Getting Out Of Debt

This month’s topic is Money and Finance. I have said always put a strong emphasis on the subject of not just earning money, but also keeping it. Money, like success, is based so much on the “why,” not just the “how.” Why earn a lot of money and why keep it? Is it just so you can buy the finer things in life? Or can money also be a tool used in many powerful ways? For example, to help those in need, to create good self-perpetuating philanthropic ventures, to create more space and time to invest in loved ones, and to leave a legacy of abundance in your home and community.

Money has such incredible potential to be a powerful force and tool in our lives. Let’s make the most of it, and let it be a source of great opportunity and promise for us and for those we love.

Have a great week!

This month, we tackle one of the more important topics—money and finances! Although finances shouldn’t be the highest priority in our lives, I will say money plays a major role in our lives, and we need to see it for what it is: a tool. As Zig Ziglar says, “Money isn’t everything, but it ranks right up there with oxygen!”

Money is a tool that, depending on how we use it, can bring much joy to our lives or it can bring destruction. We need to be aware of all the possibilities it offers as well as the pitfalls. Some of the most amazing things have been done because people had the financial resources to fund them—businesses have been built, schools started and philanthropic charities founded that have accomplished much good. On the other hand, friendships have been ruined, illicit gains profited and lives destroyed—all over the issues of money.

So, as we go through this month, I want to focus on applying some simple financial principles, but I also want to teach the underlying philosophies that govern what good people can do and what tremendous accomplishments can be made when we see money for what it is: a tool to improve our lives and the lives of others.

Specifically, as we do each month, we will focus on four main areas. These four pivotal topics are:

Getting Out of Debt
Debt is a killer. It is a killer of dreams and hopes. It is a killer of businesses. It is a killer of financial futures. And, according to statistics, debt plays a prominent role in many failed marriages. So what should we conclude from this? If we are to be successful, we must have a commitment to stay out of debt! You can make $2 million a year, but if you spend $2.5 million, it doesn’t matter how much money you made, does it? You will be saddled with debt. Today we address this issue.

Saving
One of the key components to long-term wealth building is the discipline of saving money on a regular basis. Next week we will go through the basics and show how a commitment to saving money can revolutionize your financial life and provide the kind of security you desire. One simple difference between the philosophy of the rich and the poor is that the rich save/invest their money and spend what is left, while the poor spend their money and save/invest what is left. What a simple shift in our thinking for such a revolutionary result. We will talk about saving in next week’s edition.

Investing
Investing is very different from saving. Investing involves risk—calculated risk—and the possibility for much more reward. Saving and investing are done for different reasons and with different desired goals and outcomes. By taking a portion of our income and turning it into capital to be invested, we will be actively working toward our goal of financial independence. We will cover the importance of investing, along with some basics of investing in two weeks.

Giving
Giving a portion of your resources away is one of the most powerful principles you will ever embrace. It seems counterintuitive, but the truth is that giving will help you achieve the financial freedom you desire. Amazingly, giving makes you bigger than you are. The more you pour out, the more life will be able to pour back in. So giving a percentage of your resources away will help you not only have more money, but enjoy it more as well, and that is the best benefit.

John Wesley said, “Earn all you can, save all you can and give all you can.” What a great quote for us to keep in mind as we go through this month together. A person who sees the powerful force for good that money can be will more likely keep their own life in balance by pursuing the disciplines of earning, saving and giving, which, together, create the perfect tension and balance.

We must also remember that money has a seductive side and tells you it will solve all of your problems, but it won’t. It is great to have money—lots of it—as long as your life is in balance and you have the proper perspective. It is important that we own our money and not the other way around.

The first way to make sure money doesn’t own us is to deal with the issue of debt.

Americans, as well as most of the world, have more debt than ever. We would do well to remember the old proverb, “The borrower is the servant to the lender.”

When we are in debt, we owe someone, and because of this, they have a certain amount of control over us. We are, in essence, their servant. This is not the way of financial freedom.

Interestingly enough, when it comes to debt, I have found that many otherwise intelligent people just don’t get it. So, for a little help, here are “Five Things You Need to ‘Get’ to Stay Out of Debt”:

Develop the Right Mindset. When it comes to debt, the only mindset is one of ruthless opposition. We need to see debt as the very enemy of our financial lives. If we begin to say, “Well, a little debt here and maybe a little debt there,” we will soon see a lot of debt everywhere. In the same way money can compound positively when we save and invest, debt can also multiply and push you deeper and deeper into debt as each month passes. The right mindset is that we need to get out of debt and stay out of debt. Is this your mindset? Many times, we are a product of the environment we were raised in or we associate with currently. Have you thought lately about the mindset you have toward debt?

One interjection here, because I hear it regularly when I say that we should have no debt: It is the question of a home mortgage. Most people believe that their home is not a debt, but an investment. The fact is that in this day and age, homes cost four or five times the annual income of the people who live in the average neighborhood. And while there is potential you could lose money on your home, depending on what the current economic conditions are, historical analysis shows that a person who lives in a home for quite some time generally ends up on the plus side of the financial equation. So, for our basic understanding, a home mortgage can be considered an investment rather than a debt, though there is debt involved. But, it can be argued either way—an investment or a liability—and you would be right. Now, if you want to pay your mortgage off, there is no harm in that, and it would certainly be the conservative way to go! Besides the home mortgage exception, however, we should remain diligent about staying out of debt.

Gain Understanding. Some people have no idea how much debt they actually have. Some people do not know whether or not they have a positive or negative net worth. With many couples, one spouse knows the real financial situation while the other is relatively “in the dark.” I don’t recommend this. You can’t plan your future if you do not know where you currently are. Think of it this way. Let’s say you wanted to visit a friend and needed directions to get to his home. When you call for directions, he would ask you where you are coming from. Typically, we would tell him our town or address, and he would then give us directions how to get there from where we are. Imagine, however, if we told him we didn’t know where we were! He couldn’t give us directions because he wouldn’t know whether to tell us to go north or south, east or west.

The same is true with knowing where we are financially. If you have a goal to save $1 million, your plan is going to be different if you already have $750,000 saved than if you have $100,000 in consumer debt. Figure out where you are financially—get an understanding. In this instance, the old “Knowledge is power” adage is true. There is power in knowing where you stand financially, because only then can you map your financial future!

Seek Help. When you are sick, you go to the doctor. When you want to improve in a sport, you get a coach. When you are in debt, you need to seek some help. Depending upon the amount of debt you have, you will have to look for varying degrees of help. If you have $2,000 to $5,000 in credit card debt, you may just need a friend to help keep you accountable on monthly spending. If, on the other hand, you are over your head in debt, for instance $50,000 in credit card debt, you may need to bring in the help of a financial advisor who can help you with your creditors. Don’t let your pride get in the way. Everyone needs help at times, and wise people get help when they need it. If you have debt and need help managing it, get help. Your future depends on it.

Get Control. Think about the concept of debt for a minute, especially the specific action of going into debt in order to purchase something you want but don’t have the funds on hand to pay. Now, you may not ever articulate it this way, but what you are really saying is, “I don’t have the money for this, but I want it so much that I cannot go any longer without it. And, not only that, but I am willing to pay 10 to 20 percent more for it than it costs.” (Ten to 20 percent is a typical yearly percentage rate on a credit card.)

What this boils down to is an issue of control. Can you control your urges? Or, more appropriately, will you control your urges? Will you take control of your life? Will you take responsibility for your actions and decide for yourself that you will no longer buy on credit and dig yourself deeper into debt, jeopardizing your financial future?

Create a Plan. To get out of debt, you need a plan. It needs to be simple, effective, workable and tailored to your individual life. There are some basic fundamentals you can follow, but everyone has different incomes, levels of debt and are at different stages in life. A 50-year-old couple who has an income of $125,000 with $50,000 in debt is going to have a different plan than a single male, age 25, who has an income of $30,000 a year and a total of $10,000 in debt.

The key is to have a plan. Once you have a plan that will work for you, then work the plan with all of the discipline you can muster. Your plan should include detailed strategies for spending, income, saving, investing, etc.—we will cover these topics more in depth later this month. I remember the day so clearly that I “If I had more money, I would have a better plan.” “No, I would suggest that if you had a better plan, you would have more money. Remember, it’s not the amount that counts, it’s the plan.” As the old adage goes, “If you fail to plan, you plan to fail.” So true.

Here are a few additional basics for your get-out-of-debt plan:

– Write down everything you spend. Keep a ledger or a journal or a notepad or whatever works for you, but write down every expenditure you make. This is so important. It creates awareness, forcing you to take a second look at each decision, and helps bring accountability to your spending.
– On all future credit card charges, pay off the full charges for the previous month’s expenditures—no exceptions. This will keep you from paying “new” interest. If you are not able to do this right away, set it as a goal to be able to do as soon as possible.
– Determine how much additional money you can apply to your debt each month and apply it all to your highest-interest debts.

Your financial future can be amazing; it can be anything you want it to be. Part of the heritage you can leave behind is being financially independent, but it will involve some deep soul-searching and some tough decisions to figure out exactly what you want out of life. One of the first issues you must deal with, though, is debt. If you don’t have debt, that is fantastic. If you do, life isn’t over for you; you can still achieve whatever you desire, but only if you make the commitment to shift your priorities. I know that you will!

Until next week, let’s do something remarkable!

Nick James

Be sure to download this week’s workbook pages to complete the Questions for Reflection and Action Points exercises.View

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