Baby X arrived!

Baby X was born end of January. My husband and I are thrilled and can't wait to learn more as we join other parents on the journey of child-raising! -Alyx

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A 15-week mat leave

One of the hot questions I get asked these days is about EI maternity leave for employees and how long I'll be off work. As a self-employed business owner, I've decided to take about 3 months off (then 3-4 months part-time). Having no income for the next many months will be tough but I chose self-employment specifically for the flexibility of being able to take time off and modify my hours for my family as it grows. Many Canadian woman are fortunate enough to take an entire year off from work to care for baby and find their routine while still receiving income and knowing their job is secure when they return to work. There are varying maternity leave benefits around the world and we are lucky compared to our neighbours down south who only get about 12 weeks leave and job security.

Canadian employees can apply for paid time off under the Employment Insurance (EI) program: 15 weeks for mom and 35 weeks for either mom or dad/other parent (or the 35 weeks can be shared between them). 55% of earnings is covered (up to $501/week or just over $25,000/year - taxable). Some employers even do a top-up (ex. 85% of usual earnings for the first 5 months). Remember that EI benefits are taxable and many parents find that there is tax owing the following year as not enough is withheld from the EI payments. Be sure to request additional tax be withheld or be prepared to either pay some tax or contribute to RSPs before the end of February the following year.

Employees

If your company has an HR department, this is the first place to start, as well as asking co-workers who have walked the parental path before you. If you are the trailblazer and work in a small business, calling Service Canada (1-800-206-7218) directly and being familiar with the basics online will help you coordinate with your employer. Discuss how long you plan to work - but be realistic that leaving  a month early may be financially unaffordable and working up until due date may be physically impossible. Note that there is up to 15 weeks sick leave available pre-due date if you're ordered to stop work for medical reasons (but you cannot plan to take this and must be under Doctor's orders) and that there is a 2-week waiting period. Benefits are also paid in arrears.

Sign up now for My Service Canada Account which allows you to track your benefits online.

Business Owners

A self-employed opt-in program for EI was introduced a couple years ago that allowed certain benefits to be claimed. However, there is a one-year waiting period and once you claim, you can never opt-out. I have not yet met a self-employed person who has registered. My personal opinion is that individual planning and insurance is preferable to relying on the small weekly EI benefit (ie. saving for the time off for maternity leave, having individual disability insurance in case of inability to work and emergency savings). The math works out if you did want to collect parental EI but the factors I considered were the increasing EI premiums, time value of money and the reality that most business owners wouldn't have a business to return to if they disappeared for a year.

The numbers:

Annual cost for the self-employed EI program: $891 ($1.88 on every $100 to max income of $47,400 in 2013)

Maternity leave maximum EI benefits (taxable): $7,515

Parental leave maximum: $17,535

Sickness/Disability leave: $7,515

Compassionate care leave: $3,000

You can do the math about how many of these benefits you may access vs. how long you expect to pay (once claimed, you must continue paying EI premiums when working again; many of us will be working into our 70s...do you still want to be paying EI premiums then?).

 Plan plan plan

Losing a significant amount of my income for half the year will absolutely be felt in our house. By preparing early and reviewing our budget often, we think we'll be ok. Setting our priorities and watching our spending habits closely in the last few months of pregnancy has given us an idea of how things may go. There are lots of helpful blogs and articles about what other families did in their pre-baby countdown and other helpful tips.

No matter what your situation, hopefully you can choose the time off you feel comfortable with, and can afford, to spend time with your newest bundle of joy!

 

* This information is for reference only and your tax/financial/legal situation should be discussed with your advisors

Happy New Year!

Friends and readers: Happy 2013! I hope this year is prosperous for you and full of joy and love.

Many people I talk to are frustrated that they can't get ahead.  Money management, unfortunately, is something that few of us are taught and many never learn. There are lots of basic tips that remind us how simple it really is; however, just because it's simple, doesn't mean it's easy.

My mantra is that financial planning means meeting your goals through proper management of your resources. This means you must write down your goals and know exactly how much money is flowing in and out of your bank account. Start there - many are surprised at what they actually spend on entertainment/food/activities.

There are lots of things you can do to prepare for a successful year financially, below are a couple of my past blog posts that may give you inspiration or ideas.

Best wishes,

Alyx

How do you value your time and money? (Feb/12)

Debt repayment or saving? (Feb/11)

The money details of our wonderful wedding

Here's the post and answer many of you have waited for - how much does a financial planner who encourages frugalness spend on her wedding? Well, I'd sheepishly say more than I thought, however, hear me out for some important points.

1. Husband and I had a discussion about budget and how to pay for the wedding. Our savings were allocated for a house (which we almost bought weeks before the wedding to beat the new mortgage rules, just to add to the excitement!) so whatever we spent needed to be covered within the next couple months. We also discussed those other questions in my last blog post.

2. We decided to make the ceremony/reception family-only and and get married sooner rather than later. With only weeks until "I do" we figured the short timeline would cut out the "oh, it would be really awesome to have __________." <insert: circus, helicopter, personalized anything, etc.>

3. We made the decision to do it as economically and nice as possible. What does this mean? We chose to stay at Poet's Cove on Pender Island. This was not economical. But it was nice (like, really, really nice). We bought our own food and wine and my fabulous brother-in-law, assisted by my sister and family, prepared it all. We couldn't have been luckier.

4. We were blessed with lots of help from family as well as financial consideration. This wedding would not have been as wonderful without the help of the Gilgunn family, some key friends, and financial gifts from both families.

5. We did not go into debt. Thanks to careful planning, help from family/friends, and hosting international homestay students, the wedding was completely paid for within two weeks of our "I do's".

So, without further ado, here's how it all shook down:

I planned the wedding in three weeks. Honestly, that's all it took. Fortunately for me, I already had spoken with a marriage commissionaire (someone I knew through work), a cake maker (friend-of-a-friend), a sommelier and chef (sister & bro-in-law) and a dress maker (local designer who has made dresses for me in the past ). We had 24 guests (mostly family, closest friends who helped out with transportation, hair, make-up).

Could we have done the wedding cheaper? Absolutely. Especially if we didn't know there would be some cash given to us. Would I change anything at all? Absolutely not. My Pender wedding was just perfect.

Total wedding cost: ~$7,500

Wedding Costs

Rent vs. Buy - the ultimate debate

In cities such as Victoria, BC, buying a place to live requires a large amount of cash (via the lottery, generous parents or equity in your previous home) and the stomach for a very large mortgage. Some say that housing prices are completely overvalued and some cities are severely unaffordable to live in (like Vancouver) and it sure seems that way in this town. Speaking with a mortgage broker is the best way to determine whether you can even qualify to be a homeowner but if they show you how you can squeak into the market, you may want a second opinion. Calculators such as Renting vs. Buying a Home are quite popular with owners and renters to see if you should be in the others' shoes. It shows your total costs between buying (mortgage + expenses) and renting. It assumes you invest the difference between your rent and mortgage...if you don't have the money to invest, then you probably don't have the money to buy. *Make sure you don't check the Federal tax boxes - in Canada there is no capital gains tax on the sale of your principle residence and the mortgage interest is not deductible. The government provides handy calculators as well.

"Shall I rent or shall I buy?" is a hot question these days as housing prices continue to climb (I've been hearing talk of a bubble burst for a while...I have yet to see it, but when I do, my cash will be ready!) and rent seems to be fairly stable (and affordable).

Ben Rabidoux, financial adviser, real estate expert and author of the website The Economic Analyst (www.TheEconomicAnalyst.com) says it best: "The reality is that the majority of new home 'owners' are still renters; they've just gone from renting space to renting money."

Goodbye Student Loan!

Today is the day I have been waiting for since June 2002. My Graduation day from Carleton University was rainy and cold and I'd been locked out of my house an hour before the ceremony with fancy hair but grubby clothes. I made it in time to file into the auditorium, have my name mispronounced and butchered (it's so long it didn't fit on the little cue card they read it from) and get that piece of paper I'd work so hard for. My degree reads: Bachelor of Arts/Honours/Mass Communication/Minor in Business. Phew! All those accounting and journalism classes were finished forever! (Well, at least until I decided to do my Certified Financial Planning designation, but that's another story).

My $20,000 four-year party had come to an end. But what was just beginning was my nine-year loan-repayment journey.

Thanks to attending school out-of-province and an exchange year in England, I graduated with about $25,000 of student loan debt. The government graciously gives you 6-months grace period when you graduate to find a job and start repaying. This meant that in November 2002, my repayment amount was over $25,000. In fact, I didn't get back to the original debt amount I'd graduated with until February 2003.

The hit list:

  • Government Canada Student loan (direct through Gov't) $11,000
  • Canada Student loan (via the bank) $7,000
  • Provincial student loan $1,000
  • Bank student line of credit $6,000

After graduation I chose not to consolidate my loans into one single debt with one interest rate and one payment. This worked out best for me in the long run as it allowed me to pay off loans individually (the last one having a variable rate). However, consolidation may be the right option for your loans, read more here: Office of Consumer Affairs.

Because of varying interest rates and payments, it's hard to use a calculator (like CNN's money one) to determine the exact interest I paid on my loans. However, from old statements, tax returns and payments my best estimation is that I paid over $12,000 in interest over the past nine years. That means I paid back over $37,000 total - or more than $4,000/year.

That same $4,000/year (or $340 monthly, on average) in my pocket would have done wonders for my RRSP. If I'd put that same $4,000 into my RRSP instead of repaying the loan, I would have about $47,000 by now (assuming a modest 5% growth overall to account for the recession, etc.).

The bottom line is that loans are very costly and should be avoided if possible. Even after working summers (and three jobs in fourth year), scholarships and bursaries, I still needed to borrow money to go to school and I paid the price in repayment. My goal was to have my loans paid off by 30 (I'm still 30!) so I'm happy. I understand parents who are dead-set on making sure their children don't go through the same thing some of us did - $35,000 can make a big difference when you're buying a house and starting your own family.

Some quick Do's and Don'ts for loans (and student loans):

  • DO negotiate the best interest rate available (this could mean using your mortgage lender or your parents) - this can be done during the repayment period as well; it never hurts to ask
  • DO make higher than minimum payments and lump sum deposits when possible (I'd be paying my loan for at least another 8 years if I'd only made minimum payments)
  • DO work towards your goal before borrowing (I started saving for University in Grade 11)
  • DON'T take the maximum amount the lenders will give you
  • DON'T go into default - if you can't make a payment at the scheduled time, contact the lender immediately
  • DON'T borrow more or spend more just because you have access to the money

Happy saving, everyone!

Cupcake Conversations!

Every Thursday in March we'll be at Crumsby's in Oak Bay. Meet Financial Planner Alyx Gilgunn, Realtor Patricia Kilshaw and Mortgage Broker Liz Prins between 1:30-2:30 and ask any questions you may have! Questions like "Why is the Sky Blue?" welcome!

Read More

Can you read your credit card contract?

Whining about your credit card debt is not a plan Creditcards.com asked some lawyers, professors and grad student  to try and decipher a typical credit card contract. If these people can't figure it out, how do you think the average North American fares?

Some credit card agreements require a 15 grade reading level (third year university level) while the average American reads at a ninth grade reading level.

How does your contract stack up? Have you read it? Do you know what your minimum payment is and how it is calculated? Do you understand how the finance charges are calculated and what your grace period is? What happens if you go over your limit? Most importantly, what is your interest rate and is that the lowest it can be?

Canada's Economic Action Plan is working to help Canadians help themselves. Check out this link for more information.