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Laura Chanin, B. Comm, CFP
Investment Advisor
Dundee Securities Corporation
Ste 700 609 Granville St
Vancouver BC V7T 1G5
604.895.3320
cell 604.319.6924 |
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Fancy pants or millions? A Modern Parable
Once upon a time there were two ladies. They both needed to buy some new undies and asked me along for a day of girl shopping.
Mrs Spendy steered us to the fanciest store in town. She found a gorgeous pair of panties and a bra in red silk and lace which cost $155 and was very happy with her purchase. I raised my eyebrows at the cost and urged her to save her money and she laughed at the idea.
When it was time to shop with Mrs Frugal it was a different story. She took me to Joe Fresh and she found panties she liked in a pretty colour that were cute and sexy and was quite pleased to spend only $2! When I mentioned that I knew a woman who spent $155 on a bra and panty set, Mrs Frugal blanched. "I could never spend that much on something so frivolous!" declared the wise Mrs Frugal. "Saving money is like eating healthy. A lifestyle change is what's called for, not a crash diet. It's true that if you watch the pennies, the dollars look after themselves."
She was quite right, for Mrs. Frugal is a millionaire. She owns a house in Calgary plus two 4-plexes in a trendy part of Vancouver. Even so, she works at two full-time jobs! She worked very hard to pay down her mortgage in Calgary and with the equity she built, she bought the Vancouver investment properties. It was a very smart move and it paid off over the years. She is very frugal with her spending. She will grow old with all the money she needs to live in comfort for the rest of her days.
But as for Mrs Spendy, she owns a house in Surrey with not much equity. Both she and her husband work and make a high income, but don't have much to show for it, except things like fancy panties. The woman who laughed at my advice to save her money might find herself in trouble as she grows older.
It is certain that one of these ladies will live happily ever after.
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Is Your Debt Out of Control? Warning Signs:
1. Do you pay only the minimum amount due on your credit card bills each month? What that amount does is ensures the company gets its interest payment from you each month. Usually the minimum due amounts are only a few dollars over your interest charges, so you are reducing your principal by only that few dollars a month. It will take forever to pay off your debt in this way.
2. Do you run out of money between paydays and use your credit cards to buy food and other everyday items? This is a sign that your budget isn't working for you. You are not living within your means if you have to go into debt to buy food. Think about it before charging these sorts of things, not only are you adding to your debt, but the grocery bills now also have interest costs associated with them.
3. Do you typically max out your credit cards? Living at the edge of your credit and paying your bills late are symptoms that your debt is out of control. This kind of reckless behaviour not only adds to your debt with late fees, it can ruin your credit rating, which takes into account the timely paying of bills.
4. Do you have problems with collection agencies and credit card employees calling your home and your work? Have your creditors garnished your salary? If things have reached this point, you are not only out-of-control but in serious trouble.
If you answered "yes" to any of these questions, you may need to sit down with a Financial Advisor to discuss helping you to better manage your money. There are things you can do to get out from under debt and I can help you get there. We can set up a budget that gets your highest interest rate credit debt paid off first, and negotiate with creditors to reduce interest or arrange a lower payment or reduced interest plan. There may be low-interest loans you qualify for, allowing you to pay off your high-interest debt with one low-interest loan. With these things in mind, we can get your budget set up so that things are paid, and you have money put away for the little between payday emergencies that come up so you don't turn to your credit cards again. Once the cards are paid off, request that the limits be dropped to prevent you from getting back into trouble. Better still, cancel the paid-off cards. Just keep one for true emergencies in your safe-deposit box where it will be safe, but you can't easily get at it.
This is something that happens to people in all walks of life, even successful, wealthy people can let it get out of control. When you are up to your eyeballs in debt, it's hard to feel that life is going smoothly. Feelings of anxiety and guilt are usual in this situation and you may feel as if your life is out of control. With good advice, time and a commitment from you, it is possible to get a handle on your debt. Getting in touch with me could be a first step back toward financial security.
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What Kind of Debt is it?
There can be "good" debt and "bad" debt. Good debt can be an investment in something which appreciates over time (i.e. real estate, a business). These debts may come with low interest rates and in some cases may be deductible. Borrowing money to invest can be another good debt because there are tax advantages and the return (hopefully) will far exceed your payments and interest. Secured college loans are also good debt because of the deductibility of the interest payments.
Bad debt is using credit for depreciating assets such as using a credit card to buy clothes and then not paying off the balance monthly. Bad debt's interest rates are almost always high. Sometimes a credit card company will advertise a reduced interest rate credit card, but this is usually on for a limited time to lure customers away from other cards and then the interest rates shoot up. Most credit cards offer interest rates between 19-28% but did you know that the maximum annual interest rate allowed in Canada is 60%?
The good debt is the last debt to pay off. Tackle the bad debts first (high interest, unsecured, non-tax-advantaged debt) in order of the highest interest rate first.
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PLEASE BE ADVISED THAT TRADING INSTRUCTIONS SHOULD NOT BE COMMUNICATED VIA E-MAIL AND, IF RECEIVED, WILL NOT BE ACTED UPON. Without the use of secure encryption, the Internet is vulnerable to interception and forging. DundeeWealth Inc. cannot ensure the privacy and authenticity of any information, and will not accept any instructions, that you send to us over the Internet. DundeeWealth Inc. will not be responsible for any damages you may incur if you communicate confidential information to us over the Internet or if we communicate such information to you at your request.
This Newsletter is solely the work of Laura Chanin, for the private information of her clients. Although the author is a registered Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company, this is not an official publication of Dundee Securities Corporation and the author is not a Dundee Securities analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Dundee Securities Corporation.
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