Financial Wisdom

Two young families live side by side. Each bought their homes on the same day for the same price. The husbands both graduated from the save University on the same day, got the exact same job within the same pay, married twin sisters, have the same amount of kids, and their salaries remain exactly the same forever. For all practical purposes, they are financially identical. (Okay…this is a little extreme, but you will understand why. Keep reading.)

The in October following their house purchases, “Family A” goes to a wonderful conference, hears a great man talk about getting out of debt quickly, live below your means, save, and give generous donations. They feel inspired by this message, sense the need, and commit to following this inspired “Plan of Prosperity.” “Family B,” though a good family, doesn’t “hear” the message and continues living “the American way” - buying things they don’t need with money they don’t have, charging it up, paying it down, and never separating income from expenses.

“Family A,” in family council following this conference, realizes that a healthy portion of their take-home pay is “blown” by convenience, indulgence, and appearance purchases that only deprive them of enduring happiness. Here’s what they decide: (1) We will go out to eat one special night per month instead of the norm of 4-5 times. (2) We will completely cut out fast food and convenience store indulgences. (3) We will be more careful about what we purchase at Grocery Stores. (4) We will get rid of cable TV. (5) We will buy only clothing we need. (6) We will focus on low or no cost pleasurable experiences over higher cost experiences, recognizing that we’re gaining satisfaction in the process (”Measure Pleasure“).

Because of these relatively small changes, they are able to carve out 7.5% of their “blown” take-home pay, or $400 per month. Following Marvin J. Ashton’s “Debt Elimination Calendar,” they apply that “accelerator margin” to the highest priority debt (a car with a $7250 balance & $491.08 minimum payment). Using this strategy, the car is paid off in 9 months. Then, they take the $400 + $491.08 or $891.08 to pile on top of the monthly payment for the next debt in line, another car, and complete that debt in 8 months. the applied amount continues to snowball until they complete all debts, including their house payment! Because of all that power, ALL debts are paid off in 5 1/2 years.

Now, “Family A,” following the counsel of the leaders, remaining moderate and enjoying the togetherness and simplicity of the last 5 1/2 years, instead of indulging themselves on the $2800 now coming to them instead of their invisible creditors, decides to save and invest the amount wisely each month. They do that for the next 24 1/2 years. During those years, their take-home pay continued to increase beyond their “simple needs” and the amount was more than enough to satisfy their simple, highly satisfying lifestyle (that magic place where everything they need plus a little more is “Enough”).

Thirty years following that life changing conference, “Family B” might be able to pay off their home mortgage which would reduce some of the financial stress. They’ve been struggling to make ends meet their entire married lives–living on credit, forcing income and expenses to wrap tightly around each other, never giving them the opportunity to purchase assets designed to go up and pay them, only feeling the crunch of hefty debt payments for depreciating assets that, in time, become worthless (the American Way). They still have heavy debt payments on cars and credit cards with no end to the financial pain in sight and retirement right around the corner. The paradox is that “Family B,” at least on the exterior, would appear to “have it all” to those who might be looking in from the outside.

“Family A,” has been completely debt-free for 24 1/2 years and has applied their “freed up money” (2794.73) into investments averaging a 10% annual yield, owns everything in their lives, PLUS has an additional $3,511,733.84 (calculation based on the future value of monthly deposits with 10% interest compounded monthly over 24 1/2 years) in investment assets working for them. That amount of “money at work” could, for example, generate something like $70,000/year in cash at a risk-free interest rate, possibly all the money this family would need in a simplified, debt-free lifestyle, while continuing to grow the endowment or or nest egg an average of maybe $300,000/yr in appreciating, non-taxable gains from such assets as stocks and real estate holdings. Cash vs. “Paper Gains” can be altered with changes in how “the dollars are sent off to work.”

Here, miraculously, are the “two great gifts” that so desperately keep us in chains–the gifts of time and money–given by living the counsel of a loving God and great leaders for the express purpose of doing whatever we are inspired to do to help our fellow brothers and sisters without ANY strings attached.

* Though the final total shows 72 months or 6 years to become completely debt free, this family would actually have become debt-free six months sooner by applying leftover dollars from each of the debt’s final payments to the next debt in line–thus coming to the “5 1/2 years after the conference” figure. The above assumption assumes they did not apply that extra amount, so it took them 6 more months longer to become COMPLETELY DEBT FREE. All of this is based on an “Accelerator Margin” of $400 they were able to apply immediately to the first debt which was approximately 7.5% of their monthly take home pay (at least at the beginning of the process). $400 became less significant as a percentage of their income as their salary and passive income (Texas Tea) increased over the years.

The origination of the above assumptions came from a man named John Cummuta. Cummuta has performed “debt surgery” on MANY people who are steeped in debt and he says the majority of those people fall within a 5-to-7 year debt-freedom payoff date. Where it doesn’t work so quickly is when there are LARGE mortgage payments as a percentage of income. In those cases, the time may extend out into the ‘10 years or beyond’ range.

A normal family following these practices contributing 10% of their annual income to charity would likely need an initial salary of around $80,000 to make this work without feeling pinched. With less debt, less income would be required.