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Money Does Not Equal Wealth

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If a shoebox were an RRSP

account, mutual funds would be

a pair of shoes inside the box.

An investor can put any pair of shoes they wish inside the box, and it’s still an RRSP account. If mutual funds are brown shoes, the brown shoes can be taken out of the box and replaced with a pair of black shoes, which could represent a privately held mortgage. Many savvy investors with RRSP accounts use their RRSPs to buy investment real estate instead of mutual funds.

Cash and credit are not the same.

Many Canadians have seen windfall equity gains on their homes in the last ten years. The rush of doubling or tripling the value of the family home has made many Canadians feel rich. Of course, when we feel rich, we start to act rich, and suddenly we are using our newly gained home equity to purchase vacations to Mexico, a new car, or renovate the kitchen. What many Canadians don’t realize is that equity spent on consumer goods like vacations, cars, or home improvements creates bad debt. Like all debt, home equity needs to be paid back with interest at some point. The equity in the home is not cash; it’s debt, but many people spend like they have won the lottery.

Shoes and Shoeboxes