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Word Gems 

exploring self-realization, sacred personhood, and full humanity


Part I:
Yes, You Can Be Debt Free!
How The Average American Family
Can Wipe Out All of Their Debt
- Credit Cards, Car Loans, and Home Mortgage -
In Only 7 to 9 Years



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Editor's note:

I wrote much of this article around 2005, have retrieved it from the archives, dusted it off, and present it to you once more. It's all still valid. 



Many years ago someone recommended that I read a little book - The Richest Man In Babylon, by George Clason. This classic changed my thinking and, probably, my life.

It's the story of the elderly Akad, the richest man in Babylon, with wealth so great that even the King envied him. Akad’s childhood friends could not understand how their old schoolmate had risen to such stature and riches. They chalked it up to dumb luck: “You, Akad, are more fortunate than we. You have become the richest man in all Babylon while we struggle for existence. Yet, once we were equal.”

Akad chided them with: “If you have not acquired more than a bare existence in the years since we were youths, it is because you either have failed to learn the laws that govern the building of wealth, or else you do not observe them.”

This is a book that you'll want to purchase (get a used copy on Amazon for only $1.41!). Akad tells the story of how he learned his “laws of wealth” and how anyone can put them into practice.

For our purposes here, I’d like to focus on Akad’s first law of wealth. Let’s listen in on his advice:


“A Part of All I Earn Is Mine To Keep.”


“A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be as much more as you can afford. Pay yourself first. Do not buy from the clothes-maker and the sandal-maker more than you can pay out of the rest and still have enough for [living expenses], live upon less than you could earn.”

There’s an old saying, “big doors swing on small hinges.”

In other words, some big problems can be solved with simple actions. When it comes to getting a grip on one's finances, some people might expect only complicated formulas to help – certainly, nothing quite so mundane as:


“Cut your expenses,

spend less than you earn,

save 10% of your income.” 


Yet, in these few and simple words, we have the seeds to grow one’s financial independence; indeed, in this avuncular advice, if the truth were known, we have the basis for most great family fortunes in this country; and even the bedrock start-up philosophy for most of today’s Fortune 500 companies.

Why do I say that?

Because odds are, 50 years ago, 100 years ago, 150 years ago, someone decided that he or she was tired of being poor all the time. That person began to cut expenses – something that, in the history of the world, has never been easy – and that person began to save, maybe just a few coppers in the beginning, but that small nest-egg grew, and was invested, which increased capital. And many of these "financial pioneers" also started businesses, maybe in a garage, barn, or home office, and they began to provide a product or a service, and their capital began to grow and grow.

If you look at the early history of many big businesses today, you will find this pattern of humble beginnings repeated over and over again – whether it was Bill Gates starting in his dorm room (Microsoft); Steve Jobs in his garage (Apple); Warren Buffett managing money in his bedroom office (Berkshire Hathaway); or, going much farther back, Henry Wells and William Fargo providing goods and services to the California gold-rush miners (Wells Fargo & American Express).


How Can 10% Savings Be So Important?


You might be thinking:

“I have so much debt – my credit cards are in hock to the tune of many thousands; plus other installment loans; plus over a hundred thousand on my mortgage.”

How can saving a mere 10% put a dent in all that?

Despite what you might be thinking now, I want to encourage you to know that the average American family can get rid of all debt – credit cards, car loans, and mortgage – in only 7 to 9 years.


How Much Debt Does the Average American Family Have?


My recent research (2008) indicates that the average American family has the following financial situation:

Median family income is $43,200

$1.22 is spent for every $1.00 earned

Credit card debt is $8,500

Other loans of $10,000

Median house value is $150,000

Average credit card interest rate of 15%

In a recent year, 2 million Americans sought debt counseling to avoid bankruptcy

Your situation might be different. And maybe you earn more than $43,200, but still have a lot of debt -- but the principles outlined below will help everyone.

There are many reasons why large numbers of people are plagued with debt. But here’s a major one:

Debt is seductive, something that “sneaks up” on its victim.


“it’s just $56 a month - let’s buy it”;

“only $159 a month - we can afford that”;

or, “just $29.95 in 4 easy monthly payments.”


This last one should be written on the tombstone of many of us because it’s the kind of thinking that destroys people. And after racking up all of those “easy payments” we find ourselves under a mountain of debt.

The average person does not understand the power of compounding – we don’t understand how compounding is the most important factor in an investment program; we don’t understand how compounding destroys purchasing power through inflation; we don’t understand how compounding juices the debt we incur – and, we don’t understand how compounding, once we make it our ally, will help us to get rid of debt and build financial independence.

The “10% principle” is more potent than generally understood. The power of this simple strategy is greatly magnified and supercharged by the "magic" of the compounding process. And  I think that when people clearly see how the “10% principle” works, many will no longer feel hopeless about their financial situation and will put this plan into action to get rid of debt, once and for all.


Let’s look at the basic plan in detail.


$990 PI
112 (9.3 yrs)
car loan
dept store - 2
dept store- 1
gas card


This average American family has:


$8,500 in credit card debt @ 15%;

a $10,000 car loan @ 11% for 36 months;

an 8% 30-year fixed rate mortgage with a balance of $135,000.

Total debt is $153,500.

Total monthly payments equal $1,565.

Total family income is $43,200 or $3,600 per month.



But here's the most important item on the above chart...



It's what I call the Freedom Factor (FF).

This is the engine, the energy source, that will power your financial future. I give it this name because it is the heart of your financial plan, one designed to set you free. 

The initial FF is $360 or 10% of monthly income. For the moment, let's set aside concerns about whether one can actually carve out this $360 from one's budget - I'll address that later. For now, let's see how the process works.

Ok, you've cut monthly expenses by 10% and you have a FF of $360 to work with.

What do we do with this $360?

Let's start at the bottom of the chart and move up. We begin with the gas card which has a balance of $200. With glee we slash and burn this $200 debt.

But wait! We still have $160 of ammunition left. Let's use it to hack away at the $300 dept. store card #1 balance - which leaves a reduced balance on that card of $140.

Not too shabby for one month's work. We've knocked out the gas card and chopped the next card almost by one-half.


But here is where the real fun begins...


Next month, do we have only $360 in our FF? No, no! We are now living the exalted life of one possessing a FF of $370! How did we manage such a coup? Piece-a-cake. When we deep-sixed the gas card, we also picked up an extra $10 a month in our budget; because now, of course, we no longer have the gas card payment. Hurray!

So, in month #2 we face our debts, now on the run, with renewed vigor. Here's how $370 helps us in our 2nd month. We finish off the $140 balance on dept. store card #1. We still have $230 to allocate and we move up the line with dept. store card #2 in our sights. We apply $230 to the $400 balance, leaving a mere shadow of its former self, only $170.

We're starting to learn the routine.

In month #3, our FF now expands to an ample $380 as the dept. store card no longer bothers us. The $380 FF is directed toward the remaining $170 of dept. store #2. We still have another $210 to use, so let's apply it to bigger game, the $1,200 Discover card bill.

In month #4 our FF swells to $390 as we no longer need put up with dept. store card #2. We apply the entire $390 to the Discover balance. We do the same next month; and in month #6 mighty Discover falls before our advance. In fact, we have $180 left over and we send it with love to Visa.

Our FF becomes even more interesting in month #7 - a portly $414! Discover's demise has added $24 a month to our FF debt-crushing machine. With joy we attack Visa with an extra $414 a month - until month #9 when Visa capitulates and is no more. We have an extra $122, more than enough to do in Visa, so we send this amount to Mastercard (MC) #1. This is a biggie with a balance of $2,200.

However, our forces are growing too.

In month #10 we find our FF at the respectable level of $440, having picked up an extra $26 a month when we got rid of Visa. For the next few months we pound MC #1 with extra payments of $440; and in month #14, MC #1 expires; again, we have an excess amount, another $122, which we fire off to MC #2.

Our FF now grows to an amazing $484, which we employ to eviscerate MC #2 for the next 5 months. Finally, in month #19, we eliminate MC #2.


In Just a Year and a Half...


In just about a year and a half, this average American family has totally wiped out $8,500 of credit card debt! But the best is yet to come.

With the credit cards gone, we have built up a swaggering FF war-chest of $542. We can do some real damage with that now. And we do. In just 6 months the remaining part of our car loan is gone.

This no-small victory massively boosts our FF by $393 - now $939 a month.

And when we send an extra $939 a month with our regular mortgage payment, we can plan our mortgage-burning party in just a little over 7 years!


A Freedom Factor of 10%

Will Get Rid of All Debt in 9 Years!




A Freedom Factor of 20%

Will End Your Debt in Only 7 Years!


In other words, if you can reduce expenses to create an FF of 20%, you will be set free 2 years earlier.

Creating financial independence for oneself requires a two-pronged strategy:

  • the first part is "fixing the hole in the bucket" which is getting rid of debt - because debt will drain and empty your financial energies and keep you poor for your lifetime.
  • the second part is to use that hard-won FF, now, to begin investing, which will create a growing income stream that can last for your lifetime.

This second part I have addressed in a separate article, Yes,You Can Save $1 Million! There, I explain how the power of compounding can make any average-income investor a millionaire over time.


In fact,

if we use our above FF example,

the average American family,

once debt is gone, can reach

the $1 million net-worth level

in 15 years or less!


This statement will be shocking to many of you reading this; but, as I said earlier, many of us do not understand the "magic" of compounding.


"So, Wayne, if all of this is possible,

why are so many people broke?"


Many years ago, one of my college instructors, Art Mokarow, made the provocative claim:

"You have to understand,

being in debt

has very little to do with money."


He went on with:

"You'll find people who are broke on all income levels - from the six or seven-figure jet-setters, to those below the poverty line.

"I know people," he said, "who make more money in a month than most do in 10 years - but they're broke! Why? He can't give up his race horses, and she can't give up her expensive art.

"And I know people whom you would consider to be from 'the wrong side of the tracks,' with very modest means, but they're saving money and are getting ready to move up in the world.

"The secret to financial success and independence can be reduced to very simple terms:


"Spend Less Today So That In The Future You Will Have Some"


Though this was over 30 years ago, I still remember this man speaking to us, a stunned crowd. (He was no ordinary college instructor, but had been successful in business earlier in life. I once flew across the country, from Toronto to Seattle, just to hear him speak. I wasn't disappointed. Thank you, Art Mokarow.)

And why are we stunned by this plain-speaking?

We are not used to this kind of straight talk; instead, daily, suffering under an incessant barrage of media ads, we are taught to be smiling little consumers; that debt is a good thing; indeed, almost a civic duty in order to stimulate the economy. I was more than annoyed to find, in conducting research for this writing, someone blathering about every "red-blooded American" should have debt.

This is all propaganda. There are those who will try to convince you to drown yourself in debt - to buy and buy, more and more, things you don't really need or even want, in order to meet someone else's definition of "the good life."

It doesn't need to be that way.

Success begins with deciding to live life on one's own terms; it begins by defining, for oneself, what "the good life" means - and not letting corporate America fill in those blanks for you.


  • EDITOR’S NOTE: Here is an example of the principles under discussion: JUNE 6, 2008, LOS ANGELES (AP) -- Ed McMahon blames the possible foreclosure of his multimillion-dollar Beverly Hills house on a set of problems all too familiar to many Americans: a foundering economy, health problems and poor planning. "If you spend more money than you make, you know what happens," McMahon said… "You know, a couple of divorces thrown in, a few things like that, and, you know, things happen." … [McMahon and his wife] are $644,000 behind on their mortgage payments and are in negotiations with lender Countrywide Home Loans Inc. to set a foreclosure date… McMahon bought the six-bedroom, five-bathroom, 7,000-square-foot house in January 1990. The mansion, which is listed at $6.25 million, is in a gated hilltop section off Mulholland Drive called The Summit. Britney Spears is among his neighbors. Asked why a millionaire couldn't make house payments, Pamela McMahon said the couple had less money than people may think and suggested they could have done a better job managing their finances. "We didn't keep our eye on the ball. We made mistakes," she said. "It's embarrassing to say the least..."


Our Spending Habits Reflect Our Values


Before you purchase something, ask yourself this:

  • "Is what I'm buying more important than financial freedom? more important than the opportunity to live life as I choose to live it, according to my own hopes and desires?"

We all have things that we must buy for our living - but many of us spend and spend for things that will take us nowhere but deeper in debt. And when you are tempted to buy those things, just remember that you are trading trinkets for the golden prize of financial freedom.

And lest some attempt to trivialize the quest for financial freedom as a flight of greed, allow me to stop you right there by reminding everyone that, just as debt, in terms of psychological process, has little to do with money, so too does financial freedom - because freedom isn't about money per se; freedom is about having the resources to be able to fulfill one's destiny in this world, and all that that means.

It really comes down to this: Most everyone can reduce debt and build capital - but are you willing to discipline yourself to make it happen? Do you value the prospects of freedom to come; or do you prefer insolvency-death by inches, on the installment plan?


Big Mac or Big Whack?

StarBucks or MegaBucks?


I said I would come back to the Freedom Factor (FF) and how to cut expenses by that 10% to 20% a month.

For those of you who are serious about getting rid of debt and building a new life, here's what I suggest:

  • For 1 month, keep a log and write down every penny you spend.

Many of us do not know where our money is going: We have several holes in our bucket, and we need to plug them.


Plugging the Leaks


How many $4 lattes do you buy each month? One or two a day? every other day? This could be $50 or $100 or more per month.

Why not brown-bag it? Do you really need to spend $5 a day for lunch? How much is this per month?

Do you really have to order in that pizza and pay a delivery service? - that's a big no-no if you want to be financially free.

Do you really need to buy that CD? or rent that DVD? How about getting a DVD or book from the library?

What about your car? Do you really need one? Most of us do, but do you need an expensive one? How about trading down and resolving to drive a schlock-car worth a couple thousand for a while? Don't think it hasn't been done by those who are intent upon getting rid of debt.

Have a look at your kitchen cupboards and fridge. Ready-to-eat, highly-processed foods are not only less healthful but more expensive than "cooking from scratch." Think about it.

Get new quotes for all of your insurances. Consult an independent insurance agent who has access to many carriers. Go with higher deductibles to lower your payments. Avoid duplicate liability-protection coverage among your policies. This exercise can save you many hundreds of dollars per year.

Conserve energy, which is expensive. Turn off the lights when you leave a room (just like your mother told you). Your TV consumes a lot of electricity so don't leave it on for background noise if no one's watching it. Reduce gasoline consumption by taking care of several errands with one trip, rather than running to the store whenever the spirit moves you.

Use discount coupons for your groceries. Again, stop the pizza deliveries. Rent tools instead of buying them, whenever possible. Don't take credit life insurance when offered at the bank; instead, get low-cost term life from an independent source to protect your family. Avoid "recreational shopping."

Family members should agree not to buy each other expensive gifts - avoid that consumerism trap. (I told my children, instead of buying a gift for me, to write a poem or draw something for me; and if they must spend money, send a gift to the kids at BoysTown. My son actually did this!). Get your kids involved with this debt reduction project and reward them with something nice when goals are reached.

How much do you spend on going out to dinner each month? This can be a budget buster. Make some popcorn and watch a movie at home; and while you do this, feel good, because, daily, you are moving closer to control over your financial life.

Could you take on a Saturday job? maybe make a hundred bucks each weekend, or even every other weekend? Why not? This extra income can help you to be debt-free years earlier.

Analyze every area of your life and search for ways to cut costs. You'll be surprised at what you find. Think of yourself as the new CEO of a floundering corporation - you've been called in to "restructure" the business, to get things back on track, before Chapter 11 strikes.

super-charging your debt reduction plan

For those of you who are adamant and "religious" to eliminate debt, I suggest the following souped-up plan:

Buy a house with potential to sub-let, for example, the basement, for extra income. More aggressively, you could also rent out individual rooms; this is cooking with gasoline.

This project can work even if you’re renting a whole house or, let’s say, a three-bedroom apartment; but purchase if you can as the mortgage payments will likely be less, much less, than the cost to rent. Plus you'll be building equity in your own property.

Will this be difficult? Yes, it's a business. Will it be profitable? Extremely so, if you do it right. Properly crafted, you’ll live for free, with all household expenses paid, plus you could even have extra cash at the end of each month. This is winning the lottery every month.

Keep in mind, you don’t have to do this forever. But do it long enough to make some real damage to your total debt. Here’s the bottom line: Actual figures with depend on real estate costs and the rental market in your area, but this plan offers the solid possibility of slashing and mutilating your debt-elimination timetable by many years.

Consider this: These two articles on getting rid of debt – 7 to 9 years -- and then saving a million dollars – 15 years -- present a plan calling for disciplined action over about 23 years. But what if you could achieve both parts of this project, “rags to riches,” going all the way from big debt to big bank account, in about 12 years! Now we're talking.

Run the numbers, and, with joy, you’ll see what I mean. For those of you who are dead serious about morphing yourself into a financial new-you, as soon as possible, you’ll want to consider this option. In just 12 years, if you retain a modest, low-cost life-style, you’ll be set for life, and not even need to work anymore, or much.

Depending on what you need to live on, and how frugal you are, half a million, or a measley quarter, might be enough. And remember, too, once you have that half-million, or a million, it will double, all by itself, without feeding it, in just 8 years (see Part II).

Think about it.



Even one dollar of cost-cutting is meaningful. Consider the following:


save $3 a day, invested @ 12% = $1 million in 40 years


I doubt if you were taught this in high school; or in the latest TV ad. No, instead you heard about why you should borrow more money and become a happy little consumer stimulating the economy.


  • Consider this! Every dollar you waste today, properly invested, could have had a future value of $4 in 10 years; $20 in 20 years; $85 in 30 years; almost $400 in 40 years.


When you buy trinkets, this is what you are giving up.

Is that what you really want to do?

And when you buy trinkets on credit, and pay 15% or 20% interest, you are creating these future values for your corporate sponsor. Think about that. No wonder they encourage you to be a happy little consumer.


"Wayne, what about when

my car breaks down or

my kids need braces?

How can I stay on my

debt-reduction program then?"


Well, we all know that stuff happens in life; and we can know that things will come up to throw us off-track. But try to handle it this way: You will have a growing FF, starting at $360, maybe more (for the average family), and this will be increasing somewhat rapidly. If you suddenly need new brakes for the car, use your FF to pay this off first, and then continue with your plan. You might be set back a couple of months, but that's life. Again, as your FF will be growing steadily, it will be harder and harder to disrupt your strengthening finances.

I challenge you to review every expenditure - and ask yourself: "Am I trading trinkets for freedom?"


"Wayne, you're a fanatic!"


And proud of it.

Some of you, especially those under age 35, are thinking that all of this sounds a bit austere and Klingon-like, slightly draconian and fanatical. Yes, I know, what would your friends and neighbors think if you drove an older car? And, maybe you like going to the mall, it's entertainment for you. And how can you possibly wake up in the morning without your $4 coffee?

Well, allow me to suggest that if you are tempted to minimize what I say here by labeling it as fanaticism, I will forthrightly say that what you've just read above is not fanatical enough. Why? -- because...


You Can Be Young Without Money,


You Can't Be Old Without Money.


Do you remember the proverbial grasshopper fiddling while the ant prepared for the winter? If you think you have plenty of time to get rid of debt and to build your finances - and even if you don't, so what? - I would like to encourage you to pay a visit to a local state-supported nursing home.

I know someone, age 91, in one of those depressing institutions. When I visit, I always find it a disturbing experience. The first thing I notice is the stale-sweet aroma of warmed-over death, and that unmistakable scent of urine, that pervades the environment. The person I am visiting is functionally blind. She once was an avid reader, but that's not possible now. She has no money to pay someone to read to her; she cannot watch television, and she battles boredom and loneliness every day. Mentally, she is fairly lucid, but the other lady in her room, and some others in the wing, are unbalanced looney-bins and, periodically, unexpectedly, begin shouting or wailing, day or night. She cannot go to the bathroom by herself and must wait for an attendant to come to help her. She has learned the hard way that she cannot keep any valuables - jewelry, coins, treasured mementos - in the few drawers assigned to her; this is so because things "disappear." And we cannot forget to comment on the food in the dining room - it reminds one of plastic bananas: highly processed, made-from-powder-mix, institutional fare.

She doesn't like to be around "old people"; doesn't like to live in this human warehouse; doesn't like the food, the lack of privacy, and the many mentally-ill others. If she had financial resources, she would much prefer still to be in her own home, with a live-in nurse taking care of her; and maybe most of all, someone to read to her every day.

I suggest to anyone who might easily dismiss the subject of this report as fanaticism to consider my 91 year-old friend - because, if you grow old without resources, she is your future. Think of her and the urine smell when you order in that next pizza. Have a nice day.

In fact, given the trajectory of Federal unfunded mandates and entitlements, with the great numbers of baby-boomers aging, it is doubtful that our country, bankrupt as it is, will be able to provide even these current services in the coming years.

Such is the end of the road for the shallow and airhead consumer society.

But, for you as an individual...

Yes, you can get out of debt... and Yes, you can go on to save $1 million.

It will take a disciplined, thoughtful, and purposeful approach to life. But financial freedom can be yours if you are willing to receive it.



Editor's last word: