Generally speaking, a bankruptcy takes root, grows and is snipped at the stem come discharge time without incident. However, there can be complications that need to be dealt with before this natural progression can unfold. While a creditor cannot stop you from filing for bankruptcy, they can certainly do their part to create challenges that delay its ending. A creditor opposition to your bankruptcy discharge – even with your good behaviour and mindful attendance of your bankruptcy-related responsibilities – will throw a big wrench into your automatic discharge.
When Can a Discharge be Challenged?
A discharge can be challenged — by creditors, the trustee or the Office of the Superintendent of Bankruptcy — for a broad number of reasons; some, more obscure than others. The most typical cases are those where the proposed payment terms do not satisfy creditors because they are looking for more money and have reason to believe that they can get it. Creditors may also object to a discharge because they want clarification on a past account or they simply don’t understand the process and think that they might land some extra cash if they oppose the discharge and meet the individual in front of a judge.
What is Required When a Discharge is Challenged?
When a discharge is challenged, the court reviews the challenger’s details and invites the bankrupt individual, along with the creditor, to attend a discharge hearing in bankruptcy court where you have the option to retain a bankruptcy lawyer or simply appear on your own.
The bankruptcy registrar will provide a written decision regarding the terms of your discharge at court. This decision may be handed down the day of the court hearing, but more likely, it will come a few weeks or even months later. This is a temporary frustrating reality that further delays the launch of your much-anticipated fresh start. The details of your discharge may range from a free-and-clear discharge with no conditions (i.e. extra money owing or a suspended timeframe to which the discharge will “kick-in”), to a requirement that you make additional payments or fulfill other duties before receiving a discharge.
While we write this, we sit back and think about how many creditor oppositions we’ve dealt with during the last 15 years and we can tell you, it hasn’t been many. An opposition to a well-deserved, highly anticipated discharge can be unpleasant for someone who has filed for bankruptcy and is looking forward to a fresh start. Don’t let it discourage you from dealing with your debts, as your trustee will be there to guide you until the end of your proceeding.
Consumer Proposal as an Alternative to Bankruptcy
If you wish to avoid the possibility of a creditor opposition at the time of discharge, you may want to consider a consumer proposal. Your creditors vote either for or against your proposal at the beginning of the process and any concerns that they have are addressed from the start. Your discharge is granted once you have completed your proposal payments. For more about the voting process, read our article on how a consumer proposal works.
What do Homer Simpson, Starbucks and Star Trek have to do with personal finance? These are all the fun elements used by today’s guest to tackle the topic of money and debt.
Robert describes “wealthing” as a savings plan with the overall goal of increasing your net worth. His analogy to rabbits suggests that if you make saving a habit, your net wealth will continually multiply; and eventually the habit becomes a lifetime commitment that will pay off in a big way.
In his book, Robert tells a story about a woman whose small decisions in life have affected her financial situation at age 57. To make his point, he rewrites her story using a set of alternate choices that make a big difference for her overall financial wellbeing. Simply put, the small choices that you make everyday, can be the difference between just getting by and increasing your net wealth.
Modest Mortgage, Bigger Wallet
Today’s world is fast paced and filled with unrealistic ideals. Robert suggests that we should scale back on our expectations for housing and the size of the mortgage that goes along with it. Even though interest rates might be low and the value of your home could stand to increase, he explains that:
…[buyers] should be looking at it from the perspective that they should still buy a modest home and take advantage of those low interest rates to pay off as much of the principle on that mortgage as they can before those rates go up.
One reminder that his book touches on is that, as the price of a home increases, so do the costs associated with that home. A larger house means higher heating and cooling bills, higher insurance rates, property taxes, and even additional furniture to fill up the space. As one of the largest, if not the largest purchase that you will make in your life, your house buying experience should look at the bigger picture and contribute to – not hinder – your “wealthing” habits.
The Balancing Act
Chapter 10 of Robert’s book discusses the fine line between saving for the future and paying off debt. Doing both at the same time, can be a difficult tight rope to cross and Robert acknowledges that life is not always easy and that adjusting to new or changing financial situations can be tough. His advice reverts back to his original argument that saving should become habit, even if you’re still paying off debt. He explains that,
…even if you’re putting away as little as 10 dollars a week or 20 dollars a week for your long term savings, while your aggressively paying off your debt, I think it’s important.
By putting away a little bit at a time, you’ve created a solid foundation for the day when all of your debts have been paid off. It is all too common that people work hard to pay off their debts but have put nothing aside for the future. The stress of always trying to get ahead never quite goes away. Instead, Robert stresses that it is important to start saving for the future as early as possible by forming “wealthing” habits that become automatic. In his words,
…make it as easy as possible, make it automatic, make it happen on the same day that you get paid so that you don’t miss that money.
Practical Advice from Robert Brown
Robert advises readers to be mindful of their credit cards. Although convenient and instant, when you swipe your credit card, you have not made a purchase. Instead, you have borrowed money from the bank or credit card company with the promise that you will pay it back. Robert considers credit cards as a tool, that when used wisely and correctly, have the ability to make life easier and more efficient. However, neglecting or abusing this tool can lead to serious debt problems.
Robert warns that,
…just because you’re paying off your credit card bill each month, doesn’t necessarily mean you’re using your credit card properly.
If the money that you charged to your credit could have been saved to grow your net wealth or a specific goal such as your child’s education instead of impulse buying, then your credit card was used improperly.
Extended Interview Segment
We continued our conversation with Robert past the radio show and learned that he advocates treating yourself on a weekend to a smaller treat, such as Starbucks. He makes the comparison between spending $10 at Starbucks and spending $200 elsewhere. Of course, all things in moderation; but the key point here is to rethink the way that you spend and consider those opportunities to increase your savings.
Robert goes on to discuss his distaste for pay day loans the debt that they often lead to. Just like credit cards, he sees these organizations as a financial tool that need to be used properly. However, all too often, this is not the case.
In short, treat yourself to Starbucks every now and then as an alternative to impulse spending, and skip the pay day loans to create and maintain effective “wealthing” habits.
Doug Hoyes: Welcome to Debt Free in 30 where every week we talk to industry experts about debt, money and personal finance. I’m Doug Hoyes. Today we’ve got a great show for you. I’ve got an author with me today, so let’s get started. Who are you and what book did you just write?
Robert Brown: My name is Robert Brown and I’ve written a book entitled Wealthing like Rabbits, an original introduction to personal finance.
Doug Hoyes: Now I’ve read the book.
Robert Brown: Thank you.
Doug Hoyes: And I liked the book, which is why I had you on the show here. But why don’t you give us, for those who haven’t read it, give us an overview. So, “wealthing like rabbits”. I’ve never heard of the word wealthing. I don’t think that’s a word that even exists.
Robert Brown: It exists now. And wealthing comes from an idea in the book where we take the word wealth, which you’re right is traditionally a noun, but turn it into a verb.
I think we use the word saving too much. We save in our RSP; we save when we go out for dinner and I think that whenever we do any saving that contributes to our overall net wealth we should call that wealthing. It’s just a little bit more fun and a little bit more exciting. And if you wealth like a rabbit, then you become wealthy very quickly.
Doug Hoyes: Because rabbits multiple very, very fast. And if you want to read the book you’ve got some examples of how that actually works. So, “wealthing” for you is more than just saving then.
Robert Brown: Sure, wealthing is a lifetime experience where you make a commitment over the course of your life. You’re putting a little bit more money away every week and building your net wealth.
Doug Hoyes: And as I’ve said off top, I’ve read the book. I think it’s a great book. Each chapter starts with a quote and the first quotation in the book is from Homer Simpson, so I was on board immediately, I watch that show every week.
In the book you talk about a bunch of other things, zombies, you’re quoting I believe both Captain Picard and Spock in different chapters in the book. The opening chapter I think is a fantastic chapter. You contrast two different paths. And I’m going to let people read the book to read it because I can’t describe it. It’s a fantastic opening chapter where you tell the story of a person who followed this path or that path and obviously one path is a lot better. Tell me what the main message then is that you’re trying to get across in this book. What’s the basic concept? What’s the key message here?
Robert Brown: Let me touch on a couple of things. The book is entitled Wealthing like Rabbits but its sub title is an Original Introduction to Personal Finance. And what I think makes my book a little unique is the style in which it’s written. I didn’t use a lot of charts or graphs or analysis to teach about money management and personal finance. I did use a lot of humour and antidotes and pop culture references. You mentioned Homer Simpson. You will also find quotes in there from Sheldon Cooper and Shrek. And every chapter’s a little different, a little eclectic if you will in the message that it teaches.
You talked about the first chapter which is a story about a lady named Lisa. She’s 57 years of age and in the first time we tell Lisa’s story she’s having a bad morning. She had a fight with her husband the night before about money and as you walk through the chapter, the story of Lisa, you can see examples of small decisions she’s made throughout her lifetime which have impacted her finances by the time she’s 57; and she’s got a bit of a tough road to haul.
We tell the same story over again and this is the same Lisa at 57 years of age, but she’s made different small decisions throughout the course of her life and those decisions have accumulated into a much brighter, financial future.
So, it’s not that Lisa in the first chapter has done something horrible. She’s invested in Texas oil stock that went south; she just made small decisions better the second time around which accumulated into a better lifestyle. And that’s how we kick off the book.
Doug Hoyes: And maybe that’s a really good summary of the book that it is – life is a whole series of small decisions and you’re right the difference between the really successful person and the not so successful person isn’t that, well I bought Apple stock 20 years ago and now I’m a multi-millionaire, it’s little, tiny things over and over that either work or don’t.
So, why don’t you give us one example of a little, tiny thing? And throughout the book there’s hundreds of examples, but what is – we like to talk about practical advice here on the show. What is one practical thing that I could do or not do, as a resident of this fine country of ours, that would either set me up for a greater chance of financial success or do the opposite?
Robert Brown: I’ll refer you to the chapters on mortgages or housing and there are actually three chapters in the book dedicated to specific things on housing; because your first home is arguably the most important purchase decision you will make throughout your lifetime. And I’m a big proponent of small houses as opposed to great big monster houses and I tell the first chapter is around mortgages.
And I tell the story of mortgages by telling the story of two brothers who are plumbers; you may have heard of them Mario and Luigi. And Mario and Luigi each go off to the bank to buy their first home with $100,000 down payment. Brother number one buys a big expensive home that he really can’t afford but he manages to talk the bank into giving him that mortgage. His brother Luigi buys a more modest home that cost $175,000 less. But as we go throughout the chapter, Mario actually ends up spending $400,000 more than his brother by the time he gets the mortgage paid off. And throughout that chapter we teach how a mortgage works and the different terms that come with a mortgage. But we also show how a smaller down payment and default insurance and spreading it out over a longer period of time cost his brother so much more money.
Doug Hoyes: So, the counter argument to what you just said, you’re saying that a thing I can tangibly do is, instead of buying that monster home, instead of buying the $500,000 or million dollar home or whatever it is, buy a home that is a nice home but I can afford it.
The counter to that is yeah, but if I buy a bigger home, I’m going to be wealthier because it’s going to go up in value more. I mean if the house prices are going to double in the next twenty years, shouldn’t I buy a million dollar home? Interest rates are so low, what does it matter? I’m going to have a two million dollar home in twenty years. If I only buy a $200,000 home now I’m only going to have a $400,000 home if things double. Shouldn’t I buy the absolute maximum that I possibly can? Shouldn’t I mortgage myself up to the hilt? Interest rates are low. It’s free money. Why wouldn’t I follow that conventional wisdom?
Robert Brown: Well, there’s a whole bunch in that question Doug and I’ll try and take it one at a time.
Let’s talk about interest rates first. It is true that interest rates are historically low right now and have been for five or six years. But for those people that are looking at buying their first home, they shouldn’t be looking at it from a perspective that interest rates are low, I should buy as much house as I can buy. They should be looking at it from the perspective that they should still buy a modest home and take advantage of those low rates to pay off as much of the principle on that mortgage as they can before those rates go up. I don’t know when they’re going to go up. You don’t know when they’re going to go up, but eventually they are going to go up and it’s better to pay off some of your principle now before that eventually happens.
And in terms of the large home growing in terms or market value more than a smaller home, both homes will go up as the houses go up. But with the larger home you’re going to have to deal with things like larger heating costs, larger insurance costs, larger property tax cost, all of those things add up. It’s been argued by me and by others that, you know, one of the biggest restrictors to people being able to save for the future is the money they’re putting into their home.
Doug Hoyes: And you’re right, it’s not just the mortgage that I have to think about. It’s the bigger home, I’m going to need more furniture. I’m going to have to have a bigger utility bill. I’m going to want bigger landscaping. It’s all of those things that pile up and that’s why you’re saying, well the smaller home, everything else is going to be smaller too, look at the big picture.
Robert Brown: Look at the bigger picture. When we talk about mortgages, people tend to evaluate their home purchases in terms of the price. They don’t consider the full cost of the interest and the fees that come with a mortgage as well. And on a larger home they add up dramatically. And we cover all that in the book.
Doug Hoyes: And those are great chapters. Like you say there’s three chapters that really talk about home ownership, mortgages that kind of thing which is probably the single biggest expense anyone has in their life, the single biggest purchase that they make. If you can save a lot of money on that then that’s obviously going to increase your wealth longer term.
We’re going to take a quick break here on Debt Free in 30. My guest is Robert Brown. He is the author of Wealthing like Rabbits. Brand new book that just came out in 2014. You can find more about it at his website. What’s the website where people can find out about the book, Robert?
Doug Hoyes: And I will put links to everything we talk about in the show notes over at hoyes.com. We’ll be right back to talk a little bit more. You’re listening to Debt Free in 30.
Announcer: You’re listening to Debt Free in 30. Here’s your host, Doug Hoyes.
Doug Hoyes: We’re back on Debt Free in 30. My name is Doug Hoyes. My guest today is Robert Brown, who is the author of a book called Wealthing like Rabbits that has just come out.
And chapter 10 in the book is called the “Balancing Act”. And part of the chapter you talk about savings versus paying off debt. So, we all know that saving for the future is very important if you want to buy a house; if you want to retire you’ve got to save money. I don’t think anyone’s going to argue about that, not controversial at all. But getting out of debt is also very important.
So, if you have debt, but you also want to save for the future, what should you do? Should you pay off all your debt first and then start saving? Should you start saving while paying off your debt? What’s the balancing act? Oh, I guess that’s why the chapter’s called that. Explain to me your thought process on that. How do I decide how much I should be focusing on paying off debt? How much I should be focusing on saving? What’s the thought process there?
Robert Brown: Well, that chapter in the book stems from one of the criticisms that is common to a lot of personal finance books in that, it’s real easy in a book to say that we all should save some money for our future. It’s easy to say in a book that we should stay out of debt. It’s easy to say that we should all put 20 percent, at least 20 percent down on a down payment home. So, in the books everybody does. But in reality life sometimes throws us curves and it’s not that easy and we have to make decisions or prioritize where we put our money or where we focus our attention.
So, in the paying off debt versus savings argument, I believe that you should at least start to save as early in life as possible. There’s no if, ands or buts about it. Everybody has to save some money for their future, even if you have a little bit of debt.
The argument’s been made that the debt should be paid off first before you start saving because the interest rate on that debt might be higher and I agree with that. But if you’re starting to save early enough, money will be allowed to compound long enough that the money will exceed the money that you have to pay in the debt.
And on top of that I think even more importantly is that people need to establish the habit of saving as early in life as possible. Even if it’s just a small amount while you’re paying off the debt, habits are forming, all habits are forming and it’s important that you start the habit of saving a little bit of money every week or every two weeks for your long term future. After that you need to focus on the debt.
Doug Hoyes: So, that’s a key point you’re making there. And really you’re making two different arguments. You’re saying that on the one hand, okay you understand the math. If I have a credit card that carries an interest of 20 percent, and I can put money in my savings account or my TFSA or my RSP and earn one percent, it doesn’t make a whole lot of sense to be investing at one percent when I’m paying 20 percent on my credit card. So, in that scenario, allocating the money to paying off debt is just simple math. But you’re making the other key point that saving is habit forming. And that’s really why you’re saying even if I do have a bunch of debt on credit cards and I’m going to throw most of my money at that, I have to establish the habit right now of putting aside 20 bucks every pay cheque or whatever it is. That’s really your key point, isn’t it?
Robert Brown: That’s really my key point. I’m not at all suggesting that we don’t have to deal with a debt and that we don’t have to be aggressive about paying if off, absolutely we do. But it’s also important that we get in the habit of saving for our long term future. So, even if you’re putting away as little of 10 dollars a week or 20 dollars a week for your long term savings, while you’re aggressively paying off your debt I think it’s important.
There’s a lot of examples of people that aggressively pay off their debt. And then once they’ve done so they go out and purchase something or do something else with their money and they never get around to starting that long term savings plan.
So, even if they’re out of debt by the time they’re 40 or 50 years of age, if they haven’t put any money down for the future, they’re now faced with saving that over a shorter period of time. It’s incredibly important that we start the habit of saving as early as possible.
Doug Hoyes: And what’s your advice on how to actually do that? Is there any special magic to it? Should I make sure it comes off my pay cheque? Should it be automatically come out of my bank account or does it not matter, it’s the saving that’s really the important thing?
Robert Brown: It’s important that the habit becomes as easy as possible. So, I’m a big fan of paying yourself first, making an automatic contribution to your RSP, to your tax free savings account, wherever you’ve allotted that money. But make it as easy as possible, make it automatic, make it happen on the same day that you get paid so that you don’t miss that money.
I use an example in the book about a student who gets their first big job and they’re making I think I said $40,000 in the book, $40,000 a year in the book. And how much in that first job will they get paid if they get paid weekly with their two kids and some of the company benefits coming off that. Most of the time we don’t know exactly how much money we’re going to make until we see our pay cheque and then we adapt to that amount. So, why not adapt a little bit more. Get yourself in the habit of putting 20, 25, 30 dollars a week off your paycheque, into an RSP, into a tax free savings account as soon as you get it and then you never feel that loss.
Doug Hoyes: And you get psyched up to do it and it becomes therefore, automatic.
So, back to the topic of debt then because of course this show is called Debt Free in 30. In the book you talk about credit cards and you use the phrase “borrowing, not paying” I believe. So, explain to me what you’re talking about. I go to the store with my credit card, what’s the mentality I should have?
Robert Brown: Well, you should understand that you’re not paying for whatever you bought at the store with your credit card. You are borrowing the money from a bank with your credit card. You haven’t paid for anything until you pay the credit card company back.
Doug Hoyes: So, which is counter intuitive because I went to the store, I paid for that thing and got the thing or the store wouldn’t have given me the thing if I didn’t pay for it.
Robert Brown: And you’re in debt for it. And I think a lot of people have got so comfortable in paying with their credit cards that they forget that they’re actually borrowing the money and they haven’t paid for anything up front.
Doug Hoyes: Well, I’ve long advocated that we should change the name to debt cards and then that would make it a little –
Robert Brown: Or borrowing cards, that works for me.
Doug Hoyes: Or borrowing cards. So, are you against credit cards then?
Robert Brown: No, I’m not against credit cards. I think they can be a valuable tool, if used properly.
The analogy I have used before is that a credit card is like a really Dexter Morgan sharp knife in your kitchen when you’re cutting dinner. Properly used it can be used online to get things that you can’t get through a cash transaction. They can be a valuable tool to build up your credit rating. But if used improperly, they can cause years and years of financial harm.
Doug Hoyes: So, a credit card you just said is a tool, which means it is neither, moral or immoral it’s just a thing. It’s just like a pen or a hammer. It’s how I use it that is the key to it.
Robert Brown: It is how you use it that is the key, but unfortunately a lot of Canadians aren’t using their credit cards properly. I think about 50 percent of all Canadians aren’t paying off their credit cards each month or just making minimum payments. They’re just making payment on it.
And another thing I think people should consider, and we covered it in the book, is just because you’re paying off your credit card bill each month, doesn’t necessarily mean you’re using your credit card properly. Did you buy something on your credit card that interfered with your ability to put some money away for your kid’s education? Could have that money you spent at the pub with your credit card been put toward your children’s education fund? Just because you’re paying it off monthly doesn’t mean you’re using that money as wisely as you could and I think people need to consider that.
Doug Hoyes: Yeah and I guess you’re really saying credit cards are easy.
Robert Brown: Yeah, it is easy. It’s a piece of plastic that you pull out of your wallet and you don’t feel that same level of pain as you do when you pay with cash.
Doug Hoyes: Yeah and that’s why if you want to save money, one way to do it is to switch to cash. Very interesting, I’m glad you were on the show with me today Robert.
So, once again the name of the book is Wealthing like Rabbits and the website where you can find out more about the book is www.wealthinglikerabbits.com
Doug Hoyes: Yep, and that’s where I bought my version. I bought the Kindle version so if you want to download it to your Kindle reader right now it’s there.
Robert Brown: Kindle and e-pub version, they’re both available.
Doug Hoyes: And so if you go on, e-pub would be through –
Robert Brown: Kobo.
Doug Hoyes: Kobo, so it’s available either way. It’s also available in bookstores, Chapters here –
Robert Brown: It’s available in select Chapters inside the greater Toronto area but not all Chapters across Ontario.
Doug Hoyes: So, go to the website and you can order it right directly from there as well then.
Robert Brown: Absolutely.
Doug Hoyes: Fantastic. I will put links to all of that in the show notes over at hoyes.com. Thanks for being with me today.
Robert Brown: Thanks for having me Doug. I’ve had a great time.
Doug Hoyes: We’ll be right back to wrap it up. You’re listening to Debt Free in 30.
Announcer: You’re listening to Debt Free in 30. Here’s your host, Doug Hoyes.
Doug Hoyes: Welcome back. It’s time for the 30 second recap of what we discussed today. My guest today was Robert Brown, author of Wealthing like Rabbits, An Original Introduction to Personal Finance.
He gave his opinions on many topics. He believes you should buy a less expensive house then you can afford so you’re not burdened with a huge mortgage. And he says we should think of using a credit card as borrowing, not paying. He also believes that both saving and paying off debt are important. That’s the 30 second recap of what we discussed today.
So, what’s my take on Robert’s message? First let me say that I really enjoyed his book, Wealthing like Rabbits. As I said on the show, I thought the first chapter was brilliant and that chapter alone is worth the price of the book. I don’t get a commission on the sale of the book but I still think it’s a great book to give as a gift or to give to anyone who could use some easy to understand, fun to read personal finance advice.
So, with that unsolicited commercial out of the way, here are my thoughts. I completely agree with Robert’s opinion that it’s better to buy a house that you can reasonably afford, then to buy the biggest house you can finance. I’ve done hundreds of bankruptcies over the years for people who bought too big a house, incurred a lot of debt to furnish it, got behind on their mortgage payments and ended up with massive debt. You’re better off renting than buying a house bigger then you can afford.
So, what about his comment that saving and getting out of debt are both important? Well, obviously they’re both important but I’m not sure I completely agree with him on that one. I’ve seen too many people over the years who have $50,000 in credit card debt but they’re also investing in Canada Savings Bonds through work or on some other kind of savings plan. It makes no sense to me to pay 20 percent interest on your credit cards while you’re earning two percent on your investments and you have to pay tax on your investment earnings.
Robert’s point is that obviously debt elimination should be your priority but saving is a habit and the sooner you get into the habit the better. I’m not completely sold on that idea but I see his point. If you have $500 extra each month and $480 of it goes to pay off debt and $20 goes to savings, I guess the $20 you put in your savings wouldn’t have made a huge dent in your debt. So, it’s not totally crazy to use that small amount of money to get into the savings habit.
I still prefer that you eliminate your debt, but I also agree that each of us have to think for ourselves and decide how best to spend our money. If you think you will be out of debt relatively quickly and saving will then become your priority, starting a savings habit now may be a good idea.
That’s our show for today. This show is on the radio every week and also available on our website and on iTunes. So, please go to hoyes.com for a full list of participating radio stations and details on how you can download the show to listen on your iPod or smart phone.
Full show notes are available on our website and I’d love to hear your comments which you can leave right on our website at hoyes.com. Thanks for listening, until next week I’m Doug Hoyes. That was Debt Free in 30.
Announcer: Thanks for listening this was Debt Free in 30. Thanks for listening to the radio broadcast segment of Debt Free in 30, where every week your host Doug Hoyes talks to experts about debt, money and personal finance. Please stay tuned for the podcast only bonus content starting now on Debt Free in 30.
Doug Hoyes: Welcome back to the podcast only segment on Debt Free in 30.
My name is Doug Hoyes. My guest is Robert Brown, author of Wealthing Like Rabbits. We were having a great discussion and then ran out of time because on the radio portion we’ve only got 22 minutes.
So, I had a couple of more questions for Robert based on my reading of his book. So, I thought I would ask him to stick around and he’s graciously agreed to do so.
My first question for you, Robert, and we’re not on the radio now this is just on the podcast, so we can talk freely amongst ourselves.
Robert Brown: So, I can let loose a little bit?
Doug Hoyes: You can let loose now. You can take your tie off. Starbucks, which is a place you can buy coffee.
Robert Brown: And expensive coffee.
Doug Hoyes: Right. And so as a bankruptcy trustee, and you as a personal finance advocate, I would assume that what you’re always telling people is you shouldn’t go to places like that. You can make coffee at home a lot more cheaply than what you can buy at Starbucks. And I must confess I’ve never actually bought anything at Starbucks. My son once took me there cause he got a gift card or something and bought me a something, something, grand something, something. And it’s very expensive. Like a coffee there is I think 45 bucks or something. I don’t know exactly.
Robert Brown: Well, let’s start here – and I’ll go in a couple of different directions here Doug. Anyone out there listening to this podcast right now that knows me is laughing because I spend far too much money at Starbucks. I am one of their most regular customers. And Starbucks has taken a lot of abuse from the personal finance world over the years and that’s a classic – you can save money, $4 a day by making your coffee at home and avoiding the lattes at Starbucks. So –
Doug Hoyes: Well, there you go; you’re making my point then. And so $4 a day, five days a week, that’s $20. And so over the course of a 50 week year that’s a $1,000. I think you’re arguing exactly for what I just said, which is you should avoid Starbucks or any place like that. So, tell me why I’m wrong.
Robert Brown: Well, in the book I talk about Starbucks and like I said it’s been beaten up pretty bad by the personal finance world overall and I said you know what? Bite me, I love Starbucks. And that’s what I say in the book.
But what we often find is that when we look at people’s personal finance, Starbucks or a luxury coffee isn’t really the root problem of why they’re in financial trouble. We see a lot of examples of – I use the example in the book of buddies driving to Starbucks in a Mercedes Benz and then we blame his underfunded RSP on his coffee?
And I do say later in the book if buddy’s going to Starbucks 15 times a week and buying a grande cinnamon dolce latte with an extra shot of espresso when he can’t afford clothes for his children, then he shouldn’t be going there.
But I think the larger context is that we can treat ourselves to the little things like a Starbucks now and then if we’ve got our overall financial picture in order. And I think we’ll find that if we buy small homes and reasonably priced cars and save some money for our future, it will be a lot easier for us to drop by Starbucks and get a coffee in the morning.
Doug Hoyes: Well, in fact I think in the book you talk about it’s a week night, it’s a Saturday night or whatever, I’ve got a choice. I can go out to a fancy restaurant and spend a lot of money on a taxi and a babysitter and a fancy meal and a nice bottle of wine or I can do what?
Robert Brown: You can go to Starbucks and I say skip the big fancy dinner in a restaurant. Cook a nice dinner at home and then drop by your local Starbucks or Second Cup and have a nice coffee and a little treat and read a book.
Doug Hoyes: So, Starbucks is expensive when you compare it to making your own coffee, but when you want a treat, spending 10 bucks at Starbucks is a lot better than spending $200 somewhere else. And I guess that’s kind of your basic point.
Robert Brown: Everything in context. And the argument that I make is that these $6 coffee and treat at Starbucks isn’t going to do the same damage to your personal finance as an $800,000 home if you can’t afford it.
Doug Hoyes: Yeah and we often miss the forest through the trees I guess. We rail against the $8 coffee living in our $800,000 home. That’s the one that’s doing the most damage.
Robert Brown: All things in balance.
Doug Hoyes: Yeah so you got to look at the big picture. Well, I’m sure you’re the first person on this show that has ever advocated for Starbucks, so there you go.
Robert Brown: There’s another part in the book where I talk about looking for a fun thing to do on a Saturday night that doesn’t cost a lot of money. And I find that young couples are often going out for dinner and going out for drinks and visiting family. And I actually recommend that they just stay home and cook themselves a little dinner and get some romance in their lives and sleep in the next morning, an inexpensive way to have some fun. This is the podcast, right? [laughter]
Doug Hoyes: Yes, this is the podcast. You can say the word romance on here and we won’t get shut down by the CRTC.
So, I think you’re making a very valid point. You have to look at the big picture here. And looking at one thing or the other, you’re missing the point. If Starbucks is the treat, as opposed to flying to Florida for a week is the treat, then obviously it’s a no-brainer.
Robert Brown: And I’m not suggesting anybody go to Starbucks if they’re struggling to make their mortgage payments or if they’re struggling to pay off their debt. That comes first. But if you need a little treat then Starbucks will –
Doug Hoyes: Then that’s a good way to do it.
Well, okay so let’s talk about something that will be far less controversial because I’m sure you and I are on the same page on this one.
You talk in the book about all the different kinds of debts. You talk about mortgages, credit cards and whatever and there is one type of debt that I get the feeling you’re not a big fan of and that’s pay day loans. So, tell me why, give me your thoughts on pay day loans.
Robert Brown: Well, there’s two chapters in the book dedicated to borrowing. One is called Debt and Disease Part 1 and it’s dedicated strictly to credit cards. Debt and Disease Part 2, we take a look at other borrowing. We take a look at lines of credit, home equity lines of credit, bank loans, we talk a little bit about consolidation loans if you get yourself in a little bit of trouble. And the way the book talks about different borrowing types is I compare that to different types of smoking. Credit cards become cigarettes, lines of credit become cigars and the phrase I use for pay day loans places if I’m going to stay true to this whole –
Doug Hoyes: Quote me from the book. What did you say?
Robert Brown: “If I’m going to stay true to this whole debt as smoking theme then I need to come up with one final smoking metaphor to accurately depict our last debt subject which is going to be pay day loans. Pay day loans are like chomping down on a big wad of moldy chewing tobacco until it morphs into a thick slimy gob of carcinogenic goo in your mouth and horking it into a dirty butt filled ashtray before you use a filthy discarded needle to mainline the viscous shit brown gunk directly into your lines. That’s the only time I swear in the whole book.
Doug Hoyes: And it’s a pretty gross image I would say there that you have given us. So, you’re not a big fan of pay day loans.
Robert Brown: Not a big fan of pay day loans. I can make arguments are valuable, financial tools. If you use them properly they can really help with your finances, they can help you build a credit line.
Lines of credit, home equity lines of credit, while I believe they are often misused, if you use them properly they can also be valuable financial tools. Bank loans have their place and consolidation loans have their place as well if you’re disciplined enough to not allow yourself to fall back into debt.
There is nothing good about pay day loans. I am surprised they are as prevalent in our society as they are today. I think they should be more strictly regulated then they are. Overtime I think they should be illegal. There’s nothing good about them. Never, ever get a pay day loan.
Doug Hoyes: So, how do you really feel? [laughter]
And I completely agree with what you’re saying but let me play devil’s advocate here. So, it’s the 29th of the month, my rent is due on the 1st, I don’t get paid till the 5th. I got to pay my rent. I’m $300 short. So, what is really the big deal about going to a pay day loan place, borrowing the $300? I know I got a paycheque coming in five days later. I can pay it off. My rent is paid. It’s all good. I’m good with the landlord. It’s all good, like that to me would be the obvious case where a pay day loan wouldn’t be the end of the world.
Robert Brown: The price you would pay for that privilege in terms of interest would make the credit card companies blush. And that assumes that you’re in a position to pay that off with your first pay day loan, which often people aren’t because that’s the situation they’re in to begin with. If they were in a financial position and were able to pay their rent, they wouldn’t be going in the first place.
So, what often happens, too often happens is they end up missing that payment and then it accumulates and accumulates. There’s examples of people paying over 600 percent annually for interest on pay day loans.
I don’t care if you have to take that money out on your credit card – well I do care. I don’t want to see you have to take it on your credit card, but that’s better than a pay day loan. I would rather you pay your landlord late than go to a pay day loan place. There is always another option.
Doug Hoyes: Yeah and I agree with you. I think that’s the key. There is always another option. We look for the easy option. Oh well the pay day loan place is there. I’ll just get the money and go with it. But you’re right. If you go to your landlord and say look I’m really sorry. It’s going to be five days late, the landlord maybe is going to yell and scream at you and call you every name in the book. But it is unlikely that you’re going to be evicted because you’re five days late. It’s probably not even legal in this country, so pay him five days late and understand that you’ve got an issue.
Robert Brown: And then deal with it by next month.
Doug Hoyes: And then deal with it by next month. That’s a much better way to do it, excellent.
Well that was Robert Brown telling us why he doesn’t like pay day loans. But he does like Starbucks. That’s the first time we’ve ever had a segment on that. I appreciate you sticking around for the bonus podcast segment Robert Brown, author of Wealthing like Rabbits.
Robert Brown: Thanks for having me.
Doug Hoyes: Thank you.
Announcer: Thanks for listening to the podcast only bonus segment of Debt Free in 30. For more information on today’s show please go to hoyes.com and type the word podcast into the search box for more information on every episode of Debt Free in 30. Until next week, this was Debt Free in 30.
Debt Relief Experts
Doug Hoyes: Welcome to Debt Free in 30 where every week we talk to industry experts about debt, money and personal finance. I’m Doug Hoyes. Today we’ve got a great show for you. I’ve got an author with me today, so let’s get started. Who are you and what book did you just write?