Working with families is a rewarding but also frustrating experience at times. Most American families carry an average credit card debt of $15,000.00. When I dig into the what's in those credit card bills I find many purchases that were more about "wants" than "needs".
For example, one family I worked with the wife had a shoe addiction. She would make Amelda Marcos proud. If you don't know who she is, look her up online. (Note: This is the woman who said, " I did not have three thousand pairs of shoes, I had one thousand and sixty.")
This wife in particular had so many shoes it took 2 closets and a storage bin to hold them all. The family was in debt and this is where some of the money was going. I remember holding up a very ostentatious pair and asking, "Did you really need these?" Without a hint of remorse she decried, "But it was on sale; 30% off!"
Listen carefully if this is you...
When anything is 30% off, it also means that it's 70% ON your credit card bill. And if you don't pay for those shoes right away, you may very well wipe out that 30% discount if it stays on your credit card long enough. When you're in debt, a sale is not a justification to buy! A pair of shoes is NOT a need, it's a want that you simply cannot afford!
Paula Hendrickson from Tube Talk (Rock River Times in Illinois) interviews Victor Antonio on his upcoming reality show, "Life or Debt" on Spike premieres March 13th. Premise of the show? How to run your family like a business! --
How did growing up in Chicago prepare you to help other people get their finances straight?
VA: Paula, my upbringing helped me develop a strong aversion to financial instability. My parents moved to Chicago from Puerto Rico in the late 50s not knowing the language and with a 5th grade education at most. We lived near Humboldt Park, which at the time was one of the most violent areas, because my simply parents didn’t earn a lot of money. My mother eventually became disabled with a back injury putting the full brunt of financial burden on my father. That financial instability led to arguments, drinking, fights, and eventually separation. It’s something I don’t want other families to go through.When families fight back, I fight harder because I can see what will happen if things don’t change.
What is the hardest – most useful – lesson you’ve learned about managing money?
VA: The short answer is, “Stop trying to impress others.” Too often we are driven by comparison. It’s the hardest thing to learn because our brain is wired to compare and register discrepancy. We look at what others have and be try to match what they have while at the same time sacrificing our own financial stability. We strive to keep up with the Joneses. The reality is that 75% of American families are living paycheck-to-paycheck (i.e., the Joneses are most likely broke). When you stop trying to impress others by not comparing, you are then free to focus your financial resources on what’s important to you.
In your experience, what’s harder to overcome: well-paid people who spend without saving, or lower-income people who don’t have much, if anything, left at the end of the month to “pay themselves,” and why?
VA: What a great question Paula! Both are equally hard for different reasons:
High-income earners can cut back and achieve positive cash-flow, but too often they’re mentally vested (i.e, stubborn) when it comes to giving up luxuries. They have the ability to be financially stable, but lack the will and discipline to do it. In short, good income, bad mindset.
Low-income earners are willing to work with me but they don’t have any place to cut back because they’ve already cut as much as they can. Which means, we have to figure out a way to get them to earn more which is far more difficult than simply cutting expenses. In short, bad income, good mindset.
Do you advocate any type of incentive system to motivate people to save more or spend less?
VA: I’m really torn on this question. I’m not a believer in extrinsic motivation (i.e., reward); I’m an intrinsic motivation type of guy. To reward yourself with a dinner, vacation, day at the spa, is fine I guess but I believe the REAL reward should be satisfaction. The satisfaction you get in knowing that you’ve paid off another credit card. The growing peace of mind that comes in seeing your debt load dwindling. The momentum you feel when you’re getting more and more in control of your finances. That to me is better than any extrinsic reward you can give yourself. Plus, it’s hard to enjoy an incentive when you’re still in debt.
What are the worst financial habits you’ve seen in your clients? And the best?
VA: The worst would be to shop because you’re unhappy, depressed or angry. All three moods lead to poor purchase decisions. A close second would be couples who spend money on ‘wants’ and not ‘needs’.
The best I’ve seen is couples who automate their contributionswhether it’s the maximum possible into a 401K or 10% of their pay directly into a savings account.
What is the most common mistake people tend to make when it comes to money?
VA: The Credit Card Debt Spiral. People put a little bit of money on their credit card and think nothing of it. They pay off the card at the end of the month and the cycle begins again next month with new debt. Until one day the amount on the credit is a little more than they can afford and they miss a payment. Then, the new 29.99% APR kicks in. They miss another full payment and so on until one day they settle on just paying the minimum. And when you’re paying the minimum, you’ve entered the Debt Spiral and they asked themselves, “How did this happen?” The answer? Slowly and over time.
How are you using Life or Debt to educate people about money management?
VA: People tend to have a selective blind spot when it comes to their own shortcomings but are quick to judge others. This show is about telling a story of how people got into debt and, in telling the story, we hope that people will see themselves in it. We also show how families can get out of debt by using our blueprint, and financial tools. We also hope that as people are watching,they’ll learn how they too can achieve financial stability by applying the principles of running your family like a business.