What’s the most important thing we can learn from his mistakes?
Debt happens slowly. At first, you’re shocked that you’re $500 in debt. Then it becomes normal, and a year later you’re at $1,000. Then you tell someone, “I can’t believe I’m $2,000 in debt!” They say, “Only $2,000? I’m $10,000 in debt.” All of a sudden you start feeling good about yourself for having $2,000 in debt. People think they’re not that bad off. But compared to what? You shouldn’t be in debt, period.
How can someone get back on track if they do find themselves deep in debt?
For credit card debt, we first create awareness about the bad habits that got someone there in the first place. With Aaron, we had a scene in a bank vault. We calculated that he had lost $2.7 million, and we piled that amount in front of him. I was smacking down bundles of money, telling him that he lost it because he was too lazy to book his own airline tickets. He didn’t want to do anything himself because he was the artist. We had to break him of that.
Once you face the facts, you can figure out a plan, whether it’s using the snowball effect [paying the smallest debts first, which increases motivation] or paying off the highest interest first. Some people consolidate their debt or attempt a settlement, although their credit score will take a hit.
Shifting gears, tell us about your own experience managing money. What’s the best financial advice you ever got?
Be frugal. After I graduated from college in the ’80s and was living in Minnesota, I had a neighbor named Harold, an older guy around 70 or 80, who always seemed peaceful and serene. He told me to buy what I needed—no more, no less.
Back then, I had a $357 monthly payment on a Mazda RX7. I never made that mistake again. Now I drive a 16-year-old Volvo that has 200,000 miles on it and is in mint condition. A friend recently told me I should get a Mercedes. Why? I have a great car, and it’s paid off. I pay $20 a month for insurance.
I was raised very poor. My family lived near the inner city projects and relied on food stamps. When you grow up with scarcity, you are fearful and just want to secure things. Harold’s message about frugality made a lot of sense to me. So that’s my philosophy: Live for yourself and don’t try to impress other people.
What was the biggest money mistake you’ve made?
When the market began collapsing in 2007, a lot of my investments were consolidated in tech stocks, which took a big hit. I should have been more diversified.
What do you consider your smartest investment?
My house. Although I took a hit when the market tanked in 2009, the fact that it’s paid off lets me sleep at night. Once I secured our home base, I felt more comfortable taking chances.
When you are so loaded down with debt that all you can think about is how to pay your bills, you can’t pursue your passions and do all the things you want to do. That’s what I call the poverty trap. Debt is a dream killer. Once you have zero debt, all of a sudden you can make different choices, and that’s powerful.
June 16, 2016
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