credit – Don't Eat Cat Food in Your Old Age

For all the single-again ladies

A friend recently left a 30-year marriage and came back to Canada after following her spouse to the US and raising their children there. They’re sorting out who gets what and to cover the gaps in between, she applied for a credit card in her own name.

She went to the bank she’s been with for decades, the one that holds her retirement savings, the one that held the two mortgages she paid off with her spouse. The bank rejected her. Now that she’s single, she doesn’t meet their minimum income requirements. Her years in the States mean she doesn’t have a Canadian credit rating.

Ouch.

Now, she’s sorting it all out, but going through a divorce is hard enough without unnecessary financial strain. You’re already resorting your identity – you may not have realized how much your financial identity will change too. (Note to self: write future blog on banks’ archaic paternalistic ways.)

But just as money is a common cause of arguments for couples, financial insecurity is a big fear for single-again women. It’s especially hard when you have children to provide for.

While you’re dealing with the emotional fallout, you have to sort out the practicalities – where are you going to live? What are you going to live on? What will your future look like? Images of cardboard boxes and tins of cat food may flash before your eyes.

No one stands at the altar thinking, “Is this the man I want my children to visit every other weekend?” There was a time women married their pension plans. But not anymore. Having your own bank account, credit card and credit history of your own are essential to establishing your financial identity. You don’t want to need a co-signer when you’re a grown-ass woman. (Also, holler to Virginia Woolf’s A Room of One’s Own.)

There’s too much to cover on this topic in just one blog post, but I will offer two divorce-specific tidbits. One, Canada doesn’t have alimony, we have spousal support, and it’s designed to help you get back on your feet, not live in comfort the rest of your life. (Child support is set according to the spouses’ incomes, so it’s less negotiable.)

Two, you can apply to share CPP credits for the time you were together, which means you may receive more when you’re retired. Future you will thank current you for doing the paperwork. Remember, the goal is – say it with me now – Don’t eat cat food in your old age!

Regardless of your relationship status, having a solid financial foundation can only be a good thing. Like I always say, diamonds are nice, but a girl’s best friends are really contraception, compound interest and a good credit rating.

Don’t worry, there are many good wines that are still affordable. So crank up “I Will Survive” or “I’m Still Standing,” and cheers to single-again you!

What’s the difference between overdraft and a line of credit?

A question came up in conversation recently about the difference between overdraft and a line of credit. If you’re not sure, I hope this is helpful.

Overdraft protection covers you if you have too much money coming out of your account. Say too many bills go through all at once and your account dips below zero. The overdraft will cover you until you can top it back up. That way no cheques bounce and you save the non-sufficient funds charges (and all that hassle!). Sometimes banks charge fees, interest or both. You have to set it up with your bank first though, it’s not automatic.

A line of credit is borrowing money from a pre-authorized credit account. It’s like a credit card that is just there like a bank account. You can dip into it when you need to. Usually it has good interest rates (low), like prime plus one.

What’s prime all about? The prime rate is set by the Bank of Canada. Banks have money flowing in and out just like your account does, and to tide them over until their thousands of accounts settle every day, the Bank of Canada loans them money at a set interest rate — the prime rate. Banks usually use that rate as a guideline and add extra to it when they loan out money — that extra is profit.

What rate you get depends on your bank, your negotiating skills and your credit rating (or credit score). Every time you use credit, you’re building your rating – the information gets filed automatically. If you’re renting an apartment, arranging a mortgage on a house or applying for a credit card, all those companies are going to check your credit rating to see if they can trust that you’re going to pay them on time.

It’s a good idea to check your rating every now and then, because mistakes can cost you. Check it for free at Equifax or TransUnion. A bad credit score means you’re going to pay more interest, because the company loaning you money is taking a chance on you and they want to be compensated to make it worth their while.

Talk to your bank about what they offer and how overdraft or a line of credit would work for you. Of course, if you have issues with overspending you might need one (overdraft) more than the other (another credit source!).

Don’t let the bank talk you into more credit than you need either. That’s like getting the meal deal for only a little bit more, which is tempting, but you know the fries and cola aren’t good for you.

(Note to self for future blog topic — how a budget is like a diet.)

So there you have it, some basic definitions of a couple common financial tools. If you have any suggestions for other explanations you’d like to see, please let me know in the comments.

Happy money-ing!

Other people’s money

(Part 2, the sequel to Netflix and chill – and spend)

When last we saw our plucky hero, a colleague was commenting “You’re a single woman, you don’t have kids, you have lots of money – why don’t you have Netflix? It’s only $10 a month.”

Thus enough content for two blog posts was born. I pulled out my trusty soap box and got started.

soap box

From the outside looking in you have no clue about a person’s financial well-being. In fact, being single is more expensive than being married in so many ways there’s a term for it – we pay the single supplement. Plus there’s the lack of a safety net. (I’m paying 80% of the expenses I had when I was married but with 40% of the income.)

You cannot – CANNOT – tell from appearances what anyone’s financial situation is. You think everyone is doing better than you? Show me the proof, the cold hard numbers. Debt, stress, overspending, living beyond your means – we know they’re big problems in North America. The man with the flashy car and the huge house? The woman who drives a 10-year-old car and patches her clothes? You. Don’t. Know.

When the economy collapsed in 2008/2009, it revealed just how many of us were building our lifestyles on credit and debt. A decade later, the level of consumer debt for Canadians is climbing – an average of $22,837 per person, not including mortgages. That makes us vulnerable.

As The Millionaire Next Door discovered, it’s not the outward displays of wealth that mean you’re rich. People with higher incomes tend to spend more on status symbols, feeling the need to keep up appearances. There’s a difference between income and net worth. Unless you know the intimate details of someone’s financials, you can’t tell what’s really going on behind closed doors.

So stop judging. Stop comparing. Do the best you can, make the best choices, for you.

I’ve heard a lot of “oh it must be nice” and “you’re so lucky” from people who see the trips, the condo, the concerts, but apparently they don’t see the extra time I put into working, the savings I work hard to accumulate or the energy I put into learning so I can make better financial decisions. Plus there’s the whole greener-on-the-other-side thing. Why do I have to justify myself just to make you feel better about your own choices?

Answer is, I don’t.

Jughead and Betty would understand. They’re waiting for me in season two, which I’ll eventually watch – with or without Netflix.

In the news

Here’s a quick roundup of a few interesting things.

US Banks Finally Getting Sued for the Great Recession Crash

Remember back in 2008/2009 when the US banks lent people money to buy homes they couldn’t afford, then raised interest rates and foreclosed? Miami nearly went bankrupt — if people lose their homes they’re not paying property taxes. But no one went to jail because for years before the crisis the banks and other financial institutions changed the rules in their favour (deregulation). Now Miami is trying to sue the banks. This will be interesting. Read all about it in the Washington Post

Canadian Banks Overcharging Customers

Meanwhile here in Canada the big banks are turning themselves in, admitting they overcharge customers and paying them back. Here’s the key point in this article – it is just too hard for average people to figure out what’s going on with their money. Most of our financial information comes from people trying to sell us something, which makes unbiased decisions much more difficult. Read all about it on CBC

Hillary & Donald: It’s Almost Over

Finally, is anyone else out there waiting to see if election anxiety affects the markets? When people get nervous they start pulling their money out by selling off their stocks, which sends prices lower. That’s what I love about the whole financial and economic scene – it’s not about numbers, it’s about people, and whether they have hope or fear for the future. I won’t direct you to any article about the American election though; I think we’ve all had enough over the past 18 months.

Credit is like Spandex

Yesterday was tax day for me and I have mixed feelings. Usually I’m happy about paying taxes. I know, I know, I’m weird — but I’ve benefited from what my taxes pay for and I’m grateful. It’s also a great indication of how much money I’ve made.

Thanks to installment payments and lower income, I didn’t have to pay much for 2015. I’m trying to remember how stressed I was in 2014 when I was working seven days a week and a Big Personal Event happened that left me scrambling to find the time. Sure I made a lot more money, but it left me thinking about the whole work/life balance thing.

Oh, I’m self-employed, by the way. A lot of people think you have more free time when you work for yourself (as though you’re retired), but most self-employed people I know actually have less, because you’re working all the time.

I went to the bank to make the tax payments (I’m rather fond of the big PAID stamp they have) and while I was there I spoke to an advisor. I mentioned my next big project is saving up for an investment/income property. He told me that with my equity and good credit I wouldn’t need to save up, I could finance the whole thing through the bank. All I have to do is go in when I’m ready and they’ll pre-approve me.

Fully financing a second mortgage through a bank? Too Big to Fail started flashing through my brain. Credit is good, when used appropriately. But sometimes credit is like Spandex.

Just because you can get it, doesn’t mean you should use it.