Tag: debt

The insanity of having Credit Card Debt

“All the lessons of history in four sentences: Whom the gods would destroy, they first make mad with power. The mills of God grind slowly, but they grind exceedingly small. The bee fertilizes the flower it robs. When it is dark enough, you can see the stars.” — Charles A. Beard

Charles Austin Beard was an influential historian in the early 20th Century.  In the above quote, he referenced a line of dialog from an ancient Greek play by Sophocles,  Antigone written around 441 BC. The first time I ever saw the phrase, it was the title of a 3rd season episode of Star Trek.  Years later when I was a college student I used to collect pin buttons which I’d display on my denim jacket. One day, I found a pin that read “Those whom the gods would destroy are first issued credit cards!” This is my all-time favorite button and I still have it in my collection.

Americans are addicted to credit cards, and the resulting levels of debt have caused much heartache and suffering in our society. Debt is a form of slavery that can last for decades.  Like most forms of addiction the young and stupid are usually the easiest to hook. 

My first credit card was from SEARS and I applied for it in college. The very first item I purchased was a silver metal $50 Phasar watch very similar in style to the  black plastic Casio watches I’ve worn for the last 25 years.  By the time I left college, I had 19 different credit cards.

The problem with credit cards is that the average person tends to use them for everything, especially non-essentials that they really didn’t even need in the first place. Before long, one card is maxed out, an new card is applied for, and the vicious cycle of mindless consumerism continues. 

“Scientists have developed a powerful new weapon that destroys people but leaves buildings standing — it’s called the 17% interest rate.” — Johnny Carson

 The average credit card has an interest rate of between 17% to 22% and can easily rise to 29.9% when you start having late or missed payments.  At 17%, your debt is doubling just over every 4 years according to the Rule of 72, discussed in last week’s post. When you add to this the fact that the average monthly minimum payment is only about 1% of the balance, by paying the minimum on a high balance you can spend decades to pay this debt off! Keeping a balance on a credit card is rarely a good idea.

 “The rich rule over the poor, and the borrower is slave to the lender.” — Proverbs 22:7 (NIV)

When a lender is issuing you credit, they are NOT doing it because they like you and you deserve it. They intend to profit from your debt. Credit cards are the WORST form of debt, and it’s very easy to hit many of the traps that are outlined in all the fine print on the application form.  Often you will be presented with a low introductory rate to encourage you to run those balances up, so that you can be charged insane amounts of interest as you struggle to pay back the debt after the promotional rate expires.

Most people do not consider this , they just ignore the fact, and continue to charge additional debt until they eventually hit the limit on one card, then  just apply for another until they’ve manage to trash their FICO credit score so badly that only loan sharks will lend money to them.

Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it. — Albert Einstein  (No, not really, but I made you laugh this is REALLY an anonymous quote! )

In 2009, the government passed the Credit Card Accountability Responsibility and Disclosure Act of 2009. the law states that credit cards statements must contain the following info:

• The warning: “Minimum Payment Warning: Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance,” or a similar statement.
• How long it will take and how much it will cost to repay your balance if you only make minimum payments.
• How much you must pay in order to pay off your balance in three years or less.
• A toll-free number where you can get information about credit counseling and debt management services.

 REAL EXAMPLE:

24 years if you pay only the minimum! And even if you paid 3.625% instead of 1%, it will take 3 years and cost $2659.36 in interest! No thanks, I’ll pay the balance in full and pay $0 in interest. It’s always best to pay your balance in full each month. If you can’t afford it, don’t buy it! 

Here’s a handy chart to show how many payments it will take to pay off your debt at several percentages of the balance with various interest rates:

MONTHLY PAYMENTS YOU NEED TO PAY OFF YOUR DEBT

SOURCE:  “Get a Financial Life: Personal Finance in Your Twenties and Thirties,” Beth Kobliner

A credit card is a tool. It can make your life easier if used wisely, but if you misuse it your life will become a living Hell.

As I said in an earlier blog, I went through a tough 18 month period seventeen years ago, ended up $50,000.00 in debt and trashed my FICO score. Bad things just kept happening and my life spiraled out of control quite fast.  It took a lot of work, wise council, and study to get me to where I am today. I am debt free. My credit cards are all reward cards, and the balances are paid in full at the end of each month. I actually get PAID to use my credit cards. It’s a wonderful feeling not to have to live in fear of the monthly bills in the mailbox, because I have enough emergency money socked away that I never need to worry. I hope that through continued reading of my weekly blog, I will be able to distill some of my accumulated wisdom to help you reach the same pinnacle.  

As always I wish you happiness and success!

_{It’s not just a good idea, it’s the law!}

I first heard about this powerful financial formula in 1992.  

I was unemployed back in 1992 for nearly the entire year, so I was very bored and I had a lot of free time and very little money.  My savings account was being depleted to supplement the bills my Unemployment Compensation was not covering.   I was watching an episode of The 700 Club, a weekday Christian Talk Show.  Host Pat Robertson was pushing his self-help tape set LIVING SUCCESSFULLY IN THE ’90s. The cost was rather inexpensive, and I needed all the help I could get in my precarious situation.

The ONLY thing I remember from this course was The Rule of 72, or as Pat Robinson referred to it “The Law of Reciprocity”.

This tool is a very simple formula used to give an close approximation involving the amount of time needed for an investment to double from the compounding of interest. Compound interest is a very powerful financial force which will earn you riches if properly used, or destroy you financially if abused.    

A little bit of knowledge goes a long way.

“The thing I have discovered about working with personal finance is that the good news is that it is not rocket science. Personal finance is about 80 percent behavior. It is only about 20 percent head knowledge.”  Dave Ramsey–Author and financial expert.

I’m going to use a little bit of very simple math to explain both the Rule of 72 and it’s relation to Compound interest.

What is Compound interest?

Compound interest quite simply defined is interest on interest. It’s the result of reinvesting the interest so that in the next period, the interest is earned on the principal sum plus previously-accumulated interest. I know sounds complicated, but it really isn’t.  You need to understand this because it’s how deposits, loans, and especially credit  cards work.

Example.

$100 with 1% interest compounded annually for 5 years.

 

This is assuming you are leaving the money in a savings account by itself, and adding nothing to it.

Now here’s where the Rule of  72 comes into play.

The rule allows you to approximately determine the amount of time needed for the value of your deposit  or debt to double! Using the above $100 at 1% example, using the rule of 72, it would take you about 72 years before your untouched $100 became $200.

Here’s how the formula works.

You divide 72 by the interest rate and the result is the number of years needed for doubling.

Let’s say you had $10,000 in a  CD (certificate of deposit) at a special 6% rate.

72÷6=12

If  you left that CD alone for 12 years,  you would have about $20,000 due to the power of compound interest.

Simple huh?

Now that you understand both the Rule of 72 and compound interest, next week I will explain how both relate to credit cards. Don’t miss it! As always I wish you happiness and success!

 

The importance of seeking wise council and discernment.

The title of this week’s blog post is one of the many catch phrases of the late Jerome Lester Horwitz a.k.a. Curly Howard of the Three Stooges. He is considered by some to be one of the funniest men of all time. He portrayed all types of experts from lawyers to doctors to military advisers during his short acting career. Although he passed away in 1952 at the untimely age of 48, he has made an indelible impression on contemporary culture.

Would you go to an actor for medical or legal advice because you had once seen him play a doctor or lawyer in a film? As Curly Howard might say “soitenly not!” Yet today countless individuals place their faith in celebrities like movie stars, professional athletes, or even their favorite singer when seeking  advice, endorsements, or general information of all sorts. This is why it is always important to consider the source!

Just because someone is rich doesn’t make them intelligent.

The average salary of an NFL football player is 2.1 million dollars according to a recent report by Forbes Magazine. Some actors get paid millions of dollars per film. Yet despite this level of wealth, we constantly read about these same celebrities going broke, owing back taxes, or filing for bankruptcy.

Knowledge is power!

Successful people do not find themselves in these types of situations when they have made it their lifelong goal to seek wise council. It is imperative to constantly read and do research in whatever field we are perusing, and especially in the area of personal fiance. It’s not always about what you know, because it’s what you don’t know that’s going to blindside you.

Wisdom does not always come from age.

There are countless retirees living in poverty because they did not take the proper steps in their youth to ensure a comfortable retirement. My late mother was one of these people. When I was a boy, I heard her brag to her friends on more than one occasion that ‘her son will provide for her in her old age’. There was no reason for her to die in poverty, she had a lifetime to seek  wise council and take steps to invest. In the end I supported my mother for the last few years of her life, and was then burdened with a hefty funeral bill.

Two quotes from success expert Brian Tracy come to mind:

• “The sad fact is that people are poor because they have not yet decided to be rich.”
• “Whatever we expect with confidence becomes our own self-fulfilling prophecy”

A good man leaves an inheritance to his children’s children, And the wealth of the sinner is stored up for the righteous. Proverbs 13:22

I did not come from a wealthy family. My father was the financial expert, but he unfortunately died when I was a young boy. My mother did not know the value of money and would spend two dollars for every dollar she had. As a result, I grew up in a roach-infested flat, eating government cheese, and the free lunches and breakfasts provided from NYC public schools. I decided as a teen that I was going to be rich when I grew up.

In 9th grade, I got terrific financial advice from my social studies teacher Mr. Rosenthal. He went above and beyond  to teach about the importance of investing and the  stock market. He had 2 dozen blue VALUE  LINE binders of stock market research on a shelf in his class. He taught us kids how to read the stock reports. One of the first stocks I tracked was United Technologies (UTX). He encouraged us to go to Merrill Lynch and use our ‘allowance, birthday and/or Christmas money’ to buy stocks. I remember going home very excited and encouraged. UNFORTUNATELY about that time there was a friend of the family visiting. The kids all called him ‘Pops’. As a teen, I thought of him as this wise, old guy that knew card tricks and jokes. That particular day he happened to ask what I learned in school, and I told him about my new investment passion. His response was “You’d have to be crazy to invest in the stock market! During the Crash of ’29 people lost all their money and jumped off  rooftops because of investing in the stock market.” So I got talked out of good advice because of a lack of discernment. I didn’t know any better, I was still a kid.

This brings us to an important point made by Dave Ramsey in his book Total Money Makeover:

• “Don’t take financial advice from broke people.”

“Economic advantages may be created by any person who surrounds himself with the advice, counsel, and personal cooperation of a group of men who are willing to lend him wholehearted aid, in a spirit of PERFECT HARMONY. This form of cooperative alliance has been the basis of nearly every great fortune.”  — Napoleon Hill author of Think and Grow Rich

If you want to be successful, you need to seek wise council from successful people with proven expertise. These people must have your best interest at heart. It’s no good if they are a bunch of self-serving ‘yes-men’ who will tell you whatever your itching ear wishes to hear. You need discernment to weed out those types of parasitic sycophants.

You can be successful and financially stable in the future if you take steps today. As always I wish you happiness and success!

A CANAL -PANAMA!

Leigh Mercer published his well know palindrome “A man, a plan, a canal – Panama!” in the November 13th 1948 issue of Notes and Queries, a long running scholarly journal of English language. A palindrome is a word, phrase, or sequence of letters that reads the same in either direction. I’m using it here as a mnemonic device to help emphasize the importance of having a PLAN.

The Panama Canal is one of the seven wonders of the modern world. It is a series of locks and dams which connect the Atlantic and Pacific Oceans via a 48 mile  artificial waterway and it first opened in 1914 after over a decade of construction. The first Chief Engineer of the project was John Stevens who devised the lock system.

The point I’m trying to make is, without the construction blueprints (or PLANS) the canal could never have been built.

In order to be successful in life at any particular task, you must have some sort of PLAN laying out the steps you need to follow in order to succeed. Every Self Improvement book ever published can all be described as a series of PLANS to help you achieve a particular goal. The problem is, with any advice given the only person who can make you follow the PLAN is YOU! If you fail to heed wise council, YOU are the only one to blame. You will reap what you sow.

 In his book 7 Habits of Highly Effective People, author Stephen Covey states

“It is our willing permission, our consent to what happens to us, that hurts us far more than what happened to us in the first place.”

The first two ‘habits’ are:

• Be proactive -i.e. focus on things we can do something about.
• Begin with the end in mind, or in other words, have a PLAN.

Every successful person who has ever achieved a major goal did so by having a PLAN. It goes without saying that if you fail to PLAN, you  can PLAN to fail.

• A diet is an eating PLAN
• A budget is a spending PLAN
• The 52 Week Challenge is a savings PLAN
• A 401k or its federal equivalent the TSP are retirement  PLANS

Motivational expert Brian Tracy once said that

 “Whatever we expect with confidence becomes our own self-fulfilling prophecy.”

This goes back to last week’s blog post  G.I.G.O.  where I addressed the importance of a positive mindset.  A PLAN by itself without you believing in it, or acting upon it, is useless. Suppose you brought a book on personal finance, read it and never used any of the strategies within. Would you expect to be a financial success?

Whatever you are PLANNING to do in life, you must have a clear vision, and you must act upon it. If you can conceive it, and you can believe it, than you can achieve it!  I wish you success and happiness!

You are what you think!

Have you ever been listening absent-mindedly to music on the radio when a favorite song plays? Suddenly, you find yourself singing along to the music despite the fact that you’ve not even thought about the song in years! Like it was yesterday, you remember many, if not all of the lyrics. You may even start to think about where you were when you first heard the song, and any other memorable events associated with that time and place, emotions included.

How did this happen?

You might not realize it, but the human brain is a powerful ‘natural’ super-computer! All your life, you’ve been programming your brain with the information that makes you ‘unique’. But have you ever considered exactly what it is that you are recording in your memory-banks to be stored for the rest of your life? Like the majority of us, probably not.

When I was a teenager, I used to go to the Woodhaven public library everyday to get new books or to return  old ones. I was a voracious reader. I once read ALFRED HITCHCOCK PRESENTS: STORIES THAT SCARED EVEN ME. Decades after reading it, there are still to this day several stories that I remember like it was yesterday. I even tracked down a hardback copy for my personal library.

A former friend of mine was a talented singer and song-writer. She could play guitar, and several other musical instruments as well. Jolene would walk into a gig, sing and play guitar for three hours, and perform every song from memory.  I watched her do it dozens of times. Impressed me every single time.  Truly amazing!

The point is this– EVERYTHING you put into your brain is there forever whether you realize it or not. I’m not saying that the recall will be instant, sometimes we have to fight to remember certain things as we shuffle through all that stored data. Think millions of files in tens of thousands of file cabinets cluttering the warehouse of data that’s stored in your brain.

All of this information impacts how, what, and why we think the things we do. It makes us who we are. So now that this has been brought to your attention, I want to consider this little mantra as you evaluate the quality of the information going into your mind. It’s an acronym G.I.G.O. It stands for ‘Garbage In, Garbage Out’. Just like a computer can be used to run spreadsheets for large companies, be used to write the great American novel, or search vital information  on the internet for research, you can also use a computer for media, games, and email. The same thing goes for your wonderful brain. So don’t fill your mind with depressing garbage! From this day forward, make it your mission to avoid anything that’s depressing, demoralizing, or just plain garbage.  Just like the lyrics of that old Bing Crosby song  “You’ve got to accentuate the positive, eliminate the negative, latch on to the affirmative, don’t mess with ‘Mister In Between'”

If you want to be successful in life, you need to fill your mind with positive information. You need to consider the quality of the information that you are committing to memory for the rest of your life. If this information is violent and depressing,   you’ll be teaching  your brain to be angry and without hope. Instead listen to positive and uplifting things. Don’t just listen to music on your car stereo,  play audio CDs from motivational speakers like Brian Tracy @BrianTracy ‏ , Tony Robbins @TonyRobbins ‏,  John C Maxwell @JohnCMaxwell ‏, or the late great Zig Ziglar @TheZigZiglar to name a few. Fill your twitter with accounts of people who tweet and retweet positive quotes, motivational pictures, and uplifting posts! Surround yourself with talented, encouraging, successful people and you will program  your mind to be happy and successful. You will become a better person than you are now, and you will grow as an individual.  You will be transformed by the renewing of your mind, and you will live boldly like you’ve never lived before! You can do it! I believe in you, and wish you great success!

This is my first BLOG, My name is Michael James Oetting, and I am a lifelong coffee enthusiast in the process of starting my first coffee shop. It has not been easy but being successful is NOT a passive activity. It takes time and effort, as well as the wisdom to seek wise council. You can find me  @expressomax1 , or my company  @ThatCoffeePlace both on Twitter.

There is nothing more depressing than endless toil without some boon at the end. I’ve worked very hard to attain my current level of wealth, and I do enjoy rewarding myself with a great vacation. Sadly, many of my friends cannot afford vacations, and I want to share something which may help them to help themselves so they can earn their own rewarding vacation.

A powerful tool that I discovered a few years ago is something called the FIFTY-TWO WEEK CHALLENGE.

I did NOT create this idea. It is referenced on blogs and in articles all over the internet and there are many variations. It was first dreamed up by a woman named Kassondra Perry-Moreland in 2012.

The beauty of this simple saving plan is that it can be customizable to fit various lifestyles, but the only thing that it requires to succeed is for you to be committed to the plan. Now what is this FIFTY-TWO WEEK CHALLENGE you might ask? Simple. Every week for 52 weeks you stash away $25.00

Now I’ve been told by a few people that they don’t have this kind of money, and sometimes it does require a bit of thinking outside the box creativity, and this challenge can be customized to fit various situations.

The first thing we have to usually admit to ourselves is that each and every one of us has something, some vice, guilty pleasure, or waste of money that a small sacrifice every now and then can help us to achieve this goal of the weekly $25. Imagine if Monday through Friday on your way to work you stop at your favorite coffee shop for a $5 large Iced Latte. Giving this up just ONE day gets you 20% of the way to your goal. Make coffee at home, it saves money! This is just ONE example. What can you cut back on or eliminate entirely to achieve a goal that will give you far more pleasure and happiness?

I just had an amazing vacation! I went jet skiing, stayed  at a posh suite at the shore, and ate at fine restaurants. Most of my friends could not afford this luxury, and honestly a mere decade ago it would have been tough, BUT NOT IMPOSSIBLE for myself as well, but I started taking steps back in 2002 to get my finances in order, and now I look forward to amazing vacations year after year.

Now let’s get back to this $25 a week saving idea. If you can follow through with this each week for an entire year, at the end of 52 weeks you will have stashed aside a whopping $1350.00! Does that sound like enough to have an awesome vacation with to you? It sure does to me. That’s about what I just spent for my awesome vacation.  Please don’t misunderstand me my friend, I’m not bragging. I’m encouraging you to unlock the potential you have stored within yourself to enjoy the same awesome getaway that I just did. I want to delight in your success. I want you to be as happy as I am, and then you can encourage others to do the same by proving to them that it IS POSSIBLE!  I did it, and you can too! I BELIEVE IN YOU!

Now the simplest way to do the FIFTY-TWO WEEK CHALLENGE is just to put aside $25 each week. I would probably put this away someplace safe, like in a savings account to avoid the temptation of spending it. Some people are fine with putting it in a coffee can in the kitchen,  or in a box in their dresser, but let me reiterate,  a bank is a great safe place for it to be out of sight, and out of mind.

• Method ONE  -Same amount every week

$25 a week, every week, for 52 weeks =$1350

Does your income level change during the year due to season employment or school? Try:

• Method TWO -Interval Variations

$45 for 10 weeks, $35 for 10 weeks, $25 for 12 weeks,  $15 for 10 weeks,  $10 for 10 weeks =$1350

This is a little bit complicated,  and requires you to decide what your saving level is going to be for that week depending on your income situation.  You can mix and match from the pool, but once you use a particular week, it’s gone. It’s best to try to get the 20 highest weeks out of the pool ASAP. Save the $15 and $10 weeks for bad weeks when ‘life’ happened.

• Method THREE- Level Down

For 52 weeks straight, starting at $52 a week, decreasing each weeks savings by $1 =$1378

This assumes that you can save a lot at the beginning, for people that will see their income decrease six months out due to seasonal work or overtime stoppage.  So the first week you put $52 in savings, the 2nd $51 in savings, the 3rd $50 and so on.  It’s brutal at the beginning, but gets easier as you go on.

• Method FOUR- Level Up

For 52 weeks straight, starting at $1 a week, increasing each weeks savings by $1 =$1378

This is the reverse of the prior method, and assumes you’re going to be making more money at the end of the year.  JUST REMEMBER this will become harder once you get half-way through the year, and brutal at the end. First week $1, 2nd week $2, 3rd week $3 and so on.

• Method FIVE- Fifty Two Pick Up

For 52 weeks straight, choose each weeks savings from a card deck marked from  $1 through $52 =$1378

This is the most complicated of all the ways to accomplished the challenge, but gives you the most control over your weekly savings. Maybe you have an old deck of cards lying about the house, and a Sharpie marker. Get them! Now mark each of these cards (or any 52 suitable slips of paper) starting at $1 and increasing in value until you reach $52 on the final card.  Now each week as you go through the year, you will pick the amount you plan to save that week from the deck of 52 cards. Once a card is drawn it is discarded, so it pays to try to get the ‘high cards’ like $52 out of the way and save the low cards for the end.  Is it your Birthday and you got extra cash from relatives? Grab that $52 card and play it. Got a speeding ticket on the way to work? Play a low card. Like to gamble? Shuffle the cards, cut and whatever you draw is what you save that week. Just remember to discard each card once it’s been played.

I wish you all the luck and success with the FIFTY-TWO WEEK CHALLENGE and whichever method you decide best suits your situation. Stick with it and a year from now you will be able to have an Amazing Vacation, or be able to enjoy the money anyway you see fit! Success!