Tag Archives: interest

RRSP Deadline and Choices

It’s less than two weeks until the RRSP deadline for 2016 contributions. A couple of things you should remember and consider:

If you’re in debt, focus on paying off your debts, instead of savings. I’m not saying take the next decade with that, but stop everything else and get a single-minded focus on paying off your bills. Then go back and start with all that money you’re no longer paying to your car, line of credit, or credit card and start saving with amounts nobody else can match.

If you just put your RRSPs into savings, you’re getting maybe half a percent interest. That isn’t going to work. There’s something called the Rule of 72. Take your return divided by 72 and that’s how long it takes for your money to double. So at half a percent, it’ll be 36 years. Better returns such as at least 8% will double your money in nine or so years. Of course, your age, how often there’s time for the money to double, and how much risk you can tolerate versus your age, other assets, and when you need the money matters a lot.

A big question is why don’t people invest properly and just put it into savings.

Researchers in California some years ago, led by Sheena Iyengar, set up tables to sell gourmet jams in front of a grocery store. One booth had six different jams available, the other had a wider selection of 24 jams on display and available for tasting. The purpose of the experiment was to determine whether quantity to choose from had any impact on how many sold. And did it ever – but in the opposite way: 30% of those who stopped at the six-jam booth made a purchase, but only three percent at the bigger booth made a purchase of some kind! We prefer to make quick decisions but that becomes impossible with 24 selections so we freeze and don’t make a purchase (or decisions) at all. The same holds true for investments. People want a choice but not an over-whelming choice or people will freeze and “think about it” without making a decision at all.

But then – not making a decision is still a decision.

A Self-Defeating Financial Game

 

There are a number of common self-defeating games we play on ourselves that have a real negative impact on our finances. The most common one is claiming we got ripped off. To skip ahead: We didn’t get ripped off – we paid what I call a “stupid tax.”

News flash: Whatever you got ripped off on, you purchased voluntarily and signed a bill of sale or order online. There are no sales or banking people who carry a gun – honestly. If you say to others, and more important, to yourself that you got ripped off, it makes you a victim and it’s not your fault. If you’re a victim, there’s nothing to be done, and no lesson to be learned.

Change the wording: I LET myself get ripped off. You didn’t ask enough questions, the right questions, signed up to quickly, didn’t comparison shop, were naïve, or trusted someone who lied to you. That’s on you! It’s hard to say. I know – I’ve been ripped off…I mean…let myself get ripped off. And when I change the wording, I change my thinking and change my behaviors so it doesn’t happen again!

It’s always nice to learn from the mistakes of others. But few people choose to do that. We somehow, for some reason, don’t take in those lessons and need to get burned ourselves.

A relative called me yesterday and he was furious. He had a Visa balance last month of $1107. His next trip to the bank machine, he transferred $1100 to pay off the balance, thinking he was done. Yesterday, his statement arrived and charged him over $21 of interest. Yes, it’s true. If you do not pay the FULL balance, you’ll be charged interest for the last month on the entire balance. In other words, his rounding down didn’t just charge him 20% on the seven bucks – it charged him on the full $1107.

If in doubt, if you don’t remember the exact amount when you’re at the ATM, round it up! I call this a stupid fee. He was charged $21 for a good lesson – and, in his case, you can bet it won’t happen again!

Would You Like Me to Just Send You $1000 a Month?

 

Whenever I get emails from people asking for feedback or help with a financial mess, I’m more than glad to help. No, I don’t charge for it. I believe God gave me a purpose and passion and it’s called paying it forward.

But at some point, most people are really not interested in doing much (or any) heavy lifting. And I can’t fight harder for them than they’re prepared to fight for themselves. That was confirmed again by the last BMO Savings Survey. 30% of people want to save more but do not want to change their spending habits. Sorry: You can’t get there from here – it can’t happen.

The emails have a pretty consistent theme: Someone is spending more than they’re earning and they’re in pretty deep debt. I’m not in the middle of their mess, so it’s easier to see the fixes that’ll turn things around. Here are some of them that will sound so obvious, but they’re anything but when you’re in the middle of it:

No, you can’t send your two kids to private school when your income is $45,000. You can’t afford it. It doesn’t make you a bad parent, it makes you a great and responsible parent who can do 5th grade math.

You have a cell bill of $140 a month. That’s insane. It wasn’t that long ago you managed to live without a cell. Now anything but a full unlimited plan is  a necessity that you can’t do without? Mine is $39 with data.

Sell your car and get out from under the $1,100 car payments. They’re killing you. Drive a $3,000 used, reliable car that you buy for cash until your debts are paid. When you can afford it, you can turn right around and get an idiotic $1,100 car payment again if the debt-free thing doesn’t work for you. But you won’t do with, giving me two or three totally bogus reasons…actually…excuses why you love that $1,100 payment more than you’d love saving the same $13,200 a year.

You say you need to keep $4,000 in your savings account at half a percent while paying 22% on your credit card. Keep $1,000 as a starter emergency account; pay the rest on your credit cards today!

You don’t know the interest rate on your credit card and only know that you’re paying minimum payments of around $200 a month while charging about $800 or more. So you’re going further in the hole each month and tell me you have to have your credit card. Yes, you do. Because you’re so far in debt, that’s your only way to buy groceries and gas right now.

That’s just some of the very common ones. So what exactly do you want help with? You won’t downgrade your car, your cell phone, switch to an 11% credit card instead of 22%, or stop your credit card addiction. News flash: I’m out of ideas to help you. The only other thing left is for me to send you $1,000 a month. Is that why you got in touch with me? That’s not being rude, it’s caring enough to be honest, and seeing the reality of your income and expenses. Numbers don’t lie.

You don’t have a money problem as much as a spending, thinking, planning and discipline problem. You want your toys, gadgets, and vehicle more than you want financial freedom and becoming really wealthy.