Book-Bits - Money Rules by Gail Vaz-Oxlade

OK, I admit it, I'm a huge fan of Gail Vaz-Oxlade and her TV shows on Slice. Whether it's "Til Debt do us Part", "Princess" or "Money Moron" - I find them all extremely enlightening and, dare I say it, entertaining.

Part of the fascination comes from seeing what a train wreck people can make of their lives... and sitting fairly smug, knowing that we are not in that situation (knock on wood) and have no intention of going down that road.

I just finished reading Gail's book - Money Rules - and found it highly enjoyable and educational. Gail writes in the exactly the same voice that she uses on television, complete with the "potty mouth". It's sort of like having Gail in the room with you. The book is essentially 261 mini-essays on the rules of money. I learned something from every topic but four stood out as eye-opening.

Rule #207 - Write your Own Mortgage
What? Write my own mortgage? Eh??

It's called a Self-Directed Mortgage (SDM). Basically, if you have a significant RRSP (like over $100,000), you can set it up so that your RRSP acts as lender. You then get a mortgage loan from your RRSP and make your mortgage payments back to your RRSP. There are all sorts of hoops to jump through, and some significant fees at the start, but it can work for certain people.

Wow. I had never heard of this. And I rather doubt the banks are out there advertising this. They would much rather that you borrow from them and pay them the interest. (Gail is NOT a big fan of banks.)

Rule #236 - Watch your Variable Mortgage like a Hawk
We currently have a variable mortgage on our rental property. It was recommended to us by the bank and it made sense. We get a lower rate of interest than a fixed term mortgage. If mortgage rates go up, we can lock into a fixed term mortgage. But... and there's a big but... some people don't do that. Several interest rate hikes come along and they aren't watching their mortgage like a hawk. What happens when interest rates go up? Well... you would think that your mortgage payments would increase. Right?

Wrong. What really happens is that your mortgage payment stays exactly the same. Yup. Within that payment though, a greater percentage of your mortgage payment now goes towards interest, and a lesser percentage goes towards principal. Enough interest rate hikes and you could actually be paying nothing towards the principal... or worse... digging your mortgage into a deeper hole. As Gail says... watch your variable mortgage like a hawk! Because the bank won't do it for you.

Rule # 248 - Cross Cheques to Protect Yourself
This one was a huge surprise. I took Consumer Education in Grade 10 and I never heard about this... or if I did, it didn't stick.

So, let's say that you write a cheque to a contractor for work performed and a few weeks later, he comes back and he says he lost it. Ooops. No problemo, you just put a stop-payment on the cheque and write a replacement. Right?

Wrong. This guy could take both cheques (the "lost" one and the replacement) to MoneyMart (or any of those cash stores) and cash both of them. Yup. And then, when the first one comes back as cancelled, MoneyMart will come after you to honour the first cheque. And you have to! Sound scary? It is!! But there is a solution - cross your cheques.

Say what? I didn't quite get this, so I looked up a picture on the internet...

 

You basically draw too parallel lines across the cheque and can then add Not Negotiable between the lines (this example has a few other words as options - from different countries). Cheque crossing is quite common in other countries but virtually unknown in Canada. Cross a cheque and most people think it means it's been voided. Bank machines also have trouble reading the cheques so depositing them can be a hassle. But basically, the crossed cheque means that it can only be cashed at a financial institution (bank, credit union, trust company). It protects you, the cheque writer.

The other option, which Gail does not mention, is to write "For Deposit only by payee - Not Negotiable" on the front of the cheque, either in the Memo field, or along the top.

As an aside, in researching this topic, I learned that post-dated cheques can generally be cashed whenever. That's right. Bank machines don't pay attention to these things and once it goes through, it goes through. So... be careful of issuing post-dated cheques.

Rule #259 - You don't need a ton of cash to make a Principal Prepayment against your Mortgage
Every year you can pay down a certain percentage of the principal remaining on your mortgage. Gail says every little bit helps. If you can pay down $500 on your mortgage principal in a year... then do it! If you can pay down $2000, do it! Every little bit saves you interest payments down the road.

And if you're going to break your mortgage before the 5 year term is up, cause you sold your house... tell the bank to calculate the principal prepayment before they calculate the penalty. Yeah. I've sold two houses in the past where I broke both mortgage contracts and... no banker every let me know that I should ask them to do that.

There are a tonne of other helpful tips in this book and I highly recommend it. The basic gist of Gail's message boils down to this:

1. Spend less than you earn.
2. Don't go into consumer debt (credit cards, line of credit, etc.) - if you do, pay it off ASAP.
3. Save, Save, Save - for retirement, for emergencies, for home maintenance, for a trip.
4. Teach your kids about money - don't raise them to be money morons or Princesses.
5. Protect yourself and your loved ones - make a will, make a power of attorney, get insurance (home, life)

Read the book.

P.S. I borrowed it from the library - yes!