Personal finance expert Bruce Sellery wants Canadians to talk more about money in 2023. So, we’re kicking off the new year by doing just that on the Perspectives podcast.
He’s our guest this episode and has three tips for people as they look to manage their personal finances heading into 2023, a year where inflation and talk of recession have put managing household spending on everyone's resolution list.
Click here for the transcript.
Stephen Meurice: A new year is upon us and with that, of course, come resolutions. And if personal finance is something you’re looking to improve your handle on this year — and who isn’t — our guest today has a good place to start.
Bruce Sellery: If I could ask Canadians to do one thing in 2023, I would ask them to talk more about money.
SM: That’s personal finance expert, Bruce Sellery.
BS: And when I say “talk about money” I don’t mean salary, I don’t mean numbers. I mean, what are the goals that people have? What are the lessons that need to be learned? Because I think that will make a difference in giving you more of what you want in life.
SM: So, this episode, that’s exactly what we’re going to do. Talk about money. And lucky for us, that’s a subject that is never dull when its Bruce doing the talking.
BS: It is amazing I have any friends at all.
BS: Because so often, I’m giving people bad news.
SM: Bruce is the host of Moolala, the weekly personal finance radio show on SiriusXM. He’s also the CEO at Credit Canada Debt Solutions. He helped us get off on the right foot financially this time last year, so we invited him back to kick off the new year once again. This time he has three tips. Three pieces of advice for people as they look to manage their personal finances heading into 2023. A year where inflation and talk of recession are making managing household spending something that’s on everyone's resolution list. I’m Stephen Meurice and this is Perspectives.
Bruce, thanks again for coming back on the show.
BS: Hello there.
SM: Having you on at the beginning of the year has become something of a tradition.
BS: Oh, I like it. You can call two times a tradition. Sure.
SM: [laughs] I'm curious just to start whether the holiday season is a particularly stressful time of year for you? Given you're constantly thinking about things like money and debt, finances.
BS: There isn't stress for me because I have built my life and my holidays around the things that I value, which are time with family, down time, not a lot of consumption. [laughs] So, I do not spend very much time focused on a gift list or, you know, a fancy little black dress for the Christmas parties or I don't spend a lot of money. The one thing I do do every single year on New Year's Day is I calculate my net worth. And I have been doing this every single year since 2001, and I actually print it off even though they're all on a computer somewhere, I print them off and I keep them in a folder. It is a ritual, but it is also a great way to retain the focus on financial well-being and moving things in a positive direction. It's a bit of a dorky part of my New Year's tradition, but it is a part of my New Year's tradition, nonetheless.
SM: Dorky but admirable.
SM: Given the year that we just had with inflation and interest rate increases and stock market turbulence and so on, as CEO of Credit Canada, which is a not for profit that helps Canadians manage their debt problems…
SM: Have you seen an uptick this year in the need for your services?
BS: Yes, 100%. We have seen an increase in the calls, in the people who have questions, in the people who need to make a plan. And you know, I was kind of glib about the holiday season for me because I don't spend a lot of money. For folks who are living close to the line, as in really dealing with the effects of inflation and rising rates, I have a tremendous amount of compassion for the circumstances that they find themselves in. It is not your fault that prices at the grocery store have gone through the roof, that the price of gasoline has gone through the roof, that for those with an adjustable-rate mortgage, the cost to carry their home has gone through the roof. And that is extraordinarily stressful for people because what has not gone through the roof is their income. Incomes are largely flat. And so, when you are faced with such significant cost pressure, it is both stressful, but also in practical terms it becomes a very, very difficult problem to solve. How do you not go into increasing amounts of consumer debt when your income is flat and no matter what you do, your expenses are up?
SM: So, we will get into that, I'm going to ask you for your top three personal finance tips for the coming year in the context of the things you were just talking about. But looking back at this past year, has this been extraordinary or just part of the ups and downs of what you've experienced in your line of work over the years? Or has this year been particularly challenging?
BS: It has been particularly challenging for two reasons. One is inflation, which we know has been ridiculously high, and the second has been the speed with which interest rates have moved. Now, I think the other thing that I would add on the interest rate conversation is there are many millions of Canadians who didn't own a home in the 1980s. I didn't own a home in the 1980s. If you did, you think, ‘Wow, 5 to 6% interest, that's such a deal!’ Because in the 80s it was 19-20%. But if you've only owned a home for five years or ten years, this move and this current level on rates, it's unimaginable. It seems egregious. Like, how did we find ourselves here? And the historians would say, ‘Listen, look at the long-term level at which interest rates sit and it's not 2%, it's somewhere higher than that.’ And yet that's very, very difficult for anyone to comprehend. That rates could move that much and that quickly. So, it has been a very, very difficult year. The other thing that I would say, we don't talk enough about the absolute level of prices. We talk obsessively about the relative change in prices. We talk about the inflation rate, and this is what it did this month. But I think what we miss is that for the average Canadian, you go into the grocery store and they're paying $7.99 for a box of cereal. So even if inflation drops back down to 2% and the Bank of Canada does its job and hooray, we get back to that target. The box of cereal is still $7.99, and it may be that price forevermore. And so, I think that's a really important nuance that we don't talk enough about, that it matters that our income hasn't risen in that way because those prices aren't suddenly going to turn tail. Maybe gas prices will turn tail, but the price of cereal is not going to turn tail and become $4.99 again.
SM: Right. Well, that brings us to our big question this episode. We mentioned inflation and interest rates, which are hopefully done rising, but are still high. What are your top three pieces of advice for people heading into 2023 as they look to manage their finances? Tip number one, and I feel like we need a little sound effect right around here.
[bell dinging sound]
BS: My tip number one is to ensure that you are living within your means. And I ask this question of everyone, regardless of where they are on the income bracket. So, some people are making gobs of money, some people are making very, very little. And yet you can make gobs and not live within your means and make very little and still live within your means. So, I think that is a really important question. One way to tell is if you have any money outstanding on a credit card, if you have $1 outstanding on a credit card, you are not living within your means because if you were, you could pay it off. It's a guaranteed return of somewhere between 20 and 30%. So that's the first tip is ensure that you're living within your means.
SM: Okay. Live within your means. It sounds pretty straightforward, how do you do that?
BS: So, you look at what we call the sustainable spending model, and that's what's coming in and what's going out. So, you've got an after-tax income. If you have a job job, it is super simple. You look at your bank statement, you see what that number is, and you pop it into the spreadsheet. If you run a business, it is more complicated. Then you look at your credit card statements, your bank statements, and you look at what do you spend on takeout? What do you spend on groceries? What do you spend on gas? And credit card? At Credit Canada we have a spreadsheet, the bank will help you do it. There's lots of different places where you can do it and when you hit calculate it is going to illustrate either a deficit or a surplus. You need that to be a surplus. And I would also say that as it relates to savings, you want amounts in for all the things that I have talked about. So, if you've got a surplus of, I don't know, 500 bucks a month, but you are saving zero dollars for retirement, you're not living within your means because unless you've got the gold-plated defined benefit pension plan to end all pension plans, you're going to need to save because CPP and OAS are just not going to be sufficient for most people. So, I think looking at that, call it a personal income statement over the course of time, that's the tool that will illuminate that.
BS: And the observation for many people, not everybody, but many people is, oh, wait a second. When I factor in saving for retirement and kids’ education and I do want to buy a car with cash instead of financing that, or I do want to go on a vacation at some point, geez, I need to make some different choices about the amount of money that I earn and the amount of money that I spend on other things.
SM: So, if we got into the weeds a little bit, I mean, that's sort of the big picture that you described. Look at what you have coming in. Look at overall what you have going out. What are the things that you find that people are spending money on that they could most easily stop doing? That maybe they think are very important to them, but that you would say, ‘Here are the things that you should look at that maybe you can do without.’
BS: Yeah, it's such a personal question because those ideas are at the intersection of financial practicality and values. So, I am a very low maintenance dude. I go to a barber; it costs me 30 bucks for my hair. Someone else who has a very strong value around their physical appearance and the colour of their hair may spend 200 or more per month. It is not for me to say that is not money well spent. It is for that individual to look at that holistic view of their money and say, ‘Here's where I think I can make some cuts.’ Other examples would be food. Some people use a food delivery kit. Some people order on UberEATS. It's not for me to say, ‘Oh, you should just cancel all that.’ Because if you're a single parent trying to work your job and that is the only way you can get healthy, balanced food into your face and into the face of your children. Maybe that is money well spent. So, I think it is a very, very personal thing. There is also a real need to think about both the fixed and the variable expenses. So those things are variable. You can get off food delivery immediately. Some people are in fixed expenses that they cannot afford. So, what do you do that is a creative approach to fixing that such that the math works? And I think one of the challenges that we as humans have a very difficult time doing is getting outside of our view of what we are entitled to.
SM: Right. So, it starts with a little self-examination around values.
BS: It does. And no one likes this. By the way, it is amazing I have any friends at all.
BS: Because so often, you know, on shows like this or the radio or television or whatever, I'm giving people bad news. Like, I know you saw that thing on Instagram and it was glorious. You want Corian countertops; you can't afford them! So, it is a real toggle between my puritanical absolutist view that one must live within their means and my recognition that the only point of living a life is to live a great life! So how are you going to square that circle? How are you going to resolve that paradox for yourself? It is exceedingly difficult, and it is for every single human to do in their own way.
SM: Right. So not just numbers, but values and what's important.
BS: Yeah, all the other things.
SM: Okay. Well, that brings us to tip number two.
[bell dinging sound]
BS: The second tip is to eliminate your consumer debt to zero. And a part of that is because, again, it's a guaranteed return of somewhere between 20 and 30%. But the other thing is, we are headed into choppier waters in 2023. Is there going to be a recession? You know, probably. But who knows? What does that mean for you as an individual? It's very, very different for the double income house that has two people working jobs that are virtually guaranteed, like educators, for example, the risk of layoffs relatively low versus a single person who works in the gig economy who could see their revenue dry up overnight. So, eliminate that consumer debt to zero.
SM: Okay. There is a value to credit sometimes, no?
BS: 100% there's a value to credit. What there isn't a value to is not paying off that debt in full every single month. And if you can't pay off that credit card balance to zero within, I'm going to be generous and say three months, you can't afford the thing. And there are times in life when you have been sick, when you have dealt with a life circumstance that is devastating and the loss of a family member, a divorce in which that three months extends. But what I see from my perch is that people live in a perpetual state of an outstanding balance on their credit card. For most people, it's not so bad that they call me at Credit Canada. It’s like, ‘Ahh, it's no big deal.’ It's like two grand. Like, what's the big deal? What people are not computing, the math they are not computing is they are renting that money. They're renting that money. It's like they're renting a storage locker, right? Now, would you rent a storage locker that you don't need that sits empty, that provides zero utility to, you? No, it would be stupid. You'd be like, ‘I’ll just canceled the storage locker.’ When you leave money outstanding on a credit card, renting that money has no utility. It's not helpful to you. You need to make some really tough calls to eliminate that debt and promise yourself you will never do that again. As I said, I speak in a very puritanical way to make a point. People have all sorts of things. They've got things, all sorts of things. I think what we need to do as a culture is be really honest with ourselves about the trade-offs that we're making. Because if you choose to have an outstanding balance on your credit card — and by and large it's choice because you're choosing that instead of making the brutally tough decisions in other areas — let's just be clear that that's the choice that you have made, and there are tons of systemic influences that would make that easy and have there be so much that one can want that they would do that. But there is a trade-off. There's a consequence to that.
SM: Okay. So, tip one is ensure you're living within your means. Tip two is to reduce your consumer debt to zero and now to number three.
[bell dinging sound]
BS: My third tip is double down to save for what is important to you and have this be systemic, have it be automated, have it be as a part of your day as drinking a glass of water with lunch, like just something that you do. So, these are things like retirement, kids’ education, a vacation, sure. Maybe a down payment. Maybe you're saving for a new-to-you car down the road. But the other one that I would add, and I put more emphasis on it this year is an emergency fund. If you are laid off in 2023 and the package that you get is limited, how are you going to cover food and rent? How are you going to do that? Or food and mortgage, whatever it is. And an emergency fund will provide a bit of a cushion for you in that regard. So, what I described was three tips that are linear in nature, in that you need to look at your cashflow first, your debt, second, and savings third.
SM: Okay, those sound great. Your last tip there was starting an emergency fund. Is there a target that people should have some percentage of their income that they should be saving or some amount of money for that emergency fund that you talked about?
BS: So, I'm going to oversimplify this. There is a limit of around 20%-ish for your RRSP contribution. In a perfect world of rainbows, butterflies, and never-ending chocolate fountains. Everyone should maximize their RRSP contribution. They should also maximize their TFSA contribution. That isn't the way the world works. Because housing, because daycare, because, because all the things. So, I would start with that kind of like, ‘How close could I get to then given all the competing interests for my money?’ The second area, and this is a much smaller amount in dollar terms, is kids’ education. The reason I'm so passionate about it, it's I mean, partly because I want my kid to be educated, but mostly it's free money! The government is giving you 20%! So, if you can scrape $2,500 per kid together, you're getting a 20% return every single year that you do that. So that is an enormous, enormous benefit to you. So other areas where one could, should save? It depends on what you want in life. Some people like taking vacations. Some people know that they will need a new car down the road. So, you save for those sorts of things. And it goes back to the earlier conversation about cash flow to build that in and to automate it. So, this is one area where financial services companies have been brilliant, like the technology is there. You can do it online, you can call 1-800 number and say, ‘Hey, could you please pay my credit card off in full every single month? Thanks so much. Could you please pay the minimum payment? Thanks so much. Could you please set up an automatic contribution to my retirement savings? Thanks so much.’ All of that can be automated. And then what you as the individual or the family are left with are the scraps. And you get to spend the scraps on the things, the bling, the entertainment, or whatever. And I think if you can be disciplined enough to set yourself up in that way, your future self is going to have the life that you feel that you want. And again, you're toggling between your future self and your present self. And it is a very, very difficult set of decisions that you make.
SM: All right. It does sound kind of daunting, I think, for a lot of people. Even those three steps.
BS: Yeah. You're like, ‘Bruce. What is the spoonful of sugar?’
BS: ‘What is the spoonful of sugar?’
SM: Exactly. [laughs]
BS: ‘You seem like a nice guy. You sounded so bossy there, Bruce.’ Here’s, I think — and maybe we kind of skipped this at the beginning — and this is probably the most important thing that I could say about this entire conversation is why? Why would you follow such a puritanical approach to getting a handle on your money and keeping a handle on your money? And this is a very individual answer. It is your vested interest. And if you have a hard time, if you can't answer this question then I can imagine, it's virtually impossible for you to make these kinds of trade-offs. I'll tell you what it is for me. For me, the reason that I do all the stupid, boring, waste of time tasks to keep a handle on my money is because I want to adventure. And so, I do the things like I cook meals from scratch instead of UberEATS because that $60 — a lot of people spend that once a week — because that needs to go into my retirement savings so I can trek Patagonia when I'm 75. And listen, that's my answer. It's not other people's answer. For other people it would be family or freedom or beauty or comfort or prestige. They'd have their own answer. And whatever, your answer is your answer. But I think that really the most important thing is why is it important to you to get a handle on your money and keep a handle on your money? There is so much work to be done additionally, on systemic barriers for low-income Canadians, for underrepresented groups, for correcting the gender pay imbalance, all those sorts of things. But I tend to focus on the individuals and what is within our circle of control, because there's still, despite all those barriers and disadvantages, there is still a lot that individuals can do.
[theme music starts up]
BS: I have one other thing. Don't stop recording.
[theme music ends abruptly]
BS: Can I say one more thing?
SM: Yeah, of course.
BS: Okay. If I could ask Canadians to do one thing in 2023, here is what I would ask them to do. I would ask them to talk more about money. And when I say talk about money, I don't mean salary. I don't mean numbers. I mean what are the goals that people have? What are the lessons that need to be learned? Let's talk about kids. Age-appropriate lessons on how money works. With your spouse, what are your goals? What are you going to do differently in 2023 to achieve those goals. With your aging parents, what's their financial situation? And to your financial advisor, ask them, ‘How do I get the very, very best value from our time together?’ So, in 2023, do one thing and that is talk about money more than you ever have in the past. Not because I say so, but because I think that will make a difference in giving you more of what you want. Not in money. It will give you more of what you want in life.
SM: Well, I think we will end it on that quite hopeful note. I'm glad we didn't cut you off early. Thanks again, Bruce.
BS: It is my pleasure.
SM: I’ve been speaking with Bruce Sellery, a personal finance expert and CEO at Credit Canada Debt Solutions. He's also the host of Moolala, the weekly personal finance radio show on SiriusXM.
The Perspectives podcast is made by me, Stephen Meurice as well as Armina Ligaya and our producer Andrew Norton — who is always standing by at the ready with a dinging sound effect if needs be.