How to Minimize Debt

How do you avoid being buried by debt?

Most well off individuals will tell you that the first step to saving and accumulating wealth is to live below your means.

1) Don't borrow money unless it is absolutely necessary.
2) Budget your spending, revise and reduce periodically.
3) Pay off any debts as soon as you possibly can.

Some people, such as myself, are fortunate enough to have had the right education and upbringing to understand personal economics very well at a young age. However, there are far too many people in this country who borrow, refinance, and borrow again; all as a part of what they consider to be the normal order of things. Pretty soon, this debt gets so large that you are only able to pay the minimum payments. This all ends, when you are staring up at the impossible debt mountain, while deciding whether it's worth to go to a debt forgiveness specialist and plead for mercy or to declare personal bankruptcy and have your debts (aside from school loans) written off.

It doesn't have to be this way. As long as you are employed and have income going into your bank account every month, you can work out a strategy to protect yourself from potentially toxic debt cycle.

Education
The first big decision you will make in your life as a young adult is to decide which college to attend. But it starts even before that, with the question - what do you want to do in your life in order to earn a living? Therefore, it is my suggestion to all High School kids out there to truly use your early years wisely to discover what you want your profession to be. Higher Education is incredibly expensive, and these loans cannot be defaulted upon in order to be written off. Once you have your direction in life, research the Colleges which have the best programs for your chosen profession in your locale - living at home while attending college will save you money. Out of those schools, pick one that has the lowest net cost = (tuition + meal plan + fees) - (qualified school scholarships + grants). In addition, make sure to apply for all relevant scholarships and grants available from your State and Federal Government - these will knock down your net cost of education even further. If the remaining net cost cannot be offset by contributions from your parents or relatives, that's when you will need to make use of the student loan institution. Finally, as long as it doesn't interfere your studies, find part-time employment to offset cost further.

Living Space
Once you graduate College, as long as you have a good relationship and understanding with your parents, I suggest you live at home for the first couple of years. It saves you money and allows you to pay off your School loans faster. But sooner or later, you will have to move out and live on your own. Do yourself a favor, disregard the mainstream media with respect to home ownership - it is a losing game for someone who cannot buy a house outright (or pay at least 80% of the cost up front). Even with a friendly 30 year Fixed Rate of 4.25%, you still wind up paying twice the cost of the home over the lifetime of your loan. This was strictly mortgage - there are other upkeep and maintenance costs that come with home ownership, which puts the financial squeeze on the owner further. This prevents you from putting away money which you can save, invest, or use to create another stream of revenue. Renting, on the other hand, allows you to forego financing, maintenance and upkeep costs; all while retaining that money for another purpose. On the other hand once you have saved enough to pay at least 80% of the desired home, you may want to purchase the house if you have, or are intending to start, a family. Assuming the home is paid off in full, or in a short amount of time, you are only paying for property taxes after that.

Food
Learn to cook and learn to shop for cheap ingridients. A lot of people get lazy in the age of the internet, choosing to spend their time with their cell phones, tablets and laptops; rather than choosing to protect their wealth. You don't have to become a master chef, just learn a few quick simple recipies that you enjoy and won't break the bank. The use of store-bought ingridients and home utilities can save you up to 50% over middle of the road restaurant in terms of food preparation and clean-up. On those occasions when you do choose go out, ty to find a discount such as a coupon, flyer, groupon, livingsocial, etc.

Clothing
Make sure shop at stores that offer quality goods at a deep discount (Marshalls, TJ Maxx, etc.) or go to outlet stores that get their goods directly from the manufacturer. As long as the clothes have a brand name and look in current style, chances are people won't be able to tell where you got them. Only buy the clothing you plan on wearing, as opposed to collecting dust. Value your money, to spend it frivolously.

Non-Essential
With non-essential spending, such as gadgets, toys, vacations, and everything else that does not fall into living essentials category, it is important to keep this category as lean as possible. I get it - you want to enjoy your life. You should definitely go on a vacation, get yourself a big screen television, a nice reclining couch. However, realize that these are not time sensitive purchases and you can wait until a great deal presents itself. You will want to do a little research on what you want to buy and the cost range for that item. Just remember - the latest, greatest and trendiest, is also often the most expensive.

Budgeting
Keep track of your incoming money and outgoing money. Sounds simple, but very few people actually do this. It is as simple as opening your Excel Spreadsheet document (or a Google Spreadsheet document) and recording your salary and expenses. This will give you an idea if you are cash flow positive or negative. Cash Flow Positive is when you have additional money left over at the end of the month when you subtract all your expenses from your salary. Cash Flow Negative is when you wind up with money owed after all your expenses are substracted from your salary. In general, even if you are Cash Flow Positive, you will want to increase your salary and other sources of income, all while decreasing your expenses as much as possible.

Tackling Debt
When it comes to paying off your debt, you have to realize the interest with which your loans grow (4.5%, 6%, 7.5%, etc.) are a lot higher than the percentage the bank or treasury bonds will earn you (0.10%, 1.45%, 2.25%, etc.). Therefore, it is in your best interest to put some of your Cash Flow Positive money toward paying off additional Principal  of your Highest Percentage Loan each month. This strategy will help you pay off your loans faster and greatly reduce the amount of your hard earned money that would otherwise be wasted on paying loan interest over the life of your debt.

New Streams of Income
Your primary profession does not have to be your only source of income. You should treat your time as a valuable resource. You may learn another skill, start investing, find small off-hours work that pay, write for money, teach, etc. Whatever you choose to do, try to figure out how to better spend the time you usually watch TV, play video games, or surf the interenet. This is all extra time that you can leverage to supplement your salary.

No matter at which stage of life you are in, if you work on these basics and apply them in your life consistently, it will allow you to evade your dependency on debt and save you money to enjoy living more comfortably.

From American Dream to Corporate Lie

Before we start, I want to make it clear to everyone - I no longer consider the American Government and the American Corporate landscape two separate entities. They have been melded together and when I refer in this article to "Corporate", I refer to both as one.

Ahhh, the American Dream. It began as a reflection of our forefathers' desire to give every citizen an equal opportunity to succeed, to get ahead in life. The desire to move up, achieve a greater social and economic status are all the trademarks of the New World, as no other modern society before the United States of America has provided such an opportunity. This premise of wealth and prosperity through hard work and dedication proves elusive to most. Yet through most of American history, it has yielded some of the most productive working and middle classes in the world. This concept has given the Corporate structures a great advantage in terms of innate motivation and productivity. Furthermore, people are unlikely to rise up and rebel against the Corporate structures, as this very premise makes the people believe that by rising up or rebelling they are risking a lot. While the average American citizen that followed this premise in the past was unlikely to achieve the American Dream, the very pursuit was good enough to earn a decent living - something we Americans often take for granted. 

It is, of course, pure genius from a managerial perspective. You have a productive dedicated workforce and a mental safety net for the Corporate without a whole lot of effort needed from the top. However, since the time of our forefathers, there have been significant changes in economic and societal landscapes.

From a Corporate standpoint, a person can earn money, which means that he or she can be taxed on the money earned. Furthermore, that very same person can be a productive worker for any Corporate structure. Therefore, that person has the potential to provide the Corporate structures with profit twice. As far as the Corporate landscape is concerned, the more ways money can be generated from the same source, the better.

In present day, the American Dream no longer stands as just a premise of a better tomorrow through personal effort, but rather a well-crafted concept of acquisition of goods and status, regardless of means. You've all heard the standard consumerism version - a good education, a house, two kids, two cars. This is the Corporate Lie.

This is just Corporate Propaganda to make you feel like you're doing what you think is an accepted tried and true path to prosperity. In reality, for most people who blindly follow this version of the American Dream, it is a path to financial and personal ruin.

Let's break this down. For every part of the American Lie shown above, I will give you the following - the way the Corporate structures profit from the person and an alternative the person can pursue in order to benefit himself or herself instead of the Corporate structures.

I will start with Education, both emotional and academic. This is the foundation for all successful individuals that I have come across. The Corporate Lie dictates that pursuing a higher education (College or University) can provide you with a big salary, consequently financial stability and is crucial to your career. However, this lie is pushed by the for profit schools, which are in fact corporations themselves. These corporations make money from Student Loans and Government Grants. Grants are often paid for by the American Taxpayer, while Student Loans are an easy way to make money off the student who follows the Corporate Lie. As a result, The School Corporations profit from tuition, the Bank Corporations profit from loan interest, while the American Taxpayer and the Student are paying. What's worse, the same Corporate structures are outsourcing the very professions you are being trained to fulfill. So it is very likely that after leaving a higher education facility with an enormous debt, you may not have a reasonable opportunity to pay it off.

Let's take a step back - a good academic education begins with the right mindset at a young age. That mindset can only be framed through good emotional education from parents. It is only once a person feels good about him or herself and knows how to handle emotions, as well as how to express them, that a kid is able to get the most out of academic education. Next, all the building blocks a person needs for a good academic foundation can be found from first grade through the end of high school. There are classes of both general and specialized nature that any student can take in high school, which are applicable in the workforce. By the time you leave High School, if you have dedicated yourself, you should be ready for the workforce in a general sense. Now a student needs to acquire what is considered "higher education", which I consider to be skills relevant to your profession. Now I am not saying that students should skip college, far from it. In fact certain professions - Doctors, Lawyers, Engineers, actually require college. And some fields do not require higher education at all. However for majority of academic fields, a combination of less costly book study with online courses can yield better results than attending a far costlier four year university. In a four year university a student will wind up taking courses that have nothing to do with their given profession, while an online curriculum can be crafted to include just the relevant courses - after all you're paying for it. Also, while you're going through online study and book study, make sure to get an internship in your field of choice - it will teach you to apply academic knowledge to practice. And that is all you need to get the higher education necessary to enter the work force. The rest of what you need in your given profession is on the job training, that's how the vast majority of graduates (including from ivy leagues) get started anyway.

Home ownership is the most advertised part of the Corporate Lie. We have heard all the monikers - it is the first step to raising a family, it is an investment. First of all, you can raise a family in an apartment, a condo or a log cabin, if you are so inclined. Last time I checked, human reproduction in America does not coincide with owning a home. Second, a home is not an investment, far from it. A house is a depreciating asset that in most cases loses value over time and is susceptible all kinds of risks beyond your control. The "investment" myth came about the inflating home prices during the latter end of the 20th century and the first few years of the 21st. However, if you track people's salaries with respect to home values, you will see that the home by itself serves as a preservation of capital at best and a total loss of equity at its worst. A home is a dwelling that the Corporate landscape loves for a multitude of reasons, here are some:
1) Banks Collect Interest - With a 3.75% rate on a 30 year mortgage, you will wind up paying an additional 50% of the value of your home in interest over the life of your loan.

2) Mortgage Backed Securities (MBS) - These bonds represent future earnings from home loans.
3) Insurance Premiums - You are required by the lending bank to pay for home insurance, which increases over time.

4) Property Taxes - Local townships love the taxes collected from home owners and constantly increase them.

5) Home Improvement Stores - Where you will spend money to make the home fit your style.

6) Furniture Stores - Where you will get a bed, couches, chairs, and tables.

And don't forget the implied repair costs associated with home ownership - a leaky roof, torn siding, burst pipe, termites, carpenter ants, mold, heating/ac problems, etc. These are all things you would likely not be responsible for, had you been living in an apartment or a condo. When you add up the difference in costs of living in a house versus apartment/condo, and add that difference to cost of the home, you can consider yourself lucky if you get half that money back when you are ready to sell your "investment".

The only way that a house becomes profitable for the consumer is if you are renting it out to tenants or its land becomes suddenly valuable due to a natural resource discovery or proximity to a desirable site.

My advice is to go for an apartment or a condo, and you will be pleasantly surprised by how much more money you can save. With the condo, make sure to only buy it when you have the money to pay for it outright - you don't want to pay the interest on the loan, trust me. You will have far fewer headaches and more money in your pocket.

Next up are the children. The Corporate structures do not see your kids as pride and joy, they see them as dollar signs and future consumers/taxpayers. With the kids, you have to pay for baby formula, diapers, clothes, medicine, daycare, etc. Yet some adults in this country are not prepared to be parents at all, neither emotionally nor financially. Life is not a lock-step approach where you hit a milestone and move on to the next one - it is a path specific to the person you are (as well as your partner) that is unique in every sense. And you should only have kids when you're absolutely ready to be responsible, in every sense of the word, for bringing another life into this world. Introducing a child into this world by parent(s) who are unable to provide the right environment for that child, is downright criminal in my opinion.

Cars, the Corporate Lie emphasizes status symbols above all else. And much like the house, a car is a status symbol. Even more so, it is also a depreciating asset that will need to be replaced at least a couple of times in your lifetime. In most cases it requires a loan, where the banks make money on interest. It provides business for the Auto Repair shops, Auto Body Shops, Oil Change facilities, Auto Parts stores, Insurance Companies, etc. Unlike the house, you do need a form a transportation. And for most people who live outside large cities where Mass Transit can be a viable substitute, a car is a necessity. However, heed my advice and don't treat it as a status symbol - get something that meets your needs for transportation while taking the least out of your wallet, nothing more. A Bentley is not going to get you to work any faster than a KIA during a traffic jam in the morning.

Don't live the Corporate Lie, live your own version of the American Dream that is based on personal fulfillment and true happiness that is not tied to anything you can buy.