Tag Archives: spending

Graduating to Financial Adulthood

Graduating to financial adulthood is not about taking a university course or living entirely debt free. It also isn’t about your age. The essence of being a financial adult is that you set your priorities and you are in control of your finances and money, instead of your money controlling your life (or lack of a life). You’re proactive versus reactive and out of control. If you do these well, or even know how to do some of these, congratulations! You’ve graduated!

You have at least one week of income as a basic preliminary emergency fund.

For anything expensive, you shop around before taking on any new debt. This includes shopping for the best interest rate, examining your insurance, scrutinizing your cell phone contract, and monitoring your credit card interest rate if you usually carry a balance. Kids impulse-buy until they’re out of money; financial adults don’t tend to spend until they’re broke.

You have an RRSP and/or Tax Free Savings Account and make a regular monthly contribution. It doesn’t  matter how small it is – at least you’ve started and have traction.

Whether you’re single or married, rich or broke, you have a properly completed will. It may be a $20 do it yourself kit if you’re single, or a lawyer-prepared one if it’s more complex and you have kids.

You know the actual amount of your net take-home pay every month. You can’t control your money if you don’t even know the exact amount you net. Don’t keep talking about your gross pay as if you had that to spend.

You spend less than your monthly take-home pay. You may (at the start) have 10 cents left, or $1,000 – but you’re spending less than you earn. Financial adults figure out how to pay for something, and then buy it, not the other way around.

You have a proper filing system for your financial records. It may only be six large envelopes for each of the last six years, or a ton of file folders (if you’re super organized by choice). Kids get to say “I lost it.” Financial adults don’t have that option.

You have at least two specific and measurable financial goals. Saving more in your RRSPs, or paying off your credit card are not financial goals – that’s a hope and a dream. It needs to be specific: Save $150 a month in RRSPs is specific and measurable. Reduce your credit card balance by $200 or more every month until it’s paid off is a measurable and specific goal that significantly boosts your odds that it will happen.

You do not lock yourself into longer-term fixed expenses by signing contracts for cell phone plans, gym memberships, alarm systems, electricity contracts, etc.

You define “I can afford it” as the ability to pay cash for something, and not by the amount of the monthly payment.

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.

Dear Retailer: I’m In Financial Trouble So You Won’t See Me Much This Christmas

Dear Retailer:

I know that you’re really counting on me to spend a lot of money in your store this Christmas season, so I thought I should give you a heads up that I’m not going to be.

Media reports say I’m supposed to do my part in spending this holiday season. But I have to be honest and let you know that we’re no longer on the same financial page here. You see, for my family, reality is starting to set in. I’m broke. There, I’ve said it out loud. Now I’m going to start saying, “I can’t afford it” – a lot!

I’ve heard it said that often an alcoholic has to hit bottom before he or she will change their behavior. Financially, that’s pretty close to where I’m at. Myself, and the average person aren’t saving much, our debt keeps growing, 25% of us are cashing retirement money just to pay our regular bills, and it’s not like I can increase my income much in the coming year. My credit card balances are high, way too high, and I’m saddled with my car payment and my line of credit that seemed like a good idea at the time.

Right now I’m surviving and not thriving.

That leaves the one thing I can do, and that’s to look in the mirror and choose to make some different financial choices – some better financial choices. It starts with what I knew as a teenager: I can only spend the money I have – and I don’t have much left over at the end of each month. In fact, right now, if the truth were known, I’ve got a lot more month left after my money is gone.

The merry go-round is over and it has stopped being fun spending all that money I don’t have. I need to, and choose to, make Christmas more about Christmas and less about, well – your store and more stuff. Facing my financial reality has made me realize that all the stuff I’ve bought from you hasn’t gotten me any more happiness. In fact – it’s quite the opposite. It’s created a financial hell for me right now.

You want me to do more of what isn’t working in my life: more shopping, more debt, more instant credit and no payments for a year. But be honest: What do you care about my higher credit card balances, longer term car loans just so I can juggle all my payments, my exploding property taxes, utility bills, increase in food I do HAVE to buy, and the line of credit I needed just a few years ago?

You see, I no longer trust you. We’re not on the same page here. Your goal is to get me to spend as much as possible. If you want proof, it starts right at the cash register when you force your staff to push your credit card on me so I can save 10% today. But I’ve realized that the five bucks of savings today is costing me hundreds of dollars of interest since I can’t possibly afford to pay off my balance. And, according to a recent survey, two-thirds of us will still be paying that balance off a year later!

Your ads say I can “save” 20% – but I’m starting to realize all these savings are making me go broke. It’s the 80% I SPEND that’s killing me, and that I can’t ever “save” when I set foot in your store. Besides, by the time I pay off the stuff I’ve bought, even with the “savings,” I’ll have paid over double the amount on my credit card.

But right now all I can pay is the minimum monthly payments and sure wish I could live the words of that Rod Stewart song: “I wish that I knew what I know now, when I was younger.” So if you’re going to advertise with some of those “don’t pay for 14 months,” “best savings of the year” or “no-money-down” deals, I’m more likely to throw up than show up.

I know I’m accountable for my own actions, and financially I haven’t done a very good job. It’s as though I’ve been at a great party and had a little, OK a lot, too much to drink, and it’s now the morning after.  I am going to look after my financial needs in healthy and constructive ways. I am going to face it to replace it, instead of looking to spend my way out of it with more refinancing, another line of credit or cash advances.

The financial reality is that I’m in trouble and in a big hole. And when you’re in a hole, the first thing to do is to stop digging!

What I want most for Christmas this year is to get my financial house in order, to be able to sleep again without worrying whether I can make my payments next week or next month. I want to be able to not jump when the phone rings wondering if it’s about a collection issue. I want to look forward to getting my mail again, instead of dreading what bill is arriving today and I want to know, and not hope, that my family will still be able to afford to be in our home this time next year.

I’m going to start to do more of what my parents did: Work hard, pay off my debts and start saving my money. I didn’t – so far. Now I get to work like a dog because I’ve already lived like a king – with borrowed money, buying a lot of stuff from you in the past.

When You Change Your Routine…

Happy New Year! I know, it’s not actually New Years day, but every day is a better day to make resolutions than New Years Eve. They just have a much better chance of success if you make them without the societal pressure of that day of the year.

One of the easiest ways, without getting into a lot of psychological jargon, is to change your routine. Think about the dozens of steps when you want to get in your car and drive somewhere. Dozens of steps and hundreds upon hundreds of things your brain and muscles need to do in order to make it happen. Open the door, get in, get your body adjusted, close the door, reach across for the seat belt, fasten it, check the mirror, put the right key into the ignition the right way, turn it with your foot on the break, move your hand to the gear shift, move it into reverse, etc. etc.

Now watch a teenager who has never driven a car attempt to do that. The process will take ten minutes plus. But when you don’t have a routine, you don’t automatically do things. The teenager has to actively think about each step, one step at a time.

So, if you break your routine, you’re way more likely to think before just doing, acting, or spending. Which routine do you do that comes with an automatic action of spending? If you constantly overspend and buy crap you don’t need in the grocery store, go with someone who holds you accountable, skip one isle that makes trouble for you, go to a different store, a different time of the day, with a specific list, or whatever it takes to get out of your routine.

Perhaps it’s your automatic stop at the coffee place in the morning. Maybe breaking your routine is as simple as leaving five minutes later and taking a different route. They DO have coffee at work, or you can have another cup at home. If you always go to the mall, stop going to the mall, because you know you end up bringing something home. In fact, the average person going to the mall spends $104 every time in there!

When you don’t have a routine, your brain has to think through each step of what you’re doing and it WILL change how you behave. That applies to a diet just as much as quitting a habit such as your spending routine. If you stay in the mode of always doing the same thing, reaching for your wallet is an automatic reaction that you never think about, just like the routine of getting in your car.

If you’re thinking that won’t work, that won’t make a difference, or what’s the use, I have news for you: You’re destined to spend the next year in the same financial mess you’re in right now. If nothing changes – nothing changes. If you know that you need to take better care of your money, you can’t accomplish that by doing the same thing again for another year. You know that already. The question is whether the pain of where you’re at is high enough that you’re prepared to take in some different information and try something a little different. Until then your same actions will get you the same results you’ve always had.

As Nike would say: Just do it! Or a great recent Facebook post changing around the Forrest Gump saying that life is not like a box of chocolates. It’s more like a jar of jalapenos. What you do today can burn your butt tomorrow.

The Panic Shopping Just Before Christmas

Four more shopping days until Christmas, so you know what that means, right? Any semblance of reasonableness, budgeting, and comparison shopping is done and over with. Now, it’s mostly panic. And retailers know that. Christmas week is not the week for any great deals.

The average person spends $104 when they go to a mall. That has to be way higher when we have a long list of presents still to buy and not a lot of time. I don’t know if it’s too late to get you to your bank machine and draw out the cash for the rest of your shopping. I hope you’ll do it, because we spend about 18% more when we pay by credit card and, this is purely my guess, another 25 to 50% more in panic mode. If you have the cash on the counter, you’ll literally feel the pain of parting with that money and you WILL reduce what you spend.

Of course, part two is the old stand-by of gift cards. For two years, their sales have been pretty stagnant, but this year, sales are way up and will be over $30 billion in North America.

I’m sitting here looking at a $20 bill. I don’t see an expiry date and it doesn’t say anywhere on the bill that I have to use it at a certain store. It’s nice to know that this $20 is good anywhere, and anytime. That’s not the case for gift cards.

I am not a fan of gift cards unless they are at a discount, such as $80 for a $100 gift card or buy one for $25 get another for $5 free. Give the cash with a note of what you’d hoped they’d use it for and not the gift card. Remember that over 8% of gift cards are never used, so that’s $240 million down the drain, and gift cards are no good if the retailer goes out of business.

I’m fine with those from Wal Mart or Tim Horton, Starbucks or Amazon, but the smaller the retailer, the bigger the risk they won’t be around to honour the gift card. They have your cash and you have nothing.

Conversely, if you do get a gift card, use it right away for the full amount. If there’s a balance left, keep it on the fridge and use a felt marker to note what’s left so it doesn’t go to waste, or give it to someone else in line at the check out, if it’s a small amount left.

Some Financial Christmas Presents For Yourself

Ah, the week before Christmas. That means a lot of people should just about be at the stage where any logic, budgeting, or living within our means, goes out the window. It’s normally right about now that lots of us go nuts with our spending. Don’t do it – slow down, go to the bank and get some cash. Paying with $20 bills has a real money feeling, instead of just swiping away with plastic! And your wallet will thank you for it in January.

Presents are not what Christmas is all about, at least for us adults. If you think back, some of the most memorable gifts weren’t the expensive ones. Better yet, can you remember exactly what you got for gifts last year? And it’s certainly not a contest to see who can be the most irresponsible and spend the largest amount of money.

Gift cards: Remember what we talked about last month. Be careful. You’re parting with cash and getting an I.O.U. That merchant has to be in business when the person goes to use the I.O.U. It’s perfectly fine to give cash. There’s no expiry date, no fees, and no limitations. Just put a note in there that your financial advisor (that’d be me you can blame) suggested you care enough not to send a risky gift card.

We talked a couple of times this past year about internet security and hackers getting into people’s bank accounts and on-line transactions. Are you, or do you know, a high net-worth individual that does on-line banking or accesses their brokerage accounts? If so, one of the best presents is a small notebook computer that ONLY gets used for on-line banking. That way, there’s no chance for anyone to hack into it, as it doesn’t get used for anything else on the internet!

Did you know that the Salvation Army just announced that their annual Kettle Drive is now credit card ready? You can just swipe and donate. I’m pretty ambivalent about that. I love people donating to charities and helping others, but I’m not sure it needs to be on 20% credit cards.

Are We Gaining Ground or Going Broke?

In a recent survey, 71% of respondents felt that their standard of living would be lower coming out of the current recession.

What? I was quite shocked when I read that. But to start with, what is a lower standard of living? Is it less income? Is it less cash flow to buy all kinds of stuff? I would bet, for the majority of people, those two make up majority of the responses.

But does our standard of living decrease when we cannot buy a new iPod every year? Are we somehow deprived when we cannot afford to go out for dinner twice a week, or afford the payments on a new car every three or four years?

How many of us are confusing consumer spending with wealth building? How many would take a cut in pay, if we were assured we would have more savings, a growing RRSP, and at least an emergency savings account? All of those build wealth, whereas our spending is a wealth robber!

Is our standard of living somehow affected when we DON’T drive a new car? I would bet for most people that may be their thinking. But isn’t it exactly backwards? If we drive a new car, we now have a big payment going out the door, and our standard of living decreases exactly BECAUSE we have this new car to finance! So is someone’s standard of living better or worse when they can bank a ton of money by not having car payments?

I ran into a lady recently, who really wanted some help in getting her monthly expenses under control. When I asked her how much a month she wanted to save, she didn’t have a number in mind at all. Well, isn’t that kind of like getting into the car and starting to drive, with no idea where you want to go? In order to save money, you need a number – a firm goal of where you want to go and what you want to accomplish! After that, it’ll become a whole lot easier, exactly because you have a goal and a fixed plan.

But while I was talking to her, she was playing with her iPhone. When I asked what her monthly bill was for the iPhone, she became rather sheepish, and it took a bit to confess that it was around $130 a month. Yikes! Mine is around $25 a month, and it makes phone calls, too. Yet, that was something she just didn’t think she could ever do without, and proceeded to attempt to “sell me” on the cool features and gadgets. Nice try.

There is something economists refer to as our marginal propensity to consume. It’s a fancy term for saying: when we make more income, we spend more money right along with it. A $500 raise, and pretty soon, we’re spending to our new and higher income level. It works for us average people just as much as the rich. It’s how Michael Jackson earned around a billion dollars, yet died about $500 million in debt!

We need to be careful with the yardstick we use to measure our standard of living and not confuse “stuff” with wealth. For many people, their thinking is backwards: It is their stuff which reduces their wealth, and not the other way around.

What Just Happened This Week?

Wow – it’s only Wednesday and what a week it’s been in the financial markets.

Monday the world markets dropped enough to wipe out $5 trillion in wealth while the US markets were closed and Tuesday morning the US Federal Reserve dropped rates three quarters of a point.

Here in Canada they came down a quarter of a point that the banks did pass on, but there had been rumours that the no service mega banks were considering not lowering the prime rate.

While it was only a rumor that started back in December, there is no way to buy this kind of bad publicity is there? And how great that a number of media outlets, starting with columnist Greg Weston, brought this to the attention of the world.

The logic was that banks wouldn’t pass on the one-quarter point rate reduction to offset some of their rising expenses and that would include the billions of dollars some of them have lost in their subprime mortgage portfolio.

When the prime rate changes, it affects two-thirds of our borrowing costs, either directly or indirectly, for consumers and businesses. A lower rate is the Bank of Canada wanting to impact the economy, manufacturing, consumer spending and the dollar.

How dare the banks consider not moving down the prime at the same time? Isn’t it enough to keep charging us more and more interest, less and less competition and more service charges everywhere? Am I just cynical or are we supposed to cover some of their paper losses?

Just having this idea floated is another big reason to allow more competition in the banking field. In the U.S. there are about 3,000 financial institutions waking up each morning figuring out ways to bankrupt each other – that’s competition. Not the five we’ve got who want to merge into two or three.

But there’s good news in hearing banks might not change the rates. Because when we get mad – we get moving and there are alternatives for your financial needs:

For savings: ING right now is at 3.75%

For loans & mortgages: Credit unions are at or below the mega no service banks’ rates, are locally owned and run AND you’re a shareholder so you’ll get a large refund at the end of the year.

For RRSPs: Mine are with Primerica Financial. Many of their mutual funds have way better returns – and there are lots of other no-load no fee places to comparison shop.

Maybe this is another reminder to get informed because knowledge really is power and to remember to always always comparison shop. There are options and a lot of ways you can save interest and money.