What We Learned This Year
Posted by Gail | Filed under In the News, Money Management
It’s been a year since the U.S. markets took their nose-dive into negative territory and hopefully we’ve all learned a little something. Although it’s sometimes hard to tell. While unemployment is way up, the economy is said to be pulling out of the recession. If there’s one lesson we should have learned over the past year it is to NOT believe everything we read or hear. After all, even as the bastions of the U.S. financial world were headed to disaster they kept reassuring investors that everything was A-OK. Hmmm.
So what else have we learned (or what else should we have learned) from the last year?
1. You can’t spend money you haven’t yet earned. It’s a pretty simple rule, but one that everyone threw out the window because the economy was on an ever-upward track to… where exactly? Using borrowed money is expensive. Using borrowed money to build assets makes sense, but only if you’re actually building assets. Using borrowed money to satisfy your every whim is irresponsible and will eventually bite you in the bum.
2. Debt is NOT going to “just go away.” This “the debt will take care of itself” attitude seems to have been prevalent among businesses and individuals alike. It was as if everyone believed that the debt they were taking on was somehow going to vanish magically. That would be the only explanation for taking on debt you knew you could never pay off.
3. Wishful thinking does not work. There WON’T always be more money. When we were living through the good times, we let ourselves be convinced that the work would always be there, raises were guaranteed, and every year we’d be making more money. Business thought so too. Wrong. For every up-turn there’s a down-turn. For every boom, there’s a bust. And if we’re not putting away a little sumthin’ sumthin’ for a rainy day, when it starts to pour we’re all gonna get soaked. Which we did.
4. It’s dumb to invest in something you don’t understand. Warren Buffett never invested money in credit default swaps or other derivative investment products he didn’t understand. While the investment world lives to create highly complex investment products that no one can explain, you’re a dope if you buy one. Whenever you hear of someone offering a too-good rate of return, walk away. It’s easy to let ourselves be convinced that the promised homerun will fix all our previous mistakes. But promises of a higher-than-normal yield come with unstated risks – huge risks – and unless you’re prepared to watch your hard earned money go up in smoke, don’t be tempted.
5. The fundamentals don’t change. Hate to break it to you, but every time I’ve heard The Spurts pulls this one out of their hats it’s been followed by a correction of some kind. The fundamentals can’t change. That’s why they’re called “fundamentals.” What can change is our perspectives and our expectations. But if we hold tight to the fundamentals, we can keep things balanced. It’s when we start disbelieving the fundamentals that we run into deep doo doo. While “fundamentals” are usually applied to “investing”, we saw lenders lose sight of their fundaments – the 5 C’s of good lending – and start handing out money willy-nilly, with devastating consequences.
6. You can’t get blood from a stone. This saying has been around for a long time. You’d think we’d get it. But we don’t. We keep believing there’s a way to make more and more money, grow our economy at a record pace for EVER, and negotiate bigger paycheques with more benefits each year. Well, here’s another one for you: “Every day bucket go to well, one day bottom drop out.” Yup, there’s no such thing as forever.
7. Flexibility is your strongest skill. Companies that can’t respond to changing economic climates fail. People who can’t adjust on the fly as the world around them transitions from one stage to the next won’t fare much better. Having money in the bank helps maintain some flexibility. With money comes choices. The more choice you want to have, the more money you need to save. That, by the way, is the purpose of building wealth: to create more choices. It isn’t to have the biggest house, the fastest car, or the most pairs of shoes. Wealth is all about having enough money to tell whomever to Peeezze Offffff.
Your turn. What lessons have you learned over the past year. And if you had on message you’d like to pass on, what would that be?
October 5, 2009 at 6:24 am
I learned to trust my self. In the spring my financial advisor was trying to convince me that my Templeton Fund for my son’s education was a solid investment. Now I am the first to admit I do not have a brain for math, or any numbers. However, no growth for several years was simply no growth and loss was loos. Even I could see that. I stood up to him and took the money out and put in in a TFSA and the remainder is paying for my son’s education this fall: a trip to Europe for 2 months. I feel like I have more control over the TFSA and will no longer dread getting statements that show my hard earned $$ have lined someone else’s pocket.
It was hard to go against what my advisor was saying because he was convincing and we had “been together” for so many years. But even a simple gal like me knows you cannot roll a horse bun in sugar and call it a donut.
After becoming a Gail follower, I have also learned that paying with cash makes me feel richer than throwing down any fancy credit card.
October 5, 2009 at 6:31 am
Well, I have learned to not ‘rest on my laurels’ and think things are going to keep on going on in a straight line. There will always be a speed bump or hairpin turn to keep me on my toes. Just when I think I have things under control, something that I have not had time to save in my ‘planned spending’ categories has already happened. It has been eight months of robbing Peter to pay Paul, but I know that I can get things turned around eventually. With the help of a second part time job to complement the full time job, and the son FINALLY getting a part time job and agreeing to pay some rent, I can see a bit of a lighter haze down that proverbial tunnel. I have learned that being prepared is of utmost importance, not just financially, but having all my personal information papers where I can find them at the drop of a hat. A local apartment building had it’s roof ripped off last week in our wicked wind storm. Almost 30 people were evacuated and put up in hotels, etc. while the wind and rain did damage to their belongings that they did not have time to grab. If I had to go in a moment’s notice, I would be hard pressed to get everything I wanted to save. Makes one think about what’s really important…
October 5, 2009 at 7:36 am
That the key to building wealth isn’t making more money, it is saving more money.
October 5, 2009 at 7:48 am
Hello Gail,
I learnt that I can make some really dumb moves. I was debt free in December 2007 in January 2008 I took out a RRSP loan (borrowed money to contribute to an RRSP) everything looked great till about one year ago when it all came crashing down. I learnt that borrowing to invest is never a great strategy, even if it’s in a RRSP and done to get a tax deduction. Borrowing to get a tax deduction is such a bone head idea.
regards,
Jason
October 5, 2009 at 8:26 am
I learned that saving for an emergency fund becomes quite easy after a little while, but spending it when an emergency arrises (job loss and another baby in our case) is very hard. But it is the difference between panic and sleeping just fine at night. I also learned that if your partner is not exactly on board with the saving at the beginning, just do it anyway and he’ll quickly realize you’re brilliant. Then he turns saving money into a competitive sport. And I learned that even though the belt has to be very tight, you still need some mad money to spend guilt free. We give ourselves a $20/month allowance, so yes, you have to save up for a big purchase, but you can go ahead because it’s part of the budget. Finally, I learned that Gail’s website and some saving/mortgage pamphlets from the bank make an excellent wedding present for a young relative who is just starting out on her own.
October 5, 2009 at 9:11 am
from Gail, i learned about planned spending… so that the emergency fund remains for UNEXPECTED emergencies, and major household purchases are saved for separately.
From life, i have learned that it is not how much you make, it is how much you keep.
October 5, 2009 at 9:26 am
To be flexible.
If a setback happens (e.g. my parents both becoming unemployed at the same time), I don’t go, “Oh, noes!” but instead rework the plan, be it the little plan or the Big Plan. Feeling sorry for myself isn’t an action plan.
If an opportunity presents itself, I have to be ready to take advantage of it (e.g. royalties from the last book are more than I expected). Walking around in a cloud of happiness, while nice, won’t make the most of the situation.
October 5, 2009 at 9:36 am
This year I learned that choices in the past have great consequences in the future. I learned that if I stay the course I will have what I want. I learned that patience is definitely the best attribute anyone can have. I learned that finding people who are interested in finances and starting a group can be a great way to have more accountability to yourself. I learned that honesty is the only option.
I learned that if I read Gail every day, watch her show at least once and week and contribute to my Gail Club, that this will be a lasting and sustainable behavioural change towards getting to my financial goals.
Most of all I learned so much about myself that I am more clear on all goals, more open to change, a much better partner to my bf, and a much happier person – thanks to Gail, and some other not quite so vibrant financial people.
October 5, 2009 at 10:02 am
Gail stated “Using borrowed money to build assets makes sense.” Thankfully I did just that. During the past year I bought a duplex to rent out in order to build some equity and have some “Granny income” to supplement my retirement money. I have a positive cash flow of approximately $500 per month. Little did I know I’d need the money now and not in the future.
We never know what life will throw our way. Three months after I bought the rental property I was diagnosed with Cancer (my prognosis is great).
Had it not been for the discovery of Gail’s show a few years ago, this past year would have been a complete misery. I have been away from the office since February and am not expected to return until December.
Fortunately I worked my butt off to get rid of the $35,000 debt I had before I became ill. I had also started building an emergency fund. The extra cash flow from the rental property along with my EMERGENCY FUND and DISABILITY INSURANCE have allowed me to stay out of debt while dealing with my illness. I did not have the additional worry of how I was going to pay my bills. Finances have not keep me up at night.
This is what I’ve learned this year that I’d like to pass along…
To ask myself before spending money, “Is this going to add anything to my life or is it merely going to take up mental and/or physical space?”
I need “bricks and mortar” investments not just “paper” ones to make myself feel secure. The economy over this past year has shown everyone that “paper” alone can hurt.
The importance of an emergency fund can NEVER be underestimated.
Disability insurance is a necessity not a luxury. Over the past year I’ve met quite a few young people at the Cancer Centre who have families to support. You’re never too young to have disability insurance. Please try to fit it into your budget.
Now a little help from the group please. The old urge to buy something on credit has reared its ugly head. My emergency fund and savings are very low. I feel I “need” a vacation to get myself together before going back to work. I’m thinking of using credit (prime 2.25%) to pay for a $900 trip to Cuba. How does one stop trying to rationalize a want into a need? Thanks.
October 5, 2009 at 10:09 am
This past year for me has been an epiphany. All these years I’ve chugged along in debt, out of debt, in debt, etc. It just seemed the ‘normal’ way of things as I was living my life. I guess I thought I had all the time in the world to get my house in order. It just isn’t so.
Retirement snuck up on me so slyly that it was a surprise. Should it have been? Not on your life (or should I say mine?)! If I had been gailvazoxladeized years ago, I would be better off now. Having said that though, I have made great strides this past year.
The most important thing I learned was ‘use cash’. Years ago that was all we had. Then came all the fancy dancy cards, the plans, the offers to make you feel you had the world by the tail. It just isn’t so. Sometimes the old ways are best remembered.
I love my version of the jars. It keeps me focused. I’m in the process of adding up how much I’ve paid our LOC down and am flabbergasted. I have 3 more months for 2009 before I get the grand total. My previous prediction of having it gone in 3 years, is now down to a little over 2.
My mantra is ‘I can do this!’.
Guess I’m pretty lucky because hubby is onboard. It’s a joint effort even though I’m the one who does our finances. I’ve opened up more with our children about money. My parents always kept things to themselves.
So, thank you for a very good year Gail. As my Mom used to say ‘you have one foot in Heaven’. Hugs to you!
October 5, 2009 at 10:12 am
I learned that debt DOES indeed go away. I have a friend who declared personal bankruptcy and thus didn’t have to pay his outstanding debt. This was the second time he did this. After the first time, he bought a house, leased a car and spent like a millionaire for years. Of course, he no longer has those assets, but he also doesn’t have any debt hanging over his head. He only has to lay low for a couple of years before he can do it all over again. He says it is quite easy to declare bankruptcy in Canada and most people who do it once often repeat multiple times.
October 5, 2009 at 10:21 am
I learned that getting my finances in order is a great way to take advantage of opportunities. If we had been the mess we were a few years ago, my DH would not be able to consider some opportunities that are coming his way these days, because we wouldn’t have been able to afford to have him make less money for a little while (with a bigger payoff in the end). I think I knew this all along, but it’s amazing how reaffirming it is when it actually comes true. I feel proud knowing that our hard work to spend less, pay off debt and save more, means that I can support him in his goals and dreams when he spent years supporting me in mine.
October 5, 2009 at 10:23 am
I have learned that using cash and putting away the cards actually does work.
October 5, 2009 at 11:13 am
I learned to invest my own money – thanks Canadian Capitalist!!!
Also learned that life can throw you curveballs, so you have to be prepared, with savings and insurance.
October 5, 2009 at 11:47 am
I learned there are a lot of like-minded peole out there thanks to this blog!
“Sensible” living is nothing to be embarassed about. Now being debt-free and living frugally is more accepted than it was only 12 months ago. Isn’t that bizarre?!
Suddenly we aren’t seen as the “poor family” on our street with our old cars and only one TV. Now we are the “smart family”.
Our choices have made this economic blip has only a minor inconvenience to our investments (so far) and — thanks in no small part to the constant, daily, re-affirmations here– we feel prepared if it gets worse.
October 5, 2009 at 11:56 am
I have learned so much in the last year. The jars, which seemed so daunting and restrictive back in January, are wonderful now and there is usually money left over in them AND we didn’t feel like we were missing out on anything. The planned spending has been great. Just knowing that I had the money for the car registration, the house insurance, the life insurance . . . wow, that was awesome. I did underestimate it a bit, but in the meantime, I have started making more money – being a school bus driver – which covers (more) debt repayment as well as covering for the planned spending for the last couple months of the year.
Reading Gail every day and having the support of this blog has been a huge part of my success. Many of our friends have not seen the light, but I can come here and get ideas, or nod my head in agreement of the difficulties, or smile at the successes of others.
Thank you Gail, and thank you fellow Gail fans for all your support and needed kick in the pants when necessary!
October 5, 2009 at 12:25 pm
This year I’ve learned a bunch of things – mainly that time WILL run out and we need to be prepared for a time in our lives when we are living on a fixed income with no potential for more income (ie: retirement or disability). I have learned that there’s a need for an emergency fund rather than just relying on a credit line to pull us through a tough time. I have learned that an injury can happen to anyone, at any time, and if you aren’t prepared (like I wasn’t this summer when I was flat on my back for a month), you will have nothing to help you ride the waves till the calm returns. And I also learned that if I don’t teach my children how to manage their money, they will not know what to do with their first real paycheque down the road. I am setting up the jars for my 9 yr old son this month and putting HIM in charge (under my close, direct supervision and guidance) of his own money, savings and purchases.
October 5, 2009 at 12:59 pm
I’ve learnt since being on jars since last Dec. that it takes time to get a hubby on board. For when he sees the results that saving money for the big expenses it does pay off. By not worrying to pay off the bill with interest and u feel ur ahead in life since there is no new bill coming ur way on what u’ve already spent!
Since we bought three yrs ago and bills became more than renting since it’s bigger place. Always seems that we didn’t have the extra cash to take a wk off… Until I got serious to put cash aside to finely have that relieve in life…
The other day he ask how much we have saved for auto maintenance envelope to get the winter tune up than said we need to save more since it may be more cash before he does it. When we did the budget together he put money away for house maintenance to fix the plumbing and that I can continue renovating the house (painting) Now he looks for deals before buying and he knows that I like to look into the price of a thing before we buy it.. We finely went on a three day vacation this summer with cash pd for it and we look for another week off next yr with a cash vacation
It’s a great feeling and look out that we don’t have to rely on the cc to pay for the expense that come up once in while.. We are finely on the same page with finances goes and arguements and stress are not there anymore..
I’m finely see a light at the dark long tunnel that getting a hubby on board the train takes loads of time, patience and showing this is the only way out….
Reading the comments on this blog has helped to see that I’m not the only one in the world with money problems and now their being solved with hard work at the beginning but now it’s being paid off with cash in savings in different areas and more ahead with debt than always following behind with using cc… tks everyone!!!
October 5, 2009 at 1:57 pm
This may sounds like common sense BUT, what I learned this year?
Is there might not always be a job with a steady paycheque. I am 26 years old and have only really experience the “good times” when employers were doing everything they could to get you to work for them and you have the luxury of being choosy when it came to who you worked for. Fortunately nor I or my fiance lost our jobs but at least half of my office was laid off including half of my department. It was a huge wake up call for me someone who had never experienced layoffs or a slumping economy. It gave me a much larger appreciation for the job and paycheque I do have. Even though I don’t feel I was one of the many young people you took advantage of there employers and only did what they wanted to when they wanted to I certainly didn’t realize how fortunate I am to have this job. Money wasn tight this year but I felt that we needed to down scale or lifestyle. I started evaluating our bills and expenses and figured out ways to get them lower. We became creative in finding ways to save. By doing this we felt that if one of us did lose our jobs with the nice emergency fund we have, EI, and being creative we took much comfort in knowing we could survive.
October 5, 2009 at 4:54 pm
I’ve learned: living within you budget is not a negative, difficult thing. It takes discipline (and we’ve slipped a few times), but the end result is less stress. I’ve learned that I will slip and how to bounce back on track. I’ve also learned that meal plans not only save money at the grocery store, they save you time standing in front of the fridge figuring out what to eat! So simple, but so much less stress to know what to take out and what I’m cooking that day.
I guess that was a big lesson too, that small changes mean big savings. Who would’ve thought!
Thanks to Gail and fans for all the great insights and info. I love this blog!
October 5, 2009 at 7:11 pm
Tried cutting and pasting an internet site that has an interesting article on ‘debt levels rising’ but it wouldn’t work. Will try this….
It seems to be almost everywhere these days and is affecting almost everyone.
Debt is a little four-letter word that quickly is growing in households across the nation, raising concerns that it may jeopardize the retirement of many Canadians.
A recent report by the Certified General Accountants Association of Canada (CGA) found that the national household debt has increased to $1.3 trillion, in part because many Canadian families are using credit to cover their day-to-day expenses.
The report had a number of disturbing findings.
Eighty-five per cent of households have outstanding debt on a credit card and 21 per cent of Canadians who were in debt at the time of the survey said they could no longer manage it.
Forty-nine per cent of families with children under 18 said their debt had increased in the last three years. Twenty-five per cent of Canadians interviewed admitted that they would not be able to handle an unforeseen expense of $5,000 and 10 per cent would have trouble with an unforeseen cost of $500.
The report said the rise in debt levels of Canadian families is disturbing and is being caused by consumption rather than asset accumulation.
“Many Canadians are not aware of how the economic downturn has impacted their financial situation and continue to load up their credit card and lines of credit while committing few, or in some cases, no resources to savings,” says CGA Canada president and chief executive officer, Anthony Ariganello. “Household debt has increased significantly over recent years, jeopardizing the financial security of Canadian households.”
The CGA report also reinforced what many other studies are showing – that Canadians increasingly are becoming concerned about the financial security of their retirement.
A study by RBC found that the percentage of Canadian baby boomers who say reducing debt is a top financial priority has doubled recently to 62 per cent from 31 per cent.
At the same time, 50 per cent of boomers are changing their views of retirement because of the current economic recession.
Twenty-five per cent say they will have to work longer than expected, 20 per cent believe they might not be able to live the lifestyle they thought they would have in retirement, and 14 per cent say they’ll need to do more financial planning.
Not all debt is the same. Financial experts like to differentiate between good and bad debt.
Good debt includes anything that is too expensive to pay cash for but is something that you need or might be considered a good investment, such as a house, which usually rises in value over time.
Bad debt is any form of debt with a high interest rate for things you don’t really need or can’t afford, such as charging an expensive vacation on a credit card. The worst form of bad debt is credit card debt because it carries the highest interest rate.
If you can’t solve your debt problem by budgeting, you may need a debt management plan (DMP).
A DMP is designed for people who can afford to repay their debt but need help negotiating with creditors and time to get back on top of their financial situation. It’s a voluntary agreement between you and your creditors arranged by a credit counselling agency.
The agency pools your unsecured debt together so that you make a single monthly payment to the agency, which then divides your payment among your creditors, with the largest creditors getting a bigger share of the payment.
A DMP gives you a single monthly payment to make. Then it reduces and sometimes can even eliminate interest charges and relieve you from receiving nagging calls from collection agents.
In most cases, creditors will agree to waive most or all of the interest, so all payments go toward paying off principal, which reduces the debt faster.
Depending on individual circumstances, a DMP may be a great way for many Canadians to get relief from the increasing level of debt they are incurring during these difficult economic times.
October 5, 2009 at 7:41 pm
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October 5, 2009 at 8:57 pm
I’ve learned to have a lot of respect for single parents because raising my daughter with my husband is a lot of work! We are both committed to being the best parents and partners we can be and it takes a lot of time, effort, and planning. Not necessarily a lot of money but a lot of love for sure! But it does help that we have two good-paying jobs with steady paycheques and benefits.
October 5, 2009 at 10:15 pm
I’ve learned saving for emergencies doesn’t mean building up a few thousand dollars and then thinking you can spend it because you can pay cash and not charge it.
October 6, 2009 at 1:13 am
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