Gail Vaz-Oxlade's Blog, page 89

This & That: Husbands & Wives Edition

Amanda wrote:   Ok, I'm pulling up my socks.  I watch your show, and I've got your book … and they've just cancelled my credit card!  My husband still has credit cards … If he adds me as an authorized user on his card, does it make it a joint card?  And will that improve my credit score at all, immediately, or in time?  We are about to pay it off and start again, so to improve my credit score with his card, assuming it works, is it best if I use the card for small things and make sure to pay them off right away or just not use the card?

Gail says:  Being added on your husband's credit cards won't do a thing for your credit history since everything will still be reported in his name.  You must get your own card.  Start with a secured credit card (my site has info, just go search for "secured credit card") and then do exactly what you're suggesting:  use the card regularly and pay it off right away.  It'll take a year or two, but you'll get your credit rating back.

C wrote:  Hello Gail -

Thank you so much for your advice.  You have inspired us to be much more hands-on with our finances. If our plan works (which it has been), we will be debt-free except for our mortgage by December 2010! The same cannot be said for my in-laws, however.  My FIL had a heart attack about seven years ago and although he is medically "able to work"; he is able to work only at menial jobs and not for long periods of time.  He went from earning a six figure income to barely minimum wage.  The MIL has continued to work a clerical job that does not pay a lot.  Over the past few years, they have managed to rack up in the neighbourhood of $200,000 of debt including a $120,000 HELOC that varies with prime rate (which as we know is on its way up).  The MIL is primarily responsible for this debt, as she continues to fund things like her daughter's education, her daughter's ridiculous $30,000 wedding, and other miscellaneous frivolous expenses.

I did a budget for them last year when their debt was around $160,000.  Since $40,000 of this debt was high-interest credit cards, I advised them to go to a bank and ask to either take out a mortgage on their house, or expand their existing $120,000 HELOC to consolidate this high-interest debt.  When they went, they were denied by the bank because of their low credit rating and because the FIL did not have steady employment.  They were told to come back after he could prove that he had been with the same company for three months.  Although he secured employment for a period of about 7 months, during that time they did not bother to go back to the bank to consolidate.

A year after my husband and I first got wind of their financial troubles, the situation is worse.  The spoiled daughter, despite knowing of her parent's financial hardships, continued to demand her dream wedding, and the MIL stupidly agreed to pay for it.  Now their credit is tapped out, and we have been told that there is a $400,000 lien on their house from the bank that gave them the HELOC.  Their situation is so bad, that just making the minimum payments on their loans makes an almost 50% dent in their net monthly income.  Many bills have gone to collections.

My question is:  they have already hinted that they were going to be asking us to borrow $10,000 (we do not have this money – we would have to borrow it as well, but we can because we have good credit).  We absolutely do not want to lend them money, co-sign a loan or have anything to do with them financially because we fear for our own financial health, however, my husband feels obligated to help them, though, because they are family.  How do we say no?  Is there any other way we can help them without sacrificing ourselves?  What are their options?  They are 52 years old.  The MIL will have a pension from her work in 4 years and the FIL has approximately $650,000 in RRSPs that will "mature" when he is 55.  Regardless, their monthly debt commitments are so great that even with the RRSP and pension income, they will be struggling.  Using all the RRSP money to pay off the debt would result in a big tax hit, correct?  Is there anything that I can do on their behalf without having Power of Attorney to organize their finances with banks?

Please help – I don't know who else I can ask.  I have to get involved because as you can see, they are all completely incompetent with money.  I know that seeing his parents in this mess is a huge stress on my husband and I want to help the family in the best way possible.

Thank you for any advice you can offer.

Gail says:  You absolutely should NOT in any way get involved in lending money to or co-signing for your in-laws.  The reality is that they will likely have to sell their home and downsize considerably to get rid of their debt.  You can't make 'em do it and they'd have to GIVE you power of attorney, which in likelihood they won't, so don't even bother with that.  Cashing out the RRSPs would be a disaster tax-wise and for the future.

If they sell and downsize or rent, and they get on a budget lickety-split, they can still save themselves from a horrible retirement.  But they have to bite the bullet now and do whatever it takes to get to debt-free and to learn to live within their means.  Taking more credit is not the answer.

I'm sorry you and your husband are having to live through this.  Very often when people experience a significant change in their incomes, they can't come to terms with the new lifestyle they must embrace, keep living large, and end up in debt.  But you can only help if they will let you.

I suggest you sit down and — you, your husband and his parents — and make it very clear that at this point you're willing to help them sort this out, but you have no money for them and that this must either be taken care of now, or they are on their own later.  At a point not too far down the road, this is not going to be solvable without bankruptcy.

B wrote:  My wife and I have recently tried out the money jar system again with some slight variations this time.  Before, I allowed her to run the budget since she is home most of the time and does the grocery shopping.  We stopped it because there was too much "borrowing" from other jars and the system seemed to have failed.  I realize now that the system didn't fail, we did.  Unfortunately, I recently caught her with two "secret" maxed out credit cards that she has hidden from me for the past six months.  I immediately severed her relationship with those cards and the family funds and enacted the jar system with extreme prejudice.  All of the credit cards have been cancelled, bank cards have had their pins changed, and passwords changed on internet banking.  This is the 3rd time she has done this to me but the amounts are getting progressively worse ($2000, $1300, $2500 on credit cards).  I want to teach her the value of money and that credit cards are not "money that someone has".   Her parents, sister and best friend all spend money this way and are all in (I think) serious trouble with credit cards with no savings for retirement or emergencies.  They think my reaction is extreme and I should lighten up and give control back to her.

I am very tight with money and my family is the same way.  I believe that you should research the big items that you buy (computers, cell phones) and wait at least a month after deciding to buy big ticket items.  Never on impulse.  I also never donate money, just blood and used clothes to Canadian Blood

Services/Goodwill.

I want us to approach the money situation together but have a hard time trusting her again.  What can I do?  Should I trust her again after she has burned the family's funds so many times?  Is there a 12 step program for spend-a-holics?

Gail says:  It's tough when you love a person and your money personalities are at the opposite ends of the extremes.  And it's tough dealing with the sense of betrayal when the person you love deceives you. If your wife is a compulsive shopper, it may be that she needs help from a professional or group.  Debtors Anonymous is an organization that tries to help individuals get out of debt and stop incurring new debt.  You can search the web to see if there is a program near you.

If your wife is trying to "keep up with the Joneses"… her family and friends … it may be that she is insecure about herself and needs to find things she can feel a sense of accomplishment doing.  Maybe she's bored and is shopping to fill the hole.  You need to sit down together and talk about this with compassion and an open mind.  Don't jump down her throat, no matter what she says.  Just listen, acknowledge how hard this is for her and tell her you love her.  But talk.  And keep talking.  Find out what is missing and how else (other than shopping) you can work together to fill the hole.

You should NOT give her back the control over the money until you have a solid plan in place.  And since she can apply for credit and get it without your knowledge, you should make it clear that this is a make-it-or-break-it part of your deal.  I do not think your reaction was extreme.  I think you have every right to be worried.  It is a big deal to lie to your mate and run up debt you can't afford to repay. And if you have kids, you're putting them at risk too.

But how you deal with this, how you say things, will be the difference between being "too hard" and being loving and compassionate.  You can love her to bits, hug her and tell her how much you want to help.  If she's upset because you are "too tight with the money", then initiate an "allowance" system where you each get a specific amount you agree upon that you can blow any way you want, no questions asked.  It may be $100 a month, more or less, depending on your financial situation.  It can't be ALL your way, Mister Tightwad.  You have to meet her half way.

J wrote:  When adding up all our debt, do we include my husband's child support obligation since it comes directly out of his pay check every payday?  It is not part of his net that gets deposited into the bank.  Same with health/dental/life insurance, the premiums come directly out of our pay checks and are not part of our net in the bank.  And how much and how are we suppose to put in savings and our emergency fund?   I know that's more than one question, but I'm trying real hard to follow your plan and want to make sure I do it right. Thank you!!!!

Gail says:  I can tell from your letter that you really want to make this work.  Let's take your questions one by one.

To keep things simple, I'd not include the child support obligation, and just use the net amount going into the bank.
You could do the same thing with the health premiums, but make sure you still slot something into medical for over the counter stuff and to take care of the co-pay if you have one.
How much you save depends on how much you already have and how much you want to have.  You can start with 10% and then fine-tune from there.  My new book, Never Too Late, deals with this in detail.
Aim to have six months of essential expenses saved for an emergency.  You may only be able to begin by saving $100 a month, but work up to more when you find places to cut back or make extra money.

You've taken a big step by taking control.  Don't get disillusioned if everything doesn't immediately fall into place.  Have some patience.  Be determined.  I know you can do it.

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Building a Basic Wardrobe– Part II

I hope that at this point you've done some serious purging. And while you may have cursed me in my first post, here comes the fun part: shopping!

No matter what your style, there are certain fundamentals that create a good wardrobe, these pieces are:

knee-length dress
knee-length skirt,
blazer,
button down shirt,
dress pants,
dark wash jeans and
black pumps.

These are the hardworking, versatile classic pieces that are the core of a good wardrobe and worth investing as much as you can comfortably afford. Set yourself a realistic budget (ask yourself "would Gail approve") and hit the stores.

The reason that I suggest that you spend a little more on the essentials is that they are classics that won't go out of style anytime soon. Generally speaking (although not always) good quality items will cost a bit more. But think of the cost-per-wear ratio: a pair of jeans may cost $150 but if you wear them twice a week, every week for a year, the cost-per-wear of that item is $1.44 as opposed to $10 per wear for a $50 pair of jeans that you don't love so only wear a handful of times. I think that Gail would agree with this math J. Essentially pieces that you will wear to death are worth the upfront expense in the long run.

Keep these points in mind when you're shopping:

Ask yourself if the item is a"10". You'll never like it more than when you're in the store. From here on out, only add pieces to your wardrobe that you love.
Fit is crucial. If something is a little too long or big, take it to the tailor immediately after purchasing. If you wear it once, you'll never bring it in.
You're not shopping trends (that'll come later!) so stick to classic cuts and shapes. For jeans and trousers choose a straight leg cut which is universally flattering. Go for a dark wash jean that can be dressed up or down. Black is the most versatile option for blazers, trousers and skirts. (Although I also think that navy or dark gray are nice alternatives).

Be sure that you have set aside the time to shop so that you don't feel rushed. And eat before you start so that you don't lose energy. I personally prefer to shop alone but if you bring a friend make sure she's someone who will give you honest feedback and not distract you from your shopping mission. Spend time looking at yourself in the mirror from all angles. Have fun! You're on your way to a beautiful wardrobe!

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Guest Blog: Building a Basic Wardrobe– Part I

When Princess started airing, I got a few letters like this one:

One thing I've noticed is that on both episodes you've had a guest appearance from a stylist who talked about how to build a wardrobe that will be smaller but smarter, with higher quality pieces that cost less in the long run. I really love this idea but I am quite clueless about putting it into action. Is there any chance you might consider having a stylist do a guest series on your blog about building a wardrobe.

Here is said gorgeous and talented stylist, Afiya Francisco, with some ideas for you.

How many of us have looked into a jammed-packed closet only to complain, "I have nothing to wear!" While the statement may not literally be true (most of us have plenty to wear, we just don't want to wear it), I totally understand the sentiment.

No matter how much we have, a collection of mismatched clothes does leave us with limited options and that why it's important– starting now– to shop strategically. But first, set aside a couple of hours to really go through your wardrobe and organize everything (I mean everything) into three piles: keep, store and donate.

Let's start with the last pile: donate. If you haven't worn it in over a year, it doesn't fit or it really doesn't suit anything in your closet, pass it on to someone who can use it. Seriously. No matter how beautiful the item is, if you're not wearing it, it's just taking up valuable closet real estate. There are a few exceptions (okay your wedding dress and other sentimental pieces can stay, but limit yourself to three of these items max.)

Items to store belong somewhere other than your closet. Keep out-of-season clothing in a plastic storage bin or vacuum bags and be sure to clean all clothes before you store them away.

So what do we get to keep? Easy. The pieces that make you feel your best while wearing them. The shirt that makes your eyes pop or your skin glow or shows off your beautiful collarbone (or whatever your favourite feature may be). There should be no clothes hanging in your closet that you don't love or at the very least really like. Scale your clothes from 1-10 and ditch anything not deemed a nine or ten. Believe me, you'll be happy that you did.

I realize this may leave you with very few actual pieces. But I can pretty much guarantee that you'll be in no worse shape than where you began. In fact, while you may have fewer physical pieces, you'll wind up with more options that you'll actual wear, and look good doing it.

I admit there will probably be holes to fill. But before you head out shopping for more stuff, just to wind up back where you were, look out for my next post. There I will share exactly what you should look for to get the most mileage from your wardrobe.

Tomorrow: Building a Basic Wardrobe– Part II

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Parenting on a Budget

Kids are expensive. Never mind what some people are prepared to spend to get them here, getting them to "independent" can cost a small fortune.  You may need a bigger car. You may need a bigger home. And then there are all the costs of keeping your mini-me fed and clothed: dental bills, school supplies, hockey, ballet, soccer, karate… the list can seem endless.

Estimates from the economics section of Manitoba Agriculture put the cost of raising a daughter to age 18 in 2004 at about $166,500. Boys were a tad more expensive — $166,972 – mostly due to their bigger appetites.

The first year of a child's life is often the most expensive. Not surprising really when you think of all the gear we have to get to bring baby home. And the cost of diapers! In 2004, Canadians spent $10,000 in baby's first year.

It's also comes as no surprise that costs go way up when kids hit their teenaged years. So how do you get your kids to self-sufficiency without going broke? You make a budget!

While many of the hard costs of kids – food, the roof over their heads, their transportation – naturally fall into your budget, there are costs that are uniquely associated with the children themselves. One kid is happy to live in jeans and T-shirts, while another won't wear anything but American Eagle. If Junior is a sports maniac there are league fees, equipment costs, and transportation costs getting them to their next game. Never mind all the eating out the family seems to do on the road.

The trick to not letting kids' expenses get way out of hand is to allocate a specific amount to each child's activities and needs, and stick with the plan.

Start by listing all the things your children do for which you must lay out some of your hard-earned bucks. Your list might look like this:

Mark – 11
525.67


Lacrosse
25.00


Scouts
16.67


Swimming
25.00


Tutoring
240.00


School
25


Clothes
75.00


Allowance
44.00


Gifts
50


Incidental
25






Tori – 9
273.50


Gymnastics
41.67


Bownies
20.83


School
25


Clothes
75


Allowance
36


Gifts
50


Incidental
25






Demi – 1.5
100.00


Swimming
25


Clothes
75






Total costs
899.17

Your children's needs won't be the same, and spending equally on them won't be more "fair." Giving them what they need when they need it is the goal. Over time, as the children's needs shift, so too should how you allocate the money. And over time, it should all come out even to be fair. So if in the early years one child gobbles up far more resources, then in the later years the other might receive more help with post-secondary education.

But let's say you don't have $900 a month to spend on the kids. What then?

You have three options: you can cut back on the less-essential spending, find ways to make your dollar go further, or make more money. Some moms and dads choose to take on a part-time job just to be able to pay for a child's passion for hockey, dance or horse-back riding. Some parents look for ways to reduce the costs of their kids' activities by taking advantage of free or subsidized programs offered in their communities. And some parents just cut back.

This is where talking to your kids is really important. Would Mark be willing to give up swimming or lacrosse? If you make all the decisions in isolation, your kids will feel deprived. Make them in consultation and they'll come to appreciate the activities they are lucky enough to be able to do.

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Money = Happiness

There's been a ton of stuff written about the link between money and happiness. Some say money makes you happy; some say more money doesn't make you happier. So I'm curious about what you think about the link between money and happiness.

Gretchen Rubin, the author of the blog and now the book, The Happiness Project, thinks the biggest problem is that people are looking for a cookie-cutter solution. "When it comes to money and happiness, people pretend that everybody is the same. That's just not true."

I couldn't agree more. It's the message I've been preaching for eons now: You have to do what works for YOU. Not for you sister, your father, your second cousin. Each of us is different. Each of us has to figure out what will work for us.

I don't get a thrill out of shopping for clothes, but I find it hard to turn my back on a book. My subscription to audible.com has been an ongoing source of joy for me. Since I drive so much and have to spend so much time working on my computer, my poor tired eyes water at night so I can't read for more than a few minutes. It is those stories on my Ip-Od that keep me entertained. But I have friends who love slipping into something new. They use the library for their reading pleasure and save their money for shoes!

While a lack of money can be a real downer – let's face it, if you can't make the rent and put food on the table, your level of happiness will be affected – what you do with your discretionary money is what I'm talking about here.

Have you thought about what truly brings you joy? Have you given any consideration to what makes you feel guilty, or angry, or resentful? Do you feel like your life is expanding, that you are growing, and that you are making a difference?

I get letters from people – usually women – who tell me that when they spend money on themselves they feel guilt. They buy stuff and take it back because they can't "justify" spending money on themselves. They are frustrated because they spend all their energy doing for others, but can't seem to do for themselves.

Hey, maybe it's time to take stock of what will make you happy and do something to get you a little closer. It doesn't have to be huge. Small steps mean it's less likely you'll slip. Shuffle forward slowly. Start by buying yourself an experience (as opposed to stuff). Think concert or evening out with a friend. Since memories of positive experiences hold their value far longer than consumer products, the investment in experiencing some joy will pay off longer.

Do something different, something you've never done before. Novelty pays dividends in terms of happiness. So, too, does a challenge, so try something that pushes you out of your comfort zone.

Okay, it's your turn:

What do you do to treat yourself?

How much money are you willing to spend to create a memory?

If there's something that's creating marital strife, would you be willing to throw money at it to make it go away (like hiring someone to paint that room your other half has been promising you to paint for the past 3 years)?

Do you feel safe and in control of your life? How much do you think that contributes to a sense of happiness? Does having money in the bank contribute to your sense of safety?

Does giving make you happy?

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