Worrying too much about money? Here, Gordon Pape’s quick tips to fix your finances.
Nothing in life seems to provoke so much second-guessing as managing your money. Should I pay down the mortgage or buy RRSPs?
Do I play my investments safe or take on more risk? Should I speak to an adviser or go it alone?
If you’re one of those who has a natural aptitude for walking this sometimes precarious tightrope, you can stop reading now and move on to some of the more interesting stories in our money section. But if you find yourself just barely hanging on, here are four basic financial rules that, if you follow scrupulously, I can almost guarantee your money worries will melt away.
1. Pay off debt
I am increasingly alarmed at the rising percentage of people who are going into retirement carrying a heavy debt load. I can understand why it’s happening—debt fuelled the good life of the baby boom generation, and people learned to live with it. But after you’re retired and are on a fixed income, debt becomes a time bomb just waiting to explode in your face.
Every recent study confirms the trend, although the numbers vary from one poll to another. The most reliable measure is a 2012 report from Statistics Canada that showed 70 per cent of people between ages 55 and 64 were still in debt. That was up from 61 per cent in 1999. The number of people over 65 with debt was 43 per cent.
An online poll sponsored by CIBC in mid-2015 found that the percentage of people over 65 that still owed money was up to 56 per cent.
Just as when they were working, these folks are using debt to finance their home, buy a car or enhance their lifestyle.
Financial experts have been warning about the dangers of this for years but, based on the survey results, many Canadians haven’t been paying attention. Why should they? Interest rates have been at historic lows for most of the past decade. Money, at least so far, is cheap, so why not use it? Keep in mind that even a one per cent increase in your rate means another $1,000 a year in interest on a $100,000 loan.
3. Don’t invest in anything you don’t understand
Financial engineers are constantly inventing new and enticing products. Most of these are extremely complex but are designed around one basic marketing theme: get rich at no risk. Of course, no security can deliver on that promise, but that doesn’t stop people from selling it.
The big banks are among the worst offenders when it comes to peddling these types of securities. Principal-protected notes and market-indexed GICs are examples.
You should always be suspicious if anyone tries to talk you into a risk-free investment. Usually, these securities are structured in such a way as to protect your principal, but you may end up tying up your money for years with no return. If you do end up with a gain, it may be limited by the fine print in the plan.
Ask for a two-minute explanation of any new security that’s suggested to you. If you don’t completely understand it at the end of that time, move on.
4. Ask for help
The financial world is incredibly complex. Unless you’re a professional, there’s no way you can navigate it on your own. It’s like trying to be your own doctor or lawyer. Without extensive training, you can’t possibly succeed.