The Beginning ... a Very Good Place to Start
As I stood putting gas in my Jaguar, the cold damp January wind chilled me and seemed to dampen my spirits even more. I hoped the attendant inside would not run a telephone cheek on my gold card. If he did, they probably would turn me down. Then where would I be?
"This is ridiculous," I murmured. "Only in America could you drive a Jaguar and not have the money to put gas in it." I wondered where the arrogant young man from a few years ago was. There I stood in the cold, a man in my twenties, knowing I was in the process of losing virtually everything I owned.
It had not always been that way. After college I hit a couple of minor bumps in my career, but I found a niche in foreclosure bargain real estate. With a formal education in finance, a family background in real estate, and a bunting desire to succeed, I had a head start on life. As my real estate business grew, everything I touched seemed to turn to gold. I began to collect rental properties, as well as buy and sell bargain properties. I was very good at it and made money quickly. By age twenty-six, I had a rental real estate portfolio worth more than $4 million. I had built a team of people to manage this growing company and everything was moving perfectly.
Or so I thought. My wife and I did all the exotic vacations, drove the top-name autos, and wore only expensive, custom-tailored suits. You may be able to imagine that for a young man of twenty-six, I thought I had it made.
I had arrived at "financial independence," that mystical place every young entrepreneur wants to reach. If I wanted something, I bought it-no thought required. I had done it honestly, with hard work and intelligence. So what could possibly happen in paradise?
Along with my knack for obtaining bargains, I had another talent. I had an unusual ability to finance everything. If one of my business lines of credit ran low, I would put on my custom suit, get in my Jaguar, and head for the bank. I would make sure to park in front of the manager's window for a big impression. I had my financial statements, corporate strategy, and tax returns all bound for presentation. All this pomp and circumstance, combined with the fact that my "deals" always worked and enamored the bankers, and they loved to lend me money. We had every type of personal line of credit, business lines of credit, and equity lines of credit-and let's not forget those wonderful gold and platinum cards.
If a banker would dare to indicate I might have too much debt, I would hunt another source. I have taken a $20,000 draw on a line of credit in a cashier's check, walked out of that bank, and into another. With all the "presentation" explained above and a $20,000 cashier's check, I would "establish a new relationship." Which meant I would deposit my borrowed cash into their bank, promise to be a customer, and in return they would give me a new $100,000 line of credit plus every platinum card and personal line of credit they had.
The sarcastic way that I am explaining this to you almost makes the process seem immoral. However, we were making money, and we had a bright future, so the banks wanted customers like us.
All Good Things Come to an End
Then it happened. Our largest lender was sold to a larger bank. Neither pomp and circumstance nor my name meant anything to the new upper management. Also, the 1986 tax act began to have its negative impact on real estate so all the banks began to get worried. Upper management decided to "trim back" on real estate lending. Most of our borrowing was in short-term notes because we resold most of our property for profit. Because we had "open lines of credit" and short-term notes, the banks had the right to call (or demand that we pay) most of our debt within ninety days. And that is just what they did. The new management called all my notes.
I had ninety days to find $1.2 million. I paid virtually all of it, but doing so destroyed my business. That action started a chain reaction that ended in my losing everything but my home and the clothes on my back.
I remember the strain on my marriage. I remember the mornings standing in the shower with the water scalding my face and crying like a baby. I remember the sheriff serving the lawsuit papers for default on notes. I remember thinking of suicide, knowing I had a $1 million life insurance policy that would provide for my family better than I was doing. It took three and a half years for paradise to completely unravel and for me to end up broke.
From the nightmare and emotional pain, however, was born an idea-the idea of counseling the average consumer through debt problems. I found that the foreclosure experience I had, combined with my personal experience with financial pain, was a foundation for opening a company to counsel consumers. I attended any and every workshop or seminar available and devoured every book I could find on consumer financial problems.
I have that company and have dealt with several thousand cases of consumer counseling on financial crisis. The base of knowledge from that experience and my personal pain are the source for this material.
Enough Pain Already!
Having lived through that trepidation, having sat with countless others while they lived through the same horrors of financial stress, and having watched more than 10,000 foreclosures come across my desk in ten years, I have had enough! It is time we Americans get a handle on our finances. We have been Gomer Pyle-ing it through our lives long enough. Down South we call this ridiculous walk down apathy lane in a Valium state of mind "ditty bopping along."
I believe it is time for the typical American family to get out of financial bondage. I also believe that they are ready. Furthermore, I believe that through knowledge and discipline financial peace is possible for us-all of us.
At the end of each chapter my wife, Sharon, will offer her insights and comments on the material presented there. Achieving financial peace would have been impossible without her.
Thoughts from Sharon ...
I remember that sunny summer afternoon when Dave called and told me that nothing else could be done. It was over. We had to declare bankruptcy.
What would we do now? I wondered. I had such an empty feeling. I felt that the whole world was crashing in on us. Now everybody was going to know our secret. Everybody would look at us funny. What would our family and friends think? Would we be able to take nice vacations? Would the children still be able to dress nicely and participate in the same activities? What was going to happen to us?
Question after question raced through my mind. But I didn't have the answers. I began to think, well, maybe I spent too much on furniture. Or maybe I bought too many clothes. What did I do to cause this mess? I was scared no, I was terrified.
That day I asked the Lord for help, I realized that Dave and I needed more than just money. We needed peace and security so that everything would be okay. I have seen this valley we were in turn into an opportunity to share with others about the financial burden we had gotten ourselves into.
There is hope. As a wife and mother, I knew that I couldn't give up.
There were times I had to be there for Dave just as he was for me. We had to encourage one another many times. I realized that it wasn't going to be easy.
But I knew we were just in a valley and that on the other side there was a mountain and sunshine.
Enough of Anything Is Too Much
The American consumer is facing dire financial straits. The story outlined for you in the previous chapter and the thousands of families I have counseled lead me to that conclusion. After witnessing national trends and gathering information from personal observation over the past twenty years, I am disturbed by the direction our management of money has taken.
Our nation's financial situation, with record budget deficits and bank failures, is deplorable. However, the nation's situation is only a reflection of our own personal inability to "just say no" to ourselves. Our failure to get control of financial matters in our personal lives will have to be rectified before we can demand accountability from elected officials. Our spoiled Congress is only a reflection of our spoiled selves. The good of our country is overlooked so our pet special-interest groups can be served, just like the good of the family is often overlooked so Dad or Mom can have that special trinket they must possess.
Dessert Before Dinner
As a people we have forgotten how to delay pleasure. We are living in a society that microwaves everything. We must have it, and we must have it now! As Brian Tracy, a well-known motivational speaker, says, "We are being taught by everything around us to have dessert before dinner." Now we are paying for our lack of knowledge and discipline.
The statistics of financial failure show clearly that this decline is a fact. These statistics do not reveal cycles but rather, more alarmingly, show steady decline. These statistics do not show any attributable correlation with inflation, unemployment, recession, or any national trend except the rise in personal debt. Larry Burkett of Christian Financial Concepts says that in 1929 only 2 percent of American homes had a mortgage and by 1962 only 2 percent didn't have mortgages.
We must not be misled into believing that these problems are faced only by large companies or deadbeats. On the contrary, these are typical American families with two kids, a dog, and dinner every night. I have met with these families and they are just regular folks. Their situation just got out of control.
The Consumer Reports Money Book states that the typical household has $38,000 in debt and that total consumer debt has almost tripled just since 1980. In 1980 the total consumer debt was $1.3 trillion, and now it is beyond the incredible figure of $3.3 trillion-in just a few short years. A recent survey conducted by Consolidated Credit Counseling Services found that 71 percent of Americans say debts are making their home lives unhappy. A recent study in The Wall Street Journal states that 70 percent of the American public lives from paycheck to paycheck. Interestingly, a Marist Institute poll published right after that Wall Street Journal article stated that 55 percent of Americans "always" or "sometimes" worry about their money. If 70 percent are broke and only 55 percent are worried, I guess the other 15 percent are asleep.
The Federal Reserve says mortgage debt has more than doubled since the early nineties. Foreclosure has become a way of life in America with tall grass and hanging gutters in virtually every neighborhood. Foreclosures have increased 200 percent since 1980 with more than 600,000 homes lost in 2001 alone. The American Bankruptcy Institute says that in 1980 there were just more than 500,000 bankruptcies filed and by last year almost 1,500,000 were filed with new records set almost every year in between. It is getting ugly. Seventy-one percent of the bankruptcies are Chapter 7, which is the "total" bankruptcy where you lose everything, but 95 percent of those cases were "no asset" eases. That means they had no assets to lose by the time they got to bankruptcy.
As a matter of fact, a recent study done on the typical bankruptcy by the University of Texas in conjunction with the University of Pennsylvania confirms this. Published in the Wall Street Journal, the study noted that the typical bankruptcy was not a guy under a bridge or a real estate high roller but rather "well-educated, middle class baby boomers with big time credit card debt."
The Times They Are A-Changin'
In the 1950s you seldom would have heard of a person filing bankruptcy, being foreclosed on, or having his wages garnisheed for nonpayment of debt. Now, if you live in a middle-income neighborhood, out of your closest one hundred neighbors there is at least one house empty from foreclosure, plus one foreclosure under way, and four to seven of your neighbors are more than three months behind on their house payment. In some areas these numbers are double. The generation of adults that started housekeeping in the 1930s and 1940s would be appalled at their grandchildren's lack of financial responsibility.
Since the Civil War we have seen a steady change in the way we Americans handle our money. As a boy in the 1850s, prior to the Civil War, my great-great-grandfather lived in Indiana. In his memoirs he mentions a family who owned a neighboring farm. This family got the fever to move West but couldn't because, unlike most anyone else in the county, they owed money on their farm. The language he used to discuss this mortgage gave insight into the attitude of the day regarding debt. He gave the impression that one should pity this family as if they had cancer or view them as sinners who had some skeleton in their closet. This view of debt is completely foreign to us today. Astonishingly, the mortgage in question was only five dollars!
The generation of people who set up housekeeping in the 1930s and 1940s was scarred by the Great Depression. Those folks would borrow very seldom, and they lived under their means. They would be shocked by the way most families live today.
The family of the 1950s and early 1960s began borrowing in order to buy a home, because "How in the world could you expect a young couple to pay $13,500 cash for a house?" (Incidentally, that same house in most cities is now worth over $100,000.) This family would borrow on very little else except a house because the Depression-era mentality of their parents had partially been passed on to them.
The family of the late 1960s and 1970s, however, began to borrow in order to purchase homes and automobiles and a few other items. Credit cards became popular during this time as a result of the first aggressive marketing of credit. For the first time ever, Americans were sold on the idea of borrowing. Financial institutions began to develop "financial products," meaning an array of different ways that they would lend us money. You will see later the wealth that these companies have attained as the result of selling America on debt. Jupiter Media's study says that there are 15.4 billion credit advertising impressions on the American public every three months!
The seventies, eighties, nineties, and the new millennium have seen lending and borrowing at an all-time high in modern history. We want it all, and we can borrow to get it all, before we can afford it all.