Your Money Book

Unfortunately, a fair bit of media coverage on the economy, as well as opinions or commentary, revolves around politics. Now, don’t read my politics into these comments, because it’s not there. But here are a couple of observations from the last month:

Before the last Federal Budget, two opposition parties announced they would be voting against it. Fair enough. But they did so a week BEFORE the budget! How is that any different from going to see your boss and he or she tells you: The answer is no, now what’s the question? How long would you enjoy that type of relationship?

If you’re not part of the solution, you’re part of the problem: Many politicians had a lot of criticism about the Federal Budget, but no alternatives or better solutions. That’s just sad. If your boss sits in on a client meeting and afterwards tells you the dozens of things you did wrong, how helpful is that? Where was he or she when you needed help? Where is the value in telling you after the meeting that it had no chance of success? Where was their feedback or suggestions when you needed them? Are there some politicians just wanting the government to fail, or the recession to get worse for political value? How sad, if that were true…

We should do more – way more in bailouts and stimulus money. OK, maybe that’s true. But would you spend $30,000 fixing your roof when you can get it done for $5,000? If it were “free” money, we would all love to get some of it. But can we please remember that the only spending the government does is with our money? There isn’t free money around, sorry. When we remember that, we appreciate it a lot more when politicians are careful with it. Plus, there is not enough money in the world, or enough printing presses, to print more to make up for an entire economic slowdown. It might seem like it, listening to some people, but it just isn’t true.

When Prime Minister Harper (who is actually an economist!) talked about value in the market, he was hammered by large parts of the media. Yet, two weeks ago, when U.S. President Obama talked about virtually the same thing, the general feedback was that his optimism was great. Excuse me? Same types of comments interpreted so differently? Only a political bias can reconcile those extremes.

Federal deficits are bad or good: Again, that depends on who you ask, and their political view. But do remember that we really don’t allow our governments to have much of a surplus before we generally demand the money be spent on this or that project, or that our taxes be lowered. While we all need to have an emergency savings account, we likely don’t allow our government to have that for bad economic times! So what choice do they have but to go into a temporary deficit?

Here are a couple of e-mails from listeners. Chance are if one person e mails, there are lots of others who have the same questions:

Hi George: We are going on vacation to Mexico. The question is what do you suggest as far as taking money? I have asked lots of people and everyone has a different opinion. Some people say use your debit card (that sort of scares me aside from charges), some say Visa/MC, others say strictly US cash or take Canadian and exchange it down. I am confused…

This isn’t worth your brain power. I only answer questions as to what I would do, and in this case, you’re dealing with a pretty amount of money. You’re not buying a house down there, so we’re talking about the exchange on about $400 or $500. Whatever it is, it’s a $5 to $7 decision. I don’t pull out my debit card – that’s way too risky, unless it’s at a bank ATM. Not many places want our crappy Canadian dollar, and it’s a giant pain to find a bank to exchange it at. In the US, by the way, most banks now won’t even do an exchange unless you are a customer. They can’t recognize counterfeit foreign money and don’t give a hoot about non-bank clients anyway.

Take what you think in US cash. If you’ve got a credit union MasterCard, use it, because it has the least foreign exchange rip off, most others are 2.5% or more, there’s a chart in the back of the It’s Your Money book on everything credit card related, or you can call the 800 number on the back of your credit card and ask.

Hello George: In the It’s Your Money book, you talk about getting debt free by paying off the smallest debt to the largest debt. Wouldn’t it be more logical to pay the highest interest rates first?

Yes and no. You’re presuming that getting into debt and paying it off are logical decisions and three-quarters of it isn’t logical – it’s emotional. Is it logical to charge something on a 20% credit card? Is it logical to take a car loan over 7 years when you’ll always owe more than it’s worth? Is it logical to take a 6-months don’t pay that reverts to 29% right back to the get-go? No way.

Just like getting a car unstuck in the snow you need to get traction. Traction and extra cash comes from paying off the smallest bill. It’ll take a month or two, tops and frees up the payment that was going on that bill, as well as creating a huge self-confidence feeling that one is gone forever.

Rolling that money into the next smallest bill makes it go twice as fast, and so on. In the book is an example of $25,000 debt and how quickly it’ll get paid off with some huge interest savings. Remember that interest isn’t a rate thing – it’s interest dollars which we can control.

Besides, when it’s a single-minded focus to get rid of your debt it’ll happen really quickly. So the rate doesn’t matter that much when it’s only being paid for a year or so.

You know I’m not a fan of the credit card business, but big credit goes to Capital One who recently had an insert with statements. No, not the usual mice print, but a colour flyer discussing over limit charges and how to avoid them. It also had an intelligent section on how to set up pre-authorized debit with your bank to make sure at least the minimum payments are made every month.

Payday lenders took a big hit last week. There are a bunch of class action lawsuits filed in a number of provinces about their interest rates. The industry went to the Supreme Court who just rejected their arguments to get these lawsuits dismissed.

Scotiabank just launched a rather interesting mortgage promotion. Now I have to confess I used to be a fan of Scotia. In fact, I’ve probably sent them millions of dollars of business over the years. But that was before I had a number of personal nightmares with them. But this one might be worth checking out: It’s a 1 year fixed rate mortgage offer at 3.25% and then the customer will have the option of a five year fixed rate at posted retail rates less 1.25%. Even if you don’t consider the Scotiabank it shows again that it’s pretty easy to haggle on rates and you should get 1 to 1.25% off the posted rates elsewhere, too!

The size of Canadian Banks: Sometimes you don’t have to grow to get bigger. As of right now, TD/Canada Trust is actually the 5th largest bank in the world and the Royal has also made the top 10. They didn’t really grow much but all those mega U.S. banks have shrunk a lot. Citibank used to be worth $270 billion two years ago, now it’s 2%, or $5 billion.
Last one: It was a great and VERY lengthy report from Wall Street Watch. If you ever want the insights of how we got to the current financial and housing mess we’re in it is well worth the read. Here’s the highlights:

$5 billion in political contributions bought Wall Street their total freedom from regulations and restraints in the last decade.
The report goes through a dozen deregulation steps that got us here.

The financial industry has almost 3,000 lobbyists in Washington. How many does Joe Average have? Right – none. So guess who has the influence on congress and the laws that are written – or not written?

This started with a story in the Washington Post a couple of months ago about a lady name Kate Wheelock and her family who made it a 14 day plan (and did survive).

Now, we’re always ahead of the curve so don’t be surprised if you catch Oprah now doing the same thing. But remember – we were there first!

Our plan is to go through a full week without spending any money. No credit or debit cards and no need for cash – you won’t need any of it. Pay your regular bills such as your utilities and other monthly obligations but that’s it.
So today you’ll need to fill up your gas tank and get to the grocery store. Yes, that’s it. Then you can leave your cash, credit and debit cards at home for the week.

Now as I’m more experienced by two days, here’s a couple of things:

You have to make the tank of gas last. Plan your errands, don’t do them, or walk wherever you can.

If you have kids – get them involved. If possible, take them shopping with you so they can buy into the idea that what you buy is what you get – period. If not, you’re just being weird again. You can also have them play along. Yes, make it a game and not a pain and you’d be amazed how your attitude changes. Give them an envelope and every time you and your son or daughter agree that today you would have bought this or that for them, the cash goes into the envelope, instead.

Kids learn quickly and real cash in an envelope vs. the chocolate bar that’s long gone makes a big difference. They’re visual – the chocolate bar is barely remembered but the cash is still there – as is the lesson of foregone treats or spending results in REAL money. Maybe all of us could use that lesson a little more often…

You won’t be seeing the inside of a restaurant. That’s not a bad thing anyway as they are usually 20% food cost and 80% ambiance that you’re paying for.

That’s the hard one for me so I’m expecting Subway and Domino to be really hurting for a while. The food you have in the fridge or freezer does turn into meals! But now you have to think vs. just going back to the store!

Whether you do it to just see if you can, or to find out if you can make it for a week without all that extra (and 99% unnecessary) spending, let us know. There’s strength in numbers and perhaps you can share some of your insights.
If you’re a Christian like I am, consider doing it for Lent this year as we approach the Easter season. Lent is from the Anglo-Saxen word to lengthen.

In the 1st century the Lenten season was originally six days, now it is the 40 days before Easter. I was actually inspired to make it two weeks after my Pastor’s sermon this past Sunday sharing his three items.

In the words of President Obama: Yes you can!

Join us and let’s stay in touch. Do remember that when you tell people why you brought lunch to work or the likes they’ll want to make fun of you. It’s always amazing how many and how often broke people want to give you financial advice!
Oh, and if you’re not participating: Why?

I don’t want to put you on the spot but is it that you’re afraid of what you’ll learn? Afraid to let go of those fancy coffees or impulse spending? Or afraid to fail? Come on – there’s no failure even if you make it one day! It’s between you and your wallet. It’s your money!

But would you at least give yourself a credit limit for a week? Make it $10 bucks and that’s all you can spend for the day. Gas, food, Tim Horton and everything…would that be something you’d consider?