Do Financial Experts Really Help?

There’s really nothing like a poor economy and a tumbling stock market to send people’s financial plans into a tizzy! So, where can we look for guidance and assistance in these troubled financial times?

Some “experts” are now saying that this is the time to buckle down on spending with rising energy and food prices. Wow, I guess that “late breaking news” really caught us off guard – good thing there are financial experts out there to save us from this financial apocalypse.

Let’s see what the experts have to say:

The Canadian Government

Statistics Canada says gas and food prices are eating up a larger portion of our spending money, while CIBC reports household debt in Canada is rising faster than personal disposable income.

You don’t say? I guess nobody saw that one coming!

A “Smart” Canadian – The Usual Suspects

“It takes a rough patch in the economy like this for people to take a look and see where they can save money,” says Pat Foran, author of the Smart Canadian’s Guide to Building Wealth.

I’m pretty sure that this is what everyone should constantly be doing to build wealth. Always look for ways to cut spending and use that extra cash to increase your asset base.

  • Foran recommends reviewing everything from your cable and cell phone bills to seeing where you can trim costs, going to the library instead of buying books, and renting movies instead of going to the theatre.
  • Bringing your lunch to work a few times a week also saves money, as does cutting back on daily trips to the coffee shop for a java jolt.
  • An economic slowdown is also a good excuse to cut expensive bad habits, such as smoking or overdrinking, Foran says.
  • On big ticket items, he says consumers should consider used cars instead of new and putting off that vacation to Mexico when a trip closer to home might suffice.

For many families, Foran says budgets don’t work and instead recommends “forced savings,” which means setting aside a certain amount of money from each paycheque for investment.

Could Foran be any more vague? I guess we have to buy the book – good marketing strategy!

Go On A Money Diet

Patricia Lovett-Reid, author and senior vice-president at TD Waterhouse, recommends cutting back spending as if you were cutting back on calories for a diet.

Because we all know how easy it is to stick to a diet!

“There is some mindless spending going on,” she says.

“Look for ways to cut back so you don’t feel like you are on a budget.”

Hmmm…any ideas?

Another tip she has is to avoid shopping in bulk because the mass quantities that are purchased are sometimes not used and are discarded or wasted.

“If you look at what you throw out, you aren’t really further ahead … it might be better to purchase in smaller quantities.”

She also says that being an early adopter of technology is very expensive. I can concur with this as many folks purchase more computer than they need (you don’t need a $3000.00 computer to surf th enet and write e-mails) and don’t even know about half of the features of the new iPhone, for instance.

Review Your Debt

Many experts recommend refinancing your mortgage and consolidating high-interest debt through a line of credit where possible.

This makes sense if you have credit card or other high interest consumer debt.

“If you refinance and get a new mortgage you pay principle and interest on the entire amount from day one … . However, if the purpose of your refinance is to consolidate but not use all of the money at once, then set up a line of credit. You only pay interest on the amount you borrow at the time you use it,” says mortgage expert Peter Kinch.

However, he says be wary of how you used that line of credit.

“We want to make sure people don’t get into the habit of using their house as an ATM machine,” Kinch says.

Very thoughtful for a guy who just “sold” you a line of credit. Too bad this advice comes a little too late for some. For the sake of disclosure, I have a home equity line of credit that I use for investment opportunities.

What I Don’t Get

There are two major things that stick out to me in all of these expert articles and financial media mumbo jumbo.

Nobody suggests paying down debt. Everyone talks about consolidating debt and lowering interest rates, but nobody actually says (or writes) that you should pay that debt down. This is absolute craziness. In an economy like we are facing today, it should make absolute sense that people should be reducing their total debt. I recently outlined how reducing debt provides a guaranteed return on investment that is virtually unmatched.

What about the stock market? When the stock market is high all of the experts are telling us to buy stocks and that stocks are a great investment, but when the stock prices of those “great companies” are 20% lower, all of a sudden investing in the stock market is “risky” and not at all a good idea. This is absolutely counterintuitive to the basic investing tenet of buy low – sell high! In fact, one could argue that investing in the stock market now is less risky because prices are lower.

I am not claiming to be a financial expert, but the more I read the news media, the more disappointed I become. Basic financial advice changes from day to day and even the simple tenets of investing and finance are twisted or even discarded for the sake of selling a few magazines or newspapers.

At the risk of making it too simple, here are some ideas for building wealth:

  1. Live within your means
  2. Reduce personal debt
  3. Buy assets (Stocks, Bonds, Real Estate, Precious Metals)

Of course each of these points can be fleshed out and much more detail can be added to each point. However, I find that when the articles from the “experts” start getting in my head and causing doubt, I look back to these guiding principles for direction.

Do you ever get distracted by the media?  If so, what are your strategies for dealing with the constant barrage of information?

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