life or debt 2010 - w. johnson, stacy

So this time out, it’s dedicated to all the people in my life who provide me with emotional support, make me laughout loud, and don’t let me take myself too seriously… no matter how hard

LIFE OR DEBT 2010

LIFE OR DEBT 2010

A New Path to Financial Freedom

STACY W JOHNSON, CPA

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Copyright © 2010 by Stacy Johnson

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While it’s true that we come into this world alone and leave it alone, practicallyeverything else we do of any significance involves the assistance, cooperation, and/orindulgence of other people That’s certainly true of this book Much of what went into

Life or Debt came from my own thoughts and observations, but often I confirmed

those thoughts by talking to people who were experts at this stuff That includesmyriad people who devote their lives to helping people overcome debt dilemmas, likethe fine folks at Consumer Credit Counseling Service and other such organizations.You know who you are

I also learned a lot from reading other books One I quote directly and

acknowledge in Life or Debt is The Millionaire Next Door But there are many other

books that directly or indirectly influenced me in less specific ways One I’d like to

both mention and recommend that you read is Your Money or Your Life by Joe

Dominguez and Vicki Robin

You wouldn’t be reading this right now if it weren’t for the untiring efforts of myagent Liza Dawson and my good friend at Simon & Schuster Anthony Ziccardi

When I first wrote Life or Debt nearly ten years ago, I dedicated it to my parents,

Stacy and Betty Johnson They’re both in heaven now So this time out, it’s dedicated

to all the people in my life who provide me with emotional support, make me laughout loud, and don’t let me take myself too seriously… no matter how hard I try Thelist is long, but it most certainly includes my fabulous girlfriend, Sara Steinman; mysister Sue Davis; Angela Puckett and her boy Chris; my cousin Nancy; my coworkersDan Schomtuch and Jim Robinson; and my many pals, including Greg Wager, LeeKarsh, and two of the most wonderful people on the planet, Fred and Jayne Shaffer

6 Stop Creating More Debt

7 Rank Your Debts for Payoff

8 Create Your Debt Destroyer

9 Destroy Your Debts

10 Convert Your Debt Destroyer into a Money Machine

11 205 Ways to Save

12 Repairing Your Credit

13 Getting Help

Conclusion

LIFE OR DEBT 2010

Introduction: Will the Circle Be Unbroken?

Giving money and power to government is like giving whiskey and car keys to teenage boys.

—P J O’R OURKE

I really hesitate to start our relationship by bitching, but I can’t resist telling you this:

If you’d read this book back when I first wrote it nearly 10 years ago, we almostcertainly wouldn’t be meeting like this today Because if you’d followed the simplesteps in this simple book back then, by now you’d have no debt whatsoever You’dhave no credit card debt, no mortgage, and no car loan And you’d almost certainlyhave money in the bank as well—maybe a lot You’d have little fear of losing yourjob, because you wouldn’t be living paycheck to paycheck In other words, you’d bewell along the path to financial freedom

But I’m guessing that since you’re reading this now, odds are good it’s for the firsttime That’s fine The techniques that worked back then will work just as well today!And there’s never been a better time to start a new life, one that centers a lot morearound working toward your personal vision of happiness and a lot less aroundworking your butt off just to keep the bills paid

But before we start talking about your personal situation, let’s first look at thesituation our nation finds itself in today It’s important for a couple of reasons: First,because our problems as a country have a hell of a lot to do with one of our problems

as individuals, namely, debt Second, because I really feel like blowing off a littlesteam about the ridiculous and completely preventable situation we’re currently in Doyou mind?

As I write this in the summer of 2009, virtually every industrialized nation on theplanet is scrambling to recover from a near meltdown of the world economy Andevery day, in every form of media, people from professors to pundits to politicianspontificate about causes and solutions What’s ironic—and moronic, if you ask me—

is that the answer to both couldn’t be simpler and can be summed up with the sameword: debt

In the summer of 2005 I was waiting at a traffic light and saw a sign on the side ofthe road that said something like 1% MORTGAGES!!! along with a phone number Since I

make my living doing consumer news stories and had a minute to kill, I called thenumber, expecting to generate a story about yet another fraudulent business But thestory I uncovered while sitting at that light wasn’t fraud, just lunacy The person at theother end of that number was a mortgage broker and he was offering mortgage loanswhose monthly payments didn’t cover the interest on the loan In other words, thisbroker was offering mortgages that would be charging a normal rate, which at thetime was around 7 percent But instead of paying the 7 percent interest that wasaccruing every month, you only had to send in 1 percent The 6 percent you weren’tpaying would then be added to your mortgage balance Which means that instead ofreducing your debt every month, you were increasing it Now, that may not sound like

a big deal to you, but I was genuinely shocked Shocked that any lender would everoffer a deal like this and shocked that any borrower would consider accepting it So Iasked this mortgage broker if he’d be willing to repeat all this on camera and he saidhe’d love to

True to his word, when I arrived at his office the next day, the mortgage broker

excitedly explained on camera that only an idiot wouldn’t want a mortgage that got

bigger every month In fact, this guy was even trying to convince me that I shouldtake one out myself The reason they made so much sense, he explained, was thateven though you owe more on your mortgage every month, the value of the houseyou were financing with this idiotic loan was going up even more Which beggedwhat I hope is now an obvious question: What happens if the house stops going up?

He looked at me like I was a complete simpleton and responded with something like

“This is South Florida Everyone wants to live here Houses will always go up.” And itgot even better He went on to explain that not only did you not have to pay the fullinterest; you didn’t even have to make a down payment for these loans You didn’thave to prove you had income sufficient to make the payments, or even have a job forthat matter, because these were no-documentation loans, known to mortgage brokerseverywhere as “no-docs.”

Last year, on my way to one of the many foreclosure stories I’ve done since then, Istopped and did a standup in front of his vacant office

You don’t need to watch “experts” on CNBC to understand the underpinnings ofthe world’s current credit crisis It’s not at all complicated It happened because hugelenders offered stupendously stupid loans to hoards of people who apparentlybelieved that trees grew to the sky You can’t really blame the people who took outthese loans After all, home prices were going up at a rapid clip And since they had

no money of their own in the house, the worst that could happen to them was they’dmove back into the apartment they came from and have a black mark on their credithistory

Having been around the block a time or two, I knew this would be the fate of many

of those borrowers: that they’d lose their home But since that’s the risk they weretaking by borrowing money they couldn’t repay, I felt little sympathy for them andnone for the companies stupid enough to offer loans like that

What I didn’t know back then was just how widespread this lunacy was—thatthousands of stupid loans like this were being sold to unsuspecting borrowersnationwide by mortgage brokers who were at best salesmen and at worst con men.And that those loans were being bundled up by the billions and sold to blue-chipbusinesses, even governments, all over the world In short, I didn’t realize the extent

of the lunacy Otherwise I most certainly would have sold my house back then beforethe housing market crashed, and it was worth about twice what it is now

In any case, thus began the snowball that turned into the foreclosure avalanchenow burying pretty much everyone: the lenders who underwrote these stupid loans,the myriad people all over the world who invested in them, and of course you, me,and everyone else who either owns a home, has a job, or pays income taxes

The direct cost of this little adventure is now more than two trillion dollars Andthat’s just the price in the money our government is currently printing in an attempt toprop up the economy and the banking system The indirect cost is much, muchhigher Many of the companies that either made or invested heavily in these stupidloans are no longer companies, having either failed entirely (Lehman Brothers), beenswallowed up by healthier companies (Countrywide, Wachovia, Bear Stearns, MerrillLynch, etc., etc.), or been taken over by the American taxpayer (AIG) And all thatfailure has cost the livelihoods of many of the people who worked at thesecompanies, as well as the life savings of people who invested in their stocks Because

of the resulting recession, 14 million Americans are now out of work Virtuallyeveryone who owns a house has seen its value decline, many to the point where theirmortgage is greater than the value of their home

Of course, not everyone has suffered to the same degree Some have actuallybenefited For example, bankruptcy lawyers and credit counselors are staying busy.And the people ultimately responsible for all these problem loans, the CEOs and otherhigh-level employees of the companies behind this mess, were already rich So whilethey may not make their milliondollar bonuses this year, unlike so many otherAmericans, they won’t be facing foreclosure

What makes this sad tale even more pathetic is that the government only has oneway to reverse the crushing crisis brought on by debt That solution? Why, more debt,

of course! You’ve seen the stories: The government has poured billions into “gettingthe banks lending again.” That’s what’s behind programs like TARP (Troubled Asset

Relief Program), TALF (Term Asset-Backed Securities Loan Facility), and “Cash forClunkers.” All these multi-billion dollar programs are about making it easier for us toborrow money Because the only way to get out of a recession and put people back towork is for all of us to head to the mall, car dealer, and newest subdivision And if wedon’t have any money, the only way we can buy is to borrow So the government isdoing all it can to make the prospect of borrowing irresistible by offering incentives tobuy things (Cash for Clunkers) and houses (credit for first-time home buyers), andlowering rates to as close to zero as they can get them They’re begging us to borrow

to the hilt… which is, of course, precisely what got us into this mess in the first place.And Uncle Sam is leading the way by borrowing himself As I write this, the total debt

of the United States is more than 11 trillion dollars That’s enough money to pave theinterstate highway system in 23-karat gold Enough to build more than 16 millionHabitat for Humanity houses Enough to double the size of every police force in theUnited States for 32 years It’s close to $40,000 for every soul in our country And oneday it’s all going to have to be repaid

But if the government had simply spent a mere billion or so ten years ago andbought everyone in America a copy of my first book on this topic, they could havesaved the trillions they’re spending now, because odds are good that none of thiswould have happened After reading this book, you won’t begin to think of taking out

a mortgage loan that gets bigger every month You won’t want more house than youneed or can afford You won’t follow the herd and borrow to buy silly stuff youneither need nor genuinely want

But I digress: back to our nation’s current mess While our circumstances today arehistoric in size and scope, they’re not unprecedented We’ve been on this ride before,and we’ll be on it again Because capitalism, while a wonderful thing, comes withunpleasant side effects And one of those side effects is cycles of boom and bust, ofregulation and deregulation, of misery and prosperity It’s a circle that’s beenunbroken for hundreds of years, and since it affects your financial well-being, it’sworth understanding

My parents were part of what is now called “the Greatest Generation,” a monikerthey definitely earned by surviving both World War II and the Great Depression Thelate 1920s brought a huge stock market bubble, not unlike the housing bubble we justwent through And it was followed by the Great Depression In the 1930s,unemployment approached 25 percent, more than twice what it is now, and there were

no unemployment checks The stock market declined 80 percent When banks failed,and hundreds did, there was no FDIC to insure deposits, you simply lost your money

So if you think it’s tough these days, imagine what that was like But there was a silverlining to that dark cloud: The Greatest Generation became tough They learned that

life isn’t fair They learned that even if you work hard and play fair, you can still lose

it all when the fat cats put their paws in the wrong place They learned that their onlyprotection was to save a dime every time they earned a dollar and not to trust theiremployer or their government for their financial security They saw firsthand whathappens when good loans go bad, so they learned to borrow only in extraordinarycircumstances

They also got behind legislation that changed the financial system so it would betilted more to the benefit of the have-nots They created Social Security, a means tohelp people when they become too old or sick to work They created the FDIC, whichguarantees that nobody would lose money in a bank failure again, at least within theinsured limits They created unemployment insurance at both the federal and statelevels They passed laws to keep banks and brokerage firms separate so Wall Streetbankers couldn’t victimize people by manipulating markets or getting too big to beeffectively regulated They passed laws making it easier to form unions, so thatmembers could ask for and receive pensions, health care, decent wages, job security,and safe working conditions They passed laws that said if you went to war for UncleSam, you’d get a free education, and if you got wounded, you’d be taken care of forlife And as the twentieth century progressed, they added health care for the elderlyand poor in the form of Medicare and Medicaid

In short, the Greatest Generation harnessed their collective power and changed theUnited States in major ways in an attempt to ensure that a tragedy like the GreatDepression couldn’t devastate their children the way it had devastated them

Fast-forward to today While we’re not back to the days of the Great Depression,when it was basically every man for himself, we’ve definitely taken a big stepbackward from the security my parents had and the security they tried to leave for me.When I was 17 back in 1973, the main thing that kept you out of college was badgrades These days a bigger problem is graduating with $100,000 in debt When I was

a kid, one worker earning the minimum wage could actually keep an entire familyalive; that’s where it got the name “minimum wage.” Now, two adults earning thatwage together would have a hell of a time surviving Good employer-paid healthinsurance was ubiquitous 50 years ago Now people are actually switching careers orstaying in jobs they hate because they’re justifiably afraid of joining the one in sixAmericans who have no coverage at all Virtually every employer used to offer apension plan: Now you’re supposed to fund your own retirement with a 401(k), andmore and more employers aren’t even providing a matching contribution Today,unemployment won’t even cover the rent, and the only way you might retirecomfortably on Social Security is if you’re planning to retire to a cardboard box The

GI Bill no longer pays for a full education at the college of your choice, and the Army

has recently been accused of dishonorably discharging soldiers rather than paying forthe care of their stress-related ailments There’s no such thing as job security: howcould there be when what was the largest company in the world, General Motors, filedbankruptcy? And the regulations and oversight that were designed to keep Wall Streetfrom screwing Main Street have become so watered down over the decades that wevery nearly had Great Depression II.

So in many ways we’ve come full circle, close to the place we were 80 years ago.Sure, the government’s talking about reinstating regulatory oversight and offeringhealth care to all And we’re still not looking at busted banks and 25 percentunemployment But the truth is that no matter what anyone in Washington is saying,the security my parents helped create and the baby boomers counted on no longerexists and is unlikely to return The reality being faced by young people today is morelike that of the Greatest Generation The circle is unbroken

So if you’re in your forties or fifties, don’t sit around waiting for things to return to

“normal.” Because the world created by the Greatest Generation wasn’t the norm, itwas the exception Normal is the world they faced and the one we face today: whereeven when you’re playing by the rules, you can lose Where a group of CEOs whowouldn’t think of inviting you to their country club can cost you your job, make yourhouse worth less than you paid for it, and trash the only retirement plan you have

So how do you deal with this new reality? Stop whining and start acting And theactions I’ll suggest are the same as those that worked for the Greatest Generation.Trust nobody—not the boss and especially not the government—with your physical,financial, spiritual, or emotional well-being Create your own version of joy bycarefully considering the relationship, or lack thereof, between material possessionsand happiness And create your own version of financial freedom by living belowyour means

That’s what this book is about: finding freedom, both financial and spiritual I wantyou to have the freedom to quit your job and become self-employed The freedom toretire early and travel the world The freedom to make a positive impact in the world

by offering your time and money to the people and causes that deserve it To sum it

up, the freedom to pursue happiness, a right guaranteed to all of us by one of thegreatest documents ever written, the American Constitution

An d Life or Debt is more than just this book It’s also an online community

designed for people just like you It’s a place to download some of the forms you’llfind in this book, share stories, thoughts, and tips with other people in your situation,and learn new stuff that can help you stay on track I’m often online there doing livewebcasts, talking to people, and having fun So stop by lifeordebt.org before, during,

or after you read this book and say hello! And if Twitter’s your thing, I’m

@MoneyTalksNews

My Story

Anyone who lives within their means suffers from a lack of imagination.

—O SCAR W ILDE

This chapter is about me and my life It’s not necessary for you to know anythingabout me at all for this plan to work for you, so if you want to skip this part of thebook, feel free But I think it kinda makes sense for you to know the person you’regetting advice from, so here’s the abbreviated version of how I came to be writing

Life or Debt.

Ever notice how practically all self-help or motivational books start out with theauthor revealing some sort of emotional catharsis that suddenly caused them to see thelight? You know, stuff like “There I was, forty-five years old, living on the street, andeating from a Dumpster, when suddenly inspiration struck like a divine lightning bolt!All I had to do was follow the seven magic steps and I’d become rich beyond mywildest expectations! And sure enough, it’s happened! Now I have a mansion inMalibu, fly my own helicopter, and party at the Playboy Mansion!” What the authoroften leaves out, of course, is how much of their newfound wealth comes fromfollowing the seven magic steps and how much comes from selling their books andDVDs on infomercials and home shopping channels

Here’s the first of many embarrassing admissions I’ll make: While I have certainlymade my share of stupid mistakes, I’ve never been poor, gone bankrupt, or had asudden revelation that laid the “true path” to fame and fortune at my feet Nor am Irich now, at least not in the beach-house-in-Malibu sense And while I hope that Imake money from this book (and get invited to the Playboy Mansion, for that matter),it’s not really that big a deal to me one way or the other Why? Because my life is justfine exactly the way it is I’m doing precisely what I want to do, and what I makedoing it is fine by me

But that isn’t how my life has always been As you’ll soon discover, there was atime, and not so long ago, that I forgot who I was and what I wanted out of life

Here’s how I came to be your humble narrator:

In 1973 I was 17 years old For those of you who weren’t alive at that time, trust

me, it was an interesting time to be in America By ’73, the hippie message of love,

peace, and togetherness may have been fading, but you couldn’t tell it by talking to

me And another aspect of the love generation that I could especially relate to was thewholesale rejection of all things material The idea of sharing with your brothers andsisters, i.e., everyone younger than 30, and thereby avoiding the traps that lurked inmoney, property, and politics seemed both reasonable and realistic But I wanted totry it for myself So promptly after graduating from high school, I left my middle-class home in Atlanta and hitchhiked across the country My goal was to forget how

my parents and society had taught me to view the world and instead to live life theway it was meant to be lived: with no obligations and plenty of adventure And thiswasn’t a summer vacation we’re talking about here This was going to be my life So,for several months, that’s what I did I experienced the ultimate in freedom I wentwhere I wanted, did what I wanted, and stayed as long as I wanted For most of thattime, I didn’t have two nickels to rub together I survived mostly by doing day labor,stuff like furniture delivery or unloading boxcars Always something different, whichwas cool because I got to learn how to do lots of different things and had theopportunity to meet lots of different people Then, when I’d satisfied my curiosity andearned enough to meet my meager needs, I moved on My ultimate goal was to reachthe mecca of my generation: San Francisco and Haight-Ashbury That was the capital

of this brave new nation where society was being reinvented, where free love andflower power were going to replace greed and war When I pictured my future, I sawmyself pitching in at a commune or homesteading in Alaska Nạve? Of course, buthey, this is my story So stop laughing and listen

You can probably guess what happened during the course of my personal path tospiritual enlightenment It didn’t take long to figure out the love and peace movementwas either nonexistent or so far underground I couldn’t dig it up What I did find a lot

of, however, were pedophiles, con artists, and common crooks That’s not to say Inever found genuine, kind, caring people I did But by the time I reached SanFrancisco, I understood that flower power was an idea whose time had either comeand gone or had existed more in song than in real, day-to-day life And I also hadfirsthand experience that many of the people living on the streets weren’t poets andadventurers who had rejected the possession-obsession society; they were people whowere rejected by that society and had no place else to go So while I valued myexperiences, I realized that this was not the life I wanted to lead

After returning to Atlanta, my life soon began to resemble those of my moretraditional contemporaries I went away to college And since the freedom of the roadhadn’t lived up to my lofty expectations, I thought I’d try a more old-fashioned way

of finding freedom: tons of money! My dreams of homesteading in Alaska weregradually replaced with visions of yachts, mansions, and Playboy bunnies Seem like

a major about-face? I guess it was But considering my newfound cynicism about thehippie movement, and taking into account that virtually every mass-media, peer, andparental message I ever received was all about acquiring money, the speed of mytransformation is not that surprising.

I started college intending to major in philosophy, but by my junior year I haddecided that accounting would take me where I wanted to go a lot faster In retrospect,

I believe the reason I chose that particular degree went back to a casual dinnerconversation I’d had with my father years before I must have been about 12 or 13years old While talking about one of his old friends who was a CPA, he had casuallymentioned that CPAs were never out of work and always made a good living Sothere you have it! Security, money, and parental approval, all rolled into one In anycase, I graduated in 1977 with a degree in accounting, cut my hair, and took a job withthe state of Arizona as an auditor

Unfortunately, there was an integral part of accounting that my dad had forgotten tomention to me at that dinner years before Namely, an accountant has to go to workand actually do accounting for eight hours a day, five days a week While for somepeople this may be an exciting and rewarding way to occupy their working lives, for

me it was like watching paint dry Still, another thing my dad had taught me was thatwork wasn’t supposed to be fun (“That’s why they call it work!”) So I did it for afew years, picking up my CPA certificate along the way and trying to ignore thenarcolepsy that had become a prominent feature of my working life

By 1981, I had been an accountant for a few years and had come to the conclusionthat I’d rather chop off my own foot with a dull ax than do it for a minute longer Inother words, my despair at being an accountant finally outweighed my fear of beingunemployed And besides, I had another idea that would further my ambition tobecome obscenely wealthy a lot faster In the office building where I worked, therewas a big EF Hutton office And it looked really cool A giant open space filled withdesks and people, and a stock ticker dancing across the front of the room There waseven a place for spectators! Can you imagine an office job so interesting that peopleactually stopped to watch? You could practically feel the excitement just walking bythe place Bye-bye, crummy salary! Bye-bye, narcolepsy! And it went without sayingthat these guys would hire me After all, investing in stocks was all about analyzingcompanies, and who could do that better than a CPA?

I’ll never forget my first interview with the manager of EF Hutton He peered at mycompleted application like it included a lengthy prison record This was confusing.After all, I was a CPA! A master of numbers and financial analysis! Imagine myconfusion when he looked up from my résumé and said, “I’d much rather have aused-car salesman sitting across the desk from me right now than a CPA.” I was

stunned Potentially doomed by too much education and too little sales experience!But fortunately all the news wasn’t bad Because despite the embarrassinglyinappropriate education and professional credentials I was saddled with, I was able toconvince my tormentor that I did possess the one personality trait necessary to thesuccess of any stockbroker: I was desperately greedy He told me that after a few years

of hard work (which, as he explained, actually entailed doing nothing more than usingthe telephone to unmercifully harass 60 or 70 innocent people every day), I couldexpect to make $50,000 a year, maybe more And that was just about all the money inthe world to me, since I was only making $18,000 at the time I told him that there wasnothing short of murder that I wouldn’t do to make $50,000 And, despite the fact that

I had drawn the line at capital crime (probably a mistake in retrospect), he decidedthat I at least warranted a test to see if I could actually sell I passed and wassubsequently hired, trained, and licensed in stocks, mutual funds, commodities, andlife insurance

In many ways, being a stockbroker was exactly what I had hoped It was exciting,especially compared with auditing school districts And my manager hadn’t beenexaggerating about the money either, probably because I had stumbled into the stockbrokerage business with nearly perfect timing When I started my career in 1981, theDow Jones Industrial Average was around 800 And interest rates on risk-free money-market accounts were around 15 percent, so pretty much nobody wanted to invest instocks But in 1982, rates started to plummet and the stock market began what turnedout to be one of the greatest bull markets of the century And this rising tide floated allboats, including mine Less than three years after being hired, I was indeed making

$50,000 a year As I closed in on my thirtieth birthday, I was working 90 hours a weekbut my income had grown to more than $100,000 a year Not exactly rich, but I wascertainly a success, especially when I compared myself to my parents and the friendsI’d grown up with And like many people who find themselves making big money, Ihonestly believed that I deserved it After all, I was making a lot of money for myclients, wasn’t I? And I was certainly making a lot of money for my employer.Therefore I must have been smart, and therefore deserving

So since my hitchhiking days of all freedom and no money, the pendulum hadgone all the way to the other extreme The children of the 1960s are knownhistorically as the “love generation” and the children of the 1980s are often called the

“greed generation.” For me at least, both labels fit like a glove The sixties’ altruismand idealism were distant memories as the eighties marched on and my incomecontinued to rise

Now I was making money, which I had exchanged for free time But that was cool,

because I enjoyed my job In fact, let’s be honest: I didn’t just enjoy my job, I was my

job And my job was money I made it, I borrowed it, I invested it, and I blew it Just

as I had in my hitchhiking youth, I took my cue from my peers, only this time themessage was different If you’ve got it, flaunt it! You can’t take it with you! So Ibought the big house with the pool, a few convertibles, and some rental property, and

of course did a lot of investing and outright gambling in the stock market I had debt,but it was a small fraction of my income, so it didn’t matter What did matter was that

I was a big deal, and nobody would know it if I didn’t look like one, act like one,dress like one, travel like one, and party like one

I haven’t been a stockbroker now for nearly 20 years, so I can’t say what happens

in that business these days But I can tell you what it was like in the 1980s, and inmany ways the picture isn’t pretty Stockbrokers were measured almost entirely byhow much money they made for themselves and for the company Money made forcustomers was incidental Of course, the management of these companies wouldsurely take exception to that remark, probably bleating something like, “That’s a lie!

Of course our clients are important! If we don’t make money for them, we won’t keepthem, and therefore we are compelled to do right by them!” While that argument may

be logical, the fact remains that where I worked, every morning the previous day’scommission tally was displayed on a clipboard outside the manager’s office so youcould see not only how much you had made, but how much everyone else had made

as well Client profits, losses, and satisfaction were never displayed Brokersgenerating the most commissions got the biggest offices, were held up as examples atsales meetings, and won luxury cruises Those who didn’t generate much in the way

of commissions, regardless of what they did for their clients, were relegated to thesmall cubicles that made up the “bull pen” and in many cases were ultimately fired To

my knowledge, nobody was ever retained for treating customers well At the sametime, brokers who I absolutely, positively knew to be unethical were being heapedwith recognition While the argument that treating customers well is necessary tosurvive may sound logical, the truth is that replacing the customer was easier thanreplacing their poorly invested money That’s not to say that brokers, even unethicalones, would deliberately hurt people; after all, the more money your customer makes,the more you have to manage But salespeople are by nature competitive, andrecognition in the investment game is about commissions, not client profits Ofcourse, I didn’t see that back then, at least not for the first few years It took a longtime, and some painful experiences, for me to learn this simple lesson

Nineteen eighty-five was a banner year for me That was the year I met my firstwife and landed what’s known in the sales business as “a whale.” Soon these twoseemingly unrelated events would combine to make my life a lot more interesting

First the whale The giant account that I landed was one of the largest Indian tribes

in the state It took me four years of on-and-off prospecting to land this Moby Dick,but the effort was well worth it There was only one problem At the very end of thelast meeting before signing up my new client, the tribe’s investment representativecasually mentioned that I would have to pay him money under the table to get theirbusiness While I knew this to be illegal, I agreed to do it Why? Why do you think?Greed, of course! Although I was already making good money, I wanted more And Iwanted to be recognized as the best, which in my line of work translated simply as thebest paid Plus, although paying kickbacks was technically illegal, I didn’t have toviolate my personal ethics since it wasn’t hurting the tribe I was merely choosing toshare money I was legitimately making with my client’s employee Or at least, that’show I rationalized it But just to make sure, I asked my future bride what she thought.

Of course, since she was every bit as greedy as I was (if that’s possible), she agreedthat the risk was well worth the reward

For a couple of years, things went well with my new client and my new wife I putthe Indian tribe into good investments They made money, my tribal contact mademoney, and of course I made money Better yet, there was never a problem spendingall this new money, because my wife went through it like a hot knife through butter

Alas, neither relationship was destined to last By 1987, I was separated from both

my wife and the Indians’ money Both relationships ended by mutual consent, butboth were still painful, and both would come back to haunt me In the meantime, for alittle salt in the wound, in October of that year the stock market crashed About theonly good thing that happened to me in 1987 was that I expanded into TVbroadcasting I was invited to do ongoing investment commentary during the morningnews on a local television station, probably due to interest surrounding the stockmarket after Black Monday It was a nonpaying job at first, but one that enhanced myvisibility and credibility in the community—always a good thing for any salesman

For some time things went pretty well I was single for a while, then met mysecond wife in 1990 Also in 1990, my success as a stockbroker and visibility on thenews helped land me a job managing the local office for Prudential Securities I hadmet the right girl, I was a genuine vice president of a major brokerage house, and myearnings were now in excess of $200,000 a year More important, I had also startedmaturing when it came to both money and ethical behavior

About the time that I became a manager, I had finally begun to realize that showingoff by driving the fanciest car and living in the fanciest house weren’t all thatimportant In retrospect, perhaps I had an intuition that it was time to start preparingmyself for a new life Maybe it was because my subconscious was telling me that theinevitable collision between my personal ethics and the brokerage business was about

to cut short my career Maybe it was my conscious mind that told me that taking care

of all this stuff I had collected was stressing me out and making me miserable.Looking back, I honestly don’t know what changed me But I do know that instead ofexpanding my lifestyle, I started selling off stuff and using my money to pay off debtsand build up savings.

After 10 or so years as a stockbroker, I was beginning to have a hard time looking

at myself in the mirror It wasn’t because I had ripped people off or anything Even at

my most greedy, I had always acted in a way that I honestly believed to be in myclients’ best interests Of course, the stock market itself, along with the stupidinvestment products pushed by the firms I worked for, had often overcome my goodintentions, but I had done my best The problem was that it was becomingincreasingly apparent that the financial services industry stank to high heaven I won’t

go into more specifics than I already have; this is my story, not theirs, and besides,that’s a whole book by itself Suffice it to say that a simple fact that should alwayshave been obvious to me now became unavoidable: The investment business cares alot more for its own bottom line than it does for its clients’ I was really starting to feelunable to carry on My own greed, along with a healthy dose of ignorance, hadallowed me to overlook that problem more often than not for years, but it just wasn’tenough anymore

As it happened, fate intervened and removed me forever from the brokeragebusiness Which is a good thing, because I honestly don’t believe I would’ve had thecourage to quit such a lucrative job, and I was rapidly approaching the same miserylevel I had achieved as an accountant

Here’s what happened Remember my former wife? Well, it turned out that when

we were officially divorced in 1988, she had decided to perform her civic duty andreveal to the world the seamy underbelly of my relationship with my Indian tribeclient So she simply picked up the phone and reported me to the authorities Andwhile the wheels of justice had been grinding exceedingly slowly, since 1988 they hadbeen grinding all the same

So, in 1990, years after my relationship with the Indians had ended, yours trulyfound himself in very hot water indeed While I looked at my offense as basicallyvictimless, turns out Uncle Sam didn’t share my view at all In exchange for mycooperation in the investigation of tribal corruption, I was never charged with a crime.But that didn’t prevent both of my employers, the TV station I was on and the stockbrokerage firm, from promptly firing me And since my license was suspended, I wasnot only unemployed, I was unemployable Kind of ironic, don’t you think? Here Iwas having a mental dilemma about the morality of the financial services industry,and just like that, it was I who was marked as a person too immoral with whom toshare office space

So I found myself at a turning point in my life (Of course, at the time I didn’t see

it as a turning point; I saw it as a disaster of epic proportions But viewed in life’srearview mirror, a turning point is exactly what it was.) Doors had been closed to me.What door was I going to open next?

I thought long and hard about what I had done up to then with my life I hadstarted with the idealism typical of youth, then abruptly done the opposite and focusedonly on myself and my needs It was time to find a new path

What I decided to do was start over, only this time to do it the right way The

“right” way is a choice as unique as each of us, but for me it was to do something that

I enjoyed that was also worthwhile Something that I could feel good about, have fun

at, and still get paid for Which for me meant doing TV I loved telling the truth aboutmoney to people who appreciated hearing it, rather than forcing some financialproduct down the throats of unsuspecting people trying to eat dinner And, sincegiving good, honest advice obviously has value, sooner or later someone would write

me a check for it Plus, I was eminently qualified, having collected a slew ofcredentials and spent my entire adult life in the business of money

So at the age of 35, I started my life over I went out and started selling televisionstations my very own news product: “Money Talks.” I could take this risk because Ihad reined in my spending, had pretty much paid off my debts, and had money in thebank And 20 years later, I’m still doing it I’m on the air in more than 80 cities, aswell as on major websites I tell the truth, live beneath my means, and am a much,much happier person

It’s too early to tell whether you’re going to get anything valuable from this book.But I can promise you this: You wouldn’t be reading it in the first place if I had lost

my job with lots of debt and no savings Fact is, if I hadn’t started marching to myown drummer and had instead continued to follow my peers by living up to myspending and borrowing capacity, I wouldn’t have had the time or the money to eventhink about what my destiny was, much less been able to move toward it when I wasseparated from my job And while I hope that you’re never forced to start over like Iwas—especially due to your own mistakes—I do hope that you’ll have the ability to.Maybe you’ve got something valuable to say, something that I and millions of otherpeople really need to hear I can’t stand the thought of you being so consumed bysupporting an unrewarding lifestyle that you don’t have the freedom to sit down andhelp others by sharing your experiences and advice And that, gentle reader, is whatthis book is all about

So that’s been my journey thus far Here are a few thoughts that summarize some

of the lessons that I’ve learned along the way

The first I expressed above: Simple choices about borrowing and spending thatyou’re making right now can have an extremely far-reaching impact, not just on yourlife, but on the lives of those around you and beyond Living without debt makes itmuch more likely that you’ll have the freedom to fulfill your destiny.

Lesson number two: There’s nothing wrong with being your job, provided your

job reflects who you really are If it doesn’t, then if you’re lucky you’ll fail If you’reunlucky, you’ll succeed and as a result quite possibly waste your life doing somethingthat isn’t you You’ll be miserable, and there’s no amount of money that will take thatmisery away

Lesson number three: Money buys things, not happiness And each thing you havecomes with its own invisible ball and chain Attach enough of them to your life, andyou’ll feel like a prisoner, because that’s exactly what you’ll be

Lesson number four: Every person or company you owe money to owns you.Why? Because they have a say in the most intimate details of your life When (or if)you retire Where (or if) your kids go to college How you use (or if you ever haveany) leisure time Buying and borrowing forces you to use your time to earn money.And working, especially in an unrewarding job, could separate you from your destinyand thus from happiness

In a way, my life has been circular My teenage visions of a world of peace, love,sharing, and caring may have been nạve, but as I reflect back, they were much closer

to my version of true happiness than the greed and possession obsession thatcharacterized the first part of my adult life Today I’ve found a happy medium I don’tsleep in underpasses and forsake all things material But I also don’t squander myprecious time or personal integrity so that I can resemble people in TV commercials I

do what makes me happy, and I stay as free as possible by not owing my time toanyone

Wanna join me? It’s easier than you think!

2 Who Wants to Be a Millionaire?

If you were happy every day of your life you wouldn’t be a human being, you’d be a game show host.

—G ABRIEL H EATTER

The game show Who Wants to Be a Millionaire isn’t as popular these days as it once

was, but you’ve probably seen it It’s one of many reality and game shows thatpromise players that if they’re lucky and resourceful, they’ll get rich Whether youenjoy shows like these or not, wouldn’t you rather play than watch? Well, maybe you

should play your own home version of I Want to Be a Millionaire I’ll warn you up

front that it takes longer than a half hour to play But the good news is that you won’thave to eat bugs or know the answers to trivial questions, and your odds of winningare a lot higher Plus, there aren’t any commercials to sit through!

An old friend of mine (we’ll call him Art, because that’s his name) financed hisway through college with a wrestling scholarship While Art was obviously a goodwrestler, he wasn’t Olympic quality, and he was wise enough to see that early on Soone day he requested a private audience with the coach He asked, “What can I do to

be a better wrestler? Should I try a different diet? More running? More weight lifting?I’ll do anything—just tell me.” And what the coach said was this: “You know who thewinners are on our team, right?” Art said, “Of course.” The coach said, “Then hangaround with them Become friends with them In short, just watch the winners and dowhat they do.” Art still never wrestled in the Olympics, but when he followed thisadvice his performance improved dramatically, as well as his ability to wrestle withevery other problem life has since placed in his path

That’s great advice If you want your life to in some way resemble someone else’s,then simply watch them and do what they do So if what you want is to be financiallyindependent, it makes sense to see what millionaires did to get that way And youdon’t have to risk a stalking conviction to do it, because there are plenty of placeswhere you can get that information

When I was a stockbroker, I dealt with lots of people who had a million dollars innet worth Here’s what I learned Becoming wealthy has almost nothing to do withincome or investment know-how Accumulating wealth comes from avoiding debt,living below your means, and investing sensibly and consistently Among the

hundreds of people I served during my years as a stockbroker, with the exception ofthose who inherited, nearly every wealthy person I met got that way by following thissimple path Conversely, among my myriad clients who gambled on options,commodities, penny stocks, sophisticated trading strategies, or other get-rich-quickschemes, not a single one was a long-term winner Las Vegas offers better odds, andthe drinks are free.

Of course, it would be much more exciting if the path to wealth was a dramatichalf-hour quiz or reality show, or if it involved laying down a big bet on getrich.comstock or buying a lottery ticket But go out seeking real, live millionaires, and whatyou’ll probably find is that the vast majority of them are so mundane in appearance,attitude, and occupation that they virtually blend into the background By and large,they don’t wear flashy suits, drive fancy cars, wear a Rolex, or live in a big house.Why should they? They don’t need to impress anyone If you’re looking at someonewho’s flashy, odds are they sell things to rich people for a living, but they’re not richthemselves

Have you read The Millionaire Next Door? You should It’s a great book because it

proves what I observed about rich people with objective statistics What authorsThomas Stanley and William Danko did was to personally interview 500 millionaires

as well as collect information from another 1,000 with a detailed survey Here are afew of the things they found out (Note: These statistics are now nearly 10 years old,

so they may be outdated That’s cool… they’re close enough.)

Income: Median annual income for American millionaires is $131,000

Cars: Less than one in four millionaires owns a new car Less than one in fiveleases The average price they pay for a car is a little less than 25 grand For more thanone-third, their most recent car purchase was a used car Only 6.4 percent ofmillionaires surveyed drive a Mercedes or a Lexus Less than 3 percent drive a Jag.Nearly 60 percent drive an American car

Clothes: 50 percent of millionaires surveyed had never paid more than $400 for asuit in their entire lives, for themselves or anyone else About half had also never paidmore than $140 for a pair of shoes

Houses: 97 percent of millionaires own their own homes The average value of thathome is $320,000, and about half of millionaires have lived in that house for 20 years

or more

What’s fascinating about this information is that it is so remarkably different fromwhat we think of when we imagine the life of a millionaire We’ve been trained to

think of millionaires as they’re portrayed on Lifestyles of the Rich and Famous But

the truth is that an opulent lifestyle isn’t at all typical of the average millionaire Why?

The answer is very basic: because very few people can afford to both look wealthyand actually become wealthy during the same lifetime You have to make a choice as

to which you want to do

Bottom line? What I learned when I was a stockbroker, and what you’ll learn when

you read books like this or The Millionaire Next Door, is that becoming financially

independent isn’t really a function of how much money you make It’s much moreoften a function of how little money you spend

So, do you really want to be a millionaire? If so, turn off the quiz shows and takethe advice of Art’s wrestling coach Watch the winners and simply do what they do.And yes, Regis, that’s my final answer!

3 Life or Debt

You aren’t wealthy until you have something money can’t buy.

—G ARTH B ROOKS

This book is designed to get you completely out of debt as quickly as possible Andonce you’re out from under those payments, the money that used to go to service allthat debt is going to make you financially free Free to do anything and everything youalways wanted to do Free to retire without help from the government, your relatives,

or any other source of income Or maybe just free to stop banging your head againstthe wall at a job you hate

My ex-wife Gina spent most of her working life in journalism, first in print, later as

a television news reporter, and finally as a primary news anchor for a TV station inCincinnati But one day about 10 years ago, she quit Maybe you can relate to thereason she quit: She just couldn’t stomach her job anymore In her case, she felt thatthe quality of TV news had gotten so bad that just turning out a journalistically soundnewscast was becoming a nightly battle In other words, she felt the standards in herindustry weren’t up to her personal standards (Perhaps that’s a thought you can alsorelate to in your job.) So one fine day Gina decided to leave the job and the moneybehind It was a tough decision career-wise, but not so much income-wise She hadthe freedom to choose a new path because we didn’t need her income Why? Becausewe’d chosen to live beneath our means And that doesn’t mean, by the way, that wescrimped, saved, and shopped entirely at yard sales We bought pretty much whatever

we wanted We just didn’t really want that much

Most households don’t have the freedom to make choices like that because mostowe for as much car, house, vacation, and lifestyle as two incomes can buy Thatmeans that right now, all across America, there are probably people who are sufferingbecause they’re forced to do something they don’t feel right about doing But theyspend five days there every week because they don’t have a choice In a way, that’slike slavery I hope you’re not one of those people, but if you are, you need to knowthat it doesn’t have to be that way Because you’re going to have the freedom thatfinancial independence buys

Finding financial independence is simple, but it’s not easy It’s simple because thesteps are straightforward But it’s not easy, because to succeed it’s likely that you’re

going to have to fundamentally change the habits of a lifetime So, if we don’t talk for

a while about how you got into debt in the first place, it’s not likely that you’llcomplete the steps to become debt-free And, even if you do, it’s not likely that you’llstay that way

If you find yourself chained to debt, the first thing you should realize is that you’renot alone Not by a long shot There’s trillions of dollars of personal debt in theUnited States right now, and about a third of it is credit card debt Know how muchthat is? We’re so desensitized to numbers like “billion” and even “trillion” these days,maybe that doesn’t mean much But consider this: If you stacked hundred-dollar bills

on top of each other, a million dollars would be about six feet high A billion dollars,though, would be more than a mile high And a trillion would be 1,000 miles high Adebt that’s literally out of this world And that giant tower of debt is sucking theindependence out of your life and gradually transforming it into corporate profits

So if you find yourself in debt right now, you’re not alone In fact, you’re rightwhere you’re supposed to be! Or, more accurately, you’re right where “they” wantyou to be Who is this evil “they” that wants to enslave you? You’ll see But first, let’stake a look around and see where we Americans find ourselves today

Even before the current economic crisis, Americans weren’t in the best financialshape Nearly half live paycheck to paycheck Nearly half don’t have $5,000 insavings Most retire dependent on government, church, or family assistance Mostdepend on Social Security for the majority of their retirement income Most work untilthey reach retirement age Most enter their retirement years with very little in the bank.And most American adults use credit I could drone on and on with more facts andfigures, but I’m not going to because they really don’t matter What matters is howmuch money you make and how much of it you manage to hold on to

What’s really nuts about so many of us retiring poor is that it’s not necessary!Why? Because most of us will earn more than $1,000,000 during our lifetime Even anincome of just $25,000 per year multiplied by 40 working years is $1,000,000!Granted, we obviously have to use a lot of the money we make to survive Still, itseems that many of us make mucho during our working lives, yet nearly all of usseem to be ending up with nada What’s going on here?

Well, one thing that’s going on here is that you’re surrendering a lot of your money

to your rich uncle in Washington, DC I’m speaking, of course, of Uncle Sam Butunless you’re ready to collect some guns and move to Montana, there’s probably notmuch you can do about that (There actually are some little things you can do toreduce your taxes But, for the most part, taxes are like in-laws: We may not like ’em,but they’re a part of the package.)

But another, bigger thing is happening to you every day to separate you from yourfreedom And this one you do have control over Namely, you can stop paying threetimes more for the stuff you buy than it should cost!

Let’s say you buy a $100,000 house with no money down and pay for it with a year mortgage loan Let’s say the interest rate on your mortgage is 9.4 percent Yourmonthly payments will be $833 per month (That’s just for the principal and interestand doesn’t include all the other stuff you’ll have to pay, like mortgage insurance,homeowner’s insurance, and real estate taxes.) By the time you’ve paid for that house,you will have paid $200,000 in interest! So, you’ve actually paid $300,000 for yourhouse, not $100,000 And Uncle Sam makes it worse Assuming you’re in a 30 percenttax bracket, you might have to earn up to $400,000 of income to have $300,000 aftertaxes to pay that additional $200,000 of interest on your $100,000 house That meansyou have to work like a slave for decades to earn $400,000 to buy your house Andhalf of that money, $200,000, went for the sole purpose of fattening some lender’sprofit margin

30-What about that nice vacation you just took to the Bahamas? Or that stereo youbought? Or those clothes you absolutely had to have? Well, if you used plastic andtime payments to buy them, you could again be paying three times more than theycost

Let’s say the total of all this stuff you charged to your Visa amounted to $5,000.Your interest rate is 17 percent, and you have to pay a minimum of 2 percent of thebalance every month, or $10, whichever is greater (Government regulators in recentyears have forced banks into a higher minimum payment, typically 4 percent.) Now,while you show off that Caribbean tan, rock to that radical stereo, and go stylin’ inthose new threads, you’re making minimum payments on your Visa bill Here’s whatwill happen: First of all, if you never use that plastic again, you’ll still be makingpayments for a little over 34 years And when it’s over, you’ll have paid a total of

$15,855: $5,000 for the stuff you bought and $10,885 in interest Bottom line? Again,you’ve paid three times what the stuff costs And again, because of taxes, you mighthave to earn $20,611 to pay $15,855 for stuff that you thought you paid $5,000 for.And, to rub a little salt in the wound, do you think you’ll still have that tan, that stereo,

or those awesome threads 34 years from now? You’ll be lucky to be alive

These numbers are eye-popping enough standing alone But when you comparethem to what you could have been doing with that same money during that same timeperiod, you’re really going to start understanding why so many people retire withnothing More important, you’re going to start getting a grip on why your ownfreedom has been right there next to you the whole time

Suppose you’d paid cash for that $100,000 house of yours And suppose thatinstead of paying $833 every month, you were investing $833 every month Andsuppose that instead of paying 9.4 percent interest, you were earning 9.4 percentinterest Result? After 30 years, you’d have $1,658,222! Of course, if you’d paid 30percent in taxes every year along the way, you’d “only” have $935,902 True, notmany of us could pay cash for a house But some of us could probably qualify for a

$200,000 loan and only borrow $100,000, thereby freeing up that extra $833 a monthfor savings

Okay, let’s take a break from the numbers for a second, sit back, and considerwhat we’ve discovered Number one: When we borrow to buy things, we’re reallytaking on a third job Our first job is where we go every morning to collect apaycheck Our second job is working for our government, since we’re giving a majorchunk of our money to them Our third job is padding the pockets of the giantcompanies that are in the business of lending us money Working for your boss andthe government is bad enough But do you really need to go to work for Visa too? Idon’t think you have the time And that leads us to the second thing we’ve learned:that compound interest is a fabulous tool! When we borrow money, we’re using it tomake major money for other people—namely, bank executives But when we harnessthe miracle of compound interest by saving and investing our money, we’re using thatsame powerful tool to build financial freedom for ourselves Who would you rathermake rich: you or a banker?

So, the trick is to stop being a blind, obedient, hardworking slave to debt and tostart redirecting your money so it works like a slave for you End result? Freedom,baby!

Now, maybe you’re saying, “Okay, okay! I see how interest is costing me bigbucks and I’ll try to keep it to a minimum Will you get off my back already?” Sorry,not yet Because even if you never borrow a dime, you’re still sacrificing yourfinancial freedom every time you spend money anyway Let’s talk about that next

In fact, let’s do a simple exercise together Let’s both take a minute and take aglance around our respective rooms (If you’re not at home right now, imagine thatyou are.) Notice all the stuff in the room you’re sitting in, and I’ll do the same Now,let’s take one or two of these things and see what they’re really costing us Ready? I’llstart Right now, I’m sitting on a leather chair that costs $1,000 My ex bought it for

me for my birthday I know that’s a lot for a chair, but it’s really cool, and besides, Ispend a lot of time here (See how I’m justifying myself? And I don’t even knowyou!) Anyway, if my chair was bought with credit and paid for over time withminimum payments, how much did it cost? If you’ve been paying attention, youknow that it could have cost up to $3,000: $1,000 for the chair and $2,000 for the

credit card company Happily, however, that isn’t the case with my chair (As youmight imagine, I’m not heavily into using plastic.) But it still cost me a lot more than

$1,000 Because that money is no longer around to work for me If it was, and I hadinvested it and earned 10 percent every year, 20 years from now I’d have $7,328instead of a worn-out chair

My chair is a good example because it cost a nice round number, and one that youcan use to help you do this same exercise in your home In other words, if you paid

$10 for some item in your room, multiply that $10 by 7, and you’ll know how muchyou would have had if you had invested that $10 at 10 percent for 20 years So, your

$10 ashtray costs you $70 And that $5 pack of cigarettes you’re filling it with costsyou about $35

What I’m describing here is a term that you might want to become acquainted with:

opportunity cost It simply describes what money you spend today costs you in terms

of the opportunity to have more money tomorrow And that cost isn’t just measured

in money It’s measured in something a lot more precious: time

Let’s go back to my chair We’ve discovered that the opportunity cost of my chair

is $7,000 You know how long I could live on $7,000? Two months easy, maybethree So, ignoring inflation, I theoretically could have retired at least two monthsearlier if I wasn’t sitting in a $1,000 chair right now What I have chosen to do is swap

at least two months of total financial freedom in the future for a nice chair today! Wasthat a good trade-off?

Of course, I have to sit somewhere while I’m writing this But wouldn’t I havebeen better off buying this chair at a garage sale for $100 instead of owning it new for

$1,000? A $100 chair would have a 20-year opportunity cost of $700 So I’d still beretiring $700 later than if I’d sat on the floor working for 20 years But retiring $700later instead of sitting on the floor for 20 years is a swap I can live with

Another way of measuring opportunity cost is comparing the stuff you’ve bought

to how much you make an hour when you work Let’s say you work 40 hours aweek, 50 weeks a year, and make an annual $40,000 salary a year That comes out toexactly $20 an hour But hold on Because you actually don’t bring home that much,

do you? Nope You’ve got to pay taxes on that money If you’re paying 30 percent intaxes, you’re actually making $14 an hour So, if you’re sitting in a $1,000 chair likemine right now, you were apparently willing to work an extra 525 hours over the next

20 years to do it ($7,328 ÷ $14 = 525) Think how many hours that is! That’s 13weeks! Three months! When was the last time you took three months off?

If I came to you and said, “Here’s a $1,000 chair It’s yours All you have to do iswork for me without pay for three months,” is that a deal you’d jump at? Doubtful

And yet, that’s exactly what you’re doing every time you spend $1,000, even if youaren’t borrowing a penny to do it.

And, by the way, if you are making 20 bucks an hour, you’re actually probablymaking even less than $14 Because, in addition to taxes, there are all kinds of othercosts associated with showing up to get that $14 every hour You’ve probably got todrive there, which costs you money And, unless you work at a nudist camp, you’vealso got to show up with suitable clothes on, clothes that you might have to pay tohave dry-cleaned You might be eating out for lunch, which obviously costs morethan if you were eating at home And if your job stresses you out because it’s notproviding you with fulfillment, you probably also spend money doing things toalleviate that stress, like having the occasional cocktail or two at after-work “bitchsessions” with your buddies, or taking vacations, or indulging in other leisureactivities that reflect what you really like doing It all adds up, and when you take thetime to add it up, what you’re going to find is that you’re making a lot less moneythan you thought and you’re using way too much of your precious time to do it!

So here’s an exercise I want you to do Unless you’re smarter than I am (a distinctpossibility), you’re probably going to need a calculator to do this, so have one handybefore you start

1 Write down your annual salary, or if you’re hourly, about how much money

you make every year _

2 Multiply the number above by 0.7 (to account for taxes) and write the answer

here _ (Special note to those who are sticklers for detail: I realize that ourtax system is incremental In other words, if you’re in a 30 percent tax bracket,not all of your income is taxed at 30 percent; only the part that exceedsestablished boundaries is But it’s also true that federal income tax is the tip ofthe iceberg You pay 6.2 percent of your income in Social Security tax You pay1.45 percent in Medicare tax You pay up to 6 percent in federal unemployment

on part of your income Depending on where you live, you may also be payingstate and local income taxes, as well as state unemployment and worker’scompensation So, all in all, I’m perfectly comfortable with this 30 percentfigure.)

3 Take a few minutes to think about all the expenses that are associated with

your job every year (gas, food, clothing, etc.) When you’ve got a rough idea,

subtract that number from the answer you got in number 2 and write thatamount here _

4 Divide the number above by 2,000 (the number of hours the average person

gets paid to work every year) and write that answer here _ This is your

true hourly wage.

What you now have in front of you is how much you’re really making every time

you trade an hour of your life for that paycheck Depressed? Well, grab a hankie,because it’s about to get a lot worse!

5 Now, take a few minutes off while you look around your house Estimate the

price of all the useless “stuff” you’ve accumulated over the years I’m

talking about stuff you thought you wanted at the time but in fact don’t reallyuse that often, as opposed to the things you really like or really need When youget a rough estimate, write that amount here _

6 Take the amount in number 5 above and multiply it by 7 to calculate its

20-year opportunity cost Write that answer here _

7 Divide the number from number 6 by your “true” hourly wage (It’s the

number from 4.) Write that answer here _

If you actually went through this exercise, what you’ve just uncovered is the number

of hours of slave labor, hours you can never replace, that went into surroundingyourself with this stuff you didn’t really want or need And keep in mind that this is ifyou paid cash for everything! If you used credit, the final tally is obviously muchworse Feel like going to the mall?

By the way, if you didn’t actually take the time to do this exercise, then you can addwhatever you paid for this book to the list of stuff you didn’t really want or need!

Before we leave this topic and start getting into the guts of just how we’re going toput together your program to get totally out of debt and start saving serious bucks, it’simportant to stop and consider how we got here I hope the numbers I just showedyou were a pretty compelling reason to stop spending and borrowing and to startsaving—or, to put it another way, to stop trading your life for someone else’s profit.But these numbers are no mystery and I didn’t just discover them In fact, you maywell have already seen something resembling this logic before So, if all that’scommon knowledge, why do so many people apparently ignore it?

To make a long story short, you were brainwashed Somewhere along the line, as asociety we’ve come to believe that, like spoiled children, we deserve to have what wewant, when we want it, whether or not we have the money at the time to pay for it A

hundred years ago, there was no such thing By and large, you bought the things youcould afford to pay cash for and did without the things you couldn’t pay cash for Itwasn’t that there weren’t moneylenders around back then If you’ve ever read theBible, you know that moneylenders have been around for thousands of years Sowhat changed? Our attitude toward borrowing And why did that change? Largelybecause lots of companies were willing to spend tons of money to change it Whywere they willing to spend all that money? To make money for themselves And howdid they turn us all into the spoiled brats we are today? That part is simple enough:They used advertising to change our thought process They simply got us to stopfocusing on price and focus on payments instead So, instead of a car costing $25,000,suddenly it costs $300 a month A house no longer costs $100,000 It costs $833 amonth A stereo isn’t $1,000, it’s $30 a month And as long as we can afford thepayments, why shouldn’t we have the things we “want” right now? They also usedadvertising to convince us that we do indeed want all this crap, that owning anddisplaying a bunch of physical objects would enhance our sex appeal and self-worth.

Of course, these companies couldn’t have done this to us without our help They led

us to this candy store, but we were more than willing to stuff our faces

I once got an e-mail from a viewer that I’d regard as typical Essentially, thiswoman was drowning in debt and looking for a way out She wasn’t looking toimprove her financial life, she was fighting to save it She and her husband weremaking a little more than $50,000 a year combined and were saddled with credit carddebt of more than $30,000 She’d tried credit counseling but felt the advice wasuseless, since it involved reducing their expenses, and she felt their expenses werealready at an absolute minimum Here’s a direct quote from her e-mail: “The onlyexpenses we have are fixed We very rarely eat out and when we do, we share plates

We don’t go to the movies or even rent them I take my lunch to work, my husbandhas to buy his occasionally because he is a salesman We cut out all the ‘extras’ on ourphones except for call-waiting… we have basic cable… etc.” When I read this e-mail,

I literally laughed out loud Here’s a person who’s teetering on the brink of financialdisaster, and look at the examples she gives as evidence of her frugality “We cut outall the ‘extras’ on our phone, except for call-waiting… we have basic cable… etc.”These are necessities? If I were two steps from bankruptcy court, I doubt very muchthat I’d regard basic cable and call-waiting as necessities I probably would alsochoose not to eat out at all, at least until I had a spending plan in place and my debtunder control Where are these people’s heads at? Despite the fact that billions ofpeople in the world go from birth to death without these things, this couple isapparently convinced that call-waiting and cable are as important as oxygen And thise-mail is hardly exceptional I’ve received dozens of similar ones over the years Don’t

get me wrong: I’m not saying cable is bad, or call-waiting for that matter I’m merelypointing out how twisted our minds have become as a result of advertising.

Our willingness to trade our lives for things we don’t really want or need comes as

a direct result of moneylenders and other advertisers pandering to basic human nature.When talking about our human nature, it’s important to recognize the major rolethat fear plays in our lives Not the perfectly natural, conscious fear we feel whenconfronting physical danger I’m talking about the unnatural, subconscious fear wefeel that in one or more ways we don’t have value as human beings It’s calledinsecurity, and it’s a fear that causes nearly every self-destructive behavior we have.Alcoholism, drug addiction, promiscuity, overspending, undersaving: Nearly everynegative behavior you can think of is related to a poor self-image It happens becausebeneath the surface of our minds we tend to continually hold ourselves up against athousand yardsticks and find that we don’t measure up We’re too fat We’re too old.We’re not smart enough We’re not rich enough, tall enough, athletic enough We findourselves lacking in innumerable ways, but ultimately it all boils down to the samething: We simply don’t like ourselves enough just the way we are So what do we do

to escape these feelings? If the feelings are overwhelming, we might try to bury themwith drugs, alcohol, overeating, or other self-destructive behavior If they’re notoverwhelming, we might try to make ourselves feel better by seeking validation fromother people After all, our subconscious reasons, if everybody likes me, I must beokay If I look as rich as Donald Trump or fill out a bathing suit like Marilyn Monroe,people will like and accept me, and that’s hard evidence that I have value as a humanbeing

So what the heck does all this have to do with debt? Everything Because a lot ofthe ways we seek validation result in our spending money And let me assure you,even if you’ve never considered your basic human insecurities, the folks on MadisonAvenue think of almost nothing else If you don’t believe me, spend an hour or twowatching commercials on TV In short order, you’ll learn that a certain toothpaste willmake the opposite sex want to kiss you You’ll learn that a certain scent will makepeople fall in love with you That a certain car will make you macho That a particularface cream will make you look younger It’s never-ending, and we’re subjected to ithundreds of times every day for our entire lives Whatever the message, virtually alladvertising hits us where we hurt These ads are promising us that if we own a certainpossession or use a particular product, we’re going to be more valuable as humanbeings And the implication would naturally follow that if we don’t act as thecommercials advise, we won’t be as valuable Even worse, the images thesecommercials present virtually guarantee that you won’t measure up, because thepeople in them are often what our society considers extremely attractive So even if

you’re totally comfortable with yourself, watch enough TV and you’ll have lots ofreasons not to be, unless you’re a supermodel Result? Whether you know it or not,it’s likely that at least some of these messages that pander to your insecurity areconvincing you to spend money And since it’s totally absurd to think that anyproduct can boost your self-esteem, that’s money that you’re throwing away, becauseyou’re not getting any satisfaction in exchange You’re giving up your life, and theonly ones benefiting are the companies with products to sell The solution is torecognize these messages for the blatant manipulation they are and find your self-esteem in other places.

In addition to our need for food, water, and shelter, human beings also have aninstinctive need to belong, to be accepted as a part of a group Because being accepted

as a part of a group validates us That’s one reason that we’re such social animals andwhy we not only want to be accepted as a part of a group but have a need to berecognized as an important member of that group We’ve all been trained from birththat a key way people are recognized as important is by the quality and quantity ofstuff they surround themselves with We’re taught that if you live in a nice house,wear nice clothes, and drive a nice car, then you must be successful and thereforeimportant But the irony is that by going into debt to appear successful, you’revirtually guaranteeing that you never will be This is the ultimate loser’s game

Envy and jealousy are also fear-based emotions that arise from insecurity They toocan cause us to spend money and go into debt “By gosh, if John next door is driving

a new BMW, I should have one too!” “Susan makes the same money I do If she canlie on the beach in the Bahamas, so can I.” Recognize that, like the need to belong,envy, jealousy, and greed are really about fear We’re afraid that if we don’t “keep upwith the Joneses” we’re going to be judged harshly by others and by ourselves That’swhy we’re so often willing to trade tomorrow’s freedom so we can favorably compareourselves to others today

Another fear that we all share is more primitive and easier to understand We’reafraid of dying We all recognize that our time on this planet is limited And Godforbid we should miss out on some experience or possession that we could have now

by borrowing instead of waiting until we can actually pay for it After all, tomorrow

we could be dead So, even if that means paying three times what it costs later, best

we act now before it’s too late!

If reading this is making you feel anger toward advertisers or moneylenders, don’t.All these people are doing is recognizing us for who we are (not a difficult task, sincethey’re human beings too) and transforming our natural human instincts into theircorporate profits Nothing wrong with that; that’s how capitalism works They’re free

to try to sell us this bill of goods And we’re just as free not to buy it But the way to

avoid it isn’t to turn off your TV or focus your wrath on moneylenders It’s simply torecognize that everyone feels insecure to some degree and the way to respond to thosefeelings isn’t to pull out the plastic and try to spend your way to a new you Instead,try a little acceptance.

Do you ever find yourself thinking, What’s this all about? I always thought thathaving a bunch of stuff was what I needed to be happy But now my home and garageare overflowing with it, and I’m not getting happier In fact, I think I’m getting lesshappy! What you’re doing is waking up to the realization that you’ve fallen into the

“buy now, feel better” trap The whole concept of possessions making you happy isridiculous, and you know it Because you know what does make you happy.Happiness comes not from physical possessions, but from loving yourself And theonly thing you need to do to love yourself is to accept yourself Just the way you are,right now And guess what? Acceptance is free! But we’re so busy running in placepursuing stuff that we simply don’t have the time to remember that We’re likehamsters running on a wheel, a wheel that’s powered by the billions of dollars ofadvertising that we’ve been subjected to all our lives It’s time, right now, to get offthe treadmill It’s time to decide to stop swapping our lives for meaningless things andstart enriching our lives with the things we really crave instead, things that are free forthe taking

Will all this work in your life? Will accepting yourself prevent you from needlesslyswapping your life for meaningless possessions? Absolutely I drive a 2000 Mercedesthat I bought in 2006 for $20,000 cash I live in a house that’s worth about half ofwhat I could have afforded I’m still wearing ties that I bought 15 years ago And,despite my chair example above, much of the stuff I have was bought used, or at least

as cheap as I could get it So, obviously I’ve found a way to satisfy my need for worth without having to use possessions to do it And, trust me, if I can do that, socan you Does that mean that I don’t ever fall prey to Madison Avenue? I wish! But Iaccept that I’ll make mistakes, and I’m prepared to forgive myself when I do I just try

self-to stay focused on what’s important: not on what my friends, coworkers, or MadisonAvenue think of me, but what I think of myself That helps me stay free of debt and

in pursuit of freedom Maybe that’s why I don’t have a compelling desire to be as rich

as Donald Trump I doubt very much that Donald Trump laughs any more often than

I do In fact, I’ll bet my life is a lot more fun

Bottom line? Here’s something that you might already know, but if you don’t, it’stime you learned it If you don’t have a strong feeling of self-worth, no amount ofstuff is going to give it to you And if you do like yourself, just the way you are,there’s no lack of stuff that’s going to take that away Think about that, because untilyou believe and embrace that concept, any attempt to change your relationship with