Famed football coach Vince Lombardi always used to take his legendary Green Bay Packer teams back to football fundamentals when they were having trouble. He would have them perform blocks and tackles, believing that they needed to re-establish a good base for other football activities. This is also a good principle to follow in one’s financial life: go back to basics when things go wrong. Let’s talk about those principles of credit repair, Money Managementand financial prosperity now.
With the glut of foreclosures that hit America last year, it’s clear that many are living beyond their means, violating one of the most fundamental financial principles: living within your means. However, it is understandable why many do not do that. Everyone wants the American Dream of home ownership, financial prosperity, and an overall good life. Seeing others have the things you want is hard, and in a land of wealth like America, you see it all around you. Conspicuous consumption is all around you and many fall into the trap of taking the path of least resistance and using credit to finance their desired lifestyle.
Wealth is not inherently bad because money does many good things, such as providing medical care for the sick, creating farms, building bridges, providing for the defense of the nation, and enabling us to meet the necessities of life. As human beings, we all have an innate desire for something better and, of course, for more of everything. It is when this desire crosses the line of greed that things go wrong.
So what are the basic fundamental principles I’m talking about? They are:
*Spend less than you take in and save for a rainy day
* Learn to distinguish between needs and desires.
*Use debt as a financial instrument of necessity, not as a primary financial tool. Use credit cards instead of cash for security reasons.
*Pay all bills on time
Let’s briefly discuss them now.
Spend less than you earn
By learning to save, you naturally discipline your financial impulses. By spending without restrictions, people accumulate credit card debt, which can be extremely difficult to manage. Learning to spend less than you take in allows you to save money for that rainy day that inevitably comes. When our financial sun shines, we tend to think that it will be like this forever, don’t we? But unforeseen events can often snap us out of our reverie unexpectedly. Losing a job, an unplanned baby, an accident, health problem, or natural disaster can very quickly deplete what little, if any, savings we have. By learning to spend less than you bring in and then carefully safeguarding that income, it can enable us to plan for a comfortable retirement or use those funds when that rainy day comes.
One of the unexpected byproducts of this principle is that you have money to buy the finer things in life. Following this strategy has allowed me to afford some of the things I want in life. It can for you too.
Learn to distinguish between needs and wants
Many Westerners who have lived in abundance all their lives are getting used to modern life. Modern transportation, abundant food, good housing, sanitation, clean water and modern technical conveniences, opportunities for a good education, all are taken for granted. And consequently, the line between needs and desires is conveniently blurred. We start to think that we need that new car, that new washing machine, that new TV, but do we need it? Not really. That’s not to say modern conveniences are bad, they clearly aren’t. It is our attitude towards them that is at stake here, not the comforts we enjoy. Here’s the point: when one lives beyond one’s means, a series of problems inevitably arise. Using debt to live beyond our means allows us to prolong doomsday, but debt is a keen observer of dates and times, and that doomsday will come.
It is an interesting financial phenomenon that one’s needs expand when financial prosperity has already been achieved. Such an attitude is due to pride, the inevitable by-product of wealth or prosperity, and that attitude is generally due to the use of consumer debt in our society, and that leads to the next point…
Use debt as a financial instrument of necessity, not a primary financial tool: use credit cards instead of cash for security reasons
The famous founding father Benjamin Franklin said, “Debt is a tangled web.” Literally, debt is bondage to your creditor who has authority or command over you. A friend of mine says that “debt is a four letter word.” While his point was made humorously, it has some common sense applicability. Buying a house and paying for education are the two main reasons for getting into debt. However, using it for consumer purchases is when one gets into dangerous territory. The instant gratification nature of consumer credit is a narcotic to many, almost akin to the high felt by the addicted gambler and, if left unchecked, could lead to financial ruin.
A good rule of thumb to use when considering taking on debt for a consumer item is to ask yourself, “Do I really need this?” Necessities involve basic needs such as food, water, shelter, and health. If it doesn’t meet that criteria, then it’s not a necessity. Replacing an old washing machine with a new one is a case in point. Maybe you could repair the old washing machine instead of buying a new one? Can you make that old suit last a little longer instead of buying a new one? In most cases, the answer is almost always yes.
Last point for this subtopic: Use credit cards like cash to avoid carrying around a lot of cash, which could jeopardize your personal safety, or simply as a convenience. I use my credit card all the time. For every purchase I can actually. But I only have one credit card, one. I don’t need another. I use it to avoid carrying cash, yes, and I admit I use it to rack up cash rewards points, but I use it mostly for convenience. And, here’s the kicker: I always pay your balance in full when the bill is due. Only once in my life have I had a credit card balance and that was only for a month as I inadvertently read the statement and paid only the minimum amount. I use the card just like cash and I always pay it at the time of the statement. The result? The credit bureaus love me and I have an excellent credit score.
Pay bills on time
The belief that one will be able to pay all the bills on time without any problem is a common belief among those who acquire wealth. Not so. Let me tell you an anecdote from my personal experience. While living in New Jersey in 1991, he was shopping for a new CD stereo system in Bernardsville, New Jersey, a very wealthy enclave for many celebrities. When I settled on a particular system, I asked the owner if he would accept a check, to which he agreed that it was no problem.
Then he made a very interesting comment.
“In my years of business, only one person has bounced a check.”
I was intrigued. “WHO?” I asked.
“You will not believe me”. He answered.
“Seriously, who?” I cajoled
Mike Tyson. He laughed.
“The boxing champion?” I asked in shock.
“Seriously, yes.”
At the time, Mike Tyson’s wealth was estimated to be in the range of $80 to $100 million, and he received a bad check for maybe three or four thousand dollars?! He can see that his wealth does not automatically allow him to be in a financial position or pay his bills on time. If you allow money to control you, or perhaps I should say, if you allow your attitude about money to control you, then you will fall into undesirable circumstances. Therefore, pay your bills on time. This ensures financial honesty, which is at the heart of our current usury system. Your creditors will respect you, the credit bureaus will give you a strong credit rating, and you’ll escape the financial woes that befall those who don’t know how to manage their money properly.
Closure
In closing, although this article has not given you specific strategies to improve your credit or financial life, these principles can and should underpin everything you do financially. By doing so, you’ll have significantly less stress, greater creditworthiness, and a secure foundation for financial prosperity.