Breaking the Chains of Financial SlaveryFeb 12 • Categorized as Investments
by Mark Ford
We recently received an email from Jorge Izquierdo Jr., a subscriber, who complained that “all the material being covered [in The Palm Beach Letter] is for long-term investing. What about short term? I’ve been trying to free my family and myself from the chains of slavery for far too long now. Show me the truth.”
Jorge’s question reveals the problem I was trying to address in my essay above: behind his question lies the assumption that it is possible to acquire wealth through some “short-term” investment strategy that, for some reason, we have been hiding from him.
The idea that this can be done is the teensy-weensy lie I was debunking.
But I have good news for Jorge. He can unshackle himself from “financial slavery,” as he calls it, in a relatively short period of time. Jorge—or just about anyone for that matter—can achieve freedom from financial slavery in just a few years. It does not have to be a lifelong process.
If you are in this situation, here is what you must do:
First, you must reread the above essay and ask yourself if you are ready to believe me. Are you willing to give up the hope of getting rich quickly by investing? Are you willing to accept the fact that you won’t go from broke to being a millionaire by investing in the next Microsoft?
Furthermore, are you willing to believe me when I tell you that the true way to wealth is to follow all five wealth-building strategies I’ve outlined in my essay?
If you can’t honestly and completely answer “yes” to those questions, you might as well cancel your subscription right now and go buy yourself another investment newsletter that will tell you what you want to hear.
But if you are ready, then the next thing you need to do is think about what you mean by “financial slavery.”
What does that term mean? Most commonly it means two things:
- You earn less than you spend.
- You owe more than you own.
If you earn less than you spend, you are in a constant state of stress. You must put off or partially pay your bills. You must appease creditors. And all the while, your debt is mounting.
If you owe more than you own, then you can’t buy a house or lease a car or get a loan from anyone other than your parents. (And what if they are dead or tired of helping you… or don’t have the money?)
Because you are in so much trouble, you can’t even think about taking nice vacations or retiring someday. Instead, you have to worry about losing your job. So you keep working and reading investment newsletters. But as each month passes, your financial situation gets worse.
It’s a miserable existence. But it doesn’t have to last. You can break the chains you feel attached to by simply recognizing and reversing the two “facts” mentioned above.
Problem #1: You earn less than you spend.
Solution: Spend less and earn more.
You can’t break the chains of slavery without hitting them hard with a big mallet. You won’t be able to gain the independence you want in a few years or less by cutting $10 here and $50 there.
My recommendation is to cut your expenses by 30% to 50%.
I know that sounds crazy. And it may be impossible in your case. But don’t dismiss the idea until you hear me out.
The primary factor in how much you spend every month is the neighborhood you live in. Your neighborhood creates the financial culture that presents the spending choices you make. If you live in a community of million-dollar homes, you will be looking at new BMWs and Audis when it comes to buying or leasing a car. When you go out to dinner, chances are, you’ll be spending more than a hundred dollars per couple.
Unless you live in a working-class neighborhood now, you can radically reduce your spending by moving into one.
I have friends and family members in this situation. They live in $350,000 homes in beautiful neighborhoods and drive luxury cars, but the reality is they are broke and getting poorer every month. They refuse to even consider the idea of downsizing because they are simply too ashamed to do so. What they don’t realize is every month they try to “hold on,” it is making them poorer.
Moving to a less expensive neighborhood would be the quickest, biggest, and surest way to bring their spending down by 30% to 50%.
The other thing you must do to improve your situation is to earn more money. You should take immediate steps to increase your income by 20% to 50%. Again, I know that seems radical, but if you want a “short-term” solution out of financial slavery, this is just as important as radically cutting expenses.
There are dozens of ways to increase your income. I will talk about none of them here. Expect to see plenty of ideas in the future.
Problem #2: You owe more than you own.
Solution: Start owing less and owning more.
If you have accumulated a lot of debt, it means that you don’t see debt as financially dangerous. You must accept the fact that most debt you have is bad for you. There are only a few exceptions: mortgage debt when interest rates are low, and business debt when the business is sound and you are not personally liable.
The first step towards debt management is to get rid of every credit card you have, as well as any credit you have with your bankers. Use cash or debit cards for your shopping. Yes, that means there will be lots of things you can’t buy every month. That’s a good thing, not a bad thing.
If you have a lot of existing credit card debt, you need to consolidate it. Then work with a professional to pay it off at reasonable interest rates.
If you are lucky enough to have equity in your home, then trading it for a cheaper one (see above) will accomplish two important goals: it will reduce your monthly expenses, and it will give you a chunk of cash that you can use to pay off debt or put aside as savings.
You must increase what you own. And by that, I do NOT mean cars or boats or furniture or toys. I mean tangible assets that are likely to appreciate. We’ve talked about what some of these are in past issues (gold coins, income-producing real estate, the kind of companies Tom and Paul recommend, etc.) and we will talk more about them in the future.
Every extra after-tax dollar you make by taking on extra work or starting a side business should be devoted to increasing your ownership of such assets. None of it should be spent.
Being financially independent is not about having a big house or driving new cars or taking fancy vacations. There are tens of thousands of Americans in that situation today who are financial slaves just like you. They are in chains because they spend more than they make and owe more than they own. Their stress is just as great as yours, even though they may make more money or have more toys.
Being financially independent means having more income than you need and owing far less than you own.
It means knowing that you won’t be harassed by bill collectors or embarrassed at the supermarket. It means you have money put aside to take care of any emergencies that come up, and it means a savings account that gets substantially bigger every year.
Becoming a multimillionaire takes years. But breaking the chains of financial slavery can be done relatively quickly. The hardest part is recognizing the chains that are binding you—earning less than you spend and owing more than you own—and deciding to do something serious about them.
Jorge, you have the plan in front of you now. It’s up to you whether you follow it.
Editor’s Note: For additional information on this and related topics, see our new site at PremierOffshore.com