Bad debt happens to good people. It's nothing to be ashamed of and if you don't think it can happen to you, just keep living. Should you find your way into too much debt regardless of the circumstance whether you went a little crazy shopping or if health, medical issues, divorce, etc, took over the best way out is a slow and steady plan. You have to exchange the extravagant lifestyle for a disciplined save and pay off one. Too many times, I've witnessed people find themselves on the wrong side of debt and with some aha moment, they jump into an "investment" thinking that since they're motivated, they will do all the necessary steps plus more to turn their situation around quickly with an I-told-you-so attitude. Unfortunately, it is this exact thinking that predators want you to have and before long you may end up on the losing end. I thought some people were above these criteria at a certain dollar amount until I ran past a brilliant cash strapped high rolling entrepreneur who lost $100,000,000.00.
A few years ago, I made $300,000 using Uncle Sam's money. I assure you that most of it was timing. I purchased a property for just under $110,000 and eight years later sold it for $350,000. [The agents took 6% or $21,000 leaving me with around $240,000. Since I spent six years in the Army National Guard, I used a VA loan to purchase it with $0 out of pocket. It was my first real estate deal but I've had many others. You can read about them in Real Estate for Real People written by me. If you don't have a penny to your name, you can get all that knowledge for free at your local library.] A chunk of the other $60,000 came from a lucky mistake. In my Fidelity account, I meant to buy American Express stock (AXP) since I was a card owner, but accidentally bought (AMX) which is America Movil.
I didn't know what it was until I saw the portfolio growing rapidly and curiosity got the best of me. I then came to know one of the world's richest men named Carlos "Slim" Helu who owned the company and controlled much of the South American cell phone market amongst many other things. The chart easily illustrates what happened from Q1 09' to Q1 11'. It was a great run and because I held the stock longer than twelve months, I didn't have to pay short term capital gains tax. I say all that not to look like some kind of investment genius which I'm obviously not, but to illustrate how easy it is to be transparent if you're looking for people to invest in some product or service you're about to offer. When you're attempting to gain investors, brilliance, luck or wealth of knowledge should show somewhere.
I'm not looking for investors but if I were, I would think someone would want to see some tangibles to prove I knew what the heck I was talking about which brings me precisely to the most important point. Recently, I accompanied someone to an investment presentation. The presenter did a pretty good dog-n-pony until he decided to show random illustrations of wealth by using large homes. It is easy to find a home on the Internet and present it as a way to motivate people to invest in something. However, this wasn't just any house. It was a mansion and more specifically a French Chateau. French Chateau's are named as homes for those of nobility, wealth and power. I'm intimately familiar with them because I summoned the best architect this side of the Atlantic to design one for me. I know my home because it has a certain style and it literally bears my name. It even has the family crest, which are on my towels, estate flag, car flags and even jewelry. I'm not so different from other French Chateau owners because we are passionate about these homes. They are not just humble abodes to us. So when I saw the image of the house he was using, I knew who it belonged to, where it was and who designed it. 99.9% of the attendees will never give the image a second thought beyond their initial wow, but I was in that 1/10th of 1 percentile who knew the deal.
I could have easily interrupted his presentation, but I'm not like that. I knew the guy was simply trying to get his hustle game on, but the people he was preying on didn't. There were plenty of other signs illustrating that his investment was bogus but it's not because of the house or my lucky investments. I could see clear mostly due to lack of bad debt on my balance sheet. I heard water cooler conversations from the likely investors and the stress on their faces showed the rest. When you're at your wits end in terms of debt, your head is not clear. You've got to understand that the same thinking which got you in the mess is not going to get you out. Greed or simply overreaching is likely the entering culprit which means frugality is the exiting strategy. If you try to mix late payments with sophisticated mathematics, pretty pictures and fancy charts, the results are likely a disastrous mistake. Listed below are a few of the easier ways to find yourself into and out of trouble:
Poor Mentality - I'm broke! I ain't got it. I can't afford it. Realism on expenses is one thing but a poor mentality will lead to a poor conversation. A poor conversation will perpetually speak that fate into existence and likely keep you in the poor house. Keep a healthy, wealthy mentality.
Impulse buying - OMG, that's sooo cute! is the number one culprit usually nestled in the hearts of women who want to buy things such as those little baby clothes. Pull out the camera phone and text someone what you were thinking of buying for and you may find they already have one....or three already.
Not using cash - When you have a credit card at your disposal, you're likely not using a ledger to see the remaining balance. Instead your focus becomes the minimum monthly payment leaving you subject to buy things you wouldn't normally buy. We're all guilty of it but when possible, use debit cards instead.
Lax attention to checking account - My daily routine includes logging on and eyeballing transactions. A recent look showed that someone hijacked my debit card numbers and decided to ball out of control in Canada. Canada...me...winter...seriously? Pay attention and list a back up account for overdraft protection. Use a ledger, round up and always end your cent column in zeros. Ex. List a $35.78 purchase as $36.00 or $37.00. Try it for a month and you'll see it pays dividends.
No Budget - I understand being in over your head but if you think you're too broke to have a budget, you'll always be too poor to get rich.
Just seeking a little comfort - "I don't need all that. I don't want to be rich. I just want to be comfortable" you say. Comfortable people aren't rich but rich people are mighty comfortable. Stake your claim in abundance, not scarcity. There's nothing wrong with it and it makes for a mighty good living.
Now that you've got the keys to the French Castle, let's work!
