How To Get From Deep In Debt To Solvent And Secure

  1. From deep in debt to solvent and secure

“Debt Kills Creativity”,  Damian Mason

There’s no bigger dream-killer than being deep in debt. And there’s nothing worse on a relationship than financial stress. So in 1995, with over $20,000 in consumer debt and barely one job between us, my wife and I did what anyone should, to get from deep in debt to solvent and secure  – we fled the country.

But not to a place with a lower cost of living. We quit our jobs, rented out our house, put our stuff in storage and bought one-way tickets to Tokyo. The most expensive place we could find. Then we signed contracts for two very low-paying jobs.

You’re right, that’s totally nuts. Crazy financial strategy right there. But 2½ years later we returned to the States completely debt-free with $10,000 cash in hand (100,000 in yen, actually) to re-start our American Dream .

How did we do it? With a change in financial philosophy and 5 simple strategies you can copy.

Pay Yourself First

If there’s one overriding piece of advice to follow, this is it. Pay yourself first. Let everyone else get in line. We’d gotten lulled into thinking we could “afford” a bunch of things we hadn’t yet earned. This causes a lot of people to pay their bills first, squander a bit on luxury, then put what’s left into savings.

Absolutely not. If you’re doing this, stop it right now!

Take 25 percent off the top and sock it away. Then pay your bills. If there’s money left over, great. Have a good time. Buy ridiculous, impractical things. But only when you’ve paid yourself first.

From our first payday in Japan, we sent one paycheck home to pay off our debt, and lived off the other. We paid ourselves first, then lived off what was left.

For Everyone Else, Use Auto Pay 

Living in Japan in the 90’s, we were surprised to find there were no checking accounts. The Japanese paid their routine bills automatically from their bank accounts and used cash for everything else. No checks or credit cards, no late fees, interest or overwhelming balances. Just debts that were settled in full, every month, automatically.

Manics, more than any type of people, have trouble with details like writing checks, finding and addressing envelopes, hunting down stamps and remembering to get things in the mail. That’s five steps for every bill. Neither smart nor lazy, that’s a procrastinator’s path to late fees.

I should know. I’ve paid thousands in late fees. And not because I was broke. But because my process was broke. It required too much discipline. Other types of people live neat, orderly lives. But not us.

So when we returned to the U.S., we set up all our recurring bills on auto-pay. No more late fees, and more importantly, no time, thought or effort. Smart and lazy!

Live Within Your Means

This was tough in a place so incredibly expensive. At home we paid $1 for 4 ears of corn. In Japan we paid $4 for 1 ear of corn. We paid 25 cents a pound for a watermelon at home. In Japan watermelons were $25. Each.

With seeds!

So we adapted, and learned the most important lesson of all. We had to get over the shame of being humble about our spending, instead of  digging our hole deeper to save face.

When a group goes out to dinner in Japan, they split the check evenly no matter who orders what. It only took a few $100 tabs for a bowl of miso soup and a salad to realize we couldn’t afford other people’s extravagance. So we stopped going along with the crowd when we couldn’t afford to, and caught up with them after dinner.

Move To The Cash Standard

When credit is easy, it’s tempting to buy first and pay later. But credit card debt is the number 1 killer of financial dreams. If you’re carrying consumer debt, you’re digging a hole that will be tough to get out of, no matter your income.

In Japan we each made only 250,000 yen a month. That’s $2500 American dollars. Since our credit cards were tapped out, and no one wanted to let a Gaijin (filthy devil foreigner) run up a tab, we had to stop spending when the cash was gone. We walked instead of hailing a cab, and cooked at home instead of eating out.

The upside was losing weight from all the walking, and finally getting full after a meal (Japanese portions are tiny!).

It was tough for a while, but over time we stopped digging the hole and started filling it in. Today we carry no consumer debt besides a mortgage. Yes, we use credit cards, to earn airline miles and track our spending. But we pay them in full automatically each month from our checking account. Because they’re all on auto-pay.

From Deep In Debt To Solvent And Secure

Suzy Orman likes to tell people to “stand in your truth.” It can be painful at first, if your truth is deep dept. But the path to solvency and security is through knowing exactly where you stand financially.

So we put it on paper. All our debts subtracted from all our assets. A classic but simple balance sheet with a bottom line. At first the bottom line was ugly and very red. But we moved into the black with conscious effort and honest acknowledgment of where we stood.

It didn’t happen all at once. But by the time we moved home we were solvent. And we’ve stayed that way ever since by following these 5 simple strategies.

If you want some help with this, let me know. I’ll send you a template of my balance sheet to get you to your bottom line. Then you can go from deep in debt, to solvent and secure. Or to patting yourself on the back for already being financially awesome.

It’s a very good feeling…

 

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