Canadian Personal Finance Blog

I was telling my daughter that comment and she looked at me like I had five heads. I tried to explain that building up debt rarely happens overnight, just like building up your body mass is not done overnight, and I think it is very true.

When I had my weight gain it happened over about a 14 year period, and it was slow, but by the time I finally did something about it, it was significant. It was a compounding of eating the wrong things, in the wrong quantities at the wrong time, and a complete lack of physical exertion, luckily I have taken the weight off and am keeping it off (mostly).

Debt build up is the same way, usually (unless you make some gruesome investments, an incredible blunder or you are a victim of a fraud), slowly without you noticing you are doing it. Buying your lunch every day isn’t going to put you into debt, neither is leasing your car, vacationing in Las Vegas, or buying lottery tickets either, however, start adding these together with spending more than you make and suddenly you are building up debt, instead of equity.  Keep doing this over a long period of time, and suddenly you have a debt load that you cannot afford and you are just not sure how the heck you did it. It was done one small step at a time.

Unfortunately, or fortunately, debt reduction is accomplished in the same way. Unless it rains money, getting out of debt is done slowly and one month at a time, using a plan and self-control and a wililngness to change your lifestyle (because losing weight and debt reduction are BOTH lifestyle changes, not just a quick fix that allows you to go back to your old habits).

Losing the financial bad habits is the key to debt reduction, keep that in mind.

Carnivals

My posting about Jesus is Watching You! was mentioned at the Personal Power and Self-Help Carnival.

The topic of what my household spends money on has been discussed before, but here is as a percentage of my entire expenditures, what my family spent it’s money on last month (April 2008)

• Tax 25.24%
• Recreation 19.68%
• Groceries 13.11%
• Insurance 8.88%
• Mortgage Int 5.55%
• Utilities 3.94%
• Auto 3.54%
• RRSP 3.04%
• Commuting 2.70%
• Savings (non RRSP) 2.28%
• Other 12.04%

These numbers are relatively trustworthy since I use Quicken fairly religiously, and my expenses are mostly tracked there (and we don’t really use a lot of cash in our household).

Financial Scary Things

Recreation being 20% of the money I spent things on last month. That is down to my kids recreational activities (basketball). That is one hell of a lot of money, and that is not registration fees or anything like that, that is money spent on going to and coming from and being at tournaments. That one scared the nickels out of my piggy bank.

Why was Insurance there? I pay for my house insurance in one payment every year, and I had to pay it last month. This month it will be big again, because I have to pay my car insurance as well. I also have on going Life Insurance costs that come up for my wife and myself (that was 9% of my spending).

Commuting, is actually the cost of bus passes for my daughters to be able to go to school, so that is not an insignificant amount of capital spent either.

Financial Oddities

The money I am paying in mortgage interest costs is only 6% of my expenditures in a month? Wow, that is really not a whole heck of a lot in comparison to say the amount I spend on Groceries (13%). I honestly don’t know if that is good or bad, it’s mostly confusing, I guess. Anyone care to hazard a guess, I am open to interpretations.

I am also putting 5% away in savings of sorts, in comparison to my total expenditures for the month. Since you don’t know how much I spent last month (no I am not saying what that number is), it’s kind of hard to figure out if this is a good or bad amount (it actually isn’t too bad, and I have to keep remembering that one).

Financial Insights

There are areas where spending can be curtailed, and there will be areas where spending will stop for a while too (specifically recreation), so that is a good thing. My guess is the Auto side of things is going to go up with the cost of gas continuing to go up as well.  I think also this is not reflecting debt repayments either (as this is not a category in Quicken) except for specific mortgage interest as a cost basis point. I’ll need to look at that more as well.

Any comments or insights from my readership appreciated.

Don’t remember this in the bible, but it is a very good thought. Our society seems bent on quick gain tactics to wealth and assuming that it is the only tactic, to gain wealth. The people I know who are wealthy (I think rich has negative connotations) in the monetary sense all worked hard to get this money and it did not happen over night (although some larger gains for them may well have).

I get “Get Rich on the Internet” schemes in my inboxes every single day, and I have read most of them (without paying for them, I don’t pay for this stuff) and it all entails either “trickery” or methodologies that make little or no sense. People get rich on the Internet by working hard and doing something FIRST or BEST, not by doing “me too” stuff.

If I am to ever “Get Wealthy” I know that there are a few simple rules to follow:

1. Spend less than I make
2. Pay off all my debts
3. Invest carefully
4. See rule #1

Simple, and the bible tells us to also be patient, it will take time, keep that in mind.

Michael James talked about found money yesterday and the joy of paying off bills with found money, and how we should not squander this found wealth, and really use it to create happiness in the future by paying off debt now. I think this is a sensible approach to found money, but it made me think about another post I did a while ago, which was how couples deal with money.

Many times found money can cause a great deal of consternation between spouses because each have their own idea of what the best thing is to do with found money.

I think this is natural, as with most every subject possible spouses are going to have their own ideas, but the problem arises when the two ideas are contradictory or even orthogonal to each other.

Say Mary and Bob get $10,000.00 in found money from an inheritance. Mary thinks she’d like to go on a nice vacation with the family because the family has never really been on a vacation, however, Bob thinks that putting that money on their Mortgage (thus shortening it’s term by 5 years), is the right answer.

Reading this, it sounds like an easy enough “problem” to deal with, both folks want to do what they think is best with the money, but the problem now is you have is a simple difference of opinion. The problem I have seen in my life and from other folks I know is that this is not a simple problem, because:

• There is no wrong answer (or right answer)
• Both spouses have voiced their opinion, and thus feel they have the right answer.
• Money and money management is a divisive factor in many relationships

Is there a Solution?

Only if both parties are willing to compromise, or one is willing to lose (i.e. typical Prisoner’s Dilemma issue). Wikipedia’s explanation of the Prisoner’s Dilemma is:

Two prisoners (the players) during the interrogation each have a choice: whether to betray the other one, and thus to decrease his own jail time by, for example, 1 month (as a compensation for the cooperation), while increasing the jail time for the other by, for example, 10 years, or to stay silent. Each of the prisoners is only interested in receiving the least possible sentence. It shall be assumed that the prisoners make their choices (to betray or to stay silent) simultaneously, and they know for sure that their choice cannot affect the choice of the other one.

All right I am stretching this (feel free to leave a comment), but the need to compromise and find the best solution for the couple is not always obvious to either spouse, and sometimes they feel it is not in their best interest (they got their way the last time, so I want my way this time). Sound familiar to any of my readers? Never happened to you?

Resolution?

I have no canned simple answer for this one, because as I keep saying, Money is a strange and divisive thing in a relationship, especially if the spouses do not agree in terms of money and how to use it.

What needs to be done is have clear lines of communication and rational discussions between the spouses about what they want to do, and a decision made that doesn’t cause either to feel that they have “lost” in this decision. Sounds easy doesn’t it ?

Think this is a simple thing to resolve? You and your spouse never have these issues? Then you are either very lucky (or very naive).