Five Reasons to Start Saving Before Paying Off Your Debt

Pop quiz: If someone has gotten themselves into $20,000 worth of debt over a 3 year period and all of the sudden receive an $30,000 inheritance, should they pay off their debt?

Answer: No. If they do, they will be back into $20,000 worth of debt in just a few years. It was the habits that got them into debt in the first place. They should focus on paying back their debt by saving from their income. Working their way out of debt will give them the discipline and habits to stay out of debt long term.

In general, it is counter intuitive to think that one should start to save before getting out of debt. After all, if you are saving with an interest rate of 9% and have debts with an interest rate of 15%, aren't you falling behind?

Perhaps, but people make decisions based on emotion and then justify their actions using logic. Here are the five reasons you should start saving while paying off debt:

1. Many people tell themselves they will start saving once they have paid off all their debts. In the end, they never pay off their debts and they never start saving. If you have reasons why you can't save money today, in your current situation, what makes you think you won't have plenty of excuses of why you can't save in the future?
2. If you aren't saving money for emergencies, the emergencies that come up will leave you in a bind. Any progress towards debt you made will be undone. You may even end up using high interest rate credit cards to pay for an emergency which will cause you to fall further behind.
3. Saving is a habit. If you don't start to develop the life long habit today, even if you happen to be one of the few who do become debt free, you will not have developed the habits necessary to continue to increase your net worth.
4. Debt is like weight. Most people have a certain level that they are comfortable with, even if it is unhealthy. While some people try to diet, years later, they find themselves at the same weight level. This is true with debt as well. Imagine saving only after you have hit your weight goal! Don't wait to start saving until after you have hit your debt goal.
5. Saving is one of the building blocks in your financial house. If you don't put the foundation in place, you will not be able to build on it later. Dave Ramsey's debt stacking strategy (see www.daveramsey.com) can be extended to continue the snowball into savings. If the building blocks are not set in place, however, months of savings will be found spent before they reach a savings account.

Thank you so much for visiting the site and taking an interest in your own personal finances. This means a lot to us. Please do browse the site and leave comments or questions.

This post was reposted from http://finlit.biz/debt/five-reasons-to-start-saving-before-paying-off-your-debt/, originally written on June 3rd, 2014.

Dave Ramsey's Approach to the Emergency Fund

An emergency fund represents 3 to 6 months of monthly expenses put into a special account (not checking or savings) for the purposes of an emergency.

Some people hesitate to start an emergency fund because they may be in debt or they may be in a bind financially. Art Williams once said, "All you can do is all you can do, but all you can do is just enough."

No matter where you are in life, do what you can do. If you can only contribute $5, contribute $5. If you put $100 aside, put $100. Whatever you do, do it consistently and you will see your savings grow.

When a person lives paycheck to paycheck and an emergency arises, they are forced to borrow from their credit cards and pay high interest and fees. This is all too common and probably the reasoning behind Dave Ramsey's argument for building your emergency fund while simultaneously paying off debt.

See what Dave Ramsey has to say about the emergency fund:


This post was reposted from http://finlit.biz/estate-planning/dave-ramseys-approach-to-the-emergency-fund/, originally written on May 20th, 2014.

3 Ways to Valuate Homes

When it comes to purchasing or selling a home, most people make decisions based on emotion rather than logic.  This is natural, but it always helps to at least have the facts to explore the logical implications of various options.

Option 1: Advertisements

Mass media will offer home values to us through billboard postings, newspaper articles, flyers, online messages, etc.  It is natural to think that we should value homes based on these advertisements because in so many other areas, the advertised price accurately reflects the real value.  However, with homes, this is not the case.  With real estate, profit is gained on the buy and realized on the sale, so it is not surprising that realized sales can be as much as 50% of advertised prices.  In fact, the goal of mass media is to set the initial bar high, so that above value home prices seem reasonable:  "Wow, that home only costs $300,000!"

Option 2: Cost Comparison

Other people will look through county records and look at sale prices of homes in the area, performing a cost comparison.  While this is more accurate, it is still a ways off, because the underlying assumption here is that the basic economics of supply and demand are at play.

However, the sale of houses is heavily guarded by average fees totaling 11% of the purchase price when combining the purchase and sale of a home (commission, title, loan fees, etc).  Therefore, the barrier of entry into the real estate market means that the market is not efficient.  In other words, factors like your real estate agent can make a huge impact on the price and you cannot just assume that because others have sold for a given price, that you can as well.

Option 3: Rental Value

The true way to value a home is based on rental values.  The value of a home will be somewhere between 100 to 200 times the monthly rental price.  This may be discouraging to many and it suggests that renting is often the best option.  However, taking the advice will help you keep your head on straight when it comes to determining the financial implications of purchasing a home.  In addition, it may help you avoid a foreclosure when an emergency situation arises.

This post was reposted from http://finlit.biz/debt/3-ways-to-valuate-homes/, originally written on November 20th, 2013.

The Emergency Fund, Your First Step Through Chaos

In today's society, where most people spend around 70% of their income on taxes, housing and insurance, what can you do to get ahead?

When there are investments everwhere you look, which one should you choose?

When having a budget frightens and frustrates you and your bills and debt are stacked a mile high, where do you begin?

The answer, to all of these questions, my friend, is the emergency fund.  That's right, before you pay your debtors, before you go for those big fancy home runs that people love to brag about with their investments, you start with the basics.  Before you compound, you impound.

How do you get ahead in life?  Its the small details.  Its always those who focus on doing the small things, so that their activity is compounded over a long period of time, that make the big difference.

The problem with putting all your eggs in one basket, is they just might crack.  The problem with putting the emergency fund off for tomorrow because your bills are so great today, is that it just may never happen.  Start today.  Put aside a little bit each month, until you have built yourself between 3 to 6 months of income.

Its sad, but no one really ever talks about freedom anymore, a principle our country was founded on.  And guess what, your level of financial independence is exactly the number of months you could survive without an income.  How do you do it?  You take the first step.

As readers, we'd love to hear your stories about how you overcame your fears and started to take those baby steps.

This post was reposted from http://finlit.biz/debt/the-emergency-fund-your-first-step-through-chaos/, originally written on October 9th, 2013.

Improving Your Finances While Maintaining Your Lifestyle

Have you ever gotten a raise? What about an unexpected bonus? A refund check from the IRS? Found a surplus in your checking account?

Many people have financial challenges and today, I am going to talk about one very big tip that will help improve your financial situation for years to come.

Did you know that many people making six figures but are in debt and not on track for retirement? Yet, they can survive and pay their month to month expenses. Did you know that there are also people who are surviving and paying their month to month expenses, making half of what the six figure salary earners are making? And still, there are people living off of half of that.

How does this happen? Isn't it true that when our income rises, our expenses tend to grow to match the level of income? Today, I'm here to teach you how to stop the madness.

When you get a raise, be purposeful about how you are going to spend the raise. Since you were already living just fine without the raise, take 80% of the raise and implement a pay yourself first program. This means, that you apply this money towards your debt elimination program or your retirement savings, before you use it for monthly expenses. After you have done this, you can take the other 20% and spend it however you like. Go ahead, you deserve it for your hard work.

Remember, by choosing to keep the same standard of living, you are also choosing to improve your finances.

This post was reposted from http://finlit.biz/retirement-2/improving-your-finances-while-maintaining-your-lifestyle/, originally written on September 12th, 2013.

5 Simple Tips to Decrease Debt: Part I

In Suze Orman's "The Nine Steps to Financial Freedom", she introduces the idea that respecting money will naturally improve your own financial situation.

Creating habits which require you to think about money on a weekly basis, even if for a brief moment, are very beneficial for your financial future. Here are five different ways to respect money.

1. Keep your credit card statements.

Each time you get a new bill, write down the interest rate along with your payment amount on the statement. Then, slip the bill into a small folder.

Most people simple throw the statement away or use online statements. This leads to neglecting your situation and the inability to answer simple questions regarding your personal finances.

2. Neatly stack your bills.

Just taking the time to put your money into an organized wallet.  Each time you pay for something, you will probably take note of how much you have spent, keeping a better eye on your money.

Some people just crumple bills or throw them into their pocket.  This leads to inaccurate accounting and the feeling of "What happened to all my money?"

  This article continues with 5 Simple Tips to Decrease Debt: Part II.

This post was reposted from http://finlit.biz/uncategorized/5-simple-tips-to-decrease-debt-part-i/, originally written on August 20th, 2013.

5 Simple Tips to Decrease Debt: Part II

This article is continued from 5 Simple Tips to Decrease Debt: Part I.

3. Don't improve your credit score.

If you monitor your credit score and have achieved a great score, why spend any additional effort to improve your score?  Remember, your credit score only affects you if you ever get denied something based on your credit score and in some cases, getting denied might be a good thing for you.

Some people keep balances on their credit cards and keep loans just to build their credit score.  This leads to paying larges amounts of fees and lots of extra worry.

4.  Don't finance anything that depreciates.

Anything that depreciates is a want, not a need.  If you keep focused on using the cash that you have, rather than cash you will earn in the future, you will save yourself a lot of headache.

Most people finance everything they want in life.  When unexpected emergencies come up, they are left stranded and strapped for cash.

5.  Track your spending through a check register.

Before we had the ability to spend effortlessly and on a whim, there were people that actually wrote down everything the spent, whenever they spent a dime.  This allowed them to constantly look through their spending habits and readjust accordingly.  While you may not use an actual check register, you should find some way to track your daily spending.

Most people quickly glance at their statements and don't even know their current checking account balance.  This can lead to overdraft fees and running out of money before the month is over.

This post was reposted from http://finlit.biz/uncategorized/5-simple-tips-to-decrease-debt-part-ii/, originally written on August 20th, 2013.

Debt Freedom versus Paying Yourself First

Do you want to get out of debt? Do you want to make sure you have a sufficient nest egg for retirement? If you answered yes to both questions, congratulate yourself because you are like most people.

This article will discuss practical advice for upholding your integrity by paying back those you owe while at the same time, planning appropriately for your own future so that you can provide security to yourself and those you love.

Unfortunately, many people focus too much on paying down their debts. They start taking actions to knock down their debt and make some great progress. However, after a short period of time, something happens that stops them in their tracks. They get busy with other things or an emergency comes up. Just like the weight after a crash diet, the debt comes back, sometimes even worse than before. Sound familiar?

A few people take the opposite approach. They save and invest for their future. Once they get comfortable with their progress, they loosen up a little. Soon, they are either borrowing money to invest more or they are just plain disregarding their debts, allowing them to grow out of control. Sound familiar?

Just like with weight and nutrition, the changes you implement to get rid of your debt, will need to be long term changes. You need to incorporate paying yourself first as a life long habit. Then, with the money that remains, you should create a plan to payoff your debts and pay back your creditors.  This plan should include actual milestones and timelines to hit those objectives.

Paying yourself first should be a priority over paying off your debts. In a sense, if a creditor gives you a predatory loan, that you cannot pay back, their consequence for greed is a loss of their investment. "Pigs get fed and hogs get slaughtered." If you cannot afford to pay yourself first 10% of your income, creditors should not be loaning you money. Remember, you can always negotiate with creditors to reduce your debt but you will never be able to negotiate with custodians to increase your nest egg.

Some related articles are:

• What is John D. Rockefellers 10/10/80 Rule?
• 3 Parts to Jim Rohn's 70/30 Financial Independence Rule
• Should you pay off your home?
• Three Debts Which Will Kill Your Finances
• Isn't it Time You Joined the Debt Freedom Movement

This post was reposted from http://finlit.biz/retirement-2/debt-freedom-versus-paying-yourself-first/, originally written on July 23rd, 2013.

From Leah

Interesting reading. I think heard it somewhere before during a conversation I had. I this life is all we have and we should remember to place our value in people. Especially the ones that live and care for us whether we are rich or poor.

From Hannah

I agree except I worry that the whole system is gamed…the plutocracy has it all set up to work for them, and they throw us bones to worry about immigration or racism or sexism or abortion…anything other than rich peoples’ tax breaks. Those other issues are real. What should we regular people do?

From Scott Izu

The key to change is education. With better information, you can make better decisions. And believe it or not, if you want something different, it starts with you. Whether through reformation (internal change) or revolution (external change), you cannot change anything by yourself. For, united we stand, divided we fall.

Everyone can point out a problem, but a successful person sees a problem as an opportunity and focuses on not only pointing out the problem, but also providing a solution. Everyone can say they want change, but a successful person not only talks about change but actually takes action towards making a change. So my questions to you are: 1) What is your recommended solution? 2) What actions are you taking to get the result you want?

From Hannah

“What is your recommended solution?”

Education. Logic. Ethics.

Education: study and understand history. Yeah, it’s complicated. Get over that. Study. Plutocrats will win. Look at Rome. Be realistic. And remember that religion is about someone else’s power, not yours. It’s a bait and switch. Be generous and always, always care for the less fortunate.

Logic: whenever someone tells you to pay homage to something unproven or faith-based or the like, they want you thinking about something other than what they’re doing while you’re bowing down. Wake the fuck up.

Ethics: would you want someone doing to you what you’re doing to them? Why are you thinking about someone else at all? Be good. Be kind. Think about whether any choice you make is something that you wouldn’t mind someone doing to you.

I became a vegetarian about 20 years ago. I would never require that someone else to do what I chose. But as I get older, I am not sure I shouldn’t….

Above all, be kind. I experience this rarely, and I wish that what doesn’t kill me makes me stronger. But what experience actually tells me is that people are hypocrites. I want to be better than that, and I wish everyone felt that way. Am I alone? I hope not…

I hope that someone envisions a future as I do, with love and understanding and the concept that despite differences, we can find a better place and finally be happy.

Should You Pay Off Your Home?

Recently, I have heard several people advocate that they should not pay off their home mortgage in order to live a debt free lifestyle because mortgage rates are at an all time low. For instance, the article at business.time.com, states that "You might be better off keeping the mortgage and investing the money elsewhere, which amounts to borrowing at a tax-deductible 3.5% in order to start a business, invest in stocks, or purchase an income property."

My advice.  Payoff the mortgage as quickly as possible.  Before I add some caveats to think about, I will discuss why this can be advantageous.  First of all, when it comes to success, there is no time like the present.  Taking action today, even if these are baby steps can mean a big difference twenty years from now.  In addition, unfortunately, you never know when your family might be hit with one of the four Ds.  I have never met anyone who has regretted paying off their mortgage, but I have met people who have lost their home because they didn't pay off their mortgage.  About 95% of people fit into the category where they should just pay off their debt.

Now, for the caveats.  First of all, when it comes to business and leveraging, I would say an experienced investor, may purchase a home with 0% down.  This is how a 22 million dollar real estate empire can be created. I've seen it happen.  The concept introduced by the article above assumes that the person will have the staying power to not lose their current home.  It also assumes that the savy investor will be wise in where they invest their money.  For many Americans, a guaranteed match with inflation is much better off than the risks of investing.

All this said, I typically tell people that they should do both. That is, rather than put all their eggs in one basket, they should have a plan in place for their current retirement as well as a plan in place to pay off their debt.

This post was reposted from http://finlit.biz/debt/should-you-pay-off-your-home/, originally written on June 4th, 2013.

From Hannah

I agree that we should pay off our mortgages as quickly as possible. We should, I think, strive to be debt-free as far as possible. One path toward this goal is to give sustained, serious thought as to what we truly need.

The US (among other countries) has become toxically focused on material goods as measures of happiness and success. Would your car or your clothing or your furniture truly impress someone with your worth? If so, you need new friends, not new goods.

Paradoxically, the US economy might collapse if it stopped being able to sell a false dream of prosperity via items that no one really needs. A roof, some good (healthy, fresh, home-cooked) food, and people who love you…there’s not much else that matters.

So, I absolutely agree that you should pay your mortgage off. And then maybe look toward what good you can do in the world with any extra money, instead of focusing on another trip to the mall.

From Scott Izu

Well stated!!! Thank you for your feedback. :)

From Hannah

So is there something you would recommend we put our extra money toward? Any particular charity or investment? I think of this kind of thing often, and am not sure what to do. I want to be mindful, as an investor in the future, and as a person who wants to leave the world a better place than I found it. You might be surprised how many people (some you might know) who feel this way.

From Scott Izu

Hannah, the best thing for you to do would be to go to http://finlit.biz and click on the Contact Us button and enter your contact information. Someone can give you a call and assess your particular situation and what is best for you.

From Hannah

I would have gotten in touch, but I am very disappointed by further reading on this site. The actual literacy is lacking (Berenstain Bears level). Worse, there is a heavy Christian tone that is off-putting to non-Christians. I want financial information, not a sermon from an anti-scientific “book” that was invented in the Stone Age. I want a financial advisor who has current, informed, world market information, not fantasies about how a tiny, ancient tribe who stoned adulterers (among other heinous acts) has some secret insight into my investments. No doubt you will not publish this comment, and that is fine. But you might want to reconsider your presentation, and how off-putting it will be to many people, and that the current receptive audience is particularly uneducated, poor, and ill-informed. If you want to be an evangelist, go for it. But don’t confuse it with your other (“financial literacy”) goal.

From Scott Izu

Thank you for your honest feedback. I appreciate the thought and time put into your comments. I am not big on censorship and believe you have some valid points. Here are some additional insights that you might find useful.

On a macro scale our nation went from having one trillion dollars in circulation in 2007 to having four trillion in circulation in 2013. This effect of printing money has the potential to decrease our standard of living to 25% of what it is today. We have seen cities such as Stockton and Vallejo go bankrupt. Our government is a reflection of individuals.

So to address the issue, I focus on the individual families at the micro level. There, we see cable, cell phones, electricity, taxes. and credit cards eating away subtlety, since people essentially work for thirty years and then spend twenty years in retirement. On top of that, the family is being broken up by divorces and other issues, corroding our nation at the micro level. How do we save families, thus improving our micro level finances, and in turn making a global impact on a macro level?!?

From Hannah

Okay, I got schooled. I would probably not normally reply further, but I am very impressed by your anti-censorship attitude and thick skin. You are a better person than I am. You deserve respect, and I thank you for your open-mindedness.

I agree that we have enormous macro-level economic issues in this country. The system is gamed, I think, against the economically disadvantaged — as well as women, minorities, etc. So how do we fight back and improve our lives? I am a woman; I’m paid less than men in my field. I find that my partner is better off, and he knows it, and uses it, albeit subconsciously. I try to make good financial decisions, and I’m generally successful, but it’s still difficult to find a balance between smart decisions and wanting to be a good human being (charitable donations, etc.).

It’s a complicated world. I couldn’t maneuver it without friends, personally. Thank you for your open mind and ears.

What is John D. Rockefeller's 10-10-80 Rule?

John D. Rockefeller is one of the richest men who ever lived.  In order to gain wealth, one may model those who have already obtained it. In this case, you may model a man who spent the last 40 years of his life in retirement.

Does it surprise you that 80% of millionaires today are self made millionaires?  This means that, unlike popular belief, it is the character of a man that often determines his financial future. It may interest you to view the personal convictions and resolutions that Rockefeller had, some of which may be found at www.unmaskingthemillionaires.com.

Before banks figured out that they could make more money off of Americans, by keeping them in debt, they used to give out the book, "The Richest Man in Babylon." According to www.americandebtproject.com, "The Richest Man in Babylon (1926) was originally written as a series of pamphlets that were handed out in banks and insurance companies and later put together and completed as a book."  This book, gave an account of Arkad, the richest man from the ancient city of Babylon.  Arkad had many financial guidelines, engraved on various stone tablets, on of which stated that before considering anything else, one should pay yourself first.

Rockefeller lived by the 10-10-80 rule.  This principle states that 10% of income should be dedicated towards savings, 10% towards charity and the final 80% should be used to pay for living expenses.

This post was reposted from http://finlit.biz/retirement-2/what-is-john-d-rockefellers-10-10-80-rule/, originally written on May 14th, 2013.

Do Students Have a Need for Financial Seminars?

As you all know, the debt epidemic is rapidly sweeping across America.  Sometimes one wonders if working hard to improve credit scores for the purposes of leveraging is a good thing or a bad thing.  In any case, one of the demographics that is suffering the most is the student population.  With costs of tuition on the rise and good salaries being difficult to find, it is more important than ever to education our youth in an area that a traditional education doesn't touch: finances.

This year we have held a series of various financial seminars, each one hour in length, focusing on various areas of personal finance.  The results have been pretty amazing.  These students are already an outstanding group of young leaders and a financial education is just one more tool we are adding to their tool belt.  The students seemed to have a variety of questions.  On one end, students ask how to start building credit by opening a savings account or credit card account.  On the other end, students already have a desire to start investing, since new graduates will likely have an increase in income yet maintain the same amount of financial responsibility.

Students have given feedback of using resources such as mint.com, creating a monthly budget, cranking through real numbers and taking on additional challenges.  Our discussions about the habits of wealthy individuals have obviously influenced the students as many talk about cutting spending while still maintaining a healthy lifestyle.

The goal is to encourage students to graduate debt free or teach them how to quickly become debt free soon after graduation.  Saving and investing early on in life will not only put them on solid ground to make it in the work place, but will also give them a head start when it comes to raising their families while balancing work, a problem many recent graduates mention.

If you are looking to support a group devoted to our youth, please visit sagescholars.berkeley.edu and donate. We appreciate your support.

If you are a student looking for financial resources, please visit sagescholars.berkeley.edu.  Remember, debt freedom is the key!

This post was reposted from http://finlit.biz/business/do-students-have-a-need-for-financial-seminars/, originally written on March 8th, 2013.

3 Types of Assets You Will Own

An asset is not really yours until there is no debt associated with it. Your goal is to get ownership of assets as soon as possible. As you gather your assets, you will find that you will have ventures in various asset classes, so that you are not putting all your eggs in one basket (see How Many Asset Classes Should Your Investment Portfolio Contain?).  The great thing is that when you own assets, emergency situations are handled well.  How does one add assets to their personal balance sheet?

Today, I will talk about the law of Sowing and Reaping.  Jim Rohn has a great speech covered at www.youtube.com.  Most people are highly concerned with the return on their investment.  Some decide to never invest because they are scared that they will lose money.  First of all, money was not meant to be stockpiled and when it is, you are losing money through inflation and taxes.



Rather than think about return on investment, think about asset ownership.  Think about sowing seeds in various places.  Think long term.  Some people struggle after losing money in a few investments because they do not understand the law of sowing and reaping.  What you are doing is planting seeds in various investments.  Some of those investments will be picked off by the birds.  Some of those investments will be choked by the thorns.  Most importantly, some of those investments will land into fertile ground and reproduce ten fold.

My point is, keep on planting various seeds and over time you will reap the rewards.  While others fail to plant seeds and you will continue to nourish your investments and you will wait for your season.  What stories do you have in your personal life related to sowing and reaping?

This post was reposted from http://finlit.biz/retirement-2/3-types-of-assets-you-will-own/, originally written on March 5th, 2013.

Are You Expanding or Contracting?

In business, you are either growing or dying.  There are many stories out there of businesses which did great for several years until business just slowed down and the business had to close its doors.  The reason is typically that when the business got to the point where there was too much work to be done, rather than growing and leveraging resources, the owner decided that business was just fine as is.  However, when you become complacent with your business, you will find that the pipeline dries up and there is no business down the road.

The key to keeping business alive and thriving is to move through expansion and contraction phases.  During times when you need more income and you have time, you will be expanding to grow in value, taking on new ventures and debts.  During times when you need more time and you have income, you will be contracting to focus on your priorities, therefore reducing debts.

So, how does this apply to your personal situation?  You will find that like any successful business, you will be altering between expansion and contraction phases.

As a student, this might mean doing your own taxes, taking care of all the jobs needing taken care of. This is a period of expansion. However, as your skills become more honed, you will decide to contract and focus, leveraging your time and money, leaving others to do various jobs. This is a period of contraction.

If you have various real estate deals for example, you might find that highly leveraging your money is common in an expansion phase, whereas actively reducing debt and stress is common during a contraction phase. In order to increase income, you will try to leverage more, but over time you will try to decrease stress so that return on investments and optimization of your portfolio is not as important.

This post was reposted from http://finlit.biz/business/are-you-expanding-or-contracting/, originally written on March 4th, 2013.

2 Opposing Stories You Need to Hear

The other morning I was able to sit next down with two people and hear opposing stories.

The first was from a software engineer that made a great six figure income.  He thought he knew what he was doing and used a whole life policy as a retirement vehicle, as advised.  He never looked for any help, since he was smart enough to handle this himself.  After many years and promised interest, he found he only had about $30,000 accumulated in the cash value portion of the whole life policy.  Sure enough, the mortgage on the house was also huge.  Who knows what happened to the money, he says.

The second was from a blue collar worker who made about $50,000.  He was part of a union.  He was rambling off things like trying to save just $5 or $10 a month (saving $5 is better than going in debt).  Over time, it was able to become more and more.  When it came to his mortgage, he put an extra $100 towards the bill.  When he got a raise, he kept living how he was living and applied the raise to go towards his mortgage.  When he needed a home equity loan for $20,000, he ended up paying it back in 6 years instead of the 10 years stated in the loan.  He said he didn't like dealing with money so he let someone else handle it (luckily he got someone who actually took care of him well).  He made a comment jokingly stating that he didn't even have room for an extra beer.  All in all, having a 40 year marriage, owning a beautiful home, being debt free and having a great retirement, I think he would say it was all worth it.

Sitting down with both people simultaneously.  True story and amazing.  Which do you want to be?

This post was reposted from http://finlit.biz/business/2-opposing-stories-you-need-to-hear/, originally written on February 28th, 2013.

What is a Bond?

When you purchase stock, you purchase a piece of the company.  For the potential of growth, you take on some of the risk, of the company not being profitable.

When you purchase bonds, you purchase a piece of the company's debt.  For the potential of fixed income, you take on some of the risk, of the company going bankrupt.

A deeper explanation may be found at en.wikipedia.org.  Typically, a good mixture of stocks and bonds is advised.  See how your portfolio compares at online.wsj.com.

Personally, I like the idea of holding 40% in stocks and 60% in bonds as mentioned in Can You Develop a Portfolio With Little Experience?.  It all depends on your personal risk tolerance and the risk associated with bonds as discussed in 10 Investments Ranked From Least Risky to Most Risky. An explanation for why bonds tend to be less risky can be understood by reading 5 Obligations for a General Public Company.

Happy reading! Please come back soon to see why we focus on purchasing assets rather than the rate of return.

This post was reposted from http://finlit.biz/retirement-2/what-is-a-bond/, originally written on February 24th, 2013.

A Dream, Inspired by Martin Luther King

This next month, another friend of mine is losing a home.  Another friend of mine is burdened with over $15,000 of credit card debt alone.

Another story of losing over $750,000 on a bad real estate investment.  Another story of a marriage gone in shambles because of financial struggles.  When will this madness end?  Is it really true that slavery was abolished years ago?

Today, I want to share my dream.  I have a dream of promoting financial literacy to the families across America.  A dream of increasing awareness and opening people's eyes to the marketing and influences that bombard them on a daily basis, keeping them in the shackles of debt.  A dream where a family is properly advised through programs held by businesses, communities and church organizations.  Safe havens where early morning and late evening classes are held.  A society where couples open dialog about their financial issues and stresses and once again have hope.

In sharing my dream, in promoting this dream, I have faced road blocks and closed ears, closed minds.  People not willing to even spend a half hour to sit down and hear what I have to say.  But I fear not, for as Albert Einstein stated, "Great spirits have always encountered violent opposition from mediocre minds."  We all have the choice to live a good life or commit to something greater.  As John Mason puts it, "Until you give yourself to some great cause, you haven't begun to fully live."

To do something special, by definition means that you must rock the boat a little.  You must challenge the status quo, for this is the only way to bring about change.

Thank you to all the readers.  Thank you to all the people who continue to support, continue to bring words of encouragement and enlightenment.  Thank you to my mentors.  If you believe in this cause and the need for financial literacy, please share the message.

This post was reposted from http://finlit.biz/business/a-dream-inspired-by-martin-luther-king/, originally written on February 21st, 2013.

Isn't it Time You Joined the Debt Freedom Movement?

Over the years, you have mentioned to your friends and family how your life has been a struggle to make ends meat.  You have talked about how you dream of one day being able to live the life that you want to live.  How great it would be to own that car and the house of your dreams.  At the end of the day, you just want to raise your kids to the best of your ability.

The first thing you say when the conversation comes up regarding debt is, "Oh, we are doing well.  The only debt we have is ..."  After a little digging, sometimes the numbers discussed are not quite as accurate as originally thought.  Of course the response is, "Well, we just don't like to focus on that because worrying about it doesn't make me happy."

I want you to know that it is okay to need help in this area.  Many people share the same struggle.  I understand your pain and I am here to help.  I'm here to get you starting to think a little bit more about debt and how it is taking control of your life.  Do you want to live a life full of stress?  Do you like to carry this burden or would you rather just be free of it?

Do you want to teach your kids the power of teamwork?  Do you want your kids to live paycheck to paycheck?  Then, why not work together with someone to live debt free and show them there is a better way.

Its called the Debt Freedom Movement.  Here are 9 posts which can help you think a little differently about debt:

• How Do We Fix the Debt Epidemic in America?
• 3 Debts Which Will Kill Your Finances
• Have You Ever Implemented a Debt Snowball?
• Can Donating 10% of Your Income to Charity Keep You Out of Debt?
• 2 Problems Students Have and The Solution
• How Can You Monitor Your Credit Card Spending?
• 3 Advantages to Purchasing Your Car With Cash
• Mortgage, the New Age Slavery
• Is the Chinese Way of Spending Better than the American Way?

Thank you for reading and I hope you decide to take baby steps towards a new and improved financial life.  Good luck!

This post was reposted from http://finlit.biz/debt/isnt-it-time-you-joined-the-debt-freedom-movement/, originally written on February 20th, 2013.

25 Reasons Financial Literacy is Important

Have you ever wondered why someone might change careers all of a sudden?  Have you ever seen someone do something and you thought it would be great if you had the talent to do something like that?  Do you feel that your talents are being utilized to the best of your ability?

Today, we will explore the importance of financial literacy.  Perhaps, you will feel an area that you can relate to and possibly have the desire to jump in and make a career change or pitch in enough to make a difference.  Here are 25 reasons why you might help promote financial literacy in your community:

1. The number one related cause of health issues is stress, often caused by finances.
2. Divorces occur in today's society at an extremely high rate, most often due to financial struggles.
3. People are thousands of dollars in debt which affects their health and relationships.
4. Students are accumulating large amounts of debt before graduating college.
5. Young couples and families are starting their lives together in debt bondage.
6. People are suffering in the shackles of debt, lost without a plan.
7. People are losing their homes, with foreclosures happening on every street corner in the US.
8. Middle class families continue to be left out in the cold.
9. People do not have enough money saved for retirement.
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10. People are losing their hard earned retirement money on real estate investments.
11. The banks and brokerages continue to grow as families continue to suffer.
12. People are gambling away thousands of dollars on stock investments.
13. People are allowed to invest with the click of a button and without a solid investment strategy.
14. Families haven't spent enough time thinking about their future and communicating their goals.
15. The middle class is being taxed to death and slowly shrinking.
16. Loop holes in the system allow people making double the salary to have one third the taxes.
17. People are being ripped off left and right by unethical business contracts.
18. People are typically overinsured or underinsured when it comes to life insurance.
19. Despite lawsuits and years of lobbying, predatory practices continue to be affluent in our society.
20. Families and siblings are left to fight and clean up the mess after their parents pass away.
21. Without adequate estate planning, children are at risk to become lost in the system.
22. Small businesses continue to fail at alarming rates.
23. Business schools continue to be taught by amateurs rather than successful leaders.
24. The lack of mentorship for young people and people in mentorship programs is dwindling.
25. The ability of our communities to negotiate deals fundamentally affects our global economies.

Thank you for visiting!  Remember to spread the word through social media sites such as facebook, twitter and linked in!

This post was reposted from http://finlit.biz/business/25-reasons-financial-literacy-is-important/, originally written on February 13th, 2013.

2 Problems Students Have and The Solution

Students nowadays are graduating with an all time high of student loan debt.  How bad is it?

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According to business.time.com, "Credit bureau TransUnion says that in the past five years, the average student loan debt each borrower carries has risen 30% to $23,829. More than half of student loan accounts, which add up to more than 40% of the total dollars owed, are in deferral status."

As noted at www1.whdh.com, "A graduate student at the University of Southern California, 22-year-old Astrid  Solorzano - will be $160,000 in debt before she lands her first job."

According to sizusfinlit.blogspot.com and www.forbes.com, "60% of college graduates can't find a job in their field."

The 2 problems we have are:

1. Students are graduating college with thousands of dollars in debt to start their life
2. Students are graduating college with no experience, uncapable of finding or creating jobs

We have students graduating with $100,000 in student loan debt and no experience, lacking the skills necessary to land or create good jobs.  What if we required two years of military or the peace corp before entering college?  What if we implemented a work study program, rather than just allowing students to rack up large amounts of debt?  Isn't it possible to solve both of these problems at the same time.

A lending industry that focuses on the uneducated is really considered predatory, isn't it?

This post was reposted from http://finlit.biz/debt/2-problems-students-have-and-the-solution/, originally written on February 13th, 2013.

Have You Ever Implemented a Debt Snowball?

Dave Ramsey's Debt Snowball is a popular method for attacking debt. You can check out the 7 steps at www.daveramsey.com. At www.bloggingawaydebt.com, the author actually lists out debts as they are attacked. Talk about a great accountability partner. The online community!

The overview:

• Current: $44,564
• Paid: $53,537
• Original: $98,101
• Emergency Fund: $1000
• IRS Savings: $3000

Broken down:

• CC #1: $0 ($64)
• CC #2: $0 ($240)
• CC #3: $0 ($650)
• CC #4: $0 ($785)
• CC #5: $0 ($1,500)
• CC #6: $0 ($1,886)
• CC #7: $0 ($1,984)
• CC #8: $0 ($2,135)
• CC #9: $0 ($7,145)
• CC #10: $13,060 ($14,561)
• CC #11: $7,554 ($24,388)
• Credit Line #1: $0 ($182)
• Credit Line #2: $0 ($182)
• Auto #1: $0 ($16,579)
• Auto #2: $0 ($25,819)
• Cons. Loan: $20,000 ($20,000)
• IRS Due March 28, 2013: $3,950 ($3,950)

That is awesome!  Here, it is just nice to highlight someone else's accomplishments.  What have you accomplished with your debt?  We'd love to hear from you.

This post was reposted from http://finlit.biz/debt/have-you-ever-implemented-a-debt-snowball/, originally written on February 13th, 2013.