In the past couple of posts, I’ve talked about how lifestyle choices establish the financial habits we build for ourselves and our ability overtime to build wealth. These bad financial habits that I discuss are usually developed by default and influenced by the consumerism lifestyle we Americans live. As a result, most individuals don’t really know how to get back to broke.
Being gravely in debt is sold aggressively by our society
Sadly, for most people they accept this approach without question because it is sold so aggressively in the popular culture and undoubtedly, it is what is being done by our neighbors and close friends.
As a result, most of us fall into this financial malaise which makes building wealth so difficult due to the fact that structurally our financial base is set up around spending and incurring debt versus saving and investing.
What’s truly difficult is being able to develop a financial philosophy that is counter to what is occurring all around us and still being grounded in solid wealth building principles.
One of these philosophies that is so important to purposely choose is what I call the ‘Getting Back to Broke’ mantra.
Being Broke should be a top goal…what?
I have to chuckle that ‘Getting Back to Broke’ doesn’t sound like a laudable financial goal. It doesn’t even sound like a rational financial goal.
I’d certainly give in on those thoughts…but only on the surface and here’s why; what is a life where you are significantly in debt servicing two high-end college degrees, two new BMW’s, a massive mortgage, high property tax bill and a consumerism lifestyle funded on credit cards where only the minimum monthly payments are made called? Not sure about you but that sounds like WORSE than being broke!
Being broke to me means having no school debt, no mortgage, no car payment, no credit card balance but also not having significant savings or investments per se. Now here’s what I find particularly interesting. When you were in high school you had no school debt, no mortgage, no car payment, no credit card balance and didn’t have any savings nor investments.
In fact, you WERE broke! But here’s the ultimate irony. Although you may have been considered broke, you also weren’t gravely in debt and mortgaging your future ability to build wealth leading a life of ‘financial veneer’ trying to look like you were financially stable by keeping up with the Joneses either.
Getting back to broke is required in order to build wealth
Getting Back to Broke to me means adhering to a strategy by which we purposely work towards being in a position whereby we have no school debt, no mortgage, no car payments and no credit card balance…but even if we may not have significant savings or investments yet, we are now poised to do so over time.
Trust me when I say this…and I KNOW this sounds ridiculous…but I wasn’t able to really accelerate my wealth building journey until I ‘got back to broke’. Here’s the story…
Not unlike most middle-income Americans, up until I was 45 years old (my Getting Back to Broke number) I had the complement of mortgages, school loans, car payments and credit cards (although we did pay off the balance each month) that we were servicing each and every month.
Get out of debt first and then shoot to get back to broke
With a purposeful strategy created to ‘Get Back to Broke’ by 45 years of age, my wife and I executed a strategy that included an array of financial independence and wealth building tactics.
We refinanced our house years earlier and chose a bi-weekly mortgage with a lower interest rate, which helped us pay off our mortgage approximately 7 years earlier than our original term (by age 45).
We also decided to put off the purchase of a new car for several years and instead chose to nurse the one we had until it died, using what otherwise would have been a new monthly car payment and applied those funds to our debt. In addition, we also stopped…in its tracks…using credit cards to pay for life consumables.
Then one day it happened. I was at work and my wife called. She said “You won’t believe this! We just got a letter from the bank saying that our mortgage is completely paid off!” Added to the fact that we no longer had any car payments, school loans or other long-term debt, we were there. We were officially broke! (Or at least, back to broke)
Now HERE’S the real power of getting back to broke! Knowing that I didn’t have any fixed encumbrances in our financial life that needed to be paid on a monthly basis like mortgages, car payments, schools loans, etc. I was now left with only those expenses that I could control whether or not I wanted to sign up for them or not (like cell phone payments, cable TV, etc.).
This is no joke…in one instance I went from having ALL the long-term fixed monthly payments that almost every American has, to having NONE of them! Immediately I felt this amazing power of optionality.
When you get back to broke you have options
For the first time in my life I could now feel free to determine WHAT I wanted to do professionally and WHERE I wanted to do it.
In fact, this coincided with me being able to take what otherwise would have been a monumental risk and I joined three other gentlemen and became part of a startup venture.
At 45 years old I was finally ‘back to broke’ and able to truly lean into my wealth building strategy.
Conclusion
Do you see what happens when you get ‘back to broke’? A couple of very significant things in fact. For starters, you are no longer forced to have to pay others first.
Where you have to make sure you pay the bank every month for the privilege to sleep in their house, drive their car or pay for their education. You now own your house, your car and the knowledge in your head. No one is making money every month off your use of these items.
You now not only have the ability to pay yourself first BUT you also get a raise! How so? Well, instead of settling merely for what’s left after all the bills are paid (remember, as wealth builders we don’t do this.
We use the ‘No Budget Budget’ strategy https://thefinancialstoic.com/?p=132 and we pay ourselves first ‘automatically’ every month) we are now paying ourselves first and with a lot more funds than before, seeing that we no longer need to use those dollars to pay principal and interest payments. In addition, we get to make unencumbered career decisions. We now no longer need to work at a specific place or at a specific level.
I began to walk around the office with a “I may need to work but I don’t need to work here” spring in my step (although at that point I had already been in a dream job at a startup I was part of).
Ultimately getting back to broke bought me piece of mind knowing that I didn’t necessarily need to work at a given salary level nor for a particular employer and my family would be taken care of. I was basically financially free at that moment to do whatever I wanted to do.
So on our journey to build wealth, we must first be obsessively focused on ‘Getting Back to Broke’. Once we do this and only when we do this, will we be able to become wealthy.
So what is your ‘Getting Back to Broke’ number? The smaller the better!
