Debt-Free Forever

by Gail Vaz-Oxlade

  YOU’RE GONNA DIE!

  Pardon my bluntness, but it’s an indisputable fact: you’re going to die. And, perhaps if I am blunt, all the people who have yet to face their ultimate demise, even conceptually, will pay attention.

  Since we’re all going to die—you’re not still arguing this point, are you?—it makes sense that we all take the steps necessary to prepare for it. That means making a will and deciding what will be done with our remains. It also means making sure that if we are incapacitated, we leave someone able to speak on our behalf, both financially and medically. All in all, it means creating an estate plan.

  Many people see estate planning as a rich-folks activity. With all that money to divide and all those squabbling heirs to quiet, a plan is in order. Yes, rich people do pay a lot of attention to how their affairs will be handled when they can’t do the bossing around anymore. And if you want to take a page from their book, you might want to look at what could happen if you don’t pay attention.

  Follow me for a minute down Worst-Case Avenue. You and your hubby were in a car accident, and now you’re in a coma. You haven’t executed a financial power of attorney, so no one can touch the money in your bank account. Even as your sick leave or disability income accumulates by automatic deposit, your life insurance lapses (no one can write cheques on your behalf), your mortgage renewal goes unrenewed, and your kids’ tuition remains unpaid.

  Assuming you make a full recovery from your accident, at best you’ll find your life in a shambles. Shuffle off this mortal coil and not only will your family be devastated emotionally and financially, the government will step in to decide who gets what. Not a pretty picture, is it? And all this can be avoided by creating an estate plan.

  GAIL’S TIPS

  Since a child or grandchild who is the beneficiary of an RESP does not have the legal interest in the plan, if you’re the only subscriber on an RESP, you could face a problem. if you do not have a will, and you haven’t named a “contingent subscriber” for the RESP, the plan would likely be terminated on your death and all the contributions and interest earned would fall into your estate. And, since the RESP is gone—whoosh—the Canada Education Savings Grant money in the plan would be forfeit and returned to the government. If that’s not what you want, make a will and name a contingent subscriber to the RESP.

  An estate plan consists of a will, which says how you want your assets to be distributed, along with powers of attorney (POA). There are two types of POAs, and they both have to be enduring—a legal term meaning they have to outlast you—to be useful. A financial POA identifies who will manage your money and under what circumstances while a medical POA identifies who will make your health-care decisions if you can’t make them for yourself.

  If you have kids, your estate plan should also include a guardianship appointment so your kids end up being raised by someone you like. You might also include a trust as part of your estate plan.

  A trust describes a relationship that exists when one person (the trustee) holds title to property on behalf of another (the beneficiary). A living trust is created when the settlor (the person giving the money or stuff or whatever) is alive. When a trust is set up through a will, it’s called a testamentary trust.

  Whether you wish to protect a same-sex partner from the prying eyes of family that hasn’t been so willing to accept your alternate lifestyle or you want to save your spendthrift child from his financial demons, a trust can do the trick. And if you’re trying to protect a child who may be disabled and financially dependent, a trust is irreplaceable.

  DO YOU NEED A LAWYER?

  Yes. Yes. Yes. I know there are will kits available. I know they are cheap. But you know what they say: ya gets what ya pays for. Estate planning is one of the last bastions of complicated and opaque language. If you don’t have an expert who specializes in legal gobbledygook, you may not get what you want.

  Here’s an example of what I mean. Let’s say you make your own will, in which you say, “I want all my money to go to my wife.” What do you mean by money? Do you mean the money in a specific bank account? And what happens if you change banks later on? Or if you change wives in all but the legal sense? The term household contents can also have myriad meanings while wife may have only one.

  Do your household contents include your very valuable stamp collection? The car in your garage? Your grandmother’s diamond ring? If you think that’s picky, wait till you see what can go into the naming of a beneficiary.

  If you’re still hesitating about creating an estate plan because you don’t want to spend the money, know that what you save today you’ll make up for in taxes and fees later on, and then some. A good estate plan will distribute your assets tax efficiently while minimizing fees. It takes some thinking. It can be a little unnerving. But it’ll also make it easier on the family you leave behind.

  It’s a grown-up thing to do, so grow up and do it.

  11

  COPE WHEN THE CACA HITS THE FAN

  One of life’s hard truths is that it doesn’t matter how carefully you plan, how hard you work, or how diligent you are in taking care of the details, crap happens! It’s inevitable. While it may appear that there are some people who just cruise through life with nary a bump, they just haven’t hit theirs yet. But it’s coming.

  It’s nice to think that life is predicable, but it’s not. And as my girlfriend Brownie says, “The golden rule is to get back up!” Having made a budget, made a debt repayment plan, made up your mind to live your life consciously and take care of your money, you may dream that it’ll be smooth sailing from here on in, but it is only a dream. Sometimes life sucks.

  One of my mantras is: Plan like a pessimist, so you can live like an optimist. Wishful thinkers believe that bad things can’t happen to good people. But they can. And they do. From job loss to creditors calling loans to bankruptcy, life leaves lots of room for disaster. Here’s what to do when the caca hits the fan.

  WHAT TO DO IF YOU LOSE YOUR JOB

  Unemployment goes up. Unemployment goes down. And even if you live in a country with low unemployment, jobs may be scarce in the region you call home. With North American jobs moving overseas to low-cost labour regions, even the jobs we thought would be forever aren’t.

  Industries thrive in one economy and go bust in another. Companies merge. Companies restructure. Companies downsize. It’s a cycle that is ever present in the economy—a cycle we sometimes forget about when the going gets good.

  Often, when we find ourselves out of work, we duck and hide, embarrassed at our change in circumstances. And we spend. Unwilling to admit that things have changed, and with time on our hands, we spend and spend and spend.

  So what do you do if you find yourself out of work?

  STEP 1: TELL YOUR FAMILY NOT TO PANIC

  Yes, things are going to be different for the short- or medium-term, but you’ll weather this together. You need to have a clear sense of what your priorities are so that you can work together to get through this without fighting, bitching, snarking, crying, or being afeard.

  Include your extended family in the news. No point in pretending everything is A-OK. Brave and strong you might be, but accepting help when you need it the most from people who love you the most is exactly what family is supposed to be about.

  Yes, you should tell the kids. You’ll have to tailor your communication to your children based on their ages. But they’ll overhear the adults talking, they’ll feel the stress, and they’ll internalize it if you don’t address it directly. So tell ‘em. Just reassure them that while some things are going to have to change, you are going to do whatever it takes to make sure the family is safe.

  STEP 2: TELL EVERYONE YOU KNOW THAT YOU NEED A JOB

  Many jobs never make it to the advertisement pages since people in a company will be asked whether they want the job or whether they know of anyone they could recommend for the job. The more people you tell, the better your chances are that someone will put forward your name.
Be clear about what kind of job you are seeking and what your skills are. But also be open to experiencing something new and using your skills in different ways. If you hated your last job, don’t get another one just like it.

  STEP 3: APPLY FOR EMPLOYMENT INSURANCE BENEFITS

  While this is usually barely enough to keep body and soul together, it’s still better than a punch in the nose. Since it can take several weeks before you see a penny, the faster you apply, the less the amount of time you’ll be scrambling for cash. If you have received a severance, this will affect when your benefits will start. Severance or separation pay is paid out in a number of different forms and each is handled differently. Speak to your Human Resources or Payroll department to get the lowdown on how you’ll be affected.

  Speaking of what you may get from your employer, check how long your benefits will stay in place and if you’ve got any vacation/sick pay coming. And if you’re entitled to reimbursement for expenses, file an expense report right away. While your employer is feeling rotten at having to let you go, ask for a glowing letter of recommendation.

  STEP 4: START LOOKING FOR A JOB

  Dust off your resumé. Hit the web. Some part-time work that supplements your income while you’re looking for a full-time job will help to keep you busy and focused on making things happen. One of the biggest problems with unemployment isn’t just the lack of money, it’s the abundance of time and the sense that this will never end. Get busy.

  Consider job hunting to be your new job until you get the job you want. Get up early, get dressed for “work,” make a cuppa, and get busy. Spend at least 35 hours a week exploring work options. Demonstrate your discipline and determination by focusing on researching leads, networking, and interviewing.

  Post your resumé online. Contact potential employers directly through professional associations. Promote yourself in unique ways. You have to stand out in an employer’s mind if you want to get noticed. Accept a temporary position or volunteer where you would like to work so your new boss can “try you on.”

  There are several federal and local government resources that offer help with career counselling and job searches. Call your local employment office and ask about the services available in your area.

  STEP 5: CUT YOUR EXPENSES

  You need to cut back to the bare minimum so that you can make your emergency fund (you have one of these, right?) last as long as possible. Ditto your employment insurance benefits, your severance, your partner’s income, or whatever else you may have that you can use.

  Find as many places as you can to trim back. Cut your clothing budget completely, except for kid essentials. Ditto your entertainment, gifts, and all other non-essential expenses. Trim back on food. Trim way back on communication (telephone, cell, Internet, and cable or satellite TV). Now that you have less, you must get creative. Is daycare still an option with one partner out of work or will you swing-shift to take care of the kids at home while upgrading skills and job hunting? Will you both take on part-time work to keep the kids in daycare so you don’t lose your spaces?

  Since you may not find a job paying the same money, you need to decide what your Basic Costs of a Good Life are so you know how much salary you can live without.

  I bet you’re really glad you started that emergency fund. No emergency fund? Oops. Are there things you can sell to make one? The motorcycle? The ATV? The second car? Well, your severance can pick up the slack. No severance? Ouch. I guess you’ll just have to get your butt out there and find a job, two jobs, three jobs … whatever it takes … to keep it all together. And, NO, a line of credit is not a good emergency fund, no matter what you’ve been told. If you think coping with unemployment is hard, try doing it while making debt repayments. Sure, sure, you’ll eventually get another job. But if you’ve dug yourself a helluva hole in the meantime, you’ll be way sorry. So it doesn’t matter what you have to do to keep a roof over your head—that’s a better alternative to using a line of credit.

  The same goes for using your credit cards to fill the gap in your cash flow. Don’t do it. In fact, you should take your credit and debit cards out of your wallet and hide ‘em, freeze ‘em, bury ‘em so that you don’t have the wherewithal to buy things on impulse. There is no time when you’ll be more tempted to spend money on crap than when you’re feeling deprived. And don’t go to a payday loan company. With costs ranging from 300% to 900% annually when you include the setup fees, interest, services fees, and loan repayment fees, this is a hole you’ll never climb out of. Don’t go there.

  STEP 6: TALK TO YOUR CREDITORS

  Don’t ignore your bills. Contact your creditors and explain your problem. Offer to make regular smaller payments that you can afford for a short period of time. Ask for an interest rate concession. Get those credit payments in line with your new income.

  Take a trip to your bank and see whether a consolidation loan will help ease your cash flow. Do whatever you can to reduce your costs and ease the pinch. This is no time to let pride get in the way of common sense.

  STEP 7: EMBRACE CHANGE

  In all likelihood if your industry is in retreat you’re not going to find a similar job for similar money easily. Two part-time jobs may be as good as one full-time. Contract work may be a good option for rebalancing your life. Business opportunities may present themselves, and you’ll have to have your eyes open to take advantage of them. Don’t be closed to a relocation, if that’s what it takes to get you back on track.

  If you hated your last job, then this is the time to start thinking about a career change. Can you use the time you’re not working to upgrade your skills or take some night courses to retrain for something new? Would this be a good time to turn that hobby into a business? I am not recommending you remortgage your house and buy a business because you’re desperate. What I’m suggesting is that if there is something you’ve always wanted to do—be it landscaping, web design, freelance writing, or small-engine repair—now may be just the time to start making some money doing what you love. If you can turn it into a viable full-time business, good for you. If it brings in extra money while things are tight, that’s good too. And if you find a full-time job and can keep doing your biz on the side, hey, that’s a great way to pay for the extras.

  STEP 8: TAKE CARE OF YOURSELF

  Don’t climb on the couch and hide. Don’t dig into a big tub of cookie-dough ice cream. Don’t stop exercising, socializing, empathizing. If you find yourself becoming really sad about your situation, find someone to talk to about it. Don’t let yourself go into a nosedive. Keep to a schedule and keep your focus. Volunteer so that you can keep meeting new people, widening your network, and putting more people into the job hunt on your behalf. Take a course to update your skills or learn new ones.

  STEP 9: KEEP YOUR SENSE OF HUMOUR

  When things get tough, our funny bone is the first to go. Don’t let it. You can do so much when you’re smiling. Your interviewers will see you differently. Your family will be reassured. Your friends won’t run and hide when you call. Hang on to that funny bone!

  There’s no longer such a thing as a job for life. Gone are the days when you retired from the first company that hired you. This won’t be your last job change. Consider this good practice for the next one! Make sure you keep getting better at it.

  WHAT TO DO IF YOUR DEBT GOES TO COLLECTIONS

  If you’re behind in your payments, no doubt you’ve been getting a few calls from collection agencies. I’ve received letters from people who have completely stopped answering their phones because they can’t stand the calls. Hey, if there are people to whom you owe money, your “creditors” have a right to try to collect that money. Even so, there are definite rules that collection agencies must follow. If you know what collectors can and can’t do, you’re in a better position to deal with them.

  The legislation governing collection agencies is regional, so the rules are slightly different from one region to the next. Check what’s what in your area, but here
are some general guidelines.

  1.Don’t let a collections company harass you. Collection agencies aren’t allowed to start bugging you until they’ve notified you in writing that they’ve been assigned to the account. I’ve received more than a few complaints from people who say that some agents won’t say who the creditor is or how much is owed. They aren’t allowed to do this. And if you claim not to owe the money, they can’t demand payment from you unless they have proof that you do owe the money.

  Collection agencies are also constrained by law as to when they can call. And they are never allowed to “abuse” you, so don’t take any crap. What constitutes harassment? Depending on your region, agents can’t contact you by any means including phone, voicemail, or email more than three times in any seven-day period on behalf of the same creditor. They’re not allowed to call on a statutory holiday, on a Sunday before 1 p.m. or after 5 p.m., or on any day before 7 a.m. or after 9 p.m. And they may not contact your friends, relatives, neighbours, or employer for any information other than your address or telephone number.

  If you feel like you’re being harassed, keep a record of the time, date, and frequency of the calls you’re receiving. Remember each call for a separate debt is considered a separate call, so if an agency calls you six times in a day for six different bills that have gone to collections, they’re not offside.