# DEBT TO INCOME RATIO

I am sure everyone has heard of the Debt to Income Ratio (DTI) as a measurement of economic health before.  As the name suggests, it measures the debt servicing costs to disposable income as a percentage.  The maths is simple and you can easily work out what your DTI is.

For example a household takes home \$4000 a month.

The debt costs are mortgage (\$1200), car payment (\$225) and student loan payments (\$120) .  Total debt monthly cost is \$1545.

DTI = (Debt/Income) x 100

DTI = (1545/4000) x 100 = 38%

A 38% DTI ratio is not bad at all.  Sadly, this excludes other household costs like food, services, recurring bills and other miscellaneous expenses .  If you have credit card debt you should add it to the debt side of the equation.  Honesty with this equation will give you a better sense of where you stand.

Now the SCARY stuff!

The DTI for the average household in Canada is a staggering 165% of disposable income and growing!  Now I keep mentioning to you disposable income and this means after tax income. When you add the pieces together the picture is bleak.  Something to note, the American DTI in 2007 before the housing crash was 163%.

The average Canadian pays 42% of everything they earn in taxes at all levels.  E.g. Income tax, provincial tax, fuel and sin tax.  Ironically, this excludes hidden taxes like license renewals and other “mandatory” Government fees. With this in mind let us look at some simple numbers.

Jack and Jill,

Pretax annual income – \$110,000

After all taxes (at 42%) their disposable income is – \$63,000

Multiply by 165% (63,000 x 1.65) = \$103,950

Jack and Jill’s debt is \$103,950, they take home \$63,000 after all taxes. yet this number doesn’t account for the value of goods and services bought to incur the taxes and the monthly debt costs.  Jack and Jill actually have very little left for savings.

In the short term, the DTI in Canada will continue to grow with the low interest rate environment.  A large bubble burst, for example the housing in Vancouver and Toronto or any other economic gyrations will cause Canada major economic pain.   Pay off your debt as fast as you can!

Thank you for reading as always.  If my number are off please feel free to let me know!

Cheers!

Material

# ACTIVITY CREATES ACTIVITY!

Phew!

I have been busier than a dog with two dinks these last few weeks, and it feels great!   I mentioned I was working on a project, well it has to do with wine!  Yes, wine lovers, rejoice!    Canadian wine specifically.  Once I get to the next step I shall let everyone in on the big plan,  but first there are wineries to visit!

A mentor if mine always says,  “activity creates activity,” no truer words have been spoken!  If you are looking for something to do, start!   The simple act of “doing” will bring you closer to what ever your goal is!

Have a great week everyone!

# HOLIDAYS SUCK!

Don’t get me wrong, I love going on holiday.  Spending time with family and friends, enjoying the summer weather!  This latest trip back to BC was fantastic!  We tried an Air BnB for the first time in the Shushwap area of BC.  It was amazing!  Comfortable accommodation right on a cool, clear lake and sunny days.

However,  I hate having to ask for time off!  I work hard just to afford the time off and the vacation is over as quickly as it starts.  Tomorrow, like most, I go back to the humdrum of work.  Disgusting!   My freedom to do whatever I want, whenever I want is my goal.  You only get that freedom with money!

I am now more motivated than ever to do something to obtain my freedom.   Projects are in the works!  I will let you know what they are once they get started!

Rant over!  I bet everyone feels the same way!  Thank you for listening, as always!

**The picture is of Kalamalka lake, not the Shushwap. I didn’t have any photos!

# MENTAL GYMNASTICS

Have you ever read a sentence that slapped you hard with the hand of reality?   If not, go out and buy yourself a copy of M. J. DeMarco’s “The Fast Lane Millionaire.”  Great book.

Now one of the profound things I read in DeMarco’s book was, “If you have to perform mental gymnastics on how you are going to pay for something, you probably can’t afford it.”   Let that sink in a bit.  I know I used to do this, we all do at one stage!   It is a subconscious thing for nearly everyone.  “I want it now, how do I pay for it?”  Forego the future for short term gratification.

I think about that sentence every time I start doing mental gymnastics for something, it stops me dead in my tracks.  I can’t afford it.  Now if you want something, go ahead with it, but not until you can comfortably buy it out right.  Financing a want is something I highly disagree with!  Don’t do it!

Once you grasp that concept, you will start to see it everywhere.  I see co-workers trying to figure out how to buy the latest gadget;  motorbike and nick-knacks that they clearly can’t afford but go to great lengths to get regardless!  Do the mental gymnastics on how to grow your wealth so you can afford “stuff” guilt free instead!

I hope you found this concept eye opening, it certainly was for me!  Thank you for reading as always!  Like and Subscribe for more in the future!

# HAVE A GOAL! DON’T FOCUS ON IT!

I was exploring Youtube looking for videos to watch.  No cat or dog videos!  I am sure most of you have heard about TED Talks?  If not, they are a great source of inspirational and educational videos.

Going though the TED play list I came across this one by Reggie Rivers.  The video is posted below and I highly recommend watching it!   The gist of Reggie’s video is why it’s good to have goals, but don’t focus on them.  Instead, focus on changing your behaviours.  This will help you reach your goal.  Your goal is beyond your control, but your behaviours are not!  Focus on them instead!

For example.  I have set a savings target of \$12,000 by the end of this the year.  That is that. Now, how do I to change the way I do things.  I have plugged my money leaks,  stopped and thought “do I really need this?”  Waiting a day will usually kill the “urge to splurge.”  I have paid of my debt quickly!   I believe these simple changes can help me achieve my goal by January 1st 2017!

Watch the video and then do!   Change and you will achieve your goals!  I am certain of it!  As always thank you for reading!  Like and subscribe for more!

# PLUG THOSE MONEY LEAKS!

Let us start with the definition of a “money leak.”  A money leak is a needless drain on your finances.  e.g. Extra charges for needless services, overage fees, credit card interest and penalties for any actions.  Any fee or charge you could have avoided just by paying attention!

Let me give you an example of a leak and how I plugged it.

My Phone Bill

Extra data and long distance charges are the worst!  My phone bill this last month was \$160 CAD, it should have been \$110 ( for two lines*).  I was charges \$50 extra for data overages. Now I can’t get mad at Bell (my provider) because this is my fault.  To remedy this I have set a data limit on my phones, asked Bell to send me a message when 90% of the data is used and I now turn the data off completely. Now  I only use it during work breaks.  This is a simple action I took to plug that leak.

Watch out for temptation!  When I called Bell about the data, they offered me two more gigs of data for an extra \$5 a month.  Sweet deal?   I am here to plug the leak not make it permanent!  By adding another \$5 a month, my yearly phone bill would grow by \$63 (taxes included).  I would be paying extra for the privilege of checking my phone NOW instead of when I get home.  You may be wondering why I said, “No,” to the extra data.  When you get given some slack, you usually end up hanging yourself with it.  What I mean is, I would probably use all three gigs and go over again… costing me even more!   Discipline yourself and weigh the costs!

The rich know that every dollar counts!  Don’t carelessly give yours away!

I hope you enjoyed the article.  More importantly start to take action on your financial leaks!  Thank you for reading as always!  Like and subscribe for more simple tips on finance!

* Canadian Telecom costs are some of the highest in the world.  \$110 a month for 2 lines is fairly cheap, trust me!  A good friend pays a massive \$160 a month just for his phone!

# THE RULES OF WEALTH BY RICHARD TEMPLAR

If you are looking for a book outlining the habits of the wealthy in more greater detail, Richard Templar’s book is a must read.

The previous two books I reviewed were focused on the general habits and philosophies of the wealthy.  Richard Templars, “The Rules of Wealth,” is broken down into 107 “rules.” Each rules about the habits of the wealthy are explained over two pages.  But more importantly, these are simple guidelines for all aspects of your financial habits and how to change them so you can become wealthier.

I highly recommend this book!  I tend not to write to much about the deatails of the book as it is better for you to read it for yourself!

I hope you found this review helpful!  Thank you for reading as always!  Like and subscribe for more!