In my last blog, we discussed a rather weird, yet critically important question. I believe it’s important because it goes to the core of how we behave. And our spending habits and financial decisions are an extension of our behavior. On your journey towards complete debt freedom, it will ultimately be your behavior - good or bad - that will determine if you reach your intended destination.

If you remember, I quoted John Eldridge, from his book Wild at Heart as a starting point to providing an answer to the question, “Who are you?” That quote was:

Desire reveals design, design reveals destiny.

As I mentioned previously, this one sentence provides a tremendous amount of insight for the answer to the “Who are you?” question. However, before you go on trying to identify those desires that, according to Eldridge, would be at the core of the answer, there’s something else you need to know. 

In my time studying personal development and achievement, one fact has surfaced. According to the many personal-achievement coaches, there are often times two people within one body. There could be two “yous.” 

In his ground-breaking book, Psycho-Cybernetics, Maxwell Maltz identifies the “you” as your self-image. He defines the “self-image” as:

“...a ‘premise,’ a base, or a foundation upon which your entire personality, your behavior, and even your circumstances are built. Because of this our experiences seem to verify, and thereby strengthen our self images, and a vicious or a beneficent cycle, as the case may be, is set up.”

In his definition, Maltz infers the possibility of there being two self-images that can create two very different “cycles.” 

Eldridge refers this pseudo-schizophrenic condition as having a true and a false sense of self. So, the question really is, how do you identify the “true” you... your true self-image? I believe the answer to that question lies in a closer look at Eldridge’s quote. 

If the answer to who you are lies within your design, and both Eldridge and Maltz have shown us (as have many others like Tony Robbins and Dr. Wayne Dyer), that there can be a false sense of self, a false self-image, then it stands to reason that there can be false desires stemming from that false sense of self. And if you’re goal is to truly answer the “Who are you?” question, then you must be able to discriminate between your “true” desires and your “false” desires. 

I believe that identifying your true desires requires some quiet time. You have to find at least ten, preferably twenty minutes or more, to “be alone with yourself” as they say. Do some tried and true soul searching. 

I suggest doing some simple relaxation exercises. You may have done this before. You find a comfortable chair or couch. You sit, maybe even lie down in a quiet, dimly lit room. Now, I know that this can be pretty impossible these days. In my house, I have five boys. And to find the time to relax can seem like catching lightning in a bottle. But if you really want to get to the core of who you are, it’s essential. Do a few of those deep breathing exercises where you take a deep breath in through your nose, and then slowly blow it out your mouth. 

Do this several times and try to feel the tension and stress just melt away. Once you feel truly relaxed, then ask yourself, “What do I truly want? What do I really want to accomplish?”

I can almost guarantee that, when you ask the question, you’re going to hear a whole lot of silence. The reason is that most of us have been so buried by our daily stress and anxiety that we’ve lost ourselves to the everyday demands of life. 

Think about this for just a second. Why are you where you are right now? Are you exactly where you’ve always wanted to be? If you are, fabulous. But what if you aren’t? 

I submit it’s because you haven’t taken the time to discover who you truly are. Sure, you can tell me, “Hey, I don’t have the time for this!” Let me ask you… “How’s that working out for you so far?”

Most men who survive a heart attack miraculously find the ability to begin to take care of themselves after they’re released from the ICU. It’s my concerted opinion that many of us are suffering a heart attack of sorts emotionally. Only we haven’t diagnosed the problem which means every morning, waking up for the day is like hearing the Emergency Room Doctor yell “CLEAR!” just before applying the paddles… this is also knows as an alarm clock. 

Next time we’ll explore how to discriminate between your true and false desires as we continue our journey to you discovering the answer to the “Who are you?” question. 

        

Weird question, I know. But have you ever really tried to answer that question before? I’m reminded of the scene in the movie “Anger Management” starring Adam Sandler and Jack Nicholson where Sandler’s character is required to enter Nicholson’s anger management class. Sandler’s character, Dave Buznik, is a guy with “issues” and Nicholson’s character, Dr. Buddy Rydell, is a “suspect” therapist. During the first group session, Dr. Rydell asks Dave, “Who are you?”

The scene that follows is an interesting parallel to real life. Dave first answers by giving his name, which isn’t the answer Dr. Buddy is looking for. He then proceeds to say, “I’m a nice guy...yada...yada...yada.” To which Dr. Buddy says, “Those are character traits, Dave. Who are you?” Dave grows frustrated as he continues to try to give an answer that will satisfy Buddy’s question, but all of his answers fall short. I remember thinking to myself as the scene plays out, “What the heck kind of answer was he looking for?”

Anger Management (the movie) was released in 2003. Since then, I’ve really begun to see why the answers Sandler’s character was offering didn’t satisfy the question. And, interestingly enough, I’ve been exploring the answer to that question myself ever since. 

Recently I read a book called Wild at Heart, by John Eldridge. In it, he provides the following statement:

Desire reveals design, design reveals destiny.

OK, I hear you. You’re thinking, “What the heck does this have to do with debt elimination?!?” Simple. From the thousands of people we’ve had the pleasure of interviewing over the years with big credit card balances, none of them could ever remember what the heck they purchased to accumulate such large balances. Sure, they can remember a few things here and there, but not a single person could ever remember them all. And it’s my professional opinion that the inability to answer the question, “Who are you?” is at the core to this kind of spending. 

When people buy things, it can have a medicinal affect. There’s a long list of books that have been written on the psychology of money and how and why we spend the way we do. And it’s my opinion that the majority of the spending practiced by most folks is a way to mediate what could be considered a fairly significant identity crisis at the individual level. All too often, we define ourselves by our possessions. This is answering the “Who are you?” question from the outside in, when it should be answered from the inside out. 

Before I go on, I must say that I’m NOT a trained therapist in any way. I’ve had absolutely no formal psychological training. The only thing close to it would be the years of research for my own personal benefit. There was a time when I felt who I was had to be the result of what I owned and the “things” in my possession. 

Perhaps you can relate. Well, I can say that nothing could be further from the truth. The truth about who you are can not be defined from the outside in. And if that’s what you’re doing, then chances are you’ve had difficulty overcoming the temptation to spend, eat, and succeed in general. While there are so many self-help gurus out there promoting programs to help you achieve your dreams, many of them fail to help you answer this one, simple question. And without a true and accurate answer, you’ll simply build your life on the wrong foundation.

So, how do you answer the question accurately? I believe that each and every one of us has a unique and specific purpose in life. And, if you know anything about me, you know that I’m a Bible-believing Christian. And while there are many books on personal development, I can say from personal experience, the Bible is - by far - the most extensive and complete book on the subject.  

In the book of Ephesians, the apostle Paul says, “For we are His workmanship, created in Christ Jesus for good works, which God prepared beforehand that we should walk in them.” (Eh 2:10; NKJV).

If you believe you were created for a purpose, but discovering your purpose has been rather elusive, I believe Eldridge’s statement gives us a clue. I believe that to begin to discover your purpose, you must first discover your true desires. Because until you discover your true desires, you very well may continue to live your life on the track where you continue to answer the “Who are you?” question from the outside in. Which can only mean you’re living in the wrong direction.

In the future, we’ll explore how I believe you can begin to make such a powerful discovery. Until then, why don’t you ponder the “Who are you?” question for a while. Write down your answers and see what you come up with. Then, in my next article, you’ll be able to see how to unravel what I believe to be the most personal, and powerful, mystery you can ever solve.

        

In my last post, I wrote about why I believe personal budgets, unto themselves, just don’t work. Well, this month, allow me to elaborate on what I’ve come to understand to be the principal reason why a personal budget really won’t help you achieve true financial independence.

Developing a budget (or as I teach, conducting a Cash-FLOW Analysis™ does serve a purpose. But in the context of our debt freedom philosophy, that purpose is NOT to help you determine how much you can spend. Rather, it’s purpose is to help you grasp what’s coming in, what’s going out, and what (if anything) is left over. From this point, you can really begin to make the decisions necessary to achieving the financial future of your dreams. 

However, one fact that most people don’t focus on is what I call “Income Mortality.” Income mortality is a greater appreciation for the “what’s coming in” portion of the “what’s coming in and what’s going out” equation. That appreciation is grasped when you realize that this income source is mortal -- or impermanent. Understanding income mortality helps you realize that you’re probably taking your income for granted. 

Let me put it this way. If you knew your income would end tomorrow, how would this impact your spending decisions? OK, maybe it won’t end tomorrow, but what about next year, the year after that, next decade, etc.? See what I mean?

When you focus only on a budget, you’re most likely overlooking the fact that one day, your income will come to an end. What then? How will you replace it? This is the fundamental question that must be on the front end of any budget or cash flow exercise.

As a business owner, I’m intimately familiar with the impermanent nature of income. If you’re in sales and paid commission, you may be able to relate. One sale does not a retirement make. Likewise, one job, or one paycheck. Yet, when people are putting together a “budget” to help determine how much they can spend, the impermanent nature of their income almost completely escapes them.

Having a greater appreciation of income mortality will help you focus on reaching the debt free destination you’re aiming for. This is because when you realize that your income will eventually disappear, you’ll more diligently scrutinize where you cash is flowing. Is it flowing in a direction that’s facilitating or hobbling your financial goals?

Does this mean that your life has to end as you know it (financially speaking of course)? Not at all. What it does mean is that you will have a much greater chance of avoiding the type of financial decisions that will lead to a tremendous amount of regret later. 

While regret is something we all hope to avoid, you can use the power behind the emotion in a positive way. When it comes to many decisions in life, you have the choice to either postpone regret (spend now on credit and pay interest) or embrace the regret now, knowing that by doing so in the future you’ll reap the benefits. When it comes to regret from a financial perspective, it definitely accumulates interest. So… my advice… embrace it now while the cost is much less, and avoid experiencing it later when the interest it can accumulate can be disastrous.

By following this advice, you can help funnel cash towards income producing possibilities. Doing this will help prepare you for the time when your income’s mortality will be staring you in the face, and help you exit the tunnel of debt, and create a more  “immortal” income situation.

        

The other day as I was conducting my weekly internet talk show, a thought hit me square between the eyes. That thought was that personal budgets just aren’t any good. 

Now, before you go on and accuse me of blasphemy, hear me out. The reason I’m going against the grain on this issue is because, when I had that thought, I realized what a budget essentially is. When you cut through the clutter, all a personal budget is, is a spending calculator. 

Think about it for a second. If you do have a budget, what’s its purpose? You look at what you’ve got coming in and use that as your starting point to determine how much you can spend. In my book The Debt-FREE Millionaire: Winning Strategies to Creating Great Credit and Retiring Rich, I created a sample family of four (the Fortunado Family). This family has an $80,000 annual gross income. After paying normal state and federal income taxes, they take home about $4,600 a month. This is the starting point where they begin to see how much spending they can squeeze in. How much can they afford for housing, living expenses, and - dare I say it - debt payments?

This is why I’ve been teaching about cash flow for so long instead of budgeting and other conventional personal finance “wisdom” (remember what I think about the “Pay yourself first” myth?). I’ve been an entrepreneur for over a decade. As a business owner, when I look at an income statement (a.k.a. Profit & Loss Statement), I don’t try to calculate how much I can spend. Sure, I may be looking at how much I can invest into business related activities intended to generate more income. But, as a good business owner, I focus on profit, not how much I can spend on some new equipment just because it’s cool. 

No, when a seasoned business owner is trying to determine how much can be spent on anything, that spending is going to be either directly or indirectly related to profit generation. Contrast that with what a personal budget focuses on. From interviewing tens of thousands of people looking for help with their debt, credit, and finances, I’ve discovered that the vast majority of them use a personal budget to determine spending, not profit.

Rarely, and I do mean RARELY, have I ever come across anyone who has taken what’s left over after deducting housing and living expenses from their personal cash flow and considered how to generate a profit with it. Instead, they figure out how to squeeze in as many “debt payments” as possible. This is why most commercials for new cars always use the monthly payment as the hook instead of the actual total price of the car.

In The Debt-FREE Millionaire, I work several scenarios with the Fortunado Family. There’s one where they have positive cash flow, then four other scenarios where they’re struggling to make ends meet. In the positive cash flow scenario, they have $425 left over each month after they make all of their bill payments, including their monthly debt service payments. 

Most people with that kind of cash flow begin to spend it on entertainment and other pleasure seeking opportunities. Is this a bad thing? Of course not. However, properly applied, that $425 could provide the Fortunados with an opportunity to earn a guaranteed, after tax, rate of return of over 23%! But a budgeting mentality would most likely miss this opportunity, which - to me - is a sad thing. 

A cash flow mentality is opportunistic. It’s not satisfied just to create positive cash flow. No, when positive cash flow is available, a cash flow mentality is focused on where that positive cash is flowing. If that precious positive cash isn’t flowing towards a reasonable Return on Investment (ROI), it changes the direction of the flow. 

Like a seasoned, successful business owner, the cash flow mentality looks for ways to turn positive cash flow into more positive cash flow before asking “how much can I spend?” Of course there has to come a time when the positive cash flow has to be paid out, and even enjoyed.  But before the pay out takes place, all necessary bases are covered, and the pay out is made with true profits. 

This one extra step is all the cash flow mentality is about. The budget mentality typically takes positive cash flow (if there is any) and begins to run wild. And it’s this kind of mentality that results in less and less positive cash flow. So, do yourself a favor, and begin to apply a cash flow mentality to your personal finances. I promise you won’t regret it.

By the way, if you want to tune in on my weekly internet talk show, just click here for the details.

        

Happy New Year folks! Yeah, I know it’s been two weeks since we kicked of 2010, but I waited to post my first blog this year for a reason. I wanted to ask you how your credit hangover was doing?

This is the time of the month when most people begin to receive their credit card statements. What’s different about January credit card statements is that they can oftentimes cause what I call a “credit hangover.” What’s the credit hangover? Simple. It’s that sick feeling whet you get your credit card statement statements in January, and realize how much you spent over the previous holiday season. 

I call it the credit hangover because it can be eerily similar to a hangover you can get after a night of heavy drinking. You never know just how much you’re drinking until the next morning. When it comes to the credit hangover, you never know how much you’ve spent until you get those statements the next month. 

You know what I’m talking about. You’re at company parties that run into the night where you and your crew go out afterwards. All of those trips to the mall to get gifts. Each time you whip out that little plastic parasite thinking, “What the heck, it’s just a few bucks.” But you failed to keep track of all of those “What the heck’s” and when you receive your credit card statements, you say the same thing, only a little more enthusiastically… “WHAT THE HECK!” Only this time you’re shocked at the totals. 

It all starts on “Black Friday” when the retailers are at their best. All of those tempting offers, coupled with all of the advertising that takes place. You were bombarded with temptation after temptation to spend. And when those statements arrive, you experience the credit hangover millions of people are experiencing each January, right around this time.  

The question is how can you recover from the credit hangover quickly. Well, as a way to help answer that question, I’ve created a video titled “Understanding Personal Cash Flow.” It’s less than 4 minutes long and will open your eyes to the realities of what the credit hangover can lead to. Do yourself a favor and take the next 4 minutes to get some information that can have a tremendous positive impact on you financially. To watch this video, just click the link below.

To watch "Understanding Personal Cash Flow" just click here.

        

In my latest talk show, I summarized what can happen to your credit when you enroll in one of the many debt relief strategies that are commonly available. Just click on this link (or copy and paste the link into your browser) to listen to my latest show, and select the "How Can Debt-Relief Options Impact My Credit" episode.

        

Download | Duration: 00:57:58

        

Sometimes I just can’t help but point out the obvious. Well, maybe in this case, the apparently “not-so-obvious.”

So, here we are with our economy on a rollercoaster. Talk of bailouts, stimulus packages and the like continue to divide us as a people to a certain extent. And in past months, a new form of “stimulus” was passed and used in hopes to create the all-to-precious spending the pundits say our struggling economy so desperately needs. What was it called, “Cash for Clunkers.”

As with most of the decisions the geniuses in DC make, on the surface it sounds like a pretty good idea. Inject some incentive to get people to buy stuff. After all, we all agree that spending is the most critical element to restoring economic stability. But, let me go out on a limb here. I’m going to say that what our economy REALLY needs is sustained and constant spending. I don’t think I’d get an argument on that.

So, why do I call Cash for Clunkers “Trash” for Clunkers? Simple. When you understand how this program is designed to work, consumers are taking old cars and trading them in towards the purchase of a new car. And, Cash for Clunkers offered monetary incentives to motivate people to make the trade. But, what’s really happening?

Are people getting new, fuel-efficient vehicles? Are car manufacturers getting sales of new cars? Is the economy getting a little boost for all the extra spending? Well, the answer to those questions is indeed yes. HOWEVER (notice all the caps in that word?), what’s really happened is that people who didn’t have a car payment (because the “clunkers” being traded in had to be owned outright in order to be qualified for the program) now have thousands of dollars in annual car payments. This is something they didn’t have before on those so-called clunkers.

Let’s take a big picture look at this. According to Kelly Blue Book (www.kbb.com) nearly $3 billion in rebates were issued for the “clunker trade-ins.” This $3 billion was essentially a down payment on approximately 700,000 new cars sold. Of the cars that were purchased through this program, eight of the top ten cars purchased were Japanese. So, while manufacturing may take place domestically, about 560,000 of those new car sales were making deposits in foreign companies. But that’s not the worst part.

These cars that were sold replaced cars that were owned outright, which means the owners didn’t have to make payments on them. A look at the top ten cars purchased through the Cash for Clunkers program will tell you that the average price of those 700,000 cars has to be at least $20,000 each. What does this mean?

The answer is $14 billion in new car sales. Subtract the $3 billion us taxpayers kicked in, and you’ve got at least $11 billion in sales paid for by the participants who were buying the new cars. If the average payment on each of those cars is about $325/month over a 60-month period of time, then each car represents approximately $19,560 per car (when you add in the interest). Multiply that amount by the 700,000 and you have $13.7 billion in total spending.

So, what’s my point? Well, what our braniacs in government have just done is take away almost $14 billion in spending that could have gone towards future spending that they’re all so desperate to see take place. They sit in their Ivory Towers trying to motivate us to spend so our economy can grow. Then they seduce us into borrowing $14 billion to pay for a Band-Aid on a much bigger problem. And those of us who didn’t participate in the program, kicked in $3 billion to help make this fiasco happen.

This is why I call this program “Trash for Clunkers.” Because 700,000 people who didn’t have car payments, now do. All of this was done to save a few gallons of gas and inject money into the economy. Well, I think it was a tremendous waste. I also think it did much more harm than good. Because instead of that $14 billion going towards ongoing and sustainable spending, it’s now just another payment on a grossly overly burdened, debt-laden society. How brilliant!

 

        

The popular “Pay yourself first” financial principle is a waste of time, money, and effort.

In the late 1920s, a man by the name of George S. Clason wrote an incredibly popular story called, The Richest Man in Babylon. The moral to that story is that you should “pay yourself first” in order to create a financially secure future. Many financial experts and advisors have used this mantra to talk consumers into creating investment plans for their financial future. But paying yourself first in today’s consumption culture is a myth, a waste of time and money!

On the surface, this is a sound idea. However, Mr. Clason penned The Richest Man in Babylon almost 90 years ago and our financial culture has changed a lot since then. And I prove this with numbers in my new book, The Debt-FREE Millionaire: Winning Strategies to Creating Great Credit and Retiring Rich.

Of course employing this popularly accepted financial concept is better than doing nothing. But it certainly is not the most efficient use of that money. In Clason’s story, the richest man in Babylon, a character named Arkad, tells his childhood friends how he became so wealthy. He learned from a money lender named Algamish that to invest 10% of all you make is the way to create wealth. But I promise you, there’s a much better use of that money in today’s economic culture.

When Clason wrote his story, debt and credit as we know it today didn’t exist. Today, the average family is carrying a debt load that that didn’t exist in his day. For most people today, investing 10% of their income (if they can afford to) while in debt is counterproductive because of a concept I call the Debt Dollar Drain™.

The Debt Dollar Drain™ is a mathematical formula that calculates how much gross income one must earn to bring home enough money to pay off each dollar of principal debt along with its associated interest when making minimum, or close to minimum, payments. For example, a family of four with an annual household income of $80,000 and a typical debt load would have to gross nearly $3 of income to pay off $1 of debt principal. This is like walking forward at one mile-per-hour on a treadmill that’s moving backwards at 3 miles-per-hour. The key is to “Pay yourself last” by focusing any extra money you may have available on completely eliminating all of your debt. Something I teach in The Debt-FREE Millionaire. When you completely pay all your creditors of first, and place yourself last in line, you most certainly save the best for last.

But I doubt that this new financial truth will make its way to the public via contemporary financial advisors. Some of these organizations are real ‘old dogs’ that just don’t want to learn a new trick. Adopting my “Pay yourself last” principle would require a significant change to their business models, one that they probably couldn't survive. 

This is one of the reasons I wrote The Debt-FREE Millionaire: Winning Strategies to Creating Great Credit and Retiring Rich. In it I outline the truth behind how to overcome the Debt Dollar Drain along with a number of other financial revelations that are more pragmatic in todays financial culture. After spending nearly 15 years in debt and credit education, I’ve found that there are many common practices people employ today that can do more harm than good.

With our economy experiencing the problems it faces today, I think it’s time for a few new tricks, don’t you?