Since my wife and I are trying to reach some specific financial goals we are kind of strict about any money that we blow. The dollar amount that would trigger my wives fury while we were trying to eliminate our personal debts (I know this may sound insanely low to many of you) was around $25. Do remember though that my wife is a saver by nature and I’m the one that liked to spend. Also remember that I’m talking about spending money that wasn’t in our spending plan – I’m not talking about things like food, gas, needed things around the house, car maintenance etc. – I’m talking about things we hadn’t planned for like a cool $52 sweatshirt, or a $175 replacement for the broken cell phone – you know that sort of stuff.

Now that our debts have been cleared (with help from some learned behaviors like this one) our spending threshold has now been adjusted accordingly. We’re now closer to the $80-$100 range for “free” spending. Now that we’ve worked so hard to always discuss and share our finances we usually talk about most things over $50 anyway (note that we talk about it…not fight about it). Hopefully one day with enough hard work and discipline when I surprise my wife with the new Cadillac she wants and the only discussion we’ll have will be where we’re taking it for dinner that night and who gets to drive – now there’s the spending threshold I’m shooting for!

Agreed upon spending limits is where a couple’s shared finances can really help a couple succeed over the long term due to the unavoidable accountability. How’s the saying go? “At some point he’ll have to come home!”

What dollar amount do you feel you should have agreement with your spouse before buying something as to avoid your home turning into a bad Jerry Springer episode?  If you’re single at what dollar amount do you feel you’ve let yourself down buy spending too much?

I think for many reasons debt can often do more harm than good, especially over the long term. Not just financial damage but emotional, relational, and sometime physical damage. Debt is not always a bad thing to have and in some cases it can work out. Though in my opinion for a lot of people and a lot of  situations it’s very often either dumb or unnecessary. In Ron Blue’s book The Debt Squeeze he addresses when he feels it is okay to borrow money and carry the debt. He lays this out in four simple rules that I’ll summarize for you:

Rule 1: Common Sense; this rule is pretty straight forward. You need to seriously consider what this debt will do to/for your life. Will the payments stress you family, your business, yourself? Are you making a mistake at some level by bringing this into your life? Will this be a blessing now and in the future of are you signing up for another future financial disaster and just justifying it somehow? Does this purchase fit well into your financial plan and future goals?

Rule 2: A Guaranteed way to repay; this is the rule that caught my attention (it’s a good one so stay with me!)  Can you guarantee repayment for this debt? I’m not talking about promising all of next year’s paychecks, I’m talking about a guaranteed way to repay. What this means to me is not borrowing money towards things that cannot stand good for themselves. Real estate is a great example. A mortgage is secured against the value of the property itself – assuming you had a proper down payment or solid equity when purchased. If you can’t make the payments in theory the value of the asset would stand good for the debt liability. Purchasing a business may also fall into this category assuming you are buying true assets and not just a process or name.  

A car (especially new) almost never falls into the guaranteed repayment category. This is due to the value of vehicles dropping too fast. Cars almost never increase in value (well not the kind you drive anyway). So unless you are borrowing $1,000 on a $12,000 car I doubt a financed vehicle can truly stand good for the purchase on its own. I know this sucks but how many people do you know with a financed car can sell the vehicle and clear the debt with the proceeds from the day they drive it home and through the life of the loan? That’s not a guaranteed way to repay.

Sometimes you can pledge the value of one asset as collateral for another financed asset. If you have the ability to take that route then you may have fulfilled Rule #2 and if you’re okay with that then I’m okay with that!

Obviously there are many variables to consider for Rule #2 but this part of the debt decision deserves some serious consideration and some honest answers to some tricky “what if” questions. Can you remove this debt burden from your life if necessary without being kicked in your financial groin? If you can’t answer yes to that question stop right here and reconsider.

Rule 3: Peace of heart and mind; Rule 3 is a bit more spiritual than the others in my opinion. How is this debt going to make you feel? Are you going to beat yourself up over the next five years for making a quick decision? Are you going to unintentionally going to forgo some big goal in the future for a pick-me-up right now? Will you lock yourself in to a job you don’t really want because you strapped yourself with a house payment you can barely cover? Will you put off your saving for the kiddo’s college to drive a new truck? Will you be able to sleep at night after you sign on the line?

Rule 4: Unity; This rule is easy to explain. This rule relates to married folks or people partnering with someone else in one way or another. Basically what is being said here is if you’re going to be in debt you need to be on the same page with your spouse or partners on what is happening and what is going to happen in the future. That’s really it. The two of you need to have a solid agreement and commitment to carry the burden together as one.

So assuming you can come to terms on all of these four rules a particular debt may not be such a bad thing in your life. That said, if for any reason you question don’t have a solid honest answer for any of these rules you may be buying a ticket for a ride you didn’t really plan on taking. Financial decisions should be very deliberate and well thought out no matter what dollar amount is involved. Slow down, take a little time and consider all your options then move forward deliberately and cautiously – every time

How long could you cover your household living expenses with your current liquid savings? This survey of 2,318 adults 18 & older asked how long people could survive on the liquid money they had available. It proves how unprepared many Americans are with less emergency money available than the professional financial nerds out there recommend.

• Less than one week 17%
• One week - one month 14%
• One month - 90 days 24%
• Three - six months 10%
• Six months or more 19%
• Declined to answer 17%

The scary numbers are the first two. 31% don’t think they could make it a month. That’s a scary state of affairs for a lot of people out there. Most advisers recommend 3-6 months in liquid money. According to this survey only a third of Americans measure up to those recommendations though it sounds like from recent reports the current economy may have scared some more money into savings accounts over the last year or so. From my experience lately though people have been spending more time whining about being broke than actually doing something about it…I guess we’ll see the next time “it rains!”

So how does  your family measure up? Post a comment and lets us know (don’t worry you can even use a fakie name if that makes you feel better about yourself)

*Survey source: LexisNexis Martindale-Hubbell’s Lawyers.com survey of 2,318 adults 18 and older.

When the blind lead the blind…get the hell out of the way!

Have you ever heard that saying? Well as stupid as the saying is it actually has some solid logic to behind it. When I was first working to take out my debts I got some great advice from someone that makes quite a heck of a lot more money than I do (I know that’s hard to believe). Anyway…he told me “never hire an accountant whose client list includes people that make less money than you do.” In other words always look for people that can help you grow into more than you are now instead of the opposite.  

This advice stands true with most of the advice we receive around money (and most anything else for that matter).  If somebody isn’t successful with the particular advice they’re giving why should you not be a bit skeptical?  This is exactly what many do with our money decision each day. Often we take counsel from people who make poor money decisions. Sometime it’s formal counsel like an advisor and sometimes it’s just a couple guys hanging out having a beer bs’n about a new ski boat. In either case always step back for a second and ask “where’s this information really coming from? 

In a business sales seminar I was once taught to “mentally step back” from a negotiation and pretend you are looking in on the conversation like an outsider. The idea being as an observer of both parties you get a better idea of where each party is coming from and where they’re trying to go. Whenever I receive money advice I do this as well, not in lame close my eyes and go to my “happy place” kind of way, but I try to step back and take an intentionally subjective look at what’s being said. Who’s saying it, What they’re saying, Where has their experience and/or expertise come from, Why are they really telling this to me, etc. Also you must always understand that some things rub off on us with or without an actual conversation, especially from friends and family. Always be alert to what people around you are saying and doing. If everybody around you is driving around in financed cars or living in homes with absurd mortgages you may find yourself taking their cues.  

With your money you need to be cautious of where you get your guidance. You must always be objective with new information. You must always consider who it’s coming from, where they are coming from, why they are passing these nuggets on to you, and what it has to do with you. Why would you allow people who continually make poor money decisions to advise you on your finances? Sad thing is we all do this stupid move everyday and often don’t even realize its happening.

So what steps can you take to avoid unintentionally honoring advice from broke people?

• Have a solid financial plan – you don’t have to be rich or have your plan completed but clearly knowing where you are going and how you intend to get there will help you do what you feel is correct not what others tell you is correct.
• Continue learning – the more you know the better information you will have to make more sound decisions. You don’t have to be a genius with your money but if you know more you will have more option available to you
• This is a big one….Don’t hang around with broke people! Okay, that’s a bit harsh but seriously if the people around you are not helping you reach your goals maybe you should consider how you interact with them. I’m not saying stop talking to your broke family, coworkers or friends (unless you want to, you can blame it on me I don’t mind) but if they’re dragging you out to dinner or continually convince you to do things that you really can’t afford this might be a good time to reevaluate when & where & how you spend time with certain people. They may unintentionally be creating obstacles to you reaching your goals.     

Step back and look at the advice, influence, or sales pressure and only then can you make a clear decision on your next move. Figure out what works best for you to keep yourself on track and always remember who you’re listening to because sometimes you don’t even realize you’re listening to them (and there’s a fairly reasonable chance they’re an idiot)

The first reason is because this simplifies my life greatly in several ways. One I don’t have the stress of debt hanging over me every minute of every day. Second I don’t have many bills to keep track of and pay every month (I currently pay 8 bills each month and half of those are deducted automatically).

The second reason is the big one for me. Taking debts out of the equation means my income is no longer being used to support those debts. Not paying these payments means my income is now free to invest, spend & save. When debt is sucking your income out of your hands as fast (or faster) than you earn it you cripple yourself. You spend your energy and, more importantly, your time trying to climb a mountain you have the weight of payment books trying to drag you back down. You spend your days trying to make money for someone else – I don’t like that feeling.

So by eliminating debt payments you simplify your life and free up energy and cash that can be used towards more productive goals like retirement planning and building wealth. How hard would it be to stash away 15% of your income towards retirement if you had no car payments, credit card payments, or student loan payments? If you don’t believe me calculate your debt to income ratio then swing by the local old people farm and ask them what they would do differently if they had the chance. I’m sure they’ll be more than happy to give you their take on credit cards and car payments.

Rule 1: Common Sense; this rule is pretty straight forward. You need to seriously consider what this debt will do to/for your life. Will the payments stress you family, your business, yourself? Are you making a mistake at some level by bringing this into your life? Will this be a blessing now and in the future of are you signing up for another future financial disaster and just justifying it somehow? Does this purchase fit well into your financial plan and future goals?

Rule 2: A Guaranteed way to repay; this is the rule that caught my attention (it’s a good one so stay with me!)  Can you guarantee repayment for this debt? I’m not talking about promising all of next year’s paychecks, I’m talking about a guaranteed way to repay. What this means to me is not borrowing money towards things that cannot stand good for themselves. Real estate is a great example. A mortgage is secured against the value of the property itself – assuming you had a proper down payment or solid equity when purchased. If you can’t make the payments in theory the value of the asset would stand good for the debt liability. Purchasing a business may also fall into this category assuming you are buying true assets and not just a process or name.  

A car (especially new) almost never falls into the guaranteed repayment category. This is due to the value of vehicles dropping too fast. Cars almost never increase in value (well not the kind you drive anyway). So unless you are borrowing $1,000 on a $12,000 car I doubt a financed vehicle can truly stand good for the purchase on its own. I know this sucks but how many people do you know with a financed car can sell the vehicle and clear the debt with the proceeds from the day they drive it home and through the life of the loan? That’s not a guaranteed way to repay.

Sometimes you can pledge the value of one asset as collateral for another financed asset. If you have the ability to take that route then you may have fulfilled Rule #2 and if you’re okay with that then I’m okay with that!

Obviously there are many variables to consider for Rule #2 but this part of the debt decision deserves some serious consideration and some honest answers to some tricky “what if” questions. Can you remove this debt burden from your life if necessary without being kicked in your financial groin? If you can’t answer yes to that question stop right here and reconsider.

Rule 3: Peace of heart and mind; Rule 3 is a bit more spiritual than the others in my opinion. How is this debt going to make you feel? Are you going to beat yourself up over the next five years for making a quick decision? Are you going to unintentionally going to forgo some big goal in the future for a pick-me-up right now? Will you lock yourself in to a job you don’t really want because you strapped yourself with a house payment you can barely cover? Will you put off your saving for the kiddo’s college to drive a new truck? Will you be able to sleep at night after you sign on the line?

Rule 4: Unity; This rule is easy to explain. This rule relates to married folks or people partnering with someone else in one way or another. Basically what is being said here is if you’re going to be in debt you need to be on the same page with your spouse or partners on what is happening and what is going to happen in the future. That’s really it. The two of you need to have a solid agreement and commitment to carry the burden together as one.

So assuming you can come to terms on these four rules this debt may not be such a bad thing in your life. That said, if for any reason you question don’t have a solid honest answer for any of these rules you may be buying a ticket for a ride you didn’t really plan on taking. Financial decisions should be very deliberate and well thought out no matter what dollar amount is involved. Slow down, take a little time and consider all your options then move forward deliberately and cautiously – every time   

Do you agree with these 4 rules? Have you taken on debt without considering one of these principles? How’d that work out for you? Please share.

PART 1.

My lack of credit cards (the why)

Living without a credit card is actually not very complicated. In my opinion it’s actually more simple than living with one. I have now been without a credit card for over two years and have not had to change my lifestyle because of it – well atleast not in a negative way.

First I want to discuss the reasons why I don’t use credit cards. For many people who have “credit card problems” the reason is usually self control or a lack of financial knowledge. Credit cards are often used as a financial crutch to help people limp along when they don’t actually have the money to cover a purchase they can’t resist or truly need in the case of an emergency. Many people can manage credit cards without getting into any major trouble. This was the case for me personally, my credit cards and balances they carried were far from the point of blowing up our finances and we had no trouble handling the payments each month. I was even able to enjoy some of the “rewards” these cards offered to me.

So why did I decide to remove the cards from my wallet if they weren’t causing any problems and was reaping some rewards?  Well folks there were a few reasons…

I didn’t like the feeling of paying for last month’s expenses this month. I hated sending off  money I just received to pay for things I didn’t posses any longer. Even though I may have been able to pay the balances down to zero each month I still felt like my finances were a month behind. The weight of any debt no matter how small has a way wearing on me. The truth is carrying debt takes energy from your life even if it’s only the energy needed to check the statement and send the payment.

Overspending; a Dunn and Bradstreet study is often quoted in blogs, and the major media. The study reports on average you’ll spend 12-18% more when making a purchase with a credit card as opposed to cash. And to prove their point they noted the average McDonald’s transaction increased from $4.50 with cash to $7.00 when credit was used. When they looked at vending machines, the average transaction size nearly doubled. Now for me I don’t doubt that I unintentionally spent more using plastic at times (I’ve been guilty of supersizing my life a time or two!) I know for a fact I’ve done this with the thought that I’d be getting more perks by adding to what I charge. So even though this was not the key factor for dumping my cards it was defiantly a consideration.    

Paying interest; this is an easy one in my opinion. Why would you save money at low checking or saving account interest rates while carrying a high interest balance on unsecured debt? It just doesn’t make sense to me – why pay interest when with a bit of planning you could be receiving interest? I never quite understood why people will say “don’t pay off you mortgage because you can make more in the stock market” and then use credit cards with 10%-30% interest rates. But it works for you have at it

I also saw no benefit to using a credit card. I know they offered me points, and insurance, and extended warranties and cash back, but to me I realized I was putting up with the issues above and found myself never getting any real benefit from all the extras they were offering me in exchange for dealing with the negatives. And as far as the convenience factor, well to be honest my credit cards weren’t anymore convenient than my debit card.  This was the big reason I now have no credit cards in my wallet…they do nothing for me, I didn’t see the so called “benefits”

This was my biggest reason….Why spend your time trying to outsmart the credit card companies? This is what they do for a living and they are better at it than I will ever be. True some people can beat them at their own game, charge up the month on credit, pay it off on the 30^th, never pay fees, never pay interest, and collect the rewards points at the end of the month.  If that’s how you roll and how you want to spend your time and energy. I’d much rather spend my time chillaxin and not worrying about trying to outsmart them while they’re trying to outsmart me. I’m not saying you can’t outsmart these folks but I am saying it’s a lot of damn work! 

This was the big reason…. So to briefly summarize why I don’t use credit cards…I don’t like to pay interest, I don’t like to being tempted to over spend, I don’t like the hassle of making the payments on time, and finally I never really received any benefit from the incentives they offered. So basically it came down to multiple negatives and no real positives.

Let’s put it this way….Let’s say you were dating a credit card. She charged high fees when you used her and possibly charged you when you didn’t use her, then tempted you to do things that weren’t in your best interest like overspending, then she drove you crazy by making you pay her a 25 days after the fun was over or risk having to pay her even more, then she offered you restricted “benefits” and “rewards” that you didn’t really care to use and if at any point you fail to keep your promises in the relationship she will call incessantly, threaten you then ultimately drag you into court and win. Then after you and her work out all your monetary issues you realized she never really cared about you in the first place and was only after your money – I don’t think that’s a very healthy relationship. Sorry, no matter how good that hot little number looked being flaunted around town with me I’d have to break it off!

To reinforce my thoughts around credit cards but with a little less Vinny Financio I want to refer back to my post So When is Debt Okay?  In this post I lay out four things to consider when determining if a debt is okay. Rule 1: Common Sense Rule 2: A Guaranteed way to repay Rule 3: Peace of heart and mind Rule 4: Unity;

In my opinion credit cards do not satisfy the four rules outlining when it is okay to borrow. Well it could fit into rules #1, #3 & #4 Common Sense, Peace of Mind & Unity. Though this all depends on your household situation but in my household we came to “Unity” on the fact that we didn’t see the “Common Sense” in borrowing money day to day and coming to that agreement gave us “Peace of Mind” knowing we were always living on what we had. As for Rule #2 Guaranteed Way to Repay; most credit cards I know of don’t have this guarantee built into them. They are only guaranteed by your future income but your future income is only guaranteed to the point that you have sufficient income. Lose your income and you have no guarantee there for it’s not a “Guaranteed Way to Repay.” Credit Cards are not secured by any real property which is why credit cards are referred to as unsecured debt.

I only have one more point to make regarding using any form of debt in your day-to-day life. This one though is intangible and hard to quantify with numbers. The feelings & emotions people feel around having debt in general. In several of my posts I’ve shared the experience others have had with their own personal battles with debt. Here are a few of those quotes:

Being away from my family at night is one of most difficult things I’ve had to do.  When I look into my kids eyes though, I know it will be worth it.  - Jeff, Deliver Away Debt

and I think of all our family can do with our money when he comes home. Things like a family vacation paid for with actual money. Out of our checking account and not on credit cards. Amazing.  - Military Mom, Deployment Money

he called me the day after our discussion and let me know he cleaned out his wallet to make room for some cash instead. 8 days later he’s still on the wagon as he puts it. I told him he sounds like a recovering crack head, he said that’s about how he feels.  - Mark, 8-days Clean

Now that I’ve laid all this out there for you I want to finish with the thought that you’re all big boys and you can make your own big boy decisions about your finances but that’s my $.02

Part 2.

Living without credit cards (the how)

Once I decided I was no longer going to depend on credit cards as a way of making purchases I needed to come up with another option that would allow me to make all the purchases I needed to without cramping my style too much.

There were a couple issues I took consideration before I got rid of all my cards. How was I going to have access to my money anytime & anywhere?  Second how can you function without a credit card, especially since I travel a bit and my wife almost is never carrying much cash? Here is what I came up with and so far it has worked flawlessly for us.

The first thing I did was create a place to stash the money. Since I wanted to have access to this money with the same ease as using a credit card I went for an account with a debit card. I opened a high interest free checking account at a local credit union. This is not the same place we have our primary checking account we use for everyday expenses though. I chose a different bank for our emergency savings for two reasons. One, I wanted to make sure the debit cards we were issued were Mastercard card since our primary debit cards were Visa. Two, I wanted to be linked to a different banking system. Both of these reasons were to ensure that I always had access to money if either Mastercard or Visa had problems or if either of the banks were having technical problems for one reason or another. After working with a credit card fraud team for some time and on the back end of a couple e-commerce websites I realized how inconvenient those issues are and how easily they can arise through no actions of your own. So far to date I haven’t had any issues getting access to my money. 

Now that we had a place to stash the money it was time to actually put some money in there. I first opened the account with $1200 we had set aside in our regular savings account. Now that I was going to only rely on this money instead of relying on this money and credit to get by I know I needed to add to this account as quickly as possible. So for a few months any money we could manage to pull out of our budget went directly into that saving account. At the time I was also working a second job to help knock out our debts too, so any money I made there went into this account as soon as we got a hold of it. This all quickly added up to several thousand dollars and now there’s even more. The funny thing is there is more money in there now than I ever had available on my credit cards.   

This new account was only to be used for an emergency and we BOTH had to agree this was an emergency. Since our marriage is based on trust and shared goals there is no issue with us both having easy access to the money. We trusted each other not to let the other down. Plus if either of us was going to screw this up it was probably going to be me.       

So at this point the only thing left to do is stick to our plan. To date we’ve not had any issues that have made me second guess this plan. We’ve traveled, we’ve rented several cars, we’ve bought things over the internet, basically we’ve have done most everything everybody swears they need a credit card but have done it with a debit card. If somebody were to steal my money or I have to disagree with a transaction (both of which I’ve had happen btw) I just grab my other debit card and put gas in the car just like you would with a credit card but without needing to pay it back next month.

To sum it all up….

1. We have more money available; like I said we have more in the account than we ever had available on our cards.
2. We now earn interest, not a lot but it is adding up. True we didn’t set this money aside for growth but it is a nice bonus to the deal.
3. We’re never owe anybody at the end of the month and if something were to self destruct in our financial lives we won’t be borrowing money at the exact time it gets most difficult to pay it back.
4. We have no need to use credit cards and no need to deal with the card companies – I don’t have any personal credit card horror stories but I sure don’t want to start any

People wonder how I can function without a credit card….I wonder why they can’t?

.

Of course to make the Magic Month work for you I advise that like a true FinancialFreak you plan for this well in advance. Work these extra funds into your budget prior to getting that fat fist full of cash and take advantage of this magical windfall instead of letting it wander out of your life. No matter what your present financial situation is you can pay down some debts, shore up your big fat emergency fund, lock it away towards one of your savings goals, and maybe even blow a reasonable amount of it.

*Note I said blow a reasonable amount! As always let’s plan ahead, be responsible, have a little fun and make Mr. Financio proud. Remember we’ll likely have this same talk again in a few months so with a little discipline maybe it will be more talk about fun and less about paying debts!

If you follow my posts you will know that I recently sat my lazy butt  down on the couch and watched the entire 2-hour Cocaine Cowboys documentary. For those of you familiar with this program you’ll know that the people interviewed and discussed in this program worked diligently for years to become the best in the cocaine importers in the world.

So the question that came to my FinancialFreak mind after watching this program was what made these guys so special, how did these guys become the best in the business while others were being mowed down in the streets. Two things come to mind. They showed persistence and they performed with excellence, they paid attention to every last detail. These people never gave up, they were absolutely relentless. When they failed at a drop or a pick up they made corrections and went at it again.

Here is an excellent example of what made them so effective. According to a pilot being interviewed they came up with a plan to drop large bundles of cocaine fitted with radio beacons into the water off the coast of Florida from a plane then retrieve them by speed boat. Apparently they had an issue with the suppliers taking shortcuts while packaging the product so as soon as the first drop hit the water the bundles exploded spreading a couple million dollars with worth of high grade cocaine into the Gulf of Mexico. Here is where the persistence part comes in. Do you think this was their last attempt at this plan? Of course not these guys are grade A hustlers. So after delivering a couple mil’ worth of dope to the fishes they tried again. They readdressed the issue with their Colombian suppliers and demanded new packaging for a second attempt. Again the bundles leaked and the drugs were destroyed. So do you think this was their last attempt at the plan? Nope, again they contacted the suppliers had them fix the issue and after two tries and several million dollars in losses they finally got it right.

So through their persistence they became the first guys to move massive amounts of Colombian coke into Florida. While striving for excellence in their chosen trade they only got better at this. The point here is that they never let up, they never folded, and they never stopped fighting, they kept throwing punches until ”the man” finally took them down.  Most people don’t even begin the fight to create excellence in thier lives let alone stay with it. This brings me to my question for you….

Why are you not the biggest, baldest hustler in your city? Let me know what you should be doing better in your life but haven’t displayed the excellence or persistence these guys have?

A contractor friend once told me this quote:

When you come across an electrical problem and a plumbing problem…don’t try to fix them both at the same time!

In other words don’t try to do too many things at once. I decided I would be better served by focusing on debts now which has allowed me to focus more on financing my retirement and reaching those larger goals. I once heard a story about a apartment maintenance man that bought his employer’s apartment complex with cash and managed to retire with over $3 million in the bank years later (that story could be  total B.S. but I did hear it). Well the story goes like this…He saved his butt off and even though he wasn’t making a ton of money over time he managed to save up enough dough to buy the small apartment complex he worked at and began creating some wealth. That’s pretty much the story. Instead of spending his money he saved his money and as the story goes eventually had enough dough to make a big fat real estate purchase. My guess is this person was a pretty simple dude and probably kept himself out of debt (I don’ see any other way he could really save up a ton of money like this). The obvious advantage though is that he was able to use his income to build something instead of paying for crap he bought in the past + interest.

Even if the story I heard was total B.S. the theory’s still valid. Freeing up your income by clearing your debts will allow you to stash away more money and collect interest instead of paying interest. Do that long enough and large enough and you could eventually turn that stack of money into investments to replace your income and build some wealth.  In my post I Call a Do-over I talk about some other advantages to freeing yourself from your everyday debts. As long as your income keeps going towards interest payments on credit cards and cars its going to be hard to use this money for much of anything else (it’s hard to save it if you don’t really get to keep it). So by wiping out my debts I’m now able to save and invest money much more aggressively because I actually have more available money now. 

I’m a long way from paying cash for my an apartment building but I’m a whole lot closer now that my money stays with me at the end of the month.  Freeing up my income has now given me access to the one tool I need to begin building some wealth, my income. 

If you were able to free yourself up from monthly debt payments what would you do with all that money?

 Nothing sucks more than that moment during an argument when you realize you’re wrong. – unknown

 Luckily I wasn’t the one having this realization, at least not this time anyway. The question that sparked the chat was basically this: “how do you get out and stay out of the cycle of car debt?” For myself I saw a pretty straight forward answer (as most personal finance questions are in my opinion). The idea is to save up enough money to pay cash for your next car…that’s it, it’s that simple. The theory itself is simple but getting it done takes some work. We can discuss endlessly the different techniques of how you might pull that off (and I may sometime just not right now).

 My friend’s realization described above was sparked when I asked him the following question:

If you can afford make the payments why can’t you afford to save for it, especially a purchase you can plan ahead for?

Once this question was posed the conversation slammed to a halt faster than a school bus at the train tracks. He looked at me and said I guess you have a point. Things really are that simple. If you have some time to plan for the expenses all you need to do is plan for the expense. True, it’s not much fun and it sure isn’t very sexy but it works. That’s how most of our grandparents bought stuff like cars. They saved up for things and when they had the money they would make the purchase. So what’s different now? Try: marketing, peer pressure, greed, impatience, a lack of discipline, aside from those roadblocks (especially the lack of discipline one) this idea pretty much works the same as it did before.

I doubt our conversation will change the way he operates his finances moving forward but at least the question was recognized and there may be that little twinge of guilt each time he unnecessarily spends on credit. True this may not ruin his life but at least he can now add one more option to his financial text book in his head.

So I now pose the question to my readers:

If you can afford make the payments why can’t you afford to save for it, especially a purchase you can plan ahead for?

Go ahead you can post your excuses in the comment section.

1. Toss them to the curb and go back to the old standby pair. (makes good sense)
2. Toss them to the curb and replace those bad dogs with a fresh pair. (how I would have done it in the past)
3. Try to track down the world’s smallest screw and attempt to make those NASCAR pit crews jealous with my rockin’ repair work.  (likely not going to work but what the hell I’ll give it a shot, 3 it is!)

So I figured all I needed was the world’s smallest screw. I stopped into a sunglasses store and asked the girl if she could help. And bless her little sales-girl heart, she recommended that I might be interested in a new pair. So I asked her “do they cost the same price as the screw?”Apparently the answer was “No” since she never actually responded while she dug around in a drawer behind the counter. She came up with a small box with atleast 2000+ assorted little screws and several screwdrivers. While she “screwed around” with my glasses she again mentioned that they had 10% off this same particular brand and she pointed to a big hanging sign displaying two hotties wearing some sweet new shades having the time of their lives on the beach. She then told me I should try a couple pairs and see what I liked. So I figured what the heck, lets browse around while I’m waiting for her to do her magic. Sure enough 30 seconds later I began having those “hey, these are pretty nice” thoughts. Luckily before I asked to try them on I heard “looks like I got it here”.  Good timing little sales girl that was seriously a close one! So I thanked her for the free fix up job and hit the door. 

I felt like a new man. I felt like I had single handedly concurred the little sales girl and stared into the face of one the world’s vast marketing machines. At this point I was thinking about how easy it could have been to separate me from my cash if she hadn’t been able to fix my sunglasses.  But since I started my never ending fight towards my domination of personal money matters I’ve noticed the commercials and marketing BS seems much louder and more obscene than I remember. There’s a constant prodding to take action, to conform or to be different depending what wares they’re trying unload on you. You’re too fat, too skinny, too gray, too many wrinkles, your boobs are too small, and that car is sooo last year. The pounding never ends and thank goodness we don’t consciously take in all the sales and marketing that’s presented to us every day. If somehow I was able to pay attention to all if it I’d probably only buy two things…a bottle of Jack Daniels and a handgun and attempt to ease the pain from the overload it’d cause.

It’s an ugly world out there when it comes to your money so keep your guard up. Keep your financial goals in mind. Remember that your money is finite so spend accordingly.