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Once the debt is moved to the LOC, says Rosen, Bob and Helen need to look at their RRSPs. Right now, she comments, "they are doing it wrong." Sure, by contributing to Bob's RRSPs, the couple guarantee themselves a refund come tax time, money they use to pay Helen's tax bill. But since Helen is the higher earner, points out Rosen, she needs the tax break more than Bob. "All the family's RRSP deductions should be in Helen's name, split between a personal account and a spousal plan," she says. Bob and Helen currently contribute $13,400 a year to their plans, including the $5,000 RRSP catch-up loan. However, if Helen put the amount against her income, "she'd drop from the $60,000 tax bracket to the lower $46,000 tax bracket," says Rosen. Helen should also move that $2,000 from her investment club to her RRSP. "Even though she will have to pay capital gains tax on the transfer from non-registered to registered funds, she will get a tax deduction in the year of the transfer and the funds will then appreciate in a tax-sheltered vehicle," adds Rosen. "If they're really concerned about the future, she needs to put more money in that RRSP."

Rosen is also concerned about Helen's insurance coverage. "If something happened to her, that would be a huge financial hardship on the family," she says. Basic disability coverage for a self-employed person is about $200 a month. "It's very expensive, but they should consider it," says Rosen, "and I think that critical-illness coverage is mandatory." For about $40 a month, Helen can get coverage that pays up to $50,000 if she is diagnosed with a life-threatening condition, such as cancer or Alzheimer's, or if she suffers a stroke or heart attack and can't work.

After all, this couple doesn't need yet another financial calamity.

FINANCIAL SNAPSHOT

THE CHALLENGES
Four problems, four solutions to help our family meet its goals.

Problem: They're paying too much tax.

Solution: Helen, as the higher income earner, needs to contribute to a spousal RRSP for Bob. The asset builds up in his name but the tax deductions is hers. All current RRSP contributions ($700 a month) need to be made in her name. This will move her to a lower tax bracket and save the family money now.

Problem: Helen has sporadic cash flow.

Solution: Use the line of credit to pay Helen a regular salary. She should mimic the pay schedule of a salaried position and then, when her paycheques arrive, she needs to apply them directly to the LOC balance.

Problem: There is no emergency fund.

Solution: The tax savings from a spousal RRSP contribution can go here. Bob and Helen were paying about $30 a month in overdraft interest and bank charges; once they deal with the cash flow problem, this amount can be directed to an emergency fund.

Problem: Bob and Helen have inadequate insurance.

Solution: A 10-year-term life insurance policy for each might be all they need. They could get a $500,000 joint last-to-die policy for about $105 a month. The difference between that and what they are paying now would cover a $50,000 critical-illness policy for Helen.

TIP OF THE MONTH
How to cut the cost of a home-equity line of credit.

If you're considering a home-equity line of credit, make sure you ask your financial institution about the upfront costs. Some lenders will cover a home appraisal or lawyer's fees or both. Others won't. What's at stake? Potential savings of up to $400.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.