Category Archives: Blog

Financial Advisor or Adviser? It Can Cost You a Lot…and Your Cell Phone

Here’s a word that you have to know how to spell. If not, it can cost you tens of thousands of dollars. The word is advisor…or adviser. Two different ways to spell the same word and almost nobody notices the difference.

Almost all financial institutions now use this word for their formerly known as loans officers. But if you’re dealing with a financial advisor, you’re actually dealing with a sales person. If it’s advisor (with an e) it’s someone with a license, which you’ll see by their degree and designation. Those people need to act in the best interest of the client, it’s called a fiduciary responsibility.

If you’re going to buy a vehicle, a mattress, furniture, or jewelry – the items that are most expensive and/or have the largest markups – do you want to deal with a close family member or a stranger? The family member, of course. Because you can trust them a lot more than a stranger trying to close the deal and make the commission.

Banks are for parking your money and not for investing. But, since the majority of Canadians are going to ignore that fundamental advice…would you like to deal with a sales person or someone who has your best interests in mind? If you need an easy way to remember, think of the “o” in financial advisor as “oh oh…you’re about to get sold!”

The difference in your investments is whether it benefits the financial institution or you. And that can quickly add up in the front or back loaded mutual funds, the fees, the type of investments, the person’s investment knowledge, and the type of investments they recommend based on your needs and goals…or maybe on an internal bonus system or steering you into their managed funds. If it’s a GIC or something basic, it won’t matter. If it’s more than that – it matters a lot. Don’t spend a ton of time looking for the advisers (with an e) as they’re less than 7% of those jobs and it’s 93% plus that are sales people on commission.

 

Great news: The regulators of our phone services have come into the 20th century and have now made cars legal to operate in Canada. Yes, that’s rather sarcastic. But the point is that regulators move at the speed of glaciers. Unfortunately, that’s almost always to the detriment of our wallets and finances!

The Canadian CRTC has now mandated that phones be sold unlocked so you’re not a hostage to your current cell provider. That’s for new purchases starting in December. And current customers have the right to have their phones unlocked so they can fire their cell provider and become a free agent.

Plus, on family plans, the person who pays the bills now has to OK any data overages. You’d think that’s common sense, but ask the thousands of parents who have paid hundreds or literally $2,000 or more for data overages when their kids have just been able to press the “yes” button.

Sears, Amazon and Why We Can’t Do Our Own Investing

Ever wonder why retailers aren’t doing so well? Here’s a huge reason for it: Traditional retailers such as Sears, The Bay, Macy’s and the likes take 9 to 13 months to get a new clothing line from concept to production and into their stores to sell. Zella is a company with an extensive line of clothing. They can get an idea to production and into stores inside of two weeks! Two weeks versus a year. Wonder no longer why traditional retailers are fading quickly.

On the upside, Thursday Amazon announced they’d be selling Kenworth appliances online. Yes, Sears does have stuff people want – but now it’ll be online and in the U.S. only for the time being.

That announcement also shows why you and I really can’t do our own investing very well: When Amazon announced they’d be selling Kenworth, the stocks of other appliance retailers and manufacturers dropped by $12.5 billion collectively. From Best Buy to Whirlpool, Lowe’s, Home Depot, and the likes their stocks took a big hit. Now you and I may have figured out in a few days that, instead of Kenworth being gone, they’re now going to be a major player with Amazon behind them, but the Bay and Wall Street computers made the sell moves within a minute…

Speaking of investments, I’m going to make a bold prediction if you remember that I’m not an economist: The Bank of Canada can’t and won’t raise rates again until the U.S. does. The rate increase two weeks ago was based on thinking the U.S. would do one, too and they didn’t. The dollar is now way too high for our exporters and getting the dollar down is the main objective of the Bank of Canada. So they can’t do another increase, even if they wanted to, until the U.S. starts to raise them again.

Bad for savers, good for borrowers to get another reprieve…

Canada Post Financial and Eating Out at Lunch

Senator Elizabeth Warren has been promoting this idea for over a year in the U.S. But what about here in Canada? The post office is not exactly a growing business, but a very necessary one that isn’t making money, keeps charging more, and isn’t going to go away in our lifetime.

The post office is already a vast network of locations all across the country. They’re in remote areas that aren’t even serviced by a bank. Why can’t the post office sell prepaid debit cards, do cheque cashing, incoming and outgoing foreign money transfers to relatives, small loans and the likes?

Even if it just re-directs 10% of people from payday lenders or cheque cashing places it would save Canadians billions of dollars, rescue the post office and a ton of jobs there, become really convenient for people, and a new revenue stream.

 

Last year (2016) there were 430 million fewer lunchtime restaurant visits in the U.S. It has to be true in Canada, too, judging by the vast number of lunch ads from Boston Pizza to Subway, Tim’s and others. That’s a lot less eating out, or is it? Are we still buying at the lunch places but having desktop meals? That’s the slang for eating at your desk.

If you’re someone who has cut down, what I want to know is whether that money is getting saved, used to pay down bills, or just leaking out into some other “mystery” spending the rest of the week, in whatever, instead of food at lunch. Just because we eat out less, doesn’t mean we’re actually saving anything…

Visa Hackers & Free Banking

Researchers at Newcastle University found that criminals can hack your Visa card in less than 10 seconds. All they have is your card number and what they’re missing is the three digit security code and the expiry date.

With just a laptop and a simple computer program, they run all the possible combinations of your security code and the expiry. In just a few seconds they have all the information they need to start shopping online.

It only works with Visa who doesn’t have a blocking system when multiple tries are made with your card. MasterCard and Amex block the criminal after just a few incorrect attempts. Now don’t panic. You’re never liable if your card is misused – ever! But wouldn’t you think Visa would care about absorbing millions of dollars in fraudulent charges?

If you’re turning 60 or 65 this year, write a note on your calendar: You’ll be able to get much of your banking service charges stopped! Credit unions are at age 60, but you’ll have to check with your specific bank if they’re at 60 or 65. I do know the Royal is now age 65 as they just changed it. Ah, how to legally rip off tens of thousands of seniors for millions of dollars…it’s detailed in the Money Tools book in the banking chapter.

Daily Pay Advance?

The CBC just posted a story of a Vancouver (and Montreal office) start-up called Instant Financial. The business model is that companies can sign up with them to allow their hourly workers to withdraw up to half of their pay immediately after their shift ends. Mr. Mikes and McDonalds have already signed up with them.

Work your shift and get up to half the pay immediately. The rest is on your normal paycheque. My first reaction was: OMG – no – please – what a horrible idea.

The company is positioning themselves between a lender and payday companies. Nothing in the article, or anything on the company web site talks about the fees. But I can assure you, they’ll be significant and frequent! Clearly this is for hourly workers and a big benefit to companies with large numbers of hourly staff. There’s no chance their payroll department is in the town or city the workers are, and there’s no chance they’ll do hundreds of $50 advance cheques for their workers. So for them, it’s a third-party handling all that work and they just deduct the amounts from the pay just like they do for any staff charges from meals to whatever.

For the individuals, it’s very tempting, but horrible idea. Sure, lots of hourly workers aren’t blessed with a lot of savings. The company’s sales pitch is that this way they can access money for emergencies or to buy necessities. But $30 or $40 isn’t changing anyone’s life – no way. A $10 an hour worker, after an 8 hour shift can take out $30 tops. It’s 50% of their net pay max. The perceived need for this money today will come at around $5 or $8 in fees and will put a huge dent into their real net pay. Then, they’ll be heading to a payday lender to make up the rest of it to pay rent, car payments, their cell bill or other bills. I’ve seen it over and over and this “today benefit” will turn into the tomorrow nightmare. You can see that even with higher income earners when 25% of early RRSP withdrawals are for “daily bills.”

I read this story an hour ago. Give me another hour and I bet I can come up with a dozen alternatives at no cost and no pain. Big picture, employers are fine with their staff being broke. It’s a great motivator to get them to come back to work next week and next month. For the quarter of (around) minimum wage workers that are still in school, they’re around 17 to 19 years old. They have no financial knowledge, and probably just as much discipline. That “today” advance will go for a trip to the mall or a pair of jeans – not necessities as the company wants to tell us.

For the rest of their target market, give me a group of the most broke, living hand to mouth people, and I bet I can turn their finances around within one or two pay periods. Can the most broke people start with an emergency savings account (see the Money Tools & Rules book page 222)? Of course. Can most broke people save $20 a month? Yes. So within a couple of months, they’ll have enough in emergency savings to avoid ever having to be tempted with this daily advance plan!

But companies don’t want that for their staff if the truth were known. But people need to decide: If they’re broke they can fix it, or compensate. This company helps with compensating and staying broke plan, but not fixing.

Cash Collateral Loans

I’ve been using this trick with people for a lot of years, but I realized we’ve never talked about it. It’s an inexpensive way to start building credit, to re-establish your credit, or to save a ton of money for people who can’t seem to save on their own.

Would you lend me $100 if I gave you the $100 cash for collateral? Of course – because there is no risk or downside, and your profit is the interest you’ll make from me on the loan. Credit unions do these so-called cash collateral loans, and a few of the banks do, too.

If you’re starting to build credit, it’s most likely you’ll do it with a credit card. But good credit is two years or more with a higher limit. A new card with a $500 limit gets you started, but it’s a tiny risk, thus a very small start to building credit.

Anyone who has had a bankruptcy also isn’t going to be able to borrow for at least three years or so. If you’re discharged from bankruptcy or have no credit, go to a credit union for one of these loans. It’s also in the Money Tools book chapter of: How to rebuild credit. Get a $2,000 loan set up over 12 or 18 months and give them the loan money as collateral. You’ll make the payments at a low interest rate and, at the end of the term, get the $2,000 released back to you. At that time, you’ll have a great start to a rebuilt credit record, and for a good-size amount of money (called high credit). The larger the loan, the more it will boost your credit rating. But you have to be able to make the payments – each and every month!

It also works the same with an RRSP loan but you need good credit to get one. By tax law, the lender can’t use the RRSP for collateral if you don’t pay.

These cash-collateral loans also work for the wealthy. You’d be amazed how many of them have the cash flow to make their payments, but don’t save. I had one person last year that was going to get an $8,000 a month whole life policy. It’s meant to give an insurance policy and build in an investment component, but it’s one of the worst financial product ever invented!

A term policy for his family was about $500 a month, and the other $7,500 payments towards a loan would get him the same $2 million insurance, and $200,000 cash in his hands at the end of a two-year loan!

When You’re In Charge of Your Own Retirement Finances

We talk about finances all the time, and one of the biggest financial decisions is probably your retirement savings. That’s more critical when you’re older but way easier to accomplish when you’re younger. Now, this is not a shot against the current government, but a comment about government programs overall.

There are a few things the government does really well. Included in that list is the military, foreign affairs and the passport office which is just incredibly efficient and well-run. But generally, any government programs are not very effective, and you will always be able to do better, and do more on your own, without waiting or hoping the government will come to your rescue. They won’t – and by the time you’re done waiting for a bailout package, or meaningful help from the government – you’ll be dead, honestly.

There is no place where that is clearer than with our Canada Pension Plan: The CPP pays a maximum of $884 to you in retirement. Let’s use this $884 maximum, even though the average pension benefit recipient gets $481.

Let’s take the lowest working person in the country. We’ll take someone who works from age 18 to age 65 and makes $2,000 a month. So this is a person who never gets a promotion, never gets a raise, and never improves on that income – someone who literally makes a small $2,000 a month throughout their entire working life.

Until retirement, every month, this person has $42.28 deducted from their pay towards CPP. The employer portion is the same, because employers match the deduction. So, for this person, every pay period, $84.56 goes towards their CPP in order to get a maximum of $884 each month after retirement. Simple math so far?

Now, if this person took that same $84 a month and invested it, at a 10% return over their lifetime, they would have $1,084,000! That translates to a monthly pension of $9,033! Let me say that again: Taking the same CPP deduction of someone who makes $2,000 a month for life, and investing it on their own, would have a pension of over $9,000 a month, AND he or she would leave an inheritance of over $1 million to their family.

THAT is why I want you to pay yourself first every month, and have some savings deducted right off your pay where you won’t miss it. What would you rather have? The $884 CPP, or your own $9,000 each month?

My Grad Commencement Address: About Marshmallows

 

If I were doing a commencement address at some graduation this month, it’d be about marshmallows.

That was a Stanford experiment in the late ’60s, that’s been proven to be incredibly accurate, and replicated right up to a few years ago. Researchers gave four to six year olds a marshmallow, pretzel, cookie, or some treat the kids really wanted. They then told the kids they could eat it whenever they wanted. But if they waited 15 minutes, they would get another one to double their treat.

It turns out that this delayed gratification was a powerful and accurate indicator of their marks, their education level, their weight, and their financial success as adults.

Maybe the marshmallow test for graduate age people is 15 days before making impulse decisions. Maybe it’s leaving the credit card at home during the week. Maybe it’s the most powerful financial tool of paying yourself first in savings before spending, or maybe it’s too late, and they’re doomed anyway.

Broke is the new rich. That was the T-shirt a 20-something guy wore at a festival. His age is certainly right in that thinking – even though it’s so wrong and so self-destructive. The millennial generation age 18 to 35 can be forgiven for wondering if they’re ever going to get any financial traction. There are over 85 million of them in North America who, on average have less than $1,000 saved.

There’s a great quote from Shaquille O’Neal: “It is not about how much money you make. The question is are you educated enough to KEEP IT?”

You may think that the average 20 something can’t get ahead. Yes you can! Get your debt under control, or have the delayed gratification to not get into debt in the first place. Start with your first paycheque, or starting this week, have two percent taken right out of your account and transferred into investments. There’s no chance you’ll miss that $60 or so. Then, every six months, up it by one percent. Again, you’ll never miss $20 or $30 until you’re saving 10 percent. Every hundred bucks saved is nearly $9,000 when you retire.

But that’s a BIG marshmallow test that only one or two people from a grad class will embrace. If you’re one of those few people, or want to be, read four short chapters in the Money Tools book and you can get really pretty quickly and easily. If not, remember me as you’ll want to email me in a decade when you’re broke and need help.

The mark you get on your lifetime financial learning isn’t an A to an F. It’s measured in your investment account balance and your debt, and you get a new mark every month for the rest of your life. It might be a mark of minus 30,000 in debt, or a mark of plus $45,000 in investments…