I am sure there are many persons around the world these days biting their nails over the economy. They are worried about layoffs, dispossessory actions, bills they cannot pay, foreclosures, and not having a safety net in their life. For the last few years, the world has run on credit instead of cash. Now credit is taking a sabbatical! Many persons are making the mistake of looking toward the government for the answers, because they have no light at the end of the tunnel. The problem is that most persons do not have a budget. They wing it all the way to hell. If a car looks great buy it! There is no point in reading the terms. It is impulse buying. A wrong assumption is "If they let me drive it out of the showroom, I must be qualified to pay for it!" If I can drive a Mercedes, why should I be seen in a used Ford Tarus?
Many ring up far greater debt, and use their home as an ATM and take money out for trips, vacations, autos and many items. Most cannot even remember what they spent it on. You can't do that. What about personal resnsibility? My parents told me "Save your money, don't buy something unless you have the money to pay for it. You always have to have a rainy day fund in case of sickness, a job loss or some catastrophic event...!" No where in the constitution of the United States is the government supposed to bail us out. The government was never designed to pay for prescriptions, medicine, retirement, debts, monthly rent or rebates! Personal accountability begins with the individual. The problem with credit as many are now seeing, it can also be taken away. Do you have the cash to survive if your access to credit was frozen? Start today before it is too late! Let's be real, the soulution begins wiht each one of us.
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Create a budget and stick to it! Food, transportation, bills, rent/mortgage, insurance etc...
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Review all your expenses and trim them.
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Do not eat out! Do not eat out! Do not eat out! Brown bag it!
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Plan your meals and learn how to streatch your dollar!
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Save your money - if you do not have a saving account, start one.
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Create a 6 month emergency fund.
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Pay off your debts.
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Eliminate your unnecessary expenses - Cable TV, Gym, dining out, lattes etc...
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Review your monthly bills for areas to cut back on.
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Do not shop to feel better - curb impulse buying. Shop for bargains.
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When purchasing buy only energy efficient items. Items that will save you money.
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When shopping in a super market, stick to your list - do not wander the aisles.
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Return items to the store for a credit that you do not need.
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Plan your auto trips.
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Buy within your means to repay.
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When buying a home, save up your 20% down payment!
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Before buying a home add up all the expenses of owning a home - monthly utilities, maintinence, landscaping, heat, air conditioning, phone bills, water bills, Home owner fees. Canyuou afford them?
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Credit is indeed a problem.
However, I believe that the real problem is leverage.
Use of credit as a small percentage of your available credit is not a problem. Leveraging your assets highly is dangerous.
It's just brought down some Wall Street giants.
Lenn Harley Homefinders.com MD & VA Real Estate Thanks Lenn I agree. Most persons do not have that discipline. I know for a fact when I do my seminars, most agents do not have a clue about a budget! They do not know where to begin. I conduceted a local mastermind group years ago when I found out many had expenses way over 65%! What the heck are they thinking? By the time you back out taxes and a salery of sorts you are in the red! Consumers need budgets also.
Good morning Jim! Seems you're back - leading the charge to colorful, interesting posts sure to spark a stream of comments that will rehydrate this dried up board! Yipee!! "They wing it all the way to hell" LOVE THAT! A little too long for a bumper sticker but certainly worth a requote.
You are spot on Jim. People bought into all the advertising, money was "easy" and people were acting like a binger at a smorgesborg (spell checker not working this morning, sorry), consuming anything and everything at whim. Truth be known, Wall Street greed was just a little larger and exposed on the nightly news. Greed is alive and well on "main street" too. First time home buyers insisting on stainless steel, granite and a 3 car garage, homes better than their parents had! Coach bags - it's a purse people! People $20-30-40 thousand dollars in debt in credit cards. I don't feel there should be a bail out for stupid. I live well below my means because that's how I was raised. I grew up in the oil business and people were millionaires one day and selling tupperware the next. We conserved and saved and that has stuck with me today. My bills are all paid. If I don't have a need or the money, I don't buy it.
We just need a good old fashioned pandemic to knock us to our senses. We have been hypnotized by our big screen TV's and keeping up with the Joneses has been replaced with keeping up with NBA player's salaries. Just what are we trying to buy ourselves out of anyway?
Jim, I could respond with a treatis on this subject alone. How and why it happened, etc. However, you have done well with tyhe subject matter and layed out some very simple and pragmatic solutions for answering a personal financial crisis.I am curious about the "all the way to hell" comment. That was harsh!
Good post though!
Bo
Alyce Martin (Keller Williams Realty) Thanks! Very well said. i have reflected today on some themes from scripture. I am not a major religious person, but the older I get the bible starts to make sense. A lot of persons place faith in material things that will rust, lose values, rot, be stolen, and their most prized possessions ( especially those on credit may be taken away.) Credit is a dream to ownership not a pathway. The American Dream of owning a home has become a nightmare of apocalyptic proportions, and so it should to those that did not want to think before acting on impulse. I totally agree "We should not bail out stupid!"
Years ago after a move I was with the government in a new home and got very sick. No work, no income was a strangle hold. Low debt, 40% equity, and no use of charge cards saved us. It was still difficult to pull out of the tailspin. So how are those that have no money down, and no reserves going to get through the coming layoffs? How were they getting to work at $4 a gallon of gas? How will persons make that next $450 car payment? Will persons give up their HBO? Their Internet Access? What about the iphone or cell phones at 250 a month?
Bo Hussung/ Title services in all 50 states (Cogent Closing Associates) Bo thanks for your comments. My "All the way to hell" comment was meant to be harsh. Many persons from their own doings have brought them to a place where there is no light at the end of the tunnel. They have squeezed out every last drop of leverage in credit, and have no place to turn. The government did not put them there, the mortgage officer, the real estate agent nor a bad childhood. It is about personal choice, and about wrong personal choices. It may even border self-will run riot. Many individuals are out of ontrol spending wise, and do not want to pay the consequences. For those of use that live conservativley, now we will be taxed to bail out those that fufilled their carpe diem romp wiht life. We will have no choice in the matter.
Jim, in a perfect world, we wouldn't want so much. The American consumer appetite has fueled world economies! They are closing toy factories in China because people aren't buying Barbie at Wal-Mart so much. Holy Cow! Talk about teetering on disaster!
The real question is our very "human-ess." I'm definitely not a religious person but consider myself spiritual. By that I mean I believe there are two factions at work: Love and Fear. Fear unfortunately often overrules love because in a capitalistic society, fear can be more readily fed. If we are convinced that we need something in order to feel love, there is always someone to sell it and someone will try to obtain it whether they have the dollars or not (i.e., credit cards, loans, etc). After you strip everything away, people all want the same thing: to be noticed, to be valued and to be cared for and feeding that fire has nothing to do with what we can buy. You're a pretty smart guy.
Alyce Martin (Keller Williams Realty) Thanks. I am also into sprituality, and fear is an absense of faith that things will work out OK. However that comes with the responsibility that we did our part. We cannot pass tests if we do not study. If I spend my money on entertainment before necessities I am a fool. I've been on the "Fool" part many times in my life...so I had to change my behaviors. No one else can do it for me. I am responsible to create a prioritization of tasks. It is creating the budget where there is none. It is choosing which fire be put out first. It is about knowing the difference between need and want, and then acting accordingly. It is all about maturity, and resposibility and creating and restoring values.
Jim:
Entitlements have dominated society. We, people feel it is ok to have what ever we want at any expense. Fast, easy money has skewed everything. I have 2 boys away at college who don't have jobs, but they get calls and letters for pre approved credit cards. The companies know they are full time students but don't care. They want to get them in now. What's up with that.
Richard
Richard Stabile Bergen County New Homes Builder Realtor (REMAX real estate associates) I just had 2 sons graduate collage last year. It is not the same as maybe even 10 years ago. There are grave consequences for those that do not understand what they are doing. Society should not have to bail others out.
Jim-This is great advice for EVERYONE! I was not taught about money as a child and had to figure it out on my own. It's one of our greatest flaws in the education system. It's even worse that parents don't teach their children. My family was unable to assist me with college but I graduated with my with my bachelors without debt because I was scared of owning money. But soon after, I gave in to the credit myth. I was blessed to encounter Financial Peace University a few years ago and at 31 years old, my family is debt FREE except for our house. It sure is easier to only have to have to make a mortgage payment and not worry about car payments, student loans, credit cards, etc.
Michele Reneau, Realtor, CRS, ABR, GRI ~ Charleston, SC Relocation Expert (Carolina One Real Estate) You are very blessed. My parents were children of the Great Depression. We grew up being frugal. Purchasing something was always part of a plan. We even created bank accounts for a Christmas fund. When the holidays arrived we had about $100 for Christmas gifts, and food. When real estate was great, I did not make any major expenses. It always starts by placing aside a few dollars for a specific need. I purchased the best computers, and laptops and paid cash for them. Nothing was ever left on the charge. All expenses were planned
In real estate I prepared for a day when the boom times would change. I wrote articles about the coming change in late 2004, and many of my friends told me I was pessimistic. (Awareness: The Challenge Of Changing Real Estate Markets) I prepared for this. I sold a big home, pared debt. My children both graduated college without debt, there are no car payments, and credit is current charges due for business or living. I sold that new home last year at a profit.
Part of the process of being a success in real estate is understanding the cycle of business. Most in our business never will understand the nature of the business, they focus only on the next deal. That short sightedness is our downfall! Nothing goes up forever. Business cycles are a reality of life. We must anticipate them, and plan accordingly.
What most persons do not realize right now is the severity of the credit meltdown. Credit is going to take a major sabbatical. Cash will rule. Success starts with having common sense, being a saver, frugal, and thrifty.
Jim,
Congratulations! Your post is featured in the group Dave Ramsey Fans!
You alays have such great posts. Thanks for your contributions to the AR community.
Bob Southard,e-Pro Powder Springs and Marietta Real Estate (Solid Source Realty) Thank you Bob. I know so many persons are suffering, but ther are solutions. The way out begins by one step at a time. It is never to late to begin.
Jim,
Great advice! Found it by way of the Dave Ramsey posts... Your right in line with what he teaches. By the way, I intend to give his book out to as many of my family and friends as possible. This is the kind of revolution our country needs.
Kurt Duffeck (Long Realty Company) I love Dave Ramsey, but I was practicing what he preaches long before I heard of Dave. He takes a practical common sense approach to life! You can't do it on credit!
Great post Jim, as usual. Easy access to credit and lax lending rules led to overborrowing. The US as an entire country is way over leveraged.
Erica Ramus - Realty Executives - 570-622-6006 I totally agree.
I like to be diversified...a good credit score and as much cash to stash as I can.
Neal Bloom-Realtor ® Assoc.-CRS-Weston FL (RE/MAX Premier Associates) I am the same way. I am old school New York! I remeber when I was growing up, there was no such thing as accepting a personal check or a credit card. Cash ruled.
I have been there. I grew up with the world already this way. I was taught nothing about how to manage money. I went out into the world, floundered quite a bit. I am still learning and trying to learn. I have never been a big spender, so luckily my debts were always small. I got out of debt once. Then came children. We lack 3 months to being out of debt (house aside) again. I am almost there! And I plan to stay there this time!
Everyone feels they should have the best just because it's available. First-timers want it all - building brand new 4 bedroom homes for just the two of them, upgrading everything. Car's paid off? OMG, must mean it's time for a new one! (if they wait THAT long) My own mother who works a seasonal part time job, constantly broke, and yet every Wal-Mart trip, there's more STUFF.
STUFF STUFF STUFF STUFF.
Our family's biggee - eating out. Constantly. And we never remember to take things back for credit.
I'm working on it! but Thanks for a poignant reminder!
Sheree Wilkerson (Allegiant Realty) Life is always a challenge. When I got sick many years ago...I did not have a lot of cash reserves due to medical bills. Then I got seperated from a job. What saved us was equity. We had 40% equity in a home. We were able to make our payments while my wife went back to work. This economy is a good reminder to go back to those basics. Live way under our means, spend money only on necessities, and nothing on credit. Do persons remember when you used a credit card only for emergencies? I think even going to a super market wiht cash in my pocket is a better way to buy food. I tend to stay on the list when I pay cash.
My husband and I have practiced for the last 10 years " If you can't pay cash, you just wait, and you don't buy what you don't need. Also is It broken ,keep it. Such as cars, you don't need to trade every time a new model comes out! You are right on target! By the way all our debts are now paid except a very small mortgage and that is how we plan to keep it Debt Free!
Kathy Honeycutt Realtor/ Neighborhood Specialist (Dynamic Realty INC) That is the way it was when I grew up, and that is how we ran out business, and finances. You are very smart!
Bravo Jim, As Dave fan and Anti-credit guy I liked your post. You said it well.
I would like to add one more bullet point. If you can't pay cash,then tell the child inside of you NO !
Thanks, Greg
Good advice for all of us. We have been too loose with our money for years. Thank goodness I married a Dutchman......he taught me to be conservative. Great post.
Sharon & Greg Miller - Realtors / Lake Wawasee Real Estate, Syracuse IN. (Century21 Integrity Real Estate Group) Great point you raised. I really grew up that way. You either paid cash, did a lay-a-way if you really needed something, or you did not buy it.
Kay Van Kampen, Broker, Springfield Missouri Real Estate (RE/MAX Solutions) Dutchman are too rare a commidity these days. We need those values.
Good post Jim, credit is the problem. My dad always taught me if you can't afford it don't get it.
Hi Jim,
I agree with your post.
Hopefully the good that will come from this crisis is that people will increase their level of financial education and awareness, if for no other reason than to keep up with the level of sophistication of the companies offering the credit whether it be credit cards, car loans, even mortgages!!! The tactics just keep getting trickier and trickier. What about those 1% interest loans? And you never got free blank checks in the mail from your credit card in the 1970s!! Maybe it's like advertising...at the beginning it was very powerful but over time consumers learned that the TV lies. Hopefully we as a society can become better educated and more immune to the "free zero balance transfer no interest that isn't so free" and fancy car offers you referenced in your post...
Your budget advice is great as is the fact that you advocate a return to the strong fundamental American values...work hard and save money! Not buy the latest ipod, car whatever whether or not you can afford it. The consumer has to be better educated and to stick to their values.
Hopefully we will all learn our lesson in time to avert an even bigger disaster.
Dana Voelzke (McCaffrey Realty Professionals) Thank you for such wise comments. I think you are right and that a lot of good that will come out of this mess. That will pave the way for a better and wiser tomorrow.
People must realize if you don't have it don't spend it, and If you can't pay don't buy. Credit card should be locked up if yu must have one and used in Emergency only! We must start trusing God. Nothing in life is really free!!! K-Mart has started lay-a way again. Lokks like we might be going back to the way our parents did business.
Hi Jim, nice to see your posts on AR. I like the signature pen too! How do I get one of those? Very cool :)
Melinda Peterson ~ Real Estate Cafe ~ Where Something Good is Always Brewing!