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“Those Who Spend Too Much Will Eventually Be Owned by Those Who Are Thrifty”

May 14, 2010

Money-Guy 05-14-2010

Today’s show is about debt, plain and simple. It builds off of two shows we did last year titled “Legacy of A Generation…Not the Millionaire Next Door” and “Bringin’ Simple Back“. Our hope is to bring attention to the destructive nature that debt can have and potentially come up with solutions before we encounter some of the same issues facing Greece and the European Union.

To start out the show, Brian shares a letter he received from Wells Fargo concerning his Home Equity Line of Credit. Like many individuals, he used this debt instrument as a “tool” in his financial “tool-kit”. Sometimes, however, the job changes and the old tools just don’t work as well as they once did. Many of you have probably received similar letters from your banks, so Brian shares how he has dealt with this change and offers some recommendations that you can use as well.

We go on in the show to share some comments from Mervyn King, the Governor of the Bank of England. The most eye-opening of these comments is that America shares many of the same problems as Greece with its public finances. We build on these comments through an article in The Wall Street Journal titled “When the Global Debt Shuffle Hits Home“.  This article cites that the U.S. Government debt is at a projected 92.6% of gross domestic product. Generally speaking, once this percentage rises above 90%, it can be assiocated with a decline in overall economic growth. To give you perspective, Greece is at a whopping 124.1%, Italy is 118.6%, and Portugal is just under 86%.

While the article notes that since the third quarter of 2008 total consumer debts have shrunk by $160 billion and total business debt has dropped $150 billion, the total U.S. public debt has risen by an incredible $2.6 trillion. The fact of the matter is, all three (individual, business, and government) need to be cutting back on debt.

Therefore, we thought it would be a great time to share with you some great Financial Rules of Thumbs and Ratios. These rules of thumb are from a March 2009 article on the blog site, Get Rich Slowly. As you listen to the show, we share our thoughts on some popular rules of thumb to address these questions:

  • How much should I save for Retirement?
  • How much do I need in Emergency Reserves?
  • How much house can I afford?
  • What is a healthy mortgage?
  • How much debt is safe?
  • What kind of car can I afford?

We encourage you to check out the website, www.getrichslowly.org, to read the full article and see all of their most popular rules of thumb.

Hopefully we can start an epidemic of making sound financial decisions now so that we don’t face some of the same issues as Greece in the future!

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