Last year credit card companies spent well over $3 ½ billion in the effort to get you to go even deeper into debt.  To further this cause many card companies have raised the traditional 2%-2.5% monthly principal minimum payment to 4% thus allowing you the opportunity to keep larger unpaid balances.  This of course results in you paying more interest for a longer period of time.  Does all this sound good so far?

Sheep and Goats

Perhaps its time to wonder if you have had your nose pressed squarely against the tail of the other sheep in front of you.  It is certainly true that if you want the results of the masses, then do what the masses do.  You know as well as I that most people almost blissfully enter into increasingly large burdens of debt with seemingly little thought as to the ultimate consequence.  

Maybe Grandpa was Smarter than we Thought

The financial thinking of today’s consumptive sheep would have been viewed with a mix of humor, wonder, and pity by our grandparents.  Just two short generations ago the value of money and disdain for debt were well rooted in the core morality of many or most Americans.  The axis of our money globe has truly shifted since then.  

What was sought after and worked for in recent years past -thrift, financial security, and fiscal responsibility- has been supplanted by the new morality of, “I want mine now!”

Boiling off the Fat

In this age of complexity, systems, formulae and gurus, it can be a struggle to see through the smoke of confusion to a simple and clear principle of financial success and peace of mind.  In spite of the subtle and insistent, “I want mine now!” mentality, with its powerful yet false allures, there are clear markers to a safer and surer path.  The beginning of a transformation from financial sheep can be summed up by the following two simple truths.

• The desire for immediate gratification must be controlled.
• You can only become wealthy by living on less than you make.

When Smart, Ain’t

In this age of information and supposed intellect, such simplistic and homespun homilies as those above, are often scoffed at and discounted as, “out of date” or “limiting”.  The tendency, rather, is to look to exotic or seemingly “smart” techniques and plans to get and keep wealth.  Just last week I spoke with a financial planner who recommends that his clients should not only take the equity out of their homes to invest (a common point of view in the last 10 years or so) but secure a reverse amortization mortgage for that purpose.  Have you run across this one yet?  The idea is that not only do you take the equity out of your home but that you actually make payments that are so small that instead of having your house paid off in 10 or 20 years you will actually owe more!  The idea is that by taking all this loot and investing it in the stock market or elsewhere you will get far more leverage than simply owning equity in your home.  The quiet message that is conveyed is that it is actually foolish to accumulate equity when it could be put to better use else where.

There is a glaringly important factor that the proponents of “smart investing” generally leave out of the discussion…human nature.

Saying and Doing

If 100 individuals took all the equity out of their homes through refinance with the intention of investing that “found” money, how many would ultimately be better off?  To be successful it would require that these 100 must be eminently disciplined.  They would have to actually use the money they borrowed for investing.  Next, there would have to be no emergencies or pressures that would cause them to use that money elsewhere throughout the investment period.  Thirdly, any investing plan they used would absolutely have to be successful.  There would be no room for significant error.  It would have to provide more true return on investment than could be made by saving the interest paid to the refinance lender for the use of that equity money.  

Let me ask again…of 100 people, who with the best of intentions, entered into such a plan, how many would actually be financially ahead 10 or 20 or 30 years down the road?  Would 90% make it?  How about 50%?  Perhaps 10% is more realistic.  You see what I mean don’t you?  It is far easer to talk about going into debt to make money than it is to actually pull it off.  But, it is far more exciting and even flattering to suppose that you are the one to make it happen.  With that assurance all too often follows a blinding arrogance to justifies other money decisions that are almost assured of sabotaging the sought for ultimate financial safe harbor

Where does it all go?

In week one of my Truth About Money, 30-day Quick-Start to Financial Freedom, courses I ask the members of class to complete a little exercise.  They are to gather 3 months of credit card statement for each card they have.  From there I ask them to categorize each charge over the preceding quarter according to these classifications.

1.    Consumables/Perishables
2.    Depreciating Assets
3.    Business/Education

After placing a 1, 2 or 3 in front of each charge on these statements students are to tally up the results and determine what percentage of their credit card usage goes into each category.  This exercise is always illuminating for those who complete it and some very interesting observations result.  For example, the people with more individual credit cards most often have a higher percentage of expenditures in categories 1 and 2.  Is it a coincidence or is it an example of the kind of spending patterns that follow the application of core money values?

Another reality that has become quite apparent as I conduct these workshops is that decisions about the use of money are not isolated.  What I mean is that the unwise spender does not make a single obvious mistake.  Rather, patterns and cycles of poor decisions come in bunches.  

Studies have shown that about 80% of all people who refinance in order to pay off debts wind up with as much or more debt within two years.  You see, financial success is more a matter of how you think about money than it is a matter of individual financial events.  Like water, you will consciously or subconsciously seek your internal level of money responsibility and accumulation.  

Money Scripts

Another of the very powerful exercises I take my students through is called Money Scripts.  By first exploring why you decided to do what you do with your money a foundation for positive change is build.  It is sure that if you do not alter the way you think about money the results you have gotten to this point will also be unaltered.
The Truth About Money

You can go through the exercises I mentioned above and learn other vitally valuable tools in The Truth About Money manual.  This very inexpensive, downloadable 30-day Quick-Start to Financial Freedom is available now. Learn More

You can hope that extraordinary circumstances may materialize in order to get you to another level of financial security and peace of mind.  You can search for some new and exciting scheme, trick, or plan to open the door to prosperity.  Or, you can simply make some

common sense changes in the way you do business with yourself.  Even minor alterations can frequently change your entire money situation for the better.  The challenge is to see where those changes are needed.  The Truth About Money is structured to take you on 4 one-week excursions of change.  In it debt, bankruptcy, insurance, home finance, long-term investing, and other vital topics are presented along with weekly action plans.

Conclusion

Your financial future truly is in your own hands.  It is no accident that some people make the same money mistakes over and over again, only to find that they are no further ahead as successive years roll by.  If this describes you, stop the cycle right now.  Only you can.

Yours in financial success!

Dr. Stephen Cooper