This & That: What to Do Edition

R Wrote: My question is about bank account overdraft protection and the role they play on our credit. I have $500 overdraft protection on one chequing account and $500 overdraft protection on one savings account; my husband has $1,500 overdraft protection on one savings account. I maintain $1,500 minimum threshold balance in my chequing account and my husband maintains a $3,500 minimum threshold balance in his chequing account. We pay off our credit cards bi-weekly and never utilize our overdrafts. Should we eliminate them? Do they impact our overall credit amounts extended when it comes to applying for a mortgage or anything?

Gail Says: You don’t say if you’re paying a fee for this OD protection or not. I’m going to assume you are (what, after all, in life is free) and tell you that if you’re not likely to use it you’re wasting your money. You’re already doing what I suggest people to; to eliminate their OD protection: you’re maintaining a minimum balance in your accounts. If it were my accounts, I’d eliminate the OD protection.

 

M Wrote: My husband and I are setting up a 6 month rainy day fund. Should we account for the fact that if one of us lost our job, we would receive Employment Insurance for one year or not?

Gail Says: You should consider EI a bonus since not all emergencies come with a payout from EI. If you get sick or have to take time off work to look after family, there won’t be EI. And there won’t be EI if you get turfed from your job for cause. Yes, EI can help to extend your emergency fund, but you shouldn’t count on it.

 

M Wrote: My 27 daughter is attending grad school. She had 5000 euros to subsist on for 14 weeks. We are at week 11 and she has only 300 euros remaining. What do I do? I can’t leave her without. In my mind she only needs food, because she cannot afford entertainment. I had suggested a budget of 200 euro a week with a 500 euro buffer for surprises. She obviously has not followed the suggested plan.  Her residence is already paid for.

Gail Says: What lesson are you teaching her by bailing her out? She’s 27 years old for heaven’s sake. If you MUST send her money for food — although I’d let her find a way to deal with this herself — send it weekly in very small increments. And only the barest minimum to keep her from starving. At 27, she is a woman, not a child, and needs to learn to stand on her own two feet.

 

A Wrote: When a child gets money for their birthday or Christmas, do you allow them to keep all the money as mad money or do you have them divide into sharing, saving, spending and mad money?

Gail Says: What was the intent of the money gift? If it was specifically earmarked for saving — like an RESP contribution — then you’d save it. If it was as a “gift” then you should talk to your kid about the “gift” he or she would like to buy with the money received. No need to save it or divvy it up. After all, if the person had sent an actual gift, that would have been that, right?

 

C Wrote: We are about 6 years from retirement and have always had our investments in Mutual funds. It has been suggested that we move our funds to insurance based segregated funds as there is more potential for growth as well as partial security for our investment. I am unsure as to what we should be doing? Could you give us some advise regarding this issue.

Gail Says: The seg fund guarantee comes with a price: since it is created through having the capital invested insured, seg funds are served up with a higher MER than are similar mutual funds without the guarantee. Seg funds do have their moments. They’re a good investment if you’re looking for creditor protection because you’re self-employed or a small-biz owner. Segs also offer unprecedented estate protection. Like other insurance products, money in segregated funds pass directly to heirs named directly as beneficiaries without going through your estate, which means no estate fees or death taxes (where applicable).

Only you can decide if the additional cost is worth it to you to have your principal guaranteed. Please also note that if you’re drawing down on these funds over time, that guarantee may be affected since the guarantee is time sensitive. Check with your advisor to see how this would impact on you.

 

H Wrote: How would you politely word a response for a request (really it was presented as an expectation) that team members of a rep sport sponsor a family at Christmas? It is a good cause, yes, however, the reason I want to decline is that my family has already designated our giving budget to a family at church and to another charitable organization. My kid was told that she had to earn the money and give it to the family. Who is this woman to say that when she doesn’t know our financial situation?

I need your help Gail with your wording. I know what I am doing is right, I’m just too mad to word it properly.

Gail Says: The line I use is this: “I plan my giving every year and I’ve already allocated this year’s giving. I may be able to help next year if you want me to do so, but there is no money for this year.”

This is a good time to educate your kids about planned giving, sharing your good fortune, and not living to anyone else’s expectations. Prime them with the words they’ll need. “We give generously to causes we believe in, and we plan that giving carefully. My parents have already allocated our giving resources for this year. Maybe next year.”

 

N Wrote: Several years ago we have decided to use our credit card to pay for everything, so we could collect points. It’s great as we already have bought several plane tickets with our points but we have noticed that often we spend a bit more than we can pay back because paying with a credit card is sooo easy. We have a hard time knowing how much we spend until it s a bit too late. Any tips on how to not spend too much but still using the credit card?

Gail Says: I, like you, put everything on my CC to reduce my banking fees. I NEVER spend more than I can pay back for 2 reasons:

I use a spending journal so that when I make a purchase (using whatever means) I deduct what I’ve spent from my current balance. This keeps me very aware of the money going down even though I haven’t get received the CC bill, and


I shop with a list. Giving in to impulses is so easy when there’s room on a card. If I see something I think I want, I can’t buy it if it’s not on my list. I have to add it to the list for next time, assuming I still want it.

Putting some “consciousness” into the shopping is what it takes to make it real. When it’s done reflexively, you end up slapping your forehead later when the bill comes in!

 

G Wrote: If a 52-year-old person who has retired and is on a company pension decides to work again, can he buy RRSP’s? 18% of his salary?

Gail Says: As long as you have earned income and are under the age of 71 you can contribute to an RRSP. Make sure you reinvest the tax savings so that when it does come time to take the money out of the RRSP, you come out ahead.