The Team
Meredith MacLeod
Business reporter
905-526-3408
mmacleod@thespec.com
Lisa Grace Marr
Business reporter
905-526-3992
lmarr@thespec.com
Photos and Video
by
Barry Gray
Staff photographer
bgray@thespec.com
About the series
The Way We Spend is a 13-week multimedia series appearing each Thursday in The Hamilton Spectator and on thespec.com. It will feature four local families who are learning how to tighten fiscal belts, cut back on indulgent spending and save in a healthy way. The Lepp, Greenway, Hamilton and Butler-Morris families were selected from more than 50 submissions. They have been paired with local financial experts, set financial goals and are embarking on a money makeover. They will each receive a $500 gift card from Staples and other gifts.
Jen and Patricia Hamilton. ‘It is a huge weight off my shoulders knowing I can save for retirement,’ Patricia says.
Financial discipline will lead to her happy retirement
Daughter learns it’s never too early to save and plan
By LISA GRACE MARR
Patricia Hamilton has never wanted much. Just a steady job to keep a roof above her family’s head, food on the table, a reliable car.
The same goes for her retirement: she’d like at least what she lives on now, $22,000 net a year, maybe a cruise to launch her postwork life.
But the 52-year-old single mom of two adult children started realizing her retirement goals may only remain a dream if she didn’t get her act together.
It’s not like she was a big spender — she’s got an astonishingly low grocery bill of $100 a month and lives as frugally as possible.
She received only $2,500 in total from her ex-husband in child support, forcing her to creatively stretch her tight budget as she worked in a variety of full-time jobs while raising her kids.
It’s going to be just as tight to reach those retirement goals. But they are reachable, she’s discovered.
Marta Stiteler, a certified financial planner with Pillar Retirement Group and Worldsource Financial, was paired with Patricia on a The Way We Spend financial makeover.
Stiteler has combed through Patricia’s budget and advised her to cash in her carefully saved RRSPs, worth about $3,600, to pay off high-interest credit-card debts of about the same amount.
Patricia had carried that debt for years, and it had affected her ability to pay other bills on time, and made any unforeseen expense, such as car repair, a catastrophe.
Paying off the credit-card debt was liberating, and it freed up cash to pay off her overdue bills, clear the overdraft and established a schedule to pay back $600 to family, all while chipping away at her $800 line of credit.
She was just gearing up to put money into an RRSP account when the car needed repairs to the tune of $900. In early November she discovered it needed another $600 emergency fix.
It was a bit much.
Then an anonymous donor stepped forward to pay the $600 bill. She bought good winter tires, reluctantly resorting to the line of credit.
“Then it doesn’t snow,” she said, gesturing to the warm rainy night.
She encouraged her two adult children to participate in the financial makeover so they could avoid her mistakes.
Chris, 25, opted out. But Jen, 22, opted in.
When Jen first met Stiteler, she was unclear how she rang up $1,500 on her credit card and never seemed to have money. Her goal was simple: financial security.
Stiteler analyzed her monthly expense diary and quickly discovered Jen was spending about $160 more than her monthly income.
Jen is frugal in many ways, except when it comes to her friends. “You are very generous, given your income,” Stiteler said.
That was one tiny snip she could make to her budget, but she also needed to boost income, and fast.
Jen balked at first, but sooner than anyone expected, found a new job with more hours and the potential for variety and growth.
She’s also realizing about $300 more a month net than in her previous job.
She also cut cable down to $70 in the house she now shares with her boyfriend, and her car insurance dropped by $48 a month.
That will help her pay off her line of credit quicker. She plans on opening a savings/RRSP account in January.
“I have an actual plan for the future now,” said Jen. “I know that though there will be money problems — because really who doesn’t have them at some point — I’ll be prepared for those problems when they arise, with money I have saved up, or the know-how to get me out of the situation.”
Patricia is determined her car repairs won’t prevent her from saving for the kind of retirement she wants.
“Patricia is very disciplined,” said Stiteler. “I think she can do it.”
In January and February, she needs to put at least $200 into an RRSP before the deadline next March on the off chance she has a penalty to pay for withdrawing the RRSPs earlier.
After that, she should put $300 a month into a tax-free savings account because it features retirement options and flexibility.
Once her car loan is paid, she can double up those payments to the TFSA, then move on to an RRSP account.
Stiteler recommends automatic withdrawals to take advantage of dollar-cost averaging to make the most of the RRSP contribution. (Dollar-cost averaging is the technique of buying fixed-dollar amounts at regular intervals, regardless of price. More amounts are purchased at low prices and fewer amounts at high prices.)
It’s a tall order, that $300 a month.
Even with all of that, Patricia will still need to wait until 66 to retire on a $21,000 net income.
Patricia is also worried about her lack of insurance. She’s eligible at work to double her life insurance policy at $50,000 — a “no-brainer,” according to Stiteler.
Now that the budget is set, Patricia is resting easier about her future.
“It is a huge weight off my shoulders knowing I can save for retirement.”
The Hamilton family •Who: The Hamiltons: Patricia, 52, and her daughter, Jen, 22 |
The number of submissions to The Way We Spend was overwhelming, so we asked several local
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MAKEOVER: Families’ finances benefited
The Lepps
What are some of the good things that have come out of being part of The Way We Spend?
Tara: “By adding payments to our line of credit as a budget line and money set aside for taxes for John’s business, we’ll hopefully be able to plan for the future and reduce our debt .... It will take a while for this debt to be paid off, but we know we are on the right path.”
What are you most looking forward to as your financial situation continues to improve?
Tara: “I think probably what we’re looking forward to is being in control of our money and in control of the debt and getting the debt down so we don’t feel suffocated by it. And being able to have savings aside for what we like to do, like travel.”
What piece of advice would you offer to someone in a similar situation?
John: “The best piece of advice is just swallow your pride, as I have, which is really, really difficult to do ... For a couple of years, go through a bit of pain for the best result. It’s worth it. So suck it up and get the help you need. It’s available to you and it will make a big difference, rather than suffering a lifetime of stress and worry.”
The Greenways
What has being part of The Way We Spend series meant to your family?
Steve: “I think it meant the world to us. We didn’t know what we were going to do. I’ve learned to budget and communicate better with Cindy. We’re happier.” 
What are some of the good things that have come out of it?
Cindy: “The sense of desperation is gone. People say they knew we were struggling but didn’t know how bad. There’s peace now. We don’t have to lie about why we can’t do things like go out for dinner. The support has been overwhelming. We don’t regret a second of it.” (The Greenways declared bankruptcy.)
What surprises came along the way?
Cindy: “It surprised me when the bank renewed our mortgage. But also the strength we had together. We were travelling down parallel roads but we found strength in each other and found a way to do this together.”
What are you most looking forward to as your financial situation continues to improve?
Cindy: “The security of knowing if the car breaks down, we can take care of it and not having to go to my parents or his parents. That we can stand on our own two feet.”
Patricia/Jen Hamilton:
What’s the biggest change you’ve made?
Jen: “I learned how to look at my money in a different way. I used to look at it as what do I have left to spend. Now I look at it as what do I have left to pay off another bill.”
What impact has the financial makeover had on you?
Patricia: “For me the future is more stable. I know what I have to do in order to retire. It’s a little bit less stressful. Now I know I can pay bills and save for retirement a lot sooner. It’s a lot less terrifying than I thought.” 
Jen: “For the first time I am taking the steps needed to make myself financially secure and independent, and not just floating along. I know that whatever happens in the future, whether it be a house, kids, marriage, a new car or retirement, I’ll be prepared and ready for it when it happens.”
What advice do you have for others?
Patricia: “Ask a lot of questions, if you don’t know the answer to ‘I don’t know how to get rid of the credit card, how to save for the RRSP, how to prepare for retirement.’ I didn’t know where to get those resources.
“It’s an automatic thing now to know how to get it fixed.”
Butler-Morris family
What’s changed about how you spend?
John: “Our purchases have altered since we started the series, as we are more cautious as to what we will be spending our money on.”
Diane: “We try to reuse items as much as possible, and have made changes to how we shop —keeping reusable bags in both cars at all times so not to forget when shopping. We try to do all of our errands at once and together if time allows to save gas, and we have increased our bagged lunches significantly.”
What advice do you have for other people in your situation?
Diane: “Talk with your partner about your finances and spending habits. Be honest and open and willing to compromise and make changes if need be. It surprised us to see the amount of money we could both make and save when we put our minds and wallets together.
“Use your resources the best you can. We now use the library for books, magazines and DVDs instead of buying new or renting. I have used my contacts in the wedding industry to save money with planning the wedding. We are being creative with gifts ideas for Christmas (making wine from a shop within walking distance.)”
You don’t need millions to need help
By LISA GRACE MARR
More than half of Canadians have rejected the notion of using a financial adviser, according to a recent Ipsos Reid survey. Many think they can handle their own finances.
But Greg Pollock, president and CEO of Advocis, the Financial Advisors Association, said,“There is an awful lot of specialization in getting financial advice. Many advisers have gone through quite a lot of education. There are all sorts of possibilities (for products). It is actually fairly complex.”
Marta Stiteler, a Hamilton-area certified financial planner, said many people don’t understand how planners get paid and think they have to pay huge fees.
Some financial advisers charge fees — and they’ll tell you upfront what those are.
Many financial advisers get paid through a commission, and payment will be incurred at purchase, time of sale or a mix of both.
It’s important to find out how your planner gets paid because it may affect later decisions:
• Front-end load (also called a sales charge): 0 to 5 per cent in fees is paid to the fund dealer or securities brokerage when an investment is purchased, and is usually taken out of the monies deposited. The brokerage receives a percentage, if they charge at all. Most advisers don’t charge front end, making their money on commissions.
• Deferred sales charge (also known as a back-end load): this is a fee paid when units are sold, again usually to the fund dealer or securities brokerage, which in turn pays a percentage to the broker/adviser. The investor commits to leaving the investment in the fund family from five to seven years. If the fund manager takes a hike or it turns rotten, there is a redemption fee. You can avoid this by moving money within the fund family at no cost. But if you move it out, expect penalties of 5 to 6 per cent in the first year, declining over the next five to seven years.
• Level load/low load: is usually the same as deferred sales charge, but with a smaller commission, usually half, going to the fund dealer or securities brokerage (percentage to the broker/adviser) and a shorter time period to leave the investment with the fund family. Again, you are able to switch between funds within a family, but should you redeem there will be penalties, usually starting at 3 per cent over two to three years.
• No load: No commission is paid to the broker; however, check to see if there are trading fees on these accounts. In addition, there may or may not be mandatory investment levels to qualify.
Stiteler said a good financial adviser is worth every penny. But she said any financial adviser who is evasive or argumentative when asked how he/she will be paid, should get you out the door.
But don’t let it stop you. Or, the idea that you need hundreds of thousands of dollars to invest.
“I don’t have millionaires as clients,” said Stiteler. “A lot of my clients have $250,000, but next week I’m seeing the 22-year-old daughter of a client who probably has $100 a month to invest. I’m not going to turn her away.”
Stiteler recommends getting a couple of names from family, friends or personal accountant or ask the financial adviser for references.
Pollock said it’s important to interview your financial adviser before you conduct business. You owe it to yourself to do due diligence.
Advocis has a consumer page devoted to that at advocis.ca. “There is no harm in asking questions. Do not feel inadequate or feel uncomfortable and do not feel obligated to stay with someone.”
Getting credit you don’t deserve
By Meredith MacLeod
Just because you’ve got a mortgage company offering you a preapproved mortgage for $350,000 or a bank willing to give you a $50,000 line of credit or credit card companies constantly jacking up your credit limit, doesn’t mean you can afford any of it.
In fact, affordability has little to do with the credit you can get, says Henrietta Ross, executive director of the Ontario Association of Credit Counselling Services.
Ross once worked in credit-risk management for Canadian banks, and says Canadians put a lot of trust in financial institutions.
“They think if the bank thinks I’m qualified for it, I must be. But that’s not necessarily the case. Credit limits are often increased without knowing an individual’s income. It’s granted on the basis of a client paying on time.”
Ross and others in her field think it’s about time, especially in the wake of the U.S. mortgage meltdown, that attention is focused on whether credit being extended is really affordable.
Nadim Abdo, vice-president of consulting solutions and analytics at credit bureau Equifax Canada, says he sees banks becoming more proactive and more willing to work with struggling customers.
“It’s not the big bad bank. They want to help because they don’t want you to go bankrupt. They will try to find a way.”
Some people put off talking to their bank because they’re worried asking for help will raise red flags. But the banks know everything anyway, so you might as well be upfront with them, says Abdo.
A common myth is that a debt-consolidation loan or going to credit counselling is bad for a credit rating. Neither is reflected on a report.
“If you can lump your debts together, pay lower interest and manage one monthly payment spread over a longer time, it has no impact as long as you make your payments on time.”
He says both lenders and consumers bear responsibility for the debt morass many find themselves in.
Statistics show more and more people are falling behind. The biggest increase in defaults (57 per cent between July 2008 and July 2009) are on sales financing, such as don’t-pay-a-cent promotions.
“If you can’t afford a sofa or TV today, chances are you won’t pay it off in six months or a year,” said Abdo.
“There has to be some kind of consumer responsibility. Don’t buy it if you can’t afford it.”
The credit report:
Your credit report through TransUnion or Equifax contains two components. One is a credit rating where each creditor assigns you a rating from one to nine.
R1 stands for revolving (such as credit cards where balances go up and down) and the one indicates it’s paid on time.
R2 would mean the payments are 30 days late. R7 indicates a consumer proposal or debt-management plan. R8 indicates a repossession. R9, the worst, is a debt placed in collection or bankruptcy.
There are also ratings for instalment payments such as car loans, and for open loans such as lines of credit or student loans.
Banks and other financial institutions, retailers, credit card companies, phone and cellphone companies all report to the credit bureau. Utilities do not unless the file has gone into collections.
The second component of a credit report is an overall credit score that ranges from 300 to 900. It is a measure of the risk of default you pose to a lender.
It’s based on a complex formula combining credit history, payment history, credit mix, number of credit inquiries and debt-to-income ratio.
About 70 per cent of Canadians have scores of between 700 and 850. Below 650 is considered the cut-off for conventional credit.
Tom Reid, director of consumer solutions at TransUnion, says some lenders look at both components, but some only consider a score or a rating. Creditors report to both bureaus, but the two calculate in different ways.
Credit experts advise to check your credit report at least once a year. It’s important to know if your score is improving or declining, and to make sure that incorrect information isn’t hurting your rating.
Plus, it will spell out the factors drawing down your rating, and suggest ways to improve it.
| Tips to boost your score: • Pay your bills on time. • Try to keep balances below 50 per cent of limits. • Don’t close accounts on paid cards. It will hurt your credit history. Making purchases and paying off each month raises your score. • More recent behaviour is weighted more heavily than the past. • Try to keep debt-to-income ratio under 40 per cent. |
Our expert
Marta Stiteler is a local financial adviser who specializes in financial, retirement and estate planning for Pillar Retirement Group and Worldsource Financial Management.
Marta holds an honours BA from Seton Hill College in Pennsylvania and a master’s degree from McMaster University. Stiteler passed the certified financial planner
examination in 2000 and achieved CIM, Canadian investment
manager designation, in 2005.
Stiteler has worked with Halton Business Institute, Hamilton and area Jaycees, Soroptimist International and is a frequent public speaker on financial issues.
She is a past director of the Stoney Creek Chamber of Commerce and is involved with several boards and charities.