The Smart Canadian's Guide to Saving Money

Pat Foran is On Your Side, Helping You to Stop Wasting Money, Start Saving It, and Build Your Wealth

Pat Foran

• Publisher: Wiley
• Year: 2010
• Print ISBN: 9780470159774
• eBook ISBN: 9780470738740
• Edition: 2
• Topic: Personal Development
• Subtopic: Personal Finance

Canada's top consumer advocate returns with more financial advice.

Canadian consumers are focused on spending and managing what money they do have wisely, but have more questions than answers on most financial topics. Television personality and consumer advocate Pat Foran shares tips and strategies about the questions and issues he sees most often, and explains how some little things can soon add up to a lot of money. Some of the topics covered include:

• Credit and loyalty cards, and what kind of deal they really are
• How much insurance is enough – and what kinds do most people need?
• How to shop for a vehicle, and if it's worth it to import from the US
• Mortgages, tax breaks, and other complicated financial decisions
• Getting the most bang for your buck, whether while shopping or travelling

Packed with money-saving advice, this title will also include the latest information on marketplace trends, the investment climate, housing prices, interest rates, and other techniques for savings. As an added bonus, Pat has included quotes and comments from prominent Canadian businesspeople and celebrities about the best financial advice they've received in their lifetimes.

Pat Foran is seen by millions of Canadians each week as the Consumer Reporter for CFTO News, and Consumer Expert on CTV's Canada AM. His "Consumer Alert" segment is currently on CFTO's noon, six o'clock and eleven-thirty newscasts, five days a week with an audience of 700, 000 viewers, and he appears on Canada AM, Canada's number-one national morning show every week, dispensing financial and consumer advice.

CHAPTER 1

confronting the debt challenge

A lot has changed in the last three years since I wrote this book. First titled The Smart Canadian’s Guide to Building Wealth, the publisher asked if we could change the title to The Smart Canadian’s Guide to Saving Money. Since both essentially mean the same thing, I said sure, but make no mistake—this is a revised edition of that book. It does have new information, statistics, and strategies to build wealth and save money, but I think after the severe toll the stock markets have taken on the savings and investments of many Canadians over the past few years, specifically the major downturn in September and October of 2008, have many consumers as interested in saving money and balancing the family books as they are in trying to build an investment portfolio, hence the publisher’s wish to tweak the title. Also, in my daily role with CTV television, I’m always doing my best to help consumers save money. This book contains solid information from many experts that can help you do both. After all, if you can save money, you can build wealth too.

Whether you call it a recession, a downturn, or an economic slowdown, the global market corrections, inflation, and job losses that came during 2007-2008 had many Canadians worried, jittery and even angry about their investment portfolios. After enjoying double-digit growth and low interest rates, now many homeowners are seeing their houses, condos, and cottages decreasing in value. Investment portfolios have been hammered by falling stock prices and many people have seen their investments decline 30 percent to 50 percent depending on how aggressive their holdings were. Aside from people lucky or prudent enough to be holding safe securities such as government bonds, GICs, and cash no sector was untouched as the problems in the United States with its mortgage meltdown, imploding hedge funds and credit crisis affected the rest of the world including us here in Canada. Rising prices for wheat, corn, rice, and other staples have led to “foodflation,” a new reality that we will now have to pay more than ever for groceries. Rising gas prices are costing Canadians hundreds to thousands of dollars a year more in fuel costs. In 2008 as oil hit $150 a barrel General Motors had to consider to stop making its gas-guzzling Hummer. But along with the crash of the markets, oil tumbled back down to $70 a barrel. Where it will be in the future is anyone’s guess. Interest rates which had to be slashed following Black October to help bring some stability to the market eventually will have nowhere to go but up, and many Canadians are loaded with mortgage debt, credit line debt, credit card debt, car loans and leases, and other expenses, and they are not sure how they will get them paid off. Of course, taxes in all forms—property tax, income tax, and the PST and GST—aren’t going anywhere either. It can get a little depressing and has many people wondering if the good times have come to an end.

Well, don’t panic! There is much to be positive about. Gas prices have fallen from highs of $1.50 a litre, and vehicle prices are down. The stock market has declined, but it means there are some great buying opportunities. Some foods cost more, but some actually cost less. A slowing housing market can create opportunities to invest and new tax changes will help you save money this year. To get ahead in 2009, 2010, and 2011, the most important thing, which is at the core of this book, is to control your spending. My concern has always been that we have become a consumption-driven society, buying things we don’t need with money we don’t have. While there was a time you would never buy something on credit, now drowning in debt is the new normal. We buy cars we can’t afford, big-screen TVs on credit cards, and do expensive home renovations on lines of credit. We’re not about keeping up with the Joneses but surpassing them. Well, I’ve got news for you—the Joneses are broke!

Forty years ago, debt loads were much lower in Canada, and guess what? Forty years ago, credit cards were just being introduced. That little piece of plastic is responsible for changing attitudes about debt and is one of the main reasons Canadians are in such rough financial shape today. Building wealth is possible for all of us, and it is never too late to start. To do so, though, we must take charge of our finances, reduce debt, save money, and invest wisely. As the consumer reporter for CTV, I get to see the most cutting-edge products and services in the marketplace whether it’s solar-powered lawn mowers or hotels designed for dogs and cats. How about a TV built into a bathroom mirror—for $5,000. Putting greens for your backyard—$10,000. A fridge with an Internet-accessing computer screen in the door—$7,000. Would I buy any of this stuff? No way! I do find it fascinating to see the kinds of new products on the market, consumer trends, and what may eventually be mass-produced so that one day I can afford to buy them.

Not long ago I was at someone’s house and he had recently renovated the home, spending over $100,000 dollars. It looked great and even though he was finished, he still wasn’t happy with the outcome and planned to spend tens of thousands more. I said, “You know it looks fine and it doesn’t have to be perfect,” at which point he looked at me incredulously and said, “Well, of course it does!” It is this quest for perfection—this keeping up with the Joneses—that keeps many Canadians trapped in a cycle of debt. I recall a time when I did a story on the best family van on the market. This particular year it was the Toyota Sienna. I later heard from a couple who took out a $45,000 loan against their home to buy one because they wanted the “best” van there was. Did they really need it, or would a three-year-old domestic van at one-third of the price have been good enough to shuttle their kids to hockey and make runs to the grocery store? Do we always need the best of everything? Of course we don’t.

While there are many of us who have our finances in order and are prudent with the way we shop and save, about half of us are lurching from paycheque to paycheque, spending all of it as we go. There is no plan for retirement, no emergency fund for a rainy day, and no savings in the savings account. This group of people has tens of thousands of dollars in what I call junk debt. Junk debt is all of the bills that have been consolidated so many times we can’t even remember what the original debt was for. Too many of us are secretly hoping our numbers will come up and we’ll win the lottery or inherit wealth so we can coast into our retirement with a nice big bank account. Some plan. The truth is that in our lifetimes, most of us will have more than a $1 million pass through our hands. Many of us will have several million dollars channelled through our bank accounts. What are you doing with your money? Can you find the power to harness that money and make it work for you? Or will you simply trudge along, spending it week in and week out, living from one paycheque to the next? If you think you won’t get ahead, you won’t. It’s a self-fulfilling prophecy.

Earning more is not always the answer, either. Some people will work long hours, be away from their children, and stress their marriage for an extra $5,000-$10,000 a year in overtime. The government is going to take one-half to one-third of it, depending on your tax bracket, so you may be left with only $3,000-$5,000 in after-tax dollars. Imagine if you just tried to cut back your personal spending by that amount in a year and still spend time with your kids and spouse. Spending less on a family vacation, a barbecue, or a home renovation can easily save you that amount. For a family with a combined income of $100,000, saving $5,000 after tax is as good as earning $10,000 of salary or income.

I should stress that I don’t believe people should become misers who nickel and dime friends and businesses to try to get ahead. Someone once told me how she had devised a plan to buy things at a major department store and then return used goods by switching receipts. She was proud of this scheme while all I saw was fraud. What good is it to wind up wealthy later in life if we are like Ebenezer Scrooge, huddled in a room all alone, counting our money? If the ghosts of past, present, and future come to visit me, I hope I like what I see. This book is to help you make wise decisions that will enable you to keep more of your hard-earned money instead of giving it to large corporations. Think about it. When you are loaded with debt, you are giving away thousands of dollars every year to banks and creditors. Once you have amassed wealth and are free of debt, you will be in a position to sponsor a child in a Third World country; give money to a charity; buy a round of drinks; or spoil your kids, nephews, and nieces rotten with a vacation. Wouldn’t that be a lot more satisfying than handing over your money to some large, faceless corporation?

If you’ve had enough and want to get a handle on your finances, then this book is for you. It’s not easy to become debt-free and make the wise decisions we should be making. It’s about sacrifice and discipline; it’s about having a plan and sticking to it, and making sure everyone else in your household does, too. Becoming financially self-sufficient isn’t easy, but it is possible for every one of us. In this book I will look at some of the most important steps necessary to build wealth and become free from the shackles of debt. We will start off with insight from Canadians who have shown it is possible to get ahead and become financially secure (and some of them downright rich). We will look at getting your finances in order, speak with experts to see if your investing strategies are on track, make sure your expenses related to shelter and transportation are not excessive, and provide you with general information to help you deal with life’s unexpected curveballs. I’m not just talking the talk, either. I’m walking the walk. I want to be debt-free, too, so I can be financially secure in my retirement, travel the world, help my children, and be charitable to worthy causes. I hope you enjoy this book and that it helps you and your family on your journey to financial peace.

CHAPTER 2

taking wisdom from successful Canadians

Quotations have always fascinated me. Those short nuggets of wisdom express and illuminate life, love, money, and thoughts on any number of topics. I was pleased to include excellent advice from many wealthy and successful Canadians in the first edition of my book and I am fortunate enough to have many more great quotes from Canadian business executives, artists, authors, and politicians. Living in Durham region east of Toronto, I am actually only a block away from one of our country’s most powerful and influential politicians when it comes to money—Canadian Finance Minister Jim Flaherty. I occasionally see him on Canada Day at ceremonies when I help out with the swearing-in of new Canadian citizens, something I enjoy doing. Flaherty has his hands on Canada’s purse strings and controls billions of Canadian tax dollars. I asked him what financial advice he could pass on to the average Canadian, and he gave me this quote:

Creating budgets and savings, paying off debt, investing wisely—all welcome and essential advice for Canadian families. The Smart Canadian’s Guide to Saving Moneyencourages financial literacy, a worthwhile goal for every Canadian.

I didn’t expect a plug from the Finance Minister of Canada for my book, but I’ll take it! It’s true that all of us should be doing more reading, research, and studying into our finances as it affects so many other areas of our lives. One of my favourite quotes came from someone I met as a teenager when I took a job on a farm in Lucan, Ontario. Fred Lewis is a very successful man who has amassed great wealth through land ownership and poultry production. When I asked him what he attributed his success to, he told me this one simple thing that I’ve never forgotten: “If you want to be successful, just make the right decisions every day.” Sounds easy enough, but it’s hard to do. However, if you really thought about what you should and shouldn’t spend money on every day, over time you couldn’t help but be successful.

For this book I wanted to find out if there were any words of wisdom that wealthy, accomplished Canadians could pass on to the rest of us about success in their lives. I asked them to think about a quote, short story, or piece of advice that they could share with others that might help them be successful. Some wrote back with advice about money and others about choosing the right career, while still others spoke of the importance of giving back to the community once they became successful. All of the comments are interesting and informative and I thank everyone for taking part.

Not everyone I contacted was interested in providing a quote, but in true Canadian fashion, they were polite as they declined. Representatives for Céline Dion said she was too busy singing in Las Vegas (and I’m sure she was). Keanu Reeves was on some far-flung movie set, but his assistant assured me he was honoured to be asked. Movie director James Cameron was underwater in a submarine somewhere, but passed along his best wishes. The rep for Paul Shaffer, of “The Late Show with David Letterman,” said that contractually, Paul wasn’t allowed to, but that he was pleased he was included in any list of successful Canadians.

Something also happened that caught me by surprise. I wrote a letter to one well-known, successful Canadian whom I thought I might hear from, but didn’t. I ran into him at a function in Toronto some time later and he was embarrassed to say that he might be famous and successful, but that, unfortunately, he wasn’t very good with his money. “I would be a hypocrite if I tried to give other people financial advice,” he said. Another person I sent a letter to later told me, “If you want financial advice, ask my ex-wife. She’s got all the money.” To me this was a bit of a wake-up call that while it may appear that you are successful, your bank account could be nearly empty. This is, of course, true of how many Canadians are living today.

One of my favourite quotes came from former Alberta Premier Ralph Klein. In a province rich with resources, he led a government that had its fiscal house in order. It’s also Canada’s only province that doesn’t have a provincial sales tax. Klein compares running a province to running a household:

Albertans have a long-standing reputation for being fiscally conservative, and that tendency has always been reflected in my government’s approach to handling the province’s finances and spending taxpayer dollars. If I could share one piece of advice with Canadians interested in becoming wise consumers and saving money, it would be this: When my government first began working to get Alberta’s fiscal house in order, we quickly realized that the province did not have a revenue problem; it had a spending problem. We spent years paying off deficit and debt and Albertans had to sacrifice to get back into the black. My advice is simple: Never spend what you do not have. It is far better ... to put off a purchase for three months until you can afford it than to spend the next six months paying it off. Do not line the pockets of your bank; line your own!

Canadian rocker Sass Jordan, who topped the music charts throughout the 1980s and 1990s, is now a judge scouting new talent on the hugely popular “Canadian Idol.” Jordan comes across as a very caring person, so it was no surprise that she had some good adv...

Table of contents

• Title Page
• Copyright Page
• Dedication
• Acknowledgements
• CHAPTER 1 - confronting the debt challenge
• CHAPTER 2 - taking wisdom from successful Canadians
• CHAPTER 3 - checking in with the wealthy barber
• CHAPTER 4 - living next door to a millionaire
• CHAPTER 5 - finding out what makes Canadian millionaires tick
• CHAPTER 6 - asking experts what the economic future holds
• CHAPTER 7 - what we learned from black october 2008
• CHAPTER 8 - keeping calm during troubled times
• CHAPTER 9 - calculating your financial worth
• CHAPTER 10 - monitoring your expenses
• CHAPTER 11 - seeing marriage as a partnership
• CHAPTER 12 - should you sign a prenup?
• CHAPTER 13 - setting goals
• PART 1 - REDUCING DEBT
• PART 2 - SAVING MONEY
• PART 3 - PLANNING FOR WEALTH
• PART 4 - INVESTING WISELY AND BUILDING WEALTH
• Index