Financial Tales Of Terror!

In this edition of The Loonie Bin, I thought some tales of terror from a financial perspective would set the mood for Halloween. So turn off the lights, and make sure you are not alone

Read on if you DARE!

The Tale Of The Credit Card Princess

Alison liked to shop whenever she had the chance. She worked in a department store and didn't make very much money. Every weekend she would go clubbing with her friends, and she loved being the center of attention. When you crave the limelight like she did, it costs a lot of money to keep up with trends and fashion. Alison spent a lot of money on clothing, hair styles, spa treatments and makeup; a total of 75% of her income! So how could she afford to pay for all this things, plus the basic needs of food and a roof over head? Credit Cards! *cue Thunder and lightning*

Alison owes $2465 on her credit card and is happy paying the minimum $50 each month. She thinks she is getting a sweet deal by buying what she wants, and only paying a small amount of her 19.5% interest. But what she doesn't realize is that it will take her 21 years to pay off $2465 and will end up costing her an additional $9938 in interest! Now the people who own the credit card company could afford to buy nice clothes and new shoes, thanks to Alison...

Did that frighten you? I know it scared me. This next tale is even more frightening. I call it:

The Tale Of The House Of Interest

There once was a young couple named Dan and Kim who dreamed of owning a home together since they met 6 years ago. They both had expensive taste yet they both had modest incomes. All of their friends lived in expensive neighborhoods and they too wanted to live in a nice area as well. They wanted a big house to impress their friends so they looked at places that were way too big and that they could never afford. One Saturday they were driving around and they found the perfect house for sale. They never saved much for a down payment, but they really wanted that house and would do anything to get it. They called the bank to set up a mortgage but with their lack of a down payment, they would have to get a 35 year mortgage and have CMHC insure their mortgage! *Thunder and lightning*

Dan and Kim thought they had found their dream home, but what they had found was a house of fees and interest. They though that they were paying $350,000 for their home, but in reality they are paying much, much more. Since they didn't have over 20% for a down payment, they had to pay a large fee to insure their mortgage to the tune of $10,000; And that's just the beginning! Since they can only afford to pay the base monthly  mortgage payment, they will be forced to take 35 years to pay off the entire mortgage. They had a mortgage rate of 5% on a fixed 5 year term and paid their mortgage monthly. After their first 5 years of paying the mortgage, they would have paid $84,000 in interest alone. Over the course of 35 years, they will pay over $380,000 in interest and that is only with an average interest rate of 5%, just think if interest rates hit 10 or 15% like they have in the past. I sure hope they like eating Kraft dinner...

Oh my that was a terrifying story! All that money being flushed down the toilet to impress a few friends....it sends chills down my spine. I don't know If I can continue... alright, maybe one more story of investment horror. I call this one:

The Tale of the Disappearing Nest Egg

It was a dark and stormy night. After a long day at work, Kevin sat down and begin reading his mail. He sorted through piles of bills and leaflets ; 5% off Ming's authentic Chinese cuisine and steak house, laser hair removal, and his investment statements. Kevin carefully opened up the envelope from his investment advisor and saw how much money he made these last few months. The stock market was down this last quarter and he knew that his return would be lower then normal and it was. He was actually making a return of -3% from his mutual fund investment. *Thunder and lightning...... I SAID thunder and Lightning.......oh forget it*

Kevin remembered back when he began working and moved out on his own. He thought about his future and that he should start saving for his retirement. He decided to invest $100 every month in mutual funds and every month he saw his nest egg start to slowly grow. He knew that nothing in life was free, and that he paid a certain percentage to have someone manage his mutual fund investment. Eventually Kevin began working for a company that matched his mutual fund contribution and so he was automatically making 50% on his contribution. This made Kevin very happy and it allowed him to focus on his life and not have to worry about investing. Little did he know, that something dark and very scary was lurking under the surface of his investment portfolio...

After many years of having fun and eventually settling down, Kevin began thinking about his future again since he was responsible for himself, and his new bride. He starting paying more attention to what he invested in, and where his money was going. After looking at how much money he had, and how much money he invested over the years, he thought there should have been more money in his portfolio. What Kevin learned next was so shocking it made his stomach turn. His mutual fund charged him a MER of 2.65% each year. Having an investment of $65,000, that meant that each year his fund manager was charging him $1722, no matter how well his mutual funds did. His current return of -3% was less then his managers expense ratio. His nest egg would never keep up to inflation and over the years the only thing that increased was Kevin's blood pressure.

Kevin had to cut corners in his retirement and he and his wife were forced to live in a sketchy retirement home where the food was bland and they had to eat frozen vegetable medley every night. The arts and crafts program was a borderline sweat shop and all his crafts were shipped to foreign countries. When they wanted tea, they had to use tea bags over and over and any attempts at escape were met with a week with no shuffle board privileges. They lived horribly ever after.

Ohhh so very scary. Did I scare you with these terrifying tales of financial horror? No!? Well maybe next year, until then have a Happy Halloween and good bye...for now.