Ep. #34: How to Get Out of Debt

Debt is a math problem: more money going out than is coming in. If you want to get out of debt, you need to do the opposite: earn more, and spend less. Listen to this episode to find out the exact four steps that will bring you more money, and how to spend less in a way that saves you time, money, and brings other benefits into your life.


Welcome to Rich & Thin™ Radio, the only podcast that helps you get more bank with less bulk. Today’s episode is for every listener who is feeling weighed down by debt and who wants to get out from under it. I’m Kelly Hollingsworth, and if this is you, I’m very glad you’re here because too many of us are living with chronic debt and today we’re going to talk about how to pay it off.

Debt is just a math problem

The first thing I want to say about debt is, it’s just math. Debt is caused by a math problem of more dollars going out than were coming in, and it’s solved by the opposite math: more dollars coming in than are going out.

When you think of it this way, the solution to debt is obvious. Earn more, and spend less.

The exact four-step process to earning more money

We talk a lot in the podcast about how to earn more: it’s a four-step process where, in the first step, you decide what you’re going to offer for the additional money you want. If you are under-earning, what you’re going to offer is your continued services, but just at a higher price. If you are paid fairly for what you do, and you want to earn more money, you’re going to have to offer something bigger, something more valuable, in exchange for more money. Step 2 is to develop the message that describes your offer. The key to an effective message that brings more money into your life is to make the message a no-brainer. When you have this, when someone hears the message, they know that the thing you’re describing is exactly the thing they need and they are more than happy to pay for it. The third step to earing more money is to deliver that message. The key thing here is to deliver the message in a spirit of service. If the only reason you’re talking about this thing that’s going to bring you more money is that you want to make more money, that’s not going to land well with other people. Your customers want to know you actually care about them before they will do business with you. And the fourth step to earning more money is simply to do the transaction. You deliver the good or service that you offered, and you accept the money in exchange for that.

Now, if you’re a regular podcast listener, you’re probably already familiar with the steps because earning more money is my favorite subject. I once had a physical therapist who asked me what my hobbies are, and my response was, “revenue generation.” And this seemed like a very odd response to him, I think, but then I explained, “Some people like to do crossword puzzles. The puzzles I like to work on are businesses and how they can earn more.:

But that’s not something that I’m going to talk a lot about today. We’ve already talked a lot about earning more money in the prior episodes of this show, so today we’re going to talk about something that many people struggle with, and that is spending less.

Frugality can help wealth, or harm it, so do it the right way.

I’ve hesitated so far to talk about spending less, because too many people who are struggling with money focus on only that piece, and they do it in a way that often makes it more difficult for them. It makes their whole financial life more difficult. One definition of frugality is the sparing use of resources, and people who take this approach to frugality and to spending less often hurt themselves in huge ways with money, because they won’t make simple investments that would dramatically increase their earnings. For example, they shy away from getting help on their under-earning, even though the return on that investment would be astronomical and it would bring a lot more money into their life.

So the definition of frugality that I like for my clients to use is not the sparing use of resources, but the prudent use of resources. When you’re using your resources prudently, you will make investments that will bring a lot more money to you. And this prudent use of resources is not something that many of us are doing. I was talking with a dear friend and coaching colleague the other day, the lovely and talented Adriane Nichols, and she reminded me that most people are living paycheck to paycheck. She is a television actress and a Martha Beck- and Brooke Castillo-trained life and weight coach, and as we were having this conversation, she was driving around Beverly Hills trying to find a parking place for her son’s sporting event, and she was assuring me that everyone she knows is in debt. Among her smart, professional, successful women friends, for example, debt is as ubiquitous as mascara. And this is consistent with what I see in practice. Even the highest earning of my clients are often spending north of what they earn. If they make five million a year, they spend six. If they make fifty a million a year, they spend sixty.

So debt is everywhere my friends, it doesn’t matter if you live in Beverly Hills, California, or Bonners Ferry, Idaho. And if you want to get out of it, the best thing you can do is change your thoughts about earning and spending.

Debt comes from your thoughts about earning and spending

So this was a really funny thing that happened in the conversation I was having with Adriane as she was driving around trying to find a parking place: she mentioned a friend who said, “I just wish I had more money, because if I did, I would be able to do things like take my kids to Disneyland for the day, and the $700 or $800 it would cost would be no big deal.” And she also mentioned a couple other examples of people she knew, friends and acquaintances, who wanted to have more money in their lives, less debt and higher earnings, so they could also do things like this.

And I said, “The funny thing about this is, it reveals why people are in debt in the first place. They think that spending is the way to have fun. And that thought is the reason they are in debt. They like spending. They think it’s fun.” And I explained that if I were spending the day with some kids, I wouldn’t dream of spending seven or eight hundred dollars. We would do some crafts, or I would play some games with them, or we would go swimming or something. We might spend some money going out to a meal or something, but definitely not hundreds of dollars, and we would have just as much fun. Maybe even more fun because my thought is, who wants to stand in those long lines at Disneyland?

So then we kept talking about this, and we realized that it’s the same with overeating. It’s exactly the same. Some people go on a diet to lose 10 pounds so that they can reward themselves with a huge hunk of chocolate cake. And here, Adriane said, “Oh, I would never do that. I will eat cake, if I really want cake, but I would never sit down and eat a huge slab of it. I just don’t like to have that much sugar in my body, it feels terrible, and I don’t like to feel that full.”

And bam, this is when it hit us right between the eyes. The reason money is easy for me is because of the way I frame it. It’s easy to earn, and it’s fun to save and invest, in my mind. And the reason weight is easy for her is because of the way she frames food and eating. Food is fun, it’s nice to have an enjoyable meal, but it’s also nice, maybe even nicer, to feel good when you get up from the table. It’s fun for her not to eat a lot, and that’s an easy thing for her to do now, and she is a perfectly normal eater, she eats regular meals, she doesn’t do crazy diets, and she’s thin enough to appear on television and get paid for doing it.

So then we started laughing, because we’re both coaches and we both know that your thoughts create your result. The framework of thought that you’re living in determines the body you’ll live in and the bank account that you’ll live with. But you always need a reminder, and the reminder that we got that day, is, we have completely opposite thoughts about food, me and Adriane, which is why it’s a struggle for me and it’s easy for her, and we have completely opposite thoughts about money, which is why money is easy for me and something she wants to work on. In the vernacular of this podcast, I am “rich” because of the thoughts I think about money and she is “thin’” because of the thoughts she thinks about food.

So we decided that we are going to work on our Rich & Thin™ Adventures together, and Adriane, I’m super excited about this, is going to be joining us in upcoming episodes of the podcast so we can share with you everything that we are learning… Everything we’re learning about getting away from broke and bulky, and moving towards Rich & Thin, and who doesn’t want that? I think we all do. So I hope you find these conversations interesting, and in any case, that was a bit of a long story to tell you a very simple concept. It’s going to be no surprise to you if you’ve been listening to the podcast, but if you are carrying debt right now, that’s largely because of your thoughts about earning– you think earning is where the difficulty is–or your thoughts about spending– you think spending is where the fun is.

I don’t have any problems with debt because I do not think spending money is fun.  Or rather, I guess I should clarify that there is as much or more fun to be had in not spending money as there is in spending money. In my mind, that’s how I think about it. As with everything, spending is completely neutral. When my husband and I went to Maui last month, I enjoyed it. It was fun, and we were spending money. And when my husband and I are home in Idaho this month, I’m enjoying it. It’s fun, and we are not spending money. So I see spending money in a completely neutral way. There’s no moral charge to it. There’s no status to it. All there is, is an action, and a result. If I spend money, I get one result: Less money in my bank account. If I don’t spend it, I get a completely different result. More money in my bank account.

For the most part, those of us who struggle with debt don’t have this kind of neutrality around spending. There is a charge associated with spending. It’s more fun than not spending. It’s more “moral” than not spending. Often, people get into patterns of, I’m a better person if I spend money. For example, I’m a better parent if I take my kids to Disneyland vs. if I just take them to an inexpensive picnic and maybe swimming for the day.

So the first thing I’d like you to notice about getting out of debt is that your thoughts matter because they determine whether you will have spending or not spending in an elevated position. If spending has a higher priority in your mind, if it’s elevated for you as a better activity for whatever reason that’s based on your thoughts, you will have a very hard time not spending.

Why Budgets (and Diets) are destined to fail

And this is the reason the general approach to getting out of debt fails. It’s the same reason that most people fail to lose weight. If you’re in debt, you’re told to go on a budget, and if you’re overweight, you’re told to go on a diet. And then what happens? You restricted yourself from doing the very thing that your brain finds terribly important, that your brain finds comforting. You restrict yourself from doing the things you do to feel better about yourself, the things you do to have more fun and to fit in in your life given the lens you’re currently wearing. And that puts you in a white-knuckling situation where you desperately want one thing, i.e. to overeat or overspend, but you’re forcing yourself to do something else, stick to a budget or stick to a diet. This is exhausting, and very few people can do it for very long.

And the other problem is with that approach is, where is your focus? If you spend half your morning poring over your budget, and the other half counting up your calories or your carbs or your fat grams, that’s half of your day that’s focused exclusively on restriction. You’re focusing on deprivation. The path to wealth is not paved with deprivation. So if you think it’s really, really fun to count up the dollars you’re not spending and the donuts you’re not eating, have at it. But if you don’t think that’s fun, or if you’d like to spend more time on earning or something else that you would enjoy more and bring more wealth to your life, the way you can avoid the counting everything you spend, and tracking it all, and tallying and strict budgeting is, the first step is to simply manage your mind about overspending, decide that it’s not fun, it’s not better, it’s just neutral, and the next thing you do is you put processes in place that organically and easily reduce your spending.

Features of best-practices in frugality

In a minute I’ll share some examples from my own life with you. I’ll share with you practices I’ve put in place in my own life so it’s super-easy for me never to overspend, but before we start, I’d like to first alert a few features that you’ll see in these examples because they illustrate what the most effective frugal practices are.

Frugality shouldn’t eat up your time

One key feature of effective frugality is that it must not eat up your time. Money, you can make more of. Time, never. So if you’re burning time to save money, you’re probably not being frugal in the effective sense. You’re not prudently using your resources. Rather, you’re probably doing what one of my clients calls, “Tripping over dollars to pick up pennies.”

Back when I was still drinking caffeine, I used to go to Starbucks and work on my laptop and once in a while I sat next to a woman who would spend hours clipping and sorting coupons while her husband read the newspaper. And I would watch her move all those little bits of paper around, and I’d think to myself two things. First, almost all of those coupons were for food-like substances rather than actual food. And second, I would think, I hope you enjoy all of this coupon-clipping, because that is a very time-consuming way to save a little bit of money.

So most people think they don’t have time to be frugal, but the truth is that the best kind of frugality—the most effective frugality that actually helps you build significant wealth–is the kind that doesn’t take up your time. It actually saves time.

Your frugality tactics should yield additional benefits

With the very best frugality tactics, there should be other benefits as well. They save time, they save money, and they also help you get the body, life and business you want. Dave Ramsey likes to talk about beans and rice for people who are deep in debt, but beans and rice make me fat. They’re way too carb-y for my constitution.

So I want to clarify, when you’re working on practicing effective frugality, don’t think you must get bulky to give up broke. The things you do to avoid excess spending also should support you in other areas of your life.

My best practices for effective frugality.

Now I’ll share with you three of my favorite frugality tactics. And here I’m not suggesting that you must do these things. Frugality is a very individualized thought process. What works for me isn’t necessarily going to work for you. Maybe it won’t work for you at all. I’m just sharing these tips with you, not because I’m saying you have to do them, too, but because I want to show you how I’m thinking about what I’m doing, and why these strategies work for me. The goal here is that once you see how my thought process works, it may help you start thinking about things in your own life in the same way, to come up with your own best strategies for effective frugality.

Meals at home: Save time, money, and eat better food

The first thing I do to save money, time, and get many additional benefits is I cook at home. When we’re in Idaho, my husband and I almost never go to restaurants. We eat out on vacation, but when we’re home, we generally eat at home unless we’re meeting friends and there’s a social purpose beyond just eating.

Everyone thinks cooking at home is too time-consuming, but we find that by the time we select the restaurant, drive to the restaurant, study the menu, order the food, wait for the food, maybe send the food back if it isn’t right, eat the food, wait for the check, pay for the check, and drive home, we could have made and consumed and cleaned up after a great meal in our own kitchen, with time to spare.

And the food at home is better. We buy organic fruits and vegetables. We don’t cook with processed oils. The meat we buy is grass-fed, wild-caught, and ethically and sustainably sourced. This may sound expensive, but it isn’t when you compare it to restaurants. The two of us can eat three or four meals of grass-fed, organic hamburgers for less money than a single trip to McDonalds.

Cooking at home in an easy, efficient way is a skill that you develop over time, and developing that skill is an investment that pays off in droves. When I lived in New York, my neighbor used to spend eight dollars a day ordering scrambled eggs delivered from the deli on the corner. She had that for breakfast every morning. And I showed her how easy is to scramble her own eggs, and she was amazed. She couldn’t believe how fast and easy it was, with the added bonus that her eggs were hot when she ate them, and not cooked in some yucky processed oil, and this saved her eight bucks a day for the rest of her life. An enormous savings and huge benefits for a little teensy bit of learning about how to scramble an egg. It doesn’t have to be difficult or complicated. I could go on and on about how to save time and money by cooking at home, but this episode is running a little long already, so I’ll just share my best tips with you.

  • One of my tips is that I always go to bed with an empty dishwasher. I run it early in the evening, and no matter how tired I am at night, I unload it before I go to bed. I do this because it is so much easier to cook if you have a place to put the dirty dishes and they’re not stacked up in and around the sink while you’re trying to work. If you don’t have a dishwasher, the same concept still applies—go to bed with a clean kitchen and you’ll be a lot less tempted to go to restaurants.
  • I also cook no-frills food. For lunch and dinner, we grill, bake, or sauté fish, chicken, or some other kind of meat, and we have a vegetable or a salad. For breakfast my husband eats eggs, those are fast and easy. Sometimes I do that, and sometimes I eat leftovers from the night before, but mostly I eat a big salad with many, many kinds of chopped vegetables in it. And I adore salad, and I plan my day while I’m chopping and eating the salad that I have for breakfast.
  • I also keep quart jars of homemade soups in my freezer. And this isn’t super difficult, because every Sunday my husband and I have family dinner and game night with my mom and my sister and her husband, and other relatives if they’re in town, and for these Sunday nights when it’s my turn to host, I often make a huge pot of soup and there’s plenty for dinner for my family and for many dinners to come after that. Whenever my husband and I are too tired or too busy to cook, all we have to do is look in the freezer and there is so much to choose from. It’s never boring. We have clam chowder and beef stew and vegetable soup and chicken soup. I even make a vegetable soup with Italian sausage and fennel and other Italian spices that I call pizza soup. It tastes like pizza, we sprinkle it with parmesan before we eat it. Soup is the perfect food to get rich and thin, because it saves you time, money, it freezes better than almost any other food, it’s inexpensive, it’s an amazing weight-loss tool because it’s hot, comforting, flavorful, satisfying, super healthful, relatively low in calories, and so easy to make, store, and take with you to work.
  • My last cooking tip is that I have a no-gadget, no-clutter policy in my kitchen. If you’re going to cook, your kitchen counters are your workspace, and it’s so much easier to work when your space is clear. I once helped a friend organize her kitchen, and she was having a hard time cooking because she was storing a bunch of extra stuff she didn’t use on her countertops and in her cabinets. She said she didn’t want all these kitchen gadgets to wind up in a landfill. So I asked her, “So you would rather use your kitchen as the landfill?” The fact is that if there are extra gadgets and other kitchen items in the world, they are here on the planet whether they’re in a landfill or sitting on your countertops and cluttering up your kitchen and making it difficult for you to cook healthy, inexpensive meals. You may as well get them out of your kitchen so you can actually do your work. You can always drop them off at a thrift store where someone else may find use out of them. My grandmother used to store prescription drugs in her microwave so whenever she wanted to heat something up, we had to move about twenty or thirty pill bottles. This is the kind of clutter I’m talking about. That example may be extreme, but a lot of are suffering from kitchens that have that kind of thing going on. If you just keep your countertops and your kitchen completely clear of clutter, you will find it a lot easier to put a meal together with very little time and effort.

Clean your house

My next tip for effective frugality relates to your house. Maybe you’ve seen the “Not so Big House” books by architect Sarah Susanka. I love these books—she wrote them as a solution to the McMansion problem. The McMansion seems like a good idea in abstract but that’s not comfortable to live in. It may look good, but entire rooms go completely unused. Her website says that, Not So Big “doesn’t necessarily mean small. It means not as big as you thought you needed, but designed and built to perfectly suit the way you live.”

I think the second book in that series is about “Not So Big Remodeling” and her first tip in that book is, before you do any remodeling, just clean your house. She says many of the homeowners she deals with realize that they don’t need to remodel once they clean up years’ worth of dirt and clutter.

You can hire someone to help you with this—it’s much cheaper to hire a housekeeper than an architect and a contractor—or you can do it yourself. Everyone thinks they’re too busy to clean their own house, and I used to think that, too, but lately I’ve changed my mind about this. Admittedly, I like cleaning house, but I also find that I do my best thinking when I clean my house, or I listen to podcasts and I learn something. And I feel more connected to my space when I actually clean it. I enjoy my house more when I clean it because I feel more connected to it. Plus it’s a little bit of activity, which we can all use these days. So for me, there are lots of benefits to not just cleaning my house, but to cleaning my own house, and all of this keeps me from wanting to redecorate or remodel. In my mind, those activities are wealth-killers because they’re black holes for time, money, focus, and effort. If you love doing your house over and over again, that’s one thing, but a great way to save yourself tens or hundreds of thousands of dollars is to skip a remodel and wait for the next one. When we first moved into this house, granite was all the rage. If we’d remodeled to get that, now we’d be thinking about another remodel because everyone has moved on from granite to something else. If you skip a remodel, you’ll save a ton of money. And you’ll bring a ton of money into your life if you’ll take the focus and effort that you would have spent on remodeling into your business and earning more.

Note that if you’re going to do this, you have to manage your mind. You have to get out of the “I need to keep up with the Joneses” mentality, and get into the “I just couldn’t care less” mentality.  If you really try, this is easy to do. Imagine your last remodel. Picture your friends who are currently going through theirs. No one is happy. Everyone is stressed, and they’re bleeding cash out of their eyeballs. And then, do they really enjoy their masterpieces? Some people do, but a lot of people but many people find that they just start having fits about dings in their new cabinets and dirt on their new carpets.  My husband and I currently live in an overpriced tear-down, and one of the big benefits is that no one can do anything to this house that hasn’t been done before. Wet kids, sandy kids, fuzzy little puppies who leave little fur balls everywhere—none of it is a big deal.

Spend an outrageous amount of money on a single clothing item

My next tip, many people will disagree with, but it’s always worked for me, and it’s to spend an outrageous amount of money on one garment or accessory, and then you can save an outrageous amount of money on everything you wear with it. For example, I own a handbag that cost more than the current blue-book value of my car. This probably says as much about my disinterest in cars as it does about my fascination with a good purse, but the truth is that purse saves me a ton of money on the rest of my wardrobe because when I’m carrying it, no one looks at anything else. Or if they do notice anything else that I’m wearing, it all has a halo effect around it because the purse is so nice. I also used this strategy when I was living in the Virgin Islands. I had a $600 hat that I wore with clearance-rack sundresses.

One big reason I do this is because my day job is in an industry where the participants routinely buy the kind of purse that costs more than my car, and I want to look like I am part of that world when I’m in it. Mostly I don’t need to look this way because I’m not in New York or those other places very often. I’m in Idaho working from my home in my yoga pants. But when I am there, I don’t want to look like a hayseed from Idaho. And some people would say this doesn’t matter. I think it does. I have a magnet on my fridge that says, “Good clothes open all doors,” and I don’t think you need to go overboard, but I do think an appreciation and observance of the standards and norms for dressing in your community and your industry make a big difference. And this doesn’t mean no one should have a nice car. If I were a real estate agent or someone who has a car that’s in the public eye, I would have a better car, but for me, a car just doesn’t matter. No one in my professional life is ever going to see my car, so I don’t have to spend a dime there. Your situation might be completely different.

But it’s important to be careful here. A big mistake I see under-earning people make is they won’t spend money on good clothes if they need them, and a big mistake I see overspending people make is that they buy far more than they need with the idea that it’s necessary when a little bit goes a long way, so just keep this in mind: If a high-end garment or accessory would make a difference in how you’re perceived, and that would make a tangible difference in the outcomes you achieve, buy it. It’s a true investment. If it won’t make a difference, then it’s just pure spending, and you should be clear about that before you buy it. It’s okay to do a pure spend if you have the money and it would bring you a lot of enjoyment, but just be careful not to get confused. You might need one great pair of shoes for business. You don’t need a hundred.

If the initial price tag of a purchase such as the ones I’m talking about makes you a bit queasy, or maybe a lot queasy, always keep cost-per-wear in mind, because one investment-grade item, over its lifetime, will usually cost you way less per wear than a cheaper piece of clothing. I still own a Ralph Lauren cashmere sweater that I bought almost thirty years ago. It’s not the thin, skimpy kind of cashmere that you get on clearance at department stores after the holidays for $99. It’s serious cashmere and I spent quite a bit on it thirty years ago, it would still be a lot of money even now, but after all these years it’s cost me a fraction of what multiple cheaper sweaters would have cost.

And I can’t help but notice, now that I’ve shared this third tip with you, I can’t help but notice that I’m making my wardrobe austerity more palatable, not just to others but to myself, with an occasional splash of indulgence, and I’m wondering, if I were talking to my good friend Adriane about this, would she would probably point out that if I did the same thing with food, a little indulgence here and there, I would probably have a much easier time with my weight. I suspect that’s going to be a very interesting conversation when she and I have it, and that’s just one of the many reasons I’m excited to welcome her to upcoming episodes as we explore our Rich & Thin™ Adventures together. I’m really looking forward to that, and I hope you are too. So for now I’ll just say thanks for joining me today for this discussion getting out of debt, and effective frugality strategies, and I’ll look forward to speaking with you next time.

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