After almost 2 months of senseless spending and lack of frugality in my life, today I made a pre-payment for my mortgage (only $404, but better than nothing, is it not?). I saved this money by my humble daily savings in the last 2 months. I am feeling extremely happy, proud, and excited about this […]
You’ve hit the wall. You realize that you can NEVER pay off your debt (thunder cracks in the background and a lone wolf howls as rain starts to pour). Thanks to the good ol’ credit card companies who brought you high limits and sweet, sweet low or no interest deals, your non-housing debt has grown to where it may be bigger than your mortgage.
You are not alone. You are among the people who buy in to lottery pools at work and set up biweekly mortgage payments, people with “good” jobs who live well and are broke. They have no savings other than what is forced on them through payroll deduction. They include inheritance from parents who are alive and kicking (and may also be broke) in their retirement planning. They unquestioningly pay for orthodontics and orthotics while earning points on credit cards. Along with a supersized mortgage, the bank gives them a line of credit which they use to pay off credit cards every month, so they can avoid the incredibly high interest that credit cards charge. The credit card company congratulates them and raises the limit. Next month the kitchen renos go on the credit card. And so on.
Until the line of credit reaches the max. Now what? Along comes an offer you can’t refuse – a low interest credit card – 3.99%, 1.99%, maybe even 0%, maybe from the same company as your regular credit card. You can use this low interest card to transfer money to your regular credit card or bank account. Problem solved – until the low interest period runs out and you start playing a stressful musical game of moving balances from one low interest card to another, until all the offers run out and you have no chair to sit on. Your debit is unimaginably high and you are paying normal credit card rates at 20% or more.
Is it your fault? No. You’re probably feeling guilty but I’m going to let you off the hook. You were trying to manage your debt with low interest.
Yes, you bought a bigger house than you really needed. And yes, your cars are more expensive than they should be but the payments are manageable. OK, you buy things at Costco that aren’t on your “list” because they’re’ such a good deal, and those coach lamps on the three-car garage look awesome. Sure, you made your usual winter getaway even though you had to put in on a credit card and knew you had no money to pay for it. Even with the usual credit card interest rate, you should have been able to pay it off in a few months but then one of the kids got “invited” to join an elite sports team and the registration fee was almost $1500. And then your niece got married and between the jack-and-jill and the wedding gift and paying for your daughter’s flower girl’s dress it cost almost $1000.
It’s not your fault. It didn’t happen because you are a compulsive shopper or gambler and you overindulged. The banks and the credit companies and the car dealerships didn’t force you to overspend and they were there to lend a helping hand at a very reasonable rate when you needed money. They based their lending on your good credit rating and your good income – and your good payment record. They are the experts – why would they loan you money if you weren’t able to pay it back? They made you think it was OK.
And yet here you are. Your consumables debt is more than what you make in a year. If you had to make actual payments you would be bankrupt in a few months. If any of life’s 3D disasters happened – downsizing, death or disability – you don’t have enough savings or equity to pay it off. Is it their fault?
No. I will go out on a socialist limb here and say – much as you should not have overspent – the government is to blame. Government requirements for home financing are excruciating. But auto dealers and credit card companies are not supervised in the same way. When my kid turned 18 they were given a $2600 limit on their first credit card – no job, no plans, no income, just a student credit card. Why? They never spend more than $100 on their credit card, mostly for online purchases and you can’t put tuition on a credit card. A client’s 30 year old son makes $35000 and owes $35000 – on two credit cards. When credit card companies approve a new card, they look at your credit file and can see how much credit you have on other cards. No one’s credit card limit should be as high as their annual income. And don’t get me started on car payments – that is a whole ‘nother blog.
I’m not even addressing the ridiculous interest rates that credit card companies are allowed to charge. If you owe $2000 on a credit card and they charge 20% annual interest, that’s horrible but it’s $400 and you have a hope of paying it off in a year. When you owe $20,000 on a credit card, that same interest is $4000 – you can’t even keep up with the interest never mind pay off the debt. The high limits mean people are well beyond their ability to pay off the balance – so they can keep paying the interest for a very long time. Why would our government – any government – allow this? American Express – the original credit card – had the right idea – pay it off every month or you don’t get to put any new charges on it. Credit cards companies should be held to that standard and they are not. They are allowed to intentionally put you in a financial situation that you cannot handle.
So, contact your government representative and urge them to make this a priority. Part of the penalty for the credit companies who got you into this situation should be that they have to carry your debt at the low interest rate they offered you in the first place until you pay them back – over about 25 years.
In the meantime, impose your own limits. If you can’t pay your credit card off by the end of the month, don’t put any more charges on it including trips, gifts, or orthodontia. Tell the dentist you’ll be returning the wires or that you need to make a payment plan.
Low interest credit cards seem wonderful when you first find out about them. Like Fluffy asleep in the attic, so sweet – what could possibly be wrong?
Many moons ago, when interest rates hit their first historic low, finance companies came out with credit cards that offer to transfer an existing card balance and charge NO interest for a set period – 0%. And at first it was in fact 0%, for a year, sometimes longer. Or you could use the balance transfer to pay for things like a new bathroom or a vacation, instead of using your lame 7% line of credit, or applying for a traditional bank loan that you had to go down on one knee for.
You didn’t need to have a financial advisor to figure out that 0% was better than any other percent. The first few times the NO interest period ran out you were able to pay off the balance without experiencing the pain and humiliation of a month’s interest at regular rates.
When I say “pay off” I don’t mean pay off the debt. I mean you were able to transfer the balance from the NO interest credit card when the interest free period ran out, on to your lame line of credit until the next NO interest offer came in, which it inevitably did. It got so that it was infuriating to pay 7% interest while you waited for the NO interest offers, which were timed so that you usually had to wait an interest cycle or two, not saying that the credit card companies were colluding with the banks or anything (cartel much?). This worked well for several years until life got in the way and there was no room on the line of credit for the switchback. Fluffy was beginning to wake up but still looked pretty cute.
You may have wondered, naively, how the credit companies could make money, until the one, two, three times that you didn’t move the interest free balance quickly enough and ended up with a month of interest that in the old days would have been referred to as “usuary” – an illegally high rate of interest intended to drive the debtor into bankruptcy. Then it made sense: for everyone that managed to transfer their interest free balance out on time – or actually pay it off! – there were many others who didn’t. And one month at regular credit card rates more than compensated the finance company for waiting for you to mess up.
Luckily, you thought, other institutions started doing the same thing. Every month offers came in. Even if you had never done it before, if you had any debt at all you had to consider it, with the best of intentions of paying it off. So you could now funnel the line of credit balance to a second NO interest credit card, pay off the balance on the first with the line of credit and then transfer the line of credit balance back when the next offer came along. And so on, and so on until you had several NO interest arrangements going. Fluffy full on is a pretty scary thing.
Even now, much later, it makes absolutely no sense to carry a debt at a higher rate of interest when a low rate of interest is offered to you, but you know that your “credit” is growing every time you go through the revolving credit door. You feel like you are in a bind and you are: at about $100,000 of low interest consumer debt (not your mortgage), they stop offering you credit. It is now difficult to get a mortgage or a car loan or refinance either of these when your unsecured debt is this high. When it comes time to revolve you have no where to go. And that’s when the credit card really starts making money – at 22%. You are now one of those people in the commercials who dreads opening bill statements.
It’s time to get help from a cash flow planner or a credit counsellor. Then read my posts about budgeting.
And recognize your credit cards for what they really are: a many-headed beast that needs to go back to sleep.
Day 26 – Bonus. My big brother came by and picked up some leftover blue metal siding which was harboring several lifetime supplies of pine cones for the squirrels. He very successfully repurposed it to side part of his own garage, painting it white. The metal had already been repurposed once when I paid two millennials to strip it off a large shed that was being bulldozed down at a former residence so I could side and re-roof my own garage – waste not want not can be a good thing.
Day 27 – a Portables Dorothy Parker book purchased at the Thrift Store for 50 cents. It was from a series of classic and sassy paperbacks from the 50’s – worth keeping for its vintage-ness, but… I read all of it. It alternated between heavy and/or acerbic short stories which were alternately enjoyable and – sorry Dorothy – mostly school-girlish poetry about men who break women’s hearts. Poor woman – all that biting social commentary was compensation for being a love-worn romantic. The whole thing TBH was tough slogging and not the literary romp I thought it would be.
Day 28 – my daughter’s father was picking her up and saw a small ceramic turtle in one of my plant pots. He wanted to know where I got it from. “Take it!” I said. “Really – take it!” He hesitated. I told him it came from the $2 dollar store in another city and if he had a use for it he should take it as it would help me meet my quota for the day. He still seemed reluctant but took it, inspecting it for cracks as he went down the walk. I hope he actually used it.
Day 29 and 30 my calendar is blank. I’m sure I gave something away those days but I’d be making it up if I wrote them down. I don’t know why I didn’t write it down but then I’m not much of a finisher. If it had been February I could have called it.
The question is: why was this exercise so difficult? I have a house full of stuff that needs to be gotten rid of and I don’t want to end up renting a dumpster when the time comes. If I died tomorrow, my family would have a horrible job getting rid of everything, even though you can get directly across most rooms – no newspaper mazes. Even so, most items require too much attention before going in the giveaway bag.
I am a fan of the Peter Walsh approach, which generally means getting all the “like” items together and then eliminating most of them. Seeing one t-shirt that doesn’t fit leads me down the garden path of cushion projects and cleaning cloths and losing weight and using the sleeves to put on sleeveless dresses (!) Seeing 6 t-shirts that don’t fit makes me a bit nauseated and overcome with the need to banish them all from my sight. It may be that the one-a-day approach doesn’t work for me personally.
For my next feat…
Day 16 – my home doesn’t look any different and I feel like I’ve been at this forever. Wearily I cast a Bigelow Green Tea can in the giveaway box after comparing it to the other green tea box I have which my daughter gave me one year for my birthday – I can still remember her rushing up the fronts steps with her dad, gift bag in hand; she was so excited. I wonder why I even have to think about this. No one needs two green tea tins and not only does the one she gave me have such a wonderful memory attached to it, it is a much nicer tin.
Day 17 – the entry on my calendar looks pathetic – a gift bag? That’s all I managed to eliminate? and on a Saturday. I’m embarrassed for myself.
Day 18 – a pair of white shorts, Dockers, really good quality, but a retro style that doesn’t flatter any body type – high on the waist, full at the crotch, wide in the legs. It’s the extra fabric at the crotch that has always mystified me – who were they made for? Maybe they’re men’s shorts and I’ve never realized it – “boyfriend” shorts. Why do men feel the need for all that extra space between them and their clothes?
Day 19, 20, 21 and 22 – I gird my loins and go into the basement where I know there is a field day of stuff to get rid of. Many photo frames – I once collected them to put family pics on top of the piano the way they do on the soaps, but it was too dusty; Gems jars – like for pickling and preserving – I had gathered them for a wedding that got cancelled; there were two boxes so I counted them for two days. Three smallish black cork boards, purchased for an office I once leased – stylin’, but no use to me after I ran away from the business after 2 hellish years of trying to manage other businesspeople.
The basement is exhausting, because everything I handle represents a project I once had in mind. To give it up is to admit something – like I will never be an astronaut, or a concert pianist, except in this exercise, the aspirations were so low: to display photos in eclectic frames on stands meant for you to pick them up and touch them lovingly while music plays in the background; to organize your working life in a stylish and sophisticated manner – no giant jar full of pink messages for you! to marry in a purpose-built shop decorated in gauzy voile and fairy lights while you danced the night away under the 3-dimensional foil stars in your sparkly shoes. The shoes I still have.
Day 23 – back upstairs I put a salmon coloured Top Shop top in the giveaway bag.. Salmon is not a colour anyone should ever wear and Top Shop should apologize.
Day 24 – Clothes are low hanging fruit in this exercise. Pull something out of a closet, try it on and realize it doesn’t fit. I have several closets to work with – a San Fransisco white tshirt with a shirred neckline goes. I bought at least 4 of them at the time, thinking that the shirred neckline would make them a suitable work-at-home option, but still feel that t-shirts are not appropriate. And then I outgrew them. Sometimes that 5% spandex is so cruel.
Day 25 – Bonus! I’m sitting in my backyard on a hot day with a friend, explaining why there is a green hump in the corner of the yard – a collection of furniture I once thought I would refinish and hauled between residences, now shamefully kept under a tarp. She asked me if I had any mirrors there, she had a wall space in her small home which required a reflective surface. I did not. But then I remembered there was one at the back door, waiting to be hung (for the past 10 months). I walk by it every day. She demurred, at first thinking it was too heavy for her to handle, maybe not the right size, I should use it, hang it up the way I had planned but I insisted until she took it home with her. I felt so blessed.
June 10 – a monster bag of my daughter’s clothes – one of those plaid bags you get in Chinatown – and a box of many-coloured Converse sneakers. When I set the challenge for myself, one of the rules was that it didn’t matter if it was one small item, or ten huge items, it still only counted as one per day. I was delighted that my niece’s daughter said she would take everything. In the past, she has always demurred, saying she didn’t really need anything, it wouldn’t fit, it wasn’t her style. Now that she is 13 it is a different story.
Some of these clothes had been to Toronto and back where I thought I had found the ultimate consignment store, which gave me $30 in store credit the first time a I brought things in and a Big Fat $0 with a Big X in Black Marker on the bags the next time – not really a Kind Exchange at all. Not able to find a suitable charitable recipient in Toronto (another blog), I hauled that stuff back and was going to try a large local consigner when my niece carted it all off the Regina. My sadness was that it all only counted as one thing
June 11 – so I cheated a little and counted the clothes and shoes for both days. I mean really, the box of shoes was a separate item. I also cheated by counting two almost new t-shirts which I offered to my roommate, even though I had meant to do that quite awhile ago. I don’t know – does cheating twice make it any better?
June 12 – a pretty wine bottle my sister-in-law gave me with a woman blowing bubbles on it. It was called Lola and I tried using it to keep bath salts in but the humidity in the bathroom made the salts stick together. Also I saw that I could get another bottle just like it full of wine any time I want.
June 13 – Gap shorts – a tough one as I had shortened them myself from pants, but what do you know, they still didn’t fit. Huh, you’ld think hemming something up would make you slimmer.
June 14 – something that I had 4 of that looks like “cakes”, or maybe cables? Cahiers would make sense but I don’t really speak French.
June 15 – office supplies, unspecific; maybe I did give away “cahiers”.
One of the many fall-outs of our modern life is too much stuff. Getting out of the habit of acquiring new stuff is the basis of balancing your budget. Getting into a habit of getting rid of old stuff is the basis of balancing your life.
So, after about a week of trying it out, I am challenging myself to get rid of at least one thing a day for this month – sell, give or toss. If I can’t bring myself to do it, my penalty is that I must do whatever it is I was planning to do with the item in question – frame it, fix it, put it where it belongs.
June 1 – child’s label maker; a birthday present never used by my own child now 20; left behind when re-gifted to my niece – who comes up with this stuff? Going to goodwill. Hopefully there is some child somewhere out there whose head can get around making their own labels
June 2 – two vintage dining chairs earmarked for reupholstering; great bones but they made a home for some warm-blooded creatures when left outside over the past two winters and I don’t think I will ever find the time for them so they will go on the boulevard over the weekend. I’m sure there is some industrious person who can turn their talents to these.
June 3 – 9 I managed to put something on the give-away pile each day but did not manage to keep track of it here as I have planned – part of making a new and “good habit” is being able to look back and know that you have done it. When it’s new to your life you might not be able to be sure you did that new something without noting it in some way. I started putting a check mark on each day on a calendar but found I couldn’t really remember what I had given away – no satisfaction in that. So on the 9th I decided I should write down what I had given away but could only recall:
June 5 – a black jacket that had always served me well – crossed the boundary between business and casual and went with everything – but suddenly – like hair that needs trimming – not flattering. A difficult give-away but as Peter the declutter expert says “If it doesn’t make you feel fabulous you shouldn’t keep it.
June 8 – a small square basket, quite nice, that I thought would be a good repository for other clutter. It never really served this purpose. I find that baskets generally are NOT good for organization as you can’t see what’s in them and tend to forget about it, until you discover it, dusty and overturned at the bottom of the closet behind all your favorite stuff that never makes it into the basket.
June 1 thru 4 and 6, 7, and 9th could have included:
- 2 Hard Rock Café keeper glasses, never used but my daughter seemed to feel bad about them going so I retrieved them
- a metal garage door that my brother gave me but the contractor didn’t want to install it; my brother took it to my other brother
- 5 – 5 gallon pails that I scavenged from a neighbor, previously full of used gravel which I poured into a muddy hole on the parking pad
- some pants that I’ve been hoping to fit into again
There were other things, but you see my problem. So, my chronicles continue in a more detailed fashion…
To all girls and women:
Where ever you go
whatever you do
whatever you see
whatever you hear
The world is made up fully half of females.
So, when you see only men sitting at the front of the airplane
when you see only men yelling and shaking their fists in government
when you see only men at a construction site, or in a fund raising photo, or in a history book
or all the statues at the park are of men
Remember, that girls and women still make up half the world.
I’ve been meeting with too many broke people lately.
Not people without jobs, or homes, or savings and investments.
Just broke. They have good salaries, nice homes, much nicer cars than I have ever had in my life, generous pension plans, inheritances – broke.
They are upset. One of them cried in my office – how can we work so hard and have good jobs and still not be making it?
There are lots of reasons which all end up reducing to one single thing – we are over committed.
In the old days it was called “over extended”, which seems a little judge-y now. It’s not for anyone else to say we’ve over extended ourselves beyond our income. We make our own decisions, we are adults, we know stuff. And if we are teachers or professors we know A LOT of stuff.
So I will use the term “over committed”.
Here are some things you may have “over committed” yourself to:
- A house that cost too much
- A cottage that cost too much
- Two or three cars that cost too much
- Activities that… well, you get the point
We do need a home, and we deserve to redecorate, and we need transportation, and we need to exercise, our kids need to play hockey or learn how to dance (do they, really? Maybe they just need to exercise – oops judge-y).
The difficulty is in justifying everything we need and committing to “the best”.
There are a lot of reasons why we can’t afford “the best”, even if our income is substantial. We are trapped in a time loop between days gone by when people could afford the best, but the best didn’t cost as much (the sixties) and a time when people have borrowed far more money than they can ever pay off in their lifetime to achieve the best for themselves and their families, because the best is many times more expensive than it was 60 years ago. – relative to our income.
For example, my mother bought a home in the early 70’s. It cost $4500 and her income was about $6000 a year. It’s difficult to relate to those numbers (inflation IS a thing!) so the important take away is that her annual income was more than the cost of the home.
Younger clients with a combined income of about $90,000 recently bought a home for $360,000. It may seem like a reasonable cost, or even low, depending on where you live until I point out that their home cost almost 4 times their income, compared to my mother’s that was less than her income. In large cities, homes are selling for $1 to $2 million. Even if you have Big City income, homes are still running at least 4 if not 10 times personal income – that is LITERALLY exponential!
When the basic cost of living – a roof over our head – is out of whack compared to our income, and that cost mortgages us to a lifetime of debt, everything else we spend money on becomes part of that debt. The definition of debt is buying something you don’t have the money for – something you can’t afford.
If we add to that a many-generations enculturated sense that we “deserve” the best, the stress on our income is exacerbated to a level that cannot be rescued. While this young couple was careful in their choice, they probably could have found a home that cost less because it needed work or wasn’t in quite as convenient or comfortable a neighbourhood.
“The best” is good, of course, but I challenge you to start thinking in terms of “the best you can afford”.
It was “the best” in that it was move in ready with new granite countertops and refinished flooring.
So when you are signing up for the latest gym opening, consider options because they don’t all cost the same and you can probably get as much out of the local community facility or Y. Exercising at home costs virtually nothing given YouTube and if you can avoid buying unnecessary equipment and sports gear. Yes, you make a lot of money but there are too many areas of your life to commit to the best.
As enjoyable as the memories are, travel is stressful for many reasons, one being that every decision made is a sliding door to many outcomes, some wondrous and amazing as in “we would never have found this place if we hadn’t missed our train”, and some regrettable and frustrating as in “we lost a day because we missed our train”.
Faced with departing at 6:30 AM or arriving at 12:44 AM, I went for the later departure. The arrival was only delayed by 20 minutes AND the baggage by another 40 – I am one of the few people who thinks that $25 is not a lot to pay for the privilege of letting someone else carry a week’s worth of clothes and supplies to the plane with the added bonus of not having to wrestle 30 or 40 pounds over my head so I waited with all the other travel zombies trying not to look irritable over the fact that there was ONE flight on the landing strip. It was too late, even though I was crossing backward over 3 times zones and it should only have felt like 11 PM, the ghostlike environment of closed kiosks and picking my way over the tile-layer made being the last flight in feel kinda spooky. I arrived at my bedroom after 2 AM, grateful that there are still drivers at the airport after midnight, and only panicking once when the driver seemed to be taking a different route than usual – probably because downtown Toronto looked abandoned.
Having to get up the next day for an 8:30 AM appointment didn’t help. Not only did I not have enough sleep but my body was back in the mountains thinking it was 3 hours earlier. What followed the appointment was a jet-lagged 2 hour nap and an afternoon of battling my eyelids and kicking my immune system into order as the inevitable post-airport cold bugs try to have their way with you.
Making the sacrifice of getting up early – 4:30 – would have had me home about 12 hours later local time. Even with horrible delays I would have been in my pyjamas watching Netflix by 9 PM instead of worrying about my phone battery dying on the plane while my restless legs literally kicked in as they do when it is night time and I am tired. A decent night’s sleep – no matter how early I get up – will usually prevent any cold bugs from having their way with me.
So something to remember: when you have a choice, take the earlier booking.