This & That: Jeeze Lousie Edition
L Wrote: I am 3 years away from wanting to retire and my financial planner has me invested solely in mutual funds. This makes me very nervous both in part because I do not understand this way of investing and because of having to deal with the markets. She says that I am in the best place to be. What do you think?
Also I am living in geared to income housing and must not cross over a yearly total income threshold. This is happening however due to the investments and I live in fear constantly of losing my current home. She says that she cannot control the markets and their performance, thus exonerating herself. I just don’t know what to do. I work part-time and need income but investing seems to be ruining both my health and financial well-being.
Gail Says: It’s rude for your planner to ignore your concerns and keep you invested in something that is not working to your purposes. This is a prime example of planners doing what their companies want, not what their clients want. But you have some responsibility in this too. It. Is. Your. Money. You get to decide what happens with it and your planner MUST follow your instructions. If you want to reduce your exposure to a) too much income and b) risks associated with being in the market, then you’ll have to decide how much of your portfolio you will sell and put into more conservative investments. As for living in a geared to income housing, your mutual funds’ return would not affect that unless there were income distributions (as in dividends) that were paid out to you (instead of being reinvested which they usually are.)
Your advisor isn’t exonerating herself… she speaks the truth. She has no control over the markets and their performance whether they go UP or DOWN. But if being in the markets is hurting you — as you say, “ruining both my health and financial well-being” — then you need to make it clear to her that you want to change things. And if she won’t listen, you need to find another advisor who will.
Be very careful as you sell those investments. It is the selling that will trigger the “gains” that will affect your income threshold. You must get very good, clearly calculated advice as you do this to no impact on your housing issue.
R Wrote: We have accumulated approximately $100 000.00 debt outside of our $270 000.00 mortgage. We are maxed out with our bank, our Line of Credit and credit cards are well over their limits and we have been struggling for a number of years to keep our heads above water to make minimum payments which we know will not get us ahead but it’s all we can manage. We have sold the majority of our household items to get by. Luckily enough we do not have vehicle payments however carpooling is not an option for us. We are over 40, earn a combined income of $100 000.00 annually and I do not have a pension and no longer have anything set aside for retirement.
I have looked at the numbers and we would have about $50 000 remaining if we were to sell our home and pay off our entire debt. I have suggested this option to my wife indicating that the family would have to rent for a year to be able to save enough to purchase another home however my wife does not want to sell the house.
Gail Says: Sadly I receive several letters like yours every week: people who have been given too much credit and can now only meet the minimum payments. This is one of the reasons why I warn so loudly about the dangers of lines of credit and credit cards. You should be able to have a good life making $100K a year. But if you now have so much debt — for stuff you thought you should have that you couldn’t pay for — that your income is being gobbled by interest costs, it’s a hard pill to swallow.
You’re going to have to do the math and show it to your mate since you can do as you suggest or just wait for your ship to sink completely, at which point instead of having $50K to start off with, you’ll have nothing. This likely means making a budget and showing her where every penny goes, creating a debt repayment plan to show how much you’re spending in interest every month, and the house-sale numbers to show what you will actually end up with (don’t forget the costs of selling!)
Then show her the new budget living in a rental, and how much you will save every month towards a new home. Remind her that if the home is not paid off and you have no money set aside for retirement, you’ll likely have to sell then anyway, and it might be a down time in the market affecting what you end up taking out of the transaction.
D Wrote: Both of our parents were admitted to a care home for advanced Alzheimer’s. While sorting out our parent’s finances we came across a loan agreement of $100, 000 to one of our sisters and another $96, 000 to the youngest sister. My parents wanted the five kids to divide evenly the proceeds of their house sale which was approximately $625, 000.
Both sisters refuse to acknowledge their outstanding loans.
How do we divide these funds to have our parent’s wish of equality settled?
Gail Says: If your sisters signed the documents, they can stick their heads as far into the sand as they wish, but you’ve got a document that says what’s what. Unless, they can demonstrate repayment (cancelled cheques that total the loan amounts) too bad. If there are no signatures, the loan agreements won’t stand up in court if that’s where you end up.
If you sell the house and clear $625K and divide that by 5 it works out to $125K each. Take off the $100K to sister #1 and give her $25K. Take of $96,000 to sister #2 and give her $29,000. Pool the $100,000 and $96,000 and divide by 3, so the remaining sibs would each get $125K + $65,333 for a total of $190,333.
T Wrote: I am at a cross roads. I am 39 years old, live in a condo and my mortgage renewal is fast approaching. I also have a line of credit that is approx. $20 000. I am not incurring any debt now but am struggling to pay this one off. I was referred to a mortgage broker who then put me onto a financial advisor who is her partner in a small company they have started. This advisor came up with good plan in terms of monthly budget however is beginning to advise me on something which I have no knowledge of. I have equity in my condo and my condo is now worth much more. I do not have very much saved for retirement, just a small amount in my RRSP. She is advising me to take out a large chunk, if not my maximum amount and use this to buy life insurance to use as a tax shelter and as an investment vehicle which would generate its own income. I would take out the maximum from my mortgage and use it towards this life insurance for its investment advantages, thereby taking out a much larger mortgage than I had before. This would presumably give me more money to live on, allow me to save for my future and more recent future goals easier.
I need to speak with a financial advisor but I’m having a hard time finding one as I don’t make very much. I am just not sure if this is a good idea. I work for a not-for-profit and my income is modest as well.
Gail Says: I cannot for the life of me see how borrowing more money at this point is a good idea. I don’t care what you’re putting it into. And if you don’t understand the investment you’re making… and I don’t think you do… how can you be sure you aren’t being fleeced? Why wouldn’t you simply add the $20K in debt to your mortgage at renewal time to give yourself that breathing room you’re looking for? Since you’re living within your means and you have equity that would be the simplest answer, no?
S Wrote: I am in my late 20’s. I am seeking your advice on paying my student loan vs saving for down payment. Currently, I have a student loan of $15k at prime +1%, no consumer debt. I have savings of 15k in RRSP and 53K in TSFA. Should I pay off my student loan or use the low interest rate to build down payment and use the tax credit.
Gail Says: These are the kinds of questions I get when people don’t want to do the math for themselves. I want you to do the work because it makes the decision more real, and you have full ownership of it. First calculate (or use the calculator at the student loan website) how much interest you’ll pay on your student loan. Second calculate what the tax credit is actually worth to you. Now you have your answer. So clear, right?
M Wrote: I’m drowning. I’m continually lying to my husband about bills I’ve “paid” I’m always making payment arrangements with bills. Utilities, taxes, mortgage etc. it’s gotten so bad that I’ve lost track of what’s owed. I’m so far in debt I can’t sleep, eat or even have a normal day. I have collections call me. I’ve been taken to small claims a few times now. I have no idea what to do or where to begin. I feel helpless. I feel lost in my own head. It’s ridiculous. I owe a lot of money and I keep it hidden from my husband, which I hate more than anything. I hate lying to him and hiding things. He works very hard everyday, he even got approved in December for a credit card of $10,000 and I’ve already managed to go into debt with it by $12,000. I’m lost. I find my self searching day after day for ways to get money to get out of debt and not tell him. I post ads on Kijiji for lenders. The worst part is that I spend money on absolutely nothing. I don’t even have a habit to supply. It’s like money evaporates right out of my hands.
Gail Says: While people tell me they’re in debt but spending money on nothing, that’s just part of their delusion. Clearly if you’re spending money you’re spending it on something. Maybe not something worthy of the hard work you expended earning the money, but something. And with all the debt you have, clearly a large portion of what you’re spending is going to interest — the rent you pay for using someone else’s money. So if you’re serious about fixing the problem, your first job will be to figure out where your money is going by doing a six month spending analysis. You’ll also have to make a debt repayment plan and calculate what you’re currently spending in interest.
As for keeping this from your husband, are you afraid that if he finds out he’ll kick you to the curb? Because this kind of secret can’t be kept forever. You had best figure out a plan and do whatever it takes to fix this mess — get another job or three. At the very least when he finds out (accidentally or on purpose) you best have a solid plan in pal to show him you’re serious about fixing what you broke.
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