About two years ago, my sister-in-law asked me to host a workshop on personal finance for her women's church group as part of a larger seminar on providential living and self-sufficiency. Since my segment was towards the end, we only had about 20 minutes left, so I decided to open it up for questions from the audience instead of giving my planned presentation.
One lady with blond hair, probably in her early thirties, asked me how to get out of debt. I suggested a couple of tactics and several resources to which she could refer to for more details. She quickly responded that she had already tried those things, but they didn’t help because she and her husband were still in debt. She enumerated several challenges to her situation and explained to me why those ideas wouldn’t work.
Of course I listened…but probably not very nicely (I’m sure there was an eye roll or two in there). When she finished, she asked me again for an answer to her problems. She seemed like Dorothy asking the Wonderful Wizard of Oz to wave the magical money wand and make her debt go away so she could go home to live in continual financial bliss. I didn’t respond right away because I wanted to be sure I should say what I was thinking. Yep…I did.
“Look,” I said, “I understand that you find yourself in a very challenging situation, but there is no magic spell to make money problems go away. No matter what the tactic is that you employ to eliminate your debt, the fundamental issue is your desire. You have to want to get out of debt more than anything else…or it ain’t gonna happen! I guarantee that there will always be something else to spend your money on; there will always be another bill to pay. You have to make this goal your number one priority. That is the only way to get out of debt...and stay out.”
I don’t think I made many friends that night...but it’s what I believe. Paying off debt, and continuing to live without it, is challenging. That’s no surprise. So, just as I told Dorothy, we have to want it more than anything else; if we don’t, there will always be something that will keep us from achieving a debt-free lifestyle. Furthermore, in the actual story of the Wizard of Oz, Dorothy, not the Wizard, possessed the means to return home on her own, but she had to choose it. Likewise, we are the sole answer to our money problems. We’re the ones responsible for making poor choices with our money; however, it is also true that we can make wise choices with that same money. It all comes down to priorities.
I’ve made a commitment to myself to not borrow money, but it’s still a struggle sometimes to live that way. I have to guard my thoughts and actions continually by remembering what my priorities are and being honest with my intentions. I can’t rationalize why I should do it “just this once” because it’s a slippery slope back down into that I’m-deep-in-debt-and-completely-broke-again hole. I’m not saying that I will never, ever borrow money again. That’s probably not realistic, but I can achieve the life that I truly value sooner by keeping my priorities straight.
Each person and situation is different, and we each need to do what we think is best for ourselves, even if that includes borrowing money or delaying complete debt repayment for a time. It is not inherently evil to use debt. I’ve used it. Just about everybody has used it. It’s a part of life. But it’s also something that I need to remain vigilant about, or before I know it, I’ll have set the life I really want aside for what appeals to me right now.
Wednesday, May 18, 2011
Monday, May 16, 2011
A Tale of Two "Millionaires"
How can you tell if somebody is a millionaire? Do they drive expensive cars? Have large homes in exclusive communities? Work in lucrative career fields?
Some do...obviously. Yet the typical American millionaire does not, according to the book The Millionaire Next Door by Thomas J. Stanley, PhD, and William D. Danko, PhD (ISBN: 0-671-01520-6).
Allow me to tell you a story...actually two stories of two very different "millionaires".
Story #1
Once upon a time there was a beautiful girl who was attending high school. She was smart, funny, athletic, charming...just all-around amazing! Okay enough about me...the point is I had this guy friend who lived in a very expensive part of town. His house, by most standards, was HUGE! His parents drove expensive cars, and their home was nicely furnished. In my mind, they were RICH.
My family, on the other hand, was struggling. My dad had been out of work for two years and wouldn't find a full-time job for another year. As soon as I turned 16, I started working part-time after school just so I wouldn't have to ask my parents for anything. My older siblings, now adults, were all working and living at home so they could help pay the rent. My mother worked full-time to provide some income and health insurance, but since she didn't have a college degree and only limited work experience, she wasn't qualified for any high-paying jobs. We lived on whatever income we could muster up, a variety of loans, and charity. Needless to say, it was stressful for everyone. So when I saw my friend's family, I knew they were rich. I assumed that nobody would buy things like that unless they had the money to pay for it.
One day my friend and I were talking about buying something, and I told him half-jokingly, "Oh you can afford it! You're rich!"
In a serious tone, he replied, "Actually...I'm not."
I said, "Please...I've seen your house and everything. I know what cars your parents drive. You guys ARE rich!"
He was quiet for a moment, looked down, and then sighed like he was just caught in some sort of lie. When he looked up, he told me that the truth was his family was practically broke. His parents couldn't afford their house, cars, or lifestyle, and he didn't know what they were going to do because they owed so much money. He called their life a "sham".
My jaw dropped. I learned at that moment that just because somebody "looks" rich, it doesn't mean that they are. Debt allows us to pretend that we can afford things we actually can't. We are borrowing money to buy something because we don't have the cash to pay for it.
Story #2
Sometime later, I was driving home from my grandpa's house with my mother. During our visit, my grandfather told us about a trip he was planning for him and his wife. They were going someplace exotic for two months, and ever since I could remember, they had taken trips like this 2-3 times every year.
My grandfather lived in a very modest, paid for, three-bedroom house in a blue-collar neighborhood. It was your typical "grandma" house that probably hadn't been re-decorated in 30 years. There was an older, well-cared for Jeep Cherokee parked in the driveway, and I remember riding in the back of their 1970's station wagon as a little girl. Every time we stopped by, grandpa's wife would tell my mom about the great deals she found at the local discount store on things like Tupperware and shoes. They did have a very nice RV parked in the driveway, but besides that, the word that came to mind when I thought of my grandparents was frugal.
Anyway, as we drove home that day, it finally occurred to me that grandpa must spend a lot of money on trips every year. I asked my mom how much she thought they cost. She guessed $20-30k for the two of them.
"What?!" I exclaimed, "How is that possible? How can they afford that?"
Slightly confused, my mother looked at me for a moment before responding, "Uhhh honey...grandpa's a millionaire."
"How can he be a millionaire?" I asked incredulously, "Have you seen where they live? They clip coupons for crying out loud!"
She didn't answer immediately so I thought about this unexpected revelation for a minute before asking, "Well, how did he become a millionaire? He certainly didn't inherit it. He came from a family who worked in the local mine for decades. He came from practically nothing." My mother said that when he came home from WWII, he went to college on the GI Bill, worked hard as an accountant, and managed his money well so when he retired, he had a lot of it.
Later when I read the The Millionaire Next Door, I thought about these two experiences. My grandfather was the typical millionaire next door. His money habits of saving and investing made him wealthy, not living an extravagant lifestyle like my friend's family.
I've learned that looking rich and being rich are two different things. Often when we look rich, we are not. As soon as a job is lost, a medical emergency occurs, or something else throws us off-balance, the financial house of cards comes crashing down. I believe the real test of wealth involves asking myself an important question: if something like that happens, will I be worried about how I'm going to pay for things? If the honest answer is "no", then I'm probably doing alright. If the answer is "yes", then maybe I need to re-evaluate my money habits.
The truth is our habits are ultimately just a reflection of our values. Am I more concerned about my financial well-being or what I think my family or friends think of me? When we live to impress others, we only end up dissatisfied with ourselves. It's a no-win situation. The flip-side is that no matter what our current situation is, we can choose to be wealthy today by realigning our financial values to match those of a "typical" millionaire next door.
I mean...come on...if my grandfather could do it, what's stopping the rest of us?
Some do...obviously. Yet the typical American millionaire does not, according to the book The Millionaire Next Door by Thomas J. Stanley, PhD, and William D. Danko, PhD (ISBN: 0-671-01520-6).
Allow me to tell you a story...actually two stories of two very different "millionaires".
Story #1
Once upon a time there was a beautiful girl who was attending high school. She was smart, funny, athletic, charming...just all-around amazing! Okay enough about me...the point is I had this guy friend who lived in a very expensive part of town. His house, by most standards, was HUGE! His parents drove expensive cars, and their home was nicely furnished. In my mind, they were RICH.
My family, on the other hand, was struggling. My dad had been out of work for two years and wouldn't find a full-time job for another year. As soon as I turned 16, I started working part-time after school just so I wouldn't have to ask my parents for anything. My older siblings, now adults, were all working and living at home so they could help pay the rent. My mother worked full-time to provide some income and health insurance, but since she didn't have a college degree and only limited work experience, she wasn't qualified for any high-paying jobs. We lived on whatever income we could muster up, a variety of loans, and charity. Needless to say, it was stressful for everyone. So when I saw my friend's family, I knew they were rich. I assumed that nobody would buy things like that unless they had the money to pay for it.
One day my friend and I were talking about buying something, and I told him half-jokingly, "Oh you can afford it! You're rich!"
In a serious tone, he replied, "Actually...I'm not."
I said, "Please...I've seen your house and everything. I know what cars your parents drive. You guys ARE rich!"
He was quiet for a moment, looked down, and then sighed like he was just caught in some sort of lie. When he looked up, he told me that the truth was his family was practically broke. His parents couldn't afford their house, cars, or lifestyle, and he didn't know what they were going to do because they owed so much money. He called their life a "sham".
My jaw dropped. I learned at that moment that just because somebody "looks" rich, it doesn't mean that they are. Debt allows us to pretend that we can afford things we actually can't. We are borrowing money to buy something because we don't have the cash to pay for it.
Story #2
Sometime later, I was driving home from my grandpa's house with my mother. During our visit, my grandfather told us about a trip he was planning for him and his wife. They were going someplace exotic for two months, and ever since I could remember, they had taken trips like this 2-3 times every year.
My grandfather lived in a very modest, paid for, three-bedroom house in a blue-collar neighborhood. It was your typical "grandma" house that probably hadn't been re-decorated in 30 years. There was an older, well-cared for Jeep Cherokee parked in the driveway, and I remember riding in the back of their 1970's station wagon as a little girl. Every time we stopped by, grandpa's wife would tell my mom about the great deals she found at the local discount store on things like Tupperware and shoes. They did have a very nice RV parked in the driveway, but besides that, the word that came to mind when I thought of my grandparents was frugal.
Anyway, as we drove home that day, it finally occurred to me that grandpa must spend a lot of money on trips every year. I asked my mom how much she thought they cost. She guessed $20-30k for the two of them.
"What?!" I exclaimed, "How is that possible? How can they afford that?"
Slightly confused, my mother looked at me for a moment before responding, "Uhhh honey...grandpa's a millionaire."
"How can he be a millionaire?" I asked incredulously, "Have you seen where they live? They clip coupons for crying out loud!"
She didn't answer immediately so I thought about this unexpected revelation for a minute before asking, "Well, how did he become a millionaire? He certainly didn't inherit it. He came from a family who worked in the local mine for decades. He came from practically nothing." My mother said that when he came home from WWII, he went to college on the GI Bill, worked hard as an accountant, and managed his money well so when he retired, he had a lot of it.
Later when I read the The Millionaire Next Door, I thought about these two experiences. My grandfather was the typical millionaire next door. His money habits of saving and investing made him wealthy, not living an extravagant lifestyle like my friend's family.
I've learned that looking rich and being rich are two different things. Often when we look rich, we are not. As soon as a job is lost, a medical emergency occurs, or something else throws us off-balance, the financial house of cards comes crashing down. I believe the real test of wealth involves asking myself an important question: if something like that happens, will I be worried about how I'm going to pay for things? If the honest answer is "no", then I'm probably doing alright. If the answer is "yes", then maybe I need to re-evaluate my money habits.
The truth is our habits are ultimately just a reflection of our values. Am I more concerned about my financial well-being or what I think my family or friends think of me? When we live to impress others, we only end up dissatisfied with ourselves. It's a no-win situation. The flip-side is that no matter what our current situation is, we can choose to be wealthy today by realigning our financial values to match those of a "typical" millionaire next door.
I mean...come on...if my grandfather could do it, what's stopping the rest of us?
Thursday, May 12, 2011
How Our Financial "Education" Keeps Us Poor
The second day of every semester, right after I've bored my students with the mundane details of syllabi and endless reading and homework assignments they'll be "happily" doing, I ask them to think about their feelings and experiences with money. We discuss societal values related to personal finances...lament the never-ending stream of advertisements attempting to part us with our hard-earned dollars, the virtues of planning ahead for unexpected emergencies, and most importantly, what our own experiences with money have been.
I think it's critical to consider what values and attitudes we've adopted from our families, friends and society at large. Since birth we've taken for granted how the world works...how money works...how it should be handled and what it is used for. This in turn affects our choices and attitudes towards money when it comes our way, often subconsciously.
Personal finance is NOT taught in traditional education. Sure I teach an elective course in college, similar to other institutions of higher learning, but how many students actually take a course like this before they graduate? Not many. There have also been some efforts to incorporate personal finance classes into high schools and junior highs throughout the country, and it's a step in the right direction, but ultimately, the topic of money is taught in the home, in the media, in everyday life, and often by individuals or groups who know little about how it works, or worse, by those who financially benefit from dispensing their "knowledge" and "advice" to the masses.
Even so-called "personal finance" classes like mine, in my humble opinion, can be tragically flawed and self-serving to those sponsoring such programs. A bank or brokerage firm who provides a retirement planning class is, no matter what the company says, doing it primarily for their own benefit. They are offering the class to obtain clients. These firms may very well be concerned about financial education, but because of their position, they are inherently biased in what advice they give. This is acceptable as long as the students are educated enough to realize where the information is coming from; however, I've found that this scenario is usually the exception rather than the rule. Furthermore, even "unbiased" teachers or organizations often regurgitate money "truths" they've bought into because they don't know any different. I believe they are genuine in their efforts to teach correct principles, but because of their own lack of financial education, they end up indoctrinating others into a belief system that keeps people struggling with their finances.
Let me give an example of how a common money "truth" actually keeps people struggling. For the last hundred years or so, debt has become a natural part of life in the United States. Most people today assume that it is not realistic, or even desirable, to live completely without debt. As a result, we worship the almighty credit score, bow down to the demands of creditors, and spend our lives working to pay for our purchases long after we've thrown them away. This idea that debt is normal, or at least certain types are desirable or always necessary, has enslaved an entire population. We work hard every day just to give away most, if not all, of our compensation...not just for a few years...but for a lifetime!
The home mortgage is the perfect example of this. I'm not saying never buy a home or borrow to purchase one. I am saying that we are fed a myth from birth that this way of life is normal and to expect something different is unrealistic...or even undesirable...when the truth is the United States became the wealthiest nation in the world because the citizenry and government mostly did NOT borrow money to finance things, including homes. The myth is that wealth is built by purchasing a home...and always with debt.
Now I realize I'm generalizing a bit here, but I'm trying to point out a cultural phenomenon I've observed since I was very young. I too was caught up in this idea because I didn't know any better. My well-intentioned "money teachers" (parents, friends, teachers, etc) didn't know any better either. This "truth" was taken for granted. Yet I have come to believe that our cultural worship of the "home mortgage myth", as I call it, is keeping many individuals from financial freedom. It's not the only thing, but I believe it is a significant contributor to keeping the masses under the thumb of employers and creditors. What if everybody paid cash for their homes or paid them off much sooner than fifteen or thirty years? Financial problems certainly wouldn't cease, but I think many people would lead lives with much less stress and greater happiness because they would have more control over their income.
Sure I could be wrong, and every person has the right to decide how they will live their life, but I have found that eliminating debt from my life and creating sources of passive income, so I'm not dependent on a creditor or an employer's good graces to live my life, makes ME happy...
but to each their own!
I think it's critical to consider what values and attitudes we've adopted from our families, friends and society at large. Since birth we've taken for granted how the world works...how money works...how it should be handled and what it is used for. This in turn affects our choices and attitudes towards money when it comes our way, often subconsciously.
Personal finance is NOT taught in traditional education. Sure I teach an elective course in college, similar to other institutions of higher learning, but how many students actually take a course like this before they graduate? Not many. There have also been some efforts to incorporate personal finance classes into high schools and junior highs throughout the country, and it's a step in the right direction, but ultimately, the topic of money is taught in the home, in the media, in everyday life, and often by individuals or groups who know little about how it works, or worse, by those who financially benefit from dispensing their "knowledge" and "advice" to the masses.
Even so-called "personal finance" classes like mine, in my humble opinion, can be tragically flawed and self-serving to those sponsoring such programs. A bank or brokerage firm who provides a retirement planning class is, no matter what the company says, doing it primarily for their own benefit. They are offering the class to obtain clients. These firms may very well be concerned about financial education, but because of their position, they are inherently biased in what advice they give. This is acceptable as long as the students are educated enough to realize where the information is coming from; however, I've found that this scenario is usually the exception rather than the rule. Furthermore, even "unbiased" teachers or organizations often regurgitate money "truths" they've bought into because they don't know any different. I believe they are genuine in their efforts to teach correct principles, but because of their own lack of financial education, they end up indoctrinating others into a belief system that keeps people struggling with their finances.
Let me give an example of how a common money "truth" actually keeps people struggling. For the last hundred years or so, debt has become a natural part of life in the United States. Most people today assume that it is not realistic, or even desirable, to live completely without debt. As a result, we worship the almighty credit score, bow down to the demands of creditors, and spend our lives working to pay for our purchases long after we've thrown them away. This idea that debt is normal, or at least certain types are desirable or always necessary, has enslaved an entire population. We work hard every day just to give away most, if not all, of our compensation...not just for a few years...but for a lifetime!
The home mortgage is the perfect example of this. I'm not saying never buy a home or borrow to purchase one. I am saying that we are fed a myth from birth that this way of life is normal and to expect something different is unrealistic...or even undesirable...when the truth is the United States became the wealthiest nation in the world because the citizenry and government mostly did NOT borrow money to finance things, including homes. The myth is that wealth is built by purchasing a home...and always with debt.
Now I realize I'm generalizing a bit here, but I'm trying to point out a cultural phenomenon I've observed since I was very young. I too was caught up in this idea because I didn't know any better. My well-intentioned "money teachers" (parents, friends, teachers, etc) didn't know any better either. This "truth" was taken for granted. Yet I have come to believe that our cultural worship of the "home mortgage myth", as I call it, is keeping many individuals from financial freedom. It's not the only thing, but I believe it is a significant contributor to keeping the masses under the thumb of employers and creditors. What if everybody paid cash for their homes or paid them off much sooner than fifteen or thirty years? Financial problems certainly wouldn't cease, but I think many people would lead lives with much less stress and greater happiness because they would have more control over their income.
Sure I could be wrong, and every person has the right to decide how they will live their life, but I have found that eliminating debt from my life and creating sources of passive income, so I'm not dependent on a creditor or an employer's good graces to live my life, makes ME happy...
but to each their own!
Wednesday, May 11, 2011
And it begins...
I have a goal...a goal to attain personal financial freedom from creditors and employers...to live a life where if I don't want to work at a job, I don't have to. I want to live a life free of debt.
I've been on this road for some time...and taken plenty of detours a long the way...but have decided to now fully commit...and blog about it.
Maybe there are others out there who dream as I do but feel like they are the only one who craves such a life. Well I'm here to tell you that you're not! I'm right there with you. It's not that I don't enjoy honest, hard work; I just want to live my life according to my own terms.
So...I will be blogging about my experiences with money as I fully commit to achieving financial freedom.
I'll start with a few things about me...
1. I'm a single female about to turn 31 years old in the U.S.A.
2. I have a B.S. degree in Accounting and M.B.A. yet my formal education has taught me virtually nothing about how to handle money.
3. I have been teaching a course on personal finance at a local college for the last four years...and I love it!
4. I will be completely honest and open about my finances so as to help as many people as possible with their money goals.
I've been on this road for some time...and taken plenty of detours a long the way...but have decided to now fully commit...and blog about it.
Maybe there are others out there who dream as I do but feel like they are the only one who craves such a life. Well I'm here to tell you that you're not! I'm right there with you. It's not that I don't enjoy honest, hard work; I just want to live my life according to my own terms.
So...I will be blogging about my experiences with money as I fully commit to achieving financial freedom.
I'll start with a few things about me...
1. I'm a single female about to turn 31 years old in the U.S.A.
2. I have a B.S. degree in Accounting and M.B.A. yet my formal education has taught me virtually nothing about how to handle money.
3. I have been teaching a course on personal finance at a local college for the last four years...and I love it!
4. I will be completely honest and open about my finances so as to help as many people as possible with their money goals.
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