Wealth Building Power Strategy – Inherent Momentum

You have, no doubt, seen an old fashion steam locomotive starting off down the track, either with your own eyes or on TV or in film. A cloud of steam billows out as the machine hisses loudly, the engine’s large rear wheels spinning, fighting for traction. At first it does not move. Then there is a halting, jolting movement forward very slowly. It chugs laboriously as it tries to build momentum. There is a whole lot of work going on to produce very little movement. Slowly, it is moving, then steam pressure builds, then it is moving a tad bit faster, then steam is released, then steam builds again, then it is moving a tiny bit faster still, as coal or wood is thrown into the furnace to make it hotter to build even more steam pressure. There is a relentless rhythm that soon develops and accelerates. Eventually the momentum is so powerful that the head on collisions that have occurred in our history are legendary due to the scale of the destruction because of the power generated by the colliding engines.

Charles S. Givens said that, in the world of personal finance, you have to do 10 units of work to produce 1 unit of result in the beginning. Then, later after momentum builds as a result of doing the right things, the wise things, you reach a point where 1 unit of effort produces 10 units of result. You cannot skip to the end of the process, but have to work through the “10 units of work for 1 unit of result” phase first before you can have the “1 unit of work for 10 units of result”. Reality will not allow for any cheating. There are a great many financial processes that function this way, one of these being the Debt Destruction Engine.

I describe the “extra fuel” version of this debt-destroying locomotive in previous posts in this blog. Its motion and effectiveness operate just like an old time steam driven engine, slowly at first, then building momentum, getting faster bit by bit, then becoming amazingly fast and producing great power. You start this engine by paying an extra amount on the smallest bill, which is like shoveling wood or coal in to stoke the boiler, each month until it is paid off. After the smallest bill is paid off, you add the “extra fuel” plus the amount you were paying on the smallest bill to the second smallest bill each month until it is paid off. After the second smallest bill is paid off, you add the same “extra fuel” and the amount you were paying on the smallest bill plus the amount you were paying on the second smallest bill to the third smallest bill each month until it is paid off. You do this same thing with each new target bill until the engine gets to the momentum stage where it is ripping and tearing through the bills like a locomotive blazing down the track at 100 miles an hour. It can take ¾ of the total time the engine runs to destroy the first ¼ of the debt and then take the last ¼ of the total time the locomotive runs to obliterate the last ¾ of the debt. What if you could run a Debt Destruction Engine without adding any “extra fuel” at all? Would such a thing seem possible?

Debt can indeed be destroyed without adding “extra fuel” to the debt destruction engine. Debt has a powerful residual inertia that can be focused against itself. This form of the debt destruction engine operates even faster than its extra fuel cousin as it annihilates debt with its own inherent momentum. We are going to look at the same 8 accounts that were used in the Ted and Wilma example in previous posts in this blog. There are 4 credit card accounts, 2 store revolving accounts, and 2 finance company accounts.

Type 1 Debt includes credit cards, finance company accounts, store revolving accounts.

Type 2 Debt includes credit cards, finance company accounts, store revolving accounts, vehicle loan(s).

Type 3 Debt includes credit cards, finance company accounts, store revolving accounts, vehicle loan(s), and mortgage.

Inherent Momentum Version of the Debt Destruction Engine

Type 1 (Inherent Momentum) takes 1¹/₂ to 3¹/₂ years.

Type 2 (Inherent Momentum) takes 2¹/₂ to 4¹/₂ years.

Type 3 (Inherent Momentum) takes 4¹/₂ to 9¹/₂ years.

On 2 of these 8 accounts, the finance company accounts, the required payment stays exactly the same throughout the life of each loan. You agree to this when you sign each contract. On 6 of these 8 accounts, the 4 credit cards and the 2 store revolving accounts, the required minimum payment on each is determined by the amount of the present balance owed on each account. As the balance declines over time, the required payment on each account also gets a tiny bit smaller. So, on 2 of the accounts, each payment is exactly the same throughout the life of the loan, but on 6 of the accounts, the payment required on each account declines slowly over time as long as there are no new purchases. It is this fact, the declining required payment on each of the non-finance company accounts, which gives inherent momentum its debt-destroying power.

In the first month, you just pay the required minimum payment on each of the 8 accounts. The total of all the required payments is $1300. In the first month, you pay just the required minimum payment on each account which comes to a total of $1300. To operate the inherent momentum version of the debt destruction engine, you continue to pay the same “block payment” of $1,300 every month until the 8 accounts are destroyed.

In the second month, the total of all the required payments is $1,285. The required payment on the 2 finance company accounts is exactly the same as in the previous month, but the required payment on each of the 4 credit card accounts and on each of the 2 store revolving accounts is an itsy bitsy bit smaller. Being that $1300 – $1285 = $15, you add this $15 to the target bill, which is Bill 1. So in this second month, you pay just the required minimum payment on each of Bills 2 through 8. On Bill 1, you pay the required payment on Bill 1 plus the $15 also applied to Bill 1.

In the third month, the total of all the required payments is $1,277. When you figure this, you get $1,300 – $1,277 = $23. You pay the required payments on Bills 2 through 8. On Bill 1, you pay the required payment plus $23. You continue to pay the same $1,300 in this manner until all of the debt is destroyed. As long as there are no new purchases on these accounts, the total of all the required payments will constantly and relentlessly diminish.

By the twelfth month, the total amount owed on all remaining accounts is $1,050. $1300 – $1050 = $250. On all of the bills other than the target bill, you pay just the required minimum payment. On the target bill, you pay the required payment plus $250. You can see that inherent movement works slower than “extra fuel” in the beginning, but catches up quickly and passes “extra fuel” and destroys debt even more quickly than the extra fuel version of the debt destruction engine.

You continue to apply the total “block amount” of $1,300. You subtract the total of all the required payments from this block amount and apply the difference to the target bill every month. You can destroy your debt without any “extra fuel.” Your debt will implode on itself with the power of its own inherent momentum. This version of the debt destruction engine works especially well for those with a lot of credit card and store revolving account debt.

There is another variation of the debt destruction engine that moves even faster called “inherent momentum with extra fuel”. You simply add “extra fuel” to the block payment at the beginning. If the total of all the required payments on the 8 accounts came to $1300 and you added $50, then you would start with a block payment of $1350.

In the first month, you would pay the required minimum payment on each of Bills 2 through 8. On the target bill, which is Bill 1 in the beginning, you would pay the required minimum payment plus the $50 of “extra fuel”.

In the second month, the total of all the required payments is $1276. The beginning “block payment” of $1350 minus the $1276 = $74. In this second month, you would pay just the required minimum payment on each of Bills 2 through 8. On Bill 1, you would pay the required payment plus an additional $74.

In the third month, the total of all the required payments is $1254. The beginning “block payment” of $1350 minus the $1254 = $96. In this third month, you would pay just the required minimum payment on each of Bills 2 through 8. On Bill 1, you would pay the required payment plus an additional $96. You are simply adding an extra amount in the beginning to the “block payment” and this causes the debt destruction engine to annihilate debt even faster.

When you find extra money by doing all of the things I explain in other posts in this blog such as changing your withholding to give yourself a raise, cutting out the “weenie tax”, finding “LEX Cash”, cutting out “fluff”, and employing “temporary extreme measures”; you can use most or all of these funds to build up your emergency fund and/or to invest directly for your future.

You can destroy your debt without adding anything at all to what you pay on your bills. You can obliterate your bills with inherent momentum. You can apply the extra money you find hiding in your life to other purposes. The keys to victory here are to faithfully operate your locomotive every month and to AVOID TAKING ON ANY NEW DEBT.

Inherent Momentum with Extra Fuel Version of the Debt Destruction Engine

Type 1 Debt includes credit cards, finance company accounts, store revolving accounts.

Type 2 Debt includes credit cards, finance company accounts, store revolving accounts, vehicle loan(s).

Type 3 Debt includes credit cards, finance company accounts, store revolving accounts, vehicle loan(s), and mortgage.

Behold the power of inherent momentum!

Type 1 (Inherent Momentum with Extra Fuel) takes 1 year to 3 years.

Type 2 (Inherent Momentum with Extra Fuel) takes 2 years to 4 years.

Type 3 (Inherent Momentum with Extra Fuel) takes 4 years to 9 years.

http://EzineArticles.com?expert=David_Unger Articles on debt destruction and wealth building wisdom.

Fire Up The Boiler – Part 3 Of 3 Parts

When you operate your debt destruction engine, it may take longer to annihilate your debt than you originally planned. Things may go wrong that require more than the emergency cash you have on hand. These things might occur before you have had a chance to build up the cash to deal with them in your emergency fund. You may have to go back into the prairie chicken world and use credit to deal with these problems. If this happens, just plug this new debt into your debt destruction engine. It may add an extra year or so to the process.

And there is no guarantee of success. The first time I ran a debt destruction engine, the locomotive jumped off the track after 2¹/₂ years. I had made the mistake of driving 2 cars that were too old, 14 and 15 years old. These machines kept breaking down, which depleted our emergency fund down to nothing. Then, at the exact same moment, they both broke down again and both required new engines. We could not get a bank loan or a credit union loan because, like Wilma and Ted, our credit was not yet good enough. I could have and probably should have gotten a credit card like Wilma did and had an engine installed in one of the cars. (Yes, we could have gotten a credit card. They hand out these things like Halloween candy to people with marginal credit.) We had never used credit cards up to that point. Our debt consisted of store revolving accounts, finance company accounts, credit union loans for cash and for a car, and the mortgage. At the time, I was adverse to the idea of using credit cards and I thought we could not qualify for one. The point here is simply that you do whatever you have to do, even if it is a “prairie chicken thing” like using credit cards. If you have to break the usual rules in order to win, you do it.

We had to borrow the money from a high-risk lender to buy a car. I detest buying a car the conventional way from a dealership. If you calculate the lifelong impact of the payments you make in terms of what these payments would grow into if put into an investment stream, you will see that an amazing amount of wealth is destroyed while you drive your new car. In your 20’s, over 5 million dollars disappears from your wealth at age 70 when you pay car payments instead of investing the car payment money. In your 30’s, over 1 ¹/₂ million dollars is vaporized from the elder version of you at age 70. In your 40’s, at least ¹/₂ million dollars is kept from the grandma or grandpa version of yourself at age 70. In your 50’s, you deprive your 70 year-old self of “only” $100,000. You do not want the elder You to hate the younger You, do you? Have you been robbing a senior citizen, yourself?

We do a U-turn now on Digression Lane and drive back to the story of Wilma and Ted. So, they have done it! They have destroyed their Type 1 debt. They still have the car loans: one with a finance company and one with a bank. They still have the mortgage, but they are free of the credit cards, the smaller finance company accounts, and the store revolving accounts. Things have been a little tight for 6 years, so they decide to add ¹/₄ of this newly freed up money to their lifestyle. This is a perfectly legitimate decision. After 6 years of raises, their pre-tax deposits into 401(k)’s and IRA’s are at the maximum level now. (See page 111 of “The Debt Destruction Engine”, available for free by request at http://www.HushDoNotTell.com, for a discussion of the “Walk Up” strategy for increasing contributions to the 401(k) and to the IRA.) Now they look into self-directed retirement accounts. When you have maxed your contributions to the 401(k) and to the IRA, you are permitted to contribute to self-directed retirement accounts and enjoy tax-free growth. The rules and limits change on this from time to time. You can go to the library or search the Internet to find out about this when you are ready to look into it. After Wilma sets up their contributions into self-directed retirement accounts, she arranges for the remainder of the money that was going to bills to be automatically deposited into mutual funds. These funds are not pre-tax accounts, but are for the purpose of saving for long-range purposes like education for the children, cruises, vacations, and big-ticket purchases. To recap then, ¹/₄ of the previous bill money is used just for a less restrictive lifestyle, a part goes into self-directed retirement accounts, and the rest is invested by automatic deposit into after-tax mutual funds.

Then Wilma and the now compliant Ted (thanks to Rock ‘Em, Sock ‘Em, and Shock ‘Em) go to see a Certified Financial Planner. They should have gone years ago, but there was the matter of Ted’s former resistance and just general procrastination. The CFP helps them fine-tune their financial plan. They and the CFP staff create a plan which helps them prepare for the children’s college expenses; save for vacations and other major expenses; prepare for all possible contingencies such as disability, possible nursing home care, possible long hospital care, and death; and prepare for retirement. The CFP advises them on the importance of having a will and refers them to an attorney who will help them write this document. She advises them as to whether or not they should set up a living trust. The CFP helps them set up their financial affairs so as to reduce taxes: income taxes in this life and the taxes that need to be avoided after death. The CFP helps them arrange to have their assets conveyed to their heirs after their deaths, without being reduced by probate and other taxes. The CFP and her staff advise them on asset protection strategies and liability issues. There are a great many people who lose a large part of their assets through lawsuits. The CFP helps them protect themselves from these liability dangers.

As Wilma and Ted head home after seeing the CFP and the attorney, they can hardly believe the way their lives have changed. As they drive home, Wilma says, “We will soon be able to pay cash for our cars, if we want to. All that money going to car payments can be invested and grow and we can just pay cash for what we want to do or buy. And we could pay an extra amount every month on the house and wipe out the mortgage in, oh, 5 to 10 years, if we want to just kind of take it easy.” And to think, they owe it all to Rock ‘Em, Sock ‘Em, Shock ‘Em, and the Debt Destruction Engine.

“Yes, dear” says Ted.

Fire Up The Boiler – Part 2 Of 3 Parts

Wilma calls me and tells me about the crisis. “I believe I can get through this if my ‘Clyde’ doesn’t throw in the towel.” I tell her that I have an idea about something that might help, but I can’t tell her what it is. After I hang up the phone, I call the ‘Em Brothers. I have heard that the ‘Em Brothers have started a new company called CAC Inc. The letters “C – A – C” stand for Clyde Attitude Correction. They would normally charge $2,000 for this service, but agree to help Wilma for free as a way of advertising their new business. The ‘Em Brothers capture Ted, blindfold him, and bring him back to their office. Ted is handcuffed to a chair in a dark room.

The blindfold is removed and Ted is left alone. Then the lights come on and suddenly, the first brother, Rock ‘Em, bursts into the room. “Thank you, thank very much! Thank you, thank you, thank you very much!”

Ted screams, “An Elvis impersonator? Oh, God, save me! Sweet Jesus, help me!”

To say that Rock ‘Em filled out his Elvis costume would be an understatement. Rock ‘Em had once dove into a swimming pool and the concrete splashed out.

After 3 hours of Rock ‘Em’s rock and roll “singing” of 86 renditions of “Don’t Be Cruel,” Ted is sobbing uncontrollably.

Then when “Elvis” has left the building, the second brother, Sock ‘Em, waddles into the room wearing a purple Barney suit. Sock ‘Em loads a video in the VCR, a Sesame Street collage, that extols the virtue of cooperation for 3 hours as “Barney” goes round and round Ted whacking him in the head with a giant dirty sock once worn by Mr. Snuffelufagus.

“Mommy! Mommy! Mommy!” cries Ted, shaking hysterically.

“Barney” leaves and then the third brother, Shock ‘Em, charges into the room wearing a giant Energizer Bunny costume. A long arc of electricity crackles from him extending to the head of Ted every time the Energizer Bunny says the words “not going.” Shock ‘Em says, “So, your wife asked you to continue with her in this new path, but you said your not going not going not going not going not going not going not going not going not going not going not going not going not going not going not going not going not going not going not going…………………………..”

For 3 hours, the words “not going” are repeated 27,000 times and Ted is jolted with a shot of stun gun electricity 27,000 times until he looks like Kramer from Seinfeld with his big toe in a light socket!

Ted, formerly Wilma’s “Clyde” the rebellious, is now a crispy critter of compliance. After being returned home, he sits staring into space saying, “Yes, dear” in answer to every question and sometimes when no question has been asked.

Now that the problem of Ted’s resistance has mysteriously disappeared, Wilma is free to once again contemplate her problem. In the midst of attacking Bill 4, the emergency fund has been overwhelmed and they do not have the money to deal with everything that has gone wrong.

Bill 1 + $25

Bill 2

Bill 3

Bill 4 Bill 5 Bill 6 Bill 7 Bill 8

(Target)

Wilma tries to get a bank loan. She intends to just plug it into the debt destruction engine. She knows this will increase the length of time required to destroy the debt, but is patient and determined to not give up on her dream of debt freedom. She finds that she, however, cannot get a bank loan. It has not been long enough since the bad credit record days of their past. The bad credit history of the past will haunt them a little longer before they are free of it. She can, though, use a credit card to get the resources to survive the present crisis. (Yes, she can get another credit card, even though she cannot get a bank loan.) She hates doing it, but does. She continues putting money in the emergency fund in the same way she has since she started out and she continues the debt destruction engine. She plugs the new debt into the debt destruction engine. It now takes 6 years and 1 month to kill the Type I debt instead of the 4 years and 10 months that it would have taken if the overload of the emergency fund had not occurred.

Bill 1 + $25

Bill 2

Bill 3

New Bill Bill 4 Bill 5 Bill 6 Bill 7 Bill 8

(Target)

Bill 1 + $25

Bill 2

Bill 3

New Bill

Bill 4 Bill 5 Bill 6 Bill 7 Bill 8

(Target)

Bill 1 + $25

Bill 2

Bill 3

New Bill

Bill 4

Bill 5 Bill 6 Bill 7 Bill 8

(Target)

Bill 1 + $25

Bill 2

Bill 3

New Bill

Bill 4

Bill 5

Bill 6 Bill 7 Bill 8

(Target)

Bill 1 + $25

Bill 2

Bill 3

New Bill

Bill 4

Bill 5

Bill 6

Bill 7 Bill 8

(Target)

Bill 1 + $25

Bill 2

Bill 3

New Bill

Bill 4

Bill 5

Bill 6

Bill 7

Bill 8

(Target)

http://www.FaithLifeNow.com Get started on your own personalized, complimentary plan to find money and achieve your financial goals. 90% of families can be out of debt, including their mortgage, in 5 to 7 years. I am not associated with these folks in any way, financially or otherwise. I get no affiliate or referral income for sending you to them. These are just good, solid folks who will help you to be liberated from debt.

Fire Up The Boiler – Part 1 Of 3 Parts

See ”Get The Money Out of Your Hands” in previous posts in this blog in order to understand what is happening next. Here Wilma and Ted continue the debt-destroying process by “firing up the boiler” on their debt destruction engine.

Wilma reviews the basic types of the extra fuel version of the debt destruction engine. She and Ted will run a type I extra fuel version of the debt destruction engine to destroy 8 accounts: 4 credit cards, 2 store revolving accounts, and 2 finance company accounts.

Type 1 includes Credit Cards, Finance Company Accounts, Store Revolving Accounts.

Type 2 includes Credit Cards, Finance Company Accounts, Store Revolving Accounts, Vehicle Loans.

Type 3 includes Credit Cards, Finance Company Accounts, Store Revolving Accounts, Vehicle Loans, Mortgage.

Type 1 (Extra Fuel Version) usually takes 2 to 4 years. 5 years if you take it really easy.

Type 2 (Extra Fuel Version) usually takes 3 to 5 years. 6 years if you take it really easy.

Type 3 (Extra Fuel Version) usually takes 5 to 10 years. 11 years if you take it really easy.

Wilma has only $25 of extra fuel, but does not care if it takes 5 years or even longer.

Wilma looks at every type 1 time payment account she has and divides the balance owed on that account by the required monthly payment. She does this for every time payment account that she makes monthly payments on except for the two cars and the mortgage. For example, if she owes $7440 on an account and the required monthly payment is $272, she divides 7440 by 272 and gets 27.4 (rounded to nearest one-tenth). Then, she does that with another account and the result is 40.6 and she continues doing the same thing with every type I account. After doing this with all 8 of these accounts, she lists the bills starting with the one with the lowest result and calls it Bill Number 1. She then lists the account with the second lowest result as Bill Number 2 and so on.

Bill 1 (6.0) Bill 2 (9.3) Bill 3 (14.7) Bill 4 (22.1) Bill 5 (27.4) Bill 6 (35.3) Bill 7 (40.6)

Bill 8 (43.5)

The Target Bill at the beginning is “Bill 1”. Wilma adds the extra fuel of $25 a month to “Bill 1” until it is paid off.

Bill 1 + $25 Bill 2 Bill 3 Bill 4 Bill 5 Bill 6 Bill 7 Bill 8

(Target)

Next, Wilma adds the extra fuel of $25 plus the amount that was being paid on Bill 1 to the new target bill until it is paid off.

Bill 1 + $25

Bill 2 Bill 3 Bill 4 Bill 5 Bill 6 Bill 7 Bill 8

(Target)

Then, Wilma adds the extra fuel of $25 plus the amount that was being paid on Bill 1 plus the amount that was being paid on Bill 2 to the new target bill until it is paid off.

Bill 1 + $25

Bill 2

Bill 3 Bill 4 Bill 5 Bill 6 Bill 7 Bill 8

(Target)

As each bill is paid off, Wilma adds the amount that was being paid on the previous target bill to the new target bill. It is only a matter of time before all 8 accounts will be destroyed.

Bill 1 + $25

Bill 2

Bill 3

Bill 4 Bill 5 Bill 6 Bill 7 Bill 8

(Target)

Right about here, when Wilma is in the middle of destroying Bill 4, something goes wrong. Yes, things can go wrong with this strategy, just as things can go wrong with anything else. So many financial disasters hit all at once, that the emergency fund is overwhelmed. If they had been operating the way they do now for the last 10 years, they would have a large enough emergency fund to deal with any contingency. For 4 out of 5 people who operate a debt destruction engine, the new emergency fund will not be overwhelmed. Wilma is one of the “lucky” 1 out of 5 for whom this is not true. She has a pretty good idea of what to do, but has another problem. Ted, her “Clyde,” wants to quit. He wants to chuck the whole thing and go back to the prairie chicken life of credit cards and mere survival. “I told you this wouldn’t work!” yells Ted. Wilma wonders if she should have put the whole $480 a month into the emergency fund at the beginning. Wilma realizes, though, that it is too late now to cry over spilt locomotive fuel.

(For an explanation of where the $480 came from, see “Get The Money Out Of Your Hands” in previous posts in this blog. Many financial planners recommend that you build up the emergency fund first before doing anything else. This could take a long time, a year or 2 years or more, but it is something to think about and is, of course, a strategy decision that is entirely up to you.)

http://www.HushDoNotTell.com Request a free copy of “The Debt Destruction Engine” or “Your Wealth is Hidden in the Fragments of your Life.

Get The Money Out Of Your Hands – Part 3 Of 3 Parts

Remember again, please, that Wilma is looking for money for 3 things: the emergency fund, the 401(k)’s, and the debt destruction engine. The emergency fund will be used to pay for the things that were covered in the past by survival crutches. Then, if possible, she would like to start investing in their future by contributing to their 401(k)’s and by running a debt destruction engine. She has thus far rustled up an extra $175 a month by lowering their income tax withholding. She has also freed up $2,160 a year by cutting out the weenie tax, which is $180 a month. Her monthly bills are now lower by this amount. Now she sets out to find some LEX Cash. She reads pages 65 through 72 of the Debt Destruction Engine to figure out how to reduce the family’s living expenses. She comes up with some other ideas of her own as well and manages to save another $150 a month. ($37.50 per week X 4 weeks = $150)

Wilma has found some money now to invest each month in a new life:

$175 (Lowering Tax Withholding) + $180 (Weenie Tax) + $150 (LEX Cash) = $505

She decides to apply this bonanza thus:

5% of Ted’s pay in his 401(k) = $125 a month

5% of Wilma’s pay in her 401(k) = $100 a month

Emergency Fund = $255 a month

Extra Fuel for Debt Destruction = $25 a month

They will each contact their HR Rep at work and each arrange for 5% of their pay go into a pre-tax 401(k) account at work. They will select an aggressive growth-oriented stock mutual fund for this. They will each diversify later into several different kinds of funds, but for now go with this one fund. Now they will be investing $2,700 a year in their retirement accounts. Ted’s company matches the first 5% contributed by the employee at 50%. Since Ted will be putting in $1,500 a year, the company will match this with $750. Wilma’s company matches the first 5% at the rate of 20%. Since Wilma is adding $1,200 a year, her company will match this with $240. They will have a total of $3,690 a year now going into building their financial future! This money will grow tax-free! Not bad for people who, just a short time ago, thought they were going nowhere.

Wilma could have gone another way in setting this up. She could have put, say, 3% in each 401(k), the same $255 in the emergency fund, and had an extra $90 for the debt destruction engine. This approach would have given her $115 as extra fuel for her debt-destroying locomotive. The process of debt destruction would move a lot faster this way, but Wilma wants the advantage of the full matching that is available and wants to start investing everything possible as early as possible. Another approach would be to put the $25 into the extra fuel and put $480 into the emergency fund. Some debt destruction engineers do this to drive that emergency fund up high enough so there is no chance of it being overwhelmed at some point in the future. Later, when the emergency fund is built up to a safe amount, these folks would then divert part of the $480 to investments and part to be added to the extra fuel.

Wilma contacts the bank where both of their checks are automatically deposited. If you remember, the emergency fund has already been set up with the money from the cashed out whole life policies. Wilma wants $255 to go automatically each month into the emergency fund. Wilma now applies the same proportionality that she uses for bill paying. Since Ted’s check each week is 14% of the monthly take home pay, she multiplies .14 times the $255 and gets $35.70. She arranges for $35.70 to be deposited automatically out of Ted’s take home weekly pay into the emergency fund. $35.70 goes into the emergency fund each week and the rest of his take home pay goes automatically into the regular checking account. Since Wilma’s monthly check is 44% of the take home pay, she multiplies .44 times the $255 and gets $112.20. She arranges for $112.20 to be deposited automatically out of her monthly take home pay into the emergency fund. $112.20 goes into the emergency fund each month and the rest of her take home pay goes automatically into the regular checking account.

They carry a checkbook only for the regular checking account. There is no checkbook for the emergency account. When the car breaks down or the central air conditioning goes out, they transfer the necessary money from the emergency fund into the checking account. They transfer only the exact amount that they need for the emergency. There are accounts that would be more efficient than the accounts at the local bank, such as asset management accounts available at Edward Jones, Charles Schwab, and other places. At the beginning, just to keep things simple, go ahead and use a regular checking account and a second account at your bank for the emergency fund. A few months later, when you become a pro at all of this, you can enter “asset management account” in the search engine for your internet connection and start looking at opening an asset management account.

So Wilma and Ted have done even better than “getting the money out of their hands.” The contributions to the 401(k)’s and the additions to the emergency fund, are all made without ever being in their hands in the first place! She continues to write checks for bills the night before the paycheck is received and they live on what is left. They will henceforth be adding $2700 a year to retirement accounts and $3020 a year to the emergency fund. When the emergency fund starts getting large enough to handle the possible contingencies, Wilma will reduce the money going into it and increase the money going into debt destruction by that same amount.

And Wilma even has a plan to painlessly increase the money going into retirement accounts.

With a raise of 1%, he or she will increase the money going into retirement accounts by 0%

With a raise of 2%, he or she will increase the money going into retirement accounts by 1%

With a raise of 3%, he or she will increase the money going into retirement accounts by 1%

With a raise of 4%, he or she will increase the money going into retirement accounts by 2%

With a raise of 5%, he or she will increase the money going into retirement accounts by 2%

With a raise of 6%, he or she will increase the money going into retirement accounts by 3%

With a raise of 7%, he or she will increase the money going into retirement accounts by 3%

With a raise of 8%, he or she will increase the money going into retirement accounts by 4%

With a raise of 9%, he or she will increase the money going into retirement accounts by 4%

With a raise of 10%, he or she will increase the money going into retirement accounts by 5%

With raises over the next few years, they will walk the deposits into the 401(k)’s up to the max allowed. Then each one of them will start an IRA and use raises with the same schedule above to walk the deposits up to the max allowed. They will still see more money in their paychecks. “Is it really necessary to multiply by the “proportionality” factor and write checks the night before you are paid and pay bills 5 times a month and all this stuff that looks like you’re making an everyday thing into rocket science?”

No, it is not necessary. If you can “get the money out of your hands” and keep from blowing bill-paying money some other way of your own devising and pay your bills on time and still attack debt and invest, then more power to you. The examples given here are meant to help you understand the factors involved in this. Please feel free to improvise and do your own thing. As to the issue of this being rocket science, I have this observation for you to ponder. I once put a dog on a small piece of plywood outside on the ice on the ground in winter. I noticed that when he expelled gas backwards, he slid forward. When the gas flew east, he “flew” west. Is there anything complex about this? It turns out that even rocket science is not rocket science!

http://www.HushDoNotTell.com Request a free copy of “The Debt Destruction Engine” or “Your Wealth is Hidden in the Fragments of your Life”.

Get The Money Out Of Your Hands – Part 2 Of 3 Parts

Remember now, Wilma is looking for money for 3 things: the emergency fund, the 401(k)’s, and the debt destruction engine. The emergency fund will be used to pay for the things that were covered in the past by survival crutches. Then, if possible, she would like to start investing in their future by contributing to their 401(k)’s and by running a debt destruction engine. She has thus far rustled up an extra $175 a month by lowering their income tax withholding.

Since the two new term life insurance policies in the right amounts with a company with a solid rating are now in force and she has received documentation establishing this beyond any doubt, she now cashes in the whole life policies and uses this money to start the emergency fund at the bank. Both of their payroll checks are already set up for automatic deposit. After she cuts out the weenie tax and finds as much money as possible in LEX Cash (reductions in living expenses), she will arrange for part of their payroll checks to be automatically deposited into this second account, the emergency fund. As long as they carry a checkbook only for the regular checking account, they will have gotten this emergency fund money out of their hands so they will not be tempted to use it on day to day expenses.

Wilma sets out now to actually cut out the weenie tax. She calls insurance agents, finance companies, the mortgage company, credit card companies, banks, and the group that handles the repair contract that covers her appliances. As she does this, everything is not sweetness and light. There are folks who argue with her and try to get her to keep the coverage she wants to cancel. (They do not interrupt your supper to ask you to take one of these “crutches” because they like you. These nickel and dime coverages taken by millions of people across the country bring in hundreds of millions of dollars.) She persists and insists that they desist and they resist but then just do justice in this. (I think I just slobbered on myself. Suffering succotash!)

She and Ted have been paying $410 a year extra for the deductible on the first car to be lowered from $500 to $250. To save this $410, she raises the deductible to $500. Then she saves $390 a year by raising the deductible on the second car to $500. She cancels the towing coverage on both cars and kills the “death, dismemberment, loss of sight” coverage on both cars. She drops the car phone/audio equipment coverage on both cars. She terminates the medical insurance on both cars. She shakes her head and wonders why she has never realized how unnecessary this coverage is. Their hospitalization plan is in force whether they are in a car or not. She cuts out the rental car reimbursement coverage on their auto insurance. Then she sees the last item on the auto insurance part of the list and she shakes her head again so hard that it almost falls off. They are actually carrying full coverage on a 16-year old clunker pickup that Ted keeps at his Uncle Bob’s camp house at the lake! They use this vehicle that has no book value at all to cruise the dirt roads and slide around in mud holes. They are even paying extra to get a lower deductible! Wilma cancels the full coverage on this mud cruiser and takes only liability with the largest permitted deductible.

Now she starts feeling really good about herself and almost enjoys the resistance these mudsuckers are putting up! She has become a lean mean canceling machine! (We’ll have to bring George Foreman on board to help sell this.) She calls the bank that holds the mortgage and cancels the mortgage protection insurance. She now has enough term life insurance that is renewable and convertible to pay for the funeral(s) and to pay off all debt including the mortgage with money left to invest for the children’s education needs and to invest to support survivors in a comfortable lifestyle. She calls the credit card companies and the finance companies and cancels charge guard protection, credit life insurance, and credit disability insurance. She calls one finance company to cancel an extended warranty that has 15 months left to go on it. This extended warranty on one of their cars is part of the original financing package. She cancels it and this causes the total balance due to go down and makes the monthly payment a little lower. She calls the bank that holds the note on the other car and cancels the extended warranty on it.

Now she stands up after each call and performs a little “in your face” dance. She is so excited in her euphoria that she mistakenly gives a dyslexic impersonation of Mohammed Ali: “I sting like a butterfly and dance like a bee!” She cancels a cash-per-day-of -hospitalization policy, a cancer policy, and a school accident policy. Her children are already covered by their hospitalization plan and the school accident coverage is an inefficient add-on. She calls to cancel the repair contract on her major appliances. The contract costs $225 a year. She is unfortunately locked in for 6 more months because she has signed a contract. She asks them to please note in her account that she does not wish to renew at the end of the contract period. She makes a note in her tickler file to remind her to call them six months hence to make sure the contract is not renewed.

She cancels a supplemental accident policy. This is coverage that pays an extra amount if the insured dies in a particular way. The high premium relative to the death benefit and the odds of collecting make this an inefficient coverage. Next comes another “head shaker. ” They are paying $35 a month for a weird policy they got through the mail. It covers the $250 deductible on one auto policy. They are paying someone $420 a year so they can receive $250 if they file a claim. These folks will, no doubt, cancel the policy if Wilma and Ted file more than one claim in a two-year period. There is actually no phone number to be found for these fly-by-night operators. So, she will just not pay the premium any more and writes them a letter, just to be sure, canceling “this valuable coverage.”

Now, Wilma is starting to feel like Forest Gump when he stopped running in Arizona. “I’m tired……………………………….. I’m goin’ home now.”

She has been fighting the purveyors of survival crutches all afternoon and is exhausted. There is, however, one more crutch to deal with. She and Ted have a whole life insurance policy on each of their 3 children with a death benefit of $50,000. She now understands that, generally speaking, there are more efficient ways to cover this contingency than a whole life policy with a high death benefit. But, she is just not comfortable with changing the policies too much.

This brings us to an important point. I am not offering you a rigid legalistic structure with fixed rules. I am getting you to develop a sense of how this whole “weenie tax” thing works. If you want to cut out most of the survival crutches, but are emotionally bound to a few of them and cannot cut these few out, that is perfectly legitimate. If you cut out all the other survival crutches and keep the existing insurance on children, the strategy will still free up money for investing and killing debt.

When Wilma is more confident in her ability to run the debt destruction engine 3 or 4 years from now, she may feel that she has enough money built up in her emergency fund to cover this contingency. She may at that time be comfortable with changing this coverage substantially and drop it as low as $10,000. But for now, she decides to keep it. She does, however, feel that $50,000 is an excessive death benefit. She contacts the insurance representative and has the death benefit on each policy reduced to $20,000.

http://www.FaithLifeNow.com Get started on your own personalized, complimentary plan to find money and achieve your financial goals. 90% of families can be out of debt, including their mortgage, in 5 to 7 years. I am not associated with these folks in any way, financially or otherwise. I get no affiliate or referral income for sending you to them. These are just good, solid folks who will help you to be liberated from debt.

Get The Money Out Of Your Hands – Part 1 of 3 Parts

Ted and Wilma are in their thirties and both work outside the home. Ted is paid weekly and Wilma is paid once a month on the 20^th. Their take home pay is enough to pay the bills with very little left over.

In this family, Ted is the “Clyde,” the Clyde who runs the water out of the tub while you are trying to fill it up. Clyde is usually the one who does not actually sit down and write the checks to pay the bills. Clyde is the one who talks a lot about being the boss, about how smart and tough he is, but Clyde is really a baby. He understands nothing about the family finances, but gripes when he cannot buy what he wants or if he happens to see a cutoff notice on the electricity in the mail. Clyde is usually the male, but in rare cases, Clyde is the female. Anybody have a Clyde like this in your life? And sometimes there are two Clydes! Lawd help!

Wilma reads “The Debt Destruction Engine”, which is weird to her because she sees herself mentioned on page 100. Then, Wilma wins Ted, her “Clyde,” over to her way of thinking, well, at least somewhat. He does not completely understand or like what she is doing, but agrees to at least try to go along with it. Ted’s take home pay for the month is 56% of the family’s total take home pay. He is paid on every Friday. So, each check, in most months, is 14% (56% divided by 4) of the monthly take home pay. Wilma is paid once a month and her check is 44% of the total take home pay.

Wilma knows that they tend to spend whatever is available to them and then try to pay the bills with what is left. She decides to “get the money out of their hands” so they cannot spend it before they pay their bills. On Thursday night each week before Ted gets his check on Friday, Wilma writes checks for 14% of the monthly bills. On the evening of the 19^th before she gets her monthly check on the 20^th, she writes checks for 44% of the bills. This way the money is gone and they cannot blow it and have to live on what is left. Notice that they are not, thus far, running a debt destruction engine. They have to do what is described here just to keep from falling behind. They will need to develop the habit of covering their everyday expenses mostly with the remainder of Ted’s weekly check. The remainder of Wilma’s check will be used mostly for things like the monthly excursions to camp out at the lake, for Christmas layaways (to acquire Christmas gifts gradually throughout the year to avoid credit), minor maintenance on the cars, weekend trips, and their “drug” habits. (These are the things they have always habitually “drug” themselves out of bed for on Saturday morning like fishing and flea market hopping.)

Wilma figures out which bills need to be paid at each check-writing session and makes up a schedule for bill paying. She makes copies of this schedule to put in her master bill-paying file. As each bill comes in each month, she writes the amount due on her schedule beside the name of the bill. She then puts the bill and its payment envelope in the file for that bill. She has a file folder for each bill. Every Thursday night and every 19^th of the month she pays bills in the ratio that was described earlier. “Isn’t it inefficient time-wise to write checks 5 times a month when you could just let the money accumulate and write checks once or twice a month?” It is inefficient time-wise, but you do whatever you have to do to win! Most of us simply do not have the discipline to refrain from spending everything we can get our hands on and need to get the money out of our hands so we will not blow it! Some people may need to write the checks multiple times a month at the beginning until they can develop the necessary discipline and then they can let the money accumulate and pay bills once or twice a month.

Her bill paying is proportional now to the way the take home money comes in, which keeps her and Ted, for the moment, from falling behind. She realizes that even just paying bills on time is at jeopardy because of the certainty that things will go wrong that will require extra money. If she wants to be able to pay for the things that go wrong without using credit, she has to find extra money. She also realizes that she and Ted could operate an extra fuel version of the debt destruction engine if they could find even just a tiny bit of extra fuel to burn in their debt-destroying locomotive. She wants to change their income tax withholding so that they no longer receive the $2,100 refund they usually get every year. Ted does not like this, but goes along with it. She changes the withholding so that the taxes are paid, but there is no excess just sitting there not earning any return. This increases their spendable cash $175 a month. They are in effect “giving themselves a raise” and taking their refund throughout the year.

She reads “The Wealthy Barber” by Chilton all the way through and then goes back and reads Chapter 5 again to understand how to make the appropriate decisions on life insurance. She sits down and looks at their whole financial situation to try to identify the weenie tax in their lives. The weenie tax is the total of all the survival crutches, those unnecessary survival aids that we “rent” each month or each year that actually transfer our wealth away to the “providers” of these crutches. If we decide that it is just too much trouble to try to understand this and too much hassle to cut out these crutches, then we are being weenies. This is called the weenie tax because we are rendering a tax against ourselves for being a weenie. These survival crutches which make up the total weenie tax are discussed in my debt destruction books which I give away free and in other posts in this blog.

As Wilma seeks out survival crutches, she pays special attention to the discussion of “generally speaking” in pages 44 through 54 of “The Debt Destruction Engine”. She writes down these crutches that make up their weenie tax on several sheets of paper. She goes to see a friend of hers who is a personal financial planning nut, not a CFP, just a guy who is interested in this kind of thing to get his opinion. She visits her uncle who is a CFP, Certified Financial Planner, to get his opinions. She carefully takes notes everywhere she goes. She sees her father who is an insurance agent to get his opinion. She consults with 4 other people who are wise in such matters. After 2 weeks of praying about this and consulting with knowledgeable folk, she sits down with Ted and explains that she has identified several “crutches” that should be eliminated. (Explaining all of this to Ted is probably the hardest part of it all.) He does not really get it too well, but agrees to go along.

Wilma and Ted carefully review Chapter 5 of “The Wealthy Barber” yet again to understand the type and amount of life insurance they should carry. They get a term life insurance policy on each of them in the appropriate amount that is renewable and convertible and are surprised that the amount of the death benefit is so much higher than the death benefit amounts on the whole life policies they already have. They are even more surprised at how much lower the premiums are.

(When you talk about whole life, the death benefits typically run in amounts like $20,000 and $40,000 and might go up to $100,000, but rarely go higher. Term life death benefits typically run in amounts like $100,000; $150,000; $200,000; $250,000; $325.000; $375,000; and might go up to $500,000 and can go even higher. For youngsters in their thirties like Wilma and Ted in good health, the premium on each policy, for the death benefit amounts that are best for them, will run anywhere from $13 to perhaps $27 depending on the company and the actuarial factors that exist. These premiums are much lower than premiums paid for much lower whole life and universal life death benefits. The folks who have never really looked at term life before are usually very greatly surprised at the difference.)

The Debt Destruction Engine Springs into Existence

Proportionality

One Sunday morning at 2:30 AM in the winter of 1979, I was looking at our bills trying to figure out how to find a way to gain some control over a disorganized mess. We had been practicing the financial discipline of Congress and the stick-to-it-ness of a salted leech. Our take home pay was only $1,000 a month with both of us working. Our bills came to about $700 a month. We were both paid weekly, but most of our bills were due in the 3^rd and 4^th weeks. We were sailing along spending most of our money in the first and second weeks and then did not have the money to pay all the bills. I know this sounds stupid, but it is a problem that a lot of couples have when they first start out. Since our bills were $700 and we had only $1,000 coming in, I realized that we had to live on $75 every week.

$1,000 (Take home) – $700 (Monthly bills) = $300 (To live on for a month)

$300 divided by 4 = $75 (To live on for the week)

We were a real high-income power couple, obviously. Seriously, even such a low-income situation can serve to illustrate some basic concepts.

This meant that we had to pay $175 a week ($700 in monthly bills divided by 4 = $175) on bills as regular as clockwork. There was no choice in the matter. If we paid less than $175 in a particular week, we would fall behind. If we paid just $100 in the first week, for example, we would have $600 of bills left to pay in the 3 remaining weeks. We would then have to pay $200 a week in the last 3 weeks of the month.

$250 (weekly take home) – $200 (bills paid per week) = $50 (a week to live on)

It was hard to live on $75 a week even as far back as 1979, but it was even tougher to live on $50 a week.

Since ¹/₄ of our take home pay came in every week, we had to pay at least ¹/₄ of our monthly bills every week. This had to be done without exception. This is proportionality.

Suppose there is a couple and both work. One of them is paid once a week and the other is paid every 2 weeks. Their income is just enough to pay the monthly bills with very little left over.

The first week 18% of the monthly take home pay comes in.

The second week 32% of the monthly take home pay comes in.

The third week 18% of the monthly take home pay comes in.

The fourth week 32% of the monthly take home pay comes in.

Since their income is just enough to pay bills with very little left, this couple would have to pay:

18% of the monthly bills in the first week,

32% of the monthly bills in the second week,

18% of the monthly bills in the third week,

32% of the monthly bills in the fourth week.

This is proportionality and this is not even a strategy to get ahead or attack debt in any way. The bills must be paid in this ratio or this couple will fall behind. There is no choice in the matter. It is important, especially for lower income folks, to understand proportionality.

The Debt Destruction Engine Springs into Existence

I have always had the knack, the gift really, of being able to take the circumstances that I find myself in and somehow find a way to gain some advantage therein. I can sometimes take a problem and turn it inside out and find an advantage hiding in there somewhere. That Sunday morning in 1979, I began to experiment to see if there might be a way to find an advantage residing in the disadvantage of just barely having enough money to pay bills. “We have to live on $75 a week, which is tough. If we can live on just $75 a week, could we not then also live on just $70 a week? What if I take a measly $5 a week and add it to the smallest bill until this bill is paid off? Then take the $20 a month ($5 a week) and add it and the money that was being paid on the smallest bill to the second smallest bill? After this second smallest bill is paid off, I take the previous total amount that was being paid on the second smallest bill and add it to what I pay on the third smallest bill.”

I projected this forward and found that this approach would pay off all the bills including the mortgage in LESS THAN 5 YEARS! It was 4 years and some number of months. As I look back now through the foggy mists of eons of time, I cannot remember if it was 4 years and 7 months, or 9 months, or 10 months, or whatever, but it was definitely less than 5 years.

Now, please note that, at the time, I knew nothing about the Survival Crutch, the Weenie Tax, LEX Cash Strategies, “Fluff”, the Emergency Fund, or Temporary Extreme Measures, all the financial tactics that I talk about in other posts in this blog and in my books. I did not figure out these strategies until several years later. We would have to do this with old fashion discipline and sacrifice. We had to pay $175 a week on bills anyway, every week, without fail, no matter how difficult that would be. So it became a hunt for $5!

If we could just do what we had to do every week anyway and scrape up a measly $5 to add to our bill paying each week, we could be debt free in less than 60 months! (Please note that your debt is usually proportional to your income. In our case, it would only take $20 a month because our income was low and hence our debt was also relatively low so that $20 was a lot of extra “fuel”. I am so dull-witted that I did not realize that this process moves like an old time steam locomotive, painstakingly slow at the beginning and then building powerful momentum, until several years later when I began to call it the Debt Destruction Engine.)

http://www.HushDoNotTell.com Request free copy of “Your Wealth is Hidden in the Fragments of your Life” or “The Debt Destruction Engine” or both.

The Advantage of Being Heavily in Debt

How can it be an advantage to be heavily in debt? Please hang in here with me as we go through this post and you will see exactly how it is that heavy debt can create a momentum that can be applied to destroying debt itself. Debt’s own residual inertia can be focused upon its own destruction.

I am going to show you how to destroy your debt, all of it including the mortgage, if this is your desire, or you can opt to destroy just the part of your debt that includes the credit cards, revolving accounts, and finance company accounts, if this is your desire. If you destroy just this part of your debt, an amazing liberation takes place that allows you to start paying cash for your purchases, instead of charging, and allows you to invest for your future.

The adventure you are embarking on is not going to be extremely easy, but it is doable with some effort and discipline. If you have a job and you are just barely paying your bills every month or if you are falling a little short of paying your bills every month, you qualify for this adventure. Your job, that thing you go to every day because you have to, can be transformed into a powerful wealth-producing instrument, which can propel you to retirement.

If you are a typical citizen of an industrialized nation, your life is a Debt Induction Engine. As you operate your financial life, it just naturally induces debt. It is like a steam driven locomotive. The engine takes off ponderously slow very gradually gaining speed and momentum. As it runs over the years, you become bound with increasingly greater amounts of debt. You are going to learn how to transform your Debt Induction Engine into a Debt Destruction Engine. As this engine operates, it destroys debt, slowly at first, and gains momentum until it transforms itself ultimately into a Wealth Induction Engine. As this engine operates, it just naturally induces wealth. This debt destroying process starts slowly, like a locomotive with wheels spinning, then acquires traction, gains speed, and finally runs very rapidly like a steam driven locomotive.

STEP ONE: Look at every time payment account you have and divide the balance owed on that account by the required monthly payment. Do this for every time payment account that you make monthly payments on including the mortgage. For example, if you owe $7440 on an account and the required monthly payment is $272, you divide 7440 by 272 and get 27.4 (rounded to nearest one-tenth). Then, you do that with another account and the result is 40.6 and you continue doing the same thing with every account. After doing this with every account, you list the bills starting with the one with the lowest result and call it Bill Number 1. Then list the account with the second lowest result as Bill Number 2 and so on.

Bill 1(6.0) Bill 2(9.3) Bill 3(14.7) Bill 4(22.1) Bill 5(27.4) Bill 6(35.3) Bill 7(40.6) Bill 8(43.5) Bill 9(101.2)

“Bill 1” would be the smallest account. (You usually have one or two accounts much smaller than the rest that could be paid off quickly.) “Bill 9” (or “Bill 10″ or “Bill 13″ or whatever it is) would usually be the largest account, the mortgage. You can prioritize your debts other ways, if you want, by interest charged or by account balances or amount of payment. I have experimented with different ways of doing this and the method described seems to work best. Generally speaking, it is wise to attack accounts with the highest interest charged first, but this fails to take into account the fact that there are accounts with smaller balances that can be paid off quickly even though the interest charged is low. The approach described balances the impact of the interest charged and the relative size of the balances due.

STEP TWO: ADD “EXTRA FUEL” EVERY MONTH TO THE TARGET BILL UNTIL IT IS PAID OFF. THE EXTRA FUEL IS WHATEVER EXTRA AMOUNT YOU CAN FIND TO ATTACK YOUR DEBT WITH. IN OTHER POSTS, I TELL YOU HOW TO FIND THIS EXTRA FUEL IN SOME SURPRISING PLACES. THIS EXTRA FUEL IS LIKE EXTRA WOOD OR COAL THROWN INTO YOUR DEBT DESTROYING LOCOMOTIVE. THE LARGER THIS AMOUNT, THE FASTER THE PROCESS OF DEBT DESTRUCTION.

The Target Bill at the beginning is “Bill 1”. Add the extra fuel of $60 a month to “Bill 1” until it is paid off.

Bill 1 + $60 Bill 2 Bill 3 Bill 4 Bill 5 Bill 6 Bill 7 Bill 8 Bill 9

(Target)

STEP THREE: ADD THE EXTRA FUEL PLUS THE AMOUNT THAT WAS BEING PAID ON BILL 1 TO THE NEW TARGET BILL UNTIL IT IS PAID OFF.

Bill 1 + $60

Bill 2 Bill 3 Bill 4 Bill 5 Bill 6 Bill 7 Bill 8 Bill 9

(Target)

Now the new Target Bill is “Bill 2”.

STEP FOUR: ADD THE EXTRA FUEL PLUS THE AMOUNT THAT WAS BEING PAID ON BILL 1 PLUS THE AMOUNT THAT WAS BEING PAID ON BILL 2 TO THE NEW TARGET BILL UNTIL IT IS PAID OFF.

Bill 1 + $60

Bill 2

Bill 3 Bill 4 Bill 5 Bill 6 Bill 7 Bill 8 Bill 9

(Target)

The new Target Bill now is “Bill 3”.

AND SO IT GOES: As each bill is paid off, add the amount that was being paid on the previous target bill to the new target bill until all time payment debt is destroyed. It takes from 5 to 10 years, depending on your own debt situation, to destroy all debt with a serious effort. You can take it fairly easy and knock it out in 11 years. The more money you add to the first target bill, at the beginning, the faster this process moves. Please note that there are two other main versions of the debt destruction engine, beyond the “extra fuel” version described here, that are even more powerful and faster moving than this version. I describe these other two versions in some detail in “The Debt Destruction Engine”, also in “Your Wealth is Hidden in the Fragments of your Life”, and in other posts on this blog. You can request a free copy of one or both of the 2 books mentioned by going to http://www.HushDoNotTell.com.

(BEAR IN MIND, THE DEBT DESTRUCTION ENGINE, “EXTRA FUEL VERSION”, DESCRIBED HERE IS GOING AFTER ALL DEBT INCLUDING THE MORTGAGE. A SMALLER LOCOMOTIVE THAT DESTROYS JUST THE CREDIT CARDS, FINANCE COMPANY ACCOUNTS, AND STORE REVOLVING ACCOUNTS CAN SUCCEED IN ROUGHLY 2 TO 4 YEARS, DEPENDING ON YOUR SITUATION. IMAGINE WHAT IT WOULD BE LIKE TO HAVE EVEN JUST THIS PART OF YOUR DEBT COMPLETELY GONE IN 24 TO 48 MONTHS! IN OTHER POSTS, I SHOW YOU HOW TO TRANSITION TO LIVING ON CASH AND AVOID CREDIT IN THE FUTURE.)

If you decide to go for broke and put everything into this including the money that was going into your 401(k), cutting living expenses every way possible, finding extra money with temporary extreme measures such as canceling cable TV and magazine subscriptions, and all the extra money realized whenever you get a raise, you could annihilate all debt including the mortgage even faster. It is not easy and there are risks involved in doing this. If you divert the money that was going into a 401(k) and/or an IRA, you lose the benefit of time for those investments while you are operating the Debt Destruction Engine. Think long and hard about the pros and cons of doing this. One factor that helps you stick with this is that, with this “extra fuel” version of the Debt Destruction Engine, you reach a point where the total money you put on bill paying is less than it was when you first started. The balances owed on the remaining accounts go down over time and money is gradually freed up. This is, of course, also the very reason this version of the Debt Destruction Engine is slower than the other versions.

Bill 1 + $60

Bill 2

Bill 3

Bill 4 Bill 5 Bill 6 Bill 7 Bill 8 Bill 9

(Target)

AND ON:

Bill 1 + $60

Bill 2

Bill 3

Bill 4

Bill 5 Bill 6 Bill 7 Bill 8 Bill 9

(Target)

AND ON IT GOES: Finally you reach a point where the Target Bill is the mortgage.

Bill 1 + $60

Bill 2

Bill 3

Bill 4

Bill 5

Bill 6

Bill 7

Bill 8

Bill 9

(Target)

VICTORY: After destroying your debt, you put a large part of what you were putting on debt into your investments. Your life was a Debt Induction Engine. As it operated, it naturally induced debt. You transformed your Debt Induction Engine into a Debt Destruction Engine, which worked like an old time steam locomotive. It moved ponderously slow at first and slowly gained momentum until it reached a point of exponential acceleration. It may take ¾ of the total time to destroy ¼ of the debt and then take the last ¼ of the time to destroy ¾ of the debt. As your debt is destroyed, you transform your Debt Destruction Engine into a Wealth Induction Engine. As it operates, it naturally induces wealth. Investing should be done in a “forced” or automatic way. In other words, you should arrange for automatic payroll or bank draft deposits into your investments so that your primary long-term investing is not a matter of exercising will power. The money goes into the investment without ever being in your hands and you never miss it. You should major first on the largest possible withholding going into the 401(k) and then the biggest possible bank draft deposits going into IRA’s.

The Advantage of Being Heavily in Debt

When you look at the bills you owe, you realize that you are, in fact, generating a huge tidal wave of financial power every month as you just pay your bills. The debt destruction engine actually works faster the more heavily you are in debt. The more trouble you are in, the faster it works because you have more fuel (debt) to stoke the boiler with. It takes from 5 to 10 years with the “extra fuel” version of the debt destruction engine to destroy all debt including the mortgage for those who go after this with some passion. The greater your debt, the shorter the length of time involved in destroying it. If your debt is maxed out and you really shoot for the moon in attacking it, the time required will tend toward the 5-year end of the scale.

WITH THE DEBT DESTRUCTION ENGINE, THE MOMENTUM FOR THE SOLUTION TO THE PROBLEM RESIDES IN THE PROBLEM ITSELF.

Good Cop – Bad Cop

The detective blows smoke in your face. He gets so close, nose to nose, that he slobbers on you when he screams at you in rage. He appears on the brink of losing control. He slams chairs around in the interrogation room. At any moment, he will surely snap and crush your forehead up against the back of your head.

Just an instant before this “bad” cop would have exploded in murderous rage, the gentle guy suddenly runs into the room to rescue you. “Hey! What’s going on here, Jack? You know you can’t do that! Why don’t you go get some coffee and relax for a few minutes while I talk to my buddy here?”

Jack leaves. “You know, I understand where you’re comin’ from. I mean, if I was in your position, hey, I’d clam up too. But I just don’t know how much longer I’m gonna be able to control the Jackster. You want a cigarette? Here, you can have one of mine. You know, Jack has been under a lot of stress lately. What with his wife leaving him and all. And the strange coincidence is that she took up with a guy who looks a lot like you. Well, he used to look a lot like you. He doesn’t have much of a face anymore, poor guy! Jack caught him in a parking garage and almost beat him to death with a tire tool. You just got to give me something! I mean this guy is gonna snap and twist your head around and around before I can get over here to stop him.”

The bill collectors call and scream at you like you are a degenerate who just decided one day to not pay your bills. They talk to you like you are a complete idiot and worthless and threaten to garnish your wages, seize your property, and take your house and spouse and several body parts. They call you at work and perform this demeaning spectacle intended to humiliate you in front of your coworkers.

Suddenly, the good cop, the Consumer Credit Counseling Service, rescues you. The good cop negotiates some lower interest rates on some accounts, helps you to develop a budget, and sets up a payment plan. He helps by perhaps getting the interest “clock” turned off temporarily on some accounts and maybe getting a few balances on some accounts reduced. As long as you comply with his payment schedule, the good cop, the CCCS, will shield you from the collectors, the bad cop.

You leave after your counseling appointment, but then realize that you left your keys in the CCCS office. As you start to open the door just a crack, you see the bad cop. You pull back so they do not see you and, with the door barely open so you can see and hear them, you realize they are buddies and the whole thing has been staged. The bad cop tells the good cop that he will pay him the usual 12% and it’s a bargain because the collection agencies charge up to 50%.

The bad cop drives you into the good cop’s arms. The bad cop accepts a reduced amount and even pays a 12% “donation” out of this reduced amount because he knows that if you have a total financial meltdown, he could get nothing.

Decisions – Decisions – Decisions

You walk into a studio and find yourself standing in front of a microphone. You are handed a script and you start reading it. You have not chosen any of the plot twists. You have not sketched any of the characterizations. You are just performing what has been set before you. A lot of what goes on in the credit world is like this. I am not denouncing an evil conspiracy. We are all just playing our part in a spectacle that we did not write. The creditors are just doing what they have been conditioned to do. The counseling services are playing the role that has been handed to them.

Everybody is just doing the best he can

With the piece of the puzzle he has in his hand.

So, how do you respond to the piece of the puzzle in your hand? Should you ever use a credit counseling service? That, of course, is each person’s decision, but maybe I can help you think about this as you consider this question. You can do the same things, in most cases, for yourself that a service could set up for you. You can run an inherent momentum version of the debt destruction engine. You can contact your creditors and ask for a lower interest. But do you remember our old friend Clyde? Clyde is the financial partner in your life that tries to run the water out of the tub while you are trying to fill it up. Remember him?

Sometimes you have someone in your life that simply will not submit to any authority or exercise any restraint or self-discipline of any kind. Even if you do not have a problem yourself with financial responsibility, you may have to submit yourself to the authority of a credit counseling service just to get your Clyde under authority. Even if the guy who runs the “non-profit” organization writes a salary check to himself for $40,000 a month and you know you are being used by these people, you might have to let them use you if that is what it takes to slap the foolishness out of your Clyde. It would be far more efficient to destroy your debt on your own with your own debt destruction engine. All of the financial power that is unleashed in your life by doing this would be enjoyed by you and your family without being shared by a “non-profit” guy profiting off of you. But, you do whatever you have to do to win! If you or your Clyde or both of you need the structure and discipline of an authority controlling your financial life for a while, then go ahead and do the CCCS thing or let one of the other credit counseling services help you.

http://www.HushDoNotTell.com The plainest, ugliest little website on earth where the “little guy” learns how to destroy all of his debt with the money he already makes. Click on “Free Debt Destruction Education in 10 Parts” to learn how to kill your bills with no business opportunity of any kind, mine or anyone else’s.