Attract Money – The Secret To Wealth

loss to gain chartThere is a secret to wealth that most people don’t realize. Have you ever read the book, “The Millionaire Next Door?” Have you ever seen a doctor or a dentist that you thought was wealthy, but then they ended up being in loads of debt, barely getting by paycheck to paycheck?

The same is true for many professional athletes. There is an extremely entertaining documentary on Netflix called “Broke.” If you get a chance I highly recommend it.

What it shows is all of these athletes that were making hundreds of thousands of dollars a month, and how they lost it all. In fact, most of them were living paycheck to paycheck.

What does this say about money? It means that the laws of money are much different than you or I would, on the surface, define it as.

Most people will say that wealth is a function of how much money you make, and also other factors such as what cars you drive, how big your home is, etc.

However, this is not true. As it has been shown in the book I mentioned above, many of the millionaires and actually wealthy people in this country live in modest homes off a modest budget.

In fact, most often those making large paychecks struggle with the same problems as those making smaller ones. They live paycheck to paycheck with hardly any savings, and they are in large amounts of debt.

So, here you go. A little piece of information for you, a nugget of truth. If you want to be wealthy, the key is extremely boring.

The key is to live on a budget, spend wisely, and invest in safe places.

In essence, “Don’t Lose Money!”

By doing this, you will find yourself in an extremely profitable situation. A long term outlook is the best possible one. Think about your finances in a long term view, and spend today with a plan for tomorrow.

That’s the secret.

Most People Do Not Do This

Most people are looking for a quick buck. They spend their time and energy trying to get rich without effort.

The truth is this rarely if ever works.

This blog is dedicated to showing you the safe and proven elements to attracting wealth. What do the wealthy do? Why do they do things the way they do? These are the questions we want to tackle in this blog.

We want to help those who are looking for the truth about money. The fundamentals of money will get you much further than trying to pick the right stocks, which is another sure fire way to lose a lot of money.

By understanding and following these principles of money you will find yourself sleeping better, living better, and feeling better about your money situation.

And if you follow them in the right way, and you make smart decisions, you may even find yourself in the wealthy category, which to me is someone who is earning more money from passive income than they spend.

Let that be your goal.

Working Hard or Working Smart?

work hard or work smartI know the obvious nature of the above question–the answer is both. I want to discuss these two pieces of information because I am very much a work smarter type of individual. Both of these are tremendously valuable traits however I want to talk about each one individually and how they can benefit you. Hopefully this will get you a little more motivated today, maybe for the week, maybe for the month, to change a few things about your life.

I wouldn’t say I’m lazy but I would say I enjoy things besides work. I’ve always prided myself on getting things done without being there. I don’t mind spending money if I can save time and still make money. Makes sense? But working hard for me, personally, is something I have continued to develop. It is extremely necessary to being successful, and I believe that at my core.

Working Smart

If you haven’t read, or listened to the book on tape version, 4 Hour Work Week by Tim Ferriss than you really should. There are a lot of good points in that book. He talks about how to escape the 9-5, which I am a huge proponent of.

This is working smart. This is a huge portion of what I care about and consider the value in life. I enjoy working but I also enjoy avoiding the menial tasks of work. Does it matter how the work gets done? Planning is always the key and smart business owners are visionaries not employees.

However, that being said, I believe you have to be your own employee for a while so you can understand the best way those positions can function. How can you hire a good writer if you don’t know a thing about writing? This is working smart. Most smart and successful employers can put themselves in the employees shoes. That’s the best way to understand the needs of your company and your employees.

Working Hard

Working hard has been a problem for me my entire life. I’m ADD and I’m above average intelligence. What does that mean? It means I get bored easily and I want to move on to new things. Now, if I can find something I love you can guarantee I will be up for 2 weeks straight working on it until I get sick of it and crash out.

Pacing myself doesn’t work. I try doing a little of this and a little of that but I get bored. I have learned to make a 1 day big project out of hundreds of little things. This way I get everything for the month done in a day and I can avoid the menial tasks for a while.

It works great for me. You can’t expect the world to understand you. I tried pushing myself into the tiny little square that is supposed to be hard work. However, that type of work didn’t go well for me. Getting up early and working till 5 doesn’t cut it either. I enjoy working my own hours–sometimes late at night. This makes things interesting.

So work hard, but work hard in your own way.

The Marriage

So your job is to marry the 2. Tim Ferriss, in his book, makes you think a “4 hour work week” is possible. I semi believe that. What I mean is he built a company first, then he found out it could exist without him.

First you need to build something that does the functions of making money, then you can work on getting yourself untangled so the business can run itself. That’s the dream. It takes hard work, but that work must be concentrated on achieving that ultimate goal of having a business that runs without you.

It’s a doable task, but it has to be your goal from the beginning. Then, you’ll probably get bored and start a new business and another and another–that’s what the wealthy do. It’s the challenge of building something that makes money. That’s the rush. Successful entrepreneurs aren’t in it for the money…well not only the money. They literally enjoy building these businesses and making a life for themselves and their family.

So, take working hard, blend it with some really smart ideas and planning, and start working towards a business that operates without you.

Down in the Dumps? How to Get Out!

down in the dumps“There’s just no hope anymore.” That’s a funny little sentence. Unfortunately, for a lot of people it’s reality right now.

I say it’s funny because I know what it’s like. I’ve been there. I remember when I was 20k in the hole and just married, what was I going to do? I didn’t know the answer, so I just kept telling myself that there was no hope.

It’s actually very comforting. Not having any hope means not having any struggle, really. Not having any purpose, no reason, it’s a great excuse to be lazy. I could sit around and play video games or drums as much as I wanted to. There was no hope so, what’s the point?

Well, eventually that stops working. Making it by turns to, “I’m going to lose everything,” and rock bottom mentality starts to kick in. I would avoid that at all costs, you won’t like it.

So, if you are down in the dumps and you want to avoid hitting that rock bottom, here are some tips to get you out. Trust me, you don’t want to end up with the rock bottom mentality, it does psychological damage.

Tip #1: Little Steps

My biggest problem in life has always been over-exertion and extremism. I am the kind of guy who works all day and all night one day, and then does nothing the next.

My wife taught me one good thing (well more but one good thing that applies right now)–little steps. I learned from her that little changes are actually easier to maintain, and they start creating a positive mentality.

I started changing things little by little. Eventually I wasn’t depressed but I had hope, and the best part was I didn’t have to tell myself over and over to have it. I find that by actively doing new things, your mentality will begin to change with it. That was my first step, getting out and doing something.

Tip #2: Plan Often

I love coming up with new plans. I found that I could make it a day or two sticking to my plan, then I would usually stop following my plan and start doing something else.

I countered that mentality by just planning more. I started planning every day or every 2 days. I’m not talking about planning the week or the day, but the month and the year. I find that this large scale planning motivates a person to reach their goals. This is what I needed to do, I needed the large picture in front of me all the time.

By planning often it helped me get to where I wanted to go and then keep going.

Tip #3: Get Out of the Situation

It is always a steep slope back to the bottom. I found this out a few times. I would slowly stop doing things but there was always one or two activities that would trigger the weeks of uselessness. For me, it was a certain and specific video game. Every time I played that game I got hooked and I got lazy.

Now, in order to play my wife would have to give me permission, or I’d have to beg it out of her. Lucky for me, I’m good at persuading people. Well, I had to stop this pattern. So, me and my wife drew up a list of action items, things that we could do, if I started getting cravings for laziness.

If I wanted to play she would send me to Guitar Center, or we’d go to the park, or something like that. It would shift my mentality off of what I was doing and back to what I needed to be doing.

That was my story. I know everyone’s situations are different. Hopefully you can find something that will help you switch your mentality back to where it needs to be. This is the best way to accomplish what you want to in life.

3 Things to Know when Receiving an Inheritance

inheritance planningOnce in a while, I’ll get a call from someone who is pretty excited. For some reason or another, they expect to inherit a large sum of money in the near future. This can be an exciting time in their lives. However, an inheritance can be the best, or the worst, thing depending on exactly how you handle the situation and the planning that goes into it.

Inheriting a large sum of money can be dangerous, and if not treated properly, can be in many cases useless–good to buy you car and a boat and a few months of high living and nothing more.

How you decide to treat that inheritance is up to you, however, here are a few things you should know before you get an inheritance so that you can make the most of that situation, and make it substantially benefit you for the future.

1. Don’t Expect Anything: The worst cases I have seen, when it comes to an inheritance, are people who expect the money to come before it doesn’t. More often than not an individuals inheritance money doesn’t come through for years. In other cases, the inheritance money ends up in probate, or locked up in a trust account, for 10 or more years.

I was working with a client who was expecting an inheritance. He had made a lot of big plans for the money. He even started spending the money, by putting it on a credit card, before he received it.

The unfortunate part is that he still hasn’t received it. In fact, what he didn’t know was that the trust would be keeping the money until he was 55 years old. While still in his 40′s, he realizes now the huge mistake he made. Some things can’t be repaired quickly. So, now he is in copious amounts of debt and, what does he do? Well he goes and settles with a cash now service.

All in all he was expecting to inherit around 200 thousand dollars. He has settled for around 100 thousand I believe. That is a huge chunk of money. Not to mention, after the spending he has done in the last year, he saved around 10 thousand dollars.

So, the inheritance was here, never seen, and gone within about a year. Don’t expect your inheritance, it may not work out the way you hope.

2. Reduce Expenses – When someone is about to inherit money I tell them to reduce their expenses.

“What?” They usually ask. But what I’m saying is this. If you are going to inherit money, don’t spend it, save it. That could be your retirement.

Continue to live the way you are currently living. Try to reduce expenses. Budget your money. Don’t stop doing the things you are used to doing. Not only will you have a better life if you don’t inherit the money, but if you do get your inheritance you will most likely come out in a much stronger situation with that money.

Don’t plan to use the inheritance before you get it, and don’t try to live a higher lifestyle when you do get the inheritance. Continue to work, continue to save, do all the things you normally do. This will ensure that your future is bright and not ruined by your inheritance.

3. Live Off Interest – We all know that the bankruptcy statistics are high for those who win the lottery and get huge inheritances. Most of the time they don’t understand money to begin with, so, when they receive a huge chunk of money, they think it will go much further than it does.

On top of this, they didn’t actually earn the money, so once it’s gone it doesn’t ever come back.

The best, and I mean the very best, thing you can do with an inheritance is never touch the principle. Put a majority of it in safe investments and a small, very small, portion of it into more risky investments, such as real estate, that you can get good at.

Get involved with a real estate blog or some other type of investment and get good at that. A small portion of your money will go to your education, meaning you will probably lose a little money, but eventually you will get better.

As you get better, continue to only operate on the small amount of money you chose to at the start, then reinvest earnings. Never touch the principle in your safe investment accounts.

This is the best strategy you could ever have with an inheritance. In the end, protecting your money and keeping it safe will allow you to live a comfortable and confident lifestyle for the rest of your life. It’s up to you, but you can make an inheritance the best, or the worst, part of your life.

20′s: 3 Ways To Improve Your Life During the Younger Years

young enough not to need risk“I’m young enough to take the risk.”

I hear this statement constantly. Everytime I hear it I cringe. To be honest, this seems to be a mentality that doesn’t stop when you are young, in fact, as you get older you will only feel more pressure to take more risk.

What do I mean? Well, when we look at the timeline of an individual we see that most people do not save enough money. We spend too much and live paycheck to paycheck.

What happens then is this. When we are young we take risks, these risks rarely pay off when it comes to market investments (just look at the last 20 years of data). Then, as we get older, we get more worried, and now we feel like we can’t afford NOT to take these risks.

Let’s look at my friend Jared for instance.

Jared had this same mentality. He bought in to most of the hype for gold, he bought into the internet stocks back in early 2000′s, and before that it was commodities and a few other waves that have passed through.

Now, at 66 years old, Jared has lost all of his money, or most of it, about 3 different times.

So, at the age of 66, he’s finally learning that taking risk isn’t going to save him this time. At this old age he has finally started a safe retirement plan.

How can we learn from this? Well, let’s look at 3 different ways you can begin to improve your life now, while you are young, so you don’t end up in this type of situation yourself.

#1. Save Money Today

The first part to any savings plan is volume. I can tell you right now that the more you save today, as a percentage of your income, the more you will save tomorrow. There is no good day to start saving money and there never will be. Life will always have something new and shiny for you to buy.

If you can start saving money while you are young you will learn a valuable lesson. That is, you come first. If you put yourself first then things will just work out. I have talked to many savers who say to me, “I don’t know how, but at the end of every month it all just seems to work out.”

This is because we naturally make things work with our money. You will naturally find ways to spend less if you are saving more. Getting into this habit while you are young is key, and it will carry you throughout the rest of your life.

On top of this, the more money you are saving, the less risk you will have to take. You will have more money in savings and if you can just earn a little safe interest on the side then you will find yourself in pretty good shape when retirement age starts approaching.

#2. Risk Leads to Riskier

Let’s say you win big. What next? Well, I have found that most people who take risk get addicted to the risk. In most cases once you win, you will keep playing until you finally do lose.

It’s the natural cycle of the market. We get used to losing huge chunks and gaining them back. The problem with this? What if the loss comes right before retirement? Too many people have been stuck working jobs way too long because they ended up having much less than they expected when the market crashed.

If we stick with safe money while we are young, and avoid this cyclical risk, then it doesn’t matter what the markets do. We will be in a good position to retire and we’ll know exactly when and how that will happen. The markets will not dictate the future.

#3. Young Enough Not To Have To

In the end, aren’t you young enough not to have to take the risk? If you start saving while you are young, and you continue this through your life you will have such a predictable amount of money, and probably a rather hefty one, that you will never need to take these risks.

You are young enough not to have to take risk. This is the beauty of being young. The wealthy get rich by keeping their money safe and getting good at taking calculated risks. Most young people want to toss their money into something that is risky and they don’t understand. They end up paying a lot of money for lessons they never use again.

A good retirement plan involves predictable and safe planning. You are young enough to make this happen. Get a plan together today and see where you could easily be by retirement age. You’ll see you don’t need the risk that rarely pays off.

Coupon Cutting Or Saving Money Where It Counts

budgeting tipsI’m all about saving money. I don’t coupon or take much time trying to cut the small corners though. Although these can be beneficial, the most benefit I see coming out from these types of activities is a mentality about money that is productive.

But what I believe is that a few smarter decisions can make a much bigger difference in your overall life. I’m talking about saving money where it really counts…the big purchases.

Most people go to the hilt these days. They spend and spend until they go blue in the face. Literally, blue…down, depressed, stressed, and worried.

The reason is we have become a nation of paycheck to paycheck people who spend based on payment and not based on cost.

And the cost is huge.

Where You Can Really Save Money

The biggest places, and by far the most important places, to save money are on the big purchases. That’s why I don’t cut coupons. My mentality is that if I can spend more time preparing for the big decisions I will save much more money that couponing ever would save me (not that they can’t be done hand in hand obviously).

The big purchases are where I save my money.

For instance a car. When it’s time for me to buy a car I’m usually about 6 months to a year away from making that purchase. I make sure I have the money but I also make sure I have the time to find the right deal for me.

I know I can save 1-3k on my car purchase if I do it right. It always works out. I select a few models that I like and then I ask myself…is there a lesser or more off brand model that will hold it’s value that I can get for less price.

This will often lead me to a different kind of car…that’s step 1. Finding the best priced car that will still hold its value is probably where I save the most money.

After that I move on to finding the best deal on that vehicle. Things are always popping in and out. If you only have a week to buy a car then your odds are low. However, I study the market, get an idea of the costs, and then I usually can save another 1-2k here.

Altogether I am probably saving close to 4-5k on my car purchases, sometimes even more if I am smart about it.

But I also have the end game in mind. I can usually predict based on mileage etc how much money I can sell the car for in a few years.

That’s also more savings because I am losing less on my depreciating assets then I would if I were just picking blindly.

This entire process helps me make the best decisions.

It really, in my mind, is about time and putting in the time. If you take the time to study out what you are doing before you do it in most cases you will get the most out of it. You will be much more prepared to pick up the good deal when you see it.

Same rules apply for real estate purchases. Now, I know in the end predicting how much you can sell it for is hard, and you really shouldn’t make any purchase decisions based on that. It’s just a guess. You have to save your money on the purchase.

Real estate, like I was saying, is the same exact thing. You will get the most from your real estate purchases by lowering what you “have to have.” It’s a mental trick. Set a budget and then go lower, not higher.

Never buy anything based on payments. That’s complete insanity. When the realtor or the car guy start talking about payments tell them to shut up. Maybe not that harsh but you get it.

Organically Growing Your Money

consequences of bad ideasConsequences suck right? I mean for the most part it’s pretty obvious when we are doing something that will probably turn out completely horrible for us.

But for some reason this has just become lost on the financial world. We do things the complete opposite of what we already innately know works well.

Let’s go to gardening for a second, or buying produce at the store. It’s my belief that the simpler something is the better off it’s going to be. Right?

That’s the organic craze. If someone gives you a huge list of things they had to do to get a tomato, it’s probably going to include a bunch of jargon and procedure that you don’t understand and probably is far far away from being considered organic.

So why do we want organic? Because it works, it’s healthy, and, my favorite, it’s simple!

It’s simple and it works.

Now back to financial planning. Why then would we make financial planning so difficult and full of jargon? We’re trying to keep people from understanding the simple basics of financial planning.

And the consequences are apparent. We have a country full of people who have no clue what is going on in their retirement plans and a rich central ideal call “Wall-Street” that has made up complex plans in order to take people’s money and gamble with it.

That’s all it is really…gambling.

The Consequences of Gambling

You know when you go to a casino that the casino’s are making money…and a lot of it. But unless you are spending all of your time learning how to beat the casino, you probably know you are going to lose. For some people it’s fun and it’s a rush and I get it.

But even if you are spending lots of your time studying how to beat the casino, unless you are cheating the odds are still not in your favor.

Wall-Street is the same exact situation. The only difference is the money is much bigger and it’s your life savings on the line.

But big Wall-Street and bank executives, do their paychecks go down when they are losing their clients money? No. In fact for most of them pay has gone up, regardless.

What? How is that possible? Aren’t they losing a ton of money? Well ya, but it’s not their money, it’s your money.

They collect their money in the form of fees, for the most part. So they are getting paid whether you are making or losing money.

That’s the system we live in. You gamble, they profit. How is that different than a casino?

I know it’s a trite comparison so I’ll go back to the vegetables.

It’s Your Garden

Your money is your garden. It really is pretty simple. The more tender care and attention you give to it, the more you will understand how to make it grow.

You will find out pretty soon that what works is relatively simple. Being simple is the best way to go.

You can dump a bunch of chemicals and such to try to make things grow faster, but you may end up ruining your entire garden, or worse your own body when you ingest the chemicals.

In the financial world it’s much the same. You can try for big money, but it’s not organic. These dollars are grown in complex investments that are just, for the most part, bets on bets that were bets on future bets based on past performance bets.

It’s complex right?

Take your money. Care for your money. Invest it in things that make sense. The world is much simpler than everyone is trying to tell you that it is. Making money and keeping money is a simple process, the more time you spend learning the simple organic way to grow your wealth the better you will find yourself in the end.

Financial Planning And Schools – I Mean Seriously

Are We Financially Stupid?This post will be more of a rant-ish type, just you know fyi. I’ve just been thinking a lot about my education–scholastically and financially–and trying to get a better grip on why we still haven’t changed the way we approach education.

I mean seriously. Most people can tell you the date that Columbus sailed the ocean blue but they couldn’t tell you where the money in their 401k is being invested. Our financial education level has to get better.

I don’t usually go much for government or corporate conspiracies. And I don’t really think this is much of a conspiracy. But it’s pretty obvious that there is a huge disconnect between the school systems and the financial companies.

What I mean is that the school system doesn’t do anything, and the financial companies controlling our money are spending their days trying to make things more secretive and more complex.

And why wouldn’t they? It’s good business to them. They have developed an entire system based on complex jargon and misleading information.

And why? All in the name of taking a fee regardless of whether your portfolio performs or not.

I don’t blame the corporations. Their basic necessity and drives forces them to find ways to make money. That’s all they are designed to do.

But at some point we need to wise up as people. It’s unfortunate that our school systems are not designed to give us more pertinent information.

A Plea For Smarter-ness-ism

If we want to make it in this world we have to get smarter. I always believe things move from the people to the government.

I wouldn’t be surprised if Obama goes through the same confusion as Joe that works at XYZ Company. They get shoveled a huge load of financial jargon while they nod their heads in agreement–all along really having no idea what is going on.

Our financial system is in ruin on the personal and the governmental level and I believe it all stems from a lack of eduction. I’m sorry but if you can read, you can read any history book you want. Done.

Now you don’t need so much history.

Now let’s learn how to read complex graphs and charts and understand more in depth a stock call from a covered call and get a better handle on the actual goings on of the financial system.

I believe this would make a marvelous change to our entire society.

Is it really that hard?

What Did You Learn

I had to take 1 semester of economics my senior year of high school. I rather enjoyed it. I learned a few good things.

However, in most cases economics is not finances. It really had nothing to do with personal finances and how to take care of yourself in a world that is out to rob you.

No. But I could tell you that if the price of milk went up at Piggly Wiggly it probably had to do with supply and command (inside joke).

That’s it. Like I said a rant. It’s just how I feel.

Yep.

Stress – The Killer – 3 Things You Can Do To Reduce Money Stresses

stressIn my humblest scientific opinion (which you can imagine is quite in depth) stress is a killer. Not only that but it’s just horrible on your health.

So what are the top causes of stress?

According to Statistic Brain the number one cause of stress is your job.

And in second place…money.

So if money is such a huge cause of stress in our lives…what can we do to reduce that stress?

Well I like to call these the 3 magical methods for reducing stress caused by financial and money problems.

1. Make A Budget - I am and always will be a huge proponent of budgeting and using a budget. If I had it my way everyone would use checks and cash and still be filling out the little notebook in the back of your checkbook to keep track of how much you have and how much you are spending. I loved those things.

But for those of us who are in the future, Mint.com is a very good tool, and there are many others out there like it. This is a great way to keep in control of your finances in an extremely easy manner–and it also gives you phone updates and alerts as well which is very cool.

Budgets can save your life. Knowing how much you have in your account and where that money is going is a huge life saver…or can be.

I had a friend who found out after 4 years that he had been paying a bill to an online company for a product he wasn’t even using anymore.

Are you paying for products, services, or even just plain being charged fees that you don’t know about? Keeping a budget could save you money…and even possibly a lot of it.

Budgets are for the well planned, and planning is crucial and key to reducing your stress levels about money. If you know where you are at then at least you can worry about things that matter.

2. Store Up In Times Of Plenty – Most all of us have heard the story of Joseph in Egypt.

When the 7 years of plenty came, Joseph had the Pharaoh store up the excess in storehouses. They knew that the famine was coming.

And most people go through feast and famine cycles as well.

The stories I hear from pre-2008 still kill me. I mean sure, there are people that just flat out lost money in the market and couldn’t do much.

But there are other stories, like Mike.

Mike lived in Arizona. Things were booming. He was in his early 30′s and just starting his family.

Well Mike was making money hand over fist in his own business. But instead of saving up money he did what, unfortunately, most people do.

He was making a lot of money, so he started spending a lot of money. He got the biggest home, best cars, best everything he could afford.

Well the boom ended and then came the bust. He ended up having to foreclose on his home, his cars were repoed, and he was left with a huge hole in his financial life–not to mention a bad credit history.

What makes me so irritated is how far ahead he could have got. Most people, especially business owners, should know that things don’t always last as long as you expect. Make as much as you can now and save as much of that as you can.

Had Mike done things a different way he might still be living a semi luxurious life stress free.

When you have those feast years stock up hard, the famine may be right around the corner.

3. Don’t Trust Retirement Plans – The last thing, if you truly want to save yourself some life stress, is do not trust retirement plans. This means 401k’s, Ira’s, etc.

If you want to see the results of failing ideals go to Walmart. I always like to ask the cashiers at Walmart, when they look older, what they did before.

The other day a guy told me he was a banker for 40 years. Wow.

What happened? They relied on these market based retirement plans that they were told would be a great investment. It failed them.

Do not rely on these solely. They have the opportunity to fail, as they are risk based and market based. You will save yourself a lot of hassle if you don’t let the government tell you how to plan your retirement–the countries isn’t look too good at this point.

To Make You Wise

If you want to relieve stress follow these simple steps. It will make you wise.

There is nothing better than the feeling of security. Plan ahead and stock up your storehouses. This, my friend, is the recipe for financial stress relief.

How Much Mortgage Interest Are You Really Paying?

MortgagesIt’s interesting to me how little people think things through in their lives. Actually it’s more unfortunate.

We spend so much money on the things around us it’s crazy! And we have been duped by thinking these little numbers–3%, 5%, 7%–are really that small.

But when it really boils down to it those numbers are not small at all.

The reason? Because those numbers are calculated based on a total amount, not a yearly amount.

And banks have done a very good job at keeping the truth in the fine print.

And who reads fine print?

But when it boils down to it you are actually paying a lot more interest out of your pocket for your loans than you might think.

Let’s look at an example.

Rethinking How Interest Is Paid

Say you have a 150k mortgage loan and you are paying 4%. Pretty standard today.

How much money are you paying to interest?

Well yes 4% but how much, as a percentage of payments, are you going to pay to interest in the first year?

The answer may shock you.

In the first year you will make 12 payments of 716 for a total of $8,592.

And of that you will pay $5,951.92 in interest.

Much higher than 4%.

I don’t think I have to state the obvious but obviously the 4% interest is on the total loan.

Over the lifetime of the loan you will pay much much more than 4% interest.

In the first years you will pay the highest, and as time goes on you will pay less and less interest as a percentage.

In the first year you are paying 69% of your payments to interest.

A huge amount.

So it’s pretty easy to see how most American’s pay around 35% of their paychecks to interest. Huge chunks of our money go towards interest payments.

But that’s not where the problem ends, it’s only the beginning.

Refinance, Refinance, Then Please Refinance

A huge problem is that we refinance everything. And when we do this, we start the cycle all over again.

If you pay your house payments for 5 years you have just started making a dent. At first the majority of the payments, as we showed above, is going towards interest. A huge chunk of money.

But most people just turn around after a few years and start the process all over. It ends up putting us in a position where we are putting most of our hard earned dollars right into the bank’s pocket.

Makes you want to be the banker.

Self Financing

I am a huge proponent of self-financing.

What I mean is not only using your own money to buy things, but drawing up an amortization schedule and paying the money back to yourself with interest.

Why? Because you are going to do it anyways. But why not be putting that same forward motion into your savings and retirement.

People don’t save enough as it is. However, if people began treating their money with the same respect and care as they treat the banker’s money, there would be a massive shift.

Not only that but I think when you see your bank account at the end of it all you will have a better sense of how much money you are losing to the banking system.

As an exercise, try adding up, with all of your debts, the actual percentage amount you pay to interest every year.

So you have to know how much you are paying all together, and then the interest. It may blow your mind how much money you pay in interest and how little you pay towards the actual balance.

How Cheap Will You Go?

UnderwearThere is a common debate about saving money; that is “how cheap should I really be?”

It’s really a good question and one that needs some real discussion and debate. I want to dive into this idea of being cheap and look at both extremities here.

The first being, freaking cheap.

Freaking Cheap

There is a show on Netflix, and obviously on TV, called “Extreme Cheapskates.” To be honest I stopped watching it after the intro mentioned people who buy used underwear (grosses me out).

However, I can assume by the intro that these people are the most extreme people on the planet when it comes to being cheap.

Well what are the pro’s and the con’s to this?

I don’t know. For me this is too extreme.

I have to switch gears now because I can’t handle this extreme.

Us Debt

Extremely Not…Cheap

The other side of it I think we see much more often. Debt.

This country is in loads and loads of debt. Individuals are in debt, the country itself is in debt, and no one high up top seems to care enough to really make things change.

And it really doesn’t matter your status. Many of the “richest,” or those who make loads of money every year, are in heavy amounts of debt. They make more money so they can borrow more money. However, as a percentage, they aren’t much better off than the poorer people in our country who are in debt.

And they are. The poor have loads of debt as well. It seems you could walk into any room and find most of the people have debt, and many uncontrollable debt.

Doesn’t matter if it’s the mail room or the corporate office these days, you’ll probably find the problem is everywhere.

And the unfortunate part is that much of this debt is build up to keep up with appearances. What a shame.

Becoming Cheaper

So for the most part I think we can agree that our first person, the extreme cheapskate, probably isn’t much of a problem. In fact most of us could learn a thing or two, or at least pick up a bit of philosophical wisdom, about being cheaper and more careful with our money from these cheapskates. We can all use a bit more cheapskate in our blood.

I firmly believe that all of our problems move up the ladder. What I mean is that as more people get into debt, the government will do the same. The people are the government.

If we do not on a personal level learn to manage and control our spending, how can we expect the government to do anything differently?

We are digging a hole and we can’t expect GDP or the stock market to bail us out. It’s time to take some damn responsibility for our actions, wouldn’t you agree?

So what can you do?

The Start To A Healthier Budget

Start today by making a budget and a plan. It’s the age old advice just wrapped into something different.

Heck, why not make a “Cheapskate” goal list and see how many things you can pass off.

The point is start making goals to saving money in places where it can easily go. Once you get that down it will be easier to make small changes here and there.

It’s really a simple plan that can go a long long way.

I can guarantee you that the more time you spend planning your finances and thinking about the decisions you make, the more money you will save.

Try me. I’d love to hear some success stories.