John Carlton of The Marketing Rebel Rant blog has posted one of the most profound articles on the subject of money that I have read in a long time.

In fact, there is so much wisdom in this article that I’m having a hard time finding a suitable quote for this post.  I really want to share the whole thing right here.  But, as a matter of courtesy, I will refrain from doing so. 

John’s article has this to say about money:

Happiness is in your head.  It’s a state of mind, which doesn’t require cash… unless the lack of cash moves you off your game.

Which lead to the one big realization that helped me clarify what “success” really meant, for me:

Big Damn Observation #2: Money will only solve those problems that not having money creates.

People usually blink back at me the first time I share this with them.  It seems too obvious to qualify for “wisdom”.

For me, though, it’s freaking profound.  The problems that ate me up during the first half of my life… when I was lost, directionless and kept ending up sleeping on people’s couches (because the business world kept spitting me out) (and my girlfriends kept leaving cuz I was such a loser)…

… were all specifically related to not having enough money to get a toehold in life.

Please do yourself a huge favor and read John’s article in its entirety.  You will be glad you did!

Money, money, money, money…
http://www.john-carlton.com/2010/07/money-money-money-money/

I rarely repost an entire blog entry from another site, but I am making an exception here.  Seth Godin is perhaps the most brilliant marketer in the world today and his blog is the most read blog on the Internet.

On May 5th, Seth posted the article below that hits home with my personal philosophy on debt.  In fact, in the article, Seth cites another article by Dave Ramsey, so how could it not line up with my philosophy?

Read the article for yourself and, when you are finished, go ahead and subscribe to Seth’s blog.  You will be glad you did!

Consumer debt is not your friend

Here’s a simple MBA lesson: borrow money to buy things that go up in value. Borrow money if it improves your productivity and makes you more money. Leverage multiplies the power of your business because with leverage, every dollar you make in profit is multiplied.

That’s very different from the consumer version of this lesson: borrow money to buy things that go down in value. This is wrongheaded, short-term and irrational.

A few decades ago, mass marketers had a problem: American consumers had bought all they could buy. It was hard to grow because dispensable income was spoken for. The only way to grow was to steal market share, and that’s difficult. Enter consumer debt.

Why fight for a bigger piece of pie when you can make the whole pie bigger, the marketers think. Charge it, they say. Put it on your card. Pay now, why not, it’s like it’s free, because you don’t have to repay it until later. Why buy a Honda for cash when you can buy a Lexus with credit?

One argument is income shifting: you’re going to make a lot of money later, so borrow now so you can have a nicer car, etc. Then, when money is worth less to you, you can pay it back. This idea is actually reasonably new—fifty years or so—and it’s not borne out by what actually happens. Debt creates stress, stress creates behaviors that don’t lead to happiness…

The other argument is that it’s been around so long, it’s like a trusted friend. Debt seems like fun for a long time, until it’s not. And everyone does it. We’ve been sold very hard on acquisition = happiness, and consumer debt is the engine that permits this. Until it doesn’t.

The thing is, debt has become a marketed product in and of itself. It’s not a free service or a convenience, it’s a massive industry. And that industry works with all the other players in the system to grow, because (at least for now) when they grow, other marketers benefit as well. As soon as you get into serious consumer debt, you work for them, not for you.

It’s simple: when the utility of what you want (however you measure it) is less than the cost of the debt, don’t buy it.

Go read Dave Ramsey’s post: The truth about debt.

Dave has spent his career teaching people a lesson that many marketers are afraid of: debt is expensive, it compounds, it punishes you. Stuff now is rarely better than stuff later, because stuff now costs you forever if you go into debt to purchase it. He’s persistent and persuasive.

It takes discipline to forego pleasure now to avoid a lifetime of pain and fees. Many people, especially when confronted with a blizzard of debt marketing, can’t resist.

Resist. Smart people work at keeping their monthly consumer debt burden to zero. Borrow only for things that go up in value. Easy to say, hard to do. Worth it.

In a recent article from USA Today entitled Generation Y’s Steep Financial Hurdles: Huge Debt, No Savings, Christine Dugas writes:

Even before the recession, those in Generation Y — the latest products of a get-it-now, pay-for-it-later mind-set that has permeated the nation’s economy — faced a range of financial pitfalls as they embraced expensive high-tech gadgets and added credit card debt onto student loans.

Later in the article, she writes:

Kristen Ammerman, 21, a senior at Michigan State University, faces such challenges and sees her Gen Y classmates struggling with financial issues — while seemingly oblivious to the potential consequences.

“I work at a part-time job, have incredible debt and get food stamps,” she says. “I’m still short on rent every month. … My friends all want the newest and best things. They spend money on them any chance they get.”

So let me get this straight, Kristen:  You and your friends feel that it is OK to go on welfare in the form of food stamps and be behind on your rent, yet you spend money (that you don’t have) on the newest and best things?  When will you and your friends wake up and learn a simple concept like live on less than you make?  If you don’t have the money to pay for something in full, in cash, at the time of purchase, then you can not afford it! 

The article goes on to cite some statistics about Generation Y:

Only 58% (of Generation Y) pay monthly bills on time, a National Foundation for Credit Counseling (NFCC) 2010 survey said.

On average, Gen Y’ers each have more than three credit cards, and 20% carry a balance of more than $10,000, according to Fidelity Investments.

60% of workers 20 to 29 years old cashed out their 401(k) retirement plans — typically a big financial no-no because such a move squanders retirement assets and forces the recipient to pay a tax penalty — when they changed or lost jobs, an October study by Hewitt Associates said.

Wake up Generation Y!  You guys are spending like there is no tomorrow.  This sense of entitlement is going to tie you down for years to come.  It is time for you to start learning about personal finance and, more importantly, personal responsibility. Don’t sit back and wait for the government to take care of you, because those days are quickly coming to an end.

Dave Ramsey has often said that he and Jenny Craig will always be in business.  This article is just another reason why I believe him.

Baby Step 2 of Dave Ramsey’s Plan is to pay off all of your debt, except for your primary home mortgage, using the Debt Snowball.

The Debt Snowball is where you make a list of all of your debts, smallest payoff balance to largest payoff balance.  You then pay only minimum payments on all of the debts except for the smallest one and you attack that smallest one with a vengeance.  You throw every extra penny that you can scrape together at that smallest debt until it’s gone.  Once it’s gone, you take the money that you were using to pay on the smallest debt, plus every extra penny that you can scrape together and you throw it at the next smallest debt, while continuing to pay minimum payments on the larger debts.  You repeat this over and over until, finally, you are debt free except for your home mortgage, if you have one.

According to Dave Ramsey, the average family who works this plan is able to become debt free, except for their mortgage, within 18-24 months.  For us, it was longer…  It took us 3 years, 3 months, and 10 days, but when it was all over, we had paid off $80,820.37.

I’ll admit that we did not cut our lifestyle all the way to the bone as Dave recommends.  We did sacrifice in many areas, but we continued to do some things that delayed our progress.  For example, we decided to keep our season tickets and Lifetime Rights seats to NC State University football games.  The key is that we, my wife and I, made a conscious decision to keep doing some of those things with the full knowledge that it would take a little longer to get out of debt.  Also, we never took our eyes off of the prize of becoming debt free.

Dave’s plan, as the book title indicates, is all about having Financial Peace.  For those who are reading this and are on the fence about whether or not to get out of debt, try this exercise:  Close your eyes and imagine what it would be like to be debt free, except for your home mortgage if you have one, and to have $15,000 in cash in the bank as an Emergency Fund.  No payments.  Your most powerful wealth-building tool, your income, has been returned to you for use as you see fit.  How does that feel?  Can you breathe a little bit easier?

We have not borrowed a dime since July 2003.  No credit cards, no in-store financing, no car payments, no student loans, NO DEBT PERIOD.  When we want something, we save up and pay for it.  When we go to purchase something, we learned to stop asking, “How much down and how much per month?”  Instead, we learned to ask the question that wealthy people ask, “How much?”  That means, how much does that item cost for me to purchase in full, right now, if I pay cash?  Also, because I’m paying cash, I’m looking for a bargain!

On November 10, 2006, my wife and I got out of bed early and, before I headed off to work, we visited the First USA VISA web page for the very last time.  We entered in our final payment amount and, with both of our hands on the mouse, we clicked the submit button and we were finally debt free.

The sacrifice to get out of debt is not easy, but it is so worth it!  When you only have a house payment, you relax in places that you didn’t even know were tense.  Your paid-for cars drive better.  Your paid-for HDTV displays a sharper picture.  The air you breathe is cleaner.  Life is better on the planet when you are no longer a financial slave to the lender.