Tuesday, March 7, 2017

"Smart savers keep housing options open"/ "Stop making debt excuses"

Oct. 25, 2015 "Smart savers keep housing options open": I cut out this article by Rob Carrick in the Globe and Mail on Jul. 31, 2015.  There are 143 comments on the website.  He profiles a guy with 0 debt and $85,000 in savings.  Here it is:

Daryl Marritt paid off a $47,000 student debt in one year while earning a salary of $45,000.

The 30-year-old from Brampton, Ont., then turned his attention to saving. Using low-cost index funds, he maxxed out his tax-free savings account and put a whack of money in his registered retirement savings plan. “In terms of financial responsibility, I don’t know anybody who has been as diligent as myself,” he says. “I’ve pretty much become a money coach for a number of friends and family members, including my dad.”

This young man gets personal finance. What he doesn’t understand is the housing market. Recently married, he’s thinking about home ownership and finding himself unable to decide what to do. Should he continue to rent a house with family members, as they’re doing now? Buy some land and build a house on it that can be shared with family? Suck it up and buy a single-family house, despite his concerns that he’ll be a slave to his mortgage?

“Housing just continues to run away,” he said. “We’re at the point of wondering whether we will ever be able to afford anything.”

Here’s Mr. Marritt’s problem: He’s too good with money to feel comfortable buying in today’s housing market. Here’s my question: Why don’t more people think this way?

Let’s look into his story in more detail. Several years back, he graduated with a big student debt after earning a teaching degree. Dim employment prospects for teachers persuaded him to take a marketing job with a local car dealer. By living at home and selling his car, a high-end bike and some other possessions, he was able to kill off the student debt in a year while earning a salary of $45,000.

Having mastered the discipline of living on only a little money, Mr. Marritt has redirected the money going to debt repayment into savings. At the same time, he is keeping expenses low by renting a house with members of his wife’s family. It’s a tight fit with six adults and a bunch of kids, but the couple’s portion of the rent is only $300 per month.

Today, Mr. Marritt has about $85,000 invested in a diversified portfolio of index funds, enough for a 20-per-cent down payment on a modest house in Brampton, which is roughly a 40-minute drive northwest of Toronto. Home sales in the Greater Toronto Area have soared lately, but he’s reluctant to just go with the flow because of the impact on his financial flexibility. “People become a slave to their home,” he said. “You can’t save the same way once you buy.”

One solution he’s thought of is to buy or build a house that he can share with other family members, including his dad and step-mom. But he’s had no luck finding such a home, or the property on which to build one. Another thought he has is a tiny home – basically a miniature house you set down in a trailer park, backyard or laneway. Again, he’s been unable to find this kind of housing in Brampton.

Meanwhile, friends are buying houses and adding to the pressure he faces. “My wife is going over and checking them out and she’s coming home and sending me real estate listings every day,” Mr. Marritt said.

If he does buy a home, he’s worried about the market falling. He also worries about interest rates rising. Smart enough to know that rates have been at freakish lows for his whole life in the work force, he wonders what “normal” rates look like.

Mr. Marritt might be overthinking this housing thing a bit. But you have to admire his independence from a home-buying herd that has been pushing up sales in the Toronto area by double digit amounts in recent months. Note: That was before the most recent Bank of Canada rate cut, which has led to slight reductions in some mortgage rates.

People today are contorting themselves to get into the housing market. They’re turning to private lenders at higher rates than the banks, they’re draining cash from their parents' savings and they’re accepting a household financial imbalance that could last for years. If they buy a home, their ability to save and spend on other things could be harshly restricted.

As for Mr. Marritt, he’s an example to all young adults. Attack debt, save aggressively and keep your options open in the housing market.


Nov. 1 , 2015"Stop making debt excuses": I cut out this article by Gail Vaz- Oxlade in Metro News on Mar. 9, 2015.  She writes about people's dumb excuses and her solutions to it:

Every time I think I’ve heard it all, someone pops up with a new way to excuse the fact that their money management is in the crapper. Here are some of my favs:

“We got a consolidation loan and paid off our credit cards so we’re doing better.” Really, you paid off your debt with other debt? That’s not PAID OFF my little chickadee, that’s delusional. Consolidation makes sense when you reduce your interest costs and then work aggressively to repay the debt. But if you’re sitting back smugly because you’ve reduced your payments so you have more money to spend on rubbish, I want to reach out and slap you.

Consolidating using a mortgage is one of the more time-honoured ways of making debt more expensive over the long term. Lots of people consolidate using the equity in their homes. Then they pretend that everything is okay, because now it’s “mortgage debt” and that’s good debt, isn’t it? Hey, tell the truth. It’s still consumer credit; it’s just been shuffled to somewhere you don’t have to look at it. And believe me, it’s costing you.

I worked with one couple who re-mortgaged their home three times to cover their uncontrolled overspending. Over the life of their mortgage, they had increased their interest costs from about $150K to almost $600K.

“Sure it’s a lot of debt, but, hey, everybody’s in debt, so what’s the big deal.” And if everyone were running screaming of the side of a cliff, you’d do that too, right?

There’s no question that debt has become so commonplace that it seems like everyone’s in it. And if you grew up in a family that had it all, including the debt, you may think this is “normal.” I worked with one couple that was so comfortable with their debt that they had never made a mortgage payment from cash flow. Every single mortgage payment had come from their line of credit.

If debt seems like a normal state of being for you, it means you have to change your thinking. Debt is not normal for someone who is financially healthy. You can make the choice to remain a delusional, or you can choose financial stability. The old way may be more fun, at least in the short term, but the new way will keep you and your family safe and sound.

“I don’t have time to budget.” Really, your most important resource and you don’t have the time to manage it? Could it be that your priorities are a little skewed?

On average we spend about three hours every day watching TV. Hey, you only need to reallocate a measly half-hour twice a week to money management to go from being a financial slug to smart about your money.

Close in hand with this goes, “You have to have money to make a budget work.” One young lady wrote me to say that her parents had recommended she use a budget and her response was, “You have to have money to make a budget work, right Gail.” Believe it or not, she was asking ME to tell her a budget was pointless. Really?

Sadly, people don’t think that all that dough they bring in that goes to paying the rent or buying food is “money.” For them, only the stuff they can spend indulging their whims is “money.” And so they don’t make a budget and look for ways to trim. Or perhaps it is because if they made a budget, they would discover just how much money they were blowing every month on stuff, and would have to change their behaviour. Lord forbid!

“My partner is the problem.” I’ve met couples where one person is the major culprit in acquiring debt. The other person stands meekly by as Mr. or Mrs. I-have-to-have-EVERYTHING charges them into a debt whole. They shrug and claim to have no ability to change their partner’s behaviour.

Here’s my big question: Is this the way you’re going to live the rest of your life, walking a tightrope, waiting for the axe to fall? And if you have children, do you think this is creating any sense of security for them?”

For as many couples that I’ve met where one partner claims the other is the problem, I’ve met couples where they are both, in their own inimitable way, doing dumb things. One husband claimed his wife was the problem because she went shopping every day at work during lunch, bringing home items that she’d hide from him. He saw nothing wrong with dropping $10K on a new motorbike. That’s a lot of skirts, dude?

If you’re still making excuses about why you’re in debt, maybe it’s because you’re not yet committed to getting out of debt. Some people aren’t. They haven’t heard the whistle blow that tells them the train is headed straight for ‘em.



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