Business

Answering the reader’s questions

Jane Split has just separated
from her husband. Suddenly, she
has to make some heavy financial
planning decisions.

“Should I sell the townhouse
and rent, or take my share of the
proceeds and buy a car, some
furniture, put some money into a
Tainy day account and use the rest
for a down payment on another
place farther out of town where I
might be getting a job transfer?”
she asks.

“How can I save on the extra tax
I now have to pay on my child
support?”

“Tl need money for education
for my two girls. And I also want
to retire at 55.”

Split (not her real name) com-
pleted the 16-question entry form
which appeared recently in this
column. She was chosen as one of
the five winners whose situations
were reviewed at the Canadian
Association of Financial Planners’
Pacific Planning School.

“My approach to money man-
agement needs some work,” she
said. “Right now, what I haven’t
budgeted for goes on MasterCArd
and I worry about it later. I pay
myself — that is, save — last, if
any money is left.”

With her job, child support and
family allowance, Split has an
income of about $36,000 a year.
Expenses include $784 a month
for a live-in nanny.

Split has $4,500 divided
between mutual funds and guar-
anteed deposits in an RRSP plus
another $4,000 in non-RRSP
mutual funds. She expects a
$3,000 tax refund and plans to
spend the money on a family
holiday,

“T put the girls’ family allow-
ance cheques into a mutual fund
and their grandparents have set up
two $5,000 term deposits for their

future education,” said Split.

Debts include the life-insured
mortgage and a $2,000 balance on
her line of credit. Split has
$75,000 in group coverage at work
but feels “life insurance is gener-
ally a waste of money.”

She hopes to negotiate an
increase in her child support pay-
ments to at least $800 a month
when the divorce is finalized.

Eight groups of eight to 10
planners each reviewed Split’s
case at the CAFP seminar. Peter
Baigent, education committee
chairman, was in charge of having
all the recommendations con-
densed into a single report for
Split. Here are the highlights:

— HOUSING. Stay put for now.
Find out if your job transfer is
definite and wait until you reach a
settlement with your husband.

If the transfer doesn’t come
through, for example, and you
negotiate a lump sum settlement
from your husband, perhaps you
could buy out his interest in the
home.

Own rather than rent; profit on
sale of a principal residence is
tax-free while income on invest-
ments is taxable. And your home
provides a hedge against inflation.

‘My approach fo money
managemeni needs some work,”
she said. “Right now, what! haven’t

budgeted for goes on MasterCArd
and I worry about it later. | pay
myself — that is, save — last, if any
money is leff’

—SAVING TAX. Put the maxi- -

mum into your RRSP. If you don’t
have enough income, transfer
some of the non-RRSP mutual
funds into your plan. Use the tax
refund you get to pay down the line
of credit and mortgage.

Make sure you claim the
~ equivalent-to-married” amount
for one of the girls and the maxi-
mum child care expense.

Your $3,000 tax refund indicates
you are having too much tax
deducted. Have Revenue Canada
give your employer permission to
withhold Jess tax, and use the extra
take-home pay to eliminate debt,
then build savings.

— RETIREMENT, Even with
maximum RRSP contributions,
you will need additional savings to
retire by 55 — and with present
expenses, aiming for 60 or 65
might be more realistic.

Review all investments annually
to make sure they are performing
as expected and have a balance to
cope with the changing economy.

— EDUCATION. If the grand-
parents are alive, they are sup-
posed to report the interest earned
on the money they gave the girls
until the girls are 18. Consider an
RESP (registered education sav-
ings plan) to avoid this tax prob-
lem, as well as equity mutual
funds for better long-term growth
potential and better tax treatment.

— OTHER IDEAS. Adjust
expenses and budget to pay your-
self first. Replace the nanny with a
rent-paying babysitting tenant. Get
rid of MasterCard; use line of
credit for real emergencies only.

Consider owning life insurance

-on husband to guarantee funds for

child support if he dies. Check
beneficiaries on both your per-
sonal and group life insurance to
make sure children rather than
husband are named as beneficiar-
ies.

If husband does increase sup-
port payments rather than offering
a lump sum settlement, see if you
can borrow from your parents to
buy out his interest in the home.

Mike Grenby is a Vancouver-
based columnist and independent
personal financial adviser; he
will answer your questions as
space allows in his column —
write to him clo The Review, Box

TheReView Wednesday, June 20,1990 — Aig ®}

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Tax burden stable
Tax Freedom Day, the day Cana-
dians start working for themselves
will be June 30 this year, the same
as last year, according to calcula-
tions released last week by the
Fraser Institute of Vancouver.

Tax Freedom Day is the day the
average Canadian family has done
enough work to pay the year’s total
tax bill imposed by the various
levels of government.

In 1961, Tax Freedom Day fell
on May 3, meaning that Canadians
had to work 58 days less than now
to pay the tax man.

New UBC building

Advanced Education Minister
Bruce Strachan gave permission
last week to the University of
British Columbia to call for ten-
ders on a new $12.1 million Univ-
ersity Services Building.

The new building will house
plant operations, a printing shop
and a mail sorting and processing
_ facility.

a

MOORE ROBERTS & CO.

Chartered Accountants
and
Saanich Peninsula Chamber of Commerce
present

“Doing Business
with the G.S.T.”

How it will affect your business
An information session with
Revenue Canada

a Dunsmuir Lodge
June 26, 1990
7:30 p.m. - 9:30 p.m.

For free registration
phone the Chamber at:

656-3616

Please note: Advance registration only.
Limited to 50 persons

Working for a
better world.

Call 1-800-663-0340 toll-free or
in Vancouver Call 682-6457 for

more information, or pick up a
job application at your Canada

Empl ene Centre.

youth
Corps

of Latin Colimnbia

Boss

British Columbia

Handle with care

Honourable John Reynolds,
Minister of Environment

Ed