Posts Tagged ‘personal finance’

Why I trimmed $6K off my budget for the next 12 months

About a week ago, I realized that I’d have a 15K hole in my budget for the year or so ahead. I was pretty quiet about what transpired in order for me to arrive at this sudden conclusion.

Now that I’ve had some conversations about it in my home, I can share it with you.

You already know that I’m single, and that I’ve been divorced. In my divorce settlement, the agreement I have with my ex-husband is that one of us will pay the other child support depending on who has a child, and based on our income from our most recent Notice of Assessment. (There are tables for the rates published by provincial governments.) This is to continue until the child is 25 or no longer in school.

In addition, it’s my ex-husband’s workplace that provides the prescription benefit for my youngest daughter.

Fast forward to last week.  The post-secondary institution that my youngest really wanted to go to has turned her down. Since they only accept 20-odd students into the particular program she was interested in, the odds are greater that a student isn’t successful in their quest to get in.

I was financially prepared for her to go to post-secondary. Over the past number of years, I’ve managed to tuck away almost $15K in RESPs for her. I know her father has about the same amount saved. The kid is on easy street as far as paying for University goes. 

What I didn’t anticipate was the financial shift if she didn’t go to school. Come July, she will no longer be a student (bye bye child support) and she will no longer be covered by my ex’s employer health care coverage. The combination between the loss of revenue and the additional expense I calculated to be about $15K.

I went into a little fiscal tailspin in my head. Perhaps you noticed?  

At the same time, I actually think it’s best for my youngest to take a year off. There’s been more and more studies to reveal that kids actually do better when they take a year off. They’re not forced into studying something that wasn’t their first choice, and they have a chance to earn some extra money and save themselves from their own financial tailspin upon graduation.

The other factor in my house is obviously health. It’s been a rough few years health-wise. When you miss a month or so of school at a time, it takes a lot of energy to catch up. Sometimes that expenditure of energy causes another flare and another month off. It’s a cycle that is not only tiring, but pretty stressful. Somehow, the kid has managed to stay on the Honour Roll throughout school. No small feat.

I have no doubt in my head that she’ll go to University, she’s just not going in September 2011. As it turns out, neither of my daughters will be a full-time student in September 2011.

They’ll both be able to work and pack away some cash and prepare for the admission cycle next spring.

Meanwhile, I’ve had a conversation with my ex-husband. He actually would prefer to send the child support anyway because he knows that it actually goes to good use. His wife (whom I adore) is of course counting the pennies they’ll be saving in their own house. I would do the same. I’ve promised him I’m not going to create a situation.

He did, however, inform me that their benefits plan has changed at work. He’s under an impression that our daughter will be covered until she’s 22, whether she’s a student or not. I’m still waiting for word on this. If that’s the case, we’ll all exhale a bit.

Meanwhile, I’ve gone on the chopping block and I’ve found about $6K through expense reduction and a request for more income.

  • $963 saved through downgrading cable, and getting other discounts from Rogers
  • $110 saved on cancelling one more service from Rogers that I used rarely
  • $132 saved by giving the youngest her own cell phone bill to pay (starting July)
  • $1,360 saved by letting the housekeeper go (insert sad face here)
  • $2,220 saved by cancelling my disability insurance (and crossing my fingers)
  • potential $1,300 in extra earnings by taking on one more shift per week with my part-time job (requested, not confirmed)

Meanwhile, there are things I have not compromised. I have continued with my plan to increase my RRSP contributions (starting June) and I am still planning to take the girls on a Disney vacation this year (through savings).

I’ll await the word on the drug plan with my ex’s employer. If he’s right, it means I’ve already re-balanced the budget. If he’s wrong, we’ll just have to roll with it and come up with a few more strategies. I have to remind myself, we’re still way better off than many.

Mortgage decision made: Scotia keeps my business

Despite the fog and rain in Toronto on the weekend, the fog in my head has cleared over my mortgage options.

I’m going to give Scotia a call this morning and let them know they can keep me, but I’ll be making some changes.

Here’s the low-down:

  • Break my smaller mortgage from 4.15% to 2.15% variable (for 5 year term)
  • Use up the equity they’ll give me to drag $33k of my unsecured LoC (mortgage debt – not consumer debt) into the new traditional mortgage product (reducing the interest rate from 5.5% variable to 2.15% variable
  • Reduce the interest rate on the small balance that will remain in the unsecured LoC from 5.5% to 4.5%

There were too many issues swirling in my head when this whole scenario arose. Now I’ve had a chance to deal with each issue one by one.

I was torn about whether or not to sell the house and try and downsize a bit. I’ve decided to stick it out here.

I was delusional about living some simpler life somehow. I can do this, but not right now. So I’ll carry on.

In the near future, I saw a $15K gap in my expenses/revenue that I hadn’t prepared for, and I went into panic mode a bit. (More on that in future posts).

While CIBC did tempt me with their offer (both the cashback offer as well as streamlining my banking to one branch which helps simplify my life), it’s not the best offer financially.

In the end, I’m glad I didn’t rush this decision. I really wasn’t thinking straight for a while there. (I’m not sure I am now, but at least this option seems clear).

Thanks to all of you for listening to me wax on about it. Now it’s time to get on with it!

One phone call, almost one thousand dollars saved.

Before my realization yesterday that I’d have a $15K hole in my budget, I decided to cut the cable in our house.

After we all had a long day on the weekend, the girls and I plunked ourselves on the sofa to watch some TV. Imagine our disappointment when there was nothing on.

Disappointed? Yes.

Surprised? Not at all. It seems this happens a lot, and we even have a PVR.

Sitting on the couch, I moaned about the price of cable, and my general lack of time. For the umpteenth time I crabbed “I’m cancelling our cable”. For the first time, I was met with two variations of “go right ahead”. There was a time last year when I struggled with this decision. Last year when I called Rogers, they reduced my rate a smidgen, but not a lot. Up until Monday, I was still paying $62 (including taxes) a month to watch bad tv. That’s more than $700 a year. A serious bit of coin in my books.

There are two TVs in our home. The one in the family room is a proper, 15-year-old Sony Trinitron. It’s the one that’s hooked up to cable. In my bedroom I have a $9.95 bargain from the thrift store, that’s not hooked up to cable, but my rabbit ears pick up CBC, CTV, CityTV and Global. Enough channels to lull me off to sleep when I’m laying in bed.

To ride the wave of my daughters discontent with TV, I called Rogers on Monday. When you call and tell them you want to cancel anything and they transfer you to their customer retention center. As soon as I told the nice lady I wanted to just cancel cable, she offered me basic cable at $18.98 (15.99 for basic cable, 2.99 digital service).

Although that was nice of her, I did complain a bit that I have to call and threaten to cancel for them to roll out their customer red carpet for me. “Why is that?” I asked. “We’re working on being more proactive to our customers in the future” she promised. I let her know that I was still frustrated. After a quick calculation, I said “even if Rogers hands me a $100 penalty for cancelling, I’d still save $600 a year by saying no to your offer”. It took her a minute, but she caught up with my math.

I politely grumbled a bit more…reminded her what my total bill was to Rogers, as a subscriber to just about every service they offer. Her lightbulb went off.

“If I could save you money on some of your other services, would you reconsider basic cable?” she asked. Naturally, she piqued my interest.

She went on to offer $10/month off my home phone, and a 30% discount ($15.30/month) off my internet service and modem rental. After some more speedy math at my end, I knew the whole deal would save me more than $800 a year. Guess who has basic cable now?  🙂

How do the savings shake down:

  • $183.60 per year saved on internet services and modem rental
  • $120 per year saved on home phone services
  • $548.76 per year saved on Cable TV
  • $110.80 saved on HST on all of the above…for a total savings of $963.16

The only frustrating part:  I didn’t call them sooner and tell them I wanted to cancel.

I would imagine that CableTV is a declining revenue source for Rogers. Customers with only one service with Rogers can watch Rogers Cable online. There are more and more affordable gadgets to allow me to show my computer screen on my TV. Why not do more of that?

The nice lady at Rogers customer retention did mention one thing that may concern some folks. She said that by August, the CRTC will make it impossible for folks like me to pick up local channels with their rabbit ears, without also paying for cable. I’m not sure if that’s true or not, but it’d be a shame for those who rely on those local channels and really can’t pay for basic cable.

In the days ahead, you’ll hear more about what I’ve cut from our budget and how the savings will help me shore up the gap in my new $15k deficit.

New ingredient to the mortgage stew

Despite my thinking I’d assessed all my options, I have a new ingredient for the mortgage stew.

When I dropped into my local CIBC branch on Friday to do some day-to-day banking, my friendly branch manager nabbed me to go over her numbers regarding my mortgage. I indulged her, even though I had already run the numbers myself.

She was working with a different set of numbers.  Here’s the wrinkle:

If CIBC takes on a new mortgage that is $400K, the cashback offer is 3%, rather than 2%. As you might imagine I said “well, my mortgage isn’t 400K, and the cashback offer is a bit of smoke and mirrors to me right now.”  She asked me to indulge her, and since she’s a nice lady, I did.

She added up my existing mortgage, and of course, there’d be the penalties to Scotiabank. Then there was a bit left over. She said “do you have any work that you need to do around the house?”

Gee, the house built in 1923…is there work to do? Heck yeah.

Then I told her I really didn’t want to see a $400K mortgage. She told me the $12,000 in cashback could go right back on the principle, leaving me with a $388K mortgage, which is about $17K more than it is right now. IF I moved it from Scotia, the penalties would be added to my mortgage principle, so the extra 17K is partly penalty, and partly just extra that might be used for some home repairs.

Then she started showing me the math on a 25 year amoritization. Again I slumped in my chair. “What’s wrong?” she asked. “I don’t want to be paying off this mortgage in my 80s” I answered.

She reminded me of a trick that I had used once in the past and had forgotten. The trick is to take out a longer amoritization than you may want, but boost your payments up to the dollar amount that you can tolerate. This way, in the event that something happens to your income (job change, illness, etc) you don’t have to break your mortgage to go back to a lower payment. In theory, you could take a 25 year amoritization and pay it down like it’s a 15 year amoritization. I suspect that many people may think they’ll do this, but they take the long road to pay it down anyway.

So, on $388K over 25 years at 2.5% on a 5 year term, I’d pay $133,141K in interest over the life of the mortgage. That’s if I never paid an extra penny over the required amount. (Not gonna happen).

If I took that same mortgage and treated it like a 15 year amoritization, I’d only pay $77K in interest over the life of the mortgage. That’s almost cut in half. Scary stuff.  If I treated it like a 12 year amoritization, the interest would be just shy of $61K. That’s likely too aggressive for me to pay, but perhaps 13 or 14 years might be doable.

To answer my branch manager’s question – yes, there are things to do around the house. My front steps are crumbling more each day. This was already on the books as a 2011 home repair. Where is the money to come from? I have no idea. I’ve already paid $1600 for eavestrough an facia repair and squirrel eviction. The trouble is, I see the squirrel is back, and she has babies. I’m not happy, but I still have to get them out. Yes, there’s a big hole in my new facia. Do they sell chainsaws to squirrels?

Finally, the brick on my home needs repointing. If not this year, then certainly next year. Next year my driveway needs to be dug up and replaced, and the side of the house needs waterproofing. These aren’t the “nice to haves”, these are the “must maintain the home” things. It’d be nice to have properly sealed windows on my upper level too, but frankly, these can wait for a while.

So, I’m pondering the offer of the CIBC again. I do worry about a job change or a change in my income. After all, I’m the only one bringing home the bacon, and I have nobody to back me up on this stuff. I also worry that I’m tired, I mean really tired, and I have daily fantasies about my retirement.

There was a point in my life when I was thinking about advancing my career, being upwardly mobile, rocking the office. Now, I’m trying to find the path of least resistance. I wish I could see the way clearly. Sometimes I just wish I could moan about it to somebody else and have that somebody else present some options I could bat around.

All this turmoil over a mortgage. The only think I know for sure is this: I’m not rushing this decision, I’ll wait until I’m really sure about the path, and then I’ll take it.

Mortgage Math: very INTERESTing…

Since last week, the CIBC and Scotiabank have been waging a polite battle over my home mortgage. Since that initial inquiry from CIBC, I’ve had a few telephone conversations with both banks.  Scotia has now elevated my inquiries to the branch manager level too. Oh what fun!

As I reported yesterday, my mortgage is really comprised of three distinct banking products. Because that’s the case, it makes the analysis of my options a little more complicated. At least a gal who graduated from art school thinks it’s complicated!

Here’s the status quo (all at Scotiabank):

  • product 1: mortgage of $223,545 at 2.15% variable
  • product 2: mortgage of $107,566 at 4.16% fixed
  • product 3: unsecured line of credit, $39,749 at 5.5% variable (Prime plus 2.5%)

For the record, all the math I’ve done is considering that interest rates will remain stable (which I know will never happen), and I’m not presuming any additional lump sum payments. So, where the rate is variable, I must consider there will be a shift over time. There are also issues of cashback offers and penalties, which are not part of my intial assessment. I’m looking big picture, rather than short term pain/gain.

Here are three options:

  1. Do nothing:  If I continue with all my current products and change nothing, I estimate a total interest payment to the bank of $94,590 over the remaining life of my mortgage, which will be about 12 years for loan 1, 20 years for loan 2 and 11 years for loan 3. Can you say ouch? My annual mortgage payments are estimated at $33,360, with an average monthly bill of about $2780.00
  2. Move it all to CIBC: With their offer of 2.5% (variable, prime minus .5%, calculated monthly), I’d be looking at a total interest payment of $74,111 over 15 years. Better than $94K for sure. This would see the whole thing paid off in 15 years, or when I’m 62. My annual mortgage payments are estimated at $29,540 with an average monthly bill of $2,462. Cheaper to carry monthly, and I save 20K over the status quo.
  3. Take Scotia’s new offer: Scotia is suggesting we keep loan 1 as is. It’s hard to touch 2.15% and that’s my biggest loan. They’re further suggesting to break loan 2 (penalty to be discussed later) and start a new one at 2.2% (variable, prime minus .8%, calculated semi-annually). In addition to breaking loan 2, they’re also suggesting that we take the maximum that my equity will allow out of loan 3, and merge it with loan 2. That amount would be 33K. Therefore, loan 3 would be reduced to about 6K, and loan 2 would be increased to about $140,566K. In addition, they’re seeing an improvement in my credit rating, and I’ve gone to the top of their class. Therefore, they’re proposing a reduction in the interest for loan 3 at 4.5%. See, I told you it was complicated!

SO, with loan 1 as is, loan 2 boosted by 33K but dropped to 2.2%, and loan 3 with a much reduced principle and reduced interest rate, I’d be paying a total of $55,681 in interest over the life of the mortgage. Loan 3 would be gone in 32 months, loan 1 would be gone in 12 years, and loan 2 would be paid out in 15 years. The biggest chunk of my mortgage would be paid when I’m 60, and I’d have a smaller amount to deal with until I’m 63.

With Scotia’s new offer, I’d be paying $34,100 annually toward my mortgage, for an average monthly payment of about $2841.00.

If somebody came up to me and said “Hey Tracy, let’s do a bit of paperwork now, and give me about $150 more per month, and I’ll give you 40K when you’re in your 60s, I’d really be tempted.

Although I’ve done these types of calculations many times before, I’m always amazed at how interest adds up over the life of a mortgage. In the short term, there’s not a huge differential, but when you look at interest over the life of an amortization – man, that’s powerful motivation.

I can give a bank $94,590 if I do nothing (my status quo), or I can move banks and save 20K by paying $74,111 in interest (move to CIBC), or I can allow the bank that has my business now to negotiate a better deal, and pay out an estimated $55,681 in interest (negotiate with Scotia).

Scotia has also offered me a 3 year term at 2.99% fixed for Loan 2, which I didn’t fully elaborate on above. Over the next few days, I’ll weigh in on the cost of carrying these options, and the penalties and perks that are being offered. I haven’t made the decision yet, but there’s one thing I know for sure – I’ll be saving some money between now and 62  🙂

Oh finally, thanks to the calculator here, it helped a lot!

What am I teaching my kids about money?

There must be a dozen times every week when I wonder what message my kids are picking up about money management.

Not only do I wonder, I worry a bit about it too.

For most of their lives they pretty much had whatever they wanted. Then, once they started living with a single parent (either me or their Dad), suddenly things changed a bit. I’d have to say that they still have pretty much anything they wanted, but what they don’t have is instant gratification.

Since January 2010 I’ve been pretty consistent with money management, and I’ve totally brought them both on board with our finances and enlisted their support in our journey. As a family, we’ve come a long way.

There are times when they must think I’m inconsistent with my message and my actions. I do worry if I’m sending them mixed messages, or if they’re picking up on the importance of values. For instance, when it’s somebody’s birthday, I love to find a nice restaurant to go to, and we have whatever the heck we want. This isn’t how we normally live. If we dine out somewhere, we typically try to find someplace that’s inexpensive, casual and serves up food that won’t make us feel gross an hour after we leave. If it’s a birthday dinner, we get dressed up, we might take a cab there, and we just forget about how the bill tallies up entirely. I’ve never regretted a dollar spent on a birthday dinner.

Earlier this week, we also encountered my old friend “health care spending”. I suspect that I spend more in this area than most do, but my costs are decreasing now that both girls are (mostly) covered by a benefit package. Still, I would not blink an eye if I had to shell out for any amount of money that meant my children would benefit from a drug, a treatment or something that aided in a diagnosis of an ailment. I’ll walk an extra four blocks to save $1 on a bag of milk, but I wouldn’t hesitate to give the medical lab $175 for blood tests. Do the kids find this confusing?

Sometimes I think I see the wheels turning in their heads and they’re asking themselves “who are you and what’d you do with our Mother?

My youngest will be heading off to her final prom this spring. For me the same deal applies – it’s a very special occasion, you get to be princess for an evening. (Unlike some, however, for me that does not mean limo’s or nights in a hotel, etc).

In the year ahead, I need to focus on making more of a point on being clear about values, and how spending should reflect that. I value my children and their health and well-being, that’s where a lot of spending will go. I also value living in a safe and central neighbourhood, I’m paying for that privilege.

Still, in the last few months, I’ve found the “it’s only money” mantra creeping back into my psyche. That certainly doesn’t reflect my personal values, and I have to reel that in – and fast!

Health Care confusion

Over the last week or so, daughter number 1 hasn’t been herself. Actually neither has the youngest to be honest.

My eldest daughter’s illness has taught me a few new things about the red tape around health care, at least here in my neighbourhood. When she started feeling poorly, of course we called our family doctor to make an appointment. He was booked fully during the week we called, so we had to book an appointment for the following week.  Normally this seems acceptable, but when you work shifts, and you don’t know when you’re schedule is, it’s a pretty big gamble if you’ll actually be available when your appointment is booked.

The next gamble is requesting either a morning or an afternoon off at work for the appointment and have it actually stick when the schedule is posted. I’m happy she’s working, but I do think the management at her store could pay a bit more attention to the needs of employees. I digress.

By the time we called for a reschedule, our family doctor was heading off on two week’s vacation. However, due to their office policies, you can only book an appointment for up to five days in advance, so there was no option to book an appointment for his return. (Funny, that policy didn’t seem to apply to them when they book you into the following week, it only applies to patients calling in requesting appointments further in advance).

In the interim, my daughter’s health took bit of a turn, so I took her to our walk in clinic. The clinic doctor, a lovely woman, ordered some blood tests to screen for a few things, including an underactive thyroid, and to check her iron levels. (She has very low iron, but it’s improving – this is one of her symptoms).When we started discussing the potential of celiac disease, the clinic doctor mentioned that family doctor’s can’t order a test for that.

After she spoke about a few other options, I asked her “did you say a family doctor can’t order the tests for celiac?” and she confirmed that I heard her right. “Who does then?”, I asked. Apparently only a Gastro-Intestine specialist can order it, and have OHIP cover it.

Naturally this triggered the Mom-rant. My daughter would have to wait for our family doctor to return, then make an appointment: add 10 days. Then she would have to be referred to a GI specialist and get an appointment to see them: add any number of days, could be 60, could be 90, could be 7. Then she could get a stupid test, meanwhile her health continues to deterioriate?

The clinic doctor again confirmed my assumptions. She then added, “for some reason, if I order it, OHIP doesn’t cover it, if a GI orders it, it’s free.” My lightbulb went off.

I asked “is the only thing standing between my daughter and a blood test for celiac today my visa card?” and she said “yes.” Of course I said “order it today.”

This brief encounter over a few hours with our Medical Center reminded me of how easy it is for a person to fall between the cracks, or at least, to think they’re going mad. Take a young adult, who isn’t herself, and is already feeling disoriented and confused. Then tell her the clinic doctor can’t test her for something, and suggest she wait for any number of days/months before she can be tested. In other words, suck it up buttercup, we have rules. Wouldn’t it have been better to say “we can do this and this test, but there’s a fee, or if you wish, you can wait to be referred to a GI.”

Thankfully, we’ve heard back from the clinic and her thyroid is fine, and her iron, while still too low, is improving over her last test. The celiac test will be outstanding for another week, we knew that in advance.  As my daughter was finishing hearing the results by phone with the clinic doctor’s office, they said “I’ll transfer you to your family doctor so you can make a follow-up appointment.”

That’d be nice, but it’s still not five days away from his return to the office. We’ll call back later.