A Rant About Being Broke

March 13th, 2010   •   no comments   

In my quest to learn more about business and money and the security it can provide, I recently purchased a couple of audio books on sale for a mere $5 each at Half Price Books.  The first one was You’re Broke Because You Want to Be: How to Stop Getting By and Start Getting Ahead by Larry Winget, and the second was the latest by Robert Kiyosaki, Rich Dad’s Increase Your Financial IQ. Today, I will discuss the Larry Winget audio book.

I am happy to report that I  have taken all of the steps he recommends, save one — I have yet to tear up all of my credit cards.  However, I am down to one and I use it primarily for online purchases or recurring purchases — two things I’m not comfortable using my debit card for.

He asks the following Qs:  Are you spending more than you earn?  Are you worried about how you’re going to pay your bills? Are  you living paycheck to paycheck?  Is Social Security your only retirement plan?

We all know that to lose weight we must eat less and move more.  Larry reminds you that finances are the same — if you want to get ahead financially, you need to spend less and earn more.  The hard part is getting people to do what they know they need to do, not what they want to do.

Winget’s financial diet steps are simple — get a second job, cancel your cable and your gym memberships, eat out less/eat home more, etc.  All of this is like the crash diet that gets you to your desired weight.  Once at the desired financial place, he reminds you to keep living within your means.

But he doesn’t say that you must forever live in your new, downsized lifestyle.  Winget includes written exercises (OK, so maybe the first time you listen, you should be parked in your home) that help you realize what your ideal lifestyle will cost, and gives you realistic goals to aim for in terms of income.  Conversely, he shows you how much you’re expectations will need to change if you do not want to pay the price of that ideal lifestyle.

So, did I just save you $5 at Half Price Books?  (Actually, I think the sale is over now, but full-price is under $20 and well worth it — but pay in cash! ) NO!  If you need to be in financial rehab, then you need to get your own copy and play it while running your errands or on a long trip to visit relatives or on vacation – sort of like your own personal sponsor.  It isn’t that what Winget says is rocket science, but sometimes we have to be reminded that the answer to our problems is within our grasp.  It’s a matter of creating new habits that move us forward, and replace those habits that have kept us back.

Given the economic landscape we now find ourselves in, it is more important than ever that we focus on our finances.  Nothing is certain – not your job, not your investments, not your friends/family (who are most likely suffering your same fate).  Let’s take this opportunity to rethink what we want to spend our money on, and what the real cost is of our current lifestyle.  Regardless of whether we are in an economic recovery or not, I certainly hope that Americans remember these lessons that Winget — and Dave Ramsey and Clark Howard and Suze Orman — have been preaching for years:  Live within your means.

Living within our means sounds easy in theory, but is difficult in practice.  For example, as an Accidental Entrepreneur for less than 2 years, I am frustrated that I cannot get a home loan because the banks/credit unions require two years of tax returns for the self-employed.  But maybe that is for the best.  Could they be saving me from an overly optimistic estimate of what I’ll make this year – and that I can sustain that amount?  Maybe so.

However, I don’t understand why I would qualify for that same home loan if I had “a W2 job” for two weeks.  I’m not convinced that corporations are done with their massive layoffs and/or bankruptcies.  No inside info here, but I know from the news and anecdotal experiences of friends, that it’s harder for businesses to get credit and many customers are taking longer to pay their bills, leaving corporations to straddle this ever widening cashflow chasm.  I don’t think it takes an economist or financial guru to figure out that more companies are going to be stretched too far, and fall headlong into the cash void.

Is the answer, then to not hand out mortgages?  No, but maybe it means that we need to rethink how we buy homes.  Maybe Dave Ramsey is right when he promotes 15-year mortgages only that have payments which are less than 25% of your net (take home pay).

Maybe Suze Orman is right that the next big companies/industry to crash will be the credit card companies.  The industry has just had a lot of new regs put in place that limit their ability to raise rates and collect back debt.  Make no mistake, they must make a profit.  The question is only: Where will it come from?  The thousands of Americans whose budgets  depend on credit cards or who have unwieldy balances are going to be in trouble when the credit card companies realize they have a lot of bad risk, and call in the debt.

If you live in Dallas and are broke, please borrow the Larry Winget tapes from me!

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