Pay off investment property

Paying off debt involves some nasty math, and when you go to pay off investment property, it’s no exception. That’s why it’s so controversial. When I was in college, my university used this kind of math to weed students out, so it should come as no surprise that the lending industry booms, and so many hucksters make a fortune hawking questionable ways to get out of debt.

I have a better way, and you won’t pay me anything for the advice. Read on.

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The Debt Tsunami is a gimmick, but it probably doesn’t matter

I saw some people passionately advocating both for and against a new method of paying off debt: The “Debt Tsumani,” which focuses on paying off debt in the order of its emotional impact on you.

As someone who paid off more than $150,000 worth of debt over the course of about four years in the last decade, maybe what I have to say about that matters to you. Read more

Don’t let debt cripple you

Sometimes people ask me for help with their finances. And I’ve seen the effects that debt can have on people. I believe having no debt is best. Having debt that you’re paying off is second-best. Festering debt, however, is crippling. That’s what you want to avoid, before it catches up with you. Not only can bad debts keep you from borrowing more money, it can also make it more difficult to sign a lease or get a job.

Here’s how to make a plan to pay off that debt and improve your credit score.

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How to become a millionaire in 10 years (safely)

I saw a blog post today called How to become a millionaire in 10 years. The majority of commenters dismissed it outright.

I don’t like that attitude. The plan makes some assumptions that aren’t always true. But having the plan is an important first step. What’s impossible now might not be impossible in a few years, so it makes sense to do what you can now.The plan, in brief, is this: Invest $996 a week, get a 12% return, and in 10 years, you’ve got a million bucks.

Let’s look at the first objection. It is optimistic. Unfortunately, the guy who floats that figure the most frequently is exaggerating. But you can come close by tweaking your strategy a bit. Twelve may be a bit optimistic, but it’s probably close enough. If you’re pessimistic, use a figure of 7% and adjust the rest of your math.

It may be tempting to try to do better. I suggest not. Average returns are all you need. Warren Buffett has said repeatedly that it’s better to spend your energy increasing your earning power rather than trying to outperform the market.

The second objection was that the numbers were just too unreasonable, so how do you become a millionaire in 20 years?

That’s easy. Save less. According to this handy calculator, $1,100 a month for 20 years at 12% more than does the trick.

Or you can save $2,000 a month for 15 years and pass the million mark.

So the math is sound. Let’s tackle that really big objection: How in tarnation do you come up with $996 a week to save? (And no, you don’t have to already be a millionaire in order to do it.)

The key is the same as paying off debt quickly. Don’t try to do it all at once. Take some baby steps. If the best you can do is half that, you still reach the goal in 15 years. Start by saving what you can, then ratchet it up when you can.

I set out to find a large number of common ways that people can save $996 per week (or more). Step one is the big kahuna, which will save most people a cool $24,000 a year right off the bat.

Step one: Pay off your cars and your mortgage. Between a house and two cars in the driveway, it’s safe to say most families are spending $2,000 a month. Some are spending a little more, others a little less. The trick here is the debt snowball. Look at your statements, pick the car you can pay off the soonest, then scrape together whatever extra cash you can and pay that much extra every month until you have that car paid off. Then take what you were paying on that car, and apply all that money to the other car. After that, apply all that money to the house.

Chances are very good that you can pay all of that off in less than seven years. The biggest reason why is because banks generally won’t loan you more money than you would be able to pay off in that timeframe. The reason for the subprime mortgage crisis was because banks started ignoring that rule and giving loans to pretty much anyone.

If you are a middle class family that manages to pay the bills somehow, some way every month, I’m reasonably confident in saying that you can pay off all your debt in seven years, then dump that car and mortgage money into an index fund and be a millionaire in another 20.

What about cars in the meantime? Drive the paid-off cars as long as you can, then replace them with the least expensive vehicles that are practical. Given a choice between driving a Lexus and looking like a millionaire, or driving a Toyota Corolla and being a millionaire, personally, I’d choose the latter.

So this gets you roughly halfway there. Let’s see if we can nickel and dime our way to the other half.

Step two: Live off one salary. If you’re married and your spouse works, try as much as possible to live off one salary and bank the other. This was the strategy my in-laws used to pay off their debts (rather than the debt snowball). If one of you brings home $26,000 a year or more after taxes, that gets you the other half immediately. Congratulations.

If step two is impractical or impossible, or doesn’t quite get you there, here are some smaller steps to get you there.

Step three: Put your raises and windfalls towards savings, rather than lifestyle changes. Someone I know was talking just yesterday about a job opportunity that paid a cool $30,000 more than he makes currently. “Lifestyle change!” he said excitedly.

Personally, I’ve never been able to make that kind of a jump, although I’ve made a couple of much smaller jumps since 2006.

Unfortunately it’s often difficult to get much of a raise from a current employer–the money comes when you change jobs. If you’re able to, say, move to a new employer and get a raise of around 10 percent, that takes care of a few of your 52 weeks. Do that every 2-3 years, and you can work your way towards the goal.

This strategy can take care of about four weeks.

Step four: Bank your tax refund. If you get a tax refund every year, instead of using that money to buy something, put it towards the goal.

In most cases, I would think the tax refund takes care of anywhere from 1-3 weeks.

Brown-bag your lunch. Early in my career, I ate out pretty much every day. My day started with a cup of coffee and a doughnut in the cafeteria ($2), and on a good day, lunch cost another $5. Eventually I realized these habits were costing me almost $1,400 a year. Brown-bagging isn’t free, but I figure brown-bagging every day costs less than $400 a year.

That’s another week, or possibly two.

Cut the cable and phone. My local cable provider charges up to $70 per month for some of its packages. Basic cable costs $40, which is still outrageous. If you can live without cable altogether, you can get anywhere from half a week to 3/4 of a week right there. If not, cut back as much as possible.

So how do you live without cable? My wife and I rent movies from Red Box about once a week. It costs a dollar. Other than that, we watch over the air TV. Sometimes there’s nothing on, but when I visit people who have cable, a lot of times there’s nothing on at their house either. The DTV changeover means there’ll be more local channels–many PBS stations are broadcasting on several frequencies, and DTV stations have a range of about 120 miles, so there’s a decent chance you’ll be able to pick up stations from nearby cities that you couldn’t get before.

So try it. If you can’t live without it, cut back as much as you can.

The same goes for your phone line. Are you paying for Call Notes? Cancel it and get an answering machine. Call waiting? Cancel it unless you can’t live without it, but in this day and age when everyone has cell phones and e-mail, I’ll bet you can. Call forwarding? Cut. If you buy everything Southwestern Bell tries to sell you, you can easily pay $50 or more per month for your phone line. When I ordered phone service, I asked for just a dial tone, and repeated the request every time they tried to upsell me. I pay just a shade over $20 a month for my dialtone. I can receive all the calls I want for free, and make all the local calls I want for free too.

By cutting back on cable and phone, most people should be able to save another $996 a year.

Take a long, hard look at the cell phone. Do you have two cell phones with $99 ulimited talk plans? Do you really need two?

Cricket offers an unlimited talk plan for $35 a month. But you may be able to save even more by cutting down the number of cell phones you have, or just getting pay as you go phones for emergency use and sharing phones as much as possible.

And keep in mind that a landline lets you make all the local calls you want. Ditching the land line and going all cellular may be trendy, but it’s not always economical.

My wife and I have one cell phone with a plan that costs us $30 a month, plus a pay-as-you-go phone that we refill as needed, for $25 a pop. It ends up costing us $10 a month, on average.

I can see how someone could potentially save another week’s worth by getting stingy with the cell phones. Maybe more.

Save on your utilities. Buying a programmable thermostat and setting it to not work as much at night and to minimize heating/cooling during the hours when we’re not home saved us a bundle. To the tune of $100 a month.

Weatherproofing the house helps too. Put film on the windows during the winter, and put weatherstripping on all the doors. I also went into my basement, where the utilities come into the house, and found a number of holes for wires that are much larger than they need to be. I filled those in with putty to keep the elements out.

If you really want to be a stingy Scottish miser, invest a few hundred dollars in a whole-house fan. These fans can replace all the air in your house in a matter of minutes. So in the morning when it’s coolest, you can open some doors and windows, run the fan for a few minutes, then shut off the fan, close the house back up, and give your air conditioner a big head start.

Also, for some reason society says we should keep our houses at 70 degrees in the summer and 80 degrees in the winter. Why? We keep ours at about 75 during the summer and between 70 and 75 in the winter. Once you get used to it, it’s comfortable. The savings aren’t exactly peanuts.

Using fans can help keep the air moving, making those temperatures more tolerable.

Squeezing the utilities ought to take care of another week or two.

Go out less. I know some people who easily spend $100 a week going out on Friday nights. Rent a movie from Redbox, have a couple of drinks at home, and save the difference, which is five weeks’ worth.

Cut the Starbucks habit. Do you start off your day with the stereotypical $5 cup of coffee at Starbucks? That’s $1,050 right there. Bank $996 to cut off another week, and you have $54 left to buy a coffee maker (if you don’t have one) and a year’s worth of reasonably good coffee.

Cut the bottled water habit. If you drink three bottles of water a day, that’s commendable because it’s healthy, but you’ve also fallen for the biggest scam in recent memory. Cut the bottled water, buy a water filter, and bank a thousand bucks.

Cut back on expensive hobbies. I’d rather not think about what I used to spend on my Lionel train habit. I know some people spend five figures a year on theirs. I was never that bad, but at its peak I know I was spending more than $1,000 a year on it. I’ve cut back, and the last two or three years I’ve probably spent a couple hundred.

I think it’s safe to say that most households have at least one or two expensive hobbies that could be cut back and still be enjoyable. Buy less and try enjoying what you have. Or buy used instead of new.

Or perhaps they could (gulp) be eliminated, for the time being at least.

Call this one another week’s worth.

Use the library. I know someone who is a voracious reader, which is admirable. She reads a couple of books a week, easily. That’s admirable, but the problem is she buys all these books at retail. A book collector might perk up and call it an investment, but there’s very little collectible interest in Nicholas Sparks and Nora Roberts. She buys the books, reads them once, and then they sit on the shelf until she gives them to someone.

She probably could save $1,000 a year by using the library instead.

Eat out less. Eating out once a week at $20 a pop easily works out to $1,000 a year. Cut that back, whether it’s by eating somewhere less expensive or just eating out one less time, and you’ve got another week’s worth of $996.

Use public transportation to go to work. The average person commutes about 20 miles a workday. That’s $2,436 a year if you go by the IRS standard mileage rates, which factors in depreciation and maintenance on top of gas. The savings wouldn’t quite get me a full two weeks’ worth due to the cost of a monthly pass, but it would get me close. Call it two weeks.

Buy used and generic when possible. I’ve read that the poor are less likely to buy generic than the wealthy, out of fear of being ripped off. The fear is usually unfounded. Generics usually are made in the same factory right alongside one of their brand name competitors, and the only difference is the label that gets put on in the end.

But let’s talk used. Last week my wife and I bought my son about $80 worth of toys, but we paid $4 for them. They came from a church rummage sale. They were a bit dirty, but we ran them through the dishwasher to clean and sanitize them (they’re plastic). The swing was missing the strap to strap him in, but we replaced it with a belt from a thrift store, which cost another dollar. It fits perfectly.

At the same rummage sale, I bought myself a button-down shirt for a dollar. It looked new. I remember paying $20-$25 in a store for something comparable.

I bought the shoes I’m wearing right now at an estate sale. They didn’t look like they’d ever been worn, and I checked the fit before I bought them. I’ve been wearing them for more than a year now. I paid $3 for them. They would have cost me $50 in a store.

Most people buy a new computer every three or four years. I buy off-lease business computers every three or four years instead. They’re better built so they’re less likely to break (I’ve never had one break on me), and a $100 business PC that’s a few years old will be about as fast as a new computer that costs about $500. So I figure this practice saves me about $400 every three or four years.

I once saw someone in line ahead of me at a department store try to drop a thousand dollars on new clothes. He had several nice shirts, some nice pants, socks, some nice ties. I was pretty impressed with his haul. The problem was he tried to buy them on credit, and was denied. My work clothes mostly come from secondhand sources. They don’t look as nice as what that guy had, but what good does it do to look nice if you can’t pay your bills?

I figure it’s pretty easy to save a thousand or two a year by buying generic and used stuff.

Be careful with the flex-spend account. Back when I was single, I was annoyed because every year HR made us attend a meeting trying to coerce us into signing up for a Flexible Spending Account (also known as a cafeteria plan). These plans made no sense for me whatsoever. Some years my medical expenses were $100. Some years they were $200. Other years they were $20. So if I put $1,000 in, as they tried to convince me to do, I would have been wasting a lot of money. Being in the 14% tax bracket, at best I stood to save $28 if I had a $200 year. But if I put in $200, then I might turn around and have a $20 year and waste $180.

Now I’m married and my wife is diabetic. In this case it’s a no-brainer. We sat down and figured out how often she goes to the doctor, and what she spends on supplies in a given month. Her expenses are predictable, and high enough to make it worth doing. Between her expenses and having a son, I put the maximum in, since babies are always needing various FSA-eligible things, and they go to the doctor on a regularly scheduled basis.

If you’re in the 28% tax bracket and you put $3,000 into an FSA, being able to use pre-tax dollars for those medical expenses saves you about $840 a year. Not quite a week’s worth, but close. You can probably scrape up the other $156.

But if your medical expenses are always really low, you can save a bundle by not putting anything in such a plan. Employers love these plans because people frequently don’t track them very well, and anything left in the kitty at the end of the year goes to the company. It’s a great way to steal from your employees, frankly, and that’s why HR departments push them so hard. If you don’t need one, don’t put the money in, and pay yourself instead.

I think it’s safe to chalk up judicious use (or non-use) of an FSA as another week’s worth.

Be careful with AFLAC. AFLAC is a similar thing. My employer’s HR loves to push AFLAC on us. “I have three kids. I know I’m going to make at least one trip to the ER every year, and that pays for my AFLAC,” the pitch goes.

Think it through. I have a peculiar talent for injuring myself with sharp objects. But I’ve found that my best bet is to go to urgent care when it happens and put it on my FSA. Urgent care always gets to me faster than the overburdened ER, and it costs half as much. I did the math, and AFLAC just didn’t make sense. One trip to the ER didn’t cover a full year’s worth of AFLAC.

Maybe when my son gets older and starts playing sports and stuff, AFLAC will make sense. I’ll revisit it then. But do the math yourself, rather than just taking HR’s pitch. They’re salespeople. Their job isn’t to help you, their job is to make the company money by taking back as much of your salary as possible.

Making the right decision on AFLAC isn’t going to save you a full week’s worth, but it can make up for a shortfall.

Get a side gig. I’ve come up with more than 26 week’s worth of common ways to save $996, but not all of them will necessarily apply to everyone. Having a side gig is a good way to make up the shortfall. I can tell you to mow lawns or fix bicycles or make quilts, but I’d rather let you find something more ideal, since the best thing for you to do probably isn’t the best thing for me. Here’s a series of questions to ask yourself to help you find a side gig.

What do you enjoy?
Is there some service that you can provide at a better value than your potential competitors, whether it’s because you’re cheaper, or because your work is higher quality?
Is there some product that has resale value that you know how to find and then resell some way, after making any necessary repairs?

Basically, you need to find a product or a service that you already know well and enjoy that allows you to add value to it. Don’t quit your job to do it; do it on weekends or evenings with the goal of making a bit. If you can make $50 a week, that works out to $2,500 a year. That’s a reasonable early goal, then build it up from there. Some side gigs grow into full-time jobs but others don’t. Your chances of succeeding are much better if you don’t try to rely on it as a full-time job.

Start small, then let it grow (hopefully) to fill whatever number of $996 shortfalls you have in a year. And as you gain skill and experience, it could potentially grow beyond that, either allowing you to reduce some cutbacks, or achieve the ultimate goal more quickly.

So there you have it. Not everything in this list applies to everybody. But I would say the majority of these things do apply to anyone who can call themselves upper middle class. Such a family can take this list, find 52 things, and join the ranks of the wealthy in a decade or two, if they’re willing to let savings take priority over keeping up appearances.

But I also suspect that pretty much anyone who owns a home and two vehicles can probably take this list and find lots of things they can cut. They might not be able to find a full $996 a week for all 52 weeks of the year. So it will take them longer, but it’s possible. Making some sacrifices now in order to have financial independence later is worth it.

The most important thing is to put everything on the table. The year 2005 was my turning point. I lost my job, and it seemed like everyone who needed IT people couldn’t afford them. Stretching the pennies was necessary for us to stay afloat when I was in between jobs. Eventually I found one. The cutbacks that allowed us to make ends meet while my best source of income was doing odd computer jobs also allowed us to pay off our house early after I regained steady employment.

With the house out of the way, financial independence certainly is my next goal. I’m not sure that this formula is precisely what I want to follow in order to get there. But it’s important not to dismiss such formulas immediately just because they seem difficult or nearly impossible.

The key to success, financial or otherwise, is to take difficult problems and find solutions, rather than dismissing them immediately as impossible. One strategy is to break the problem down. This problem conveniently breaks down into 52 smaller problems. I’ll admit I had to sit and think a very long time to come up with 52 smaller answers.

I just have one more thing to say. Please try. I’m currently reading a financial book written in 1975 that said the average U.S. household headed by someone aged 24-34 had $2,500 in savings. In today’s dollars, that’s a shade over $10,000. Today, the average household has zero savings and around $10,000 in credit card debt, on top of car payments and rent or a mortgage. That has a lot to do with why our economy is such a wreck right now. We can’t buy any more stuff because we’re paying too much in interest.

It’s not too late for one or two generations to rise from these ashes and buy our country back. So let’s do it.

The overworked American

This is old, but still true, and Labor Day is a great day to explore the topic of The Overworked American. The trend has not reversed since it was written.

Basically, what Juliet B. Schor says is that productivity has soared since the 1940s, and when productivity soars, you can choose to do one of two things: work more, or work less. Europe by and large has chosen to work less. The United States hasn’t.I know ever since I saw a John Cummuta seminar back in November 2004, I’ve been harping on living cheap and paying off debt as quickly as possible. The goal isn’t so much to pile up tons and tons of money. That’s just a side-effect. That’s not the goal. There’s a different goal, and it’s actually a lot shorter-term: The goal is to buy freedom.

When I was growing up, Dad almost always carried a beeper. And invariably, when we would go out (on those rare occasions when we did get to go out), that beeper would go off, and Dad would have to find a phone, and more often than not, then Dad had to go away.

Then I grew up and I got a beeper of my own. Back in the ’70s, you had to be something really important like a doctor to have a beeper. Today all you have to know is what ctrl-alt-delete means. I guess it was the first time my pager went off in the middle of a date that I knew something was horribly wrong, but I didn’t know what to do about it.

It took seven years, but I finally got the answer.

Cummuta’s tapes are pretty expensive, but you can go to the library and get a book by Dave Ramsey or David Bach and get the same benefit because all of those guys pretty much say the same thing.

What those guys can’t give you is motivation. My wife and I have amassed a library of financial books. In a lot of cases my wife had a conversation with the original owners of the books. They all said the books had good ideas, but it was so hard to do.

Which brings me back to The Overworked American. What Schor doesn’t say in that excerpt is that you do have a choice. When your boss comes to you and says you’re going to work Labor Day, and not only that, you’re also going to work on Saturday and Sunday of that weekend too, and, oh yeah, you’ll probably have to stay late on Friday, you’d better believe you have a choice.

Well, assuming you don’t have to write a check to the bank for $1,000 every month for that roof over your head, and another check for $400 or $500 every month for those four wheels that get you to work, and another one for the four wheels that get your spouse to work.

When $24,000 of your annual income goes strictly towards transportation and shelter, you will return the call when the beeper goes off. You’ll answer the cellular phone (which you pay for) on the first ring if that’s what your boss wants. You’ll work Labor Day weekend and you’ll like it because your boss has you exactly where he wants you.

That’s why I’ve been harping so hard on living within your means. I don’t drive a Honda Civic because it’s what all the cool kids want to drive. I drive a Honda Civic because it’s a reliable car that rarely has to go into the shop, because it gets really good gas mileage, and because I was able to pay it off in two years.

Perhaps more importantly though, I plan to still be driving that Honda Civic on the day I write that final check that pays off the mortgage.

Unless something were to happen to that Honda Civic in the meantime, that is. If that happened, I’d probably go buy a 2000 or a 2001 model and put whatever money was left over towards the house.

You don’t have to get a new car every three years, or even every five years. We’ve been conditioned to trade in our cars every few years, but if we do that, then someone else gets to control our lives. We’re slaves to consumerism! Slaves!

And when you can’t spend any quality time with your spouse because you’re always at work (or working from home), and you don’t have the time or energy to pull your own weight at home, and there’s all the stress that puts on your marriage, could that have anything to do with why divorce rates are as high as they are?

But if you can drive home every night in your car that you own outright to your house that you own outright and can sit down on your couch that you own outright, guess what? When your boss tells you that you have to work Labor Day, you can say no. Why? Because if your only monthly expenses are medicine and food, if your boss says the f-word (the five-letter one), all that matters is whether the White Castle down the street is hiring because that job will more than cover your expenses while you try to find another regular full-time job.

And that, my friends, is why I’m typing these words on an old 700 MHz computer, why I didn’t go out for lunch this afternoon, and why I haven’t traded in my four-year-old Honda Civic. The math tells me I can have this house paid off in two and a half years. I don’t know if that means I’ll find a way to do it in a year and a half, or if it means it’ll take closer to four. But I look at it like high school–something with a beginning and a very definite end. In the meantime, there’ll be some good things that happen and some bad things. But there will come a day when it will be over.

And on that day, I’ll get a taste of the real world.

I don’t know about anyone else, but I’m really looking forward to that.

How to make more money, but more importantly, keep more of what you earn

Most GenXers don’t spend their money wisely.

That’s not an insult on my peers; there’s plenty of blame to go around. Yes, we want what our parents had at 50 and we want it at 25, but part of the problem is the images all around us tell us we have to have all that. And if my education is any indication, the only financial education I received in school was an aside in a U.S. History class.

Let’s talk about how to earn more to dig out of financial ruin, and how to stay out.First and foremost, usually when people get to the point where they start typing “earn more money now” or something similar into Google, usually they need immediate help. A year ago, I was in that situation. Talking it over with the higher-ups didn’t help–a few months later I lost my job. Ouch.

I’d be lying to you if I told you I wasn’t bitter. I still am. But in a way it was the best thing that could have happened to me, because it forced me to look for opportunities. I already had been, but it forced me to find others that I probably wouldn’t have, otherwise.

There are a few ways to make a little money but it won’t necessarily happen immediately. If you have a web site, put Google ads on it. Click my link to find out how. Whether you get your first check in a month or in a year depends on how much traffic you get. A faster way to make a little money is to sign up for some online surveys. You won’t get rich, but a dollar here and five bucks there adds up. Sometimes you’ll hit the jackpot and qualify for a $25 survey. That won’t pay the mortgage but it will pay for a few meals.

Here’s another idea: Become a mystery shopper. Google for it. But don’t pay anyone to become a mystery shopper, not when there are legitimate outfits who are willing to pay you. Just keep in mind some of them want references. That’s actually a good thing. It protects your reputation and theirs. Again, it’s not big money, but it’s fairly easy money.

But I’ll be blunt: If you’re in some real trouble and there’s a bill that’s due in two weeks and you can’t pay it, then it’s time to make some sacrifices. Do you have any recent video games? Any collectible CDs or DVDs or VHS tapes? Collectible toys, such as Star Wars figures? There are lots of places that are willing to buy things like that, but to get top dollar you have to sell it yourself. Search eBay, find out what your items or something similar are selling for, and think seriously about liquidating some stuff. Don’t sell your family heirlooms, but if there are things that you can sell now to get you out of trouble and replace later when you’re out of trouble, consider it. While collectibles do increase in value, I’ll let you in on a dirty little secret: Most of them are doing well to keep up with inflation. None will increase as quickly as your debt–not for a sustained period of time, at least. If you have something that is, sell now. The bubble will burst, and you’ll be able to buy it back cheaper later.

And something sobering will happen as you research what some of the things you own are worth. You’ll find a lot of them aren’t worth anywhere near what you paid for them. There’s a lesson there. It’s much better to spend your money on things that hold their value than on things that have bling factor but have no value once the 14-day return period is over.

So when you have money again, spend less on worthless things so you have more to spend on things that do hold their value. A big truck turns heads and lets you bully people on the road (and the ads to some degree encourage it) but can you really afford $40 a week to keep gas in it? Do you have to haul stuff often enough to justify that expense? For the majority of people, it’s much better to drive an economy car and put the money you save on the lower payment and less gas towards paying off debt. Borrow or rent a truck those occasional times when you need to haul something. So skip the Hummer and get a house. You need a house anyway, and while a Hummer will lose value when you go to sell it, a house usually will gain.

Let’s go back to the eBay thing for a minute. Ebay does a lot of good things. Once you’ve sold your stuff, you have the option to go buy more stuff to sell. Buy what you know and only what you know, and only if you can buy low and sell high. If you can’t either double your money or make $10, don’t bother. It’s best to find something that lets you do both. But if you have the ability to do that, you have an asset that stands a chance of turning your financial situation around within a few years.

But it also does something else. It teaches you how to sell. There is no better, more useful ability than how to sell. Not everyone sells merchandise for dollars, but everyone has to sell ideas. If you regularly find that people don’t listen to you, then that’s a good indication that you need more salesmanship ability. Yeah, but those people are idiots, you say. Even better. There are more idiots out there than smart people. Most rich people got rich by getting idiots to buy their junk.

I remember reading a line in a book once that asked me if I could make a better hamburger than McDonald’s. Of course I can. So why did Ray Kroc have more money than me?

By the way, I don’t mean any insult by any of this if people don’t listen to you. There are a lot of people who don’t listen to me either. I need to work on my sales skills as much as anyone.

I did something else before I started selling my stuff. I took a walk. I walked at least once a day. But I didn’t just walk. I was picking up aluminum cans. At 40 cents a pound, an aluminum can is worth about a penny. There’s no way I can pick up 100 cans in an hour, so it’s a lousy way to make money. But nobody else was paying me to do anything else during that time. I made sure I didn’t walk during working hours so I wouldn’t be out if the phone rang with a job opportunity. At least I felt like I was doing a little something. It was very little, but it kept my mind off things so I didn’t get as depressed. It also helped me watch for opportunity. Those cans aren’t worth anything, but the ability to quickly spot things of value from far off is worth something. It made a few house payments when I didn’t have a 40-hour-a-week job.

That’s enough talk about making money. I’ll admit that they’re just general ideas. I can’t give specific advice because something that works where I live might not work 100 miles away. Something else works there. The nice thing about the United States is that there always is an opportunity, no matter where you are. Although politicians seem to be trying their best to destroy that, they can’t destroy opportunities as quickly as you can find them.

I read a study this past week that said 70% of college graduates today can’t balance a checkbook, and when presented with a 20-ounce jar of spaghetti sauce for $1.99 and a 32-ounce jar for $2.49, they don’t know how to figure out which one is the better deal. That should scare some people.

But it occurred to me that I didn’t learn how to do that in school. I learned it from my mother. And I think she learned it from her mother, who must have known it because she managed to raise 11 kids and her husband didn’t have any money.

They don’t teach that kind of thing in school. To me, that’s the only thing math is good for. But I don’t know how old I was when I realized math was useful for that. Before that I thought math was just something teachers used to prove they knew something I didn’t.

There are lots of books out there that try to teach you how to make more money. But a more valuable skill is learning how to spot the good deal. Learn how to calculate the cost per ounce and use it. Carry a calculator with you if that’s what you have to do. There’s no shame in that. A calculator is also a useful tool for keeping a running total of the cost of the stuff in your cart. So it might be a good idea to carry two calculators. They’ll pay for themselves the first time you use them.

And if you have any influence with math teachers, please hand them this word problem. It’s the only good use of math I can think of for a non-engineer:

A television costs $199 at a store two miles from you. The sales tax rate in your town is 5.75%. The same television costs $179 at a store 100 miles away. The sales tax rate in that town is 6%. Your car gets 25 miles to the gallon. Gasoline costs $2.00 a gallon. Is it cheaper to buy the television at the store two miles away, or is it cheaper to buy it 100 miles away?

I’ll conclude with the secret of getting rich. The secret isn’t to make lots of money. It’s human nature to spend more money as soon as you make more money. The secret is to spend less.

I remember when the first of my college classmates bought a house. He told me that at the end of the paper, it told him how much money the loan was for, and how much money he would pay between then and the end of the term. “Am I really going to make that much money?” he asked. Then he laughed it off.

He will. So will I. So will everyone. Most people living in the United States will make a lot more than a million dollars between their first job and retirement. The question is whether Nike and General Motors and Phillip Morris and Coca-Cola get to keep most of it, or whether the wage-earner gets to keep most of it.

I really don’t like the tone of this rant–and it basically is a rant–because it sounds like someone who made it looking back. I’ve only started the journey myself. I started 14 months ago. But my wife and I already have something to show for it. We have no credit card debt, we own two 2002 Honda Civics outright, and if we can keep up our current pace, we will own our house outright in a little over three years. Five years is probably more realistic.

Remember, around 12 months ago there wasn’t enough money to pay the bills. So if I can do it, lots of people can.

Pay off a mortgage in five years

Thanks to some circumstances where somebody knew somebody who knew somebody, I found myself tonight at a seminar where John Cummuta was speaking. He’s the guy who you may have heard on the radio hawking a system called Transforming Your Debt into Wealth. From him, I learned how to pay off a mortgage in five years.

Hopefully I won’t get into too much trouble by presenting the simplified version of his plan.The secret of credit is that creditors will not extend you more credit than you can conceivably pay off in a fairly short length of time (like, less than a decade). The secret is to make that work for you, rather than for them.

His system is simple enough that you can plug it into an Excel worksheet. Mine has three equations in it. Here’s what you do.

Take 10 percent of your monthly income and use it to pay down debt. Pick the debt you can pay off the fastest. Forget interest. Pay the minimum monthly payment on all of your debts except the one you can pay the fastest. Add that 10 percent of your monthly income to the debt you’re working on. So if it’s a credit card balance with a minimum payment of $22, and you make $2,000 a month, you pay $222 towards that credit card.

Then, when that credit card balance is paid off, you take the debt you can pay off second, add its minimum monthly payment to that $222. Keep cascading the payments until you’ve paid everything off.

Using that formula, I can have my car paid off in a year and two months, and my house paid off in five years and two months after that.

The more money you can plow into paying off debts, the faster it goes.

He said the interest rates are pretty much irrelevant because you are paying the debts off so quickly. So it doesn’t make sense to refinance or consolidate debts or anything like that because you won’t recoup the closing costs.

The formula is a bit crude because it doesn’t take into effect the minimum monthly payments you are making, nor the accumulated interest on the on which debts you’re making minimal progress. But he said those numbers pretty much end up in a wash. Following this crude formula, you’ll be within a couple of months or two.

Also, he suggested putting off investments until you have your debt eliminated. The exception is 401(K) or similar plans where employers match your contributions. The logic is that the compound interest on your debts will almost always be larger than the compound interest your investments can earn.

However, he did not say you should empty your bank accounts to pay debt. If you have enough money in the bank to be able to take half of it and pay your smallest debt, go ahead and do it, but otherwise leave your existing bank accounts and investments alone, suspend contributing to them (or do the minimum), and then, when you have the debt paid off, you can afford to contribute to them very aggressively. Remember, at the end of the plan, you no longer have those monthly house and car payments to make.

Someone who makes $40,000 a year and works 40 years will make $1.6 million over the course of that career. The idea is to pay as little of it as possible in interest, so that money is working for you instead of your creditors.

It seems to me that debt ought to be like college. It ought to be something we do for a few years in order to get something we need, but after a few years, it’s over. And if we have to make a few sacrifices along the way, just like we did for college, we ought to do them.

Update: It worked. Thanks to finding better paying jobs and applying that, we were able to pay the mortgage off ahead of schedule.

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