Mixed Messages
Posted by Gail | Filed under In the News, Money Management
One thing that drives most people crazy about money is the number of mixed messages the financial world sends out. There are the companies who throw credit at you, offering you cards with the latest bells and whistles: points to fly, free travel insurance, cash back. They waive low interest rates under your nose and promise you that you can have everything you want right now for just a small monthly minimum payment. On the other side of this see-saw, the experts are telling you how evil credit is, how it will sap your cash flow and how stupid it is to pay interest. Who would you rather believe? The guy who tells you it’s okay to go shopping, or the guy who calls you a moron for spending money you haven’t yet earned? Rhetorical question, right?
Then there are the mixed messages about saving for retirement: On one side of the teeter-totter are the Joes who tell you that if you aren’t making the maximum contribution to your RRSP every year, cat food will be too good for you. On the other side are the fellows who claim that you shouldn’t even put money in a retirement plan because the government will give you all you need. Who would you rather believe? The guy who tells you to go ahead and spend all your money because saving is a waste or the guy who tells you it doesn’t matter what you do, it won’t be enough and you’re a loser? Hmm.
The insurance industry has it’s own playground toy: On one side sits the boys in the t-shirts that say, “Term insurance is the best.” The lads on the other side are wearing t-shirts with the slogan, “Permanent insurance is the best.” So which is it?
Is it any wonder that people are confused?
While people typically associate me with debt, I’m here to tell you it’s not all about debt. Credit isn’t the monster. Ignorance is. And it doesn’t matter if you’re buying a house, buying insurance, or buying an investment, if you don’t have a balanced approach to your financial life, you’re going to be off-kilter.
People face this dilemma when they’re trying to decide whether to pay down their debt or save. When the media-focus on retirement saving heats up, the push to save can make a person question the pull to pay down debt. When interest rates are rising and those in the know propound on the benefits of being debt-free, saving is relegated to the back seat.
Doing anything whole hog and the to the detriment of the other parts of your financial life is not only shortsighted it’s dumb.
Sure, debt repayment is important. But so is having some money set aside for emergencies and to grow for the future. Debt-free isn’t the Holy Grail. It’s simply one step along the way to finding financial balance.
Tomorrow: More on Balance & Choice
April 5, 2011 at 6:52 am
A good reminder Gail. It can be hard to decide where to put the money when you have so little of it and there are so many pots.
April 5, 2011 at 7:29 am
Thank you. So many people never address the mixed messages of financial planning.
When I teach home buyer’s classes, I tell folks there are moves that will benefit them financially that are different than moves that will help them buy a home. For example, some people have to pay their student loans over a very long term to bring their monthly debt payments down low enough to get a mortgage.
Yes, you’re paying gobs more interest by doing that but you’re making homeownership a possibility. And then the question is whether homeownership is worth the cost.
It is a delicate balancing act and it doesn’t help anyone to focus on one approach without educating yourself about every option.
April 5, 2011 at 8:11 am
Agree completely that one should have a balanced approach to financial planning and that the problem often is ignorance. But, although not “the Holy Grail”, I believe being debt free is the answer. If you have no debt when you buy your house you don’t have to worry about choosing to pay down the debt or the mortgage. If you buy a home you can afford there is still money for regular savings as well as maintenance and emergency funds. If you ignore all solicitations from providers of credit and credit cards and limit yourself to one or two cards that you pay off in full every month you won’t have to deal with interest. If you get the mortgage paid off in ten to fifteen years you’ll have more to put away for travel, retirement, etc.
April 5, 2011 at 8:12 am
“Doing anything whole hog and the to the detriment of the other parts of your financial life is not only shortsighted it’s dumb.”
I would add that you should also keep the rest of your life in mind. Clearly, if you’re in debt, getting out of debt needs to be a priority, but not to the exclusion of all else. You’ve got to meet your basic needs and those of your family, and have a little fun, or you’re way out of whack.
April 5, 2011 at 8:14 am
Gail, what do you do with all the mixed messages? Sure, they’re out there, but the real question should be asking how to sift through all the muck to find what’s right for you.
April 5, 2011 at 9:27 am
I have heard an ad on the radio lately for a Credit Union. They are talking about using their advisors to figure out how much mortgage to have and still have money for dinner out once in a while. It sounds like someone finally teaching some common sense.
Having a balance in your life is extremely important. If not, you are more likely to completely derail, because you just aren’t getting enjoyment out of it too. I have my mortgage, RRSP’s, and RESP’s in order, and don’t have any debt, so when I have some “windfall” money, I tend to use it to treat myself. This works well for me. I have also been in a situation in my life where I was working three jobs to try and pay the mortgage and feed the kids. There certainly wasn’t much fun going on with money, but we did free things, like the music concerts in the park, picnics, the beach (with our meals packed). You need to make time and effort for fun.
April 5, 2011 at 10:10 am
I must confess I feel confused this morning after reading the blog… balance is good, but sometimes people aren’t built that way. I like focusing on one goal to the exclusion of all else — sure balance is nice, but if I’m happy with focusing and lopsidedness….
LOL
I guess I should challenge myself and “grow” as a person.
April 5, 2011 at 11:02 am
I’m always leery when reading an article by one of the big banks. Whether it’s for a market analysis or consumer confidence reports. I always feel like there must be a hidden agenda to what they are saying.
When they say consumer confidence is up, does that mean that they want us to spend more money? (Because they want the profit from credit cards?)
What about when they say it’s a great time to buy investments? (Is it because they need more capital to lend out to more people?)
I do agree with Linda. Yes, being debt free is not the “Holy Grail” but it sure buys you a lot of options and flexibility.
April 5, 2011 at 12:08 pm
Kat:
This is why there is the pie of life.
Balance for a bit of everything (EF, insurance, mortgage, …).
Then pick the 15% and make that your big plan. If you have consumer debt, it goes there. If you do not have an EF, it can go there. If you can handle multiple goals, you can divide that 15% into different parts. So have your base mount for all those little things but dedicate a bigger amount to what it important to you at that time. This balances your expenses and lets you sleep at night.
April 5, 2011 at 12:27 pm
I was a little confused about the blog today but when I read it twice it made sense. I agree with you, those credit card companies want you so bad to have their cards they offer all those “goodies”. I myself have learned to read the really, really, small fine print on any of those applications. If one of those little bells go off in my head- I just toss it in the garbage. This is how I deal with these guys.
Have a Super Day
April 5, 2011 at 12:47 pm
This post could not have come at a more opportune time.
I recently received extra money and have been wondering how to best use it to my advantage while being able to still have access to it in an emergency (only extreme emergewncy).
Should it go into a TFSA, should some it be invested in RRSP’s etc….so many decisions and differing opinions on how to maximize these funds to my advantage…..what to do…what to do????
April 5, 2011 at 12:54 pm
@ Marie I hear what you’re saying…. I guess I was just whining a little about my personality.
It’s just that my “nature” is to have tunnel vision, and this morning I was a little discouraged about the spreading around and building an EF, budgeting, saving for goals, trying to figure out RSP’s etc.
Apparently this being a grown up isn’t all it’s cracked up to be….. going back 38 years to JK where juice, cookies and naps were the big plans of the day!
April 5, 2011 at 12:55 pm
@SPOPE
No on RRSP – not accessible. TFSA is a good way to go.
April 5, 2011 at 2:16 pm
I am a person who has “been there, done that” with both horrendous debt thanks to my ex and a stable financial life now thanks to my own hard work.
My 18 year old is just getting into the world or “real money” where he has a stable, sizable paycheque every 2 weeks (he is apprenticeing as an aircraft mechanic). He spent the first 2 months blowing his money on everything and anything that caught his eye, but then he stepped back and asked me for help in planning what he should do with this money. He is a really sensible young man with definite goals, so we worked with them.
He has his regular bank account that his pay is autodeposited into every second Friday. From that he has transfers automatically coming out to 3 different savings accounts – 1 is an RRSP daily interest that he moves to a GIC every time it reaches $500. He is using this as both a tax break right now and a savings vehicle for purchasing his house in the future. The 2nd account is a TFSA that he is using to save to purchase his own small plane (he has his pilots licence). The 3rd account is a regular, high interest account at ING that he is using to save for his first car.
He also has a low interest, airmiles credit card that he uses for everyday purchases to earn the airmiles, but he keeps a notebook in his pocket and tracks every single purchase. When he gets paid he puts the full amount of his purchases for that 2 weeks onto the credit card so he has no interest charges and no carrying a balance. He also has only ever used about 1/4 of his credit limit in any billing period. He is saving the airmiles to take himself and his girlfriend on a vacation next year when she graduates.
Finally, he is paying me a small amount every month for room and board, he buys all his own clothes and personal care items and any specialty food items he might want such as pizzas, etc. as well as paying his own cell phone bill.
I really feel that he is on the right track and wish I could have had that help when I was younger and just starting out in the world of finance.
April 5, 2011 at 3:32 pm
Cutting through the noise is really challenging! Appreciate your balanced perspective Gail.
I find asking clients who are seeking investment advice and looking at buying a different fund to one they already own “do you like it more than what you already own?” a helpful question. Afterall, if we don’t have conviction in our current holdings, then shouldn’t we sell? Further, by adding more positions to one’s portfolio, the more clutter!
Here’s a scare article about a couple that held 29 funds!
http://www.steadyhand.com/globe_articles/2007/02/09/rrsp_nightmare_too_many/
April 5, 2011 at 7:21 pm
Thanks for the wisdom Gail.
Now, do you think you could wade through the hyperbole of the three main political parties and do the same – and make them make sense….or at least sound legitimate?
I say ‘Gail for Prime Minister’!
April 9, 2011 at 4:36 pm
i second!!! ‘Gail for Prime Minister’!!!!