There are a hundred billion stars in the galaxy. That used to be a huge number. But it’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers. Richard Feynman

How much debt is too much debt? I get letters from people all the time asking me this question. It is as if they re looking for some sort of rule of thumb in terms of how deep a hole they can dig. Or is it that with a national debt through the stratosphere, owing $30,000 on a bunch of credit cards seems like peanuts?

That’s the problem with perception: it makes everything look skewed depending on where you’re looking from. Is your glass half-empty or half-full? If you’re always looking at a glass that’s half empty, it’s human nature to want to fill it up… buy more stuff whydontcah. If your glass is half full, it may be enough, at least for now. No push to shop. Hmmm.

Look at the diagram below:

How you see things has an impact on how you feel and how you     act. If all your friends and family are buried up to their armpits in   debt, being only waist-high in credit crap will make you feel        okay, even cocky. Hang out with a bunch of folks who would no    sooner carry debt than shoot themselves in the head and you’re  suddenly a moron. Hmmm.

It’s pretty hard for some people to shift their perception.

Ever seen the picture of The Old Woman/Young Girl?

Who do you see?

And how easy is it for you to move back and forth between Old and Young?

Now imagine that you’ve never lived on a budget, never thought about making more than a minimum payment, never considered saving some money. How hard would it be for that person (is that person you?) to move to a place where “normal” means having money in the bank, writing down every penny you spend, and being debt free. Big shift, eh?

So how do you change your own (or someone else’s) perception?

First, it’s important to accept that we have been taught, over the past few decades, some things that are simply not true. We’ve been taught, for example, to believe we can live on borrowed money. We have been taught that homes are sources of capital appreciation and debt repayment. We have been taught that you don’t have to save anything – after all, who needs an emergency fund when you have a line of credit?

These are all untruths. The truth is we have to live within our means or run the risk of losing everything. Homes are places we live, and if they go up in value, we’re very lucky. And if you don’t save something just in case, you’ll be up the creek with crap happens… and crap happens to everyone.

It’s like looking at the picture of the Old Woman/Young Girl and first accepting that both pictures exist. For as long as you hold on to the illusion that the only one there is the one you can see, you’ll never be able to shift your perception.

Accepting that what you “know” can be wrong lets you open up your mind to other options. When you open your mind to other options, you create the opportunity to shift your perception.

If you only see one or the other of the Old Woman/Young Girl, print a copy of the picrure (you can find it on the web) and find someone who only sees the other person. Then spend some time helping each other to see a different picture. It’s a small exercise, but it’s fun and useful.

It’ll also give you some experience changing perception so when you have to go home and convince your honey that a budget is a good thing, you’ll be better equipped.

Here’s the source of the Ponzo Illusion used above. There are heaps more perception “tests” for those who are interested. Enjoy! http://www.yorku.ca/eye/thejoy.htm

Gail Club News: I received this email this week from Jessie in Calgary and wanted to share it with you.

We did have our first meeting last night and I wanted to let you know about it. There were 5 of us in attendance; we started by introducing ourselves and giving a bit of background and overview of each of our family and financial situations. Everyone seems to have gotten on well with everyone else and things felt very comfortable and relaxed. Questions were asked, answers, suggestions, and support given; knowledge, tips and tricks were also shared!

I think it was felt unanimously by the group that it was nice to be with others who understood and supported the decisions and efforts each is making to “cut back”, “pay off”, and “save for” various items in our daily spending. We each seem to be in a situation where our other social networks or family members just don’t understand what it is we are doing, or why we are bothering? It’s really nice to now have this network that is “safe” and supportive.

Our next meeting has been scheduled for Wednesday February 25th. We will be rotating who’s house it is held at, and everyone did a fabulous job bringing food, so we will certainly continue doing that so as to “share the cost”!

The option of breaking the group up based on geographic location was discussed last night.  I think it will take a few more meetings before it will be determined if that is what we want to do.

Rock on Jessie and all the Calgary posse! For those of you who want to join a group, or start a group, you can contact me at getgvo@gmail.com and I’ll hook you up with people in your general vicinity. There are groups starting in:

• Hamilton, or you can email directly to gailclubhamilton@hotmail.com
• Edmonton,
• Fenelon Falls/Bobcaygeon
• Oshawa/Ajax/Pickering,
• Ottawa
• Saskatoon,
• Toronto,
• Wasaga,
• Windsor/Essex,
• and there’s someone interested in London.

Toronto has more than one club, and Jamie wrote to say, “I just wanted to say that I’ve started a Gail Club, and if any women between 20-35 in Toronto that you know are interested in joining a club that we are accepting new members.” If you want to hook up specifically with Jamie’s group, make sure you say so in your email.

One final note. I received this email this week and I’m passing it on directly as an FYI. If anyone else has had this problem, or is heading into this territory, it may bear further discussion. Kate wrote:

This is really neither a question or success post, but rather an FYI. I am new to the site and have been reading some of the articles and questions. I haven’t had a chance to read them all, so you may have already addressed this, but I thought I would point it out anyway…

I read a previous question about student loan repayment and read your answer that students do not have to pay back their loan while they are in school. Unfortunately, this is not true (as my husband and I found out). Full-time students are only exempt for about 7 years. Then, they must start making repayments.

My husband took a couple extra years to complete his undergraduate degree, then went directly into a Masters and finally a PhD program. Our plan was always to wait until he finished school, then spend a couple years after living lean and putting as much money as possible towards the loan. Last year, however, in his second year, we were told by Canada Student Loans that his 7 years were up and we had to start repaying. He told them he was still in school full-time, and their response was that it didn’t matter after 7 years. So, now we are scraping together $560/month from my salary to make the minimum payments. The funny thing is, before he started making a fuss, you had to search through the references to the Student Loan Act (i.e. long legal documents) to even find this 7 year clause. Now, I believe they have updated their website.

Personally, I think it is rediculous that the Government would rather see Graduate students lessen their education or worse still drop out of school in order to work to make the payments, when these students will likely make more income, be in a better position to repay, and provide more value to the country given another 2 years or so to finish.

In any case, I thought you should know so that you can provide the right information to other students. I love your show and your information has been so valuable in helping my husband and I figure out how to repay the student loan and still meet our personal and financial goals! Thanks!

TTFN

Essential Money Skill #6: Credit is NOT disposable income.

Yup, I know it flies in the face of everything everyone else has been saying, but credit is NOT disposable income. Student loans should not be used to go pub-crawling. Credit cards aren’t an “entertainment fund.”  And a line of credit is not an emergency fund.

Debt has become so pervasive that it seems like everyone’s in it. You may think this is “normal.”  So might your children. But it’s not normal for someone who is financially healthy. And if you bought into the lie that making your minimum payment is good enough, rest assured that your kids did too. After all, if you can have a fab new laptop that cost $1100 for a mere $34 a month, it seems like an easy choice.

If you haven’t already done so, go and read Student Debt Legacy, and make sure your college or university bound kid reads it too. 

TO DO:

Once your child is 12 or older, teach her about credit, how it works and the costs  involved. Give a young child a credit card on the Bank of Mom so she can learn how to use it.

Older teenagers can apply for a credit card with your co-signature. Make sure the limit is low … no more than $300. Have your child learn to use and repay the credit card, keeping track of purchases and making payments on time until the habit is established.

Here’s the best way to keep track of money.

• In a small notebook, write the current balance in your bank account at the top of the page.
• Each time you use your credit or debit card, write a cheque, or take a cash withdrawal, write down the amount spent and subtract it from the balance. Don’t forget to debit the automatic withdrawals that come out of your account every month for things like car insurance or loans.
• Every time you make a deposit, add it to your balance.
• You now have a real-time balance that shows how much money is available to spend. And you can’t spend money you’ve already used elsewhere (like on a cheque that hasn’t cleared, or on a credit card transaction that hasn’t come due).
• When your credit card bill comes in, check the transactions against the list in your notebook. If there’s something on your statement that’s not your doing, call the credit card company right away and identify the wayward transaction.

Tell your young’un about his credit score, what it is, how it works and how to make it suck! Ask him what he thinks would happen if he got a bad credit rating and a low credit score. Explain that with a low score, interest rates go up and the likelihood of getting a loan you really need goes down.

Essential Money Skill #7:  Keep Money in Perspective

This is one of the most important lessons you can teach. I was at a small party a while ago when a teacher-artist-mom started telling me that her son was at university. He is a wonderful artist, but has decided to not follow his true love because he wants to be able to make lots of money. She was a little sad. 

I have to be honest, I’m of two minds on this: first, I commend the young lad for being practical and recognizing that the life of a starving artist isn’t easy. Second, like his mom, I’m a little sad for him. If he has to give up what feeds his soul so he can have loads of stuff, I wonder just how happy that stuff will make him.

He’s young yet and with a business degree may find a way to make both work together. Here’s hoping.

Money, in and of itself, doesn’t mean anything. It’s what you do with the money. Money is a tool, a means to an end. If you don’t know the end you want to achieve, you’re likely spinning your wheels.

People exhaust themselves trying to maintain lifestyles they can’t afford. Whether it is the social pressure to conform or our a sense of entitlement, so many people are willing to put their futures at risk so they can make the right impression. They MUST drive the right car, watch a high-definition television, eat out three or four times a week, drink the best Bourbon, take the right vacation. And many people are willing to spend money they haven’t yet earned to maintain the illusion. Keeping Up With The Joneses is a dangerous game. It will not only sap your bank accounts, it will sap your life’s energy.

One way to help your child gain some perspective is to talk about what it is she really wants in life. I often talk to my Alex about how important it is to live a worthwhile life: A life that brings challenge and love, that allows you to share, to laugh, and to be happy. So, what makes your life worthwhile? And what are the things that your child thinks will make her life worthwhile? And what is she doing to put more of those things into life?

It can’t just be about money, or more money. According to Dr. Tim Kasser, associate psychology professor at Knox College, and Dr. Richard Ryan, psychology professor at the University of Rochester, people who rate making money as a primary goal score lower for mental health. They are at a greater risk of depression, are more anxious and suffer lower self-esteem, and have more relationship problems.  

TO DO:

Talk with your kids, using questions like these as a spring-board (not all at once… over time):

• What jobs would you NOT do for money?
• If someone offered you $50,000 to do something that might end up being a bad thing (you’re not sure right now), would you do it? Why or why not?
• If a cashier gave you the wrong change, what would you do?
• A friend asks you to lend her $500 for a couple of days. You have $500 in the bank to pay your rent next month. Would you lend her the money?
• Your boss didn’t pay you last week. He was short the cash and said he’d make it up this week. When you show up for work, he’s not there. Neither is your pay. What would you do?
• What would happen if money grew on trees?
• How much money is “enough”?
• What makes you happy?
• How can you work at something you love while taking care of yourself financially?
   

If there are areas you think your kids are a little wobbly on when it comes to either their money or their life skills, it’s not too late.  It’s never too late. I got some of my most important money lessons from my mom long after I left home. It was at her urging that I took out disability insurance while I was young and healthy and could afford the premiums.

In December my 15-year-old Alex got notice of the auto-renewal of her GIC. The interest rate the bank had renewed at was a pathetic 1.5%. I coached her on what to say when she went in to negotiate a better rate.

“I’d like you to cancel this GIC and credit the money to my savings account,” said Alex with all the confidence she could muster. “If you’re only going to give me 1.5%, I’ll move the money somewhere I can earn more.”

The CIBC rep was respectful and brought up her file. “If you want to go for a longer term, I can offer you a better rate.”

Alex looked at me with huge question marks in her eyes. I stayed quiet. The rep continued, “If you’ll lock in for two years, I can offer you 4.25%.” I nodded slightly and smiled.

“I’ll take it,” said Alex.

And thus begins a young customer’s self-advocacy and lifelong focus on making things happen the way she wants them to.  Small steps, coaching and practice build skills. The next time, it will be easier.

People are always asking for follow-up shows. It’s not going to happen people, so give up. At one point I was going to do some follow up stuff here on the site and then my computer blew up and I lost all the follow-up emails I’d gathered. Bummer. I just received a copy of an email from Krisy and Dean. Remember them? I loved working with them, and Kristy made me cry when she gave me a little ceramic doll holding a balloon that said “Hope.” Here’s what she had to say:

Things could not be better for us right now. We just moved into our first house and are getting all settled in right now. It is so beautiful and we just love it!! I started a new job a little while ago that pays way more then what I was getting and I am so happy every morning getting up going to it ~ I can’t even put it into words. Constantine [Dean] has just taken over the lease of a kitchen and is running his own catering business out of it. Things are keeping him very busy right now and we are expecting this to help transform our lives!!

We have paid off all of our debt and are living within our means. We took what the show taught us and kept with it. We really are blessed to have been on it and learnt what we did. We never had parents that sat us down when we were younger and explained to us what dept was and what credit was and the importance of this. So we had to learn the hard way, fortunetly for us though, there are shows like this to give people like us second chances.

So like I said Jennifer, things could not be better for our family right now. Hope all is well with everyone else. Thanks again ~ the day we got that cheque was the first day of the rest of our lives and I truly believe that Gail was sent to us as our financial guardian angel.

Okay, that’s one for you. If any of the people who have been on the show are reading this today, please post your own updates. Everyone wants to know how you’re doing.

I’m very proud to be part of this show. Many TV “reality” shows have a bad reputation for being sensational or scripted. We do neither. We honestly want the best for the families we’re working with, and every member of our crew gives up a huge cheer when a couple turns it around. Sometimes we find ourselves in frustrating situations and bear with it to get to the end of the show. Most times we work with fabulous people like Kristy and Dean who are committed to making the most of what we have to offer.

Perhaps the thing I am most proud of is the fact that we are opening up the topic of money to lots of people who hitherto wouldn’t talk about it if their lives depended on it. Sad that we’re so afraid of how we’ll be judged that we just shut up and keep making the same mistakes over and over. With this show, we’re throwing open the widows and doors of our financial lives and airing out some very musty rooms. We’re talking about our money, sharing our mistakes, and coming up with great ideas for how to make things better.

If you’ve watched the show and have turned your life around, I’d like you to share it with the community here. Sometimes people aren’t quite sure they can do it, and your story may be just what it takes to make another person realize (s)he can do it too.

Y’all are so brave, making changes, sharing your ups and downs. That’s what makes me continue doing the site and blog. It’s YOU and how GREAT y’all are.

And to those who haven’t quite made the leap, aren’t quite willing to give up some bad habits in exchange for some good ones, it’ll come. We don’t all reach the same conclusion at the same time. Things have to simmer. Keep coming back and having a look around and hopefully one day you’ll see how much easier it is to have a plan than it is to constantly be taking stabs in the dark.

I’m a lucky girl to have my job. And I’m grateful to you for spreading the word about the site. We’re ¾ of the way through the first year and have had over a 250,000 visits. Wow! And thanks for being so honest about where you’ve been and what you want from your lives. Hats off to you!

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