My Friend Samuel’s Financial Troubles…

An old friend Samuel called me last night and told me he was having some financial problems and asked for my advice…

We started by talking about his business and his income…

Samuel told me that his income this year was going to be right at $75,000, which is down about $11,000 from a few years ago because his company is in a rough patch.  But he was optimistic that his income would be back up to near $90,000 in a few years.  At least Samuel felt his business was not going under and his income shouldn’t go much lower.

I told him this sounded fine, he is in a better position than a lot of people and that his first priority is to make sure his business remains healthy.

Then he told me that he has a lot of personal debt.  I asked him to add it all up and he told me has a total of $446,882 on a bunch of different credit cards and other revolving loans.  I was stunned…

(I wondered, how can ANYONE have $446,882 of credit card and revolving debt!?!)

The good news is that Samuel has an excellent credit rating (!?!)  Right now, he is only paying 3% interest, or $14,000 a year on that huge debt. But, these are adjustable rate loans and the rates could change instantly. 

Samuel is rightly worried that if any of his creditors start having doubts about his ability to repay, these interest rates could quickly double or triple and he could find himself paying more than half of his annual income just for interest.  At that point, Samuel would be effectively bankrupt.

So, I told my friend Samuel that it was going to require discipline but that he needed to reduce his credit balances starting RIGHT NOW.  I recommended that he try to reduce the credit balance by at least $20,000 a year in addition to paying his $14,000 interest.  There is no quick way out of such a deep hole, but this would be a big step in the right direction.

We discussed that the most critical thing is that his creditors to continue to view him as a responsible and safe risk so they would hold off on raising his interest rates. Paying off part of the principal would make Samuel appear responsible.

Now for the tough part– finding places to cut back so Samuel could free up the $20,000 needed to reduce his debt. For the past ten years, he has been taking out new credit cards every year just to pay the interest on the older cards, so he really needs to cut back by $34,000 a year.

I told Samuel he can only afford the basic necessities.  No more vacations, no more dinners out, sell one of the cars and a painting or two, cut your own lawn, fire your servants, etc.   I gave him the typical Dave Ramsey or Suze Orman advice you hear all the time on talk radio and the TV talk shows.  There is no easy way out.

I explained to Samuel that “he needs to stop picking up the damned tab for everyone”!!!” 

I explained that he just wasn’t in a position to be treating anyone to anything.  (I knew from past experience that Samuel likes to go around acting like a big shot giving meals and gifts to people to make himself look important)  Plus I know he has a bunch of parasitic “friends” that hit him up for loans all the time—which he never expects them to repay.  I explained that all of this needs to stop immediately because the money just isn’t there.

Then he dropped the bomb on me…

He said he cannot reduce his spending this year.  He has already planned to spend even more. A lot more…

Samuel informed me that he has already committed to spending at least $128,900 this year on his $75,000 income. 

I was flabbergasted and asked where the money will come from to pay for all this!?!

He told me he plans to get a couple of new high-limit credit cards and rack up an additional $50,000 or so in debt this year. This will bring his debt to over $500,000 by the end of the year, instead of paying it down like we had been talking about. 

Then he said that he had already made “iron-clad commitments” to spend the same (or more) every year for at least the next three years– and there is nothing he can do about it. 

(He mumbled something about maybe in three or four years he would be in a position to do something, but not yet…)

He told me he is getting a little worried about finding more people to give him credit cards but they’ve always been there for him in the past and he doesn’t have a Plan B.

So, it seems that Samuel’s concern isn’t getting his finances in order, it’s too keep finding new suckers to give him more money to fund his unsustainable lifestyle.  His biggest concern is that someone will figure out his scheme and cut him off before he is dead.  He just wants to keep rolling it over every year till it becomes someone else’s problem and then he won’t have to deal with it. 

He’s playing kick the can…

Just as I was about to tell him that I considered what he is doing is fraudulent, he hit me with another bomb…

Apparently Big Shot Samuel has also worked out a deal to take care of the expenses of all his retired relatives– all their food and shelter and their medical expenses until they die.  They always thought he know a lot more about money than they did, and he looked rich and succesful, so they all worked out a deal together twenty five years ago.

Each year, Samuel took a small amount of their income while they were still working, with the understanding that Samuel would invest it for them in his most profitable secret deals.  Back then, he needed the money to pay for his fancy cars and nice vacations, so of course it never got invested.  He always intended to make up the difference next year when things got better.  Of course, as we have seen it never did get better, it just got more and more out of control for Samuel.

Now many of them are retired and no longer sending him any new money to “invest”, and Big Shot is on the hook to take care of them till they die.  This is going to add to his required spending (and borrowing) starting this year and it is going to go up real fast in the years ahead as more of his relatives retire, especially if inflation goes up and the stuff old people need to buy to stay alive goes up in price.

Some of these people aren’t even 65 yet and might live 30 more years.  Samuel crunched the numbers and figured out and this amounts to an additional debt of $3.1 to $3.7 million that he has promised to pay these relatives into the future.  He did take their money and made these promises.  Little do they know that Big Shot Samuel has no money and is already broke. 

Most of his relatives will never see their money from Samuel.  The money they are counting on to stay alive and pay for groceries and heat and electricity.

Samuel’s latest hare-brained idea is to have them all go to his doctor for their medical care– he says it is so he can control the cost better and give them the finest care. 

I half suspect it is so he can tell the doctor to cut off most of their care so they’ll die sooner and he won’t have to pay their retirement payments as long.  That is a horrible thing to say about my friend Samuel but it seems to fit a pattern.

At this point I told Samuel “Good luck in prison” and he told me that he is actually in charge of the prisons. 

Then I asked him if by chance he had considered printing up fresh hundred dollar bills in his basement to stay afloat.  Samuel said “I don’t have to print ‘em in my basement, I’m doing it at one of my business ventures called the Bureau of Engraving”.

If you haven’t guessed by now Samuel is Uncle Sam, aka the US Federal Government.  All of these numbers are accurate and to scale for 2010 to the best of my knowledge (see below)…

The government is running a Ponzi scheme and it is frightening.  All of this is unsustainable and at some point there is going to be hell to pay.

“It is better to be prepared five years too early than to be one hour too late”

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Be Prepared, 

Survival Rob

Fed Govt. Data for 2010
Tax receipts (income) = $2.165 trillion ($75,000 salary)
Outlays (spending) = $3.720 trillion ($128,800 spending)
National Debt = $12.9 trillion ($446,882 credit debt)
Interest on Debt = approx $400 billion  ($13,900 credit card interest)
Future Soc Sec and Medicare Unfunded Debt = approx $ 90-107 Trillion ($3.1 to $3.7 million future promises)