The 4 Horsemen of Personal Finance: Number 4

The purpose of the “The 4 Horsemen of Personal Finance” series is to arm you with what I consider to be the keys to overcoming your financial fears.

To recap, they are:

1. Attitude is Everything

2. Debt Will Drown You

3. Budgets Are Your Friend

The fourth and final “Horseman” is the most important.  Without it, the previous three don’t matter.

4. Have Faith

Good things take time.  Once we make the conscious, committed decision to improve our lives by becoming more financially stable, we must not become easily frustrated and stray from the path.  It will not happen overnight.  For people like myself, remaining patient for the duration of my financial journey is something I struggle with every day regardless of what stage you are in on your financial journey.  Again, we live in an age when everyone wants (and expects) instant gratification.  Staying patient as you make a major life change is never easy.  To borrow a line from Tom Hanks in “A League of Their Own,” “It’s supposed to be hard. If it wasn’t hard, everyone would do it.  The hard… is what makes it great.”

The true test becomes what we do with that frustration.  Rather than becoming discouraged and falling off the wagon, we need to learn to harness our frustration by transforming it into action.  For example, if you have $10,000 of credit card debt and only a $300 surplus each month after you pay all your bills, you are going to need almost a year and half to pay off your balance (assuming your spending stays the same).

Do this for several months, and I’m willing to bet you will quickly become discouraged at just how slowly your debt is shrinking.  This is something that everyone deals with.  The solution however is to get motivated to make it shrink faster.  Reduce your cable package.  Carpool to work several times a week.  Bring your lunch to work.  Cut out the trips to the mall.  Stop wasting food.  There are endless ways we can reduce our spending.

The big picture here is that if we start making conscious efforts to reduce our debt, cut our expenses, and to build wealth, with enough practice and repetition we will slowly begin to transform as people.  Bad habits will eventually be replaced by good habits, but you have to stay committed and give it time.  Ultimately, it comes down to faith.  If you believe that the sacrifices you are making now will be rewarded with long-term peace and happiness later, you are on your way.

Good night!


The 4 Horsemen of Personal Finance: Number 2

Welcome back the second pillar of my “4 Horsemen of Personal Finance.”

Since last night’s post may have been a little wordy… easy to talk about at length since attitude really IS everything… I will try to keep this one short(er).


2. Debt will drown you

Debt is not your friend.  Debt is like that buddy that asks if he can sleep on your couch for a couple nights while he gets his act together, but 2 months later he is still there, your favorite tshirt is missing, and all the frozen pizzas you had stockpiled in your freezer are gone.

Unfortunately, debt for most people is completely commonplace – an acceptable, everyday part of life.  Like countless others, I received my first credit card in the mail my sophomore year in college despite the fact I had never signed up for one.  My first thought when I opened that thing…”Ooh… free money!”  Touche Bank of America, touche.

As are most banks and credit card companies these days, the people that issue cards this way are smart.  In the most basic sense, they are modern-day, white-collar drug dealers.  They offer credit instead of crack, and as the consumer, you use plastic instead of a pipe.  They know that the sooner that get you hooked, the sooner you will become loyal to their brand and become a consistent, long-term revenue generator through transaction fees and finance charges.

It is very easy to fall in this trap.  When you approach a limit on one card (and assuming you are making your minimum monthly payments), you simply pick a winner out from the pile of credit offers you get in the mail every week and complete a 0% interest for 12 months balance transfer and continue your spending.  Do  I speak from experience on this subject?  You bet.

What I didn’t understand then is that credit, in its most basic form, is a tool for people who are lazy, in denial, or both.  We live in an age of instant gratification.  People no longer want to wait to purchase the things they want, nor are they willing to put in the time and effort to plan their purchases properly.  They convince themselves again and again that using their credit card is ok because that is what they are used to.  To make matters worse, when we use credit cards, we actually spend more money than we would if we were paying in cash.  Studies have shown that in some cases people are willing to spend more than twice as much on a purchase when they pay with credit.  So not only are we spending money we don’t have, we are spending more on average for our purchases.  Bad (and expensive) combination!

The title of this pillar is “Debt will drown you.”  What I’m stressing here is that if you are currently buried in credit card debt, car loans, financed furniture, student loans, etc., you really need to do some soul searching and ask yourself if you are happy going through life knowing that you will always be paying everyone else before you can pay yourself.  If you can never pay yourself, you can never build wealth.  If you can never build wealth, you will be living yourself on someone else’s terms indefinitely.  In short: you need to focus on getting out of debt.  It is still possible to still get the things you want and need without borrowing, it just takes the right attitude (and as we already know… attitude is everything!).

If that isn’t enough, here is some additional motivation for you.  Let’s assume that you have always driven new cars that you trade out of every 3-4 years with a payment of $400/ month.  Using my favorite compound interest calculator, we know that due to the power of compound interest, if you took that same $400 and invested it earning an average rate of return of 10% (which equals the average rate of return of the S&P 500 since its inception), after 30 years you would have almost $790,000!!!  Not sure about you, but to me that is ALOT more appealing than the small amount of satisfaction I would receive by always driving a newer model vehicle.

If you need a gameplan to get out of debt, there is none better than Dave Ramsey’s “Debt Snowball” method.  This method basically requires that you arrange your debts smallest to largest, and after paying your basic bills (food, shelter, electricity, etc.) and making your minimum payments on your other debts, you throw whatever is left over towards the smallest debt.  When the smallest debt is paid, you move on to the next one which, due to the extra money left over from paying off the first debt, you can now attack with greater effectiveness.  In my opinion, this method is by far and away the most effective way to rid debt from your life.

Pillar 3 coming tomorrow!

The 4 Horsemen of Personal Finance: Number 1

Hello and welcome back to Wallet Sense!

On each of the next 4 days, I will be posting what I consider to be my four most basic, fundamental pillars of personal finance.  Much like the 4 horsemen of the Bible (or Notre Dame football lore… don’t worry though, I’m not a Notre Dame fan), these common-sense principals will lay waste to any financial challenge presented before them.  Keep reading for number 1…

If you have spent any time at all researching personal finance (and I’m guessing you have if your reading this blog) you will have learned that opinions on personal finance are like… (censored – remember no profanity here on Wallet Sense!), everyone has one.

Although these opinions run the gamut from being overly simplified to hopelessly complex, common (sense) parallels can easily be found amongst those who actually have experience building and maintaining wealth.  To many, the word “wealth” in itself can be intimidating.  Some assume that in order to create wealth you need a special underground room with reinforced concrete walls and an armed security guard with an automatic weapon to stands guard as you empty daily duffel bags packed full of $100 stacks.  Although in theory you could create significant wealth this way, there are other options.

Creating wealth is the very simple act of setting money aside after you’ve met all your financial obligations with the intention of not spending it (ie, saving it).   Anyone can do this, making any amount of money.  If you make $1000/ month and after paying all your bills (and eating, drinking, living life, etc.) you have $50 left over to go into your cookie jar, you are creating wealth.  Do it for a year and you have $600, at which point I would suggest putting it somewhere safer than the cookie jar.

Simply put, you don’t need to be a number 1 draft pick to create wealth (although that is a pretty decent way to do it quickly).  To create wealth, you first need to want to become wealthy, which brings me to my first pillar…

  1. Attitude is everything

So you want to be rich?  Great!  After all, who doesn’t?  My question to you then, is what are you doing to  move closer to that goal each and every day?  You see, everyone wants to be rich, but most people never actually take the time to think, plan, and commit to a strategy that will allow them to get there.

Most people who just say that want to be rich are the same types that assume that everyone else in life who has been successful in creating wealth has benefited from someone handing it to them.  The sharp-dressed business executive being interviewed about their companies most recent quarterly sales figures on TV?  

“Must have come from rich parents who paid for a top tier ivy league school then called in a favor with some fellow members of their golf club to get a cushy job right out of school.”

The professional athlete who dominates the daily sports highlights and perhaps appears on your TV hawking the latest product or service hourly?

“Obviously, they were simply born with so much God-given athletic talent their lives were set from the day they exited the womb.”

The pop signer with the lame single that as much as you hate to admit it has been stuck in your head for a week?

“Well they clearly had the best producers and the best writers that basically spoon fed them a song that anyone could do.”

WRONG.  People like this are successful in their pursuits because throughout the course of many years, they have fought, scratched, and persevered to get to where they wanted to be.  The repeatedly set lofty goals (click for my post on goal setting) and exceeded them.  How many people start out in business but dont reach the executive level?  How many people born with natural athletic abilities dont have multi-million dollar contracts?  How many talented musicians have never sold out Madison Square Garden?  The answer is… alot.

We live in a country where every day people who came from nothing are offered the opportunity to become whoever they want.  According to Dr. Thomas Stanley, author of “The Millionaire Next Door” about 80% of millionaires are first generation.  First generation!  That means that the business executive must have done some things differently to separate themselves from their peers (that didn’t involve his parents).  The 1st round draft pick must have been out practicing when others were partying.  The pop signer was busy embarrassing themselves singing on street corners while others make fun of them in the clsoe company of their friends. 

Whether its deciding that you want to provide a more secure future for yourself and your family, or deciding you want to complete your first marathon, you have to get your head right and believe that you can do it.  If you want to give yourself a financial makeover from head to toe, you can, but only you can convince yourself of that.  Instead of looking at those who have achieved wealth and success and immediately thinking negative thoughts, be excited about the fact that they are once again proving what is possible for anyone who is willing to put in the work.  Self-improvement only comes from within.  After all, if you can’t believe in yourself, then who will!!??