Tag Archives: debt optimism

We’re More Confident – But Why?

Yesterday, the Bloomberg Nanos Consumer Confidence survey came out and great news, apparently: We’re getting more optimistic about the economy.

So, these 1,000 respondents studied a lot of economic data first? No chance. I always wonder what the respondents base that on. My best guess is that we just respond based on our personal economy. We base it only on what’s happening in our lives. Then, the economists take the responses and work backwards in guessing why we’re more or less confident.

The government loves a higher consumer confidence level. You and me are responsible for around 70% of economic activity with our spending. If we stop, the economy crashes. If we’re confident and keep spending – it’s all good for governments and business. Not so good for our debt…

The analysts say it’s because oil is over $60 and people in the West are more confident as a result. Really? I bet very few respondents would know that. I’d bet it’s more about hanging onto their job, reading about fewer layoffs, or seeing their neighbour or kids getting at least some kind of position.

A 5.9% unemployment rate is certainly great news for anyone looking for a job in Eastern Canada. But the national unemployment rate wouldn’t make me more positive – it’d just be what’s happening in my life.

The most optimistic people are in Quebec. The survey people think it’s partly because of foreign buyers now going into Montreal. Well, that happened so recently, there’s little chance it’s in the survey results. All time low unemployment certainly helps get people a raise. So you now make $200 more a month. That’s normally enough to make someone optimistic. But our brain blocks out the fact that we need a new roof, our line of credit hasn’t shrunk in a decade, and every day the car starts is a miracle.

That’s a province with massive infrastructure problems, debt, and corruption. The government is doing well because we Westerners send them tens of billions of dollars a year. Without that, the so-called optimism there would probably match the reality that they’re a financial basket case. If you were to send me a thousand bucks a month to band-aid my financial trouble – I’d be optimistic, too.

43% think house prices will rise in the coming year. If it’s respondents in Vancouver or Toronto, that makes sense. I don’t also mean to pour cold water on it, but the reality is that the new mortgage laws will make that next to impossible. You now need a buyer with $150,000 higher income to buy your home. Or, if you’re a buyer, you need to find a home $100,000 to $150,000 less than you could buy last year. In fact, there have already been comments from some federal government people they’d be prepared to re-visit these changes if need be.

And if optimism is high now – wait until the numbers come out after recreational drugs are legal. The high could be much higher…

When you run out of money you run out of peace of mind

Less than 45% of us have any kind of savings for retirement. The simple reason is that we don’t pay ourselves first. We pay ourselves last – but since there’s no money left over right now, last means…well never. To start saving, most of us need to make some payments go away first in order to free up some money.

When our debt and payments start getting carried away, we can do one of three things: We can stay in denial and continue our optimism that it will somehow take care of itself.

We can get frustrated, depressed and throw our hands up, or we can have the courage and discipline to view these payments and debts in realistic terms and make simple and fundamental changes to turn things around.
Yes, it takes courage and discipline – nothing is easy, but it’s well worth it. After all, those who understand interest want to collect it. Those who don’t are the ones paying it.

An easy place to start is in the debt chapter of the It’s Your Money book on the step-up debt payments. It walks you through a simple example of $25,000 of debts and pays it off in less than one-quarter of the time with just $100 more each month.

Even if becoming payment free seems impossible, two easy things are to take your smallest monthly payment and do whatever it takes to pay it off. That alone frees up a bunch of money.

The second one is to cut $200 of your expenses each month. If you make it a game and not a pain and honestly look at every dollar going out the door you’ll easily do it.

We may not want to face it today, but at some point we have to change from a consumer mindset to a savings mindset. At that point it shouldn’t take a decade just to get back to zero in paying off your bills.

To have some different results, we have to do some different things. We have to make some better choices which are not based on old patterns, fixed beliefs or previous habits.

Because you and I have experienced it: When you run out of money, you run out of peace of mind.