George and Monica came to me several years ago. At the time, they had a combined annual income of $120,000, yet owed $22,000 to credit cards, and they were adding debt at the rate of $2,000 per month (they were obtaining a new card every month). Despite their high income, they were spending considerably more than they were earning.
When we reviewed their situation, I discovered that a lawn service visited their home twice a month, at $85 per visit. I told them to cancel the service, and George replied, "But our lawn will look terrible if we do that! We must keep this expense."
I also noticed that they subscribed to cable TV, including every premium channel -- a monthly cost of $69! I told them to cancel cable. Monica gasped. "There will be nothing for us to watch! We can't cancel cable!"
I'm sure you'll agree with me that a lawn service and cable TV are optional, yet neither George nor Monica understood this. Both these expenses are optional, just as -- pardon me for shocking you -- virtually all your expenses are optional.
Health club membership? Optional.
Entertainment? Optional.
Telephone? Optional.
Clothes? Most of it -- or more accurately, the total money you spend on it -- is optional.
Food? Again, mostly optional. Oreos, I regret to inform you, are not mandatory.
Are you getting my point? Almost everything you spend money on is optional! So don't tell me, "I gotta do this, I gotta do that." Sometimes, though, you'll find that you've been spending money on a certain item or in a certain way for so long that by now, not only can't you remember when you didn't spend money like that, now you think you must. Again, let me repeat: Cable TV is optional. Hard to believe, but true.
You can stop spending your money on things that in the bigger picture really don't matter. You can change it. You can fix it. You can stop it.
Don't feel locked in or trapped, because you are not. True, there are some expenses that you cannot change easily or quickly. Once you buy a car, you're stuck with the payments. But most of your spending is much more flexible than you might think at first. You are in more control of what's happening around you than you realize. But you've been SNIOP'd for so long you've forgotten that you do have a choice about how you spend your money.
The bottom line is that you got into debt because of your attitude, not your income. And it is your attitude about money that must change first, or changes in income won't matter.
As it didn't for George and Monica. By refusing to change how they spent money, they sought other solutions for their debt. And they found one: the equity in their home. They owed $150,000 on their $200,000 home, so from the $50,000 in equity, they borrowed $25,000 and used that money to pay off their credit cards. Problem solved, right?
Wrong: Within a year, their credit card balances were back up to $24,000, only this time they no longer had $50,000 in home equity to rely on. Within two more years, unable to keep up with the payments on their house, they sold it and rented an apartment (at least that ended the lawn service). Still, it wasn't enough, and they later filed for bankruptcy. It will be 10 years before they are able to buy another house -- if ever.
I got a call one day from a viewer to my TV show. "I have $15,000 to invest and need your advice," he said. "By the way, I'd really like to talk with you about our debts." He explained that he and his wife owed about $40,000 to credit cards, so I told him to use the $15,000 to help pay down the debt. "No, I don't want to do that with this money. I want to invest it," he said. "I want to handle my debts separately."
I asked him about his income. "My wife and I both sell real estate," he answered.
"Oh," I replied. "I guess the recent softness in the real estate market has hurt your income."
"Not at all," he said. "We made about $225,000 last year and $165,000 so far this year. We just can't seem to get rid of these debts."
He asked for an appointment to come in and talk about it. "But we have to see you as soon as possible," he said. I wondered why. "Are you facing some deadline?" I asked.
"No," he said. "It's just that we're leaving for a two-week vacation to Cancun and I'd like to get started on this debt thing before we go."
Like I said, people get into debt because of attitudes, not incomes.
Financial advisor and educator Ric Edelman is the best-selling author of five books, including Ordinary People, Extraordinary Wealth, The Truth About Money, Discover the Wealth Within You, The New Rules of Money and Financial Security in Troubled Times. His firm, Edelman Financial Services Inc., is one of the largest independent financial planning firms in the nation with nearly $2 billion in client assets under management. He also hosts weekly radio and TV shows in Washington, D.C. and is the founder of the Edelman Center for Personal Finance Education. Visit Ric online at www.RicEdelman.com..