Tuesday, December 20, 2011
Thursday, December 15, 2011
How to Turn Your Finances Around
From Early To Rise
Coming from a background of little money has its advantages. My parents taught me how to save and invest my money and to avoid debt.
Today, guest author Mark Ford shows you what to do if you have debt, and how you can turn your finances around.
Craig Ballantyne
"As human beings, we are endowed with freedom of choice, and we cannot shuffle off our responsibility upon the shoulders of God or nature. We must shoulder it ourselves. It is up to us." – Arnold J. Toynbee
I had my first serious run-in with debt when I was 30 years old.
My wife K and I were renting a condominium in Washington, D.C. Our landlady came to us with an exciting opportunity: We could buy the condo for $60,000 with no money down. For just $100 a month more than what we were already paying for rent, we would be paying a mortgage. It sounded like a great deal, so we took it.
What we bought was a negatively amortizing mortgage with a three-year term and an 11% interest rate. That meant, every three years we were paying $19,800 in debt service and another $3,000 in closing costs.
We didn't realize what was going on because our monthly payments were only $550. I was too foolish then to ever ask myself, "What is the cost of this debt?"
I tried to find another bank to take me out of this scam but none would. The mortgage we had signed was not backed by the government (Freddie Mac/Fannie Mae), which meant that no other bank would touch it.
I learned that when banks make it easy to borrow money, it's not because you are a nice, deserving person. I learned that if you can get a loan despite poor credit (as ours was at the time), there is usually a scam involved. It also taught me to always ask the two critical questions about debt, "How much will it cost?" and, "Can I afford it?" It was an expensive lesson.
Many of us view debt as a necessity. We buy homes with it. And cars. And boats, and toys, and vacations. Some use it to buy the basics: clothes, food, and furniture.
Debt is not necessary. It is a luxury. Sometimes debt is useful. Sometimes it is wasteful. But debt is always dangerous.
It is unnecessary because there are always less expensive ways of getting what you want. And it is dangerous because it can sometimes be very expensive.
Let me give you two examples.
Let's say that, like most Americans, you are in the habit of buying things with credit cards. After a while, you notice that you have accumulated $30,000 in total debt. You decide to cut up your cards and repay your debt. You can devote $400 a month to paying it back. How long will it take, and how much will it cost you?
The answer may surprise you. Assuming an interest rate of 10%, it will take you 10 years to pay off the credit card debt. And your total payments will be $47,275. Of that, $17,275 will have been in interest payments.
Or let's take a $150,000 home on which you take a $120,000 loan with a 6.5% interest rate over 20 years. The mortgage payments are $894 a month, which you can afford. But how much will that house really cost you? Including interest payments? You will end up paying $244,725 for that house. Almost 40% of that – $94,725 – will have been to interest payments.
The commercial community (bankers and manufacturers) doesn't want you to be afraid of debt. And neither does the government. These institutions want you to like debt. They want you to use it. They want you to go into debt because it is good for them.
When you take out a mortgage to buy a home, or sign a lease on a car, or use credit cards to pay for your lifestyle expenses, the commercial community profits. The manufacturers make money on products you may or may not need. And the banks make money on your debt.
The mainstream financial media rarely talks about the dangers of debt. That's because they make their profits from the financial institutions and manufacturers whose advertisements support their publications.
And the government actually encourages its citizens to take on debt. This was the recommended strategy for getting us out of the Great Recession that the (second) Bush administration (and the Federal Reserve) advocated and it's the same scheme that Obama's people are advocating today.
Here's what you should know about debt:
As a general rule, you should live without it. You should find less expensive ways to acquire the things you need.
Unless you are wealthy, don't lease your car. Buy it. Buy the car you can afford, not the car you believe will make you happy. Any non-appreciating asset (such as a car) will never make you happy if you have to pay its debt service. I didn't buy my first luxury car until I was a multimillionaire.
Don't buy anything with a credit card. Keep only one credit card for renting cars. Use a debit card to buy clothes and groceries. If you don't have enough money in your bank account to use your debit card on a purchase, don't buy it. If you don't have enough money in the bank to buy something, it means you can't afford it.
If you can't afford the debt on your house, sell it (if you can) and buy something cheaper. In any case, start paying off the principle balance of your house (the amount you owe, not the interest you will owe) as fast as you can. Make it a goal to own your house free and clear as soon as possible.
If you have debt, pay it off as fast as you can, but not before you have filled up your bucket for emergency savings. By emergency savings, I mean money you will need to pay your bills if you lose your job. Six months' income is what some financial advisors recommend. I'd recommend a year. It may take you that long to replace your lost income.
Pay off your debt even if the interest rate is low. In theory, you should put your extra money elsewhere if you can earn more on it than you are paying in interest. If, for example, you can get 4% in municipal bonds and you have a student loan at 2%, it makes more sense to buy municipals bonds and pay your student loan off slowly. But in reality, the extra 2% you are earning on the spread is not worth the risk in carrying the debt.
When I started earning money, the first thing I did was get rid of that terrible loan on the condominium I told you about earlier.
The next thing I did was pay off the mortgage I took on a home. I paid it off in two or three years, even though it was a 30-year mortgage. I loved the idea of owning my home free and clear. So I put every extra dollar I had toward paying down that mortgage. The bank didn't like it, but the day I tore up that mortgage... I felt like I had been emancipated from financial slavery.
Finally, if you are troubled by debt, know this: you can get out of it just as I did.
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Tuesday, August 24, 2010
Getting on Track: Setting Goals for the Year that Aren't Totally Self-Centered
by Gregg Krech
"It must be borne in mind that the tragedy in life doesn't lie in not reaching your goal -- the tragedy lies in having no goal to reach." -- Benjamin Mays
In many of the workshops I conduct we begin by having people introduce themselves to someone else and as part of that introduction share the three most important things they've accomplished during the past year. For some people this turns out to be a very depressing inquiry. They scan the past months searching for something important they've done but find that they have little to show for the past year beyond "survival." Indeed, some participants will actually say that "getting through the year" was a major accomplishment.
Most of us would like to finish the year with some sense, in concrete terms, that we're further along the "road to a meaningful life" than we were last January. But what does that road look like and where is it headed? If we don't give some thought to that question at the beginning of the trip, we're likely to end up at some random destination (including one which is not very far from where we started) and then, after the fact, we find ourselves dissatisfied with the direction we've taken.
Though we're already checking days off our 2008 calendar, it's not too late to step back and reflect on where you've been and where you're headed.
Start with Self-Reflection
Before you grab a pen and paper and start listing goals for the year, take some time to reflect on your life. This not only gives you some perspective on your situation, but it allows you to identify goals that may go beyond your own self-interest. If our goals are purely self-centered, they are unlikely to be very satisfying in the long run. But goals which serve some purpose beyond our own happiness and welfare create meaning in our lives. They help us to feel useful and give us a sense of worthwhile purpose.
I recommend a method of self-reflection called Naikan. Naikan originated in Japan and was developed by Ishin Yoshimoto. His method asks us to consider three questions:
1. What have I received from _____?
2. What have I given to _______?
3. What troubles and difficulties have I caused ______?
You can use this framework for reflecting on a specific person for the past year. For example, you might reflect on your spouse, your best friend, your boss, a colleague at work or your mother. Yoshimoto recommended that we spend 60% of our time reflecting on the third question - the troubles and difficulties we caused the other person. This is the most challenging question and one that requires us to put ourselves in the other person's shoes. In essence, we are asking, "What is it like for my wife to be married to someone like me?" or "What is it like for my boss to work with someone like me?"
You can spend several days reflecting on your life or several hours. During a Naikan retreat you would spend an entire week doing this type of self-reflection -- all in all, over 100 hours. But most of us will be limited to what we can do in our own homes. So do what you can and then move on to identifying some goals for the coming year.
Write down your goals
Writing is a wonderful process for helping to crystalize your thoughts. So write down some goals and use the pages of notes from your self-reflection time as a resource. One idea that I have found useful is to identify key people who have been supportive and, after I have done Naikan on those individuals, to identify something I would like to do or give to each of those people.
For example, Steve (colleague) went out of his way to drive me to and from work the week my car was in the shop. Also let me use his woodworking tools to make my daughter's bed and gave me a dozen tomato plants for our garden.
Schedule a weekend to have his daughter stay with us so he and his wife can go to Boston.
I try to limit my list to no more than seven people to make this a realistic goal. Once I have completed my list and have an idea for each person I have my first goal:
To give to each person what I have listed next to their name.
Some of the people on my list were helpful in important ways this past year. Others provided support many years ago. When we're facing a challenge or dilemma and someone helps us, there is a moment when we are very aware of how important their actions were. We realize how challenging our situation would have been had they not stepped forward and supported us -- with time, money, advice or practical help doing what needed to be done. But that awareness fades rather quickly as our life moves forward and we no longer remember the impact of their help. Sometimes, it's just a matter of our memory fading. In other cases, there may be some tension or difficulty with that person, so we no longer see the earlier acts of support as very important.
Taking time to reflect and building a series of goals/gifts around that reflection reminds us of the support and care we have received from others and gives us an opportunity to reciprocate, at least in some small way, and show our gratitude.
Now come up with some additional goals. You may find it helpful to think about different categories. For example, you might have goals related to your family, career, finances, health, community, education, social life or spiritual development. In my book, A Finger Pointing to the Moon, I mentioned four characteristics of a good goal. They should be:
A. Specific
B. Controllable
C. Written
D. Time-Limited
Here are some other tips for coming up with useful goals:
1. Make sure your goals represent something that is really important for you to do. Sometimes people identify goals because they sound good. Perhaps you would like to write a book or take a trip to some exotic place. Then, down the road, you don't make the effort you need to accomplish your goal, because, well . . . you're just not willing to sacrifice the time and energy involved.
2. Setting goals is a time for vision and dreams. Don't handcuff yourself with boundaries that stifle dreams of what you really want to do. A good question to ask yourself is, "If I could do whatever I wanted to do, without any constraints, financial or otherwise, what would I do?" This may help you to think creatively about your life and your future. Ultimately, you have to work with reality -- we all do. But if you allow yourself to dream, you may find some creative strategies and paths that you hadn't considered.
3. In addition to the question "what do I want to do?" consider the question "what is needed of me?" This question helps you look outside yourself for a role and purpose in life. We see ourselves as servants to God/Buddha/Life and we find meaningful goals by going where we are needed. Years ago I was in Thailand and had an opportunity to visit a refugee camp on the border of Laos. I thought I could help best by offering workshops or ideas to the mental health counselors in the camps, but instead I ended up getting involved with a program that helped support orphan children. The kids didn't need counseling nearly as much as they needed toothpaste, medicine and clothing. So I went back to the U.S. and raised funds for these kids. I don't like doing fundraising and I'm not very good at it. But that's what was needed. In the long run, I received tremendous joy from my work and the time I spent with the children each year. Responding to the "need" that was right in front of me gave me a wonderful opportunity to do something worthwhile and rewarding.
Do We Really Need Goals?
There are some good arguments against setting goals. First, they can be nothing more than a strategy for procrastination. Some people confuse setting goals with actually working towards achieving them. Beware of using goal-setting as simply a way of putting off what you know you need to do. Second, some people take a very down-to-earth view that goals are unnecessary. Michele Pfeiffer, in the movie, The Fabulous Baker Boys, says she never makes New Year's resolutions because, "You do what you do, right?" On the other hand, "what you do" may be different if you take time to step back from your life and reflect on how you are living. That's why a retreat, or a long vacation, often gives you a different perspective on your life and work. And then there are those who prefer flexibility and spontaneity and don't want to be handcuffed by clear, identifiable goals. There's a story about Charlie Brown in which he is shooting arrows into a wooden fence and, after each shot he runs over to the fence and draws a bull's-eye around the arrow. Lucy comes along and says, "Hey, that's not how you practice. You're supposed to draw the target and then shoot at it." To which Charlie Brown replies, "If you do it my way, you'll never miss."
Ultimately, if you are satisfied with how your life has evolved and the direction you're headed, you may not need to set goals. But one of the advantages of a process grounded on self-reflection is that it gives us an opportunity to look at the impact of our actions on others. We may live very purposefully, and get a lot of things done, but in the process, we can step all over people and cause a great deal of suffering. Successful people don't always pay much attention to the cost of their success to others.
Whatever your goals and plans, life may not cooperate according to schedule. Life has a way of moving forward according to its own plans, even when those plans are a bit different from your own. So be prepared to make some adjustments, establish new priorities and have the flexibility to respond to what life sends your way. Not withstanding these inevitable surprises and unexpected events, you may still find it helpful to move forward through the year with some clear direction and one which, in part, recognizes that you have come this far thanks to the kindness of generosity of many people and things. This is a good year to reciprocate.
Gregg Krech is the Director of the ToDo Institute in Middlebury, Vermont and author of several books including Naikan: Gratitude, Grace and the Japanese Art of Self-Reflection (Stone Bridge Press, 2002) and A Natural Approach to Mental Wellness (ToDo Institute, 2000).
"It must be borne in mind that the tragedy in life doesn't lie in not reaching your goal -- the tragedy lies in having no goal to reach." -- Benjamin Mays
In many of the workshops I conduct we begin by having people introduce themselves to someone else and as part of that introduction share the three most important things they've accomplished during the past year. For some people this turns out to be a very depressing inquiry. They scan the past months searching for something important they've done but find that they have little to show for the past year beyond "survival." Indeed, some participants will actually say that "getting through the year" was a major accomplishment.
Most of us would like to finish the year with some sense, in concrete terms, that we're further along the "road to a meaningful life" than we were last January. But what does that road look like and where is it headed? If we don't give some thought to that question at the beginning of the trip, we're likely to end up at some random destination (including one which is not very far from where we started) and then, after the fact, we find ourselves dissatisfied with the direction we've taken.
Though we're already checking days off our 2008 calendar, it's not too late to step back and reflect on where you've been and where you're headed.
Start with Self-Reflection
Before you grab a pen and paper and start listing goals for the year, take some time to reflect on your life. This not only gives you some perspective on your situation, but it allows you to identify goals that may go beyond your own self-interest. If our goals are purely self-centered, they are unlikely to be very satisfying in the long run. But goals which serve some purpose beyond our own happiness and welfare create meaning in our lives. They help us to feel useful and give us a sense of worthwhile purpose.
I recommend a method of self-reflection called Naikan. Naikan originated in Japan and was developed by Ishin Yoshimoto. His method asks us to consider three questions:
1. What have I received from _____?
2. What have I given to _______?
3. What troubles and difficulties have I caused ______?
You can use this framework for reflecting on a specific person for the past year. For example, you might reflect on your spouse, your best friend, your boss, a colleague at work or your mother. Yoshimoto recommended that we spend 60% of our time reflecting on the third question - the troubles and difficulties we caused the other person. This is the most challenging question and one that requires us to put ourselves in the other person's shoes. In essence, we are asking, "What is it like for my wife to be married to someone like me?" or "What is it like for my boss to work with someone like me?"
You can spend several days reflecting on your life or several hours. During a Naikan retreat you would spend an entire week doing this type of self-reflection -- all in all, over 100 hours. But most of us will be limited to what we can do in our own homes. So do what you can and then move on to identifying some goals for the coming year.
Write down your goals
Writing is a wonderful process for helping to crystalize your thoughts. So write down some goals and use the pages of notes from your self-reflection time as a resource. One idea that I have found useful is to identify key people who have been supportive and, after I have done Naikan on those individuals, to identify something I would like to do or give to each of those people.
For example, Steve (colleague) went out of his way to drive me to and from work the week my car was in the shop. Also let me use his woodworking tools to make my daughter's bed and gave me a dozen tomato plants for our garden.
Schedule a weekend to have his daughter stay with us so he and his wife can go to Boston.
I try to limit my list to no more than seven people to make this a realistic goal. Once I have completed my list and have an idea for each person I have my first goal:
To give to each person what I have listed next to their name.
Some of the people on my list were helpful in important ways this past year. Others provided support many years ago. When we're facing a challenge or dilemma and someone helps us, there is a moment when we are very aware of how important their actions were. We realize how challenging our situation would have been had they not stepped forward and supported us -- with time, money, advice or practical help doing what needed to be done. But that awareness fades rather quickly as our life moves forward and we no longer remember the impact of their help. Sometimes, it's just a matter of our memory fading. In other cases, there may be some tension or difficulty with that person, so we no longer see the earlier acts of support as very important.
Taking time to reflect and building a series of goals/gifts around that reflection reminds us of the support and care we have received from others and gives us an opportunity to reciprocate, at least in some small way, and show our gratitude.
Now come up with some additional goals. You may find it helpful to think about different categories. For example, you might have goals related to your family, career, finances, health, community, education, social life or spiritual development. In my book, A Finger Pointing to the Moon, I mentioned four characteristics of a good goal. They should be:
A. Specific
B. Controllable
C. Written
D. Time-Limited
Here are some other tips for coming up with useful goals:
1. Make sure your goals represent something that is really important for you to do. Sometimes people identify goals because they sound good. Perhaps you would like to write a book or take a trip to some exotic place. Then, down the road, you don't make the effort you need to accomplish your goal, because, well . . . you're just not willing to sacrifice the time and energy involved.
2. Setting goals is a time for vision and dreams. Don't handcuff yourself with boundaries that stifle dreams of what you really want to do. A good question to ask yourself is, "If I could do whatever I wanted to do, without any constraints, financial or otherwise, what would I do?" This may help you to think creatively about your life and your future. Ultimately, you have to work with reality -- we all do. But if you allow yourself to dream, you may find some creative strategies and paths that you hadn't considered.
3. In addition to the question "what do I want to do?" consider the question "what is needed of me?" This question helps you look outside yourself for a role and purpose in life. We see ourselves as servants to God/Buddha/Life and we find meaningful goals by going where we are needed. Years ago I was in Thailand and had an opportunity to visit a refugee camp on the border of Laos. I thought I could help best by offering workshops or ideas to the mental health counselors in the camps, but instead I ended up getting involved with a program that helped support orphan children. The kids didn't need counseling nearly as much as they needed toothpaste, medicine and clothing. So I went back to the U.S. and raised funds for these kids. I don't like doing fundraising and I'm not very good at it. But that's what was needed. In the long run, I received tremendous joy from my work and the time I spent with the children each year. Responding to the "need" that was right in front of me gave me a wonderful opportunity to do something worthwhile and rewarding.
Do We Really Need Goals?
There are some good arguments against setting goals. First, they can be nothing more than a strategy for procrastination. Some people confuse setting goals with actually working towards achieving them. Beware of using goal-setting as simply a way of putting off what you know you need to do. Second, some people take a very down-to-earth view that goals are unnecessary. Michele Pfeiffer, in the movie, The Fabulous Baker Boys, says she never makes New Year's resolutions because, "You do what you do, right?" On the other hand, "what you do" may be different if you take time to step back from your life and reflect on how you are living. That's why a retreat, or a long vacation, often gives you a different perspective on your life and work. And then there are those who prefer flexibility and spontaneity and don't want to be handcuffed by clear, identifiable goals. There's a story about Charlie Brown in which he is shooting arrows into a wooden fence and, after each shot he runs over to the fence and draws a bull's-eye around the arrow. Lucy comes along and says, "Hey, that's not how you practice. You're supposed to draw the target and then shoot at it." To which Charlie Brown replies, "If you do it my way, you'll never miss."
Ultimately, if you are satisfied with how your life has evolved and the direction you're headed, you may not need to set goals. But one of the advantages of a process grounded on self-reflection is that it gives us an opportunity to look at the impact of our actions on others. We may live very purposefully, and get a lot of things done, but in the process, we can step all over people and cause a great deal of suffering. Successful people don't always pay much attention to the cost of their success to others.
Whatever your goals and plans, life may not cooperate according to schedule. Life has a way of moving forward according to its own plans, even when those plans are a bit different from your own. So be prepared to make some adjustments, establish new priorities and have the flexibility to respond to what life sends your way. Not withstanding these inevitable surprises and unexpected events, you may still find it helpful to move forward through the year with some clear direction and one which, in part, recognizes that you have come this far thanks to the kindness of generosity of many people and things. This is a good year to reciprocate.
Gregg Krech is the Director of the ToDo Institute in Middlebury, Vermont and author of several books including Naikan: Gratitude, Grace and the Japanese Art of Self-Reflection (Stone Bridge Press, 2002) and A Natural Approach to Mental Wellness (ToDo Institute, 2000).
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