Are You Having a Personal Financial Crisis?

A recent Twitter headline claimed that actor Charlie Sheen is having a ‘dire financial crisis‘ with less than $10 million to his name. While that might be a bit extreme, no matter how much money you have, if you have high debt obligations, you can face money troubles.

On today’s podcast we talk with Robert Brown, author of Wealthing Like Rabbits, about what it means to be facing a personal debt crisis and what’s in your control to change.

How much debt is too much?

True there is good debt and bad debt, but how much is too much debt?  If you don’t have enough money to keep up with your payments every month then it’s pretty obvious you have a debt problem.

Two sure signs of a pending debt crisis are if you are borrowing from friends & family to pay your bills or are constantly using a line of credit to pay off credit card debt. According to Robert:

if you’re kiting your debt from one form of debt to another, are you really paying off your bills or are you just somehow managing to stay above water?

However, even if you are able to meet your debt obligations, but are unable to save, you might want to re-evaluate your finances. You might be facing a pending financial crisis if:

  • You can’t pay your bills on your current income comfortably
  • You aren’t able to save after making your bill payments
  • Your debt levels are increasing every month

This last one is critical. If your debt balances increase each and every month you need a better plan to get your debts under control.

Read more: Why credit cards can be so dangerous

It’s also important to consider how long it will take you to repay your debts in full.  Compound interest is great when you’re saving but it works against you when you owe money.

if you stretch your debt out over a longer period of time, compound interest is working against you and it’s extraordinary how much more money you can end up paying.

How to avoid a financial crisis

A financial crisis can be triggered by factors outside of your control. You might become ill or have an accident, preventing you from working. You might find it hard to get a good paying job or you may get laid off.

Few things will throw as big a wrench into someone’s personal finances, especially if they’re already stretched to the edge, as losing a job or having a substantial loss of income… it just becomes virtually impossible to manage the debt after that.

However, one of the biggest causes of financial problems is living beyond your means and for the most part, this is a cause that is within your control. One of the best ways to avoid a financial crisis is to plan to live just below your means. Living ‘on the edge’ is a recipe for disaster.

A prime example of how we over-extend ourselves is buying more house than you can afford. Housing is one the biggest drains on your finances because housing costs aren’t limited to the mortgage payment. There’s heating, renovations, property taxes, and repairs. Not to mention furniture and all the other trappings that come with home ownership.

Spending too much on a car can also cause financial problems and deciding on how much car you buy is also within your control:

I’m a firm believer in that cars need to be safe, reliable, they need to get you comfortably and safely from point A to point B. You do not need a $70,000 BMW to make that happen.

Look for ways to cut back on your overall expenses. Relying on public transportation to save on car payments and high fuel costs can be one strategy. It might also mean that you continue to rent instead of buying a property that is significantly higher than your annual income can afford. While homes are marketed as the best investment to grow wealth, you actually can in fact rent and still be wealthy.

Look at your income opportunities. Ask yourself: Is my income right for me now? Is there something I could be doing on the side as my hobby to make more money? Do I qualify for work that can pay me more? Extra income can help you save better for emergency situations.

Do what you can to get more money when you can.

Read more: How to build an emergency fund

To manage your money and avoid a financial disaster consider these tips:

  1. Pay your bills weekly instead of monthly. This will highlight where you are spending your money much quicker and avoid a bigger bill than you can repay.
  2. Keep your credit card limits low. Carry a smaller limit most of the time and increase it temporarily of you need to pay for something like a vacation online.
  3. Save for larger expenses like a vacation before you buy.

Steps to recover from financial disaster

The first step is to avoid beating yourself up over being in a money crisis:

Even if it was something that was within your control there’s no value in beating yourself up over it. Learn from it, and don’t make that mistake again, recognize it but address the problem and move on.

And don’t avoid the issue. Don’t look for ways to pick up more debt and postpone the inevitable.

Take a hard look at your financial picture. Write down all your expenses and very clearly and objectively take a look at your debt and income. See what you’ve been spending on over a 3-month period. How much of your paycheque goes to debt payments alone?

Whether or not it’s to prevent a financial crisis or to help solve one, few things in the world of personal finance are as eye opening as actually tracking all your expenses, taking a look at where all of your money goes.

Try our free budgeting worksheet: Download it here.

After you have learned more about your financial situation, you can start the recovery process by determining what steps you need to take.

If you think that your situation is beyond what you can manage, you might benefit from speaking to a Licensed Insolvency Trustee about your options for debt relief. Conversations are always free and you may find you don’t even have to file bankruptcy.

On the other hand, if you are having more simple cash-flow issues, then consider budgeting better or creating a do-it-yourself plan to pay off your debt.

You break your toe, you go to the hospital, you get a cast, you move on, you might be a little slower but you move on.

Listen to my conversation with Robert Brown by scrolling to the top and clicking on the player, or read the transcript below, to learn more about our thoughts on surviving a personal financial crisis.

Resources Mentioned in the Show

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FULL TRANSCRIPT SHOW 211 Are You Having a Personal Financial Crisis?

are you having a personal financial crisis

Doug Hoyes:    Yesterday I was sitting in my office and I got an email, it was from Robert Brown, the author of Wealthing like Rabbits, an Original Introduction to Personal Finance. Very good book, he’s been on the podcast many times. And he said I’m on my way through town tomorrow, I’ve got a big meeting in London, and Robert lives in Ajax so he needed a stopping off point, so he said why don’t I come to Kitchener and why don’t you buy me breakfast? And I said sure, I’d be happy to buy you breakfast but here’s the fee, you’ve got to come on the podcast. And he said I’d be happy to come on the podcast, can I come on and can I promote my book? And I said yes, you can promote your book, I understand how authors work, I promote my book wherever I go too. And he said well, what are we going to talk about?

And I said well back on August 10 there was a news story and the story was that Charlie Sheen is having a dire financial crisis and has less than 10 million dollars to his name. And you tweeted it out and your tweet was have fun Twitter, you’re welcome sort of throwing it out there. So I thought hey, that would be a good thing to talk about. So Robert Brown is here. Robert, how are you doing today?

Robert Brown:  Well, first of all Doug I’m doing great and thank you for having me on the podcast again, I think this is my fifth or sixth appearance. And it’s nice to be on the podcast when we’re actually having a morning coffee because I think the last time we got together we pounded back about six or eight butter tarts.

Doug Hoyes:    That’s correct. The last podcast we were on was the number two butter tarts podcast with Gail Vaz-Oxlade and Kerry Taylor were on that one as well. So today its earlier in the morning, if we get through this we’ll actually have time for breakfast so we’ll try to move quickly on it. So –

Robert Brown:  Charlie Sheen.

Doug Hoyes:    Charlie Sheen, are you having a personal financial crisis, that’s the title of this episode. So, the article that you shared, which was all over the media back in the middle of August, was that I guess he was applying to reduce his child support or something and his argument was I’ve only got 10 million dollars left, I’m basically destitute the poor guy.

Robert Brown:  And for the average Canadian obviously that’s a ridiculous concept to have 10 million dollars and be suffering a personal financial crisis. And it reminded me of every once in awhile, every weekend in fact the Globe & Mail runs a personal finance profile of a couple or a person and they take a look at their finances and they give them advice. And every once in awhile, not often, they present something that to the average Canadian seems ridiculous. And there was one Ilsa and I forget the last name a couple of years ago, where they were dentists and their combined incomes were close to a million dollars a year and they had all these assets and they were in deep financial trouble. And they just got raked over Twitter for getting themselves in that situation and the Globe & Mail took a little bit of heat for considering that a couple that deserved profile.

And this reminded me of that. So I sent it out on Twitter to see if I could get some dialogue going and I have to say I was a little disappointed because not many people picked up on it, I thought we would have some fun. But it did bring up that subject of personal financial crisis which is something I think we’re going to talk about today.

Doug Hoyes:    Well and let’s talk about it now then. So how much debt is too much I guess is the kind of the starting point. Because a personal financial crisis I guess you can define it a couple of ways, one is I don’t have enough money to meet my bills every month and yes, I totally agree and I know with my clients income is a big issue. They don’t have the same level of income that the median in the population does and as a result they have to use credit to survive and as a result you end up with a lot of debt. Well, how much is too much debt?

Robert Brown:  Sure and that’s a great question. And obviously you’re right, there’s two pieces to that equation, there’s the debt piece and there’s the income piece and if somebody can’t meet their debt commitments or pay their bills on the income they have, I would suggest that’s a personal financial crisis.

But I would also suggest there are a lot of people out there who are paying their bills, barely paying their bills, and while that might not be crisis yet, are they saving any money? How long will it be before they’re completely debt free? I don’t know whether we’re going to define that as a personal finance crisis but I think it has an impending personal finance crisis, they’re too close to the edge.

Doug Hoyes:    So that’s an interesting concept. So I would obviously – my answer would be the same to the first part, well, if you can’t meet your obligations as they come due then you’ve got a problem, you’ve got a serious personal financial crisis. You’re taking it one step further and saying well, maybe you’re actually able to cover all your bills every month. And I know I see it with my clients quite frequently yeah, I’m covering all my bills because I’m taking a cash advance on the line of credit to make the payment on the credit card and then I take a cash advance on the credit card next month to pay the other one.

Robert Brown:  So, if you’re kiting your debt from one form of debt to another, are you really paying off your bills or are you just somehow managing to stay above water? I would suggest, and it’s actually in my notes here Doug, that if somebody is paying their debt with additional debt because they have no other option, they’re already in personal financial crisis whether or not they’re behind.

Doug Hoyes:    And clearly kiting is the word that we accountants use and that’s where you’re taking, borrowing from one to pay the other and obviously that’s a serious problem that you have to address, there has to be a way to address it. You took it a step further though and said but am I actually saving as well?

Robert Brown:  Yeah, you know, we get into all kinds of guidelines in personal finance and at some point in this conversation we’re going to bring up housing and how much people are spending on houses. And the traditional rule of thumb would suggest that when you buy a house you should be able to make your mortgage payments and pay your heating bills and all the stuff that comes with a house monthly on 30 to 35% of your household’s annual gross income, that’s the benchmark that’s been around forever and I think that’s a good benchmark.

And the other benchmark for buying a new house is that, you know, you shouldn’t really a buy a house that exceeds, that the price exceeds any more than three times that annual income. So in that sense then if you make $150,000 a year you’re looking at a $450,000 house as a guideline as a benchmark. Well, I think we all know, certainly in Toronto in the GTA there’s a lot of people buying houses that are a lot more expensive than that because houses are expensive without that level of income. So now they’ve got 40, 50, 60% of their income driven towards just covering their housing expenses and that’s gross, that’s before paying taxes, that’s before buying groceries, that’s before buying their car, that’s before putting gas in their car and it’s certainly before saving. And almost always the first thing to get pushed out is saving which is going to set you up for that personal finance crisis further down the road.

Doug Hoyes:    Yeah and it doesn’t hit you today, I’m able to kind of keep things afloat but if I’m never putting anything aside then I end up retiring and there’s nothing there. So the train is coming down the tracks. So I guess if we were to make a list of how do I know if I’m either in a personal financial crisis or are about to have one, the most obvious one is I am not meeting my debts as they come, I’m not able to pay my bills, I’m having to borrow every month.

I think the second one would be is my debt level increasing every month? And again I have lots of clients who say no, I’m keeping up now but I’m afraid of what could happen in the future? Well, you’re not really keeping up now because you’re borrowing from Peter, robbing from Peter to pay Paul, so the way to find out if you’re doing that is to take a look, add up all what your credit card balances were last month and your line of credit and everything else, add them up again this month if that number has gone up you’re not keeping up.

Robert Brown:  We need to take a look at the time-frame too because a lot of people, you know, they address their debt by stretching their debt over a longer period of time which inevitably means you’re going to be paying more on that debt so you might be able to reduce your monthly payment a little bit if you do it right, and I’m using the quotation marks when I say right. But if you’ve extended that debt for another five or 10 years you’ve extended the problem and overall it’s arguably worse.

Doug Hoyes:    Absolutely and unfortunately compound interest works both ways.

Robert Brown:  Yes it does. It’s either working for you or it’s working against you and I’m one of those guys that’s always going on about how powerful compound interest is when you’re saving, but it’s important to realize that if you’re paying interest, be that on a mortgage typically considered good debt although I would argue that – but if you’re paying it, it’s not working for you.

Doug Hoyes:    And in your book, Wealthing like Rabbits, do you actually mention compound interest at all, did that come up at all, is that in there?

Robert Brown:  I went on about it quite a bit, you know, the whole compound interest piece. And in both sides of the equation how powerful it can be when it’s working in your favour and how important it is to start saving early because you take advantage of that longer time period. But just as I was alluding to in the debt earlier, if you stretch your debt out over a longer period of time, compound interest is working against you and it’s extraordinary how much more money you can end up paying.

And the best example is probably a mortgage. Even if you buy a house that is reasonable for your income and even if you buy a house and you plan to pay it off in the traditional 20 to 25 years, taking as little as two or three years off of that total amortization can save you tens of thousands of dollars. And if you’re aggressive and take seven or eight years off and pay off a 25 year mortgage in 17 years, off the top of my head, you can save 70, $80,000 depending on the interest rate how much you put down and all the other burials but it’s shocking how much money you can save.

Doug Hoyes:    And when do that same math with things like credit cards it’s much more massive because your credit card interest is much higher. So, okay so what – we’ve gone through some of the warning signs that you’re in a financial crisis, what do you think it is that brings on a financial crisis? I mean obviously there are some things that are within your control, some things that are not within your control, what do you think brings on a financial crisis?

Robert Brown:  Let’s talk about some of the things that are outside your control and then we can talk about some of the things that are inside because that will spin into what you can do to avoid it a little bit. But people sometimes lose their income because of health reasons, because of the employment market they lose their job, they get laid off, things happen in the world.

And really few things will throw as big a wrench into someone’s personal finances, especially if they’re already stretched to the edge, as losing a job or having a substantial loss of income, it just becomes virtually impossible to manage the debt after that.

Doug Hoyes:    Yeah and I know with my clients who got into so much trouble that they had to file a bankruptcy or a consumer proposal, in virtually all cases there have been one or more external shocks. And you went through the list. I mean health problems you think oh well in Canada healthcare is free, yeah but if you’re not working for a year because of an injury, because of an illness you don’t have the income coming in, you’re still paying a whole bunch of expenses yourself.

Robert Brown:  Or if that illness causes you to not be able to do the job you were in before and you have to seek a new job, which may not pay as much, all kinds of issues there.

Doug Hoyes:    It becomes pretty serious. And then obviously job loss, marriage breakup, these are all significant things. So those are outside of your control. Well, I guess we could have the debate well, if I got injured at work maybe I wasn’t careful enough but let’s just assume those are items that are outside of your control. And I think it’s very important to identify those items because a lot of people come in to see me and they’re down. It’s like oh man, I’m in this mess and I’ve, you know, I really feel bad that I’m in this situation.

Robert Brown:  But at least they are in to see you.

Doug Hoyes:    Oh absolutely, absolutely. And at least it’s like going to the doctor, okay I’m not happy to be here, it’s like going to the dentist I’m not happy that I’ve got a sore mouth but –

Robert Brown:  Hopefully two weeks from now –

Doug Hoyes:    Exactly, hopefully you’ll be able to fix it. So, I say to them look stuff happens. And so there’s no sense beating yourself up.

Robert Brown:  Can you say stuff Doug?

Doug Hoyes:    Well, no this is a family podcast and we’re actually recording this on video today too, if the video machine are all working so this will be on YouTube as well so we have to keep it clean here. So I say stuff happens. And if it’s outside of your control you don’t have to beat yourself about it, it happened. You’re driving down the highway you get rear ended, nothing you could have done to mitigate against that, it just happened. So you know what, you call your insurance you get your car fixed, you move on.

Robert Brown:  Even if it was something that was within your control there’s no value in beating yourself up over it, learn from it, don’t make that mistake again, recognize it but address the problem and move on.

Doug Hoyes:    Because once it’s done, it’s done.

Robert Brown:  Once it’s done, it’s done.

Doug Hoyes:    It’s as simple as that. Okay so let’s go to the next step then, which is, you know, what is in your control and therefore how can you be prepared, what can you do to avoid potential crisis in the future?

Robert Brown:  Well Doug, you and I have talked a number of times and you know the first thing that’s going to come out of my mouth is to live within your means or live a little bit below your means. One of the best things you can do to avoid a personal finance crisis is not to live on the edge. I talked about housing and listen I understand completely this is one of those things that is easier said than done in today’s marketplace, but to try and keep your housing costs under control and don’t feel the need to buy the big $3,200 McMansion.

Few things are as big a drain on a person’s finances as housing. And I’m not just talking about the mortgage, it’s huge but we’re talking about heating, we’re talking about renovation, we’re talking about insurance, we’re talking about taxes, we’re talking about, you know, the financial crisis that can come with a house, the furnace breaks down, you need a new roof and a wasps nest gets inside your roof and you have to have that replaced. Houses cost a ton of money. And anything that you can do to reasonably keep your housing costs under control will be a huge benefit as you try to get your overall finances in line.

Doug Hoyes:    Because that’s your biggest expense probably.

Robert Brown:  Yeah, that is almost everybody’s big expense and the second biggest expense in the same vein is your car. I’m a firm believer in cars need to be safe they need to be reliable, they need to get you comfortably and safely from point A to point B. You do not need a $70,000 BMW to make that happen. I drove here today in my 2008 Honda Accord with 283,000 kilometers on it and it worked just fine.

Doug Hoyes:    Honda Accord well as a matter of fact I drive the same car and I’m a little more advance than you, I have a 2011.

Robert Brown:  Wow.

Doug Hoyes:    I’ve only got 184,000 on it and I know that number for a fact because for the last week the battery hasn’t worked and so I’ve had to carry with me the charging brick to boot it up every time. So I finally got it in to and the place said yeah, your battery’s shot, I mean you’ve got like a seven year old car, look how corroded it is so I had to replace the battery.

Robert Brown:  So that battery that you had to replace likely cost you one third of what a monthly payment on a new car would be.

Doug Hoyes:    Yeah.

Robert Brown:  Inconvenient for sure, there are some inconveniences that come with driving older used cars and there’s a point of no return for sure. But overall big picture is drive a car that makes sense.

Doug Hoyes:    Yeah and I’m – I know where all the controls are in my car and when it stops working I will get another one but I bought this one new, I’ve had it for seven years and hopefully I can get another, you know, 100,000 on it and then we’ll flip it. But who knows, maybe tomorrow it’ll be different.

So, okay so how to be prepared and avoid a crisis I guess what you’re saying is start with the basics, figure out what it costs you to live every month, start with the biggest number, is there anything you can do about that? So housing costs is the biggest one and you’re absolutely right I mean we’re recording this in, you know, late summer early fall of 2018, the housing market is still pretty robust in Ontario.

Robert Brown:  Yes although I know two people that predicted it would decline a year and a half ago and it did decline.

Doug Hoyes:    It did. I will put a link in the show notes because we recorded the first what we call butter tarts podcast and I know we recorded it on May 1st, 2017 in my office in Toronto and we’re recording this in the Debt Free in 30 studio in Kitchener today. But we recoded that in Toronto and we both said that yeah, we think we’re at the peak and I think we called it pretty much within the day because that’s when home capital was imploding and a whole bunch of other things were happening. And the market certainly has faded since then. Now that doesn’t mean that we release this podcast and the housing market doesn’t bounce back up and every house is 4 million dollars. But if you can keep your housing costs down then you’re saving a ton of money.

Robert Brown:  Absolutely.

Doug Hoyes:    It’s as simple as that. And if you can have as inexpensive a transportation as you can within reason, again you’re saving a ton of money and that extra cash flow obviously can be used to, you know, reduce debt, pay savings whatever.

Robert Brown:  Again every situation is different and I know this doesn’t apply to everything but one of the few things that people who live in Toronto can do to offset the ridiculous cost of housing in that city is to avoid a car and use public transportation. And listen I know you’re going to hear a lot of noise about the TTC and how horrible it is and I get that 100%, but it is a less expensive option than driving in that city.

Doug Hoyes:    Yeah and I guess that’s where you have to take into account where do I work and where can I live? So, if you work downtown but live in the suburbs, you know, Ajax, Barrie, something like that then maybe you have no choice but to take public transit because it takes two hours to drive into the city.

Robert Brown:  Listen I’d rather take the GO train into the city than drive any day of the year.

Doug Hoyes:    But the flipside is you’ve got longer transportation costs and time and time is actually a real thing, you can’t discount that. So you’re right, you’ve got to look at the big picture, we’re not here to tell you what you should do.

Robert Brown:  But we’re here to suggest that you look at the big picture and do the analysis and not just throw money at an issue because that can get you into trouble later down the road.

Doug Hoyes:    So what are your tips then for handling the stress of a crisis when it actually happens? So, I’m now in a situation where I’ve got a lot of debt, my expenses are too high, I’m starting to freak out. I think we already gave one tip and that is don’t focus on the past. So whatever happened, happened, there’s no sense beating yourself up over what happened, it’s done.

Robert Brown:  And face the issue, don’t try to avoid it. Don’t look for ways to pick up more debt and just postpone it. And that’s tough for some people, to face that realization that things are trying to spiral out of control. But face the issue, start to make some notes and then I guess the second step is to be really disciplined and to get out a pencil, get out a paper, get out a calculator, get out a spreadsheet and really start to clearly and objectively take a look at your debt, take a look at your income and get a full and complete understanding of where you are.

Whether or not it’s to prevent a financial crisis or to help solve one, few things in the world of personal finance are as eye opening as actually tracking all your expenses, taking a look at where all of your money goes. And that’s a little bit of a nerdy painful thing to do but almost without exception anybody who takes a close look at where every dollar of their income goes over, you know, a three month period of time is shocked and their eyes are opened to see where their money actually goes. Very few people are really aware of that.

Doug Hoyes:    So you’re suggesting two things and to put it into accountant language you’re suggesting preparing a balance sheet and an income statement.

Robert Brown:  Sure.

Doug Hoyes:    So a balance sheet – yeah, yeah that’s what I’m suggesting, sure. So a balance sheet is on one side here’s what I own and on the other side here’s what I owe. And so if you’re in a severe financial crisis there’s probably not a whole lot of stuff on the left hand side, maybe you own a house, maybe you own a car maybe there’s not a whole lot there. The right hand side is all the debts that I have. And unless you actually write them down or put them on a spreadsheet or document it somehow it’s amazing how many people don’t know what they actually owe and I see it literally every day when people come in to see me.

Robert Brown:  I do a lot of speaking at colleges and universities on the subject of personal finances and I rant off pretty good about credit cards and how to use them properly. And I almost always ask the students how many of them have received their credit card bill or their credit card statement at the end of the month, opened up the envelope or clicked online and said holy stuff, I can’t believe I spent that much money. I forgot I went out for dinner there, I forgot I went to Amazon, I have no idea. And what do they do? Hopefully they pay it off on full and they do the same thing the next month and they say holy stuff every month.

And at some point you have to make a realization that when you use credit it’s not as painful and I use that word metaphorically as it is when you pay with cash and you’re spending money you don’t yet have and it’s easier to do it. Almost every student I talk to about this says yeah, absolutely I’ve opened up my credit card statement and said I have no idea where that money went. So take a look at that statement and say did I need to look at that, did I need to spend that money, did I need to spend that money?   And on top of that why did I need to do it with my credit card? Would I have been more aware if I had paid with cash. And you start to build that awareness.

One of the tips that I always give to students is never, ever pay your credit card every month. And everyone says oh, I thought you just said for 10 minutes you’ve got to pay your bill every month, I did but I think you should pay your credit card bill every week. Students are all online so go online, see your credit card statement every week and pay it then. Number one if you can’t do it you probably shouldn’t have used a credit card in the first place but almost more importantly Doug, it just builds so much awareness of where their money’s going if you do it on a more timely basis.

And just like how someone who’s trying to lose weight starts to count their calories almost intuitively starts to become more aware of it. People who look at their spending on a regular basis and really look at it will start to spend less money.

Doug Hoyes:    Yeah, a credit card has to be a substitute for cash not a way to borrow.

Robert Brown:  Excellent.

Doug Hoyes:    So if you have $100 sitting in your bank account and you’re going to the store and you don’t want to carry $100 cash with you, fine use your credit card. But you’re right, there’s no reason you can’t go home and transfer the money from your bank account to the credit card right then and there. And you’re probably not going to do it every day but I like your idea, do it every week and then the balance is always cleared up. At an absolute minimum you have to do it every month or else you get whacked with a bunch of service charges and that’s just ridiculous.

Robert Brown:  Here’s another one. Why do most people, I’m not talking about people who run their businesses on their credit card, why do most personal people need to carry around a credit card with a $20,000 line of credit, why? You know, If someone is carrying around a credit card and they have a limit of let’s say $1,000 I think we can both agree that with a $1,000 limit it’s pretty hard to get into serious trouble.

Doug Hoyes:    Yeah, well you can only get into $1,000 worth of trouble.

Robert Brown:  But people say hey, I got a credit card and it’s got a $20,000 limit, well that’s great.

Doug Hoyes:    Well and you hit the nail on the head. The reason we want as a high a limit as possible is it makes us feel good, right? They call them credit cards because credit is a positive thing, give credit where credit is due and so I figure I’m a better person if I have a $20,000 limit then if I have a $10,000 limit. And of course the credit card companies will increase your limit if everything is going great and then of course they’ll shrink it when things aren’t so you want to be kind of conscious of that.

I think the planning point there is figure out how much credit you need, what do you use in a month? And okay, maybe I’m going on vacation, I’m going to have to buy some plane tickets or something okay, so the maximum I would ever need to spend in a month before I could pay the credit card off is $5,000. Well, okay then I guess you need a $5,000 limit, you can’t get into any more trouble than that.

Robert Brown:  Or, you know, carry a smaller limit for most of the time and then if you have a large expense coming up you’ve saved the money and you’re going to Europe and you want to book that flight with your credit card, call the credit card company and say hey, listen I’m going to book a flight, I’ve got the money, increase my limit of $5,000 for the next month, do your trip to Europe and then call them back when you get back and say listen I want to bring that down to $1,000.

And that’s – people have to look themselves in the mirror and ask themselves if that’s right for them. If someone has a $20,000 limit and they never go over the $1,000 well it’s a silly idea. But if you’re one of those people that is constantly spending more money on your credit card than you would like to, one of the tools you can use is to pull down your limit.

Doug Hoyes:    Yep and in other words make it hard to use that credit card. You know, another thing people say take your credit cards, put them in some water and put them in the freezer, well you can’t use them instantly then. There won’t be any impulse shopping when you do that, so.

Robert Brown:  You know what? You can leave your house without your credit card, you can.

Doug Hoyes:    I’ve never heard of that.

Robert Brown:  You can do that.

Doug Hoyes:    Well not when you drive old Honda Accords like we do, you might break down, you might have to have the credit card there. So, again looking at the planning points then so I’m putting words in your mouth but what you said okay, you need to create a balance sheet, you need to create an income statement so here’s everything I own, here’s everything I owe.

And when you actually write it down you go oh, because this happens all the time, I have people come in and they say yeah I think my total debts are about 20, %30,000 and I say great, let’s add it all up. And we all it all up and it’s $50,000 and they go wow, I forgot about that and I didn’t really consider my line of credit to be a debt, I consider that just my line of credit. But you’re right, you add that all in it’s a bigger number.

So once you know what you owe and I like to sort them by highest interest rate to lowest interest rate, because then it’s like wow, I better be chipping away at the bigger ones first. But then the second component, which is what you’re talking about is the budget, here’s what goes in and here’s what goes out every month. And if I’m spending a lot of money on things that I don’t think I’m getting great value for, well maybe I should eat out only once a week instead of six times a week. I can find ways to shrink it down. So, that’s how to begin to mitigate when you find yourself in a financial crisis. Are there any other pieces of advice you’ve got on that or anything else, you know, any other ways to recover from a financial crisis when you’ve discovered that you’re in one.

Robert Brown:  Well, you know, depending on how bad you think your financial crisis is obviously if you think that the situation is beyond what you can manage yourself you need to walk down the street and see Doug Hoyes at one of his offices and have the conversation. Because a licensed insolvency trustee can give you some good counsel on what your options are. And I’m going to let you speak to this but I think a lot of people always assume that they – if they’re in that much trouble they’re going to have to declare bankruptcy, which has a horrible connotation in today’s society. So maybe you could talk a little bit about what some of the options are.

Doug Hoyes:    Well, I appreciate the plug, you’re absolutely right. The vast majority of people who come to see us don’t end up filing for bankruptcy. The vast majority end up not having to actually file with us, we end up having them talk to a mortgage broker, they get their tax filed or they work out a budget and are able to get back on track themselves. So you’re right, licensed insolvency trustee means we’re licensed by the federal government and there are a whole bunch of rules I have to follow and one of them is I cannot charge you any money up front. So by law I cannot charge an upfront fee. So if you come to see us there is no charge for that, it’s only when you actually start whatever process it is that we can start charging you money.

So it doesn’t cost anything to talk to us and if you have more debt than you can handle then yeah, we can explain the options. And the most common option that we deal with now is a consumer proposal where we actually make a deal with the people you owe money to. So, my typical person we would have would help have sort of 40, 50, $60,000 worth of debts to credit cards, bank loans, income tax, which we can include, pay day loans, that sort of thing. And we work out a deal where you pay a chunk of it back but generally nowhere near the full amount, it might be a third, it might be a half, there’s no more interest. So it gives you the breathing room. That’s a great solution for someone who has an income, has money coming in but just not enough to deal with the vast amount of debt, so you don’t have to go bankrupt, we make a deal, you make payments to it, the debts are wiped out and you’re back on track.

And again I come back to the earlier point we made that you don’t have to beat yourself up about it, stuff happens, you get a cavity, you go to a dentist, you get it filled, you move on. You don’t wait till all your teeth fall out.

Robert Brown:  You break your toe you go to the hospital, you get a cast, you move on, you might be a little slower but you move on.

Doug Hoyes:    Yeah, that’s right. There’s maybe a period of rehabilitation but you get back on track. So, well I think that’s excellent. Are there any other points that you want to make on financial crisis, do you have any other advice for Charlie Sheen like what would you like to tell us here?

Robert Brown:  This is a family rated podcast so I’ll skip the Charlie Sheen advice. The only other thing I was thinking is that in the avoidance of the personal finance crisis is I think people need to more constantly take a look at their income opportunities. And you and I come from a generation where a lot of people got jobs when they got out of college and or got out of university and they stayed with the company for a long period of time.

And I find that younger people today are less likely to do that. And part of that is out of necessity because income wages are so low and they’re always looking for side hustles and ways to make more money and always looking for ways to advance themselves. And I think that’s a good thing to do, always be asking yourself, you know, is this the right – is my income right for me now? Is there an opportunity for me to be happier or make more money? Is there something I could do on the side as my hobby to make more money? And obviously that leads into a higher income, which will allow you to set some money aside for an emergency fund in case something pops up. Do what you can to get more money when you can.

Doug Hoyes:    I think that’s an excellent point. We focus on cutting expenses, which is the easiest thing, well not the easiest, but it’s the quickest bang for your buck but it’s not easy to do quickly. I mean if I’m renting an apartment and I’ve got a one year lease, I can’t just rent another apartment tomorrow unless I find someone else to take it over.

So, whereas looking for other income opportunities well sure part-time job, side hustle, whatever, it’s math, right? It’s what comes in, what goes out if you can make one higher –

Robert Brown:  And if you can do both, lower those expenses, raise the income then it becomes easier to manage and it becomes easier to get out of trouble.

Doug Hoyes:    Then it’s fantastic. So the book is Wealthing like Rabbits, an original introduction to personal finance and give us the, and you’ve been on this show before and I’ll put links to, you know, the full description of what we’ve talked about in the book, but give us kind of the 30 second overview of what kind of book is it? Is it a book – and I know the answer to this, I’m setting you up here because I’ve read the book. Is it a book of spreadsheets Robert, is that what it’s about?

Robert Brown:  No Doug, it is not a book of spread sheets. I think it’s fair to say the book is aimed at younger people, people in their 20s and 30s, relatively just getting started out. But in the same breath I think it contains good advice for people of all ages. And what I tried to do is write a personal finance book that didn’t contain a lot of charts and spreadsheets, instead it has a lot of humour and anecdotes and pop culture references, trying to take a subject that let’s face it can be pretty boring sometimes, personal finance, and make it more accessible.

Doug Hoyes:    Yeah and I have read the book and it is – I mean it’s more like a story than a textbook, well way more. It’s certainly easy to understand, you’re right, it’s not like it’s a lot of complicated math. So where can people get the book, bookstores everywhere?

Robert Brown:  Yeah they can pick it up at Chapters, Indigo across the country, they can find it my website at wealthinglikerabbits.com, eBook is available at Kobo. Pretty much everywhere a book is available you’ll find it.

Doug Hoyes:    Kindle, is there a kindle book too?

Robert Brown:  There is a Kindle book too, yeah.

Doug Hoyes:    There you go and what Robert and I like to do is we go to bookstores and if we see both of our books on the shelf we always move them to the front. So if you’re at a bookstore and you see by strange coincidence Wealthing Like Rabbits and Straight Talk on Your Money beside each other and we’ve done that. Sorry Chapters, that’s how we role man, that’s how we do it. So, excellent and where can people find you on Twitter?

Robert Brown:  They can find me on Twitter at @wealthingrabbits and my twitter feed is a mix of personal finance advice, some silly banality and just some general conversation, I’m all over the page there.

Doug Hoyes:    Excellent. I will put links to that in the show notes as well @wealthingrabbit, there’s no S on it I don’t think. @wealthingrabbit and you can also search for Robert R Brown but there’s more Robert Browns on Twitter than there are wealthing rabbit people. So, it’s an excellent Twitter feed to follow as well. Robert, thanks very much for being here.

Robert Brown:  Doug, always a pleasure, have me back any time.

Doug Hoyes:    Thank you very much. So that was Robert Brown, author of Wealthing like Rabbits. We were talking about are you having a financial crisis so hopefully we gave you some practical advice there. I will put a full transcript of today’s show with the show notes over at hoyes.com and as I said we’ve also video recorded this so I will put a link to the YouTube video, assuming it all worked.

Robert Brown:  I would think your first video podcast would feature two people more attractive but we’ll do.

Doug Hoyes:    Well, I would think so. Yeah we’ll have to work on that in the future. But yes we’re setting up The Debt Free in 30 studio here in Kitchener so Robert was kind enough to be the guinea pig for the setup so I appreciate that. So I will put all the links to that as well. And that was our discussion about are you having a personal financial crisis. That was Debt Free in 30. My name is Doug Hoyes, thanks for watching and listening.

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