Financial Friday #96: Financial Advice to Avoid in 2022!
Mario Daniel Sconza Your Home SOLD Guaranteed Or We Buy It!
Saturday, January 22, 2022
There’s no shortage of financial advice these days. The problem is separating fact-based information from well-meaning advice about what you "should" do, which is often outdated and ignores the actual situation. Here are four pieces of popular advice that made our list of things you may want to reconsider in 2022.
1. Pay down your mortgage as fast as possible.
There are a few factors in play if you have a variable rate mortgage, but even if rates rise as expected in 2022, you would likely be better off to invest any extra funds rather than double down on your mortgage payments. If you have your rate locked in with a fixed mortgage the math becomes even easier.
The simple fact is that many investments return much more than the interest rate on our housing loans. Putting your money into a diversified stock portfolio (especially if you can take advantage of RRSP/TFSA tax benefits) rather than racking up equity in your home makes good financial sense. Sure, stocks can dip in the short term, but if you don’t need the cash and stay invested for the long term, you are going to be much farther ahead of the game. Liquidity is also an issue and if you ever need cash, selling stock is easier than tapping into a home equity loan.
2. Buy now because prices are only going higher.
If your old car is getting unreliable and clearly on its last legs, go ahead and buy something to replace it (a lightly-used, already depreciated car is our suggestion). However, if it only needs new tires and a brake job to stretch out another year, you should probably go that route.
Prices are rising and some of it is due to inflation, but a lot of it is due to lingering effects from the pandemic and related “supply” issues. Retailers and car salesman alike have been quick to trot-out the “limited supply” and “get it now before it’s too late” sales approach, but that’s no excuse to buy when prices are high.
3. Strike fast and get in early on new opportunities.
New investment opportunities don’t come by “once-in-a-while” anymore. They now come in rapid succession and the fear of missing out (FOMO) generated by a barrage of media hype can lead to hasty, ill-informed, and soon to be regretful decisions.
Meme stocks, the latest and greatest cryptocurrency, non-fungible tokens (see the story in the "Resources" section below), even pre-construction condos — these may be great ways to make a buck. The problem is they are also great ways to lose a buck, especially if you succumb to FOMO and let it take precedence over a calculated, fact-based financial decision. Procrastination isn't your friend either and can be just as damaging as FOMO, so make sure you end up somewhere in the middle when it comes to your financial decision making timeline.
4. Track every nickel and bucket your expenses.
This isn’t bad advice, it’s just very difficult to do on a day-to-day basis, even with the plethora of apps available to help us. You forget, it gets too complicated, or maybe it just doesn’t matter that you spent $10 on take-out coffee or a new pair of socks — that ten-spot is still gone.
If you have spending “challenges”, figure out what you can afford each pay period for discretionary spending and put that in a separate account – that's your fun money. When it’s gone, it’s time to fire up Netflix and make some popcorn – your out of fun money until the next payday rolls around. Use your savings account for the essentials only — rent/mortgage, utilities, car, insurance, grocery (not restaurants!) and whatever else you NEED to survive. If you come up short, you need to adjust down the amount you set aside for fun money. It’s a simple solution that keeps your spending under control, especially for those who have difficulties keeping a more complex budget.
Financial advice rarely stands the test of time as economic factors, lifestyle changes, technology, new opportunities, even changes to tax legislation require new solutions. What doesn’t change is your need for financial knowledge and acquiring the ability and skills to evaluate advice, make good decisions, and choose solutions that work for you.
Housing affordability — bad news to continue in 2022?
A great read if you are looking for an in-depth analysis and the data behind the spike in housing prices and what might be in store for 2022. The government is considering some band-aid solutions to cool the market, but economist, author (and Enriched Academy contributor!) Sherry Cooper argues that what's needed is more housing.
Don't say we didn't tell you!
In case you skipped the above article about financial advice that sucks, or want a second opinion, check out how TikTok and other social media platforms are leading investors astray with dubious or risky financial advice.
Indonesian college kid parlays worthless selfies into $1M of NFTs
While we can only applaud this young man's ingenuity and success, we have to wonder about who bought these and whether a serious case of buyer's remorse isn't going to set in very soon!
Inflation & unemployment push Canada up the "miserable" list
Take it with a grain of salt, but the Fraser Institute ranks us sixth out of 35 countries on their "Misery Index". While topping Spain and Greece, it seems Americans, Ozzy's, Swiss and Japanese are all less miserable than your average Canadian.
Financial stress eating up the hours as Canadians fret over finances
Scotia Bank poll reveals young (and middle-aged) Canadians are spending hours each week pondering their financial situation. Find out how financial stress stacks up against life's other worries and just what financial issues are keeping us awake at night.
1. Pay down your mortgage as fast as possible.
There are a few factors in play if you have a variable rate mortgage, but even if rates rise as expected in 2022, you would likely be better off to invest any extra funds rather than double down on your mortgage payments. If you have your rate locked in with a fixed mortgage the math becomes even easier.
The simple fact is that many investments return much more than the interest rate on our housing loans. Putting your money into a diversified stock portfolio (especially if you can take advantage of RRSP/TFSA tax benefits) rather than racking up equity in your home makes good financial sense. Sure, stocks can dip in the short term, but if you don’t need the cash and stay invested for the long term, you are going to be much farther ahead of the game. Liquidity is also an issue and if you ever need cash, selling stock is easier than tapping into a home equity loan.
2. Buy now because prices are only going higher.
If your old car is getting unreliable and clearly on its last legs, go ahead and buy something to replace it (a lightly-used, already depreciated car is our suggestion). However, if it only needs new tires and a brake job to stretch out another year, you should probably go that route.
Prices are rising and some of it is due to inflation, but a lot of it is due to lingering effects from the pandemic and related “supply” issues. Retailers and car salesman alike have been quick to trot-out the “limited supply” and “get it now before it’s too late” sales approach, but that’s no excuse to buy when prices are high.
3. Strike fast and get in early on new opportunities.
New investment opportunities don’t come by “once-in-a-while” anymore. They now come in rapid succession and the fear of missing out (FOMO) generated by a barrage of media hype can lead to hasty, ill-informed, and soon to be regretful decisions.
Meme stocks, the latest and greatest cryptocurrency, non-fungible tokens (see the story in the "Resources" section below), even pre-construction condos — these may be great ways to make a buck. The problem is they are also great ways to lose a buck, especially if you succumb to FOMO and let it take precedence over a calculated, fact-based financial decision. Procrastination isn't your friend either and can be just as damaging as FOMO, so make sure you end up somewhere in the middle when it comes to your financial decision making timeline.
4. Track every nickel and bucket your expenses.
This isn’t bad advice, it’s just very difficult to do on a day-to-day basis, even with the plethora of apps available to help us. You forget, it gets too complicated, or maybe it just doesn’t matter that you spent $10 on take-out coffee or a new pair of socks — that ten-spot is still gone.
If you have spending “challenges”, figure out what you can afford each pay period for discretionary spending and put that in a separate account – that's your fun money. When it’s gone, it’s time to fire up Netflix and make some popcorn – your out of fun money until the next payday rolls around. Use your savings account for the essentials only — rent/mortgage, utilities, car, insurance, grocery (not restaurants!) and whatever else you NEED to survive. If you come up short, you need to adjust down the amount you set aside for fun money. It’s a simple solution that keeps your spending under control, especially for those who have difficulties keeping a more complex budget.
Financial advice rarely stands the test of time as economic factors, lifestyle changes, technology, new opportunities, even changes to tax legislation require new solutions. What doesn’t change is your need for financial knowledge and acquiring the ability and skills to evaluate advice, make good decisions, and choose solutions that work for you.
Resources
Housing affordability — bad news to continue in 2022?
A great read if you are looking for an in-depth analysis and the data behind the spike in housing prices and what might be in store for 2022. The government is considering some band-aid solutions to cool the market, but economist, author (and Enriched Academy contributor!) Sherry Cooper argues that what's needed is more housing.
Don't say we didn't tell you!
In case you skipped the above article about financial advice that sucks, or want a second opinion, check out how TikTok and other social media platforms are leading investors astray with dubious or risky financial advice.
Indonesian college kid parlays worthless selfies into $1M of NFTs
While we can only applaud this young man's ingenuity and success, we have to wonder about who bought these and whether a serious case of buyer's remorse isn't going to set in very soon!
Inflation & unemployment push Canada up the "miserable" list
Take it with a grain of salt, but the Fraser Institute ranks us sixth out of 35 countries on their "Misery Index". While topping Spain and Greece, it seems Americans, Ozzy's, Swiss and Japanese are all less miserable than your average Canadian.
Financial stress eating up the hours as Canadians fret over finances
Scotia Bank poll reveals young (and middle-aged) Canadians are spending hours each week pondering their financial situation. Find out how financial stress stacks up against life's other worries and just what financial issues are keeping us awake at night.
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Financial Friday
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