Dear Cali Pearl
Q. My mother has been terminally ill for almost two years. My husband and I hate seeing her in pain, but we feel the end is near. While it kills me to see her suffer, in all honesty I could really use the money from her life insurance. I know I must sound like a horrible person, but, realistically, this is the only good that will come out of her illness. I haven’t made the best financial decisions and my husband and I have almost $60,000 in credit card debt. On top of that, the value of our home has plummeted, leaving us upside down on our mortgage. With the insurance money we will be able to pay off all of our debt and get our dream home. Is it wrong to have these thoughts?
A. Is it wrong? Most definitely! You should be cherishing every second you have with your mother, not counting down until her demise. Unfortunately, you are not the only person to have your priorities out of order– your preoccupation with finances during this sad time are shared by many. It sounds as though you and your husband are looking forward to an influx of cash that will be squandered like the rest of your income. You need to develop discipline when it comes to your financial actions. Make a list of all of your bills and determine how much you need to survive. Keep the credit card bills separate, and come up with a plan to pay them off as quickly as possible. You should closely monitor where your money is going by keeping a spending journal, in which you write down how you spend every penny. After 30 days, go over the journal and make a plan to cut out unnecessary spending. You need to get your finances on track. Otherwise, you will waste your inheritance, and Mom can only die once.
Q. I just got engaged and I am ecstatic! My fiancé and I were looking forward to purchasing our first home together when the issue of a joint checking account was raised. I trust my fiancé implicitly, but I do not want to lose control of my income. When I told him I wanted to keep our money separate, he got extremely angry and is still holding a grudge. He thinks I don’t trust him and is reconsidering our engagement! How can I get him to understand that I trust him wholeheartedly, but I would still like to maintain control of my money?
A. You are not alone in your situation, let tell you a story. Mark and Sheila were celebrating their fifth wedding anniversary in paradise. Their vacation was perfect. However, when they returned home, they found an envelope tucked under their doormat. Sheila picked up the letter and read it. Suddenly, she became visibly shaken and threw the paper at Mark, running out of the room crying. Mark opened the letter and couldn’t believe it– his past had caught up with him.
Unbeknownst to Sheila, Mark had fathered a child during his college years. He had been sending cash to the mother for the past ten years, but apparently this wasn’t enough. The mother filed for child support, and Mark was responsible for ten years of arrears. Unfortunately, Sheila and Mark shared a joint checking account and her assets were to be used to pay for Mark’s irresponsible actions.
True story? No, I made it up. But could it happen? Absolutely. Serious legal proceedings can wipe out a couple’s savings, regardless of who is at fault. By keeping your assets separate from your finance’s, you may be able to avoid both liability for his actions and potential bankruptcy. While your fiancé may be hurt by your preference to maintain your own bank account, he should trust your judgment.
A great compromise in this situation is to create a joint account to be used only for household expenses. You can each deposit your half of the expenses into the account, allowing the responsibility of running the household to be equally and easily dispersed.
Q. My parents are trying to get me to save my money. I don’t think I need to. I often date wealthy men and figure that when I meet and marry my future husband, he’s going to be in that category and will ultimately take care of me. How do I get them to understand that I don’t need to save?
A. Hey Princess, time for you to get a reality check! The statistics show you need to save! 50% of all first time marriage end in divorce and the rate increases for subsequent marriages. Also, according to A study by the Women’s Defense Fund through the Woman’s Guide to Savvy Investing it is women who see their income drop by 25% after a divorce, while a man sees his go up by 35%! Everyone should save, regardless of who you marry. You have fallen victim to the Cinderella Myth, the idea that your husband will take care of you or that you will marry into money. While happily ever after can happen, the likelihood of it becoming a reality is pretty slim. Many married women leave financial matters to their husbands, which is neither good nor bad. With enough commitment and communication, happily ever after can be achieved with the man in control of the checkbook. However, in order for this to work, financial planning must begin before marriage and carry on during it. With the divorce rate so high, though, do you really want to leave your financial wellbeing in the hands of your potential ex-husband?
Another myth that needs to be debunked is that husbands know more about finances than their wives. While this may be true in some cases, women are every bit as capable of maintaining a healthy financial state. For a truly healthy financial relationship, both you and your future husband should be jointly responsible for the financial wellbeing of your marriage.
Q. My son is about to start college, and with a six-figure household income my husband and I are not worried about paying the tuition, even though we have managed to save little for his college education. However, while I think we have the tuition taken care of what we are worried about is our lack of personal savings for our future. How can we start saving to create a financial cushion?
A. With as much income as you have, saving should be a snap. With these tips you will have a comfy cushion in no time!
Without being clear about what exactly you are saving for it may be difficult to set the money aside. So, I suggest opening three separate accounts for future savings, “invest in yourself” savings, and household savings. Future savings include pre-tax retirement plans, annuities, IRAs, etc. and 10- 12% of your income should be invested in this account. “Invest in yourself” savings should be geared toward vacations and recreational expenses. 10% of your income should be put into this account, with half of it being invested in CDs and money market accounts and the other half in the actual savings account. Household savings should be reserved for emergencies, such as short-term illness, disability, or death. A good cushion for this account is enough cash to cover one to two years’ worth of living expenses. Having this cash on hand will not only save your financial wellbeing during tough times, it will also decrease the amount of stress associated with these emergencies.
Depending on your income-to-living expenses ratio, you may be able to save more or less than the amounts listed above. To efficiently pay your bills and determine the most you can save every month, I suggest that you take advantage of the online Bill Pay services offered by most banks. With this service, you can pay your bills directly online, ensuring that they get paid on time. In addition to keeping track of your outgoing bills, you should keep a spending journal. For 30 days, record every penny that you spend and write down how you spent it. After a month, review the journal and determine where you can cut back. This money can then be put into a savings account.
Q. After 37 years of marriage my husband has informed me that he wants a divorce. Apparently he has been unhappy for awhile and has found comfort in the arms of his 29 year old girlfriend (of course her embrace is comfortable, anyone’s would be with 42DDs!). Needless to say, I was devastated by the news and am very worried about my financial situation. My husband started his own company when we first got married and has supported us both while I raised our five children, I have always been a stay at home mom, so I have no income of my own. He owns two properties that, if sold, may generate enough income for me to live out the rest of my life. Should I settle for ownership of the property and forgo the lengthy divorce proceedings?
A. I am truly sorry to hear that your husband is so easily entertained by someone who clearly doesn’t have your class as well as for the fact that you were blindsided after being married for so many years. However, let’s talk about your financial situation, because you need to get over your heartbreak and think in terms of what you are owed for your years of work raising his children and running his house. Settling for ownership of the properties would only be beneficial if they could really generate enough income for you to live off of. The housing market is not at its best, and most properties are selling well below their true values. You need to determine how much money you will need to live, comfortably, for the next 40 years. Then you need to talk to you husband and see if he is even willing to continue to take care of you. Just because he has supported both of you during your marriage does not mean he will voluntarily do so after the divorce. When you talk to him about this, determine exactly what he is willing to do and try and get it in writing. You also need to visit your attorney to find out what you are entitled to and how much he is obligated to give you. A trip to your financial advisor’s office is also in order, as you need to know precisely how much money it will take for you to live comfortably. After all of this is done, then you can decide upon what you believe is an appropriate arrangement, and take it from there. Remember, just because you didn’t clock in for the past 37 years at an office each day, doesn’t mean you didn’t work. Make sure he knows that.
Q. As a successful business owner I have gotten used to a lavish lifestyle. My spending may be a bit out of control, but what’s the point in making the money if I can’t buy the things I want? Unfortunately, a creditor is suing my business to collect on an unpaid debt. The creditor is attaching the shares of my company! Can they really do that?
A. In some cases, yes, but it depends on the kind of company you own. There are no laws in place that would prevent the creditor from taking over an individual’s stock in the company, but in a Limited Liability Company there are no shares for the creditor to attach. Sounds to me like you need to quit living life in the fast lane and slow down to take a look at the mess you’ve made. The best way to approach this problem is to take a trip to your attorney’s office. Depending on the state of your finances, you may have some options that don’t entail giving up control of your company.
In addition to trying to save your business, you need to change your spending habits. While you should reward your hard work with a luxury item or two, you need to develop a responsible spending plan, including budgeting the correct amount to pay down debt!
Q. My oldest child is about to start college and, despite owning a successful franchise for 15 years, I’m worried that I won’t be able to afford her tuition. Furthermore, I don’t think she’ll qualify for financial aid and I didn’t invest in a college fund. Are there any options left?
A. Sure there are. Here’s what Dalton wealth management suggests.
By focusing on IRS rules, rather than on financial aid rules, you may be able to take advantage of tax opportunities, such as the children’s lower income and capital gains tax rates, the children’s personal exemption, 529 college savings plans, education tax credits, and IRAs.
The IRS considers any full-time student under 24 as a dependent; however, students who provide more than one-half of their own support may qualify as independent. For income tax purposes, children who are able to claim themselves as independent can benefit from the personal exemption ($3,650 in 2010), standard deduction (5,700 in 2010), and lower tax rates.
Because you own a franchise, your children may benefit from a tuition assistance program (IRC Section 127). If you hire your children you can provide up to $5,250 per year for educational purposes, even if they are not studying a field that relates to their job. The payments made by these programs are a tax-free fringe benefit to the employee and a deductible business expense to the employer, and thus benefit all involved.
Tax credits, such as the Hope Scholarship Credit and the Lifetime Learning Credit, may help. If the student is independent, and if they are eligible, based upon the information on their tax return, these credits can be used for undergraduate tuition and fees. Unlike the Hope Scholarship Credit, the Lifetime Learning Credit can also be used for graduate or professional degree programs.
Money withdrawn from a 529 college savings plan is considered income for the student, so it contributes to the income necessary for the student to be classified as independent. Withdrawals from these accounts are also income tax free.
While school expenses can be overwhelming, don’t fret, as there are many ways to pay tuition bills, you need to speak with a professional financial planner about how to navigate some of the hurdles, whether imagined or real, that you feel apply to your situation. I would advise you, though, to start saving for your other children’s educations. Ample planning will make the process much less stressful.
Q. I have a secret that riddles me with anxiety and panic every time the phone rings and the mail is delivered. I am consumed with debt and cannot find my way out of it. The amount that I owe is embarrassing and I’m so ashamed that I haven’t told anyone about my financial troubles, not even my husband. I have a great job and make a good amount of money, so if I ask him for help he will think I’m crazy. Please help, I can’t get out of this on my own!
A. Not only has your spending gotten way out of control, but you’ve come to rely too heavily on the help of your husband. He won’t always be there to bail you out, especially if he finds out that you have not been completely honest about your financial situation. Stop spending. If you are making a good amount of money, you should be able to create and operate within a budget. Set aside enough money for bills and enough for living expenses, then dump the rest into your debt. This will take extreme discipline, which it sounds like you may have some issues with, but in order to financially survive you must find the will power to stop spending and start saving!
Q. I am offended that your firm refuses to work with men. As a single man, I could benefit from financial planning as much as any woman! Why do you feel it is okay to discriminate?
A. Let me clear something up. Cali Pearl works with everyone, not just women. While our marketing materials are geared toward women’s financial needs, we are happy to work with anyone who wants to better their financial situation. I am sorry about the misunderstanding, but don’t let that stop you from getting the financial advice you need. Please feel free to call us anytime, we understand men have just as many financial challenges as women.