I recently had the great opportunity to interview Jesse Mecham, creator of the You Need A Budget
(YNAB) personal budgeting system. I'm a fan of YNAB, I admit, so it was a big deal for me to be able to talk to Jesse about YNAB, budgeting, and building wealth. The interview is about forty minutes long, but don't worry - I've trimmed off all the fat and left only the meat of the conversation. You'll learn about:

• the Four Rules of simple, successful budgeting
• how to motivate yourself to budget (believe me, it's easier than you think)
• how to "roll with the punches" when your budget is blown to pieces by unforeseen expenses
• how to plan for those "emergencies" that always pop up (and how to come out smelling like roses, to boot)
• and how to build wealth without feeling the pinch

If you'd like to listen to the streaming version, push the "Play" button on the player below. If you'd like to download this killer interview, you can click on the link at the bottom. YouNeedABudget.com

Download Jesse Mecham YNAB Interview

I compare credit card debt consolidation and other debt consolidation to liposuction. You may be getting rid of the appearance of indebtedness (or fat) by treating the visible symptoms, but you're not treating the root cause of your debt: spending too much (or eating too much).

I know this analogy has been rehashed more times than I can count, but credit card debt is like a sinking ship: you've got to plug the holes before you start bailing water. If you can't plug the money leaks, you're pretty much guaranteed to go down with the ship.

The problem with treating the symptoms of credit card debt rather than the root cause (spending too much), is that the symptoms will return. If you want to kill the debt, you have to hack it off at the roots. One of the best ways that I know to kill a spending problem is through a personal budget. You'll gain great insight into what you're spending your money on, and what you need to do to correct it, but only if you're willing to use a budget. It's the "little pain" right now that prevents the "big pain" later on.

Debt consolidation turns a lot of high-interest credit card debt into low-interest, low-payment debt. It's seemingly miraculous how the debt-consolidation companies do this. You might be tricked into thinking they're doing this out of the kindness of their heart, but look a little closer. They're actually turning your high payments into low payments by extending the term of your loan. Thus, a debt that might have taken four years to pay off if you made regular, consistent payments, will now take six or seven years to pay off. They haven't done you any favors by consolidating your debt.

According to an interview about debt elimination that I heard at Hard to Find Seminars, most people don't even complete the debt consolidation process. They'll quit after just a year or so, leaving them back where they started. But even if their clients do that, the debt consolidation companies still make money, to the tune of several thousand for each person.

One of the sneakiest things about debt consolidation that you'll probably never hear anywhere else, is that you could end up owing the IRS for the debt you didn't have to pay. Insane, isn't it? But it's true: it's called "imputed income". According to the tax laws, when you don't have to pay back a debt, you must recognize income because of the difference in what you were loaned and what you had to pay back. Here's an example:

You're loaned $100,000 by the bank. Even if you bought a house with the $100,000, you still count it as money received. The money received is offset by the $100,000 liability, or "mortgage", that you now owe. If you pay back the whole $100,000, then your "income" and "outgo" are the same, and you recognize no income.

On the other hand, if you are unable to pay back the $100,000, and the bank forgives $40,000 of the loan, the "income" and "outgo" are no longer balanced. You have $100,000 of income, and only $60,000 of outgo, and the difference between those two is $40,000 of imputed income.

So, even if you consolidate your debt, you're not out of the hole you've dug for yourself. You might end up owing taxes on that $40,000 even if you don't have the money.

If you're in debt, there are many ways out, but you really should not consider debt consolidation as an option. I suggest the Free Excel Spreadsheets section of this website as a good starting place for eliminating debt. There are several helpful debt elimination calculators for you there.

What if you could completely get rid of your credit card debt and eliminate unsecured debt just by writing a few simple letters? What if you could end your debt problems in eighteen months or less just by following step-by-step instructions, and without wasting tens of thousands of dollars?

If you were to tell me that I could kill credit card debt that quickly, I would accuse you of being a liar. Pure and simple, I'd think that anybody who claims that is guilty of sensationalism at best, and blatant lying at worst. I'm still skeptical, but I may be a believer yet. Here's why:

One of my favorite people right now is Michael Senoff. His Hard to Find Seminars is chock-full of free goodies, including around 120 hours of interviews between Michael and some amazing guests. In short, I've come to trust what Michael has to say when it comes to marketing and business promotion. Michael has an interview on his website in which (some other guy) interviews John Gliha, creator of "Winning the Collections Game".

John Gliha tells about how he used to be in credit card debt up to his ears. Then he heard from a friend of his who said he'd gotten rid of his own credit card debt–not through debt consolidation, and not through negotiations. He did it by using the bank's own laws against them.

Gliha was skeptical at first, and then he did some research on his own. He found a report, formerly published by the banking industry, called "The Two Faces of Debt". It described how when somebody buys something using their credit card, the arrangement with the bank that issued the credit card is such that the consumer becomes the lender to the bank. Essentially, the bank takes the "promissory note" from the consumer, and uses it as collateral to make more loans. The bank can repeat this process, according to Gliha, up to 27 more times. This repetitive process of making money out of thin air, he says, is what contributes most of all to inflation. After all, if you're making more money all the time, the money that is currently circulating is going to go down in value. Makes sense to me.

Gliha says that this lending situation make it so that there is never any "real" money lent. It's all created out of thin air. His "Winning the Collections Game" system, then, consists of sending letters to the credit card banks that say, "You never really loaned me any money. Look, your 'Two Faces of Debt' publication even says so." According to Gliha, more than half of the time the bank will not follow up on their collection efforts, so the debt is effectively extinguished.

I admit, I've never tried the "Winning the Collections Game" system. I probably never will have to use it, since I'm paying all of my debts on time. And I admit that the "Winning the Collections Game" system seems a bit…shall we say, "unethical". That is, if you accept that the banks actually do loan money, and that a true debt is created. On the other hand, if they're screwing you, seems okay to do it back to them. I guess it depends on which scenario you believe to be true.

If you'd like to hear the credit card debt elimination interview on Michael Senoff's "Hard to Find Seminars" website (and it's absolutely free–Michael, how the heck can you afford the bandwidth?), you can find it here:

Credit card debt elimination interview. It's really an eye-opener on how credit card debt (supposedly) works.

You can find John Gliha's debt elimination website here:

Winning the Collections Game

I was reading my newly-acquired favorite personal development blog and happened upon a post that talked about the 80/20 Rule, also known as Pareto's Principle. Steve Pavlina was discussing Pareto's Principle as it applies to personal development, but it got my brain working on how I could apply the Principle to my personal finances.

It's kind of ironic to use 80/20 analysis on my (capitalist) personal finances, given that Pareto's Principle was originally formulated by an Italian socialist who was philosophizing about the efficiency of a collectivist society, but it doesn't bother me too much.

Pareto's Principle states that 20% of the population control 80% of the money in a society. In personal finance, the Principle would suggest that 20% of my actions are responsible for 80% of my results. Similarly, in doing work, just 20% of my work gets 80% of the results that I want.

So, with regard to personal finance, which of all the stuff that I do is in the desirable 20% group and which is in the disposable 80% group? Here's a list of the stuff that falls into the 20% group:

• Quick, easy, semi-monthly budgeting
• Shopping at a less-expensive grocery store
• Automating our retirement account contributions
• Automating our long-term savings
• Shopping with a cash-rebate credit card

Here's a short list of personal finance actions that fall into the 80% group:

• Clipping coupons
• Balancing checkbooks
• Maintaining a checkbook register

Of course, the end goal of the Pareto Analysis is to do less of the less-useful "80% actions" and more of the "20% actions". With that goal in mind, I'm going to try to reduce my personal finance activities to a bare minimum and still get the same, or better, results.

Just announcing a new, (hopefully) useful free Excel spreadsheet:

If you've already got a mortgage, it's too late to try to save money by getting a better rate or better terms. It's not too late, however, to see how quickly you can pay off your loan by making extra payments. If you're getting a new mortgage, you can also see what extra payments will do for you.

I was curious to see what difference making extra payments makes on reducing the time it takes to pay down a mortgage loan, so I made a new spreadsheet. Here's what I figured out by playing around with the numbers: The longer the amount of time remaining on your loan, the more of a difference it makes when you pay a little more each month, or make an extra annual payment, or even a one-time payment.

Here's what the calculator will do for you:

Enter the terms of your loan in the calculator, as well as how much extra you're willing to pay on your mortgage each month, each year, or just once over the life of your mortgage. The calculator will tell you how soon your mortgage will be paid off both with and without extra payments. It will also tell you how much faster you'll pay off your mortgage loan, and how many months of loan payments you'll save by making extra payments.

Click here to download the Mortgage Loan Calculator

Click here to go to my Free Excel Templates page

I've noticed one thing that has helped me to meet or beat our monthly budget amounts. I say to myself, "I can't afford that now. I'll wait until I really need it, or I won't get it at all." In fact, my wife hates asking me what I'd like for my birthday, Christmas, or Easter because I'll say, "Ooh, I'd like to get a new gadget for my computer," followed immediately by, "…but I guess I can get by without it."

I'm amazed at how often this works for me. Since I have an unfortunate tendency to obsess about new gadgets, the most recent of which were a VitaMix super blender and a Flowbee, I really need to have an "I don't need it" or "I can do without" mentality. As I recently read in an Og Mandino book, The Greatest Miracle in the World, it's not necessarily the one who has the most who is happiest. It's the one who needs the least.

I'm amazed now at how much my folks managed to do without. I'm in my 20s, so they obviously weren't raised in the Depression, but sometimes they act like it. They eat beans and rice for dinner and home-ground cracked wheat cereal in the mornings. They drive a 20+ year old Toyota van and a 15-year old Toyota Camry. They scrimped and saved to pay off their house, and they finally did it in near-record time. They could afford to eat better, and they could drive better cars and live in a new house, but they choose not to. And now, at the age of 55, my dad is going to be able to retire.

Compare that to my uncle, the general contractor. He has probably seen and had more money go through his hands than my father ever did. He has made tens of thousands in profit on some of his construction jobs. He has bought and sold real estate and generally done pretty well. He lives in a newer house than my folks, and drives newer vehicles. His kids have had many of the toys that they wanted over the years, including dirt bikes, ATVs, hunting gear, game consoles, and cars and trucks. He and his wife and kids take a vacation at least once a year to go to Montana and hunt.

But my uncle will never be able to retire. Not because he's self-employed. He could have set up a retirement account for himself. Not because he hasn't had enough money. He's had plenty. It is entirely because of his sense of entitlement, his lack of ability to delay or deny gratification. He doesn't know the words, "I don't need it."

I'm in my 20s, and I still don't know it all. I'm still choosing my role models, deciding which people can show me how to get what I want. I'm 27 years old, and I don't think I've changed that much from when I was a little boy - I still want to grow up to be like my dad.

One commenter suggested that personal finance bloggers were smug, and perhaps he was correct. I just discovered that I forgot to pay two of my credit cards, and my smugness disappeared instantly. Here's the damage:

– Credit Card #1: $25 late fee + $33 finance charge
– Credit Card #2: $15 late fee + more embarassment than I felt with the first card. Fortunately, I've had past experience with customer representatives, especially with reducing my cable bill, so it was a simple matter to call up the credit card companies and ask to have the late fees removed. I made sure to emphasize that it was a simple oversight on my part, that I have been a good customer with no late payments before now, and that it will never happen again. They were glad to help out, "…since this was your first time and all." Yippee!

The problem still remains, though, that I have my attention on lots of different things right now, so the time I have to scrutinize my finances is a lot less than it used to be. I'm solving this problem with one simple step that I should have learned after reading David Bach's The Automatic Millionaire book - Automation.

I've filled out the necessary forms for my credit cards to be paid automatically. Since our budgeting system leaves us with a significant buffer of cash in our checking account, there's no potential for overdrafts. It will just be one less thing that I have to do each month. And it will permanently cure the mistake of paying my credit cards late.

Now I just need to find a permanent cure for my personal finance blogger smugness…

How much will refinancing your home cost you? Will you actually save money? Does it make financial sense for you to refinance at this time?

I'm not a homeowner yet, and I won't be signing mortgage papers for quite some time to come, but I'm using this time to get an education in how all aspects of house buying work, and that includes refinancing. I found a great article about how to determine whether or not to refinance. I'm not one to do things the hard way, with a pocket calculator and pencil and paper, so I created an Excel spreadsheet to do the job for me. I call it the Home Mortgage Refinance Calculator.

From what I've read, many experts recommend checking out the option of refinancing if interest rates are at least 1% less than what you're currently paying. Of course, it depends on the remaining term of your current mortgage, as well as the remaining principal of your current mortgage. Make the calculations easy on yourself, and just download the Home Mortgage Refinance Calculator.

I'm still a university student, so I'm not even in the "real" job world yet, but what I see out there is disheartening. Disheartening and also a bit enlightening.

After I graduated high school, I moved up to Oregon with a buddy of mine. We both worked at the Nike Air factory when we got there. We were temp workers, factory drones, just sitting all day at a machine that inflated little plastic airbags that would later be used for cushioning in Nike Air shoes. It wasn't the best situation, but at least I had a steady income…

That steady income lasted only until Nike had a seasonal downturn and needed to cut the temporary work force. I got my walking papers, and so I walked back to my temp agency for a new assignment. My new assignment was to a Techtronix shipping facility, where I packaged and shipped electronics.

My first day on the job at Techtronix, I met a guy who was celebrating twenty years of working at that factory. I took one look at this guy and his sad, dumpy body, and immediately made the decision to quit as soon as I could. I think the exact words that I said to myself were, "No way am I going to end up like that!"

I use these two jobs to illustrate the point that I and many others have come to: It's just too risky having a job. Between the risk of being laid off on a moment's notice and the risk of ending up sad and dumpy if you don't get laid off for twenty years, there's no way I'd want a job. That is to say, I don't want to work for anybody else. I do want to work for myself, and that's where the "enlightening" part above comes in. My observations about the "job world" solidified my determination not to work for anyone else, and go the entrepreneur route instead.

Interestingly, I write this only three months before I'm due to go to Navy Officer Candidate School and become a serviceman. I see that as a bit different from the usual job, though. First, they're not going to lay me off. Second, I only plan on serving four years.

Meanwhile, I'm planning my escape to entrepreneurship. If you've never heard of Steve Pavlina, he's got a great podcast at his personal development website about How to Make Money without a Job. I find it a comforting thought that he has already done what I want to do.

About four or five years ago, I read a great book titled Multiple Streams of Income by Robert G. Allen. If you haven't read it, it's about how to "quit your day job" by setting up multiple sources of passive income. I don't necessarily agree with everything that Allen had to say, or that everything that he says will work, but it was great for getting some great ideas that have served me well in the few years since I first read his book.

Here's a sampling of what he talks about in his book, and what I did with it:

Network Marketing - I thought this was one of the weakest sections of his book, since "network marketing" is actually a euphemism for "pyramid scheme". Think "AmWay" if you need an example, or maybe Amway's flashier sibling, "Quixtar". While Allen makes network marketing seem easy, the truth is that it's typically (not always) a business in which the few get rich from the work of the masses.

In the usual pyramid scheme, people get involved because they see only the seemingly unlimited potential and think that eventually they will be one of the few at the top. Unfortunately for Allen, he doesn't explain why his take on the network marketing business is any different than the scenario I just described. It may work well for him, but it usually doesn't (speaking from my own experience :().

Tax Deeds and Liens - This was one of the high points of Multiple Streams of Income. I was reading this book while working for my uncle at a construction job that I hated, and its description of tax deeds as a source of income got me thinking big.

If you don't know about tax deeds and tax liens, here's an overview:
Most real estate owners have to pay property taxes to the county or state in which the property sits. If they fail to pay their taxes, the county/state has the option of 1) selling the deed to the property at a tax deed sale; or 2) selling a lien on the property at a tax lien sale, depending on whether the state is a "tax deed state" or a "tax lien state".

At tax deed sales, the deed is auctioned off to the highest bidder, who then owns the property, with most of the encumbrances (i.e. other liens) wiped out by the tax sale. At tax lien sales, a lien certificate on the property is auctioned off, with people bidding to see who will accept the lowest percentage return when the lien is repaid.

California, the state where I live, is a tax deed state. I've actually attended some tax deed auctions here, but never bought anything. Instead, I used another tactic to buy property for pennies on the dollar, which I'll probably describe in my next post.

When I read Multiple Streams of Income, Robert Allen was recommending a tax deed/lien educator by the name of Ted Thomas. It seems that Allen has now switched to recommending a guy by the name of Steven Waters. I have no experience with Waters, but Ted Thomas' course was barely acceptable, and was way overpriced for what I got.

I recommend the downloadable courses by a guy named Roy Stubblefield, who is recently deceased of a stroke. He was a great guy, who actually made his living buying and selling tax deeds and tax lien certificates. His website isn't polished, but he sure knew what he was talking about, especially with regard to the tax deed/lien laws of each state. You can check out his website at TaxSales.com. I especially liked reading the tons of testimonials. They got me really revved up about making money with tax deeds, which I eventually did do.

Real Estate Investing - This section wasn't nearly as exciting to me as the tax deeds/liens section, but it was a good introduction to real estate. It's probably just enough information to get a beginner in trouble, so if you're going to start buying real estate just based on this book, please make the acquaintance of a good realtor who knows their business.

I'll readily admit that this book is more about "here's some examples of ways to earn multiple streams of income" rather than "here's everything you need to know about this particular way to make money", so the lack of detail isn't really a problem. The thing that I didn't necessarily like, however, was that Robert Allen obviously has some kind of kickback arrangement with the people he recommends in his books. I wasn't sure whether he was recommending them because they were the best, or if it was simply because he could get a slice of the action. You may take some of Allen's recommendations with a grain of salt.

Additionally, I am a bit suspect of Allen's track record in real estate. Does he actually make his money with real estate, or is it more like, "I used to make money with real estate, but now I just make money by writing about it."? Another thing that makes me do a double-take is that Robert Allen has been bankrupt. I understand that bankruptcy can happen to the best of us, but a financial success guru?

Information Publishing - This is obviously Robert G. Allen's strength, given that his fortune has been built largely on writing and selling books, information courses, seminars, boot camps, and the like. His recommendations in this section are much more believable because of his expertise.

The coverage of information publishing in this book is, as usual, very scant. It does, however, provide an abundance of clues as to what you might achieve with information publishing. Allen says, and I believe, that information publishing is one of the most profitable, high-profit-margin ways to make money. After all, where else can you take raw materials worth only a few cents (paper in a book), or even worth nothing (bytes in a computer) and turn them into a product worth hundreds of dollars. There's almost unlimited potential here.

One useful bit of information with regard to information publishing, or even many other businesses, is the marketing funnel. Imagine a funnel where a large number of people go in one end (the wide end of the funnel), and a small number come out the other end. At each successive stage of the funnel, the number of people goes down, but the price of the product you sell them goes up. So, at the big end of the funnel you might be selling a $25 report on how to make money raising worms (just an example). At the next stage, you might be selling a $100 home study course on how to raise worms for big bucks. Skip to the final stage, where you market a $2,000 boot camp that shows your customers, hands-on, how to breed champion worms.

I know that "how to get rich" books aren't the typical reading material of personal finance bloggers, but I thought that Multiple Streams of Income is important to read for a few reasons:

1. It gets you thinking about how to get out of the "trade your time for money" frame of mind, and into the "trade your intelligence for money" mindset.
2. It makes you think bigger than you have been.
3. It illustrates the effect that even one additional stream of income can have over a lifetime. If you had even $10 more per week, you could be much more comfortable in your retirement. Every little bit counts, and it's better if you didn't have to sweat too much to earn it.