Being “Financially Fat” Finding Purpose & Financial IQ – Part 2

—by Rebecca Witherspoon, October 24, 2021

You pay your bills on time, you have a nice home, a nice car, nice cloths, and may even go on some nice vacations. By all appearances you are living the American Dream. You feel confident because you (and maybe your spouse, if you’re married) have a great job that pays you well. Life is comfortable and you have everything you ever wanted. Life looks great … from the outside. 

Take a closer look at this picture though and cracks in the foundation become visible. 

• big home mortgage or big fat rent
• fat car payments
• large student loan debt
• bloated credit cards
• anorexic savings
• no panned budget
• starving retirement (if any)
• little if any protection against disasters

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It will take very little to knock this “secure” family to its financial knees because there is no foundation to keep it standing at the first major crisis. Unfortunately, this scenario is a very typical American family—it may be you, your son or daughter, your parents, your siblings, your best friend, your neighbors, your boss, your coworkers. They are financially fat and yet, without even realizing it, they are just one paycheck away from financial bankruptcy and ruin.

One of the 4 major factors that keeps people from winning in money is not realizing they are even in trouble in the first place. “You need to see the need in order to even know you need to make dramatic change. If you are apathetic because everything seems ‘just fine,’ then you will be unwilling to make the huge changes required to get huge results. You are where you are right now financially as the sum total of the decisions you’ve made up to this point. Few people have the courage to seek out change. It is human nature to want what you want, and to want it now; it is also a sign of immaturity. Being willing to delay pleasure for a greater result [and pleasure] is a sign of maturity.” 

Debt is part of our “I want it now” mindset as a culture—also known as instant gratification. But until you are willing to commit yourself 100% to achieve financial peace and freedom, it will be nothing but a pipe dream. Too often people choose to believe myths over facts as a way to justify their continued unhealthy spending habits. Here are some of the primary myths many live by, never realizing until it’s sometimes too late that it’s these very myths that are destroying them financially.

1. MYTH: Debt is a good tool to create prosperity. FACT: Debt actually adds considerable risk to life, and it does not generate prosperity. “They also never tell you that the genuinely wealthy people among us rarely use debt as a tool. The truth is that the wealthy use their income as a wealth-building tool, rather than sending their money out to debt payments. The best way to build wealth is to become and stay debt-free.” Begin TODAY to develop a mindset that if you cannot afford to pay cash for something today, then you cannot afford to pay cash plus interest later.
2. MYTH: You are helping a friend or relative when you loan that person money. FACT: You are likely to seriously strain or even destroy your relationship with a friend or relative to whom you loan money. Learn how to just say no. Rather than loan money to a friend or relative, experience the joy of giving—if you are in a position to do so—without expectation of ever receiving anything back. Think about this truth for just a moment—if you cannot afford to give money as a gift, then you most certainly cannot afford to give money as a loan. If your friend or relative insists that they will “pay you back,” simply tell them that you appreciate their willingness to do so, but that you would much rather have the blessing of knowing that you were able to help a friend or loved one who happens to be in temporary need. It’s not charity, but rather a gift. If they feel its truly important for them to pay you back, then tell them rather than returning the money to you, to pay that money forward by helping someone else who needs help. Result? Your friend or loved one has learned the act of both receiving and giving.
3. MYTH: Car payments are a way of life and a person will always have one. FACT: Car payments are typically your next largest monthly expense after your monthly rent or mortgage payment. “If a person invested $495 [the average monthly car payment] a month from age twenty-five to sixty-five at 12 percent (the seventy-year stock-market average), the person would have $5,881,799.14. That’s a lot of car!” Would you rather (1) have the bright, shiny toy now that loses much of its value as soon as you drive it off the lot, never gains value over time, and is the proverbial fire in which you throw your money to burn, or (2) would you rather pay cash for a decent used (and sometimes new) car every few years, and invest that large monthly car payment each month knowing that you will have a secure retirement? Your choice.
4. MYTH: Credit cards help you build your credit. FACT: When you use a credit card, you are taking out a loan. Period. You have spent your future income before you have ever even earned it, and you will pay a premium price to instantly secure now what you cannot afford. A debit card, on the other hand, does everything a credit card can do except for one thing and one thing only—a debit card will never get you into debt. You must create a game plan now for how to curb your spending if you every wish to become financially free. Otherwise, as soon as you pay off one debt you will just create new debt. 

SECRETS OF THE RICH:

1. “The secrets of the rich don’t exist because the principles aren’t a secret. The secrets to financial peace may be difficult to do, but they are not complicated to understand or implement.”
2. “Don’t be under the illusion that the government, which is highly inept and dim-witted when it comes to money management, is going to take great care of you in your golden years. Things will not be okay unless you make them that way. If you wait until you are sixty-five or seventy years old to “plan” for retirement, you will have missed the boat.”
3. “I have never met a person who made a six-figure income by working just a few hours a week at anything.” It takes consistent hard work over a sustained period time to achieve financial peace and financial freedom. It does not happen over night. If you are unwilling to do whatever it takes to achieve financial peace and freedom, then reading this blog post will do nothing for you.
4. “If you’re going to be involved in the stock market, work with folks who have a good and long track record of success.” You don’t have time to learn what they already know, so instead leverage their knowledge to your advantage.

QUESTION:

Okay, Rebecca. This all sounds great but it doesn’t help me know what I can do to get rid of the financial fat. Is it even possible to lose weight fast? 

ANSWER:

Absolutely! It’s called the Debt Snowball. The real question is whether you are willing to do what’s necessary to shed that excess weight? As previously stated above, the answer is simple, but implementing the answer will take a strong WHY on your part to remain FOCUSed on your end goal. When temptations come along (and they will come along) to spend money you have not yet earned, your WHY will help you to just say no because your goal will be more important to you than the momentary instant pleasure.

Steps to Shedding the Financial Fat:

Step 1: List your debts from smallest to largest regardless of interest rate.

Step 2: Make minimum payments on all your debts except the smallest.

Step 3: Pay as much as possible on your smallest debt. Once that debt is gone, take its payment and apply it to the next smallest debt while continuing to make minimum payments on the rest.

Step 4: Repeat until each debt is paid in full.

“[W]hen you ditch the smallest debt first, you see progress—quick! That debt is out of your life forever. The second debt will soon follow and then the next and the next. Suddenly, you’re putting hundreds of dollars a month toward your debts instead of small incremental minimum payments. When you see your snowball actually working, you’ll be more likely to stick to it. The next thing you know, you’ll be screaming “I’m debt-free!” in no time.”

Once you have reached the goal of becoming debt free, you will have the financial peace and freedom to use your income to build your dreams rather than to build the dreams of others. But do not become complacent in your newfound freedom or you may find yourself back at square one again, needing to claw your way out of a new and possibly deeper hole of your own making.

It’s a wonderful feeling to live free from the slavery of debt ruling over your life and to know that should the unthinkable happen you have the everything you need to get you and your family through unexpected hard times. Seeking out a qualified financial professional is one of the best steps you can take to ensure a secure future. (Caution: not all financial professionals are the same. Look only for those with solid reputations for getting results, doing what’s best for their clients, and who have a legal fiduciary duty to work for your benefit and not theirs.)

In the first episode of this series, we talked about facing our demons. Fear was the primary demon discussed, and we learned that D.A.T.A. was what we need to transform from a person who is led by F.E.A.R. into a person living life to the fullest.

D.A.T.A.:

1. DECIDE what you want, and what your why is.
2. Take ACTION
3. TRACK and pay attention to your results to determine what is working and what is not working.
4. Continue to ADJUST your actions until you find what works.

As I said in episode one, wishing and deciding are two completely different things. “I wish I didn’t have all this debt” gets you nowhere. “I will pay off all my debt by this time next year by implementing the debt snowball method” allows your mind to begin to focus the necessary decisions (choices) required to achieve your desired goal.

Three Decisions That Control Your Destiny

1. What you decide to focus on
2. What you decide things mean to you (aka your beliefs)
3. What you decide to do to create the results you desire.

Success is the result of good choices. Good choices are the result of experience. Experience is often the result of bad choices. Learn from your past mistakes so you can use that experience to help you make better choices that will in turn lead you to the goal you are seeking. When you make choices that are directly linked to your WHY then you must be so committed to your goal that you leave absolutely zero option for failure. You will keep adjusting your choices until you achieve your desired goal!

If you would like more information on how to start securing your present and your future, please send me an email.

(This post inspired by and quoted from Dave Ramsey’s The Total Money Makeover and https://www.ramseysolutions.com/debt/how-the-debt-snowball-method-works)