Do You Have What It Takes To Be Debt Free And Financially Successful?

Posted March 28th, 2012 in Financial Freedom by Jeremy Waller

No. You probably don’t.

You see there’s a reason that the majority of people are in debt. There’s a reason why the average amount of credit card debt per household is $15,956.

There’s a reason why the average American consumer has a total of 13 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, and bank cards) and installment loans (auto loans, mortgage loans, student loans, etc.).

Debt is a way of life that most people are accustomed to. It’s driven by a materialistic mindset that has no concept of delayed gratification.

Most people don’t think about how much something costs. They just think about if they can afford the monthly payment.

Delayed gratification is a concept that is lost on most people. Would you be willing to live on nothing for the next two years so that you can live free of financial pressure for the next 30? Well, most people wouldn’t.

The median household income in the U.S. in 2011 was $49,445. That means there are a lot of people living on less than $50k per year.

If your household income is $75k per year, could you find an extra $2,000 per month in your budget? You can’t? Then how does half of the U.S. live on $50k or less per year?

If you could, do you know how drastically different your finances would look 2 years from today?

For the average American, that would pay off all your consumer debt and give you a fully stocked emergency fund.

If you’re already debt free, investing an extra $2,000 per month could go a long way towards building wealth or generating passive income.

If you invested $25,000 per year in a vehicle with a 10% yield – which isn’t terribly difficult to achieve with high yield dividend stocks or real estate investments – and then re-invested the proceeds for 10 years – you would have nearly $400k that throws off $40k per year in passive income. And that’s not even counting any capital gains.

Oh well 10 years is a long time. Is it? Unless you’re in your mid 50s I can almost guarantee you that you’ll be working longer than 10 years.

Someone in their mid-20s, like myself, could retire before they were 50.

All this goes back to delayed gratification.

If you don’t have the discipline to live below your means and delay some of that pleasure, then you can look forward to a life of debt and late retirement (or possibly no retirement.)

It seems completely asinine to spend like there’s no tomorrow when you can achieve financial freedom from just one or two years of sacrifice.

Could you imagine not having to worry if you lost your job? Could you imagine being able to pay for your kids’ college without taking out loans? Could you image being able to travel to all of those places you always wanted to visit? Could you imagine being able to generously give to someone in need?

Many people give all of that up because they aren’t willing to sacrifice in the short term.

Giving up things may not feel good today, but isn’t it worth it for a better tomorrow?

What’s your view on all of this?

Sometimes It’s The Simple Things in Life

Posted February 21st, 2012 in Financial Freedom, Frugal Living by Jeremy Waller

There’s the saying that the best things in life are free.

Recently we’ve cut out budget way back to help meet some of our financial goals this year. That means our fun budget is pretty thin right now. But that didn’t stop us from having a great weekend. Continue Reading »

A Financed Lifestyle is No Lifestyle At All

Posted February 9th, 2012 in Financial Freedom by Jeremy Waller

The following is a guest post by American Debt Project.

I was looking at my credit card today (the one with the nearly $18,000 balance) when it hit me. I finally saw my credit card as something other than just a method of payment. My credit card has been my chief enabler, lifestyle financier and traveling companion for way too long. This 85.60 x 53.98 mm plastic card has been the one thing I have carried around with me without fail, from college, to out of college, to out of country and across state lines.

Sure, I guess other things in my life have been constant for that long, but nothing has had the consistency with which I have spent money using this credit card. I have the same cell phone number but I have switched providers. I’ve had different cars. I’ve held several different jobs. And in all that time, I’ve carried around the same credit card, knowing its steadfast availability would carry me through any new or unexpected situation that might come up.

My credit card kept me in denial. I hid from my problems. I denied that I didn’t know what I was doing with my life. I pretended like I was figuring life out and moving along in a positive direction, when the truth is I spent quite a few years simply idling.

I’m saying my goodbyes to my crutch and I’ve been walking a lot taller (and harder) knowing that I only have my own resources to rely on. I don’t have the false sense of security that my credit card provides, I have a true sense of where I stand because I know exactly how much I can spend on my bills and expenses each month without incurring new debt.

Breaking the Credit Card Crutch

I no longer bring my credit card if I am going out to dinner or drinks or shopping. I’ve cut all of those activities down, but when I do go out, I bring cash or know my spending limit on my debit card. If my spending limit for that day is $40, I only spend $40. If I tried to set that limit for myself with my credit card, I would blow right past it. “$46.81 is really good! I only went $6.81 over budget!”

But the problem is if you go $6.81 over budget for every meal, every grocery trip or every new T-shirt, then you really don’t have a budget. It’s not a budget if you silently tell yourself a number and then proceed to completely ignore it as you plunk down your credit card for whatever you feel like you absolutely must have at that moment.

It’s a never-ending cycle.

You really want to spend less, you’re really trying to spend less and yet you find yourself still using your credit card to fund your lifestyle.

So how do you move on?

A New Kind of Lifestyle: Conscious Behavior

It’s not easy to change a lifestyle when it’s the only lifestyle you’ve known. It might seem like cutting out travel, meals, and consumer items will lead you to a life of austerity. But a financed lifestyle is no lifestyle at all: you’re living beyond your means with little to show for it.

I know it’s fun at the time, but paying back debt is a lot less fun. I spent the first eight years of adulthood financing my lifestyle. Call me a slow learner, but I’m finally changing the patterns that took me so long to identify.

I was interested to see that Ramit Sethi (of “I Will Teach You To Be Rich”) doesn’t allow people with credit card debt into his Dream Job course or any other paid course. That kind of makes me feel like a leper, but he makes a very good point. Here’s a conversation from Twitter:

As Ramit says, there are behavioral reasons for being in credit card debt. Figure out what behaviors are keeping you in credit card debt and cut all of them out. Getting out of debt is the first priority of anyone who wants to get their finances and future potential in order. There are many, many actions to follow, but let’s get this first one figured out before anything else.

American Debt Project is a blog about paying off debt and understanding the patterns and behaviors that get Americans into debt in the first place. I also blog about income inequality, investing and the fascinating dynamics of living in Los Angeles and Southern California. If you’re changing your lifestyle, check out 25 Activities Better than Shopping.

The Importance of Short Term Financial Goals

Posted December 20th, 2011 in Financial Freedom by Jeremy Waller

The Importance of Setting Short Term Goals

Good financial stewardship isn’t conceptually difficult. You don’t need a PhD in advanced mathematics to put together a budget. You don’t need to be a stock broker to understand how to invest and save for retirement.

If that’s true, then why do so many people struggle with their finances?

It’s because 90% of the battle is mental. For some, they can’t separate their emotions from their finances. For others, they get so overwhelmed that they just refuse to deal with money.

You can’t address financial problems without also addressing the root of the issue. Continue Reading »