Tag Archives: borrowing choices

It’s Grad Season

Happy May to the two types of graduates: Those who are graduating from high school, and those graduating from university.

If you’re now entering the work force, your life is going to be radically different. If you’re still living at home, you’ll now have money coming in with only a limited number of bills to pay. If you’re also moving out of the dorm, or your parent’s home, the bills can quickly to exceed your income. That could likely make you more broke than you’ve been BEFORE you started earning a paycheque.

If you were to be honest with yourself, you’ll admit, at least to yourself, that you stopped listening to your parents advice quite some time ago. Bad news: You’ve now got very little time to get your financial house in order. More bad news: You (and most of the country) isn’t really financially literate. Even more bad news: You’ve got a ton of pent-up wants and needs that you’re going to purchase with little money. And the worst news: Your income, and the fact that you have a small credit rating, lets you borrow.

With rent, a car payment, some utilities, your cell phone bill, credit card payment, and needing to eat, I’d bet most of your 2019 paycheques are spent. Yes, you read that right: Those debts have payments that aren’t going away anytime soon because you have a two-year cell contract, do need to live somewhere that charges rent, and have a car payment until 2023 or longer.

Adults can take a long time to go broke. Graduates often accomplish that in just a few months. When you get there – you can’t get out for a decade or longer. Ask anyone in their 30s what they’d do differently with their finances if they could be your age again.

Maybe somebody in your family will go down to Mosaic Books or Amazon and invest the $20 to gift you the Money Tools and Rules book. You can read a few of the chapters in an hour or less. Read the “Broke is the new rich” chapter. That’ll explain how that doesn’t need to be your life. Read the chapter on specific things to do or not do for just one year after you graduate, and the how to buy a vehicle chapter. Since you have a credit card, read those 30 pages to see how they become your worst nightmare no matter what their ads tell you.

Knowledge is power. You learned that in high school or university. However, your financial learning is just starting, and this is one lifetime course you definitely can’t afford to fail.

Are You Running Your Own Ponzi Scheme?

A few months ago, 60 Minutes re-ran a story on the 2nd biggest fraud since Bernie Maydoff, with reporter Steve Kroft. It was an interview with Marc Drier, whose ponzi scheme defrauded people of almost $400 million.

I want to read you a section of the interview, and then translate it to you and me:

Kroft: So you were digging yourself into a hole?

Dryer: Very much so. You start with something that is manageable and small. You know it’s wrong, but you think you can fix it and you can’t get out of it. It becomes quicksand. I had to keep meeting obligations that became bigger and bigger. (I was) creating an illusion, all mortgaged to the hilt.

I recognized in the last couple of years that what I saw as a $20 million mistake had grown into a mistake of a few hundred million dollars. And then, I did some increasingly irrational things, because I wasn’t thinking clearly…(and) I’ve lost everything.

Now, let’s translate that to the financial situation so many people face:

So you were digging yourself into a hole?

Very much so. I started with some borrowing that was manageable and small. You know it’s wrong, but you think you can pay it off soon, but can’t get out of it. It becomes quicksand. I had to keep meeting obligations and payments that became bigger and bigger each month. (I was) creating an illusion of a lifestyle that was all mortgaged to the hilt.

I recognized in the last couple of years that what I saw as a small mistake had grown into a mistake of (however many dollars).

And then, I did some increasingly irrational things, because I wasn’t thinking clearly. Like taking cash advances, stretching my car loan, getting a line of credit, living on my overdraft, going to a Payday lender, getting behind on my bills…(and) I’ve lost everything.

That’s millions of families that don’t or won’t do a budget. Families that refuse to live on less than they earn, and still kid themselves into thinking that loans and borrowing are a blessing and part of a solution.

Getting Smart before Going Broke

If the current U.S. financial pains teach us anything it’s that debt doesn’t just show up one day. It’s almost always the result of poor, or uninformed, borrowing choices.

Understanding the ins and outs of credit will make you amongst the smartest consumers anywhere, and will save you a lot of money in interest, charges, fees, and pain later on.

By the time you say to yourself “if only I had known” it’ll be too late and all the hoping and wishing won’t turn back the clock. After all, nobody else has any interest in looking out for your financial well being. Here are the five most common pitfalls:

-Never assume, or take anyone’s word, for clauses, penalties or rights and promises on anything. Lenders, car dealers or retailers will quickly move on to the next clients while you’re the only one stuck with the contract, the payments and the debt.

-Whatever payments you’re taking on always need to fit your budget or don’t do it. Payments will never magically self-adjust to your real financial situation or money challenges down the road. When it comes to monthly payments, it’s not the time to be wildly optimistic, but rather to stop, think it through, weigh your budget, the cost of what you’re spending in interest and fees and how many years this payment will now be around.

-Remember that monthly payments are exactly the same as taking a big pay cut. It’s money that you still have to earn each month but now don’t get to keep. For years, large chunks of your income are now re-directed to a bunch of creditors who are now getting rich at your expense.

-If a credit offer sounds too good to be true – it generally is. If it seems like there’s a catch and you can’t see it – stay away.

-If you can’t understand the terms – or you’re getting promises that are not written into the contract – walk away.
You don’t speak credit – they do – so you need to get it translated into English. Oh sure, nobody wants to sound stupid or uninformed, but if you don’t do your homework, and ask the questions, paying thousands of extra dollars in interest and fees will always be a lot more painful down the road.