Part one of the Money Quadrant Series- Are You a Debtor?

Check Casher-

Do you know people that rush to the back on payday to cash their check? Do you rush to the bank to cash your check? Well, in the banking world we call this type of person a check casher. They work hard all week to get that paycheck that seems to disappear by the next payday. There are a few that do manage to save some money before they pay their bills, but most live paycheck to paycheck. The three different kinds of check cashers that I’ve managed to differentiate are the true check cashers, filed for bankruptcy check cashers, and low income check cashers.

A true check cashier usually just likes carrying a ton of money on hand at all times. I think it gives them a sense of power (even though if they were ever robbed or misplaced their wallets they would be so screwed). I’ve seen a few that just cash checks at the bank that the check is drawn on, then bring it to their bank, but it was minimal. They are usually on a fixed budget, and don’t like to get themselves into any kind of debt (not a bad philosophy).

The filed for bankruptcy check cashier usually hates banks or any kind of financial institutions because they believe they are out to get their money. They live by the slogan “They’ve do it once. They’ll do it again.” A lot of the ones I’ve met also have managed to get the IRS on their backs because they don’t pay all their taxes. I’ve been able to discuss some form of personal finance with the ones that want to express their problems. Usually they get a credit card or checking account and overdraft their account within the first month. They’ve never learned cash management in their youth and it’s reflected by how many times they use their credit/check card. They just don’t remember how much is in their account and end up with tons of overdrafts. They are forced to close their account and they evade paying the overdraft fees by never opening up another checking account or credit card. Some that piled large amounts of credit card debt were forced into bankruptcy because they weren’t able to pay for the minimum payment.

A low income check casher is in very tight situation. Their jobs do not pay enough to make ends meat. They’re on a very tight fixed budget and can’t have many of life’s luxuries. Most of them do not have a high school education which puts a cap on their earning potential. My only advice for the low income check casher is getting a G.E.D. Education and hard work can really turn around your financial situation. You do not have to settle for a low paying job for the rest of your life.

The similarities between 97% of check cashers are:

• They don’t end up saving a dime
• Fixed budget
• They do not splurge on big purchases
• They spend every penny before their next paycheck
• A lot of wasteful spending

Solution-

When I left the bank and decided to get an easier job (the high-end liquor/wine retailer), I noticed a ton of check cashers purchasing large amounts of alcohol and cigarettes. Originally, I was kind of sad for the individuals that were stuck on a fixed budget, but this brought a new light to the situation. You cannot spend money on liquor or cigarettes when you can’t even afford car insurance! Stop smoking and drinking and make your life better. They would usually spend about $50 a week on booze and cigarettes which turns into a yearly amount of $2600. That’s a lot money that you could be putting into a retirement account… You need to find your latte factor and eliminate it from your life A.S.A.P.

You need to save all the money you would have spent on your latte and throw it into a high yield savings account. I would highly consider paying yourself first before you start spending when you’re on a fixed budget. This worked wonders for me. I could save 15% of my income then blow the rest on whatever I wanted. Once you’ve mastered this skill, you will now be considered a Super Saver.

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First Quadrant- Debtor

Whether you’re in college borrowing student loans, or you’re in the workforce with a ton of credit cards, you will be regarded as a debtor to all bankers. Why do some people fall in a hole of debt, while others manage to rise above it all? Sometimes you can’t really stop it. You were born into a lower income family and you’ve had to pay your way through life. I call these debtors the diamonds in the rough. These types of people have the ability to transform their debt to knowledge later on in their lives. They know the true value of a dollar and they usually try their best not to blow their money on random things.

On the other hand, you have this type of debtor that ends up blowing even more money on stupid things because they don’t know any different. They will spend all their money on a depreciating asset¹ and then use their credit cards and loans to make it “pimped out”. “Pimped out”is just another word for stupid spending. Usually, these types of people are very generous to their friends at a young age. They usually pay for drinks at the bar, fast-food for friends after the bar, and have massive parties at their place when the bar is closed. I call these types of people the live-in-the-now debtors. They don’t think of the long term liability they are getting themselves into. I worry a lot about the live-in-the-now debtors. Unfortunately, they are usually the ones that file for bankruptcy before their 26^th birthday.

Similarities between most debtors

• Look at their minimum payment as their actual payment.
• Spend 15-20% more than what they make.
• Eat out more than they eat in.
• Present thinkers instead of long term thinkers
• Postpone paying off their credit cards and keep more cash on hand.
• Have trouble sleeping at night because they worry about paying credit card bills
• They have addictive personalities i.e. drinking, gambling, and so on

Solution

The first step to reach the Check Casher quadrant is regulating your spending habits. Stop using credit cards to pay for things. Go on a cash only budget. If you need help if your budget, please take a look at this post. When you’re on a cash only budget, once you run out of money, you run out of money! You can’t rely on credit cards to bail you out this time. A cash only budget teaches self-discipline and can cure your debtor type of personality. Your big bills need to be paid before you start paying for the small stuff. Your rent or mortgage, food and necessary bills come first! Here’s a rough budget for reference purposes.

Slowly pay for your credit cards till they reach $0 balance. This might take three months or even three years depending on your debt level. After you reach the $0 balance, you can jump to the Super-Savers quadrant. Give yourself a high five! Now you have to learn how to become an Intelligent Investor.

*eFIPO’s Rule* When you’re a debtor, do not buy any thing you don’t absolutely need!

¹ Cars, TV’s, stereo systems

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In the personal finance world, people are either classified as rich or poor. You’re either rich enough to buy expansive things, or you don’t have the money to purchase fine luxuries.  At eFIPO, I always encourage people to invest as much money as you can. But what about all the other people that are too far into debt or that live paycheck to paycheck to invest? This week, I will be discussing the ways to jump from the poorer side of the quadrants to the richer side. This will not be an immediate process for everyone. Every person’s financial life is unique, but there are core similarities that can be found if you dig deep enough.

Why should you take my advice when I am just a twenty three year old soon to be college student? First, I’ve been in three of the four quadrants and I am planning on moving to the fourth quadrant very soon. Secondly, I could throw in about fifty people in each quadrant and tell you their unique stories, but this will be more about the similarities that every group posses; which will paint a much more vivid picture.

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