Your Money Book

Next year, a bunch of businesses, including American Express are going to be reinvented as banks. GMAC, the ex finance arm of General Motors, just made it yesterday. No, of course they’re not a bank. It’s just a neat way of getting in on the bailout money!

This was a hugely profitable company until they took stupid pills and got into sub prime mortgages in a huge way through their mortgage division Ditek.com that you see advertising on TV all the time. Two years ago, they made billions of dollars, last year they lost about $8 billion and now finance only about 2% of GM vehicle sales. How sad…but it was either deal with it, or get a bailout. I know I’d pick the free $6 billion…

In the U.S., the car loans 60-days in arrears is up 17% for the 3rd quarter. That just came out – and that pain will continue to worsen. If people can’t pay their current car loans there isn’t going to be any relief for the Little Three formerly known as the Big 3.

For the coming year in Canada, get ready for a ton more marketing of prepaid Visa and Mastercards. They’ll make the same profit, along with an administration fee, and have no chance of delinquency. After all, you can’t go in arrears if it’s all pre-paid. But right now they’re all freaked out since their internal rules require expiry dates and a number of provinces have outlawed that rip off.

Did you get any gift cards for Christmas? In our family there were none – OK, other than Tim Horton but if they go under we can likely shut down the whole country.

If you did, get out there and use them. The sooner, the better. It’s a real crap shoot if that merchant or restaurant will still be in business to honour the card and that isn’t worth the risk. Last week, a U.S. report showed that an estimated 148,000 retail businesses will go under in 2009. Someone paid real cash for that gift card but until you use it up, all you’ve got is an I.O.U.

Here’s one more prediction for 2009: As the economy gets worse, there’s a business that’s up 30% as a result: It’s on-line psychics. Yes, for about two to four bucks a minute, or $100 an hour, psychics are doing very well predicting your financial future on-line.

I’m going to do that free for you. Think of it as your late Christmas present: One on-line psychic was quoted as saying he tells people (that’s code words for: he tells everyone the same thing) your finances really won’t improve until about the middle of next year.

Now aren’t you glad you didn’t have to get on the computer to get that?

Have a happy New Year and we’ll talk about the “real” New Years resolutions in the coming weeks. You and I both know that today is not the day for any resolutions which will survive beyond a week or two…

Today, and it should probably be Boxing day, too, don’t head back to the stores for anything other than food stuff. Last minute shopping and impulse purchases are huge financial killers. Today, just say no. You’ve done enough, bought enough and are enough. One more present isn’t going to impact your Christmas, honest!

You know Christmas is coming again next year, right? That’s not going to be a surprise. Just like your car insurance and money for a vacation. There are a few annual bills that seem to always catch us by surprise. But nothing is further from the truth. We know they’re coming! So make a decision to set up a separate savings account that’s not hooked up to your ATM card. Then either do it yourself, or ask your bank or credit union, to transfer over a fixed amount of money each month. It just needs to be one-twelfth of what these annual bills add up to so you have the money when they come due.

Lastly, there’s the biggest, best and most powerful Christmas present you can give to yourself and your family. It’s the gift of financial freedom. And it all starts with two simple steps:

Firstly to make the decision to be debt free and dream ahead a little of what that’d be like to have literally no bills to pay and nobody sucking huge amounts of interest and fees out of your income.

The second step it to sit down with your partner if you’re married. One hour with no television, no kids and no interruptions. All you need is an open mind and heart and a genuine conversation. I know, most people would rather talk about the weather and sex than their finances, but few conversations are more important.

Talk about your dreams and your finances in an honest and open way. Then get a piece of paper and write down your net income each month and every dollar that’s going out right now. Each dollar has to have a label on it before it gets spent.
The 2nd part is just to list your bills and debt. Because it can only get paid with what you have left over after food, shelter, clothing and transportation.

The game plan is to pay minimum payments on everything but the smallest debt. Then the next smallest one, and so on. You’d be amazed how quickly you get traction and a huge level of confidence.

The section in the It’s Your Money book walks you through it really simply. It’s worth it. You’re worth it, and one of the best gifts you can give yourself and your family.

This is likely the last time I’ll get a chance to talk to you because I’ve hit it big. Abdul Kashalanda Kukahereman from Nigeria sent me an e mail that I’m getting 7.5 million dollars from an estate. So I’m quite excited. Of the zillions of people with e-mail, he picked me!

Well, not quite. But on some of these e-mail scams, there was some good news recently. The most common scams are along the lines of purchasing something from you or paying you for something, giving you a cheque and having you refund the overpayment.

You’re sent a fake cheque that looks incredibly real from E-bay, lottery accounts, Wal-Mart, pre-payment on sales commissions or the likes. The scam is to get you to cash the cheque, keep 10 or 20 percent of the money for your trouble and just get a Western Union draft to send the rest of the money back.

It can be months before the cheque you thought was a cheque actually bounces. Now you’ve sent back the 80% or so with your real money and now the bank charges you back for the fraudulent cheque.

These scams are mostly run out of Nigeria, so finally the U.S. Secret Service was able to convict someone. Recently, Edna Fiedler was sent to prison for sending out over $609 million in these phony cheques. The U.S. Postal Service also sent 15 staff to Nigeria to work with the post office there. In a 90-day period they intercepted counterfeit cheques, lottery cheques, E-bay overpayments, etc. for, are you ready for this: $2.1 billion.

The newest scam is out of Hong Kong. It’s an e-mail asking for nothing at all, just telling you that you’ve won $5,000. You just need to send copy of passport, drivers license, etc. but they’re not asking for money. The scam is getting your identity with what you might mail. With that they can clean out your bank accounts and obtain fraudulent credit with this identity theft and that’s worth way more to the crooks.

You and I might be internet wise, but for those of us with older parents, make absolutely sure your parents get to hear some of these scams. Maybe these two, or print off the phony ones from the Royal Bank or Paypal claiming your account has been breached and you need to just update your information. Senior are the biggest group targeted and your parents, uncles or whoever needs to learn THE best words about e-mails from people they don’t know: Just don’t click.

Dear Retailer:

I know that you’re really counting on me to spend a lot of money in your store this Christmas season, so I thought I should give you a heads up it won’t be happening.

The Retail Council says I’m supposed to do my part in spending billions this holiday season. But I have to be honest and let you know that we’re no longer on the same financial page here. You see, for my family, reality is starting to set in. I’m broke. There, I’ve said it out loud. Now I’m going to start saying, “I can’t afford it” – a lot!

I’ve heard it said that often an alcoholic has to hit bottom before he or she will change their behaviour. Financially, that’s pretty close to where I’m at. My house value is down and I’m not even sure it’s worth more than we owe. The option of refinancing isn’t there, and that might be a blessing in a sick sort of way. It’s also not likely I can increase my income much in the coming year but at least I hope to have my job – more than I can say for what’ll be upwards of 10% of the population. My credit card balances are high, way too high, and I’m saddled with my car payment and a line of credit that seemed like a good idea at the time…

Right now I’m surviving and not thriving. That leaves the one thing I can do, and that’s to look in the mirror and choose to make some different financial choices – some better financial choices. I can learn the lessons all the banks and brokerage houses didn’t learn: Leverage and over-borrowing don’t work forever and when the music stops it’ll be very painful.

It starts with what I knew as a teenager: I can only spend the money I have – and I don’t have much left over at the end of each month. In fact, right now, I’ve got a lot more month left after my money has run out, if the truth were known.
The merry go-round is over and it has stopped being fun spending all that money I don’t have. I need to, and choose to, make Christmas more about Christmas and less about, well – your store and more stuff. Facing my financial reality has made me realize that all the stuff I’ve bought from you hasn’t gotten me any more happiness. In fact – it’s quite the opposite. It’s created a financial hell for me right now.

I know in this recession I keep hearing that we should do our part to stimulate the economy. Sorry, I did that for years and since there isn’t a bailout for my family, if it is to be it’s up to me to turn things around. Yes, this is probably the first time you’ve heard anyone in the whole country say they’re accountable for their own actions – their own mess. I am.
You want me to do more of what isn’t working in my life: more shopping, more debt, more instant credit and no payments for a year. But be honest: What do you care about my credit card balances, longer term car loans just so I can juggle all my payments, huge heating bills and property taxes, Chinese toys I just end up throwing out, or that I’m paying nothing but interest only payments on my line of credit?

You see, I no longer trust you. We’re not on the same page here. Your goal and single-minded focus is to get me to spend as much as possible. If you want proof, your ads say I can “save” 20% – but I’m starting to realize all these savings are making me go broke. It’s the 80% I SPEND that’s killing me because I can’t ever “save” when I spend! Besides, by the time I pay off the stuff I’ve bought, even with the “savings,” I’ll have paid over double the amount on my credit card.

But right now, all I can pay is the minimum monthly payments, and sure wish I could live the words of that Rod Stewart song: “I wish that I knew what I know now, when I was younger.” So if you’re going to advertise with some of those “don’t pay for 12 months,” “best savings of the year” or “no-money-down” deals, I’m more likely to throw up than show up.

I am accountable for my own actions and financially, I haven’t done a very good job. It’s as though I’ve been at a great party and had a little, OK a lot, too much to drink, and it’s now the morning after. I am going to look after my financial needs in a healthy and constructive way. I am going to face it to replace it, instead of looking to spend my way out of my financial nightmare with more debt.

The financial reality is that I’m in trouble and in a big hole. And when you’re in a hole, the first thing to do is to stop digging!

What I want most for Christmas this year is to get my financial house in order, to be able to sleep again without worrying whether I can make my payments next month. I want to be able to not jump when the phone rings wondering if it’s a collection agency. I want to look forward to getting my mail again, instead of dreading what bill is arriving today and I want to know, and not hope, that my family will still be able to afford to be in our home this time next year.

I’m going to start to do more of what my parents did: Work hard, pay off my debts and start saving some money. I didn’t – so far. Now I get to work like a dog because I’ve already lived like a king – with borrowed money.