February 2010

This article is provided by Brian Marling of Neighbourhood DLC – Canada’s #1 Mortgage Team  905.372.7222

Question: What do the following have in common: driving a vehicle worth more than your annual gross income; paying 20% or more on credit card balances while the cash to pay them off sits in a “savings” account paying you next to nothing; buying a home which requires both incomes to service and which also puts you at the maximum as far as debt ratios go; etc, etc, etc.??  Answer: DUMB financial decisions.

I’m not trying to intentionally insult the reader of this article, but if the shoe fits…  It only takes a little superficial observation to figure out that there are a boatload of people making and being enticed to make poor financial decisions all the time. Have you seen the number of payday loan type operations popping up everywhere? These are places that basically sell you your future-not-yet-earned income and charge you a hefty fee to do it. And the ones who are partaking seem to be the ones who can least afford to do so. If you are already struggling to make ends meet, then how does this help?  Or what about those You-deserve-it-now-why-wait establishments that will happily let you pay several times what an item is worth so long as you have a pulse and can sign on the dotted line? I could go on with a myriad of examples in the same venue but I believe I have made my point.

And the point is this: in a consumption based economy you will always be tempted to overspend and be made to feel good while you are doing it.

Part of the problem, in my opinion, is that it is extremely difficult to wait for almost anything in a culture which measures time in nano seconds! Combine that with the easy availability of credit (i.e. they will give you just enough to hang yourself) and it’s no wonder that people are in the financial mess that they are in. I often share with my clients a simple illustration to make the point that debt can become a life-long slave master… I show them that a small credit card balance of $500 with an 18% interest rate will take over 7 years to pay off if only minimum payments are being made!! It doesn’t take a rocket scientist to then figure out that you will likely never get out of debt if your debt load is more significant and in the neighbourhood of $15, 20 or 30 thousand dollars of consumer debt and making only minimum payments.

So what is at the root of our bad financial decisions? Unfortunately, this article alone could not begin to address the long list of possible culprits which could include everything from greed to ignorance. Not to mention that we really have never had any sound teaching in our schools on a subject so important as personal financial management. But why not? We’re not all going to be Dr’s, or Engineers, or whatever… but we will all be the CEO’s of our own families and required to make important financial decisions. So if we’re not taught in school or our parents didn’t do a good job in this area, then how do we manage? My answer – not very well. Especially when you realize the current Canadian statistic which tells us that average Canadians have a 1.40 debt to disposable income ratio. Meaning that for every dollar of disposable income that we have, we have $1.40 worth of debt. What’s wrong with this picture?! When will we end the insanity?

As referenced many times in past articles our parents & grandparents didn’t seem to have the same debt issues. Primarily, I believe, because they did not ransom their futures for temporary pleasures which they couldn’t afford. Also, credit in the form of plastic just wasn’t as available, or not available at all. Therefore they lived by different creeds such as, “Save until you can afford it”, “Live within your means”, and other such foreign concepts. And the results of such archaic concepts? Well take my parents for example: never earned much more than $45K per year combined but currently live in a mortgage free home, drive a payment free new van, have investments in the bank and do not need to rely on government or anyone else. All on $45K per year – cudos Mom & Dad. And thanks for the example.

Here at Neighbourhood, & the home of the Brian Marling Mortgage Team, we are concerned for the total well-being of our clients. That’s why we are taking the years of experience from our award winning office and offering a series of  FREE Seminars to our clients and their friends & families and to the public at large. The seminars, entitled ‘Financial Fitness’, will be offered free of charge and will cover all the secrets of successful personal financial freedom. If interested please call our office at 905.372.7222 to reserve your spot as seating will be limited.  Together we can turn Uncommon Cents into common sense and begin to head down the path of financial well being.