Financial Uproar

Because this might be the only blog in the history of the internet to have not done this at some point, here’s the 2013 Financial Uproar message to collage and high school graduates. PAY ATTENTION, YOUNGINS.

Hey, congratulations. You’ve suffered through years of drudgery to finally get to this point, and I bet it feels good. You’ve listened to the craptacular valedictorian speeches, all the kudos to the parents and the teachers, and some keynote speaker your school brought in because all the cool keynote speakers were too busy doing interesting things. Cliches were said, and you left the ceremony filled with more excitement than that time I thought I had Hayden Panettiere’s address.

Too bad you’re screwed. Sooooo screwed. Rob Ford is less screwed than you, and he smoked crack on video.

Here’s the deal, kids. The economy is in the crapper more than the remains of last night’s kegger. Even crap jobs are hard to come by. Do you know how many of your peers will be applying at Starbucks? ALL OF THEM. They will move back into their parents’ basement and sling coffee for hipster douches who don’t have jobs either, but come to the coffee place because they feel the need to numb their crappy existence for just a few minutes, and apparently fancy coffee is the new opiate of the masses. Don’t become one of those people. If you do, I will personally show up and kick you in the vulva.

Perhaps you luck out, and get a job somewhere better than Starbucks. Maybe your degree was actually useful, and you end up working in an office somewhere. Hell, maybe they’re nice enough to give you a cubicle and a benefits package and two weeks of holidays every year. You get a comfy chair and that blonde from accounting looks great in a tight blouse. Congratulations. Now roll up your sleeves and enjoy the rest of your life, wage slave.

Chances are, you either have student loans or are about to take some out. Sure, you could have stayed at home and taken the cheap educational path, maybe even staying in your parents’ basement to do so. But instead you decided to go to B.S. LIBERAL ARTS COLLEGE WHERE THEY PLAY HACKEY SACK EVERY G.D. MORNING. Instead of a molehill of debt, you’re looking at a mountain of it. Nice work, college dumbass. Remember this when you claim to be the educated one.

Not all is lost though, graduate, but you’re gonna have to start working your ass off. Listen, school is a joke compared to the real world. Going to class is just a distraction from why you’re really there, which is to get drunk and/or stoned and make clumsy attempts to get laid. No professor gives a rat’s ass if you’re slacking it in his class. He’ll just get his graduate student to give you a D and go smoke some reefer.

The working world is a hell of a lot more difficult. Bosses will harass you CONSTANTLY, especially the one filled with moxie who just got promoted. They’ll hold you accountable for crap work. Office politics will slowly crush your soul. Customers will bust your ass for crap that is stupider than you could ever imagine. HR will make you go to six different seminars if you ever touch any of your co-workers. This drudgery will happen day in and day out for years, until maybe you hit 65 and then maybe you can afford to retire. But you probably won’t be able to, since you’ll try and drown your sorrows by buying everything from new cars to vacations to a boob job.

You’re thinking that won’t be you, and you’ll defy the odds and find a good job. You’ll find a job you actually enjoy, and you’ll wake up every morning eager to tackle another day. Oh, you and your deluded ways make me smile. You will wake up one morning, somewhere north of 30, and realize you’re miserable. Trust me, it happens to everybody.

The choices you make over the next few years are really f’in important. You’ve got two choices. You can use your first salary to get ahead or you can use it to dig yourself further into a debt hole. The choices you make now will affect the rest of your life, SO DON’T SCREW THIS UP.

Take this opportunity to pay those student loans off. You’re a 23 year old fresh college graduate, you can handle a few more years living like a college kid. Share a place with your friends, but channel the savings towards debt, not beer. Eat your weight in ramen noodles. Fall in love with delicious tap water. You don’t need a new car. Hell, depending on where you live, you might not need a car at all. Work your ass off to get back to even.

But don’t stop there. Once those student loans are paid off, that’s only half the battle. Now that you don’t have debt hanging over your head anymore, you can really start to save. What are you saving for? After a few years in the workforce, hopefully you’ve figured that out.

I constantly preach for people to pay down debt, no matter the interest rate. The reason is simple – once your debt is slayed, freedom is just around the corner. You can pack up and move to China for a year. You can start your own business. If cars float your boat, you can save up and buy a fancy one. It’s a whole lot easier to do the things you want without debt hanging over your head.

You have to take care of your debt first. There’s no shortcuts, no warp whistle you can use to skip steps. The only way you’re going to accomplish this is by working your ass off and taking care of your obligations. You owe it to yourself to be responsible before you tackle your dreams. Self sacrifice makes achieving the goal that much sweeter.

Go and do all the stupid crap you’ve dreamed of doing. Go experience the world, or share everything with a group of friends closer to home. Go try to mate a pig and a cow. Take a chance and move to a new place. Take a stab at running your own business. Do whatever the hell you want. Once you take care of your debt, a whole world of opportunity opens up. Seize it, and separate yourself from the other cubicle dwellers. Freedom is the goal. Do everything you can to get there.

I’ve used the Mythbusters picture in a previous post, so allow me to present a picture of Kari Byron this time around, the sexiest of all the Mythbusters. Sorry Adam Savage.

Nice try, science, but even Kari can’t make you sexy.

There are all sorts of financial myths out there. Unfortunately for us, there isn’t an entertaining show to debunk them all while showing gratuitous explosions. You’ll just have to make due with my half-hearted jokes and full-hearted farting. The smells that come from my ass have been known to kill flowers.

On that awkward note, let’s move to the subject du jour. (Ooh, French.) That subject is the lack of understanding of certain financial concepts, even though they’re relatively simple and the underlying topic is relatively understood. This lack of understanding stems from a few things, including not understanding finance of business, letting emotions get in the way of logic, and just being kind of a dumb-dumb. Bonus points to the first person who retorts with “no, you’re a dumb-dumb” in the comments.

Don’t sweat it if you’ve bought into some of these financial myths. Like I said, they’re common, and the important part is to never make them again. Let’s see what they are.

1. Saving For Something While You Still Have Debt

If I had a nickel for every person who has made a version of the following statement, I’d have enough to buy the Pittsburgh Pirates.

“I didn’t take out any additional debt to pay for my vacation, so it’s responsible.”

Allow me to present a very simple net worth statement of most people who make that statement.

Assets: $5,000 – cash

Liabilities $15,000 – student loans

On the surface, they look like they’re in good shape. They’ve got the cash to pay for the vacation (oh lord, it’s always a vacation) and they’re not taking on additional debt to do so. What’s the problem?

The problem is that cash should really be used to pay down the student loans. If it was used responsibly, our imaginary person’s net worth would be down to -$10,000. Instead, the $5,000 gets spent and the student loans are still at -$15,000. In essence, all you’re doing is borrowing to go on vacation.

Pretty much any debt besides a mortgage can be paid off early with only benefits to the borrower. By not paying down the debt with the available cash, you’re paying extra interest. And borrowing to consume is going to destroy wealth every time, no matter how cultured your trip to Southeast Asia makes you.

And then, in a delightful twist, the same people who do stuff like that will loudly proclaim their disapproval of people financing their vacations. The irony amuses me. I know my opinion on this is more unpopular than herpes at an orgy, but you shouldn’t be going on vacation when you have a negative net worth.

2. I’m Debt Free Except…

How often do you hear people proclaim “I’m debt free?! Well, except my student loans/car loan/mortgage/that loan I took to finance my personality transplant.”

This one is more of a pet peeve of mine and not so much a myth, but screw it. Let’s go with it.

Yes, rates are low, and yes, you might have gotten a smokin’ deal on your car loan, but that still represents money you have to pay back. And in most cases, it represents a crapload of money you have to pay back. People basically exclude big loans like that because they’re huge commitments, and thinking about being in debt for another decade or so is the origination of the frowny face emoticon.

But by constantly excluding it in your mental accounting, you’re minimizing the loan’s impact on your finances. And chances are, a big loan has the biggest impact on your finances. I pay $1,500 a month on my mortgage. Don’t you think I’d rather spend that $1,500 on Spice Girls memorabilia? I’m busting my ass paying that bad boy down.

3. I’m in no hurry to repay debt. My interest rate is only ‘x’.

There are two things wrong with this financial myth:

a) Pissing away money that would normally go towards paying down debt is dumb, no matter what the interest rate is.

b) Generally, the rate you’re paying on cheap debt is (AAA rated company debt rate) + (1-2%). It doesn’t matter if your mortgage is at 3% or 7%, all you’re paying is a small premium over what you can get as an investor on the other side of that transaction. You will always pay that because there are 1.8 million banks competing for your business. (Or you’re a dumbass who doesn’t take time to shop around.)

Rather than looking at the interest rate, look at the difference between the interest rate and the risk free return. You will always get a premium return paying down your debt over investing in a risk free asset.

Yeah, I realize leverage exists, and fell free to ignore some of this if you’re being smart with your leverage. And no, buying a Toronto condo is not being smart with leverage.

4. 0% Financing

Interest free financing doesn’t exist for cars. You get either 0% financing or a unspecified amount of cash back. And these days, it’s more likely to be 0.9 or 1.9% financing.

If you buy a $30,000 car and have the option of $1,500 cash back or 0% financing, it’s pretty obvious it’s not being financed at 0%. It’s just being added onto the price of the car.

As for those “don’t pay for a year” store sales, those can sometimes offer actual true 0% financing. Providing you pay it off in the year provided and there’s no application fee, you’re off to enjoy your 0%, thanks to some credit card taking the risk that you’ll take forever to pay the thing off. Considering how I wouldn’t spend that much money on crap at a store anyway, I’d probably just hand over the cash and be done with it. Collecting the interest spread on a couple thousand bucks for a year just doesn’t excite me, especially considering the rewards points I’d get on a credit card if I just used it.

There are probably more financial myths out there, but my Mommy is taking away my laptop because I spread chocolate chip cookie dough all over my naked body and then invited the cat over to eat it. Feel free to add some in the comments.