Debt Free in 30

On today's final rebroadcast of the summer, I give my thoughts on how to manage your spending without a budget, and I explain how the 80/20 rule, known as the Pareto principle, can be used in all areas of money management, and in life. I call this episode "how to cheat your way to financial success", but really it's about the 80 20 rule, which works in finances, and in life. Please enjoy, and I'll be back next week with an all new episode, and an all new season of Debt Free in 30.

For the month of August we are replaying the most downloaded podcasts of the past year; not surprisingly, the first two rebroadcasts were about debt, and so is this one. Originally broadcast back in January, on this podcast Ted Michalos and Doug Hoyes answer the question: which debts should you pay first? Should you knock off the small ones first, or go for the high interest rate ones first? Does it matter if the debts are secured, like a car loan or mortgage, or unsecured, like a credit card? This is a short podcast, less than 18 minutes, but that's all we needed; I have strong opinions on this topic, which I why I addressed this in both chapter 18 and chapter 19 of my book, and Ted also has no shortage of opinions, so here's a rebroadcast where we answer the question what debts should you pay first?

It's the month of August, and we are replaying the most downloaded episodes from the past season of Debt Free in 30. This episode was inspired by all of those personal finance bloggers who love to write stories about how they paid off a massive amount of debt in a short period of time. That's great if you have a massive income and can do it, but what if you can't? That's the topic on today's rebroadcast, so please enjoy our take on a Realistic Approach to Paying Down Massive Debt.

As is our tradition here at Debt Free in 30, during the month of August we rebroadcast the most popular episodes of the past year. Today's episode is short, only 15 minutes, but I think it resonated with listeners because I discussed the concept of minimum payments. Since September, 2010, banks are required to show you, on your monthly credit card statement, how long it will take you to pay off your balance if you only make the minimum payment. That's a scary number, and it's a big reason why people call the Hoyes Michalos 310-PLAN debt helpline; they see how long they will be in debt, and they reach out for help. So what can you do if you can only afford to make the minimum payment, or less? That's the topic on today's rebroadcast of our episode titled Minimum Payments are Keeping you in Debt.

On today's show, recorded in July, 2018, I give my thoughts on what the bankruptcy of Tesla Inc., the electric car company, can teach us about how we manage our own personal finances. And yes, I realize that Tesla is not (yet) bankrupt, and in fact they have a market value of approximately $50 billion (in US Dollars), which is comparable to the market value of General Motors, so on the surface it appears that everything is going great at Tesla. Perhaps, but looks can be deceiving. Is someone who drives a new car successful? Perhaps, or perhaps they are leasing it, and can't afford the lease payments. Outward appearances do not tell the entire story. When I use my skills as a chartered accountant and Licensed Insolvency Trustee to analyze Tesla's financial results, I see the same warning signs that I see with my clients just before they file bankruptcy. What are the warning signs? First, negative cash flow. At the moment, Tesla has a negative cash flow from operations of over $100 million per month. My clients have a similar problem, although obviously with much smaller dollars. My average client has around $300 available each month to pay their debts, but their average interest costs alone are over $900 per month. They, like Tesla, have a negative cash flow, and can only stay afloat by further borrowing. Second, Tesla has bad Liquidity Ratios. They have more debt than assets, so, as we accountants say, they are not "liquid". If you have $800 in the bank but your rent of $1,000 is due today, you are not liquid, and that's the exact same issue Tesla is facing. There is another attribute that my clients and Tesla have in common: they won't give up without a fight. Elon Musk, the CEO of Tesla, is working hard; he's even building cars in tents to meet production targets. My clients often take on second or third part time jobs to make ends meet. I admire a fighting spirit, but there comes a time when you have such an overwhelming level of debt that a bankruptcy is the only logical option. My advice, in that case, is to reach out for help. (Sorry Elon, I only help people, not companies, so you are on your own).

There's a saying that you shouldn't put all your eggs in one basket, and this rings true for bank accounts. While it is convenient to have all your finances located at one bank, what happens in the event that the bank's systems are down and you can't access your money for a little while? Or, a more common scenario my clients have faced is having their bank account frozen due to missed debt payments. This makes their financial situation more frustrating because they can't access their chequing account to take care of their other bills and rent. Even though having one bank account can be convenient and may seem cheaper, on today's show, I share 3 reasons why you should bank at more than one bank for your own protection.

There's no need to worry. Bankruptcy court is not something that every bankrupt has to go to when they file for bankruptcy. If you complete all your duties and no one objects, you are automatically discharged from bankruptcy after the required period of time has passed, so there is no requirement to appear in bankruptcy court. In fact, this is the case for the vast majority of my clients. The only reason why you would have to appear in bankruptcy court is if your bankruptcy could not be automatically discharged, which happen if you did not pay surplus income, did not provide tax information from your Trustee, or did not complete your required counselling sessions. On today's show, we outline exactly what you can expect from bankruptcy court should you ever have to appear. And remember, if you file with a Trustee from Hoyes Michalos, you will never have to go to court alone. To tell us more about the bankruptcy court process, I am joined once again by Richard Howell, a bankruptcy lawyer with Clark Farb Fiksel in Toronto and Scott Schaefer, our Trustee at the Hoyes Michalos Kitchener office.

You know you need to improve your financial health. You might even know what you need to do - save more, spend less, pay down debt. So why does that not necessarily translate into healthy financial habits that move the needle? What's stopping you from achieving overall financial wellness? That's the question asked in a recent study by Mercer Canada. The study found that while Canadians have a reasonably high level of financial literacy they aren't necessarily achieving financial wellness. For example, only 1 in 3 Canadian employees over the age of 50 have a strategy for their retirement. They know they need to save for retirement, they even know what the products are, but they don't have a strategy to reach their financial freedom goals. What is the solution then? How do you improve your financial wellness? My guest today is Jillian Kennedy, the Employee Financial Wellness Leader at Mercer Canada, a consulting firm that helps employers and organizations package and offer benefits to their employees. On today's show, Jillian highlights the key findings from the Mercer study and talks about how financial wellness impacts our ability to reach important milestones like buying a new home or saving for retirement.

For as long as debt has existed, society has judged people for failing to pay it back. Over the years, I've heard hundreds of honest, but unfortunate debtors tell me they are stressed out because they believe they have morally failed for being unable to repay their debts. But why is it that we attach a moral dimension to bankruptcy at all? Is bankruptcy morally and ethically wrong or is it more accurate to just consider filing bankruptcy to be a math decision? When you face financial hardship like an illness or job loss, and can no longer afford to make your debt payments, it's a math problem, not a moral dilemma. On today's show, I give you 5 reasons why bankruptcy is not morally wrong, despite what mainstream society would have you believe. Your lender collects interest Your lender prepares for risk Life happens You are the boss Bankruptcy is a necessary social safety net My full argument is on today's podcast.

What causes us to spend beyond our means? While in some cases it's the result of a job loss or illness, in other situations, it's the Diderot Effect at play. The Diderot Effect is a social phenomenon where the introduction of a new possession that deviates from what you currently own leads to a spiral of even more consumption. For example, when you buy a new house, you don't just settle for the home. You now have to have new furniture, maybe a new deck, and so on. This creates a cycle of spending and leads to debt. How do we, then, prevent ourselves from becoming a victim of this effect? How do we control a spending spiral? My guest today suggests thinking critically about what we see on social media and on television is a great place to start. Robert Gignac works on behalf of advisors and financial professionals to help their clients better understand money management. He's also the author of Rich is a State of Mind: Building Wealth and Happiness: A Blueprint. In his experience, ordinary people become victim of the Diderot Effect because of the deceptive nature of social and digital media: The real world does not exist on Facebook or on Instagram. What that is, is everybody's pictures of their best day all the time. And none of those social networks really show us what's happening in those people's lives when it's not on their best day, when they're lying awake at 3 in the morning because the Visa bill's due and the Visa bill's $1,700 more than they've got allowable to pay it on that given day. He believes that in our attempt to keep up in large part due to our fear of missing out, we go beyond our financial means. In addition, once we've set a new and higher standard of living for ourselves, it's very hard to go back down.