MoneY Talk$June, 2012

BAD DEBTS – THE SMELL WILL TELL

We all know that our economic system is based on a relationship between borrowing and
lending with checks and balances in place. Even though there are some cultures, religions, or even individuals that strongly discourage money-lending or acquiring debt it is very difficult to live in the Canadian society without accumulating some form of debt.  How we manage our debt situation, therefore, is really what matters. The average person can use the SMELL test to determine whether or not debt is a problem:  Are you Sleeping like a baby even though you have debt? Is the obligation Melting or mounting? Does it leave your Ego or self-esteem intact? Is it Legal or not and, lastly, are you creating a Lasting Legacy?

SLEEPING like a baby: If being in debt is affecting your sleep you need to take steps to remedy the situation. Home ownership, for example, is considered a good debt because
over the long run equity builds up in the property, there is pride of ownership, and the control over where one lives are mitigating arguments in its favor. Even though responsible mortgage lenders would have performed a thorough assessment of our financial situation before granting a mortgage, we should still take further precautions to determine whether we can keep up with the payments in the eventuality of a short-term job loss, illness, disability, major repairs, as well as emergencies.  The same goes for the type of rental accommodation we choose to live in.    Work towards slowly putting aside
as much as six months’ net income for the sole purpose of meeting emergency situations and for that same reason secure adequate life, health, and/or disability insurance.

MELTING OR MOUNTING:  Simply making minimum payments on credit cards do not reduce the original debt. You only get to chip away at the debt by paying more than the minimum required. Before even acquiring a debt, there should be a systematic plan in place on how the debt will be repaid. That is one reason why credit-card debts can get out of control: the purchases were made without any consideration of how the obligation will be met once the statement comes in. Incidentally, for that same reason borrowing from
our brother-in-law usually goes sour.

EGO BUSTER:  Studies have shown that people in unmanageable debt situations are prone to suffer from low self-esteem.  Their situation is exacerbated by lack of sleep (see above) and the need to spend more in order to feel better. We should learn to feel good about denying ourselves of things that could otherwise create an unhealthy spending cycle. In any event, the mental high achieved from impulse shopping is short lived and can be achieved for free by taking a brisk walk around the block!

LEGAL OR NOT:  Too many bad movies tell us that the whole business of borrowing from unsavory and unregulated sources can lead to a bad death rather than a bad-debt write-off. There we see that a regularly scheduled payment to a “loan shark” rarely means that the debt is being reduced.  While that is not the case with traditional lending institutions, cash advances on credit cards, pay-day loans, convenience checks, and late payment fees are all legal but carry hefty interest rates or carrying charges that can become quite onerous.

LASTING LEGACY: If you are in debt and have nothing concrete or intangible to show for it, you have failed the SMELL test miserably. Even though one cannot see or touch a
student loan, for example, it is presumed to be an investment in future employment and a good income.  The same goes for home improvement loans, and the aforementioned home mortgage.  Accumulating debt to pay rent, or dining out, is a recipe for disaster.  The former does not build equity and the latter is literally money going down the drain. That is why we are encouraged to pay off monthly credit card bills and not accumulate interest charges.  It is not sound financial security planning, therefore, to finance lifestyle with
accumulating credit card debt.

Debt control and elimination is one of the basic elements of sound financial planning. How do you SMELL? To find out more on how to manage your life by managing your debts, speak with a Financial Advisor. Elcho Stewart/Financial
Security Advisor/Life Insurance Broker – 613-422-9188.

DO ANY OF THESE FORMER TOPICS CATCH YOUR ATTENTION? ASK AND YE SHALL RECEIVE……..

January, 2012 – GOING GREEN ALL THE WAY TO THE BANK

Lately, an army of guerrilla financial advisors seem to have sprung up out of nowhere in the media with tips on retirement saving and other money management strategies. Critics of these financial gurus argue that it is not enough for them to say “save” or “put away
the credit card” without suggesting how to. Going green is a lifestyle change with the added bonus of saving you abundle and possibly saving your life….

February, 2012 – SIXTY SEVEN COULD BE THE NEW SIXTY FIVE

We in the financial services industry have been saying for years that Canadians must take advantage of the tax and savings benefits inherent in purchasing RRSPs because the (OAS)
Old Age Security pension (a monthly payment available to Canadians aged 65 and older who must meet certain requirements when they apply for it) might not be enough to support the aging population. What we had not envisioned was the Prime Minister’s recent speech that his government wants to move the Canada Pension eligibility age from 65 to 67.
Although the opposition has been strong, the seed has been planted in our national psyche and his wish might someday come to fruition….UPDATE: The
amendments to the CPP will include the following:

The monthly CPP retirement pension amount will increase by a higher percentage if taken after age 65.

The monthly CPP retirement pension amount will decrease by a larger percentage if taken before age 65.

The number of  years of low or zero earnings that are automatically dropped from the
calculation of the CPP pension will increase
.

Contributors will be able to receive their CPP retirement pension without any work
interruption
. (Source: Service Canada)

March, 2012 – THE MARK OF A CIVILIZED SOCIETY

Every now and then I am faced with a topic that I really should stay away from but I
cannot – just like that tongue chafing away at a chipped tooth. Take last fall, for example, when I wrote an article about suicide and insurance, discarded it, rewrote it and abandoned that one as well.
Weeks later, a long-time client suicided and I was just devastated but was glad that I had not published the article despite the beckoning. I still wait for the day when I might be able to impart that dogged bit of information without guilt or the macabre.   Two articles in The Ottawa Citizen on January 18 have had the same preying effect on me: “Sick seniors sent home too soon…” and “Senior accused of killing wife dies in hospital”.  Seniors are like Mom and Apple Pie – well – seniors are our Moms for Pete’s sake, and when we hear about them it should only be good news……

April, 2012 – MONEY TALK IS NOT CHEAP

When dishing out money advice, financial advisors should not spew rhetoric. Habit 5 of Stephen Covey’s 7 Habits of Highly Effective People stresses the importance of being understood and understanding.  More often than not that is not the case – so much so that last December Dan Pallotta of the Harvard Business Review wrote a blog about the overuse of jargons. He postulated that, among other things, its use hides inefficiencies, confuses the listener, and is pretentious. He was praised by most of his fellow bloggers for taking such a bold stance on the subject.
Some blamed the overuse of jargons on laziness, a cover for ignorance or ineptitude, trying to seem smarter than others, the condensing of the language due to texting, and a host of other explanations. As advisors, our every word should have meaning because we are giving advice on people’s financial security….

May, 2012 – GIVE MEANING TO YOUR INCOME TAX REFUND

Like any good daughter I always gave each of my parents Christmas and birthday gifts. Very often they amounted to gifts in kind or lovingly made items which they treasured. Once per year, though, it gave me great pleasure to present my entire income tax refund
to my mother, regardless of the amount – a few hundred dollars or just a few dollars. That was my way of going the extra distance. I found out later that getting a refund meant that not enough pre-taxed dollars were being deducted at source from my paycheque which meant that the government got too much of my money all year – money that could have been growing interest in my bank account!  Since there will always be times when we get a refund for one reason or another, here are a few ways in which we can avoid spending it frivolously…

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