I’m Not The Debt Police, I Just Think I Found A Better Way.

Not surprisingly, I still get email (or tweets) from people who’ve read IOU NO MORE, and want to know more about why I think managed debt is all that bad. (I got that question just today via one of the discussion boards I’m on).  After all, well managed debt allows us to have nicer things and can improve our credit scores. Right?  Besides, Sam, I get a tax break on my mortgage interest.

Those are all fair points and I’d like to address them, briefly.

First, I’m not the debt police.  I have some very strongly held positions on the subject, but I’d never dream of getting all up in someone’s grill who disagreed with me.  So when you read my reply, take it as advice from someone who cares about you, your family and your future, but who will not judge you.  This is a safe place.

Let’s take the objections out of order. 1. Managed debt improves our credit scores.  Yes, that is true, but so what?  Why do I want a big credit score?  Unless, of course, I plan to borrow more money, that is.  Dave Ramsey calls a credit score, “An I love debt, score”.  I tend to agree.  People scramble like crazy to get the right balance of credit cards, auto loans and mortgages to see how high they can get those scores.  Why?  So that when they want to borrow more money they can get it at a lower rate.  I’m never going to borrow again, so I’m not impressed.

The math doesn’t follow the logic, either.  If I have debt, I’m getting stars for paying the bank all that extra money so they will want to loan me more.  If I have no debt, though, I’m able to pay ME all that money I was paying the bank.  Would I rather pay the bank or pay myself?

The better rate argument is also somewhat of a myth, too.  Take a mortgage for example; if you have a good income track record and can make a strong down payment, you’ll get a mortgage at a good rate and you won’t have to sweat those worrisome debt to income ratio investigations.

Now, let’s dive a little deeper on the mortgage interest thing.  Let’s suppose I have a $100,000 mortgage at 3.5% because of my outstanding credit score (which I could get with a good down payment, but we already said that).  I get to write my mortgage payment  off my taxes, right?  Not exactly. It’s not my mortgage payment I’m getting to deduct from my taxes, it’s the interest. Not playing the compound interest game, I’m paying the bank $3500 in interest.

If I’m in a 28% tax bracket, the tax break on $3500 is $980.  So I’m paying the bank, $3500 to keep from paying the IRS $980.  Someone please help me understand how that’s a good deal.  I’d rather pay the Govt. (even administrations I don’t like) $980 and keep the $2520 for myself.

Even if I was desperate to unload $3500, I’d rather give it to my favorite charity where I know the money is being used wisely than to any Government, because they can’t even spell, ‘wisely’.

Let’s move on to the ‘allows us to get nicer things’ objection.  I’m not really thinking that’s true.  I’ve never known anything that can’t be purchased with cash at least as easy as with credit.  In fact, many times you can get a better deal by laying down ‘Benjamins’.

What credit DOES allow you to do, is be impulsive and buy the ‘nicer things’ before you can actually afford them.  We can achieve instant gratification.  Is that a noble goal?

In Sam’s  world, it’s all about risk management.  The less debt I have, the less risk of either the country, the bank, or I have financial challenges.

Debts I DON’T owe can never be called in.  If I have no debt and the country, or my state goes belly up, I don’t have to worry nearly as much as if I have outstanding debt.  If something crazy happens and I lose my job, I don’t have to worry about losing my house or my car or legal action.

One more thing; if I eliminate debt, even well managed debt, I have something I didn’t have before…cash.  With cash, I can buy all the nice things I want.

Now you know why I believe and practice what I do.  If you feel differently, it’s ok.  I’m not going to get mad at you. You get to choose for yourself how you want to manage the money you work for.

What’s REALLY weird about my financial views is not what I think about debt. Those are radical, but not weird. What I believe about preparing for the future and the Stock Market is radical AND weird.  I’m way out of the norm on that one, but it will have to wait for another day.  I’ve caused enough turmoil for one Monday.

I would love to hear from you about your money management challenges and victories. Are you debt free? Are you working a plan to become debt free?  Do you wish someone would help you get on the road to freedom? Do you pooh, pooh the whole idea?  Let us know.  Let’s talk.

 

Governments, Churches and the Family Budget

Now there’s a Headline that has the potential to tick off almost everyone.  It’s a gift I have.

Five years ago this month, my remarkably below average selling book, “IOU NO MORE” hit the market.  I had high hopes for it, but some other simultaneous life changes prohibited me doing the aggressive marketing that success required.  No big deal really.  The material helped a lot of people and the principles are still true.  Some of the content is dated now, but if you want a copy you can still get it from Amazon (There’s a Kindle version).

Last year, I updated the book and added a couple new thoughts, but decided not to publish it.  I’m still considering making it available in an e book format. Time will tell.  At any rate, Happy Birthday, “IOU NO MORE”.

The book’s principles would be very useful for Governments and Churches, too.

I read with dismay, the debates between left and right over how to get the economy going.  Both sides may be right and both are definitely wrong.  They are more interested in sound bites and pandering to their respective bases than actually addressing the national debt and getting the economy rolling again.  They are interested in power and job security and very few have the courage to stand up and tell the whole, ugly truth.  Senator Paul Ryan has tried, but neither side, nor the American public is interested.  We can’t handle the truth.

I could fix the budget.  Millions would hate me, at least for a while, but I could do it.

Budgeting is simple.  It’s not easy, but it’s simple.  When you have serious, crippling debt, there is one definite problem and one possible one.  The definite problem is a spending issue.  You are spending more than you earn.  That’s automatic, beyond dispute.  It is also possible that you have an income problem. You may actually need to earn more money.

In politics, the left is more willing to face the second factor, while ignoring, even berating the first.  For the left, it’s always an income issue.  We need more money, let’s raise taxes, especially on the rich.

That sounds good on the surface, it’s certainly populist, but it’s naieve and maybe even dangerous.

The right side of the aisle says we should cut taxes because tax cuts spark the economy. They talk about spending cuts with fiery zeal, but never do it, because too many members of their base would baulk at their favorite entitlements being affected.  So, round and round we go, never progressing, always spinning and spiraling, ever downward.

The very first step to fixing a debt crisis is to STOP BORROWING!  You’ve got enough of a problem with what’s already been borrowed.  Stop trying to dig your way out of a hole. Is anyone in Washington listening?  Anyone in America?  STOP!

To fix a budget, whether personal, organizational or national, the next step is a debt assessment.  We need to find out where we are.  How much is coming in?  Where is it coming from?  How much is going out?  Where is it going?  To whom do we owe and how much do we owe each creditor? What are the minimum payments.

Now we do a budget.  Every category has a name and every dollar is assigned.  This is where we start to cut.  We prioritize where our money goes.  In a family budget, God comes first.  He gets the first ten percent, then comes Food.  In my U.S. budget, National Defense would rank very high.

As individuals, if we don’t eat, we become vulnerable to illness.  As a nation, without a strong defense, our freedom and very existence is at risk.  When I’m in debt, I cut the fat, I might not eat out as much, I rip the junk food out of the budget and the stupid squandering, but you gotta eat.  Our national defense is more important than entitlement programs.  But I digress.

I would go through the budget item by item in a zero based, rather than a line item budget.  Every category has to defend it’s right to existence, every time the budget it done.  Some categories must be eliminated, some must be slashed. Some must be reformed.  For example, if I can’t keep the lights on, I can’t afford to go to the movies.  Back when I was in debt, I did just the opposite.  I had plenty of fun, but I repeatedly had my electricity cut off. Twice I had cars repossessed, but I went to the movies, concerts and night clubs without thinking twice.

In America, there are multiple categories of spending that should be eliminated.  That’s a vote loser. Other categories need slashed to the bone. It’s uncomfortable, it’s unpopular, but it’s necessary for survival.

After every category is properly designated, prioritized and the necessary adjustments (cuts) are made, if there is still more going out than coming in, then additional income is required.  In our case, my wife went back to work.  Sometimes a second job is required.  Other times all that’s needed is a good yard sale or some postings on Ebay.

From a national perspective, at this point, we may need to raise taxes for a while.  We have to be honest.  It’s not fun working two jobs to pay bills, but we got ourselves into debt, so getting out contains some discomfort. It won’t be fun paying more taxes, but it may be necessary. You’d better prove to me that it’s necessary by cutting spending first.  Don’t try and snow me with mythical promised cuts that never transpire. Show me the cuts, then I’ll show you the money.

The two primary impediments to a successful family budget are: 1. unwillingness to change behavior and 2. a family not being on the same page.  On a national level they are 1. Republicans and Democrats not being on the same page and 2. Americans not willing to change behavior. Most of us on the right are delighted with spending cuts, unless it touches our entitlements.  Don’t touch Medicare or Social Security.  Don’t go near Defense, etc.

The left is fine with taxing the ‘rich’, but don’t ever tax the middle or lower classes.  Those rich people have to pay their fair share, but it’s not fair for my base to pay any share at all.  How ridiculous.

We need leaders who are willing to be one term officials.  We need men and women who are prepared to do the hard stuff and fix the economy, knowing it will be unpopular and that they may likely be voted out in a landslide at the end of their terms.  We want to be Mayberry with Andy Taylor as Sherrif, but we might actually be Tombstone and need Wyatt Earp.

Oh, remember that those tax increases were temporary.  When my wife and I got out of debt and were able to live on a single income, she quit her job to become a full time farmer.  She was probably better off employed….

Any tax increases should follow spending cuts and have a deadline built in.

I’ve blethered on way too long, but bear with me for another moment or forty.

I would implement a consumption, rather than an income tax (read “Fair Tax”)

I would eliminate junkets.

I would open offshore drilling and drilling in ANWR.

I would immediately open the Keystone Pipeline Project.

I would make a deal with the auto makers that the first auto maker who could create a legitimate 50 mpg gallon (city) vehicle, would get all Govt. contracts for ten years.

I would then make similar deals with alternative, renewable energy companies.

I would implement Tort reform and term limits

I would reform Social Security, Medicare, Medicaid, the Food Stamp programs and other Welfare.

I would implement a work for benefit plan into Welfare benefits.

I would abolish the USDA

I would privitize the TSA

I would close the borders tighter than drum for illegal immigrants and build a nice new, wide, welcoming door for legal immigrants

I would legalize drugs, tax the fire out of them and enforce DUI and similar laws with a zero tolerance policy

Until the Fair Tax could be implemented, I would lower the tax rate and eliminate tax deductions (flat tax).

These are just some of the reasons no one would vote for me.

I could go on, but now I’m starting to preach.

Speaking of preaching, I haven’t even started on Churches an money yet.  Wait till next post!

 

Economy Up. Economy Down. The Debt Free Never Worry.

One of the great things about being debt free (except our mortgage), is the lack of worry about the economy.  Oh, I don’t like the way things are going, but I can’t make the Government take responsibility for their finances, but I refuse to let Washington ruin my life with their irresponsibility.

Here’s the deal.  Brittan and I have zero debt apart from Mortgage stuff.  We have no car payments, no credit card balances, no student loans. We live on what we like to call… A BUDGET.  It looks like this:

1. Tithe – God Comes First

2. Food – Because we grow most of our own food, our grocery bills are fairly low

3. Shelter – House, utilities, insurance

4. Transportation – gas, oil, maintenance

Those are the 4 perimeter walls of our budget. Once those are taken care of, we budget the other things we need and want. Since we have no debt, budgeting has become pretty easy.

We have an emergency supply of about 6 months cash and a year of food and basic staple goods. We also have 2 years supply of seeds and livestock to raise our own food.  By the end of 2012 we should have over a year’s emergency fund and up to 2 years supply of staples. 

At the risk of sounding like an infomercial, if you’d like to know how you could be debt free FOREVER by following ‘the simplest money management plan on earth’, check out www.iounomore.com.  Don’t let the headlines make you worry. Take control of your own future and sleep in peace.

 

 

 

Car Fever – A Narrow Escape

We don’t do debt.  Everyone who knows us, knows that Brittan and I believe the only tolerable debt is mortgage related.  Even that is only tolerated with reluctance.  We don’t have student loans, we don’t have credit card balances and we don’t have car loans. If we can’t pay for it, we don’t buy it.

We almost fell off the wagon this weekend. Before you panic, I said ALMOST.

Here’s what happened.  All our vehicles are old.  Our two cars are 2000 models.  Our farm truck is a 1997.  It was the truck that nearly did us (me) in.

With vehicle age comes an ever increasing collection of issues. The truck has them. Over the last year, the old GMC has had a few problems. We painted it back in the summer. We put new tires on it and and put in a new master cylinder for the brakes.  Last weekend as I reached over to close the driver’s side door, the arm rest came off in my hand.  That’s not really supposed to happen. Then the water pump started leaking. The timing of that stinks because I have to take a couple of cows to the processor this week. Sigh.

Did I mention that a Livestock Guardian Dog chewed up the seat? It was like a scene out of “Turner and Hooch”. “Not the car! Don’t eat the car!”

As we pondered the situation on Friday, we concluded that a new truck was in order.  The problem with that is, we have used a lot of expendable cash building up our farm and farm business, so the car fund consists pretty much of whatever we can find on the floor under the seats. The only way a new (to us) truck was in the cards included a car payment.

We talked about it at length and I had numerous justifications.  It wouldn’t be much. It would be a short term. I’d pay it off early.  Yada, yada.  For the first time I can remember in my life, I had CAR FEVER. And it was a bad one. Because I’m not a regular sufferer, I hadn’t built up much immunity.  I was in a bad way.

Brittan offered up a weak, “I don’t want any car payments,” but it was easy to see her heart wasn’t in it.  You could see in her eyes that she was imagining driving a shiny new pickup, one that had all it’s parts and all it’s parts worked.

I went online and looked at both private ads and at some dealership offers.  First, I got sticker shock.  Then I got discouraged. Then I started to get practical.

Did I really want to make monthly payments? Did I really want to buy a shiny truck only to fill it with manure from the mule pasture?  Did I really want to violate all the principles I’d been preaching for the last 6 years?  The fever broke.

I filled the radiator with water while Brittan called a mechanic friend.  We drove the truck out to the farm where our friend could work on it.  We went to the auto parts store and bought what we needed. Brittan also picked up a car seat cover to hide the chew work performed earlier.

By mid afternoon, the truck was running fine and our wallets were only a little lighter.  The parts weren’t all that expensive and our friend got a nice day’s pay while we were spared from doing something really stupid. Of course, there’s still no driver’s side arm rest, but stuff happens.

We were in the ‘red zone’ for a while and it was dangerous there.  We’re safe now, but we’ll have to get busy rebuilding the car fund, because eventually we WILL need to replace one of our ancient road warriors. And car payments are unacceptable.  Unacceptable, I say.  Too much money and too much risk.

Folks, it’s always Car Fever Season somewhere. It can be bad, even financially fatal. Take precautions.  Be prepared. Don’t be a victim. Take my advice. I’m a survivor.