Farewell New Credit Card

Last week I received a new credit card in the mail. It was a Flexiti card, and they seem to have purchased the business from The Brick or some other store credit card. Every few months I keep getting new credit cards like this sent to me. They come with a simple activate procedure to turn them on.

Each of these new cards adds:

  • More liability to me, in the eyes of any reputable loan provider (i.e. bank or the like). In the good old days each credit cards credit limit counted against your ability to borrow I am not sure how things work these days.
  • Another attack vector for those attempting to fraudulently use my good credit. Each of these cards has a new number, a new login on-line and thus another place where thieves can attempt to steal your
  • Temptation, and this is the intangible nasty part of One day I might get into a position where if I had this card I might use it as a last resort (when maybe I should have done something sensible instead).

Cancel the Card

To cancel this card, I called and spoke to a polite young man, who did try to convince me not to cancel the account, but relented when it became obvious I wouldn’t change my mind. I also asked for a confirmation that the card was cancelled. The credit card number and information have been put in a safe place as well (along with the date I cancelled the card).

The card has been shredded, so this credit vehicle should be dead.

As I have said previously I have too many credit cards, so cancelling this card and a few more is a very good idea for me. Your mileage may vary, but I think having one (or no) credit cards is a good idea.

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Make More by Reducing Debt

So you’d like to get a pay raise, but you are afraid to go ask your boss for a raise? How could reducing debt help that? This is a cornerstone of Financial Literacy.

Here is a novel way to get more Net income, pay down debt! By reducing debt you have more disposable income. The arithmetic is simple, less debt payments (after you have paid down debt) means more money for you.

This is the simplest of arithmetic problems, yet it seems to be missed by so many people that I feel it is important to enumerate it for you.

Net Income = Income (I) – Expenditure (X)

X = all money spent (S)

I =  all money earned (E)

Where ∑ simply means the sum of the variables in this case things like bills, pay cheques etc.,

Straight forward? So to increase your Net Income you can either increase your Income (I) or decrease X (your expenses), haven’t lost anyone have I?

So if we look closer and see that:

X = sum ( Mortgage Payment,Car Payment,Hydro,Natural Gas,Credit Cards,Interest on Credit Cards,Eating Out, …)

The whole idea is to minimize X (expenditures) and thus your Net Income or Savings increases.

This means the less you spend, overall, the more you have left over. It is much easier to lower your spending, than it is to increase your income (these days). You don’t have to ask your boss for a raise, or work overtime, you simply, spend less.

BCM Simple Rule of Money #1

If you want to make more money, you either increase your income, or you lower your expenses.

The rule seems quite simple, but is it?

EQ Bank Savings Plus Account

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Never was So Much Owed by So Many

Never was so much owed by so many to so few“, –Winston Churchill

Debt

True Heroes

I paraphrase Churchill as a precursor to the latest data from Stats Canada about the National Balance Sheet. Remembrance Day is not far off, but allow me to borrow from Mr. Churchill a bit more.

Unfortunately, the phrase is very much in context. The so few, is the banks, unfortunately.

Stats Canada published their latest update of the National balance sheet and financial flow accounts, second quarter 2018, and as usual there are some very interesting numbers in this report.

It starts off saying that we are wealthier (but you need to read carefully what that means), but then we find out about our debt loads.

So Much Owed?

The report states:

Credit market debt as a proportion of household disposable income (adjusted to exclude pension entitlements) increased to 169.1%, as credit market debt outpaced income. In other words, there was $1.69 in credit market debt for every dollar of household disposable income.

Let us not frolic with glee, while the increase is slowing, it is still increasing (i.e. we are borrowing more compared to our disposable income).

For every $1 of disposable income you owed $1.69 ? That seems quite worrisome, because eventually, someone will ask for their money. Loans are callable, especially HELOC’s, Credit Card Debt and Loans.

We are worth more, but so much of that net worth is tied up in Real Estate. If the housing market goes bust, this could lead to disastrous consequences. So much more will be owed by all of us then.

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Straight Talk on Your Money

A friend of this web site is Doug Hoyes (CA, CPA) and he gave me a copy of his book Straight Talk on Your Money to review. As most folks who have given me their books know, I am atrocious at reading and following up on books, however, Mr. Hoyes had an ace in the hole, he has published an Audiobook. I subscribe to Audible, so I used one of my credits to purchase the book and was pleasantly surprised.

Straight Talk on Your Money

Amazon Link

Mr. Hoyes’ presence and narration of the book is excellent. Many times authors fool themselves into thinking that only they can bring their story to life, but Mr. Hoyes’ experience with his podcast has served him well.

This is a book for anyone wanting to learn about how your financial plans can go awry. The stories told are of ordinary folks, who had some very bad luck, or things just got out of control. If you think you have everything under control, read the book you will feel less confident and see where your plan might need tweaking.

If you think you have your life insurance story in place, please read the There is More to Death than Life Insurance section. I did like the section about Never Loan Money to Family or Friends as well. I won’t ruin it for you, but it really does make sense to me.

The book is an excellent read and the audio book is really great to listen to while commuting or on long car trips too. Mr. Hoyes’ delivery on the audiobook is top rate (and his son engineered the book as well, and the sound balance was very good). This is not a classic How To financial book but it gives concrete examples about how life is variable and things can go wrong.

Straight Talk on Your Money is an excellent financial read.

Open Disclosure

I do like Mr. Hoyes, I have only met him a few times, however we have spoken many times on-line, and I have been a guest on his podcast twice. Mr. Hoyes  is a bankruptcy trustee (and an accountant), and he seems to genuinely care about his customers as well. Mr. Hoyes did give me a copy of his book, however, I bought the audiobook version myself. I am not receiving any payment for this review. If you click on the Amazon link I will make a small commission. Please keep this in mind reading my review.

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Serial Refinancers

Serial refinancers is a term I heard Scott Terrio use on the Debt Free in 30 podcast, and it really resonated with me.

Much like serial murderers, serial refinancers just keep going back to the well and refinancing their debts with consolidation loans or similar debt vehicles. Much like serial murder (or murder in general) this is very bad! Consolidation or refinancing of a debt is supposed to be something you do once (if ever), not every 2 years.

Serial Refinancer Death Spiral

A good point that Mr. Terrio makes is that with the new credit rules in place, you are more likely to get turned down for a consolidation loan. Yes, credit is still loose, but the rules are tightening things up. Mr. Hoyes and Mr. Terrio are not seeing more folks coming into their offices with these problems, but it is still early. The new financing rules only came into play at the start of the year.

What will happen when this tighter credit takes hold? More folks going to Payday loan and alternate finance firms, most likely, which will simply accelerate the process of insolvency, or the personal finance death-spiral of serial refinancing.

Refinancing is Bad?

Yes, refinancing debt is bad in business and it is bad in your financial life as well. If you are carrying a huge credit card debt, refinancing looks like a life-line. It may be a life-line but if you are not going to delete those credit cards from your financial life, you are setting yourself up to fail.

I know serial refinancers, I have tried to point out the folly of their ways. I have not succeeded in most cases, but I can see the path (i.e. financial death spiral) they will follow, so I am keeping my favorite bankruptcy trustee’s number around in case.

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Credit is the Lubricant for the Wheels of Business

Unfortunately Credit and Debt is the opiate of the consumer (to paraphrase Karl Marx, and his views on religion). As long as consumers continue to use Debt, business will continue to rely on it (and the associated expanded spending).  Witness the current economic situation where consumer credit is the lubricant of the economy.

Live Within Your Means ?

Forget that, Grandpa! No one needs to live within their means, when interest rates continue at these historic lows. Next thing you will be telling me is that interest rates will go up? Concepts like house poor seems to have disappeared from our money vocabulary.



Live Now

Interest rates are down now, credit is easy now, so the economy seems to be saying, live now, pay later. You only live once, after all. Can I afford to buy this, is another concept that has disappeared from our financial lexicon. The most important thing is to have a good credit rating.

What would the economy look like if most consumers decided, “I can’t afford that”? The constriction might change a lot of things.

Credit Opiate of the Masses

Credit is Limitless (i.e. Pay Later)

Anyone can get credit now, no one gets turned down for a mortgage, and if they do, you have blundered mortgages, sorry blended mortgages. Have you heard of anyone being turned down for a mortgage lately? Anybody who wants a new car does not get a loan or lease for a pickup truck? Credit is the lubricant on those transactions.

Will we run out of the lubricant? Will debt get tighter soon? All economic models in North America rely on free spending consumers, and tight debt rules would be the sand in the lubricant of the economy.

Remember, eventually, all debts must be paid, but when will that reckoning be? Perhaps sooner than we wish?

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I Hate Sean Cooper

For those who are not aware Sean Cooper came to the media attention a while ago when he talked about how he worked very hard to pay off his house in a short period of time (three years). Sean has also written a very interesting book (the amazon link is on this page, book is out soon).

Sean Cooper

Amazon Link for Sean’s Book


Sean’s story is not that unique in my circle of friends, I know a few folks who worked very hard to get out of debt quickly. With my friends stories, they had two solid incomes, and made it their goal to pay off their house in less than 5 years (and not in the Toronto Real Estate market). Sean’s story is a little extreme (in that he worked more than 2 jobs at times and did other extreme savings tricks) but still to be applauded.

How Can You Hate Sean Cooper ?

Do I hate Sean Cooper? Evidently the Internet does (if you look at the stories about him, the comment section is peppered with angry folks who disagree with how Sean did it, and how it is unrealistic to assume this is possible). Let me be clear, Sean’s method is possible, if you want it.

No, I do not hate Sean Cooper, I have met him at a conference, he seems like a very nice young man (remember I am an old fart). He cannot loathed for his lifestyle, he should be applauded for setting a tough goal, and then making it happen. Could I have done it? I doubt it, but I do compliment him for accomplishing his goal. Am I jealous of him? Absolutely!

Can you Do What Sean Did?

Can you do this? Positively, it is not easy, but possible (if you have a job, and a lot of self-control (if you have two incomes, why aren’t you doing this?)). Should you do this? That is up to you, but I would suggest reading Sean’s book and see that parts of his concepts you can use in your life to get out of debt quickly.

Examples of Trolls of Mr. Cooper

The CBC article had some classic troll comments about Sean’s story. These are just so amazingly venomous (and I can’t figure out why they are so pissed off at him):

  • “…Another media PR job to whitewash the economy misery of the youth. 100 hours of work a week = over 14 hours of work a day, every day. …”
  • “…On the upside, he did die a rich man. However, since he didn’t have a social life and had no children, the state took it all. …”
  • “…Why isn’t anyone asking where a 25 year old got a nearly 200,000 dollar down payment? I’d say he HARDLY was living like a pauper. …”

Reading the comments on the article is almost more entertaining (but again, why so negative?). I look forward to reading his book.

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Debt is a Four Letter Word

I am astounded that I have not written something with this title before (in fact I was positive I had). I have talked about how there is no such thing as Good Debt but I guess the word Debt as a social obscenity was missed, but make no mistake Debt is a four letter word.

I was happy to see noted financial expert Preet Banerjee using this same sentiment in a presentation to financial writers. Given the low interest rates we have lived through, folks have no idea the impact that a quadrupling of the prime rate (to say 8%) might have on folks. Could you live with the Interest portion of your mortgage payments to Quadruple?

The explanation that resonated with me (from Preet) was you are not borrowing money from the bank, you are borrowing it from your future self (and you had better hope future you is really successful).

Debt is a Four Letter Word

Debt is a four letter word (thanks to myownadvisor.ca for the image)

The numbers do not lie, every dollar you borrow today, future you has to repay, with interest on top of it. Currently interest is low, but how much longer will this last? Look at your Mortgage statements, does it tell you how much interest you pay off for each payment? If it does triple that, and ask yourself, “Can I afford this?”. If you want to figure it out yourself try my Mortgage Payment Calculator.

I am not even going to touch the levels of consumer debt (i.e. Credit Card, short term loans, auto loans, etc.,), the amount out there right now makes me shake my head.

Other Debt Posts from me? I can’t put them all here, the post would go on for pages, but here are a few of the latest.

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