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We All Start Somewhere The past is a guidepost, not a hitching post.
-- L. Thomas Holdcroft
DON'T BANK ON IT
When my son reached his 13th birthday, he started thinking about how close he was to getting his driver's license. He started talking about all the different cars he'd like to own. I suggested that now would be a good time to begin his savings program. He would find it much easier to save small amounts over the next few years than to try to come up with enough money all at once.
I had just found out about a new account for kids, 13 and over, at our credit union. This account allowed kids to save small amounts, earn interest, and pay no fees. Since my son was getting an allowance and making money from small jobs around the house, this would be an ideal place for him to start learning about money.
He got excited when I told him there was a way to come up with enough money to have the car he wanted when he was old enough to drive. However, when I told him about my plan, he looked as if I had shot him. He said, "No way will I put any money in any bank." As he said it, I could hear the fear in his voice.
I told him I could not understand why he was afraid. The credit union is a very safe place to put his money. But, no matter how hard I tried, he was determined not to put his money in the bank. His determination made me curious. His answer changed my financial life.
After years of watching his mother and me go through our monthly ritual of writing checks and mailing them out, he was convinced that banks were nothing more than prisons for money. You sent them a check and were neverable to get the money out.
When I explained that what we were doing was simply paying our monthly bills, he looked even more confused. He couldn't understand why we were sending money today for something that we bought a long time ago. And you know what, neither could I. It was time we both learned about the difference between money and finance.
COMPOUND INTEREST--THRILLER OR KILLER
Thomas Edison called it the Eighth Wonder of the World. Yet loans can turn compound interest into a financial ball and chain that can hold you back from the freedom you deserve.
Credit cards compound interest on the average daily balance. This means you are paying interest for every day that you owe the credit card company money. And if you are ever late--even by one day--they tack on a late fee to your balance. A late fee is actually an interest penalty, which means that you end up paying interest on the interest.
That's why doubling payments can pay off debts a lot more than twice as fast. As I will mention repeatedly in this book, by doubling the payments on a 30-year mortgage you would pay it off in a little more than six to seven years.
Here's how: The interest owed on any loan is calculated on the unpaid balance. Another name for that is the principal or the amount you owe. When you send extra money with your payment, that amount is applied right to the principal. None of it goes to interest. Therefore you now have a lower balance owed on which interest can be charged.
EVERYONE HAS THEIR OWN WAKE-UP CALL
It wasn't long after I had spoken to my son about putting money in the bank that I really saw how bad things were for me. One night, while my wife, Helen, and I were relaxing after dinner, we discussed the pressures of our working lives. In order to provide for our two children, we both worked full-time. My job required that I spend several days each month on the road; that often left just the weekends to do what needed to be done around the house. Helen worked 40 hours a week and did her best to spend time with the kids when I was away. Like many on this treadmill of daily life, we certainly didn't feel as successful as our home and possessions would lead you to believe. Have you ever felt that way?
The first thing we discussed was the possibility of having my wife stay home full-time. After all, I had an income that put me in the top 2 percent of wage earners in America. Surely we'd be able to make it on that. Since one of Helen's many talents is bookkeeping, I asked her to prepare a total of our monthly financial obligations. When I saw what she came up with, I gasped--shocked as if someone had just sucked the breath right out of me. She had added up all our monthly bills and the total floored me. We were in much worse shape than I had imagined. To say the least, this was indeed a wake-up call for us to start paying more attention to our finances.
The fact that I'd had no idea how bad off we were should have been the first alarm signaling trouble. Not knowing exactly where you stand financially is a sure sign you're not on solid ground. Not only weren't we aware of how much we owed, but we were clueless as to what those obligations did to our overall financial picture. Let me put it into perspective.
The average household income in the United States is around $35,000 a year, leaving a net income of about $30,000 after taxes. We were paying substantially more than that just in bills! As sizable as my income was, we wouldn't be able to afford more than hot dogs and beans if my wife left her job. We had gotten ourselves into such a financial corner that both of us had to work, at least for a while. It was like we were sentencing ourselves to continue living the life we hated because of what we'd done in the past. Yet we certainly weren't criminals. We had just thought that being in debt was the way we were supposed to live. Actually, we had given little thought to our debt, and that's why we were stuck where we were.
EVERY LITTLE BIT HELPS
As you examine all your debts, you may become discouraged or intimidated. You may be wondering if there is ever going to be a way out. This book will become your map to financial freedom, but beginning is the single most important step.
There is no hard and fast rule as to how big a step one needs to take. Even a small step in the right direction puts you that much closer to where you want to end up. Most people didn't get into financial problems in one day. The problems evolved from a series of events over a long period of time. Therefore, it will take time to get yourself out from under your debts.
Ninety-five percent of the population will never do anything about this. And, by the time they reach 65, they'll either be dead broke or dead. But all you need to do is send in anything more than a minimum payment to your creditors and you'll achieve what only the top five percent of people ever reach--control of your financial destiny.
Most people who think about their financial situation see only a mountain of insurmountable payments. They often decide to make the best they can out of their lives, which often means continuing on the same path. For some reason, they choose not to examine what is causing that mountain of debt to get larger and simply accept it as a fact of life.
On the other hand, paying extra on any one of your balances moves you closer to eliminating the mountain. If this is the first time you ever make more than a minimum payment, congratulations. You will then be one step closer to living debt-free than you were before.
As long as you continue making only minimum or required payments, the lending institution is in total control. And as long as they call the shots, you can never be financially free. The very moment you make a payment for more than they asked for, the rules change. You are taking control. You are deciding when your debts get paid. You are determining how much interest you pay. And most important, you are setting yourself up for a solid financial future.
Paying more than the minimum changes your position in life. Instead of being buried under piles of debt, you are now on your way to getting on top of your finances. Every extra payment is like another few steps up the mountain. And every few steps will change the view. You will be able to see more and more freedom as you go, which will encourage you to continue when it gets a little tougher. That's certainly better than looking up and seeing nothing but bills over your head.
Throughout the rest of this book, you will be learning specific strategies that will become tools on your journey to climb out of debt. Using the tools as you see fit will keep you in control. As you choose to what degree you'll use each tool, you'll feel the power of gaining control over your financial life.
As you eliminate each of your debts, you will find renewed power. That power is the power of possibilities. You will begin to be able to look optimistically at the future rather than anticipate the same old routine that may have been going on for years. You can look with certainty toward making positive changes in your life.
More important, you will set an example for those around you, perhaps even preventing them from ever creating financial obstacles in the first place.
THE MOMENT OF SUCCESS
Most people go through life with a strong desire to succeed. Unfortunately, many don't recognize that they are often at that point in life where success has already happened. They don't understand the difference between success and being successful.
Successful is arrival. Successful is when you achieve all that you've set out to accomplish. It's a time when you can look back at the sacrifices and acknowledge that they were worth it, and that the effort justifies the reward you enjoy.
Success, on the other hand, is much closer. As you go through this book, many of you will make a decision. Some will decide that the effort just isn't worth it and continue doing what they've always done. Those who do that will never stop chasing success.
A few of you will decide that enough is enough and commit. You will commit to doing whatever it takes to get your financial life back on track. You will practice the ideas in this book and look down the road at your final destination. You will say to yourself, "I'm going to do it and that's it--period!" The moment that happens, you are a success.
Success occurs at the moment of commitment. Stop chasing and start living as you should. As a person and a provider, as soon as you commit to this journey, you can live knowing that you're a success. No matter what happens or how long your journey takes, no one can take success from you. On this journey, the only way to fail is to quit.