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By Paul Vieira
National Post
Excerpt from FP Money
Saturday, May 12, 2001
Lexa Shropshire dips into her pocket daily to
cover a bundle of business expenses. She hasno
choice -- it's part of the arrangement the Edmonton
saleswoman has with the housewares company she
works for. She drives up and down Alberta -- mostly
on Highway 2, which connects the Alberta capital
and Calgary -- to meet with clients, take them
out for lunch or buy them coffee, and chat about
buying garlic crushers or the latest line of Bodum
coffee makers.
The expenses add up. According to her calculations,
$1,140 a month. "It really made my eyes go wow,"
says Ms. Shropshire, 46, who's divorced and raising
a teenage daughter. "It's a big percentage of
my monthly income."
Try 18.5%. Add in just over $5,000 in household
expenses, to cover such basics as food, clothing
and utilities, and she's spending slightly more
than she is earning every month. Her credit card
and line of credit statements remind her of that
ugly fact of life. "I'm not happy about that,"
she says of her status, "although it's probably
not unlike many Canadians."
But Ms. Shropshire doesn't want to be like many
Canadians. That's why she's come to FP Money for
cash flow help.
Cash flow is an issue with Ms. Shropshire because
her income (she earned $65,000 last year) is commission-based.
The income varies from year to year, month to
month, depending on how her retail customers are
coping. She says she has made as much as $12,000
in one month and as little as $1,200.
Besides sales commissions, her other income includes
$500 a month in child support payments and $60
a month in child tax credits, which go toward
raising her daughter, Alyssa, 14.
And because commissions dry up during slow retail
months, she's forced to rely on her low-rate Visa
card and a line of credit, which charge 10.5%
and 8.75% interest respectively. She has outstanding
balances of $5,000 on the Visa and $12,000 on
the line of credit, and sets aside $400 a month
to chip away at this debt. "When I get paid a
lot of money in one month, I try to conserve,
or not overpay, but it's not an easy task," Ms.
Shropshire says. "That's what I need to do better."
Sure, there's a bit of debt. But one financial
advisor likes what he sees. "She is to be congratulated
on doing a lot of the right things," says Adrian
Mastracci, president of KCM Wealth Management,
a Vancouver-based fee-only financial advisor.
He cites the $375 a month she sets aside for
a registered retirement savings plan ($300) and
a registered education savings plan ($75). He
also likes how she's trying to quickly pay off
her $70,000 mortgage through a biweekly accelerated
rate plan, which sees her pay $286.83 every two
weeks.
But Mr. Mastracci's main concern is the lack
of an emergency fund, which should have three
to six months worth of income. "If something should
happen to her today, she may not be able to defend
herself," says Mr. Mastracci, adding that she's
vulnerable because of her age and her work, which
requires a lot of travelling by car.
He says that one-half of an expected income tax
rebate -- which she estimates will be about $4,000
-- could be deposited in such a fund.
There's another way she can contribute, while
at the same time reducing her debt financing costs,
Mr. Mastracci adds. Ms. Shropshire could transfer
her Visa balance to her line of credit because
it has a lower interest. She would then pay the
interest from the $400 she currently allocates
a month for credit card and line of credit debt.
Whatever is left over can go into the emergency
fund.
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