Monday, December 15, 2014

Money Rules

In her book, Money Rules, Gail Vaz-Oxlade shows her very effective and unique style for helping people get out of debt and handle their money properly. We all know we should spend less than we make, but Vaz-Oxlade uses her keen insights into people’s thinking and habits to offer helpful strategies. This book is useful for those who need help with money and those looking to help others with their finances.

I’ve already reviewed parts of the book related to life insurance and investing. These parts weren’t as good as the rest of the book that I review here.

Amusing Quotes

Vaz-Oxlade goes back and forth between tough love and gentle understanding in a way that makes a compelling read. Here are a few amusing quotes:

“If you are under the impression that the folks you deal with at the bank are there to ‘help’ you, you’re a sap.”

“The credit scoring system is a racket designed by lenders for self-serving purposes.”

“Overdraft protection should really be called ‘Too Lazy to Keep Track Protection.’”

“If you think a job is below you, but you’re prepared to spend the money you haven’t earned by using credit, you’re a jackass.”

“About 5% of Canadians—that’s over a million dopes—plan to use a lottery windfall to finance retirement.”

“Never mind what some moron lender tells you about paying just the minimum to have a better credit score ... that advice is designed to make you pay interest. And paying interest is dumb. Don’t do it.”

Some things I learned

I always thought you couldn’t pledge RRSP assets as collateral, but you can. “If you borrow against your RRSP, the fair market value of the RRSP assets pledged are included in your income for tax purposes at the end of that year. When the plan’s assets are no longer pledged, you may deduct the amount previously included in your income, minus any loss resulting from using the plan’s assets as collateral.” It sounds like this could be abused for income smoothing.

“Your RESPs may not be covered by CDIC. ... The CDIC Act makes no provision for separate coverage of eligible deposits held in a RESP.”

“A preapproved mortgage does not mean you’re guaranteed financing.” Lenders have outs.

If you don’t name a contingent subscriber on the RESP you set up, and if you die intestate, “the plan will likely be terminated and all the contributions and income earned put into your estate.” So, money you intended to be for your kids’ education might not go to them.

More good advice

“Renting is not a waste of money.”

“No, a line of credit is not an emergency fund. It’s debt waiting to happen.”

“Don’t let your lender decide how much home you should buy.” Banks will let you overextend yourself.

“Never buy mortgage life insurance.”

“A consolidation loan does not pay off debt.” This is an interesting insight into the mind of someone who handles money poorly. I think of a mortgage as debt, but apparently some people don’t.

“Get in the habit of paying all your bills at least three business days before the due date.”

Making insurance claims raises your premiums, and “you wouldn’t make a claim for less than $1000, so raise your deductible.”


“Only people who are LAZY and can’t be bothered think a budget is a waste of time.” I don’t think they’re a waste of time for most people, but I don’t think I need one for my money personality. But I suspect that still puts me in the “LAZY” camp.

Maybe “you make a whack of cash and you live the simple life, but that is no reason not to have a budget.” Now it feels like she’s writing about me. In my defense, I do know how much I spend in an average month, but I don’t have a budget.

“If you think you can do better without a budget ... pass this book to someone who is smarter than you.” Now it’s starting to feel personal, but at least it’s funny. I’m still not going to create a budget, but I appreciate that budgeting is a critical tool for many people to get out of debt and stay that way. No doubt most people who think they don’t need a budget are wrong. Who knows – maybe I’m one of them.


We even have a section for believers in debt. “Are you in debt and tithing or giving money to charity? That’s not your money to give, so stop.” Young people who get talked into giving $25 a month to some charity should heed this advice.

Money set point

The idea here is that each of us has a cash level or “money set point” where we feel normal. For me, it’s about $5000 in a chequing account. But others have set points at $1000, zero, or even $2000 into overdraft.

Vaz-Oxlade recommends taking a spending holiday where you cut way back on spending to pull yourself out of overdraft and build up a cash buffer. But if you can’t change your mental money set point to a higher level of cash, she suggests splitting your money across multiple savings accounts. That way no one account has enough to make you feel rich and in a mood to spend.

Net worth

“Track your net worth,” but “don’t compare your net worth to anyone else’s.” This reminds me of a Warren Buffett quote: “It’s not greed that drives the world; it’s envy.”

A call to arms on paying with cash

“We should encourage small retailers to discount for cash. ... I want to see a flurry of signs in stores: ‘We give a 1% discount for cash purchases.’ If retailers don’t twig to this, then they’ve got to stop whining about how much credit card fees are costing them. They can’t expect consumers to switch to cash with no incentive.” I’d love to see more discounting for cash payments.

Hitched to a money moron

I can’t imagine what my life would be like if my wife handled money poorly, but many people have a “money moron” spouse. Vaz-Oxlade gives a set of concrete steps you can take to isolate your finances from a partner who is irresponsible with money.

Collateral mortgages

The problems with collateral mortgages can get quite technical. Vaz-Oxlade gives the best explanation I’ve seen of the problems with this type of mortgage. Few mortgagors have any idea of what type of mortgage they have.


Overall, this is a very wide-ranging book on many different aspects of personal finance. It contains a lot of solid advice. The best parts are where the author demonstrates her skill at helping people change their habits to get out of debt and generally handle their day-to-day finances better. Not so good were the parts related to investing. What I got out of it was better insight into the minds of those who handle their finances poorly.


  1. It's scary how many people think a LOC is better than a cash emergency fund. And they still think that even after the USA credit crisis.

    Of course, they are often the people who are using a HELOC based on the inflated value of their mortgaged house to do the Smith Manoeuvre while buying venture stocks, and trying to perpetuate hedging and futures schemes. I just hope they never convince anyone sensible to use a LOC instead of keeping a few thousand waiting in cash on the sidelines ready to deploy if and when needed.

    1. @Bet Crooks: I agree that there is no replacement for a cash cushion. I find that Gail's argument that a LOC is "debt waiting to happen" is more to the point than anything I've come up with.

    2. In the tail end of my mortgage days, I put all my mortgage debt on a house secured line of credit on which I used to dump my pay checks into and pay my bills out of. That way, every cent I had was used to reduce the interest on the house loan for every day I had it in my account, kind of like a Manulife One account today. I had no qualms about having no separate emergency fund. For the financially disciplined, this is optimal. I don't think this is any less safe than a cash emergency fund, even in a financial crisis, as long as you have enough equity in your home to back it up if housing prices fall.

    3. @Greg: Under normal circumstances your approach would be fine. But what if you had lost your job? If the bank knew you had lost your job, they could have eliminated your ability to borrow more on your LOC. That would have left you with no way to access the equity in your home without selling it. With no cash savings you wouldn't have had any way to buy food or make minimum LOC payments while you looked for new work. When things become very bad, there is no substitute for cash savings.

    4. @Michael If I had lost my job I would have reacted quickly and drawn out cash to tide me over. As long as that doesn't happen I get to save an extra $1000 a year or more in after tax interest payments. For me the reward was worth the risk. If things become bad enough you can't even count on access to cash savings in the bank and are better with a guarded stash of gold. Security has its price.

    5. @Greg: It's certainly true that security has its price. Keep in mind that events could happen in a different order. If we had liquidity problems like the US had in 2008, banks could easily decide to cap some LOCs and not permit any more withdrawals. Losing your job after that would be a problem. It would take a much more extreme event for banks to block access to cash savings. In the end each person has to decide what risks to take. Where I have an issue is where people offer broad advice saying that cash savings and LOC room offer equivalent security. You made a choice for yourself and that's fine.