Archive for February 2006

I have never seen anyone save money by spending money

Have you ever heard someone say one of the following statements?

  • “I saved $50 on this shirt at the mall!”
  • “I saved $2000 on this new car!”
  • “I saved $200 on this new couch!”

I have one question. Did you really save money while spending money? I can believe that you spent less money, but I cannot believe that you actually saved money.

You may think that I am playing a word game. I am not. Marketers are! They are working to make you feel good about a purchase. They know that you may not want to spend money at that particular moment. They also know that they will not earn any money if they do not sell something! To get you to purchase the item, they need to make the purchase appeal to you. One way they do this is to tell you that you can save money by purchasing today.

Game over. You are not saving money when you are spending money.

Freeing up $200/month in expenses is equal to receiving a $285/month raise!

When you free up any money at all in your monthly spending plan, it becomes immediately available for other uses. It can be used to pay down debt, to build your emergency savings balance, or to give to a worthy cause.

The wonderful thing is this – If you free up $200, you really have $200 to do something else with! On the other hand, if you received a $200 raise, you really will not have $200 to do something else with.

Not making sense? Let me put it this way. It appears that everyone has this one uncle. We like this uncle in many ways, but we really do not like to him to come around very often. He routinely borrows money without our approval, spends money carelessly, finances everything, and he looks to us to foot the bills when it is all over. Yes, his name is Uncle Sam.

Uncle Sam immediately shows up when he hears that you have gotten a $200/month raise. He wants his share. He charges you Federal Income Tax, Social Security Tax (FICA), Medicare Tax, State Income Tax, and Local Income Tax. By the time you get home with your $200 raise, it has been remarkably reduced by between 20% and 40%! That means that your $200/month raise will only deliver around $140 and $160 to you.

That is what makes budgeting so great! When you find a way to spend less money, it is like giving yourself a raise! A big raise! A tax-free raise!!! This will speed your ability to achieve freedom from debt and truly build wealth.

NOTE: Jenn and I were able to immediately give ourselves a $200/month raise by spending less money on groceries. How have you been able to give yourself a raise?

Quick Cash joints are HORRIBLE RIP-OFFS!

I am VERY UNHAPPY with quick cash and title loan places. They offer quick cash … for a fee … for a VERY LARGE fee. Don’t believe me? Do what I did. Go to the web sites of these establishments.

One you can try is Type in $500 for the state of Indiana, SC, or TN and 30 days for the loan. What is the interest charge on this loan? $107.15!!!! That is a 21.43% return on that money – IN ONE MONTH! I do, however, credit the PayDayOK folks for putting a “How to get out of debt” link on their website.

At the fees are even higher! For $500 for 21 days, the fee is $139.65!!!! That is a 27.93% return on that money – IN ONLY 21 DAYS!!! By the way, to get to the fee schedule they require you to click a link named “Our low fees”. Outrageous! Here is the statement (word-for-word) under the “disclosures” section of the My Cash Now web site.

“LOAN AMOUNTS AND FEES. Mycashnow.comTM currently provides loans ranging from $100.00 to $1500.00. The finance charge for these loans is based on 485.450 percent APR and the number of days of the loan. See fees for a complete breakdown of amounts and charges for various length loans.”

Recently I was in South Carolina, and I saw a quick cash place with the name “CheckMate”. That is about right. Once you start utilizing this type of place for loans, they have you in checkmate. You will not be able to get out of it.

On that one street in a less than 3 mile section of town, I saw at least 10 quick cash establishments. Terrible. I did not see even ONE establishment dedicated to getting people out of that mess.

I could go on forever about this, but I will finish with this outrageous story from this link

CHECK INTO CASH, INC., with it Corporate Offices in Cleveland, TN, was asked by the Governor to participate in the issue and has a full page ad, plus a feature in the Tennessee Success Story. On April 27, Allan Jones , Founder, Chairman and CEO of Check into Cash, Inc. flew to Nashville for a luncheon hosted by FORTUNE and the State of Tennessee . He and other CEOS across Tennessee joined the Governor for lunch and received special recognition for their support of Tennessee ‘s economic development over the years. He joined other Tennessee CEOs representing such companies as Federal Express, Bridgestone, Toyota, Wilson Publishing, Hospital Corporation of America, Sea Ray Boats, A.O. Smith Water Products, University of Memphis, King Pharmaceutical, UnumProvident, Blue Cross-Blue Shield of Tennessee, to name only a few,

I can’t tell you how much I disagree with the statement that Check Into Cash has helped Tennessee’s economic development. It has helped to enable broke people to become even more poor, it has charged them incredible amounts of unfair interest and fees, and then it is proclaimed that they are “helping” people. Give me a break.

What would you do with all that money?

I give JESUS the praise and glory for the below true story!

I remember when Jenn and I decided it was time to become debt-free. It was so exciting! We were so frustrated at the mess we had made, but we had hope now! We had calculated our debt-freedom date (see post from 2/15/2006 to see how to calculate yours). Our debt freedom date was 14 months away – February 2004.

What was one of our biggest motivations to become debt-free? It was the huge amount of money that was being sent out each month to pay the monthly loan payments! We asked ourselves the question – “What are we going to do with all that money once we have become debt-free?” It was so exciting just to think about the possibilities – cruises, exotic vacations, cool electronics, a new car, helping others, seed-germination heating mats, giving to worthy causes, season tickets to Purdue University football games … The list was endless. We were so amazed! To think that we could pay off everything but the house in 14 months and have access to all of that money was HOPECREATING (new word – “W” is envious)!

That HOPECREATING moment was what kicked us off toward our debt-freedom date. If we would not have had that moment, we would absolutely still be in debt – probably even more debt. Anyway, the great thing about the process of becoming debt-free is that it takes time. This means that you have to think about becoming debt-free a lot. It means that you have to maintain the intensity even when all your friends are going on a cruise together, and you can either go and be in debt for another 24 months or not go and be out of debt in 4 months. It means that the latest electronics can wait their turn for you (Ebay!).

Jenn and I thought about becoming debt-free for the entire 14 months. We made decisions that meant we would not be able to live life like we had before. We could not spend $200 a month on dining out. We could not shop at the mall and buy something every time. Do you know what we discovered? We discovered we could live without stuff. We realized that happiness cannot be bought at the mall and that home-cooked meals taste better than restaurant food anyhow.

Since it took us 14 months, our entire financial behavior changed. Guess what? The magic month arrived in February 2004, and we became debt-free!!!! We paid off a credit card, a truck loan, and a student loan. At the same time, we were also able to absorb a major surgery for Jenn that WE PAID CASH FOR.

Jenn and I now stand on the other side of the fence. We have remained debt-free for over 2 years now. Words cannot express how much better Jenn and I’s communication about our life has become. I have discovered “what I would do if I had all that money that was going out for loan payments” – give more than I ever have, save more than I ever have, and truly understand what financial peace is.

How long until you are debt-free?

It is simple to calculate your debt-freedom date! Here is how you do it.

1) List all of your debts
– include each debt’s name (Home Depot, Victoria’s Secret, etc.), the debt’s balance, and the monthly payment
2) Sum up all of the outstanding debt balances to obtain the Total Debt Owed
3) Sum up all of the monthly payments to obtain the Total Monthly Payments
4) Divide the Total Debt Owed by Total Monthly Payments
– this will provide you the number of months until you are debt-free!!!

Look at the example below. You can see that the Total Debt Owed is equal to $16,650. The Total Monthly Payments have also been totaled and are equal to $505. Dividing the Total Debt Owed by the Total Monthly Payments equals 33 months. In this example, the family’s Debt-Freedom Date is December 2008!!!

A couple of notes:
1) This assumes that you are no longer acquiring debt. Just say NO! 🙂
2) This does not account for interest. However, it also does not account for pay raises, bonuses, tax refunds, money from selling something, or money freed up by better budgeting. Trust me. If you go crazy on this thing, it will take you 50% to 75% of this time to become debt-free. It really depends a lot on how much you really want to become debt-free and how much you are willing to give up to achieve financial freedom.

How long until you are debt-free? What would you do with the $505 each month if you were not paying debt with it?

Make it happen!