How Not To Move Back In With Your Parents - Book Review and Giveaway

Rob Carrick of the Globe and Mail is one of my favourite finance writers. Back in March, he had the audacity to release his latest book, How Not To Move Back In With Your Parents, during income tax season. As such, I wasn’t able to read the book until recently, but, as they say, better late than never. Rob has been kind enough to provide me with two copies to give away to readers (see the details at the end of this post).

The book is promoted on Rob's website as a book that speaks not only to late teens and 20/30-somethings, but also to their parents. Rob states “There’s a lot parents can do to help their kids develop good financial habits, and to strategically assist them as they graduate, move into the workforce and start a family”.

As a father of a 22 and 20 year old, I was intrigued by the book’s premise.
I just finished reading the book and quite enjoyed it. Rob is blunt (a trait I certainly admire) and I really appreciate his no-nonsense, give it to them straight-up approach in providing advice to both parents and their children. While his approach would seem to resonate with parents of my generation, Rob also seems to have a finger on the pulse of the younger generation, which is reflected in his humorous and informative case studies.

Personally, I think Rob may be slightly ambitious with his dual objective of speaking to parents and young adults. It is not that I don’t think he does an excellent job in reaching both audiences; I am just dubious that the younger audience will take heed until they have made many of the mistakes he tries to save them from. I know that when I try to give my son financial advice, it is like talking to a wall, a wall that has eyes that roll up and down and I know a little bit about finances. Hopefully, I am wrong and young people have/ will embrace this book, because it is definitely an excellent guide for them.

Chapter Outline

Below is a chapter summary. I have noted my favourite comment Rob makes in each chapter. I just find them insightful, practical and several caused me to chuckle.

Chapter 1: Affording College or University – “Unless your parents are okay with you being loaded down like a mule with student debt, they should be paying as much attention to RESPs as to TFSAs and RRSPs”.

Chapter 2: How to Handle Debt, Both in School and Afterward – “Shrewd handling of credit is one of the things that defines a financially successful person”.

Chapter 3: You and Your Bank – “Banks are basically stores that offer financial products for sale. They are in business to sell you stuff, not to be your adviser, your partner or your friend”.

Chapter 4: Saving, Budgeting and What to Do if You Have to Move Back Home – “A little parental support at a key moment can help position you for a lifetime of success”.

Chapter 5: Looking to the Future: RRSPs and TFSAs – “A moderate, steady approach to retirement saving is the best present you can give your future self”.

Chapter 6: Mobility: Or, Cars and You – “Stay car-free as long as possible after you graduate”.

Chapter 7: Buying a Home – “Renting can be the shrewder move than buying if you cannot properly afford the full cost of buying and owning a home”.

Chapter 8: Weddings and Kids – “Arrange the best wedding you can afford”. Also, I could not resist this nugget on engagement rings that probably alienated half the females reading the book: “Men, don’t buy that crap about spending 3 months’ salary – spend what you can afford and remember that you can always buy a nicer ring later on as an anniversary present”.

Chapter 9: Insurance and Wills – “Young adults starting a family have a lot of expenses and term life is the most economical way to provide for a family in case of disaster”.

I am going to give away one free copy of Rob’s book to both a young adult and a parent. To enter the book giveaway, in the comment section below, please provide your first name and the first initial of your last name and identify yourself as a parent or young adult. Then, either provide a comment on the blog post, or give me your best financial tip for a young adult from a parents perspective; or if you are a young adult, the best tip you would give to another young adult. For my more social savvy readers, you can tweet your comments to me, including the hashtag #BluntBC. I will announce the two winners next Wednesday on my blog and twitter account.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Debt - An Ugly Four Letter Word

Personal debt in Canada has reached its highest level in history. As reported by Statscan, the ratio of debt to personal disposable income (all your debt divided by your annual after tax income) hit a high of 154.34 per cent for the first quarter of 2012, up from 149.22 per cent for the first quarter of 2011. This extreme level of debt is a result of an extended period of historically low interest rates, a sluggish economy and, to some extent, an “I see it, I want it, even if I can’t afford it” attitude amongst many people.

No matter the reason, if you have debt, you need to step-back and determine if you can organize and consolidate your debt and/or make your debt income tax effective. The comments I offer below are mostly organizational in nature and are not intended to help those with serious debt issues. If you are overwhelmed by debt, I strongly suggest you consider engaging a professional debt counsellor who will not only try and help reduce your debt, but will try and address the personal habits that often create or accentuate debt problems.

Organize and Consolidate

A good first step to managing your debt obligations is to summarize your debt. Create an excel spreadsheet and list all the debt you have down the left hand side of the spreadsheet. This will include your mortgage, any lines of credit, all credit cards and any other debt you may have accumulated along the way.

Then, across the top of your excel schedule, have the following columns:

Name of creditor - company or individual to whom you owe your debt
Amount of debt outstanding
Credit limit related to the debt
Interest rate or where floating, terms of debt (i.e. Prime +)
Terms of repayment and date due
Pre-payments - Where term is fixed, what is the maximum pre-payments allowed
Penalties- Are there any penalties for paying off debt early
Deductibility - Is the debt deductible for income tax purposes (see discussion below)
Notes - This will be a catch all for any information not noted in the other columns and for notes on whether debt is connected to other debt or assets (e.g. is your interest rate lower because you have a mortgage, line of credit and investment account with an institution or is the debt or debt rate contingent on any other factor).

Finally, lower on the page, below the debt summary, create a new heading called assets. List all your assets including your house, non-registered accounts, registered accounts, rental properties, TFSA, etc. Create three columns across the top; value of asset, debt related to asset and tax deductibility (in general if the asset is an income producing non-registered asset, any associated debt will be deductible).

As basic as the above sounds, sometimes having everything written down and organized allows you to gain some perspective and take a 10,000 foot view.

Once you have completed the above task, review the interest rate column to determine which debt has the highest interest rates. In most cases, this will be your credit card debt. You should then review whether you have the capacity to use a line of credit or other debt instrument with a lower interest rate to pay off your credit cards and effectively lower your rate of borrowing.

If you have debt at various institutions, ask your main institution for a lower rate on the total debt if you consolidate the debt at that institution.

Tax Deductibility

Finally, you should review whether you have any assets denoted as tax deductible, for which you have no related debt. For most people, those assets would include shares of your own business, non-registered investment accounts that hold stocks, bonds, ETF’s etc. and rental properties. There may be other assets; however, these are the most typical. If you have any of these type assets and they are not encumbered by debt, you may be able to make some of your debt deductible for income tax purposes. Typically, this involves circulating monies; you liquidate interest deductible assets for which there is no related debt (taking care to ensure you are not creating any capital gains) pay off the non-deductible debt and then borrow to replace the original investment assets, making the interest expense deductible. Before undertaking such a transaction, professional advice should be sought.

There is no panacea for eliminating debt. However, at a minimum, you will want to undertake the various steps and review processes noted above, to start consolidating and reducing your debt as well as ensuring your debt is income tax effective to the greatest extent.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Tracking expenses made easy

I have written about the importance of budgeting a couple times. The first time in my blog Where Did My Money Go, I suggested using software to track your monthly expenses.

In another blog on budgeting Budgets and underestimated household expenses, I relented on the detailed tracking and suggested you only keep detailed records for one month supplemented by the tracking of other exceptionally large expenses.

In my final discussion about budgeting, I relent on even the one month detailed tracking and suggest an alternative solution provided by Robert Chown, a financial advisor at one of Canada’s largest investment firms. Robert, author of You Can’t Eat Your Furniture, offers a simplified solution to detailed budgeting.

In chapter two of his book “Cash Flow Is Everything,” Robert suggests that you spend your money on only four things: (1) taxes & deductions (2) debt payments (3) savings & (4) living expenses.

Under Robert's simplified Household Cash Flow Statement the problematic issue of tracking living expenses is not necessary, as it falls out into a sort of "remainder" category. Here's what Robert suggests:

1. Take the total of you and your spouse’s yearly employment salaries, and add any known investment income to get your sources of cash.

2. Total all the taxes you pay on your employment income (just use the tax paid on your pay stub and multiply by the number of pay cheques you have each year).

3. Total all your debt payments for your mortgage, car payments, student loans, etc. most of which are known at least a year in advance.

4. Summarize your savings. This will include all the money you set aside to contribute to your RRSP, RESP, TFSA, the purchase of a new car, etc.

5. Subtract from your sources of cash the totals of the taxes, debt and savings and you then have your living expenses.

Once you have undertaken this exercise, you will know how much you can spend a month on living expenses without a detailed tracking analysis or looking back on December 31st, know how much you spent in the prior year. Here is an example from the book:

Household Cash Flow
Description	Monthly Payment	Betty	Bob	Total
Pre-Tax Income		35,000	80,000	115,000
#1 – Taxes and Deductions		(8,000)	(24,000)	(32,000)
After Tax Income		27,000	56,000	83,000
Debt Payments
mortgage monthly     line of credit     car lease	1,525 300 250	- - -	- - -	18,300 3,600 3,000
#2 – Total Debt Payments				24,900
Savings
RRSP     RESP		- -	6,000 2,000	6,000 2,000
#3 – Total Savings				8,000
#4 – Living Expenses				50,100

This shows that Betty and Bob will be able to spend roughly $50,100 after tax on living expenses or if done as a year-end review, that they spent $50,100 in the prior year. Robert thinks this technique is more accurate than detailed tracking of expenses because people often miss expenditures that can add up to big money. This can lead them to significantly underestimate their living expenses and overstate their surplus cash flow. Just because someone didn’t record an expense doesn’t mean that it didn’t happen. That’s not a problem with this system because any dollar earned but not directed to the first three categories ends up in the fourth. It has nowhere else to go.

The Household Cash Flow works well for people with no debt or those who are paying off their debts in an orderly fashion. If you are digging yourself a hole due to overspending on “living expenses,” then you probably need to address your spending in more detail.

The Household Cash Flow Statement also provides some potential retirement income data. If you assume you will be debt free by retirement and no longer have a requirement to save for retirement, you can eliminate two of the four items you spend your money on (Debt payments and Savings). The only two things left are Taxes and Living Expenses. Your current living expenses are a starting point for the expenses (in today’s dollars) you will need to cover in retirement, plus or minus adjustments for any expenses that will appear or disappear in retirement.

If you are not the type of person to track expenses, this is an alternative method to provide yourself with some spending details and a simplified base for retirement planning.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.