Principle #4: Never Finance ANYTHING That Depreciates

July 5, 2012 § Leave a comment

Principle #4 is all about the concept of what is called “delayed gratification”. I know, sounds complicated, right ;-) Delayed gratification means that you delay (put off till another time) the purchase or acquisition of something you think will be gratifying (bring pleasure, usually momentarily). I say this in jest because it seems that so few people in today’s western society have the slightest amount of delayed gratification. We as a people are known worldwide for our consumption habits and lack of personal discipline. However, since most people are swamped by debt, usually for perceived “needs”, let’s just make it our goal to NOT be like most people.

Depreciation Defined

Google defines “depreciate” as:

de·pre·ci·ate   /di•prē•SHē•āt/

  1. Diminish in value over a period of time.
  2. Reduce the recorded value in a company’s books of (an asset) each year over a predetermined period.

That said, the idea here is to never finance (lease, loan, borrow to purchase, etc.) anything that will lose value over time. Here are some examples of items that depreciate:

  • cars
  • motorcycles
  • ATVs
  • computers
  • TVs
  • stereos
  • furniture
  • entertainment systems
  • carpet
  • blinds
  • lawn mowers
  • jewelry

You get the idea.

The Numbers

Let’s take a quick look at the true cost of financing items that depreciate. In the first example we’ll look at one of the most common mistakes that people make: the leased car.

Early in our marriage, we were given some advice (note: NOT good idea), “If you just build a car payment into your budget, you can drive a new car every 3 years. It’s great. You’re always under warranty, and you’re always in a newer car.” We took this advice, and just recently got out from under the last lease. I tell you this so you know everybody is tempted by this enticing offer.

Example Calculation Using the Leasing Formula (borrowed from

Let’s assume you’ve decided on 3-year (36 month term) lease of a Toyota Camry XLE that has a sticker price of $24,600 (MSRP).
You have managed to negotiate the price down to $23,000 (Cap Cost). You decide not to make a down payment, but you have a trade-in worth $5000. Your Net Cap Cost is therefore $23,000 – $5000 = $18,000.
Now, the dealer tells you (because you asked) that the Money Factor is .00375 (.00375 x 2400 = 9.0%) and the Residual Percentage is 60% of MSRP. So your Residual amount, in dollars, is .60 x $24,600 = $14,760.
Now let’s do the math:

Depreciation Fee = ( $18,000 – $14,760 ) ÷ 36 months = $90.00

Finance Fee = ( $18,000 + $14,760 ) × .00375 = $122.85

Sales Tax = ($18,000 x .08) ÷ 36 = $40.00

Monthly Lease Payment = $90.00 + $122.85 + $40.00 = $252.85
(sales tax included)

In this example, you have a monthly payment of $252.85 over 36 months, which means that at the end of your lease (assuming you stayed within miles, didn’t dent the car, and don’t have to replace the tires, etc) you will have paid $9,102.60 for a car that you don’t even own. If you’d like to buy the car at this point, you’d purchase it for $14,760. In essence, leasing a car is just a fancy finance term for renting. Most people would never rent a car for 36 months, so don’t lease either.

Again, I am guilty of falling into this trap (more than once), so I am not condemning you if you lease.

Suggestion: Whenever you can, get out of your lease, and purchase a car for cash. It pays!

Lastly, let’s look at the true cost of making a financed purchase of a motorcycle (yes, I’m guilty here too).

Let’s say that you went to the local Harley Davidson dealer and picked out a brand spanking new Road King (MSRP about $20,000). You talk them down to $18,000, and put down another $3,000. Your total financed amount would be ($18,000 + $1,440 tax) – $3,000 = $16, 440 (assuming an 8% Sales Tax rate). Assuming a 6% loan rate over 60 months, your payment would be $317.83/month.

At the end of your loan term, the cost of the bike would actually be about $27,000 ($19,069 sum of payments + $3,000 downpayment + $5,000 depreciated value). My question is this: would you ever pay $27,000 for a base model HD Road King?

Please watch the video below… it makes a simple point: If you don’t have the money, DON’T BUY IT! (PS, it’s funny)



Stronger Together

July 2, 2012 § Leave a comment

I remember when we were stronger together. When we’d always be together and we were proud of the way we were different, the way we could have fun without compromising ourselves. I remember how every free moment we were spending time together, learning about the vast world that lay beyond the horizon, scheming of ways to preserve the adventure that we were living. I remember covering the weak-side of the field and that with our strengths combined, few could break through our ranks. I remember being accepted by your family and feeling as if I was their son. I remember foil wrapped, hot ham & cheese sandwiches on potato rolls, and not being able to get enough. I remember juice bags, Brittany Spears posters, jumping off the wall, and care-free living. I remember not knowing humor before you, and wondering how it could hurt so bad in my jaw and in my gut when I laughed so hard.

We were stronger together.

Before our friendship, I had never seen or known that sort of symbiosis. The only examples I had in my life were independent souls, striving to prove their strength apart from others. I had been bred with an “I’ll prove myself strong” attitude. Deep within me was this desire to show everyone that I could go it alone, that I could walk the lonely road and not shed a tear, and that I could create for myself a good life. People like us have no need for friends or family – or anyone for that matter.

I’m so sorry that when I left, I left you behind. I was on to new places to make new friends and have new adventures. When I left, you had to adjust to those same people that we had been so committed to not be like. I didn’t realize that when we were set apart, it was because WE were set apart… and when WE aren’t WE anymore, compromises happen. I compromised our friendship so that I could move on up in the world, and in doing so, left you with uneasy choices to make. I can’t blame you for compromising in the ways that you did. I told you how I felt about certain things, proudly thinking I was the one doing the right thing. Two people apart grow apart… and that’s what happened to us.

We were stronger together.

Now when I see you with your friends, I wonder, “are you stronger together?” They aren’t my type of people, however, they seem to have some qualities that I was unable to maintain. They seem to be loyal to you. They seem to love you and accept you. They seem to understand what makes a friendship happen.

I want you to know that I love you and I accept you. I want you to know that now, after all these years, I’m learning how to be a friend. I want you to know that often I wonder if someday, just maybe, we can be stronger together, again.

Principle #3: Reduce Expenses to 75% of Net Income

June 29, 2012 § 3 Comments

For the first two principles we were in data acquisition mode. The sole purpose of Principle #1 and Principle #2 was to figure out what your financial situation looks like. You may have found out that you are doing great and reaping monetary gains each month; or you may have found that your spending is out of control, and you need a change. Well, buckle up… because this is where we take action.

Principle #3: Reduce Expenses and Increase Income to Spend No More Than 75% of Your Income.

The Offense and Defense of Personal Finance

Best selling authors Chris Brady and Orrin Woodward have a fantastic audio CD called, “The Offense and Defense of Personal Finance”. On that CD, they lay out a great analogy when it comes to thinking about money. Basically, this is the idea: in sports, offense can only do so much, and defense can only do so much. To be really great, you must have both.

“You have to earn more than you spend… AND you have to spend less than you make.” –Chris Brady

  • Offense: Find ways to increase your income. Can you work some overtime each week? Can you mow lawns, paint houses, fix up cars or computers? Have you considered a side business? My business of choice is the LIFE Business, where you can earn an income by leveraging information into people’s lives to help them experience positive change, thus making money and making a difference. The baseline monthly cost is about $50, which can be earned back and profiting within the first month.
  • Defense: Find ways to cut your expenses. This is one of the most simple things that a person can do. It does not require any extra work, yet it pays huge dividends. If you can just develop some self control in the area of spending, you’ll find that your paycheck will go a lot further. Can you buy less expensive foods? Can you wash your own car by hand instead of going to the carwash? Can you downgrade the cable, or get rid of it all together? Can you downgrade cell phone plan, or go to a month-to-month carrier like Virgin Mobile? Can you sell your newer car to buy an older model for cash… saving the monthly payments? How often do you eat out? If you cut one $25 expenditure per week, you just gave yourself a $100/month raise.

You get the point: Try to earn more AND spend less. What is amazing about these 10 Principles is that you can get completely debt-free without increasing your income. Remember: Money is not power. Knowledge applied is power… so use it! We are trying to free up some cash to work on our debt.

The Numbers

To stick with our previous example of a household gross income of $50,000, we figured out that our actual deposit to the bank (after taxes, tithe, etc) was $2,983/mo (see Principle #1). Let’s just assume that you did not go out and attempt to earn more. In order to adhere to Principle #3, you would need your TOTAL expenses to be no more than 75% of net income, or $2,237… giving you $746/mo to utilize wisely in other areas.

Now you may ask, “75%?!?! I can’t live on that little!” Here’s the truth, you personally know at least one person who lives on less than 75% of what you make… and that person knows someone who lives on 75% of what they make. It is possible, it just takes sacrifice.

“Quit trying to keep up with the Jones’s because the Jones’s are broke… Stop attempting to look wealthy and start applying the principles to become wealthy.” –Orrin Woodward

Fight the Good Fight!

This is the first step that will force you to make some tough decisions. Remember, you are choosing to do something that millions of people across North America have chosen not to do. You are breaking the chains of bondage from your finances. Pay the price… do what it takes… fight the good fight, it’s worth it!

“Few things allow someone to sleep better than a healthy financial position.” –Orrin Woodward

If you’ve decided to take this journey, post in the comments and let me know your thoughts.

Keep Reading and Leading,

David J. Garza

Principle #2: Identify ALL Expenses

June 26, 2012 § 1 Comment

This second principle has the power to transform your mentality forever: Identify ALL Expenses. If you took part in Principle #1, you have figured out what you actually make. Now we must figure out what is going out.

Most people’s financial situation is like the image above: it comes in and then it goes out (PS: In-N-Out Burger, Please come to the East Coast!). You’d be surprised how many people have no idea where their money is actually going. Rachel and I were fairly frugal, but when we actually went through this step of tracking expenses, we were floored. It totally explained how we could earn more than ever, yet still have very little, if anything, left at the end of the month.

The key here is to write everything down. Claude Hamilton, a leadership coach in Canada, suggests that you carry a small notebook around with you to write down every penny that leaves your pocket (stick of gum, cup of coffee, 50 cent toll, etc). In Orrin Woodward’s Resolved book, he states,

Anything that flows out of one’s possession into another entity’s hands should be written down: all bills, all taxes, everything that flows out of [your] money pile and into someone else’s money pile.

Your recurring expenses will be the easiest. Just go through your past few month’s of bills and write down each one. The harder part is accounting for the miscellaneous expenses to maintain cars, houses, unexpected events. Be liberal when counting your expenses. You can try to deny that spending is out of control, or you can face the brutal reality.

Remember what I said earlier: be conservative when estimating your income and be liberal when estimating your expenses.

If spending frivolously is an issue, a person should start a cash allowance, setting aside a certain amount of cash for himself and spouse to limit spending within the set limits. –Orrin Woodward

These first two principles are all about acquiring knowledge. You may have heard the statement that, “knowledge is power.” This is FALSE. Knowledge applied in a purposeful direction is power. The next step will challenge us to do just that.

Stay tuned for Principle #3: Reduce expenses to… (see you soon)

Keep Reading and Leading,

David J. Garza

Principle #1: Identify Your NET Income

June 21, 2012 § 2 Comments

Ignorance is bliss, until you’re bankrupt.

The key to the first two principles is that knowledge is power. If you don’t know exactly how much is coming in, you’ll have no idea how much you need to cut going out. So the first logical step is to: Identify your NET Income.

Net Income Defined defines “net income” for an individual as:

Gross income minus taxesallowances, and deductions. An individual’s net income is used to determine how much income tax is owed.

According to Orrin Woodward, “Your Gross Income is the amount you tell your friends that you earn, while Net Income is the amount you tell your spouse.”

For simplicity sake, we will use a salaried employee as an example. If a person is salaried at $50,000 per year and is paid twice monthly, his GROSS Monthly Income is $4,166.67 ($50,000/24 paychecks =2,083.33 x 2 paychecks per month). While this amount is important to know for calculation’s sake, it is otherwise irrelevant. This person’s actual income is NOT $4,166.67.

Take that Gross Monthly Income figure and subtract all those wonderful government programs that you are unwillingly volunteering to fund (ie. Federal and State Income Tax, Social Security, Medicare, etc) , subtract your medical, dental, vision, and FLEX benefits (assuming you have those), and subtract your 401K contribution. For this example we’ll assume that after subtracting these items, the direct deposit to the bank is roughly $3,400.

Personally, I wouldn’t stop there. The Bible talks of your tithe as your “first fruits”. So, if you believe that the Bible is true, and you claim to trust God with all areas of your life (including finances), I would strongly suggest tithing from your Gross Income because that is your true first fruits. Trust me; you will not regret it. This should bring us to a true NET Income of $2,983 ($3,400 – $417 tithe).

Do the same calculations with any second income or other guaranteed income (pensions, annuities, etc). As a rule, be conservative in calculating your income, and liberal when calculating your outgo.

NO “If-Come” Money

An important note that Orrin makes in his Resolved book is that you should NEVER count on potential raises, bonuses, or windfalls of any sort. This is considered “If-Come” money. “If I get a raise, then I’ll be able to pay off my debt.” If-come money doesn’t pay the bills, only Income will – especially income with a solid plan and discipline behind it.

Go Do It!

To conclude, I would encourage you to sit down with your pay-stubs, calculate your net income and tithe amounts, and prepare yourself for one of the most gratifying experiences of your life. Resolving to develop financial intelligence can be a tough and daunting task, but let me tell you this, if you stick to it and learn to change your old habits, you’ll wake up with a smile knowing that no one owns you anymore!

Did I miss anything? Leave a comment below.

Stay tuned for Principle #2: Expenses…..

Keep Reading and Leading!

David J. Garza

10 Principles to Increase Wealth

June 19, 2012 § Leave a comment

When Rachel and I tell people that in 3 years we have paid off all of our debts (over $35,000 other than mortgage), the common response is, “Oh, that’s nice,” or “Good for you.” It seems as though most people are either debt free (most are NOT), think that not changing anything will work just as well (it won’t), or they have resigned their life to living with the burden of debt (sadly, most have).

Over the next couple of weeks, I’ll be sending out the 10 Principles that we followed to pay off our debt, increase our savings, and increase our giving… so definitely stay tuned. If you follow the first three or four steps closely, you can be debt-free within the next 3-years (as proven by the thousands of people helped through the LIFE information).

Just a quick note:
These 10 Principles are not my own, but were learned primarily through the LIFE leadership information. Also, we used a number of different resources to get the right mindset to tackle our debt:

  1. Maximize Your Finances Pack – 4 CDs and 1 book – This CD pack has some phenomenal information in it. One CD in particular, “The 10 Laws of Debt Management” by Orrin Woodward, is what inspired this series of posts. Also, the book, The Richest Man in Bablyon really simplifies what your mentality should be like when it comes to finances. To get a Maximize Your Finances Pack, Go to, or click here (reference Member ID #61237401)
  2. Resolved: 13 Resolutions for LIFE by Orrin Woodward – Chapter 8 is all about resolving to live intentionally in your finances. Orrin goes over each of the 10 Principles in much more detail.
  3. I also started listening regularly to the Dave Ramsey show. He has very practical advice on debt reduction. I have heard that many people have used his Total Money Makeover program successfully, but we didn’t use it, so I can’t personally endorse it.

To conclude… keep your eye out for the upcoming series, and definitely make the choice to live intentionally with your finances.

Keep Reading and Leading!

David J. Garza

June 16, 2012 § Leave a comment

Below is a great summary of the Mental Fitness Challenge. For details, go to