Why Balance Matters

For now, the F-150 is my RV

I was talking with my uncle out in the desert last month and he asked me why I hadn’t bought a motor home yet.  I told him that I was saving up and I was a couple years away from getting the motor home I really wanted.  He told me that I need to think more about the present and not be so caught up with the future.  My response was that I keep a balance in my life and it’s important for me to do both.

People often focus on one aspect with money, but I believe all three time-frames are essential.  You can’t forsake the past, the present or the future.  Sure, someone may get run over by a bus and never enjoy their hard-earned savings.  But, they are way more likely to retire broke and struggle through retirement because they didn’t save for the future.  Balance is the key to life and money.  Whenever someone loses this balance, some aspect of their life will usually suffer.

Past, Present & Future

• Past – Debts & Mortgage
• Present – Bills & Spending
• Future – Savings & Investments

I told my uncle that I live comfortably on 70% of my income right now, while I save 30% for the future.  My actual breakdown is probably closer to 20% past, 50% present and 30% future.  When my mortgage is paid off, I will probably reallocate to 60% present and 40% future, depending on my income.  Since I’m used to living like this, I will be able to retire on a fraction of my current income, depending on inflation.  In any case, I think it’s important to maintain a healthy balance.

What is your time & money balance?

Why Time Isn’t Money

There is an old saying that “Time is Money”, but I don’t agree with this.  Sure, you can trade your time for money, but it’s not so easy to trade your money back for time.  The truth is that money comes and goes in our lives, but we can never recover lost time.  So, it’s not an equal trade, nor is one interchangeable for the other.  Each has to be managed carefully so they don’t create a scarcity of the other.

When I was in my 20s and 30s, I traded away too much of my time for money.  I skipped vacations, worked weekends, had a side-business and went to night school.  Yes, I got ahead financially, but it came at a high cost to me personally.  On my son’s 9th birthday I realized he was half grown up and that precious time with my kids was quickly slipping away.  I made some career changes to increase my income and restore the time balance in my life.  Now that my kids are both grown, I’m glad I made that choice.

The Bottom Line

The bottom line is that life is brief.  Spending all of you precious time chasing dollars is just about as sad as being broke and unable to enjoy your time.  A little balance goes a long way.

“If you would be wealthy, think of saving as well as getting”

Ben Franklin – American Inventor and Patriot

Recommended Reading

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The Hidden Costs

The costs of extras, accessories and upgrades really add up on any purchase.  In this case, I had already factored it in.  But, many people are taken by surprise by how much it costs to gear up for a new purchase.  For some items, like sports equipment and aquariums, there is more profit in the accessories than the item itself.  For other items, like houses and automobiles, the costs of insurance, operation and maintenance can be the budget killers.

The Justification

There are lots of ways to justify an extravagant purchase and most of them are bogus.  Some of the most obvious are the “I deserve it” or the “I got such a great deal”.  Advertisers and salespeople use these ploys to convince people to buy.  But, there were some legitimate justifications I had for buying the tools.

It will save me money -  Anyone who has read my blog knows I maintain my house and cars myself.  I take pride in doing it myself and I save the family a small fortune.  The amount of money I just spent on tools was about the same as most people pay for a brake job and a couple of oil changes.  Since we have two cars, two trucks, three motorcycles and an ATC, I can’t afford to pay the shop rates.  Plus, we are renovating our 38 year old house.

They will last a lifetime - I have been working with some of the same cheap Chinese tools that I bought in high school to work on my first car.  And, even though they still do work, they are shot.  Some tools are bent, some are stripped and some pieces are missing.  I started thinking about how many projects I completed with these tools over the past 30 years and I realized that the tools I buy now will probably last me the rest of my life.  Thirty years from now, I’m going to be too old to crawl under sinks and automobiles.

They will save me time and trouble - Four years ago, I was working on my daughter’s motorcycle and I stripped a screw with an old worn out screwdriver.  It set off a whole series of problems that cost me months of hassle and hundreds of dollars.  There is nothing like having the right tool for the job.  The new tools I bought were each chosen carefully over a couple of months.

The Lasting Value

When it comes to purchases, there are four kinds of things you can buy:

1. Things that increase in value – Investments & Real Assets
2. Things that that hold their value – Useful Items and Staples
3. Things that depreciate rapidly – Cars, Clothes & Electronics
4. Things that are gone immediately – Food, Fun & Vacations

The easy secret to financial success comes in buying more of the things that increase in value and avoiding more of the things that depreciate or disappear.  Most Americans need cars to get to work, but nobody needs a Ferrari.  People who can afford one shouldn’t feel bad about purchasing it.  Others, should avoid the temptation, unless they want to wind up broke in the future.  Athletes and entertainers are examples of people who blow through tons of money and have nothing to show for it.

Buying something with a long useful life ensures you will get a return from the purchase.  Consumer electronics are designed to become quickly obsolete to ensure a steady revenue stream for the manufacturer.  The wrenches in my toolbox will last a lot longer than the TV I just purchased.  My Blackberry is already obsolete and it’s only a year old.  The Androids and iPhones aren’t far behind.

The Bottom Line

The bottom line is that spending wisely on a purchase can often pay off in the long run.  Just be sure you know all of the hidden costs before you pull the trigger.

“Have thy tools ready. God will find thee work.”

Charles Kingsley – English priest and professor

Recommended Reading

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First Five Trading Days

Image by Fisherman's Daughter

One of my favorite stock market indicators is the First Five Trading Days.  Historically, if the stock market goes up for the first five trading days, there is a 69% chance the stock market will be up for the entire year.  The more positive the first five days are, the more likely it will be a good year.  For 2012, the first five trading days were definitely positive.

• Dow +1.43%
• NASDAQ +2.65%
• S&P 500 +1.82%

Stock market indicators shouldn’t always be relied upon, because they seem to fail investors at the worst possible time.  Many feel the First Five indicator is hyped more by brokers than is justified by the returns.  But, a solid start to a new year is always welcome, especially after the lackluster performance from last year.

The Economy is Improving

I wouldn’t say the economy is great, especially for the working class, but it is definitely getting better.  The stubborn unemployment rate is slowly dropping and consumer optimism is starting to return.  Retail sales are up slightly, especially for automobiles.  There is a lot of pent up demand from consumers who have tightened their belts for the past couple of years.  Their cars, computers and appliances are starting to wear out and need replacement.

The bad news for the markets is that profits are shrinking as companies are forced to hire and inflation is taking a bite out of their bottom lines.  They had a field day during the recession with drastic layoffs and squeezing the remaining employees for maximum productivity.  But, the tide is starting to turn and opportunities are opening up for skilled employees.  Wages will start to rise.

It’s an Election Year

Election years have had a very positive correlation to the stock market.  Looking at the last 21 election years since 1928, all but three have been positive for the S&P 500.  Of course, one of those three election years was 2008 and we all know how badly that turned out.  The average S&P return during these past 21 election years is around 11.8%, which I would gladly take this year.

This election year is about a lot more than just a quick pop in the S&P 500.  It’s about the future direction of our country and our economy.  Do we continue to slide into debt while special interests loot our treasury?  Or, do we return to the economic powerhouse that has led the world for the past century?  Only time will tell.

The Bottom Line

The bottom line is that past performance isn’t a guarantee of future results.  We are still living in troubled times, considering the shaky state of our financial system and the massive federal deficit.  But, unless there is a major financial meltdown of some kind, 2012 should be a pretty good year.

“Cheers to a new year and another chance for us to get it right.”

Oprah Winfrey – American Talk Show Host

Recommended Reading

Squirrelers - Looking Forward to your Financial Success in 2012
Money Cone - 10 Stocks for 2012 and Beyond
Wall Street Journal - First Five Days of Trading Suggest More Upside

This post was featured on the Carnival of Personal Finance over at Diva in Debt.  If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  It’s where all the cool bloggers hang out.

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The Stock Market is Rigged

Image by Unlisted Sightings

The stock market is definitely rigged.  I have said it here before on this blog and I will say it again.  Between the super-fast trading networks, dark pools, rampant insider trading and the massive amount of leverage from derivatives, the markets are being manipulated and small investors are getting taken.  It doesn’t matter whether you have a 401K, mutual funds or a brokerage account, you don’t get a fair shot.

The big boys are getting away with murder and regulators can’t seem to reel them in.  Even worse, there is so much corruption and influence peddling between Wall Street and Washington, people are literally buying outcomes in the market.  Congress is along for the ride, trading on privileged information that isn’t available to the public.  They are creating laws and making policy decisions on the companies they own stock in.

Check out what’s happening in the financial news right now.

• Members of Congress are accused of insider trading, yet they seem to be immune to action from the SEC.  Meanwhile, others go to jail for this.
• MF Global collapsed in October with former U.S. Senator Jon Corzine at the helm.  Investors may have lost between $600 million and $1.2 billion.
• Citigroup’s proposed $285 million settlement with the SEC was rejected by a judge for being too lenient.  Investors lost over $700 million on the deal.
• J.P. Morgan was recently fined 33 million pounds for not properly separating an average of $8.6 billion of their client’s funds from their own.

Sources: Business Week, USA Today, Huffington Post

Housing is Still Overvalued

Real estate is traditionally a good hedge against inflation and a great place to generate income.  But, it’s still overvalued where I live and likely to drop some more.  I base my guesstimate on the fact that real wages have stagnated and it’s way cheaper to rent in many areas.  It’s virtually impossible to buy a property here and rent it out for even close to break-even.  I could buy somewhere with lower housing costs, but I don’t want the hassle and expense of being a long-distance landlord.  I would give my left eye to have a nice little triplex at the beach, but it’s an expensive proposition.

Other problems with real estate are that it is highly leveraged and illiquid.  It requires a big down-payment, a lot of debt and massive liability.  If the tenants stop paying or they trash the place, you are out a lot of money.  If someone gets hurt on your property, you are getting sued.  The laws in my state are very lenient on deadbeat tenants.  Besides, my goal is to work less and enjoy life more.  Investment properties are a lot of work.

Precious Metals are Sky High

I will be the first to admit that I completely missed the boat on gold, silver and other precious metals.  I have seen them do so poorly during my lifetime that I wrote them off as horrible investments.  I was very wrong, at least for the past couple of years.  Precious metals have outpaced most other investments, by a long-shot.  The truth is that precious metals have done so well mostly because currencies have done so poorly.  If you compare gold prices to the true U.S. rate of inflation (based on the 1990 CPI), it hasn’t really gained at all.

The past means little to an investor.  It’s the future that really matters.  What are the future prospects for precious metals?  Will the favorable trends continue for precious metals?  Or, will they crash and languish for decades, like they did in the ’80s?  Only time will tell.  I’m not so sure I want to bet a big portion of my future on shiny metals.  I would prefer an investment that actually provides a return based on income.  Precious metals are only a store of value.

Bonds & CDs have Low Yields

I have shied away from bonds because the interest rates are artificially low.  So, the yields on bonds are artificially low, especially considering the risk.  If the interest rates shoot up for any reason, it would greatly devalue most bonds.  People think it won’t happen, but it just happened in Italy and it could easily happen here.  That’s a lot of reasons not to like bonds.  Even the Bond King, Bill Gross from Pimco, is bearish on bonds right now.  They aren’t the safe haven for investors they once were.

Deposit investments, such as Money Markets and CDs, have horrible rates of returns.  So do U.S. Treasury bonds.  It’s almost as if they know investors have nowhere else to go and they are taking advantage.  For me, any investment that yields less than the true rate of inflation is a guaranteed money loser.  And, the risk is higher than people think.  Banks weren’t far from a massive collapse in 2008 and they aren’t that healthy now.  The U.S. government is in even worse shape and it deserved to be downgraded by S&P.

The Bottom Line

The bottom line is that there aren’t many attractive investment opportunities right now.  There is a minefield of risks and a dismal return.  If anyone knows of a sound investment please let me know, because I don’t see any.

“The investor of today does not profit from yesterday’s growth.”

Warren Buffett – Billionaire Investor

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Can you afford to bet your financial future on advice that is outdated?

Investors are Overconfident

Image by Alex E. Proimos

I have been investing for a long time and I have seen and made plenty of mistakes.  The biggest mistake is thinking what worked well in the past will work in the future.  It’s called the Normalcy Bias and it has fooled a lot of experienced investors.

For years, financial planners have used projections of 2-3% inflation and a 7-8% investment return.  There was a time when those numbers were realistic.  In the future, they may not be.  I believe inflation is closer to 7% right now and it may rise.  Index funds have returned very little in the past 10 years and that may continue in the future.  We may face another decade like the 70s where the stock market is flat and inflation is high.

Investors aren’t expecting a decade of high inflation or low returns.

Economists are Deceptive

Another problem is that we are constantly being reassured that everything is OK with the economy, when it’s obvious that it isn’t.  Our elected officials care more about their political parties and reelection then the strength of our nation.  The banks care more about fleecing their customers and gambling with derivatives than protecting the global economy.  Not only are they distracted from their mission, they are grossly negligent in their duties.  Ordinary citizens like you and I will have to pay the price for their failure.

The reality is that inflation is close to 7%, when calculated using the 1990 CPI standard.  The unemployment rate is around 23%, when using the 1994 standard, which included short and long-term discouraged workers.  The U3 rate reported by the BLS only includes the 9% of people receiving benefits.  This makes it difficult to judge the economy and plan for the future.  The only thing you can count on is the bias will continue, because the government can’t afford to publish the accurate rates of inflation and unemployment.

Source: shadowstats.com

Never trust anything the government or their economists tell you.

The Deficit is Unsustainable

Everyone knows the federal deficit is out of control.  In fact, it has almost doubled in the five years I have been writing this blog.  While the Budget Super Committee is arguing back and forth about how to cut $1.2 Trillion in the next 10 years, the deficit is growing at $1.3 Trillion per year.  So far, we haven’t suffered any dire consequences from this reckless spending.  But, that day is certainly coming soon and likely sooner than most people expect.

Federal Budget in Summary

• Annual Revenue = $2.3 Trillion
• Annual Expenses = $3.6 Trillion
• Annual Deficit = $1.3 Trillion
• Outstanding Debt = $15 Trillion
• Unfunded Liabilities = $116 Trillion

Source: usdebtclock.org

I don’t have a PHD in Economics, but I’m pretty good in math.  And simple math tells me there is no possible way for the government to repay the deficit.  Even if they cut Federal spending in half tomorrow, it would take over 30 years to pay off the deficit.  That’s at the artificially low interest rates we have today.  If the interest rates were to suddenly shoot up near the real rate of inflation, the annual interest on U.S. debt would surpass $1 Trillion and eat up close to half of the Federal revenue.  If you add in the unfunded liabilities from public pensions, Medicare and Social Security, the budget numbers are hopeless.

There is no possible way for the U.S. Federal government to pay off its debts.

The Dollar is Declining

So far, the Feds have gotten away with overspending using two dirty little tricks.  First, they force exporting nations, like China, to balance the current account by accepting our debt.  Second, they simply print more money.  Both of these scams have consequences.  The Chinese and other nations are growing weary of our debt.  They have been quietly meeting with other countries to find a way to trade around the dollar.  We have recently lost our AAA credit rating and further downgrades could cause investors to dump our Treasury bonds.  We have been printing money like crazy and the inflationary effects are already starting to appear.  The U.S. dollar has fallen nearly 30% since 2002.

Inflation could easily reach double-digits, like it did in 1947 and 1980.

The Government is Desperate

Where will all of this lead us?  Will the Treasury Department try to inflate their way out of debt?  Will they devalue the dollar or raise taxes dramatically?  Will they try to nationalize industries or confiscate private assets?  I know this sounds unrealistic, but there are many historical precedents.  Most American’s probably don’t know the U.S. confiscated all the gold coins and bullion in 1933 and it was illegal to own gold, except as jewelry, until 1974.  People may not realize the British Pound was devalued by 30% before it lost status as the world’s reserve currency.  Most people have no idea how much exposure the U.S. financial system has to shaky European debt.

Unless we change course, it’s not unthinkable the U.S. could:

• Lose Status as the World’s Reserve Currency
• Trigger Hyper Inflation
• Devalue our Currency
• Default on Bonds and Debt Obligations

In a crisis, citizen’s rights will be trampled and private assets coveted.

Surviving the Apocalypse

OK, that’s enough doom and gloom for one post.  There are a number of ways to protect your wealth and reduce your exposure to inflation and currency devaluation.  The most important thing is to diversify from a portfolio of purely financial investments, such as stocks, bonds, CDs and mutual funds.  It is also important to diversify from a portfolio that is exclusively denominated in U.S. dollars.  Real assets tend to hold their value in times of high inflation and it will be important to own a much higher percentage if the dollar hits the fan.

Investments that could buffer inflation and currency problems:

• Real Estate
• Commodities
• Foreign Assets
• Precious Metals

It’s impossible to own the dollars without being exposed to the debt.

The Bottom Line

The bottom line is that it’s no longer practical to stick money in an index fund and expect to prosper.  Anyone who isn’t diversifying both their income and their investments may be risking a difficult future.

“Politicians say they’re beefing up our economy.  Most don’t know beef from pork.”

Harold Lowman

Recommended Reading

Don’t Quit Your Day Job - Quit Worrying about Greece and MF Global
Balance Junkie - Are Low Interest Rates a Solution or a Problem?
The Foundry (Heritage.org) – America Hits $15 Trillion of Debt

This post was featured on the Carnival of Personal Finance over at My Personal Finance Journey.  If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  It’s where all the cool bloggers hang out.

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This is the last post in a series of Money Fails.

Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort

Borrowers Wanted

To a financial institution, a profitable customer is one who frequently overdraws their account and takes advantage of the lending services the bank offers.  In their eyes, the more struggling and disorganized a person is the more money they can make off of them.

Debt is Servitude

Even though debt is marketed as a status and convenience product, the truth is it’s financial slavery.  But, instead of owning a person, the lender owns part of that person’s future income.  Who do you suppose came up with the concept of “good debt”?  Was it the college student who owes $100,000 in student loans and can’t find a job?  Was it the family who lost their home to foreclosure after their interest rate ballooned?  No, it was probably someone in the financial services industry.

The moral of the story is, never take financial advice from the people who benefit from your spending.  This includes bankers, insurance agents, car dealers, real estate agents and mortgage brokers.  Their advice will always be influenced by their commission.  And, their recommendation will often be to spend the largest amount possible.  Debt is a liability to you, an asset to the lender and income to the agent.  Remember that before you sign on the dotted line.

Be Your Own Banker

I know it’s becoming a tired theme here on the blog; but think about paying yourself, instead of the bank.  Think about having the ability to make your own financial choices, without relying on the bank.  Think about living a life free of worry, instead of living on the debt-treadmill.  Every debt or loan increases your financial risk, decreases your future lifestyle and reduces your chances for prosperity.

Every dollar you save and invest could turn into many dollars for your future.  It could mean the difference between keeping or losing your house.  It could be the difference between sending your kids to college or sending them into debt.  It could be the difference between a comfortable retirement or working until you die.  Banks make money from the future earnings of debtors.  Be your own bank, pay yourself every payday and create future earnings from the savings of your past income.

The Bottom Line

The bottom line is that you can’t get ahead financially, by falling into debt.  Even people who are barely scrapping by can save a little money to avoid emergency borrowing.  It’s as easy as making the choice and then sticking with it.

“Borrowing is not much better than begging; just as lending with interest is not much better than stealing.”

Doris Lessing – British Novelist

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Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort

Keeping a Budget

For people who don’t know where their money is going, can’t pay all of their bills or are sinking deeper into debt each month, a budget is a pretty good idea.  In fact, it’s critical for financial survival.  I have been there as well, but I was too stubborn to create a budget.  So, I accumulated a lot of credit card debt.  I don’t recommend the debt treadmill for anyone.  It costs a lot of money in interest and creates a lot of stress.  You are way better off with a budget.

It’s not fun to sit down and go over your expenses each month.  But, it’s an eye opener to see where all of your money goes.  And, it becomes obvious what needs to be cut to balance the budget.  The credit card statements alone can give you enough buyer’s remorse to change your spending habits permanently.

If you were lost in the forest, you would need a compass.  If you were lost in your car, you would need a GPS.  If you are lost financially, you need a budget.

Bank Overdrafts

Before they reformed the overdraft laws for banks, I know a person who used to overdraw their checking account regularly.  Two years ago, he spent nearly $1,700 on overdrafts.  Some of them happened because the banks reordered the transactions, but most just happened because he wasn’t paying attention.  One time, I looked at his statement and he had bought seven different small items in one day.  So, for a total of about $40 in purchases, he wound up with $245 in overdraft charges.  That was a pretty expensive energy drink and burrito.

It’s easy to avoid overdrafts, if you are keeping track of your balance.  If you don’t want to your balance your checkbook, you can check the balance quickly on your cell phone, before you pay an extra $35 with your debit card.  Better yet, just say No to overdraft and let the purchase get declined.  Your bank should have automatically turned off overdraft on your debit card after the reform act went into effect.  But, the banks are going around trying to convince everyone to turn it back on.  They were making billions on overdrafts and they aren’t happy about losing all of that easy money.

Late Fees & Penalties

Years ago, I paid my fair share of late fees and penalties.  Then, I decided it was a colossal waste of money.  So, I have been very vigilant in paying all of my bills on time to avoid them.  However, I still miss the car registration from time to time and those penalties are huge.  There is nothing worse than giving the bank or the government extra money they don’t deserve.

The best way I know to keep on top of the bills is with Bill Pay.  Not only can you pay bills electronically, which is faster than snail mail, you can see the last time you paid each bill.  You can even set up automatic payment of some bills, so you don’t have to worry about them at all.  Online banking and Bill Pay are a Godsend.  Take advantage of this technology.  It’s often free.

Behind on Payments

One of the saddest things I see is people who get behind on their bills.  Soon, they are facing collections, repossession or foreclosure. It’s nearly impossible for most people to catch back up once they are behind, so they can lose a lot of money.  Not to mention the hassle and embarrassment of losing your house or vehicle.  Another really important balance to keep current is for child support.  The penalties are brutal and they can put you in jail.

There is no big mystery to keeping current on payments, you just have to pay them every month.  The problems occur when the payments are too high for the income or the income stops.  Then, payments can become a nightmare.  I try to avoid payments at all costs.  All of my cars are paid off and I intend to keep it that way.  I look forward to paying off my mortgage in a couple of years, so my only monthly payments are for utilities and insurance.

The Bottom Line

The bottom line is that it’s critical to keep track of your finances in order to get ahead financially.  The less attention you pay to your account balances, the more you wind up paying to the banks.

“In the old days a man who saved money was a miser; nowadays he’s a wonder.”

Anonymous

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I enjoyed giving the interview and I am truly honored to have been selected.

Credit Card Assist

There are a lot of financial tips and some of my personal background.

Click Here: Best of the Best Blogger Interview

I hope you enjoy reading it.

Bret

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This is the fifth post in a series of Money Fails.

Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort

All Show and No Dough

Security is the Reward

Most of the wealthy people I know are more concerned with financial security than material possessions.  Sure, they have nice cars and houses, but it’s knowing they could live for many years without an income that makes them happy.  I believe it’s one of the reasons they are so down-to-earth.  They don’t have the stress and worry that people on the debt treadmill have.  They aren’t worried about losing everything, because it would take a catastrophic event for that to happen.  They have a surplus of income and they can enjoy most of the things that make them happy.

That’s my dream for the future.  I don’t need to live like a rock-star, in a mansion.  But, I do want to live without stress and worry.  I want to be able to buy a car or take a vacation, without wondering how long it will take me to pay it off.  I want to be able to wake up without an alarm clock and take a day off of work, without filling out a form.  I don’t know how long it will take before I can live my dream.  But, I do know I am getting closer each and every payday.

The Mountain of Wealth

One thing I have noticed about wealth is that it’s like pushing a heavy rock up over a mountain.  It takes a lot of effort to push it up the front side, but then it starts to roll down the back side almost by itself.  I still remember how long it took me to save my first $5,000.  It took almost 4 years and it was painful saving that $100 every month.  But, it seemed to go from $5,000 to $10,000 in the blink of an eye.  Not only was I putting more money away, but the money I had already invested started to grow.  Now, I save more every month than I used to save in a year.  And, the interest I earn doubles that amount in a good year.  The hardest part is getting started and having faith your savings will pay off.  The easy part is when your principle starts to double a couple of times.  That is when you know you are on your way.

The Bottom Line

The bottom line is that every dollar you spend on bling is a dollar you won’t have to power your future.  And, every dollar you go into debt, takes a couple of dollars to dig back out.  If you really want to impress the world, power up your investments, instead of your loans and credit cards.  Buy the bling when you can afford it.

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.”

Will Smith – Actor and Entertainer

Recommended Reading

Watson Inc. - Is Saving More Important than Investing?
Online Investing AI Blog - The One Thing That Buys Happiness
Life and My Finances – 5 Reasons why Immigrants are more Wealthy than You

This post was featured on the Carnival of Personal Finance over at Sustainable Personal Finance.  If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  It’s the toughest collection of financial articles west of the Pecos.

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This is the fourth post in a series of Money Fails.

Money Fail: Broke on Thursday
Money Fail: Dead End Job
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The Conscience of a Deadbeat

I had someone show up at my apartment on vacation claiming to have lost their wallet.  Normally, I take people at their word, but this person owed money to everyone we knew.  She cleared customs and got on a plane, so I assume she had some form of ID.  When we lent her $150, I considered it a gift, instead of a loan.  I knew she wouldn’t pay us back and she didn’t.  This is the mindset of someone who shirks their debts.  They have no problem lying or taking money from others.  They feel entitled to money that doesn’t belong to them.

Borrowing without repaying is a lot like stealing.

The Lifestyle of a Debtor

Being heavily in debt is about as close as a person can get to modern day slavery.  Much of their future income goes to service the debt, which leaves little money to enjoy for themselves.  Even after the payments are made, the debt often grows under its own interest and new spending.  It can seem nearly impossible to shed the burden.  Some debt, such as tax liens and student loans, can’t be discharged in bankruptcy.  So, they can literally follow someone to the grave.

Here are some of the degrading things debtors face.

• Wage Garnishments
• Subprime Credit Rating
• Harassing Phone Calls
• Lawsuits and Judgments
• Collection Agencies
• Foreclosure and Eviction
• Fines and Repossession

Ignoring debt only makes it worse.

Making Wiser Choices

How do people eliminate their debt?

• File for Bankruptcy
• Refinance with Home Equity
• Transfer Balances
• Debt Management Services

All of these popular options have one bad thing in common; they don’t change the spending habits.  Unless someone lost their income, got divorced, experienced an illness or suffered a catastrophe, they probably spent themselves into debt.  Unless the spending problem is addressed, debt will always be a problem.  Even worse, most of these options don’t eliminate the debt, they only shuffle it around.  This is more of a problem than a solution.

Shuffling debt is not the same as paying it off.

Taking Control of Debt

When it comes to paying off debt, the important first step is accepting personal responsibility.  Every excuse or denial allows a reason to avoid dealing with the debt.  Even if the bank changes their terms and raises the interest rate, they aren’t the ones who borrowed the money.  They aren’t the ones who need to pay it back.  When Citibank did this to me, it made me so angry I decided to stop doing business with them.  So, I cut up their card and paid it off.  I realized I had become too comfortable with the debt and allowed them to take advantage of me.

Blame is the opposite of responsibility.

Tasting Sweet Success

Nothing is quite as empowering as paying off a large amount of debt.  I have done it and I can say with all honesty, it’s an amazing thing.  It’s hard to describe how it feels to make the final payment on a debt that once seemed insurmountable.  It’s like climbing a mountain, winning the lottery and unshackling chains, all in one moment.  It took a dedicated effort over many years, but it was well worth it.  I only wish I had of avoided that debt in the first place.

We hold the power to eliminate our debt.

The Bottom Line

The bottom line is that a debt is a responsibility.  Whether someone owes a bank or a friend, their willingness to pay it back is a sign of character.  Their care and caution to stay out of debt is a sign of intelligence.

“Home life ceases to be free and beautiful as soon as it is founded on borrowing and debt.”

Henrik Ibsen – Norwegian Playwright

Recommended Reading

Magical Penney - Debt in the UK
Barbara Friedberg - How to Get Rid of Debt; Start Here
DINKs Finance - Credit Card Users Anonymous

This post was featured on the Carnival of Personal Finance over at Beating Broke.  If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  This post was selected as the Editor’s Choice.

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