The Solvent Sleep Well

     The purpose of this blog is to spread an age-old message:  living in a financially disciplined manner brings all sorts of benefits, while the use of debt brings pain and sorrow.    

      This is not a new message; however, it is often forgotten by individuals and nations alike, invariably with dire consequences.

       A reader asks, "Is there a quick and easy way to get out of debt?"

       Answer: absolutely not, and anyone who tries to tell you so is a lying sack.

       To the question "Is there a way to get out of debt?"   the answer is quite different. It requires changing one's thoughts and actions, and spending less than one earns over an extended period of time.   But debt-free living can be achieved, just not easily.

       Solvency results from understanding, and putting into practice, the basics of personal finance. There are many sources for learning how to manage one's money. Many of these sources are trustworthy.  Two courses that I trust are from Crown Financial Concepts, and  from Dave Ramsey.  When considering any financial training plan, ask:

        -  Does it seem too good to be true?     If so, it probably is.

        -What are  they trying to sell?     You are looking for a one-time purchase of a training program or book that will teach you HOW TO BETTER MANAGE YOUR FINANCES.  You are not looking for:    -smoke and mirrors, hopes and dreams;  Ponzi schemes, Multi-level marketing schemes; expensive life insurance; expensive annuities; expensive money management services; an expensive mortgage by another name; an expensive debt consolidation loan.    Each of these will be covered in time.

      If you are like many, even most Americans, right now you probably owe more on your house than you wish you did.  And for most of us, the economic downturn is the worst we have ever experienced or will experience.  But it is not unprecedented.

      In the 1920's, mortgage debt increased at a rate almost identical to that of the decade preceding the current recession. This data can be found in Fed Chairman Ben Bernanke's book on The Great Depression.

      The 20's, like the 90's and 00's,  were an era of Good Feeling and High Spending.  Daisy and Gatsby and all their Flapper friends were busy spending as fast as they were able in that era of easy credit.

       The point here is that debt is a social phenomenon.  When all of your friends are busy living beyond their means, using their homes as ATMs, it is extremely difficult not to follow suit.

       It now being time to Pay the Piper, let us all resolve to make future decisions in a financially sustainable way. Both current and past Presidential administations have chosen to act differently, but that doesn't meant that you and I are obliged to follow suit.

      Perish the thought!  But the question remains: how does one keep from being taken in to a Ponzi Scheme?

      The effectiveness of the most recent celebrated Ponzi Scheme, that of Bernie Madoff, was aided in no small part by his senior role in the machinery of Wall Street. Who better to appear credible than a former NASDAQ chairman that sat on SEC advisory committees?

       Yet many smelled this particular rat.  No major Wall Street  firm was invested with Madoff in any significant way.  What did they see that others didn't?

      1. It Seemed Too Good To Be True, and was.  Madoff produced high rates of return, yeart after year, at an eerily even pace.  Those with investing experience knew that such high returns were highly unlikely; and that even if they had been attained were far too even to be trusted.

     The moral:   If you have doubts about an adviser, ask his peers.  A common hallmark of Ponzi schemes are that they are recommended from one sucker to another and never independently verified.  Don't ask another sucker/client of the scheme.

       In the words of Warren Buffett, if you are playing poker and don't know who the sucker is, the sucker is you.

In this era of tighter finances, many readers are wondering whether or not to start Multi-Level Marketing (MLM) businesses, and if so, how to go about doing so.

Briefly, an MLM business is one in which one recieves acts as a sales rep for an organization and recieves not only sales commissions from the sale of products, but also royalties from the sales of those one recruits to sell the same products. Well-known MLM companies include Avon, Amway, and Tupperware, to name three.

Two questions are most relevant when considering any given MLM company/ organization/ scheme. The following two questions are courtesy of Personal Finance Guru Clark Howard:

1. Would you buy this product if it were not part of an MLM scheme? The three above companies, for example, pass this test. Tupperware competes pound-for-pound in the marketplace with competitors like Rubbermaid and Sterilite; Avon goes toe-to-toe with Maybelline and Revlon. If, on the other hand, the primary attraction is not the product but rather the income from recruiting others, you are participating in something more like a Pyramid Scheme, which is not only illegal but a bad idea.

2. Are you a salesman? If you enjoy being around people, have never met a stranger, and are generally well-liked, than perhaps a career as a MLM sales rep is for you. At it's core working as a MLM rep is like working as a sales rep for any other product, only you work from home and have more control over your hours. But you are a Sales Rep all the same, and if you aren't cut out for that job, being in an MLM organization instead of an office won't give you success.

If your MLM plans meet the above criteria, then you may be a good candidate for a career as an MLM sales rep. Check out your prospective company with the Better Business Bureau et al, and have at it.

     Be aware, however, that many companies generate far more sales from selling starter kits and inventory to their sales reps than those reps actually end up selling to the general public. It will be up to you to determine the viability of the product you are to sell, and at the price you will have to sell it to make a profit. Can a similar product be had at Walmart or Target for half the price? If so run, don't walk, away.