Gail Vaz-Oxlade's Blog, page 71

School Lenders (Part 2)

Have you read School Lenders Part 1?

My girlfriend, Jack, calls me up the other day to say she's thinking of buying a house. Jack has been to see her friendly neighbourhood banker who has reassured her that she can most certainly afford to buy the house she's looking at. Jack doesn't have a downpayment, but that's okay. The banker is happy to arrange her downpayment for her; she'll only need 5% after all. And amortized over 30 years, the mortgage payment works out to be a little less than Jack's current rent. It's a good deal.

Jack: Don't you say that you shouldn't spend more than 35% on housing?

Me: Yup, that's what I say.

Jack: My banker says it's 44%.

Me: Really? That's because your banker wants to bury you in debt.

Jack: Yeah, I'm not sure this is really such a good idea.

Me: What all is he including in your 44%? Just mortgage payments?

Jack: Mortgage and property taxes.

Me: What about utilities, insurance and maintenance.

Jack: No, none of those things.

Me: So with those things you'd be over 44%

Jack: I guess.

Me: Is that 44% of your net income or your gross income?

Jack: Huh?

Me: Money in the bank, Jack, or your annual gross income?

Jack: Gross, I told him I made $60,000 a year.

Me: But you also pay tax, have union dues deducted and a whole bunch of other stuff. You don't take home $5,000 a month.

Jack: Yeah, I know.

Me: What do you take home?

Jack: About $3,200 a month.

Me: And your stupid lender thinks on a net income of $3,200 a payment as high as $2,200 would be okay?

Jack: It does sound kind of weird when you say it that way.

Me: So are you going to buy the house?

Jack: I dunno. I'm thinking about it.

Me: Y'know, even if the dope calculated it on your net income, you'd have just $1,800 left a month to cover your transportation costs, food, house insurance, maintenance, and everything else.  Didn't you tell me that with your car payment, insurance and gas you were spending way too much on your car?

Jack: Yeah, with all my commuting it's about $800 a month.

Me: Okay, so that'd leave you with $1,000 for everything else.

Jack: Doesn't seem like much, does it?

Me: Hey, it depends on how important owning a home is to you. Far be it from me to tell you what to do. You never listen anyway (with a smile.)

Jack: Well, I'll think about it some more.

Clearly the lender is over-estimating Jack's Capacity to repay the loan. Capacity is one of the 5 C's of lending (which lenders seem to be totally ignoring these days) and it measures your ability to actually get the debt GONE (as opposed to just making minimum payments). Lenders are supposed to weigh the amount of discretionary income you have to repay your debt. And they're also supposed to look at Capacity based on the term of the loan you're taking and your other obligations like family responsibilities and other existing debt.

Once upon a time lenders used to insist on a Total Debt Service Ratio (TDS) of about 30%. But with the fight for market share and the increase in housing costs, that's gone out the window. Sadly, our incomes have NOT kept pace with the rise in housing costs, and so TDS levels have increased… not really a good idea if you want to also be able to save for the future and have a life right now.

The industry is paying a lot of lip service to "financial literacy" these days. And Credit Education Week is just one more example of the lip service. After all, if banks were serious about ensuring that customers were building financially sound foundations, they wouldn't be offering them credit that would make that foundation crack with the smallest change in personal income or interest rates, would they?

Have you joined School Lenders on Facebook yet? Have your sent your letter off to your member of parliament? What are you waiting for?

Next week: More about the 5 C's: Character.

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How Important Is YOUR Money?

I talk about money a lot. I write blogs, books and answer questions about oney. I talk about money on my show. I talk about money with the media. In all those discussion I have, and in all the conversations I have with people who stop me to say hi, there's a common thread. The people who think money is important work hard to make sure it's helping them to get to where they want to be.

You just have to look at the way so many people deal (or don't deal) with their money to know that there is still a whole bunch of people who don't think money is important. It flows in and out of their hands without them having any idea where it's going.

There are the folks who spend without giving a second thought to their spending. Want a cuppa coffee? There's a Timmies, we can just drive thru. And while we're there, we'll pick up a 20-pack of Timbits. Never mind that that's the money The Other Half set aside for the hydro bill. Hey, it's just a cup of coffee, right?

How many times have you bought something without thinking about it? You walk up to the cashier and as you're waiting to pay you pick up the magazine, the pack of gum, the candy bar that sitting right in front of you. Was that a "thought about" purchase?

And then there's the instant-response purchase. Think of all the money that's been made on shamwows and easy-graters, miracle health remedies and anti-aging serums, bracelets designed to return your flexibility and pills designed to return your sexual vigour.

Some people don't have a budget, so they don't have a plan for how they will spend their money. They keep their fingers crossed and hope they get to the end of the month before they get to the end of the money. Then they scratch their heads and wonder why they always seem to be in overdraft. Duh!

And then there are the hard-working, lazy-assed dopes won't spend even one hour a month organizing their money. They throw bills and receipts in a drawer – or worse, they shred 'em without even opening them. They don't want to look at their bank balances because that would mean they might have to do something differently. And they're "too busy" to do the detail required to be in control of their money.

Hey people. Your money is important. You should know where every cent has gone. You should have a plan for how you'll use your money so it doesn't just vanish leaving you wondering what you're doing wrong. And you should invest a little time to keep track of it.

You drag your sorry butt out of bed every day to go to work to make money. Don't you think your money is important enough to warrant at least a little time thinking about how best to use the fruits of your labour?

It's an interesting paradox, isn't it? We'll expend all kind of energy making money, but some of us won't spend even a little time thinking about how to put it to the best use possible. Whazzup with that?

Hey, I guess it's because YOUR money is just not that important.

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This & That: Buying a Home Edition

P Wrote:  Hey Gail, I'm a huge fan of your work. I've watched Til Debt Do Us Part religiously, I love all the tips and ideas you give in the show, and I bought your book Debt Free Forever. I worked through the book and found out that I was overspending by $93 every month!! (I know it's nowhere near a lot of people on the show, but I'm 24 years old, just finished school and have a big student debt and credit card debt to pay down.

In the last 4 months, I managed to completely pay off my Visa from $2500; the LAST payment was made last night to bring it to 0!!!

I took your advice and got a part time job to make some extra money. I was lucky enough to find a job that I love, at Chapters, so it makes it much more pleasing! I just did the calculations and if I continue to have shifts the way I have, I will be able to pay $800/month toward my student loan, and be completely debt free in 1 year and 8 months!! My loan is $14,673.99 as of right now. I can't believe there's an end in sight I'm extremely pleased with myself!!

I wanted to thank you for all of your help but I also have a question. My common-law boyfriend and I are wanting to get a house in the near future and we had a meeting with a lendor yesterday who said we qualify for a $216,000 mortgage…We are hoping to get a home for around $230,000 so we need to bring our income up by $5000/yr. She suggested we take our downpayment savings ($20,000) and put it into a TFSA, and then take out a loan to make a maximum contribution to an RRSP which we haven't started yet. It makes me nervous to take out another loan just to that and pull it out, and from my information from you, is that you should never pull out your RRSP contributions…What do we do? I'm not sure where we go from here because I don't want to get out of debt just to take on more for what I consider a silly reason! I would like to save and put it in the RRSP and wait an extra year or so to get a house than to go into more debt. Help!  Thanks so much for all your inspiration and information!

Gail says:  It's perfectly fine to use RRSP money for a downpayment, assuming you put the money into the RRSP for that purpose. So don't sweat that. But as far as taking a loan for the RRSP contribution, don't. Of course your lender would suggest that. That's how lenders make money. But you need to be sure you can afford all your payments, and you're already short on income, so don't go digging yourself a deeper hole. You can't buy until you've saved your downpayment (inside or outside an RRSP).

S Wrote:  My husband and I have been watching your show for a few years. In Sept 2008, we faced 82K of debt to approx 14 creditors (4 credit cards, 2 student loans, 1 furniture, 1 car, 1 dept store card, 2 LOC, wedding, family)…you get the picture.

So we set a plan in action and almost 3 yrs now, we now only have the car and 1st loan for a total of 17K. I also bought 2 of your books, the Debt Free Forever book and the retirement one. I actually wish that we had purchased it sooner because there's even more info in the book! Now my question! We want to buy a condo but because we haven't saved anything (I know what you're going to say about that & you are correct, we had to use credit for emergencies but we don't have anything now!) – we don't have 12K for the downpayment.

The mortgage pmts would be 1010$/mth, condo fees 340$, property taxes 145$. The total mortgage amount is 232K (we're very conservative). The mortgage rate is 2.2% variable 1 yr closed. My husband makes 61K and I make 53K. Net, we make 78K. Our only remaining debt is the car and the 1st loan.

So here's the dilemma. We want to put the mortgage in one of our names and the other take a LOC at 4% for the 12K downpayment. The pro is that I get to leave the dreaded rental! The condo meets all our expectations for our first home purchase. The con is that my husband will likely be transferred for work again in 2 maybe 3 yrs. We live in Edmonton so real estate is much more expensive here than out East. But I hate the thought of staying in our current rental

My husband said that he's learned a lot from you and he thinks that we should save up for the downpayment and save the 4% interest. I know that we're getting a really good deal (5-8K less than the paid price). BTW, this is the same guy that 3 yrs ago was paying 50$ a month in bank fees, he's come a very long way!!! Can you PLEASE PRETTY PLEASE answer this question? It's driving me crazy!

Gail says:  Sorry, m'love, you're probably not going to like what I have to say. Since you know you'll likely be moving in 2-3 years, you should NOT be buying anything. Home ownership is for people who can put down roots. You're still wondering around, so stop trying to have both a mobile life and a stable one. Enjoy the flexibility and freedom on your current life. Look forward to the next posting adventure without having to worry about selling a home, or how you'll manage to continue to carry it if you can't sell right away. If you don't like where you're living, find a better place to live. Buying would be a dumb move because in a few years you'll have to sell again, and pay commissions and other costs.

S Wrote:  I'm not sure we can afford to buy a house. I've followed you religiously and we've even used your spreadsheet to crunch the numbers. I'm wondering if you have a moment if you would consider offering your expert opinion.  I'm making the transition from former student to new professional.  We have a 60 k downpayment so we can technically afford to put 20% down on a 300k house. Luckily we are in Manitoba so the market has not gone hog wild the way it has in other large cities.  We also have about 17k outside of that downpayment to cover closing costs and moving costs which I'm guessing would be somewhere around 10K? Is that a good guesstimate?  Leaving us with about 5-7 k to have as emergency fund.  In the actual budget we've put in all predicted expenses and have no debt (thank goodness) so we are able to put aside 4% of the value of the home into a maintenance account by putting aside $1000 each month for a total of $12,000 annually.  We also have $550 a month going into long term savings (which will mean we still put 10% gross into long term savings because I also contribute to a pension plan at work) and 1/15 of our home buyers plan repayment at $235 a month.  We also have $50/month going into emergency fund (not a lot but we may be able to shimmy the numbers from things like vacation fund–fund to see family in Ontario–, etc).  At the moment we don't have any insurance outside of our work LTD's but that is on the list of to-do's! The bank of course said we were eligible to borrow up to 600 k. I'm conservative in my planning but I wonder if I'm being so conservative that I'm afraid to take the next step in life? We are both turning 34 this summer, and this will be our first home. We plan on living here for at least five years. The market seems to be doing very well in Winnipeg, growing steadily. I worry if we don't do something we'll lose a year we could have been building equity. Do you think we can afford this home when we have factored in all of the saving-just-in-case criteria and we make a combined income of app $120/k a year? The house is close enough that I can walk to work (weather permitting of course!)  I grew up without much of anything (single mother, low income) so to be looking at a 300k house is very daunting as I always feel like I could go back to nothing some day and want to be prepared for the worst. Any thoughts you have would be very much appreciated, as always thanks for your time and I hope you are having a great weekend.  Incidentally, I was in Cobourg visiting my in-laws a few weeks ago and went into a store that was selling lavender sprays for your sheets and I mentioned you to the girl behind the counter said you've been in there!

Gail says:  Thanks for the detail. It helps. I think you're doing fine. You've planned well an you've got all your ducks in a row. And you're being very sensible to go with 20% down and not over-extend yourself on a mortgage. GO DO IT! As for the home maintenance, trim back a little, to 2% (I'm about to do a blog on this) and use the difference to rebuild your emergency fund. I hope you're having some fun too! Best wishes to you and your partner if finding your home together.

A Wrote:  I love your show and watch the re-runs to catch the good advice I missed the first time around. I have managed to catch Princess on occasion as well, but find I don't have any patience with the younger, "I want everything now" set. God bless you for taking them to task and making them see reality.

I have a couple of questions, and have searched through your site but couldn't find anything exactly like this. Here goes….

We're planning on buying a home very soon. When it comes to paying a mortgage, I know that it is advantageous to accelerate payments. I'm considering weekly payments, but read somewhere that such action was discouraged because, "there is no appreciable difference in increasing from bi-weekly to weekly." Is this statement true? Why or why not?

My second question is a follow-up to one from your Q&A section. You recommended that a person make their RRSP contribution at the beginning of the year (i.e. in March). A banker once recommended that I spread my payments out over the course of the year to take advantage of the varying purchase price as the market fluctuates. Is this really prudent or simply a good sales job by the banker?

Gail Says:  There is a small advantage to paying weekly over paying weekly over paying bi-weekly. Go to an online calculator like this one at the Royal Bank, put in your numbers and see for yourself. Change the frequency to see how the payment amount changes.

Your banker and I are actually talking about two different things. I am trying to encourage people to make their contributions earlier, instead of waiting for the deadline. Your banker is encouraging clients to take advantage of dollar cost averaging by investing monthly. It is a prudent strategy, not just a good sales job.

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Your Personal Debt Ceiling

Ask some people what their debt ceiling is (the most amount of consumer debt they'd be willing to take on), and they'll tell you, "As much as I can borrow." When they hit the ceiling, I get the calls and letters: Gail, HELP!

Some of us have no tolerance for debt. My personal debt ceiling is zip, zero, zilch. I didn't get my first credit card until I was in my late twenties. And I was raised by a mother who drilled into me that debt was deadly. But in a world where people have grown up surrounded by plastic, where they've watched their parents use credit to buy everything, and where they've been handed more rope than they could have imagined, is it any wonder some people haven't figure out their debt ceiling?

And so off they go charging through life. When a card fills up, they apply for and get another. Eventually they get a credit line or two. And, of course, they have overdraft protection. Some wind up at the pay-advance store. All the while they hike higher and higher up Mt. Debt until eventually they run out of air.

So, do you have a debt ceiling?

What do you think contributed to you having a debt ceiling?

If you don't have a debt ceiling, why do you think that is?

Do you think that keeping your debt in different piles helps to make you feel less close to your debt ceiling?

Have you ever added up your total debt? How did you feel?

What would you be prepared to go into debt for?

What would you NOT be prepared to go into debt for?

Do you feel like you've used too much credit?

If you had it to do over, what would you differently when it comes to using credit?

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School Lenders (Part 1)

I am so ticked off! I can't believe the lengths to which lenders are going to make money these days. How in heaven's name did a young'un earning $24,000 a year get approved for a credit card with a $15,000 limit? Seriously. I don't care how smart you think a 21-year old should be about using credit, the lender who handed over the $15,000 limit is dumber than a sack of hammers!

This is the state of our lending these days. I'm hearing stories of children in high school being shipped credit cards once they turn 18. Lord love a duck! It's got to stop.

And so I'm asking for your help. I want you, all your friends, your family, your co-workers, anyone who gives two hoots about fixing our very broken lending system to pay attention.

Over the next six weeks, I'm going to be talking about what good lending is supposed to look like. And I'll share your stories about crappy lending experiences. I want it all to culminate during Credit Education Week, which is November 13-19 this year.

Ah, Credit Education Week: the week given over to helping we bears of very little brain understand how to better use credit.

Let's turn this puppy on its head. This year, we The People are going to use Credit Education Week to School Lenders.

If you want to be part of the effort to School Lenders, join the School Lenders group on Facebook.  Then stay tuned for announcements about Twitter and Facebook chats leading up the School Lenders Week. Get out your pen and write to your MP to demand a change to the legislation. Tell everyone you know, and tell them to tell everyone they know, that it's time to make lenders stop lending irresponsibly!

During School Lenders Week, I want Canadians to commit to not using credit for anything during that week. Yup, that means it'll be a cash-only week.  You can do that, right?

If banks put profits before people, it's time for people to hit banks where it hurts most: their pockets. By forgoing credit for one week, lenders will not only lose all the new charges for that week, they'll lose all the retailer fees for processing credit card payments. You betcha that's big money.

If you're ready to make a difference, all you have to do is:

•          Commit to not using your credit for one week (Nov 13-19),

•          Join the School Lenders Facebook group to show your support

•          Write to your Member of Parliament and tell them you want new legislation that ends the use of the credit score as a credit-granting tool. There's a sample letter under "Resources" entitled School Lenders.

•          Spread the word to family, friends, co-workers, and whoever else will listen.

The message we want to send is that we're not happy with the way lenders are doing business. We're not happy with the way the credit score is being used. Get back to good lending!

Next week: More Schooling Lenders and the 5 C's.

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House Rich

Of late I have been getting a lot – and I mean A LOT – of letters from people asking for second opinions on their financial advisors' suggestions, specifically those that relate to using the equity in their homes to build an investment portfolio. People who feel house rich because their home has built up some equity are easy pickin's for advisors looking for ways to sell more investments. The story goes something like this:

You have all your equity tied up in your home, which is a "non performing" asset, and so you aren't diversified enough. We can take $100,000 line of credit out on your home and use that money to buy a balanced portfolio that'll increase your diversification. You'll be borrowing at 3%, but your portfolio will be earning you 6% 7%, 8%, 9% or even more, so you'll really be making at $100,000 work hard to make you rich!

It sounds so good, doesn't it? Makes perfect sense when the person "in the know" says it like it's the most sensible move you could make. And yet, people's little red flags are all over the field because they write to me and ask me to say, "Yah! DO IT!

You can't trick me!  If you're writing to me to check it means you're not convinced this is the best idea.

And you'd be dead right.

The next time someone comes a'callin' with a great investment spiel about how you can use your home equity to diversify your investment portfolio and make more money, ask some questions.

•          How likely is it that you'll be able to earn the return being quoted? Historically, you have to be fully invested in stocks to earn a return of 9%. Are you ready to take on that much risk? Do you have the time (and guts) to wait out the dips that come with equity investing? If there are any fixed-income investments in your portfolio, borrowing to buy them makes no sense because their returns are likely to be so very close to what you're paying in interest on the loan.

•          How long will the loan stay at the interest rate quoted? Sure, you can get a loan at 3% today, but that rate will fluctuate over time. If the rate goes up 1%, that'll eat into whatever return projection you've been given. And it'll eat into your cash flow – the money you're using to have a life – unless you choose to sell some of your investments to cover the higher payments.

•          What does a "non-performing asset" actually mean? If you're living in a home, it's providing you with shelter. Real estate may not be ratcheting up as quickly as the stock market, but you got to House Rich through your home's appreciation over time.  And, for goodness sakes, you're living in it! That's got to be worth something. I do agree that having a home as your only asset is not as smart as having a more diversified portfolio, which is why I tell people not to delay their long-term savings (RRSPs, TFSAs) for the sake of mortgage pay-down.

•          If you stick $100,000 in the market all at once, doesn't that go against the concept of "dollar cost averaging?" It sure does. You be better off keeping your sticky fingers off your home's equity, and using the money you would have to cough up to repay the line of credit you're being encourage to take out to invest monthly.

•          What's the downside of "leveraging"? When you borrow against your home to invest, it might be positioned as "diversifying", but it's actually "leveraging".  The upside of leveraging is that you can make more money by using borrowed funds to increase your returns. The downside is that you can lose your shirt. Are you ready for the downside?

If you're wobbly on the math you're being shown, if you're not convinced this is the right tactic for you, if you're being "sold" this idea, step away from the table and take some time to think. You should only use your home equity to invest if you are absolutely convinced you'll make money. Otherwise you're putting your home at risk for something you may not really understand.

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A Spiral of Success

Have you ever looked up a spiral staircase? The stairs turn in and around on themselves over and over. They're very beautiful. And they demonstrate something so many of us can learn from: one step at a time, even a very small step, can take you from where you are now to where you want to be. Just take that first step. Then the next. Up you go.

Getting to DFF, accumulating a stash of cash to send your kids to university or college, setting up an emergency fund can all feel like impossible feats. When you look at the demands on your time, how will you ever manage to keep up with your spending journal? And if your buddy just will not keep his or her hand out of your pocket, how will you ever save the money you want for retirement?

It is so easy — so much easier — to just keep on doing what you've always been doing. But if you don't change the behaviour, you won't change the outcome. So today's the day you take your first step on the spiral staircase to success.

Change one thing. Just one thing. If you've never been good at tracking your spending, make a label and stick it to your wallet. The label says, "Ask for a receipt."

Collect a receipt everywhere you go. Even if you buy a cup of coffee, get a receipt. Make it a habit to ask for a receipt.

Once you've established the habit of asking for a receipt, get a notebook and every night enter all the receipts for the day in the notebook.

Once you get used to tracking what you're spending, start using your notebook as a spending journal, deducting what you've spent from your balance to keep track of your money's ins and outs.

Got that down pat? Now it's time to enter your transactions against your monthly budget. Don't know how? Well, maybe that was trying to take two or three steps at once. More distance covered, but a lot more effort. Too hard? Step back a stair or two.

Try again.

Figure out how to make a budget. Then start tracking your actual spending against your budget to see how you're using your money.

Whatever it is you're trying to do, break it down into the smallest possible steps and then take one step at a time. Feel secure on that step. Know where you are. Then take the next step.

Your progress may be a little slower, but you'll feel safe in every step you take. And you'll spiral your way to success

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Thidwick, the Big-Hearted Moose

A lot of people have trouble saying, "No." It is almost as if they think that by saying no they will be thought of as mean. But there's a time and a place for NO and it behooves us all to learn it. NO can be a life-saver. NO can be liberating. Learning to say NO without feeling guilt or remorse or sadness or regret is an important life skill.

Meet Thidwick, a moose who just can't say no. His antlers (called "horns" in the story) are attractive to a bunch of critters that all want a free ride. A Bingle Bug shows no signs of leaving. A tree-spider spins a web indicating his intention to stay. Then a Zinn-a-zu Bird takes up residence, gets married, and the wife moves her uncle in!

Thidwick is a sap. Faced with indolent moochers (Princesses, dontcha think?), he ends up with a zoo living in his antlers.

"There's plenty of room!"

Laughed the bug. "And it's free!"

His friends try to point out that he's a magnet for moochers, but it's to no avail.

All Thidwick's friends shouted

"GET RID OF THOSE PESTS!"

"I would, but I can't" sobbed poor Thidwick,

"They're guests!" '

The big lug even faces starvation as the menagerie that inhabits his antlers stop him from following his herd to new feeding grounds.

Yup, if you let 'em, there are people who will suck the very life out of you. If YOU let them. If you don't learn how to say, "No."

Eventually the big-hearted Thidwick is saved from himself and his inability of toss out the parasitical hanger-oners by the shedding of his antlers. Hey… tell me that isn't a metaphor for shedding a door-mat mentality!

Reading this to children, you can emphasize how important it is to respect other's property and personal space. But more importantly, you should talk about how important it is that they insist on having their own property and personal space respected.

The ending of this book is a little dark. The residents of Thidwick's antlers all get shot and stuffed! A fitting end for a bunch of free-loaders in my opinion, but a little scary for some children.

If you don't want to be a Thidwick, you've got to grow a backbone and not let people take advantage of you. In a world where "pay it forward" is touted as a kinder, gentler approach — I'm all for reciprocity — Dr. Seuss's harsh ending may be a little hard to swallow. But I think he's handing out the consequences he believes the critters deserve for being selfish and giving Thidwick, the Big-Hearted Moose no consideration at all.

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Pain Avoidance vs Pleasure Seeking

Are YOU saving for your retirement? I'm not talking about having enough money to sail through the Caribbean or have a home and cottage too. I'm talking about enough money to keep a roof over your head and food in your belly.

Over and over I get letters from people who are a minute away from retirement and are worried that they won't have enough money.  The popular press likes to focus on people being able to "maintain our lifestyles." Hey, I'm just praying y'all have enough to be able to eat!

Psychologically, we're more predisposed to avoiding pain than seeking pleasure. This may be part of the problem when it comes to making people see that saving isn't an option, it's a must-do. Faced with ads for having a "fabulous" retirement, most people can't avoid the pain of not spending today for the pleasure of a secure retirement.

But what if we turn it on it's head. What if instead of thinking about the "fabulous" retirement, we think about making sure we have enough to make do. How much will you need to make do? Do you even know?

I know exactly how much I'll need. Since I live on a budget now, and I can reasonably anticipate which of my costs will go away and which will go up when I finally hang up my spurs, I can come pretty close in my estimate of how much money I'll need every month to make ends meet.

How about you? Never mind all the blah, blah, blah about travel and retirement activities, put aside the pretty pictures of sail boats and entertaining friends, will you have enough money to eat, take care of your most basic needs like housing, and have a buck sixty two left over for the odd new pair of shoes?

If you're planning to retire with consumer debt, how much of your retirement income will those monthly payments gobble up? If you're planning to still have a mortgage, how much will your housing costs cut into the rest of your spending? And if you're banking on government benefits, have you determined how much you'll get and how much more you may need to make through a part-time job or pretty creative money management?

If you don't know where to start, or you've been putting it off because you're not sure what-all you need to consider, go and get a copy of Never Too Late and work through it. It's all laid out for you. You can't use "I don't know" as an excuse.

I don't want to be a downer. But I want y'all to think about what you're doing NOW that will help or hurt you later. Saving is often seen as "painful" because it means we can't have ALL THE STUFF we think we're entitled to. But think about what you life will be like later if you don't stick away a little sumthin' sumthin' now. Measure the pain of today against the pain of the future. Then stop worrying and start DOING something.

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Vanity Vs Sanity

I got a letter a couple of weeks ago that I thought to immediately dismiss, but then thought again. Here's the letter:

Dear Gail. I need your help. I am supposed to be getting married in a few months but my boyfriend is threatening to call off the wedding. He says that I'm irresponsible with my money and he just can't "take me on." He says he loves me, but that I'm too expensive. It's true that I like to treat myself well, and I do borrow money from him (and from my sister), but I always pay them back eventually. I work in a job where I have to look good. So I get my hair done every couple of weeks and I'm constantly shopping for new clothes. I don't like to wear the same thing more than a couple of times because people will think I can't afford new clothes. I have a ton of makeup and it takes me a couple of hours to get ready to go anywhere. Last month I decided to get a new car. I had a car but it was a cheaper car and I wanted a better car. So I went and leased a Lexus for just over $675 a month. Now I have a bit of a problem because I'm supposed to have the money saved for half the wedding and I don't. I don't want to loose my boyfriend, Gail, but I don't know what to do. Help me please.

When I read the letter my finger hovered over the delete button I thought to myself, "too dumb for words."  How can anyone be so shallow – so vain – that they put their future and their relationship at risk for the sake of a new model car, a sassy hairdo and new rags?

People do it all the time.  They get so wrapped up in looking gooood that they completely lose sight of the big picture. They act like money morons because they're obsessed with making the right impression.  They put themselves at risk financially to get massaged, mani'd, pedi'd, waxed, trimmed, coloured, outfitted, and slimmed. They let the most ridiculous things dictate how they feel about themselves. I once watched a co-worker leave work, go home and change her shoes because a much older woman came into her space wearing the same shoes she had on. Those shoes that were good enough to buy suddenly became incredibly "uncool." Lord love a duck!

If you put how you look, and what other people think about you, before building a solid financial foundation, you're a money moron. If as you buy something you're thinking to yourself, "Wait until the girls see this!" you're buying motivation is suspect. And if you don't have two red cents to rub together, but you've got a couple  dozen pairs of shoes with matching purses and you're about to buy more, you're insane.

Putting your vanity before your sanity (or the sanity of your partner, as with the chick who wrote the letter) is dumb. It would probably take me a week of Wednesdays to help the chick who wrote the letter see the error of her ways. Maybe her boyfriend should dump her. That might help her reprioritize and see what's really important and what's just superficial.

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