Reaching Your Personal Financial Tipping Points

by William P. Meyers

Chapter 1

The Importance of
Your Personal Financial Tipping Points

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Please don’t be disappointed that the Tipping Points can’t be achieved by some magic ritual or prayer to the great god Money. Reaching the Personal Financial Tipping Points requires you to act consciously on a daily basis. It requires long term planning and execution. It requires that you learn to control your life, rather than being bashed about by the loan sharks.

If you are reading this book, chances are you are already trying to turn your financial life around. You may have already reached the First Personal Financial Tipping Point. It seems simple enough: it is the point where you spend less than you make. When you spend less than you make, you are accumulating net worth. Even if you are in debt. In fact most Americans, at first, are paying off debts. As a result, passing this point means getting into the zone of reducing your monthly interest charges and chipping away at a negative net worth. By reducing interest charges, if you maintain all other expenditures, you will be spending less without having to make more. Each passing month, and more obviously as year after year goes by, your net worth increase will accelerate (even when your net worth is negative, but especially once it turns positive).

This eventually leads you to a very important tipping point: at the Second Personal Financial Tipping Point you have paid off your consumer debt and created net savings (excepting a home mortgage, if you have one). You can now use savings to buy what you need, from a book of matches to a car, without paying consumer interest rates. At this point the financed price (See Chapter 3) of buying consumer goods drops dramatically, so even if this is as far as you can get, you can lead a better life. But you’ll probably want to look ahead to your Third Personal Financial Tipping Point.

While there are many forms of debt that you must pay interest on, this book will focus on two: credit card debt and mortgage debt. Once you have paid off credit card debt and other consumption debts you should start striving for the Third Personal Financial Tipping Point, which is paying off your home mortgage. Of course, if you don’t own a home, for most people, buying one, even if it means taking out a mortgage, is an important step towards eventual financial freedom. However, it is also a step that is perilous; a bad decision in home buying can put you years behind on reaching your goals. Many people have been given bad advice on this. So in Chapter 7 I’ll be exploring why doing it the smart way it is so important. Over the last 20 years many financial advisors have told people that mortgage debt is a good thing. As a result, American’s have used their houses as ATM machines, getting more into debt when they should be reducing debt. You can learn more about this in Chapter 9, "Paying off the Mortgage".

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Copyright 2008, 2009 by William P. Meyers. All rights reserved.