Gettting Off Debt Treadmill Isn’t Hopeless

Earning 18 percent return on investment, risk free and tax free, is a guaranteed lead-pipe cinch.

Anyone can do it just by paying off their charge cards.

How many times I have made that case with my own family, upon discovering that a member of the clan allowed credit balances to mount while diverting funds to the stock market.

Thus, it is especially gratifying that no less an authority than money management guru Andrew Tobias shares my high opinion of paying down charge cards as a personal finance priority.

What about people who don’t have a credit card? No problem, said the author of the best-selling book “The Only Investment Guide You’ll Ever Need,” during a recent appearance in Spokane. You can also earn an 11-percent return on investment - “guaranteed, risk-free and tax-free” - simply by purchasing an automobile and paying cash for it.

“It’s perfectly legal to do that,” said the sage, deadpan. “You may have to buy used cars for a while, as I did, to get off the debt treadmill. But that’s not against the law either.”

“However, forget 18 percent, or 11 percent,” he urged listeners. “Let’s talk about 40 percent. Tax-free. Interest free.”

The secret?

“Just buy ahead, when things are on sale.

“I am convinced,” he went on, “that anybody can make $1,000 stretch to buy $1,400 of the very same things you would have bought this year anyway - tuna fish and toothpaste, shaving cream and toilet paper. Just buy when things are at their lowest price.

“Figure out what you need. Shop for it. Compare prices.

“And buy a year’s supply.

“Most people don’t do that. They don’t do it when they buy toilet paper or tuna, and they don’t do it when they buy car insurance or life insurance.

“You do it, and you will save 40 percent tax-free, risk-free on the $1,000 you tied up. Furthermore, it’s less effort. And you never run out of anything.”

Also, don’t buy the high-priced brand. Buy the store brand. It’s the same thing at a fraction of the cost. “Aspirin is aspirin,” says Tobias. “Bleach is bleach.”

Trim you own hair, he advises. That’ll save $25 every three weeks, for an investment of $2,125 over five years.

Drink water. “It’s cheaper than soda,” Tobias said, “and better for you.”

“Be a buyer,” Tobias urged, “not a sellee.” A “sellee” falls for sales pitches. “Buyers” make their own choices.

“For most normal people like us,” said the money management counselor, “changing these basic habits can make all the difference in the world.”

For example, cigarettes, whether or not you believe they are addictive, are bad for your financial health and your retirement. If a 12-year-old who smokes a pack a day took the $700 he or she would spend a year on cigarettes and put it into an individual retirement account (IRA) earning 10 percent, at 65 that child would not have a dread disease, Tobias said. Instead, they would have $832,000.

“That’s the power of compound interest combined with the power of saving at the basic level,” said Tobias.

As to investment strategy, Tobias recommends a four-pronged approach:

One: “Liquid funds.” Cash in the bank. A money-market account.

Two: An inflation hedge. Buy a house or an apartment building. Tobias doesn’t like diamonds or gold.

Three: A deflation hedge. “For that, you want a really safe, long-term, guaranteed, fixed-income investment,” said Tobias. “The single best example is a 30-year U.S. Treasury Bond.”

Four: A prosperity hedge. Equities. “There are all sorts of mutual funds that will let you spread your investment around the world,” said Tobias. “Diversify.”

And finally, “Know yourself. Everything is relative.

“I truly believe,” said Tobias, “that success in personal finance has so little to do with knowing margin requirements on soybean futures and so much more to do with personal habits and knowing how to be happy with what you can afford. It’s not how much you’ve got that matters - it’s in which direction you’re going.”

, DataTimes MEMO: Associate Editor Frank Bartel writes on retirement issues each Sunday. He can be reached with ideas for future columns at 459-5467 or fax 459-5482.

The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review