Author Archives: admin

Are Those Temporary Great Credit Card Rates Worth It?

Leave a reply

The spring wave of special temporary rate offers from credit card issuers has sprung.

But, as I keep saying, what happens in the US comes to Canada – and here’s another example of that. To transfer any balances to that cool temporary rate now comes with a fee. You’ll now pay at least a one percent transfer fee to take advantage of the special rate offer.

The one I have in front of me is from the Royal and from Scotia. The Scotia one is a 1% six month rate offer. But you have see the little asterisk and read down on page two of the fine print. You’ll pay a 1% fee for this temporary cool rate.

That 1% is enough of a fee for them to still be profitable, since banks borrow money at less than 1.5%, and I would suggest it’s not much of a deal for you.

This Scotia basic card has a 12% rate – it used to be 9.9% and they jumped it 20% when rates are still at the lowest ever – but that’s another story.

If you transfer $5,000 onto this card, the 1% six month rate will add that fee of $50. So you’re really paying a 4% effective rate: 1% interest on $5,000 anyway, and a 1% fee on top of that. If you transfer $8,000 onto the card you’re paying a total rate that’s actually 3%.

By the way, and this is something most people never realize, the cool rate is only on new transfer balances, and not on your existing balance. The only way to get the cool rate on your whole balance is to pay off the current amount in full, wait a day for it to be processed, then transfer the entire balance back, but now adding that 1% fee.

Whether the saving of a few hundred dollars is worth it is up to you. If you use it, the card issuer has won already. They’re still profitable and have accomplished their number one goal of getting your balance way up there.

What are the odds, though, that you’ll pay off this huge balance inside the six months, before the rate goes back up to the 12% or 20%? According to studies, it’s less than a quarter of all people. Then it’s a double win for the card issuer because you’re right back to the full rate the day after the temporary offer. At that point the shell game has to start again, if you can find another rate offer.

Instead of saving a few hundred dollars, there’s a guaranteed way to pay zero percent interest: Pay the current balance off and don’t spend the time and energy in transfers. You’re just kidding yourself that you’re making progress – you’re not. You’re moving your debt from one place to another. Sure, it’s a temporary interest saving, but if you spend that same time and energy just focusing on paying off your balance, you’ll be way ahead of the game for the long term.

And by the way: US transfer fees to take advantage of temporary rates are now up to 5%. What do you want to be it’ll be that amount in Canada inside the next year or two?

Investing Lessons…The Hard Way

Leave a reply

Two more quick thoughts for your 17 to 22-year olds from what we talked about last week.

Becoming financially successful happens from two sides: The savings side, and the borrowing – or not borrowing side. If you want to be rich, it’s a no brainer to study the habits of rich people, right? Well, the Fortune 400 richest people can teach us something we already know. To start, of those 400 richest people, 90% started with nothing – so it’s not inherited money, but rather earned on their own. For these people, 75% shared that the number one way to get rich is to pay off debt and to stay out of debt.

Of course, the best way to actually have money is to not pay it all out every month in interest and bills. That allows you to save. For students, there is a story on how to be a millionaire at age 20 by just saving $10,000. It’s on my web site – a story we did last year.

When you have money – you can invest and watch it grow… if you choose not to gamble with it. Investing is a five year or longer time horizon, and not a one-off stock or investment. It’s long track record, good growth mutual funds and the likes.

Want proof? The two so-called hottest things in investing have been gold and the Facebook, or some other IPO from the tech industry. Well, let’s see how that’s been going:

Gold yesterday went below $1,600. Now, I had said it’d be half of its high of $1,950 or so within two years, and it’s well on track. Just listen to some of the hype about gold and gold stocks. It’s been insane, and you have to know a ton of people invested with borrowed money. That’s now a double hit that will wipe out a ton of their money AND have them paying interest to add insult to injury.

Friday’s launch of Facebook stock is another great example of gambling versus investing. It’s a one-off stock. That’s way too risky for anyone of us to gamble on! The stock came out at $38. That’s what institutional investors got it for in advance. When it came out, the first few hours the stock went up. Of course it did – the almost always do. That’s individuals now getting their first chance at buying it! How do we know? On the first day every stock issued was bought and sold more than once.

So who was selling if individuals were buying? All those institutional companies who got it in advance and wanted out! You can’t buy a stock if nobody is selling! Those companies sold because they knew things you and I didn’t: During their road show of convincing these investment companies to buy the stock they reduced the forecast for Facebook profits. They also gave these institutions more stock than they thought they’d get allocated. Why? Because there wasn’t enough demand. That was a BIG warning flag for those companies to dump it quickly, and you and I didn’t have a clue.

So within a few hours, the stock was back down to its original price. By yesterday it was down to$33 from $38. Any hype to get in right away because you didn’t want to be left out would quickly have died. Today it’s at almost a 15% discount and some think, when you compare it to Google’s profits vs. price it ought to be a $10 stock.

Today you have that knowledge in hindsight. But by today you’d have lost your shirt. Don’t do it – stick with mutual funds managed by people who are on the inside and not reading about it two days late.

It’s Grad Season – But From School and Not Financial Reality

Leave a reply

If you’re between the ages of 17 to 21 or so, or have a son or daughter that age group, banks, car dealers, and especially credit card companies are 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 center in your teenager’s wallet. Once they’re first, they own you, and the memories and loyalties are way bigger than the 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 that the rate hasn’t been competitive for years, that the perks are junk, or the fees they add on. 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 do they target your age group? 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? Five, or six, maybe? Well, the average salesman sells that many in a week! 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’ve got the credit card, an overdraft, and that 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, saved like a dog, and paid cash for stuff. Plus, because you had so little money, you were careful how you spent it, right?

But that was when you were young. 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 out for you. Maybe I’ll see you at the top, or maybe I’ll get an e mail 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.

Can You Afford to Be A Stay At Home Parent?

Leave a reply

Did you know that the largest numbers of babies are born on a Wednesday? Between that, and the fact that the highest number of marriages happen in July and August, I thought I’d bring up the question again of whether people can afford to be a stay at home parent.

In families were both partners work, the thought of one parent staying home to raise the kids is often a goal and a dream. It might not be for everyone, but those who want to do it, often feel they can’t afford it, financially, and the dream dies before it’s ever started.

Yes, almost all couples who have decided to have one partner stay at home, and to make raising their kids a priority, will share that it was hard. But note that it WAS hard – in the past tense.

For sure, the most challenging steps are mainly in the initial adjustment pains. Can it be done? Yes. Is it worth it? You decide. But just make sure the decision is more about your values, priorities, family, and kids, than it is about finances. After all, your credit card companies and lenders shouldn’t be setting your priorities. But in reality, our debts and monthly payments do dictate our lives in more ways than we care to admit.

But money is almost always where it starts. The most common feedback is: “We’d love to be able to, but our family can’t possibly make it work without my partner’s income.” Often, however this “what’s the use” mindset is not true, because gross income doesn’t count. If your partner makes $2,000 a month, you need to deduct the taxes, EI, CPP, staff fund, and all those other deductions which come off the top, and chances are the real take-home is more likely to be around $1,400 tops.

Now subtract the bills which are mostly as a result of earning this second income. For the most families, that starts with a second vehicle, just to be able to get to work. Are there $200 or $300 car payments? That alone adds another $200 or so for insurance, gas and maintenance. What else? Perhaps there are current (or future) daycare expenses of another $400 or more, and probably at least another $100 for lunch, clothes, etc.

Without these “work bills,” the real net income in this example is $400 a month at best, not even considering the working partner may now also move into a lower tax bracket. That’s less than twenty bucks a day! Sure, each situation is different, but ten minutes of looking at your finances from a different perspective can have a big impact. It’s the old saying: You have to spend money to make money. But in this decision, it totally works against you, and makes things worse and not better.

If your desire is to have one partner stay at home, can you really afford not to do it? Yes, it’s a one-time adjustment, but it can also create opportunities, bonds, and memories that money just can’t buy. So here are a few questions to get you started thinking about the “how to,” instead of the “can’t be done:”

• What’s the real net pay you’re dealing with?
• How much money are you paying out of pocket each month directly related to the job?
• What monthly bills or payments (such as car payments, etc.) would you be able to drop?
• How much (if any) would your partner’s tax drop by with only one of you working?
• What bills can you consolidate into a lower payment (or pay off with current savings) to increase your cash-flow?
• Can you get rid of your current car payments by paying off the vehicle, terminating the lease, or trading down to a less expensive vehicle you’re able to pay cash for?

It’s Never Good When Politicians Handle Our Money

Leave a reply

I have a theory that politics generally trumps doing the right thing. It shouldn’t, but it does. It’s not about excellence in education, the national debt, meaningful steps to solve financial problems, or solving health care problems without another study or throwing more money at the issue.

Last week’s federal budget trumpeted a radical decrease in the size of the government and the money it spends. But when is a $27 billion spending increase over the next four years actually called a spending decrease?

Although I have to give the government credit in slowly inching up the retirement age. We live seven times longer in retirement now and nothing has changed on paying for that. If your mortgage or rent went up seven-fold wouldn’t you take steps NOW to deal with that BEFORE you go broke?

In Greece and other countries in Europe people are rioting week after week. Sorry, but the hard choices to get their government spending under control are not optional. They’re not popular – but there isn’t a choice. Just like you and me, at some point when we’re broke we can’t borrow any more money. That’s the case for a lot of European countries – they’ve hit the wall.

Until they hit the wall, most governments just want to stay popular and worry about the next election. In the US, all the hard decisions have been put off to this year end – after the election, and all of them were made for a year or so, in order to avoid having to deal with reality during this election year: The alternative minimum tax, the next debt ceiling increase., one year payroll tax cuts, 100% capital purchases depreciation, and all those massive Bush tax cuts that were only extended for one year.

The insanity is even worse in California. The state has been discussing a high-speed rail system forever. This past week the California legislature concluded that the state should not issue a $2.7 billion bond borrowing to go ahead with it. Why? In part, because the cost would be insane. In 2008 voters approved a high speed rail line from San Diego to Sacramento, based on a cost of $33 billion. Today, that price has tripled to $98 billion. Case closed, right? Well, Governor Jerry Brown wants to go ahead with it anyway and commit to the $2.7 billion in debt or they’d lose out on $3.3 billion of federal funding. OK let me understand this: We should spend $2.7 billion so we can get $3.3 billion so we can then spend $98 billion in a state that’s on the verge of bankruptcy and has some of the highest taxes?

That kind of insanity, for every province or country is going to end badly. Not this week, or even in the next few years. But there will be a point of reckoning, a point where the country hits the wall, and changes won’t be optional. There will be violence and massive structural changes imposed by necessity. Those violent protests in Greece and other parts of Europe will happen in North America – later rather than sooner, because politicians keep putting off doing the right and necessary things.

It’s only about politics and confrontation. Creating a fight is great political ammo to score points, but it has nothing to do with problem solving. And the media only covers the conflict because it’s easy. Digging into the hard stories, structural problems, or holding politicians accountable takes a lot of work, research, knowledge and depth, and almost none of them will commit to that. And we voters really would rather hear what we want to hear than the truth and the hard facts and painful choices.

The Downside of Cosigning

Leave a reply

In the last month, I received two e mails on the (sort of) same subject from two different sides that are worth sharing. I’ll start with the negative one, for a very good reason.

“Because of your stupid book, my parents won’t cosign for a car loan for me now. Thanks a lot. What am I supposed to do now?”

Dear anonymous: Hurray for your parents. I am very proud of them. Borrowing money is not a solution in life and teaching you that your immediate needs can just be solved with borrowed money will set you up for a lifetime of financial failure. No, you won’t understand that now, but you will in a decade or so.

Once you calm down and get out of your judgments, grab the It’s Your Money book. It’ll be more education than you’ll get in most of your classes – honest.

But if I don’t, my kid will have to wait at the bus, or get a ride. Good news: They can spend that time studying. Yes, I’ve heard all those arguments. News flash: You’re good at time management, your kid isn’t, and won’t study more, or get better marks, when you cosign a car loan. Inconveniencing your kid does not constitute child abuse. Stop kidding yourself.

The second e mail was from a grandfather: “Our bank just called to let us know that they took $2,300 out of our savings account to pay off for my grandson’s car loan….”

What happened here is that the gentleman cosigned for his grandson’s car loan. The kid was almost 90 days in arrears and the financial institution took the balance from the cosigners account. Yes, they can. When you cosign, you are just as legally liable as if you borrowed the money.

News flash: 100% of people asking you to cosign will assure you they will never ever go in arrears and they can totally afford it. I’ve never heard the opposite and 99% of people don’t think of the consequences when things go wrong – as they will – as they did here.

What’s even worse is that this gentleman’s credit is now trashed. The 90 day in arrears is on his credit file and will stay there for seven years.

If you’re going to ignore my plea to never ever cosign for anyone under any circumstances, at least assure that the loan documents have your address on them. It’ll assure that any notices and statements come to you, so that you’re proactively aware of what’s going on with the loan.

In the It’s Your Money book are a whole list of alternatives to cosigning. Read them and find one of them, instead of ruining your credit, your relationship, and your finances.

I Really Hope You Like Your Timeshare

Leave a reply

In early December, a buddy from the Island had a post on her Facebook page: Hurray – I have my vacation lined up for the next ten years at a really great deal. My heart just stopped when I read that, because my buddy had purchased a timeshare.

I sent her a note that I hoped she was within the 48 hour cancellation period and that she should run, not walk, to a lawyer to try to get out of it. No such luck – she’s an owner, and that’s not a good thing.

If you own a timeshare, I really, really, hope you enjoy it and use it each year. Unfortunately, the resale market for timeshare is non-existent, and won’t be back in our lifetime. There used to be a saying in the business that there was one buyer for every 1,000 sellers. That now has to be one buyer for every 100,000 sellers. It’s also the reason why one of the worlds’ largest hotel chains took their timeshare division and cut it loose last year, and got it off their financial statement and stock.

If you want proof, go to Ebay.com and you’ll quickly get an idea of what I’m talking about. Here are some current timeshare listings for sale:

Grand Cayman for $77, Maui for $199, Foxrun in North Carolina for $50, and Colorado at Copper Mountain for $2. It gets better if you think that $200 or even $2 is too expensive. Here are a few random ones I wrote down, each for one dollar: Cabo in Mexico, Oceanfront at Cocoa Beach Florida, Orlando and even at Whistler, BC.

Even at a buck, people cannot give them away. Why? Because you will be charged the $600 to $1200 annual maintenance fee forever and ever, and often other charges. That’s not even counting the tens of thousands of people who still owe money on their timeshare and thus can’t even give them away without writing the cheque to pay off the balance. And that’s easier said than done when timeshares run $5,000 to $15,000 for a week. While getting it for a buck may seem like a good idea, look at hotel prices in these resorts, first, and you’ll find that you can get a four star hotel for less money than the timeshare.

Of course, what happens when tens of thousands of desperate people want to unload something at all cost? The scammsters show up – and there are dozens. Anyone promising to help you to sell your timeshare with money up front is scamming you and lying to you – period. Just google timeshare sales scams and you can read all about the various angles where they promise to guarantee your sale.

Hopefully, you really enjoy your timeshare, or give it friends and family to use. If so, carry on, because the only possible way to dispose of it is to go to the resort and chat up a bunch of your fellow time share members who are there the same week. Those are the only people who may be interested in buying a second week.

More Monthly Budget Tips

Leave a reply

More Monthly Budget Tips

Two weeks ago I offered a $100 bounty for some good ideas to help cut down the monthly bills. The best one, by a mile was from Dan. Rather than dissect them, I’ll let you read his entire note and choose if there’s something here for you:

Hello George,

I always appreciate your radio commentaries…here are my money saving tips:

Get rid of the clothes-dryer, don’t use air-conditioning, lower the thermostat and put on a sweater, turn off lights and heat in un-used areas, use power bar and power off gadgets, chargers and home theatre, etc. Keep the lights low…your not doing heart surgery so why light your empty kitchen like an O.R.!*

Install a programmable thermostat, use CFL or LED lights. Increase your internet package and cancel the TV to watch streaming programs.

Cancel the cable TV and watch online TV and downloaded movies. Get a bundle price on internet and phone. Regularly check all your plans for cable, internet, phone and cell for newer cheaper plans. Consider a pay as you go cell plan, and text instead of talking. Don’t have satellite radio or anything with monthly fees if you can live without it. When shopping, bring a calculator…and don’t be fooled by Yellow tags implying a sale price…it’s probably not true. Cancel all subscriptions to magazines, and newspapers…read everything online and save a tree.

If you drink and entertain, make your own beer and wine. Don’t go out for drinks and dinner, buy all the fancy groceries you want, but stay at home.

Drive an older economy car and don’t pay for collision insurance, and don’t wash it every week. Don’t pay for services you can do for yourself…housecleaning, lawn cutting, oil changes, etc. If you have 2 cars….consider selling 1, and try transit, cycling, or walking. Sell the boat you never use….sell everything you haven’t used in 1 year, especially electronics – their value is steadily dropping. (old cell phones, cameras, and computers)

Don’t pay for a storage locker for household items….if you can live without it …WHY PAY TO STORE IT!

Buy a tax software program and do your own taxes, (this way you will save money and know something about taxes). Buy whatever coffee maker you want…and some travel mugs…let the drive-thru be a “road trip” treat. Keep non-perishable snacks in the car…granola bars, juice boxes, etc…cheaper and healthier than burgers and fries.

Get a “no fee” debit card and don’t carry cash so you can see where all the money went!!!! Dan S.

P.S. I have ¾ of an economics degree…so I am kind of obsessed with this stuff…

Show Me the Money (Savings)

Leave a reply

The It’s Your Money book section on budgeting has a lot of insights and ways you can take an extra $100 extra and pay off $25,000 in debts in less than four years. But there’s also a challenge for you: During the next week, make it a game to find out where you can cut down your current bills. Don’t assume anything, make some calls, stop and think, look at something a little different, ask some friends, and see if you can’t find at least $100 to cut each month.

I bet you can do it without ever affecting your lifestyle. But here we are, feeling overwhelmed by our debts with no clue how to make a big dent in them, and wondering “what’s the use” trying to reduce our monthly expenses. That mindset is an absolute financial killer, and the first thing that has to change is the attitude that there’s no point and no use. There is – and pays off BIG – really big!

Here’s the example of what I did last year:
Cut off a bank overdraft: $20 a month in fees and interest
Switched bank accounts for lower service charge package: $10
Changed phone carriers from Telus to Shaw: $25
Changed my fax line to smart-ring: $30
Changed long distance plans: $15
Cancelled two magazine subscriptions I didn’t have time to read anyway: $10
Switched to Esso Speedpass for an extra 1.5c off per litre: $8

That’s just seven of the dozen things which I found in two days, for a saving of around $290 a month. Over a year, that’s $3,500. Now add the tax to that – because we have to earn gross income in order to have this $3,500 left – that’s $5,000 worth of income saved!

What are yours? Is it a programmable thermostat that’ll cut your utility bill 15%? Is it a saving of $100 a month just in one less dinner out? Maybe a cell phone plan change, or perhaps dropping down one level on your cable TV package?

So tell me the last time you got a $5,000 raise? Still wonder what’s the point? And why do it? Because every bill you cut down, every dime of interest you save, every dollar that’s NOT going out the door to make someone else rich is exactly like getting a raise – only a lot quicker and easier to accomplish! You can increase your earnings or cut your money going out – both work – this one is just easier and faster to do.

Make it a game and not a pain and you’d be amazed at what you’re leaking out the door that you haven’t questioned in years! You have to start somewhere and you have to start sometime, and taking a hard look at your current bills is one of the best places to start.

If you have an idea, let Phil or me know. I’ll put up $100 for a great idea we can share. If I don’t get an actual good one, the money will go to a Kelowna charity. So one way or another, I will pay it out. Care enough to share it. I’m at yourmoneybook.com and Phil’s e mail is on the radio station web site.

Tricks and Gimmicks Everywhere

Leave a reply

I have to confess: Stupid gimmicks, traps and tricks, and misleading ads drive me crazy. But it seems that right now there are a bunch of them around designed to separate you from your money:

Right now, there is a BC car dealer, and one in Ontario on my Facebook page, advertising that they’ll give you 250 airmiles when you purchase a vehicle from them.

Does anyone know what you’re really getting? The wholesale value of an airmile is about 1 ½ cents! That translates to less than $4 of value. On your end, 250 redeemed airmiles gets you around $30 of gas coupons. Let me see: You’re spending $20 or $30,000 and the extra incentive is $30? Are you kidding me? But I wonder how many people chase the points and think it’s some kind of good deal.

There’s an ad for a pawn shop chain with the claim: We’re another kind of bank. THAT is one big stretch. I know the industry wants to clean itself up, and promote itself away from their current image, but a pawn shop is not a bank – give me a break.

Nationally, and it may just be marketed in the US on television, there is now a huge promotion to buy a 24 karat gold coin. They claim it’s a limited edition $50 value for $9.95. Wow – that sounds like a deal…on the surface, especially with the gold mania that’s gone way beyond reasonable and rational.

However, in the ad they mention that the coin contains 14 mg of pure gold. OK, most people know what an ounce is. But hands up if you know what 14 milligrams are? I didn’t think so. At the current value of gold, that 14 mg is worth 78 cents, because it’s 0.000494 ounces.

The ad goes on to claim that this is an incredible investment. How is that? 78 cents worth of actual gold for ten bucks is an investment? It may be shiny, but it’s not all gold.

But a gold fever is a gold fever, and lots of companies are taking advantage of it. In Boca Rotan Florida you can actually find a vending machine that will sell you gold. Just insert your credit card, make your so-called investment selection and buy it, just like you would out of a candy vending machine.

Gold is the only safe investment says one advertisement. Oh, really? As though investing in good growth mutual funds with a long track record hasn’t historically averaged around 12%?

Tim Horton now has an ad campaign designed to get people to automatically re-load their gift cards through their bank account:” Could I get one of these and one of those and get my friend here whatever he wants.” A pre-loaded gift card is like a credit card. Tim Horton, and everyone else in the small cash purchase industry, knows that you’re likely to spend way more money with a card instead of cash!

With a pre-paid card, or credit card, McDonalds average purchase increases 47%, and vending machine purchase per person increases 178%. Small wonder these companies want you to use anything but cash!