Tool – noun. an implement, especially one held in the hand, as a hammer, saw, or file, for performing or facilitating mechanical operations.
Money – noun. any article or substance used as a medium of exchange, measure of wealth, or means of payment.
There are a lot of ways to look at money. You may not have thought about it, but money means different things to different people. I asked my friends to finish the following thought:
MONEY IS __________
Amazingly enough, no one wanted to finish the thought. WTF? People just don’t like talking about money. It’s like they fear it. They could have said, money is necessary, it’s valuable, needed, scarce, hard to get, the list goes on and on.
I think we really need to open up about money and our knowledge or lack of knowledge about it. No one knows everything about how to deal with money and so the more we talk about it the more ideas we get, the more tools we have.
For me money is a tool and as much as I can, I use it as such. Firstly, it’s a tool to purchase the things my family and I need. Secondly, it’s a tool to build wealth. Thirdly, a tool to help others and fourthly, a tool for pleasure.
Most people I know spend money and never really think about it. Do you know how much you spend on groceries every month? How much money went into your gas tank? Can you tell me how much you spent on booze or restaurants? NO? Well you’ll be happy to hear that you’re like 51% of the Canadian population.
I’ll give you one more statistic before we move on.
On average, Canadian household debt represented 177% of disposable income in 2019.
What does that mean? It means that for every $1,000.00 you bring in, you probably owe $1,770.
Think about it. Interest on your mortgage, credit cards, line of credit, car etc… Then you’ve got the actual money going to pay off the debt on top of interest, mortgage, credit card, you get the idea. Do I need to mention food, cable, phone, blah, blah, blah, blah.
My point is, many people (including myself) have and are using the tool of money very badly.
A lot of what I’m going to say is obvious to most if not all the people out there in blog-land.
Most know that there is good debt and bad debt and that most debt is bad.
Buying a house is a good investment (most of the time). But there are times when it’s a bad investment. Buying a house that’s valued at $100,000.00 for $200,000.00, because the realtor says things like, “That’s the market right now.” and “Bid higher so you don’t lose it.” and “Don’t worry house prices never go down.” and other crap like that… they are full of it.
There are bubbles… remember 2008? NO? Here’s a very oversimplified way of explaining some of the housing issues that happened then.
Someone bought a house for $200,000.00. The house was really valued at $100,000.00, but the realtors and mortgage brokers were all like…
“Don’t worry man… you can never lose buying a house and interest rates are low.” and “In a couple of years you’ll be able to pull out tons of equity or resell it for way more. You’ll make a killing.”
So, they buy the house. Then, the shit hits the fan, they lose their job, a recession hits, interest rates go up. But wait, over the last couple of years they’ve been adding to their credit card debt, bought a car and maybe they were hoping to remortgage and put all that debt on their mortgage. The only problem is they have no equity or they don’t make enough to pay the bill. They are what they call in the business “maxed out and screwed”.
They can’t afford the new payments and it turns out they’re not the only one. They try to sell their house, but no one wants to pay the asking price. Even if they got what they paid for it, by the time they add in all the fees and the interest they paid, they’d still be behind.
They lose. The realtor and the banker wins. After all, they made a bunch of payments already and now they can sell that same house for $100,000.00 to someone and start the ball rolling all over again.
Isn’t it crazy that people will spend more time picking a movie to watch on Netflix, than they will think through the long term consequences of buying a house.
If we just stopped for a moment and thought about our future selves and the costs associated with the decisions we are making today and how they will affect us in five, ten, fifteen years from now, we’d most likely look back on our choices and be happy we did what we did. Our future selves would be grateful.
I remember when we first started looking for a house to buy. At the time the banker said we could afford a mortgage of $250,000.00 (because our in-laws cosigned) at the time that would have been monthly payments of about $1200 a month. I was bringing in $1500 a month.
So I asked him, “What are my kids going to eat?”
and he responded with “Oh, you’ll find a way, you’re a smart guy.”
“Fuck you.” was my response. “All you care about is your commission.”
Our goal was to get a house, not starve to death. We made a choice to raise our kids and to us that meant one of us staying home to do it. Once the kids were in school, then we would have more options. So what did we do? We looked at every option under $115,000.00. There wasn’t a lot out there.
At the time Vancouver had just won the 2010 Olympic bid and the housing market was booming. We found an old crack house on a cul-de-sac and made it our own. We stayed there for 16 years. When I told my brother I had purchased half a duplex for $112K, he thought I’d gone mad. After all, houses in his part of Ontario were going for $50K.
So what’s my point? My point is we had a budget, we waited and looked and waited and bought within our means. We put money into the house as we could and made it ours. We knew that this house was an investment into our future. We knew that one day we would sell it and use it to help us reach our retirement goals. We didn’t really know all the hows and whys, but we had an idea and that was enough to keep us on track.
We were still trying to figure ourselves out. We were about twenty-five thousand dollars in credit card debt. Yes we were lucky to have in-laws who were willing to take a chance on us. We opened our books and showed them the plan we had to make the mortgage payments and the plan to pay taxes and keep up with our other bills. We had a few tricks up our sleeves to keep up. And as parents often do, they had more hope and faith in us than we did… Thank God.
So for today the takeaway is… Money is a tool that we need to use properly. In the next couple of days we’ll continue to talk about how we can fine tune our money skills.
I hope this helps a little.
Chip and Hunnee Toodee.