
I'm self-educated on money. So I am living proof that all you have to be is interested and committed to be able to know what the hell is going on.
Q: What's the most common debt sinkhole people fall into?
A: The most problematic one is consumer debt – credit cards, lines of credit, buy-now-pay-later, all the stuff related to "I want it, I buy it." Adding to that is heaps of people buying more home than they can afford. A small change in their circumstances leaves them turning to other forms of credit to make ends meet.
Q: Credit cards: The minimum payment is tempting for ...?
A: Oh God. What happens is that you make your lender really, really rich. You go out to dinner and spend $100 and put it on your credit card. It was a great evening. You go home. You poop. Dinner's gone. The balance stays on your credit card for the next 10 years because you're just paying the minimum. That's immediate gratification with big-time, long-term pain.
Q: How many credit cards do you use?
A: I have two: a MasterCard I put everything personal on and a Visa for everything business. Both are paid in full the minute they are due.
Q: Should a person pay off debts before starting to save?
A: No. I'm one of the few people to say that. Savings is a habit. If you don't establish the habit, you never will. There's always a reason not to save, so you need to establish the habit.
Q: You say, "Don't make shopping emotional." Don't you ever shop to make yourself feel better?
A: No, never. I shop because I need or want something. It goes on my list that I carry in my head. I say to myself, "I need a set of bed sheets." I prioritize. Nothing I need or want is more important than the sheets. If I see sheets I like that are more expensive than I expected, I think, "What else am I willing to give up to have that?"
I live in a nice home. There's nothing around my home I don't want. People have clothes hanging in the closet with the tags still on. The stuff I have I use and enjoy. I invested in a pair of shoes to look at because they're so pretty.
Q: You bought shoes just to look at?
A: People buy tchotchkes. I wanted to look at these shoes. They make me happy. They're very strappy green sandals with a small heel and a big green daisy on the front. I've worn them maybe three times, but I bought them to look at.
Q: How much?
A: $39.99.
Q: Yeah, yeah. $39.99.
A: [Laughter] Sorry.
Q: Gail, what's your most recent splurge?
A: Audible.com just had a sale. I listen to a lot of books because of all the driving I do and my eyes aren't what they used to be. I saw the sale and bought myself 22 books. That's my big treat.
Q: Dumbest money mistake you ever made?
A: Marrying my first husband.
So with thanks to the Star and Nancy J. White for the reprint of the original interview, here it is.
'Plan like a pessimist (to) live like an optimist'
January 16, 2010
Nancy J. White
Will you be able to manage financially when the caca hits the fan?
That's the concern of Canada's blunt-talking personal finance writer, Gail Vaz-Oxlade. She's the host of the television show Til Debt Do Us Part on Slice and author of a new book, Debt-Free Forever: Take Control of Your Money and Your Life.
Vaz-Oxlade, 50, the mother of two teenagers, lives in Brighton. She spoke to the Star about priority shopping, the long-term pain of credit and the lure of pretty sandals.
Q: Have you ever been in, as you call it, "Debt Hell"?
A: No, never. Debt is an anathema to me. It's impossible for me to imagine spending money I haven't yet earned because I'm always aware caca can happen. It's important that I keep my financial life stable so I can deal with s--- when it hits the fan.
Q: Bit of a pessimist are you?
A: I'm actually incredibly optimistic. My mantra is, "Plan like a pessimist so you can live like an optimist."
Q: How did you get to be a money maven?
A: I fell into it. I started as an educational consultant for the financial services sector, went into freelance writing, book publishing and then television.
I'm self-educated on money. So I am living proof that all you have to be is interested and committed to be able to know what the hell is going on.
Q: What's the most common debt sinkhole people fall into?
A: The most problematic one is consumer debt – credit cards, lines of credit, buy-now-pay-later, all the stuff related to "I want it, I buy it." Adding to that is heaps of people buying more home than they can afford. A small change in their circumstances leaves them turning to other forms of credit to make ends meet.
Q: Credit cards: The minimum payment is tempting for ...?
A: Oh God. What happens is that you make your lender really, really rich. You go out to dinner and spend $100 and put it on your credit card. It was a great evening. You go home. You poop. Dinner's gone. The balance stays on your credit card for the next 10 years because you're just paying the minimum. That's immediate gratification with big-time, long-term pain.
Q: How many credit cards do you use?
A: I have two: a MasterCard I put everything personal on and a Visa for everything business. Both are paid in full the minute they are due.
Q: Should a person pay off debts before starting to save?
A: No. I'm one of the few people to say that. Savings is a habit. If you don't establish the habit, you never will. There's always a reason not to save, so you need to establish the habit.
Q: You say, "Don't make shopping emotional." Don't you ever shop to make yourself feel better?
A: No, never. I shop because I need or want something. It goes on my list that I carry in my head. I say to myself, "I need a set of bed sheets." I prioritize. Nothing I need or want is more important than the sheets. If I see sheets I like that are more expensive than I expected, I think, "What else am I willing to give up to have that?"
I live in a nice home. There's nothing around my home I don't want. People have clothes hanging in the closet with the tags still on. The stuff I have I use and enjoy. I invested in a pair of shoes to look at because they're so pretty.
Q: You bought shoes just to look at?
A: People buy tchotchkes. I wanted to look at these shoes. They make me happy. They're very strappy green sandals with a small heel and a big green daisy on the front. I've worn them maybe three times, but I bought them to look at.
Q: How much?
A: $39.99.
Q: Yeah, yeah. $39.99.
A: [Laughter] Sorry.
Q: Gail, what's your most recent splurge?
A: Audible.com just had a sale. I listen to a lot of books because of all the driving I do and my eyes aren't what they used to be. I saw the sale and bought myself 22 books. That's my big treat.
Q: Dumbest money mistake you ever made?
A: Marrying my first husband.
Tuesday, December 1, 2009
Money tips for couples
Larry MacDonald
Published on Monday, Nov. 30, 2009 6:19AM EST Last updated on Monday, Nov. 30, 2009 6:32PM EST
This article is the third in a series on personal finance and investing at different stages of your life. As some issues may overlap the different stages of life, they could be covered in a prior or subsequent article.
Money tips for engaged and married couples
After starting a career, the next life-cycle stage to begin for many people is marriage. Some say it is the most important in terms of financial success. No, they don't mean marrying someone wealthy (although this wouldn't hurt!). What they are referring to is financial compatibility between two individuals.
“Probably my best financial move has been choosing a spouse with similar money habits and views on personal finances,” says Scott McKibbon, a do-it-yourself investor in Hamilton, Ontario. “This seems to be particularly important in this day and age as broken marriages have destroyed more personal balance sheets than poor markets.”
Here are 10 tips to help sort through the financial risks and rewards of married life.
1. It takes two to tango. As a married person, one needs to realize they are not saving and investing just for themselves. Their spouse will likely have a different tolerance for risk and that should be taken into account.
| The Invest for Life series: |
York University professor Moshe Milevsky, a leading expert in financial mathematics, came to the conclusion his personal exposure to stocks should be leveraged by 300 per cent to offset the predominately bond-like nature of his personal wealth (tenured job and pension plan).
“Are you out of your mind?” was his wife's reaction (as quoted in the November issue of the Journal of Financial Planning). And so Mr. Milevsky went with a much lower level of leverage.
2. Set compatible goals. Also realize that one's spouse may have different financial objectives, and compromise is in order on this count as well. On Tim Stobb's blog, Canadian Dream: Free at 45, a recent post recounts a frugal husband's attempt to interest his wife in buying a Tumbleweed Tiny House, which range from 65 to 800 square feet in living space.
The husband thought they could live in such a tiny house since they had no plans for children. His wife responded with: “I will not live in a garden shed, no matter how cool you think it is.” The solution settled upon in the end was a thousand-square-foot townhouse.
3. Talk about money, even if it hurts. Some spouses don't like to compromise and may hide what they are doing with the family finances. They don't communicate and that is when money issues can really spiral toward the tragedy of separation and divorce.
In Jonathan Chevreau's financial novel, Findependence Day , the central character, Jamie, decides to borrow $60,000 – without telling his wife – to invest in stocks. But after taking the plunge, the market crashes hard. When his wife finds out about the losses, she tells her husband: “I can't believe you'd be so stupid. That is the last straw.” A while later, Jamie receives an envelope from his wife's lawyers requesting a split.
4. Two heads are better than one. But marriage, of course, is not all sacrifice and strife. A team working together can accomplish more than the individual members separately. “The other huge success I've had is finding a partner who enjoys taking part in our financial decisions,” declares Brad Ferris, the author of the blog: Triaging My Way to Financial Success.
He illustrates with an example. “As I mentioned in a post a while ago about investing in the stock of Reitmans Canada, my partner's shopping experience and insights into their products … helped me see a different side of the fundamentals than what any analyst could pass on.”
5. No ‘I do's' without a financial chat first. It is no revelation that money issues are a leading cause of martial discord and dissolution. So head them off before getting married (if one is still at the stage of clubbing around). Don't be blinded by those beefy biceps and a twinkle in the eye. Look for extremes in financial behaviour before saying “I do.” For a guide, check out the “lighthearted” Valentine quiz from the Australian Securities & Investments Commission.
Here's a sampling on what to look for: Is your prospective partner up most the night trading oil futures on margin or do they keep “banknotes in the freezer, some gold bullion in the underwear drawer, and regard bank deposits as high-risk?” Do moths fly out of their wallet on the rare occasion they are forced to open it or “have they already spent more than the gross domestic product of a small nation?”
6. Get educated. For Emil Saumier, divorce was the worse thing that happened to him financially. He never paid much attention to the intricacies of family law in his province or realized how much marriage breakdown could devastate one's financial situation. “I really think I would have been better prepared if I had been better educated in finance,” says Mr. Saumier, the owner of a martial-arts school in Ottawa.
Christine Van Cauwenberghe, director of tax and estate planning with Investors Group in Winnipeg, would likely agree. She observes that family law can indeed hold some surprises. For example, “In a few provinces the marital home is shareable even if acquired prior to the time of marriage.” Her book, Wealth Planning Strategies for Canadians: 2010 , points out other surprises that lurk in family legislation.
7. Know thy spouse-to-be. “It is surprising how many couples have never discussed finances before their wedding,” notes Brenda MacDonald, an independent financial counsellor living in Victoria. In the June, 2009, issue of Canadian MoneySaver, she offers a comprehensive checklist of topics that engaged couples should discuss before walking down the aisle. They include: financial goals (and how to reach them), where to invest savings, and debts brought into the marriage.
She also recommends comparing credit scores. If both persons have similar scores, above 750, shout “Hurray for us!” If one or both score lower than 650, the caution flag is waving. Not only could it signal an irresponsible personality but it may diminish the couple's ability to borrow for a house, car and other items.
8. Use your spousal status as a benefit. Marriage presents many opportunities to protect assets and enhance after-tax income. An entrepreneur can protect the family house from creditors by putting it in the other spouse's name. And they can split income by employing a spouse. Other income-splitting moves include contributions to a spousal registered retirement savings plan (RRSP).
The higher income spouse should pay household expenses while the lower income spouse uses their income for investing. If he or she doesn't have enough funds, a loan from the higher income spouse (at “prescribed” loan rates) can be invested without attribution back to them. As well, contributions can be made to the other spouse's tax-free savings plan (TFSA) without attribution.
9. A prenup shouldn't be such a dirty word. Second and blended marriages raise additional considerations. Notably, one or both parties in such unions may be bringing substantial assets to the marriage. A properly executed prenuptial agreement can provide protection (family law may have grey areas and can be changed). And in blended families (both spouses have kids from previous marriages), prenups and other arrangements may be necessary for ensuring an estate is left behind for one's children from the previous relationship.
10. Those who save together, stay together. A study, Fatal (Fiscal) Attraction: Spendthrifts and Tightwads in Marriage, conducted by researchers at Wharton Business School and Northwestern University, found that spendthrifts and tightwads tended to marry each other. Go figure. Anyway, that was not a good thing, the study said, because the greater the difference on the spending continuum, the more likely the marriage would encounter turbulence.
This martial tendency is all the more reason for engaged and married couples to zero in on the financial aspect of their relationship. One step often recommended for resolving disputes is to have separate and joint chequing accounts. But, above all, communication is the crucial factor.
“During marriage, I think one of the most important things that spouses need to do in dealing with financial issues is to communicate,” advises Ms. Van Cauwenberghe. “If the couple is experiencing financial difficulty, there are usually ways of resolving those issues, but many couples simply choose to ignore them and allow [problems like] debt to pile up. In many cases the solution is to speak to a neutral third party. A financial adviser is often able to state the obvious things that spouses don't want to admit to each other.”
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