Tag Archives: income

Learning from Calgarians?

We didn’t learn from the massive 2008 financial meltdown in the US that triggered millions of job losses, business closings, and over five million foreclosures, from which they’re still not fully recovered. That doesn’t make me hopeful that we’ll learn much from what’s still happening just a six hour drive East in Calgary, but you should know:

Oil prices started to fall in late 2014 and the job losses became very big and very real in the spring of 2015 and are now at a 22-year high. One of my former clients is down to a third of their staff while their debt has reached $2.5 billion – today they’re a walking bankruptcy within months. In the “good old days” one-fifth of Calgary families earned over $363,000. Today, restaurants are empty and it’s easy to find parking spots downtown. Bankruptcies are up 28% and suicides up 30%. With every month that passes, the psychological depression gets worse as there seems to be no end in sight.

It’s now been long enough for an entire city that’s dependant on the oil business to likely change their views on money, debt, and financial security. It isn’t – or should never be – about a line of credit for an emergency, or the attitude they can always remortgage their home – or sell if it absolutely need be. You can’t keep running up a line of credit with no income, and you certainly can’t remortgage. The last great hope of selling the home may take a year or more, and at a much lower price, and that $100,000 price drop is all their equity wiped out.

An expensive lesson is also that everything can go wrong at the same time: A job loss, plummeting home prices, a stalled market that won’t grow investments, no more stock options, and the dollar back down to the mid 70s. It’s a shock to anyone, but more so people in their 50s or older who were counting on every one of these factors in funding their retirement. For younger people, the student loans have started, while the promise to an average entry level wage of $50,000 are dead, and they’re now scrambling for any job paying anything at all, in order to pay the rent and to eat.

Calgarians (and all of us Canadians) were fine with perpetual debt because we thought we had a perpetual income stream. The hard reality is that income isn’t guaranteed, or permanent – but the debts are! And now they need to be paid with little or no income in a new reality. It isn’t hard to skip a few dinners out for a month. It’s hard to skip a car payment – and it’s almost impossible to recover a month of arrears on their mortgage payment. The more you owe – the higher the odds are that you’ll lose everything.

EI has run out, the small savings are long gone, soon the RRSPs will have been cashed out, and everything that took decades to build will be wiped out within a year or two, tops.

I’m here to tell you that Calgarians won’t see those bonuses and wages again in their lifetime. Of course the oil business will recover. But it’ll be a very different reality when it does. Just look at all the economic turmoil that happened in the U.S. if you don’t believe me. Calgarians of all ages, and they’re not alone, are starting to realize that their peak earnings are already behind them. The question is: What financial changes would you make today if you knew this is your last large paycheque?

Banks do stress tests on themselves: What shape would we be in, or what would we do, if the worst happens? Think about that in your own financial life. One day it may start raining and not stop for a long time. How big and sturdy is your umbrella for a rainy year or two or three?

More Often Than Not, Being Broke Is Our Choice

A survey weeks ago by the Canadian Payroll Association found that around 60% of us live paycheque to paycheque. While their president stated he was very surprised that people were so close to the line, we shouldn’t be surprised at all. In fact, I believe the figure is actually higher!

Being poor and broke is most often a choice. We create our own mess, the mess doesn’t just happen to us. No, not consciously, but in the financial decisions we make, the debts we take on, and our priorities with money. I know that if I spill a cup of coffee, right now, this minute, I’m going to clean up the mess. That’s a cup of coffee – why don’t we take that same attitude towards our finances?

To change it around, we can spend less, or earn more. Either one works, both together change our financial situation that much faster. If we wanted to, by next week, we can make around $1,000 extra each month delivering pizza, the newspaper, or a bunch of other part time jobs. If we wanted to…

If we wanted to, we can sell our car with the big payments by next week, and drive a $2,000 beater until we’re debt free. Just not having that car payment is a huge amount of money that could go to paying off other bills. If we wanted to…

People don’t move until they’re fed up and mad with their financial situation. When we no longer want to live in the state we’re in, you’d be amazed how quickly we can change it around. But until then, we keep confusing our needs with wants, and just give our money to everybody but ourselves.

We’re like an ATM – two paycheques go in, and all the money quickly goes out to make every payment in the world, and we just hope that we’re not out of money before we’re at another payday. Everybody has their hand out for our money and we give it to them voluntarily, and then complain that we’re broke. That’s not a life – that’s surviving, and it’s not a fun way to go through life!

At some point, all the stuff we’re still paying for isn’t worth the financial pain we’ve taken on. At some point, hopefully soon, it has to become an issue of the heck with the cheeses, I just want out of the trap!

In relationships fights over money is one of the #1 issues with couples. It’s the biggest cause of divorces, and a huge contributor to male suicides. We hear this, we experience the fights, and we STILL keep doing what we’re doing? Does that make sense at all?

People know how to get wealthy and know how to avoid making their financial situation worse. But why don’t we take the steps to make it happen? The bottom line is whether we’re prepared to do what it takes to turn it around? If so, it starts with some easy steps that very few people take:

Sit down without the TV and the kids and do a written budget with your partner. Every dollar is planned, and nothing gets spent over and above the budget. It’ll really clearly show you where all your money is going. If the budget is $600 for groceries, $300 cash goes into an envelope or a jar for the coming two weeks. When that money is gone – you’re done spending.

Step two is to get an emergency fund of one week’s gross pay into a separate savings account. Stop being naïve – there will be an emergency. This small rainy day fund is critical. It will rain – you know that!

Step three is to focus on paying off your debts. No RRSP savings, no investments, no vacations, and you’re not seeing the inside of a restaurant unless you work there. But rather a 100% focus on getting debt free except the mortgage. The It’s Your Money book has an easy to understand section that has you list your bills smallest to largest, then every dollar goes to the smallest debt until it’s paid off. Then it rolls to the next one, and so on.

There was a survey done of the richest people in the world from the Fortune 400 list. Seven out of ten started with nothing. Their wealth was built entirely on their own, without inheritances. When they were asked what the number one key was to building wealth, the answer was always: Get out of debt and stay out of debt.

It might seem cruel, but if were to be honest with ourselves, would we agree with this line from Larry Winget’s book jacket: People want what they’ve got. It’s a simple formula: You have what you want because your actions produced your results.

Can you get out of the life of living payday to payday? You bet. Do you want to? I’m guessing we all do. Will you do what it takes to make it happen? Ah – that’s where 90% of people choose not to…

Are We Gaining Ground or Going Broke?

In a recent survey, 71% of respondents felt that their standard of living would be lower coming out of the current recession.

What? I was quite shocked when I read that. But to start with, what is a lower standard of living? Is it less income? Is it less cash flow to buy all kinds of stuff? I would bet, for the majority of people, those two make up majority of the responses.

But does our standard of living decrease when we cannot buy a new iPod every year? Are we somehow deprived when we cannot afford to go out for dinner twice a week, or afford the payments on a new car every three or four years?

How many of us are confusing consumer spending with wealth building? How many would take a cut in pay, if we were assured we would have more savings, a growing RRSP, and at least an emergency savings account? All of those build wealth, whereas our spending is a wealth robber!

Is our standard of living somehow affected when we DON’T drive a new car? I would bet for most people that may be their thinking. But isn’t it exactly backwards? If we drive a new car, we now have a big payment going out the door, and our standard of living decreases exactly BECAUSE we have this new car to finance! So is someone’s standard of living better or worse when they can bank a ton of money by not having car payments?

I ran into a lady recently, who really wanted some help in getting her monthly expenses under control. When I asked her how much a month she wanted to save, she didn’t have a number in mind at all. Well, isn’t that kind of like getting into the car and starting to drive, with no idea where you want to go? In order to save money, you need a number – a firm goal of where you want to go and what you want to accomplish! After that, it’ll become a whole lot easier, exactly because you have a goal and a fixed plan.

But while I was talking to her, she was playing with her iPhone. When I asked what her monthly bill was for the iPhone, she became rather sheepish, and it took a bit to confess that it was around $130 a month. Yikes! Mine is around $25 a month, and it makes phone calls, too. Yet, that was something she just didn’t think she could ever do without, and proceeded to attempt to “sell me” on the cool features and gadgets. Nice try.

There is something economists refer to as our marginal propensity to consume. It’s a fancy term for saying: when we make more income, we spend more money right along with it. A $500 raise, and pretty soon, we’re spending to our new and higher income level. It works for us average people just as much as the rich. It’s how Michael Jackson earned around a billion dollars, yet died about $500 million in debt!

We need to be careful with the yardstick we use to measure our standard of living and not confuse “stuff” with wealth. For many people, their thinking is backwards: It is their stuff which reduces their wealth, and not the other way around.