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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Debt Consolidation and Tattoo Coverups

A friend of mine had a tattoo on her forearm that after a while she grew to dislike, so she decided to see a tattoo artist and have that artist (evidently a renowned artist) see what could be done with the tattoo. It was decided to cover up the first tattoo with another tattoo that might be more aesthetically appealing. What does this have to do with debt consolidation ?

debt consolidation

This tattoo says, taken advantage of (according to Hanzismatter), I guess they were

The artist did his magic, and now a simply line drawing of an amphibian, has morphed in an elaborate colorful collage with an interesting phrase. The replacement is about 300% larger than the original tattoo in terms of surface area. I hope my friend enjoys the “cover up” tattoo, but it got me thinking that this seems much like the constant refinancing, and blending of debt (into other debt vehicles) that many folks seem to be doing these days. Still no explanation on this debt consolidation angle?

Covering up debt is not making debt go away, and while consolidation loans can make it convenient to have all (or most) of your debt in one (hopefully lower interest) debt vehicle, if you continue to live the lifestyle that got you into debt in the first place, you really are only making the debt bigger (much like the tattoo).

If you are using a Debt Consolidation loan to get control of your debts, make sure you have a solid plan in place to pay down the debt, and make sure that you are not growing the debt further. Debt Consolidation loans are simply a tool, they are not a cure, and as with all tools if you are not using them correctly, you can make one hell of a mess.

Mrs. C8j has pointed out that more than a few advertisements for Consolidation Loans imply that once you get the loan, you are “Out of Debt”, but your debt has not changed it is just all in one place. You are out of debt when it is paid off.

Another good point with the tattoo metaphor, at least my friend went to a professional to get the “touch up” tattoo (and didn’t rely on a friend of a friend who did these for fun). If you are thinking of a consolidation loan, see a professional credit councilor (or a similar financial service).

 

 

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A Personal Spending Surplus ?

Before the previous Federal Election, the Tories claimed they had a “surplus” I read over the Annual Financial Report of the Government of Canada Fiscal Year 2014–2015 is the statement of the National Debt and saw that one of the ways a surplus was possible in the fiscal year 2014-15 was by ministries delaying spending, which made me wonder if it would be possible to do the same thing with our own personal finances?

Debt Subliminal

This is NOT a Debt Reduction Plan

If we take a young family, with a Home Line of Credit which holds the debt on their house (as opposed to a regular mortgage). This young family goes to a financial planner, who tells them they needed to cut down on their spending and get to a point where what they spend is less than what they earn (similar to the concept of this government’s surplus).

The family is lucky in that their Home Line of Credit’s minimum payment is the Interest Charge for that Month (and luckily their Line of Credit interest rate is nice and low). The young family does have a lot of expenses, with small children, car payments and a large amount of discretionary spending (and the debt that accrued because of that spending). The family decides the best way to reach the zen of spending less than they earn is by not paying down their largest debt (their house), so that they can pay for all of their other spending (cars, vacations, nice clothes, cable, etc.,).

This idea actually works well (assuming the bank doesn’t call the line of credit and ask for all of their money), in that the family is not spending more than they make, but there is a problem. Their debt load isn’t actually dropping, and they will eventually have to pay down the debt on their house, which is a huge problem. An even bigger problem will be when interest rates go up, so in the end, this family is living in a financial fool’s paradise.

In Real Life

At the end of it, the Tories “surplus” didn’t really come to fruition, and thanks to a new Government, we are back to deficit financing programs and such, but there are promises of balancing a budget some time soon. This might well be how our example family ends up as well (i.e. much farther in debt).

Remember as I always say, Hey we got extra money, let’s spend it! (No, I don’t I am being sarcastic).

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Another Quarter Richer but Deeper in Debt

You could sing that title to the tune of Tennessee Ernie Ford’s 16 Tons (what do you get, another day older and deeper in debt), but Stats Canada published another interesting and information filled report that the main stream media is howling about how Canadians is going to be foreclosed (on). (report National balance sheet and financial flow accounts, fourth quarter 2015)

deeper in debt

Tennessee Ernie’s Greatest Hits
from Amazon

The report itself has a great deal of useful information about the Valuation (for lack of a better term) of Canada and Canadians, and well worth having a read.

The major line in one of the tables that is being touted as the reason that Canadians are going deeper in debt. While these numbers are quite sobering in that the percentage of Debt to Disposable income is increasing and it is currently at 168% (i.e. for every $1 of disposable income, Canadians owe $1.68), however in another part of the report you can read:

On a per capita basis, household net worth was $263,200, up 1.5% from the previous quarter.

Thus my statement that we are Richer and also deeper in debt.

Quarterly Table of Debt and Income Comparisons
   3rd Q 2014 4th Q 2014 1st Q 2015 2nd Q 2015 3rd Q 2015 4th Q  2015
% % % % % %
Household sector
Debt to disposable income† 165.07 165.23 163.87 165.14 166.61 167.60
Credit market debt to disposable income 162.75 163.00 161.61 162.96 164.46 165.44
Consumer credit and mortgage liabilities to disposable income 155.36 155.59 154.20 155.50 156.99 157.96

What the ratio tells us: This ratio compares debt to annual household disposable income. In general, the ratio suggests that the lower the ratio the greater the ability to manage debt through current income.” 

The simplistic explanation overall is that Canadian assets have been increasing in value, with the housing bubble (in many areas, not Alberta though), the recovering stock market and the recovering loony as well. Are we actually saving more? I doubt it, I do believe that we are further in debt though (so yes I am agreeing with many financial pundits who are sounding warnings from this data).

The fact that debt is increasing vs. our disposable income is a more sinister issue. Are we simply deluding ourselves that since we are saving, we can also still build up more debt?

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