Mark Ford writes for the Palm Beach Newsletter. He recently wrote an article about “Breaking the Chains of Financial Slavery.” Here are his key points:
Acquiring wealth through some short-term investment strategies is possible, but not probable.
However, in a relatively short period of time, anyone can achieve freedom from financial slavery in just a few years. It does not have to be a lifelong process.
If you are in a financial slavery situation , here are five wealth-building strategies to get you out and moving in the opposite direction.
First of all though, what does financial slavery mean? Most commonly it means two things:
| • | You earn less than you spend. |
| • | You owe more than you own. |
If you earn less than you spend, you are in a constant state of stress. You must put off or partially pay your bills. You must appease creditors. And all the while, your debt is mounting.
If you owe more than you own, then you can’t buy a house or lease a car or get a loan from anyone other than your parents. (And what if they are dead or tired of helping you…or don’t have the money?)
Because you are in so much trouble, you can’t even think about taking nice vacations or retiring someday. Instead, you have to worry about losing your job. So you keep working and reading investment newsletters. But as each month passes, your financial situation gets worse.
It’s a miserable existence. But it doesn’t have to last. You can break the chains you feel attached to by simply recognizing and reversing the two “facts” mentioned above.
Problem #1: You earn less than you spend.
Solution (Rule #1): Spend less and earn more.
Spend Less
You can’t break the chains of slavery without hitting them hard with a big mallet. You won’t be able to gain the independence you want in a few years or less by cutting $10 here and $50 there.
The recommendation is to cut your expenses by 30% to 50%.
That sounds crazy. And it may be impossible in your case. But don’t dismiss the idea until you understand the concept. The primary factor in how much you spend every month is the neighborhood you live in. Your neighborhood creates the financial culture that presents the spending choices you make. If you live in a community of million-dollar homes, you will be looking at new BMWs and Audis when it comes to buying or leasing a car. When you go out to dinner, chances are, you’ll be spending more than a hundred dollars per couple.
Unless you live in a working-class neighborhood now, you can radically reduce your spending by moving into one.
We all know people (maybe even friends and relatives) that live in expensive homes in beautiful neighborhoods and drive luxury cars, but the reality is they are broke and getting poorer every month. They refuse to even consider the idea of downsizing because they are simply too ashamed to do so. What they don’t realize is every month they try to “hold on,” it is making them poorer.
Moving to a less expensive neighborhood would be the quickest, biggest, and surest way to bring their spending down by 30% to 50%.
Earn More
The other thing you must do to improve your situation is to earn more money. You should take immediate steps to increase your income by 20% to 50%. That seems radical, but if you want a “short-term” solution out of financial slavery, this is just as important as radically cutting expenses.
There are dozens of ways to increase your income. Take some time to figure out what those ways can be for yourself. [For Aunty, it might be network marketing a truly great product that I believe in. Or, cashflow from real estate investments. Or selling my “valuable” clutter on eBay and Amazon.]
Problem #2: You owe more than you own.
Solution (Rule #2): Start owing less and owning more.
Owe Less
If you have accumulated a lot of debt, it means that you don’t see debt as financially dangerous. You must accept the fact that most debt you have is bad for you. There are only a few exceptions: mortgage debt when interest rates are low, and business debt when the business is sound and you are not personally liable.
The first step towards debt management is to get rid of every credit card you have, as well as any credit you have with your bankers. Use cash or debit cards for your shopping. Yes, that means there will be lots of things you can’t buy every month. That’s a good thing, not a bad thing. [True, that. But Aunty loves her Hawaiian Miles VISA cards because of the miles – but I make sure I don’t charge too much and I always pay off the balance in full to avoid any finance charges.]
If you have a lot of existing credit card debt, you need to consolidate it. Then work with a professional to pay it off at reasonable interest rates.
If you are lucky enough to have equity in your home, then trading it for a cheaper one (see above) will accomplish two important goals: it will reduce your monthly expenses, and it will give you a chunk of cash that you can use to pay off debt or put aside as savings.
Own More
You must increase what you own. And by that, I do NOT mean cars or boats or furniture or toys. I mean tangible assets that are likely to appreciate such as gold coins, income-producing real estate, dividend producing stocks, etc.
Every extra after-tax dollar you make by taking on extra work or starting a side business should be devoted to increasing your ownership of such assets. None of it should be spent.
Being financially independent is not about having a big house or driving new cars or taking fancy vacations. There are tens of thousands of Americans in that situation today who are financial slaves just like you. They are in chains because they spend more than they make and owe more than they own. Their stress is just as great as yours, even though they may make more money or have more toys.
Being financially independent means having more income than you need and owing far less than you own.
It means knowing that you won’t be harassed by bill collectors or embarrassed at the supermarket. It means you have money put aside to take care of any emergencies that come up, and it means a savings account that gets substantially bigger every year.
Becoming a multimillionaire takes years. But breaking the chains of financial slavery can be done relatively quickly. The hardest part is recognizing the chains that are binding you—earning less than you spend and owing more than you own—and deciding to do something serious about them.
Thank you for sharing this simple but effective methods. My husband and I are thinking about down sizing in a few years since kids are out of house and seems too big for us…maintaining the house is headache also. My husband declare that he wants very-low maintenance yard for the next house.
You are welcome, Nipponnin!
Your children will protest, because they will always have a fondness for the house that they grew up in. However, you did your duty as parents, and now that they are grown up, you deserve to live the life you want, the way that you want.
I want to move into a smaller house too one of these days. I am borrowing a book by Marie Kondo “the life=changing magic of tidying up” so that I can get rid of things and make my life simpler and more beautiful. Then I can fit into a smaller house that will cost less to maintain. One of these days.
These days, with the cost of living being so high- it seems almost impossible to remain debt free. “If you don’t Owe, you don’t Own” – seems to be the philosophy of our society. It took me 12 years to get rid of my student debt, only to be followed by a mortgage and a car loan. At this point, I’ve given up trying to get ahead of the game, I just wanna get ‘thru’ the game!