Wonder Woman
Money Sense Magazine, October 1 2007
Julie Cazzin
You can get tired just listening to Lee and Marina Carter’s daily routine. The couple is raising five kids while holding down two jobs - and all of this while Marina is going to law school part time. Lee, 44, works in a public relations firm in Calgary, earning $85,000 a year, while Marina, 33, works evenings as a web editor for a local television station, making $55,200 a year.
On a typical weekday morning, Lee tends to their three-year-old and two-year-old daughters while Marina drives the three older boys to school. She then rushes back to look after the younger kids until noon. That’s when a nanny arrives. The nanny stays until 6 p.m. while Marina attends law school. From 7 p.m. to 11p.m. every weeknight and many weekends, Marina heads off to her job while Lee watches the kids. “We’re both workaholics,” says Marina. “But my going to law school is making things financially difficult. We’re both working hard, but just breaking even.”
The Carters (whose names we’ve changed) worry about what will happen in September 2008, when, according to university rules, Marina must start attending law school fulltime. “My nanny and my school expenses will cost about $30,000 a year for each of the two years. I’ll be attending law school full time,” says Marina. “If I’m not working, we’re going to have to go into a heap of debt.”
The thought of taking on all that debt dismays the Carters. They have pinched pennies for years to build up their wealth. Their major asset is their house, which has soared in value thanks to Calgary’s red-hot real estate market. “Through financial discipline and good luck in real estate we’ve gone from $100,000 in net worth six years ago when we married to about $700,000 today,” says Marina. “But I feel like we’re house-rich and cash-poor. There are going to be so many financial demands for our cash over the next five years and I just don’t know which concerns to address first.”
One solution to their financial worries would be for Marina to keep working, at least part time, during 2008 and 2009 when she is attending law school full time. Another solution would be to re-mortgage their home and take on another $100,000 in debt to cover expenses during those two years.
They wonder if they should borrow even more. At the moment, their home feels as if it’s bursting with kids. In addition to their three- and two-year-old daughters, there are Lee’s three sons, aged 14, 13 and 11, from his first marriage; they stay with him and Marina half the time. To accommodate their sprawling brood, the Carters would like to renovate their 40-year-old, four-bedroom bungalow and put on an addition. That would cost them $200,000. They could wait until Marina graduates and gets settled into her new profession before expanding their home, but if they do so, the oldest kids will be on the verge of leaving for university. “We’d like to have the extra space now, when we need it most,” says Lee. “But we worry about taking on so much debt while Marina is not working.”
The Carters don’t want to leave themselves so crippled with debt that they’re forced into taking jobs they don’t like. In fact, Lee would like to quit his job in five years so that he can write books and magazine articles. “But the demands on our money right now are huge,” says Marina. “Will we pay a big price for taking on more debt and putting our
savings aside for a few years? After so many years of being stingy, it’s hard to look at things objectively. We want to make the best choices for both our lifestyle and our finances.”
Marina keeps spreadsheets on her family’s finances, detailing where every dollar will go until 2050. She developed her fascination with personal finance as a teenager. Her father was a charming and successful salesman, who earned $200,000 a year selling construction equipment. But his family was always in debt. “No matter how much they earned, my parents always seemed to be running just one step ahead of the bill collectors,” says Marina. “I knew we should feel wealthy, but we felt poor. That’s colored the way I view money ever since.”
At an early age, Marina became a supersaver. “When I finished university, I just went on living like a student,” says Marina, “I rented a room for $300 a month, and I did that for five years. I was spending $15,000 a year but making $60,000. I saved every penny I could.”
Given her financial acumen, Marina has taken on the job of overseeing all aspects of the Carters’ financial life. Lee is fine with that. He grew up in Vancouver, the son of schoolteachers who paid for most of his university tuition. After graduation, he landed a full-time job in a public relations firm and blew most of his earnings on nice suits and art. “But I did do one thing right,” he says. “I bought a small house. I was never much good at saving, but I was good at making regular monthly payments.” Two years later, he married and soon was a father, too. He and his wife divorced in 1998. “I walked away from that marriage with $25,000” says Lee. “My wife got the house. I had to start over again financially.”
Lee met Marina at a Christmas party in 1999. A year later, they were married. “My kids liked her right away,” says Lee. “She’s a bundle of energy and always on the go. And I liked the way she manages money. I never had savings goals before I met her. She’s been good for all of us.”
In 2002, the couple bought their bungalow for $459,000. They put down $80,000 and have made extra mortgage payments whenever they could. They have succeeded in reducing their mortgage to $196,000 on a home that is now valued at $725,000. Their other assets include $152,000 in RRSPs and $10,000 in RESPs for the kids. “Apart from a few oil stocks, my RRSP account was a disaster,” says Lee. “Now Marina has us doing MoneySense’s Couch Potato model. It makes sense for people like us who don’t have time to research the stock market.”
The Carters figure that their No. 1 job over the next few years is getting Marina through law school. When she graduates in 2010, she can expect to earn $50,000 during her articling year. Once she passes her law exam - usually written the year after articling - her salary will increase by about $10,000 a year. She can also expect annual bonuses beginning at $10,000 and moving upward rapidly.
Unfortunately for the Carters, they can’t put their life on hold while Marina gets established as a lawyer. In addition to expanding their house, they would like to beef up their children’s RESPs. Thanks to contributions from grandparents and Lee’s first wife, the three older ones are on track to have $40,000 each by the time they go to university. The Carters have so far accumulated $5,000 each for their two younger children and would like to have $60,000 for each of them by the time they reach college age. “Maybe $75,000 each if I can swing it,” says Martha, before she rushes off for another full day of work, school and mothering.
What the experts say
The Carters should be applauded for their financial acumen, says Danielle Park, a Chartered Financial Analyst and lawyer in Barrie, Ont. “The key to financial success is discipline and self-restraint,” says Park, who recently published Juggling Dynamite, a personal finance guide to investing and risk management. “The Carters have practiced those habits and they’ve built up a great foundation for the rest of their lives.”
Park feels that the Carters should arrange their finances so that Marina does not have to work for the two years that she will be attending law school full time. Warren MacKenzie, president of Second Opinion Investor Services Inc., a financial advisory firm in Toronto, and the author of The Unbiased Advisor, concurs. Both experts think it would be foolish for the Carters to sacrifice their quality of life for a bit more money in the bank.
MacKenzie says Marina seems like the type of person who delights in cramming as much work as she can into her life - but she should remember that her two young daughters may not feel the same. “She should focus on giving her two younger children as much time as she can,” says MacKenzie. “She should spend the rest of her time studying instead of working. By doing so, she’ll have better marks and get a better job with a better law firm. Believe me, the higher income she’ll get by having those better marks will more than replace the money she could have made from a part-time job.”
It’s true that the Carters will have to borrow money to make ends meet while Marina is in law school - and there’s nothing wrong with that. “The Carters should look at the cost of law school as an investment that will pay huge dividends over time,” says MacKenzie. “In these circumstances, it makes perfect sense to borrow to go to law school.”
Our experts say the Carters should adopt the following strategy:
Cut lifestyle spending. Park suggests the Carters should immediately throttle back on their lifestyle to reduce the amount they have to borrow over the next couple of years. Forgoing vacations and cutting back on birthday gifts and entertainment could save them several thousand dollars. “They should think in terms of what they need to give up to make their dreams come true, rather than what debt they can pile on to get there without
making lifestyle changes,” says Park.
Avoid unnecessary stress. Park went to law school when she had two small children and she knows the stress of trying to be both a good student and a good mother. She thinks that Marina would be foolish to try to work as well during that time. “Second year was the hardest of my three years in law school,” says Park. “I think Marina will do much better academically if she just concentrates on getting good grades.”
Borrow from Marina’s RRSP.
Many people regard RRSPs as sacred vessels that should never be touched until retirement. In cases such as this, however, it makes perfect sense for the Carters to tap Marina’s RRSP for funds, our experts say. The RRSP money will reduce the amount the family has to borrow and, as long as Marina starts rebuilding her RRSP as soon as she graduates, the impact on her retirement savings will be minimal.
Marina should take advantage of the Lifetime Learning Program (LLP), which allows full-time students to withdraw up to $10,000 a year tax-free from their RRSP. She will have 10 years after she graduates to repay the money to her plan.
Our experts suggest that Marina also withdraw a further $10,000 from her RRSP during each of the two years she’s in full-time law school. “In total, her RRSP withdrawals will give the Carters $40,000 over two years,” says MacKenzie. “This reduces the amount the family has to borrow. Better yet, the taxes Marina will pay will be minimal since her income during this period will be low. Anytime you can avoid borrowing by taking money out of an RRSP at little or no tax, you should do it.”
Tap their savings. The family has $10,000 in their savings account. The
Carters should use those savings for law school fees and other expenses, say our experts. If the Carters should happen to run into a financial bind during that time, they could always take out a loan secured by the equity in their house.
Increase their mortgage. The Carters will have to raise at least $100,000 to get them through Marina’s two years of full-time law school. Assuming they tap their savings and her RRSP for a total of $50,000, they will have to borrow another $50,000 to make ends meet. The cheapest way to borrow that money is to increase their current mortgage. “They should do this now, while Marina is working, to get the best deal possible,” says MacKenzie.
Forget the home renovation. Sorry, say our experts, but the Carters should forget about the proposed addition. Tearing up their home while Marina is in full-time law school could lead to chaos for the family and lower grades for her. The Carters should remember that the space crunch is temporary. In four years, when Lee’s oldest son goes off to university, the need for more space will disappear.
Do things in order. Our experts believe the Carters biggest obstacle may be their desire to do everything at once. The Carters must establish priorities.
Right now, the biggest priority is getting Marina through law school while maintaining a happy family. Once Marina begins working as a lawyer, the Carters should use her income to pay down their debt, beef up RESPs and contribute to RRSPs - in that order.
To make all this happen, Park suggests that Lee postpone his dream of retiring in five years to freelance. To ensure the family’s financia1 stability, he should wait until he and Marina have paid off all their debts - including their mortgage. Clearing the debt will ensure that no illness, bad investment or other set back can destroy what the family has built.
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