Posted on 10/18/2003, 6:07:36 PM by wheelgunguru
(CBS) Nobody, it may seem, is more aware of the complex relationship between finances and relationships than Mary Hunt.
Reckless spending and poor financing put her over $100,000 in the red and her marriage on the rocks. After hitting bottom, Hunt bounced back with a new attitude and a plan that she says, over time will help you get out of debt, save and live within your means.
On The Saturday Early Show she provided some of the details included in her new book, "Debt-Proof Your Marriage."
Here's what she told us in a telephone interview before she appeared on the show:
How does a person with a husband, two kids and over $100,000 worth of debt become an expert on managing money? [With] a lot of hard work. I guess it's a testament to the human spirit — when we get up against a brick wall, there's a lot we can do. It took a lot of time but it's amazing what you can do with a lot of determination and a will to survive.
You have very specific designs for managing money. How did you come up with such a complex plan? I didn't come up with it when we were first coming out of debt. It was through writing and researching a newsletter [called] Cheapskate Monthly. People would start asking me questions like, "How can I get out of debt?" In order to respond I felt like I needed to give them an answer. It was really through my experience, plus my passion to help other people get out of debt and change their attitudes. It's hard to teach someone something unless you have something tangible on paper. I researched things and developed things that have become very simple yet affective.
So it evolved time? I have to say I had no idea that I would be talking to someone at the CBS Early Show. It wasn't a business plan. Of course, I didn't know what I was doing. I just knew I needed to change. I needed to pay back a load of debt and I needed to do a lot of changing if I wasn't going to lose everything that was important to me - my family, my husband, my home. It's amazing what you can do [with and without] when push comes to shove.
Why is it so hard for couples to manage money together? I think it's because naturally we attract our opposites. So in a marriage you have two different people. Sometimes our first inclination is to change the other person so that we're thinking alike. The truth is the differences are the key to making it work. We have to learn to communicate in a way that we are experiencing the type of emotional intimacy that allows a couple to experience financial harmony. Money is such an emotional aspect of our lives. It's more than just bills and coins and currency. It determines where we live, who we are, the kind of life we have. We can't get away from that.
Can this work for singles as well? Absolutely. It's for people who are married, not married and might one day be married.
There is a religious part to this book. Absolutely. As I said in the book, I really truly believe that humans are designed with three parts - physical, emotional, and spiritual [components]. And all three parts of our being cry out for fulfillment. If you try to fill your emotional needs with the same things that fulfill your physical needs, its not going to work.
The plan is very inspiring, but do the numbers always add up? I say that is the ideal what people should aspire to [save 10 percent, give 10 percent to charity and live within 80 percent of earnings]. Couples who are deeply in debt might look at that and say no way. It's pretty hard to start that overnight. They can start out 5-5-90. But they have to start with balance. It's an attitude change.
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According to Hunt, there are five principals to Debt-Proof Living.
They are:
$ Principle #1: Money Is Not for Spending
$ Principle #2: Never Keep It All
$ Principle #3: Never Spend It All
$ Principle #4: No More New Debt
$ Principle #5: More Money Is Not the Solution
It is these principals that lead to Hunt's 80% solution plan, or as she likes to put it, the 10-10-80 plan. Hunt developed this from personal experience and research. She says the formula offers "structure, form, and discipline to any financial situation" and "eliminates all the guesswork." The basic premise is to break down your net income into three separate categories.
Give Away 10 Percent: "You give first, you pay yourselves second, and with the 80 percent that remains, you pay your creditors and you live life to its fullest." Hunt thinks that giving is the antidote for "greed, selfishness, and attitudes of entitlement." "Giving is the solution to what's wrong with our attitude toward money because it changes our hearts."
Save 10 Percent: Hunt recommends taking another 10 percent of your income and putting it AWAY for the long term. Even if your are deeply in debt she says, saving this money will help build a nest egg, provide self-worth, and prepare for the unexpected. "Think of saving 10 percent of your income in the same way you think about wearing your seat belts. You wouldn't dream of driving without wearing your seat belt. It's a safety thing, a lot like insurance. You have it but hope you won't need it. It's there to protect you in case something broadsides you without warning. Soon you will see saving 10 percent of your income as a kind of shock absorber against the harshness and uncertainty of life. And just like belting up before taking off in the car has become a habit, paying yourselves first will become a habit too. A comforting and joyful habit. The time will come, and not too far away, that you'll be as uncomfortable not saving as you are not wearing your seat belt."
80 Percent Solution: Hunt says that you should reduce your entire living expenses to 80 percent of your entire net income. She realizes that this is a challenge, but says it is imperative to getting out of debt and having a proper lifestyle. The book says becoming frugal/cheap ("I coudn't *in the past* think of anything more insulting than to be called cheap," she wrote.) and documenting exactly where your money goes are important keys. She then offers a detailed plan on how to follow the money trail.
Their are three different parts to this overall theory: the Contingency Fund, the Freedom Account, and the Rapid Debt-Replacement Plan.
The Contingency Fund is constituted from the 10 percent of your net income that you save for yourself. This money can be put into a savings account or something safe such as a money market.
The Freedom account is for unexpected, irregular, and intermittent expenses. In other words, any bills that you do not pay on a regular basis. Examples of these expenses are auto maintenance and repairs, gifts, clothing, vacation, etc. The funding for this account comes from the 80 percent part of your income. To fund the Freedom Account, Hunt says to make a list of all these expenses, figure out the annual estimate for each category, and divide that number by twelve so you have a per-month figure. Then Hunt says to open up a separate checking account and fill out a direct deposit form to have the funds for these expenses put directly into this account.
You may be wondering how you can do all of this and still get out of debt. Hunt says that's what the Rapid Debt-Repayment Plan is for. "The beauty of this plan is that it doesn't require that you pay more than your current minimum monthly payments. Whatever your minimum monthly payments add up to this month is the total amount you will be paying every month until you are debt-free. What's different is that you add that same total amount every month until you are done while committing to no new debt!" In other words, as your minimum payment goes down, you continue to pay the previous payment number until the debt is paid off. This plan has four rules to it.
Rule #1: No more new debt.
Rule #2: Pay the same amount every month until all of your unsecured debts are paid.
Rule #3: Arrange your debts so that the one with the shortest payoff time is at the top and the longest payoff at the bottom.
Rule #4: As one debt is paid, take that payment and redirect it to the regular payment of the next debt in line.
Two bits of her advice that I find a bit irresponsible though:
"More money is not the solution."
If you're really trying to get out of debt quick, the best thing you can do is get a second job or work all the overtime you can get. More money is exactly what you need, even if it means a short term sacrifice of your free time. Get out of debt first, then enjoy your leisurely weekends.
Her advice implies that you should pay the minimums on your debt (keeping the payments steady though as the minimums go down). This is no way to get out of debt quick. Cut every extraneous $5 and $10 out of your spending and pay as much toward your debt as often as you can. If you come into an extra $50 here or there, pay it toward your debt. Cancel your subscriptions, drink water instead of soda, cancel the cable TV, quit going out to eat, and buy generic everything until you're out of debt.
It's not forever, but if you're serious about getting out of debt, don't do it halfway.
These banks are no better than drug pushers, and when the kids default the banks are getting what they deserve. Banking investors are also being done a disservice in this regard.
The average debt upon graduation for college students is $18,000.
Won't be long before this reaches class-action temperature.
I remember how hard it was to establish credit for myself--even after working and with no liabilities. It is monstrous, this seductive "free money" campaign.
It'd be safer to smoke.
Actually what she is saying that unless the reason for the debt is dealt with then more money alone won't provide the solution.
She goes into detail in her books about getting to the root of the problem. IIRC in her books she advocates doing what you mentioned in your post.
I agree most with her first bit of advice, "money is not for spending". Of all the people I know who have trouble making ends meet and are always worried about money, without exception they're the ones who can't wait to spend every dollar they get, usually right on payday, if not before. That's a recipe for always being broke.
And please note - I do not currently have a debt problem, I am just speculating.
Another poster suggests that this is a "balance" issue.
I would also add that the theory seems to be that a person should begin today to live the "frugal" life that they should intend to live forever. That would not include a second job.
The assumption is that they can afford the minimum payments at their present, very high debt level. The irresponsibility of building excessive debt is probably accompanied by the irresponsibility of spending "wastefully".
My wife just bought chicken at two-for-one prices and cuts up the chicken herself. Instead of over two dollars a pound she paid seventy cents. I change the oil in our vehicles myself, again for one third of the cost of having someone else do it. Since this is a savings of after-tax dollars, the benefits are even more dramatic.
Maybe....
In tough financial time, we pull together pretty well. Periods of absence, however, cause problems.
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