Why Are You In Debt? (Part 2)
Posted by Gail | Filed under Debt Traps
People who are in debt often tell me they don’t really know how it happened. It just did. And it’s remarkable how many people who are making good money still manage to dig themselves a debt hole. If you think you make a reasonable income but are still walking around with a balance on your credit card or your line of credit, or dip into your overdraft, you should ask yourself these three questions:
Do you change your car every couple of years? Once upon a time, we saved up for a car, bought it, drove it, took care of it, and didn’t buy another one until the one we had died. Now people change their cars seasonally. I’ve worked with people who change their cars a couple times a year. OMG! And every time they move from car to car they increase their “negative equity” which is the latest euphemism for DEBT!
A car is a means of transportation. Sometimes you need more car (or truck) because of the kind of work you do. Some people like having more car around them for safety reasons – I would never feel save in a tiny car because of all the highway driving I have to do. But if you’re buying a new car every year, it may be that a) you’re trying to impress someone, or b) you’re trying to fill a hole in your sense of self. While I know that people judge us by what we wear and what we drive, that’s no reason to give in to those dopes. Anyone who thinks the clothes you put on your back and the rust bucket you drive has anything to do with who you actually are is a fool and you don’t need to worry about what they think. Sadly, people go broke trying to keep themselves in new model cars. Oy!
Do you rent, or have you bought, way more home than you need? Here’s another of those traps we’ve laid for ourselves and routinely fall into: The bigger my home, the richer I feel. Or the shinier my marble, the better taste I must have, so the better I must be. I worked with one couple who had only just moved into a home they could barely afford when they upgraded on impulse to bigger and better.
Bigger houses come with bigger mortgage payments (and way higher interest costs), higher tax bills, and larger utility bills. Not to mention all the stuff you have to buy to fill up the larger space.
Why do we need to live in such big homes anyway? Remember when small and cozy were enough? Families with lots more children than we have today made do in houses half the size of the homes we’re building now.
When you buy (or rent) bigger than you need, you may be wasting money you could be using to build an emergency fund or a retirement savings plan. If you’ve got all your ducks in a row and want to live in a castle, you go for it baby. But if you don’t have a big fat emergency fund, if you aren’t maxing your retirement savings, and your kids’ educational savings, if you don’t have enough life and disability insurance, that monster home is more debt than it’s worth, and is distracting you from some really important things you should be taking care of.
Do you follow a formal budget? People assume because they’re making “enough” that means they don’t need a budget. Hey, if that were true you wouldn’t be in debt would you? Then there are the folks who say, “Hey, I’ll be making more money soon so this isn’t a problem?” Tell that to the folks who are now finding their hours cut or their jobs eliminated because the economy is in the dumper. If you’re delusional enough to believe that because you have a good job your debt isn’t an issue, it’s time to wake up and smell the coffee. And if you think the debt is just going to disappear without some sweat and maybe even some tears, I’ve got a hanky here with your name on it.
Tune in tomorrow for the three questions you should be asking yourself if you’re in debt and think it’s not your fault.
January 6, 2010 at 7:42 am
Well, I get to answer no to all those questions. The car I drive is a 1995 honda civic. The apartment we rent is pretty cheap and small. The budget we follow is used to track everything. I think once this debt is gone because we have answered no to all of these questions we should be in a good place to never get back into debt.
regards,
Jason
January 6, 2010 at 7:58 am
Gail,
I know FAR too many individuals who are inclined to participate in ALL of the negative aspects of the above, and then to ponder the exact question of your article “Why am I in debt?”
At times I try to counsel them, but have learned that an opinion or peice of advice is better given and more positively recieved when asked for, and as the old saying goes “you can only lead the donkey to the water…”
That being said, beyond the few aspects in life we cannot control (familial, health-related issues etc.) this New Year should be the basis for a fresh new start towards the elimination of debt — taking back control of OUR money we work so hard for, and securing OUR lifestyles to further ensure positive and progressive futures.
I believe EVERYONE on here has it within them to do so, they just have to find that idea that works for them, build the motivation and keep at it.
Take Care Everyone.
January 6, 2010 at 8:26 am
Jason, I too get to answer no to all of the above. We live in a 1-bedroom apartment (not small, but not always large enough for us, but there is no way I’m losing my view or ease of getting to work by TTC just to get a little more space!)
My debt is only my student loan, and by the end of this year, it will be gone! The only other debt I anticipate in my future is a mortgage loan. (Though wouldn’t it be fantastic to have THAT money saved too, and have no mortgage?)
January 6, 2010 at 9:54 am
Gail’s points about how much things have changed over the years are right on the money. I wonder why and how all of that happened. It used to be very difficult to get into serious debt trouble, as banks simply would not lend to you if your paperwork was not in order.
I think we have more responsibility now for the amount of debt we choose to take on because lenders are only too happy to let us go way past our “maxed out” point.
Still, there’s no doubt we seem to want more nowadays. Is it because lenders have put that carrot out there, or because of the rise of dual income households? Or are we somehow just more materialistic and/or greedy than our parents and grandparents? I don’t have an answer for that one. Maybe it’s all of the above?
January 6, 2010 at 9:59 am
We have recently purchased a home, and we decided going in that if the mortgage, insurance, utilities and taxes were going to be more than we were paying now in rent and utilities, then we wouldn’t buy it. We found a modest home, in our price range, where the mortgage payment will be less than our current rent. It’s a Energy Star qualified home, so we’re probably going to save on our utilities too (currently we rent a 40 year old home, that still has original windows!). Sure, we might have been able to afford a bigger home on our salaries, but we wanted wiggle room. With taxes we’ll be be paying around the same amount as we do a month now.
I drive a 2001 Chevy Cavalier that will be paid for by June, and I don’t plan to give it up until it dies (I have been told by many cavalier owners that they got 300,000 km out of their cars, I’m at 150,000). We also follow a strict budget and are on the jar system for spending. Three years ago though, I could safely say yes to those questions…but I have begun to get my ducks in a row.
January 6, 2010 at 10:15 am
Yay! I did well on these questions!
@Judi – I drive a 2001 Chevy Cavalier!!! Too funny. Mine has 119000 on it, and it’s hardly given me any trouble at all. I too expect to drive it until it literally stops dead.
I have a two bedroom apartment right now which is slightly too expensive for me, but the rent is the going market rate, and I was left with the lease when my now 20year old daughter moved out on me with no notice. I am giving notice to the landlord that I will be moving by the end of Feb. Where to depends on the court decision (either a townhouse to have more room my kids half-time, or a smaller batchelor apt, we’ll see).
I do have a budget, which I credit to Gail, because I never bothered in this area before I started following her show and her website. I have identified that I need to watch my variable spending more – I tend to budget all my fixed expenses and savings, and then say “Hey..I’ve got X left over, and whatever I spend it on, I spend it on”. My grocery habit is the worst. Why on earth did I buy a can of lentils?
January 6, 2010 at 10:30 am
I say I did 2 out of 3. Technically 3 out of 3, but really just 2 out of 3. Gail – I think your country roots are showing some bias here. Here in Toronto, size does not matter. My wife and I own a 1300 sq. ft house at DVP/Lawrence, my brother has a 2900 sq. ft. monster home in east Oshawa, same price. That said, I love my little house. Every room is cozy, and furnished and decorated (unlike said monster home).
@ Judi – where do you live that rent = mortgage + all the other stuff?
January 6, 2010 at 10:37 am
@2 cents- maybe we are more materialistic because we live in bigger homes. I watched an old Sofia Loren movie, set in the 50’s I think, in which she has 5 kids and one on the way. She and her husband slept in one bed in the corner of the kitchen and all the other kids were strewn about the rest of the kitchen, 2 in beds and the rest on mats and blankets. People used to live happily like this, now we would consider that unthinkable. As our grandparents and parents made more money/got more credit they bought bigger homes. Maybe we keep buying bigger homes to fill the void because we aren’t so close to our families anymore.
January 6, 2010 at 10:49 am
I get a pass on these three I think! Yippee!
By the way, I saw Gail this morning on Canada AM-it was such a great surprise to be brushing my teeth and hearing a clip from a recent episode of TDDUP (I’m such a geeky fan that I recognized it immediately) and then ran to the TV to see Gail’s smiling face and hear her oft repeated, but sage advice.
January 6, 2010 at 10:50 am
@Amelia – Good point. My Mom has told me stories about sharing a bed with one or two other siblings. I can just imagine the looks on my kids faces if I even suggested sharing a room, let alone a bed!
We are probably guilty of having a larger home, but it will hopefully be paid off in a year or two. The property taxes are a killer though! Still, I love my home and I hope we are able to stay in it for the rest of our lives.
We have 2 newer vehicles, but we hope to drive them into the ground. We bought new and paid them off to escape the car leasing/loan debt trap. This way, we have vehicles that should last a good long time – long enough to save and pay cash when they eventually head to the junk heap!
January 6, 2010 at 10:53 am
To the three questions I have to answer No, sort of and Yes.
We buy used cars with cash and then drive them until then die. I’m on my 3rd Honda Civic. The last two gave out at 463000 and 350000km respectively. My current 2000 model has only 175km on it so I’m hoping to get another 4-5 years out of it.
We built our own home (cut down the trees, swung hammers, etc) and to be honest built more house than we should have. We spend a reasonable amount on the construction, but because we saved so much by doing it ourselves we built more house than we could have purchased. In hindsight we should have built less and invested the savings from doing it ourselves. We’ve enjoyed it for 15yrs, but for the last year I’ve been gently proposing downsizing. So far it’s falling on deaf ears – the downside of DIY is that it’s hard to sell what you built with your own hands. So we didn’t spend beyond our means, but we could certainly have spent less if we’d pocketed the savings generated by building it ourselves.
On the budget front – I meticulously track every cent that passes through our hands and at all times know the current status of our investments, mortgage and bank account within a few dollars. I’m the butt of a lot of good natured teasing as a result, but I would find not knowing far more stressful.
We are attempting to retire early in December 2020. If I’m successful in the downsizing initiative we can move that up by several years. I’m hoping that logic is what will eventually change his mind. Is living here really worth working an extra 6 years? Is living here while retired worth giving up 50% of the post-retirement travel budget to cover the high utilities and taxes? I know my answers to these questions…. I’m seriously considering proposing that I will retire earlier and he can work many extra years to cover the extra expenses he wants to keep. I’d rather retire somewhere small and travel constantly. Is anyone else having disputes over lifestyle?
January 6, 2010 at 11:23 am
Yes, I would say that expectations in society are much higher than they have been in the past.
I live in Calgary where rental or owned housing is so expensive that my children were pretty much taken away from me because I couldn’t afford a “suitable” (3 bedroom) house in a “decent area” and still have anything left over to pay for dentists, sports, etc. Now to admit, I wasn’t excited about the prospect of raising my children in “relative poverty” but still…
My success story hasn’t been pretty, but there is finally a light at the end of the tunnel – and this time I’m 100% confident that it’s not the headlights of an approaching train!
January 6, 2010 at 11:35 am
I hate having to fork out money for newer cars. However we just have the worst luck with those things. We always seem to find the lemon, even when we buy new. At least with new you have warranty to cover most of the major issues. One car had the clutch master cylinder and a/c replace 3 times each.(all under warranty). Another the timing belt blew up at 80k.
We have a civic and will be expanding our family soon. Does anyone have a suggestion for a larger vehicle that does not cost too much and is fuel efficient? We need a minimum of 6 seats and can tow a campler. Something 1-2 year old with warranty.
I think when we bought the civic 6 years ago we were deluding ourselves that 3 car seats will actually fit in the back. So we bought just to fit, now we have to look for something else. Plus now a lot of time we give rides to a few elderly family members who do not drive.
January 6, 2010 at 12:04 pm
Vehicles – no, we don’t get the new vehicles every year or two BUT we upgraded both our vehicles in the same year instead of staggering them, which would have made way more sense. Right now I think I want something bigger than my car – because all three kids in the back seat is pretty tight. Yet, the car is paid for, worth little in resale (02 Pontiac Grand Prix), and very reliable. And those kids are just going to keep getting bigger. This is probably the last time in a long time that a car is even an option. We are going to wait.
Houses – no, we have a great house with a huge backyard, mature trees and fantastic neighbours (no amount of money can buy great neighbours!). Yet, we are on the ‘wrong side of the tracks’ from all the new development in town, so it was easily 100K less than those houses. Funny though about the bedrooms – we do have our oldest two girls share a bedroom – it is a really big room and they act like it is a huge embarrassment when friends come to play yet you can hear them whispering and giggling before falling asleep every night.
Budgets – totally used to be us. Not anymore though. I did Gails interactive budget again last night and just kept staring at it because it seemed so easy to stay on track and have savings. What a difference from my opinion of it last year, when it felt so constrictive!!
January 6, 2010 at 12:06 pm
@ Geoff…we rent a 5 level semi-detached backsplit in Hurricane Hazel’s neck of the woods
. We’re moving to Brampton in the fall. Housing costs are cheaper there (our same house would cost at least $60,000 more in Mississauga). Rent in Mississauga is terrible for a house. We also pay all our utilities on the house in addition to our rent. When we priced everything out…our mortgage on the new house will be about $200 a month less than we’re paying in rent…that will get eaten by taxes. Our energy costs should be less at the new house because it’s far more energy efficient. Plus we get free cable, phone and internet for one year at our new house. So we’re about breaking even for the first year. There will be an increase in the second year when we have to pay for cable/phone/internet, but our consumer debt will be completely paid off by then and we’ll have extra cash flow. So even though we still have some consumer debt, we felt that we would be better off sinking the same amount into a mortgage of our own, instead of paying someone elses!
January 6, 2010 at 12:24 pm
I firmly believe in driving the car until it ‘dies’ or you’ve saved for a new (used) vehicle. Not sure why people think they ‘need’ to change their vehicle every few years, unless they have legitimate reasons for doing so. I must admit I probably have more house than I need (size-wise) but am glad to say it’s paid off so my housing costs fall well within the budget percentages. I did want to downsize a few years ago, but with the market being up, I didn’t feel I’d get value for my money (my profit would get eaten up buying less house for more money) so have decided I’ll probably retire in this home; besides, I only have neighbours on one side of me which was another reason to keep me where I am. Lastly, I finally put the numbers into Gail’s budget this year – and it was an eye opener – it’s tight but ‘balances’, but it is nice to see the numbers and not guess ‘where the money goes’. I think it is about being ‘conscientious’ with one’s money which is why Gail’s jar system works for people as they literally see and feel the money – it’s a little harder to ignore when you go to the jar and it’s empty – can’t really spend air to get groceries.
January 6, 2010 at 12:43 pm
I can’t seem to figure out how to vote on the poll. Is is closed or am I just completely lost?
January 6, 2010 at 12:53 pm
We have two vehicles. One is a new truck (2007) and the other is a small car. My hubby bought the car at auction in Edmonton for $625 (taxes and fees included)!!! We have had it for 14 months now and have not had any problems with it. We bought 4 studded tires for winter and get regular oil changes on it. We have vowed NOT to spend any money on it for repairs at the garage. It’s just not worth it. We plan to drive it till it drops. So far, so good!
We bought the truck after our daughter was born. We needed something reliable to drive back and forth to Edmonton. We were going every 3 weeks to take her to a specialist at Stollery and had to take a ton of stuff with us each time.
Housing here (in Fort McMurray) is interesting, to say the least. We have lived in a house for 5 years now that we payed $318 900 for (1223 sq feet). That was less that the average price when we bought it 5 years ago. Now the average home price is somewhere around $650 000 for the same size. You cannot even get a mobile for less than $400 000 here. Rent, I believe, is somewhere around $2000/mo for a 2 bdr.
We follow a budget that has been working really well. We even have money left over in the jars and are saving for a trip to Disneyland.
Our daughter (almost 3) has starting developing a case of the gimmes lately. If she sees something she wants in the store she will say, “I need that!” with her hand outstretched. I have heard people near us in the store giggle when I say to her that she doesn’t need it, she wants it. She will then say, “I want that.” I am working on the impulse “needs” on myself and thought that perhaps I should teach her about money right from the beginning.
Thanks Gail, you have been such a great help!
January 6, 2010 at 12:56 pm
Wooohooo! 3 out of 3! Having done the (significant) debt thing, and gotten out of that situation abut a year ago, it’s amazing how good it feels to put what was the monthly debt payment into savings and RRSPs. Instead of seeing that debt go down, I now get to watch my savings get bigger. Also, my partner and I recently purchased a two-bedroom apartment (850 square feet), and are able to comfortably do double-up payments. I can’t get over how good it feels to be in this good of a financial situation. I actually am able to sleep well at night now.
January 6, 2010 at 1:07 pm
@ Judi – thanks that helps explain it. Our housing expenses are about $3000 a month and to rent an equivalent house is probably about $2000, and I was wondering how in the heck anyone in TO could buy a house for same as renting, and now I know. Given that you live in mississauga now I think you’ll find the commute to Brampton quite manageable. Be sure though to factor in the added transportation costs (fuel, wear and tear) if applicable. For me personally I think that kind of commute from Toronto to Brampton a cause for divorce, but from what you’re telling me I don’t think there will be much of change. Congratulations on your new house!
January 6, 2010 at 1:24 pm
Erin – I was wondering the same thing. Even though I KNOW I didn’t vote in this poll, it’s just showing me results.
January 6, 2010 at 1:29 pm
@Erin – I can’t vote on the poll either…….and I have voted on previous polls so it must be a glitch on the site. I have been trying since yesterday.
January 6, 2010 at 1:30 pm
Excellent, I Ace these questions!
I drive a ‘97 Mazda that has under 200K on it…though it doesn’t hold heat and I am thinking of selling it.
We rent a place where we have negotiated rent decreases and keep roommates to keep rent costs low.
I’m a budgeting machine!
January 6, 2010 at 1:32 pm
This is a good reminder for me. I’ve been suffering from house (specifically kitchen) jealously for the last few months. It’s a helpful reminder that what we’re doing is the best way for us. We are on track to pay off our mortgage on March 1, 2015. There’s no way we can do that if we buy a bigger, better house. And I really want to hit that date because it frees our funds up to hit other target milestones in our retirement plan and our lifestyle plan.
Our smaller, older home with it’s smaller price tag allows us the wiggle room in our budget to triple our required mortgage payment every month, plus max out my husband’s company matching RRSP plan.
But it’s still so, so hard some days. Seeing other people enjoy stunning kitchens and lovely big homes brings out the green eyed monster in me. Even knowing that they’re making less than us, and can’t possibly be in as good a financial position as we are, is still tough. Hard to reason with jealousy!
January 6, 2010 at 1:42 pm
Geoff, I’m with you – I wouldn’t commute that far. In fact, I moved from a small basement apartment to somewhere closer to the subway in part so my commute wouldn’t take as long (I also wanted the view). My commute is now 15 minutes with two streetcars to get to work.
Before, it was 45 minutes with the mad dash for a bus, then the subway, then the subway transfer, then the run up to the ground level for a streetcar. And on the way home, with no way of getting on at the subway, it was the streetcar / streetcar (same route as now), transfer to subway and then run for a bus, or wait for a bus that takes longer but is guaranteed to be there on the 1/2 hour.
I can’t imagine wanting a commute that takes more than 30 minutes. I’d rather keep renting where we are than move to own (plus I love the neighbourhood, but it isn’t in our price range to buy here).
January 6, 2010 at 1:42 pm
While we remain debt free
Lots of these examples depends on your job for the most part
Blue chip jobs….stable, secure, lots of paid benefits, no layoffs can be pretty forgiving.
if you did any of the items mentioned and really shouldn’t have you have enough breathing space and upcoming money to get out of it.
January 6, 2010 at 1:48 pm
Thanks! Glad to know it’s not me
January 6, 2010 at 2:49 pm
@ Emma, Geoff ~ I work in north central Mississauga. I will be adding approximately 10 to 15 minutes to my 10 minute commute now, so it’s not too bad . We thought about moving further out to afford more house for the same, but we too decided that anything more than 30 minutes from work was a deal breaker, lol. If I had to commute into Toronto everyday, I would go insane! I also work from home 2 days a week, so I am only commuting 3 days. We definitely took that into consideration and we’ll be doing some juggling of variable expenses when we move to account for the fuel cost increase and wear and tear on the car, etc. There are some perks to where we are right now, like being on a bus line that goes right to Islington Subway, but we also want to give a stable, permanent home to our 7 children. I find with renting, at least in a house, you are at the whim of the landlord (ours sucks). So, the extra commute is worth it to us. You have to weigh the pros and cons of your personal situation.
January 6, 2010 at 2:56 pm
I passed todays questions better than yesterdays. My problem is that we now have been on the system since the first payday this year and we had a few hundred saved before the New Year. We have just over $500 in our savings as of today and I am itching to put it on my highest interest rate item ( a $1000 overdraft at our cu). What should I do?
January 6, 2010 at 2:56 pm
Oh poop, I didn’t do so well with this one. Thank you for the reality check.
1. We have a 5 year lease on a car (I can say that the Mr talked me into leasing, but I did sign the papers too so no blame, but won’t happen again). Our thinking is that we really want the diesle model of our car, or a more energy efficient model that should be coming out soon. This is my first car, so I suppose technically I’m not switching up the car every few years *yet*. I do have $ taken off every paycheque going into a TFSA so that when our 5 years is up we can either just buy out our current car or put the money towards something else. I hate car payements! Actually, that would be my 1/2 that I am putting away. I would rather go without a car and save up for the next one. After this contract, my goal is to never make car payments again.
2. We bought a townhouse that we get around October next year. The numbers seem manageable, but I just worry about what will happen if we do the baby-making thing and have to live off of one salary, or one of us goes back to school full time. I don’t think we bought an extravagant house, but the $ makes me nervous.
3. Formal budget pending for the end of the month.
All in all, not bad, but I couldn’t confidently say that we are successful in all of these categories. It is way to easy to fall into a “take-it-as-it-comes” attitude. Reminds me of a quote from Alice in Wonderland:
Alice: Would you tell me, please, which way I ought to go from here?
The Cat: That depends a good deal on where you want to get to
Alice: I don’t much care where.
The Cat: Then it doesn’t much matter which way you go.
Alice: …so long as I get somewhere.
The Cat: Oh, you’re sure to do that, if only you walk long enough.
January 6, 2010 at 3:02 pm
@ Judi – I guessed that you weren’t moving far and agree with Emma – a long commute is a killer. I did a 90 minute commute for about 5 months before I had to choose between the job I really liked and the wife I loved. 7 Kids – wow. Wow. WOW. I couldn’t imagine. I have one little monkey and he’s a handful. Best, -Geoff.
January 6, 2010 at 3:11 pm
Student Loans! Trying to find a job, and land an interview. I found out about TDDUP on Christmas Day. What a gift it was to watch Gail counsel people about debt and living beyond their means.
If anyone can give me some more advice that would be greatly appreciated.
January 6, 2010 at 3:27 pm
1. No, I do not switch cars unless I HAVE to. My first car I drove until it died. The second car I wasn’t that smart I did buy brand spanking new so I got charged all those little extra’s but I had it paid off in 1.5 years.
2. See I wonder about this one. Please feel free to offer me your opinion. My fiance and I bought a 3.5 bedroom, four level split home last Decemeber that was being foreclosed upon. We got a very good deal. We paid $280,000 and the house is only 11 years old. For Edmonton you can usually only find houses at that price that are 60yrs old and half the size. Our logic for this house is: yes we can afford it as its 100K under what we got approved for at the bank and were still able to put money aside every month, even though its way bigger than what we need now we are going to have kids and by the time we have kids we might not be able to afford as house this size due to rising home prices and a smaller income and more expenses (mat leave, etc), we hope to stay in this house for as long as we can as there is no way we are going to out grow it unless we have sixtuplets or something. Sometimes I feel bad at the size of our house for just two people but I do think that it was a good decision because of the good price, good location and the fact that are family will be expanding one day.
3. I do follow a formal budget … kinda. Mostly I just track our expenses and if were getting close to getting out of line somewhere we can put the brakes on.
January 6, 2010 at 3:47 pm
@ Sarah, remember bigger isn’t always a better house and when the green eyed monster rears its ugly head just think of Mike Holmes and the death trap that is probably hidden by that shiny new kitchen (that always helps me).
I know that there are probably well made kitchen renos out there but if I think of all the crap they went through to get there or the stuff that helps me be happy with the working kitchen I have.
Re Gail’s questions, I don’t own a car (but I am a member of the autoshare network) so I always drive a different car but don’t need to pay for the luxury. I work and live in TO so public transit is usually the better option anyways.
I have a tiny bungalow (<1000 sq ft) and I bought it at the height (valley) of last years slowdown so I really lucked out for housing costs, but it is just right for me and hubby.
I have a budget and have used software to keep track of it (cash is worse for me as it will disappear from my wallet with no though whereas debit keeps me honest about what I spend my money on).
January 6, 2010 at 4:05 pm
I’m glad to hear about the high milage possibilities of a Cavalier! Mine will be paid off around June, but I have to get through the rest of winter first…
January 6, 2010 at 4:07 pm
Is Gails new show princess on TV yet? If so anyone know what station it is on?
Thanks
January 6, 2010 at 4:09 pm
Megan- buying a house is a huge commitment and it sounds like this one was a bit off the plan so that may be why you’re feeling funny about the size. Since you plan on filling the rooms with children and you can afford the mortgage and your savings then it sounds like it was a good investment.
Matill- Put any extra money you have on your student loan and get rid of that sucker as quickly as possible. The minimum payment they’ve set you up with will make them the maximum amount of money in interest over the 112 months you have to pay the loan back (that’s almost 10 years!).
January 6, 2010 at 4:18 pm
I scored 2/3 on these questions, and even the one I “failed” I only failed marginally.
1. Passed! We have 10 and 11 yr old vehicles and are on the path to saving for 2 new-to-us ones.
2. Failed! We have a big home, though it feels just the right size for us. In spite of the fact that we have 4 bedrooms, we still have 2 bedrooms with double occupants. Hubby and I are in the master bedroom, the 2 boys each have their own rooms, the 2 girls share a room. Our compromise was that we moved away from “expensive city living” and purchased a home in a more rural area for half the price of a home in the city. The trade off for hubby is the long commute in the work which costs in both time and money.
3. Passed! We have lived on a strict budget for the last 5 months, tracking every penny spent. We have a very manageable, though tight budget moving into 2010, with financial savings goals for this year beyond our wildest dreams! YAY for the budget!!!
January 6, 2010 at 4:20 pm
Tess, Princess doesn’t start airing till the fall 2010 I believe. The show has been in production though since early 2009.
January 6, 2010 at 4:22 pm
Matti 11 on the Slice tv website there are full length episodes of tddwp for all of 2009 etc… That would be a good start. We did our budget using her worksheet on her website and that helped us realize alot. I hope that helps for now.
January 6, 2010 at 4:25 pm
Thanks Mrs T, explains why I couldn’t find it.
January 6, 2010 at 4:26 pm
@Stephanie – do you have any sort of emergency fund? what happens if you pay off some of that overdraft but have a $300 emergency car repair for example. You’ll be right back in overdraft.
If you have a small emergency fund then i would look at paying it down, but only if you have that backup
—–
I currently drive a 98 corolla that i was given by my parents. Dependable little car, and don’t plan on updating unless i need to. But I am starting my own “car payment” account so that every month i will auto deposit some money like i did have a payment. That way when i’m ready i will have a decent sized deposit ready for it, and will be used to having that money come out of my account.
I also bought a house this year when everything was in the dumps. I was pre-approved for a much larger mortgage but bought a cheaper fixer uper. I live on my own so i don’t have that second income from a partner to help out.
I use a fairly formal budget for my house account and keep track of everything on a spread sheet i’ve set up. I’ve been able to up the payments slightly on my mortgage and have knocked years off already. Also will be putting my tax return on it to drop it even further. When i first started the interest(although at a low rate) took 67% of my payments. through my already done increases and my future changes that will happen in the next 6 months i’ll only be paying 45% of my payment to interest and will have knock many years off my mortgage. I bought a book called mortgages for dummies and it does an awesome job of explaining many details of the mortgage game before i jumped off the deep end.
January 6, 2010 at 4:47 pm
[...] This post was mentioned on Twitter by Rachel Paul and Rachel Paul, Dirk Wolbers. Dirk Wolbers said: Why Are You In Debt? (Part 2) « gailvazoxlade.com http://tinyurl.com/ye8ceva [...]
January 6, 2010 at 4:47 pm
@ Mrs T – do your hubby a favour and keep in regular communication about the long commute. I don’t know him from Adam but a long commute can really start to get to you, as the years go by. I think it also depends on the commute – I don’t mind open lane highway driving but stick me in bumper-to-bumper for an hour and I go nutso!
January 6, 2010 at 5:23 pm
3 for 3, woo!
The car is 2 years old, but considering we moved to England 4 years ago and went without for 2 years, then paid cash, it’s entirely justified, at least to us! The last car we had for 8 years and only sold because we left Canada. I love our car, love driving, but it rarely gets used now we are in a proper city with everything in walking distance. The average time between trips is literally 5-6 days. It’d probably be a lot cheaper to use the car-share network, but it’s my husband’s car and he values the freedom it gives us.
We rent, but it’s definitely not more home than we need! We moved to Edinburgh from Cambridge in the fall and chose a small 1 bedroom basement flat in a central area to start with. The basic lease here is 6 months, so it’s fairly flexible if we need to upgrade either space or quality. Going from a large 2 bedroom flat required getting rid of a lot of stuff, but luckily the default here is to rent flats furnished, so we didn’t have to deal with moving too much stuff. I have to admit, I miss nothing that we got rid off and am now eyeing various items for their re-sale value!
Last spring I discovered Gail and became an instant convert. We have always tracked spending, but never planned very well or had a formal budget. It’s all changed now, boy! The reason we moved to Edinburgh was for my new job after finishing my degree, but it doesn’t start till February, and my husband’s contract with his old company ended the month before I finished the degree. With Gail’s solid advice behind us, we saved up all our extra cash so we could move cities right away. We were able to comfortably manage the income-less period while my husband looked for a new job. He worked his butt off applying for jobs and it’s paid off in spades – he started this week. Now my only problem is filling the days until my own job starts! Our big priority once we are both working is to build that emergency fund back up again for the next time we take a big plunge into something new.
January 6, 2010 at 5:44 pm
Megan- your number 3 sounds like our budget. We know when to stop spending and save up for the bigger purchases and our emergency fund.
As for the house issue, all I can say is that I am so glad we bought a house that is in a good neighbourhood but that we can afford to pay with only one salary if we have no consumer debt. Bad things happen to good people and when we got hit by a drunk last year we were semi prepared financially.
Keep saving up that emergency fund people in comes in handy when you need it and you can sleep well at night!
January 6, 2010 at 6:02 pm
Tanis–
Thank you. You’re right, I need to save some money up first before starting to do extra debt repayments. We are currently set up to do the suggested Gail %. She does say that any extra money we find should go to the debt but emergency funds are crucial. We are now on track for being done within three years but I am so focused right now that I would love to knock it off asap. I think I will wait a little longer and I will open an ING account to hid the extra ….out of sight-out of mind! The good things are both my husband and I will get bonuses this spring to help get rid of our debt (all together about $42,000) but I will be going on mat. leave soon. I will be saving on daycare for our son though, so I think it will even out.
January 6, 2010 at 6:41 pm
“No”, “yes, but”, and “yes”.
I drive a compact station wagon — it’s not that I wouldn’t dare to drive on the Autobahn with something smaller, but I often need to transport people or equipment, and I want a car large enough to sleep in comfortably. I buy cars 3 or 4 years old (when they cost 50% of new), cash on the table and drive them until the year the repair cost becomes higher than the current value of the car, which is about 6 to 8 years. I am in awe of the age and mileage that many posters here get from their cars! I might make the cars live longer if I rented a garage, but that would have to make the car last twice as long to be worth it. Also, I do not like to fall too far behind current energy efficiency or emission regulations.
I keep up religiously with car maintenance and repairs, because I have once been in a car when the brakes failed, and that’s not an experienece I’d like to repeat. Yearly cost of owning the car, petrol not included, is about 2K Euro.
I also have a motorbike, now 10 years old and with expensive repairs coming up. I might downgrade to a smaller model or a scooter, as I drive only alone, short distances, and with light luggage. Yearly cost of the current one will be about 1K Euro, if it fails this year.
Rent is a funny thing. I could do with somewhat smaller than what I have now (which is about 820 sq ft), but the place I’m in rents for about 60% of its market value and will stay rent controlled for 10 more years. I’m keeping an eye open for opportunities to buy, but as I do not want something tiny, out in the boondocks, or with pre-war plumbing, I don’t think I’ll ever be well-off enough for that.
Formal budget: Oh yes. I’d be in so much trouble if I didn’t. I don’t have good intuitive concepts of want and need. I’d wear sneakers in the snow because I’m too stingy to buy boots, and then spend a month’s income to go to Venice for the Carnivale. I follow a yearly budget that tells me how much I *have* to spend on clothes to stay respectable (and warm), and how much I’m *allowed* to spend on fun stuff.
January 6, 2010 at 6:59 pm
Geoff,
Thanks for the tip. Most of his commute is on a commuter train so it isn’t that bumper to bumper drive that would literally send one around the bend! He’s been commuting anywhere from 90-120 minutes each way for 13 years now. I am encouraging him to pursue a “work from home” program, which is quite feasible in his line of work and would cut down on his commute by 1-2 days per week. That alone will decrease the general stress in his worklife tremendously. He’s a trooper though… always happy and cheerful and sees the positive side of everything in life. He’s my rock!!!
January 6, 2010 at 7:39 pm
@Matti11 – like someone else suggested, go to the Slice website and you can watch seasons worth of episodes. Also, explore Gail’s website… it’s got a lot of information. Really take the time to look at a few things and try them out yourself bit by bit.
January 6, 2010 at 8:17 pm
I drove my last car for 11.5 years and bought a new one in 2009, as I changed jobs and need a vehicle that can handle heavy snow and rain. This one should last for 10 years. ( I could commute but 2 hour straight one way drive to work is way too far for me every day).
I have a mortgage on a home was just the right size at the time, a 1200 foot bunglaow with an unfinished basement, but I’m now thinking of selling this summer as my only child will graduate from high school this year, and I’d like to get a smaller place, for myself and my pets, with a room for said child and family to sleep when they come to visit.
As far as my budget goes, nothing formal, but I got a copy of Debt-Free Forever for Christmas, and I plan on finishing it tonight, then going over it one chapter at a time until I get everything set in place.
January 6, 2010 at 9:23 pm
When my husband and I got out of debt, another couple asked us to help them do the same. We sat down with them telling them how we cut back, planned for expenses, and all the specifics. Then they showed us their numbers and we walked them through drawing up a budget.
What a surprise when one week later they showed off their newly leased vehicle, and told us about the time share they had just signed up for!
Asking for advice, having a plan, having a desire to get out of debt are obviously not enough for some people.
January 7, 2010 at 12:49 am
New cars? Not my problem. An older pickup truck that turned out to be a lemon, and lasted just over a year? That’s my problem, also moving across Canada without a plan of what we were going to do when we got there. Dumb, very dumb.
We ended up selling my truck for a pittance, giving my boyfriend’s newer truck back to the bank, and being given a very well-used used 1997 Civic that is much cheaper to run and maintain.
For Guelph, I think the rent for our 1 bedroom apartment is fair. We could probably get something cheaper, but we would have to sacrifice convenient location, excellent landlords, and our percieved security. With my boyfriend and I, and our 2 cats, it is cozy, but we have no plans to move yet.
I am new to the budget concept. What I currently work with is a master list of all the stuff we are making payments on each month, plus current balances on debts, all interest levels, and a column to check off whether the payment has been made. I write it out each month, with total payments made and total debts as well. It’s so nice to have it all on one page, and we’ve missed no payments since I started it. It also helps us for when our hours get cut, then I can just go to our list and say that all we have to cover is ‘x’ amount, so there is a bit less stress.
January 7, 2010 at 10:33 pm
Thank you very much Stephanie for your advice! This is a community that I will be visiting a lot. I wish they would make personal finance a requirement in highschool and college!
Once again, I will visit the Slice and Check out all the episodes that I have missed!
Cheers!
January 8, 2010 at 6:26 pm
well, I did ok with this portion…I definitely struggle more with impulse/emotional shopping than every day stuff like cars and housing. I’m on my second car in 12 years and we rented a tiny place for 8 years while paying for student loans. Once we bought two years ago it was at the height of the market about 6 months before the drop. Unfortunately we paid top dollar for our house but we were smart when selecting. We didn’t max out our approval $ for mortgage, we selected a house for practical rather than emotional reasons, and didn’t include hubby’s commission $ in the mortgage calculations so we wouldn’t be in trouble should things change.
We are still working towards the formal budget/planning stuff though and paying off cc/consumer debts.
January 11, 2010 at 3:02 am
New car/van: Well, our 1999 Ford Windstar died last summer after 8 years of service to us, and we upgraded to a 2006 Ford Freestar – which had better last us at least 6 years. It’s got a few more bells and whistles than we planned on (DVD player for the kids, heated side mirrors), but it suited our needs and budget at the time. Our car is a 2001 Saturn – which may need to be updated soon since it gets more miles in a week than the van does in a month – and I often hear it crying when I get on the highway to go to work. {wink}
House too big: No. 2 adults, 2 kids, 1 dog, 3 cats in a 3 bedroom bungalow. Can’t say it’s too big. Sometimes too small, though. My parents raised 7 kids in a 3 bedroom 2-storey. 4 girls in one room (2 beds), 3 boys in the other (2 beds). I can even remember sleeping in the crib because they couldn’t afford to buy another double at the time. No cash … no bed.
Formal Budget: Just started trying to stick to one, so it’s too soon to comment on how that’s working. But at least we’re trying!