Bankruptcies
On October 17, 2005 a new bankruptcy law went into effect. It makes
discharging unsecured debts almost impossible. Immediately after the
new laws went into effect, BK's dropped to 30%. But today, over a year
after the new law, they are still back on an ever increasing track.
People have to have what they want. They can not wait to get the
necessary money. We call this "consumerism". Don't you be so foolish.
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Absence of Goals
"In the absence of clearly defined goals, we are forced to concentrate on activity, and ultimately become enslaved by it." By Charles Coonradt
This quote should spur each of us on to the importance of clearly seeing where we are going. If we do not have a spending plan, we have not way to see how well we are doing. If you were a captain of a ship, you need two stars to guide yourself by, one as to where you have been and one for where you are going. Just a thought.
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Why There is No Such Thing as Savings
If you’re like most Americans, you’ve probably had the following
conversation with yourself, “I’ll begin putting some serious money away
just as soon as I get my debt paid off and I have some extra cash on
hand.” Sound familiar? Sure it does, especially if you’re struggling to
pay the bills.
But
isn’t it funny how the debt never seems to go away and the “extra cash”
is never on hand? You can’t possibly be expected to put money in
savings under those conditions, right? Well, you can’t if you believe
the notion that “saving” is something you do after everything else has
been taken care of or if you have “extra” cash.
Many people
think “saving” is something only the wealthy can do because they have
lots of extra money lying about. But most of America’s affluent were
not born with silver spoons in their mouths. According to the book The
Millionaire Next Door, eight out of 10 wealthy Americans accumulated
their riches themselves and they were largely able to do so because
they learned early on the art of paying themselves first. As George
Clason teaches in his book The Richest Man in Babylon, the rich get
wealthy and stay wealthy because they have learned how to keep a part
of all they earn for themselves. Before a wise man pays his creditors,
before he buys goods and services, before he indulges his children, he
pays himself first.
How does a person learn such an art? It may seem hard when debt is looming, but it’s easier to apply than you might think.
First,
you must change the way you look at the idea of “savings.” At Money
Mastery, we teach that there really is no such thing as “savings.”
Savings is actually just “delayed spending,” because after all, all
money will be spent, either now or later. If you begin to look at
savings in this way, you will realize that saving is not a special
thing that you do “if you have enough extra money left over” but a
monthly obligation you must pay to yourself, just as you would pay any
other debt you owe. Since savings is a form of “spending,” you must
treat it as seriously as you would any other kind of spending.
Second,
you must track your money carefully so you can see where you are
wasting money. The Harbrechts* came to Money Mastery desperate to keep
their daughter in college, complaining that they were very frugal and
could not find the extra $200 a month they needed to help her stay at
the university. As they began tracking, they found they were wasting
$187 a month on junk food. Once they made that discovery, they
immediately changed their spending habits and were able to send their
daughter the money she needed to continue her education.
How
much money will you find you’re wasting when you begin seriously
tracking your spending? We can guarantee it will be at least 1 percent
of your monthly income.
Pay Yourself First...It’s Simple.
Step 1:
Set up categories for spending for such things as groceries,
transportation, and debt. Be sure to create a category for “self pay”
or “savings.”
Step 2: As you track your spending look for wasted or “found” money.
Step 3:
Before you make a debt payment or buy food or other items, deposit this
“found” money in your “self pay” or “savings” account. Anybody can find
at least 1 percent they can set aside immediately. For more help in
tracking your spending, register for a free account and download free
documents and software. You can also visit our store.
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Paycheck To Paycheck
Anyone can spend money, even a 4 year old. It takes a lot of wisdom,
courage and discipline to put some surplus money away for something
more important in the future. Soon, as the reserve balance grows to
exceed your monthly spending amount, you can now be one month ahead
instead of living paycheck to paycheck.
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Instant Forgiveness
A scientist came up with a rating for earthquakes. If one registers 1.2 on the Richter scale, this is a small earthquake. You may not even feel it. But when one hits the 7.4 mark, this means buildings come down and people get hurt and even killed.
At Money Mastery, we suggest you meet with your spouse once a week and practice "instant forgiveness". If you are single, do the same. Single people treat themselves the same as a spouse so don’t think you are any different. Registering small adjustments is much better than waiting for a build up and hitting the 7.4 mark.
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Why Budgets Just Don't Work
Most people get a sick feeling when they hear the word “budgeting.”
That’s because most money budgeting programs make people feel
restricted and tied down. But “budgeting” your money doesn’t have to be
a drudgery. Now is the time to change the way you think about keeping
track of your money.
Did You Know...
National
statistics reveal that 83 percent of the millionaires in the United
States are self-made. The common thread linking these money-savvy
individuals is...you guessed it....a system for keeping track of how
much money they spend. The average self-made millionaire only spends 87
percent of his or her income, thereby saving 13 percent each year.
The
secret, however, to these millionaires saving 13 percent is that they
don’t actually restrict themselves to “staying within a certain
budget.” Instead, as Money Mastery teaches, they spend money in the
areas of their life that they have given the highest priority, then
they carefully track how that spending affects both their daily needs
and emotional wants. This is not budgeting.
Tracking vs. Budgeting
How
do tracking and budgeting differ? Budgeting dictates which areas to
cut, while tracking indicates the most meaningful areas in which to
spend. Budgeting is difficult to force oneself to do. But tracking is
an exciting adventure so long as you are spending in the right areas of
your life. Budgeting is depressing, while tracking is uplifting and
encouraging when it is done with specific goals and dreams for now and
the future in mind. Budgeting is argumentative, while tracking helps a
person make a decision in advance of the moment, leaving no room for
impulsive behavior or arguments with self or spouse.
The best way to become your own self-made millionaire is to look at the way you spend money:
- Review all your cancelled checks, credit card purchases, bank statements, cash receipts, etc. for the past year.
- With
a clear picture of your own spending patterns in mind, gather your
family members together to set goals for the way you want to spend
money in the future.
- Create spending categories that reflect
these goals. Don’t forget to create a category for savings and for
recreation, vacations, and other fun activities. But be sure these
activities do not take money from other areas that must be attended to
such as debt and mortgage payments. Be open and discuss, compromise,
and negotiate the importance of each spending category with your family.
- Allocate
enough money from your monthly income to sufficiently meet the needs of
these spending categories. Write these spending categories down, then
refer to them as spending decisions are made.
Here are some guidelines for how much money you should allocate for certain spending categories:- Payments on housing debt should be under 25 percent of your income.
- Transportation
costs eat into a huge part of your income. Add up all your expenditures
in this category and divide by your monthly income. If the amount is
over 15 percent of your income, you are paying too much for
transportation — make plans to change.
Spending and tracking
can be both pleasurable and rewarding when you know where you need and
want to spend and when. You will be able to predict how much money you
will need to retire, how much you will need in case of emergencies, and
how much you can spend for fun. Tracking vs. budgeting puts the focus
on the positive aspects of our financial lives and helps us feel
confident in the future.
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The Disease of Consumerism
Why the Majority of Americans are Sick and What You Can Do If You’re Ailing
Martine
Osterhoff* is on her way to the mall for the fourth time this week.
She’s going back to get shoes she saw earlier while shopping with her
daughter. Martine admits she’ll have to use a credit card to buy the
shoes, a card she’s already pushed to its limit, but as she tells her
husband with a laugh, “I can’t help myself, it’s like a sickness with
me.”
Martine’s problem is no laughing matter. She, like so many
other Americans, is in the habit of getting what she wants, even if she
doesn’t have the funds to cover her cravings. “With all the choices, I
just get so caught up in the possibilities,” says Martine. “Besides, I
work and pay for all my own things, so I feel like I’ve earned it.”
Gary
Praxton* feels the same way. “Last year I spent $4,000 on electronic
equipment for my home, simply ‘cause I wanted it and I’ve earned it,”
he says. “My wife was screaming at me by the end of the year, but even
then I saw ads for a CD player I wanted for my office and snuck out to
buy it.”
Martine and Gary are not alone in their relentless pursuit of clothes, electronics, music and other material goods.
The Disease of Consumerism:
Today’s
product-oriented society screams at us for attention and demands that
we buy. Americans have caved into the emotional media hype, becoming
so accustomed to spending and borrowing in order to answer
Consumerism’s siren call that they never question whether something
should be purchased. Like Martine Osterhoff, they only ask themselves
if there will be enough money to make the minimum monthly payment.
Even if there aren’t enough funds, many Americans will buy a product
anyway, driven to consume by a taskmaster of their own creation — one
born of guilt, greed, pride, materialism, and expectation. We call
this reckless spending the “Disease of Consumerism.”
This
disease stems from a lack of respect towards money, a respect that’s
been lost as a whole from our society since the ending of the Great
Depression 60 years ago. The Depression taught people a profound
respect for money and its power over life. It also taught them the
importance of self-denial and the danger of over-indulgence.
Unfortunately, as America came out of that great economic trial into
the most prosperous time in all of history, it did not teach subsequent
generations to fear and respect money as it ought. Instead, it taught
its children to hold their hands out in expectation. Because of that,
we now live in a time of great self-indulgence and very little
financial self-control.
Today’s generation, instead of fearing that it will not have anything, fears it will not have everything.
Many
people today spend money as a way to feel powerful and capable of
meeting any and all desires. The Disease of Consumerism is apparent in
our nation’s personal saving rate, which has hovered around a negative
.02 percent in recent years!
If the Disease of Consumerism is making you sick, you can do something about it:
- First, ask yourself if you may have a problem with excessive spending. Awareness is the first step.
- Second, examine your feelings about spending money. Ask yourself why you need or want and item before you purchase it.
- Third,
begin to TRACK your spending. Examine your habits over the last 12
months by looking at receipts and other expense records. These will
reveal your priorities and values. The experience will be highly
emotional and may cause you to ask, “why did I spend money for that?”
Once
you have a clearer picture of the way you feel about money and on what
you like to spend, you are better prepared to make conscientious
decisions about where money ought to be spent. Those sick with the
Disease of Consumerism don’t feel the need to make a choice, but
remember, you can have anything you want, you just can’t have
everything.
*Names have been changed to protect privacy.
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The Emotional Impact of Spending
The answer to the math equation below is simple, everyone knows it:
1 + 1 = 2
Now
suppose we represent that same equation using oranges instead. If we
add one orange to another, how many oranges will we have? Again the
answer seems simple — it should be two. But let’s suppose for a moment
that we don’t add the second orange for a while. In two years when we
come back to add it, how many will we have? The answer isn’t so
obvious. In that two-year period what could happen to the first orange?
It might rot. Maybe it will be eaten. Perhaps it will be stolen. There
are so many things that could happen to the orange.
The same can
be said of money. If you have one dollar and add another to it, you
should have two. But what might happen to your money over time? Could
it be spent, stolen, lost or ill-used?
Contrary to popular
belief, money is not a mathematical problem as simple as adding or
subtracting dollars — rather it is an emotional issue that must be
handled as such. Think back to the last time you spent money. Was the
item you bought something you needed or just wanted at that moment?
Will this spending decision have a big effect on whether you’ll be able
to purchase other things in the future? Did spending the money make you
feel guilty or did it give you pleasure? One of the most important
questions you can ask yourself is: “How does spending money make me feel?”
The
reasons people spend money often have more to do with a person’s
circumstances and the way they feel about those circumstances than with
whether there is, or is not, enough money to spend.
Following are the three most significant reasons people spend:
Impulsiveness
We
live in a world full of emotional media messages. These messages often
play upon our deepest psychological needs, pointing out all the things
we may lack. Responding to this supposed lack, many individuals spend
money without thinking, as a way to meet unfulfilled desires. The
Haywood* family are a perfect example of how emotions can trigger
impulsive spending. They loved to shop at All-A-Dollar, a bargain chain
store which sells every bit of stock for $1 or less. Purchasing little
items like candy or inexpensive toys for the children gave the Haywoods
pleasure without making them feel guilty. But once the family kept
track of their spending, they were shocked to find they were wasting
over $300 per month at the store. Most people are like the Haywoods,
trapped in an impulsive mentality that prevents them from keeping their
money.
Economic Hardship
A financial
disaster is another thing that can greatly affect feelings about money
and how it should be spent. Have you ever lost a job and had to come
home to your spouse with the bad news? What kind of an emotional impact
did that have on your family? When an economic disaster hits, spending
money can be a highly emotional issue that causes friction in marriages
and personal unhappiness.
Daily Financial Obligations
The
struggle for daily survival can also affect why and how we spend money.
Even those who are frugal and don’t spend impulsively have heavy debt
loads and excessive taxes and are impacted emotionally by the sheer
effort of just making ends meet from day to day.
Whether we end
up with anything to show for all our hard work has less to do with the
math behind the money, i.e., how much we make, but rather with how well
we understand how to deal with the emotions behind the events that can
affect our money over time.
Many people mistakenly assume that
if they only had a job where they “made the big bucks,” they wouldn’t
have to deal with these emotional issues. But a Gallup poll reveals
that all income groups from factory workers to physicians believe that
they need about 10 percent more to survive. From this we can see that
individuals making more than $300,000 a year are just as likely to be
financially stressed as those who make a modest income. That stress is
not caused from a lack of pay, but from not understanding the emotional
reasons for spending money.
When we do not understand the
motives behind our spending decisions, we are pulled in a variety of
emotional directions, spending money for all the wrong reasons and
putting a lot of pressure on our family. The secret to true money
mastery comes from defining our own needs and desires and learning how
to meet those needs appropriately. Once we do, we can then create
surplus to help others. That surplus is the absolute emotional thrill —
ultimately more meaningful than the brief excitement that comes from
impulse spending, and certainly more joyful than the terrible feelings
of fear and guilt that come from spending more than we have.
*Names have been changed to protect privacy.
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Failure
Any successful person in history has had their share of failures and set-backs. Abraham Lincoln ran for office 14 times. He won only two of them, first as a congressman and then as President of the
United States.
Thomas Edison recorded in his journal over 10,000 failures before he invented the light bulb.
Just know that you may only be 999 more failures before you reach dynamic success. Don’t give up.
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Big Picture
With the Super Bowl, comes instant replay. It is nice to see a
fantastic play over and over. And do you notice from several angles?
Contrast the view from the real player, the right tackle. He gets to
see ten square feet of grass. Of course the quarter back sees more of
the field, but he is also concerned about the opposition coming to
massacre him.
The
same exists with our finances. We need to deal with them on a personal
basis, but it is important to have a master plan that extends over all
your finances much like the blimp in the air.
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