How AI Could Change Your Personal Finance Priorities

AI has many worried. And that concern is leading to…

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Wow. AI talk is everywhere. And, frankly, it’s rapid improvement is truly scaring a lot of people. Many are concerned about their jobs, or their kids’ or grandkids’ jobs. I get it. It’s very difficult to forecast how all of this is going to play out. You can go to YouTube and find opinions from experts much sharper than I am.

Opinions that are all over the map, by the way, all over the map. Here, I want to focus on two personal-finance questions/thoughts that I’ve received that tie into AI’s growing influence. Several younger adults have asked me if they should increase their emergency-fund levels from its current situation because they feel their job is exposed to AI in a big way,

even in the short term. Example, one young woman wrote proposals for a consulting firm. The answer is yes. When your job security changes, regardless of the reason, the size of your emergency fund should reflect that. But I think that’s even more true in the case of AI because there’s a good chance that finding the next job in a related field could also be very challenging.

This is especially true of many/most entry-level positions. The other line of thinking is very interesting. I’m hearing more and more: “I’m worried about AI’s unpredictable effect on the labour market and the economy. Not just how it could affect my job, but heck, everything. So I’m thinking of focusing on debt paydown over investing.

I wanna lower my burn rate. Does that make sense?” Hey, I have never had an issue with people paying down debt. In fact, after taking full advantage of group-RRSP matching dollars, paying off high-interest-rate debt like a credit-card balance is probably your wisest move — 21%, c’mon. In fact, even paying off, say a 7% car loan is tough to argue with.

Solid after-tax rate of return guaranteed. But here the couple people have brought this up, they’re referring to their mortgages, say 4% interest rate. Now, experts argue — including the wealthy barber, Roy Miller — and history supports that over the long term, stock markets have outperformed that 4% by a significant margin.

And that outperformance can obviously be protected using TFSAs/RRSPs. And by going that way, you also get to keep the forced-saving component of having a mortgage in place. But look, I understand completely people thinking of hammering away at their mortgage. Reduces stress. Frees up cash flow. Builds pride in ownership. Limits interest-rate risk on renewal. Provides a guaranteed low, but reasonable after-tax rate of return. And, achieves their goal of lowering their burn rate.

Remember Morgan Housel. We had him on the podcast. The great financial writer — “The Psychology of Money” author, paid off his mortgage even though he agrees it may not have been the optimal approach from a purely numbers perspective. It was important to him though. It helped him sleep at night. And hey, I’ve read that sleep is good.

Very important stuff. Again, I get it. AI is causing some people to change priorities. Tough to know exactly what to say to that, what the perfect response is. Maybe ask ChatGPT!