How do people react to such situations? They borrow more money. Consumer debt has risen to $ 1.7 trillion. And it continue to rise. Stuart Feldstein, president of SMR Research, says, amount of borrowing has been rising faster than incomes. In 1981, the debt-to-income ratio for consumers in the United States was 1.14. In 2000, it was 1.63. People are taking on more debt than they can handle. Mortgage delinquencies are also rising. According to the Mortgage Bankers Association of America, foreclosures are at their highest rate in thirty years.
In a recent study, 27 percent of the people surveyed by the Los Angeles Times described their personal finances as “shaky? And 40 percent said they had trouble paying insurance premiums, car payments, and other installments on monthly loans. Financial pressure takes a huge toll on people. It even hurts their productivity on the job. A survey conducted by the Consumer Credit Counseling Service found that employees experiencing financial stress waste 13 percent of their workday dealing with money matters on the job. That’s more than an hour a day—and 250 hours a year!
Why Finances Matter Today
O. Donald Olson quips that “the average American is busy buying things he doesn’t want with money he doesn’t have to impress people he doesn’t like? There isn’t an aspect of life that financial matters don’t touch. And when people don’t handle finances well day to day, it causes huge problems.
Take a look at three simple truths about finances:
1. MONEY WON’T MAKE YOU HAPPY
Even though most people would say they agree with the saying “Money won’t buy happiness,” they sometimes act as if they think it’s true. Why else would they make money such a high priority or compromise their values to get it? Several years ago, James Patterson and Peter Kim published the results of a national survey on morals in The Day America Told the Truth. They shared some of the things people said they would do for money. Here are some of the things people said they would be willing to do for $10 million (along with the percentage of people who would do it). They would
• Abandon their entire family (25 percent)
• Become prostitutes for a week or more (23 percent)
• Give up their American citizenship (16 percent)
• Leave their spouse (16 percent)
• Withhold testimony, letting a murderer go free (10 percent)
• Kill a stranger (7 percent)
• Put their children up for adoption (3 percent)
If those findings don’t show that some people believe money will bring them happiness, nothing does!
Journalist Bill Vaughan joked that money won’t buy happiness, but it will pay the salaries of a huge research staff to study the problem. That’s truer than he might have thought. Studies have shown that having more money really doesn’t bring happiness. According to Fast Company magazine, “Between 1970 and 1999, the average American family received a 16% raise (adjusted for inflation), while the percentage of people who described themselves as ‘very happy’ fell from 36% to 29%. We are better paid, better fed, and better educated than ever. Yet the divorce rate has doubled, the teen-suicide rate has tripled, and depression has soared in the past 30 years.” Modern research simply confirms something said nearly two thousand years a go by the Roman philosopher Seneca: “Money has yet to make anyone rich.”
As a young man, I may have suspected that people with money were happier than people without it. But as I began counseling people with incomes above average, I found that they had no advantage over people with low incomes. Automaker Henry Ford said, “Money doesn’t change men, it merely Un-masks them. If a man is naturally selfish, or arrogant, or greedy, the money brings it out; that’s all.” You are what you are—no matter how much or how little money you have.
2. DEBT WILL MAKE YOU UNHAPPY
Having money may not make people happy, but owing money is sure to make them miserable. I once saw a piece by Rose Sands that categorized debt this way:
If you owe $1,000, You’re a piker.
If you owe $100,000, you’re a businessman.
If you owe $1 million, you’re a tycoon.
If you owe $1 billion, You’re a magnate.
If you owe $100 billion, You’re the government.
Novelist Samuel Butler, who satirized Victorian life in England, wrote, “All progress is based upon a universal innate desire on the part of every living organism to live beyond its income.” Yet the truth is that if your outgo exceeds your income, then your upkeep will be your downfall.
Solomon of ancient Israel summed up the condition of anyone in debt when he said, “The rich rules over the poor, and the borrower becomes the lender’s slave.” Who wants to be a slave, controlled by someone else?
3. HAVING A FINANCIAL MARGIN GIVES YOU OPTIONS
The bottom line is that money is nothing but a tool. It is good for helping one achieve goals, but the goal of getting money for its own sake is ultimately hollow. If you have very little money, you have fewer choices. If you want to live where it’s most convenient to your job, you may not be able to if you lack money. You may not be able to send your children to the school you want. You may not be able to afford a reliable car. You may not be able to take off time from work to see your children’s bail games or recitals. You may not be able to switch careers to something you love. You may live every month from paycheck to paycheck. And you may not be able to stop working when you’re sixty-five, seventy, or even older.
Making the Decision to Earn and Properly Manage Finances Daily
When I was growing up, it was obvious very early that my brother, Larry, and I had very different attitudes toward money. We were complete opposites. As a kid, all Larry wanted to do was work and make money. All I wanted to do was play with my friends. He spent his summers working. I spent my summers shooting hoops. He saved his money. I had nothing to save. When Larry was sixteen years old, he bought himself a nice car with his own money: a four-year-old Ford. I didn’t have a car until I graduated from college. It was an old beat-up Ford Falcon—and guess from whom I borrowed the money to buy it? From Larry—and from my younger sister, Trish.
When I was studying for the ministry, I realized I was choosing a profession where I would not make a lot of money. I didn’t mind that because I was doing what I believed I was called to do and what would be personally fulfilling. But I also recognized that when a person has no money, he has few options. In 1985, Margaret and I made a decision: We will sacrifice today so that we can have options tomorrow. From then on, we’ve determined to live by this financial formula:
• 10 percent to church charity
• 10 percent to investments
• 80 percent to living expenses
Around that same time, our friend Tom Phillippe offered us a wonderful opportunity to invest in one of his retirement centers. We gladly accepted. For several years, we’ve not only continued to put 10 percent of our income into investments, but when those investments have made money, instead of spending it, we have rolled it over into other investments. Over time our money has been building. And the older Margaret and I get, the more options we have as a result.
If you desire to have options, yet you have not done a good job of earning and properly managing your finances daily, then put yourself in position to make a good decision concerning finances by doing the following:
PUT THE VALUE OF THINGS INTO PERPECTIVE
A husband and wife attended a county fair where a man in an old biplane was giving rides for $50. The couple wanted to ride, but they thought the pilot’s price was too high. They tried negotiating to get him to lower the price, offering $50 for them both, but he wouldn’t budge. Finally, the pilot made them an offer.
“You pay me the whole $100, and I’ll take you up,” he said. “And if you don’t say a single word during the flight, 191 give you back all your money.”
They agreed, and the couple got into the plane. Up they went, and the pilot proceeded to do every aerial maneuver he knew: diving, looping, roiling, and flying upside down. When the plane landed, the pilot said to the husband, “Congratulations! Here’s your $100. You didn’t say a word.”
“Nope,” answered the husband, “but I almost did when my wife fell out.”
It’s a hokey story, but it directs us to a truth about our culture. People tend to value money and things over what’s really important in life: other people. French historian and political scientist Alexis de Tocqueville remarked about the United States that he knew of “no other country where love of money has such a grip on men’s hearts.” Remarkably, he wrote that more than one hundred years ago! I wonder what he would say if he were alive today.
To know whether your attitude about money and possessions is what it should be, ask yourself the following five questions:
1. Am I preoccupied with things?
2. Am I envious of others?
3. Do I find my personal value in possessions?
4. Do I believe that money will make me happy?
5. Do I continually want more?
If you answered yes to one or more of these questions, you need to do some soul-searching. Billy Graham rightly points out, “If a person gets his attitude toward money straight, it will help straighten out almost every other area of his life.” Materialism is a mind-set. There’s nothing wrong with possessing money or nice things. Likewise, there’s nothing wrong with living modestly. Materialism is not about possession—it’s an obsession. I’ve known materialistic people with no money and non-materialistic people who possess lots of money. Haven’t you?
RECOGNIZE YOUR SEASON OF LIFE
Every phase of life isn’t the same, nor should we try to make it that way. Ideally, a person’s life should follow a pattern where the main focus goes from learning to earning to returning. Here’s what I mean about each phase:
• Learn: When you’ re young, your focus should be on exploring your talents, discovering your purpose, and learning your trade. For many people, this phase occurs during their teens and twenties—although a few trailblazers do it earlier and some late bloomers don’t have things worked out until well into their thirties (or later). The exact timing isn’t important. What matters is that you accept that there is a phase of life where learning is your primary objective and that you shouldn’t take shortcuts to financial gain and miss the big picture of your life.
• Earn: If you’re on track with your purpose, you’ve learned your trade well, and you practice it with excellence, the hope is that you will be able to earn a good living. Obviously, your choice of profession impacts your earning power greatly. For many people, the season when their earning is most effective occurs during their thirties, forties, and fifties. During this phase of life, you should strive to take care of your family and prepare for your future.
• Return: We should always try to be generous, no matter our age. But if you’ve worked hard and planned well, you may enter a phase of life that is most rewarding, where you can focus on giving back to others. Most often, that occurs when people are in their fifties, sixties, seventies, and beyond. Margaret and I are planning how we hope to do that in the coming years.
Obviously these phases are generalizations, but they present a pattern for which to strive. If you are young, then you may be eager to leave the learning phase. Be patient, because the more diligently you go after phase one, the greater your potential to maximize the other phases. If you’re older and you didn’t lay a good foundation for yourself don’t despair. Keep learning and growing. You still have a chance to finish well. But if you give up, you’ll never go up.
REDUCE YOUR DEBT
Michael Kidwell and Steve Rhode, authors of Get Out of Debt Smart Solutions to Tour Money Problems, believe, “Every person in debt is suffering from some type of depression. Debt is one of the leading causes of divorce, lack of sleep, and poor work performance. It is truly one of the deep dark secrets that people have. It robs them of their self worth and keeps them from achieving dreams.”
Going into debt for things that appreciate in value can be a good idea. Purchasing a house, securing transportation so you can work, improving your education, and investing in a business are good things—as long as you can manage them well. But many people incur debt for frivolous things. When you’re still paving for something you no longer use or even have, it means trouble.
Kidwell and Rhode suggest five steps to reduce debt:
1. Stop incurring debt.
2. Track your cash.
3. Plan for the future.
4. Don’t expect instant miracles.
5. Seek professional help.
Don’t let your possessions or your lifestyle possess you. If you’re a slave to debt, find a way to free yourself.
PUT YOUR FINANCIAL FORMULA INTO PLACE
Someone once observed that the difference between the rich and the poor is that the rich invest their money and spend what’s left, while the poor spend their money and invest what’s left. If you haven’t decided to plan your finances, you’re headed for trouble. Put yourself on a budget. Create a financial formula that works for you. You may want to try the 10-10-80 approach that we use. But do something! The old saying is corny but true: Failing to plan is like planning to fail.
Managing the Disciplines of Finances
I have to admit that money has never been my number one motivation in life. Truthfully, finances were so low on my list of priorities that for a time I neglected them, which is probably why I didn’t make my good life decision concerning finances until I was in my late thirties. But we’ve all seen what lack of good financial management can do to people in their twilight years. Recently my son-in-law, Steve, and I went to eat at a restaurant when we were down in Florida, and a lovely lady in her mid-seventies waited on us. Now, you never know another person’s situation; some people work into their eighties simply for the joy of work or to be with people. But I know that the majority of people who keep working in physically demanding jobs during that season of life do it because they have no other choice. My friend financial expert Ron Blue says that the average annual income for people over age sixty-five is $6,300. In the case of our waitress, I sensed that she worked because she had no other options. So Steve and I left her a great tip. The next time you find yourself being waited on by senior citizens, you might want to do something for them.
I’m still growing in the discipline of finances. I settled my personal financial issue years ago with 10-10-80, but it’s been only in the last decade that I’ve learned to be better at finances in business. I used to focus on the vision for the organization, hire the best leaders I could find to join me in achieving it, and then lead to the best of my ability. I pretty much left the financial aspects of the business to others. But my brother, Larry, took me to task for that attitude. He told me that I had no right to neglect business finances just because it wasn’t an area of strength or passion for me. So now, at home and in business, I maintain this discipline: Every day I will focus on my financial game plan so that each day I will have more, not fewer, options. The earlier you make the decision and practice the discipline of sound financial management, the more options you will have.
To help you approach your finances every day with the right attitude, do the following:
BECOME A GOOD EARNER
To become a good financial manager, you must first have something to manage. That’s why I believe the first discipline of finances is to maximize your earning potential. By that I don’t mean to neglect the other important areas of life in order to make a buck. Nor am I suggesting that your focus should always be on money. Just maintain a strong work ethic, and learn how to make and manage money. Develop relationships with people who are successful in this area and learn from them. There are also plenty of good books about personal and business finances.
Work ethic, on the other hand, is more about desire than knowledge. It comes from within. Anything can fuel that desire: the passion to serve others, the promise of escaping the circumstances of our birth, a vision for progress, or a personal passion. What often puts out the fire of desire is the belief that the work is too great for the return.
If you find yourself thinking that you have it especially hard in your job or career, you might need to put things into perspective. Take a look at the rules that employees at Mt. Corry Carriage and Iron Works were asked to follow in 1872:
1. Employees will daily sweep the floors, dust the furniture, shelves, and showcases.
2. Each day fill lamps, clean chimneys and trim wicks, wash windows once a week.
3. Each clerk will bring a bucket of water and a scuttle of coal for the day’s business.
4. Make your pens carefully. You may whittle nibs to individual taste.
5. This office will open at 7 a.m. and close at 8 p.m. daily except on the Sabbath.
6. Men employees will be given an evening off each week for courting purposes, or two evenings if they go regularly to church.
7. Every employee should lay aside from each pay a goodly sum of his earnings for his benefit during his declining years so that he will not become a burden upon the charity of his betters.
8. Any employee who smokes Spanish cigars, uses liquor in any form, gets shaved at a barber shop, or frequents public halls will give good reason to suspect his worth, intentions, integrity, and honesty.
9. The employee who has performed his labors faithfully and without fault for a period of five years in my service and who has been thrifty and attentive to his religious duties and is looked upon by his fellowman as a substantial and law-abiding citizen will be given an increase of 5 cents per day in his pay, providing that just returns in profits from the business permit.
We enjoy a lot of advantages today that people didn’t have in previous generations. One of them is that we don’t have to fulfill the same expectations of those in previous centuries. With the right attitude and a willingness to pay the price, almost anyone can pursue nearly any opportunity and achieve it.
BE GRATEFUL EVERY DAY
One of the most important things you can do for yourself is keep your perspective and be thankful for whatever you have. Poet Rudyard Kipling once told his audience while speaking at a graduation ceremony, “Do not pay too much attention to fame, power, or money. Some day you will meet a person who cares for none of these, and then you will know how poor you are.” If you work hard and maintain an attitude of gratitude, you’ll find it easier to manage your finances every day.
DON’T COMPARE YOURSELF TO OTHERS
Whenever people start comparing themselves to others, they get into trouble. Comparisons of money and possessions can be especially detrimental. Wanting to keep up with neighbors or appear well-off gets many people into horrible debt. New Yorker financial writer James Surowiecki says, “Americans have always been stricken by the disease that some have called ‘luxury fever’ or ‘aff1uenza.’ Even if we aren’t rich yet, we’d like to look as if we were.”
If you see your neighbors buying new furnishings for their home, taking elaborate vacations, and driving a new vehicle every year, does something stir inside you to do the same? Just because someone appears to be in similar circumstances to you doesn’t mean anything. Your neighbors might earn twice as much as you do. Or they may be in debt up to their eyeballs and three-fourths of the way to bankruptcy court. Don’t make assumptions, and don’t try to be like someone else.
GIVE AS MUCH AS YOU CAN
Author Bruce Larson says, “Money is another pair of hands to heal and feed and bless the desperate families of the earth. . . . In other words, money is my other self. Money can go where I do not have time to go, where I do not have a passport to go. My money can go in my place and heal and bless and feed and help. A man’s money is an extension of himself.” That’s true of your money only if you’re willing to part with it. Or to put it a more colorful way as Hanna Andersson Clothing company founder Gun Denhart did: “Money is like manure. If you let it pile up, it just smells. But if you spread it around, you can encourage things to grow.”
My brother, Larry, recently gave me this quote from Blaise Pascal: “I love poverty because Jesus loved it. I love wealth because it affords me the means of helping the needy. I keep faith with everyone.” I’ve mentioned “options” a lot in this chapter. That may seem like a selfish word to you. But I have to tell you, for me having options is about service. Philanthropist Andrew Carnegie said his goal was to spend the first half of his life accumulating wealth and the second half giving it away. What a great idea! My desire is to spend my future years giving to others. I won’t be able to give on the scale that Carnegie did, but that’s not important. What matters is that I do what I can by practicing financial discipline.
Reflecting on Finances
As I look back at my life in light of finances, I realize that my thinking has changed over the years as I’ve gotten more mature and more realistic:
In my 20s... I realized that life consisted of more than money.
In my 30s... I realized that money would give me options.
In my 40s... I realized that I needed to pay now in order to play later.
In my 50s... I realize that the greatest joy in making money is the privilege of giving it away.
Perhaps the best financial guidance I’ve ever read came from clergyman John Wesley. His advice was, “Earn all you can, save all you can, give all you can.” That’s a philosophy you can embrace no matter what phase of life you’re in or how much money you make.
Discovering Her Dream
If you keep track of the New York Times best-seller lists, you know her name. If you watch PBS or Oprah, then you’ve probably seen her. And if you study sales, you know that she personally sold ten thousand books in twelve minutes on QVC and had to be yanked off the air because they sold out of books so quickly. I’m talking about Suze Orman, the financial guru who wrote the bestselling books The 9 Steps to Financial Freedom and The Laws of Money; the Lessons of Life. What you may not know is that she wasn’t born rich, she doesn’t have an MBA, and she used to be a financial wreck.
Orman was born into a Chicago working-class family in 1951. Her father ran a small struggling restaurant. When the family experienced financial difficulties, her mother worked as a legal secretary; Suze worked in the family restaurant while growing up. When she went to college, she studied social work, getting her degree in 1973. After graduating, she promptly moved to Berkeley, California, and got a job as a waitress at the Buttercup Bakery. She stayed there seven years, but she had dreams of doing something bigger. She wanted to open her own restaurant. When a regular patron at the Buttercup Bakery loaned her $50,000 as seed money to start her own restaurant, she knew it wasn’t enough. So she decided to invest it. Since she knew little about money, she handed her funds over to a broker. In four months it was gone.
Taken!
Orman says that her broker was dishonest and swindled her. But she was broke just the same. That’s when she made a financial decision that would change her life. She decided to learn about finances and become a broker herself. It didn’t take her long to become highly successful. One of her mentors, Clif Citrano, a former Merrill Lynch broker, says, “I’ve met much better investors in my time, but no one could market to investors better.”
In 1987. she started her own firm, and she began making even more money. But then she got into trouble. Orman says, “Soon after my firm was established, I was nearly destroyed by one of the most devastating things that ever happened to me.” An employee stole from her and tried to ruin her professionally. Although Orman eventually took the employee to court and won the case against her, the experience had other negative effects on her. Though she stopped seeing her clients and put her business on hold, she didn’t stop living the high life. She wasn’t earning or properly managing her finances, and it just about ruined her financially.
Comeback
What finally brought Suze Orman back to her senses was a traffic ticket received on the Bay Bridge between Oakland and San Francisco. Orman recalls her thinking in the moments after she received it:
I remember that the ticket was for only $40. But I did not have $40—I didn’t have $20, or even $10, unless I was to take another cash advance on one of my credit cards. As I drove away from the bridge in my high-end leased car, wearing my $8,000 credit-card-charged watch and my $2,000 department-store-charged leather jacket, the magnitude of my lies [I was telling myself] became real to me for the first time. I was speeding down the highway to financial ruin.
After that, Orman determined to change. She faced up to the truth of her situation. She got herself back together financially, and she began working hard again. She also decided she wanted to help others do what she had done: make the decision to change the way they approach finances.
Since then she has sold millions of books. But finances are not her motivation. “I don’t do this for the money anymore,” she says. “The money doesn’t fascinate me. Everybody probably thinks money’s my whole life. My apartment is 900 square feet. I could have bought a $10 million place on Park Avenue, but what for?”
Orman has her critics. Some say her approach to money is too simplistic. Others don’t care for sonic of her off-the-wall opinions. But one thing is for sure. She has settled the financial issue in her life. She earns and properly manages her finances daily. It doesn’t really matter how much money she has She lives modestly. She drives an older car. And when she’s not in New York, she lives in a tiny modest house in Oakland that she bought before she became a household name. But she has many options. And that’s a good measure of success when it comes to finances.
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