Sep 212013

Over the course of our careers we are expected to make more money as we become more skilled and experienced in our field ๐Ÿ™‚ But with everything from food to housing becoming so expensive some people may be led to believe that we will always be losing real purchasing power because our pay raises will never grow as fast as the cost of living.ย  These people aren’t wrong. Here’s a graphic I put together 3 years ago that shows how prices and incomes have changed in Vancouverย in the 20 years between 1990 and 2010.


Notice how the growth for expenses vs incomes are way out of whack? ๐Ÿ˜ฏ Are we slowly becoming poorer without even realizing it? But hold on a tick ๐Ÿ˜ The math doesn’t quite work out. Today we can still afford to buy the same amount of food, the same sized homes, the same means of transportation, etc, as we used to. So how can Canadians put up with the substantial increase in living expenses if we don’t have the same income growth to support it? The answer lies in the chart below.

9-13-cdn-debttoincomeAh, now it makes sense ๐Ÿ˜Ž Our increased cost of living is mainly due to excess credit in the economy that wasn’t there before. If pineapples were the currency on an isolated island then the more pineapple trees there are, the less value each fruit will have to the local residents. Similarly this extra debt load (or credit) that we’ve been living on puts upward pressure on prices all around us because each unit of currency itself ($CDN) is worth less, which means we need more of it to buy anything.ย This is why we have inflation ๐Ÿ™‚

So what can we do to limit our exposure to debt, while protecting ourselves against inflation at the same time? First, we must pay off all our high interest debts ASAP, like those 19% credit card balances. Next, we should slowly accumulate some precious metals like gold or silver, up to around 5% of our net worth. Finally we must reassess our finances from a long term perspective. For example, some people have a $12,000 emergency fund so they can sleep well at night. But from 1990 until now I haven’t ran into a single financial emergency yet. *knocks on wood* Over that 23 years an emergency fund would have lost more than half it’s original value. Meanwhile, if the money were put into a mixed bag of investments like stocks, real estate, gold, and oil, it would be worth twice as much today after calculating for inflation.ย  Continue reading »

Nov 262010

I read an interesting article about credit in Canada, albeit not from recent data.
Here are some key points I found interesting about credit awareness:

13% of Canadians feel that based on their current situation they will never be able to retire
We should definitely look into lowering this number, for the sake of all our futures.

28% of Canadians do not know the interest rate on their credit cards
I was part of this group until I read this article, because I figured since I pay off the full balance each month, the interest rate doesn’t matter. I just checked mine out of curiosity, 19.95%!!!

40% of Canadians do not pay their credit card off in full each month
I would like to thank everyone who belongs to this group. Without you guys, the rest of us would be paying for higher banking and credit card fees.

53% of Canadians do not have a personal/household budget
Lower than I expected.

Only 37% of Canadians who make less than $30,000 per year pay their credit card off in full each month; whereas 73% of Canadians who make $100,000 per year pay it off in full each month
A perfect example of why the rich gets richer and the poor gets poorer.

At the end of the day, knowledge is power. The more you know about how credit and debt works the less likely you are to fall victim to debt spirals and financial traps.