Green Options

Millions of Americans are declaring financial sustainability, even if they don’t exactly call it that. After all, we can’t borrow our way out of debt.

We’re paying down or paying off credit cards. We’re getting rid of our mortgage or putting an extra payment toward the principal balance (which has huge cost savings advantages). Or we’re practicing other frugality rules. According to data from the Federal Reserve, the amount Americans owe on consumer loans and credit cards plummeted $21.6 billion in July of 2009 – the largest monthly drop in consumer debt since the Federal Reserve started to track it in 1943. The “cash for clunkers” will, no doubt, alter the outcomes for August and September, but the trend continues to be less appetite for debt, not more.

People are working to get the bankers out of our lives, demanding that we become someone other than a “consumer.” So while the Federal government continues to re-affirm their “wise” decisions to bailout bankers and big finance, Americans are choosing to fire their credit card companies and break their “death pledge” (aka mortgage) by paying it off early. Of course, there are also many Americans who are in so far over their heads that unfortunately, personal bankruptcy and home foreclosure are the only remedy.

I am, however, focusing on those who thrive in abundance, simplicity and sustainability when it comes to community, lifestyle and, yes, financial intelligence. As my wife and I write about in ECOpreneuring, you cannot have ecological sustainability without a large degree of social and economic equity. The ECOnomy is not about “free trade” but fair trade; it’s about commerce that restores the planet, not destroys it or exploits people.

You can join these financial freedom-seekers too, by practicing financial sustainability. As most of us intuitively recognize, the best things in life are free (or close to it).

I’m coming to the conclusion that there’s very little that’s sustainable about the company known as GM.

It’s frustrating and sad, because I was raised in the auto city and had family members who worked in the industry.  I even spent a summer at the GM Tech Center (working for then EDS as an intern at the time).  I’m perplexed by the company’s name which most of us recognize only as a vehicle company.  But it wasn’t always this way.

There was a time when GM was diversified, and innovative.  I was amazed by the poor decision making at GM when it recalled and promptly crushed their all-electric EV1s after bringing them to market in 1996.  I drove an EV1 in California; it rocked!  The company used to also make refrigerators starting in the 1920s under the Frigidaire brand and airplane components during WWII (my grandfather was an engineer who worked on a few).

So when, exactly, did the General Motors Corporation stop becoming a “generalist” industrial powerhouse making motors and instead, devote all its energies to making only motors in transportation vehicles and to lesser extent, but profitable one, vehicles for the military — you know, Humvees and the like?

There’s more to buying that high-tech gizmo or fancy new clothes, especially if you put it on plastic.   If you’re anything like the so-called average American with combined balances on your credit cards pushing upwards of $10,000 per household, then you’re paying a lot more than the purchase price after factoring in an exorbitant interest rate on the unpaid balance.  Just one credit card with a balance of $15,000 and a monthly minimum payment of $300 based on an interest rate of 13 percent would take nearly twenty years to pay off, amounting to nearly $9,000 in interest, according to the website Cardweb.com.

To save or spend?

This raging debate among economic recovery pundits mask the reality that based on our current “free trade” global economic system, what we really mean by spending is consuming.  And in this global free trade system, ecological costs are “externalized” if we use the correct economist’s jargon.  As a result, we pollute, destroy and exploit where ever we can.  If you can’t do this in the United States very easy thanks to national laws and regulations, well then, export your manufacturing and service operations to places that don’t have many, or any, regulations.  Then import these products back into the U.S. to sell at a big box store, plopped down where there used to be viable farmland.  For example, these BIG companies move operations to places where poor people can sort through toxic junk computers for scrap or to places where throwing something away can’t possibly ruin our own clean air or water in our communities.

According to Emily Kaiser’s analysis for Reuters:  “U.S. President Barack Obama needs to convince Americans to spend now and save later in order to get the U.S. economy back on solid footing.”  It doesn’t have to be this way.

Hopefully the US economy will be strengthened from the increased government spending included in the Economic Stimulus Bill, but it is important to look beyond our borders whenever debt is incurred. China is the largest holder of U.S. government debt and actually needs it for investing Chinese surpluses. China has nothing else to invest in, as few other countries have debt markets large enough.

Whenever you take out a loan the temptation is to imagine a big mountain of money in a secure vault somewhere.

Your friendly bank manager, a nice affable chap, is on hand doling out credit to any soul who can jump through his hoops.

This is miles, no decades, away from the truth. Here’s how debt works today ….

This is the first of several posts describing “Strategies of Abundance” for ecopreneurs and green business owners.

Even in financially tough times, these Strategies of Abundance reflect interrelationships between personal finance and business, especially for small business owners. The key for ecopreneurs is how they use their business to make the world a better place. Profits from a green enterprise are the catalyst for ecopreneurs to achieve their Earth Mission, whether to restore ecological integrity or make photovoltaic systems affordable to all.

STRATEGY #1: Stop paying the banker.

The longer you hold a mortgage, the more you work for the bank and the more profitable you make them. For comparison, below is a chart from our book, ECOpreneuring, reflecting how interest can pile up on a $100,000 mortgage at 7 percent interest for terms of 15 and 30 years. While the monthly payment is less for the 30-year mortgage (the primary reason many of us choose it), we end up paying more than double for the use of the same pot of money.

By accelerating our mortgage payments on our 30-year fixed mortgage by paying down the principal when we could, we have the ability to earn less income to pay the bank than if we did otherwise over the long-term. Prepayment on principal is usually acceptable and completely legal. Every time you pay down the principal, the remaining interest and balance is recalculated, meaning that more of your regular monthly payments go to the principal and not interest payments.