Gail Vaz-Oxlade's Blog, page 83

T&T Relationship Edition

Corry wrote:   Hi Gail!, Love your show, its a complete eye opener, I do have a question that I have yet to see here, I was on my own for almost 10 yrs after my divorce, in that time I have racked up about $13000 in debt, just doing stupid stuff, now to the problem, I remarried and have a hell of a time opening up to my new wife about my past spending habits, I figure it's my mistake I'll fix it, but that's not flying with her, I'm just so used to doing it by myself, how do I open up and let her in?  That wall is causing some major problems in our young marriage, how did you do it?

Gail says:  Your wife is a smart woman.  She shouldn't settle for anything but the utmost honesty from you.  If you plan to share a life together, it has to be based on trust.  And you can't trust someone who is keeping secrets.

How to do it?  Well, there are a bunch of ways.  You could just sit down and have the talk.  But it sounds like you're having a major problem with that.  Why not tell her how difficult this is for you, and offer to write a letter explaining what happened and what you're going to do about it.  Tell her, once you've made your disclosure, you'd be happy to answer her questions and talk about it some more, but that this will help you climb over the wall.

And then, dear one, you actually have to follow through.  Make a plan for getting rid of the debt and bust your butt to get it done.  Write the letter and actually give it to her.  Hug her and kiss her and thank her for her patience and love.  If she is your life mate, she'll accept that people make mistakes and she'll applaud your willingness to take care of the problem yourself.  And she'll know she can trust you because you are an honest person.

Tina wrote:  I watch your show 'Till Debt do us part' and I have bought your books.  I absolutely find you addicting.  My question is…how do I keep my husband on the same track as me?  I am a saver and we do good for awhile, then my husband (Aaron) gets it in his head that why make it if you cant spend it.  He then goes hog wild buying stuff.  He doesn't want to hear my nagging at him anymore, so what can I do?  Any suggestions?

Gail says:  Hide the money!  Separate your savings so he doesn't feel so rich so quickly. If you have one account for savings, one for emergencies, one for…whatever…then he'd have to work to add them together to feel rich. Also keep your savings separate from his so you don't suffer when he goes spending. And every time he spends money allocated to savings, stop cooking until the savings are back up to where they were. Don't say anything, just stop cooking (or cleaning, or whatever your job is at home). Partnership means respecting both people's issues. One guy doesn't have the right to ignore the other's needs.

JW wrote:  My husband and I have just entered a mortgage in March for our home we built ourselves and at the same time we had a baby, who is just about to turn one year old. I am the person in the relationship that controls/manages the money. I keep a close track of all spending done out of all accounts. Recently he and I had to have another conversation about his spending habits as they were about to put us into debt.

We agreed that we would each get $100 a week as spending money and $100 a week on gas. I think this is more than reasonable and should be something that he can sustain; however it's not. I am constantly having to remind him that we have to pay bills and daycare with the money that he is spending in addition to his $200/wk. We even made a separate account where his money is transferred so when the money is gone it is gone, but lately he's gone back to dipping into the other account.

I am starting to run out of options and resources, I can't keep giving myself less for spending each week so that he can still live his "lavish" spending style. He does some work for cash every now and again, as he is a mechanic, so he does get pocket money that is not part of his weekly allowance.

I use part of my weekly allowance for parking at work and the other half I will use for what ever I want. He smokes so between that and some meals at lunch (he is NOT a lunch maker we've tried that) he uses all his money easily.

I don't know how much more detail you would require, but mainly my question is how can I manage our money better and get to the point where I do not have to supervise him like a child for every cent that he spends as it's straining our marriage?

Gail says:  The issue here is that your husband has to grow the hell up and stop putting indulgences like ciggies and lunch ahead of important things like keeping a roof over his head and food in his baby's tummy. Acting like your partner's parent isn't the solution to the problem. You are going to have to get him to agree to take his name off the "house" account from which the bills are paid so he no longer has access to that money. If he refuses to acknowledge that his behaviour is putting your family at risk, you are going to be in a tough spot and will have to make some hard decisions. I don't envy you. And I wish I had some magic words to wake him up. Unfortunately, I've met loads of people who are completely delusional about how their behaviour is negatively impacting the people around them and there is no magic. If you can't wake him up, you have a long and very miserable road ahead of you.

S wrote:  First of all you are my heroine!  I am a social worker and when I work with individuals or couples who are having difficulties with money, I send them to the Slice website to watch your show. (for free – how great is that!)  I also send my colleagues there and I have your books and loan them out.  I love how you have connected money to the individual issues or marriage problems and that it is not just a lack of budgeting skills.  So true!

I have a question for you.  I am fifty years old and my partner is 7 years older and will retire in 2 years.  Not much personal debt – about $5,000 that will be paid off in a year.  We have about 7 years left on our mortgage.  Not bad for only being married ten years and owning this home as we have added extra payments when we can.  Anyway I am thinking about going into private social work practice but before that I want to take an art therapy post graduate program (I have my MSW) that costs $17,000 plus two trips to Vancouver.  I would do this program and work at the same time.  I only work four days per week as my parents are not well and I care for them too.  I therefore make about $45,000 and my partner will make about $1,400 on pension plus he plans on working a minimum wage job to supplement.  BUT, he does not want me to take $17,000 out of my retirement savings (borrow for education) and believes I am crazy at my age to do this program.  I plan on working for at least another 15 or 20 years as I had a late start in the work sector (age 30) and I was once on welfare and a single parent!).  Am I crazy to take out such a large amount of money to become educated in a post grad program at my age?  The prospects for future business are excellent – very few art therapists where I live and those that do have a 6 month wait list.  So am I crazy?  Also, I love art so it's not a whim – it's a passion!  Thanks to you, my heroine!

Gail says:  Sometimes couples are at different stages of their lives and one can't imagine what the other is thinking. It may be that because your husband is thinking "full retirement" he cannot imagine why you are in a completely different head-space. Be gentle. But you have to be the one who makes this decision. Life is about joy and a sense of fulfillment. Money is about living within your means. If you can figure out how to have both, you've got the world on a string. Check out the Lifelong Learning plan and how you may be able to use some of your RRSP money to pay tuition without having to pull the money and pay taxes. Then look at how much more money you'll make with your new degree (along with the satisfaction you'll derive from following your bliss) and weigh that against the financial cost. Good luck.

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15 Ways to Trim your Grocery Bill

According to the Stats Man, the average Canadian family spends almost $10,000 a year on food. That works out to about $800 a month. This is one of the biggest categories in most families' budgets. And it's a great place to save if you're smart about how you shop.

1. Shop in ethnic markets. Whether you like Little Korea, Chinatown or Little India, everything from curry to coconut milk, baby corn to mushrooms can be cheaper than in regular supermarkets. Fresh veggies and fruit may also cost less. If I buy Dragonfruit in my local supermarket, it costs me almost twice as much as shopping in Little Korea. Use ethnic markets to stock up on staples and get creative with your cooking.

2. Shop at farmer's markets in season. Come summer, there is an abundance of fruits and vegetables and buying from farmers means you're cutting out the middleman, which can save money. It'll also mean you're buying fresh since the produce didn't sit on a truck for four days getting from the farm to your grocery store, where it sat on the shelf for another four days.

3. Buy in bulk. Small packages of toilet paper, kitchen paper or tissues usually cost more per unit. Ditto little bottles of laundry soap. If you have the space to stash extra stuff and bring it out when you need it, buy big packages and multiples when they're on sale. If space is at a premium, you'll have to weigh the benefit of balancing your coffee table above tins of tuna, or get creative on storage (think under the bed, at the back of the closet, in the garage). Sometimes it makes sense to join up with a couple other people and share items you can buy in bulk at wholesale prices.

4. Don't assume bigger is cheaper. Check the unit price to be sure you're getting a deal, particularly on cleaning agents, which can be very expensive.

5. Don't buy pre-made meals. Cook larger portions and then freeze a couple of servings for those nights when you just don't have time to start from scratch.

6. Don't take the kids when you go shopping. Shopping with kids means you'll end up spending more. They'll not only badger you for candy and chips, kids are also far more susceptibility to packaging so up goes your bill.

7. Shop with a list. Keep a running list at home. When you open the last of something, put it on your list. A list not only keeps you on track in terms of not overbuying and inventory management, it'll stop you from impulse shopping based on fabulous merchandising on the part of the supermarkets.

8. Shop in a less-expensive store. Discount supermarket shopping can knock 15-30% off the cost of a basket of groceries.

9. Comparison shop. Grab the fliers for your local stores and do a read through to see who has what you want at the best price. The flyers can also alert you to things that you might want to stock up on for a future cook-fest.

10. Get a rewards card that'll help with your grocery costs. President's Choice MasterCard let's you earn points toward free groceries. Airmiles let's you redeem points for grocery coupons. And most grocery stores have a loyalty card. Get it and use it religiously.

11. Use coupons smartly. If you're using a coupon, applying it against a product that already on sale results in bigger percentage savings. When you see shelf coupons for stuff you buy regularly, grab a couple of extra coupons for future shopping trips.

12. Stay out of convenience stores. If milk is cheaper at the convenience store, okay. But nothing else is, so don't even go into the store.

13. Watch for scanner errors. It's been estimated that in the U.S. scanner errors cost consumers between $1 and $3 billion (gulp!) a year. Watch for prices that haven't been changed at the till and for fruit and veggie codes that are entered incorrectly.

14. Time your shopping. Too much time in a store and you'll wander the aisles, browsing and tossing stuff into your cart. Too little time and you'll be all stressed out and less likely to miss best-by dates.

15. And, of course, everyone knows not to go to the store hungry. Grab a snack before you head out the door and your bills will be lower.

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12 Ways You're Wasting Money on Your Car

Do you love your car?  Have you named it? Do you treat it like a baby? Are you obsessed with polishing it, adding accessories, and parking so no one dings your paint job? Or are you more like me: I know nothing about cars except that they're a way to get from point a to point b. I don't sweat the dings and bumps. And I only wash my car as an excuse to play with the hose.

Whether you're a car devotee or clueless about what's happening under the hood, you could be wasting tons of money.  And if you've yet to set up your emergency fund or start your retirement savings, these could be the very places you find some money to buff up your financial picture.

1. At the car wash. Can you believe what a carwash costs? Every time I drive through the gas station that offers a car wash and see what they're charging I shake my head. If you've got a bucket and some soap and water at home, why would you fork over $10 or more to have a machine wash your car. Why not turn it into a family affair, bathing suits and all, and have a car-washing-soap-and-water fight with the kids.

2. At the air pump. Tires that need air use more gas and wear out more quickly. Don't over-inflate though. That can be dangerous since not enough rubber hits the road to keep you safe.

3.  At the gas pump. Rumour has it if you use only the best gas your car will need fewer tune-ups and get better mileage. Yes, if you're driving a high-performance vehicle, you need super-de-dooper gas. But most of us don't, so don't waste your money. According to thems that know, the difference between 87 and 93 octane is so small that you won't get better mileage or see lower maintenance bills.

4. At the garage. According to Natural Resources Canada Office of Energy Efficiency Auto$mart Thinking program, a well-tuned engine alone can improve fuel economy by up to 4% while a poorly maintained vehicle can increase fuel consumption by up to 50%. If you aren't keeping records, how will you know when someone's trying to talk you into a tune-up you don't need?

5. Your car insurance company. You wouldn't make an insurance claim for less that $1,000 so why not raise your deductable that high and boost your emergency fund.  Make the call to your insurance company and see just how much you could save.

6. On the road. Cars are most economical at about 100 kph. Driving faster uses up more gas.  According to one European study, rapid starts from traffic lights and hard braking consumes 39% more fuel. And accelerating and braking is not only hard work on the car, it's tougher on you as a driver. So relax, which brings me to…

7.  On your dashboard. I love my cruise. It keeps my pace even, eliminates my sometimes leaden foot and makes my ride that much more comfortable. Just don't turn it on when it's pouring since there have been problems with cruise control causing hydroplaning.

8. In your driveway. Are you still "warming up" your car? You let your car sit there burning gas going nowhere? So you don't think your mileage is crappy enough? According to Transport Canada, if every Canadian motorist reduced idling time by just five minutes a day, carbon dioxide emissions would be reduced by 1.6 million tonnes per year. Whew!

9. On the road. If you never ask for directions, choosing instead to drive around missing the mark and driving up your car-mate's blood-pressure, you're wasting money.

10.  Inside your car. If you refuse to turn on your air conditioner because it wastes gas I have some cool news for you. While A/C makes extra work for the engine, increasing the amount of gas you burn, most air conditioners are very efficient so around-town driving using the A/C will reduce fuel economy by about a mile a gallon. The highway is a different kettle of fish. Since driving at higher speeds with the windows down greatly increases drag, using your A/C is the more efficient choice.

11.   At home. If you're one of those people who don't plan your trips, you're wasting time and money. You know who you are: You need milk, you jump in the car. Your kid has hockey practice, band practice, skating practice, you jump in the car. You forgot to get the gezunta that goes with the whatchumacalit, you jump in the car. Since trips of less than five kilometres don't usually allow the engine to reach its optimum operating temperature, particularly in the colder months, you burn more gas.

12. In your trunk. Are you one of those people who drive around with your trunk full of crap? For every extra 45 kg (100 lbs) you carry in your vehicle, your fuel efficiency can drop by 1-2%. If you're not using your roof rack, take it off. Not only is there a weight factor, it affects the aerodynamic efficiency of your vehicle reducing your fuel economy by as much as 5%.

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7 Steps to Get Ready for Home Ownership

While I've written about what you have to do when it comes time to buy a home, there are also things you should do well in advance of hitting the pavement to go shopping.

1. Figure out how much you'll spend. Do you know what kind of home you want: a condo, a townhouse, a semi-detached or a mansion?  Will you live in the city, in suburbia, in the bush? How much will it cost? Those are some of the basic questions you should answer as you move from dreaming about a home of your own to making it a goal. If you don't have a clear picture of what you want in your mind, it'll likely just stay a pipedream. Making the picture concrete by nailing down the specifics will turn it from something ethereal to something you can actually work towards.

2. Calculate your carrying costs. People who leap into home ownership without a clue about the financial responsibility they're undertaking. Home ownership is NOTHING like renting, so if you figure you can afford a home because the mortgage payment is almost like rent, you're a dope. You'll have utility costs. You'll have taxes. You'll have insurance. And then there's maintenance… the cost everyone likes to ignore. Resist the urge to guestimate what these costs will be. Find out. If you can't afford to carry the sucker, then you'll know you're not ready to buy.

3. Practice. If you figure it'll cost you $1,850 a month to carry your home, that means you actually have to come up with $1,850 a month every single month. To see if you'll be comfortable with that cost, live like you're spending that money while you're still renting. So take that $1,850 a month, less whatever you may be paying to keep a roof over your head right now, and stick it in a savings account. Hey, I'm not talking about if you can THEORETICALLY come up with the money. I'm talking about taking that money and socking it away every single month. First, you'll learn to live on less disposable income; you better start practicing before you buy your home so you're ready for the adjustment in your lifestyle when you do take the big steps. Second, that money is going to get you to your downpayment faster… speaking of which…

4. Save a downpayment. When I tell people they should have a minimum of 20% of the purchase price for a downpayment on a home, they balk. TWENTY PERCENT! How are we ever going to come up with that kind of money? Well, sweat is one way. Cutting back on what you're spending is another. Here's the thing about NOT having 20%: You immediately make the home more expensive because you have to incorporate mortgage insurance fees into the equation. On a $210,000 house with only $10,000 down, the mortgage insurance would be 3.1% of the value of your home or $6,200. Added into your mortgage, that mortgage insurance premium would end up costing you $13,605 if you amortized for 25 years.

5. Calculate your closing costs. Some experts say to estimate 1.5% of the value of your home for closing costs. Others say more. You need to know what to expect so you can make a budget that's realistic. There are legal fees and expenses, a home inspection fee (don't skimp), adjustment costs for things like pre-paid property taxes, an appraisal fee, land transfer tax, title insurance, an interest adjustment, a property survey (maybe), water quality inspection if you're living in a rural area, and hook-up fees for setting up your new services like a phone line. And don't forget taxes.

6. Budget for what you will need or want to buy for your new home. From window coverings to appliances, from a new bed to new broadloom, there are always ways to spend money on a home. If you have grass, you'll need a lawn-mower. If you buy a house with a pool, you'll have to calculate the on-going costs to open, maintain and close the pool each year. If you have a driveway, you'll need a snow blower or a shovel and a body with a strong back to do the shoveling for you.

7. Build your team. You'll likely want to work with a real estate agent. You'll need a lawyer. You'll need a lender to give you a mortgage. And you should have a home inspector working for you too. If you don't put together your own team – ask family and friends for referrals – then you'll end up using any warm body your real estate agent recommends.

While the prospect of home ownership is very exciting, taking on that big a responsibility without a plan is just dumb. Don't get so caught up in the thrill that you fail to make a solid plan.

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To Hell With It!

Have you ever just felt like saying, "To hell with it?" You've been trying to build up your emergency fund, but for the third month in a row life has gotten in the way. You were planning on taking the family on a nice vacation when the car's tranni decided to give up the ghost, so now you're swapping nice-to-have for need-to-fix! If you let the bad mood that comes with plans being sent sliding get the better of you, you're likely to make some pretty risky decisions. Sure, you feel like you'll never get ahead, but going out and racking up a bunch of debt to prove the point isn't the answer.

So what is? Well, studies have been done that show if you have a back-up plan for when your best laid get derailed, you're far less likely to do yourself damage.

One study used an anagram task to put some students in a bad mood. Half the participants were told the task was easy and would only take them five minutes to complete. It was a trick. Three of the anagrams were unsolvable putting those participants in a grumpy mood. The other participants were told the truth, so no bad mood. Then all the participants were asked to describe how they would behave in three imaginary scenarios:

whether to drive an old car with brake problems,
whether to disclose a secret to a room-mate, and
whether to return deliberately damaged shoes to a shop for a refund.

Those students where had no hard and fast plan for dealing with a setback were prepared to take more risk – to hell with it! – while those who had a solid back-up plan were inoculated from the self-defeating behaviour.

Thomas Webb and his team at the University of Sheffield believes that if you come up with plans that state "if a certain situation occurs, then I will respond in a pre-specified way" you won't be at risk of doing yourself in with a stupid decision. Called the "if-then" decision, the pre-formulated backup assuages your need to shoot yourself in the foot.

How concrete? Not all that concrete. It's more a matter of acknowledging that a downside is possible and that you're prepared to deal with it. So simply having a plan to breathe deeply when a setback occurs, or look for ways in which you've successfully dealt with setbacks in the past, are enough to keep you from going off half-cocked.

To think that crap will never happen because you have carefully thought out your plans is delusional. Crap always happens. If you don't have a back-up plan, To Hell With It! will drive you down the wrong path. But if you accept that even the best-laid plans can be sent awry by things beyond your control, and have a plan for dealing with a set-back, you're far less likely to dig your misery hole even deeper.

As Mike Tyson once said, "Everyone has a plan 'till they get punched in the mouth." To survive you need a plan for after you take the punch!

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The Themes of Dr. Seuss

In Alex's last year of high school, the musical production was Seaussical The Musical. It jams a b'zillion Dr. Seuss books into a single production. Some characters get only a mention. Some have minor roles. Alex was Gertrude, the bird who longed for a better tail so she could attract Horton's attention.

There are so many important themes in Dr. Seuss books that are applicable to life in general. I thought, wouldn't it be fun to do a series of blogs based on those themes. So Imma gonna. Over the next several weeks, I'll offer you my take on Dr. Seuss and how his messages apply to life, the universe and everything. If you're young at heart, you can have a read and learn a lesson or two along the way. If you're raising kids, you can use these Dr. Seuss books to talk to your children about important life lessons.

One of the stories I wasn't familiar with when I saw Seussical was I Had Trouble in Getting to Solla Sollew. It's about a young'un who wants to escape the troubles of life by getting to the mythical city of Solla Sollew, "where they never have troubles, at least very few."

Wouldn't we all just love to find a place where the crap that is so much a part of life just evaporates? But just as the protagonist of Seuss's story discovers, there always seems to be a green-necked quail waiting to bite us in the butt.

Sometimes we're so determined to avoid "troubles" that we jump out of the frying pan and into the fire.  As the protagonist heads off to Solla Sollew, things go from bad to worse… a crappy boss makes him work hard, a sickness has him confined to bed for twenty weeks, and there are many sleepless nights.

Sound familiar?

Hey, there's always going to be some crap … that's life. It'd be nice if you could escape it, but all you do is swap the crap you know (and can hopefully cope with) for crap you don't know. Imma sticking with my crap.

And that's the lesson Dr. Seuss's young protagonist learns. You can't escape troubles. But you can arm yourself so that you have a way to cope.

And the punchline is… get yourself a bat!

That's what the munchkin uses to beat back the troubles in his life. Your financial bat: An emergency fund and enough and the right kind of insurance. It's Gail Rule #4: Mitigate Your Risks.

The other important lesson, of course, is that you can't escape troubles. So you're best of figuring out what to do to cope. And it helps if you have a great song you can sing while you're dealing with whatever life has thrown at you.

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Are You Asking for Trouble?

If you're 30 years old, what's the likelihood that you'll have a long-term disability – lasting more than 90 days – at some point in your life?

1 in 10
1 in 5
1 in 3
1 in 2

Answer: 1 in 3

And if you become disabled, how long will you likely remained disabled?

6 months
14 months
28 months
32 months

Answer: 32 months

One of the biggest myths about disability is, "It won't happen to me." Really? Because you're very special? Or because bad things don't happen to good people? Or maybe you're thinking to yourself, "I'm covered at work. That's good enough."

Since work-related plans seldom have the kind of coverage available on individual disability insurance policies, you could be in for a shock.

Imagine the horror of being diagnosed with a progressively debilitating disease. Imagine the relief of knowing that while you have to stop working, you have a group disability plan that will help to make ends meet. Imagine your disbelief when your claim is declined by the insurance company because you just aren't disabled enough in their eyes.

Want to avoid a nasty surprise just when you can least afford it financially and emotionally. Take these questions to your benefits administrator at work and make sure you understand the answers you're given:

What's the policy's definition of "disabled" and how long will benefits be paid? If you can't do the job you were hired to do, will you be paid regardless of what other work you may be able to find? Will partial benefits be paid if you can only work for a few hours a day? A weak definition of disabled can be one of the biggest holes in a plan. If your policy has an 'any occupation' clause, which is pretty typical of a group plan, the only way you'll collect is if you're unable to do any work at all. If the insurance company deems you could be a parking lot attendant, they won't pay.

How much am I covered for, and how will it be taxed? Most group policies cover employees for a certain percentage of their salaries  – often 60 to 75 percent. Some also have a cumulative maximum. But many people have no idea how much they're covered for or even if their disability income will be taxed. If you pay the premiums directly from your after-tax income, or if your premium is a taxable benefit, then the money you receive on a claim are tax-free.  If you find that the income you receive from your disability coverage is taxed, the next question is this: Will the money be enough once tax is taken?

Does my policy have a residual disability feature? In the case of a slow recovery or a slow deterioration from a progressive disease, this feature becomes very important. Without it, years may pass before your claim can begin because you must meet the insurance company's definition of "totally disabled". Since most group plans have limited benefits for residual disabilities, the seams of your safety net may not be as strong as you think they are.

What are the exclusions on my policy? An exclusion is something you aren't covered for and typical exclusions include travel outside Canada, pre-existing conditions, mental, nervous disclosure, and alcoholism. The list can be wide and varied. And if your malady falls within the list, you've got a hole in your safety net.

If you don't think you've got an iron-clad disability policy at work, or you have no disability insurance at all, it's time to wake up and smell the coffee! Disability causes nearly 50% of all mortgage foreclosures. And close to 90% of disabling accidents aren't work related. Still not convinced?

Write your name on a piece of paper. Now write the name of two of your best friends on separate pieces of paper. Now, drop 'em in a hat? Pick a name. Are you praying it isn't yours?

Smart people who want to make sure that they and their families are well protected don't ask for trouble by relying on the off-the-shelf disability coverage available through most group policies. And they don't stick their heads in the sand and hope for the best. They look to an individual policy to make sure their butts are covered.

Buying private coverage that kicks in after your group coverage expired may not be as expensive as you imagine. Since the wait period – the time before benefits on your individual policy must kick in – is long because of your group plan, you could have peace of mind for a lot less money than you think. If you're buying individual insurance because you have no other coverage, getting it young – under 30 – will be the key to an affordable premium.

The other important issue in favor of an individual policy is that you may not always have your group plan.  A change in jobs, the decision to stay home to raise a family, self-employment could all leave you with no coverage.

Since buying disability coverage can be complicated you'll need the help of a qualified insurance advisor when you go shopping. With so many sizes and styles out there, it's very easy to buy one that looks good on the hanger but just doesn't fit. Using a generalist will get you in trouble. The good fit comes with a fine tailor who can custom make a disability plan just for you.

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The A, B, Cs of Money: N

NAV: The Net Asset Value of a mutual fund is the value of all its holdings less its liabilities.

NET INCOME: We love to think of our incomes in big numbers, which is why when you ask a body how much it earns it'll quote you its GROSS income. But you don't make your gross income. You and the government make your gross, leaving you with your NET income. Typically, other things are also deducted from your paycheque (think CPP, EI, and the like) so you best know exactly how much money you get in your hot little hands. I like to keep it simple. Your Net Income is the money that actually makes it to your bank account (adjusted if savings are withheld at source.)

NET WORTH: What your own less what you owe. People can be quite delusional about their money. And they seem loath adding up how much they owe. So they'll blather on about what their houses are worth without mentioning the three times they've consolidated their consumer debt to their mortgages, effectively wiping out their upside. And they'll happily assign a value to things like their jewelry or their household effects far in excess of what they'd get if they actually had to sell their stuff. If you want to know how well you're doing, add up what you own in hard assets – stuff you can sell for money – and subtract what you owe: all of it (including your overdraft protection, the BNPL, and whatever else you're skipping). Now you know your Net Worth. (There's a net worth worksheet under Resources. Go fill it out if you have a mind to take a good hard look at where you sit today.)

NOISE: No, this isn't what's coming from your teenager's bedroom. It's an investment term. Since price and volume fluctuations in the market can confuse the interpretation of the market direction, the stuff that contributes to that confusion is called "noise". In the context of equities trading, it's the activity caused by program trading, dividend payments or other phenomena that is not reflective of overall market sentiment. Sometimes it can be pretty tough – particularly in the short term – to separate a true market move from the noise.

NOMINAL YIELD: Sometimes referred to as the "coupon rate", this is the interest rate stated on the face of a bond, which represents the percentage of interest to be paid by the issuer.

NSF: When write a cheque and don't have enough money to cover said cheque in your account (and no overdraft protection) the cheque bounces back to you with "Not Sufficient Funds" stamped all over it. In today's world of electronic banking and auto-debits, the same thing can happen when you don't have enough money in your account to cover a debit. NSFs can be VERY expensive. I've seen charges upwards of $40, which is how overdraft protection came to be seen as a remedy for bad cash flow management.

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April is Tax Season

I would be remiss if I didn't do at least one blog acknowledging tax season. Me, I filed my return back at the beginning of March. (Actually, my accountant did it, since I'm self-employed and have a whole bunch of technical things to deal with.) But I was organized and ready!

It doesn't matter how much you hate filing your taxes, you've gotta do it. I can't believe all the people I meet doing the shows who just haven't bothered to file. OMG! Do they think the tax man won't notice? Or are they hoping the constant changes in government may mean the elimination of income tax in a desperate attempt to get elected? Wake up! Taxes are here to stay, so face up and get'er dun!

While it's true that not everyone has to file an income tax return, you do if:

you earn an income in Canada or from sources elsewhere in the world
you're self-employed and have to pay CPP
you must repay OAS benefits
you want to claim GIS benefits
you have unused tuition, education or textbook amount you'd like to carry forward and use in the future
you're splitting pension income with your spouse
you sold property on which there was a capital gain or loss
you took a loan from your RRSP under the Home Buyers' Plan or Lifelong Learning Plan
you want to build up RRSP contribution room
you want to claim refundable tax credits
you want to apply for the GST/HST credit
you want to apply for the Canada Child Tax Benefit
you want to establish yourself as a newcomer to Canada.

Even if your income is small and your taxes are deducted at source, filing a return makes sense for a number of reasons. Did you know, for example, that the lower-income partner must claim deductions for things like daycare and other child-care related costs? The exception to this is if the lower-income spouse is a full-time student or in jail!

Just because you don't think you have enough expenses to make a claim doesn't mean you should just throw 'em out. Claiming medical expenses, for example, takes some planning. First, one partner should claim them all to get the biggest tax bang. And since the claim is based on income, the lower income partner should do the claiming. You can also choose the time-frame that will be most beneficial tax-wise as long as the period you chose is a 12-month period ending in the year of filing.

Keep your tax return for seven years in case you get audited. Normally, the tax man goes back about three years, but you're required to have seven years of records in case he thinks you've been pulling a fast one.

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Outcome Bias

When I was shooting with one of my Princesses, it came to light that she was driving without insurance. Since she had never been caught, the Bad Decision had resulted in a positive outcome. Ditto all the people who walk into a casino, put down money they can't afford to lose and win big. Their Bad Decision is reinforced, and they keep going back, often giving up three and four times what they won as they seek to repeat the winning experience.

Then there are the people who fled Hurricane Rita and Houston, experiencing the nightmare of panic only to watch as the hurricane barely grazed the city.  A Good Decision that ended up being a much more uncomfortable experience that the Bad Decision (to stay) would have been.

Can Bad Decisions that turn out well be "smart?" How about Good Decisions that turn out badly; does that make them "dumb?"

This is the same kind of quandary people face when they make investment decisions. Sometime things work out right; sometimes they don't. And we get all bent out of shape, beating ourselves up for making a dumb decision even though it was the right thing to do at the time.

When you make a decision, a whole bunch of things come into play: the possible outcomes, how likely it is that each outcome will happen, and the consequences of each of those outcomes. If you really think the hurricane will hit, and you may be killed, getting in the car and driving away makes perfect sense no matter how arduous a journey it may be.  But what if you're delusional enough to think that you will never be caught driving without insurance, or worse, that you'll never have an accident. Or what if you truly believe – despite all the evidence to the contrary – that you can beat the casino.

This is where "outcome bias" grabs us.  It's an example of how our brains are wired to make bad decisions and why you must be conscious and logical about your choices. If you were one of the fools that stayed in Huston to face the hurricane because you were too stupid to know better, outcome bias will keep you there the next time a hurricane comes barreling down on you. And if you were one of the ones who left, only to watch your Good Decision turn into a dumb one, you'll stay too.

This is exactly the problem with insurance and how some people perceive it. Those that never have to make a claim are ticked at how much money they "wasted" buying something they never needed to use. Others skip buying insurance because, like my Princess, they think they'll never get caught needing it. But if you've every claimed on your insurance, you know just how happy you were to have it in place. And if you didn't have any, you sure wish you had.

The same applies to how some people invest. They take a shot, make a big win, and then spend the rest of their lives trying to duplicate their success with no real focus or strategy for achieving a particular goal. Oy! Then they complain that investing is like gambling. Only for the fools!

Our badly wired brain is one reason you need to understand the rules of sound money management. Like baking, if you don't follow the rules, the soufflé won't come out. While you can always throw an extra teaspoon of salt into your soup or stew, baking demands accuracy. A cup of dry ingredients is different than a cup of liquid. If you whip egg whites that are at room temperature, you'll get more volume. If you bake at a temperature that's too high or too low… well… yuk!

Managing money is a lot like baking: follow the rules and your recipe will turn out. Sure, there will be times when something doesn't work out just the way you planned. Maybe there was a little grease in your bowl and those whites wouldn't whip. Or the market corrects and there's a slide in your net worth. Don't knee-jerk react and throw the bowl at the wall. Just assess where you are and where you want to be and get back on track.

And work on your mindset. Attitude counts as much as following the rules. Whenever I buy insurance I feel like I'm getting twice the value for the money I'm spending: if something goes wrong, thank goodness I had insurance. If nothing goes wrong, that's because I had insurance. Either way I win!

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