I believe that thrift is essential to well-ordered living. - John D. Rockefeller
John D. Rockefeller is a true American success story who frequently stressed that thrift was essential to his success. Rockefeller founded Standard Oil in 1870 amassing a fortune during the time that would be the equivalent today of 318.3 billion dollars, according to Forbes Magazine, February 2008. In comparison the current richest man Bill Gates has an estimated fortune of 40 billion dollars. Rockefeller was a consummate saver and only towards the end of his life did he spend largely on philanthropy and various foundations. Today, even those that have not amassed the fortunes of Rockefeller outspend him in their daily lives. The accurate picture of America's financial situation is appalling. Following are a series of statistics that help to paint the true picture of the American financial condition. These statistics have been compiled from a myriad of reputable and respected sources and will give you a true and accurate understanding of America's deplorable financial condition. I have provided commentary after each fact to clearly explain the ramifications of each problem. You will not hear this commentary from any main stream media outlet including television or radio, additionally your banker or financial analyst will not share this information with you. The statistics are frightening, however there is plenty of room and opportunity for change.
1. Over 71% of the United States population lives paycheck to paycheck, and over 50% of Americans do not have at least $1,000 saved.
This is extremely dangerous when you consider the fact that this accounts for nearly three quarters of the United States population. As of this writing, the American population is just over 300 million, and this means that well over 210 million people do not have any basic, let alone significant savings, and are living paycheck to paycheck. This clearly supports the claim that saving money is far from common sense to most people. Living paycheck to paycheck borders on the line of poverty. One bad break and your debt and other obligations will destroy you sending you into bankruptcy and a long road to recovery. A paycheck to paycheck daily life means that you are helpless if you should lose your primary source of income. As the economy continues to constrict and more companies move their operations overseas and downsize, how can you put yourself at their mercy. Changes must be made in your life today to prevent a job loss from dramatically affecting your family.
2. The average American household carries a credit card balance of approximately $10,000, at an average rate of 15% interest.
By the time you read this, it is very likely that the credit card balance and interest rate have gone up. More and more people continue to use their credit cards and float the balance over a period of months instead of using cash or paying off their credit card bills at the end of the month. It makes absolutely no sense to buy anything on a credit card if you are not going to pay that credit card off at the end of the month. Why pay more for something, the rich don't. The fact of the matter is most times you don't even need the flat screen TV or new couch you are purchasing. A balance of $5,000 at 15% interest will cost you $421 in interest if you are able to pay it off within a year. But that would require monthly payments of $451.00, which most people cannot afford to do. Reduce your monthly payment to the minimum of $106 and it will take you six years to pay off that credit card. In the meantime, you will be paying an additional $2,633 in interest payments. Your increase in purchase price is 52% for an item you didn't even need. Knowing these facts, then why do people use borrowed money from a credit card company to make purchases? The answer is simple: Most Americans do not have cash and to them borrowing money is an easy and fast way of getting the things they want and don't need. It may be easy at first but you are setting yourself up for a long road of servitude ahead in many cases.
The rich rules over the poor, And the borrower becomes the lender's slave. - New American Standard Bible
When you borrow money from anyone, especially credit card companies in many ways you become their slave. This can especially be seen in today's current economic market as the credit card companies seemingly callously increase interest rates to individuals already struggling to pay off their debts. The rich do not pay interest on credit cards. They pay off their credit card each month or pay in cash which affords them huge savings on many items. It is also important to note that credit card companies are one of the largest contributors to political campaigns. They have worked hard to build a "healthy" relationship with politicians, and they play a pivotal role in many of the economic problems we see today.
3. The leading causes of bankruptcy for citizens in the United States are medical expenses, divorce, credit cards, mortgages, and a "failure to save money adequately."
Medical Expenses
The loss of a job also plays a powerful role in the bankruptcy of many Americans. When you consider the increasing cost of healthcare in the United States, it is easy to see why becoming ill or injured without health insurance can lead to financial disaster. Millions of Americans go about their lives each day without health insurance, fearing the possibility of becoming sick or injured. Indeed, there are many Americans who would rather stay home and suffer rather than go to the doctor and seek treatment for fear of the cost of their medical bills. Insurance companies often add to the problem, and they are quick to tell you of how much you will spend if you become sick or injured in an attempt to gain your business.
Divorce
The high divorce rate in the United States has been well documented. Many sources have stated that the United States has the highest divorce rate in the world, and it was recently reported that the number of people living together has surpassed the number of people married for the very first time in history. While the cause of the skyrocketing divorce rate in the United States is beyond the scope of this book, the most important thing for you to realize is that getting a divorce can lead to financial ruin. Many people make the mistake of marrying someone who is not their "economic type," and a marriage that is divided against itself cannot stand. Additionally, a pre-nuptial agreement should be agreed to by the parties prior to marriage. A pre-nuptial agreement does not mean you do not love your spouse or that you think the marriage will not work. In fact many prenuptial agreements dissolve after 15 or so years of marriage. What a pre-nuptial agreement does is protects both parties if their marriage conforms to the high incidence of divorce and makes it easier for everyone to move on with their lives and avoid financial ruin.
Mortgages and Credit Cards
A whole book could be written on the issue of mortgages and credit cards, and indeed, a great portion of this book will cover them. Getting a mortgage has a number of risks, and I have seen people in my family lose everything because of it. Before you take the advice of your mortgage broker or bank, you should consider the various alternative methods of purchasing a home. Instead of placing a down payment of $10,000 on a 30 year mortgage, get creative. The creativity will involve work and research on your part, however could become the smartest decision you ever made for you and your family. There are a number of ways to obtain a home without becoming a slave to the mortgage company.
While I will touch on a few of them in this book, there are plenty of alternative books available on buying a home, and you will want to look for them.
Failure to Save Money Adequately
Of all the problems mentioned so far, "a failure to save money adequately" is arguably more dangerous than all of them combined. In fact, most of the aforementioned problems could be alleviated or abated if you were to save your money adequately. You could cover your medical expenses, pay for your divorce, you would not have outstanding credit card payments and would not be in a conventional mortgage. Saving money is the foundation for building wealth, and if you can't master it, you will live a life filled with uncertainty, fear, and economic hardship. Learning to save money using the techniques discussed in this book will require discipline on your part, but once you master it, you will become an unstoppable force, you will have sufficient money to invest and you will be able to live the lifestyle of your dreams.
As I write this sentence, there are many people in the world who are facing financial hardship because they made the mistake of relying too much on a job, one that was unstable and dead end. This is especially true for young people who may not have the resources to pursue a higher education or become self employed. However, anyone can lose their job, and you should never believe that your job will not terminate your employment. They can, and you must be prepared just in case they do. Since well over 50% of the population has little more than $1,000 saved up, they are at the mercy of the people they work for, as well as the institutions that loan them money. When you look at it this way, it is hard to call the United States "the home of the free."
4. Once Americans have paid for their basic necessities, a number of studies have shown that well over 80% of their income goes towards the repayment of debts.
A man in debt is so far a slave – Ralph Waldo Emerson
80% of income after payment of necessities going to repayment of debts is a very dangerous scenario. It shows clearly that the United States has become a country full of economic slaves. If more than 80% of your income must go towards the repayment of debts once you've taken care of your basic expenses, this means that you are working for the lenders, not yourself. When you consider the fact that large credit card companies have millions of customers, this means that they have a residual income stream that will last for generations. Many Americans will work until they die, while the lenders will simply relax in luxury and get back the money they borrowed.........plus interest.
5. When most people use a credit card, studies have shown that they will pay over 100% more than if they would have paid if they simply used cash.
For example, if you owe $5,000 on a credit card, you may pay at least $70 per month in interest, without even touching the principle. If you owe more than $7,000, and you are only making the minimum payments, it may take you more than 15 years to pay off the card. The famous quote that "cash is king" is definitely true. When you pay with cash, you don't pay any interest. When you save it, you can earn compound interest on the money you save, and this can allow you to build up a fortune over time. Credit cards are just the opposite. You are using the money of the credit card company, and they expect you to pay it back. They will charge you an interest rate on the money you borrow, and depending on your credit standing, your interest rate could be higher than 20 percent. No matter how you look at it, the credit card companies will win. They win because they charge interest, and they will almost always get back more than they originally allowed you to borrow. This is how they make tremendous amounts of money within a short period of time.
6. Senior citizens, once considered the wealthiest segment of the U.S. population, have gained larger amounts of debt. From 1990 until the year 2000, the levels of debt maintained by seniors increased by over 80 percent.
Even if you are a young person, this is something you should take seriously. It has become apparent that social security will not be available when the youth of today reach their golden years. What this means is simple. You cannot rely on the United States government to assist you. It is also not enough to rely on your job, even if you enjoy the work you do. You must take the time to set up a retirement plan while you're young, and you must do everything in your power to avoid borrowing money and creating large amounts of debt. Inflation will continue to be a problem as you get older.