Financial Zip

I have contemplated much through my life what it would be like to have a lot of money.  Most people do.  Who in the world wishes that they were poor.  NO ONE!  To some degree everyone wants to own the big house or drive the nice car have the membership to the ultra posh country club.  The reality is 96 % of people in this country will never have that opportunity to become financially independent in other words not have the big house, nice car, etc…  Where does the problem lie?  It really comes down to 3 things.  Our education, the media, and our choices.

When you were growing up who where did you get your financial education.  The answer; most likely your parents.  A lot of our financial habits are handed down from our parents.  Now, we love them and the taught us good things but for the  most part the did not teach us properly how to manage money wisely, how to invest in the stock market in any form, how to start a business. 

Generally these are things that we have to learn on our own.  The educational system is even worse.  No where in our elementary, middle, or high schools is how to manage our money taught.  Even when we get into higher education they fail there too.  Some of the smartest people on the planet doctors, scientists, CPA’s are the worst at managing their money.  So in many ways we can lay the fault with our parents and the educational system.

            By an overwhelming amount the media and advertisers affect our perception of financial reality.  It is done with smoke and mirrors.  They make living rich lifestyle a necessary thing and we got to have what rich people have.  The conjure up the image of the rap star by the pool in a 15,000 square foot house with marble floors and gold toilets,  the beautiful silver Mercedes sitting out in the driveway,  the beautiful girls our guys that hanging around the pool.  So now we have this idea of what we need to have and we go out and spend money t o get it.  We wake up 5 years later and we are in $40,000-$50,000 in debt.  We then spend the rest of our lives trying to payoff just the interest on the debt we have run up.  It is the advertisers and creditors that are ruining people’s lives.

            Our choices are the last thing that affects our financial decisions.  There is one question that you should ask yourself when it comes to buying something.  Is it necessary and, or, will it grow in value. That’s it.  If you ask yourself this question and have the discipline to stick to it then it is very easy to be able to make the right decision in choosing what to buy.

            So now that we know where the problem lies; how do we develop a debt free mindset?  We wage war on those who put us into debt.  The Creditors.  It is important to understand that credit for the most part is not a good investment.  The reason would be that interest, in this case, will always work against you.  Everything costs more with Credit.  Lets take for example a car purchase and what some people consider an investment you home.  A car is a drain on you finances.  You have to purchase car insurance, gas maintenance, and finally THE LOAN.  If you buy a car for $25,000 dollars and put a 4 year term at 6% you end up spending $28,000 and your actual interest rate is 12%.  Another example your home most people are pretty happy to get a 30 year mortgage and pay the monthly payments.  So I want to buy a home that is $250,000, and I have a $50,000 down payment so my mortgage is $200,000 at 6% over 30years.  Pretty good deal huh?  Well at the end of the 30 years I have my home, but it cost me over $431, 000 and $231,000 was interest payments.  Over half the value of my home was interest and that interest rate that I got a good deal on, actually turns out to be over 50%.  Debt is tremendously bad for a persons wallet.

            So to come full circle we want to have nice things in life and enjoy life and to do that financially we have to delay our gratification.  Delay the things we want and invest in things that we need or that will grow.  One of the ways that this is done is don’t get into debt.  Avoid it like the plague.  Especially credit card debt.  The things that you buy with credit cards represent the things you want but don’t have the money to buy.  Cars, homes and an education represent areas of acceptable debt.  Remember in these cases to pay them off quickly including the mortgage as it frees up more money that you can use to invest in things that will increase value over time. Creating  a debt free mindset is all about understanding what causes us to get into debt and then avoiding those influences.