Learning to distinguish an RRSP from a TFSA at the advanced age of 35


I feel under a lot of pressure right now.

To accomplish more in the same amount of time at my job-job.

To clock more billable hours as a freelancer.

To volunteer in class on a weekly basis in my children’s school.

To put aside as much money as I can a month, and not let impatience for an immediate improvement in my living environment lead me astray, i.e., to IKEA for a quick fix, when what I really want is money in the bank for a down payment, not a new accent pillow to temporarily brighten up the living room.

To continue to practice my newfound financial discipline, but to not be too hard on myself when I make mistakes. This week, I paid in cash for a new bed, not realizing that I had broken one of my newly adopted rules: keep the exorbitant $3500 minimum required by TD Canada Trust to avoid incurring bank fees. For a few short harried hours last Sunday, my account fell $50 below the critical amount. Will I have to pay the fees? I’ve contacted the bank, but it remains to be seen just how hard of a line they are going to draw.

Basically, in the last year, I became more ambitious. I realized that I needed to focus more on my career and learn how to manage my money. But balancing these goals with parenting is occasionally exhausting.

I have been fantasizing about meeting with a career coach, someone who could help me sort out my priorities, so that I can keep them clearly in mind, when things get hectic, as when one child needs a lift to hockey; the other, to figure skating; and, there’s that potential client, waiting for a quote.

You know how they say that you don’t really learn things until you’ve experienced them for yourself. I’ve read a million articles on how how hard it is for mothers of school-aged children to achieve a work-life balance. But it’s as though I’m only just discovering how true this is by striving for it myself. All words of wisdom, welcome.


How I learned to manage my cash flow

One of the main reasons I got into financial trouble in the first place is that as a freelancer I had a variable income that I didn’t know how to manage. I would think of money as mine as soon as my work on any given project was completed. But sometimes the cheque wouldn’t come for six, eight, ten weeks. Sometimes the cheque wouldn’t come for years, as in the case of one rather major client who unfortunately declared bankruptcy after having hired me for four weeks straight.  An entire month!

I got into the bad habit of happily, naively borrowing from my line of credit for the amount coming to me, secure in the knowledge that I was “owed” money, even if I didn’t quite have it in my possession yet.

This is a very backwards way of doing things.

In other words, don’t try it at home!

Since taking control of my finances, one of my goals has been to learn how to successfully manage my cash flow.

Here are some tips that have helped me so far.

  1. Declare a temporary moratorium on all non-essential spending. This will re-set your financial clock.
  2. Don’t buy anything until you have the cash in hand.
  3. Figure out how much money you need to make, and try to make it. Freelancers often struggle with how much to ask for as pay. This is a good way of figuring it out! What do you need to live and how many hours are there in a day?
  4. Offer incentives to clients who pay early.
  5. Ask for a deposit on large contracts.
  6. Remember that it is possible to pay for some expenses such as insurance or gym membership in instalments, even if this option isn’t advertised. For example, I have a year-long membership at a yoga studio, which translates into the lowest possible amount per month. It’s advertised as being payable  in one lump sum, but I pay for it in monthly instalments. When I renewed recently, the person at the cash couldn’t believe what a good deal I was getting, comparably. Sometimes all you have to do is ask!
What tips have helped you get a handle on your cash flow, freelancers or not?

What a difference a year makes

On Monday, October 4, 2010, I woke up and wrote in my journal:

The other day, in a particularly frugal mood, I decided not to buy Tylenol, even though I needed it, even though I was at the drugstore – a choice I am regretting now after a night of muscle-clenched, tension-filled sleep.

Why was I so tense? Because I was still $2100 in consumer debt, and I didn’t think that I’d be able to see my way out of it before Christmas, in spite of earning more money, spending less, and taking other more extreme measures, such as selling things.

That weekend, my husband A. had sold a stack of our old books for $40. I had tried and failed to sell a $100 Olympic gold coin (I did get one offer: for $80!). I had started to price out our silverware in the hopes of selling it on eBay.

I was impatient. And feeling a little desperate.

On Friday of the same week, I woke up early, after a night of insomnia, checking, as had become my habit, our bank account online. There was an unexpected $3000 in the account. Where had it come from? I was freaked out and worried that this money was not ours, that we would have to pay it back ASAP!

But, it was A’s, a ‘top up’ for his grant. Apparently, he found out about it in June, as did I. But when I think about it, neither of us, in June, understood what his bi-weekly pay was, with or without the ‘top up,’ which explains a lot of our surprise.

After a sleepless night spent reading articles on how to become debt free, I was suddenly, magically there, and then some – with money in the bank and more on its way.

To celebrate, we went out for coffee after dropping the children off at school, and we made plans to go for lunch as well. We paid for our coffees in small change. That was another strategy that we were big on then: we’d found $80 in coins lying around the apartment and were determined to use them.

But going for coffee came with another price: it made us late for our appointment with the counselor who had first urged us to come up with a financial plan.

I urged A. to try the pay parking in the back of the medical building. Big mistake. $13! For two hours. And you have to give them your keys. And A. lost his ticket. After the appointment, we had to wrangle the car keys out of the parking lot attendants. I showed them my keys, my license and my driver’s registration. It got kind of yucky. We didn’t feel very much like having lunch afterwards, but we were determined to do so, after all, we were debt free.

We felt grumpy and bummed about the parking, which aggravated the situation when A. was stopped by the police for making an illegal left turn on our way to our celebratory lunch at the restaurant. Yikes. $154 later, we decided to just go home.

The rest of the day, we felt very glum and sorry for ourselves indeed.

In fact, I don’t think I began to see the humour of the situation until this year.

Now, I like to think that there is a moral to this story, actually, maybe two.

  1. We have to celebrate each step as we take it, and not get too ahead of ourselves.
  2. Being debt-free isn’t quite enough. You also need to have money in the back to fall back on “for those times when you get stopped by the police,” as we like to say in our household, meaning for that bad stuff that you can’t always control for.

Feeling richer, looking poorer

Last winter, we switched to the jar system, allotting $60 a week in “entertainment” for our family of four. For the most part, we thought carefully about how to spend this money: at the movies? on a sitter? on a pizza and a bottle of wine? I didn’t carry it on me.

But sometimes, on my day off, a friend would ask me out to coffee after we’d dropped our children off at school. On such occasions, I’d find myself in the awkward position of having no money in my wallet, not even a loonie.

“I’d like to join you,” I’d say. “But I don’t have any cash on me.”

At which point, my friend would always offer to pay. In fact, she started to make a point of it. Coffee would be be on her, she’d assure me.

Slowly, I clued in to what was going on. She was interpreting my not having any money on me as my not having any money at all, when actually, quite the opposite was true.

The less money I carried on me, the more I started to accumulate in my bank account.

The fewer outfits I bought, the richer I was.

The less I ate out, the more I had.

I explained myself to my friend, but also started carrying a couple of bucks on me. Because I don’t want to miss out on coffee dates. Or be a mooch!

Horse-hair plaster and other arguments against renting

The other night, a well meaning friend tried to discourage me from even thinking about ever buying a home.

I don’t live in one of the Canadian cities with the toughest real estate markets (Toronto or Vancouver), but I do live in Montreal, where, according to a recent MoneySense article, homes rate D for value.

This is particularly true for us. We live in a downtown neighbourhood, Mile End, were it’s not uncommon for a family of four to spend well upwards of $300,000 for a 100-year-old apartment, with only 2 bedrooms and 1 bathroom, in need of urgent repairs.

After 17 years in the ‘hood, my husband and I find ourselves in the uncomfortable position of being renters who have been out-trended by the neighbourhood.

So move, you say.

But we are rooted here. Our children, 7 and 10, are in school. Their friends are nearby. Not to mention our own.

When my daughter first started walking to the store on her own, I knew that a whole set of neighbourhood eyes was watching her, checking to make sure that she looked both ways before crossing the street.

And I’m not sure where we would go.

It occurs to me, as I contemplate real estate, that I’m not so much a Montrealer as a Mile Ender. I feel at home here.

But the apartment where I have lived for the past decade is falling apart. The plaster walls are cracking to reveal the horse-hair binding used a century ago. This is a health as well as an aesthetic problem, since my husband is so allergic to horses that he can’t even set foot into Old Montreal, where carriage rides are one of the main attractions. The only solution, we are told, is to gut the apartment. But this is not something that we can instigate as tenants.

Water has leaked from the upstairs neighbour’s into our bathroom, leaving an ugly black mark and a recurring case of mildew.

A month ago, I woke up in the middle of the night to an unwanted present from my cat: a live mouse deposited on my leg.

Worse yet, one of our windows is broken. Our landlord has assured us that a replacement has been ordered, but that is has to be custom made, and, therefore, will take time. Until then, he has taken the astonishing measure of stuffing a sock in the window to protect us from the elements. A sock in the window? Ack!

For me, home ownership means a degree of control, the ability to phone up the window company myself, to negotiate repairs to the bathroom wall, to follow up on the inside and outside on the mice issue.

The question is not, should I buy a home, but how will I get there?

How PearBudget saved my marriage

My husband and I hadn’t been getting along, so we went to see a marriage counsellor, who drafted a list of 60 things we needed to work on to improve our relationship.

“How about we begin with finances,” he said. “It seems to be a thorny issue for you two.”

Our first “homework assignment”: make a family budget.

A budget? As far as I was concerned, this was an extremely frightening word that my husband sometimes threatened me with. I saw it as a reining-in, a limitation. And I didn’t have the least idea how to go about making one.

I turned to a friend, in the early stages of the divorce process, a process I myself was hoping to avoid. She’d had to make a budget for mediation, to arrive at a fair number for child support. She recommended using a budgeting website, PearBudget, for people who were afraid of budgeting. She described it as a “budgeting software for people who don’t do Excel.”

At first, I didn’t know what to enter into the budget. I really had no idea of how much money we made, or how we spent it. So I erred on the side of caution and tracked every single expense for the first few months. I even had a category for phones calls from phone booths (expected monthly expense, $0.50).

Then something magical happened. Just by virtue of entering our everyday expenditures into a website, our expenses started to go down. We realized that we did not want to spend $150 a month on alcohol. Or $300 a month on take-out. We started to think in terms of percentages: if I spend all of my disposable income (and then some) on food and drink, what kind of person does that make me? For the first time in years, my husband and I were talking about our values, about where we were heading, about where we wanted to go. Our budget was bringing us closer together.

Suddenly, money – the topic that had been the biggest taboo in our relationship – was the framework on which all new plans were based. Whereas before we had fatalistically assumed that we could never afford new clothes, or a vacation, or a new house, we were now thinking about what steps we would have to take to get what we want. It was revolutionary. It got to the point where talking about money was not only stress-free, it was also fun.

We enjoyed coming up with a strategy to the the $6,000 we owed to family and credit cards. We enjoyed coming up with less expensive ways to have fun. We enjoyed switching to a jar system for groceries, transportation, etc. We felt like a team again, but for this time, with RRSPs, TFSAs and an RESP firmly in place.

As for marriage counselling, we never did get to those 59 other points on the list. Number one had taken us further than either of us had every expected. Just over a year later, we are debt free and our net worth has increased by more than $40,000.