Money Talks (Part Two)
Gail Vaz-Oxlade shares her common sense path to financial bliss
(Continued from Money Talks, Part One)
Nicolle Weeks: One of our most asked question on slice.ca is about your jar system, which seems so simple.
Gail Vaz-Oxlade: I wrote a book called The Money Tree Myth to help teach kids about money. One of the things I tell the parents to do is to take the kids’ allowance and put it into different jars. Kids need metaphors and visual aids. If you put your mad money in a jar, before you take your last $10 out, you think about it. When we started the show, I brought the jars out. We started with four jars, but extended it to five to fit the budget better.
NW: Are there any hard and fast rules about the jars? Like a percentage of your income?
GVO: There are no hard and fast rules. That’s one of the mistakes people make about budgets. Wait, there is one hard and fast rule: you can’t spend more money than you make. Everything else is about guidelines. On my interactive budget, I talk about which percentage of your income should go to housing: 35%. But it’s not a hard and fast rule: if you live downtown and you walk everywhere, your housing will be more expensive, but you don’t have a transportation cost. So you can take your transportation money and slot it into housing. Now you have 50%.
NW: You talk a lot about goals. Do you have any advice on setting goals, because you say it’s not enough to say, “I want a house.”
GVO: No, you have to set smart goals. It means that they have to be straightforward and measurable and achievable and realistic and timely. “I want to buy a house” is not a goal. What kind of house, where do you want to buy it, how much will it cost you? How much of a mortgage can you afford? The problem is that we get mixed messages about it.
You can have a house with zero down and take 40 years to pay it off! No you can’t! That’s stupid! If you can’t afford to save a down payment for a house, what makes you think you’re ready for home ownership?
NW: It’s all about common sense… which is difficult for some people.
GVO: I will give credence to the fact that there are so many mixed messages, sometimes it’s hard to understand what common sense is and what it isn’t. Sometimes you have a whole bunch of specialists saying to you, no, get into a house because your house will build equity and that’s the best way to earn wealth. You also have a government plan saying the same thing. They’ve just reversed their position and said, maybe you should have at least five percent down, which is where we were before.
Why would you believe an old stick in the mud like me, who says, if you can’t save 20 percent of a down payment, you should not be getting into a home.
NW: I was definitely under the impression that I should buy a home now.
GVO: Yeah! I always err on the side of caution, because sh*t happens! If it takes both our incomes to pay this mortgage, what happens if one of us gets sick or loses a job for six months? If it happens, you’re compounding your trouble. Do you really want to get sick and lose your house at the same time? Isn’t being sick enough? What if one of your kids gets sick? How do we then cope with this mortgage that has a trap door ready? Specialists will tell you the fundamentals have changed; they haven’t, that’s why they’re called fundamentals.
NW: So you have to be the voice of reason.
GVO: That’s what I’m trying to be. I try to say to people, there’s a reason these reasons exist. They are good rules, follow the rules. If they change the rules, that’s probably the marketing department. It used to be that you couldn’t pay credit with credit. It was illegal. Now, we issue a new credit card and the first thing you do is transfer your balance. You can’t survive on that, it’s just a matter of time.
NW: Is there any last advice?
GVO: Don’t spend more money than you make and you can have anything you want, anything, if you’re prepared to work hard for it. You can have it, but be prepared to bust your ass.
Interview by: Nicolle Weeks