Debt Free Living is about living a debt free life. Judging from some of the questions I’ve been getting lately I’m going to address this issue again.
Question: Why is it important to be totally debt free?
Answer: My last post used an analogy of either you are pregnant or you’re not pregnant. You’re either in debt or you’re not in debt. It is important to be totally debt free so you can eliminate all of the chains binding you.
You can never fully appreciate being free until you are FREE!
Question: Why is a car loan a bad idea?
Answer: Car loans are almost as bad as credit cards in that a car will decline in value the second you drive off the lot (usually 30%). When you finance the car you’re also financing the 30% decline in value and the life of the car is such that the average person never pays off their car loans.
Instead, the 80% (average person) will trade in their car in less than 3 years. If you take an average 5 year car loan and trade it in 3 years later you’ll be upside down on your loan. Many people than have the dealership roll the balance of the loan into the next loan.
The cycle is never ending. It is a loser investment to finance a car.
Question: Is a home mortgage ok?
Answer: The short answer is NO. However, many people make the argument that they are building equity in their home while making payments. That may be true and sometimes it’s completely false.
Currently the housing market has taken a beating. Home values have been declining. If you put no money into your home it’s tempting to walk a way letting the bank take over the home.
If you add up all your payments over the course of 30 years you’ll find you pay for your house 3 to 4 times. If you paid a hundred thousand dollars for your home today you’ll have paid in interest and payments around $300,000 + by the time you pay off your loan.
I realize some people feel they should borrow for a home. I would say, you shouldn’t , however if you do put a large amount of money down on the purchase and fix the rate for 30 years even if it’s higher.
Homes increase in value over time, but can bite you in any 5 – 10 year increment. My dad purchased a home in 1973 for $13,000 and sold it in 1989 for $49,000. By the time he added up all the money he had put into the home for upgrading and modernizing and roofs and interest he had spent he lost money.
Market timing is also a key (and how do you out-guess-the-market?).
My advice is to rent and save and stick with the CASH is King concept. You can never go wrong with cash.
David…
Thursday, February 21, 2008
Wednesday, February 20, 2008
Free Advice is the WORST
Recently I gave some advice to a friend about a debt free plan he’s working on. I don’t think he’s going to take my advice. I’m going to share the situation and my advice minus the names.
First a reminder about the 80%/20% rule. Average Americans fall into the 80% category. The 80% category are broke, owe truck-loads of money, and one or two paychecks away from living on the street.
Always strive to be in the 20% minority. The 20% minority enjoy a debt free life.
My friend is in the 80% category and had to move in with relatives to pay off bills and get back on his feet. It’s not necessarily a bad idea but the just of it is he gets to lower his expenses using the extra money to pay off all of his bills.
Here’s the problem. There is no pain in the plan. Just because you eliminate your major housing bills doesn’t mean anything if you don’t take the money you saved and pay off all your bills.
While on your Debt Free Plan you must stop all spending especially discretionary expenditures. There’s no harm in eating at home and eliminating eating out at restaurants.
Further, scale back on gifts and vacations until you’ve gotten a handle on your spending. For some of you this is pain, for others it means nothing. There’s an old saying about the definition of insanity. Insanity is doing the same thing over and over again expecting different results.
There is a little pain involved when you stop spending and begin paying off your bills. Soon you will discover your bad spending habits will go away. For some the pain of not being able to spend money (or plastic I should say) is painful until they get used to paying cash for everything.
Anyway, back to my friend. He told me he would use his tax return to help pay off bills and he planned on having another car payment. My advice to him was to eliminate all debt and take your tax refund and put it into a savings account for emergencies.
The lesson is to pay off all debt. You’re either in debt or you’re not. It’s like being pregnant. You’re either pregnant or you’re not pregnant. There’s no in between.
The same goes for Debt Free Living. You’re either in debt or you’re not in debt. You either live debt free or you don’t live debt free.
Debt Free Living is a philosophy, a way of life just like living on plastic credit cards is a philosophy/way of life.
Go for debt free living...it's a wonderful way of life!
David…
P.S. The moral of the story? When you pay for advice you’re much more likely to take the advice. When you get advice for free you’re much more likely to treat it with a grain of salt (mostly ignoring).
First a reminder about the 80%/20% rule. Average Americans fall into the 80% category. The 80% category are broke, owe truck-loads of money, and one or two paychecks away from living on the street.
Always strive to be in the 20% minority. The 20% minority enjoy a debt free life.
My friend is in the 80% category and had to move in with relatives to pay off bills and get back on his feet. It’s not necessarily a bad idea but the just of it is he gets to lower his expenses using the extra money to pay off all of his bills.
Here’s the problem. There is no pain in the plan. Just because you eliminate your major housing bills doesn’t mean anything if you don’t take the money you saved and pay off all your bills.
While on your Debt Free Plan you must stop all spending especially discretionary expenditures. There’s no harm in eating at home and eliminating eating out at restaurants.
Further, scale back on gifts and vacations until you’ve gotten a handle on your spending. For some of you this is pain, for others it means nothing. There’s an old saying about the definition of insanity. Insanity is doing the same thing over and over again expecting different results.
There is a little pain involved when you stop spending and begin paying off your bills. Soon you will discover your bad spending habits will go away. For some the pain of not being able to spend money (or plastic I should say) is painful until they get used to paying cash for everything.
Anyway, back to my friend. He told me he would use his tax return to help pay off bills and he planned on having another car payment. My advice to him was to eliminate all debt and take your tax refund and put it into a savings account for emergencies.
The lesson is to pay off all debt. You’re either in debt or you’re not. It’s like being pregnant. You’re either pregnant or you’re not pregnant. There’s no in between.
The same goes for Debt Free Living. You’re either in debt or you’re not in debt. You either live debt free or you don’t live debt free.
Debt Free Living is a philosophy, a way of life just like living on plastic credit cards is a philosophy/way of life.
Go for debt free living...it's a wonderful way of life!
David…
P.S. The moral of the story? When you pay for advice you’re much more likely to take the advice. When you get advice for free you’re much more likely to treat it with a grain of salt (mostly ignoring).
Tuesday, February 19, 2008
From Debt to Cash, the easiest way...
Every now and then I feel compelled to review why CASH is King and Debt is pain!
When you have no debt you have freedom to be generous. I remember when the bills were so big I couldn’t be generous. I couldn’t give a dime because all of my dimes went to credit card bills.
Debt free living is a way of life. Debt free living is all about a different attitude. Spending cash only and avoiding debt is a different way of thinking. Sometimes I use the 80/20 rule to describe cash verse debt.
The 80% crowd is average. Most Americans are in the 80% category. The 80% folks do what everyone else does. Most Americans are in hoc up to their eardrums!
The 20% crowd, on the other hand, does the opposite. The 20% crowd does not go into debt. The 20% crowd lives on CASH. To the 20% crowd CASH is King and the only way to go.
The easiest way to live a free and generous life is to live a CASH life.
How do you transition from the 80% crowd to the 20% cash is king crowd?
Stop digging the hole. Quit borrowing money today. Once you’ve stopped borrowing start paying down your debt one credit card at a time (take the lowest balance pay off first than second to lowest, than third to lowest and on and on until they’re all paid off).
From debt to cash is easy. Modify your attitude. Adjust your mindset to cash. And become the 20% minority. It’s easy.
David…
When you have no debt you have freedom to be generous. I remember when the bills were so big I couldn’t be generous. I couldn’t give a dime because all of my dimes went to credit card bills.
Debt free living is a way of life. Debt free living is all about a different attitude. Spending cash only and avoiding debt is a different way of thinking. Sometimes I use the 80/20 rule to describe cash verse debt.
The 80% crowd is average. Most Americans are in the 80% category. The 80% folks do what everyone else does. Most Americans are in hoc up to their eardrums!
The 20% crowd, on the other hand, does the opposite. The 20% crowd does not go into debt. The 20% crowd lives on CASH. To the 20% crowd CASH is King and the only way to go.
The easiest way to live a free and generous life is to live a CASH life.
How do you transition from the 80% crowd to the 20% cash is king crowd?
Stop digging the hole. Quit borrowing money today. Once you’ve stopped borrowing start paying down your debt one credit card at a time (take the lowest balance pay off first than second to lowest, than third to lowest and on and on until they’re all paid off).
From debt to cash is easy. Modify your attitude. Adjust your mindset to cash. And become the 20% minority. It’s easy.
David…
Monday, February 18, 2008
The ugly "B" word
One of the interesting things about getting out of debt is how the majority of experts will tell you to form a budget.
Ah, the dreaded "B" word. One of the most frightening things you can ever bring up is the term "budget".
I don't agree with all the experts. First, you don't need a budget to get out of debt. Yes, I agree, it doesn't hurt to have a budget. But, the most important thing you can do is pay off your debt whether you have a budget or not.
In my Debt Free living, the kit, I talk about several strategies to get you out of debt. A budget is nice but not imperative. Take my $15 dollar a day strategy for example.
Most folks make their bills on time they just have difficulty and are in debt up to their eye-balls. Paying an extra $15 dollars a day has the same effect as using a budget to pay off your credit cards in a short time.
If you want an easy way to develop a budget here's an easy tip. Go through your check register, or your bank statement, or get a print out from your bank. It will show all your debits and checks and where the money went.
Once you know where the money is going you can make a simple change or two. Want a few extra dollars? Locate money spent on junk and save those few dollars. Take those few dollars and put those dollars toward your credit cards.
Remember to take one credit card at a time. I recommend paying off the lowest balance first, then the next, one, and next one. The most inspiring and motivating thing you can do is to achieve success fast. The quicker you pay your first credit card the better you feel and the more motivated you get.
Even if you never develop a budget just take the savings from wasted spending and or the $15 dollar a day strategy or both and apply it to your debt and you'll be debt free quickly without even going on a budget.
To Debt Free Living!
David...
Ah, the dreaded "B" word. One of the most frightening things you can ever bring up is the term "budget".
I don't agree with all the experts. First, you don't need a budget to get out of debt. Yes, I agree, it doesn't hurt to have a budget. But, the most important thing you can do is pay off your debt whether you have a budget or not.
In my Debt Free living, the kit, I talk about several strategies to get you out of debt. A budget is nice but not imperative. Take my $15 dollar a day strategy for example.
Most folks make their bills on time they just have difficulty and are in debt up to their eye-balls. Paying an extra $15 dollars a day has the same effect as using a budget to pay off your credit cards in a short time.
If you want an easy way to develop a budget here's an easy tip. Go through your check register, or your bank statement, or get a print out from your bank. It will show all your debits and checks and where the money went.
Once you know where the money is going you can make a simple change or two. Want a few extra dollars? Locate money spent on junk and save those few dollars. Take those few dollars and put those dollars toward your credit cards.
Remember to take one credit card at a time. I recommend paying off the lowest balance first, then the next, one, and next one. The most inspiring and motivating thing you can do is to achieve success fast. The quicker you pay your first credit card the better you feel and the more motivated you get.
Even if you never develop a budget just take the savings from wasted spending and or the $15 dollar a day strategy or both and apply it to your debt and you'll be debt free quickly without even going on a budget.
To Debt Free Living!
David...
Sunday, February 17, 2008
How to save a few bucks without really trying
For some of us the thought of saving money and actually having money in the bank seems like a far-fetch thought.
One of the exciting things about paying off your debt is this new found discipline you discover as each credit card is paid off.
In an earlier post I suggested making several copies of your credit card bill and use the $15 dollar a day strategy to accelerate the payments and pay off the card early.
Saving money is a discipline. And so, ironically, is the $15 dollar a day strategy. Once you’ve eliminated your debt you’ll begin to wonder what’s next.
Well, glad you asked, what’s next?
Saving money without really trying is as easy as applying your $15 dollar a day strategy to saving. In a very short time you’ll have several thousand dollars in the bank and I can guarantee you it’ll be tough to part with the money.
Try it some time! Stick a hundred bucks in your pocket and only pay cash for a week. I’ll bet you think long and hard about parting with your hundred bucks.
Saving money is easy. It’s just taking the discipline of the $15 dollar a day strategy and applying it to saving.
Good Luck!
David…
One of the exciting things about paying off your debt is this new found discipline you discover as each credit card is paid off.
In an earlier post I suggested making several copies of your credit card bill and use the $15 dollar a day strategy to accelerate the payments and pay off the card early.
Saving money is a discipline. And so, ironically, is the $15 dollar a day strategy. Once you’ve eliminated your debt you’ll begin to wonder what’s next.
Well, glad you asked, what’s next?
Saving money without really trying is as easy as applying your $15 dollar a day strategy to saving. In a very short time you’ll have several thousand dollars in the bank and I can guarantee you it’ll be tough to part with the money.
Try it some time! Stick a hundred bucks in your pocket and only pay cash for a week. I’ll bet you think long and hard about parting with your hundred bucks.
Saving money is easy. It’s just taking the discipline of the $15 dollar a day strategy and applying it to saving.
Good Luck!
David…
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