4
The Only Plan You Will Ever Need
We make our decisions, and then our decisions turn around and make us.
F. W. Boreham, Mushrooms on the Moor
Without a plan to achieve it, a goal is only a dream. If your goal to achieve financial freedom is not attached to a specific plan, I can safely say you will never reach financial freedom because you will not know how to start, what to do, or when you’ve reached your goal.
A dream showcases the end result but completely skips the details. A plan, on the other hand, defines the goal, lays out the steps to reach the goal, and expresses the goal in terms that are measurable. A plan eliminates confusion because you have the steps right there in black and white.
For example, in the language of dreams, your desire to improve your health might be expressed as “I want to get into shape.” In the language of achievable goals, you would first define what it means to get into shape and then outline the steps required to reach that goal. Such a statement might be “I intend to run two miles a day for the next six weeks so I will be in condition to participate in a 5K race six weeks from Saturday.” Now your desire is no longer a dream because it is clearly defined and you have outlined the steps required to achieve it. The progress and outcome are measurable. Getting into shape has become a goal attached to a plan.
Maybe you had the desire to “get control of your finances” or “get out of debt” long before you picked up this book. Well, have you done it? If not, the problem might be that you never had a realistic plan. All you had was a dream.
Let’s take that desire and develop it into a goal.
I intend to achieve financial freedom and win over debt for a lifetime by consistently giving, saving, and never spending more money than I earn. I will know I’ve reached my goal when I have no unsecured debt; I have a $10,000 Contingency Fund; my Freedom Account is funded one year in advance; and I am consistently giving away 10 percent, saving 10 percent, and living on 80 percent of my income.
Don’t worry if some of these terms mean nothing to you. They will soon enough. Just stick with me.
Notice that the goal is clearly defined: to achieve financial freedom and win over debt for a lifetime. The steps to reach the goal are specific: by consistently giving, saving, and never spending more money than I earn. And there is a statement that defines how to recognize that you have reached your goal: I have no unsecured debt; I have a $10,000 Contingency Fund; my Freedom Account is funded one year in advance; and I am giving away 10 percent, saving 10 percent, and living on 80 percent of my income.
Your dream of getting control of your finances has become a goal because it has three elements:
1. The goal is clearly defined.
2. The steps to reach the goal are clearly stated.
3. The goal has a measurable outcome.
Years ago I read something that stuck in my mind: You wouldn’t dream of eating an entire salami in one sitting. But if you eat just one slice a day, in time you will eat the entire thing.
You must think of your goal of reaching financial freedom as the salami of a lifetime. You’re going to get the job done one “slice” at a time.
The Plan
The debt-proof living plan is a proven money-management system that is simple to understand and to implement. It will work at your current income level and financial situation and for the rest of your life. And best of all, it is the only money-management system you will ever need. The plan consists of these five elements, which we will discuss in this and the next few chapters:
1. 10-10-80 formula
2. Spending Plan
3. Contingency Fund
4. Rapid Debt-Repayment Plan (RDRP)
5. Freedom Account
The 10-10-80 Formula
I barely squeaked through college chemistry and only because I could memorize formulas. I did not understand what I memorized. What I learned from the experience is that it doesn’t always matter if you understand the details. If you get the formula right, you can count on the results.
Fortunately, the debt-proof living formula is much simpler and infinitely easier to understand than anything having to do with chemistry. I am concerned, however, that at first glance you might see the formula as an impossible undertaking. But if you use it faithfully, this formula will allow you to obtain something so valuable: You will access financial freedom. If you make a commitment to apply this formula to the management of your money, it will forever change your life.
Here’s how the formula works. For every dollar that flows into your life, you give away 10 percent, save 10 percent, and live on 80 percent. For every dollar you receive, ten cents is to give away, ten cents is yours to save for the future, and eighty cents is for creating the most abundant life possible.
I know what you’re thinking. Only if I win the lottery! (You are so funny.) I understand your reaction. I know 10-10-80 is radical; it’s unconventional and just short of un-American. But it works.
I know something about being in terrible—even worse-than-terrible—financial trouble. For more years than I like to admit, I spent not just 100 percent of every dollar I could get my hands on but far more. I used the dollar as a down payment for something I could not afford. Of course, the only way I could do that was to spend money that didn’t belong to me.
I thought I had a pretty good thing going. I didn’t give (Are you kidding? We didn’t have enough for ourselves, let alone anything left to give away). I didn’t save (ditto!), and I could spend lots more than we made. To accomplish this, I tried every form of juggling, manipulation, trick, tactic, scheme, and loophole in the book. My method was the fast track to a horrible financial pit of despair. While it sounds like quite a feat to live well on someone else’s money, it’s anything but glamorous. I am here to report that without a doubt there’s only one form of money management that results in joy, peace of mind, contentment, and financial ease: 10-10-80.
I do not know why this formula works. I have some clues, but when it comes right down to it, I just accept it on faith. I believe it has much to do with balance. When I give to others first and then care enough about myself, my family, and my future to say that some money is ours to keep, my insatiable desires are “hushed up.” Giving and saving first allow me to see things differently. I am more satisfied with what I have. I have more patience to wait until I have saved the money for a desired purchase. I am less prone to act impulsively.
Giving and saving are the “magic bullets” I mentioned early on. They slay the two monsters all of us deal with because of the society in which we live and the fact that we are flawed humans. These financial monsters are greed and fear.
Greed. The antidote for wanting everything you see from those cute shoes in the Nordstrom ad to an SUV just like your neighbors’ is gratitude. Giving is the tangible expression of gratitude. I do not believe it is possible to feel both greed and gratitude at the same moment. If you are truly grateful for all you have, no matter what that is, you will not struggle with greed and all the temptations it brings your way.
Fear. If you have no money in the bank and you struggle just to get from one paycheck to the next, you are likely filled with fear: fear of running out of money, fear of not getting the power bill paid in time, fear of eviction, fear of phone calls from creditors, fear of your spouse discovering what you’ve been hiding. Fear keeps you awake at night and prompts you to act in inappropriate ways with money. The antidote for financial fear is to consistently pay yourself. Saving 10 percent of your income consistently, no matter what, quells a lot of fear.
The gratification I used to receive from outrageous spending I now find when I give and when I save. It is, however, a little bit different. The rush I got from spending lasted about as long as it took me to get to the car—and it was quickly replaced by anxiety, guilt, and fear. But the gratification I receive from giving and saving goes on and on and on. Each time I give some of my money away and save some for the future, I make more than a deposit in the bank—I make a deposit in my emotional and eternal bank. That produces something satisfying that words cannot adequately describe.
Give Away 10 Percent
I’m fully prepared for your arguments as to why giving away your money—any percentage at all—is not something you would even consider. I understand. I’ve heard every reason you could possibly imagine. I remember how many years I felt the same way. I intended to become a giver someday, and when that day came, I would do it flamboyantly. I would give thousands of dollars at a time, not paltry sums. I had big plans, and I was going to do it my way someday. So go ahead. Make your list of all the reasons you absolutely cannot give away any of your income.
Now I will counter by saying that nothing you’ve listed holds water. Feel the way you will, but nothing you can say will change the fact that if you fail to open your life to the power of giving, you will never find the financial freedom and success you long to achieve and for which you were created to enjoy.
This is what giving does for me (and will do for you). Giving proves the condition of my heart. The act of giving is an expression of gratitude. It is a tangible way I can say thank you for everything I have and for every way I have been blessed. Without gratitude operating in my life, more is never enough, and nothing brings genuine satisfaction.
Giving connects me to the world. We live in a materialistic society. Because we have so much, it is easy to become complacent, perhaps even spoiled with feelings of entitlement. Giving keeps me from being self-centered. It opens my eyes to the big picture—to the needs of others. It allows me to see the world through eyes of compassion. I see how vast the need, how short the time, and how unimportant my stuff is by comparison. When I connect to the world, I allow my heart to be broken. It is in that brokenness that my pride and arrogance can be washed away. Then I become content with what I have, and that makes me more useful.
Giving connects me with God. Giving opens my eyes to who I am. When I take a step of faith and give back to God the first and the best part of my income, I make statements of affirmation about my past, my present, and my future:
My past: I am grateful for everything in my life that brought me to this place.
My present: God is number one in my life.
My future: I trust God to meet my needs.
Giving teaches me that I have more than enough. When I give, I tell myself I am beyond scarcity. I affirm that someone greater than myself is in control, that I have what I need, and that I am grateful. Giving reminds me that I am only the caretaker of the resources I’ve been given to manage. I am a steward, and I am responsible for the decisions I make.
Since I made the decision back in 1982 to become a purposeful giver, I have paid back more than $100,000 in unsecured debt. I have found unbelievable fulfillment in a career I never could have imagined, using talents I did not know I had. I’ve had the privilege of leading thousands of people out of debt. Has giving changed and blessed my life? You be the judge.
HOW TO GIVE
How do I give? may seem like an elementary question, but it is one I get quite often.
First, let me clarify that I am talking about giving away 10 percent of your net income—your money! I often receive letters from people telling me they give their time and their skills but not their money because they cannot afford it. I can only assume they are trying to convince me that the first two are substitutes for the last. I agree that we should be good stewards of everything, not only our money, but you will be missing the boat if you do not include your money—something that is very precious. It takes faith and courage to give away what is precious. That’s what makes giving meaningful and so powerful.
One of the easiest ways to get started with consistent giving is to treat it like a regular bill. Decide the exact amount you are going to give right off the top of the money you receive. Make up envelopes and payment coupons and put them in the front of your bills-to-be-paid folder. Then when you do your regular bill paying, make giving your first payment.
If you have never been a giver, facing the 10 percent hurdle might be daunting, to say the least. Please don’t let the number appear so large that you convince yourself to give nothing. If you don’t have the faith to start with 10 percent, start some other place, like 2 percent. Then move to 3 percent, then 4 percent. Soon you’ll be at 10 percent. Remember, more than anything else, God is concerned about the condition of your heart.
WHERE TO GIVE
As you begin to consider all the needs around you, I have a feeling something or someone is going to come to mind. What are the issues about which you are passionate? What is your source of inspiration? Do you attend a church where your soul is fed? That would be a good place to start. Think about your own community. What needs have you heard about that tugged at one of your heartstrings? That tugging just might be God’s prodding. Where you give is a personal decision and one I believe you will make easily once you start thinking about it.
Once you’ve made your decision about where to give, do it with no strings attached. Just give the money away. Write the check or deliver the cash. Giving in its purest form is done with a heart that says, “I wish it were more, and I expect nothing in return.”
Save 10 Percent
The “pay yourself first” concept is not new (I’d be surprised if you’ve never heard it before). But I’ll never forget the first time I really understood what it meant. I read about it in a fascinating little book called The Richest Man in Babylon by George Clason.
Say to yourself, “A part of all I earn is mine to keep.” Say it in the morning when you first arise. Say it at noon. Say it at night. Say it each hour of every day.
Say it to yourself until the words stand out like letters of fire across the sky. Impress yourself with the idea. Fill yourself with the thought.
Then take whatever portion seems wise. Let it be not less than one-tenth and lay it by. Arrange your other expenditures to do this if necessary. But lay by that portion first.
Soon you will realize what a rich feeling it is to own a treasure upon which you alone have claim. As it grows it will stimulate you. A new joy of life will thrill you.
Greater efforts will come to you to earn more. For of your increased earnings, will not the same percentage be also yours to keep?1
During my worst years when I was spending with reckless abandon, I would have told you with all sincerity that we didn’t have enough money to save any. Ironically, even though I was spending as if there were no tomorrow, I would have considered it conceited and self-serving to keep any money for myself. How could I keep any for myself when I owed lots of money to others? If that is your reaction, I want to encourage you to let it go. Not only is it okay for you to pay yourself even though you are deep in debt, you must because that is the only way you are ever going to break your cycle of debt. You have to start building your defenses so that soon you will not have to depend on credit card companies. You’ll be funding your own emergencies.
Understanding that a part of all you earn is yours to keep is a reasonable way you can acknowledge your worth, prepare for the unexpected, more quickly repair the damage that debt has done in your life, and go on to build a retirement nest egg. It is simply the right thing to do.
You need to begin saving 10 percent of your net (take-home) income even if you participate in an employer-sponsored savings plan like a 401(k). The 10 percent is over and above any money you are saving now for retirement.
Live on 80 Percent
Debt-proof living depends more on your spending habits than the size of your paycheck. It may be challenging to adjust your living expenses so that, including your debt repayment and current bills, you are spending no more than 80 percent of your net income. But it will get easier with time. The dollars being sent to creditors every month will become discretionary income once you reach debt-free status. The more you practice restraint in your spending, the easier it will become because, simply put, you’re going to get better at it.
If you, like the majority of your fellow Americans, live on something closer to 122 percent of your income (seeing that in print does send shivers up your spine, doesn’t it?), a drastic idea like living on 80 percent might cause you to give up right now. But remember, you didn’t get where you are overnight, so expecting an instantaneous reversal is unrealistic.
Nevertheless, now is the time to start. You can choose to turn around so that you are headed in the right direction. Then every step will be one of progress.
To reduce your living expenses so they fit within 80 percent of your income, you must scrutinize every expense and then find the best way to reduce it. By reducing everything a little bit, you may be able to avoid eliminating any spending categories. This is going to require creativity and discipline. And your reward for your willingness to endure temporary sacrifice will be a light at the end of your tunnel, and I promise it’s not a train.
I don’t know what frugality means to you. The word has taken a good bit of heat in the past few years as the buzzword for some economic extremists. As a result, many people have come to view frugality with disdain, assuming it demands a lifestyle based on dumpster diving and recycling dryer lint. Believe me. That’s not it. To me, frugality means doing whatever it takes to keep your living expenses within 80 percent of your net income.
Frugality is not about stuffing everyone into the same mold so we all spend the same amount of money on things like food or housing. Frugality is about personal restraint, discipline, finding the best value, and not being wasteful. It’s about making choices and understanding that if you say yes to one thing you may need to say no to something else. And that is okay, because finally you are going to be managing your money in a way that will bring you tremendous personal satisfaction.
Because I live frugally doesn’t mean I don’t spend money. It means I spend money thoughtfully and with a sense of discipline and purpose. As my life is blessed and my income increases, the 80 percent portion of my net income increases as well. It’s a beautiful thing.