- Notice they all start with YOU because no one else is to blame for your situation. These guidelines will help you identify problem areas in your life which may be the result of financial bondage. Remember, the creditors want you in bondage because they must keep lending to stay in existence, this is why they attempt to trap you by systematically raising your credit limits. Let me tell you how I know this is true. My father was in the process of purchasing a used car for $6650 but he did not have any cash on him and he does not believe in credit cards, so he was unable to put a down payment on the car to hold it. So I took out my American Express Gold Optima Card which had a credit limit of $7500 at that time so I could hold the car till my father went to the bank.
- When the dealer called AMEX and asked for confirmation of the total of $7116, AMEX questioned me but nevertheless approved the transaction. AMEX was worried because I never had a charge that big. My father paid by check and the AMEX transaction was not processed. Within 3 months, my Optima credit limit went from $7,500 to $11,100 even though I did not process that charge. They thought here is a high roller so let's get his credit line increased. It's amazing, the same company that was worried I couldn't pay, suddenly raises my credit limit by $3,600. Then they write and say that you are to be congratulated because you are now a privileged customer. The only privilege I see is the privilege to become more of a slave to their loan shark interest rates.
- SOME PRINCIPLES TO BUILD A CASH FLOW WHILE IN DEBT
Can your car manage on the lower or middle grade gas? This can save about 10-25 cents per gallon. Also, must you buy the name brands?
If you smoke or drink, quit now. No more lying excuses, just do it. If there is one thing that angers me it is someone complaining about having no money with a cigarette hanging out of their mouth and a beer in hand. Can you really afford $7-9 per pack in a machine? You can buy cigarettes on line for $27 a carton. If you smoke 1 pack a day, your yearly expense would be approximately $972. If you drink one beer a day, the average price of a case of beer, 24 cans, is $19 in New Jersey. That comes out to $289. Add 972 & 289 and your total is $1261 per year. Both drinking and smoking have no value for the human body except causing it disease and degeneration.
Combine all your trips in one run if possible.
Start brown bagging your lunch. This may save you about $30-50 per week which means a total of $1500-2500 per year back in your pocket. Average lunch costs are $6-10 per day.
Do you gab on the phone or text a lot? Do you really need a smartphone with internet?
Can’t you wait until you get to work or get home to look something up on line? Do you really need music from the internet while you are driving? Don’t you have a radio or CD player? If you do not use a cell phone that much, then you do not need the most expensive plan with the most minutes.
Must you buy coffee on break? If your company supplies hot water, then buy instant coffee and add milk. Here is an example. If you to go to Dunkin Donuts every morning and buy a medium coffee (14 oz) and a donut at a cost of about $2.00, That equals about $500.00 yearly. Purchase an 8 oz jar of coffee, half and half, and buy an 8 pack of donuts for about $3. Savings would be close to $100 per year.
Can you Carpool? I carpooled with a fellow when I worked at a job 42 miles from my home. Saves gas and wear and tear on your car.
Must you buy name brands on everything? I went to a discount drugstore and bought their brand of Acetaminophen (which is Tylenol) at almost half price. It got rid of my headaches. Remember, you are paying for their advertising.
Must you buy your clothes in an expensive store? Where I live I am 3 hours away from the outlets in Lancaster, Pennsylvania. When I needed clothes, instead of going to the shopping centers close to home, I gather my needs and go to the outlets for lower prices on clothes. For example, I purchased Van Heusen shirts for between $9-12. The same ones at JC Penney were $28. One time I purchased 11 shirts and 3 belts for $130. Look around, you do not owe any store anything. Remember you pay their salary. Thrift Stores are a good place to visit.
When a need arises, before you head to the malls, visit some neighborhood yard sales. Not everything is junk, sometimes you will come upon an estate sale. I once purchased 5 working lamps for $11 in 1982. New lamps are expensive. I rewired them and they are still with me to this day. Many people say they are afraid to sleep on a mattress that someone else slept on, now if you have ever slept in a motel, guess what, the person before you slept there last night, right where you are sleeping. Did you survive?
At the end of the day, place all or some of your pocket change in a jar. You will be surprised how fast it will grow. I once amassed $170 for a vacation by saving quarters. I also bought a ham radio for $300 by saving quarters. This method works.
Must you plan a very expensive vacation? In 1989, I went on vacation with a friend and it cost less than $500 for the week. We visited Plymouth, Salem, and Boston, Massachusetts, then we went to Gettysburg and Lancaster County, PA. We had a full and enjoyable week and it did not break our wallets either. While getting out of debt, plan day trips! This is a good way to get away once in a while. It will also get you to think that if you had more disposable income, you could enjoy it instead of your creditors enjoying it. It would be a cudgel to move you out of your present situation more seriously and faster.
If you receive an advertisement in the mail and feel you “need” to buy the article they are advertising, then put the ad away for three weeks. After three weeks, take out the ad and destroy it because if you could survive those three weeks without it, then you did not need it.
Another way to build a cash flow, is when you receive your check and take out spending money for the week. Anything that is left over, put it aside and out of sight. Let's say you get $80 per week spending money and you only use $61. Then take that $19 and put it away.
- These are some root suggestions to help you build a cash flow. Of course, these are only suggestions but the principle can be carried over to and conformed to your situation. If you follow these principles you will begin to climb out of the pit. Do not take any of the saved cash and put it toward a bill. Let me explain. Let us say you followed these suggestions and saved $150 per month in cash. If you put this toward a bill and an emergency expense comes up then you will be adding more debt by charging the expense. If you have the cash ready to pay for it, you will have avoided another charge, saved the high interest and you have taken a step toward freeing yourself.
- Now let's suppose you paid a bill for $75 out of your saved money of $150. That leaves you $75. Combine that with next month's savings of $150 and you have a total of $225. Once I needed new shoes and sneakers and had about $130 in change saved. I purchased 3 pairs without charge cards or denting my budget. The "leftover cash" principle works. Start today and begin to feel freedom when you start paying with cash.
- SOME PRINCIPLES AND SUGGESTION FOR GETTING OUT OF DEBT
- GIVE YOUR CREDIT CARDS AND CREDIT LINE CHECKS TO A FRIEND
- Do not cut them up because in a moment of weakness it is too easy to call the credit card company and say your card was lost. Then the new cards will be sent to you in a few days and you will be back in bondage but if you give your cards and checks to a friend then the account stays open and you have no way of accessing that account without the cards or checks. The only thing you can do is pay off your balance and not create any more debt. Remember you will start using your saved cash for purchases instead of the cards. As I ponder this, tear up those credit checks and use them for compost. Those checks make it look like you are spending money and not incurring debt. Remember, deception is a great tool of the lender BUT IT WORKS.
- REJECT CREDIT LINE INCREASES
- One of the ways a lending institution rewards its good customers is to offer them the opportunity to become a greater slave to them. Many banks increase credit lines and tell you it is your reward. Call immediately and have your credit line lowered. Many banks give out credit lines of $5,000 and up without batting an eyelash. Call your creditor and tell them (don't ask) that you want your credit limit lowered to $1,500. If they refuse, then tell them you are closing the account, they will lower it and then in a few months will probably raise it up again. Remember, it is important to understand that banks need you in debt to procure interest because without it they cannot exist. Do not become a slave to a bank, the rewards are only heartache.
- REFUSE NEW CREDIT CARDS
- Banks are constantly sending out pre-approved credit cards which offer lower interest rates. Those rates are only good for an introductory period like 6 months. READ THE SMALL PRINT! The large print giveth and the small print taketh away. Tear up the application immediately. You only need one Mastercard or Visa. Where they take one, they normally take the other.
- Keep this principle in mind. CREDIT CARDS ARE NOT MONEY, THEY ARE DEBT INSTRUMENTS! If I have $1000 in savings and a credit card with a $2000 credit limit, I do not have $3000, I have $1000. You must begin to retrain your thinking. Who stands to make the most out of your uncontrolled debt? YOU or the bank? Think of yourself in business terms. What are your assets versus liabilities? Financial survival depends on this fundamental principle. You need to think of yourself as Chief Financial Officer of your Life. Business utilizes 2 ways of capitalization: 1. Selling Stock which is called an equity security; 2. or, Selling Debt such as bonds, debentures, commercial paper, etc., these are called debt securities. Did you notice what did not appear under Capitalization? BORROWING! Why? Because borrowing is not capitalization, it is DEBT! Just like credit cards, when you use them they are not raising capital but acquiring debt. DEBT IS NEVER CAPITAL!
- BUY A USED CAR
- If the need for a car arises while you are in financial bondage, buy a used one or find out how much it would cost to change the engine if the body is in good condition. Let's say you have a car with a good body and the engine costs $4000 to replace (4K is high end of spectrum) and you get a 50,000 mile guarantee. It sounds like a lot of money. Your friend goes out and buys a new car for 12,500. Pays it out for 4 years. You take the $4000 and stretch payments out for 2 years. Let's pretend a perfect world, no interest charges. You both average 10,000 miles per year.
- Your monthly payment is: $177 (includes sales tax)
- Your friend's monthly payment is $273 for the car. (includes sales tax)
- Your insurance premium stayed the same and you paid only $240 in sales tax.
- Your friend's premium increased about $500 per year. (conservative estimate)
- After 2 years your bill is paid with 3 years left on guarantee.
- After 4 years your friend's bill is paid. Here is the stark reality of buying a new car:
- Sales Tax 6% ------------------600
- Payments -------------------12,500
- Insurance increase---------2,000
- Total-------------------------- 13,700
- By having your engine replaced instead of buying a new car, the first 2 years you saved $2610 but the second 2 year time period you saved $6850, bringing your total savings to $9450 over 4 years, which averages out to $197 per month that went to you, not the finance company. If you would place that $197 per month in a fund or savings plan which paid 10% ANNUALLY, you would have $11467. By doing it this way, guess what, you can buy a new car and pay it out cash.
- When you are out of financial bondage, then you may buy a new car, provided you can put down at least 50% of asking price. The balance can be financed with controlled debt. (I will speak on controlled Vs. uncontrolled debt a little further on.)
- BORROW FROM RELATIVES
- This is a personal principle which can work quite effectively. Previously I mentioned in my "Symptoms of Financial Bondage" section that you have borrowed from everyone as one symptom of financial bondage. The difference between then and now, is before you were borrowing in an uncontrolled manner, now you are borrowing to reduce debt. Let me explain from personal experience.
- I was $4,000 in debt as a result of a car accident and job loss prior to this, so the bills I had were at the interest rate of 17-18%. I was steadily employed at the time. I went to my parents and asked for a loan of $4,000. I VOLUNTEERED to pay them 7% interest compounded monthly. I saved 10% off interest charges and they made 1 1/2% more on their money than what they were getting in their passbook account. Owing to the reduction in interest rates, the loan was paid off earlier than expected and I was not a victim of loan shark interest rates. I told them they made more money dealing with me than the bank.
- Remember, do not force or guilt manipulate anyone into doing this, just give them the facts and figures and how much they will prosper and how much you will save. To get the savings figures, run an amortization schedule which are available free on line. Allow them time to think, since they may view you as a bad risk, since it was your mishandling of money that got you into this mess. If you get the loan from them, as soon as you pay off the high interest rate accounts, close them. I did and you cannot get hooked in bondage when you stop the fountain of borrowed funds. Emergencies cannot be avoided but once you know the proper steps of debt and money management, you will establish a repayment plan in a controlled environment.
- ANALYZE YOUR AVAILABLE CREDIT LINES
- Many years ago I had the ability to charge $50,000 If I wanted to. I had taken the offers from several banks and because of my AAA credit rating, which would above 790 by today’s standard, I was given ridiculously high credit lines. Of course I sent them back but I wanted to see how many cards I could collect for an experiment. Keep in mind the following principle concerning available credit lines. If you go to buy a car and they check your open lines of credit and see you have the potential to charge $40,000 above and beyond the price of the car, they may be hesitant to loan you the money. You may be considered a risk. Close accounts you do not use or have not used.
- Do you really need all those department store credit cards? Most of them are at 21% or higher! Do you really need a gold card plus 5 or 6 visas? You only need one not both. A $5,000 credit line is sufficient to handle an emergency. Credit cards are not to be a means of living. Credit Cards are a good servant but a fearful master.
- ESTABLISH A BUDGET
- This is one of the most critical steps to getting out of financial bondage and staying out. Budget everything so there are no surprises. Let me give you some examples of what to budget. Then I will give an illustration.
- · Dentist - Do you go 1 or 2 times a year?
- · Car and health insurance
- · Start a savings account
- · Vacation
- · Telephone
- · Internet
- · Cable TV
- · General Fund - The GF allows you to know how much you may spend each pay period without exceeding budget. This fund allows you to buy whatever you want because that is what it is designed for.
- · Monthly Charges to be Paid - When you order something through the mail or purchase something with a credit card, you automatically subtract that amount from General Fund and transfer it into this category. So when the bill comes in, you have the money aside
- · Gas usage, tolls for highways, car payments
- · Debt repayment - Many people do not budget this item and as a result rob from Peter to pay Paul
- · House expenses, rent, mortgage, utilities, etc.