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Especially in these times, where it seems that everyone is on a debt binge, it’s important to consider the opportunity and possibility of Living Beneath Your Means (LBYM).  With home equity rates and mortgages so low, it seems that many feel it’s a great time to consolidate debt, lower payments which, of course, without a commitment to investing the savings or paying off debt, leaves one open to the notion of “re-accumulating” debt.  Let me encourage you to consider the points below and begin committed process of using this time of unusually low rates to pay down debt and continue your successful investment campaigns. If you’re already an expert in this department, mentor someone younger than you who would appreciate your years of wisdom.  Show them this article and this publication.

            Any formula for serious wealth accumulation or even a modicum of financial success requires the paired fundamental concepts of living beneath your means (LBYM) and investing the difference between “your means” (X) and the “beneath” part (Y).   Obviously, the more “means” or income there is and the more margin there is between X and Y, the more rapidly the wealth accumulation process continues.  Assuming you have nailed down the most productive places to invest your money, next is adopting the mental framework and practical budget developed for increasing the “margin.”  Hopefully, you’ll find some valuable thoughts and tools here for working on that part of the equation.

            A major sub-component in the process of wealth accumulation is that of delayed gratification.  Many people never quite grasp this concept and forever are slaves to mortgage, car and credit card payments and end up over-paying for already over-priced items because of the interest payments made on various purchases.  Delayed gratification means paying cash for things you can afford thereby “delaying the gratification” of larger purchases that would otherwise have to be purchased on credit.  Economizing on small items (eg: buying toilet tissue in bulk or drinking water instead of soda) has it’s place and sounds nice, but for a person that is very serious about their financial goals, the key is cutting back on the “big stuff.”  It’s rather easy to find forty thousand dollars to buy the latest sport utility vehicle if you’re using high interest debt, but if you want to get on the road to financial savvy and security, you won’t be buying it this year…or the year after;  sometimes the road to financial independence may not seem as glamorous.

            This all brings up another interesting point.  What is financial security?  Most think that it means being able to make the payments on all of your obligations.  Sounds great to the naïve.  Cash flow is certainly a good thing, but true financial independence is having complete freedom from financial obligations (except taxes of course!) and having enough investment income to support a lifestyle you enjoy and like.  Most people do well just to achieve this during retirement because of pitifully small savings rates and improperly investing for optimal long term investment performance.  Which path have you been on?  Have you been just satisfied with making the payments on all the toys or is your goal to live totally debt free and invest?  If your answer was for the latter, join an elite crowd who will have long term satisfaction with a simpler life….one of substance.  If, after evaluating your situation, you realize that you’ve been one of the masses, there’s still hope…it’s called commitment.

            The commitment comes into play by evaluating your income, expenses and lifestyle and committing to dual motions of getting out of debt and saving money.  Personally, I think one should do both:   pay off debt with the lion’s share of excess funds and put another amount into savings/investments.  It takes a bit of fortitude to make this commitment of living beneath your means and paying cash for everything…but it’s the kind of fortitude and commitment that pay big long term dividends. Once the debt has been excised from your budget, then you can develop an aggressive investment approach to further your wealth building.  Your liberation from the system of debt that rules most peoples’ lives is not far off with these commitments.  These simple truths, like most, are no respecter of persons.  Let’s face it…even people like Bill Gates live beneath their means!


© 2000 Eric Johnson – Mortgage Lender & NLP Practitioner/Coach – 941.713.9307