Thursday, May 30, 2013

Rule #29 Talk about money. Ask about money.


"Money, like emotions, is something you must control to keep your life on the right track."
- Natasha Munson


Its funny how people refuse to talk about money.  I never really understood why money got grouped in with religion and politics as things NOT to talk about when at a dinner party.  And by talking about money I don't mean comparing paycheques, bank account balances, or hourly consulting rates.  When I say "talk about money", I mean discussing strategy, risk tolerance, debt management, negotiating tactics and so on.  I believe not talking about money is one of the reasons a lot of people are clueless about money management.  I suspect people are reluctant to talk about money because they don't want to talk about all the stupid things they have done or are doing with their money.   Or, it could be that they feel they're being compared to someone who makes way more or less than them and that makes them uncomfortable.  Maybe its because they don't want to find out they could be doing something better or that they are behind all their peers, as if there is some sort of competition going on.  The fact that few people talk about money is probably one of the reasons many families, singles, seniors, kids and governments all have such poor money management practices.

I for one have always been curious about money strategies, and I've never been afraid of asking questions however basic they may be.  I'm also a big fan of the sharing of ideas and problem-solving techniques, usually over a couple of beer.  When I was in University, I remember learning the most important and practical things about life through discussions at the student pub over cheap beer and poutine dinners.  The interactive discussion is where the magic happens, not the book learnin... and I think that still holds true today in the digital age.  I've managed to connect with a lot of like-minded money-talkers over the years and we have become a sort of financial network that I tap into quite regularly.  If you want to become well versed in a particular topic, it is beneficial to surround yourself with people who are smarter than you or have varying opinions on a subject, and the topic of money is no exception, and don't forget to ask lots and lots of questions.  I always like to talk about the mistakes I have made because I am a big believer in the sharing of ideas, both good and bad, and working through problems with different perspectives.  Making mistakes, or being unhappy with your decisions, is part of the process.  For me, it is not something to hide.

The Last Defence Lounge at the University of Calgary for Poutine and Beer nights.

With regards to finances, I am fairly opinionated on those strategies that work for us and those that do not.   However, I have had some great discussions with other people who have completely different strategies, and who are very happy to learn about what we do, and are keen to share their strategies with me.    Knowing and understanding the various routes to financial independence is the first step to actually getting there.  I try and learn from anyone who will talk with me about money.  One priority of mine is to talk money with our two boys when the time is right.  A lot of kids dont get "the (money) talk" with anybody until they find themselves up to their eyeballs in debt.  And while its never too late to learn about money management, it does sting less if you learn good money management earlier in life.

Some topics that might be worth discussing with other people when the topic of money comes up: Investment styles, debt reduction strategies, how to get the right mortgage and whether to pay it down or not, how to define and limit risk, alternative and multiple income streams.  It may also make sense to contact persons you know who have good money practices or have done well for themselves financially, and ask them for some advice.  My experience has been that if you are serious and genuine in your questions, most people are pretty open about talking about their money strategies.

Wednesday, May 22, 2013

Rule #28 Pay No Bank Fees.

Nickel and Dime: verb. To drain or destroy bit by bit, especially financially

People complain about banks and their fees ad nauseam.  You know what I mean.. "The greedy banks are being greedy."  "I'm getting screwed by the banks in fees."  Blah blah blah.  But these folks do very little to change the fact that they're paying all these fees.... You know what I call these people?  Whiners.  Don't be a whiner.  If you don't like paying bank fees then stop paying bank fees.  

Here are some strategies we use to avoid paying any bank fees or make it so the benefits of membership outweigh the fees (as is the case in a Credit Union).

1. Use/Join a Credit Union.  Simple eh?  Well some people have been with the same bank forever and yet there are Credit Unions all over the place that you can join and get reduced rates on fees and quite often they offer profit sharing that returns some of the profits to members/shareholders.  We've been members/shareholders of a Credit Union for about 11 years and we've gotten back more in profit-sharing annually than we've ever paid out in fees.

2. Don't use Bank Machines that are not owned by your bank.  I bank at TD and I will always travel the extra distance to save on the transaction fees.  Never in a bazillion years should would I use a "While Label" machine.  White label machines are the worst! They can take a buck or two from each transaction and then YOUR bank will also charge you a buck or two on the other end.... So if you take out $20, you could pay $2-$4 in fees.  There is nothing like a 20% fee taken out with your withdrawal to erode your bank balance.  I occasionally get caught a couple times a year (usually in a pub) without any money and the bar will have a white machine instead of taking debit payments.  The pub is getting a cut of every transaction so they can squeeze you a bit more.  In this case I will pay with a credit card and then pay the bill off when I get home later that night.  Those Bank Machine fees are easy to avoid if you just make the effort.

3. Maintain the minimum balance to waive the monthly account fee.  As mentioned above I bank at TD. We have an Infinity Account with them that allows infinite TD bank machine transactions along with some other fancy perks all for the monthly fee of $14.95.  Thats about $180 a year.  They will waive the monthly fee if we maintain a balance of $3500 or more.  So that's exactly what we do.  To save $180 on a $3500 balance is about a 5% return on your money.  This is a guaranteed saving... much better than the crappy 1-2% you get on GICs these days... Before you start putting money into GIC and other pay-nothing "investments", why not play by the rules and reduce the amount of fees you're already paying.  Of course it takes some discipline to maintain that bank account at or above the right balance, but thats what managing your finances is all about... Discipline.

4. Use Pay As You Go Overdraft Protection instead of a monthly fee.  I used to pay a monthly fee of $2-$4 (the price rose over time) for the protection in case I wrote a cheque that I didn't have the money for.  Since we now maintain a balance of over $3500, we never use the overdraft anymore and if we do get ourselves in a situation where we are overdrawn, we pay a one-time fee of $5.  It's certainly a better deal than paying for something we're not using.  Add this $2-$4 we're saving on overdraft fees to the $15 we're saving from maintaining a $3500 balance and the savings are beginning to become material.

So there you have it.  Last month we paid absolutely nothing in bank fees so it definitely is possible to use a big bank and yet not pay any fees and it was actually pretty easy to do.  So while other people are moaning about paying their banks what are essentially voluntary fees, I'm financing an extra 12-pack of premium beer from the monthly savings.  Here's mud in your eye!