Opening Eyes, Escaping Traps

I'm going to start today's post with a correction. In yesterday's piece, I shared the story of a young couple who wanted to buy a car without debt. I explained how they planned to buy a $20,000 car by saving $500/month for 20 months. Blog reader Ryan pointed out an error, as $500 x 20 = only $10,000. That was a fat finger on my part. This couple planned to save $1,000/month for 20 months. It required them to significantly pare back their budget and sacrifice, but they did it and paid cash! **I’ve since corrected this error on the website.

On the heels of yesterday's post, I received some expected pushback. Specifically, I was accused of exaggerating the monthly car payment this couple would need if they decided to buy a new car. The exact words were, "A $580 car payment seems over the top. That doesn't even seem like a realistic number. Car payments aren't that high."

One of my favorite aspects of my podcasting and blogging is the opportunity to share a broader perspective with people. Understandably, most people's context regarding many of these topics is singular: theirs. They know their life, and it's hard to see things through the lens of other people's situations. That's why some people think our economy is fantastic, and others believe it's trash. We don't know what we don't know. We see the world through our one-of-one reality.

I'm grateful that in my work, I get to walk alongside hundreds of people and try to put myself in their shoes. With that preface in mind, back to the car payment. Some see a $580 car payment and think that sounds outrageous. I see a $580 car payment and now think to myself, "Oh, theirs isn't so bad." I remember when I saw my first $1,000 car payment. It was startling. Now, I expect it. Further, I now regularly see $1,500 car payments. It's bonkers!

I often get accused of beating this car topic into the ground......guilty as charged! I believe cars are the single biggestcontributor to our modern-day financial struggles. Our cars are literally killing our finances. Here are a few stats to show where we're at (second quarter 2024 data):

• The average new car loan is now $41,000

• The average new car loan term is 68 months (more than 5.5 years)

• The average new car loan interest rate is 6.8%

• The average new car loan payment is $734/month!!!!

• The average new car insurance payment is $194/month!!

• That means, on average, the monthly cost for a new vehicle in America is $928/month.

It's an epidemic, but it gets worse. Since cars depreciate in value by about 15% per year, and we're extending the loan terms out longer and longer, nearly 1/4 of vehicle trade-ins have negative equity (meaning people owed more on the car than it was worth). This causes people to perpetually borrow more than their newly purchased car even costs.

This trap is killing millions of families! At least 25% of people reading this are probably experiencing high monthly car payments. The opportunity cost of those payments is tremendous, and I have enormous empathy for everyone in that situation.

But we don't have to play these games! It's 100% possible to escape the car loan debt cycle. It takes sacrifice, humility, persistence, and dedication. But you can absolutely do it!

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They Ate the Elephant

A young couple scheduled a coaching consultation with me. They had questions. They needed wisdom. Here was their dilemma: They needed to buy a replacement vehicle soon, but they didn't have any money. Everyone in their lives told them to get a car loan. Their parents told them. Their friends told them. Their co-workers told them. Their neighbors told them. The cultural undercurrent was clear: they should just get a big car loan and quickly buy the vehicle they want. Yet, all the while, this idea didn't sit well with them. They had this wild inclination that a big, fat car payment would somehow hinder their ability to live a free and meaningful life. Thus, they scheduled a meeting with me.

The car they were considering cost $35,000 (new). A six-year loan would cost around $580/month. This felt heavy, and understandably so. My first question was why that particular vehicle. They talked about reliability, longevity, and common practice. After reading some reviews and discussing alternative options, we concluded we could find a suitable alternative in the $20,000 range. It was a different model, slightly used, with some miles on it. That step alone was a game-changer.

Next, we needed to figure out how to pay for it. They could easily go to the bank and get a loan, but they wanted to avoid debt (and perpetual payments) if possible. They had very little cash, so $20,000 still seemed unattainable. There's an expression that goes something like this: "There's only one way to eat an elephant: one bite at a time." Thus, we needed a plan. Given their existing car situation, we decided they could push this decision off for upwards of two years. Therefore, they set a plan to pare down their budget and save $1,000/month for 20 months. If they could do that, they would have enough cash set aside within two years to buy the vehicle.

This still felt insurmountable, but they were crazy enough to try. It took intentionality and persistence, but they ended up doing it in 19 months. $20,000 of cash in hand! They eventually decided to save for a few more months and ended up with about $22,000.

You know what they did next? They did exactly what everyone else told them they shouldn't do. They paid cash for a car. A car they could afford. A car that would suit their needs while also allowing them to live a free life. They ate the elephant!

Don't fall for the trap. There are better ways to live out our finances. Harder ways, but better ways. Patience. Delayed gratification. Humility. This young couple is so glad they took the path less traveled. They are living for meaning first, and it's a joy to watch. You deserve the same!

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Beware the Shadow Side

I spent some time with a friend a few nights ago. He and his wife have some house projects that NEED to be completed. It's a need need. You know, the type of things that don't get advertised when home ownership is overly glorified in our culture. These are some serious projects that require serious attention.....and perhaps a bit of urgency. One problem: They don't have enough cash handy to quickly execute. They could save for it, and they would love that option, but the timing isn't conducive to that judicious plan.

The option we discussed is a HELOC (home equity line of credit). They have a TON of equity in their house, so this feels like a feasible option for them. While I'm never a fan of going into debt, this seems like the lesser of all evils. It also makes me feel better knowing they are using the money to reinvest back into their home, not buying a boat (or some other depreciating asset)

After discussing the mechanics of how it would work and whether it could be a viable option for them, he asked the question I was dying to answer: "What's the shadow side of using a HELOC?" He knows me well, and he knows I'm constantly thinking about the behavioral science of things. In short, there are three psychological traps to using a HELOC:

1. Since HELOCS mechanically operate much like credit cards and have much lower interest rates, having a large HELOC credit line can be a slippery slope. If they need $15,000 for a project, but the available line is $40,000, that extra $25,000 could be spoken for real quick!

2. Adding fuel to the psychological fire, they are essentially borrowing from themselves. Well, their future selves. This is their equity, after all. They are just accessing it now, long before the property gets sold. Knowing this is their money (instead of the bank's) can wreak psychological havoc on one's decision-making.

3. Since HELOCs typically only require interest-only payments, there's no forced principal paydown. Unless intentionally done so, the loan will never get repaid, and the borrower will perpetually pay interest on it (i.e. it feels better and easier to not pay it down than the alternative).

We had a great chat, and I think he's looking at it the right way. More than anything, I'm glad he's taking his time, assessing it from all angles, bringing in outside input, and considering the shadow psychological factors that may be at play. That tells me he'll likely be ready to approach it with prudence, wisdom, and caution.

Each time you make a financial decision, consider the shadow side. What psychological factors might be at play, and how will you combat them? We can't eliminate them, but if we are aware, humble, and intentional, we can overcome them.

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When NOT to Push the Button

Yesterday, I talked about the behavioral phenomenon where people find more perceived security in their cash than the actual relief gained from using said cash to pay off their debt. I first framed it up through my illustrative Saw-esque concept, but then shared the story of an actual family that's continually struggled for seven years with $47,000 of debt (and a hefty $1,300/month combined payment to go along with it). All the while, they were sitting on $60,000 of cash in savings. At any point on the journey, they could have "pressed the button" and instantly paid off the debt (leaving them with $13,000 in savings and $1,300/month extra in their budget).

I said it without saying it, but I think we should push the button! Contrary to common belief, actual relief is almost always superior to the false sense of security of our cash. In the name of having "security," this family lived a stressed and low-quality life for the better part of a decade. The alternative scenario would have provided much fruit. Pay off the debt, use the additional monthly cashflow to rebuild savings (to whatever extent needed), and live with far more margin.

Today, though, I want to share when NOT to push the button. For as strongly as I feel about pushing the button, I'm equally as passionate about NOT pushing the button under one specific scenario: When the behavior that caused the financial mess in the first place hasn't yet been corrected.

In yesterday's example, this couple deeply wanted to create freedom and gain momentum. They made some very poor choices many years ago and were still haunted by them. They have since gained a healthier perspective on money, started budgeting, and found unity in their finances. In other words, they have addressed the root cause of the initial problem.

Let's assume they hadn't. Imagine this same couple came to me with $47,000 of non-mortgage debt, $60,000 of cash, and perpetually bad habits. They aren't budgeting. They still find themselves dipping into their credit cards each month. They plan to use debt to buy their next car. They haven't been sitting on $47,000 for a long time, but that number continues to grow and will likely be higher in the coming months.

In that scenario, using the cash to pay off the debt would be utterly destructive. Doing so would immediately create relief, but also cause a false sense of accomplishment. They would let their guard down, feel progressively more comfortable to spend, and mimic the same habits that led them into this mess. Translation: They will recreate the same situation they just "fixed." Fast forward 18 months, and they are back to $40,000-$50,000 of debt AND have no cash. That's a worst-case scenario I've seen played out far too many times.

Therefore, push the button. Please push the button! However, before doing so, make sure you have a healthy perspective, solid habits, and intentionality. Let the button be a blessing, not a curse.

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To Press or Not to Press (the Button)

I want to start with a little thought experiment. Think of it as my PG-rated version of Saw. You're forced live your life carrying a 20-pound backpack on your shoulders. It's not impossible, but it doesn't feel great. You constantly feel the weight, and it's uncomfortable. It doesn't prevent you from living, but it's less than ideal. No single moment causes acute physical pain, but the cumulative impact of wearing it starts taking a toll. The whole time, however, you have the option of removing the weight forever. All that's required is you push a button on your kitchen counter. The moment you push the button, the weight disappears. Instant relief! There's one small catch: You can only press the button once. Would you press the button?

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A couple walks into my office, struggling with debt. They are beaten down and frustrated. They look tired. Here's what their situation looked like:

• Student Loan Debt: $22,000 (with a $580 minimum payment)

• Car Loan: $15,000 (with a $520 minimum payment)

• Credit Card: $10,000 (with a $200 minimum payment)

Additional context:

• These are private student loans

• The car has negative equity, meaning they would still owe money even if they sold it.

• They've been roughly in this same spot for their entire 7-year marriage.

After factoring in these three minimum payments totaling $1,300, they have very little margin in their monthly budget. It's tight! They make it work most months, and are doing alright, but they feel the constant weight and tension. Month after month, year after year, they experience the cumulative impact of this weight. It's nothing acute, but it's starting to feel exhausting. They haven't gone deeper into debt in years but haven't found a way to make progress on it, either. Continually seeing this debt hover around $47,000 is taking a toll.

If only they had a button to push! Well, they do, actually! Here's one detail I haven't shared with you: They have about $60,000 in a savings account. "Have you considered using some of your cash to pay off the debt, which would free up $1,300/month in your budget?" I asked them. Like many people before them, they gave me the answer I prayed wasn't coming. "We can't use that cash. That's our security."

"Security?!?! You don't have any security. You're already drowning!!" I was probably sharper than I should have been, but I needed them to realize how badly they were already hurting. They could immediately pay off all $47,000 of debt and still have $13,000 of cash left.

They aren't alone in this sentiment; it's all too common! The perceived sense of security always emotionally outweighs the benefit of actual relief. This is one area where our psychology tricks us. I'm going to flip this on its head....here's what I believe to be the truth: Actual relief always outweighs our false sense of security. They could press the button, but continually choose not to.

Not all people have these buttons to push, but many do. And with that choice, many choose to continually suffer, all in the name of "security."

Would you press that button?

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It’s Hard to Overcome Our Structure

Someone contacted me with a problem. A couple in their mid-40s, two kids. They believed they were being responsible with their money, but it felt nearly impossible to make financial progress. As they put it, they didn't waste money, spend money frivolously, or buy nice things. Yet, they lived month-to-month and had much financial tension in their marriage.

I sat down with them to review their numbers. Here's what I found (shared with their permission):

• Combined Take-Home Income: $8,200

• Mortgage Payment: $3,600

• Car Payments: $1,600

• Other Debt Payments: $700

Do you see a problem here? Just their house payment is 43% of their take-home income. The house plus the cars account for 63%. Then, when you tack on the rest of the debt, these three categories account for 72% of their take-home income.

That means they only have $2,300 left for all other needs, wants, giving, and saving. That's not nothing, but wow, it's tight. So when they say they don't waste a bunch of money or spend frivolously, I believe them. There's no money to waste!

Here was their question: "How do we find margin? Where do we cut?"

These are tough situations. Unfortunately, it's hard to overcome our structure. This family had created a really expensivefinancial structure for their household. Based on THEIR choices, more than 70% of their income was already spoken for before it hits their bank account. No amount of trimming or cutbacks can help this family remedy what ails them.

Whether we want to admit it or not, these are OUR choices. The cities we reside in. The residences we choose. The cars we buy. We can cry foul all we want, but at the end of the day, we have choices to make; and these choices will dictate our structure.

Here's what happened. I pointed out that there are very few options to help this family without them significantly altering their structure. They can't cut groceries, utilities, dining out, clothing, entertainment, or any other budget items enough to move the needle. It's hard to overcome our structure! I couldn't let them go home empty-handed, though. Here are the options I floated by them:

• Increase their income

• Downsize their residence

• Sell one or both vehicles (and replace them with cheaper alternatives).

• Use some of their assets to pay off their non-car and non-mortgage debt.

Outside of these four levers, very few options exist to help them. Their structure is their structure, and it must be addressed for what it is. It's tough, but reality.

I hope this family takes a hard look in the mirror and decides to take drastic action; only time will tell. I sincerely believe their life will unlock if they are willing to humble themselves and make difficult choices.

The same goes for you....and me. We can trim around the edges all we want, but our financial structure significantly impacts our journey. For some of you, it may be time to alter your structure.

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A December to Remember

I'll never fully understand the ease with which people make car purchase decisions.

• One of my friends decided to visit the dealership on a boring Saturday afternoon "just to look around," and walked out with a $0 down, $45,000 car loan with a $750/month payment.

• Another friend was having a few issues with their 5-year-old SUV. It was going to cost a few thousand to fix it, so they elected to purchase a new $65,000 SUV less than 48 hours later. This one came with a $900/month payment.

• One of my former youth group kids graduated from college and started his first adult job. At the encouragement of his parents (you know, to get something "reliable), he immediately purchased a $30,000 vehicle with a $600/month payment.

• Another friend had their second child and decided a family of four no longer fit in a mid-size SUV. They quickly traded in their paid-off vehicle and purchased a new slightly larger model.....with a $525/month payment.

See the consistencies between stories? Each person acted swiftly and ended up with expensive monthly payments. Oh yeah, there's one more: All four families are now experiencing financial stress and turmoil due to these decisions.

One of my favorite parts of the holiday season (besides AE Egg Nog....IYKYK) is the ridiculous array of car dealership commercials. You know what I'm talking about! The commercials where one spouse tells the other they have a surprise for them (often while romantically standing under the Mistletoe), then leads them outside to reveal a brand new vehicle with a bow fixed atop (with powdery snow wafting through the air). The recipient spouse, overwhelmed with joy, falls into their partner's arms and gives them a gratitude-filled smooch.

Has anyone ever stopped to think how absurd these commercials are? They exemplify our culture's very real casualness of buying cars, but are completely unhinged. "Merry Christmas, Honey! Here's a car you'll get bored of six months from now, with daunting payments that will haunt us for the better part of a decade!"

For a long while, I roamed this earth believing I was the only soul who thought these commercials were insane and reckless. But then, Saturday Night Live stepped in and affirmed me by producing this hilarious skit a few years ago:

It has everything! Financial self-sabotage, unilateral decisions, financial illiteracy, status-seeking behaviors, out-of-whack priorities, marital strife, buyer's remorse, and a hint of adultery. It's a more hilarious and twisted version of how my brain envisions what the consequences of A December to Remember actually looks like. It's a mess!

The truth is that while this is a hilarious parody skit, it doesn't stray too far from what's actually happening in people's homes. People regularly defend these types of insane financial decisions because, well, they've been normalized in our culture. But I have the luxury of meeting with people on the back side of them once the financial and relational consequences set in.

Don't let your household resemble a sketch comedy. Ignore our culture's push toward flippant financial decisions and instead choose intentionality.

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An Avalanche of Circumstance

Anticipating widespread backlash from yesterday's post, I tentatively knew what today's topic would be. The pushback was indeed harsh! It's the exact type of harsh I was expecting, though.

Today, I bring you the story of Jeff. That's not his real name. He wants his story shared publicly, but anonymously for now. He and I have been talking about bringing him onto the podcast, but he's wavering. In the meantime, his story will live here.

For the last 8-ish years, Jeff has been one of my biggest critics whenever I discuss how credit cards are bad for us. He's become quite aggressive with me at times, even calling me stupid and openly mocking me in group conversations. Jeff, in his late 40s, is a known entity in the finance world.....at least in his niche. He's the kind of guy that will get mic'd up at a conference and discuss complex finance concepts in front of hundreds of fellow finance professionals. Jeff knows finance, and has been doing it for a long time.

I'll summarize Jeff's frequent pushbacks whenever I appeal for people to get rid of their credit cards:

• It's an interest-free loan as long as you pay it off within 30 days.

• The points are amazing! He's known to send me pictures of his vacations to poke at me about how this flight or that hotel was free because of points.

• In his words, he had never paid one cent of interest or one late fee in his entire life (perfect 30-year track record!).

• It's about personal responsibility. If you're responsible, you're good. Credit card debt is an outward expression (and natural consequence) of irresponsibility.

Recently, I received a text from Jeff; he wanted to meet for coffee. When I walked into the mostly empty shop, I saw him sitting in the corner. His shoulders were uncharacteristically slumped, and his face was expressionless. I could immediately tell something was wrong. We shared a few pleasantries, but I sensed he just wanted to get to the meat of the conversation.

As he put it, he and his wife had experienced an "avalanche of circumstance." One of their kids got sick, their septic system went haywire, his wife had her hours cut at work, a car was having trouble, oh yeah, and rampant inflation. As these events were unfolding, he did was he always did: put everything on the credit card. They make good money, so he planned to just make it up next month. Or maybe the month after. Shoot, maybe soon. The emergency fund was quickly drained, as were other sources of liquidity.

The result? After 30 years without a single cent of interest or fees, he had $23,000 of credit card debt and no idea how to navigate it. Mere months ago, he was mocking people for "irresponsibility," and now he was on the other side of the aisle. He was sick and embarrassed.

These are scary times for Jeff and his family. He now understands when I say, "Credit cards are great....until the moment they become your biggest nightmare." They are the path of least resistance and the gateway to quick, rash, and destructive decisions.

Jeff isn't alone. He's the face of our growing credit card crisis. To be continued....

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Blood Points

"Just be responsible."

"It's a tool."

"It helps you build credit."

"It's safer."

"Take advantage of the points."

Not a day goes by when I don't get an earful about the awesomeness and wonder of using credit cards. Based on the narrative, you'd think they are magical little miracles, changing lives for the better.

According to the most recent data released for the second quarter of 2024, 50% of credit card holders in the U.S. now carry a balance from month to month (i.e. they don't pay them off every month like everyone says they do). HALF of all U.S. citizens who use these wonderful little tools are now stuck with high-rate debt that's bearing down on them. So much for "just be responsible."

Moreover, the average American now carries an average credit card balance of approximately $8,000. With an average interest rate of 24.9%, it costs an average of $166/month just to pay the monthly interest (never mind paying off the growing balance).

Yet, we're just going to ignore these facts and instead brag about the awesome trip we just took on the back of the sweet credit card points we recently earned. It's ludicrous, and this insane narrative is sending millions of Americans down the financial toilet.

Just in the last week, I've sat with multiple couples who are emotionally and mentally broken by consumer debt. Their entire lives, they were told to build credit and collect the free points. Instead, they now sit with thousands of dollars of debt they have no idea how to pay off. They are scared, angry, and confused.

Seemingly, everyone in their lives advocated for them to introduce these little plastic cards into their finances. Their parents told them to do it. Their co-workers told them to do it. Their friends told them to do it. Social media "experts" told them to do it. Now, after a series of unexpected events (which can always be expected), they are left holding the bag. Meanwhile, the rest of society now has the privilege of pointing at them, saying, "You should have been more responsible."

Collectively, we are heading down a very dark financial road. You may not see it (yet), but it's happening as we speak. I hope you don't fall victim to it, but I guarantee someone you know will.

So what's the alternative? Opt out. Say no. Stay away. Turn your back on normal. We don't have to play our culture's games. Sarah and I haven't owned credit cards in nearly 15 years. We're good. Life is simple. Not easy, but simple. There is life on this side of credit cards and consumer debt. Don't play their games, and please, please, please don't advocate for your kids to play the games. You deserve better, and so do your kids.

You got this, guys!

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No Paybacks

I had a beautiful idea for today's post. I even gave my friends Chi-Chung and John a sneak peek of the concept as I was bursting with excitement. However, plans changed after WW3 nearly broke out in my house last night.

I'll set the table for you. With our annual family vacation approaching, I reminded the kids that they could do some extra house projects to earn spending money for the trip. Pax was on the fence, so I reminded him that he only had $2 in his wallet. This is when the freak-out happened. He believed he had more money than that, and accused us of taking it from him. It's definitely true......or, more accurately, a half-truth.

On a recent trip to KC, Sarah and the boys visited the Truman Library. Pax wanted to purchase a souvenir, but he didn't have his money with him. Sarah, knowing he had at least that much money in his wallet at home, agreed to buy it for him and we would take the money out of his wallet when they returned home (i.e. pay it back). That's what happened, buyer’s remorse set in, and that's what ultimately led to the meltdown.

This was a big mistake on Sarah's part. We have a no payback rule in our house. If they don't have the money on hand to buy something, they don't buy it—no exceptions. In that particular situation, Sarah knew he had the money, so "what's the harm in just having him pay it back?" It feels like six of one, half a dozen of another. Isn't it the same thing? Far from it!

When we pay for something the moment we purchase it, there's a psychological connection between the money and the item. In that moment, Pax would have held the $5 in one hand and the souvenir in the other, then made a choice. Science shows that this moment triggers the pain center in our brain, causing an instant and noticeable psychological response. No such moment occurs when we purchase things without actually paying for it. Cheating ourselves of this moment drives buyer's remorse and taints the value of money in our psyche.

We eventually resolved the situation, and Sarah, seeing the potential destructiveness of breaking the link between the money and the purchase, made a renewed commitment to never again break this rule. If you don't have the money, you don't buy it. No exceptions.

If you haven't caught on yet, I'm going somewhere else with this. We adults are masters of subverting this principle. It's called a credit card. We buy something with the full intent of paying it back soon, and we totally have the money to pay it back, but it's easier to just swipe that card and deal with it later. Doing so shortcircuits the psychological impact of actually having to pay for something. No pain center triggers. No moment of consideration. And ultimately, probably some buyer's remorse.

Following the no payback rule helps kids develop a stronger and healthier relationship with money. It does for adults, too.

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The Culture of Can’t

I don't know if it's always been this way, but we live in a toxically negative culture. A culture of "can't." Voices that echo throughout our lives, day in and day out. You can't get out of debt. You can't start the business. You can't get a better job. You can't afford to give that money away. You can't save for that big upcoming purchase. You can't have a job that doesn't suck. You can't, you can't, you can't.

I haven't seen data on this, and I haven't yet conducted a formal study on the subject, but I have an anecdotal observation after talking with hundreds of people about it. If someone has a bunch of debt and has yet to make meaningful positive progress on paying it off by their early 30s, there's a high likelihood that it will only get worse. Why? Because when we're told "you can't" enough times, we start to believe it's true. Then, it becomes a self-fulfilling prophecy.

I just met with a couple in their mid-40s. They've struggled with their debt for nearly 20 years. They'd pay a little off, then accumulate more—a constant yo-yo spanning two full decades. They came to me as a last-ditch effort to salvage their finances.....and maybe their marriage. They wanted to know what tips, tricks, and strategies I have for them to make more money. Or perhaps some loopholes to get their loans forgiven. Maybe bankruptcy would do the trick? They wanted an out.

Me: "Why don't you just pay off the debt?"

The Husband: "We can't. It's too much."

Me: "Yeah, it's a lot. But why don't you just pay it off?"

The Wife: "We can't. It's impossible." Then, there was a rant about inflation, kids, activities, the government, crappy bosses, travel, needs, etc.

Me: "Yeah, all that stuff would get a lot easier if you just paid it off."

The Husband: "We can't. We would have by now if we could."

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Fifteen months later, they had paid off $50,000 of credit card debt. That's a lot of debt to pay off for someone who "can't." That's the problem. Our culture continually tells us we can't do things. I believe they can. I told them they can. I showed them how they can. I reminded them they can. And then, their actions proved they can.

If you only internalize one thing I write this week, please let it be this: You can! Not only that, you should! I'm not telling you what to do. Rather, I'm telling you that you CAN and SHOULD do the thing you're thinking about right now. You know, that one thing. The thing you wonder, ponder, stress about, and dream for. That thing. You can. You should. Please don't let our culture (i.e. all the people and media around you) tell you otherwise.

Humility Is a Powerful Tool

I received lots of feedback from yesterday's post about how inflation is clamping down on millions of families. Many of you said something to the tune of, "It's like you read my mind" and "I'm glad I'm not the only one." I'm glad you feel seen and heard!

However, I did receive one piece of criticism. I somewhat expected it, as it's a sensitive topic with many. Here's the line that got several people fired up: "If you have assets tied to debt (and hefty loan payments), you might consider selling them. One of my clients sold their vehicle, and it immediately freed up $800/month from the car payment being done."

As one reader put it, "Selling a car doesn't fix anything! You still have to buy another car."

Fair point. That's true. This family sold a car but then had to buy one. So today, I thought I'd illustrate what this concept looks like in practice.

This family had two vehicles. One was a large SUV (the wife's vehicle), and the other was a truck (the husband's vehicle). The wife's vehicle had a $442 monthly payment, and the husband's had an $812 monthly payment. These payments, combined with several other factors, resulted in significant financial stress due to a shrinking margin caused by inflation. They were hurting! Their marriage was hurting!

After several conversations, they realized changes must be made. While it took about six months, they ultimately decided the most effective and best decision was to sell the husband's truck to wipe out the monthly payment. The truck was worth about $65,000, and they owed $60,000.

After selling it, they had about $5,000 in cash and $812/month extra in their budget (plus whatever they were spending on insurance)......but they still needed a vehicle. They took the $5,000 from the sale of the truck, combined it with another $6,000 from savings, and purchased a modest used car for $11,000 in cash.

Just like that, they waved their magic wand and freed up $812/month in cashflow. That decision changed everything for them, financially speaking. However, there was another side to this story. In order to execute on this plan, they needed one more thing: humility. This was a public act. One day, he was driving around in this big, fancy truck, and the next, he was driving a car that would impress nobody. That act requires humility and a keen sense of what's truly important. I'm so proud of them for taking that step.

Further, their decision to take that step is the gateway for so much growth and contentment. They unlocked a new level in their relationship with each other and their relationship with the world around them. It's no longer about what other people think, but what adds the most value to their family. They are playing a new game, a better game.

They took responsibility. They took action. They led with humility. Their lives are better as a result. It’s a beautiful recipe.

The Irony of Debt and Income

I recently posted a few insights from my first 750 professional coaching sessions. I received a lot of positive feedback, but also criticism; the exact criticism I was expecting. To be specific, here's the part that I'm taking heat for:

"Debt does not discriminate based on income. It's not the lack of income that leads us into debt, but rather our decisions."

I knew I was saying something controversial when I wrote it, expecting to receive some pushback. That statement wasn't entirely true, and I knew it wasn't true. Debt DOES discriminate based on income.....but in the opposite way you probably think. This is a dynamic I've seen play out over and over again. The higher the income a family makes, the more likely they are to be crippled by debt. It's tremendously ironic.

First, let's take mortgages out of the equation. People with higher incomes are more likely to live in more expensive houses, which are more likely to have a higher mortgage balance. Let's acknowledge this fact, then throw it out the window.

Cars are another easy target. People with higher incomes typically drive newer and more expensive cars, and most car owners finance their vehicles. This is also too easy. People with higher incomes often have significantly higher car debt (and brutal payments). We'll throw this one out for today, too.

Let's focus on the most controllable and avoidable debt, especially when "being responsible" and having a good income: credit cards. I think we can all agree that carrying a credit card balance is an expensive and unwise endeavor. However, based on my ever-growing experience, the families who make the most money have the most credit card debt. Don't believe me? Let's look at the data.

Based on data recently released by the Federal Reserve Bank of New York and crisply reported by MoneyGeek, here is a breakdown of credit card balances (by household income levels). As you'll see, median and average credit card balances increase as income increases.

I'll synthesize the data and present it this way:

• Families with an average household income in the BOTTOM 40% of Americans have a 38% chance of carrying a credit card balance, and are carrying an average balance of $4,250.

• Families with an average household income in the TOP 40% of Americans have a 48% chance of carrying a credit card balance, and are carrying an average balance of $9,075.

In other words, families at the top of the income spectrum are 26% more likely to carry a credit card balance than those at the bottom of the income spectrum, and the average balance they carry is more than DOUBLE(!!) the lower income families.

This isn't me throwing a pity party for high earners. It's probably the opposite, in fact. We humans are an interesting breed, aren't we? Which leads me back to the sentence I took so much heat for saying: "It's not the lack of income that leads us into debt, but rather our decisions."

It's that whole human experience thing again. Luckily, you get to be a sample size of one: you. Make the most of your financial opportunities and choose wisely.

Putting the Pieces Together

What does it mean to win with money? I could ask 20 people and get 20 different answers. We all view it through a different lens. We each possess different skills, and we each have our shortcomings. Some things we'll get right, and other things may be more of a challenge. We don't have to nail every aspect, but it's important to remove any glaring deficiencies. Most families thrive in some areas and struggle in others. 

However, I recently met with a couple who inspired me to write about this topic. I've worked with this couple for over a year, but this meeting was particularly inspiring. They are a younger-ish couple, both teachers. In my mind, they've cracked the code on personal finance. No, they aren't geniuses in any one area, but they are doing good in pretty much every area. I'll summarize:

• They have unity, a shared vision, and joint ownership of their finances.

• They budget intentionally each month, leaning into their unique values.

• They have an emergency fund to protect them for WHEN life punches.

• They spend money on wants that add value to their life.

• They utilize sinking funds to save for future purchases/expenses.

• They give joyfully and sacrificially.

• They paid off all their non-mortgage debt.

• They invest with discipline, simplicity, and effectiveness.

• They have cheap term life insurance policies that will replicate each person's respective income in the event of a tragic event. 

• They are in the process of setting up wills.

• They both pursue work that matters, and find meaning and fulfillment in their careers.

• They are creating financial margin to provide flexibility for future decisions and lifestyle shifts.

They are the total package! No, it's not because they have massive incomes and unlimited resources. Reminder, they are both teachers. They are normal people, making normal money, living a normal life. Except it's not a normal life. It's an extraordinary life.

What's their secret? Intentionality, discipline, humility, contentment, and consistency. That's it. Good choice after good choice after good choice. Oh yeah, and that whole unity, shared vision, and joint ownership thing. They are doing it together. There is no "mine" and "yours." Everything is "ours." For better or worse. 

Yes, this is an opportunity for me to brag about this amazing couple. However, there's more to it. I hope you find encouragement in it. We ALL have the power to get better in the areas of money. The only thing stopping us is us. It's not easy, but it's so, so worth it. Get 1% better today! Then, get 1% better tomorrow. One day at a time. You got this!

Catch That Breather

Warning: I'm about to share some financial advice that will deeply offend some financial people. 

If you're still reading this, you've been warned. I take no responsibility for any level of annoyance or disgust you're about to experience.

I recently met with a couple in the middle of a butt-kicking financial journey. They got themselves into a pretty deep hole, and now they're digging out. It's been a slog of an endeavor, but they're making fantastic progress. However, they are flat-out tired. I can see it in their eyes. It's the financial version of seeing a basketball hunched over during a dead ball, clutching his shorts and panting heavily. You can clearly see the tank is empty. They've left everything they had on the court. That's this couple!

Anyway, I could sense they were about ready to break (which is a terrible outcome!). Therefore, I took extreme measures in our last meeting. I encouraged them to stop paying debt next month. Yes, completely stop. No debt payoffs, no saving, no investing.....nothing "responsible." Instead, aside from their needs, minimum debt payments, and giving, they will use ALL of their extra income for "irresponsible" things. Dining out, travel, personal spending, and maybe a few fun things for their house. Totally irresponsible!

Three powerful things will happen when they follow through with this ridiculous-sounding plan:

1. They will get a much-needed break. They are exhausted, and this one-month progress break will be the equivalent of a coach giving their star player a short breather. This break will give them the energy to get back on the court and finish the game strong. 

2. They will experience first-hand that it was not wants that hurt them in the past, but a lack of intentionality. On the flip side, when they experience a month chock-full of fun want spending while simultaneously keeping the financial train on track, it will show them that wants aren't the problem. It's all about intentionality. This experience will change them!

3. These things won't inherently make them happy. They will be fun, but they won't move the satisfaction needle as much as those progress months do. This will further embolden them to get back on the court and take care of business once and for all. 

"Irresponsible" spending only. No progress. No wise moves. No debt payoffs. No saving. No investing. Just fun things. Just because. This is the break they need. This is just what the doctor ordered to propel them to that next level. 

If you can relate to this couple, perhaps you need a break. Maybe you need to catch that breather. It's ok if you do. Even Jordan needed one every now and then. 

The Tension Brings Clarity

I had a fun e-mail exchange with a friend regarding my recent car-related posts. He shared how "liberating" life has been since becoming debt-free four years ago. However, his next comment is what got me. Since he was a new and now-committed member of the debt-free club, buying a truck would be a different experience. This now meant he "could not even consider" buying a truck without having the cash in hand. This changes everything! He added that while he had the cash to buy whatever truck he wanted (impressive move!), he ultimately decided to spend $10,000 less on his purchase (humble move!).

When we refuse to use debt to purchase vehicles, it creates a very palpable tension. It's hard to save a big chunk of money for vehicles. It's a long, thankless, and often unrewarding task. That's precisely the point, though. That process brings with it a tension that must be reckoned with. When it's finally time to pull the trigger on that new ride, we're faced with the reality of parting ways with so much of our hard-earned cash. That tension is brutal...and the cost high!

That tension also brings clarity. To explain this dynamic, I'll use the opposite example. Let's say my friend was truck shopping with the intent of using debt (you know, the normal way). He finds what he's looking for, falls in love with it, and needs to make a decision. He has two options in front of him: a $40,000 truck and a $50,000 truck (I made those prices up). The $50,000 truck is clearly better. It has all the bells and whistles....and a bigger engine! After doing the math, he realizes the $50,000 vehicle will "only" cost him $150/month more than the other. Considering that the $50,000 vehicle is superior and he likes it more, $150/month seems like an absolute no-brainer! See, there's no tension in the decision-making process. It's a number on a piece of paper. $150. That's not a needle-mover in many people's lives. We won't talk about the fact it's $150/month for the next 84 months.....that's for future him to worry about. Current him gets the nice truck right now!!! Again, no tension.

On the other hand, he's living in a new reality where debt is not an option. He has the same decision in front of him: buy the $40,000 or $50,000 truck. This time, however, there's a difference. Since he's writing a check no matter what vehicle he buys, he's faced with the proposition of trading an extra $10,000 of his hard-earned money for the nicer truck. It's ok if he chooses that one, but he will immediately have $10,000 less in his bank account. There's the tension!

The tension brings clarity. When faced with that tension, we almost always make better, clearer decisions. He knew exactly what he was getting, exactly what he was paying for it, and would face the consequences immediately. Tension and clarity!

He clearly and confidently chose the $10,000 cheaper option. That tension is a beautiful thing.

Have To vs. Get To

I'm still thinking about the conversation I shared with the young woman I mentioned in yesterday's post. One of the things that struck me about her story is how much meaning and impact she's making in her work. She's a legit hero. Her eyes lit up when she talked about her work, yet at the same time, she admitted the utter frustration she feels when her income immediately goes toward debt payments.

See the tension there? Her work has so much meaning, yet her financial situation has changed her relationship with it. She's literally changing people's lives, but the income she's receiving from it is helping her barely hang on financially.

This is a tension I felt earlier in my career. Despite loving what I was doing, I woke up in the morning knowing I had to go to work. My job, and the paycheck it would provide, was my only lifeline to making my debt payments and living to fight another day. I was grateful for the job, but in some ways, it felt like I had nothing to show for all my hard work. That's a very helpless and defeating feeling. But there's a purpose behind it.

Then, something happened. When our $236,000 of debt was gone (4.5 long years later), I woke up feeling different. For some odd reason, my job got better. I felt more positive about it. I found excitement toward the work. I became better at what I did. Literally nothing about my job changed. I'm the one who changed. After a few weeks, I realized what it was. For all those years, I HAD TO go to work. Now, I GET TO go to work. It was a choice, and that choice changed everything!

Feeling like we have a figurative gun to our head is the worst feeling in the world. Even the best job will feel like garbage if we believe we don't have a choice. On the flip side, there's no better feeling than knowing we are going to work today solely because we want to. There's freedom in that. There's meaning in that.

My relationship with work forever changed that day. I promised myself that if one day I didn't want to go to that job anymore, I wouldn't. Little did I know, I'd have to follow through with that promise just seven years later when I left that career to begin what I do now. It was the hardest decision I ever made, but also the easiest (ironic, I know). I GET TO do what I do, and I never take that for granted. It doesn't mean it's easy (it's not). It doesn't mean it's always fun (it's not). But, boy, I can testify there's nothing more fulfilling or rewarding than waking up every day knowing I'm doing exactly what I'm supposed to do.

I hope you wake up with the same feeling. If not, I invite you to find it. It's out there.....I promise.

My Three Promises

I recently had the pleasure of spending time with a young adult in a decent amount of debt—car, student loans, credit cards—you know, the normal stuff! It was my first time meeting her, and I thoroughly enjoyed spending that time with her. 

Much of our time was spent formulating a plan to get out of debt and creating financial momentum to do so. The problem with so many people who are in debt, including Sarah and me when we first got married, is that the situation feels too heavy. The minimum payments feel too intense, the disposable income too little, and the mountain seemingly insurmountable. 

After laying out the plan, I made her three promises. These are the same three promises I make to all my clients beginning a debt payoff journey, and they are the same three promises I'll make you today if you find yourself in debt. 

1. Paying off debt is very simple. We list the debts in our desired payoff order (I prefer the smallest balances first). Each month, we pay the minimum amount due on each debt. Then, we take any remaining extra income and pay down the next debt in our sequence. Repeat this process each month, moving to the next debt each time one is paid off. It's simple!

2. Paying off debt is very hard. It can be a grind. Month after month after month. It's a thankless endeavor, and there's nothing enjoyable about it. At some point, it becomes a mental game. Can we stay focused? Can we stay disciplined? Can we keep our emotions at bay? There are so many other things we'd rather do with this money each month. Are we willing to make the necessary sacrifices? It's hard!

3. Paying off debt is so, so worth it. It's impossible to explain the amount of peace, freedom, and satisfaction we experience upon paying off our debt. It may have felt like we were carrying 100 pounds on our shoulders, but after paying it off, it feels like we actually shed 500 pounds. It literally changes everything! That moment of debt-payoff freedom becomes a significant inflection point in our lives, and we realize things will never be the same again. It's so worth it!

I lived this journey personally, and I've walked alongside dozens of families in their own journeys. Don't overcomplicate things.....it's very simple. Don't let someone tell you it will be easy.....it may be one of the hardest things you ever do. Don't underestimate the impact it will make in your life....it's will change everything!  

Not only CAN you do it, you SHOULD do it. Strike that. You WILL do it. You got this!

A Different Way to Travel

One of the most pervasive myths floating around our society is that we NEED a credit card to travel. People believe this so much that they are willing to play Russian Roulette with their finances to make it happen. Here's a very real example. One of my clients had more than $30,000 of credit card debt. It's a chunk of debt that's expanded and contracted for more than a decade. Fortunately, they decided to lock down and aggressively pay it off. Getting debt-free took about 14 months, and they celebrated mightily upon completion!

I pleaded with them to cancel their cards—I literally begged! Then, the dreaded phrase came out of their mouths: "We NEED to keep at least one open for travel." Uh oh, the myth still had them captive! Despite my best efforts, they elected to keep this card open "just for travel." You can probably guess where this is going. Life happened, and they ended up back in credit card debt. 

There's a better way! A simpler way! We don't need a credit card for travel. I haven't had a credit card for more than 14 years now. I've traveled to nearly 30 countries during that span.....with no credit card in my possession. I buy plane tickets with a debit card. I book hotel rooms with a debit card. I rent cars with a debit card. I buy meals, Ubers, and activities with a debit card. It's possible to travel without a credit card. I don't just preach it.....I live it. 

All that said, it's not enough for me to simply say, "Stop using credit cards for travel." I'll also share how I structure my travel life: 

• I have a designated sinking fund for travel. But instead of using a savings account, I have it set up as a checking account. It's a separate checking account ONLY for travel use. 

• Each month, we allocate money for travel in our budget. When we do, we literally take that money and move it from our primary checking into our travel fund. We treat it as an expense, and actually "pay" that expense. 

• When we travel, we use the debit card associated with our travel fund to pay for all travel-related expenses: cars, hotels, flights, food, activities, etc. Everything!

• The money comes directly from our travel fund, leaving our monthly budget completely unscathed. 

If that sounds too simple, it's because it is. Simplicity always wins. If there's money in the account, we travel. If there's not, we don't. No exceptions. There's zero chance of making a mistake, going into debt, or getting ourselves into trouble. Handling travel this way also forces us to be intentional with our budget each month, as our travel fate relies on us actually setting money aside. 

I know I'm fighting an uphill cultural battle with this one, but I felt compelled to share this alternative way of thinking today. Try it for yourself. I have a feeling you'll love it as much as we do. 

You Don’t Have to Buy That Car

As I was scrolling through Twitter yesterday, I stumbled upon a Tweet about the latest auto loan statistics. What I saw astounded me (but not really). It's unfortunately the way of the world, and I've long ago conceded we as a culture will continue to let vehicles steal our dreams and sabotage our finances. I sound dramatic, don't I? I'll share the numbers with you, then let you decide for yourself. In the third quarter of 2023, here are the metrics for the AVERAGE new car loan: 

• Loan Balance: $40,200

• Monthly Payment: $726

• Loan Term: 5.7 years

I remember the first time I saw a $1,000 car payment. It was shocking. These days, I see a new one nearly every week. I now regularly see $1,500 car payments. Yes, you read that correctly. $1,500/month for something we drive. 

Most of the time, when the car payment elephant in the room comes up with a client or prospective client, there's a "but."

• But…our last car broke down.

• But…we needed something with fewer miles.

• But…we needed something safer.

• But...we needed something newer.

• But…we needed something more reliable.

"But" is the gateway to a self-sabotaging financial decision. It's common to see families with $1,500-$2,000 of monthly car payments, while simultaneously feeling stuck and victimized by their lack of financial margin. The primary reason we get ourselves into this mess is using any number of reasons to justify what we already want to do.....and what we already want to do is have a sweet ride. 

I have good news to share with you today. You don't have to buy that car. Nobody is holding a gun to our heads and forcing us to make significant life-altering financial decisions. Yes, we need transportation. But we don't need a vehicle corresponding to a massive monthly payment. I'd even take it a step further and argue we don't need a vehicle that requires any car payment whatsoever.

Sarah and I haven't had car payments for more than 14 years. It's not because we make so much money, but rather because we made a commitment to never again have a car payment. It's amazing how refusing to go into debt results in not having debt. However, this commitment requires us to make intentional decisions. You know, crazy, insane decisions like buying used cars with some miles, maintaining them, holding them for many years, and slowly saving for the next car along the way. I drive a car with 125,000 miles, and she drives one with 175,000 miles. They run well. They occasionally break. We fix them. Repeat. At some point in time, it will make sense to sell them, add money from our car sinking fund, and upgrade to newer vehicles with fewer miles. 

Along the way, there are two realities we continually face:

Reality #1: Our car game isn't sexy. Far from it. It's kinda lame. 

Reality #2: Our unsexy car game allows us to live a life full of flexibility, margin, generosity, impact, and meaning. 

You don't have to buy that car.