Thursday, November 17, 2011

Nathan Stout - Frenemy of Debt

by Chris McGinty (According To Whim .com)

If you are familiar with my “Chris McGinty – Enemy of Debt” feature, you will know that I tried helping out a friend, who I gave the alias of Genghis, who got himself into a particularly bad place financially. He was facing eviction, getting his vehicle repossessed, and possibly even divorce. I saved him from all of that, but probably only temporarily, because he’s an idiot.

While I was doing that, Nathan talked to his wife about me looking at his finances and directing him in the same way I was directing Genghis. Why would he ask that? I think it’s because a person who has no emotional investment in your money can be a lot more objective about how you spend it. If I have one goal, which is to get Nathan out of debt, then the decisions I make with the pieces of his puzzle will be the logical, mathematical decisions that none of us, and I mean none of us, can make with our own money. Some people can detach a little bit from their role of spender and their role of decision maker, but we all have at least a small emotional attachment to the money we earn, the money we spend, and the services and possessions we acquire.

I’ve been thinking about Nathan’s situation since the last time I went to his house. I’ve had a few small conversations with him. Right now, I’m not sure what the best steps are to take. My problem is that I’m not really sure what Nathan wants to accomplish. If I were to set the criteria for the Nathan’s Debt feature, I would set the goal very high. I would want to pay off all of his debt by the end of 2012. To me that is a challenge that would make for a very interesting year. I even know more or less how I would go about it. It would all be very uncomfortable for Nathan. Yep.

Nathan has another idea in mind, and it’s one that isn’t quite as interesting to me. This is evidenced in Nathan’s post about the credit card game. He said, “Chris will want to go after my cars and home and such but I am more interested in getting rid of the credit debt.” Don’t get me wrong, Nathan has enough credit card debt that if I merely set out to get rid if it during 2012, there would be enough of a challenge. My problem is that I wouldn’t really need to give much advice.

I want to clarify that I’m not a financial advisor. When I say “give advice,” I don’t mean as a professional. I’m more of an accountability buddy who strong arms his friends into doing what they should by being a dick. When I was dealing with Genghis earlier this year, I made him agree to do what I said because he needed more income (so he had to do what I said and get a second job) and I would have to loan him money (so he had to do what I said so that I got paid back in a timely manner).

With Nathan, the problem is that I will have no real reason to strong arm him. Nathan makes enough money to pay his debt. The only reason I would tell him to find more income would be to speed up the debt reduction, not because he would lose his house or vehicle or marriage if he didn’t. Nathan makes enough money that I won’t have to loan him money. The only reason I would loan him money is if we were going for a very lofty goal where every little bit was going to matter. This means that I don’t have to be an outright dick if Nathan gets whiny about not having any money. I would simply say, “You have plenty of money. Do what you want.”

It’s a different world, Nathan’s finances as opposed to Genghis’s, and it will require different tactics. The biggest issue I see is that, yes, I do want to go after his cars and his house. Niccolo Machiavelli described an archer in his book “The Prince” (I’ve read only part of it). This archer, in order to hit a distant target, had to aim his arrow very high so that when gravity pulled the arrow down it would find its way to the target. I feel that gravity will drag down Nathan’s arrow as well, which is a fancy way to say that the higher we aim, the more likely we’ll hit his target.

The thing is that the higher the aim, the more I’ll actually have to do. In 2003, Nathan and I discussed his debt. My advice was to charge no more on his credit cards, get a part time job at Taco Bell, and pay everything he made at the part time job against his credit cards. That somehow turned into a comic book shop, but that story has been told on the blog already. That’s been my advice all along. Go no further into debt, and pay off your debt. The truth is that if he just wants to pay off his credit cards, then that’s pretty much all I’m going to tell him. If he doesn’t want to do anything more than take on some overtime at work and do support calls all year, then that’s pretty much all I’m going to tell him.

That’s just a basic debt snowball. Any of the financial gurus will tell you the same thing. Robert Kiyosaki, Dave Ramsey, David Bach, “Lord” Brian Tracy, and Suze Orman will all tell you that to get out of debt, you go no further into debt, you pay down your smallest debt quickly, and then you apply the money you were paying on that debt to the next smallest debt, repeat until you have no more debt. That won’t make for an interesting blog post. I just wrote it. It only took up a paragraph.

“Survivor” wouldn’t be all that interesting of a show if the concept was: You have to survive in the wilderness, but if you ever need a shower or a hot meal, just stop by the mansion.

“The Biggest Loser” wouldn’t be all that interesting if the concept was: The first person to lose 15 pounds wins.

“Hoarders” wouldn’t be very interesting if the concept was: We’re going to make you get rid of a couch that your mom thinks is ugly.

If Genghis had called me up and said, “I’m broke. Can you pay my rent,” and then he paid me back from his next two checks, I wouldn’t have even got a single post out of it.

What I’m trying to say is which of the following concepts would you actually write about if you were a writer and read about if you were a reader:

1. Nathan has $50,000 in credit card debt and makes a combined income with his wife that is very comfortable. He will pay $600 more a month on his debt each month and at year’s end will have only $42,800 in credit card debt. (Not even worth mentioning.)

2. Nathan has $50,000 in credit card debt and makes a combined income with his wife that is very comfortable. He will apply his wife’s income to his debt while living off of his income and at year’s end will still have some credit card debt, but not as much. (A little interesting, but nothing that everyone in America shouldn’t be doing anyway, since I’m a proponent of living off of one income and saving the second, smaller income.)

3. Nathan has $150,000 in debt altogether and makes a combined income with his wife that is very comfortable, but nowhere near enough to pay his regular bills and pay off even half of that debt. We say fuck that! By year’s end we’re going to have it all, every single bit of it, paid off! (Now we’re interested. If he has more debt than his combined annual income with his wife, however could he actually pay off all his debt in a year?)

The thing is that even if we just go after the credit cards, Nathan needs to realize that if I’m going to do it “Chris McGinty – Enemy of Debt” style, I’ll be showing up (whether physically or by phone) when he gets his paycheck, and throwing everything he makes at his debt, literally. But in order to do this, his wife has to be on board. Why? Because they would have to live on her income while using all the money he makes to go toward debt for this to even start being interesting.

The problem is that the debt has not gone away in the last eight years, which means that much the way that Genghis wasn’t handling his finances in a way that accomplished his goal of having a place to live, a car to drive, and a wife to argue with, Nathan also isn’t handling his finances in a way that accomplishes his goal of not having credit card debt. The difference between Nathan and Genghis is that Nathan makes enough money that financial gaffes won’t end him up on the street. Nathan hasn’t saved enough that losing his job won’t end him up on the street though.

This isn’t meant to be judgmental. If my dad were to sell the house I’m living in, and cut me off from loaning me any money, I’ll be couch hopping and hoping my car doesn’t break down. I think Genghis is an idiot, yes, but I only believe Nathan is a little unfocused when it comes to money.

What this comes down to is odds. Human interest stories are not interesting (which being “human interest” requires at least one human and something interesting) unless they overcome some odds. If Nathan pays $200 a month extra on his credit card debt the odds are in his favour to have his credit card debt paid off in 21 years (that’s 21, count them, Nathan, 21 yeeeears). If Nathan pays $1,000 extra a month on his credit card debt the odds are in his favour to have his credit card debt paid of in 5 years. There is no overcoming the odds.

What if the goal was to pay off all the credit card debt in a year? Is that against the odds? No. Here’s why. Even with a comfortable combined income he and his wife would have to live off an average household income. A 40 hour a week, minimum wage worker makes $15,080 a year, which is considerably less than what she makes. While this would be a bit of a struggle for people who are used to making more, it’s a struggle that many people in our country manage to survive each year. Now it’s a little bit interesting, but not excessively interesting.

What I want is for Nathan to look at these figures. I told him I would make him uncomfortable, and here it is; the discomfort. I want him to realize that if he looked at the $200 extra figure and said, “I’m good with that,” there isn’t much that I can do to help him out of his mess. If he looked at the $1,000 extra a month and said, “I’m not ok with that,” then there is still not much I can do to help him out of his mess. I know for a fact that living off of her income, while throwing all of his income at the debt, makes him uncomfortable, but if he was willing to do it, I could help him with that. It’s still not as interesting as I would like it to be, but at least I would know that he and his wife were serious about getting rid of the credit cards.

The reason I say this is because at the start of 2011, Nathan said that he was willing to go after $20,000 of his debt. That meant paying about $768 from every paycheck on his debt. His wife had little to no income at the time, admittedly, and he did try for a couple of months, but he ended out the year with a couple of thousand in savings and investments, some medical debt, and a new truck complete with payments. He set out to get rid of $20,000 in debt, and ended up further in debt than he started, and this was even after she started working again.

I’ve talked for years about stepping out of comfort zones, and Nathan hates when I say it. He likes being comfortable, and I don’t blame him. I like comfort too. I could step out of some zones myself. The problem is that Nathan’s comfort zone looks like this: try pretty hard for a while, feel some ephemeral need to spend money, stop trying and increase the debt level. If going after 40% of his debt in 2011 was too hard, almost anything I tell him to do will be out of his comfort zone. As far as doing a feature where I tell him what to do, it means that I’ll be making him very uncomfortable from day one, even if I’m pulling punches. If I’m going to do this, I need to know that he’s going to fight his inclination to retreat back into his comfort zone, and that he’s going to fight the good fight for the entire year. Genghis lasted around three months, and the moment he was no longer facing immediate eviction, it was too much for him.

When we were in the shop, and I realized that we were in over our heads, I told Nathan how much money we were going to have to make through eBay sales if we continued to have very little walk in business. I was just reporting the facts as they were, but it knocked the fire out of him, because I was just talking about keeping the shop open. It wasn’t even going to pay us for our time at the shop.

I think that this post might have a similar effect on Nathan. I’m just reporting the facts as they are. $50,000 worth of credit card debt will not go away very quickly without a lot of sacrifice and a lot of focus. Genghis, having a comparable problem if you scaled the figures, was miserable for three months having no money for anything that even remotely resembled a luxury. Those stupid cigarettes were about all he had, and he wasn’t getting enough of those for his taste (read: addiction).

What I’m saying is that if we’re going to go after Nathan’s debt, I think we should really go after it. I don’t feel that being half-hearted about it will accomplish anything. I’ll do a more detailed analysis of how I would attack Nathan’s debt if I was in his shoes, and had me as a resource to help, if Nathan still wants to attack his debt after reading this. But for now, I’ll just say it like this, if I was in Nathan’s shoes: I would cut my lifestyle down to nothing. I would do as much at home eBay work as possible with the help of my pal Chris. I would sell a lot of stuff with the promise to myself that I would purchase it again later for cash. I would be intent on having no debt left as of December 31, 2012. That’s the simple version of it. The question is what does Nathan actually want his goal to be?

1 comment :

  1. Nate,
    Whatever you do, don't let this retard near your finances.

    ReplyDelete