I took the plunge this weekend and expunged my debts to the depths of the hell from whence they came. It was a tough move for some reason, even for a cold, calculating accountant. Subconsciously, I held on to the debt in order to keep my asset balances high. Artificially high.
This is a bad move, and you don’t need to be a bean-counter to follow the logic. I had credit card debt at 18%, a personal line of credit at prime + 3%, savings earning me 3.5%, and a chequing account costing me the monthly plan fee less a paltry amount of interest. In summary, a net cost to me.
I had enough cash in the savings and chequing to pay off the debts, but for some reason I had held off on doing so for months, all the time allowing the interest costs to pile on. I felt more secure maintaining the artificially high cash/savings balances. Why is that?
It wasn’t until I started tracking my expenses using the so very Web 2.0 tool expensr.com about two weeks ago that I realized the time had come to man up and pay the debt off. Only then could I save with a clean conscience, knowing I had no interest expense completely wiping out the interest I would earn on savings.
Note: I plan to write a post soon about expensr.com. It has really helped me get a hold of my expenditures and features a mobile version I can access on my cell phone to capture cash outlays as I make them.
So now you all know my dirty little secret. I’m an accountant and auditor, I find other people’s mistakes and control weaknesses, and until this weekend I wasn’t even managing my own finances like a pro!
Your post got me thinking: I just finished a 2.5 year Master’s degree course in accounting, and am in the middle of the professional exams (just finished the SOA, will write the UFE in Sept). With all the finance-related stuff I have learned, there was practically nothing taught about personal finances. I think there is a very minor section in the Finance section Competency Map about it, but is low probability for being tested.
I think a practicing accounting should know more about personal finance. A lot of us will be talking with clients in the course of performing our duties, and it is very possible the issue of the client’s personal finance will come up. We aren’t expected to lay out a complete financial plan for them, but at least we should be able to give them some basic, common sense tips.
Good luck on the UFE Edmund!
I agree, personal finance is something that is pretty much ignored right now, with the exception of stuff that is tax related specifically.
The tax section has more personal finance tips than the “finance” section, ironically.
I presume the reason for the way things stand is that they assume CAs know this “common sense” stuff already.
You’ll be tested on it in the Pervasive Qualities section of the UFE, too, eh? ;)
Sorry for the late comment (a month after the post), but I wonder about another situation.
What if someone is saving for a downpayment on a house and have moderate debt. Should one keep the debt and save a bigger downpayment or pay off the debt and then save.
I think that if the property will appreciate and housing prices will rise, it would be better to take the opportunity benefit and pay the debt later, but then I don’t know how the debt might affect the terms of the mortgage.
What do you think?
That’s a good question Ryan.
Check out Get Rich Slowly, which compares renting vs. buying, which is a similar question to yours and really heartened me when I read it (since I’m a renter).
As for the debt’s effect on the mortgage terms, I think it lowers the amount you can borrow. But on the other hand, incurring and paying off or managing debt improves your credit score and ultimately increases the amount you can borrow.