Debt Is Slavery

I was a typical naive college freshman, relishing my first day on campus. Lining the hallways of the crowded student center, financial companies competed obnoxiously for our attention.

“Apply for your first credit card and you could win a brand new TV!”

“Step right up! We’ll make it easy for you to buy things now… then pay for them forever!”

The Giant Marketing Machine deftly defines what is fashionable and brainwashes us to spend. As young adults, my friends and I were perfect targets.

Too bad Michael Mihalik’s book, Debt is Slavery: and 9 Other Things I Wish My Dad Had Taught Me About Money wasn’t prerequisite reading prior to admittance into those hallways, littered with credit card applications.

Michael’s short book offers preventative medicine for students and young adults — plus concise treatment for anyone struggling with debt. This author didn’t create words simply to increase page count. He created a short read that gets right to the point. In his just-the-right-size book, he offers practical advice and illustrates financial concepts with relevant examples.

Golden nuggets of wisdom are sprinkled throughout each chapter. Here are some of my favorites:

Chapter 1: Debt is Slavery

Do you ever wake up in the morning and groan, “I don’t want to go to work today?” As you lie in bed toying with the idea of staying home, your thoughts turn to all the bills you have to pay. So you drag your tired self out of your warm bed, drink a pot of coffee, and drive to work (in your cool car–only 43 more payments and that baby is all yours!). You drag yourself out of bed and go to work, because you have to. Isn’t that a form of slavery?

Reading this passage brings back haunting memories of the relentless “BEEP! BEEP! BEEP!” of my old alarm clock. Aack! I hated that obnoxious beast! When I say that I haven’t set an alarm clock in years, I truly mean it. Financial freedom has set me free from that blasted beeping slave master.

Chapter 2: Time May Not Be Money, But Money Definitely Is Time

…if I earn $12 per hour and want to buy something for $12, I am spending an hour of my life. I quantify all potential purchases with two questions:

  • How many hours do I have to work to pay for it?

  • Is it worth that much of my life?

Bingo. We trade our time for money and our money for stuff. Problem is this: while we can make more money, we only have a finite amount of time. See my relevant post, How to Revolutionize Your Spending Habits by putting a price tag on your time.

Chapter 3: Possessions Are a Prison

Don’t love something that can’t love you back.

I have friends who define their self-worth on what kind of car they drive. They just love their car. But is that love returned? When you love a thing, the love will never be returned. A car will never comfort you when you’re sick. It will never help you when you’re in trouble. If you’re going to love something, make sure it can love you back.

Powerful concept. Have you ever participated in “retail therapy”?

Chapter 4: Be Aware of the Ongoing Campaign to Separate You from Your Money

We have become so desensitized to advertising that we are unaware of its insidious effect on our lives. We have become sheep who buy what we are told.

Isn’t that a little extreme? Are we really sheep?

So what kind of clothes are “in”? What kind of car should you drive if you want to look successful? How do you know what’s “cool” and what’s not?

Advertisers and marketers tell you.

What I appreciate most about our Tivo boob-tube box is that we can skip past the commercials, thereby reducing our exposure to advertisements. We avoid magazines for this reason, too.

Chapter 5: Money Buys Freedom

Money may not buy happiness, but it does buy freedom, options, and opportunity–and freedom, options, and opportunity may lead to happiness.

This is certainly true for me and my family.

Chapter 6: Don’t Sell Your Soul for a Salary

Sunday nights fill many people with dread because they know they have to go back to work Monday morning. So why do we end up at jobs we don’t like? Because we sold our souls for a salary.

Yep, the salary that’s required to pay for the vacation you charged to your credit card — two years ago.

Chapter 7: Own

Most wealthy people, especially if they’re self-made, are aware of the difference between income-producing assets and income-consuming assets.

I’m tickled pink that Michael recognizes and demonstrates the difference between the two — especially when it comes to real estate!

Personal real estate may appreciate over time, but it does not produce income. It consumes income. It consumes income because you have to spend money on maintenance, utilities, repairs, taxes and insurance. The only way you can extract money from real estate is by taking out a home-equity loan (debt!) or by selling the property.

As I’ve said several times here before, home-ownership is not normally the most effective way to create wealth and financial freedom.

Chapter 8: Spend Less Than You Earn By Controlling Your Expenses

…you have to value your peace of mind and financial security more than the things you buy.

Chapter 9: Save 50 Percent of Your Salary

If you save 50 percent of your salary, for every month you work, you will save enough to take a month off– without changing your lifestyle.

(The author doesn’t take compounding interest into consideration here — which would grow your future savings balance exponentially.) He illustrates his point by sharing a personal story of financial hardship: he was able to withstand two job layoffs, lasting a year or longer, because he had sufficient savings to see him through tough times.

Chapter 10: Control Your Money or Your Money Will Control You

Change your attitude toward debt. Every time you use credit for a purchase think, “Debt is slavery; I am making myself a slave.”

In this chapter, the author provides step-by-step instructions for creating a written financial plan aimed to minimize expenses, eliminate debt, and start saving.

While Debt is Slavery: and 9 Other Things I Wish My Dad Had Taught Me About Money might not be particularly suited for advanced finance readers, I enthusiastically recommended it for young adults and those struggling to break free from the handcuffs of debt.

How To Get Rich: The Devil Must Be In The Details

Recently, I wrote the “The World’s Shortest Guide On How To Be Thin and Rich“. Here’s the how-to-be-rich part, in it’s entirety:

  1. Spend less money than you earn (or to put it another way, make more money than you spend)
  2. Invest in your future

That’s it! Truly, this is all it takes to achieve financial freedom.

Since the principles are certainly very short and sweet, the devil must be in the details. So today, let’s take a closer look at the first step. Within step #1 above (spend less money than you earn / make more money than you spend), you have three choices:

a)  Spend less money. Fortunately in today’s economic climate, decadence is passe and frugality is the new cool. Still, I find that most people I talk to through my coach business are deeply in debt because they are living an unsustainable lifestyle. Those with a negative net worth often drive new(er) cars and live in big houses. If you are serious about spending less money, recognize that housing, cars and taxes dominate most budgets. Rather than focusing on the small stuff like your cable bill and Starbucks treats, make dramatic cuts to your big budget busters first. Sell your late-model car and replace it with a less expensive used one. Now take your newly found cash — plus the monthly savings from eliminating or reducing your car payments — and throw it at your debt. If you are debt-free, throw it at your retirement and savings accounts instead. Do the same with your other big ticket items, including your house. Once you’ve tackled the biggies, you can whittle away at the little stuff (cable, Starbucks, etc).

~ OR ~

b)  Make more money. Within this option you have two basic choices: work more, or get paid more for the work you already do. Personally, I prefer to get paid more for the work I’m already doing. Ask for a raise or a promotion; cut out the middleman (your employer) and work for yourself; increase your rates; hire subcontractors and delegate extra work for a share of the profits.

~ OR ~

c)  Do both.

Which option do YOU prefer?

Suze Orman’s 2009 Action Plan

Suze Orman outlined her 2009 Action Plan today on the Oprah Show. For the next week, you can download her new book for free or order a print copy of Suze Orman’s 2009 Action Planat Amazon for $9.99.

Here are the notes I took from the show today:

Tell the truth. Take an honest look at your financial situation and discuss it openly with your spouse or life partner. How much do you owe? How much do you have in your savings account?

Pay off credit card debt BEFORE creating a savings account. List your credit card accounts in order of interest rate. Pay extra on the account with the highest rate first, while paying minimum payments on the rest. After the highest rate card is paid off, get to work on the next highest. And so on until you no longer have credit card debt.

Improve your FICO score. The higher the number the better (850 is the highest). In today’s economic climate, under 700 is considered low. Did you know that potential landlords and employers also use your FICO score to determine how responsible you are? Yep, so do insurance agencies. Those with a high FICO number score big when it comes to loan rates, jobs and insurance premiums.

Ways to improve your FICO score:

1) Pay more than the minimum payment on each credit card.
2) Pay on time. (This constitutes 35% of your score.)
3) Never go over your credit limit. If you do, they raise your interest rates.
4) Don’t close your credit card accounts. This hurts your score. Why? Because 30% of your FICO score consists of your debt to credit ratio.

Separate WANTS from NEEDS.
If you have debt or no savings, ELIMINATE THE WANTS!

Save 8 months of expenses in an emergency savings account. Decide how much you can save each month and add 20% as a stretch goal. Search for the highest savings account interest rates from FIDC-insured banks.


1) Don’t panic when the market goes down.
2) Keep investing in your 401k or IRA.
3) Money you need in the next 5 years DOESN’T BELONG IN THE STOCK MARKET. If you need your money in 5 years or less, take it out of the stock market.

Suze’s pledge idea:

1) Don’t spend money for 1 day.
2) Don’t use your credit card for 1 week.
3) Don’t eat out at at restaurant for 1 month.
(The first two pledges are easy ones for me, but not the third!)