Step 2 - Develop a Cash Flow Engine
Module 5: Spend Less than You Earn EVERY MONTH
Once again, the key to the cash flow system is to spend less than you earn. That means that you can either earn more or spend less, but that’s really all you have. Spend less than you earn. The secret to success in developing a cash flow is NOT to do this not only once, or not only go five months in the six-month you take another look and start all over again and re-commit to it. You neen to hold that line every single month. Every month you need to spend less than you earn on a consistent basis.
Now, spending more than you earn can actually be hidden at the expense of unsecured debt and home equity lines. Far too many of us have used our home equity as a little piggy bank. We just bounce along in LaLa Land, and whenever we need some more money, we run up our credit cards and “Oh My! This is serious! Let’s pay them off with a home equity loan”. So what you do is to say, “Well, you know, it sounds like a good idea. Now we can take some interest that we can’t deduct and by putting it on a home equity loan we can all of sudden deduct it off our taxes. Gee! This is really a great idea.”
So, you go out and get a home equity loan. Now, your credit card balances are at zero again. You get a whole fresh, new start. You don’t really recognize that you financially raped your home’s asset value. You just kind of ignore that in LaLa Land and go right on with your credit cards. For a little while, you might be diligent. But, sooner or later something will come up and you’ll start running balances up again. You’re going to do that over and over again at times when housing values continue to climb. But you’re pretty much at the end of your rope. Now, because housing values are flat, if not going down slightly, and underwriting standards are really tough for home equity lines. So you’re not going to have that as an option anymore. But that is an option where you are doomed to failure because you can look really cool for a while. At some point you’ve gotta pay the piper. For our United States government and for a lot of us right now, it’s time to pay the piper. So we need to really get serious about this or we will slip right out of the middle class.
So, That is the key. Spend less than you earn on a regular consistent basis. I know it doesn’t sound like a magic pill. That doesn’t sound like a fun thing; but look, it took you about 10 or 15 years to get in this hole. It’s going to take you four or five years to get out of it.
Let’s just work together to get out of it. Get this newsletter every two weeks to give you some additional encouragement, and together we can develop a cash flow engine and we can get rid of that consumer debt and get back on the right side of the snowball, and start pushing it instead of running from it, and develop some income producing assets!