This & That: Choices, Choices Edition

J Wrote: I’m a huge fan and have been watching your shows and following your blog for quite some time now. But I’ve run into a situation that could really use your input. I just found out that a Canada Savings Bond I opened 10 years ago (when I was 16 as I’m now 26) has reached maturity and is no longer collecting interest. I’ve been told I can roll this over into another savings account or cash it out. I have no idea which is the better option. Here is a bit of information as to my current situation:

I have recently (a year and a half) completed college, which included 4 years of student loans (both federal and provincial), which I have been paying at a fixed rate for just over a year (I’ve been told this is good debt and as long as I make my monthly planned payments I shouldn’t worry about paying it off quickly so it’s not my main concern right now). I have 2 credit cards at 19.99% interest rate which are both maxed out at $2000 and $3000, and a Student LOC that is closed (now that I’m no longer a student) at 5.25% interest, and is at $18000. I have also recently secured a permanent job that pays me $55000/yr and includes benefits and a pension plan. Currently I’m renting a house with my fiancé, who due to medical issues is currently not working and this has caused us to rack up our debt again (I almost had those credit cards paid off!). We are living paycheque to paycheque trying to play catch up after overspending during our move and I feel like I’m drowning, the emergency savings and all other savings have also disappeared.

My question is would it be better to cash the bond and pay down the debt then start saving from scratch or continue the way we have been going and throw this bond into a TFSA or other type of savings account? On one hand paying down the debt will help me move on with my life quicker and feel better about saving for items like our wedding and buying a house, but on the other hand this would be a great opportunity to start saving for the wedding and a house. Please help me Gail I’m so confused!

Gail Says: You don’t say how much money is sitting in the CSB’s but that money could serve one of two purposes:

You could use it as your emergency fund to bridge the gap until your boy is back on his feet so you don’t go further into debt, or
You could use it to pay off your existing CC debt so that you stop incurring interest charges.

Now that you’ve had this experience, you know the importance of an emergency fund. Please, please make that a priority when things stabilize.

 

A Wrote: I love your show – I have a budget and my husband and I stick to it pretty well. I do our bills every two weeks and review our finances to see where we are spending, etc. And my husband and I give ourselves an allowance to spend on whatever, no questions asked.

My problem is – I keep making excuses to spend money. It’s for my son, or it’s a gift, or “I haven’t treated myself in a while” or “we’ve never paid interest, we have RRSPs, we’ve got an RESP for my son, so we are doing ok”. Anyways, I’ve managed to not pay interest, but the floating balance on my visa is over $1000 and it is going to take me 3 allowance payments to pay it off and that seems impossible to me! Today I added up what my big expenditures are and plotted it on a monthly basis to see if I could see a trend. I saw a trend all right: fast food/ restaurants and online shopping.

My favourite hobby is knitting and this year, I have spent $1900 on yarn, needles, and patterns. I added up what my husband and I spent on fast food and restaurants – $4700! OMG! I think I might be in shock.

I can’t keep going like this, so I decided to take a page from your book. I gave my husband (who is, thankfully, not an impulsive shopaholic) my Paypal password and asked him to change the password and not tell me the new one. I also fessed up to what I’ve been doing – he had an idea it was getting bad, but like me we hadn’t added it up before. My husband says he is confiscating my credit cards tonight and we will be spending our allowance in cash and writing it down, of course.

It’s a scary feeling to be losing my credit cards – in the past, I’ve always been really good about using them like a debit card because there are no annual fees, but my reliance on them, and the ease of selecting “check out with Paypal”, has devastated my savings goals and my allowance cash. I don’t see another choice right now.

I wish I could figure out why I can’t seem to say no, and just turn that portion of my brain off – I have some big savings goals for retirement, vacations, etc, and wasting $6000 on crap (well, not the yarn, but the food is crap)… well, I have no more words for it.

Wish me luck Gail! You’ve given me the budget tools, and the nudge to start savings, and I hope I will hear you yelling “you’re wasting your money on CRAP” next time I’m thinking about spending. I have enough yarn to last me about 120 years, so I should be all good there.

Gail Says: I consider this to be a huge success story. How much longer might you have gone on spending, unaware of what it was costing you? You’re a brave girl to choose to see the light and I’m right proud of you for taking yourself in hand. Get the debt paid off and then get back to enjoying spending as much “allowance” as you get and no more. Having to make choices will make those purchases all the sweeter.

 

M Wrote: I just completed your book “Money Rules” and of course loved it. I have told anyone who would listen about your book and how at least 50% of what was in the book I already knew about but that the other 50% I did not know about and was grateful to hear it. This book was easy to read. I’ve already been asked for my copy (don’t want to share) :).

I had a question on Chapter 128 Plan Your Funeral. I liked what you had to say but I have heard of a situation whereby someone who planned their funeral with a funeral home but then when they died (not sure if they had paid for the services), their family chose to go to another funeral home in another city knowing that the “deceased family member” had everything already planned, as they did not have the type of service the person wanted because it was too costly. What do you do in that case? There are a lot of us who would be concerned about that one. Can anyone protest that move?

Gail Says: Part of planning your funeral is paying for it or leaving enough money to cover the costs. So why would someone chose to go with a cheaper funeral? If you put your funeral plans in your will (and leave separate instructions stating the instructions are in your will) then your executor is bound to follow your instructions, providing you’ve left enough money to take care of the funeral.

That being said, why would you spend a lot of money on a funeral? You’re dead. You won’t know what’s going on. So really, you’re paying for a funeral for the people left behind. If they don’t want a fancy funeral, why would you make ’em have one?

 

L Wrote: I have had IBM stock for 10 years, and although no longer contributing, my stock which had been worth $39K in 2013, is now worth only $31K. According to predictions, 2015 will be no better.

Based on my retiring in 15yrs, would it be wise to hang onto this stock for the long term, hoping this is a temporary lapse, or better to sell with the current loss?

Gail Says: I get letters like yours all the time. You’re asking me to look into a crystal ball and tell you what the future holds. I can’t. No one can. The stock might recover (I held the QQQs for my kids for 10 years and they battled their way back up) or they might not (I also took a beating on Nortel). I can say that you still have a long-term investment horizon (over 10 years) so you can stay in the markets. As for whether to hold IBM or sell and reinvest, that’s your call.

 

O Wrote: I’m reading your book MONEY RULES at the present moment and I find it’s great. I’m writing to you because I have a big dilemma. I’m a physician with a good salary but still have student debt. 2 years ago I was sold a whole life insurance of $500 000 over 15 years which comes down to $1068 per month! Since I still have debt (student loan and $10 000 line of credit) I’m beginning to think that that policy is probably not a good idea. In your book, you say that permanent life insurance can be good on the long term. That being said, I don’t see why I pay big money for my death when in reality I’m still paying my debt. I’m starting year 3 out of 13 and I’m kinda chicken to cancel it. My insurance broker sure doesn’t want me to cancel it and is calling me 3 times a day to convince me to keep it. I’m thinking of cancelling it and keeping my TERM of $500 000 that I also have. What do you think?

Gail Says: You’re not paying big money for your “death,” buying insurance means you’re making a commitment to support the people who depend on you financially when you’re no longer around to make a living. If you do not believe you have (or will have) people who depend on you financially, there’s no need for insurance. If you do, then the decision about what type of insurance comes down to how long you want that insurance to last. Your term insurance may look cheap right now, but if you’ll still have dependents in 20 years when it’s time to renew that term it will be a lot, and I mean A LOT, more expensive. I’m not sure why your whole life policy is so expensive… it may be your age, it may be your life-style choices… but if you’re concerned about that then I’d shop around to see if I bought a pig in a poke. But don’t just toss the whole idea of permanent insurance out the window.