Debts are Like Weeds

A short one for today

Dandelion

Bloody Weeds

Debts are so much like Weeds, removing them (one by one) seems like an insurmountable task, yet, if you go at it a little bit at a time, in a shorter period than you thought, they are all gone, but you have to stay diligent or they will continue to dominate everything.

There is your lawn and finance tip for the day, if you want a fitness tip read Debt is Like Fat .

 

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Debt Won’t Just Disappear

I have had a few folks take exception to my statements in Questions with an Answer: Get Out of Debt, in that they question whether it is more important to incur some debt to build wealth, than worry about growing debt, and if I could figure out how you type a Bronx cheer, I would, but I will simply say bunk!

The exact exchange was:

My response was simply, I would rather owe nothing. Savings of all kind can drop in value very quickly (depending on how it is being held), but debt will never magically decrease in value (and severity) without you doing something about it.

You may own a house worth $400,000 right now, and you have a mortgage that is for $125,000, however, it is not outside the realm of possibilities that the house could (in a very short period of time) be worth less than what you owe on it, then where are you? I have rarely (if ever) heard the opposite where suddenly your mortgage was forgiven and you owed nothing on your house, but your “Wealth” is mercurial.

The ephemeral nature of wealth is sometimes lost on folks, if I own $1,000,000 worth of BCM Enterprises Stocks (as options, which don’t vest for another 6 months) and I owe $160,000 on my mortgage,  my Net Worth is?

Anybody?

– $160,000

Correct! Stock options are worthless until  you see the money from the transaction in your bank account. I had over 10,000 shares of Nortel in options and 1 bright day they were finally worth $300, and then they were worth nothing again (as an obtuse example).

How about if I own a $1.5 Million home in a lovely section of the Beaches in Toronto, and I owe $400,000 on the mortgage, how much am I worth?

Anybody?

– $400,000

Correct Again! OK, that one is going to cause some comments, but, having things that you think are worth something is a wonderful thing, but until somebody pays for it, it is worthless. More likely than not my beautiful cottage in the Beaches (no I don’t live there) will sell for more than $1.5M if I tried to sell it, but maybe not.

One more: I have a Pension that is going to pay me 60% of my salary when I retire, I have $200,000 in my RRSP but I still owe $95,000 on my home, and I have $10,000 worth of other debt (bad gambling debts, let’s say), what is my Net Worth now?

Some might say: $95,000 at least because you have all that lovely RRSP money and that juicy pension, but do I?

If I cash my RRSP in, I am going to get SLAUGHTERED on taxes, and say this heavenly Bull Market we are in goes Bear very quickly, what am I worth? My Net worth would be closer to $0, and then you can figure out what you can valuate your pension however you like (but remember you have to live long enough to enjoy that as well).

All of this to say, that Wealth is Ephemeral, and can disappear like a Fart in the Wind, but DEBT is like an abscessing tooth, until you remove it, it will hurt and it will not go away until you do something about it!

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Questions with the answer, “Get out of Debt”

Let’s make life simple for my return from vacation, and get back to basics, so let’s kind of head towards Jeopardy’s model, and here is the answer that you need to ask a question for:

Get out of Debt

Debt

Working Through Debt Problems

How hard could that be, let’s see how many interesting questions that could have that simple response:

  1. My wife feels that while our relationship is good, she wants us to be much closer, what should I do?
    Get out of debt, that way you don’t argue about money any more, and you can concentrate on the important things in life.
  2. I feel worried all the time, and I have a hard time sleeping these days, how could I fix that?
    Get out of debt, you will then have 1 less thing to worry about. This is the simplest thing in your life to start fixing, so get at it
  3. I never have any money in my wallet, and I am living from pay cheque to pay cheque, which has caused me to be impotent, what should I do?
    Get out of debt, seriously if your money worries are giving you issues with your love life, you really should get the hell out of debt.
  4. I am staying at my in-laws and they are driving me insane because they keep asking me when we are going to move out and have our own place, is there anything I can do?
    Get out of debt, you are living with your in-laws, ’nuff said! Oh and definitely move out if your in-laws live in Debt, Ontario.

Just had to get that one off my chest. Were there any questions that I might have missed?

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Personal Finance: Lent Begins Today

As part of Lent, I am reflecting on my previous writings a little more, and this little chestnut was from 5 years ago, however, I have done some judicious editing  as well.

Mardi Gras was on Tuesday, so that means that Lent begins today and this is a perfect opportunity for folks to start something new with their Personal Finances (and their spiritual life, if they wish as well). Easter is a time for new beginnings or restarting something you need to resume, however, most people view Lent as a time to “find something to give up”. That is one way of viewing your Lenten journey, but another way is to look for something to Enrich your life for the 40 days of Lent (leading up to Good Friday and Easter).

Financial Lenten Journey

What areas of your personal finances could use either Enrichment or Better still a sacrifice that might help your financial well being? There are some very simple ones that I think about every year (and have done a few of them):

  • The Latte withdrawal penance. Cut out buying coffee for the 40 days of Lent and put that money aside, to either save, give to charity or pay down your debt. Keep track of this and see how much money you might be saving here, it’s worthwhile finding out where this discretionary money is going.
  • Read 4 Personal Finance books over the 40 days to enrich your understanding of your personal finances or your investing adventures. Building up your expertise over Lent is a good thing.
  • Brown bag it for 40 days, give up buying lunch at work, and bring your lunch instead. Another way to find out where your discretionary spending is going.
  • Take the bus to work for Lent. Leave the car at home, buy a bus pass and take the Bus to work. Yes gas is cheaper right now, but not driving might have other benefits for you (less stress, more exercise, etc.,).
  • Live on cash for 40 days and get rid of your credit cards. Freeze them in your freezer, lock them in your safety deposit box, or cut them up, but live on CASH only (no debit either) and see if you can do it, does it change your spending habits?

Think about these or suggest others, I am open to suggestions myself.

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What is in it for me?

One of the nice things about having written over 2000 posts and being on the job for over 8 years now, is the fact that you have a massive back-log of stuff that my current readers may not have read, so here I give you a post that didn’t really get much notice back 7 years ago, note the style of writing.

Dear Reader,

So as you can tell I am a mercenary blogger and will do many things to make an extra buck or two (witness the ads plastered all over this BLOG if you are unsure of this), so let’s ask ourselves how we can put a few extra bucks in our pockets (and review a few of my initial rants), What’s in it for us?

  1. Stop paying those ridiculously high banking charges (remember?)
  2. Use some coupons when you shop (hey a couple of extra bucks is nothing to sneeze at)
  3. Get a Credit Card that pays you to use it. PC Financial has a nice one (if you like shopping at Loblaws that is), and gives you cash. AMEX and Costco have one that pays cash as well. For heaven’s sake don’t pay to get money back or points (like that CIBC Aeroplan Gold, only if you are a traveling salesman would that work).
  4. Join Petropoints or whatever other “I give you points for shopping here” program you can find (as long as it is free). I also am a member of the CAA, so I get money back for buying gas at PetroCanada
  5. Stop buying those bloody “Lattes” will ya? What’s wrong with the free coffee at work!

OK, so that is the rant for the day, put your money in your pockets!

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