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Someone Actually Did a Written Budget! Wow
Good morning George. I’ve just finished your Money Tools & Rules book! Thanks so much and well done on a great book!
We have two kids between 7 and 10-years old. I have done up a budget and I have reduced my monthly expenses a reasonable amount to add to my payments towards my credit card and line of credit debts. I have that goal of paying off those debts to be able to buy a house in the future, while also looking to gain a foothold in investing.
Part of my reply that relates to (this portion of) the email: I only ever answer questions of what I would do since I never have all the information. Plus, caring isn’t telling someone what they want to hear, it’s caring enough to be honest and direct.
Nice that you’re one of the rare people that put their spending on paper to be able to see it AND reduce it a bit – that’s pretty impressive. And remember you’ll be way over here and there – just keep tweaking it for the variable bills and DO have some “me” money in there and some “kids” money. And tell them in an age appropriate way some of the budget stuff!
When they know the rule of what their “me” money is AND what it can go to (clothes, field trips (?), school extra billing (?), dollar store, snacks, etc) they’ll learn to live within their own budget and it’ll take most of the hassle out of shopping with them. Make it cash in an envelope for each of them so that they can “see the money,” or lack of it, towards the end of the month! This, however, is not their (hopefully) earned allowance! That’s their money to invest – give – spend as you’ve defined the rules for it.
Your investing goal is confusing as it states opposite things in your full email: If you’re NOT adding to your investments, you just need to follow the step up plan in the book to the letter, which would be credit card only – minimum payment on LOC. Then the LOC with the minimum you paid all along AND all the money you’ve paid extra on the card that’s now cleared.
If you meant ADD to your investments as well: Unless you’re a doc, vet, or someone else making maybe $150k or more, you’re doing the exact opposite of what works. I hope you’ll email me in a few years that you’re in roughly the same position, just a few years older. Plus, you won’t meet the debt ratios, etc. of the Trudeau stress test for debt load, total debt service ratio, etc. if and when you want to qualify for a home purchase.
Get A New Furnace or AC For $39 A Month? Not So Fast…
If you’re financing any major purchase through a retailer, that company doesn’t actually carry your loan. They are in the business of selling furniture, jewelry or home improvement products, but aren’t in the finance business.
But these companies know that they need to find a way to help tons of people get the financing in order to buy their products. That’s where many finance companies come in that you’ve never heard of. Yes, you can put the charge on your credit card, use your line of credit, or arrange a loan, but lots of people will simply get the store to be the middle person on getting the money arranged. That may be convenient, but it’s always much more expensive.
If you’re buying something at the Brick, for example, they’ll handle the application for credit with Flexity Financial. It’s owned by Curo Financial Technology. You need a pretty low credit score and can get approved for a credit line that’ll cover your furniture purchase. Or you can apply for the Brick Visa that’s done through Desjardins in Quebec. In the same way, the Lowe’s Consumer Card is issued by Synchrony Financial. It’s a US company with almost 70 million finance customers in everything from home improvements to vehicles, travel and home products.
A few years ago, financing started for air conditioners, furnaces, roofers and others. On the surface, that makes sense. Most people have no emergency savings, and are in no position to pay four, five or six thousand dollars for a new furnace or AC.
Plus, almost all of the companies in these industries are small or medium local businesses. They’d love to sell you a new furnace, but YOU need to have the money or get the financing done first. In came two or three finance companies who specialize in big ticket items for your home. If you look at most heating and air conditioning companies’ websites, they’ll have a link right on there to one of these finance companies.
When you hear an ad that you can have air conditioning or a new furnace for starting at only $39 a month – it’s not the contractor that’s financing it, it’s one of these companies.
Before you jump in, be super careful and read and understand every scrap of paper before signing it. Better yet, don’t do it. Find a way to find the money or, if need be, get a small line of credit or loan from your bank.
These finance companies will put a 12-15 year lien against your home. How can you have such a low payment? By stretching the time to forever! But forever means a staggering amount of interest, no matter what the rate. And they mirror all the mortgage lingo and rules: You’ll have a 12-15 year amortization. That’s the total length of the loan and a three or five-year term. That’s how long the initial rate is fixed before it’s changed. So two things: Most people see the word “term” and think that’s the total loan length. BIG mistake number one. And after five years, just like a mortgage, a $5,000 loan will still have a balance way over $4,000 because of the tiny payments and stretched term!
This person is a typical BBB complaint, but it’s not valid. All the information is in the signed loan documents. They thought the “term” of five years (and it’d be paid off) was the total amortization (15 years). They were surprised so little of their payments had gone to principal. Yup – five years of payments pretty much went mostly to interest. That’s the downside to a 15-year loan! They also complained that the payments went up 15%. Yup – after five years (in this case) they’ll move up the rate. A lot – in this case! Just like a mortgage – fixed for a while, then it’ll adjust.
Sure they can offer you a low rate because they have almost zero risk. Furniture type financing is 20 to 30% rates because they don’t have any collateral. They can’t come repossess your three year old couch. Financing your furnace or AC puts a forever lien on your home. You might not pay, but they’ll just add massive fees and penalties and they will always get paid because it’s the same as a 2nd mortgage: You cannot sell your home unless this debt is paid in full.
Yes, the AC, new furnace or solar may be necessary, and may even increase your home value – but you can’t transfer the debt. You have to pay the balance in full before the sale can close.
Finally, all of these finance companies charge a rip-off admin fee and MAY have big penalties in the fine print. The last one my realtor friend saw was a $6,700 early payout penalty. His seller had no choice but to pay it or his home sale would have collapsed. The same applies to any solar installation that’s financed.
If you’re wanting a new or replacement AC unit this summer, you can either sweat the bad finance contract for over a decade or sweat in your home until you can come up with the money. The choice is yours – but it’s definitely buyer beware!
PS: A 50% higher interest rate for half the time is still way cheaper! $5,000 at 8% over 12 years vs. six years at 12% is over $700 less interest. But then, most people finance a vehicle for 8 years when their track record for trading is 4 or 5 years…and the average in Canada is 4 1/2 years…and all of them are surprised and shocked when they owe way more on the loan than the value of their vehicle…
About Those True But Wrong Inflation Stats:
While the one-sentence so-called top line inflation numbers the media reports are accurate, they’re also totally false. Here’s one of the best recent examples:
The Council of Economic Advisers issued a statement in November that this years’ average family turkey thanksgiving dinner was down by 5%! A great reinforcement to politicians stating that inflation is back under control. Nothing to see here – move on.
Not so fast: That same calculation of the cost of thanksgiving dinner in 2023 was UP 15% from two years prior and UP 20% from three years before.
Inflation stats are released for the prior month and is used as a 12-month floating average. The biggest wave of inflation was in the time period of August 2022 to July 2023. That’s all baked in and will never go away. But since then, inflation has slowed down. But that’s “new” or “further” inflation and now doesn’t include calculations of what happened more than a year ago.
Politicians, especially in the US, can’t understand why people aren’t feeling great about the economy. After all, inflation is under 3% and everything is great again. It’s a total disconnect between reading stats and going to the grocery store to buy stuff that’s a whole lot more expensive. But a story that it’s really expensive now but not getting worse just isn’t ever sexy.
If something was priced at $10 in 2022 and went up 20%, the price became $12. To now tell people that inflation is “only” 3% is telling you that the new $12 price is now $12.36. That’s not a decrease – it’s a slower increase. There’s an old saying: Statistics don’t lie, but liars sure can use statistics. It doesn’t help that reporters that parrot the monthly stats are either lazy or overworked. That’s why we get the one-sentence newscast line that: Inflation is now under 3% without the context or reminder that the other 20% (average) or upwards of 50% (food) is still in there.
It’s Here: Your Car Is Talking to Your Insurance Company
Two years ago, we did a story that sometime in the near future, vehicle manufacturers will share your driving information with insurance companies. I’m not sure the feedback that that won’t happen was wishful thinking or dread, but it’s here and it’s happening.
Drivers are getting insurance increases between 20% and a doubling of their rates already. When some wanted to trace why, their consumer disclosure information on lexisnexis showed hundreds of pages of detailed driving information from their vehicle manufacturer.
According to a story in the New York Times and other outlets, the information being shared includes your speed, breaking habits, how you accelerate and the distance (time) you drive. That information is shared with insurance companies by most manufacturers, including GM, Ford, Subaru, Kia, Honda, Hyundai and Mitsubishi.
You may love your vehicle, but your vehicle and the companies that sold it to you don’t love you back. In fact, they’re stabbing you in the back. Privacy laws? Not so much. Unless laws are passed that the information originating from inside your vehicle is yours and yours alone, this sharing will continue and accelerate. But don’t hold your breath for any legislation: Insurance companies donate more to political parties than you and I do…
Oh and those DNA tests? Want to now bet whether your results and any indication of illnesses, potential of cancer or other markers will get shared with life insurance companies sometime soon…if they’re not already being re-sold…
Hands Up If You Believe This
Last month, Wendy’s announced they would join Popeyes, Taco Bell, Chipotle, Panera Bread and other fast food chains in converting to AI controlled electronic menu boards.
No – of course they won’t use it for dynamic pricing like ticket sellers or ride-sharing companies, hotels, big box stores, airlines, Amazon and others do for busy times, according to a Wendy’s spokeswoman. It would only be used for “suggestive selling” and maybe to lower the prices of a Frosty on cold weather days. Never for higher pricing during busy times. So: Hands up if you believe that?
Yup – didn’t think so. Neither does anyone on social media. Why? Because other chains do it – use it for that.
In China, with their facial recognition technology light years ahead of North America (to the detriment of customers and shredding any semblance of privacy, their restaurant AI technology embedded into menu boards not only recognizes returning customers but can tell their mood and age.
Not to mention AI use in drive-throughs. Chains think it’ll be great that the speaker will start with “Hi, Bruce. Welcome to…” What a shame the vast majority of younger customers do not care about their privacy. And THAT is the reason this will get implemented and stick AND be used for dynamic pricing.
Dealing With a Collection Agency
440 companies with revenues of half a billion a year, that’s the size of the collection agency business. Unfortunately, millions of Canadians are going to meet one of them sooner or later. It’s one of the most stressful things you can go through. But it doesn’t need to be.
Collection agencies are all licensed so they do have rules to follow. They’re also all on commission, as is every collector you may talk to. That makes them highly motivated to get the money. Most follow the law – lots do not. Remember that they are collecting money that has no collateral. It’s not like they can just foreclose your home or repossess your vehicle. They’re collecting smaller amounts, largely credit card debt that’s over six months old.
Since they can’t use the “repossession” threat, they have to intimidate and borderline harass you to the point where you will do anything to make them stop. That’s the game they play – to the edge of the law…if not further.
Collection agencies will first send you a letter giving you a heads up about the debt and start calling you five days later and really never stop. You do have the rights, however. But you have to send them a letter in writing or they will likely claim they never got it.
It’s your right to have them stop calling you at work.Its’ your right to have the debt fully broken down in writing – the original amount, interest, fees, penalties, etc.They cannot sue you after two years of last activity. So if it’s been two years since your last payment, they cannot take you to court. They can, however, keep calling and attempting to collect.Do not ever send them a note or email acknowledging the debt or paying even one dollar. That simple step will re-set the two year clock and they can now take you to small claims.
If you do not have the money, there is no debtor prison in Canada. Take a deep breath, tell them once you don’t have the money or assets and stop calling. Then hang up the phone and stop answering their calls.
If they take you to small claims court, you must show up on the date of the summons. Just showing up gives you a 50-50 chance the debt will be wiped out. You need to ask for the full breakdown and the documents you signed to prove you legally owe the money. It’s likely the collection agency does not have any of that. If they can’t produce it – the claim is dismissed. If you do not show up, there will be an automatic judgment against you for the full amount. That half a day at small claims matters a lot!
If you have the money and want to settle the matter, negotiate the amount. It’s likely half of it is interest and fees. Offer them 30 cents on the dollar and haggle from there. When you agree on an amount, you must get it in writing from them. If not, they’ll take your money and start collections on the rest all over again and you have no proof that you settled for less. If you’ve settled and have it in writing send them a bank draft or money order. NEVER send a personal cheque. Many have been known to take your banking account information and jam through a second charge for the rest of the balance.
Lastly, keep the settlement letter and your money order receipt for the rest of your life! They may re-sell the collection to another company who will now start calls again. You must have the proof that you paid. You will also need to send it to the credit bureau to have the collection now shown as paid and removed after six years.
Online Returns Are Going to Cost You
In the last few months, a number of large retailers have started to pump the brakes on returns for online purchases. Yes, it always starts south of the border, but will be here pretty quickly.
According to NRF research, the online return percentage in 2019 was 8.1% but jumped to 16.5% in 2022. That’s expensive for retailers and they’ve started to work on reducing that percentage.
Macy’s has implemented a $10 fee and H&M one for $6. But what sets the tone is the largest online retailer Amazon: For certain product categories it’s a one dollar fee. Bet on that expanding in categories and increasing in rate. Other ways are that about 80% of retailers will now have YOU pay the shipping fee to return items and others are experimenting with sending you an offer of a partial refund where you keep the product.
For months now I’ve wanted a New Orleans Saints sweatshirt. Yes, any NFL merchandise is massively overpriced, but I found a sort-of deal for US$60. Then checked the fine print: $20 shipping (never!) and it would be $25 to return it since sweatshirts have a wide variety of medium size definitions and fits. That makes it around $140 for the attempt to buy one that may not fit. Guess it’s never going to happen…
Update: Add Bed Bath and Beyond to the companies aggressively charging for full return charges in many cases. The company went bankrupt, closed all stores and was purchased by Overstock. Their website looks the same, but items are now online only and shipped out of the U.S. My first (and last) purchase of a $122 dresser that wasn’t correctly sized/described on their website took six days to even receive a “return authorization.” Six days of getting ghosted? Then they provided a UPS return label and refunded a partial $81 with no explanation. Seven days and five emails were ignored before I found someone at head office. Oh, that’s for shipping. Another 15 minutes to explain it was THEIR incorrect specs which caused the return before they agreed to refund the $41 UPS charge. Oh, and if I had returned it via UPS, the charge would have been $23. So does Overstock pay almost double what a one-off customer with no corporate account pays or has the return shipping become a major profit centre to them? You decide…
Self Checkouts Are Shrinking
There is a percentage of people who absolutely love self-checkouts. There’s probably an equally large group who detest it for a variety of reasons. In between is the majority who just want to get in and out quickly and don’t have a strong opinion either way…other than not wanting to be 9th in line for that one cashier – or camping at self-checkouts that don’t work, can’t scan or need “find an associate.”
It turns out, however, that the large chains are giving up on expanding self-checkouts. The quantity has been shrinking in the last six months and is going to continue to be less and less available. Stores just can’t find a way, with current technologies, to reduce the theft rate. Double checks at the door, item counts, weight vs. scanned, extra staff, etc. etc. just aren’t doing it.
Sure, the technology companies have a lot on the line in being able to continue selling their software. But they’ll have to do more and a lot better before stores take another shot at self-serve expansion. From Wal-Mart to large grocery chains, for the time being, it’ll be less available, if not shut down altogether.
Great news or bad news is up to each persons’ preferences. Count me in the middle group with the heads-up that I’m not going to stick around 9th in line. But when I won’t wait an unreasonable time to get through the checkout, I do give my cart or basket to someone with an apology that they need to put it all back…until they can figure out an efficient system to get me in and out…
New Sports Gambling Laws Now In Effect
If you’re watching any sports on TV, you’re now bombarded with gambling site ads. No matter what province you’re in, most of them are for Ontario residents only. You’ll see the tiny print on the bottom stating “you must be physically present in the province.” But every province does have sites and then there are always the online and unregulated ones.
As of last month, Ontario has banned the use of sports personalities, athletes or other celebrities in these ads. I may be cynical, but politicians and governments are the last people that care about doing anything positive. Yet even THEY are realizing these gambling ads have gotten way out of control. Studies show it’s 20% of sports ads, maybe that’s low because curling doesn’t have a lot of them, but it feels to me like it’s more than half of all ads these days…at least for NHL games. And they’re everywhere: Go to any minor hockey arena and you’ll the the boards plastered with gambling ads. Just like tobacco: It’s never to early to plant the seeds. After all, that’s their future customers! Want proof? Ask any six to 10 year old that watches hockey if they’ve ever wanted to bet on the games. You’d be stunned by the results!
Gambling is super addictive. Should we even allow these sites to advertise at all? We no longer allow ads for tobacco. No, the health care costs for gambling addicts isn’t nearly as high as tobacco became. But is there a difference? Setting aside that odds are better on slot machines than sports gambling, should we encourage and promote this? Not to mention the sucker bets and tiny odds of winning in-game bets. Even after the first period, if your team is down by two goals you can still bet! The odds now get massively high which is a great incentive (trap) to still bet your favourite team. Never mind the stats that frequently show up on the top left of the screen: X team is 26-3 when leading after one period…or whatever the stat. Yup, bet your team coming back 26 times and you MAY win three out of those 26 bets! There’s optimism and then there’s stupidity…