By Peter Boys
The Financial Coach
Having just returned from a conference for professional financial advisors at the Banff School of Fine Arts, I was struck at the relevance of many of the speaker’s topics.
One speaker resonated with me — Preet Banerjee is a television host with the Oprah Winfrey Network, a columnist at The Globe and Mail, a W Network money expert and a personal finance blogger and podcaster. Google him! I’ll share some of his observations and insights/advice.
With the endless array of financial products and advice, and the talking heads on TV, it’s no wonder people are confused and skeptical. And the truth is, most Canadians are naïve and irrational about things financial. Advertising is pitched to consumer’s immediate gratification.
Banks, car dealerships, finance and credit-card companies are making it ever easier to get access to credit. It’s no wonder Canadians have piled on so much debt.
Debt was a “four-letter” word to previous generations, but today it’s just a word. It’s time for a shift in perspective, to start hating debt and loving savings. Consider car ads now offering weekly payments stretched over 84 months — that’s seven years of payments! If you made the same payments for five years into a high-interest, tax-free savings account, you could pay cash for the car! We need to relearn the merits of earning interest over the evils of paying it, if there is any hope of getting out of debt.
We all know that the best way to make money over the long haul is to buy low and sell high.
So why do we do the opposite? Fear and greed cause us to cash in our investments when markets drop, then wait until markets are back up to buy back in. In this process, we repeatedly lock in our losses.
Today, we don’t count out $20 bills to make our car, mortgage or other large payments, so we are disconnected from our money. Plus, debit and credit cards make instant gratification, or “retail therapy,” as I like to call it, easy, piling on ever more debt.
Even worse, many of us are only paying the minimum payment each month at 22 per cent interest.
Consider that a young couple today, earning $50,000 each, have the potential to earn more than $3 million during their working lives, adjusted for future pay increases.
So why can’t they save any money? One clue might reveal itself if you asked a 50-year-old what they paid for their first house, compared to their last vehicle. But the biggest problem is that no one has ever shown them how to budget, and they don’t have rainy day funds to cover at least three months’ bills.
Today, it’s common to run out of “money” before running out of “month,” then rely on credit for the remaining expenses. That’s great for bank profits, but it can quickly turn into a downward spiral of debt. And if you have a reasonable payment history, credit-card companies will keep jacking up your credit limit, so you can take on more debt and pay them more interest.
You can’t track what you don’t keep track of, so this is where personal finance software to help with budgeting comes in handy. I use Quicken, but there are others that can download transactions, reconcile statements to make sure that all the charges are legitimate, and make sure you’re staying on track with saving and spending.
A trusted financial advisor can help you sort through those issues and also get you started toward financial security.
— Money Talk