I’m amazed how fast I grow cash by not using any credit cards
Earlier today, I was in a bit of a financial nostalgic mood. I couldn't sleep a wink last night so I poured over old reports and spreadsheets I had of my financial past. It was quite the journey into the black hole of debt I had. It left me feeling amazed at how far I have come, but with a tinge of regret and wishes that I had ended the debt cycle much, much sooner. However, I still feel re-energized in motivation to keep going on my current path to wealth.
I have this particular spreadsheet that I have regularly contributed to for years now, and continue to do so. It has sheets dating back to September of 2008, showing my Assets, subtracted by Liabilities, and ultimately showing my Net Worth. It's a very black and white financial snapshot, and I kept meticulous track of all of my accounts with this spreadsheet. While I use QuickBooks for business, it doesn't give me the true black and white overview of my "financial snapshot" so to speak, because some accounts in QuickBooks are equity accounts that don't get included in the Profit and Loss reports and others are personal accounts that I don't track in QB.
Anyway, here is the first day of my financial snapshot, to illustrate:
| Financial Snapshot | 9/24/2008 |
| A/R | $ 10,601.61 |
| Chase Checking | $ 1,550.01 |
| Pending Deposits | $ 385.00 |
| ING Orange Savings | $ 2,582.51 |
| PayPal | $ 563.92 |
| Total Assets | $ 15,683.05 |
| A/P | |
| Discover | $ (3,687.17) |
| Chase Visa | $ (3,686.68) |
| Chevron Card | $ (291.51) |
| Sales Tax Payable | $ (838.99) |
| WF MasterCard | $ (7,425.10) |
| Personal Loan | $ (10,000.00) |
| Total Liabilities | $ (25,929.45) |
| Net | $ (10,246.40) |
It was that day when I started my spreadsheet. It was the day I first took out a $10,000 loan because I had large purchases in the pipeline for my business. I had to buy a whole bunch of computers and a server and with my weak capital and credit lines, I simply could not afford it. So, I borrowed $10,000 from my grandparents and set out to track everything with this spreadsheet. You can see that I had over $25k in debts and liabilities. I was always very good about keeping up with bills, which the A/P shows as zero. I also had a savings of $2,500 going. It's too bad I was a horrible spender and credit card user from the outset.
Fast forward to 2009, and the picture looks nearly identical with the debt and liabilities load:
| Financial Snapshot | 9/19/2009 |
| A/R | $ 7,531.15 |
| Chase Checking | $ 6,889.98 |
| Pending Deposits | $ 255.00 |
| ING Orange Savings | $ - |
| PayPal | $ - |
| Nic Owes | $ 7,944.00 |
| Total Assets | $ 22,620.13 |
| A/P | |
| Discover | $ (6,073.59) |
| Chase Visa | $ (6,338.79) |
| Chevron Card | $ (225.00) |
| Sales Tax Payable | $ (736.20) |
| WF MasterCard | $(10,097.84) |
| Loan | $ - |
| Total Liabilities | $(23,471.42) |
| Net | $ (851.29) |
The only difference here is I managed to pay off that loan, and reduce my Net Worth to $-851. However, the debt is still there because I had always actively used my credit cards. My wife owed me $8k here for a boob job that I paid for with my credit card so I could reap huge rewards points with it. She paid me back within the next couple days after this snapshot was taken.
Let's move forward to March of 2010:
| Financial Snapshot | 3/28/2010 |
| A/R | $ 12,268.24 |
| Chase Checking | $ 2,795.91 |
| Pending Deposits | $ - |
| ING Orange Savings | $ 202.92 |
| Chase Savings | $ - |
| PayPal | $ 139.15 |
| Checking #2 | $ 1,201.60 |
| A/R #2 | $ 210.90 |
| PayPal #2 | $ 195.44 |
| Total Assets | $ 23,743.20 |
| A/P | $(20,070.94) |
| Discover | $ (1,408.06) |
| Chase Visa | $ (1,981.88) |
| Chevron Card | $ (30.46) |
| Sales Tax Payable | $ (1,153.43) |
| BillMeLater | $ - |
| Wells Fargo MC | $ - |
| Toyota Visa | $ - |
| Citi Diamond | $ - |
| Total Liabilities | $(24,644.77) |
| Net | $ (901.57) |
What's really interesting here is my Net Worth is still negative, and my liabilities have skyrocketed to over $24k. I also have way more credit cards opened here, and my A/P is a massive $20k. This is because after I reconciled most of my credit cards, I shoved them into the A/P accounts in QB with the intent of paying them all off outright. Of course, that never happened because I continued to use credit and funnel whatever cash I got my hands on back into paying down credit cards. And, my pathetic attempts at growing any kind of savings account was futile, because those credit card bills just kept on coming!
As I have written previously, I finally declared war on debt in January of 2011. I vowed to stop using credit altogether, and focus on paying off ALL debts as fast as I possibly could. The day I declared war was January 1st, 2011, so this snapshot reflects my financial picture a day after that date of infamy:
| Financial Snapshot | 1/2/2011 |
| A/R | $ 7,056.63 |
| Chase Checking | $ 3,597.67 |
| Pending Deposits | $ 330.36 |
| ING Orange Savings | $ - |
| Chase Savings | $ - |
| PayPal | $ - |
| Checking #2 | $ 232.87 |
| A/R #2 | $ 668.90 |
| PayPal #2 | $ - |
| Total Assets | $ 11,886.43 |
| A/P | $ (2,325.17) |
| Discover | $ (6,554.34) |
| Chase Visa | $ (5,109.21) |
| Chevron Card | $ - |
| Sales Tax Payable | $ (1,013.47) |
| BillMeLater | $ - |
| Wells Fargo MC | $ - |
| Toyota Visa | $ (2,690.00) |
| Citi Diamond | $ - |
| Total Liabilities | $(17,692.19) |
| Net | $ (5,805.76) |
What I failed to include in the liabilities section all along, were our car loans at the time. We had two car loans - one for my Matrix and one for the gas guzzling, money pit of a Tacoma truck. In mid-2011, I finally paid off my car loan, and in December 2011, we traded in the truck for a roadster that we paid for with cash. So the adjusted financial snapshot for January of 2011 was more in the $35k liabilities range, and a far, far weaker Net Worth.
After all our hard, hard work in paying down and paying off debts, I can proudly present to you, my current financial snapshot which shows NO debt whatsoever (aside from the regular business A/P and Sales Tax Payable accounts which will always be current liabilities):
| Financial Snapshot | 2/16/2012 |
| Checking - #1 | $ 494.44 |
| Checking - #2 | $ 5,233.95 |
| PayPal - #1 | $ 179.03 |
| PayPal - #2 | $ - |
| Total Cash | $ 5,907.42 |
| A/R - #1 | $ 11,364.25 |
| A/R - #2 | $ 1,377.39 |
| Pending Deposits/Revenue | $ 3,100.00 |
| Total A/R | $ 15,841.64 |
| A/P | $ (350.00) |
| Sales Tax Payable | $ (700.42) |
| Citi Diamond MasterCard | $ - |
| Total Liabilities | $ (1,050.42) |
| Net | $ 20,698.64 |
For the first time in my entire life, I have a current net worth of over $20k, let alone a positive net worth! Granted, there are more things like my businesses and our cars, as well as our material possessions that count as assets which are not included in any of my financial snapshots to date. However, I'm only looking at current, short-term liquid assets here. One big difference here is the lack of liabilities accounts I actively track. It sure has reduced a lot of stress in my life. Another difference here is I focus how much cash I actually have, which as of today, is almost $6k. My short term goal for cash is to have $10k in both of my checking accounts, with the rest spilling over to savings accounts. My biggest problem in the past was cash flow. I have learned time and time again that it is important to have a cash cushion for daily business operations. I was funding it with credit all the time in the past, and could never get ahead, because the credit lines were massive. All the real cash I was pulling in was immediately going out to finance my debts. I was always underwater with credit cards and it didn't matter how "careful" I was in tracking all of the accounts on a regular basis.
The key takeaway here, for myself, and for all of you out there, is you grow your cash so much faster when you have zero debts to worry about!
Why FICO Score is a Stupid Score and Credit Cards are the Devil
Despite a great credit score of zero, tons of savings, and cash in the bank, my friend could not get approved for renting an apartment.
A friend of mine shared with me the fact that when he tried to apply for an apartment, he could not qualify due to having no credit whatsoever. He had always paid cash for things his entire life, has always lived way below his means, and has always put his money in the bank, even in CDs where he accumulated great gains in interest. He did all of this against the grain of what most Americans, including myself, have always done. As a result, he had tens of thousands of dollars in his savings account! He even has a steady, good paying job. Despite all of these great financial points, he could not qualify for renting an apartment because his FICO score was zero. How messed up is the renting, financing, and banking industry to require an I Love Debt metric such as FICO in order to allow one to rent a place to live?! Why couldn't they just look at how much freaking cash he had in his bank accounts? His income? His bank statements? No, says Mr. FICO Banker Shithead. You must have a credit history created by the use of debt instruments like car loans and credit cards in order to qualify for renting a place to live.
My quick assumption is that Congress has been lobbied so damn hard by the FICO corporate greedy banker bastards for requiring such a metric that all Americans are forced to have some sort of credit history driven by debt and credit cards and loans in order to be qualified for a necessity such as renting for a place to live.
By the way, FICO is a registered trademark of a company that invented this score. It is not even a generic, government-agency-created metric of credit worthiness. It is a corporate invention. Those who live and die trying to raise their FICO score to the highest possible metric of 850 is a complete sucker. The best FICO score is still zero. I say fuck them all and take the power back and refuse credit from the outset! If you are denied a place to rent on the basis of having a zero FICO score, I say alert the media, call your Senator, strike against the rental community. Do whatever it takes to stop the FICO bullshit train.
Now that we know FICO is a Stupid Score, what about credit cards themselves?
One time, a banker told me to start using my business credit card for all my expenses and purchases because I get rewards points and it's a great way to control expenses (!). I felt a rage coming on and had to really constrain myself from screaming at her what I really wanted to scream; "YOU GREEDY CORPORATE DRONE! ITS DRONES LIKE YOU THAT WE ARE ALL IN CREDIT CARD DEBT AND MAKING YOU BANKS RICHER!!" Instead, I calmly, but sternly told her No Thank You! I have $10,000 credit card debt because of that and have been diligently working on paying down that debt and eventually paying it off. Credit cards are the devil, and a complete trap, and I will never, ever use a credit card, ever again, after I pay it all off. They have all been cut up and you should do the same. Debt is for stupid people." With that, she shut up and had the classic blank look on her face. I love it!
All my life, I was under the impression of having to use credit cards for everything in order to build up my credit history. I diligently used my first MasterCard, from age 17 onward, and paid it off each and every month. I used the card faithfully, with the proud knowledge that I was building my credit and doing a smart financial thing for my future. The problem with this, is it was all too easy to get deep into the hole to where I eventually was unable to pay off my card in full each month. I began to accrue massive interest on the card, so I opened up another, did balance transfers, then another, then another...
The problem with credit cards is they are just too damn convenient. It is way too easy to slide that piece of plastic in a credit card payment machine to buy anything the credit line will allow you to buy. It's easy to splurge on $400-500 shopping trips, buy a $2000 TV, buy $1000 pieces of furniture thinking you can easily just pay it off later. Then, whenever I actually built up cash in the bank account, it always quickly got depleted in having to keep up with minimum payments.
So, do yourself a Financial Favor, and avoid credit cards like the plague. Henry Ford once said that financing was dumb and should never be done. It wasn't until something like the 1950s that Ford Motor Co. offered financing on new vehicle purchases - and it was only so they can keep up with Chevrolet who started doing it first. Think for a moment. People actually paid for their cars with cash before the 1950s! Who says we need credit cards and credit lines?
Once again, FICO Score is a Stupid Score, and credit cards are the Devil/plague/anti-christ/Apocalypse/disease/death machine/whatever!