Financial Freedom
Lesson 2: The world of finance
1. Awareness and Choice
2. Where Does Money Come From?
3. Your Relationship With Money
4. Consumer Credit
5. Reducing Debt
6. Habits of Consumption
7. Saving
8. Getting What You Pay For
9. When a House Is a Home
10. Education as an Investment
11. Living Well With Less
1. Awareness and Choice
There is a reason why, for generations, our educational system has done nothing to truly educate young people about the basics of money and financial matters. Our school systems, especially public schools, are designed to mass produce programmed, dependent, conformists, who become mindless members of their consumer society.
The less people know about finance, the more likely they are to be trapped in a state of financial distress through their lives. And, though that seems like a real hardship for the individual, it benefits the social system, which establishes control — and profits — by our lack of awareness, lack of discernment, lack of understanding, lack of self-directedness, and loss of power.
The less aware we are, and the less control we have over our lives and our spending, the more our society profits from us, financially. There is another way of stating this: the less spiritually aware we are, the more materialistic, hedonistic, and "needy" we become.
This may seem cynical, but it is how the business establishment, the medical establishment, the political system, the economic system, and so on function in the real world. It takes a real effort on the part of the individual to overcome this basic handicap, to learn how to master their own finances throughout their life, from school to retirement.
You need to learn what really works for you, especially financially, because if you don't look after your own finances, you cannot expect anyone else to.
Everyone has their own attitudes, beliefs, perspectives, understanding, specialized knowledge, information, goals, and desires. And this applies to money, too. It is hard to find two economists who have the same perspective as to how the economy works, or what is happening with it. Similarly, it would be very unlikely to find a group of financial advisers, planners, investors, or wealthy people who all agree on the same points about money.
What we need to do, is to at least find the basic points of finance that you may agree with, so you can make choices that truly work for you. The idea is to offer a variety of perspectives, and let you see what resonates with you.
Begin by taking control of your finances:
A. Control, reduce, and get rid of debt. Not all debt is bad, but as long as you carry debt — especially consumer debt on credit cards and installment loans — you are paying money to make someone else rich. If the idea is to have more money, you need to keep more of what you make. And, you have to not pay above and beyond the cost of everything you buy, in finance charges and interest and payment fees.
B. Spend less than you make. If you do not, you may become insolvent. This is a totally individual assessment. One family may have a large mortgage payment, and easily make it; another may have a smaller payment, and have difficulty making the payment. Things change, and not always for the better, in our financial situation. The main indicator of needing to take action is if you spend more than you make, have trouble making ends meet, or have little or nothing left over each month for savings.
C. Invest your savings wisely. First, save money. But, it is not possible to be financially free by merely save money in a very low interest-bearing account. Money mainly grows by the interest that accumulates on the interest, which is called "compound interest." This means you need to let money accumulate interest over a long period of time, usually till you retire. Wise — prudent and fiscally responsible — investments, mean your money makes money for you. It is possible to let a high interest rate multiply your money over time. At the very least, you need to not lose money (the purchasing power of your money) due to inflation. Money left on its own — that is, money that is not returning a higher rate of interest than inflation — only loses value over time.
Educate yourself as to what your financial situation is, what money you expect to have in your life, what you can expect to have at retirement with your current rate of saving and investments — and what might be appropriate investments of your time, life, and money, to bring greater financial security or freedom to you, in the future. But, you have to begin now. The longer you wait to begin reducing expenses, eliminating debt, saving and investing, the less time you will have to prepare for later in life — and the less time your money will be earning compound interest. Time is money. The more long-term your vision, the greater the rewards will be, financially.
The first principle of managing money is: learn to hold on to your money.
It is up to you, to take control of how money comes into your life and what you do with it, in accordance with your own understanding of what is right for you. There is always a risk involved in having money. If you try to keep cash, it is usually not insured. If you put money in savings, there are limits as to the amount that is insured, and your money might not be readily accessible when you need it (it is just numbers on a computer somewhere). If you invest to earn a higher rate of return, the risk of losing your money generally increases with the rate of return. Which brings us to the first principle of investing your money: don't lose money.
Learn from your mistakes. If you have, in the past (which means any time up until now), been unwise in your handling of money, your spending, your saving, or your investing, then change. That is what learning is: you gain the awareness that you could do something better. And you are willing to do it. Don't get stuck in blame, guilt, fear, or self-doubt. Begin to move forward, now.
2. Where Does Money Come From?
The monetary system is quite imaginary. Money, at least at the present time, is generally in the form of bank notes, printed on paper. And paper comes from various wood pulps and other additives. So, money does grow on trees.
But, where does money really come from? It is printed by the US Treasury, at the request of the Federal Reserve (a private banking institution which is not part of the federal government). The Fed tells the government how much money it wants, and the government prints it and delivers it. The Fed keeps hundreds of billions of dollars in paper money in gigantic warehouses, and sends it to banks when they request it. There are already hundreds of billions of dollars in US bank notes in circulation around the world. The Fed charges interest on the money it provides the government, it receives interest on all consumer credit, and it ultimately takes the federal taxes that we pay as individuals, to service the national debt. Little of the money that individuals pay in federal income taxes actually goes towards providing government services; it basically goes to the Fed to pay them interest on the national debt. So, all the money comes from the Federal Reserve and even more goes back to them. You just get to hold some of it from time to time; it never really was yours to begin with.
Given that banks have money on deposit — including not just currency but checks, certificates of deposit, and other monetary instruments — they are permitted to loan out that money. In fact, the banking system allows banks to loan out many times more money than they actually have, as much as nine times what they have on deposit. The assumption is that not everyone will want their cash at the same time, so it doesn't really matter if the bank no longer really has your money. Generally it has given away all the money deposited by its customers to others, as loans or investments. That is what they are expected to do; it's how they make more money, in addition to charging their customers exorbitant fees.
So, money grows on trees, and then banks throw it all out the door as quickly as they can, to whomever they can get to take it, so they can make more. Stranger than fiction, but true.
You're wondering, what does this have to do with me? Well, you need to understand the financial system that you are part of. Your participation is required, whether you understand the system or not. The more you understand, the better off you may be, financially; the less you understand, the worse you may be.
Maybe you use credit cards, and write checks, and don't even carry "money" with you. You are still part of the same system. Paper money or currency is no more "real" than plastic money. They both represent your ability to purchase something, that's all. Banks offer credit cards, to loan you money they don't really have, so that you can buy things with money you don't really have, either. It gets stranger and stranger.
Many people succumb to the unreality of money. They go through life incurring debts, buying things, with little sense of the real consequences. Some people are fine with the idea that they spend whatever comes to them; some seem to have little choice, as they live from paycheck to paycheck and barely get by. But, to get control of your finances you have to learn how to hold on to money. This is different from the New Age idea that you need to let money go, so that it is "free" to return to you — which is financial ignorance.
You cannot depend on anyone else to provide for your own financial security and freedom. Even though the government literally makes money, it, too, spends more than it has. It incurs hundreds of billions of dollars of debt each year, so that it can pay for "necessities" such as war. Perhaps you think that if that's the way the system works, and everyone incurs debt and spends money they don't have — nations, states, cities, municipalities, businesses, families, and individuals — then who are you to do anything different?
The government can print up all the money it wants, and incur debts in your name — in the names of every citizen who holds and is responsible for the national debt. And it can make believe that Social Security and Medicare will be there in the future. But, you need to be more realistic. All too often, money that is "supposed" to be there for us, is not. Even private pension funds are disappearing. The money that was once put aside for employee retirement is simply shifted to a different account, and it disappears. It happens all the time, with government and private funds.
Just as strange as where money comes from, is where it all goes.
Although money is artificial it represents the real life energy — or work — of people. The more money you have, the greater the possibility you can control the activities of others, or benefit from their goods and services. Money takes on a life and power of its own — which we give to it. Money can be hypnotic in its appeal, because it holds the promise of fulfilling your dreams.
3. Your Relationship With Money
You have your own relationship with money, and only you are responsible for that. Relying upon anyone else, whether a trusted accountant, an investment fund manager, the government, your employer, your spouse, your parents or your children, can prove to be very disappointing. Illusions we may have once held dear disintegrate daily, with messy divorces and financial difficulties becoming the norm, rather than the exception. A college education now puts the typical student deeply in debt for a decade. And the global economy is shifting away from the United States to China, with a consequent loss of jobs, innovation, and wealth.
Even when a person tries to have a good relationship with money, there are so many other forces that oppose that. Often, the pressures of family, peers, or society in general — in its incessant programming to spend, to buy things — can be hard to resist. But, ultimately, we need to be responsible for our own relationship with money, our choices, and our spending.
What is your relationship with money? Do you struggle, are you conflicted, do you feel that your needs aren't being met? It's your job to handle your side of the relationship. Money has little intelligence of its own, so if you are having a problem with money, it really is your problem.
Do you love money, or the things that money can buy?
Are you afraid of having money?
Are you afraid to lose money?
Would you rather not think about it?
It matters how you feel about money, what your attitude is. Some people have an "easy come, easy go" attitude. Whatever they earn, they spend. Even though people may earn a lot of money, or might even be considered "rich" because of the lifestyle they live, they may still be poor. They may have very little put aside in savings, investments, or for retirement.
Be conscious of your thoughts and feelings about money — especially when you spend it. Whenever you spend money — by cash, check, debit, credit, or charge card — be aware of the thoughts that you have, and the feelings you have. You might notice thoughts such as, "I can afford it," "I feel happy," "I don't know how I'm going to pay for this," "It hurts to pay for this," "I'll worry about paying for it later," "I need it, other people have it," "I love shopping," "I deserve this," and so on. Notice if you tend to go blank mentally when you pay for something, as if you almost aren't even there. Over a period of time, you may notice that spending money is not merely spending money, it is a process of assuaging feelings, reassuring doubts, covering up insecurities, catering to ego or denial, or rationalizing the purchase of things you don't really need.
Your attitude about money is most evident when you are spending it. Does spending freely make you feel free? Even when it digs a deeper hole of debt, for years to come?
How many people insist on buying a new car, so that they don't appear to be of limited financial means. And yet that very choice to spend money beyond their means keeps them poor or in debt.
Be aware of what choice you are making when you spend money: if you are not listening to your inner conscience, you are likely being manipulated by something else. Money — or materialism — rules many people's lives. Either you are governed by consciousness, spirit, conscience, and light, or you are ruled by the gross material world. Which do you serve in your life?
Being more aware of your relationship with money, you can begin to change it. Being more self-aware, when you notice you have a negative reaction to money or spending money, look a bit more deeply within your self. See what thoughts, feelings, and desires you have. And, see if they are being properly dealt with. Are you looking for something outside you which you really need to find within you, such as happiness, security, self-worth, or personal power. Be aware of how you try to purchase those things in the outer world; and if and when you do, step back and look at how that is working for you. It probably isn't; it is only compensating for some feeling of lack within you.
Money makes the world go 'round. Political influence is based in money. Nations go to war over money. People divorce and fight over money. Crimes of all sorts are committed because of money. Addictions of all kinds are catered to because of money. Every worldly illusion and delusion — all false needs and lacks — are promoted by money.
4. Consumer Credit
Consumer credit is the financial downfall of most Americans. It promotes the popular illusion that you deserve what you cannot afford. And, it is cultivated in every sector of the economy, in the banking system, in the retail market, and in government.
Millions and millions of Americans have been through bankruptcy as a result of overspending on consumer credit. Now, with the aid of the federal government, credit card companies have lobbied into law very narrow restrictions on personal bankruptcy. They are not letting people get off the hook anymore. Before you accept the worm on the hook, you need to know that you are unlikely to get that hook out of your mouth. If you've already taken the bait, you need to learn how to disengage the hook from your mouth.
The word "credit" makes it seem like something good, something in your favor, an asset; in fact, consumer credit is actually debt.
People who live enslaved to debt are not free, no matter how many of them believe they are living in a democracy and have an inalienable right to freedom. By their choices, by giving up control of their money, they give up control of their lives. And, people do this every day, in every financial transaction, in every purchase, in the belief that they are entitled to spend other people's money.
Finance is mainly about simple arithmetic. You have a certain amount of money coming in and you have a certain amount of money going out — what is coming in needs to be more than what is going out. Otherwise you are in debt. In fact, if you have any debts at all, you are in debt. This includes student loans, credit cards, charge cards, lines of credit, mortgages, liens on vehicles, leases, alimony, taxes that are due, and so on.
When you use credit cards, what you pay for something is actually a lot more than the price you think you are paying, when you buy it — if you pay interest. And, most people not only pay interest, they pay very high interest, typically almost 30% per year. What's worse, if you only make minimum payments on any account, you are paying interest only and will never pay off the actual debt (which is called the principal). The poorest segment of working society, which cannot make it from paycheck to paycheck, often pays more than ten times this much in interest on so-called "payday loans."
We are going to work our way up, and explore what it means to get out of debt. This applies to not only those who have a hard time getting by on minimum wages, but those who have a high income and who spend more than they earn. In many ways, they are both in the same boat. You cannot keep spending money that you don't have, without having to pay the consequences, sooner or later.
It doesn't really matter how much you earn; what matters is what you do with your money, and the extent to which you incur debt. A person with a low income can live within their means, not incur a great deal of unnecessary debt, and have peace of mind; while a person with a high income, who spends more than they earn, incurs a great deal of debt, may not be able to sleep at night, due to their financial worries. They know that sooner or later their debts will come due, and they will not be able to meet them; they may, perhaps, lose everything they have.
So, whatever your income, you need to resist the urge to spend more using credit cards or getting a car loan. You have to learn to live within your means. Consumer credit labels you a "deadbeat" if you pay your bills on time, and do not accumulate interest on credit cards. Why? Because you are of no use to them; they cannot exploit your situation — you. On the other hand, they value people who ring up lots of credit card charges and do not pay them off each month, because they know they've got a live one. They can drain you year after year, in a financial trap that you cannot get out of.
Home loans which basically shift credit card debt to your mortgage, or negate the value you have accrued in your home, are a way in which you can eventually lose your home — rather than taking the path of learning to curtail your habits of consumption, and truly reducing debt.
The "credit fixing" agencies — which are private companies that front for the credit card companies — are not really a solution. They do not "repair" your credit; they charge you money to further exploit your situation, to try to ensure that you do not get free of debt. They want you to keep your credit cards. But it is more in your interest to not use credit cards. We understand that the credit system may look down on you, or downgrade your credit rating, if you are not up to your ears in debt — making them a lot of money. But, ultimately, you need to answer to your self more than you need to answer to anyone else, especially the consumer credit system.
If you feel you need the convenience of using a plastic card, then use a debit card. It is linked to your checking account, and if you only put enough money in your checking account to cover your necessities, you will be less likely to overspend when you use your card. Resist the temptation to put your entire paycheck into your checking account and then spend till it's empty. And, be aware, that some merchants add fees to debit card transactions. It is all too easy to pay a lot for "convenience," especially with credit card cash advances, advance checks, payday loans, or anything that makes it easy to spend money you don't really have.
In a way, you need to step out of the consumer mindset of the financial system; it is like the medical system, a dysfunctional system of dis-ease and disorder, not health. Like the medical system, you have to learn prevention and alternatives to a traditional system of debt and financial suffering. Of course, there is no such thing as financial suffering on its own; all aspects of life are interrelated; financial suffering includes mental, emotional, and physical suffering (stress).
What we are seeking is true financial self-responsibility. We are not saying to avoid paying your credit card debts, or any debts; we are saying it is better to learn how to reduce your debts. That is true financial responsibility.
5. Reducing Debt
There are ways to reduce debt, but you have to want to do that — without the will it is pointless.
Be conscious when you spend money, if it is money that is truly yours, or other people's money, money you are temporarily carrying in your wallet but which ultimately belongs to someone else. If you are spending money that is not yours — including buying anything on credit, which you do not pay for in full — you need to learn to stop doing that.
What is hard about reducing debt, or spending less, or allocating your money more wisely? You have been programmed by your society — in the hundreds of thousands of advertisements you see — to do the opposite. The world-at-large wants you to give in to impulse, to cater to ego and desire, to be financially irresponsible, to buy what you do not really need, to keep playing a game you are probably not going to win. You have to look more deeply within yourself for the answer to your problems, not to the system which prefers to enslave you, financially. You have to think for your self.
Most people are enslaved by debt. There are some, however, who use debt wisely, especially in business and investment. We are not going to explore the potential positive aspects of debt until the end of this course, because it is irrelevant in most people's lives — the typical person who has perhaps five to ten credit cards, and who needs to learn how to get out of debt, and be free, first.
Remember cash? Get used to spending it, again. Have you ever thought about cutting up your credit and charge cards, into tiny pieces, and getting rid of them. Does that thought scare you? Of course, even if you did this, you would still have the same debts on all of the accounts. You just wouldn't be flashing the card when you go shopping, and getting more in debt.
We understand the necessity in our modern world to have a plastic card for certain things, such as renting a car, and would suggest keeping one card for that purpose — not for everyday expenses, gift giving, or Christmas. Low-income families spend a lot on credit for Christmas every year, and instead of getting to experience a state of spiritual freedom and peace, only dig themselves in deeper in debt, in a misguided attempt to prove their "worth" in their consumer society.
The idea is to make an agreement with your self to no longer use your credit cards for things you don't need or cannot afford to pay for with cash, and not run up any more debt. You don't need to make an agreement with the credit card company, as much as you need to make an agreement with your self. And learn how to honor that agreement with your self.
Question every single thing you feel you "need" to buy: music downloads, cell phone services, cable TV, new clothing, restaurant or fast-food meals, movies and entertainment, a new car, a vacation, a new house, plastic surgery, and so on. You need to come to the realization that it is not your money to spend. It isn't your money, and you do not deserve whatever you want.
For those who are spending more than they earn — and you will know this if you have any debts, especially on your credit cards — you need to begin to question everything you buy. You can assume that you are already programmed by your society, self-destructively. That is the norm.
Parents today spoil their children — and spoil is the right word. Their children feel entitled to whatever they want; they feel deserving of everything. They are egotistical, arrogant, misguided, and ignorant of the greater reality. Their egos do not wish to admit they do not deserve everything. It is called denial. And, yes, there is such a thing as living in financial denial. It's the American way. Your fellow Americans have accumulated a debt of about thirty trillion dollars; that's 30,000 billion dollars. And they are bestowing this "gift" to each succeeding generation.
The superficial "quality of life" Americans enjoy today is on borrowed time, borrowed money. It is a bubble that must eventually break, because it is little more than an illusion.
6. Habits of Consumption
Americans are such believers in debt, that it almost sounds unpatriotic to question living in debt. Americans consume more of this world's resources and energy — and produce more toxic pollution and greenhouse gases — than any other people, per capita. In many ways, our irresponsible, debt-based consumer society is destroying not just people's lives but the world we live in.
The rich fail to question why they need wine collections of thousands of bottles, for their personal consumption, while billions of people in this world do not even have clean water to drink. The elite sense of entitlement — and ego — keeps us from not only being aware of the suffering of the vast majority of people in the rest of the world, but keeps us unaware of the suffering we cause ourselves. We live to excess, and in many ways it destroys us.
Our lives are out of balance; rather than merely consuming we overconsume. Obesity is a problem of overconsumption, and no matter how many scientists line up to declare that it is a genetic problem or a physical disease, the truth is, people overeat. It is a lifestyle choice, and when it is handed down by the behavior of adults who spoil their children, it becomes so accepted as to be the norm. Obesity — and two thirds of Americans are overweight or obese — merely reflects the habitual overconsumption promoted by our society. It is a major problem in itself, and the diseases which arise from obesity, which will affect a hundred million people, will collapse the medical care system and bankrupt Medicare.
Then, the medical care that people come to depend upon, will no longer be available to them.
Obesity is an example of overconsumption that shows how a simple lifestyle choice — how you spend your money on food, and what you choose to put in your mouth every time you eat — so completely rules your health future. The same is true for everything else you spend your money on: it determines your future in the same way. And, with the majority of people being unprepared for their financial future, the collapse of the Social Security system will be analogous to the collapse of Medicare.
Are you willing to take responsibility for your choices in life?
Are you willing to take control of your spending, consumption, health, and wealth?
It is sometimes said that without health, wealth means nothing. So, what is all the wealth that people may accumulate going to be worth to them, when their health fails? Can you see the enormous value in learning how to take control of your own life? Otherwise you may never live to enjoy the fruits of your labor, or you may suffer in ill health for a major part of the rest of your life.
Americans may be living longer, but quality of life is not necessarily growing. In our society, nearly half the people who live to the age of eighty-five suffer from dementia. That is the nice term for saying they are not very much in touch with reality, and are on strong medication. Alzheimer's disease, in which people have no idea who they are, where they are, or what is going on, and live in a daze, is growing rapidly. At some point, doctors and scientists may be forced to admit that it is not a sudden onset disease, but something that is the result of all of the choices people have made in their lives, and the toxins in their food, water, air, and environment. The same for cancer.
Scientists recognize that the American lifestyle, exported to other countries around the world, causes a massive degradation in health. There is more stress, more stress-related diseases, and a lower quality of life. Do not mistake the fact that people may be living longer today for quality of life. If present trends of consumption continue, even the supply of drinkable water on this planet will soon be gone. If you are not a member of the younger generation, did you ever think you would be buying water in the store? Natural resources are not unlimited; higher costs passed on to consumers mean you get less for your money, you are more in debt, and there are more wars and conflict over resources. All to perpetuate America's most unhealthy lifestyle, and suffering yet to come.
Clearly, your health and your wealth are your own business. They are, largely, the result of your own choices, your own behavior. The more you know, the better the choices you can make. As always, you need to think — and act — for your self, especially when the rest of the herd is stampeding over the edge of the cliff.
Your situation is the result of choices you have made, or continue to make, to this day. Realize, there is always a better way. It isn't easy to lose weight. It isn't easy to reduce debt, either. It takes some painful decisions, and facing some painful truths about your choices and actions. There is no magic pill or quick cure for slimming down and gaining health — physically or financially.
7. Saving
Many people live from paycheck to paycheck. A sudden change in the economy or your workplace; a natural disaster such as an earthquake, hurricane, or tornado; a health crisis that isn't fully covered by insurance; an unexpected divorce (and, after all, who expects divorce when they marry?); or anything else that impacts your financial situation — and things could change for you in the blink of an eye. It is good to learn to be prepared, financially. And it begins with saving — which gives you options, choices, and greater freedom.
The simplest kind of financial responsibility is saving for the future. Even squirrels know this. Put aside some savings every time money comes to you, that you have earned (not obtained on credit). Ideally, you may wish to get to a point where you have enough money saved — in an accessible form such as a bank account — to cover six months of expenses. At the very least, you need to begin to save enough money to cover emergencies, and two months of living expenses.
Once you have enough savings to take care of your basic survival needs in this way, you have some breathing room, to be able to consider how to have more money.
Every dollar not spent is, in a way, saved. People often say that they've "saved" a lot of money when they've bought a lot of things on sale. Actually, they haven't really "saved" money, they've spent it. There isn't anything wrong with buying things on sale — in fact it makes a lot of sense, financially — but that is not saving. You don't have savings in the bank as a result of spending.
Because money is worth less over time, as a result of inflation, you need to be earning interest on your savings, so that your money is not actually becoming less — in spending ability — over the years. The higher the interest, the better; the real benefit of interest is not the given rate but rather the way in which interest compounds over time. Basically, your money grows as you earn interest on your interest.
It is important to have your basic survival funds be liquid; this means, readily convertible into cash in hand. Bank accounts are usually the preferred way to have safety as well as liquidity. They tend to pay very little interest, sometimes not enough to keep up with inflation. But, at least your savings are "guaranteed" and accessible; and that's what you need for emergencies.
There are other forms of savings, besides basic deposit accounts. One of the more common is an Individual Retirement Account or IRA. You are allowed to put aside a few thousand dollars each year, without paying taxes on that money, under the conditions that you do not withdraw that money until a set retirement age. There are many terms and conditions, which we will not go into here, but it is worth learning how to save money while sheltering it from taxes in this way. There are other kinds of savings accounts, for health and education expenses, too.
What we are interested in here, is to shift your thinking from an easy come, easy go mindset, to a more conscious relationship with money in your life. Your financial situation, though it may have a lot in common with some other people's, is unique. You need to find what works best for you.
Some people do not know how to balance their checkbook each month. The mathematics isn't all that hard, but it takes a bit of time and effort; some people are afraid, they don't want to face the harsh reality of what is happening with their money. But, if you want to gain control of your finances, you have to do the math. You have to know what is coming in and what is going out each month.
Those who earn enough to have a surplus each month may find it easier to save. Those who spend everything that comes in will have a harder time. The goal is to save ten percent of the money you earn, at a minimum. Given that most people spend what comes in, the first need is to cut back expenses. Later, you can consider ways to increase your income, but first you have to work with what you have.
There is a difference between necessities and discretionary spending. Look at your checkbook, look at your credit card bills, and examine your cash sales receipts. Look at what you earn and how much you spend each month. If you do not have ten percent of what you earn to pay yourself first — to put into savings — then begin to make different choices so that you do. Anything that is not absolutely necessary is discretionary spending. That includes new clothes or fashions, expensive travel and vacations, a new car, a large-screen television, expensive monthly cable or satellite TV, new furnishings and furniture, restaurant meals, alcohol and tobacco, and so on.
Make believe your life depended upon having the money you need for necessities: food, shelter, and safety. If you suddenly didn't have income, would you be able to provide for your basic necessities, or those of your family? To get to the point of being able to do so, you may need to not spend nine-hundred dollars on Christmas gifts every year (that's how much many people spend). You may need to not go out for restaurant meals. Sure, it isn't a lot of fun to cut back on expenses, but neither is being homeless. It happens every day to people who imagine that just because they have money today they'll have money tomorrow.
8. Getting What You Pay For
Given that we all spend money, we need to learn what it means to get what we paid for.
First of all, if you buy impulsively — when something catches your eye, whether that may be a new car or a new dress — you are probably not getting the best deal. This may be hard for some people to face, but you actually need to consider the price of what you are buying. Young people raised with a sense of deserving everything — and people of all ages with egotism — often refuse to look at what something costs, because they want to feel so very deserving of everything. It is almost like an insult, to consider the price or to let that affect their decision. This is ego.
Your ego will guarantee that you pay top dollar for everything that caters to your ego, most of which has nothing whatsoever to do with what you really need or your financial well-being.
Buying a vehicle is, for many people, the most expensive purchase they are going to make on consumer credit. Yet it is often an impulsive, emotional, unaware, and financially unwise decision. You would not believe the number of vehicles that are sold just because they have a nice stereo or a new car smell. Here's the big secret about having a "new" car: everyone drives a used car. The minute you drive it off the lot, it's used.
What a blow to the ego. After all, you pay to drive around in the illusion that you are superior to others, especially those whose cars are a year older than yours. You feel better in some way. You have greater worth. Well, no, not really. That is just an illusion you are paying for, and a very costly one at that.
People who insist on driving around in a "new" car every few years are paying an enormous amount of money on depreciation. A car loses nearly half of its value after four years. The fact is, if you buy a car that is four years old, after someone else has lost all of that money on depreciation, you can get a vehicle that is still in very good condition, which will give you many years of use, without losing so much money every year in depreciation and interest on a loan.
There is the purchase price of a vehicle, and there is the actual cost of ownership — which includes depreciation, service costs, fuel costs, and insurance costs. Consider how much it will really cost you to own the vehicle. A sports car which has a high sticker price, requires premium fuel, has high service costs and insurance costs, and depreciates as rapidly as it accelerates, may be an ego high but it is often a poor financial decision.
Buying a vehicle is not the only expense that we need to be wise about. If we fail to pay attention to every financial transaction we make, we may lack awareness to attend to the most important ones, such as buying a house. Once again, people will buy a house because they like something about it, without having a full inspection by a professional whom they can trust. They see what they like — what they think is right — and refuse to consider or investigate what could be wrong. That would be too big a blow to their ego, to have to realize that their impulsive desire could in any way not be perfect and right. Countless people get their mortgages in exactly the same way, choosing a variable rate because at that moment the interest rate was relatively low — without realizing or accepting the fact that the interest will rise at some point, and they may not even be able to make their mortgage payment. Millions of people may lose their homes because of this oversight.
We are not trying to get you to doubt yourself, or your intelligence or ability to make decisions. We are simply making you aware that the majority of people in our society have been raised and educated and programmed and shown how to be financially irresponsible — they are financially illiterate; and there are consequences. You need to begin to pay attention to how you spend money, and learn to make decisions — with every dollar you spend — as to what truly serves your best interests, and what does not; what is financially wise and what is not.
Big purchases are no place for big illusions. Tell yourself the truth about what you want versus what you need, what you imagine to be so versus what you know to be true, what you believe serves you and what really serves you.
9. When a House Is a Home
In our profit-driven materialistic society, "home" is often the most expensive place you can afford to live or purchase. People tear down million dollar mansions just so they can build a house that is bigger or more their style. And, with the increase in real estate prices in many parts of the country over the last decade, it seemed that no matter what people bought, it appreciated in value. In some ways, we lost sight of what it means to have a home, and instead see a house as an investment. Millions of people have lied and cheated to buy homes that they couldn't afford.
Not every house is a home.
Home is where you can be who you are, in a higher sense. If you have been in many people's homes, you may have noticed that there is a different feeling or energy in every different home. Some have a quality of warmth, love, and peace; others have a sterile quality, or a sense of conflict or disharmony. Home is what you bring to it, from your heart.
Home is where the heart is. A home is something that is yours, a place you belong, a living situation which helps you to live in accordance with what is right, good, and true — your highest good. Clearly, it is possible to have a home just about anywhere, in all sorts of living quarters, and this does not depend upon how much money a house is worth.
Home has a different meaning these days, when many are single-parent homes. The entire concept of home has become a domain of ego, selfishness, conflict, and dysfunction. Home has come to be a symbol of materialism and financial bondage, rather than a place of peace, spiritual comfort, security, and freedom. At home we may learn how to make bad decisions financially, in relationships, in diet and health, and so on — more than we learn what truly works for us, in the higher sense.
If you own or wish to own a house, you need to realize that is needs to be a home, first, not an investment — not if you are going to live in it. A home is a place where you put down roots, where you have enough stability and security to move forward in your life. A house may have a certain "market value," but it also has a liquidity risk — in any given market or locality, or with a downturn in the housing market, it can be very hard to sell a property and get what you were hoping for.
There are ways in which a house can be a good investment, but not when it financially dis-empowers you. Realize, even if you think you "own" your home, until you pay off the mortgage, it is really owned by someone else. And, if you do not pay the last dollar that you owe, it is not yours. Countless people buy homes with the expectation that they will be able to meet all future payments — few people expect difficult times in their future — only to find that at some point they just can't pay the bills, and they lose their home and all the money they put into it. In reality, it was never really theirs. Millions of people lose their homes. And, those who are always trading up to ever larger homes or "McMansions," may not have true quality of life, just a big house. Which raises the question: do Americans really need to live in 40,000 square foot houses?
If there is not true love, peace, and security in a house — regardless of how the inhabitants may be related by biology or marriage — it is not really a home. It is more like living a lie. The most luxurious multi-million dollar estate — inhabited by materialistic and hedonistic people, who have little true love, compassion, spirituality, or inner peace — would be a nightmare, not a dream home for a family that lives in the most humble accommodations, with peace and love in their hearts. It seems, the bigger the estate, the greater the ego, the excess, the arrogance, and feeling of deservingness which infects the inhabitants, including the children — the less the spirituality, true humility, perspective, and sense of true self.
It is important to not look outside ourselves for what we need to find within us. Home is ultimately a place within us, a place in which our inner being, spirit, soul, or consciousness dwells; it is not a physical thing at all. It is what we carry with us in our hearts.
What is it worth to you, to have a true loving family — and home — rather than whatever you may be doing in the name of making money? What compromises are you making in your life, for some expected financial benefit? What if you became rich, and lost your family in the process — would that be a wise transaction? What are you paying to live in your illusions?
Those who manage to make their mortgage payments, believing this is a good investment, have made a choice to put that money — generally hundreds of thousands of dollars — into simply having a place to live, when they might have put that money into some other investment. In fact, home ownership is often not the best way to plan for your financial future, or the best investment.
A house does not have a true "rate of return" like another investment; it may appreciate in value, but it has no given rate of return (like an interest rate). It may go up in value, or down. In the real estate market of today, characterized as a "bubble" which could burst, property values could drop. Millions of people buying homes with interest-only loans, and little or nothing down, puts the entire market in danger of having the bubble burst — those buyers will not be able to make payments to cover their mortgages, or sell their property for a profit, in a down market. And they may lose everything.
10. Education as an Investment
Learning how to deal with life is a wise investment; learning academic subjects for the sake of knowing something that other people do not, is not necessarily a very wise investment. Still, people who place their bets with the university system tend to make more money in their professions if they have a more advanced degree.
The problem is, too many people know too much about too little. Their scope of understanding of life — the whole of life — tends to be the inverse of how much they learn in some narrow academic field.
Of course, not all education needs to be formal or institutional; that's just a start. Much more is learned by experience. Still, the way our society is set up, those who do not have a high school diploma are paid a lot less than those who do; those who don't have a college degree are paid less than those who do; and those who have post-graduate degrees may be paid even more.
Education is important if you want to be accepted in society, and successful in life — at least, that is the message — but the reality is that 40% of students never make it through high school, today. They find their education irrelevant; it rarely does anything at all to prepare them for life and work. Yet, it is essential to prepare your self for life and work; it isn't society's responsibility to prepare you, it is your responsibility to find and get what you need.
Countless millions of students go to college or university without having any idea how what they are studying relates to the "real world." Even those who study something that has some relevance to the life and work they will pursue, are not freed by the experience of learning as much as they are trapped by the enormous financial burden they assume. Pursuing the typical bachelor's degree can cause a young person to go into debt for a hundred thousand dollars. The cost of a higher degree, such as law or medicine, is twice that and more.
It is difficult to climb out of the financial hole of student loans and credit card debts. They can work for a decade without making much progress on getting out of debt. This is one of the reasons why many young people do not see any future in finishing school, high school or college, because they don't want to be so financially burdened. They do not see it as a worthwhile investment of their time, their life, or their money — money which they don't have or expect to have.
It is a tough choice these days, and a gamble. Is the high cost of a college education worth it? Is it the best way to ensure one's financial future, today?
With the accelerating rate of change in our modern society, what we know today is obsolete tomorrow. Students in college face the prospect that what they learn their first year will be obsolete by the time they are in their third year, especially if they are in a rapidly changing field such as technology. This doesn't cause us to doubt the value of an education, as much as it causes us to value the process of lifelong learning. People need to realize that what they learn is school is not the be all and end all of their "education." It is just the start. And, they need to be prepared to learn — and taught to learn on their own — for the rest of their lives.
In our society, plumbers make a lot more money than typical college graduates. Specialized trades, such as auto technicians, electricians, and so on tend to be highly paid. The person is paid for their real world ability, not the amount of college education they have obtained. Actually, the job market in general tends to be like this, even for college graduates. A degree in French Literature or Art History may be an enjoyable learning experience, but the possibility of having a career that makes use of it — other than teaching other people the same thing — is limited. This "reality" has set in to the pursuit of higher education: young people are choosing courses of study that may help them get a job and pay their bills, rather than seeking a philosophy of life in their university studies.
Take charge of your education — beyond the inherent limitations of formal education, and its consequent debt — and learn what you need in order to do well in life. Not everything is about making money. There are many very highly paid and many very highly educated people who have no idea how to relate to another person, how to have a relationship that works, how to raise children, how to deal with their finances, or how to look at life from a larger — spiritual — perspective. They may imagine they have so much, but they may have in fact given up, or failed to learn, so much.
For many young people, it may be a better financial decision to attend a less expensive community college, and then pursue a bachelor's degree where and when they can get the most for their money. Some employers pay for tuition expenses. And some schools that at first might seem to charge a higher tuition may really cost less after you consider the financial assistance they provide. For most people, a college degree leads to a higher income throughout their life.
If you are going to be paying for a college education for yourself or perhaps your children, make an informed decision. It is a lot of money; don't leave it to chance that a name picked from a list will be the right school. A lot of money is wasted in transferring to a different school when a student finds that they are unhappy with their prior choice. Spend your education dollars wisely.
Finally, resist the temptation to use those commercial student loans advertised so seductively on TV — offering up to forty thousand dollars a year for a student to spend however you wish. They will only ensure that you enter the workforce enslaved to debt for many, many years to come.
11. Living Well With Less
Some financial authorities say that no one should learn to live with less, but instead, they should learn to make more money — so they'll have more money to spend on whatever they want. It may seem to make sense, but the problem with that approach is, unless a person learns to live within their means — at whatever level of income they may have — they will not necessarily learn that when they have a larger income, either. And they will wind up with the same financial problems.
Many New Agers — whether they identify themselves by name with that popular philosophy or not — entertain the belief that they deserve everything they desire, everything they can imagine, everything they can feel "entitled" to — which is everything. And, they may wonder why their lives do not work, why "thinking" and "intending" does not make them rich. They would rather not live within their means, but always imagine their billions are on the way — just because they asked, thought, believed, or intended. Life does not work that way. It requires learning how to do what is necessary in the "real world."
Many people need to learn how to live well with less: especially those who have debt, those who have more money going out each month than they have coming in (and that includes tax payments that are put off until due day), those who have student or consumer loans, those who have alimony and child support payments, those who need to actually begin saving for their future, those who want to be able to invest, those who wish to retire, those who may lose their jobs, those who are disabled, and those who wish to have a simpler life or a higher quality of life.
We have already observed that quality of life is not proportional to quantity of money. Still, debt tends to diminish a person's quality of life; it produces worry, fear, self-doubt, and insecurity. We have already mentioned the necessity of reducing debt, and spending money wisely. So, we will continue, here, with how to live well with less.
Simplify.
That's basically it. That's how to live well with less.
Tell yourself the truth about everything you want and everything you need, and discern the difference. Then practice living within your means, having what you need, without rationalizing the expense of what you do not truly need.
You do not need to go to the movies or have a restaurant meal or buy beer and cigarettes if you are in debt. You might be doing so in order to cover up some feelings of insecurity, lack, anxiety or stress; but rather than catering to a state of denial (or addiction) — including financial denial — it is better to learn to do without. Doing without — what you don't need, or what is in fact hurting you of your life — is not giving up something as much as it is getting something of greater value. You need to understand this most basic transaction in life: it is to your benefit to give up something less to get something more. And, you need to see the real value in things, to make this choice wisely.
Understand the consequences of your choices. The enjoyment a person imagines they are adding to their life by pursuing a path of financial ruin, is illusory, just like the enjoyment of alcohol, tobacco, and drugs is a fleeting illusion, which often leads to ruin. A person can ruin their entire life, lose everything they have of true value, with just one bad choice: drugs. It happens every day; and, no people don't plan on ruining their lives, losing their loved ones, losing their jobs, becoming criminals, selling their bodies, and so on. They didn't have that career in mind when they were children.
A person who has a deep feeling of lack within them, who was not nurtured in their home, who has an addictive personality, who feels deserving of everything they want, who values feeling good over what is good for them, who has been deprived or who has been spoiled, who has become more materialistic rather than spiritual, who is out to get what they want without concern for how anyone else does, or who has no idea how to be financially responsible, has a lot to learn. Money is not the solution to all their problems. Money will only be used a a lever, to magnify the effect of their self-destructive tendencies, bad choices, or limiting behavior.
You have to learn to deal with life, before you learn to deal with money. You don't need a lot of money to learn to deal with life. It doesn't cost much at all. And, you don't have to pay for the lessons in the school of "hard knocks." It is far better to learn from what others have learned — by their experience — than to have to go through all the hard lessons yourself.
Learn what it means to give up ego, and learn to simply be who you are. The ego demands that every person on the twelve-lane highway in Los Angeles be in their own car. They have to buy a car that defines who they are, and they have to be in that car in order to feel that they are being themselves. Few people car pool, and everyone sits in bumper-to-bumper, stop-and-go traffic, at all hours of the day and night. Is it any different in the rest of the country? Is the attitude different (not just the magnitude of the problem)? People want what they want, in terms of driving, eating, drinking, entertainment, and spending. And, it's basically just about ego. They think they are getting what they want when they choose whatever satisfies their desires, but as any five-hundred pound teenager can tell you, there are real consequences to the little choices we make, daily.
Give up excess. We have to find the courage to live with less, to choose to not gratify our desires, to avoid the enormous problems and complications that come as a result of all the wrong choices we make in our lives. The idea is to learn to choose wisely, to be true to who we really are, and live that way. And, it doesn't take more money to do that; it takes less. The more simply in tune with who you truly are, the less costly your lifestyle will be — now and in the long term. You are not your car. You are not your clothing. You are not your alma mater. You are not what you own or consume. That misidentification causes you to feed, or pay for, all of your illusions — which diminishes your wealth, health, and well-being. Is it really worth it?
Learn what it means to maintain your self-image and self-respect independent of what you do or do not buy, or what others buy. How often do you say, at least to yourself, "No, I can't afford that"? How do you feel when you say it? How do you feel when you override common sense and buy anyway?
The most expensive and unnecessary purchases are those that cater to ego. It is a blow to some people's egos, but you can learn to buy things on sale, you can choose less expensive options. You can take public transportation. Add up what you pay per month for your car payment, insurance, fuel, parking, and service, and you may find that you can save a lot by taking public transportation — some people can save a lot even if they take a taxi to get where they need to go. You can prepare meals at home, rather than eating out. You can attend a less expensive school, such as a state college rather than a private university. You can decorate your home simply, within your means rather than getting another credit card at every specialty store you go to. You can wear the clothes you wore last year. You can skip the many years of private violin lessons or private tennis lessons for your uninterested five-year old. You can learn to sit still, and meditate, and not have to go to some exotic country to "get away from it all." You can forget about being a gourmet, buying the most expensive everything, from wine to cigars to truffles.
Learn what it means to live from a place of simplicity, truth, love, peace, contentment, conscience, and wisdom — not worldly knowledge, cultural programming, or ego-emotional desire, materialism, and hedonism. You can live better with less of what ultimately does not matter, and a whole lot more of what does. Contentment does not mean a lack of progress or success in life, nor is it a lack of ambition. Rather, it is simply being content with what you have now — learning to do that now — so that you may experience contentment with what you have later, as well.
Financial independence does not require you to be rich. Learn how to be happy independent of the money you may have; learn how to enjoy the simplest things in life, that do not cost much at all. And you will carry that with you along your financial journey.