Money Like You Mean It

The world has changed over the past 30 years or so, and the advice baby boomers give their adult children isn’t always relevant in today’s world.  Money reporter Erica Alini offers a millennial’s view in her book Money Like You Mean It: Personal Finance Tactics for the Real World.  She delivers on her promise to offer useful financial advice for the world that millennial’s live in, and her writing style makes the book easy to read.

Millennial Challenges

Alini devotes a significant chunk of the book to the challenges millennials and women face.  She covers the familiar themes of high housing prices and student debt.  She also covers an under-appreciated problem that millennials face more than boomers did: “easy access to credit” and aggressive marketing to get people to use that credit.  Borrowing for any aspect of your lifestyle has been normalized.  Thirty years ago, people who never ate out and had no car weren’t seen as freaks.  Marketing has ramped up modern lifestyle expectations.

I’m of two minds about telling readers that the problems they face aren’t their fault.  It’s good when a reader’s reaction is to say ‘having financial troubles doesn’t mean there’s something wrong with me; I can work toward a better life despite the challenges.’  But it’s bad if a reader’s reaction is ‘there’s no point in trying because the game is rigged against me.’

Much writing I see about the challenges millennials face is just pandering: telling people what they want to hear gets clicks.  I find Alini’s writing much more thoughtful than this.  She acknowledges that boomers faced their own challenges when they were young: “This isn’t to say that everything was better in the past.  Far from it.”  Her point “isn’t about ditching individual responsibility and blaming the system for all your financial woes.  Instead, it’s about letting go of the shame and self-blame and using specific psychological techniques to make it easier to change your behaviour and get on the right track.”

The only point where Alini crossed over into pandering was when she suggests that it’s a man’s responsibility to “act like the capable human being he is by owning several household and child care tasks.”

Personal Finance Tactics

Alini covers a wide range of personal finance tactics, starting with a money bucket system for handling fixed expenses, variable spending, emergencies, short-term saving, and long-term saving.  Among the many other tactics, I’ll just mention some points that caught my attention.

“If you take a close look at your spending patterns, you’ll find a number of regular bills that don’t quite fit the definition of necessary expenses.  And I’m willing to bet a lot of them are subscriptions.”  “Research suggests we tend to dramatically underestimate just how big a chunk of our budget goes to subscriptions.”  “Too many routine costs — small as they may be — will do you in.”

Alini explains that Canadian student loans come with features that can give you repayment assistance or even loan forgiveness.  So, if you’re struggling with debt, you might want to focus on paying off other types of debt first.

“Beware of steep penalties for breaking fixed-rate mortgages” with the big banks.  Alini explains how the banks tinker with posted rates to pump up mortgage-breaking penalties.  These penalties can get so large that even if you think the likelihood that you’ll break your mortgage is low, you may not want to take the chance.

Estimates of house maintenance costs as a percentage of house price aren’t very useful.  “A more useful starting point is calculating $1 per square foot” per year.  I think this is too low.  For a 2500 square foot house, that’s $50,000 in 20 years.  In that time, you’ll replace the roof for about $10,000, and you’ll replace your furnace, air conditioner, and most appliances at least once.  You’ll replace windows, carpets, and maybe hardwood flooring.  In 20 years, you might have to repair a foundation crack, or pay to have animals removed from your attic.  We’re past $50,000 now and we haven't gotten to the long list of less expensive costs.  I come in closer to $2 per square foot per year.

“There is no financial wizardry that will somehow bring housing within reach where prices and rents have ballooned.  But what you can do in this unreal real estate market is stay cool, analyze your options, and choose the one that will benefit you the most in the long term.”

In the past, “bringing home a decent paycheque wasn’t nearly as straightforward as it’s often made out to be around the dinner table at family gatherings.”  In the 1970s there was “stagflation — a dreadful combo of high unemployment and rising prices.”  The early 1980s saw “an ugly economic downturn that would drag on for years.”

We hear a lot about the merits of “side hustles”.  “Let’s be clear about what side-hustling really is: working more than a full-time job.  That comes at a cost.”  The best use of a side hustle is “to eventually switch to a higher-paying or more fulfilling daytime job.”  Testing out a potential new career as a side hustle while working full-time at another job is a lot of work, but it’s less risky than quitting your job and trying to jump into a new career.

“Increasingly, retirement is more of a slow and gradual downshifting from working all the time to working less.”  I like this idea, but it doesn’t work for all types of jobs.  In high tech, telling your boss who is working 7 days a week that you want to drop to three days a week won’t go well.  You might as well say “I’m no longer committed to this company.”  Only a few highly-regarded high tech employees can get away with tapering down their hours.

“Many boomers are opting for semi-retirement, often striking out as independent professionals after a lifetime in the office  — not because they need the money, but because they like working on their own terms.”  I often meet people who are retired from their “regular” jobs, but are working at something else.  They almost always say they don’t need the money.  But in those cases where I get to ask open-ended questions and listen long enough, they almost always get to a point where they say they need the money.

Alini quotes Ilana Schonwetter, an investment adviser, who says women get lower returns on their savings because they’re less willing to take investment risk.  However, the famous Barber and Odean studies found that women get better returns than men do.  So which is it?  I’m not sure.

“If you’re in a couple that could end up with nest-egg inequality, consider spousal RRSP contributions or beefed-up transfers to the TFSA of the lower-earning partner to reduce the disparity.”  My wife and I go further.  We keep our accounts strictly separate and only spend the income of whoever has the larger amount saved.  Practically-speaking for us, that meant spending only my income for decades.  If CRA decides to audit us, we can show that all of my wife’s savings came from just her income.

“Seeing the value of my hard-earned savings drop bothered me more than I thought it would.  Clearly, I overestimated my risk tolerance.  I didn’t do anything then and there, but when the market had recovered and all was well again, I trimmed my allocation to stocks.”  That’s a very sensible reaction.  To sell while stocks are down is to get into a buy high and sell low cycle.

A bank of mom and dad trap: “Deep-pocketed parents help their kids get into a lovely home that is far too expensive for them.”  “Don’t let a generous gift leave you house-poor.”

“It sometimes feels so hard to achieve financial goals that our parents’ generation largely took for granted.”  A subset of boomers may have taken certain financial goals for granted, but some boomers never achieved goals such as owning a home.  Millennials who grew up in well-to-do suburbs would have seen mostly successful boomers.  Other boomers lived in places that weren’t so nice.

Conclusion

Alini achieves her goal of offering personal finance tactics for the real world.  Rather than give a thorough treatment of each topic with all details, she focuses on advice for starting out in each aspect of personal finance in the correct direction.  This allows her to cover a broad range of topics.  Millennial readers will benefit from this book, and will need other resources to dig into the details.