This & That: Get Real Edition

F Wrote: I read your article about “how much down?” and I was sad to see your “tips” to save up and avoid pesky – and costly – mortgage insurance. I have no assets, investments or insurance policies on anything, my tax return is about $3-400 a year, my family firmly believes “we saved for it on our own, how hard is this?” so they will offer no help, I get nothing on my birthday (except a back rub) let alone cash, I was fired twice for asking for a raise (company saw I wanted more money and decided to outsource to India and China), my expenses include food and water, and I work 10 hours a day minimum with 2 hours transit total time, for $13 an hour. Which is actually a career in my field that had 5 interviews total because of the demand. I already have 2 roommates, and can barely break even. What can you suggest?

Gail Says: Are you trying to tell me that even though you make $13 an hour, have 2 roommates and can “barely break even” you’re considering home ownership? I know that times are tough for a lot of people, incomes are low, and jobs are hard to come by. So why would you even think about putting that kind of financial strain on yourself. Have you worked out what it would cost to carry a home? I’m not just talking about a mortgage payment… I’m talking all the costs associated? It scares me a little how much home-ownership trumps common sense in terms of being a “goal.” Please reconsider.

 

A Wrote: My husband and I are debating extending my parental leave for an additional 12 weeks. Six months into my leave we are breaking even, zero savings. But the year before my leave we were saving 20% of net income each month and have zero debt (other than mortgage). For those 12 weeks we would lose the additional income of $400/week but we have enough cash in the bank to cover the gap to avoid using credit. (Over $25k in the bank). When I return to work our savings will return to 20%. Is it irresponsible to take this extra leave given we are going to eat up savings even though we “over saved” and will not need to use credit debt?

Gail Says: I don’t think it’s reasonable to expect to be able to save while you’re bringing in far less money because you’re on mat leave. If you have no debt, you’ve managed your cash reserves carefully and still have enough money to buy you another 12 weeks home with baby, you needn’t worry about the savings part right now, particularly since you say your savings will return to 20% when you head back to work. How could it ever be irresponsible to make the choice to stay with your wee one given that you’ve made financial provision for that choice? 

 

A Wrote: I am ready to throw up with stress about a mortgage decision and I am hoping for your advice. I have watched you for years and I saw you speak in Milton last spring – you are my financial guru!

We live in a wonderful home in GTA suburbia and are very happy, but want to make the move closer to downtown for the walkability lifestyle that comes with an inner-city move. As it stands, our current mortgage payments are very comfortable, and we would be taking on a considerably larger amount of mortgage debt to move. We have a huge down payment (lots of equity in our current home) though; we’d be putting $410K down and spending $875K on a house, meaning we’d end up with a $465 mortgage. Our combined annual income is $166K, and our monthly mortgage/property tax/home insurance, gas, and hydro would be $3100/month. We fall within all of your “can we afford this” guidelines, but I feel SICK to my stomach about having a $465K mortgage. Should I just be focusing on the monthly housing costs rather than this huge looming number with the bank??? Eeesh. Any advice would be appreciated. Thanks in advance.

Gail Says:   If you want to be comfortable with this decision you actually have to work through the math. You haven’t told me your individual incomes (it makes a difference in your taxes) so I split the income 50/50 and see that you have an joint income of about $11,000 a month, which should be more than enough to deal with your mortgage. You haven’t said how old you are so I don’t know how much time you have until retirement. But you should be aiming to be mortgage free by then. Also, what have you been doing with all the income you’ve been making (without this mortgage payment) up until now? Taking on more debt will mean changing your priorities in terms of spending. If you dot all those i’s and cross all those t’s, you’ll feel better about your decision.

 

B Wrote: I am looking for advice on how to help a step grand-daughter and my own daughter’s family. The marriage is mixed with 3 older children from 1st marriage and a 2 and 4 year old from my daughter. My daughter is only 12 years older than the step daughter. I will call her Perdue. She is 22 years old and back home. She lost her job due to daycare closing and has racked up $3000 dollars in credit, even though she knew she was given 3 months advance termination notice. She is a lovely young woman with the perception that her dad should always bail her out. It puts a stress financially and emotionally on my daughter’s home and marriage. How can I help Perdue learn how to budget her money, which she spends on make-up and eating out? Perdue is in love and wants to get married, but I am worried that her boyfriend will drop her because she rarely chooses to cook, clean or budget her income. Speaking in old terms, how do I light a fire under her butt for her emotional well-being as well as the well-being of my daughter’s family? She takes offense at even carefully worded redirection.

Gail Says: You might want to try asking her for some advice because you have a young person her age who needs some help. Raise the issues this “young person” is facing, and ask the step-daughter for her take on the situation. So something like this,

You: I’m wondering if I can pick your brain for a couple of minutes. I have a young friend who seems to be a little lost and I’d like you’re younger take on what’s going on, if you have some time.

SD: Shoot. (We can hope it will be this easy.)

You: So, Tamara has been working and on her own for a couple of years, but she’s told me she’s a little concerned because she’d been counting on her mom to bail her out of a mess she’s gotten herself into and her mom has just told her no. So she’s really mad at her mom. You see, she ran up her credit card, and since her mom makes a really good living — she lives at home with her mom right now — she thought her mom would pay the card off for her. But her mom’s been telling her she has to stand on her own two feet and she’s not bailing her out. So from your perspective, what can I say to Tamara to help her see that being an adult means her mom may be right and she has to learn to stand on her own two feet?

SD: Well, her mom should help her!

You: Why do you think that?

SD: Her mom has enough money, why wouldn’t she help her?

You: Doesn’t she have to accept responsibility to using the credit cards?

SD: Yeah, but her mom has plenty of money.

You: Is that really the point? Suppose your dad said to you, “You’re making more than me right now, so I want you to pay the mortgage,” would you be okay with that?

SD: It’s not my house, besides, I don’t make more than him.

You: Just imagine. Your dad gets sick, say, and asks you to find a way to pay the mortgage, even if that means getting two jobs, how would you feel about that?

SD: (She may be silent. Or she may say something like,” It would be his wife’s responsibility to take care of him.

You: Because they are a team?

SD: Yes, exactly.

You: So back to Tamara. She and her mom aren’t a “team” so why would she expect her mom to bail her out?

I’m not sure how this will work since, in the end, it really is about following the conversation where it goes. The point, however, is to use a similar situation to try and bridge into a conversation about what’s really going on.

As for being in love and wanting to get married, sometimes only blunt will work, as in “Why the dickens would dude want to marry you? You can’t cook. You don’t clean. You’re a lot of work. If you were picking you for a mate, would you?”