Behold the Power of Early

A Wealth Induction Loop That is for the Birds

Jenny and Jimmy have 12 cockatiels (6 male and 6 female) in a large aviary enclosure they constructed on some land given to them by Jenny’s grandfather. They washed thousands of cars in High School to buy the birds. Jenny is 20 & Jimmy is 19 and they have been married for one year. The birds require a lot of work to properly take care of. They earn their living other ways and plan to grow the strange flock throughout their lives as one of their ways to prepare for retirement. This particular species is quite valuable and they believe that the value of these cockatiels will only rise over time. These birds, a magical strain from an exotic land called New Jersey, are in their prime and will be capable of reproduction until they are 100 years old (without Viagara!).

I have no idea what the reproductive habits and gestation periods are for cockatiels, but for the sake of this example, we are going to say that 1 bird per year is hatched and survives on average from every 12 birds. This is an average growth rate of 8 ¹/₃ % per year. I will round the results to the nearest whole bird. Jenny and Jimmy will not add any birds from outside the flock. All growth will come from hatchlings. This illustrates the great benefit of starting early.

In real life, of course, the growth would not be uniform as it is in this illustration. If the average rate of growth over the entire 50 years was 8 ¹/₃ % per year, there would be many individual years when the growth would be higher and also lower. It would almost never be exactly 8 ¹/₃ % in a particular year. There would also be years in which the size of the “flock” would actually decrease. This pattern shown below is an oversimplification. We are taking liberties here, obviously, to demonstrate compounding over time.

THE MOST IMPORTANT FACTOR IN WEALTH BUILDING IS TIME.

It may help to visualize the wealth-building process in the following chart if you think of each bird as representing $1,000.

Jenny and Jimmy’s Cockatiel Ranch Starting with 12 Birds When Jenny Is 20

(Growth Rate of 8 ¹/₃ % with No Birds Purchased To Add To Flock)

Jenny’s Age: 20 Number of Birds: 12

Jenny’s Age: 21 Number of Birds: 13

Jenny’s Age: 22 Number of Birds: 14

Jenny’s Age: 23 Number of Birds: 15

Jenny’s Age: 24 Number of Birds: 17

Jenny’s Age: 25 Number of Birds: 18

Jenny’s Age: 26 Number of Birds: 19

Jenny’s Age: 27 Number of Birds: 21

Jenny’s Age: 28 Number of Birds: 23

Jenny’s Age: 29 Number of Birds: 25

Jenny’s Age: 30 Number of Birds: 27

Jenny’s Age: 31 Number of Birds: 28

Jenny’s Age: 32 Number of Birds: 31

Jenny’s Age: 33 Number of Birds: 34

Jenny’s Age: 34 Number of Birds: 37

Jenny’s Age: 35 Number of Birds: 40

Jenny’s Age: 36 Number of Birds: 43

Jenny’s Age: 37 Number of Birds: 47

Jenny’s Age: 38 Number of Birds: 51

Jenny’s Age: 39 Number of Birds: 55

Jenny’s Age: 40 Number of Birds: 59

Jenny’s Age: 41 Number of Birds: 64

Jenny’s Age: 43 Number of Birds: 76

Jenny’s Age: 45 Number of Birds: 89

Jenny’s Age: 50 Number of Birds: 132

Jenny’s Age: 55 Number of Birds: 198

Jenny’s Age: 56 Number of Birds: 214

Jenny’s Age: 57 Number of Birds: 232

Jenny’s Age: 58 Number of Birds: 251

Jenny’s Age: 59 Number of Birds: 272

Jenny’s Age: 60 Number of Birds: 295

Jenny’s Age: 61 Number of Birds: 319

Jenny’s Age: 62 Number of Birds: 346

Jenny’s Age: 63 Number of Birds: 375

Jenny’s Age: 64 Number of Birds: 406

Jenny’s Age: 65 Number of Birds: 440

Jenny’s Age: 66 Number of Birds: 477

Jenny’s Age: 67 Number of Birds: 516

Jenny’s Age: 68 Number of Birds: 559

Jenny’s Age: 69 Number of Birds: 606

Jenny’s Age: 70 Number of Birds: 656

Notice that in the first year (Age 21), this “ranch” grows by 1 bird a year.

In the 10^th year (Age 30), the flock grows by 2 birds a year.

By the 20^th year (Age 40), the growth is just 4 birds a year. Like a locomotive, it is slowly building steam. Notice that, in the first half of the wealth building process, the totals are not that impressive. This demonstrates the accuracy of the statement made by Charles S. Givens. “It takes 10 units of effort to produce 1 unit of result in the beginning, then 1 unit of effort to produce 10 units of result later.” The “1 for 10” time of success is built upon the foundation of the “10 for 1” time of effort. It is hard to keep doing everything you need to do in the beginning unless you keep the ultimate reward in your mind. If you are controlled by your reactions to the current pains and pleasures of your life, you will not keep this thing going. You have to see beyond the present moment. You have to think like an eagle, discerning the beginning and the end all together from your lofty perspective in the sky, not like a prairie chicken.

By the 30^th year (Age 50), the growth is from 122 to 132 or 10 birds a year. Momentum is growing.

By the 40^th year (Age 60), growth is 23 birds a year. Their wealth building locomotive has a full head of steam now.

By the 50^th year (Age 70), growth is 50 birds a year. Their “Wealth Induction Engine” is blazing down the track now, but it had to build up to this slowly over time.

The flock has multiplied by more than 54.

Behold the Power of Early!

May I note a certain reality here? If you are an academic or a financial planning/investment management professional, you may find my writing simple to the point of being primitive. My articles, no doubt, do not meet the standards of peer reviewed work. My targets are the lower half of the middle class and working class folks, people who tend to believe that all of this (the “this” being financial planning and investment principles) is impossible to understand and that there is not really anything they can do to achieve a better life financially. I am trying to transform “un’s” into “in’s”, trying to turn the uninitiated into the initiated. I am attempting to convince these guys that it is possible to impact their futures in a positive way by the actions they take right now.

I come at it from many different angles. I use anecdotes, word pictures, bizarre characters, strange situations, animals, and humor (at least, I hope it is funny) to persuade those who have never believed in their ability to operate in this arena that they can operate like a skilled surgeon or at least as well as a good butcher. I am not a financial planner nor do I play one on the internet. When I succeed in getting someone to believe in their own financial game-playing potential, I point them to the pros and try to get them to find someone to mentor them through the process. If you brainiacs find this boring, then please remember to ignore the post when you see it is written by “littlecashgiant”.

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Wealth Induction Loop

“Father Abraham has many sons. Many sons has Father Abraham.” These are some of the words of a children’s song sung in church. Father Abraham also had many sheep, many cattle, and many oxen. The size of flocks and herds was the standard by which wealth was measured and perceived in the ancient world. Did Abraham start with many critters? No, he started with just a few and allowed them to grow by “looping”. Abraham was a capitalist and he looped.

A Highly Technical Description of the Wealth Building Process

(Actually About as Technical as a Drawing of Stick Figures)

A “THING” PRODUCES A RESULT.

RESULT IS NOT CONSUMED, BUT IS ALLOWED TO ”LOOP” BACK INTO THE “THING”.

THIS NEW LARGER “THING” PRODUCES A RESULT THAT IS USUALLY, THOUGH NOT ALWAYS, EVEN LARGER.

THIS NEW RESULT IS NOT CONSUMED, BUT IS ALLOWED TO “LOOP” BACK INTO THE “THING” AGAIN.

THIS NEW LARGER “THING” PRODUCES A RESULT AGAIN.

THIS PROCESS CONTINUES LOOPING OVER AND OVER AGAIN THROUGH THE YEARS AND DECADES.

Due to the restraints of html code, I can not show an arrow arising from the “result” and curving upward and then curving back to the left and pointing to the original thing. In “The Debt Destruction Engine”, a book which I give away for free, there is a picture like this illustrating the process of the result “looping” back into the thing.

Example of an Ancient (and Modern) Wealth Induction Loop

10 SHEEP —— EXERCISE THEIR MULTIPLICATIVE PROCLIVITIES —– NOW THERE ARE 13 SHEEP

The shepherd is having a hard time making it and has to eat one of the sheep, but manages to “loop” 2 back into the process.

12 SHEEP —— EXERCISE THEIR MULTIPLICATIVE PROCLIVITIES —– NOW THERE ARE 15 SHEEP

The shepherd is having a better year and is able to survive from his crops and other animals without eating a sheep.

15 SHEEP —— EXERCISE THEIR MULTIPLICATIVE PROCLIVITIES —– NOW THERE ARE 20 SHEEP

The result is allowed to continue. It is not consumed, which is stupid and “loopy” to the prairie chicken person, hence the name, the wealth induction loop. Just kidding. In a sense, the result is looped back into the thing from whence it came. As this process loops over the years, it induces wealth, which is why this is called the wealth induction loop.

THE KEY TO PRODUCING WEALTH IS TO LOOP AS MUCH OF THE INCREASE AS POSSIBLE BACK INTO THE PROCESS. THE LOOP REQUIRES EFFORT TO MAINTAIN, BUT DELIVERS NO IMMEDIATE GRATIFICATION. THIS IS A PROBLEM FOR THE PRAIRIE CHICKEN PERSON WHO TAKES HIS “BUZZ” UP FRONT AND THEN PAYS FOR IT LATER. THE EAGLE OPERATES WITHOUT IMMEDIATE REWARD AND TRADES IT FOR GREATER WEALTH IN THE FUTURE, WHILE THE PRAIRIE CHICKEN WANTS THE REWARD FOR HIS EFFORT NOW AND CONSUMES IT NOW.

There have been cases where someone would explain wealth building to a friend. Then, to help them out, they would give them a wealth induction loop. For example, they might give their friend some cattle. What happens? Invariably, the giver comes by several months later to see how things are going and discovers that the receiver has sold all of the cattle. A wealth induction loop, such a few cows, has to be fed, maintained, and looked after. This requires time, money, and effort for something that will benefit you off in the future.

In the prairie chicken world, every reward for work done is received and consumed right now. When a prairie chicken is given a wealth induction loop, he will very quickly consume the increase because that is what he has always done. Then, he will consume the loop itself. When you do not have the discipline to create the wealth induction loop yourself, you usually do not have the discipline to drive it past subsistence.

Driving the Wealth Induction Loop Past Subsistence

An activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxx (10 units) produces xx (2 units).

The total increase is not consumed, but is “looped” back into the process.

Then you have the new larger thing: xxxxxxxxxxxx (12 units).

Once again, this activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxxxx (12 units) produces xxx (3 units).

The total increase is not consumed, but is “looped” back into the process.

Now, you have the new larger thing: xxxxxxxxxxxxxxx (15 units).

Let us say that I have the wealth induction loop pictured above operating in my life and I decide I need 8 units to live on. Can I retire when this wealth induction loop produces an increase of 8 units? No, because I want to allow for inflation and I just want to grow my wealth so I can bless others. I would want the loop to grow past subsistence. In other words, I want it to produce more than 8 units of increase before I retire so the units that I do not use to live on can be looped back into the process and cause it to grow. When the wealth induction loop produces 11 units of increase each year on a regular basis, I could loop 3 units back into the process to make it grow. And retirement, as I think of it, is not what it is usually thought of. It is not just an opportunity to relax and recreate oneself. It is freedom. Freedom to work on things that you care about, to champion causes that you believe in, to invest yourself in people you care about, and, yes, freedom to play when you want to.

This activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxxxxxxx (15 units) produces xxxxx (5 units).

The total increase is not consumed, but is “looped” back into the process.

Then you have the new larger thing: xxxxxxxxxxxxxxxxxxxx (20 units).

Once again, this activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxxxxxxxxxxxx (20 units) produces xxxxxxxx (8 units).

The result is 8 units, which is the requirement you set for retirement, but you need more than this to actually retire because of inflation. You need more than 8 units so you can live on 8 units and have money left over to loop back into the process to achieve continued growth. At some point in the future, you will need more than 8 units to retire because of inflation, so you have to let this loop on up to a larger size before you can retire on the result.

The total increase is not consumed, but is “looped” back into the process.

Now, you have the new larger thing: xxxxxxxxxxxxxxxxxxxxxxxxxxxx (28 units).

This activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxxxxxxxxxxxxxxxxxxxx (28 units) produces xxxxxxxxxxx (11 units).

The increase or result is 11 units now, which is greater than the subsistence requirement. So, 8 units could go to your subsistence and 3 units would be available to loop back into the process for continued growth. So, you have driven this wealth induction loop past subsistence.

IS IT TIME TO RETIRE?

You might not, in real life, retire at this point, because the “loop” could have a bad year the very next year after this and actually decline. You might let it run up even larger before you retire. This, though, still illustrates the concept of driving the loop past subsistence. This process is ponderously slow at first. It may take 80% of the time to accumulate the first 20% of the wealth. Then it may take the last 20% of the time to accumulate the last 80% of the total wealth that will be amassed over time. As time passes, the power of compounding goes to work for you and works its magic. You have to go through that early season of slow, plodding growth before you get to enjoy the latter season of rapid growth.

THE WEALTH INDUCTION LOOP IS THE POWERPLANT THAT DRIVES THE WEALTH INDUCTION ENGINE.

IT IS THE STEAM ENGINE THAT DRIVES THE LOCOMOTIVE THAT INDUCES (CREATES) WEALTH NATURALLY AS IT OPERATES.

A WEALTH INDUCTION LOOP CAN BE ANYTHING THAT CAN GROW BY COMPOUNDING OR REPLICATION SUCH AS A MUTUAL FUND, A HERD OF ANIMALS, YOUR JOB (THROUGH CONTRIBUTIONS TO A 401K, IRA, AND TO OTHER INVESTMENTS), RENTAL PROPERTIES, ATM’s, JANITORIAL CONTRACTS, AN MLM OPPORTUNITY, A BUSINESS (HOME-BASED OR OTHERWISE).

We think of someone who lives this way as odd. Actually, it is unnatural to live any other way. The abnormal has become the norm. Building wealth is not the exclusive domain of those who were born rich. In fact, if you research those who become multi-millionaires, you will find that they often come up from nothing. Billionaires are generally from families that are not especially well to do. They build or acquire or create a wealth induction loop of some kind. The loop is often tiny at the beginning. They faithfully operate the wealth induction loop without consuming its result so the increase can loop back into it to make it larger. They drive it past subsistence and then use its increase to acquire more wealth induction loops. You can make excuses about your disadvantages (background, lack of education, lack of money) or you can make a plan and work the plan.

ARE YOU LOOPING?

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Being an Eagle in a Prairie Chicken World

There are prairie chicken people and eagle people in the world. No insult is intended here at all. A particular prairie chicken person may very well be more intelligent that a particular eagle person, but there is a difference in perspective which produces certain behaviors. If we can understand the difference in perspective between the prairie chicken and the eagle, we will comprehend a lot about the way financial decisions are made.

Comparison of the Prairie Chicken and the Eagle

Prairie Chicken’s Basic Description: Flies a few feet at a time. Piddles around in grass eating bugs and small reptiles. Can only see what is immediately around him.

Eagle’s Basic Description: Flies at great heights surveying vast panorama of her domain. With keen vision, can discern difference between a rabbit and a gopher at a distance of a mile. Recognized symbol of courage and nobility.

Prairie Chicken’s Multiplicative Proclivities: Male practices “Wham bam, thank you Ma’am” and leaves.

Eagle’s Multiplicative Proclivities: Male mates with one female for life.

Prairie Chicken’s Family Habits: Male is gone after procreative exercise. Young booted out at early age to fend for themselves.

Eagle’s Family Habits: Males shares responsibility of caring for young. Both parents take turns hunting and caring for nest. Young stay in nest longer than most birds and are carefully nourished and trained by both parents.

Prairie Chicken’s Survival Techniques: Tires to hide in grass, but often does not see enemy until it is too late.

Eagle’s Survival Techniques: Fights with great courage and skill. Tactically wise. When outnumbered, fighting against overwhelming odds, flies directly into sunlight. Tricks large group of attackers into following her as she flies directly toward the sun. Has film over eyes that make her oblivious to intense light. Destroys one foe at a time before the rest of her enemies can recover from blindness. Then flies into light again and repeats process until all enemies are destroyed. The eagle finds her salvation, so to speak, it the “bright light of truth”.

Prairie Chicken’s Behavior: He is always reactive, never proactive. Perceives dangers only after these materialize.

Eagle’s Behavior: She is proactive. Perceives dangers and opportunities before these fully develop.

Prairie Chicken’s Outlook: He is characterized by fearfulness. “Fear is faith that sinks”.

Eagle’s Outlook: She is characterized by faithfulness. “Faith is fear that soars”.

Prairie Chicken’s Perspective: Suffers from myopia, near-sightedness, narrow vision, given to living small, not intent on achieving greatness, not “connecting the dots”.

Eagle’s Perspective: Blessed with perspicacity, the ability to perceive what is going to happen in the future as the logical consequence of actions taken or not taken right now.

Prairie Chicken’s Attitude: This present moment on the timeline of the prairie chicken’s life is all that matters.

Eagle’s Attitude: Views logical flow of events in the future though these can only be seen in her imagination. Intentionally shapes destiny by actions taken right now.

Prairie Chicken’s Problems: Every problem is a survival problem, which is one that must be solved in order to survive.

Eagle’s Problems: The eagle faces both survival and opportunity problems. There is a locked door. Beyond this door are the conjoined twins called “Risk” and “Opportunity”. One of these siblings never exists without the other. The opportunity problem is figuring out how to pay the price required to open the door to expose yourself to both risk and opportunity. The financially wise eagle will try to change a survival problem into an opportunity problem.

Prairie Chicken Result: The prairie chicken will hedge the present moment at any cost.

Eagle Result: Will be her own insurance company for the lower end of her loss and “invest” the difference. There is a lot more about this is other posts on this blog and in my books.

Prairie Chicken Financial Example: Will pay more money for lower deductible on insurance.

Eagle Financial Example: Will accept higher deductible on insurance, pay lower premium, and invest the difference thereby transforming a survival problem into an opportunity problem.

Prairie Chicken’s Financial Tradeoff: Will forfeit future wealth to pay for survival crutches. There is a lot more about this, as well, in other posts on this blog.

Eagle’s Financial Tradeoff: Seemingly exposes self to apparent risk to purchase better future. The reality is that paying an exorbitant price to totally lock down the perfect safety of the present moment can be the riskiest behavior of all. You can be so intent on saving your life that you lose it. As you delve more into the whole survival crutch thing, you will understand what this means.

Think about the differences between these two creatures in the natural world and how these two perspectives would operate in the world of financial decisions. I employ the differences between prairie chickens and eagles a lot as I explain financial planning principles. The concepts mentioned above (survival and opportunity problems, hedging the present moment, paying more for a lower deductible, and forfeiting future wealth to pay for survival crutches) are explained in other articles in this blog.

The prairie chicken man (or woman) bee bops around in his everyday life and never flies up high in his mind to think about the future and what might be possible in it. He does not think in terms of taking actions now to achieve a better destiny. He pursues pleasure and avoids pain. There is no noble purpose ordained for him, no mission he is called to. He only sees and thinks about what is immediately around him.

The eagle woman (or man) soars up high in her imagination and perceives what is going to happen in the future as the logical consequence of actions taken right now. She will, when necessary, embrace sacrifice and avoid pleasure in order to achieve the desired destiny. She thinks about what is far off in the future as well as what is close at hand. She will take actions now to create the future she desires. The eagle woman perceives that there is a calling on her life, a mission that God ordained before time began.

“But they that wait upon the Lord shall renew their strength; they shall mount up with wings as eagles; they shall run, and not be weary; and they shall walk, and not faint.” Isaiah 40:31

The eagle actually goes through a time of renewal. This is what the prophet is referencing in this famous passage. When the eagle is old, he goes through a time when his old feathers start to fall off. He plucks the ragged, aged feathers out and he is restored, for a time, to the condition he was in during his most vigorous youth. His enemies are surprised because they have been ganging up on him, savaging him, harassing him to the brink of death, when suddenly, he is the champion he was many years ago.

Debt may have you on the ropes as you do your own version of rope-a-dope. Do not let the prairie chickens, the vultures, and the buzzards get you down. You can figure out this financial planning thing, not like an expert, for I am certainly not an expert in any real sense of the word, but well enough for you to win your own personal battle. Read, study, think, make your own plan, and execute it. Make adjustments as you make mistakes and continue to learn. Let the eagle in you emerge. Bolt up out of the prairie chicken world and soar high.

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Weather-Assisted Debt Destruction Engine

Bubba has been telling me about his invention of the “Going for Broke Version of the Debt Destruction Engine”. Now, he hands me a sketch he made of his latest bizarre innovation and continues, “Here in the South, the highest utility bills would be in August. Your ‘block payment’ is made up of the highest utility month + the total of all required minimum payments + extra fuel. See here. This is a representation of 8 accounts: 4 credit cards, 2 store revolving accounts, and 2 finance company accounts.

Bill 1 Bill 2 Bill 3 Bill 4 Bill 5 Bill 6 Bill 7 Bill 8

Let’s say I have a large house in Dallas. My electric bill in August is $350 and my natural gas bill is $50. The total of the electricity and gas in August is $400. This is the month with the highest combined cost for electricity and gas. We all complain about this, but we somehow manage to pay it. What if we use this $400 as part of our block payment for the debt destruction engine? If the total of all the Type 1 Bills illustrated is $1,300 and the extra fuel we manage to add is going to be $60, we would take the $1,300 + the $60 of extra fuel + the $400 of the highest electricity and gas month to get our block payment of $1,760.

Highest Heating & Cooling Costs of Yr + Bill 1 + Bill 2 + Bill 3 + Bill4 + Bill 5 + Bill 6 + Bill 7 + Bill 8 + “Extra Fuel” = Block Payment

($400 August Utility Costs + $1300 Bill Payments + $60 Extra Fuel = $1760 Block Payment)

Each month, we find the total for all the required monthly payments on the time payment accounts (Bills 1 through 8). We add this to the electricity bill and to the gas bill. We subtract this total from the block payment of $1,760 to get the extra amount paid on the Target Bill.

If you do this in October in Dallas, the electric bill and the gas bill are both low. The heat of summer has broken and the cold of winter has not yet settled in. Let’s say the electricity for October is $140 and the gas bill is $60. If you were starting this strategy in October, you take the total of the required monthly payments of $1,300 and add this to the electric bill of $140 and add this to the gas bills of $60 to get $1,500. You take the block payment of $1,760 and subtract this $1,500 from it to get $260. ($1760 – $1500 = $260) You then add this $260 to the Target Bill.

In October then, you pay just the minimum required monthly payments on Bills 2 through 8. On Bill 1, you pay the required minimum payment plus $260.

In winter, the gas bill is high and the electricity is relatively low, but the total of both is never as high as it is in August. Even in the dead of winter in Dallas, you would add an extra amount to the Target Bill as a result of the electricity and gas together being lower than it was in August. So, 11 months a year, this strategy would put more extra fuel on your debt. You are putting out cash as if the electricity and gas are the same amount these are in August all through the year. This is hard to do, but if you can manage to pay the utilities in this hardest time of the year, then maybe you can manage to keep on paying this amount throughout the year. If you can, this approach generates considerable momentum. “

I am stunned as I stand there in the foyer. “This Bubba really isn’t as stupid as I look! Oh! Did I say that out loud?”

Bubba goes on, “This implies that there are Bill Killing Seasons. In the South and in most parts of the United States, there are two primary Bill Killing Seasons. One occurs after summer when the heat has broken and the bitter cold of winter has not yet settled in. The other Bill Killing Season comes after winter when the cold has broken and the simmering heat of summer has not yet arrived. Because of the low utilities in these brief mild seasons, you can pour extra fuel into your debt destruction engine and go all out to execute debt.

For someone in North Dakota, the highest combined cost of heating and cooling would probably occur in February. If the North Dakotan applies this strategy, he adds extra fuel to his debt destroying locomotive 11 months a year. He puts out cash as if his bills were the same amount they were at the beginning and as if his utilities were the same amount these were in February. For the guy in Alaska, there might be a time of perhaps 3 months when the heating oil cost is less than the rest of the year from mid June to mid September. This would be his one Bill Killing Season. He would pour extra fuel into his debt destruction engine during this mild season.”

“Wow, Bubba, you really have become a Debt Destruction Engineer! You have found an advantage residing in the disadvantage of high utility bills and transformed a problem, the problem of paying these utility bills, into an opportunity! Now, I meant to say that out loud!”

The beer physicist continues, “And there is one other factor that gives us debt destroyers a little help. It’s not a lot of help, but we need all the assistance we can get. I’m talking about ‘free’ checks. If you are paid weekly, you generally have to think in terms of paying ¹/₄ of your monthly bills every week. You get in the habit of paying each month’s bills with 4 checks. With 12 months in the year, you pay your bills with 12 X 4 = 48 checks. You, however, receive 52 weekly checks a year. There are 4 ‘free’ checks then. This gives you a little room to pull ahead or to catch up if you’re behind. If you are paid biweekly, you get in the habit of paying each month’s bills with 2 checks. With 12 months in the year, you pay your bills with 12 X 2 = 24 checks. You, however, receive 26 checks a year. There are 2 ‘free’ checks then. These 2 checks help you to pull ahead or catch up. So, you can use the weather and these ‘free’ checks to help you kill bills.”

Bubba and I chat a while longer. Then we say goodbye. We shake hands and he hugs me again. He walks out to get in his rental car and drives away. When I get back to my office, there is an envelope on my desk. Written on it are the words: “From Bubba. Please read!” I think, “The sweet guy is probably thanking me some more here.” I open the envelope and find a note.

“My name is not really Bubba and I do not work for the Lone Star Brewing Company. I am a scientist, but I won’t say what kind. There are thousands of us, so there is no way you can track me down. When I first hugged you in your office three days ago, I lifted your wallet. I took out 3 credit cards and put the wallet back in your pocket. By the way, how is it that a guy who is a sworn enemy of credit would have so many credit cards? There were at least 8 more that I saw that I left in your wallet. I paid for your stupid “seminar” with your credit card. I dined at the finest restaurants and stayed at the best hotels in town at your expense! You treated me to dinner theatre one evening. You bought me a new Rolex and a new laptop computer. When I hug you the last time before I get in the car, I’ll put your credit cards back in your wallet. Thanks for the hospitality! This is what you get for trying to take advantage of a sweet, non-assuming scientist like me!”

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Going For Broke Version Of The Debt Destruction Engine

When I set up an example to teach financial principles, the representative people are usually in the mid-income or low income segment of the population. This next story is a little different. The cornpone P.H.D. and his “ag mag” model wife illustrated here are high income folks.

Bubba is sitting in my office telling me his story. He is a nuclear physicist in his late twenties and works as a research scientist for the Lone Star Brewing Company. He is conducting experiments on the irradiation of hops to improve the flavor and to increase the shelf life of the product. His buddies at the Dun Wandrin’ Inn & Tavern are all proud of him and say that he is doing God’s work. His wife is a successful model and has recently appeared as a centerfold in the “Sorghum Harvesters Herald”, an agricultural publication, which is one of Bubba’s favorite magazines. Life is good or, at least, it would be, if it were not for debt.

Bubba, a “take the bull by the horns” kind of guy, has decided to act decisively. (Has decided to act decisively? You call this writing?) He is signing up for an intense 3-day seminar on credit avoidance and debt destruction at the Institute of Debt Destruction Engineering in Balch Springs, Texas. I, as President of this august institution, interview him in my office and find that he has, indeed, had an interesting past. He has worked his way through college as a student at the University of Texas at Dallas by rodeoing. He has “taken the bull by the horns” quite literally many times in places that he cannot talk about.

“Bubba, there is no spot on earth where people detest credit and debt more than the hallowed ground you now stand, or rather, sit upon. I hate credit with a passion that rises to loathing and then ascends further to murderous rage! You will learn how to annihilate your debt in this seminar and you will become so disgusted at credit that the mere thought of pulling out a credit card will make you violently ill! I hate, Hate, HATE credit and debt and I despise anyone who tries to enslave others with debt!”

“Just how much is this here now seminar?” asks the summa cum laude physicist.

“Why, ’tis but a mere pittance when you consider everything you get from it.”

“Just how much is this here now seminar?” repeats the summa cum laude physicist.

“It’s almost nothing really. The attendee should be ashamed of himself for taking such advantage of me.”

“Just how much is this here now seminar?” shouts the summa cum loud physicist.

“It’s only $4,999 if you act this week. It’s usually $6,000. We’re running a special, but I don’t know how much longer we’re going to be able to offer this at such an amazing price!”

“I’ll write you a check right now.”

“Uh, sorry, Bubba. We’re not really set up for checks.”

“Alright, I’ll have to go to a bank and draw out the cash.”

“Uh, no, sorry, Bubba, but we’re not really set up for cash either. We do, however, accept Visa, Master Card, Discover Card, American Express, and the Diner’s Club.”

Bubba stands up, leans across the desk and gives me a hug as if to say, “Thank you!” He becomes one of our best students. Credit avoidance becomes a passion in his life exceeded only by his fervor for debt destruction! We always have a little graduation ceremony at the end of the seminar. Bubba walks to the front to the tune of “Pomp and Circumstance” to receive his Certificate of Debt Destruction Engineering Excellence, his little denim engineer’s cap, and his hand carved wooden whistle in the shape of a locomotive that sounds like a train when you blow it. As I shake his hand, Bubba says, “It’s worth 5,000 bucks just for the cap and whistle!”

Later, I am standing in the foyer, bidding farewell to the suckers, I mean, the students. Bubba comes to give me a hug and thanks me for giving him a new life. He tells me that he is determined to blaze new trails of glory in the annals of debt destruction engineering. “I am going to invent a new kind of debt destruction engine, one completely different from the ones you told us about. Behold the ‘Going for Broke Version of the Debt Destruction Engine’!”

He tells me what he intends to do. I am highly irritated, deeply disturbed, intensely distressed, and moreover, somewhat distraught. “Bubba, let me make sure I understand what you’re saying. You say you have been contributing to your 401(k) and now you’re going to stop these contributions so you can put more money in as extra fuel for your debt destruction engine?”

“Yes, I have been contributing at the maximum level allowed since I started at the brewery. We’re gonna stop these 401(k) contributions. We are also going to stop our automatic deposits to our other retirement accounts which we have been contributing to at the maximum level allowed. If we can wipe out all debt, including the mortgage, by our mid-thirties, we’ll still have plenty of time to grow our wealth. With no debt at all, we’ll be able to pour a lot more money into our investments. Right now, we’ll add the money that was going into the 401(k) and other retirement accounts to the extra fuel for the debt destruction engine to make it run faster. “

“I don’t know, Bubba. I don’t think I like this. No, I know I don’t like this and I strongly advise against it!”

“Hold on a minute. You’re the big Daddy engineer here and if you’re against something that says a lot to me, but could you just hear me out on this?”

“Say on then, Bubba. Your $5,000 has purchased the right for a good listen.”

“In the first place, my wife and I are not your typical clients. You are more interested in helping lower income folks, as a general rule. We both have higher incomes and, in our later years, we could just “pare our pond” and “plummet to prosperity” like you explained in the seminar. We could just reduce the size of our life, so to speak, and convert some of our assets to cash, and pay off our debt. We could take the equity out of our large house by selling it and buy a smaller house in a low-cost-of-living area for cash and pay off the rest of our bills or invest with what was left. We would have this to fall back on even if the bottom fell out of this ‘going for broke’ thing.”

“There is no guarantee, Bubba, that you will continue to be higher income folks just because you are now. I know your wife was on the cover of ‘Alfalfa Today’ just last month and she has been Ms. Soybean for 3 years running…”

“Four years running.”

“OK, your wife has been Ms. Soybean for 4 years running, but, eventually her beauty will fade and she will no longer get all these glamorous gigs with agricultural publications. And there’s not a lot of demand for nuclear physicists in the brewing industry. Your job is something of an oddity. Your CEO could come in tomorrow and pull the plug on the whole project. You could end up making $30,000 a year in a factory QC lab somewhere testing the elasticity of brassieres.”

“Alright, that’s true. But her beauty won’t fade for a few more years, at least, and we already have $50,000 in our retirement accounts. Even if I don’t come close to that “Dogs” thing with the multiplication of 50 every 20 years, I should be able to multiply it by at least 5 every 20 years. So, in 20 years, we’d have $250,000 and in 20 more years, we’d have $1,250,000 in the 401(k) and other retirement accounts even if we never contributed to these again.”

“That’s assuming, Bubba, that you manage to leave it in there. A lot of folks have emergencies every few years and have to draw part of it out.”

“OK, but at least there’s already something substantial in there to work with even if I stop adding to it. If I can leave it in there, we should still have something later in our life even if my ‘going for broke’ strategy doesn’t work.”

I start thinking that maybe Bubba is not as stupid as I look. “I still can’t say that I like this, but go ahead and tell me exactly what your plan is.”

“We stop the contributions to the 401(k) and IRA’s and such. The fact that we are not contributing to our retirement accounts actually raises our taxes. We might have to actually increase our withholding for income tax, but we do not increase it enough to get a refund, just enough to pay the tax. This should give us a net gain in take home pay throughout the year. We cut out the weenie tax. Being that we are a higher income couple, we should find quite a few survival crutches in our life that we can cut out. We don’t bear down too much on the LEX Cash thing, but we do pare our pond just a little bit. We take all this money that we find and pour it directly into our emergency fund for one year. We are protecting ourselves from the problem of an emergency fund overload. Even as we do this, we run an inherent momentum form of the debt destruction engine without adding any extra fuel. Through this first year, we put nothing in the 401(k) or IRA’s and nothing in as extra fuel. Everything goes to the emergency fund. When I get a raise, the extra take home realized is put in the emergency fund. When we get an unexpected check, like an insurance refund, it goes into the emergency fund.

(See the discussions of survival crutches, the weenie tax, LEX Cash, paring the pond, plummeting to prosperity, emergency fund, and inherent momentum version of the debt destruction engine in previous posts in this blog. One interesting irony in all of this is that higher income couples like our brew scientist and “ag mag” model here tend to have much higher dollar amounts of survival crutches than the rest of us. They could find several hundred dollars by cutting out these crutches, but often have no interest in understanding this when you try to tell them about it. It is as if the idea of harvesting a few hundred dollars a month just does not blow up their skirts.)

One year later, we prepare to fire up our boiler for an inherent momentum with extra fuel version of the debt destruction engine. The extra fuel is made up of the net gain in take home pay from not contributing to the retirement accounts + the weenie tax + a little LEX Cash + whatever we have gained by paring our pond. Then we add up all of our bills still in existence: the credit cards, finance company accounts, store revolving accounts, car and truck loans, and the mortgage. For my wife and me, this should, one year from now, come to about $8,500 a month.

The extra fuel (401k and IRA non-contributions + weenie tax + LEX cash + paring our pond money) will come to about $3,000 a month. We add the two together: $8,500 + $3,000 = $11,500, which is our ‘block payment.’ Our time payment bills total $8,500 a month, but we pay $11,500 a month until the entire debt is destroyed. We subtract the total of all the required monthly payments from $11,500 and put the difference on the Target Bill every month.

In the first month, we pay the minimum required payment on Bills 2 through 18. On Bill 1, the Target Bill, we pay the minimum required payment plus $3,000.

In the second month, the total of all the required monthly payments is $8,437. $11,500 – $8,437 = $3,073. On Bills 2 through 18, we pay just the required minimum payments. On Bill 1, we pay the required minimum payment plus $3,073. Every month we do this. We total up all the required monthly payments and subtract this from $11,500 and then add this amount to the payment on the Target Bill.

To speed it along even faster, we add any money realized from a raise to the “block payment.” Any extra cash that comes into our hands is added to the extra fuel. We go for broke. We do not invest directly in the 401(k) or in an IRA and we do not build our emergency fund. We just throw everything we possibly can at our debt in a do or die effort to kill it now as fast as possible!”

“What you are suggesting, Bubba, might actually work better for a lower income couple in their twenties than for a high income couple in their twenties like you and your wife. When a high-income couple contributes to a tax-free plan, they enjoy a greater reduction in taxes because you pay a higher tax rate. When you cut out contributions to a tax-free plan, you do not gain as much take home pay as you might think because of the high taxes you pay. I still don’t like what you’re contemplating, but I understand where you’re coming from. I just hate to see a young couple lose the advantage of time for their investments. You would be losing the best time to invest in a 401(k), which is when you’re very young. You not only lose the advantage of time, but you also lose the benefit of the company matching when you do this. Ultimately, it’s up to you. I can’t give you my blessing, so to speak, but I can give you my prayers, if you decide to go ahead and do this thing.”

“Oh, I almost forgot. I also invented another variation on your debt destruction engine, the weather-assisted debt destruction engine.”

“The weather what?”

http://LifeInBodunk.wordpress.com Humor blog on life in “flyover” America.

This Is Why You Need To Set Up An Emergency Fund

Once a week at 3:00 AM, there is a secret meeting.

The car, the fridge, the stove, the cat,

The roof, the sinks, the thermostat,

All give the secret greeting:

“Down, down,

We break down

At just the perfect moment.

We meet to scheme,

To our owners bring

The utmost trial and torment.”

Every appliance, machine,

Animal and thing,

That you have in your life,

Will here attend

To plan to send

To you the greatest strife.

TV No. 2: “What if we have the cat get sick…..”

Dishwasher: “And the roof to start to leak?”

Roof: “The fridge quit…..”

DVD Player No.1: “The foundation split…..”

Car: “And all this in one week?”

Central A/C: “No, no, if you recall, we did all that last year.”

Toilet Bowl: “If we repeat, then our deceit might to them be clear.”

Hamster: “Could we, perhaps, have the car, mayhaps, run into the cat?”

Cat: “No, we can’t because I ain’t willing to do that!”

They hash it out

And thrash it out

And write it on a chart.

THE OVEN SMOKES.

THE SEWER CHOKES.

THE DRYER SHOOTS OUT SPARKS.

THE LAWNMOWER QUITS.

THE HAMSTER GETS SICK

WITH A MURMUR IN HIS HEART.

Just before sunrise

They all arise

To end the weekly meeting.

TV No.1: “Good work tonight!”

Fridge: “Good plan! Just right!”

Central A/C: “Let’s close with the secret greeting.”

“Down, down,

We break down

At just the perfect moment.

We meet to scheme,

To our owners bring

The utmost trial and torment.”

Here you are thinking that if you can just make it to 2020 without any new problems, then you will be alright. 2020? There are 5 major disasters already planned for next week!

http://www.DebtDestructionEngineer.blogspot.com Your wealth is hidden in the fragments of your life.

Wealth Building Power Strategy – Temporary Extreme Measures

The goal here is to find money hiding in your everyday life. You are looking for $500 or more in the present month, if you can possibly dig that up. For many people, this is possible, if you cut out “survival crutches”, find “LEX Cash”, change your withholding to give yourself a raise, cut out “fluff”, all explained in previous posts in this blog, and apply the temporary extreme measures I discuss here. Remember, as the title above implies, these steps are just temporary, perhaps for as little a time period as 1 year, 6 months, 4 months, just 2 months, or even 1 month, if that is all the discipline you can get out of yourself. Many of these extreme measures are discussed in previous articles posted in this blog. Some of these self-imposed restrictions, the ones mentioned here for the first time, are things that you forego just temporarily in an insane, going-for-the-jugular, all out assault on your bills.

Often, our smallest bill has a balance of around $500 or less. You are going “psycho” here just briefly in order to kill the smallest bill in 1 month and maybe kill the second smallest bill in 2 or 3 more months. The dream you have is to find a way to destroy your credit cards, finance company accounts, and store revolving accounts in 21 months, 18 months, 15 months, or even in as little a time period as 12 months or less. Thereafter, the money formerly applied to monthly bill payments is saved by automatic deposit. You build an emergency fund to take care of those problems that you previously resolved with debt. You save the money you were making payments with and pay cash for the things you want. The following list is just a suggestion of possible ways to rustle up some desperation cash. You do not do all of these. You pick and choose to build your bill-killing plan or come up with other ideas that work even better.

· Cancel cable television. (Ouch! Remember, this step is not permanent.)

· Cancel newspaper subscriptions.

· Cancel DVD club memberships.

· Cancel book club memberships.

· Cancel gym memberships.

· Cancel magazine subscriptions.

· Do your own oil changes, if you have been having this done by someone else.

· Detail your own vehicle(s), if you have been having this done by someone else.

· Stop renting movies, just temporarily, from Blockbuster, Netflix, and others. Most of us have quite a collection of movies stacked up at home.

· Order the “magicJack” phone system to stop local and long distance phone bills, except for the once-a-year fee. This change is not temporary, but permanent.

· Cancel internet “club” subscriptions that are not necessary for business or school. However, do not cancel your ISP service because you would not be able to read my articles. I am just kidding. If internet access is not essential to your life, you could cut it out temporarily, as well. Of course, you need internet access if you are going to subscribe to “magicJack” or Vonage for phone service.

· Do your own lawn care, if you have been having this done by someone else.

· Brown bag lunches for work.

· Consider cancelling the use of the extra cell phones that everyone seems to have today.

· Do your own laundry, if you have been having this done by someone else.

· Try generic grocery equivalents. Some are good. Some are bad. Chew the good. Eschew the bad.

· Try generic over-the-counter drugs. These have exactly the same ingredients as brand names and cost several dollars less. Ask for the generic equivalent when your doctor writes a prescription.

· Use coupons. My wife has transformed herself from a very bad grocery shopper to a very good grocery shopper by focusing on coupons, generics, sales, and other clever tricks she has discovered. She is, I believe, the best grocery shopper on the planet and could give seminars on skillful shopping. She miraculously changed herself from worst to first in this category. My Dad told me how much he spent for groceries and my wife spends less per person now than my father did in the 1960’s and this is not using the dollar’s value in terms of the 60’s purchasing power and allowing for inflation. This is in terms of actual dollar amounts then in the 60’s and now! She is the Master Shopper of the Universe.

· Run several layaways throughout the year for Christmas and other special days. You budget this expense through the whole year and avoid using credit at the last minute.

· Repair your own appliances, when possible, by consulting a do-it-yourself appliance repair shop. There is a do-it-yourself parts house in Dallas called “Adam the Answerman” with a lady on staff that can tell you how to fix anything from the oven to the refrigerator to the washing machine. There are shops like this in every major metropolitan area. I am Mr. Badwrench, but I have repaired our appliances on numerous occasions. There are other times that I blow it off and let someone else do it. As I get older, the “blowing it off” happens much more than in the past.

· Consult with repair nuts. There are people in your community, who happen to be skilled at repairing certain things. One, for example, may be able to replace a car’s broken windshield as well as a professional shop for far less than you would normally pay. You have to be careful because sometimes these nuts really are nuts. You find them by putting out feelers and just asking around. You develop the discernment to distinguish between the repair nut and the real nut. Some shade tree mechanics can actually only repair trees.

· Buy used appliances that have been reconditioned such as washers and dryers. They usually look and run like new. Look in the phone book and you will probably find several of these shops where you live. They will usually deliver and install it for you. The previous washing machine we had cost $100 and lasted for 7 years. I did repair it one time with a part that cost $48. The total cost of the machine for the 7 years then was $148. We recently bought another one for $140. The price went up $40 from $100 to $140 in 7 years. That blankety blank inflation!! I could have repaired the old one with a $45 part and got another 3 to 5 years out of it. We generally get 10 to 12 years out of one of these used machines. I just got lazy and bought another one.

· Buy from discount businesses (grocers, clothing stores, miscellaneous sundry stores like Dollar General, furniture stores, gas stations). Virtually everything is sold in some kind of discount venue. Big-ticket discount venues like “furniture barns” have layaway plans.

· Do your own minor repair jobs around the house such as fixing plumbing problems. The discount home improvement shops have people who can tell you how to repair anything. You may have to grab one of them to get their attention and make them listen to you. After you do, they can explain how to do any home repair.

· Drive a used car. The wealth transfer that takes place while paying for a car from a new car dealership is staggering. If the money required to make monthly payments were instead invested every month in aggressive growth stock mutual funds throughout the typical working life, the total accumulated by age 70 would be several million dollars. I have made the mistake of letting my cars get too old. The two cars we drove once were 14 and 15 years old. We had just started living the way I describe in this article. Everything ran well for 2 ¹/₂ years until both cars broke down at the same time and each one needed a new engine. Ideally, the used cars should be from perhaps 5 to 9 years old. You can buy a repo or late model used car at an auction. This can be tricky. I have never done the auction thing myself, but have heard of others who do this successfully. Get a knowledgeable mechanic, friend, or relative who is a good judge of horseflesh to go with you.

· Simply reduce the number of times you eat out. You still go to the favorite burger joint, but not as many times a month as in the past. You still take the family to Braums or your favorite ice cream parlor occasionally, but just not as often as in the past. You still frequent the favorite restaurant, but just not as frequently. Some nights, you stay home, when you would have gone out in the past, and grill burgers in the back yard, watch movies that you already have, and have ice cream from your freezer. You cut back on the “convenience factor” of your life ever so briefly to obliterate this portion of your debt as quickly as possible. This “sacrifice” is not unbearable because it is short-lived and produces a clear and wonderful objective.

· Do whatever it takes to stop the “Reciprocation Contest” aspect of Christmas. When you are standing by my graveside at my funeral or I am sitting in that chair by the coffin at your graveside at your funeral, are we going to remember or even care who gave whom what? In the overall galactic scheme of things, does it matter if my pride is damaged because I give you something that cost $30 and you give me something that cost $60?

· For the last few Christmases, we have done away with the Reciprocation Contest aspect of the Yuletide gathering with my father, stepmother, and my brothers and sisters. At an Unger Family Christmas recently, everyone brought just one gift for $5 for a round robin gift exchange. Then we had a craft-making party using kits obtained from the Oriental Trading Company (www.orientaltradingcompany.com). I know this sounds lame to older kids and men, but it really was a lot of fun even for the older kids and men. You had the usual bit of the men being mostly klutzes with hilarious results with the mishaps of fingers glued together, some of the kits being put together upside down and inside out, one finished craft glued to another, and hands being hot glued to the table. We had non-traditional food that was easy and inexpensive to fix. The cost on this party was miniscule and my stepmother said that she has had more fun in the last few Christmas gatherings than any others in the 23 years she has been in the family.

· Another Christmas approach is to “draw names” with each family group and buy just one gift for one person in each family group and set a low dollar limit, rather than buying something for everyone and worrying about matching each others generosity. With some thought, the hard feelings and pride issues of gift giving during the holiday season can be eliminated. This helps everyone to avoid a debt load from shopping and makes the time together more focused on enjoying each other.

· Barter your skill to obtain a needed skill. You repair air conditioners, but are a schmuck under the hood. Clyde is a world class auto engine mechanic, but does not know an evaporator from a condenser. You give your skill and time when Clyde’s air conditioner is under the weather. Clyde gives his skill and time when your car is mobility challenged. When you pay for a service with work and time, you free up your money to be invested in destroying your debt. To find people to barter with, you do a very strange thing. You get out and walk around in your neighborhood and actually talk to people.

· Apply weather-stripping. Install heat barrier material on the inside of roof. Install attic ventilation fans and insulation as necessary to reduce energy costs.

· When you buy, negotiate for a better price. Never accept the first price on a big-ticket item. They will come down for you rather than lose the sale.

· Change your income tax withholding so that you get little or no refund. What? We let the government hold our money for a year with it earning no interest. Then we jump up and down for joy when WE GET OUR OWN MONEY BACK! I would rather invest the refund in my life throughout the year. You will have more cash in hand through the year and this will help you to accumulate more desperation cash to kill your bills. If you do this, make certain that enough is still withheld to pay taxes.

· Another withholding strategy is to go the other way and increase it so that your taxes are paid with 9 months of withholding through September. At the end of September, change the tax withholding again making it much lower than normal or even nothing so that you have more money in your paycheck to use for Christmas so as to avoid credit or you have more money in hand to destroy debt.

· Do your own roof repair to keep from having to pay someone else to do it. There are complete instructions on the side of each bundle of shingles that tell you exactly how to put a roof on a house. This is really extreme for most people. I have done this in the past. I no longer get on roofs and I no longer do my own oil changes. I am old and fat and I am not going to get on a roof or under a car.

· Stop visiting Starbucks. Stop feeding the vending machines at work. I just lost a lot of folks, I know, but remember, this is temporary and it is just a suggestion, not mandatory.

· Temporarily cut the “fluff” out of your life. I was flipping through TV channels, as the male of the species is wont to do, when I came upon Dani Johnson standing in front of a chalkboard, drawing on it. “You watch,” I said to myself. “I bet she is going to talk about the debt destruction engine.” Sure enough, that was where the discussion was headed. She mentioned something she called “fluff.” You realize that you buy a shirt, a pair of shoes, a blouse, a pair of pants, on an impulse, several times a month at Wal-mart or elsewhere. When you get home, you sometimes find the same article that you just bought hanging in your closet. You have adequate clothing for you and your family, but just constantly add to the wardrobe impulsively. You take a quick inventory and see that you have duplicates of many items in the bathroom, bedroom, kitchen, and all over the house. You have 2 or 3 of the same products (for cleaning, personal hygiene, laundry, etc.). You tend to buy things that you already have without knowing it. You could just stop buying and use what you have without making too many new purchases. You realize that you have enough groceries in your pantry to live for a month. You could just not buy groceries this month, except for bread, milk, and such, here and there. You identify unnecessary spending, “fluff,” that you could just cut out. Dani Johnson said that some people have told her that they have found as much as $500 of “fluff” in one month. This “fluff” can then be applied as desperation cash to destroy debt.

· Change the deductible on your auto insurance policy from $250 to $500. If you pay $34 extra a month for 12 months to get the deductible lowered from $500 to $250, you pay $408 a year for $250 of potential value. ($34 per month X 12 months = $408 a year for the lower deductible.) This $500 deductible (if you do not pay the extra amount on the premium) – the $250 deductible (if you do pay the extra amount on the premium) = $250 of potential value (because you have to come up with $250 less when you file a claim). When you consider just 1 year, this does not seem to really make that much of a difference, does it? Then you realize that, in 5 years, you pay $2,040 for $250 of potential value. (5 years X $408 a year = $2,040 in 5 years for the lower deductible.)

When you factor in the reality of paying $34 extra every month throughout your entire working life, say from age 25 to age 70, the impact of paying extra to get a lower deductible really hits home. I looked at 12 aggressive growth stock mutual funds that had a history of at least 15 years. These funds were selected at random in the file room of the investment management firm where I worked. I projected the average growth forward through the 45 years from age 25 to age 70. If $34 a month had been invested in these 12 funds, the total amount accumulated by age 70 was estimated by me to come to over $1,250,000 for the fund with the lowest average return and to over $6,000,000 for the fund with the highest average return.

The typical American, then, forfeits over $1,250,000 of wealth over a lifetime to make sure he has $250 when he needs it. This is an example of a “survival crutch”, an inefficient survival aid that we “rent” automatically without ever questioning it. These tiny “crutches” actually transfer our wealth away to others. There are 28 of these that commonly occur in our regular monthly bills. In your lifetime, you will probably transfer from $10 million to over $40 million of your wealth to strangers who supposedly help you survive. This is what these monthly payments, all taken together, would grow into if fed into an aggressive investment stream throughout your life. I will not list the 27 other “survival crutches” here, but suggest that you go to the website indicated below to read the articles that identify all 28 of the “survival crutches” and explain why these should be cut out of your financial life. This is an extreme measure, the cutting out of the “survival crutches”, you should take that is permanent, not temporary.

http://www.HushDoNotTell.com Click on “Free Debt Destruction Education in 10 Parts” at this website to learn about cutting out “survival crutches”, finding “LEX Cash”, changing your withholding to give yourself a raise, cutting out “fluff”, and finding the wealth hidden in the fragments of your life.

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)

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