Canadian Personal Finance Blog

Archive for the ‘Debt Reduction’ Category

Time and Financial Goals

Yesterday I celebrated my daughter’s 20th birthday, by reminiscing about the day she was born (she is out of town at school, so we won’t celebrate with her, but assume she celebrated with friends).

Twenty Years Ago

The decision to have kids was a hotly discussed topic between my wife and myself, since I was positive we could not afford to have kids at the time (as usual, my wife was correct, that we would simply adjust our lifestyle to fit the new costs in).

Twenty years ago, I had little or no thoughts of retirement, and saving, we hadn’t even bought our first house yet (another hotly discussed topic in the apartment we rented at the time).

My parents luckily thought about the future for us, and started buying our kids savings bonds for their post secondary education (or when they moved out of the house). This is something that I hope I can remember to do for my kids when they have kids, and that money has since moved into RESPs and such. This is something that all parents can pass on to their kids, teaching them the importance of saving for the future, because the future comes a lot faster than you think.

I didn’t really even have any RRSP’s set up in 1990, I did have some savings that we were putting away to buy our first house, but that was hard enough to build up. In hindsight I could have made a lot of shrewd investments, but I have also seen over twenty years that “sure things” in the world of investment are not as sure as they look (i.e. Nortel stock and such).

What Would I Change?

It’s easy to be trite in this situation and list out the obvious things that I should have done back then such as:

• Start an RRSP and invest in high tech early and get out early
• Don’t build up credit card debt
• etc., etc., etc.,

but this would imply some degree of regret or sadness about those twenty years, and I don’t wish to portray those years that way.

I have learned more from being a parent than I would have, had I got a PhD. I have had more happiness and joy in those twenty years than I deserve (or merit), but I am unapologetic too.

Yes there are times where I look back and think, “I should have….”, when it comes to some money decisions and some other decisions in my life, but in some ways I learned more from my mistakes than from my (minor) successes in the financial world.

Am I saying, “Don’t worry, be happy!” (to paraphrase Bobby McFerrin) about your money? No! I am saying you should be careful and take the obvious steps to be safe with your money and to avoid debt every which way you can, however, if you think you have done all you can, and you are comfortable, then you should enjoy your life, is all I am saying.

Tempus fugit, and twenty years will fly by in a heartbeat, so make sure you are enjoying it.

This is getting a little repetitive but Bank of Canada’s key overnight rate remains at 1/4% unchanged again this month. The overall Bank Rate remains at 1/2% as well, which means cheap money continues in the market place.

The statement from the bank is mostly that the recovery continues and we should be out of this whole mess some time near the end of 2010 or the beginning of 2011, but the important line to read is:

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.

The end of the second quarter is June, which means interest rates will be going up this year, and you are running out of time to take advantage of these cheap rates to pay down your debt (assuming you are not paying Credit Card debt, in which case, this has no effect on you). If you have a variable rate mortgage can you lock in, or has the bank already altered it’s rates so that locking in might not be as attractive now?

Remember if the bank raises interest rates to say 2.5% somewhere along the line, that is a huge percentage increase compared to where they are right now.

CPI Numbers Today Too

To confirm the Bank of Canada’s inflation statement, Stats Canada will be posting the CPI numbers for the end of 2009, which should be a very interesting statement. With gas prices inching their way back to $1 per liter, I suspect inflation is back it’s just how bad is the question.

My wife a couple of days ago took on the daunting task of creating a space for a gas fitter to come in and work on a new project in our house. Our back room in our basement was very cluttered and there was no way anyone could get anywhere safely, so she took on the task of attempt to clear a space in the chaos.

I came home and was very impressed with the work done and the amount that was being thrown out (although there still is a great deal to dispose of) in some industrial strength garbage bags. The area was swept and cleared so that the work could be done without fear of anyone breaking a leg attempt to scale “mount crap”.

My wife was not impressed when the workman finally showed up and was able to do all the work needed on the main floor of our house and went nowhere near the basement.

Was this a waste of time? NO! That kind of de-cluttering is a good thing for many reasons:

• Safety:that mess was going to injure someone, and could easily have been a fire hazard, so it needed to be lessened in magnitude.
• De-Clutter:the amount of crap that we were never going to use again (and things that should have been disposed of long ago) is now reduced by 9.75% now, which means we only have 90% of it still to clean up (but still a good start)
• Security issues:although it might be possible for an Al-Qaeda cell to hide out in that mess, I did not mean that exactly. We found a whole set of banking records for an organization my wife no longer works for, and those records have now been destroyed. That kind of security is very important.

Do you have a lot of old financial records hidden in the clutter of your “secret stash” (be it in your basement or in that closet you just never open)? Maybe it’s time to at least find all the old credit cards, banking cards, pass books, cheque books and bank agreements that you no longer need and destroy them. Leaving that kind of stuff around is just asking for problems later in life.

If you destroy it now, you know it no longer exists, if you simply “leave it”, do you know if there are records hanging around that can easily be used for identity theft? Maybe it’s time to go clean up a bit? Before you destroy those credit cards, make sure the accounts aren’t still active, as well.

Where are your savings?

I guess a better question is “Do you have any savings?“, before asking “Where are you putting your savings?“, but which is the better question to answer?

Do you put most of your savings in RRSPs or do you have it easily at hand in a trading account? Are you really traditional and have your money in a nice save “Savings Account” (which pay effectively no interest)?

Is Should you have savings, an even more interesting question? If you are carrying heavy consumer debt (i.e. pay day loans, credit card loans and the like), should you have money in savings, or should you be paying off that debt? Is it smart to have a “rainy day” fund if you are already in a financial hurricane of debt?

If you find money (i.e. windfall profits, inheritance, or won a beauty pageant) is it better to save it, or should you use it to pay down your debt? Is this really found money, or should you really just view it as an extension of your normal income and treat it that way? Can you show me where you found this money, so I can maybe find some too?

What if you are really lucky and have no debt to deal with, is that the time to start worrying about saving money, or should you have started sooner? Should you put your savings in RRSPs or is it smarter to put the money in a traditional trading account and build up wealth that way?

Does anybody still buy CSBs? Why? Are bonds as safe as you think they are?

Why did I write an entire post of questions today? Am I hoping you might comment on these questions? Isn’t it interesting, that someone who always asks questions is called an expert, yet they never seem to have answers?

Did you notice I never really answer any questions?

So the Bank of Canada announced on Thursday that one of the threats to the on-coming recovery in Canada is that Households are holding too much debt. To be specific:

The vulnerability of Canadian households to a deterioration
in economic conditions has risen in recent years, as
aggregate household debt has increased in relation to
income. There is thus a risk that a shock to economic
conditions could be transmitted to the broader financial
system through a deterioration in the quality of loans to
households.

The report outlines that the levels of indebtedness in Canada are nowhere near catastrophic levels, however, we are heading in the direction that may lead to that kind of failures in the system. Remember I have been a bit of a broken record that maybe it’s time to start paying back debt, instead of picking up more debt now. The report also points out that if the “recovery” dies off and we go back into the economic “crapper”, household debt failures are going to happen a little more often.

There may come a time when lenders in Canada may tighten the purse strings and turn off the credit taps, and that would be an inconvenience but not a big issue to some folks. If they decide to rethink or revisit existing risks in the system that is when we can start seeing interesting scenarios like banks refusing to re-new Mortgages of existing customers (not likely, but if you have debt still a remote possibility).

The only absolute way to not have to face this possibility is to get out of debt and then you have control of your own finances. Much like the only absolute form of birth control is abstention (the Vatican is correct on that one, unfortunately), the only sure way not to have issues with your Debt Vehicle, is to retire it quickly.

(Sorry about the Planned Parenthood reference, one day I’ll write about how Vasectomies are not fool proof either).