One of the first things I did after starting this site was to create an anchor around which to build it – I called it 10 Rules to Eliminate Debt and Change Your Life. It was billed as a way to not only get ahead, but if you are willing to follow all of them, to get beyond.
Get Beyond What?
Well, the main thing I knew I needed to do for myself, and to teach others to do for themselves, was to rewrite or reject conventional wisdom. If you buy into the traditional “retirement” or money advice, you will work until your 72, or if you wait until next year, the magazines will tell you the retirement age is now 75. Realizing that most money advice comes from people that want your money, not to help you keep your money, is one of the tenets this site is built upon.
It may seem ironic that I wrote a set of rules for a site built on breaking rules, and I admit that, but it is what it is. Life is made of rules. Which ones you choose to follow will dictate everything.
This site was and is geared towards helping married couples combine their powers to get beyond debt, but most of the 10 Rules can apply even to single or unmarried people.
Revisiting the 10 Rules
So why am I revisiting the 10 Rules. For starters, there may be some readers who are unfamiliar with what was the most popular content on this site, the content that spelled out my philosophy on money and personal finance. Secondly, I thought it would be interesting to see how I summarize them now, after I’ve moved beyond the debt payoff portion of adulthood and into wealth accumulation.
To keep this little experiment authentic, I did not reread any of the 10 posts that make up the 10 Rules series. I just started with the titles of the rules, and riffed from there.
As a mid-twenties married guy looking to turn his life around, I talked to a lot of people I knew who were married or long-term cohabitating couples. I was surprised to find that most couples kept separate bank accounts, viewed bills as “my bill” or “her bill.” In fact, we had been married about 4 years and still kept separate bank accounts and handled our “own” bills, including the responsibility for making sure they were paid on time.
This led to some missed payments, late fees, but worst of all, it left neither of us with the full picture of our finances. Combining our bank accounts into one was the first step, and for young “liberated” couples, it is a big step, but I can’t underscore its importance. After combining accounts, I took over all responsibilities of paying the bills. I liken this to a CEO/CFO split that businesses often choose. I handled the bill paying, and my wife handled the purchases or “execution” of our money-spending strategy.
By combining income and making “my” bills “our” bills, we were able to look objectively at our financial picture and begin to make progress.
This is terribly obvious, but also terribly important to acknowledge. This “rule” may be the most fundamental of all money rules, whether it be for households or businesses. It may be achievable for businesses in growth mode to live off of debt, and when you think of student loans as money borrowed to start your own “family business,” it makes sense. But once you are ready to move beyond debt and become profitable, you must spend less than you earn. Period. There’s no way around this rule that doesn’t involve criminal activities or winning the lottery.
The first step to moving towards debt freedom is a simple one, yet is something that many don’t do – put all your debts, along with the amount owed, payment due date, interest rate – into a spreadsheet. If you don’t have a computer, write it on a piece of paper. The important thing is that it forces you to look at the big picture, and hell, even the little picture. Some people, especially couples who first combine their income, may be shocked to see what they really owe, and how paying just the minimums is like bailing out the Titanic with a sippy cup. If you’d like a copy of the Debt and Budget Spreadsheet I used to get us out of debt, simply request it through the Contact page.
Yes, this is another way of implementing Dave Ramsey’s “Debt Snowball.” I’m not ashamed to admit that I stole this idea – because it works. This rule means that once you’ve listed your debts, order them by amount. Pay off the smallest debt first, then the next smallest, then the next, etc. The “snowball” factor is that once you throw your entire muscle at the smallest debt, you’ll be able to throw that same amount at the next one, plus the minimum you were paying on the smallest. As you pay off the debts, the amount you have to attack the next debt with grows.
You might be thinking “doesn’t it make more sense to pay off the debt with the highest interest rate first?” While you are technically correct that once it is all said and done, you will have paid more money by following this rule, I believe the psychological benefits of paying them off smallest to largest will outweigh the little you will save doing it the other way. Knocking off a few debts and reducing the amount of creditors you must track, and the amount of mail you must keep track of, will help give you the confidence you need for the long haul.
This rule is based on Ramit Sethi’s idea that it’s pointless to lose sleep over your $4 latte, or trying to nickel and dime your way to savings. For best results, focus your efforts on the big things you spend on, like groceries and car payments. This means making big sacrifices like selling that car you just bought, or switching to beans and Ramen noodles and slashing your grocery spending in half. We made our biggest progress by setting a lower amount for weekly grocery spending, planning our week’s worth of meals in advance and only buying what we needed to fulfill that plan.
This goes back to that new car you just bought a few months ago – sell it. Take the hit and move on. While your at it, start selling your gadgets, clothes, and anything else people will buy on Craigslist. I can almost guarantee that when you are finally out of debt that you won’t be in a rush to go out and rebuy those toys that got you in debt in the first place. This rule is also psychology-based because it helps you break the bonds between your self and your stuff. Selling something you really liked and wanted is a way to show that you are serious about your goal.
If you know in advance that you have a large expense coming up, whether it be a vacation, a wedding, taxes, braces, or whatever it may be, it’s best to not fool yourself by being “surprised” when the bill comes due. It’s also best not to delude yourself into thinking your paycheck is bigger than it really is, so that’s why in my opinion it’s best to break the expense off into monthly chunks. If you know you spend $800 each year on Christmas, start an automatic monthly transfer in January and when it comes time for Christmas, just transfer the money. That way the following January you can stick to your debt payoff plan without missing a month, which might damage your momentum.
This rule was invented simply to justify my deep desire to travel internationally every other year, and I’m not ashamed to admit it. Why? Because not doing so would have been such a big and demoralizing change that it would have made me question why I even work in the first place. We all want to have some instant gratification – that’s probably why we are in debt in the first place. In my case, I was willing to delay debt freedom by a few months to save for a trip to Croatia. The few extra months didn’t cost me as much as the months of anticipation and joy I reaped from knowing that I had a vacation to look forward to, one that I had saved in advance for.
This is Rule 9 because it comes chronologically, right about the time you are getting close to paying off your debts you will start to question whether it is important to also be saving for retirement. Yes, in my opinion, it is important, but debt can usually be seen as a negative investment, meaning that if you have $20,000 on a credit card with 20% interest, each dollar you pay off is like an investment that earns you 20%. Making 5% in stocks doesn’t mean shit if you are losing more in credit card interest. So grow up, pay off your debts, then worry about investing.
Many people work for many reasons, but I mainly work so one day I can quit. I don’t work to reward my ego, to help other people, or to gain knowledge. I work because I have to if I want to have a “normal” life, and I shape my retirement strategy around the idea that one day I will be able to stop. If you believe the mainstream hype, you will never be able to retire. You must have a plan and hit your targets. Whenever you get a million in your bank account, Money Magazine will tell you that you need two, and you will work yourself to death and pass on a huge bank account to your kids. What fun is that?
So this represents my best effort to see if I still know what the heck I was talking about when I wrote this stuff almost two years ago. This is what worked for me and my family. If you don’t like it, fine, do something else. If you don’t like one of the rules, you can probably modify it, because after all, this is personal finance.
Today I flipped through an issue of Money magazine because I was curious. It was complete and total crap. Just a bunch of bullshit platitudes and encouragement to save up $80 million before you retire.
Think of 10 Rules as a blueprint for rulebreakers. This site aims to challenge the conventional wisdom by getting you to rethink the way you think about money and work.