Teh Chad

It has been a long time since things have NOT been changing.  I find it interesting how people change or don’t change in their environments.

Change has become readily apparent in my lifetime.  Before that, I cannot comment, but I hypothesize that there was significantly less social change in the average citizens’ day than there is now.  Al Gore had not invented the world wide web yet.  There was no such thing as a “cell phone” or the personal computer as we know it today.  People had a house phone and snail mail that you might have had to physically take to the post office.

In business, things have changed… a lot.  People are hand-cuffed to their Blackberrys, checking their email at LEAST 10 times each day.  I know a guy who has automatic searches setup three times per day with email alerts to him and one of his clients so that he can make ONE deal!  “Big” deals are no longer $120,000.  They are $1,200,000.

When someone complains about someone always being late, I have to laugh to myself a bit.  Okay, I have to laugh a lot!  In my hobby as a card player, I HAVE to be constantly adapting and adjusting to the people around me.  If someone does something, I make a note and look for it next time with the expectation of adjusting to it/them.  If I don’t do this, I lose money.  You can bet good money that if someone is late to an appointment with me, I will plan on them doing that the next time we plan to meet!

I guess the point of this is that we should be paying more attention to other people.  It does take a lot of practice.  However, if you work at something, then you WILL get better at it.  If not, I’m going to be a bit arrogant and giggle at the next time I see someone not adjusting!

TC

In my few years on this planet, I’ve never learned to manage money real well.  My family has been in debt for as long as I can remember.  In the past couple of years, it seems that much of that has disappeared.  It didn’t seem like much changed other than my own career changing faces a few times.  So, I started reading.  There is a boatload and a half of information.  I like to think that I’m really smart, but I had a lot of trouble making sense of things and I didn’t have anyone who wanted to teach me.

Anyway, I’m a bit more visual and I like learning through applications.  This is my attempt to make things simple and clear for those of you who don’t get it, but want to.  Keep the picture handy.

When someone does something in business, they are looking to make money.  That is one of the most basic fundamentals of business.  When it comes to money, profit is usually measured in interest or return.  There are all kinds of loans.  And we usually get in over our heads pretty quickly.

We get credit cards and mortgages, student loans and car loans.  Each of these loans has it’s own interest rate.  I’m not going too deep into interest rates, but you really just need to know how it is accrued.

Interest is simply the rate of return (anywhere from say 3% to 25%) multiplied by the principal or money owed.

When buying something where the payments are relatively small in relation to the principal, the profit for the lender can be pretty substantial.  To give you a picture, let’s buy a house.  We are going to buy a house that costs $3 million dollars!  The current housing interest rates are somewhere around 5-6%.  For this, let’s use 5%.  Say you make only the minimum payment each month.  You will pay $5.8 million for your $3M home!

Now let’s look at a credit card.  A “low” rate for a credit card could be something like 9-10%.  They go lower, but we’ll use 10%.  Now, say you need to go visit your cousin’s friend, because his wife graduated from med school in like Heidelberg, Germany and your girlfriend went to high school with her.  The trip will cost you $5k and you go and have a REALLY good time!  Say that you can only pay like $400/month on that.  The minimum would be $125.  It will still cost you $5300 to take care of that debt.  Now let’s just make the minimum.  It will take you roughly 200 months and cost you $2400 in interest.  So you would pay 7400 instead of 5300. Notice the differences?

So have a look at the picture….

The purple represents the high interest debt.  Most of the time, these are just credit cards.  These debts will cost significantly more.  The red is the medium interest debts.  Car loans and unsecured loans usually fall into this category.  Then the yellow represents the debt that costs us the least.  These loans are typically long-term and the principals are usually bigger.

The more loans we have open further left, the faster we go broke EVEN with a job like CEO of a fortune 500 company.  So what do we do?

We work our butts off to get everything pushing right as fast as we can.  The top row represents a fairly typical picture of debt.  The purple is, of course, credit cards.  The yellow is probably a combination of student loans and maybe a house.  There isn’t a ton that we want to do about the yellow until purple is taken care of.  We want to make the minimum payments on those so that we have more to go after purple with.  (note: I’ve heard this called a few things from snowflake to snowball effect.)

But Chad!  I have like $53847 on my credit cards!  There’s no hope for me!

Ahem, let’s look at our picture.  The second row represents our current goal of eradicating purple.  How do we do that?  What if we took the equity in our home and took out a loan to cover the credit cards?  We HAVE to beat purple down with a stick as fast as we can.  The home loan is costing us much less than the credit cards.  We might have to secure a part of that loan with our car, which is no problem.

So!  Credit cards are paid and we are now in the middle row.  Congrats!  You’ve made your first steps to wealth.

From here, it becomes much easier to pay MORE than the minimum and really start eating into the principal of the new loan that is medium interest.  Once that is paid, we can look at beating out the low-interest loans.  The key is to pay as much as possible on the highest interest debt that we have.

Think of it like learning to be a warrior.  You learn how to get out of debt by making the biggest punches to your monthly payment.  Then as we progress into the bottom row, we have become the warrior we need to be to become wealthy!  We worked hard to beat down all of our debt and build equity in our house.  We have been frugal in our lifestyle and we have $100k in equity in our house.  We looked into buying another house and renting it.  And low and behold, we found a nice little house that already has tenants!

As we are paying more than the minimum on our home and the tenants are paying for that house…….

What was debt again?  :-J

TC

I play a fair amount of cards.  I enjoy doing that.  Poker is the most popular.  Gin is also fun as well as the occasional odd-ball game from the older crowd.  I think that it’s funny.  Some time ago, I heard that someone played for the social aspect.  I laughed at the time.  However, that’s part of why I play and I realize it more and more.

The other night, I was sitting in a game.  I was making plays and keeping the banter going.  It was a really good time.  There wasn’t a ton of booze.  There was no smoking.  It was just a good time.  We were all constantly heckling and bantering with each other.  It was awesome.  This banter and generally aggressive verbal abuse between guys is something very special to me.

I was talking some time ago with an older lady about it as she was inquisitive about what I do.  Now, she knows that I’m an office computer geek and could probably make a lot of money doing that.  When I told her about cards, she was a bit surprised to hear of my passion.  Well, my passion is people.  If I can get them to pay my living while having fun and carrying on, all the better.  She asked if I thought that was predatory.  I don’t believe that it is.  And here’s why: when we sit down in a game.  I’m there to take their money, yes.  However, they are there for the same reason.  There is no reason for me to feel bad when they are trying to do the same to me.  Again, this may seem cold.

Battle is written in men’s souls.  Give a battle and we will fight it.  Show a man a football game and he gets excited.  Show a man a rodeo and he wants to conquer the biggest baddest bull.  Show a man a war and he wants to win.  Show me a poker game and I will want to destroy it.  Show me a mountain and I will want to stand atop it.

That beautiful felt that we battle on, THAT is home for me.

Something else that made me feel good last night was a couple of compliments.  Every man likes hearing how strong and/or respected he is.  For ladies, love is what is needed.  For men, it is respect.  When one of the regulars in the game for some time sat in, he said to me that he was “scared” of me and would stay out of my way.  Then another big player said that he wanted the seat to my left (so he could see what I did in each hand and could make decisions based directly on what I did).  Then he said that he was also “afraid” of me.  I said something like “Wow, THANK you!” before basically blowing it off until after the game.  I have a small problem of letting things go to my head and I didn’t want it to affect my play.  None the less, this was awesome to hear from these two sharks!  I’ve seen both of these guys, not beat, but annihilate people.  It was a grand evening.

So if I could give you a nugget for your own life, encourage those guys around you.  And give them hell!  Just make sure that they know that you respect them.  It can be sappy in saying that you respect them if you feel the need, but make sure that they know.  They will fight a lot harder for you when the time comes.

TC