The current situation: When 24-year-old James Fisher graduated with a degree in business administration three years ago, he started working towards his lifelong goal of having a net worth of $1 million by age 50. “I’ve been interested in money since I was a boy,” says Fisher, who lives in Ottawa. He paid off his $21,000 student loan with money from his $52,000 salary and $10,000 bonus from his job as a bank manager. His parents helped by giving him a 20% down payment on his $300,000 condo—he’s renting out a bedroom for $550 a month to help with the mortgage. James currently has a net worth of $132,600, most of which comes from the condo.

Right now James is saving $500 a month and he plans to invest his annual bonuses as well. He won’t make any more RRSP con- tributions, however, because he doesn’t like the idea of having a large tax liability in the future. James has $6,600 in an RRSP and $6,000 in a non-registered account, mostly in exchange-traded funds. “I’m concentrating on the equity markets,” says James. “That’s where I believe good future gains will be.”

The verdict: James should be able to meet his million-dollar goal, as long as life doesn’t throw him a curveball, says Jason Heath, a fee-only adviser and partner with Objective Financial in Toronto. If James increases his current savings in line with future pay raises, he will actually have close to $2 million at age 50, assuming an annual rate of return of 6%. However, this would require him to invest using RRSPs: although they result in tax upon withdrawal, they also provide a tax refund that James could reinvest. If he continues investing outside his RRSP, he’ll have $1.6 million by age 50. Heath reminds James that he’ll keep more of his returns by maxing out his Tax-Free Savings Account (TFSA) before using non-registered accounts.

What could throw James off track? Marriage, kids and a bigger home could put a wrench in his plans. And don’t forget, $1 million in 26 years will be worth about $598,000 in 2012 dollars, assuming 2% inflation. While that’s not pocket change, it may not provide James with a millionaire’s lifestyle.

The breakdown:

ASSETS

-Condo $300,000

-RRSP $6,600

-Non-registered investments $6,000

-Total assets $312,600

LIABILITIES

-Mortgage (at 4%) $180,000

-Total liabilities $180,000

NET WORTH: $132,600

The iShares ETF holds Canadian companies with strong social and environmental records. Masui should gradually increase the proportion in the bond ETF until it reaches 100% in eight years.

But I was no good as a songwriter/producer if I wasn’t able to make a proper recording, and recording equipment is expensive—microphones alone can cost more than $5,000 and preamps cost $3,000 to $6,000 each. By the time I was 27, I had purchased $50,000 worth of gear and was flying all over to pitch my songs.

I had so much personal debt that it kept me up at night. But I was young and only had myself to answer to, and I had this feeling that something big was going to happen. That’s when Céline Dion cut one of my songs, “A New Day Has Come.”

It was a surreal moment when I received the news. I had confidence in myself, but this was the ultimate endorsement. I went dancing around the living room screaming and shouting. I knew this was big. It was the beginning.

A lot of people think that a hit song in Canada generates a lot of money, but it really doesn’t. It’s only when your song becomes No. 1 internationally that you begin to collect. Then songwriters can make north of a million dollars on just one song.

When that first hit came, I paid off all my debt and started putting some money away. But I didn’t want to give up on my dream of recording my own songs, so I also built a recording studio in downtown Toronto. While it was a place for me to create my own music, it was also a wise investment, as it has been booming ever since.

My main revenue streams are performance royalties when my songs are played, and mechanical royalties when people buy my music. The money comes in quarterly and semiannual lump sums, and you do your best to predict how much the royalty cheque will be. One quarter can be modest while the next can be bring in ten times that amount. The uncertainty can be tough to juggle, but over time you get better at anticipating and adjusting. When I see a big cheque, I don’t spend it immediately. Right off the top, 40% goes away towards taxes. Also, I have a wife and two kids, so I would be crazy not to have a safety net. I pay into RRSPs and RESPs and all those things you do for your family. After my bills and living expenses have been paid, a lot of the money must go toward growing my business.

Thankfully, when you write a hit song for someone like Céline Dion, Josh Groban or Sarah Brightman, it gives back to you in perpetuity—it’s intellectual real estate with the potential for an endless stream of tenants. That helps when I take risks.

Take the 2010 Olympic theme song, “I Believe,” that I co-wrote with Alan Frew. Even to pitch that theme to the Olympic consortium, I had to take a huge leap: that was a very expensive demo. I spent tens of thousands of dollars on musicians and studio time. That was money I was going to lose if they didn’t like it. I knew we had something special, but there were no guarantees.

For me, financial freedom equates with artistic freedom. Despite success as a pop songwriter, I’ve also made two well-received piano records, Exposure and Color. Those are the achievements I hold closest to my heart. I was trained in music from an early age and graduated from the University of Western of Ontario with a bachelor of music in 1994 and it was pulling at me to do an album with just me and my piano. In order to gain more control over the record, I created a label called Bijou Records. I didn’t want to have to answer to a recording industry executive who would question whether the record was commercial enough to sell.

In fact, those albums have done very well and they are probably some of the most honest work I have done. This creative freedom would be impossible without my hard work and success as a pop songwriter. By writing songs that are catchy and popular, I’m able to forget about the money and focus on making good music. Somehow, what I do connects with people and it all works out. I am one of the 1% of musicians who are able to make a living at my craft. It’s a beautiful life that I live. M

Stephan Moccio has helped sell over 18 million records worldwide. He lives in Toronto and is currently a judge on Canada’s Got Talent.

Erica has to tell her employer this month if she will take the $90,000 buyout offer that all workers under age 50 were offered. That would mean giving up job security and health benefits, and reducing the future payout from her gold-plated pension plan. “I admit the benefits have saved me from big dental bills over the years, but I don’t really want to stay in a job I dislike for 10 more years simply because the pay and benefits are good,” says Erica. “Even though the compensation from my freelance work isn’t as great, I love the challenges of translation and the fact that it continually allows me to learn and improve. That brings me great satisfaction. Still, I want to be realistic about my finances.”

Erica would like to take the buyout, put $40,000 in her RRSP and deposit the remainder—$35,000 or so after tax—in a chequing account. She can draw on that money to augment the $40,000 annually she figures she’ll earn if she concentrates on her freelance business—without working evenings and weekends as she does now.

Erica also has a second reason for wanting to leave her job. For the past two years she has been involved in a long-distance romance with her fiancé, Jim Wheeler, who lives in Buffalo, N.Y. He’s 54 years old and works as an engineer, making $160,000 a year. Erica met Jim, who divorced his wife a decade ago, through an online dating service. Right now, he’s putting his two sons, ages 18 and 19, through college in the United States. “Jim is good with money,” says Erica, “but the next three years will be expensive for him because he has to pay huge college bills for his sons, as well as alimony to his ex-wife.” She says Jim has amassed more than $550,000 in retirement savings and other investments in addition to paying off his $180,000 house.

Erica and Jim dream of getting married in five years and living under one roof. By then their children will all be on their own. The couple wants to sell their homes and settle down someplace in Canada or the U.S., “somewhere where there are lakes and mountains and health-care services that would suit us best,” says Erica.

Right now Erica’s primary asset is her $200,000 home in Ottawa, which carries a $50,000 mortgage at 5.6%. Her other investments include $200,000 in an RRSP, $95,000 in a non-registered investment account and $30,000 in an RESP for Phillip. Taking the buyout would mean she would get a reduced pension of $300 a month at age 55. But if she works until age 55 and then retires, her pension will grow to $1,200 a month for life.

Money will be tight if Erica ditches her job to go freelance. “I won’t be able to save much, even though I live very frugally,” she says. And while she enjoys running her translation business, Erica wants to wrap it up in a few years so she can retire at age 55 at the latest.

Many questions remain. Do Erica and Jim have enough to last them through 35 years of retirement? Would they be better off financially to settle in Canada or the U.S.? They have run the numbers and figure they’ll need $60,000 in annual after-tax income at retirement, and they aren’t sure if their assets will last them a lifetime. “Can we collect our Canada Pension Plan and Social Security benefits, regardless of where we live?” asks Erica. “Would health care be too expensive in the U.S. when we retire? We really need the answers to these questions before we can make a final decision about my job. The next 40 years of our lives may be riding on it.”

Before Jim came into the picture, Erica was very much on her own. She concentrated on raising her son Phillip and didn’t date much, preferring to spend any free time with family and good friends.

Erica originally met Juan, Phillip’s father, when she was 33. “I was attracted to the fact that he was bright, he spoke Spanish and he was a very good dancer,” says Erica, an Ottawa native who spent her 20s and 30s working at odd jobs and earning a master’s degree in translation. She never married Juan, a travelling salesman originally from Spain. He left the country when Phillip was two, and Erica never claimed child support. She and Phillip haven’t seen or heard from him since. “I realized right away that chasing a man across the globe with a bunch of expensive lawyers is not a fruitful proposition,” says Erica. “I raised Phillip on my own and it’s the best thing I ever did.”

At 41, Erica started working for the federal government. Two years ago, she met Jim, who works as an engineer at a Buffalo-based telecommunications company. “I love Jim’s big brain and his big heart,” says Erica, who spends two weekends with him every month. “It was love at first sight. You don’t wait this long to find a good partner and not know what you want.” The couple often spend their vacations together so they can take advantage of their shared passion for snowboarding, skiing and skating.

Between the two of them, they have $1.3 million in assets. That’s a good thing, because over the next five years, the couple doesn’t expect to add much to their nest egg. Jim will be paying $30,000 a year in college fees for his two sons and $18,000 in alimony for his ex-wife Sandra, an obligation that will end in three years. “I can probably make $40,000 a year if I freelance full-time and that will be enough for me to live on, but not enough to add anything to savings,” says Erica.

Ever since Erica got the buyout offer, that’s all she and Jim have been able to think about. “I can take a $90,000 lump-sum payment and walk out the door,” says Erica. “But I’m not sure if that’s enough to have the comfortable retirement we want.”

In the meantime, they plan to spend time researching Erica’s Canada Pension Plan income and Jim’s Social Security benefits. They also want to do some research on tax laws in the U.S. and Canada. “If our assets are enough, we will need to decide where we want to live,” says Erica. “It will be interesting to see which country will be more financially beneficial for us in retirement. But there’s so much to consider. It’s overwhelming.”

WHAT THE EXPERTS SAY

Our financial planners agree that Erica is facing a difficult decision. “At first, a $90,000 lump sum seems like a lot of money,” says Al Feth, a fee-only adviser in Waterloo, Ont. “But Erica is only 50 and could well live to 100. That’s a long time and a lot can happen.”

The key for Erica, says Barb Garbens, a fee-only financial planner in Toronto, is to base her decision on her own financial picture—for now. “She doesn’t plan to marry Jim for another five years, and if a brick falls on Jim’s head tomorrow and he dies, she has to be comfortable that her own money and reduced future earnings will be enough to finance her 50s, as well as 30 or more years of retirement living,” says Garbens. “I don’t think that’s the case at this point.”

Still, the two experts believe that by making some sacrifices, Jim and Erica can enjoy a comfortable retirement together. Here’s what they should do.

Keep the government job for now. Erica should hang on to her current job for five more years and retire at 55. For now, she should make looking after herself and her son Phillip a priority. “She is the only one she can really count on,” says Garbens. “Securing a good government pension, health benefits and higher Canada Pension Plan payments has to be her first priority over the next five years.” By staying an extra five years on the job, Erica will quadruple her monthly pension income from $300 to $1,200 a month starting at age 55.

The good news is that government buyouts happen often and Erica may have the chance to take another one closer to age 55. “Working five more years will also give Erica and Jim a chance to save about $200,000 more between them,” says Feth. “With family-related financial obligations gone, their combined net worth at that time would be enough for a very comfortable retirement for Erica at 55 and Jim at 60.”

Do their homework on where to live. “Because Jim is a U.S. resident, there are many financial and tax advantages to retiring in the U.S.,” says Bob Keats, an expert on cross-border financial planning and author of The Border Guide. Once the couple is married, they should remain in the U.S. until Erica has legal documentation to remain there, and to leave and re-enter the country. “If one spouse is a resident of Canada and the other a resident of the United States, you will have endless confusion about which tax, estate and immigration requirements apply,” says Keats.

He adds that New York, where Jim lives now, is one of the worst states to retire in tax-wise. “Much lower taxes can be found in Florida or Arizona, and the cost of living there is reasonable.” For instance, income taxes in Florida are about 11 percentage points lower than taxes in Ontario. That alone can make a substantial difference to Jim and Erica’s annual income in retirement. “In the end, where to live is a lifestyle choice, not a tax-driven choice, but with a little planning and a bit of research, they can have the best of both worlds,” says Keats.

Maximize Social Security. To get the most money from Social Security, Jim and Erica must be married legally, not common-law. Being married to a spouse who qualifies for a Social Security pension would make Erica eligible for both U.S. Medicare and a Social Security pension herself at age 65. She’s entitled to exactly half of what Jim gets if they live in the U.S. “So if Jim qualifies for about $28,000 in annual Social Security benefits at age 65, Erica would be entitled to $14,000 annually for the rest of her life,” says Keats. “She’d also be able to collect her CPP and OAS on top of that.” In fact, she’d probably get more from Social Security than from CPP, despite having worked almost an entire lifetime in Canada.

Make sure they have health-care coverage. Canadians over 65 who have lived in the U.S. legally for at least five years (as Erica will have done if she marries Jim before age 60) are eligible for complete U.S. Medicare regardless of any pre-existing conditions. The cost is approximately $100 per month in Jim and Erica’s case, because Jim will have contributed at least the minimum amount to the program over the years. Before age 65, the couple can consult a health insurance broker to get a policy—a 60-year-old in good health can get coverage for around $350 a month.

Get a financial plan. Jim and Erica should get new wills when they marry, and should decide what to do with Erica’s Canadian investments. A financial plan developed with a cross-border planner will help them manage their tax returns and government benefits. But the key to Erica’s retirement will be the financial benefits she will get from sticking with her full-time job. “I know the government job is boring but Erica really has to push through it for another five years so she can add to her RRSP, pension and CPP,” says Garbens. “All of that is worth its weight in gold when it comes time to collect at retirement. Believe me, the sacrifice will be well worth it.”

How Erica spends her money

Yearly disposable income

Salary from full-time job $65,000

Freelance income $31,000

Minus: taxes and other deductions –$29,270

Net Disposable Income $66,730

Yearly Expenses

Shelter

Mortgage on home (at 5.6%) $8,400

Property taxes $2,500

Home insurance $550

Hydro/gas/water $2,200

Phone/internet/TV $1,680

Home maintenance $2,000

Total shelter $17,330

Transportation

Car insurance $500

Gas $1,500

Maintenance $1,000

Total transportation $3,000

Personal

Groceries $6,000

Clothes, haircuts $3,000

Furniture $1,000

Vacations $5,000

Sports $1,000

Charitable donations $600

Gifts $2,500

Restaurants $2,000

Gardening supplies $200

RRSP contribution $10,000

Miscellaneous $5,000

Total personal $36,300

Total Expenses $56,630

Annual income $10,100

Available for investment (total income minus total expenses)

Where Erica Stands

Assets

Home $200,000

RRSP $200,000

Non-registered savings $95,000

Phillip’s RESP $30,000

Car $15,000

Total Assets $540,000

LIABILITIES

Mortgage $50,000

Total Liabilities $50,000

NET WORTH $490,000

(total assets minus total liabilities)

JIM’S FINANCIAL HIGHLIGHTS

Assets

House $180,000

401(k) (retirement savings) $263,000

Other investments $290,000

TOTAL NET WORTH $733,000

Yearly disposable income

Salary $160,000

Minus: taxes and other deductions –$48,400

Net Disposable Income $111,600

Yearly Expenses

Alimony $18,000

401(k) contribution $15,000

College contributions for sons $30,000

Other personal expenses

(groceries, travel, clothing, charity, etc.) $44,340

TOTAL EXPENSES $107,340

Annual income after expenses $4,260

Available for investment (total income minus total expenses)

Julie Cazzin is an award-winning business journalist and personal finance writer based in Toronto.

Writers of literary fiction naturally recoil from the idea of saying no to potential readers and supporters. After all, we aim to please. We live and die on the number of stars the fickle reviewer awards us on Amazon. We fear the embittered book blogger who found us “aloof” at a recent festival. Ambushed at a book signing, we clumsily decline a reader’s “offer” to “let us read” his unpublished three-volume memoir. And we can just hear the whispers rippling down the queue—“Don’t buy her book. She’s a jerk. And aloof.”

Writers learn early on: the worst thing you can do is displease your audience. We’re a conflict-avoidant tribe in general. We just want to write our books and give readers pleasure. “No” means someone will be displeased, and how can that be anything but bad?

Glad you asked. I learned fast that adopting a professional attitude about what you do means that when the chips are down, you say no. And by “when the chips are down,” I mean “when you are about to be run roughshod over like fresh snow on a playground just before the recess bell.”

Let’s take that wonderful experience of no-saying mentioned above. Currently I’m working at a university as writer-in-residence. This means I’m paid a salary to meet with would-be writers and discuss their literary aspirations. I’ve done this kind of work plenty of times, and for the most part it’s a delight, but there’s always one person in the parade of hopefuls who doesn’t understand the two-part nature of my delight. Part one: I’m working with aspiring writers. Part two: I’m getting paid to do it. If you subtracted part two? That’s half my delight gone right there. And the task abruptly ceases to be delightful altogether, morphing instead into unpaid drudgery.

Yet there’s always that one person who suggests that perhaps, once my time as a paid consultant is up, I’d like to meet over coffee and continue our discussions of his or her work. Because don’t I love writing? And talking about writing? Isn’t that my thing? No.

Novelists generally don’t—and can’t—make a living off the money they earn selling their books. We live off the work subsidiary to book-writing—speeches, readings, workshops, residencies, or writing essays like this one. The running roughshod begins when we’re expected to do this work for nothing, or next to nothing—because it’s not work, not really. It’s just our thing.

Take the anthology editor who asks for an essay but makes no mention of payment. And when you ask for payment, indignantly tells you he’ll share the eventual royalties. And when you ask for a contract, indignantly tells you he hasn’t secured the book deal yet—he can’t until he has actual content to show a publisher and how is he supposed to deliver content if you won’t write him an essay for free, today? So you say no. “Wow,” comes the reply. “I didn’t think it would come down so quickly to the bottom line.” If you missed the subtext, you are a money-grubbing bitch.

And refusing to help someone else write his book for free makes you anti-literature. Meanwhile, your own labour of love—your novel—sits languishing on your hard drive.

Then there was the online workshop that asked if I, as an “expert” on writing, could answer a few questions for their course material. They sent me a list of 40 questions, requesting I respond to every question with “at least a paragraph.” There are 11 paragraphs in this essay.

But with every “no” that’s uttered, the easier it becomes to swim past the breakers of passive-aggressive reproach. (The workshop people replied sniffily that, “All the other writers we contacted were happy to participate.”) Only then do you enter the caressing waters of validation and respect found in more salubrious harbours. I remember the day I decided, when offered a soporific ghostwriting project, to turn down their initial offer and name a rate that would justify putting my novel aside for several months. I thought I was being outrageous. The client agreed to my terms—without batting an eye.

The decision to become a novelist is a deeply unpragmatic one, financially. So the only way a writer can expect to keep her head above water is to be ruthlessly pragmatic in every other aspect of her work. Writing fiction is my labour of love, but writing itself is just plain labour—and highly skilled labour at that. I can never afford to lose sight of that fact.

-Lynn Coady

The current situation: Lise, 40, is currently on maternity leave, taking care of 11-month-old Gabrielle and two-year-old Ethan. “Being on maternity leave is a financial drain,” says Lise, a sales trainer who earns $65,000 annually. “We started our family late and we’d like to know if we can achieve our biggest financial goal—to pay off our mortgage in 12 years, when we will be 52.”

The couple has a $185,000 mortgage at 5.94% on their bungalow in Sonya, Ont., northeast of Toronto. Soon the couple will add the $25,000 from their line of credit to their mortgage. “Right now we pay $615 semi-monthly on the mortgage,” says Kevin, who earns $109,000 annually as a manager with Toyota Canada. The couple face high commuting and daycare costs, plus they’re contributing $5,000 a year to their children’s RESPs, $5,000 to Lise’s RRSP, and $6,500 to Kevin’s. “Everything is hitting us all at once,” says Lise. “Are we on track to catch up?”

The verdict: According to Jason Heath, a fee-only Certified Financial Planner with E.E.S. Financial Services in Markham, Ont., the couple is not currently on track. The only way they can achieve their goal is by redirecting some money from their RESP and RRSP savings to their mortgage.

Assuming their interest rate averages 5% over the rest of their mortgage, they will need to increase their semi-monthly payments from $615 to $968 when their $25,000 line of credit is added to the principal. They will likely have to trim their RRSP and RESP contributions in order to make those larger payments.

Stopping Lise’s RRSP contributions for a few years and having Kevin use a spousal RRSP for her makes sense, since Kevin already has a good pension plan at work. Also, because he’s in a higher tax bracket, contributing to Lise’s RRSP will give them a larger refund. Second, since the kids are still young, the couple can limit RESP contributions to a couple of thousand dollars annually and catch up later. If they make these changes, they should be able to pay off their mortgage in 12 years.

Assets

House: $340,000

Kevin’s RRSP: $62,000

Lise’s RRSP: $30,000

RESP: $9,000

Car: $3,000

Total assets: $444,000

Liabilities

Mortgage (including line of credit amount): $210,000

Total liabilities: $210,000

NET WORTH: $234,000 (total assets minus total liabilities)

“I think the relationship is perfect just the way it is,” says Emma, a self-proclaimed saver who has spent the last 10 years trying to put away money for a comfortable retirement. “I love this ‘living-apart-together’ arrangement that we have and wish it could go on forever.”

But Walter has other plans, and Emma, who has been divorced from her first husband for 10 years, is scared. “Walter has made it clear to me that he wants to move into my house,” says Emma, who earns $85,000 a year as an office administrator for a large accounting company. “I’m not really happy with the idea. For now, Walter says he won’t push the issue because Phil is still living with him. But he’s assuming that’s going to change soon, and when it does, Walter’s expectation is that he and I will live together.”

The problem is that Walter loves to spend money and, to Emma’s dismay, he has never lived within his means. He’s now retired and receives a fixed $3,500-a-month pension, but has absolutely zero assets to his name. Worst of all, he knows nothing about how to manage money. “He disagrees with me, of course, but the proof is in the pudding,” says Emma. She watched from the sidelines as Walter and his first wife, Debbie, grew unhappy with their marriage and became big spenders. “That was their form of therapy: to max out their credit cards and then consolidate them into the mortgage. They bought new vehicles every couple of years and added that to the mortgage, too,” says Emma. “It got to the point where their debt totaled $520,000.”

When Walter divorced Debbie three years ago, the couple sold their matrimonial home for $490,000. But because they had no equity in the house, they had to come up with another $30,000 to pay off the mortgage, and they took it from their credit cards. “I saw this as the most horrible money management strategy I’d ever witnessed in my life,” says Emma. Her greatest fear is that when she and Walter move in together, he will ruin her retirement plan and eat her out of house and home.

“I left my marriage 10 years ago with nothing but the clothes on my back,” explains Emma. Determined, she slowly rebuilt her life, got a good-paying job and over the years, saved $325,000—enough to pay for her house in cash. As soon as she moved in, she began renting out the basement and adding that money to her retirement savings—a portfolio that now totals $120,000. “Believe me, it doesn’t come without sacrifice,” says Emma.

Right now, Emma deposits the $900-a-month rent she receives from her basement tenants directly into her RRSP, so when she retires at 60 she’ll have built an ample nest egg. But Walter, believing they will need the basement space for their own use, has already told Emma that when he moves in, the tenants in the basement have to go. Emma has explained to Walter that she needs the rent money to secure her financial future, but he says she shouldn’t worry so much. “I do worry,” says Emma. “He has nothing to give me and I’d like to protect myself financially before agreeing to let him live with me.”

Walter says that if Emma insists, he will pay her the $900 a month himself—as long as the tenant goes. “I’m a romantic and would like to share everything with Walter—bank accounts, credit cards and line of credit—but I truly believe he will squander it. Still, I want to be with him, so I’ll agree to live with him if we can find a way to resolve these money issues. Can you help me protect my financial future?”

Emma Dudek grew up in a family of 12 in Saint John, N.B., with her stay-at-home mom and a dad who worked as a truck mechanic. The family was dirt poor and careless with money. “We had nothing,” says Emma. “They fed us, put a roof over our heads and paid for our education. Anything more than that, we had to work for ourselves.”

At 18, Emma studied business administration at a local college, and at 21 she moved to Hamilton, Ont. to take her first job as an administrative assistant. In 1989, she met David, her first husband. The two lived common-law for about a decade and kept their finances separate. Then the couple decided to get married. At the time, Emma was seriously ill with a potentially fatal immunological disease. Shortly after the marriage, David left Emma, but not before he cleaned out her bank accounts and left her with a pile of charges that he racked up on her credit cards.

After Emma regained her health, she put together a plan to become financially independent. “I began to rebuild my life,” she says. “I lived in tiny rental apartments for years, wouldn’t eat out, cut out spending, and three years ago, I finally had enough money to pay cash for a house that cost me $325,000.”

Shortly after she bought her house, Emma began dating Walter. She and the Rileys had been good friends for several years, and once Walter was divorced, the two became romantically involved. Although Emma enjoys the time she spends with Walter, she worries about his free-spending ways. “He buys new cell phones every six months, eats out all the time, and wastes money on unnecessary things.” For instance, Walter likes to fix things around the house, so Emma gave him her credit card to buy supplies. But once he spent almost $100 at Home Depot on screws and plugs to hang a simple $20 mirror. “His answer to every problem is to throw money at it. I have real trouble with that.”

Emma’s goal is to have $500,000 in her RRSP, in addition to her paid-off home, by age 60 so she can retire in comfort. But in order to do that, she needs to make sure Walter doesn’t derail her savings plan. “I have to prevent him from jeopardizing my future while still keeping him in my future. There must be a way I can have both.”

WHAT THE EXPERTS SAY

Emma is right to feel uneasy about her situation. If she wants to live with Walter, she has to take immediate steps to protect her financial assets. “I’m a skeptic,” says Barb Garbens, a fee-only financial planner and president of BL Garbens Associates in Toronto. “I see a scenario for disaster unfolding. And while I wouldn’t necessarily run, because I don’t think people should have a loveless life, the fact remains that Walter could see this as a very comfortable arrangement for himself. If he walked away from his previous marriage with zero in his late 50s, that tells you a lot.”

What’s particularly worrying for Ron Thiessen, a Montreal psychologist, is that he has seen these types of relationships several times before, and they almost always end badly. “Emma is repeating a pattern of behaviour from her marriage,” says Thiessen. She slowly gave her previous husband control of all her assets to keep the peace in the relationship.

But there is hope. “She holds all the cards, but I don’t think she fully realizes it,” says Jim Otar, a financial planner in Thornhill, Ont. “Or if she does, she’s allowing her emotions to get the better of her.” Otar cautions Emma to tread carefully before moving in with Walter. “She’s 47 so at this stage, she can’t save for another house.”

The experts agree that if Emma wants to give this relationship a chance to succeed, she has to protect her assets. Here’s what Emma should do:

Put it in writing.

Emma should sign a cohabitation agreement with Walter before they move in together, spelling out exactly what assets each brings to the relationship, how they will handle their finances, and what will happen to the house and Emma’s RRSP if the couple parts company.

But she needs to understand that a cohabitation agreement is not airtight. It can go a long way towards protecting the assets Emma brings into the relationship, but the truth is that common-law couples can acquire interests in each other’s property through “unjust enrichment.” This means one spouse may be able to share the assets of a common-law spouse if they are seen to have contributed in some way and should be compensated.

So once a couple has lived together for one to three years (depending on the province), there could be legal repercussions. For instance, if Emma’s home increases in value for the period of time they are living together in it, that increase may have to be split 50-50—especially if Walter is making renovations and repairs to it. So could whatever gain there is on her RRSP money. “If he sues her, she could fight it, but it will get messy,” says Otar.

As well, since Emma earns more than Walter, he could legally sue for spousal support and, if nothing else, cost her thousands in legal fees. “I’ve seen it several times before,” says Otar. “These all remain possibilities.”

Rent a different home.

“Whatever she does, she should not let Walter move in with her, get rid of her basement tenant and trust that he’ll pay her $900 a month,” says Otar. “He’ll probably pay her for a couple of months and then stop. Then she’s stuck.”

A better strategy for Emma would be to move out of her house completely and rent another home with Walter. Each would pay half the rent, utilities and other common expenses. “See how that goes,” says Otar.

For example, if Emma rents out her house for $2,000 a month, she can continue contributing $900 a month to her RRSP, while the remaining $1,100 can go towards paying the expenses at the new rental home with Walter. In this case, the cohabitation agreement should state clearly that she owns a rental property and a $120,000 RRSP, and that Walter has zero in assets. Under this arrangement, Walter will have no reason to spend money unnecessarily on the rental home, and that will diminish his case for “unjust enrichment” in the future, because he won’t be able to claim that he contributed in any monetary way to her principal residence.

If the couple does decide to move into Emma’s house, Walter should not do any more renovations. “If there’s something to fix, hire somebody else,” Thiessen says. This isn’t just to protect Emma’s claim on her residence: the experts also fear that Walter is starting to act like a husband, and that Emma is just going along with it. Thiessen says that Emma needs to draw some boundaries. “Moving forward, she has to stop putting herself in this codependent position. It’s not financially or emotionally healthy for her.”

Keep all finances separate.

The experts unanimously agree that Emma and Walter should absolutely not share PIN numbers, credit cards or bank accounts, and that all their finances should be kept separate. Instead, Garbens suggests that Emma open an account in her name only, and that she be in charge of paying all living expenses from that account.

To make it work, Walter should give her a fixed amount every month—say $1,500 or so—to cover his share of rent, utilities, groceries and household expenses. Emma should contribute an equal amount to the account and make it her responsibility to pay all of the monthly bills from that account. Thiessen agrees, adding, “Walter never lived within his means and likely never will without strict controls. Emma needs to keep strict financial control and take the lead in this relationship if she wants to have any chance of protecting her financial future.”

HOW THE MONEY IS SPENT

Yearly disposable income

Emma’s income: $85,000

Rental income from basement apartment: $10,800

Minus: taxes and other deductions: – $35,000

NET DISPOSABLE INCOME: $60,800

Yearly Expenses

Debt repayment

Total debt repayment: $0

Shelter

Mortgage: $0

Property taxes: $2,600

Home insurance: $1,100

Hydro/gas/water: $3,000

Cell phone/internet/TV: $3,600

Home maintenance: $15,000

Total shelter: $25,300

Transportation

Car insurance: $2,500

Gas: $3,600

Total transportation: $6,100

Personal

Groceries: $6,000

Clothes, haircuts: $3,000

Vacations: $2,000

Gifts and hobbies: $1,000

Restaurants: $2,500

Gardening: $500

Miscellaneous: $1,200

Total personal: $16,200

TOTAL EXPENSES: $47,600

Annual income: $13,200

available for investment (total income minus total expenses)

Where She Stands

Assets

Home: $375,000

Emma’s RRSP: $120,000

Vehicle: $14,000

TOTAL ASSETS: $509,000

Total Liabilities: $0

Net Worth: $509,000

(total assets minus total liabilities)