Straight Talk on Your Money
Introduction: Following the Crowd Causes Bad Decisions
Part 1: Conventional Wisdom’s Fatal Flaw
Myth #1: Humans are Rational
- Humans Are Entirely Irrational
- Rationalizing Is Not the Same as Being Rational
- Cognitive Reflection and Decision-Making
- With Just the Facts, We Can Be Rational
- We Follow Our Emotions to Fit In
- Practical Advice: Recognize that You Are an Irrational, Emotional Being
Myth #2: It’s Your Fault
- Life Happens
- The Stunning Realization
- Using a Stacked Example to Prove the Point
- The Folly of the Financial Gurus’ Advice
- Reasons Why Your Financial Woes May Not Be Your Fault
- So Whose Fault Is It?
- Practical Advice: Focus on the Positive
Myth #3: Experts are Experts
- All Experts Are Biased
- Follow the Money
- The Myth of the Unbiased Banker
- The Tyranny of the Experts
- Practical Advice: Nobody Cares About Your Money as Much as You Do
Part 2: Debt
Myth #4: Give Credit Where Credit Is Due
- Credit Is Debt
- I Am a Good Person Because I Have a High Credit Score
- The Rule of 72
- The Credit Score Scam
- But What About Free Credit Scores?
- Worrying About Your Credit Score Is Missing the Point
- Practical Advice: Focus on Your Goals, Not Your Credit Score
Myth #5: The Most Important Number is the Monthly Payment
- The Monthly Payment Is Almost Irrelevant
- Isn’t This Obvious?
- Practical Advice: Crunch the Numbers
Myth #6: Bank at Only One Bank
- There Are Two Problems with Having Just One Bank
- Dark Side #1: Fees
- Dark Side #2: You Lose Control
- Practical Advice: Spread Your Wealth
Myth #7: When a Collection Agent Calls, Always Pay Up
- What You Don’t Know about Collection Agents
- Collection Agencies Earn a Commission
- How the Statute of Limitations Works against Collection Agencies
- Why Do Collection Agents Want a Small Payment?
- Practical Advice: How to Deal with Collection Agents
Myth #8: Pay Your Small Debts First
- Math or Psychology?
- A Repayment Strategy
- Callable and Secured Debts
- Practical Advice: Set Your Priorities
Myth #9: Cash In Your RRSP to Pay Off Debt
- Retirement Accounts Are for Retirement
- Seizable Assets
- A Debt-Reduction Strategy When You Have Assets
- Practical Advice: Bankruptcy May Be Preferable to Cashing in Retirement Accounts
Myth #10: Payday Loans Are a Short-Term Fix for a Temporary Problem
- The Real (Very High) Cost of Payday Loans
- Payday Loans Are a Symptom, Not the Problem
- Practical Advice: Be Creative, Find Other Options
Myth #11: There Is Good Debt and Bad Debt
- Is It That Simple?
- Who Cares? I Just Want to Buy That House
- If How We Feel About Debt Shouldn’t Govern Our Decisions, What Should?
- Practical Advice: Debt Is a Tool — Use It Only if It Fits the Task
Myth #12: Bankruptcy is the Easy Way Out
- Bankruptcy Is Sometimes the Best Strategy
- Why Some Say Bankruptcy Is Morally Wrong
- Debt: The Real Numbers
- Some People Can’t Pay Their Debts
- Practical Advice: Pay Down Debt or Go Bankrupt?
Part 3: Real Estate
Myth #13: A House Is a Great Investment
- What Is an Investment?
- Your House Does Not Generate Income
- Opportunity Cost
- Houses Don’t Always Go Up in Value
- So Should I Buy a House or Not?
- Keeping Up with the Joneses
- Practical Advice: Take Emotion Out of the Equation
Myth #14: Owning A House Gives You Stability
- A House Is an Anchor
- Practical Advice: Look Ahead
Myth #15: The Bigger the Mortgage, the Better
- The Chapter That Writes Itself
- The Appropriate Level of Leverage
- It’s Not Just About the Numbers
- How to Avoid Being House Poor
- Practical Advice: Buy or Rent?
Part 4: Budgeting and Planning
Myth #16: Investment Expertise Is The Key to Good Money Management
- Investing Is Not the Key Component of a Successful Financial Plan
- The 80/20 Rule of Money Management
- When Should You Start Investing?
- Practical Advice: Focus on the Basics
Myth #17: Budgeting Is Essential for Financial Success
- Budgeting Is a Waste of Time
- Why Is Budgeting a Bad Idea?
- How to Not Budget
- What About Saving Money?
- What Day Is Christmas This Year?
- The Secret Benefit of Not Budgeting
- But I Like to Budget
- The One Example Where a Budget Is Not a Waste of Time
- Practical Advice: The Perfect Budgeting System
Myth #18: I Am Immortal
- There Is More to Death than Life Insurance
- The Death Checklist
- The “In the Loop” Checklist
- Practical Advice: Information Is Power . . . and Insurance for Your Family
Myth #19: Pay Yourself First
- Saving Isn’t Always the Best Strategy
- But I Want to Establish a Savings Habit
- Practical Advice: Adopt Good Financial Habits
Myth #20: Joint Bank Accounts Are Essential for Couples
- Should You (or Shouldn’t You) Have a Joint Bank Account?
- When It Makes Sense to Have a Non-Joint Account
- Why Is This an Issue?
- Practical Advice: Look Out for Yourself
Myth #21: You Should Always Help Your Family and Friends
- Never Loan Money to Family or Friends
- How to Say No (or Yes)
- House Loans
- What About a Second Mortgage?
- The Bailout
- Practical Advice: The “Helping Family” Checklist
Myth #22: Life Is Like A Box of Chocolates
- Life Isn’t Always Sweet . . . But It Is Predictable
- The Money Plan
- The “Everything Else” Plan
- Practical Advice: Prepare for the Inevitable
- Just Because It’s in a Book Doesn’t Make It True