Alison in PRINT

Inheritance hopes dashed ...

Toronto Star - February 18, 2010

Q: I am 37 years old, single and work in medical equipment sales. I earn $62,000 and usually $10,000 annually in bonuses. I’ve always bought whatever I wanted and never saved much except $4000 in a tax free savings account. I rent a nice condo for $2,700 and have a leased BMW. I go to a spa every year which costs about $7,000. Most months I can’t pay off my credit cards ($14,000 owing) and I am usually behind on my $57,000 personal line of credit.

Every year my father has given me $5,000 at Christmas and $2,000 on my birthday which breaks me even. My father died two months ago and I am ashamed to admit that I thought he had quite a bit of money since he was always so generous. I expected to inherit so I never worried about saving. I was shocked to discover that he has almost nothing. The lawyer tells me that after his debts are paid I will be getting less than $3,000.

I don’t know where to start to get control of my money. MW

A: I suspect that the loss of your father coupled with your profligate ways has you feeling guilty and panicked at the same time. You expected your father’s death to bail you out and now you don’t have him or the expected inheritance.

Begin your new financial life by getting rid of the old one. Dump the out-of-your-pay bracket condo and BMW -- or do so as soon as both leases expire. Spa-at-home is your new vacation. And whenever you utter or think the words, “I want,” with respect to a purchase, go clean the bathroom.

Oh yes, that bonus has one destination only -- debt. The higher interest credit cards first and then the line of credit. Even with your income, considering your lack of assets, I can’t imagine why you were able to get such a large one. The bank did you no favour!

Hold on to the tax free savings for emergencies. With discipline and downsizing you should be out of your debt hole in three to four years and can start saving for your retirement.

Q: My parents lost half of their retirement savings during the .com bust and had to sell their house. They got out of the market completely and invested in a condo in Arizona. It went from being worth $275,000 to $140,000. They’ve had it for sale for over a year. My parents now live in a rented townhouse and they are both very depressed.

I’m 41 and have saved up $130,000 in my RRSP but I am terrified to do anything with it. Every time I talk to an advisor at the bank they tell me to invest in mutual funds. I actually feel sick thinking about making the wrong move. Mohammed F.

A: I feel sick too just thinking about your parents. I’ve heard far too many such stories. But yours doesn’t have to have the same ending. From the tone of your letter, I doubt you will ever be comfortable with any kind of investment that doesn’t have a guaranteed return. While both the stock and the real estate markets do go up over time, they also have a troubling tendency to decline -- your parents experienced both and since they are older they don’t have the luxury of waiting out the downturn.

You have enough money to invest in a mix of government and the highest quality corporate bonds. Avoid bond mutual funds. Ask the investment advisor at the bank to walk you through a laddered bond portfolio. Keep the durations shortish, i.e. bonds that will mature between two and eight years. As they come due you can simply roll them over into new bonds. Safe and easy on the nerves.