If everything we do we try to make things simple, eventually myths come up and for those outside the industry, it is accepted as truth. Sometimes the myths are not correct, in some ways they are not necessarily wrong, but conventional wisdom is not always perfect. Doug Hoyles is co-founder of a large personal insolvency firm and wrote a book called Straight Talk on Your Money published by Milner and Associates, Toronto, 2017.  Mr. Hoyles is reflecting on his years of practice and offers advice on how the system is structured.

Myth 12   Bankruptcy is the Easy Way Out

If you go back before WW II, most people had little access to credit. The banks were often reluctant to give out credit, there was no credit cards and the biggest credit was at the country store or convenience store where the merchant gave credit to farmers for he knew it would take a few months before the farm community received income to pay back the loans. It was not surprising the idea was if you borrow you need to pay back.

The first reality is if you do not have debt, you have more options. In Mr. Hoyles’ book he refers to a survey his firm does to determine the average person – they have $53,000 in unsecured debt that does not include car and mortgage payments. If you have that much debt, the likelihood of paying it all off is remote. Most people Mr. Hoyle works with have jobs, they just do not earn enough. They may be able to come up with extra money in one month, but every month for 4 years? just a little too much to ask for. Bankruptcy is an option.

Myth 13   A House is a Great Investment

A great investment is either one that gives you regular income and/or has good potential to increase in value. For most people, a house does not do that. Unless you rent out some of the house (which tends to be the exception) the house cost money and does not generate it. A house may not increase in value, it depends on many factors.

For the average person, the house should be considered as a liability – it will likely have mortgage payments, need repairs or renovation over the years. It is nice if it goes up in value and you are willing to sell. Remember if you sell, you have to move somewhere.

Myth 14   Owning a House Gives You Stability

It can be remember what used to happen is people went to work for one company and stayed there till they retired. In your workplace  – consider how many people are doing that or have they had more than one job? The answer tends to be more. Although it is possible to rent out your house, sometimes people do not want to move.

Myth 15  The Bigger the Mortgage, The Better

This myth concerns leverage. If you want to keep up with “the Jones” then buying a bigger house than you need and can afford is a great idea. For most people, buying less is better, because the reason you bought was to live in the house for a number of years not necessarily to sell. It is wonderful when you are ready to sell and the price has gone up, but real estate markets go up and down and you may not be ready to sell.

A larger house tends to mean more stuff in the house and it may or may not be the stuff you can afford. If the mortgage costs is 35% of your budget, then add car expenses and house maintenance, child expenses. The house can be too much for your budget, when you buy ensure your eyes are open to all the other expenses and lifestyle choices when you buy. If your neighbors are travelling to cottages, vacations, you will be pressured to do the same.

Linking to dividend paying stocks, these stocks have an income attached to the purchase, if the companies are not profitable and not paying a dividend you do not own them. There are many choices in the stock market, the idea of not losing your money which is the first rule of investing is to ensure there are easy methods to determine when to get out. If you buy a dividend stock and the dividend goes down, that is very good signal to move. A recent example is GE, it was good but is not restructuring. You may like it, but watch it for a time as it produces results then you consider buying again.

There are more questions than answers, till the next time – to raising questions.