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Unexpected Costs Threaten To Ruin This Financial Plan: A Boomer & Echo Financial Makeover

Heather and Luke Weslowski got married five years ago. Heather had two children from her previous relationship, Felicia (8) and Adam (10). With their combined incomes of over $100,000, they thought their financial resources were more than enough to enjoy the good life.

The couple purchased their home six years ago with 5 percent down and a sizeable mortgage. They both brought student loans and credit card debt to the marriage.

Related: Should you pay off your partner’s debt?

When Heather (33) went on maternity leave after new baby Rory was born they were reduced to one income and felt the pinch. They realized that when she returned to work they would have to make changes, get their priorities in order, and prepare a financial plan.

Working together they determined what they both wanted for their family’s future. Being debt free was a major goal and they worked out a strict plan to pay all but the mortgage within three years. They discussed their weakness when it comes to money. The main one was if there was an outstanding balance on their credit cards then it became too easy to charge more purchases.

They were determined to increase both their retirement savings, open RESPs for the children and go on a memorable family trip in the near future.

Heather is very detail oriented and she continually revised their budget to cover all their expenses but also to have some money put aside for the occasional fun treat.

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Their plan was working well until disaster struck. Several large unexpected expenses in a row depleted their emergency savings – a hefty car repair, dental work that was not covered by company benefits, and a trip across the country to Luke’s grandmother’s funeral. Then the furnace quit working and they paid for a new one out of their vacation fund.

“I really didn’t want to touch that savings account, but I knew if we put it on the credit card, it would be too much of a temptation to say – Oh, to heck with it, what’s a few more purchases! – And we’d be back with a big balance to pay off,” says Heather.

“I thought we were doing so well,” says Luke (38), “and then it’s one expense after another. I feel like we’re back to square one. It’s really discouraging.”

Financial Goals:

  1. Pay off debts.
  2. Set up RESPs for their children.
  3. Retirement savings.
  4. A great trip the whole family will enjoy and remember.
  5. Develop the basement in their house to give them more living space.

Here’s what they can do

The first thing the Weslowski’s should do is take a step back and see how well they have actually done in other areas of their financial plan.

Related: 6 steps to creating a sound financial plan

If they take a look at their original net worth statement and compare it to the present, they will find that:

  • The credit cards and student loan debts are paid in full.
  • By switching to accelerated biweekly mortgage payments, the balance has reduced noticeably.
  • Automatic transfers to both their RRSPs and the RESP – and some good market returns – have been steadily increasing their portfolio.
  • They’ve accumulated savings for their yearly expenses – insurance, property taxes and holiday spending.

The couple will see that their financial plan is actually working, and they should celebrate their progress and continue what they have been successfully doing. Money has already been set aside in their budget to go to their emergency savings and the vacation fund. They did not succumb to their money weakness of charging their credit cards up to the maximum balance again.

Related: What will it take for you to save more this year?

To boost their savings balances – and not feel as if they are starting from scratch again – they have a number of options.

They could:

  • Temporarily rework their budget to funnel extra cash to savings.
  • Work some additional overtime.
  • Take on a freelance project.
  • Sell some unwanted possessions on eBay, or at a garage sale.
  • Brainstorm other ways of getting some cash.

The bottom line

You develop your financial plan, take action, and feel really good about your progress. Then life has a habit of throwing a monkey-wrench into your plans – expectations are not met, unexpected expenses come up that are not quite prepared for, you experience poor investment returns or the stock market falls, a life-changing family event requires you to go in a totally different direction. Setbacks can be frustrating.

Related: How to overcome financial inertia

But, it’s very rare that your whole plan falls apart. Review your goals again. Make adjustments to your action steps. Don’t succumb to your money weakness. Celebrate your success. Stay engaged with your plan, move forward, and know that it’s all going to come together.

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7 Comments

  1. Dan Geronson on June 12, 2015 at 5:53 am

    I know how they feel. When we first got married for the first 6 years, we had savings build up and then be depleted from big expenses coming almost every few months.

    We had 3 car repairs, 2 furnace break downs, plumbing work to be done, hot water tank replacement, a couple of weddings, funerals to go to out of city by 3 to 4 hours, childcare expenses that increased $150 a month in 2 years etc. etc.

    I would say to them and anyone else trying to save, invest and build RRSP’s,RESP’s, TFSA’s etc, don’t get discouraged, frustrated because after those 6 years, we built up our savings, RRSP’s and other investments.

    We are completely debt free. We now have after 25 years of marriage, a fully paid off house worth $425,000, 2, 6 year old cars paid off, $285,000 in RRSP’s, $35,000 in RESP’s being used for our 2 wonderful kids, 18, 19 years old, $85,000 in GIC’s, $35,000 in ETF’s, $88,000 in TFSA’s and a higher interest savings account of $28,000.

    We are also putting the maximum, $1,600 a month in RRSP’s and taking our $550 a month RRSP tax refunds into our savings account each month.

    Our TFSA’s are being maxed out at $5,500 each a year, $11,000 combined annually but we did take some maturing GIC’s and took advantage of the extra allowed amount for our TFSA’s by another $4,500 each, $9,000 combined in 2015.

    We would never of guessed that we could achieve all this at ages 47, 48 years old. Keep going and don’t give up.

  2. Tom on June 14, 2015 at 5:33 am

    I didn’t know anyone bought GICs anymore with rates so low.

  3. Linda Falkon on June 14, 2015 at 8:21 am

    Tom, the last time I heard Canadians have $850 billion in GIC’s so there is still a decent market for them.

    I wait until interest rates rise a little bit. I agree that GIC rates are low now but I acquired some GIC’s in 2011, 2012, 2013, 2014 at 3.00% to 3.6% rates.

    I did buy some GIC’s in the beginning of 2015, 2.95% was the highest rates I could find. I have not bought that much in GIC’s so far this month as the highest GIC rates I could find is 2.70%.

    I am in a overall lower tax rate of 13% for total income is $40,000 a year. However, my marginal tax rate is 23%.

  4. Linda Falkon on June 14, 2015 at 9:01 am

    Tom, there are other guaranteed, government provincial bond investments that compound higher interest rates at 3.4%. The problem with them is they are much longer term then 5 year GIC’s.

    They are 17.5 years.

  5. Mary Thompson on June 15, 2015 at 11:51 am

    I just bought 2 year GIC’s with a Luminus Financial at 2.5% rates.

    For the term, 2.5% is not bad. This is for my safe bucket of money so I don’t have sell my stocks, ETF’s, bonds, REIT’s etc. when there is a downturn in the market.

    I bought a 3.10%, 5 year GIC in January-2015 as well so I have a ladder of GIC’s. I have 3 years of living expenses and income taxes, property taxes laddered in these GIC’s.

  6. Lina Santinelli on June 18, 2015 at 10:33 am

    Linda Falkon, you may want to get higher interest rates on some corporate bonds that are compound interest.

    A few I invested in are Bell Canada 4.55%, Canadian Tire 4.35%, Telus 3.5%, Loblaws 4.45%.

    These are 17, 13, 10, 18 year maturities in this order. I use them in my RRSP’s and TFSA’s.

  7. Liam Stanford on June 19, 2015 at 6:47 pm

    Tom, my spouse and I don’t know when interest rates will rise and by how much and we can’t afford to have our fixed income portion which is 66% versus 34% equities, REIT’s in short term bonds, GIC’s paying 1.5%, maybe 2.00%.

    We took our $680,000 and split it in equal 3 year, 5 year, 8 year, 10 year, 14 year, 17 year, 20 year, 23 year maturities. These are all split between GIC’s, government bonds.

    This is $85,000 each and so far since 2011, we have are earning 4.00% on average.

    We have a $30,000 liquid account so we can access it anytime.

    Our other $350,000 is split between $200,000 in dividend paying stocks and $150,000 in REIT’s.

    This generated 8.25% since 2013, combined, we have gotten 5.40% combined between fixed income, equities, REIT’s. We are satisfied.

    Our retirement is right on track.

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