Seth Godin, one of the premier marketing gurus of our time, recently wrote a post for “college grads or just about anyone.” I have read a few of Seth’s books, including a personal finance book he wrote, and have always had a lot of respect for him. He is a great marketer, but more importantly he really seems to be a honest guy trying to do the right thing. He has taken the long-term approach to doing things and it seems to have paid off for him.
Anyway, to his advice:
“Only borrow money to pay for things that increase in value.”
He goes on to say the three main things should be your business, your house, and your education. I love that he says this with the common thinking across our country that a car payment is something you can never escape. And that is just the beginning, then you get into loans on your living room furniture, and then - the worst - credit card debt.
I am excited to see that Seth is using his platform to get some valuable lessons out to his readers. It is one that people can never hear enough, hopefully they will heed his advice.
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This is a reprint of an article I wrote for GetRichSlowly a week ago…
John D. Rockefeller founded the Standard Oil company back in 1862. He was also the first to become a billionaire, and was one of the richest men to ever live. I am sure many people today wish they could have walked in his shoes. If, somehow they could, I think some would find it to be eye-opening.
How could I possibly be richer than John D. Rockefeller?
With as wealthy as he was, he could have had anything that money could buy. But what a few hundred dollars may buy today, couldn’t be bought with millions 150 years ago.
Today, we have central heating and air conditioning, cars, planes, Tempur-Pedic mattresses, iPods, and millions of other gadgets. Even Rockefeller in his day couldn’t buy air conditioning. Maybe he had 15 people fanning him on a hot summer’s day (because he could afford it), but I would rather have air conditioning. He probably had chauffeurs to take him by horse and buggy all around town, but I would much rather be riding in a 10 year old Chevy. Wouldn’t you?
So, if we change the way we think of “wealth” and consider our standard of living and compare it to Rockefeller’s - I would say we are doing pretty good. In fact, I would go as far to say the majority of the U.S. lives an all-around more “comfortable” life than Rockefeller did. Who then, is actually richer?
How much does it take to be happy?
I have heard that if your household annual income is over $50,000, then you are in the top 1% richest in the world. (Find out with this tool)And if we can agree that most of us are living a more comfortable life than a billionaire at the turn of the 20th century, then shouldn’t we be content with what we have?
Should the fact that someone is living a more comfortable life than we are make us less comfortable? Or couldn’t we be satisfied knowing that we live a more comfortable life than 99% of the world or than the richest man 150 years ago?
And maybe we aren’t complaining - maybe we are just using our credit cards instead? Do we really need all the junk we are buying or are we forgetting how good we actually have it?
Why not keep up with the Joneses?
So, what is the point with all this? Why spend energy trying to be grateful for the things we have? Why not just try to keep up with the Joneses?
- Life is far more enjoyable when you are grateful. Grateful people divert their energy to seeing the good things they have been given rather than focusing on what they don’t have. This alone makes them much happier and far more enjoyable to be around.
- You can save a lot of money. When you are thankful that you have a car rather than having to ride the bus everyday, it makes it a lot easier to break the habit of buying a new car every year. This can apply to anything - HDTV is great, but so is COLOR TV. Remember when that was the new break-through technology?
- Forgetting about the Joneses can set you free. Doing things to impress and appease other people is a dangerous trap. So many people voluntarily become “puppets” to those they are trying to impress - trading control of their lives for temporary social approval. Having been enslaved by it for years, I suggest forgetting about what the Joneses think. They are overrated anyway.
- You can actually ENJOY the things you have. Everything loses a bit of its appeal as we get used to it. From a new pair of shoes, a brand new car, a spouse, or anything else - they are all exciting while we are anticipating them. But, once we have them for a while, they just aren’t as exciting as they once were. By genuinely appreciating it and focusing on the benefits of it rather than the “greener grass” elsewhere we can truly enjoy what we have.
“It’s not having what you want, It’s wanting what you’ve got.” -Sheryl Crow
I don’t say all this to suggest that we all should live like we are hovering around the poverty line. But, merely to suggest that maybe, just maybe we have it a little bit better than we think.
Regardless, whether you have 60″ HDTV and new BMW or a 19″ Sanyo and a 10 year old Chevy - be grateful. After all, either way Rockefeller would be jealous.
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I don’t normally go off on rants here, but I am getting frustrated with credit card companies. I have seen quite a few ads that say, in one way or another, that you should buy stuff (a lot of it) with your card, because YOU DESERVE IT.
What exactly is it that we deserve? To buy something that we are lusting after, that we don’t have the cash to pay for, that some credit card company is going to increase it’s profit margins by?
Why do so many Americans have such an extreme sense of entitlement? Are the ads the result or the cause of our feeling this way?
I don’t know about you, but I deserve hell. Not a trip to Fiji or a 52″ plasma TV. Thank God that Jesus gave up what He deserved, so that we could have what we don’t deserve.
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Should a Christian be in Debt?
The Bible makes it clear that being in debt is not God’s best for us. I haven’t found anything to indicate that it is a sin for a Christian to be in debt (unless of course you are disobeying God’s personal instruction for you), but Jesus came to set us free, not make us slaves. Therefore, when Proverbs says “the borrower is slave to the lender,” I get the impression that God wants us to be debt-free.
We live in a unique time, with unique challenges. We are inundated with so much advertising and marketing almost everywhere we go. The world is screaming a lot of things, and most of them aren’t in agreement with what God is whispering to us.
It is a challenge to live within your means. Especially when you see so many others living way beyond their means and enjoying the fleeting pleasures of the moment. It requires great sacrifice to see long term and to think beyond what our flesh wants right now.
Debt is NOT normal
I am not going to go on a tirade against credit cards or car loans right now, but we have got to start understanding that debt is not normal. Just because most of society calls it normal and good does not make it either of those.
Isaiah 5:20
Woe to those who call evil good, and good evil;
Who substitute darkness for light and light for darkness…
Just because everyone else is doing it, does not make it right!! God’s principles, regardless of how few people follow them, should be our guide. Not the noise of society.
Debt is Slavery
Every time we enter into lender/borrower agreement we are actually entering into a master/slave agreement.
Proverbs 22:7
The rich rules over the poor, and the borrower becomes the lender’s slave.
Just as there is a bondage that comes from being in debt, there is a opposite and equal freedom that comes from being liberated from it. I am still working on this one myself. I am doing everything I can do by being disciplined with my money and being the best steward possible. And I am trusting that God will do His part.
He wants to see us liberated from the slavery of debt more than we do. By doing our part and asking Him for help a lot of power is present to break us out of the bondage of debt.
Being Debt-Free isn’t just for us
Whether God wants everyone to be a millionaire, I can not answer. But I do know that he wants all Christians to prosper.
Psalm 35:27
…And let them say continually, “The LORD be magnified,Who delights in the prosperity of His servant.”
He wants us to thrive and use that which we have been blessed with to bless others. He says, we will lend to many nations and not borrow. In order to lend to others we need to get ourselves in a solid financial situation that will allow it.
That said, we need to start giving no matter what our situation looks like. It is easy to say, “Oh, I will give when I have more money to give.” God wants us to give when we feel like we have nothing to give. It is a true step of faith when you give before you have an abundance.
Luke 12:41-44
And He sat down opposite the treasury, and began observing how the people were putting money into the treasury; and many rich people were putting in large sums.
A poor widow came and put in two small copper coins, which amount to a cent.
Calling His disciples to Him, He said to them, “Truly I say to you, this poor widow put in more than all the contributors to the treasury;
for they all put in out of their surplus, but she, out of her poverty, put in all she owned, all she had to live on.”
Sowing seed for the harvest
The Bible makes it clear that we will reap what we sow. Once you start thinking of that like a farmer it makes it a lot easier…
I am getting ready to plant some tomato, lettuce, herbs, and a bunch of other seeds. I know that if I don’t drop any seed in the ground, I will not get any of the harvest in a few months. But if I do plant those seeds, I can count on receiving a bunch of tomatoes, peppers, lettuce and everything else that I sow.
We need to look at every dollar we have as seed. We can either spend it on ourselves or we can sow it into the Kingdom of God (our local church) or sow it into someone else’s life.
Galatians 6:7
Do not be deceived: God cannot be mocked. A man reaps what he sows.
It is okay to expect a harvest for what you sow. God said it. We can trust Him. Let’s make it a point this week to sow a little bit more seed, and just see what God does.
Technorati Tags: Christian, get out of debt
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Debt Snowball: Dave Ramsey’s method for getting out of debt
Creating a debt snowball is Dave Ramsey’s preferred method of getting out of debt. The strength of using this method is that it focuses on the behavioral side of finance rather than the mathematical. Since we are not robots that always do exactly what we know we should, I recommend this method for most people.
These are the simple steps to snowball your debt…
- Create a list of all of your debts: credit cards, car loans, student loans, mortgages, etc…
- Next to each one write down the total balance owed.
- Re-order these from smallest to largest debts (use Excel or Google Docs to make this simpler.)
- Pay the minimum payment on all of the debts - except the smallest one.
- Put every extra dollar you can find towards paying off that smallest debt.
- Celebrate like crazy when you get that first debt paid off.
- Take the amount you were paying towards the first debt and put towards the next smallest debt. Do this until this one is paid off.
- Celebrate again!
- Continue this process until each one is paid off.
What you will find is that each time you pay off a debt, the “snowball” gets larger. Since you are taking the amount you used to pay off the first debt and putting it all + the minimum payment that you were already paying to the second together, you are making more of an impact towards that debt. Each time you pay off a debt, the snowball gets larger and more powerful - which is great, because it just increases the speed that each debt gets paid off.
The numbers don’t lie
If you are like most logical people out there (like me 
) you are probably saying, “you could save more money by paying the highest interest rate cards off first.” You are right - calculators do not lie and they will give you the correct logical answer. Paying your credits cards off starting with the highest interest rate to the lowest is “mathematically” the best idea. But, let’s look it at from another angle:
If we DID what we knew we SHOULD do 100% of the time, using the mathematical approach would be best. But, we are emotional beings and even the most disciplined among us still have emotions and are affected by them.
Computers use logic 100% of the time. Humans do not. We were not created to. We make decisions based on our emotions. We get let down, we get encouraged, we feel motivated, we get scared, we feel hopeful, we feel like quitting. These are all emotional states that each one of us could feel on any given day!!
Knowing that we are emotional beings, the key is to use our emotions to our advantage. Just like jogging with the wind at your back, it is a nice little boost to use our emotions to give us a little edge. So, rather than tackling the debt like a math problem, we can tackle it in a way that will give us emotional boosts! After all, isn’t it better to get out of debt and spend an extra $100 in interest than to give up half way to our goal because we were discouraged?
Status Bars and Debt
Ever wonder why there are status bars showing you the progress of the item you are loading on your computer? It is to keep us from going crazy while waiting 10 minutes for the computer to do what we told it!! Even though that little bar moves slowly sometimes, it is encouraging because we know how much longer we have to endure the torture of waiting.
It is extremely DE-motivating when there is no end in sight. Without that “light at the end of the tunnel” it can be hard to keep going. That little bar that shows us the progress that we have made gives us hope. What if there were no status bars? Or what if you saw no progress on the bar until you got to the 70% loaded point? Would you keep waiting or would you reboot assuming it there was a problem?
When on the phone, have you ever been waiting on hold for 15 minutes wondering, “Did they forget about me? Should I wait it out? What if the never remember that I am on hold?” Do you cut your losses or wait it out having no idea when they will pick up, or if they ever will?
This is the advantage of using the snowball approach to paying down debt. If you focus on the highest interest rate, it could be months or even years before you reach that first milestone. Would you have the endurance to keep going that long without reaching that first milestone?
It is a wonderful feeling to be able to celebrate your first milestone - paying off the first credit card is a blast! Speaking from experience, I was fueled with motivation after reaching that first milestone. The fact is that most people are strengthened by seeing even a small goal accomplished. I love the snowball method because it focuses on reaching these small goals first and using them as motivation to keep going. Let me know how it works for you!
If you are having trouble organizing your debt snowball, you may want to consider Debt Snowball software.
Technorati Tags: Debt snowball, Dave Ramsey
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Start Saving Early
Duh. That is SO common-sense. Well, it is. But for some reason, I used to be surprised year after year at how hard Christmas hit my wallet. We know its coming. It is the same day every year. We can’t run from it, so we might as well save up for it. Sometimes these simple things take a while to sink into my skull, but I finally figured out that by saving up for it, I was a lot more likely to stay out of debt. Often times it is the simple things that have the biggest positive impacts on our finances. It is mid-November. Let’s start saving.
Create a budget for how much you will spend
Why after every Christmas are most people looking at huge credit card bills wondering, “Where did all that money go?” It is no different than any other area of our lives, if we don’t have a leash on it - it will be out of our control. Think of your money like your neighbor’s dog - Oh yeah, your neighbor thinks he has his dog under control. But every time he has the dog in the front yard it runs over and jumps on you. He thinks he has control of the dog, but I am sure if he had a leash on the beast, he wouldn’t let it jump on you when you are on your way to work. Of course you probably are not going to tell him that his dog is terribly behaved, just like my checkbook isn’t going to tell me that I have no control over my money. In order to have control you have to monitor it (dog or money) or have a system in place (fence or budget) that will do it for you.
My wife and I started doing this a couple years ago, after we realized how out of hand our Christmas spending was getting. We just sat down and made a list of everyone we were going to buy a gift for that year. We wrote down (actually we used Excel) how much we were going to spend on each person and totaled it up. We took this total figure and worked backwards from Christmas to see how much we would have to save each week in order to have enough. This helped us get motivated to start saving early.
Stick to your budget
After all, that is why you created it in the first place - right? If you decided to spend $20 on Billy Ray, then you have to be vigilant not to buy him that $50 toaster that is just glistening in the florescent light of the department store. Don’t get me wrong, there is nothing more fun than giving great presents, but you have to be honest with yourself and others about what you can spend. Trying to spend $100 on each person’s gift when you only have $10, isn’t being truthful and it is going to hurt you more than anyone else. This is the whole “keeping-up-with-the-Joneses” disease that is rampant these days. I think most people you are buying gifts for would want you to give from your heart, rather than under compulsion to spend huge amounts of money that you do not have.
Get Creative
When you are strapped for cash you have to use creativity to get the upper hand. A creative gift can often beat out the most expensive gift. I am not talking about, “it’s the thought that counts, dear.” I am talking about meeting a unique need or desire for that person. To give the best gifts you need to know about the recipient. Listen to what they talk about. Listen for clues as to what they are interested in. It probably isn’t a necktie or a picture frame. Shop accordingly.
Shop Online
A lot of brick-and-mortar stores can’t compete with the prices of the online stores even with the additional shipping costs. If you decide to do a bunch of shopping online this year, Amazon.com has a deal where you can ship as much as you want for a year for $79. And they are not just a bookstore anymore, they have everything from electronics to candles and you can even buy an engagement ring from them.
Start Shopping Early
I love the convenience of online shopping, but I also love going to the malls in the heart of the Christmas season. Granted, the parking normally isn’t fun, but I love Christmas (ask my wife and she will tell you how annoying I am - i.e. Christmas music starts November 1st) and it just doesn’t seem like Christmas to me without spending some time in the malls during the season. Since department stores start breaking out the Christmas decorations after the 4th of July sale (slight exaggeration, but not much), you have plenty of time to get started early and have the “spirit of Christmas.”
The key is to use early shopping to your advantage. Having your budget in mind, it gives you a lot more time to think about WHAT to buy everyone and gives you more opportunities to catch things on sale.
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This is a guest post from Linda Bustos and I think it ties in a bit with what I have been talking about recently with status symbols…
Credit cards may be a more recent phenomenon, but the concept of borrowing from others goes back a long time. The Bible mentions borrowing and lending many times, but credit cards are never explicitly covered because, well, they didn’t exist. We know the Bible teaches it’s wise to avoiddebt whenever possible, but it doesn’t call borrowing money a sin. Certainly for the poor (whom God loves) there were times when they had to borrow from others, and there may be situations when we do need to whip out the plastic and borrow from the bank.
But it’s so easy to misuse credit cards and fall into a debt trap. Because that piece of plastic looks the same whether it has $50 or $15,000 owing – we can forget how much we’ve spent in a given month, or we could just flat out go crazy on a spending binge figuring it can just be paid off later. Really the issue is not how we’re using the credit card but WHY. Is it for necessity or luxury?
If you feel you have a spending problem, there are practical things you can do to ensure you don’t go over a certain limit, including asking the credit card company to reduce your limit, using a pre-paid credit card or handing over your credit card to your spouse for safe keeping. When these measures are not enough, you’ve heard Jesus’ words: “If your hand causes you to sin, cut it off.” Basically, if you can’t control your hand, make it impossible to use your hand! And it implies that you’ll lose something of great value to protect yourself from a much worse situation.
If owning a credit card makes it too easy for you to spend what you don’t have on useless things that you don’t need, cut it up. You have to “count the cost” of doing the right thing, but in this case, you should count the savings. Of course, merely getting rid of your credit card doesn’t solve the problem if the excessive desire for things remains. God’s called us to be free from sin, so if you find that you have an inordinate craving for the material – you need to get to the root of why that is. It may be that the world has seduced you with its glamour, or you are buying things to numb
you from emotional pain, or you just have a lack of self control. No matter what the driving force, the answer is we need to trust Christ in us to fill us with Himself so we don’t walk after the desires of the flesh. Get your eyes on God’s Word, meditate upon it and pray it through. Accountability partners also help. But in our affluent and hedonistic society, we need to be constantly washed by the Word to have our minds
renewed so we’re not vulnerable to the world’s temptations.
Linda Bustos is an editor with Creditor Web, where you can learn about credit cards, and find out how long it takes to get out of credit card debt with the credit card payoff calculator.
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What do I mean? I mean that the raise you are hoping to get is not going to fix your financial squeeze. I mean if you were making what your boss is making, it will not fix your financial squeeze. There is a famous principle that expenses rise to meet income, so if you are having a hard time paying your bills or making a dent in your mountain of debt money is NOT your answer.
I know it may sound like this is bad news, but really this is great news. This is because money problems (difficulty paying bills, paying off debt, getting into debt, difficulty saving) are really behavioral problems. Since they are behavioral problems they can NOT be solved with money.
People seem to think that they can make their problems go away with more money, but really it just covers them up. This is apparent with all of the millionaires who file for bankruptcy. They have more money than most people can dream of, yet they also have a spending problem that is far stronger than their income.
How do you fix behavioral problems? Well, you start just doing one small thing at a time. It is a lot easier to update your house by working on one room at a time than by tearing up every room all at once. You can start by learning to not spend more than you make.
There are practical things that can be done to help out, but I think nothing will be more valuable than just taking a long hard look at where your money is going and asking yourself, “do I really need this?”
We say we NEED all this stuff to survive and yet 100 years ago most of it didn’t even exist yet. I think when we are honest with ourselves we can see that a lot of our NEEDS are really just screaming, yelling, panicky WANTS.
It is a tough pill to swallow. Go visit a third-world nation and swallowing it will become much easier.
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So, you spend more than you make - you are not alone
This is a tough one. Spending more money than you earn is common practice in the U.S., and increasingly in other countries around the world. Credit card companies have simplified the process so much that it requires quite a bit of discipline to live only on the money you make. This is a difficult task, but it is the first step (and most crucial) for most people to financial freedom. Just like there are more than one way to “skin a cat” or to quit smoking, there are multiple ways to spend what (or less than) you earn. Listed below are the steps that I took to make it happen for me.
- Believe that you can. This is so important, because it is this belief that is going to carry you when you feel like quitting. Find people who have gone from overspending to living within their means and get encouraged by their stories. I am not sure what made me decide that I needed to change, but I had read enough stories of people changing their financial picture that I truly believed that I COULD DO IT. If you do not yet believe that it is possible, keep reading and listening to success stories until you believe that you can do it. When you get discouraged and feel like quitting, go over the stories again and encourage yourself. The motivation gained from other people’s successes are going to be one of your main keys to succeeding, because if you do not BELIEVE that you can do it, you are NOT going to make it.
- Eliminate the temptation to spend. I don’t really have an opinion about cutting up credit cards, because to me it is kind of like throwing away a smoker’s pack of cigarettes. It is pretty easy to go buy another pack of cigarettes and it is almost just as easy to get another credit card. Obviously, the key here is to have a burning desire to want to curb your spending. It is not a bad idea at all to cut up the credit cards. I think I did cut up my credit card (luckily, I was too foolish to know that you could have more than one credit card at a time). Romans 13:14 says to,”make no provision for the flesh in regard to its lusts.” I did this by not going to the mall and not going out to eat. These were my two big areas where I spent/wasted the most money. Especially with the case of the mall, I could eliminate most of my temptation just by not being there.
- Find other areas to minimize expenses. If you haven’t realized it yet, you will eventually realize that expenses rise to meet income. I started looking for other areas in my life that I could cut back on and really found quite a few:
- I shopped around for car insurance, if you have never shopped around for it, you will likely be able to save quite a bit.
- I stopped wasting money on groceries. Basically, I thought about my purchases more and made sure that I ate what I bought, rather than buying too much and having to throw away the spoiled food.
- I examined my phone bill and discovered that a cheaper plan would work just as well for me.
- I started monitoring my electricity usage. Turning off lights when I left a room, not leaving the TV on all day, etc. I never got a dollar figure on this one, but I am sure it helped.
- I started asking myself every time I wanted to purchase something, “do I really need that?”
By following these simple, yet difficult steps I went from spending about 125% of what I made to 85%. If you are over 100%, make that your first goal: not getting into anymore debt, then your next goal should be to eliminate your debt and move to well below 100%.
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[tag]Expenses rise to meet income[/tag]. This is the gist of [tag]Parkinson’s law[/tag]. This is the reason that a couple months after most people get a raise, it feels just as tight financially as it did before the raise.
We create the additional expenses when the funds are available. Not on purpose, of course, but on accident. As long as the money is in our pocket we can usually find somewhere to spend it.
We teach our kids to put the money in the bank, because we know that if they can’t get to it they will save it. This is the trick to saving money and believe it or not, it works for adults too.
Without an intentional effort, houses, desks, kitchen sinks naturally get messy and cluttered. We have to take action ON PURPOSE to keep things clean and organized. The same ON PURPOSE effort needs to be made to keep our expenses BELOW our income.
It is a profoundly simple concept, but ironically some of the simplest things in life are the most difficult.
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