The Way We Spend

Tax-free savings? You bet.

Many of our financial experts have been talking about putting short-term savings into a tax free savings account.

This is a relatively new investment product introduced by the government in January, 2009. Essentially it allows individuals to save up to $5,000 a year in an investment account with no penalty upon withdrawing the funds. It's perfect for saving for a wedding, vacations, or any other big purchases.

Today, an Ipsos Reid poll found that just 10 months following their inception, most (71%) Canadians have now heard of the new Tax-Free Savings Accounts that became available. Conversely, one quarter (22%) of Canadians have not heard about them, while 6% don't know if they are aware of them.

Check out www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html to get more information about this very flexible investment option.

- Lisa Grace Marr

The cash rule...

As part of my research for this series, I've been reading Pat Foran's book, The Smart Canadian's Guide to Saving Money. He's the consumer affairs reporter at CTV.

His book offers down-to-earth, common sense advice. Foran advocates the Wealthy Barber technique of forcing yourself to save 10 per cent of every paycheque and living within your means with the rest. He says the first priority should be building up an emergency fund - $1,000 to $2,000. If you have to dip into it, top it back up as soon as possible.

He has a basic rule: If you are buying something that doesn't go up in value, pay cash for it. That's difficult for most people when buying a car, but otherwise, pay for vacations, entertainment, clothing, home furnishings with cash. That's hard and it takes discipline, but don't many of us need a little more of that?

Meredith MacLeod

Facing the music

Dealing with debt is sometimes more difficult to deal with than overeating. Many of our families say they wanted a financial makeover because they knew it was the only way they would deal with the stack of bills that threatened to suffocate them.

It is possible to limp along for years crippled by debt - the Greenways have admitted as much.

Other other families have said much the same thing.

In the next few weeks, we'll see the results of the hard work these four families have done to hammer at their debt, and restructure their lives in order to be financially healthy.

As a writer for the series, I felt it was only fair to at least keep track of my expenses for a month - if we're asking four families to do it, why shouldn't I? Holy moley, what a ton of work and how depressing. We spend a lot on gas travelling to work and shuffling the kids around - about $400 I think - time to try to carpool more! And we spend a ton on the kids, especially during back-to-school, back-to-hockey, back-to-music lessons - although that's money we don't mind spending. My cell phone bill is outrageous - managed to save there, not to mention our grocery bill. It's quite a revelation to find out just where your money goes.

So as you sit back and read our series, we challenge you to do the same: try tracking where your money goes for a few months - jot it down in a journal, every cup of coffee, every cable bill or grocery tab and match it up with what you make - you can easily shave 5 to 10 per cent of monthly expenses once you know what they are.

Good luck.

Lisa Grace Marr

To blog or not to blog...

Be sure to check out tomorrow's paper and thespec.com for the next installment in the story of the Greenways. They are one of four Hamilton families undergoing a financial makeover. Their story is compelling and serves as a warning about the pitfalls of spiralling debt.

A while back, Globe Investor asked its readers to come up with their favourite money blogs. There is a wealth of information, both good and bad, out there. The trick, of course, is telling the two apart.

Do you have a favourite finance blog or website? Please share it with us.

Top five financial blogs from Globe Investor readers

iBankCoin (ibankcoin.com): Described as vulgar but savvy and aimed at serious trades and investing pros.

Million Dollar Journey (milliondollarjourney.com):
The work of a 30-year-old financial prodigy/engineer known as the FrugalTrader. His goal is to reach $1 million in net worth by the time he’s 35. He claims to be more than a third of the way there.

Squawkfox (squawkfox.com): Run by journalist Kerry Taylor, it covers everything from organic foods to ways to cut lawn care costs. She's also written a book called 397 Ways to Save Money.

Wellington Financial (wellingtonfund.com/blog): Written by people at a venture capital firm.

Where Does All My Money Go? (wheredoesallmymoneygo.com): Written by an ex-investment advisor and now works at a mutual fund company. He gives an insider’s view, including posts on commission grids for advisers.

Meredith MacLeod

Family eliminates $106,000 of debt

I read an inspiring story recently about a Wisconsin couple who was buried under $106,000 in personal and credit card debt. They didn't own a home and were wavering on the brink of bankruptcy.

This couple, Russell and Kandy Hildebrandt, were current on their payments but their creditors had started raising interest rates, adding hundreds to their monthly minimum payments. They were not getting by on Russell's income as a chemist at a laboratory. Kandy stayed at home to home-school their two daughters.

That was five years ago. Today they're debt free (except for a mortgage) and they were named the winners of the Professional Achievement and Counseling Excellence 2009 Graduate Client of the Year award. That mouthful of a prize is awarded annually by the National Foundation for Credit Counseling.

The family lived in a small rented townhouse but they purchased everything new and had medical expenses thanks to Russell's diabetes and Kandy's  several miscarriages. They also were committed to tithing 10 per cent of their income to their church. While commendable, they were sinking into debt further.

The Hildebrandts didn't want to consider bankruptcy but they signed a five-year debt management plan to repay their debts through a local credit counselling agency, eliminated discretionary spending and began buying generic food and shopping at thrift stores. They cut out gift exchanges with friends and relatives.

They were obligated to pay $2,000 a month on their DMP, about half of Russell's take-home pay. He took a second job as a night cleaner. It was gruelling for both, but they paid off their debt in five years. They've now bought a house and Russell has quit his second job but their thrifty ways continue.

Does this story motivate you or convince you to stay out of debt in the first place? Do you have an interesting story to share about how you paid off your debt? Share your comments or ideas here or email them to business@thespec.com.

We can all learn from each other.

Meredith MacLeod

Good parents pay

In today's Hamilton Spectator we read the story about Patricia Hamilton and her two now adult children and her struggles as a single mom.

Patricia's ex-husband only paid child support for about a year then it stopped. For her the complication is that he lived in Alberta - two court systems, two sets of legislation and five years of headaches convinced her to give up.

It's a common story. What's frustrating is that if her ex-husband had done the right thing and paid the child support (a small $200 a month payment) he was supposed to, her financial situation, and that of her children (and his) would be radically different, particularly given her natural work ethic and frugality.

The Ontario government estimates more than $1.3 billion is owed to children across the province in unpaid child support. Somehow many ex-spouses manage to elude the system. In the end, it's the kids who pay. Thankfully, in the Hamilton's case, Patricia managed to overcome this obstacle and successfully raised her kids. She was and still is blessed with good health, a close supportive family and great kids.

The net is tightening. The Ontario government launched a new website two years ago with photos and names of deadbeat parents in an effort to find them and get them to pay. It's at http://www.mcss.gov.on.ca/mcss/english/pillars/familyResponsibility/

It has also signed a deal with the American government to find the estimated 2,000 parents who have fled Ontario to escape having to pay child support payments.

Enough ink has been spilled on the harm to kids from lack of parental attention to their basic financial needs.

What this blog would like to do is collect stories similar to Patricia's - and they are out there - of parents who overcame deadbeat exes to successfully raise their kids. How did you do it? What lessons have you learned and maybe passed on to your kids?

Please share.

Lisa Grace Marr

Tracking the way I spend

As the household manager I am responsible, like many women, for the majority of purchasing to run the home: groceries, utilities, childcare, lunch money for the kids, clothing for all five, gas, and all major purchases as well such as computers, furniture, etc.

Each of our four families was asked to track expenses for a month. If you've never done, it, you have to try it. Not easy. It's amazing how often transactions occur every day. It's actually kind of depressing. On the positive side, writing down what you spend every day is very much like writing down what you eat every day. Seeing it in black and white is enough to give you pause. Sometimes that's all you need.

Ken wrote about how he and his wife budget in a year. It's a good plan but I think it only works for a couple. With the hectic lifestyle of most busy families these days, it's more helpful to track expenses for not just two but six months to get a sense of the demands on your budget. We're into month two in our family, but we just need time to add it all up. Right now, it's a stack of receipts and notes on top of the refrigerator. Time to get serious....

Any ideas from families about how they budget?

Lisa Grace marr

Face the music

This from Ken, a reader:

I am appalled at the attitude shown by so many in the articles The Way We Spend. They not only do not know what they spend they frequently do not want to know so they are doomed to fail.

 

I am now retired, but early on my wife and I developed a system which took some work and discipline to set up but has given us a comfortable and worry-free financial life.

 

Each year we keep all records e.g gifts. food, household expenses (defined as desired), charity, taxes, etc. In early January we just add up the year's cost for each item, divide by 12 and see how much we paid per month. For the coming year we budget and set aside that amount monthly (plus a small amount more for the inevitable increases) before any extra money is spent. Thus, each month is covered for the main items which must be paid so there is no slippage into debt.

 

Items like restaurant meals fall outside the system and only occur in a surplus situation never on a regular basis. The same can be true for bigger purchases.

 

One soon learns where the money is going, where it is needed and whether changes in habits are required.

 

Although this system requires a little discipline at times and a modest amount of record-keeping it is a far cry from the desperate situations displayed by the families in the series. I congratulate them and wish them success in their efforts to improve.

 

Shift to thrift

In today's instalment of The Way We Spend, there is a story about how consumers are shifting more of their dollars to dollar or discount stores. Does this reflect your reality?

I also wrote my own account of second-hand shopping and some of the bargains I've been able to find. Do you shop second-hand? What's your favourite reuse or consignment shop around here? What's the best bargain you've been able to find? Let us know by commenting here or send us an e-mail at business@thespec.com.

Meredith MacLeod

Weird with money

People are quirky and confounding, there's no doubt about it. I have become quite intrigued by the A&E show Hoarders. It documents people who can't bear to part with anything. Whether it's trash, a button, an empty box, they are so attached to the piles of junk and chaos around them that they will risk eviction, the loss of their children, jail time, or divorce just to hang on to it. It's fascinating, even though I can't understand the dynamics of it at all.

We are equally confounding when it comes to money. People rack up huge amounts of debt, compulsively shop, refuse to part with a cent even though they are very comfortable, get addicted to gambling.

On a smaller, more general scale, Anthony Stokan, a Toronto-based retail consultant and author of Naked Consumption: Retail Trends Uncovered, says Canadians are weird with money. We tip less on rainy days and more when we’re eating alone. If a server puts a smiley face on our bill, we’ll tip more.

Are you weird with money? Do you see people behaving weirdly with money? Do you know someone with an addiction linked to money? Share your stories and thoughts here or e-mail us at business@thespec.com.

Meredith MacLeod