Life Fail: Steve & Krista

This is a great article by Money Sense. I find the figures comparing income and debt load over the decades interesting — and alarming. Can you believe Canadians owe $1.27 for every $1 they bring in? That aside, I found the couple profiled in the article a bit of surprise.

At first glance, they seem to be doing everything right: no consumer debt, paying off their mortgage early, keeping their grocery expenses down, and sharing a vehicle. They even have two incomes. So why can’t they find money in their budget to put away for retirement or build an emergency fund? They say they don’t know, and the writer of the article doesn’t know either.

Well, I do.

First of all, they’re paying themselves last. Never ever do this. Savings isn’t an extra to your budget. You don’t save whatever is left over at the end of the month. Instead, make your savings goal first — it can be small like $100 or $200 each month — then adjust the rest of your budget to fit it. NEVER the other way around. Ever. Every financial book I’ve ever read was adamant you pay yourself first, and the reason for this is simple: it works. Steve and Krista need to commit to their emergency fund and RRSPs before anything else comes out of their accounts. It doesn’t matter if they only put $50 towards each of these, as long as it’s something.

Secondly, they made accelerated payments on their mortgage. Now, this is generally a good thing… if you can afford it. But they’re all like, “We took six years off our mortgage. Omg where is all our monies?!?!!”.

Seriously?

I mean, really?

Imagine they had just slowed down that accelerated payment plan and built up an emergency fund first. I’m not saying don’t pay off your mortgage as fast as you can, I’m just saying cover the essential foundations of financial health first. I get that they were trying to save on the long term cost, but the overstretch forced them to put a $1000 truck repair on credit, and using credit for emergencies like that essentially cancels out much of the gain of paying of a mortgage quickly because the interest rates can be triple or quadruple on credit cards than what they are on a mortgage.
Furthermore, paying off that mortgage quickly by forgoing retirement savings is almost equally as bad. By failing to contribute now, they’re missing out on a number of years of compounding that could really grow their retirement nest egg. I pointed out when I started my RRSP that waiting just five more years to start saving would have cost me nearly $100K by 65! When it comes to building wealth, your biggest asset is not necessarily the amount of money you have, but the amount of time. Start early, stay committed, and get rich. Period.

I’m not sure if Money Sense is profiling these people with overly-generous outpourings of sympathy because they genuinely believe these fools are getting screwed, or if they think these guys are as dumb with money as I do, but are writing them up this way so the equally dumb masses can relate. I just can’t believe a financial writer can say he doesn’t know where Steve & Krista’s money is going. Maybe they just need to try keeping track of it for a month or two and finding out.

Life Fail: Muhammad Ali Jabbar

Ok, this story on Money Sense’s main page really pisses me off.

I read it when it first came out, and it annoyed me then, but I thought I could get over it. But alas, they’re throwing it in my face every day so I feel the need to address what a dumbass this kid is and how ridiculous it is that the Money Sense writers try to drum up reader sympathy for what can only be described as a classic example of being young & stupid. The guy in the story, Jabbar, is painted as an unlucky student that merely graduated at the wrong time. Now the old people are getting richer and the young people have the odds stacked against them. Boohoo!

What’s that you say, Universe? Everyone has financial obstacles to overcome?

I might be an oddball in the sense that I don’t worry about the market, inflation, or discrepancies in income when it comes to getting rich. While I know those things do have their influence on wealth accumulation, I refuse to regard any of them as any sort of insurmountable barrier that will prevent me from achieving my goals. At the end of the day, what I have is still going to be the product of what I saved — not the era I was born in or what career I pursued.

I don’t feel sorry for Mr. Jabbar. Frankly, he’s a dumbass. He’s not unlucky, he just made the wrong choices and now he’s paying for them. Why the hell did he need $30,000 in student loans if he worked during the summer and lived at home? Why does he have a line of credit at $15,000? Why would you get a mortgage if you are newly graduated and $45K in the hole? Furthermore, given this track record, I bet there’s a credit card or two in there they just didn’t bother to list. These are all bad decisions — though most people won’t see that, since such displays of debt accumulation are commonplace. What we accept as “normal” is our most destructive financial fault of all.

This guy did not get ripped off — the article states he has a good job! His problem is living beyond his means. What he should have done is delayed purchasing a home, and used his working income to pay down his debt and save money for a down-payment. If he did it that way, not only would he have no collections agencies calling him, he’d have been able to put more down on his mortgage and thus reduce his monthly payment. Instead, the poor kid’s ruining his credit score, crumbling under the stress of his obligations, and — worst of all — squandering the years when he could be stuffing his bank account with cash for his future self. FAIL.

Oh, but I bet he has a really nice car!