Winners Quit

Recently I re-read Seth Godin’s book, the dip.  In this little book, Godin writes mostly to business people about knowing when to quit a project.  When he says, “Winners quit fast, quit often, and quit without guilt” it flies in the face of a lot of what we’ve been taught. Godin advises that winners quit when their path leads to a dead end – but to persevere when they are just in a dip.

This concept of winners quitting, is one that also works in realm of personal finance.

The key of course is knowing when to quit and when to stick.

For some situations, this determination is easy. If your income situation has changed for the worse, whether due to job loss, hours cut or a reduction in bonus, I have some no-fail advice for you: QUIT! Quit your old lifestyle – Today! Do not eat up savings or take on debt to maintain a lifestyle you can no longer afford.

Given the doom and gloom pessimistic economic news, it’s surprising that so many people can be so overly optimistic in their personal life. High earners are particularly susceptible to this problem. I get this and I’m also optimistic; but let’s practice a little planning for the worst. Do not let stuff drag you under; unload it and when you land that great new job you can always buy more.

For other situations, the determination is much harder. Here in Florida in early 2011, 46% of homeowners with mortgages have negative equity. Wow! That needs to be said again. Almost half of the people in Florida who owe money on their home, owe more than they could sell the home for.

If you are one of these families, how long do you stick?

People often need to move when they graduate, retire, marry, divorce, get a new job, have children, children move away, or for a myriad of other reasons. At one time as many as 20% of all Americans moved in any given year. Today, the poor housing and poor job markets have been a factor in greatly reducing that number.

Faced with either a legitimate need to relocate or the inability to realistically make the payments, many people choose to stick in their negative equity home way past the time they should have quit.

While I would not advise anyone to default on their mortgage just because the home value has dropped, I also would not advise someone to indefinitely postpone a needed move just because their home is underwater. (The “How you quit a negative equity home” is very important, but not the subject of this post).

In much the same manner as Godin advises business people to figure out if the path they are on is a dip, a cliff, or a cul-de-sec; if you feel stuck in a financial situation you need to calmly and strategically do the same.

Decide in advance when to quit.

The underwater homeowner who can no longer reasonably pay the mortgage may decide to commit “x” number of dollars of their savings toward keeping the mortgage paid while trying to land a better job or short sale the house. When the money is spent, it’s time to quit. Deciding in advance takes the emotion out of decision day and helps prevent quitting in a panic.

Will quitting now allow you to win later?

If a better job, life or family situation is on the other side of quitting, you may need to quit sooner than later. Carefully weigh the cost of sticking – waiting on the market to recover vs. quitting and starting new in a better place. The unknowns of the marketplace make this calculation very difficult but we do know that while you can make more money you cannot make more time.

Recognize the cliff

Be brutally honest with yourself. Put your what-if analysis on paper. Quantify it. Review it with someone you trust. If the path you are on leads to a financial cliff, its way past time to quit.

Remember, there is no prize for not quitting. People will not cheer your dogged determination if the end result is failure.

Bad Dog

Quick, you’re in a dark alley in an unfamiliar part of town. Which would you rather meet up with, five yapping Chihuahuas or one big, mean pit bull?

Me? I know I can deal with the yappers. They definitely can aggravate with their incessant barking and they might even nip; but they can’t eat me.

Welcome to debt consolidation. This is where you take all your little aggravating debts and create one big monster. You might even put the big vicious thing on steroids by consolidating all your debts into your home equity line.


This is what people do when they can’t stand to listen to the yappers one more second. If you’re here, unplug the phone and find a way to get a quiet moment to think.

You cannot borrow your way out of debt. No way, no how, it will not happen. If a consolidation lowers your monthly payment, it does it by stretching out the term. You will be in debt LONGER and it will cost you MORE- even if the interest rate is lower.

I have read many articles by so-called money experts that advise taking out a home equity loan to pay off credit card debt. YIKES! This advice is so bad I have to believe they are getting kickbacks from the credit card companies. Thankfully, these loans have become much harder to get. Can you think of anything more stupid than to risk your home for the shoes, TV, or dinners that you bought with your Visa?

If you are so sick and tired of carrying your debt; that the late-night TV promises of the debt consolidators are starting to sound tempting, what should you do?

1.       Know you are not alone. I can’t say it was smart to get into this position but at least you are in good company.

2.       STOP borrowing. Cut up the cards; freeze them in a block of ice; do NOT carry them in your wallet under any circumstances.

3.       Make a rational and reasonable plan to live on less than you make and start paying off the debt.

You knew all along that it would take discipline, commitment and hard work to get out of debt. It was only when you were tired and alone and ashamed that you wanted to believe the to0-good-to-be-true promises of the debt consolidators.