Peter: Wow, I think you took my first six chapters away from me! You've already nailed the big issues, but ten years ago I would not have wanted to do any of the things you discussed. I grew up in a typical American family. My father was a brilliant lawyer, but he didn't really understand money. He earned a lot of money, but he spent it. I don;t want to blame him, because he was just doing the best he could based on his conditioning. When I turned sixteen, he told me that I needed to establish good credit. I never asked why, and I don't think he had ever thought about the issue himself. So, he encouraged me to go buy something on credit and pay the money back and start building up a good credit rating. I did that, and as the years went by, I borrowed more and more, paid it back, and concluded that having a good credit score was good. Why wait to buy something when you can have it now and enjoy it while you're paying for it?
I eventually went into business and acquired big credit lines because of my good score (LOL). My finances were so complicated that I could never get a clear picture of what was happening. I had construction loans, credit lines, projects in various stages of completion, commercial mortgages, etc. and the money flowed around in such complex ways that I didn't have a clue concerning what the big picture looked like. After more than twenty years in business, I thought we were doing well, but we were 1.8 million dollars in debt! I was paying our banker more than 100K in interest every year. Then, one phone call led to my waking up.
A few weeks after buying a new Toyota, my 22 year old daughter called me from college and asked why I had financed the car when I had had just enough spare cash that I could have bought it without financing it. I proudly explained that I had borrowed the money at 7% from Triple A and had loaned the cash to our corporation at 9%. I said, "We're making 2% on the deal." My daughter said, "Not according to Dave Ramsey," (the finance anti-debt guru). I brushed her off, thinking that she didn't understand. A week later she came home for a visit and showed me, on paper, that I would have saved $3,700 over the five year loan if I had paid cash for the car and made the same monthly car payments to our corporation. I still didn't believe it. It took about three more days before it all hit me, and then it was like a bomb went off. I suddenly got it! I saw the whole American way of life in an entirely new way. I suddenly understood why one of my high school friends always had money and always seemed to make money on his deals. His father had taught him the secret (that is not a secret).
As soon as I understood, I pulled the money out of our corporation and paid off the car, and I knew that I would probably never buy a new car for the rest of my life (I'll let other people take the depreciation hit). My wife and I sold our big house and moved into a tiny apartment. I started writing down every penny I spent every day so that I could understand where all the money was going. I created my first budget. I quit going to a barber and started cutting my own hair. I started buying generic brands and searching for bargains everywhere. We sold a commercial building, some properties, and lots of other things, but we were still $800K in debt. By cutting our spending to the bone and paying massive amounts on our loans, it took us nine years to get out of debt. I probably read forty books about personal finance and took a course in accounting so that I could better understand debits and credits. Every month I updated a personal balance sheet as well as a corporate balance sheet to track what was happening. Through my reading, I discovered all kinds of things that reduced taxes and expenses, and I'll post some of that stuff when I get a chance. Today, I don't need a good credit rating because I have no need for credit.
After we got out of debt, my wife and I built a home and paid for it with cash. Today, I drive an old 1997 Honda Accord with 250,000 miles on it. One headlight is held together with duct tape, the air conditioner is broken (not worth fixing), and it has lots of rattles and clunks. As long as the car keeps purring along, I'll drive it until it dies. My daughter is now 31 and she drives a 1997 Infinity with 290,000 miles on it. Her condo is paid for, she has money in both the bank and the stock market, and has never in her life borrowed a penny. We do not mind if people think we're weird; we enjoy being debt free. (BTW, I still cut my own hair.) At the same time, we have lots of fun, go on lots of trips, and eat out a lot; it is just a matter of prioritizing where the money goes. After I became cash-oriented, it totally changed my investing style. I began searching for companies that had good cash flow and little or no debt. Investing in those type of companies yielded much better results than companies that carried huge debt. So, the clarity in one area spread to other areas.
In conclusion, just as it is possible to attain existential clarity, it is also possible to attain financial clarity, environmental clarity, and many other types of clarity. The funny thing is that after I attained some financial clarity, I understood why various businesspeople I knew had always been successful; it was based upon much more than simply working hard. You can work hard and still be poor, or you can work hard and be wealthy (assuming that you have that desire), and the only difference is in the level of one's understanding. The most amazing story I've read about this is the story of Warren Buffet's early life. At the age of eleven he had grasped the power of compounding and began looking at every purchase in terms of how much that money would be worth in forty years if he didn't spend it. It's pretty incredible that someone so young could understand that. Later, we need to discuss how the role of financial clarity fits into everyday life and spirituality. In the meantime, I'll add some other money-saving tips here:
1. Buy good used cars. Always pay cash. Let someone else take the depreciation hit.
2. It is usually cheaper to repair a car than replace one. A good used car can last up to 300,000 miles if maintained well.
3. Buy clothes at the end of the season on super markdowns.
4. Take advantage of grocery discounts, senior days, coupons, etc.
5. Cut your own hair or your children's hair. (forget about the wife--that's a special case! LOL)
6. Buy things in bulk that you regulalry use when they’re on sale.
7. Live on less than your earn.
8. Invest in things that generate cash.
9. Keep a reasonable emergency fund, but put the rest of your savings to work.
10. Invest in real estate.
11. Use the two-year residential home-occupancy rule to generate non-taxable gains. (This requires buying at a discount and selling at a premium to maximize the return. This will probably appeal more to young people who won’t mind moving so often, but the gains can be huge.)
12. Employ the 10,000 hour rule so that you are supremely knowledgeable about whatever you decide to invest in.
13. Read books about personal finance and take advantage of ideas they contain.
14. Keep a record of all expenditures. Analyze expenditures to find additional ways to save.
15. Create a budget and follow it.
16. Take advantage of happy hour at restaurants. Some restaurants sell drinks more cheaply in the bar area than in the restaurant area, so eat in the bar. Many restaurants have “early bird” specials, discounts on appetizers, and certain days when they lower their prices.
17. Sign up for frequent flyer programs.
18. Join rental car membership clubs because you can get upgrades for free.
19. Check hotwire, travelzoo, and other discounters for cheap travel offers.
20. Use only one or two credit cards and always pay off the balance each month.
21. Create a personal balance sheet and update it at the end of each month to keep track of how you're doing.
22. Negotiate purchases and learn how to do so in ways that save face for the seller. Learn how to make people want to give you a good deal.
23. Many insurance companies will give 10% discounts if you pay full-year premiums up front or agree to have premiums auto-deducted from a bank acct.
24. Always sell your own vehicle; you’ll probably get $800 more than if you trade-in.
25. Learn to sell on ebay. Get rid of your junk; it may be someone else's treasure.
26. Convert to fluorescent light bulbs.
27. Re-insulate and do other things to improve your home’s energy efficiency.
28. Super-insulate your water heater. The payback take less than five months.
29. Learn to maximize fuel-efficiency when driving (proper tire inflation, optimal speeds, cruise control, etc)
30. Check with several phone, cable, and internet suppliers to get the best rates. Sometimes bundled services will be less expensive than separately-purchased services.
31. When shopping for anything always begin by asking about specials, discounts, and best deals.
32. Build your own home, and put sweat equity into it.
33. Learn how to set up a cafeteria plan if you don’t already have insurance through an employer. This will allow you to deduct tons of expenses as well as non-prescription over-the-counter stuff.
34. Continually read books and improve your overall education.
35. Keep up with the news. It helps one anticipate economic changes that are coming.
The stock market is a separate and more complicated issue, but anyone willing to study hard can learn how to make money there. Cheers.
