# Debt doubts cast shadow for professional couple with five kids



## tygrus (Mar 13, 2012)

I lifted this from the G&M site this a.m. I usually browse these types of articles a few times a week but this one was a stunner how much cash they are blowing through.

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Eric and Ilsa put lifestyle ahead of financial concerns but it has put them in a bit of a bind. He is 41 and a physician, she is 39 and a dentist.

They have five children, ranging in age from less than a year to 9, all of whom will go to private school. They have substantial earning power – although Ilsa is on mat leave at the moment – but Eric chooses to work for less money than he could.

They are living rent free in a relative’s house (they pay taxes, utilities and upkeep) and “regret not having bought a house years ago,” Eric writes in an e-mail. Houses in their Vancouver neighbourhood have doubled in price in the past two years. The house where they live is going up for sale soon, so they need to move quickly.

Last fall, they bought a building lot for $1.1-million and are planning to build a house large enough for their family and a live-in nanny. But with a combined income of $360,000 ($450,000 when Ilsa returns to work) and an $800,000 mortgage, can they afford the builder’s $1-million price tag? Who will lend them the money?

“Two professionals should be able to afford a modest house, but we can’t get the numbers to work and would appreciate some help,” Eric writes. He earns $200,000 a year working one day a week in a medical clinic. But his real love is teaching, which he does one day a week at a university; this earns him $100,000 a year.

“I have no pension whatsoever, but like my parents, colleagues and mentors, I love my work and plan to keep going well into my 80s, so retiring is not a big concern, just living,” Eric writes.

We asked Warren MacKenzie, principal at HighView Financial Group in Toronto, to look at Ilsa and Eric’s situation.

What the expert says

Eric and Ilsa’s expenses are likely the highest they will be and they have not yet seen the long-term benefit of their education and the income it will generate for the rest of their lives, Mr. MacKenzie says. So, with five young children and a nanny, they’re feeling strapped for cash.

“It is financially possible for them to do the things that are important to them, although by doing so, they will run a cash flow deficit of $50,000 a year until the children leave home,” Mr. MacKenzie says. Over time, their annual deficits will add up to more than $1-million in additional debt. They can build their home, but they have to make a choice. Either Eric works one more day a week in the clinic, or they run up substantially more debt.

Eric and Ilsa are fortunate because their parents are willing to put a home equity line of credit on their own home to extend them the $1-million they need to build, and to finance their annual deficit, the planner notes.

“However, there is a danger in accumulating so much debt because things don’t always work out as expected,” the planner says. “In this case, it is unwise especially when the cash flow problem could be easily solved,” Mr. MacKenzie says.

“If Eric is willing to work one more day a week in the clinic, they can live within their means and still afford to build the new home using a HELOC with the parents’ home as security,” Mr. MacKenzie says. He would be bringing in $500,000 a year. Once Ilsa returns to work part-time, she hopes to make $150,000 a year. Their first priority once the house is built should be to pay off the mortgage.

But Ilsa and Eric face a more immediate risk. With five children and a big debt load, they have neither life nor disability insurance. Their long-term financial security is dependent mainly on Eric’s high earning power.

“If Eric died or became disabled, then Ilsa would be left with five children and serious financial problems,” Mr. MacKenzie says. “This is a dangerous and unnecessary risk.” Eric should have term life insurance to provide his spouse with an income if he died and disability insurance in case he was unable to work. Eric should shop around for the best 20-year term life policy, and a disability policy that would pay $10,000 a month. The cost of these policies would be in the range of $600 to $800 a month, the planner says.

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Client Situation:

The people: Eric, 41, Ilsa, 39, and their five children.

The problem: Can they afford the lifestyle they’ve chosen and the $1-million price tag to build a new home?

The plan: Either they run up a big deficit over the years or Eric earns more money by working a second day a week in the clinic. Eric gets some insurance right away.

The payoff: A road map to a stable and secure financial plan.

Monthly net income: $25,000

Assets: Cash in bank $6,000; his RRSP $180,000; residential building lot $1.1-million. Total: $1,286,000

Monthly disbursements: Mortgage $3,800; property tax (both properties) $1,000; utilities $490; insurance $90; maintenance, garden $190; transportation $800; groceries $2,000; clothing $520; children’s activities $1,000; tuition $5,400; summer camp $600; child care $2,800; gifts, charitable $320; vacation, travel $2,000; dining, entertainment $200; sports, hobbies $200; miscellaneous (furniture, toys) $400; health insurance $50; cellphones $220; telecom, Internet $80; RRSP $3,000; professional associations $6,000. Total: $31,160

Liabilities: Mortgage $800,000 at 2.6 per cent


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## MoneyGal (Apr 24, 2009)

This particular facelift has exploded on Twitter (and in the comments section of the Globe) - with a parody account, custom hashtags, etc.


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## MoneyGal (Apr 24, 2009)

Sample media coverage: http://groupthink.jezebel.com/worst-couple-in-north-america-you-decide-1680214593


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## banjopete (Feb 4, 2014)

That's good weekend comedy. I take solace that this must be some cruel joke, otherwise I should have tried harder at school... 

Doubling my pay for the sake of taking on the burden of a second day at work during the week sure is a first world problem.


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## marina628 (Dec 14, 2010)

I read that article and decided then and there my kids will never know how much we have , getting a million bux from mom and dad so you can continue to work 2 days a week .These are the best earning years and can you imagine if god forbid one of them gets sick and dies in next few years.I have no issues at all for people to live this way once they have their future set up but to do these things with young kids no insurance etc is just plain crazy.


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## nahc (Feb 22, 2011)

banjopete said:


> Doubling my pay for the sake of taking on the burden of a second day at work during the week sure is a first world problem.



I am a physician. I thought I was in a pretty good field but apparently not. Freaking 200k for 1 day a week of clinic work? Sign me up for 5 days a week. *green with envy*

This takes the cake for first world problems.


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## crazyjackcsa (Aug 8, 2010)

I'm calling B.S. I can't see this being even remotely true. It's just so over the top. Clickbait to get views and press.


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## Rusty O'Toole (Feb 1, 2012)

Talk about spoiled rotten. Is this some kind of a joke? I know such people exist but this must be exaggerated for comedy purposes?


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## larry81 (Nov 22, 2010)

My verdict is simple: they are retarded.

I really like the globe but now way i would pay 20$/month for a subscription. Bring it down to 5$ and i am in !


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## My Own Advisor (Sep 24, 2012)

crazyjackcsa said:


> I'm calling B.S. I can't see this being even remotely true. It's just so over the top. Clickbait to get views and press.


+1


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## Doryman (Jul 31, 2013)

My Own Advisor said:


> +1


There's no way this can be true.


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## CPA Candidate (Dec 15, 2013)

Highly trained medical professionals with high salaries and absolutely no financial sense are more common than you think. My wife has a friend whose husband is a psychiatrist, making $250k a year and they are buried in debt and made some really poor investments (Toronto condos). My best friend's Grandpa was a dentist and blew every dime he ever made.


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## nobleea (Oct 11, 2013)

CPA Candidate said:


> Highly trained medical professionals with high salaries and absolutely no financial sense are more common than you think. My wife has a friend whose husband is a psychiatrist, making $250k a year and they are buried in debt and made some really poor investments (Toronto condos). My best friend's Grandpa was a dentist and blew every dime he ever made.


I've heard this many times as well. The unbelievable part here is making 200K for one day a work. And another 100K a year for another day or work. What kind of school would be willing to pay someone 500K a year for a full time teaching position?? Not even the chancellors of the finest universities in the land make that much in salary.


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## yyz (Aug 11, 2013)

nobleea said:


> The unbelievable part here is making 200K for one day a work. And another 100K a year for another day or work. What kind of school would be willing to pay someone 500K a year for a full time teaching position?? Not even the chancellors of the finest universities in the land make that much in salary.


Exactly why this article stinks of BS. The g&M should be ashamed of themselves for printing such a ridiculous article.


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## Echo (Apr 1, 2011)

The story makes even less sense now after this update from the G&M editor:

Note to readers: An earlier version of this Financial Facelift said the couple Eric and Ilsa spent $6,000 monthly on professional associations. In fact, that is the annual amount. Also, the article said Eric works one day a week in a clinic and one day a week teaching. The doctor has clarified in saying he works more than 100 hours a week through longer working hours and extra days and hours both in medicine and teaching.


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## PrairieGal (Apr 2, 2011)

This makes me wonder whether the G&M does any kind of fact checking whatsoever on the FF section.

In any case, it was pretty entertaining to read the comments.


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## donald (Apr 18, 2011)

They did get a lot of coverage(g&M)so maybe they are smarter than we think
I had to laugh about a poster on twitter mock the globe with next weeks lead in on financial facelift:
'Ron a ceo of a multinational company is struggling,the 3m annual salary is not looking to be enough' or something like that lol
What i'd love to see is them go the other way and show a father of five who works in a factory making 32k a year and his wife who is a part time cleark for min wage.
If true,that doc is a grade a a-hole.


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## crazyjackcsa (Aug 8, 2010)

So now he works 15 hour days, 7 days a week? Talk about an over correction.


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## HaroldCrump (Jun 10, 2009)

The whole thing smacks of a marketing/PR gimmick by the G&M.

They _knew_ something like this will set off a social media rage & backlash.
They must have made several hundred K just from the advertising directed to their website.

They are capitalizing on the current backlash against so-called "high income" people, esp. with the income splitting etc. policy moves.


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