An Optimism Bias Won’t Make You Rich, But It’ll Help

An Optimism Bias Won’t Make You Rich, But It’ll Help

Those of you that have been around the ol’ FU Machine for a few years now might label me as a bit of a cynical bastard. After all, I’ve crapped on your dreams to buy a house, invest solely in stocks that pay dividends, retire early, and told you that, no, that hot chick doesn’t like you. Look, I don’t care if she actually told you she does and stuck her tongue down your throat. She’s just being a tease. Trust me, I know.

It’s not that I’m really cynical. I like to think of myself as more realistic. Look at it this way. There are approximately 5,000 publicly traded stocks in North America, and I own fewer than 20 of them. There’s probably a case to be made for owning 4,000 of those stocks. I just think the case for owning the stocks I do is better than owning something random. In other words, I’m betting on my specific horse, not the field.

I still think the world of private investments is better than that of passive stocks. Most people simply refuse to buy businesses, which brings down valuations for those of us willing to take the plunge. Even things like blogs sell for very reasonable multiples, partly because when you buy something like that you’re really just buying yourself a little extra work.

Basically, it boils down to this. Every opportunity has pros and cons. Passive investments tend to have high valuations. Starting your own business from scratch is risky but potentially very lucrative. And buying a business from someone means you’ve condemned yourself into a world of active management without a clear-cut plan to scale a business upwards.

When you focus solely on the downside of an opportunity, it becomes really easy to dismiss it out of hand. This leads to inaction, which is perhaps one of the worst things you can do to your money.

Opportunity costs are real

I know too many value investors who are too content to let capital sit on the sidelines for years, waiting for the right opportunity.

Some of these guys are convinced the market has been overvalued since at least 2013, and that we’re just a few months away from a 2009-style crash.

And hell, these guys are downright reasonable compared to precious metal nuts. These guys have 50% of their portfolio in stupid stuff like silver coins or gold bars, convinced the world is going to go to hell. Only then will they be kings, exchanging their precious metals in exchange for the loveliest of bodies. FINALLY, GOLD NUTS WILL GET THEIR DUE.

Sure, gold or silver might go up, but that stuff will never pay you a dividend or anything like that. Precious metals have barely beaten inflation over time.

Besides, the problem with looking at the world in that way is you miss out on a lot of opportunity.

I’m the first to admit I think the Canadian stock market looks expensive and the U.S. might be even worse. But countries like Russia, Brazil, and others are downright cheap. There’s opportunity in the developing world today.

It’s the same thing with real estate. I invested in the sector back in the early 2000s, earning great returns on my cash. And then everyone else noticed the space, so I left. These days I still invest in real estate, but through private mortgages and through undervalued REITs.

I’m still finding ways to invest in things, just not via the ways everyone else is.

As long as you keep your eyes open, there will always be opportunities. I’m 95% invested right now, with my 5% cash position mostly as a cash buffer to pay for any big expenses. You should be too.

Optimism bias

There’s a term I heard the other day describing this phenomenon that I really like. It’s called having an optimism bias.

There’s little doubt in my mind that the reason why most billionaires became rich is because they have a built-in optimism bias. There’s more to it than that, obviously (hard work and intelligence help), but having the ability to continually put money to work even when things might not look so good is an underrated skill.

I’m not saying you need to run out and buy everything all of the time. That’s silly. You can be selective and still have a healthy optimism bias. It’s not hard for a retail investor to avoid 99% of the market and still end up with a good diversified portfolio. Hell, you can even make the decision to avoid the stock market altogether and invest in private businesses or lending money to your cousin’s real estate business.

The key is to selectively identify opportunities and put your money to work in them. Having a good optimism bias doesn’t mean you invest in everything or even that you’re 100% fully invested. What it does mean is that you’re not afraid to put money to work in opportunities you find attractive.

Master the fear of losing money and you’ll be ahead of your peers. That’s the key. And remember, if the world goes to hell and you lose all your money, you’ll at least have plenty of sympathy.

Your Favorite Personal Finance Blogger is Probably Crazy

Your Favorite Personal Finance Blogger is Probably Crazy

The world of personal finance is an odd one to outside observers.

I know it’s tough, but picture yourself as someone who doesn’t give two craps about the world of money. You’ve been transformed from someone who actually loses sleep if you don’t save 30% of your income to someone who regularly makes it rain with $20s at the club.

We all hate the new you, by the way. You better change back immediately.

Whew, that was a rough six seconds, huh?

Nobody wants to be that friend who doesn’t care about money. What will he do about retirement? What will he do when he loses his job? What will he do if his car breaks down? OMG YOU GUYS HE’LL NEVER EXPERIENCE THE SEXUAL THRILL OF GETTING DIVIDEND CHEQUES.

That poor bastard.

How can anyone live a life where they don’t have a safety net? Don’t these people know that something will inevitably go wrong? Don’t they know that you have a one in four chance of being disabled in your life? How do they live knowing they’re only two weeks of non-work away from a disaster?

We all know the answer to this, of course. They’re aware these risks exist. They either choose to downplay them or ignore them completely. If they really get into financial straits, they’ll just throw up their hands and default on debts. Easy come, easy go.

A different way of looking at things

From our perspective, this way of life seems pretty normal. We think a lot about money because we like it. We like having it, we like saving it, and we even like spending it–responsibly, of course. We like the freedom of making money outside of our day jobs and collecting dividends. And ultimately, I’d say most of us lust for the freedom financial independence provides.

To get to that ultimate goal, the average personal finance blogger does some stuff no sane person would ever do. In fact, I’d probably come out and argue pretty strongly that most of the activities we do aren’t healthy at all.

Be honest. How many of the following things have you done or currently do?

  1. Check your bank/investment balance more than once a day?
  2. Intentionally missed out on fun activities because they would take away from your savings goals?
  3. Ate bad food for the sole purpose of saving money?
  4. Became emotional because of mild swings in the stock market?
  5. Got mad because of the lack of savings habits from your parents/friends/other finance bloggers
  6. Read hours and hours of money saving tips that are just the same old tips recycled for the 9th time?

There’s more, but you get the picture.

Let me put this next part in bold because it’s important.

People with a healthy relationship with money don’t check balances several times a day or get emotional because of normal swings in the market. These are the behaviors of people with a deeply unhealthy relationship with their cash.

Think about your average debt blogger. They go from an orgy in spending to complete celibacy, vowing to not only never spend a nickel on non-essentials again, but to do so while channeling 100% of their disposable income back towards paying off that debt. Sacrifices will be made, and they’re more than happy to make them and finally get their lives back in order.

In short, this person swings from one type of obsession to another. But they’re not doing anything about the root causes of what causes the obsession in the first place. They’re just moving along from shiny object to shiny object, but this time writing a blog about the process.

Is it any wonder these people don’t have a great success rate?

Debt bloggers aren’t the only ones who suffer from this. When Sean Cooper paid off his mortgage in three years, people mocked him for working 80+ hours a week and eating Kraft Dinner while the rest of his peers went out and had fun. Cooper had the last laugh, proclaiming it was all worth it when he finally paid off his house.

What Cooper and the rest of the people who support his decision missed were the very legitimate arguments against his strategy. Investing in the market would likely have given him higher returns over time. Renting out the top floor of his house ensured he had an investment that was cash flow positive.

But most importantly, they all missed the all-important fact that people with psychological issues surrounding money are the ones that “need” a mortgage gone in a short amount of time. Normal people don’t need that boost. Normal people recognize a mortgage is a debt that takes a while to pay off, and plan their lives accordingly.

In several interviews Cooper mentioned his mother’s financial troubles as a source of inspiration. Isn’t it possible that he overcompensated for these issues?

Another example? Don’t mind if I do

There are essentially two types of finance blogs. One is directed towards the reader, while the other becomes a sort of diary for the person writing. In the latter, we’re treated to thousands of words every week, outlining everything from the personal finance blogger’s budget to their plans to buy property three to five years from now.

How much of a down payment do I need?

What size of house should I buy?

Should I buy now in case I get priced out of the market forever?

How can I pick the best Realtor?

And so on.

You’ll notice a key letter is bolded in all of those questions. These blogs are unabashedly all about the proprietor and their future plans; their hopes and dreams; and their financial journey.

When we look at these types of sites as a sort of personal diary, they don’t seem so bad. After all, diaries have existed as long as paper has been around.

When we look at these blogs from another perspective, a different story starts to emerge. What kind of person spends many hours a week thinking about financial goals that won’t happen for years? Who feels the need to explain the tiniest minutiae of their financial lives to an awaiting audience? And perhaps most importantly, why do any of us care?

And ultimately, somebody with a healthy relationship with money doesn’t spend hours and hours preparing for a financial decision that’s years away.

We’re all guilty of this 

I’m hardly one to talk. There are more than 1,100 posts in my archives, some of which aren’t entirely dick jokes and scantily clad ladies. And although I’ve made an active effort to avoid talking about my own personal life most of the time, plenty of these articles have been posted over the years.

And when going over my list above, I’ve been guilty of just about all of those money-related sins. When my stocks go down, it sucks. I try to get over it pretty quickly, but it still affects me.

We collectively spend thousands and thousands of hours obsessing with our finances. Our friends and acquaintances don’t, yet they still seem to do okay. Sure, they might have to scramble a few times in their lives, but a full 99.8% of the time they survive just fine.

I’m not suggesting we all turn into these people. What I am suggesting is that once we get all the heavy lifting started and on a path to financial independence, perhaps it’s fine to take our minds away from the subject of money sometimes. In other words, stop sweating the details so much. It’s the first step for all of us to improve our own relationship with money, which, in this world, isn’t healthy.

Stop Thinking The More Expensive Item Is The Frugal Choice

Ah, it’s the frugal vs. cheap debate.

Frankly, I think the whole exercise is stupid with a side dish of dumb. Arguing about whether you’re frugal or cheap is kind of like arguing whether you like cheeseburgers or hamburger sandwiches with cheese better. They’re the same damn sandwich. Likewise, frugal and cheap people share a lot of the same characteristics.

The big difference between the two, I’m told, is that frugal people are willing to spend money on things that are worth it, while cheap people don’t even spend on the necessities. As an example, a frugal person is willing to spend on a nice meal out, while the cheapskate will barely shell out for value menu items at McDonald’s, content to eat grilled cheese sandwiches in his basement apartment in the dark.

Hey, fat cat, electric bulbs cost pennies each hour to use. What do you think I am, some sort of baller?

Essentially, frugal people will spend money on stuff they value, while cheap people don’t spend money on anything. So if you’re driving around in a Mustang (LADIES! PLEASE HAVE SEX WITH ME!) while eating boring beans and rice for every meal, you’re probably a frugal guy who’s going to get scurvy if he doesn’t mix in a damn orange every once in a while.

I find this difference to be spotty at best. Every person prioritizes certain things over others, it doesn’t matter if you’re Trent Hamm cheap or you’re a rapper making it rain $20s at the club. Even people like Warren Buffett with unlimited amounts of money still prioritize.

While I think this whole frugal vs. cheap argument is dumb, I’ll admit getting upset about it is 14 different kinds of useless. Time spent arguing about the meaning of frugal could be spent on any number of actual useful things, including showing your grandma how to use the computer or listening to your kid butcher Chopsticks at a piano recital.

There is, however, one reason why I think the frugal vs. cheap debate matters. Do you want to know what it is? OOOH I’M SUCH A TEASE.

Price ≠ Value

Teasing and fancy symbolizin’ in back-to-back sentences. I spoil you guys.

The perfect way to point out that price and value are two very different things is my MacBook Pro.

A little over three years ago, I was in the market for a new laptop. I asked a bunch of fellow bloggers and various homeless guys just for fun, and most told me the same thing. Go with a Mac. Yes, it would cost more day one, but it would come with a better user experience without suffering the same sharp drop-off in performance that afflicts PCs after a year or two.

So I paid $1,200 for a laptop even though comparable PC-branded machines sold for about $600. Hey, I was making the frugal choice.

Three years later I now truly realize just how wrong I was. It barely had enough computing power to be a good machine back in 2013. By the time 2016 rolled around it can barely handle having more than a few programs and a half dozen tabs open at once. And those aren’t even porn tabs.

I’ve already had to replace one power cord (at a cost of $99.99), and the second one is damn close to shredding into 159 pieces.

And finally, certain keys on the keyboard stop working at random points. When I troubleshoot this issue online, the solution suggested is take the machine back to Apple because the electrical circuits behind the keyboard are starting to crap out.

One of these days the connection will be lost foever and I’ll have to connect an external keyboard if I want to do complex things like compose an email or go on Twitter. That’s just friggin’ outstanding.

What I neglected to realize when I was buying this laptop was exactly what I was looking for. Macs are heavy on looking good and offering a more user-friendly experience. I care very little about certain Mac efficiencies and even less about impressing some random hipster in a Starbucks in Omaha.

I didn’t need what a Mac offered. All I needed was a machine I could use to write, go online, and so on. I’m no graphic designer and I couldn’t care less what brand is on the outside of my machine. Hell, I’d sell advertising space if I could convince anyone to pay for it.

Like a lot of people, I made the mistake of assuming the more expensive machine would be the better value. It hasn’t been the case. Yeah, my MacBook is going to last longer than the Gateway $349 laptop I bought before it, but not long enough to justify the $851 price difference. I might get a year longer, tops.

The bigger picture

Companies know we automatically equate higher priced things as being the better value, and so they price things accordingly. Apple gets this better than almost anyone. There’s a reason why it’s the world’s largest company.

The relationship between price and value isn’t as simple as you think. Even if you cook often, the difference between a $20 pot and a $400 one probably isn’t enough to justify the difference in price. If you can get 99% of the experience the $400 one offers for $50, wouldn’t you be smarter to buy the $50 one?

Besides, people aren’t smart enough to consistently make the best buying decisions. We let salespeople talk us into things. We’ll often make up our minds before we even go into a store or go onto Amazon. Opinions from friends we know are morons hold weight, for some reason.

And even if we make the wrong choice, we talk ourselves into believing we made the right one. How do you even know the $200 pot was worth it? You don’t have any basis for comparison.

The point of all this? Making the so-called “frugal” choice is a hell of a lot more complicated than just buying a more expensive item and declaring yourself done with the exercise. I’d be willing to bet that people who go the cheap route are happy more than the frugal people are willing to admit. And they end up with more cash in their wallets.

Case Study: A Behind-The-Scenes Look At A Private Mortgage Deal

Case Study: A Behind-The-Scenes Look At A Private Mortgage Deal

Over the years, I’ve made plenty of comments about how I’m in the private mortgage business. I once even wrote about it in pretty generic terms.

Questions have slowly trickled in from readers who are interested in private mortgages. How did I get involved in the business? What kind of interest rates can you charge? How do you decide who to lend to? And most importantly, how do you sleep at night?

(The answer to that last question is quite poorly, at least lately. It’s hot and I’m not allowed the air conditioner)

So I thought I would create a little mini how-to guide when it comes to the private mortgage business. We’ll go over how I got into it, the underwriting process, and all sorts of other jazz. I’ll show you actual deals I’ve done–with any personal details edited out, of course. Nobody wants to get sued.

Let’s get started.

Entering the business

I’ve been in the private mortgage business for awhile, starting back in approximately 2004.

I’d like to say I had some genius inspiration and the idea came to me one day, but it wasn’t like that. I had rental real estate at that point, and I knew there were certain borrowers the banks wouldn’t touch. Lending was  way less lenient back then. HELOCs basically didn’t exist, at least here in Canada.

My dad and I began discussing it, although not really that seriously. After a bunch more research about how the private mortgage industry worked, we then approached a lawyer to make sure what we were thinking of doing was, in fact, legal. I wasn’t very good at using Google in 2004, apparently.

Shortly after deciding to get into the business, we happened to meet the only mortgage broker in town. We asked him if there was any demand for our service. He wasn’t sure, but if he found a deal he thought would interest us he would let us know.

We didn’t have to wait long. A month later we had done our first deal. Six months later we had done six more.

Most of the deals went something like this. A guy owns a house that’s worth $150,000 with a $60,000 mortgage on it. His credit is bruised, so the bank refuses to lend him any additional cash. We’d do a $15,000 second mortgage, lifting his total indebtedness to $75,000. That’s a loan-to-value ratio of 50%.

We spent a lot of time focusing on loan-to-value ratios. As a mortgage lender, the worst case scenario is having to foreclose on the place and being forced to sell it. As long as there was enough equity left over to pay a Realtor, legal fees, and get our capital back, we were happy. Thus, we set a loan-to-value ratio limit of between 70 and 75%.

The best part was the interest rate. We were getting 18% annually on our money, a reflection of higher overall rates and no competition in town. If you wanted a second mortgage back in 2004 in my neck of the woods, there was only one option.

We’d also charge fees on top of the 18%, with most of them going back to the mortgage broker for his commission. There would be enough left over to cover legal fees to enter into the transaction–which we always cover–plus a few hundred bucks for our time.

The broker left town, and business slowed a bit. We began to get known as the guys who would do alternative financing, and the calls would trickle in. Lending guidelines also started getting looser, meaning some of our borrowers could go back to the bank and qualify. So we didn’t do a lot, at least compared to the glory days of 2004.

One of the reasons why I became a mortgage broker in 2007 was to capitalize on our unique little business. I’d take a mortgage application, realize there was no hope of the borrower getting something conventionally, and see if it was a deal I was interested in.

I said no to most, since they were people with terrible credit who had only barely managed to scrape together a 5% down payment. But there were a few that I did do. Finally, I was hitting the big time.

The present

A few things have changed from the glory days of 2004-2008.

Firstly, the interest rate charged has gone down significantly. 18% has been cut down to 8-10%, depending on the borrower, loan-to-value ratio, and location of the property. The better the risk, the closer the rate is to 8%.

There’s still no mortgage broker in town. A few have come and went (including yours truly), with nobody really doing much business at all.

We’ve changed our marketing slightly. We still depend heavily on word of mouth, since we’re still the only guys in town who are doing this type of lending. We’ve also done a bit of Facebook and Kijiji advertising, with a certain amount of success. The problem with advertising is each ad sends a certain amount of crap our way.

When you’re a higher-risk lender, you get a lot of people who are absolutely maxed out. They’re easy to say no to, but it still takes a certain amount of due diligence before they’re officially rejected. In 2016 in Alberta, we’re meeting more and more of these people.

Overall, we’re busier than we’ve been in a while. More and more people are struggling, and banks have responded by cutting off many people’s access to credit. For us, this is a good thing.

The underwriting process

Oh boy! It’s what you’ve been waiting for!

And because I like you guys, I’m not going to give you just one case study. I’m going to give you two!!!!!!!!!1

Geez, don’t act so excited.

Case study #1: Debt consolidation

With just a little lying, this could be yours!

Certain details have been changed to protect my ass from getting sued.

Meet Rob and Candace. They’re in their early-50s with two kids who have grown up and left home, hopefully forever. They sold the family house and downsized into a smaller place, getting rid of the mortgage in the process. Neither of them work glamorous jobs; Rob works as a laborer for the local government and Candace works at a local drugstore as a pharmacy assistant.

They live a reasonable life. Both drive relatively new, financed cars. They put a vacation on their credit card, content to pay it off over six months. Rob likes to do a little bit of work to the house on weekends.

Within a year, both decided to finance new (used) cars. Rob missed a bit of time off work when he got injured. Credit card bills were starting to add up. Suddenly, they realized that close to $1,000 per month was going out the door in high-interest payments every month.

So they called me. Could I help them out?

They were looking to borrow $25,000 to consolidate the following debts:

  • $9,000 car loan A at 18% annually
  • $10,000 car loan B at 20% annually
  • $6,000 in various credit cards at 18-29% annually

Payments for the two vehicles alone were more than $800 per month. They were making nice progress on these loans, but the huge payments were creating cash flow issues.

This is exactly the kind of private mortgage I like doing. Here we have two gainfully employed people who just simply got in over their heads. Their house, which is fully paid off, was worth $110,000 in 2011 when they bought it. Rob has improved it since then, but to be conservative we’ll say it continues to be worth $110,000.

To verify the value of the house, I’ll do any one of a number of different things. I might talk to the Realtor who sold them the place. I’ll look up assessed values from the city. I’ve even been known to take a drive and tour the place personally.

I’ve never actually had a house professionally appraised, which I think would be a waste of $500. I like to compare it to value investing. If I’m willing to do a deal if the place is worth $110,000 but I’m not at $120,000, then it’s a deal I shouldn’t be doing in the first place.

In the value investing world, cheap stocks tend to jump out at you. They’re ridiculously cheap, no matter how you view it. I look at these mortgages in a very similar way. $10,000 in property value in either direction doesn’t matter all that much.

Back to the deal. I was looking at lending $25,000 against a property that was worth $110,000. That’s a loan-to-value ratio of 22.7%. They could comfortably afford the $500 per month in payments too. So I quoted them a rate of 8%, which is the lowest I’m willing to go. I felt very comfortable doing this deal.

Once we iron out all the details, I get the borrowers to sign a commitment letter. It sums up the whole deal in one document. I have certain conditions, which include:

  • Being added to the home insurance policy as first (or second) loss payable
  • Making sure the property taxes are paid up
  • Putting in any prepayment penalties
  • Outlining late and NSF cheque fees
  • Any loan fees

Let’s take a minute to point out why these conditions are important.

Home insurance is easy. If the place burns down, Nelly wants to get paid. Without the clause on the insurance policy, I have to count on the borrowers paying me out. Since I would still technically have a loan against the land, I’m not sure they’d be forced to pay me. So I add that clause.

If the borrower doesn’t pay the property tax for years at a time, the city can try to auction off the property to get paid. In Canada, bidding has to start at assessed value, so at least I know somebody isn’t about to buy my property for $2,000 in unpaid taxes. But mostly, I just want my borrowers to pay the damn taxes.

I used to put in three month interest penalties for borrowers who pay the loan off early or make huge lump-sum payments. I’ve since taken that out. People like knowing they can pay the loan off early. Most don’t, but they like holding onto the hope.

Many people do pay faithfully for a few years and then refinance with another lender. It’s always a little bittersweet when that happens, but I don’t want to penalize them too much.

There are also late fees. One thing you have to keep in mind before doing a private mortgage is people will be late. There’s a reason why their credit is bruised in the first place.

So if a borrower is a few days late once every few months, I don’t charge late fees. If the borrower is going through a tough time, I’ll waive the late fees. If a borrower is chronically late, then you better believe their ass is getting charged late fees.

Late fees are anywhere from $10 to $100 per payment. I’m closer to the bottom of that range since I’m trying to be a nice guy (ed. note: you are???). I know other private lenders who are closer to the top of the range because they view it as a way to ensure they get paid. In other words, if the borrower doesn’t pay, they want that jerk to suffer.

Depending on the private mortgage, I’ll do anywhere between $1,000 and $1,500 in a loan fee. A normal deal will cost me $600-$700 in lawyer fees alone, so it’s not like I’m making bank on the fee. Besides, doing the deal through a lawyer adds legitimacy to it. Borrowers like it and don’t usually get too pissed off at the fee.

Once the commitment letter is signed by both parties, it’s forwarded to my lawyer. They then prepare the actual mortgage documents, register the lien on title, and all that fun stuff. This takes 2-3 weeks and then the deal is done.

Case study #2: An actual bailout

Next up we have Larry and Crystal, a married couple in their late-50s. Larry works at a car dealership doing oil changes and other simple repair work. Crystal is the front desk clerk at a local hotel. Together, they make approximately $50,000 per year. They have a freeloading son living at home even though he’s close to 30.

Larry gets sick and can’t work for a few months. Crystal makes due on her own, but there’s one thing they can’t afford while Larry’s on the shelf–the mortgage. They quickly fall three months behind. Things are so bad freeloading son even considers getting a job.

Larry eventually recovers and goes back to work. They start to work on getting caught up on the mortgage. But before they have a chance to catch back up, it turns out their five-year term is up. And since they’re behind, the bank doesn’t want to renew. No other legitimate lender will touch them because falling behind ruined both their credit scores. Not that these scores were good in the first place, but still.

The total owing was approximately $65,000. The house, depending on who you ask, is worth between $135,000 and $160,000. The value went up as soon as the freeloading kid went to smoke weed at his buddy’s place.

At $700 per month at 8%, we were looking at a private mortgage with an amortization of just over 12 years. $700 per month was also a mere 14% of their gross salary, well within the acceptable range. And the loan-to-value ratio was below 50%. These were all working in my favor.

So I did the deal. That was five years ago and they’ve never missed a payment. They’ve been a few days late a few times, but nothing worth getting upset about.

Let’s wrap it up

Oh hey, 2,300 words. I guess when it comes to the private mortgages I’m like your rambling grandpa.

Anyhoo, if you have any questions the comment section is all yours. Hey, I’ll even answer them.

Easy Ways To Save Money Transferring Money Abroad

Easy Ways To Save Money Transferring Money Abroad

Since y’all are reading this here personal finance blog, I can deduce from SCIENCE! that you’re more likely to have the kind of disposable income needed to take a trip. And not just a trip down to the local 7-11 for a slurpee and smokes, either. An international trip.

(Aside: My favorite thing ever are Canada/U.S. border towns that claim they have international airports. Yeah, I’m real impressed by your one non-stop flight per week to Lethbridge, Great Falls. Way to keep your only TSA agent employed)

Some of you take this whole trip thing another step further, choosing to work in a different country. I sort of worked illegally squatted in my (then) girlfriend’s apartment while she was making bank in Korea. Sure, it only had one room and I’ve stayed in hotel rooms bigger, but it was FREE, baby. That’s my favorite word. Well, at least next to cheeseburgers.

When we were there, Vanessa would periodically transfer money back to her Canadian bank account. We would get around this somewhat by taking both my and her spending money out of her Korean bank account, but that still left her with ample cash that had to eventually end up back in Canada.

She ended up taking the easy way out and paying for a wire transfer from her Korean bank to her Canadian one. But there were a few problems with that. It cost a fortune, with the amount going up or down depending on many factors, including the mood of whatever teller she dealt with. The money would take days to end up in Canada, And trying to tell Koreans not used to dealing with foreigners what she wanted to do proved difficult. Does anyone know Korean for “wire transfer”? It’s probably too late now anyway.

There are other solutions, primarily using a third party foreign exchange company. What you do is wire the money to the intermediary, who converts it to the currency you want. They then take the money and transfer it to your domestic bank account.

There are plenty of reasons to do it this way. These transfer companies take smaller fees to do the transaction than banks, especially if you’re dealing with larger amounts of currency. And they take less on the foreign exchange spread. A difference of 1% isn’t much when you’re talking about dollars. It really adds up when you’re talking tens of thousands of dollars.

Related: exchange Canadian bucks for U.S. Dollars cheaply using Norbert’s Gambit.

There’s also the speed issue. Vanessa had to wait up to a week for her transfers to get from South Korea to Canada, and that was from developed banking system to developed banking system. Imagine if she were sending money from some backwards country like America. Or Belgium.

These FX companies will transfer the money much quicker, with the cash generally ending up in your account between 24 and 48 hours after you send the money out. Much quicker than the traditional system.

Look at it this way. A bank views sending money to Canada as a way to really make bank (tee hee I’m punny) on fees. They get a fee to either send or receive the cash, as well as taking the spread in exchanging currencies. A money transfer company only transfers money. They’ve built systems that ensure the customer pays less and they can still make money on the transaction.

Capitalism is the best, y’all.

There are a million options out there for someone looking to transfer cash. You can use Western Union, Paypal, wire transfers, or a money transfer company. Each has pros and cons, but when looking at it from a pure cost perspective, it’s hard to beat some of these money transfer companies.