Category Archives: Blog

Christmas Weight, Bills, Spending, and “Stuff”

On average we gain seven pounds (three kg) between Halloween and New Years. I wonder if we don’t lose a thousand bucks on Christmas stuff. Then, according to fitness experts, it takes us an average of five months to lose that weight. Well, according to financial studies it takes even longer to get the Christmas spending paid back: It takes until June on average.

But every year I’m reminded that most of what we buy, not just at Christmas time, is just “stuff.” And that’s not what Christmas is, or should be all about.

A few years ago, after decades in our family home, my parents could no longer handle the physical upkeep of a large single family home. It turned out that the trauma of selling our family home wasn’t nearly as bad as what us “kids”, now middle aged ourselves, had to do in order to make it happen.

 One Friday we ordered one of the big commercial dumpster bins to be delivered to the house. After giving away stuff  that our family members, friends and neighbours wanted, we knew there’d still be a lot of things that had to be thrown out: From sleeping bags to tools, furniture to books, and extra dishes to everything else, none of these could go into a one bedroom nursing home unit. What we weren’t prepared for was the visual impact of a huge and full bin being hauled away, then a second bin, and even a third bin. In total, the stuff accumulated added up to over 14,000 pounds – in the dump. Few things in life have had such a powerful and visual impact on us.

 Literally hundreds of thousands of dollars of stuff, purchased one at a time, over a lifetime, ended up as 14,000 pounds of trash. It sure put things into perspective. You’ll now understand why I’m just not that excited about buying that newest whatever, the next model of some gadget or another, or running up my credit cards. (Money Tools & Rules excerpt page 216)

Careful With Car Rental Pre-Paids

If you’re flying anywhere, it’s probably a fair guess that most people rent a vehicle at least once a year or so. For me, it’s more like 15 times.

If you’re ever on one of the car rental sites, you’ll see a new category: Pay now or pay later. You now have the option of pre-paying at the time you reserve it. It’ll give you a 5 to10% discount. But, and it’s a big but: I’ve rented a vehicle 11 times in the last three months. In EVERY case, the rental rates dropped between my first reservation and the week prior to my trip.

All I did was cancel my reservation and make a new one at the lower rate. You can’t do that if you’ve prepaid with no refund or cancellation option. It would have cost me roughly $350 extra to pre-pay, instead of a saving.

If you’re close to the rental date, it might make sense. A month or two out, you’re likely way better off re-shopping over pre-paying! The best example was when I was in Kelowna last month. I had made a reservation with one of the Kelowna airport national chains. The rate was $48 base rate. The week before I re-checked at Hotwire.com I could get it for $26 a day. When I booked and paid it, the confirmation was for the same company I had booked direct with! What a rip off! Hotels and car rental places say come to our website directly for guaranteed lowest rates. Big fat lie! Even with the hotwire markup, it was almost 50% cheaper through a third party and not their site! Be careful when comparison shopping!

Turning 60 Soon?

If you’re 60 or turning 60 soon, you have a big decision to make about your banking.

Most banks have changed giving you free banking to age 65. The last one was the Royal – it’s covered in the banking chapter of the Money Tools book.

But credit unions are almost all still free at age 60. So your decision is whether a loyalty to your bank (that will never be reciprocated) is worth over $1,500 in fees for five more years…

Our Irrational Financial Choices

Something went wrong last week: I didn’t get the Nobel prize for Economics for some reason… for something I’ve been bugging people about for more than two decades.

All economic models ever taught and used by businesses were based on the fact that we make rational economic and purchase choices. It’s been used forever to explain how markets work to allocate resources and to set prices.

This years, the Nobel prize went to behavioural economist Richard Thaler. He proved that we don’t actually make rational buying decisions at all. We constantly make irrational and illogical choices that are totally opposed to our financial well being. There: It’s the reason we’re mostly broke. We make stupid financial choices that sabotage our savings and put us into debt!

The best example is from the U.S., where employees have always had the chance for payroll deduction, very often with matching employer money for retirement savings. Yet, very few did it. That totally sabotaged their retirement savings. When the law was changed that it’s done automatically, but you can certainly opt out with one signature, very few people did! In just a few years, it’s created $30 billion of retirement savings!

The best destructive example is someone who emailed me that they “had” to buy a new vehicle because they had a new baby. Nice try. The old one was four years old and just fine. The baby was just the final excuse to trade up.

If you’ve ever heard the saying that’s been around forever that “so and so could sell a fridge to an Eskimo”, isn’t THAT the person who should have gotten the Nobel prize? Or the first person selling pots to cook food in by selling the choice of two colors?

More New Mortgage Tightening Rules

Three times the Federal government has tightened up mortgage lending rules for those people with less than 20% down payment. Now they’ve made it much harder for those of us with equity of more than 20% to re-mortgage or to buy a new home as well.

I’ll join the economists, along with the Fraser Institute, who think this new stress-test has gone way too far, and will have a measurable impact on home sales, and most of us being able to qualify for a mortgage starting January 1st.

Here’s the new rule: No matter how much you earn or how much down-payment you have, you need to qualify for an arbitrary five-year posted rate. Right now you can get a 5-year rate of under 2.8% but you still need to qualify for the 4.9% sticker rate. Stupid but true. A family making $100,000 with 20% down can afford a home worth $726,000 right now. With the new rule, that same family’s purchasing power is down to a $570,000 home. That’s a $150,000 lesser mortgage or lower priced home.

Yet this is a family that has over 20% equity and certainly not someone who’s in any trouble of being foreclosed on. Still, they have to qualify on the “pretend” rate of 4.9%. That would be SEVEN rate increases, and that’s something we’ll never see!

If you’re not making $100,000 and are not totally debt free, you’re never going to qualify for any home that’s even the average price! In my case, I need to sell my home and down-size. But if I do that, I no longer qualify for a new mortgage. Talk about putting huge numbers of people into a total lose-lose catch-22!

Right now, you can still avoid this so-called B-20 rule with your credit union because they aren’t governed by federal regulations. But it appears that most of them will end up matching the rules at some point. All I can suggest starting January is to call a number of credit unions and ask. You don’t need to go in or fill out an application. Just ask if they’re also using the B-20 regulations.

To Downsize Or Not?

Here’s a great question from a listener that’s worth sharing and thinking about for any of us within 10 to 15 years of retirement:

“I enjoy listening to you on 1150 AM on my way to work.  I was wondering if you could give your opinion on which direction my husband and I should take?   At what point does it make sense to sell your home and downsize? Financially, we are sitting home with an outstanding mortgage of $300,000. Our home value is about $725,000. We are both in our 50s and will be relying on the equity made on our home to fund our retirement. I will have a small monthly company pension and my husband will not. My question for you is, do we try and sell our house now and pay off half our mortgage/credit line? Or would it be financially better to remain in our home for another 10 years or so, and chip away at our mortgage?

Sadly, the answer is: I don’t know. I can’t answer that for you because the critical part is the answer to what the value of your house will be in 2027. If anyone claims to know that, they’re lying to you. I can’t even get more than three lottery numbers right so I’m not the one to ask.

You need to remember that I only ever answer questions, or talk about stuff, in terms of what I would do because I don’t ever have all the information. In my case, I don’t have any pensions and my house is up for sale in order to downsize significantly.

Half the world would ride it out and hope for a much higher value. The other half more conservative and risk averse group would downsize and reduce the debt, the interest that’s needed to carry it, and lock in the guaranteed $725 value by selling.

But lots of that depends on what degree of downsize. Using your math, it’d be about $1500,000 on the new condo, house, etc. Would that, divided by 10 years, be workable? Would those payments guarantee that you’ll be debt free in 10 years when retiring? If so, that’d be a huge saving.

After all, whether you make more income in retirement or have LESS debt to pay, it amounts to the same thing…actually it’d be more valuable as income is taxable, paying off debt isn’t. That’d be like an extra $1500 in retirement that’s not going to the mortgage!

Gamble the house is $850,000 in a decade and that any correction comes and goes in that cycle, that there’ll be no correction, or take the money and run? That’s entirely up to you two and your comfort zone.

I do know that you can’t eat your equity. In other words, the equity isn’t something you can use unless and until you do sell. So the day will come…but when?

Loyalty is Dead: This Time it’s Aeroplan

We talked last year about loyalty programs. On average we’re in a dozen programs and active in about eight.

But, if you’ve noticed, almost all of them aren’t loyal to you. Their way of getting points, freebies, dollars, or whatever are harder to get, PLUS the redemptions keep getting further and further away from happening. It’s more of a game that you’re going to lose beyond a free toaster or something minor. Yet, we’re hooked and stay loyal, despite all the evidence that we’re not getting much of a reward for it – and often for overpaying when another company is often cheaper to deal with.

The newest is a twist where the company who wants your business isn’t even loyal to their loyalty company! If you remember back, it wasn’t that long ago that Air Canada was on the verge of bankruptcy. At that time, they sold their frequent flyer miles program for some big money.

Aimia is the company that owns and runs the Aeroplan frequent flyer loyalty program. They also manage those of Nordstrom, and other companies from Europe to the Middle East.

They have five million of us Canadians as members who hold over 200 billion miles. The company itself, buys 700 million dollars of tickets from Air Canada a year. But now Air Canada is dumping the company that bailed them out to start their own loyalty program again. Needless to say, the stock was down over 76% after the announcement.

Aeroplan is done as of 2020. So the five million of us will start to get greatly reduced rewards. After all, what’s Aimia’s reason for keeping us excited when Air Canada is yanking us away from the program. By the end of next year, there’s no point chasing points that you’re not likely to get any benefit from. On my to-do list is to cash them all out by next year. I normally get Esso gift cards as they can turn into real cash when I gas up. Most other things are pretty marked up in value, so be careful before you press the “redeem” button. If you’re close to an airline ticket, book it as soon as you can before the points needed goes up again and again. If you’re not close – I’d recommend you don’t start the chase.

Two Insights Worth Remembering

Private used car purchasers: If you’re thinking of buying a used car in the next year, you need to know a warning from the Better Business Bureau. Hurricane flooded cars from Texas are showing up in Canada. You should, in any case, but now have to, get it inspected by a mechanic before paying for it. After the fact, when you need an out of province inspection anyway in order to register it, it’s too late and you’re out the money. A shortcut would be to pay the out of province inspection before buying and use it as your indicator of whether to buy or not. It’ll save you one step and a few bucks.

At a gas station in the US? Finally a tip I needed years ago. It would have avoided me getting a real U.S. credit card. At almost every gas station, pay at the pump requires you to enter your Zip code as a security measure. Well, us Canadians don’t have one. That means you’re going inside to pre-authorize, then gas, then back in to get your receipt for the actual total to make sure they don’t cash the full pre-authorized amount. But there’s a trick you can try that I’m told solves that: When asked for the Zip code, enter: 23400. Apparently that tells the system you’re a Canadian and that you’re good for the charge!

Happy New Year! If You’re Shopping For a New Vehicle

You and I think of new year as being January 1st. But that’s not the new year for vehicles. Their new year is August, so you need to think of this month as being 2018 for their new model year. The factories started building them in March or so and by now pretty much all models from all manufacturers have been shipped to dealers.

Ford is currently running a national television ad that starts with the voice-over of: Is the deal a really great deal? OK, let’s take them up on that question. This isn’t about Ford, it’s just their cute catch-phrase.

There are tons of 2017s for sale, too. Dealers are now on a big push to sell them, because they can’t send them back to the factory to be melted down. They have to be sold.

If you’re buying last season’s clothing, you won’t be very trendy. But you’ll get a great price, and in the world of clothing it isn’t a big deal unless you’re a super-sensitive fashionable teenager. It matters a lot more to your wallet on a vehicle purchase. If you’re keeping it for 10 years or longer, and can pay cash, you may get a great deal, and all you’re missing is some of the 2018 model technology, which really isn’t a big deal.

Keeping a vehicle that long means you’re driving it down to a thousand bucks or so. But if you trade frequently, you’re going to be shooting yourself in the foot buying a 2017. The day you take delivery it’s a year old. So if you’re trading it in two years, you’ve actually got a three year old model and that has a huge impact on the value. That’s the reason over 40% of people who trade their vehicles owe more on their loan than it’s worth.

If you drive it into the ground and can afford a new vehicle, the 2017s could be a great deal for you. Start looking after the middle of September. That’s the month most manufacturers send around 5% of the cost of all 2017s in stock to the dealer to help them with advertising and price reductions. When that money comes through you’ll see the big wave of advertising and that should be your cue to start shopping while the selection is still pretty good. Between now and then, get down to Mosaic and invest the $20 in the Money Tools book and just read the vehicle buying chapter. That’ll turn into a few thousand once you start shopping!

By the way: Consumer Report found the average new vehicle depreciates around 25 to 30% in the first year. Buying a 2017 now when the 2018s are out makes that worse.

And one more thing from Forbes Magazine. It’s their 2017 list of the 12 fastest depreciating vehicles in the first year:

Buick Regal                31.2% or $11,525

Chrysler 300               31.7% or $13,351

Cadillac ATS               31.8% or $6,099

Fiat 500                       31.9% or $11,106

Jaguar XF                   32.3% or $19,996

Lincoln MKZ                33.8% or $14,177

Nissan Maxima           34.0% or $12,469

Mercedes C250          34.3% or $15,247

Kia Cadenza               34.3% or $12,940

Volvo S60                   34.4% or $14,204

Lincoln MKS               34.5% or $16,039

and the fasted depreciating vehicle in the first year is the Fiat 500L at 34.6% or $8,096

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.