David Chilton podcast

Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be continuing the Saskatchewan Pension Plan’s new series of financial expert interviews with the Wealthy Barber himself…David Chilton.

The Wealthy Barber has sold more than 2 million copies in Canada, and last year — some 20 years later — The Wealthy Barber Returns was published.

I recently heard David speak at the Human Resources Professionals Association conference in Toronto and was delighted when he agreed to do an interview for the Saskatchewan Pension Plan Financial Expert podcast series.

Welcome David.

Q1. In your first book The Wealthy Barber, the well-to-do barber Ray Miller’s first and most important rule is take 10 per cent off every pay cheque as it comes in and invest it in safe interest-bearing instruments. Why do you think so many people have so much difficulty overcoming their inertia and taking that first important step?

A.1 It isn’t necessary to invest only in interest-bearing certificates. If you are a long-term investor building for retirement, Miller was fine with allocating some of the money towards growth-oriented vehicles like equities or mutual funds that have equities in them, but the basic thrust of saving 10% of every pay cheque is absolutely the key.

The problem today is that we love to spend, and so we resist any savings technique that limits our ability to go out and buy things. Also, society has taken on so much debt that it has squeezed our ability to save. It’s tough for people to set aside 10% of their net or gross income because they’re servicing debt now. We love to spend we love to keep up with the Jones’s, but to some extent, we’re sacrificing our future.

Q2. You acknowledge that it’s only human for the desires of Canadians to run well beyond our stream of “needs” into our pool of “wants,” but still maintain that many people have too much stuff. Do you think people should be making sacrifices today in order save for the future?

A.2 I do. And I hate the word “sacrifice.” It has such a negative connotation. I would argue after seeing thousands of people and their personal finances, that people who are saving successfully are happier, because they’re less stressed about their financial future. They are not caught up in that race to consume as much as they can.

Remember, nobody is suggesting massive cuts to your spending and an austerity budget. Let’s be realistic here, let’s set aside at least 10%, hopefully more. It’s doable. It doesn’t require major cutbacks – just spending a little less here and there to force savings.

Q3. How can people resist the temptation to buy more clothes, or jewellery or electronics – whatever discretionary spending is distracting them from saving for the future?

A3. It’s interesting. People who read my book say even reading about the psychology of spending has helped them have a little bit of a mind shift. But there are some safeguards that you can put in place. The problem in the last 20 years has been the ubiquitous availability of credit. It’s so easy to mindlessly swipe your credit card or write a cheque against your line of credit. If you want human nature to have less ability to sabotage you, take it out of the equation.

So you are seeing more people staying away from lines of credit now and I notice a lot of people going back to a cash-based spending system. They are taking out cash on a Monday and saying, my budget is $450. That money is in their wallet for everything from groceries to gas. When the money runs out, so does the spending. I love that approach because when the money leaves your wallet you feel a little pain and realize it is a finite resource.

When you are swiping debit or credit cards mindlessly, it’s too easy to spend and hard to keep track of. Spending quickly increases to an unacceptable level.

Q4. Tell me about the four liberating words of advice you give to people who come to you for help because they are overspending. Do they really work?

A.4 That is the chapter I hear the most about in the book and it’s a very simple concept. People really expect deep advice from me, but what I say is you’ve got to start saying to yourself and to others, “I can’t afford it.”

It’s hard at first, but when you start saying it then you realize, it’s not admission of failure it’s just accepting the reality. In fact it’s stress reducing because you are accepting the reality, you’re no longer stretching beyond your needs.

I cannot believe all the letters and phone calls I’ve had from people across the country who say they love the chapter. They’ve become used to it, they are embracing it and they are actually enjoying it.

Q5. Home renovation is a bottomless money pit that many people get sucked into in the hope of improving their property value or keeping up with the Joneses next door. When it comes to renovating or anything else, what are the four most expensive words in the English language?

A.5 Since the book has come out, I’ve come to think that I understated the case of excessive home renovation. We’ve received so many emails and letters from people saying if you think your examples are bad, look at mine.

I am not against home renovations. I renovated my own home a few years ago. The problem with home renovation is you do one room like your kitchen or your basement and the rest pale in comparison. And all of a sudden the cycle of renovation rolls on. With lines of credit making cash available, it’s very difficult to resist the temptation. I think of all the people I see who have line of credit problems, about 50% got that way through excessive home renovations.

Q6. The cost of housing has gone up tremendously over the years in Canada. Can homeowners depend on the value in their homes as a source of income in their retirement?

A.6 Well, not really. Seniors don’t necessarily want to sell their home in retirement. They like the neighbourhood. Many don’t move because they want to have the extra space at home so the grandkids can come and stay over. These are the kind of real life things that enter into decisions that so often are forgotten in financial books.

Many people do have a fully- paid home that has in fact risen significantly in value, but they can’t turn it into a financial asset or split an income off from it. They could take out a reverse mortgage, they could take out a line of credit but of course, those have their risks. You’re turning compound interest into your enemy instead of your friend, and a lot of people are hesitant to do that even when it does make some sense.

You have to be well diversified. And I am not against home ownership. In fact I’m very pro home ownership. But I think it is unfortunate how many Canadians I cross paths with who have emphasized home ownership exclusively as they built up the asset of their net worth statement and that’s a tough one because they don’t have any other assets to fall back on or to generate an income in retirement.

Q7. I know from your talk at the HRPA conference and your book that you live in a modest 1300 sq ft. home and granite counters don’t turn you on. What do you like to splurge on?

A.7 Probably more experiences than stuff. I am not a stuff guy at all. I can’t remember the last time I bought anything significant on the stuff front. But I do like to go to sporting events and playoff games, especially of my beloved Detroit Tigers and I’ll take the odd trip and bring my kids along.

I tend to be not a big spender, not because I am cheap. In fact I am quite the opposite. It is more because I don’t get a big kick out of stuff. I like relationships. And my hobbies are relatively inexpensive. Golf, is a little bit expensive, but I’m into a hockey pools and I love to read.

When I do splurge it’s probably on a trip. A second big weakness I have is that I eat out often because I travel so much. I am always on the go, and I don’t know how to cook so I eat out a tremendous amount. I did a spending summary in the process of writing the second book and I went “holy smokers.” It’s not just the sodium content that’s killing me here, it’s the cost too.

Q8. When do you plan to retire?

A.8 Never, I love what I do. I like to travel. I don’t want to travel as much going forward as I get older because it’s a bit of a burden being in an airport every day. But I really do enjoy my career. There are a lot of new things I want to try. I honestly don’t see ever retiring, particularly from speaking. Speaking is a favourite part of my job and I don’t know why I would ever leave it.

Thanks David. It was a pleasure to talk to you today. I know our listeners will be delighted to hear your common sense advice. And if they haven’t already done so, I’m sure they will want to get their hands on a copy of your new book, The Wealthy Barber Returns.

My pleasure. Thank you for having me.