Thicken My Wallet recently made the brilliant statement “The Financial Industry Preys on Inertia”. Tied in with Money Gardener’s Relationship Banking post I think this single statement summarizes a great deal of the problems of banking and personal financial management, and at the same time points out a simple solution.
When a bank offers a teaser rate, what they’re basically saying to you is “you’re so stupid and lazy, we don’t even need to offer you much of a deal. We’ll offer you a good deal for a short time, then milk you for the rest of your life. Ha ha, ha ha, ha ha”. The pathetic part is they’re right – we are stupid and lazy. Apparently bank’s love sending out mortgage renewal forms right before the end of a mortgage term (I’m not sure exactly how this works, I’ve never renewed a mortgage), so that you don’t have time to shop around. Most people sign the form, get the mortgage from the same institution again, and pay a higher rate then what that institution is offering new mortgage applicants!!! If you do this I hate you (as Ramit Sethi would say). Inertia makes the bank money (at your expense).
A buddy of mine is a teacher and didn’t even know what his salary was (he made two guess, $10K apart and said it was “one of those, I think”). I can’t criticize him too much, as I’ve lost checks a few times and discovered that I missed payment (once for around $1500). He didn’t bother contributing to his RRSP, because one of his colleagues had told him “it’s better not to”. I asked him what her reasoning was for such advice and he had no idea (the only thing I can think of is that their pension is so good they can rely on that for retirement planning – I’m not so sure about this myself, but I’m not a teacher). Its great when we work a job we love, and earn enough money that we don’t need to think about it, but we’re stupid and lazy beasts (things might change in the future, why not spend a bit of time planning for it).
We work very hard for our money (in most cases). It blows my mind how willing people are to throw away thousands of dollars (often many, many weeks of labour once you factor in taxes and living expenses) rather than think about something for a couple of minutes or make a 30 minute phone call.
The advantage to this is that if we’re willing to correct our behaviour: to take advantage of the teaser rates then move on to the best deal once its finished, to get pre-approval for a mortgage renewal 120 days before it comes due, and to keep track of our on-going finances, catch money that disappears and plan for retirement, you will be paid handsomely for your time – regardless of what you earn or your lifestyle.
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The RESP Book: The Simple Guide to Registered Education Savings Plans
Everything you need to know about RESPs.