Let’s DEFINE Debt Free

Given the relative success of my Let’s Define Retirement post, I figured I’d take another swing at a term that I hear a lot these days, and that is Debt Free.

When I use the term Debt Free, I really mean, no debts, owing no one any money (or owing anyone no money, if you prefer).  There must be ground zero and this is it:

Definition: if you owe any money you have debts, if you owe no one any money, you are debt free, simple isn’t it?

Yes, I could have made a crass comment about how one "poke" from debt could deflate this balloon

Yes, I could have made a crass comment about how one “poke” from debt could deflate this balloon

I do not subscribe to the Good Debt, Bad Debt hokum, remember I have said All Debt is Bad more than once. The concept of Good Debt was created by Banks and those who wish to lend you money, so you don’t feel bad (it’s like Ice Cream companies saying that there is Good Obese and Bad Obese).

I felt that maybe I didn’t understand what Debt actually meant, but I looked at Dictionary.com and found Debt defined as:

something that is owed or that one is bound to pay to or perform for another: a debt of $50.

There are other definitions there and I invite you to look it up in your dictionaries, but in my mind that is Debt, well-defined.

From this Debt Free must mean owing nothing or not bound to pay or perform for another: a debt of $0.

I have heard people say that debt free is when your net worth is above zero, which is an optimistic point of view, but a misnomer (in my opinion). My house may be worth $500,000 and my investments may be worth another $50,0000, however if I still owe $200,000 on my house, that does not mean I am debt free, that just means that if you give me enough time I might be able to get rid of my debts, that is not debt free. You still owe $250,000, so you are not debt free.

I am also speaking of all debts, so if your parents were kind enough to loan you $50,000 to help with your home’s down payment, and you have paid all your other debts off, but you have neglected to pay back that loan, you are in debt. This one is really only my opinion (and many families would argue that is not the case), but seriously, if you owe your family money and you have no other debts, what kind of schmuck are you to not pay them back? (look up schmuck in the Joys of Yiddish)
Here is my reader question, is this an incorrect definition of Debt Free?

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Good Debt? Not Bloody Likely

After watching our friend Preet Banerjee have to listen to the “Experts” on a CBC National round table talk about Good Debt, I feel I must rant once again (Preet was his normal, Windsor Knotted sensible self, the rest of the panel drove me spare).

Let me be very clear saying that there is Good Debt is like saying there are Good Car Accidents, read my lips:

All Debt is Bad

I don’t give a crap what these so-called experts have to say, as soon as you start thinking that Debt can be Good, you assume it is OK to build it up, and it won’t hurt you.

Sugar coat this as much as you want:

  • Necessary Debt or Necessary Evil
  • Debt is good for the Economy
  • Leveraged Buying
  • Consumer Debt
  • Mad Money

It’s all fricking bad! One day I will write an NSFW post with my actual wording on this stuff (maybe Preet will let me back on his Podcast and I can do the real rant for this).

Shame on all of those alleged experts on that panel, except for Preet of course.

DEBT SUCKS

Debt Sucks the life out of you.  Learn to hate debt, want to get rid of it, and then you have the right idea, but if you rationalize that there is Good Debt, you can start sliding down a very slippery slope.

Yup, you might have to get a Mortgage, but don’t get comfortable with it, treat it like you would a Cockroach or an Uninvited Guest (fill in your most unfavorite person here), want to get rid of it, as soon as possible.

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Are You Solving the Right Problem?

Over many years of working at High Tech companies and with technology issues many times I have run into the interesting issue and many times (usually in hindsight) my team has realized they were solving the wrong problem.  It’s easy to get too close to a problem and to lose perspective on what the real problem you are trying to solve, and it happens more times than you think.

Here are a few problems that I have run into over the years (financially) where someone came up with great solutions but at the end of it, they were solving the wrong problem:

  1. Credit Card interest rate is too high, so find a credit card with a lower interest rate and transfer your balance over to have to have your debt grow slower (i.e. lower interest rate).
  2. Figure out that your overdraft protection interest rate is actually higher than a pay-day loan, so you get those instead.
  3. It is cheaper to get your car financed through the car dealership than it is through your bank, thus saving lots in interest paid.
  4. You have a high debt load of credit cards and such, so you get a consolidation loan, but you don’t destroy your credit cards.

Can you guess what the real problems were in these situations?

In case (1), why not pay off your credit card, or find a way to pay it off, or better still, don’t build up debt on your Credit Card is the real problem. Your solution is better than nothing, but you aren’t really solving the problem, especially if you keep using your credit card.

Seriously, you think that getting a pay-day loan is a better idea for case (2)? Stop over drafting and never get a pay-day loan is a much better solution, don’t you think?

Why not make a large down payment for your case in case (3) or better still pay cash for a used car that you can afford?

As for (4) consolidation loans can save folks financially, but if you don’t change your lifestyle and continue to build up debt, you will keep getting consolidation loans, and create a bigger problem for later.

Solve the right solution, did I miss any other “solving the wrong issue” problems?

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I am a Civil Servant

I keep hearing from various media outlets and bloggers how much money is wasted on the Government and such, and inevitably out of these discussions comes statements about the Civil Service, and I now feel that I have the right to comment on this stuff (having worked in both the Private and now the Public Sector).

Let’s go over a few of the more interesting points that some folks seem to have an opinion about:

  • I am  paid by your taxes, but strangely I also pay taxes as well. One media outlet seemed to be implying that Civil Servants didn’t pay taxes, but I can assure you, I pay taxes just like everyone. No free ride here.
  • Pretty much everybody can easily figure out from information readily available how much I make, which is disconcerting, since when I worked for Nortel, people could guess but they couldn’t be sure they knew how much I made.
  • Someone does drive me into work in the morning (these days), but he or she works for OC Transpo, I don’t get limousine rides to work every day (yes, someone asked me that exact question when they heard I worked in the government).
  • Are we all lazy? Let’s not go there on this one, let’s just say I have seen good and bad in both the Public and Private sector, and leave it at that. Some might argue I am a Lazy Sod, so maybe you shouldn’t ask me?

From what I can tell, a lot of misconceptions folks have about Civil Servants (or Public Servants) seems to come from the perks that Members of Parliament get.

The major issue I keep hearing is that I have a “gold-plated free pension”, which is an interesting fallacy, that again comes from the MP side of things. Yes, I have a very nice pension (that many people do not have, so I do realize that having a pension is a great benefit), that was negotiated with an elected government, but is in no way “free” to me. I pay a great deal of money into the Pension Plan, and will more likely have to pay more soon, to retain this privilege, but I did have this same privilege when I was at Nortel (until it all fell apart).

Yes, the taxpayer pays for part of my pension, but that is because they are the folks bankrolling my employer (i.e. the Federal Government), so again, I am kind of paying into that too.

Unlike Members of Parliament, Civil Servants take 35 years to get a “full” pension. Members of Parliament get a FULL pension after 6 years (oh and I don’t think they put much money in on their side either).

A Civil Servants “full” pension can be calculated as (assuming they work for 35 years in the Civil Service):

70% of an average of your 5 best years salary, which is then discounted by how much CPP you will get paid (once you are CPP eligible)  {simple isn’t it ?}

What’s the point of all of this? Just me venting at some of the more asinine commentaries I have seen on the Media and in the Blogosphere lately. If anyone cares to try to refute or ridicule my opinions, have at it, I am prepared to discuss whatever points you like on the topic of the Civil Service and it’s Pension system.

 

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St. Valentine’s Day Financial Massacre

Today can effectively be for some of us effectively a recreation of the St. Valentine’s Day Massacre, in terms of our Credit Cards.

This one is an interested twisted tail to follow, so I’ll try to not wander down too many dark alleys, but it is this simple, right about now (February 14th) the Credit Card bills are arriving for the stuff you bought after Christmas (or stuff that didn’t make it into your Christmas bill, which would have shown up in January).

How bad could that be? Who spends lots of money after Christmas? You do!!

RRSP, RESP, RDSP

Valentine's Day Sentiments to Live By

Remember that big screen TV that you got for 40% off at the Boxing Day Sale? How about all that stuff that was on sale for Boxing Week/Month/Quarter? There is a tremendous amount of money spent after Christmas, and you might have planned for your Christmas spending splurge, but did you plan for your January spending binge? My guess is no (and if you didn’t have a post-Christmas spending binge, good on you (but are you sure?)).

In my house my daughter’s tuition appears on my Credit Card (we still have money to pay that off so that is good), but it is a HUGE number to appear for St. Valentine’s day, isn’t it?

Oh and all those, “live now, pay later” deals you got from the Furniture Mega-Store or the Electronics Mega-Store all have to start getting paid off now too. Future Shop’s new “don’t pay for 3 months” has a new catch, yes, you don’t have to pay it all in 3 months, but now you have to pay at least 1/3 every month leading up to the payment.

Are you now feeling the effects of a Saint Valentine’s Day financial Massacre?

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