Control Your Future By Taking Charge Of Today

Posted on May 3, 2011

For several years, Mike has been filling this space with article after article about saving, investing, budgeting, getting out of debt plus other money management ideas. Those who have read and followed the tips he has offered are probably breathing a sigh of relief right now as we continue to struggle with this economic slowdown and tightening credit. The real estate bubble burst with Earth shattering consequences and those who were speculating are suffering the consequences. Whatever your situation, the big question is, “What do I do now?”

If you have lived frugally, saved and built cash reserves, you are in a position to take advantage of some unprecedented opportunities. If you have been living above your means and supplementing your earnings with debt, your outlook for the future may not be quite so rosy. If you have cash and good credit, now is the time to start looking at long-term real estate investing as a way to provide income and secure your future. If you are in debt and struggling, now is the time to tighten your belt and get your personal finances in order.

A couple of years ago, Mike wrote about a friend who had just purchased a new truck (Of course, there was nothing wrong with his old one, which was only 2 years old.) and was excited because his payments had only increased $32 per month. He lost a bit of his excitement when Mike pointed out that he would have to make the new payment for three additional years after the payments on his old truck would have ended. His comment was, “Oh well, everyone makes car payments all their life.”

When Mike told him that he hadn’t made a car payment in over 30 years, he wanted to know more. Mike explained that when he was young, he struggled to get his first car paid off and then kept making the payments into a savings account. He didn’t get a new car until he had built up enough to trade in his old one and pay cash for the difference. He’s been doing that ever since. This led to a more in depth discussion and he told Mike about several other debts on which he was making monthly payments. These included two VISA cards and two Mastercards with minimum monthly payments of $30, $26, $15 and $22 respectively. In addition, he had a furniture store account with a $41 monthly payment and a home equity loan on which he was paying $120 monthly. All together, including the payment on his new truck, he was paying over $1000 per month on consumer debts, which was more than half his take home income.

He said he had been trying to get out of debt by paying an extra $10 per month on each account. Mike suggested that instead of paying an extra $10 on each account that he take all the extra money and apply it to the account with the smallest balance. Then when that account was paid off, apply the total he had been paying on it to the one with the next highest balance and keep doing this until he gradually got out of debt. A few months later, he called to let Mike know that he had all of his accounts paid off except for the truck. He said he was now putting the money he was paying on the credit cards, store account and equity loan into a saving account so he could pay cash for his next vehicle.

Mike congratulated him on getting his financial house in order. He told him that what he is doing now to avoid debt will ultimately allow him to have more over time; plus he will avoid the pressures that come with owing money. He said he had just turned 50 and wished they could have talked 20-30 years ago. He said the austerity program he had been on for the past couple of years had been well worth it; that just knowing he doesn’t have to make all those payments each month has given him a fresh outlook on life.

A few years ago when he was trying to explain the economic meltdown, President Bush said, “Wall Street got drunk and is now suffering a hangover.” He should have said, “The American people got drunk on easy credit and are now suffering a hangover.” Millions of people have propped up their lifestyle with debt because their incomes wouldn’t support the way they were living. Now their foolishness has been exposed when the economy cooled and credit became difficult to obtain.

Here’s a tip! Living on borrowed money makes you vulnerable to outside forces over which you have no control. Like a flag on a flagpole, your life’s course is dictated by the direction the economic winds are blowing. This is true of both countries and individuals. The only way to change this is to take control of your future income. A debt made today is a surrender of part of tomorrow’s income. The sacrifices you make today to avoid debt are insignificant when compared to the price you will pay in the future to get out of debt.

The way to control your future is by taking charge of today. If you’ve been living above your means, stop! Force yourself to adjust your lifestyle to live on less than your income and use the difference to get out of debt. If you aren’t in debt, use the money to build wealth, because with wealth you can control circumstances, but without wealth circumstances will control you.

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