Tag Archives: overdraft

Happy 2022 – Financially Speaking

Leave a reply

The good news: It’s a new year! The chance to start over, to resolve to do better, to do more, or in the case of your payments and all that interest – to do a lot less.

The bad news? You’re already broke! How is that? Well, our debts are more than 173% of our disposable income now, half of us have no savings at all (thanks in large part to the never-ending pandemic but now-ended government support), and almost 70% of us don’t make RRSP contributions. Why? Because every dollar we earn goes to make a long list of lenders really rich and there’s simply nothing left at the end of the month.

So when it comes to making some commitments about our debt, credit and all those bills, perhaps we should think small to make sure we set ourselves up for a win, and not a sure-fire let-down. But small doesn’t mean pointless, small just means some little steps you can actually keep, that’ll pay off big for 2022. These five are over and above the chapter in the Money Tools & Rules book “Do you have half an hour” – small things that you can change immediately:

 First – Annual bills kill your budget, but they’re not surprises. We know they’re coming – but we haven’t got the money to pay them. If it doesn’t cost you a bunch of interest or fees, set them up on a monthly payment plan. Whether it’s your property tax, car or home insurance, a monthly payment plan is a whole lot less painful than paying them by credit card or off your line of credit over the next few years.

 Second – Set yourself a credit limit. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. But anything below that, you’ll spend with real money, instead of running up debts. It’ll become a great habit and will cut down your credit card balance in huge ways. After all, look at your statement. Almost all the charges are for pretty mickey mouse amounts that add up in huge debts – twenty bucks at a time..

 Third – Keep your vehicle for another year. If you believe a cool car is a status symbol and a must-have, you’re doomed to be in debt for decades to come. Not to mention that almost 50% of people trade their vehicle and STILL owe more than it’s worth – that’s financial suicide. The goal should be to drive a reliable vehicle that doesn’t have payments with it . Imagine a couple of years without car payments and the huge financial advantage you’ll create for yourself. And remember: Those $400 car payments are really over $600 in gross earnings. If you can’t get a $600 raise – here’s a way to get it – you’ll just be giving it to yourself!

 Fourth – Close your overdraft. I know – it’s like being hooked on drugs. It’s so convenient and always there and you can’t live without it any more. Well, that’s what the banks were counting on, and where they make a huge amount of their profit. But it’s killing you. Just a $1,000 overdraft will cost you between $200 and $300 in interest and fees. It’s a one-time pain to cancel the overdraft, but it’s worth it. Then zero in your account is actually zero instead of minus $1,000 or more.

 Fifth – Change to a credit card that isn’t a credit card.
For those with a card balance, it isn’t the $600 charges, it’s the dozens of $20 or $30 charges that really add up. Sure, you want to pay it off, but it isn’t a priority each month and you keep sinking deeper into debt at 20% plus. Get yourself an American Express Green card. That’s not a credit card – it’s a charge card. At the end of the month, there are no payments to make – the balance has to be paid off in full. Oh sure, the first month that’ll be painful. But after that, you’ll watch what you’re charging pretty carefully, and you’ll never ever have a credit card balance again. What’s that kind of financial freedom worth in knowing for a fact you will never have a credit card balance again?

And maybe you can have a detox for January? How about no shopping of anything for any reason that isn’t an absolute necessity such as food and gas?

The Big Decisions (And Pitfalls) After Graduation

Leave a reply

Last week we talked about the dangers of that first credit card for someone who just graduated.

The same applies to banks getting you hooked on an overdraft or line of credit once you have some income. That overdraft will be there for at least a decade, and it’s not like you know how to shop around for the best loan deal or rate.

Car dealers also can’t wait to meet you. How many cars are you going to buy in a lifetime? Five, or six, maybe? Well, the average salesman sells that many in a week!  So who do you think knows stuff and have the upper hand? It’s like bringing a plastic knife to a gun fight – you’re gonna lose, even if you bring one of your parents or a buddy.

So you’re all set. At some point you may have student loan payments for two decades, you’ve got the credit card, an overdraft, and a car payment. Grade five math says that majority of your income is now going to pay all that every single month – forever. So someone telling you save some money is just a pipedream.

Now you’ll be thinking about how to get rich for the next 40 years. But you’ve already forgotten how easy it really is to actually GET rich, instead of just wishing it. When you were still in high school you probably had a summer job. You worked hard, had a goal of what you wanted to do with that money and saved like crazy. Plus, because you had so little money, you were careful how you spent it, right?

But that was before graduation. Now you have a paycheck and access to borrowed money, so you’ve forgotten how to get rich already, and you’re just getting started. Let me remind you again and maybe, just maybe, you’ll do these things to actually get rich, instead of that coming 40-year dream:

Pay cash for stuff

Don’t buy crap you can’t afford and don’t need

Save at least 10% of your money right off the top

In your high school class maybe one or two people will do that. The rest will just be the people hoping to get rich, looking to the government to lend them a hand, or maybe the lottery will come through for them. I don’t know which group you’re in: The going to be rich, or the just ‘wanna be rich’ group.

Maybe someone in your family will print this segment out for you. Maybe I’ll see you at the top, or maybe I’ll get an email from you in 10 years or so to help you with some of your financial mess.

You’re an 18-20 something who is about to make a lot of financial decisions which will impact you for a lifetime – literally.

Bank Staff Speak Out: You’re the Prey

Leave a reply

This past week, CBC Go Public did an investigative report on the incredible pressure front-line bank staff have to sell products. They mentioned two banks, but this isn’t about those two – they all do it. I have a friend that worked for a third one until she got out, and she confirmed the accuracy of the story. Plus, a few weeks ago, we talked about a fourth bank that charged a Kelowna couple over $25,000 in life and disability insurance on their credit line for more than 20 years.

So don’t focus on the bank, focus on the story. The what, why, how to protect yourself, and what to do is a full chapter in the Money Tools book. It really is worth the trip to Mosaic and the $20 – this is just another of many reasons.

Front line bank staff have always had a bonus or commission for sales. But low interest rates have now put a major squeeze on them. One described it as: A choice between keeping my job and feeding my family or doing what’s right for the customer. That starts with selling basic chequing accounts that they have for four bucks but jamming the customer into the $29 monthly fee. It means pushing credit cards right at the teller, and the constant drive to sell the really bad financial traps of overdrafts.

It starts when you show up at the teller with your ATM card. The screen will come up with their so called “Advice Opportunity” to sell you something. One teller shares that “customers are prey to me. I will do anything I can to make my sales goal.” A number of employees confirmed that elderly customers are their common target because they’ve grown to trust their bank for years.

Go Public did a number of hidden camera tests in Vancouver. They found one teller offering to activate overdraft coverage without saying anything about the fees. Another opened a $15 a month chequing account, never mentioning that the $4 one would have done the same thing and suggested opening two more accounts. And so on and so on…

Longtime employees shared that they feel like used car sales people. The story also covered a number of long term staff who have quit because of the incredible pressure to sell, sell, sell.

I guess almost $2 billion in profits each quarter just isn’t enough. It’s sick, sad, and bad. Banks are not your friend – I’ve talked about that for decades. And a note to the professor who stated this will come back to hurt the banks: I wish you were right, but you’re not. There are only five major banks. They all do it. Unless someone moves to a credit union, they’re in for the same treatment across the street at the other four.

Here is the link to the CBC story: http://www.cbc.ca/news/canada/british-columbia/td-tellers-desperate-to-meet-increasing-sales-goals-1.4006743

Graduating to Financial Adulthood

Leave a reply

In most places, when you’re 18 you’re an adult. In BC, the age of majority is 19 and by 21 you can do anything anywhere. You’re done with high school and can drive, drink, vote, borrow or invest, and live on your own. However, for the majority of the population, that doesn’t make them a financial adult. That can happen soon after, or it might not happen until your 30s or 40s – if ever…

This week and next, I want to go through a list of what I believe makes you a financial adult. It doesn’t mean you have to be debt free or take a university course. The essence of it is that you need to be in control of your finances and money, instead of it being in control of you. You’re pro-active versus reactive and out of control. If you do these, or know how to do these, congratulations! You’ve graduated! Some are easier than others, but all are really important.

1..You have at least one-week of income as basic emergency fund and are working towards a full three to six months of all your expenses.

2..You have two credit cards and a debit card. Your credit card balances are less than 30% of your limit (or are lowering your balances every month in order to get there) and you do not have or use an overdraft on your chequing account.

3.. In the last two years you have checked your credit report and credit score at least once and your credit report is accurate. In other words: You’ve disputed and had them fix any errors. (Go to Equifax.ca and purchase ‘score power’ which is your credit report and score.

4..You have opened an RRSP account and/or Tax Free Savings Account and make a regular monthly contribution. No matter how small – at least you’ve started and have traction.

5..You have basic insurance. Car and home coverage is obvious. But if you’re a renter, you have a tenant fire insurance policy and if you have a child, or a partner, you have a term life insurance policy.

6..Whether you’re single or married, rich or broke, you have a properly completed will. It can be a $20 do it yourself kit if you’re single, or a lawyer-prepared one if it’s more complex and you have kids. But you (or you and your partner) do have a will.

7..You know the actual amount of your net take-home pay every month. You can’t control your money if you don’t even know the exact amount you net and keep talking about your gross pay as if that were what you could spend each month.

8..You have done at least a one-time budget, or have a system of tracking your spending.

9..Your monthly spending is less than your monthly take-home pay. You may have ten cents left or $1,000 – but you’re not spending more than you earn. Financial adults figure out how to pay for something and then buy it. Others buy it and then figure out how to pay for it later.

10..You know your net worth. At least once a year you figure out what your total assets are (what you own) less your total debts (what you owe) and whether you’re growing it by savings, or whether it’s shrinking by going into debt.

11..You have a system for paying your bills every month. Waiting for the mail is not a system! Whether it’s an app on your phone, setting up automatic payments, a calendar, an on-line program or a simple check list you look at every month – it needs to be a specific system.

Waiting for the bill in the mail isn’t a plan. If the statement doesn’t come and you forget, your credit rating plummets. Blaming the post office won’t work. It’s your fault that you don’t have a system for staying ahead of the game and on top of your bills.

12..You have a proper filing system for your financial stuff. It can be six large envelopes for each of the last six years, or a ton of file folders, if you’re an organizational nerd. Kids get to say ‘I lost it.’ Financial adults don’t have that option. The graduating test will be whether you can find your tax return from 2011, or a bank statement from February within 10 minutes.

13..You are taking specific steps every month to pay off your existing debt, excluding your mortgage. You are paying more than minimum payments and your total debt is shrinking each month. You have a specific month and year that you’re working towards when you will be debt free except your home.

14..In the past year you have made at least one call to dispute a charge, ask for a lower rate, or comparison shop. If you don’t know how to stand up for your money – others will gladly keep taking it from you.

15..If you’re in a committed relationship, you and your partner spend at least an hour each month without the TV or kids discussing your money, savings, bills, purchases and budget. Kids spend – financial adults have a plan and communicate.

16..You have at least two specific and measurable financial goals. Saving more in my RRSPs, or paying off my credit card isn’t a financial goal – it’s a dream. It needs to be specific: Saving $150 a month in RRSPs is specific and measurable. Reducing my credit card balance by $200 or more every month until it’s paid off is a measurable and specific goal.

17..At least once each month you have the self-confidence to say no to an expense. It may be at work, to your kid, or to yourself. If you don’t know (or don’t want to) say no or say that you can’t afford it, or don’t need it you’re doomed to have your money continue to control your life, instead of the other way around. Setting boundaries is what financial adults do.

18..On anything expensive you shop around before committing to a debt or a bill. That includes interest rate shopping, your insurance, cell phone contract, and your credit card interest rate if you always carry a balance. Kids impulse buy until they’re out of money – financial adults don’t spend until they’re broke. If you do – you can skip the other items and save a bunch of time and effort – you’re doomed to be broke for years to come.

It’s Grad Season and Lots of Businesses Want to Meet You

Leave a reply

Your 17 to 21-year old has banks, car dealers and especially credit card companies salivating to meet them.

Those companies will do whatever it takes to get their business. Banks, and especially credit card companies, have THE best marketing minds in the country and want your teenager in debt to them – really soon and really deep.

We have a huge emotional attachment to our first credit card. It’s the reason they’ll do whatever it takes to be front and centre in your teenager’s wallet. Once they’re first, they own you and the memories and loyalties are way bigger than a teenager’s first boyfriend or girlfriend – and last a lot longer. On average, we keep our first credit card for over 15 years. It doesn’t matter the rate hasn’t been competitive for years, that the perks are junk or the fees they add on.

It’s not even important that they’re students and don’t have much of an income. For this group, the default rates are below average because, in most cases, parents will step in and pay the balance, or at least make the payments.

Why you? Because they can’t market much to your parents. Adults already have all the credit cards they need or want. So they can’t grow their business unless they get to you. It’s millions of fresh customers and bonus: You don’t know squat about credit and the dangers of credit cards, but you do love to impulse buy.

The same applies to banks wanting to get you hooked on an overdraft or line of credit once you have some income. That overdraft will be there for decades and it’s not like you know how to shop around for the best loan deal or rate.

Car dealers also can’t wait to meet you. How many cars are you going to buy in a lifetime? Three? Four? Five, maybe? Well, the average salesman sells maybe a hundred each year. So who do you think knows stuff and totally has the upper hand? It’s like bringing a plastic knife to a gun fight – you’re gonna lose, even if you bring one of your parents or a buddy.

So you’re all set. You’ve got your student loan payments for two decades, you got the credit card, an overdraft and that car payment. Grade five math says that most of your income is now going to pay all that. So someone telling you save some money is just a pipedream.

The Forever Trap of Overdrafts

Leave a reply

One of the most convenient, but so financially deadly, traps is to have overdraft protection on your chequing account. It allows you to go below zero without fees, or the chance of bouncing a cheque, but comes at a very high price – in a number of ways.

Firstly, an overdraft will almost certainly become a permanent debt, because it now pretends you can go to minus $500 or minus $1,000 – forever. But it’s not something most people really consider “debt.” And it also gets used almost every month, because we never seem to get out of it, kind of like quicksand.

The convenience comes at a high price of around 20% interest. That is one of the biggest reasons banks aggressively sell it. Yes, it does protect you from an NSF charge, but can’t you simply learn that zero in your account is the end of spending, instead of going in the hole over and over again?

About six months ago, I started working with someone, OK, more like bugging him, to get his $1,000 overdraft cut off. But it was, and will be for you, very hard to get yourself out of that hole. A great plan, if you finally want away from this almost permanent debt, is to do it in stages. The plan was to get it down to below $500 and then go to the bank and cut the limit of the overdraft to $500 as well.

That was a great way to assure the overdraft was being reduced and not going up again. Yes, the teller will claim they cannot do that, you have to see a loans officer, etc. That’s nonsense. It’s one press of the button to reduce it. The reason they want you to see a loans officer is because they want to SELL you on keeping it way up there. That’s how they make money! Their job is not to help you, but to help their financial statement. If you get that push back, tell them: Fine – just close the account then. At that point, they’ll blink and cut the overdraft down. It’s YOUR money and you are the customer. It’s what YOU want and not what the bank wants!