Author: Cassie Featherston

When we think of ways to improve our financial situation, we know we can earn more or spend less. But are both approaches equal? Although on the surface it would seem so; on closer examination it is clear there is a large disparity between the two.

Exiting the consumer rat race has a far bigger impact on your ability to achieve financial freedom than does increasing your earnings.

The reason for this is twofold:

1) Earnings are taxed; heavily.

2) Earning increases influence your wealth only while you are earning. Once you quit or retire the affect stops. Learning to be happily frugal has benefits that extend for the rest of your life.

Allan Roth’s article, Financial Wealth – It’s Time not Money explores this concept.  Roth gives the following example of a 50 year old that can reduce spending by $10,000 for the rest of her life or increase earnings for the balance of her career.

A 50-year-old woman can make $10,000 a year more and will retire in 15 years, which translates to $150,000. But if a third goes to taxes, she is only left with an additional $100,000. On the other hand, if she spends $10,000 a year less and has a 33 year life expectancy, that translates to $330,000 in savings.

A dollar saved is $3.30 earned

So in the above example, lowering annual expenditures by $10,000 had about a 3.3 fold benefit over earning $10,000 more. That means a dollar saved is worth far more than a dollar earned – in the above example it equaled approximately $3.30.

Many of us try to out-earn our past or present spending habits. This seems particularly true of high earners. The problem is the more we earn the more we spend. If you are currently earning at least average wages, focus the majority of your early efforts on reducing your expenses in order to win.

Plugging the hole in your bucket before filling it with earnings is so much more effective than the alternative.

You’ve cut the cable and the lattes. You haven’t been to the mall or a restaurant or to a movie theater since – you can’t remember when. But still there is no way you can afford your health insurance.

If you are self-employed, unemployed or your employer does not offer benefits; you may be facing this dilemma. What can you do?

Our long-term goal is to find a way to get adequate coverage in place (we will talk about this in another post). Our goal today is to do the very best we can with what we have.

Some is better than None

You may be able to afford a high deductible, no office visit plan. Do not assume you can’t afford it based on what someone else told you. Most major companies have temporary plans if you are between jobs and almost all of them let you price plans on line — just be aware if you have pre-existing conditions or  if you are over weight, the online price or plan may not be available to you.

If you cannot cover yourself (existing conditions make you ineligible or even the high deductible plans are unaffordable), get a quote for just your spouse and kids.

Here are some Providers that offer on-line Quotes:

Cover the Kids

Most states have some type of coverage available through their welfare agency. In Florida, we have Medicaid and KidCare – for those that make too much to qualify for Medicaid. At this time, Kidcare has a sliding scale premium based on income; even if you earn more than 200% above the poverty income level, you can purchase Kidcare for the full premium. Most colleges offer Student Health Insurance and some will offer financial aid to help cover the premium.

Stay Healthy

We can all do a lot to improve our chances against future health problems. This means dump the weight; get some exercise, stop with the junk food, booze and cigarettes.

Some of the factors that raise your health care premium are within your control (weight, smoking) and some are not (pre-existing conditions). Fix the things you can. It can absolutely make the difference between qualifying for an affordable plan or being ineligible for any individual coverage.

Move On

Our healthcare system is broken. You know it, I know it, the doc’s, the government and the insurance companies know it. We have all heard the heart-breaking stories of astronomical premiums and denials of coverage. If you are without coverage, the inequities of the system cannot be your focus. Accept that the situation sucks and pour your energy into getting the best you can for your family today.

Living with debt or inadequate savings is more an indication of the lies we were sold, rather than a reflection of our character.

That is until revelation day. Revelation day happens when the bank surprisingly turns you down for additional credit or when you lose your job or the first time you cannot pay all your bills. My revelation day happened when I heard Dave Ramsey tell me I was a fool.

After that day, it is all about character. Will you stick your head back in the sand and pretend you don’t know or will you do the work required to change your behavior?

I have a very dear friend that recently achieved her totally debt free goal; a real cause for celebration. It was not long ago that she was stuck in too much house. No matter how much she cut the budget, her expenses exceeded her income. She was eating ramen, never turning on the heat, barely running the ac, just paying minimum on her debt and even then; the taxes and insurance on that beautiful pink elephant were slowly pulling her under. She spent years losing the fight against the incoming tide.

This woman is a professional; she’s bright, educated and her high heels always match her dress. Unlike me, she knows which fork to use and is totally at ease at fancy smancy social events. She is no spring chicken either, with a kid in college; she is well past the days where it’s easy to burn the candle at both ends.

Once she truly and sincerely declared war on her debt, my friend found a night job cleaning an office. Four nights a week and on Saturdays she vacuumed and dusted and mopped and scrubbed toilets – after putting in 50 hours at her regular job. And, she still ate ramen.

At first, I believe she was embarrassed to be working a second job and embarrassed that the job was cleaning. I know she had to be tired and often discouraged; nevertheless, she persevered.  She did this for seven months and the only thing the extra income allowed her do was stay afloat. But, that was enough. When the too much house finally sold, she was free to start her new debt free life.

I could not be more proud of her.

What sacrifice are you willing to make to win?

We’ve been doing some boat work around here for the past several days. It’s hot, dirty, hard work that is sometimes dangerous. When working with heavy stuff under load it’s very important to follow several safety rules:

Never exceed the safe working load of a line

Never work in the bight of a line under load

Never try to control a loaded line with your hands, take a couple of turns on a winch or cleat

Always have an exit strategy

It occurs to me that this same thinking should apply to your money.

The real heart of these safety rules is Anticipate and Plan for the Worst.

We don’t seem to have a problem doing this when it comes to our physical safety, we wear seat belts and bike helmets and tread carefully on wet floors; but when it comes to our money and our life, most people I meet are unrealistic optimists.

If you are spending money on Baby Einstein DVD’s but do not have adequate term life coverage in place, you are an unrealistic optimist. I don’t care how bright your 4-year old is, she won’t be able to support herself should something happen to you.

If you are mindlessly accepting student loans for your private school degree in Underwater Basket Weaving, you too are an unrealistic optimist. I have no argument with the degree – only the fact that you are going into debt without any realistic plan of how you will repay it.

If you buy a house with no savings, less than 20% down, or mortgage to the hilt the home you already own; what is you exit strategy should you need to move?

If you are loading up the future you with consumer debt so you can have the latest gadget or car today, how do you know that in the future you will have the money to pay those bills?

Buying life insurance will not cause you to die. Planning for a layoff will not get you fired. It is not morbid or pessimistic to anticipate the worst; it is adult.

Is it time for you to grow up?

Sometimes it’s the same thing said just a little different that causes that light bulb to come on.

This post, The Really Obvious Thing We All Forget When Borrowing Money says it just different enough that might help flip that switch for you.

The post asks: Who is really lending you money when you borrow?

This is really important! Is it Citibank or American Express or Ford Motor Credit loaning you that money? No, they are not. These credit companies are merely the vehicle.

You are borrowing that money from your future self.

When you use credit, you are guaranteeing you will have less – later. Not only will your future self need to repay the loan, your future self will pay interest on that loan as well. This is the opposite of Dave’s, “Live like no one else so later you can live like no one else”.

You’re really sticking it to your future self by borrowing. You’ll be poorer, less able to live within your means, further from financial freedom – and probably lumbered with an old PC that needs to be replaced.

If you have had exceptionally easy life up to this point, let me clue you in. Sometime in the future, there will be hard times and when there are, it will feel like the whole word is sticking it to you. Don’t pile on. Give the future you a break by not borrowing today.

Hating “rich” people because they are rich is almost a national sport these days. Those that are not rich love to see them fall, love to hear of their misery, love to gossip of their shortcomings.

Of course, it’s ridiculous to judge someone’s character based on his or her net worth. I have known many mean, greedy people who happen to be poor; as well as many compassionate, generous people who are also wealthy – and so have you.

Are there unethical and dishonest rich people? Of course there are. But, in Thomas Stanley’s,The Millionaire Next Door: Surprising Secrets of America’s Wealthy millionaires rated integrity [being honest with all people] as the number one factor that explains their economic success, ahead of wise investing or working hard.

Paul Sullivan of the Herald –Tribune recently wrote Financial Advice Gleaned From a Day in the Hot Seat about  his opportunity to participate in a “carefrontation” hosted by the Tiger 21 club. Tiger 21 members have a net worth of at least $10 million. They meet regularly to discuss investments and encourage one another to think about everything in their lives affected by their wealth. The “carefrontations” put one member on the hot seat to defend their current financial decisions. Sullivan thought he was doing well but the group encouraged him to dump his vacation condominium saying he needed to be more liquid. “If something bad happens, it’s easy to get rid of a dog walker; it’s hard to get rid of a house in Naples.” They also beat on him about the levels of life and disability insurance he and his wife are carrying.

Let’s Recap:

• Your disdain for wealthy people will make it difficult for you to increase your wealth; so knock it off. Feel free to dislike mean people or dishonest people but don’t hate people because they are successful.

• Many Millionaires cite “honesty” as the number one factor influencing their success. You can be honest, right?

• Wealthy people deliberately set aside time to regularly review their finances, not just by themselves, but with trusted peers. You can start this today. Calculate your net worth monthly. Review your budget and investments regularly, find some like minded people to discuss money matters with.

It is time you give up your ridiculous prejudices against the rich. Most of us wish we had more money; more to give, more to help others or more to spend on travel or stuff. Resenting and demonizing the wealthy makes it nearly impossible for you to learn anything from their successes. And really, who do you want to listen to for money advice, someone who’s got some or your broke brother-in-law?

Contrary to what you learned from “Leave it to Beaver” or “The Brady Bunch” family peace is not something that naturally occurs.  If you want peace for yourself and your family, you have to fight for it.

One of the core requirements for peace is security. If you are currently living on more then you make, have debt, or have inadequate savings, you have no security. There is no peace while waiting for the consequences of your bad money behavior to catch up with you.

I meet people all the time who know their financial situation is precarious. They know they are one illness, one car repair, one temporary job loss away from disaster – but they act as if they are ok with it. In conversation, I hear that they know they should do something, but it sounds as if they just do not want to do the work.

Are they too lazy, self-indulgent, or stupid to make the changes necessary to give their families security?  No, they are none of these things. They are scared and they have lost hope. The debt looks insurmountable, the gap between income and expense too wide, the shame of facing their own failure too painful. So, their response is to quickly stick their heads back in the sand.

If you are one of these people, I want to give you hope. You really can change your future. I guarantee I have seen bigger mistakes; heck, I probably made bigger mistakes.

All you need to do right now is to get mad. Decide that this is not how you want to live and definitely, not how you want to teach your children to live. Make the commitment to Wage Peace for yourself and your family.

I loved this recent tweet by DaveRamsey, this is how you do it! “Get all Braveheart on your debt. Go crazy, paint yourself blue and charge into the chaos with fierceness.”

If you have successfully waged peace in your home but you have family or friends that have not, send them this post. Preface it with your story; give them the gift of hope.

If you know you need to do better but are not sure what to do, contact me and I’d be happy to get you started.

Most of my failures with money had to do with me. My intentional inattention to the future consequences of today’s money choices cost me lots of money, but my worst choices were always reserved for choices involving others.

It is easy to make particularly poor money decisions when it comes to people we care about. When asked by a friend or family member for help, we want to do whatever we can. Unfortunately, many times the choice we make not only hurts our own financial situation, it also causes much harm to the relationship.

To avoid trashing your own financial goals and ruining your relationships, it is important to set some hard and fast family rules about other people and your money.

Cash Only Living recently posted their list of 10 Rules for Dealing with People Problems. This is an excellent starting point for your family to adopt their own rules:

1. We never co-sign for anything for any one.

2. We treat people how we would like to be treated, namely, with honor, respect, patience, humor, and firm parameters so as to avoid miscommunications and other inter-personal issues. We expect the same in return.

3. We don’t take sides and we don’t like drama.

4. We do keep a separate emergency fund to help others if needed.

5. We don’t loan money to anyone for anything.

6. We don’t bail people out of jail.

7. We won’t buy from your MLM business; go to a presentation that is trying to sell us something; or become one of your MLM “downlinks”.

8. I won’t enter into a business partnership with anyone.

9. The hubby and I freely provide: someone to vent to/talk to, a free meal if you stop by the house, a place to sleep in an emergency, a free ride if you have been drinking, moral support, useful information, help with a wide variety of problems/projects  and provide other non-financial assistance whenever possible.

10. We won’t sell you anything on credit.

Having these rules in place before you need them is key. Without predetermined rules, you are bound to find yourself in a long drawn out conversation of all your legitimate reasons for not helping someone you care about. Somewhere early in this conversion, all they can hear is that you don’t care.

It is so much easier on both parties if you are to say with confidence “I’m sorry, our family has a rule against co-signing” .

What are your rules about other people and your money?