We are all ashamed.
Ashamed of what people might think if we do not keep up with the Joneses, Johnson’s, and JingleHeimer Schmidt’s. Ashamed of how people will portray us if we live below our means in a modest way. We crave attention from others, it is human nature. Even the person who says “I don’t care what anyone thinks” wants you to think they don’t care what others think. In turn they are hoping you find acceptance in them for “not caring” (what a concept). Our psyche drives our decisions, yet our decisions dictate our life. These don’t always go hand in hand to result in what is best for us. We would rather go into debt than lose our honor.
One thing that I just cannot understand is the fact that people would rather have material things that, in essence, make them work much harder and longer than they have to. Debt is dumb, borderline insane. It has to be addressed in a blatant manner. If you are currently taking on debt, specifically consumer debt, then you need to stop (in the name of love) now. No ifs ands or buts. It must end, you’re destroying your life one transaction at a time.
I talk about empowering your life through money. It has nothing to do with pinching pennies, nickels, dimes, but using money to put you in the drivers seat. Money has the capability of changing your life for the better. It gives you the opportunity for pure freedom. But if you are carrying debt then you are going in reverse faster than Vin Diesel in Fast and Furious 23 (I think that’s the one we are on now). It is crippling to you and your future.
If you are already in debt, and reading thus far was an extreme bummer, cheer up because I will show you how to develop a plan. A plan that will bring you back to freedom.
If you are already in a hole, the first thing that you must do is stop digging.
If your debt is growing every month, you need to find out why. You cannot keep consuming above your means. The number one way to win at this game we call money is to spend less than you make. It’s a simple concept yet most people do the opposite. Let’s crush your debt once and for all.
Debt Is Like Miley Cyrus – You need to come in like a wrecking ball.
The first thing when tackling debt to understand is that personal finance is 80% behavior and 20% head knowledge. What most debt dummies do (I was one too) is go after their debt with the highest interest rate and largest balance. This may be mathematically the most logical but from a behavioral perspective feels like you need to climb a mountain. I propose that we attack our debt from a psychological perspective. Go at the debt with the lowest balance first. This approach will give you the feeling of a small win and give you a feeling of control (Dave Ramsey brought this to the forefront).
Start by listing your debts in order from the least to greatest. It could be something like:
$700 Medical Bill
$4,200 Credit Card Bill
$9,000 Car Loan
$19,000 Student Loan
Make the minimum payment on all the debts, then attack the smallest one first. Something like the medical bill can be Miley Cyrused (Paid Off – Am I going to far with this?) in a month or two. Once that first debt is paid off, you take that extra money and go after your next debt, the credit card bill. Pay off the credit card bill then take all that money and roundhouse kick the car loan. By now you will be a black belt in debt karate and you can face the grand master, the student loan. The reason why this works is that you are freeing up your minimum payments on other debts (by paying them off like a boss) and moving them towards you’re next victim, I mean debt.
It’s either you kill your debt, or your debt slowly kills you.
You have to have the desire to annihilate your debt. The mentality of an assassin to destroy this freedom sucking leech from your life. If you are consistently feeding into your wants (eating out regularly, consistently buying clothes, still going on vacations etc.), then you are going to have a hard time paying off your debt. These things are fantastic if you find value in them, and should be added to your life, but they are a much more appropriate reward for someone who is debt free. If you want it bad enough, even a huge sum of debt can be paid off in a year or two. Then, indulges that matter to you can be enjoyed responsibly without adding fuel to the fire.
If you are still living above your means while in debt, it is devastating to your finances. It’s like taking your hard earned money, dumping it in a bucket, and riding a roller coaster while trying to keep all your money in that bucket. You will save a few dollars here and there, but the majority will go to your debtors waiting below. You Need to Reward Your Future Self. The continuation of debt will only cause your future self to work harder and live in stress longer. Every interest dollar that you pay to the credit card company is stealing dollars away from your hard earned efforts. This makes your debt an immediate emergency.
Your Money Can Work Much Harder Than You Ever Can.
Once your debt is paid off, have a party. Play some Earth, Wind, and Fire and celebrate. You, my friend, are now about to begin your journey to building wealth. Your debt steals away the ability to put your dollars to work for you, they instead work against you. You can now work toward building something great for your future. Your goal is to avoid ever letting debt creep back into your life and moving forward. You can now pay yourself first instead of throwing your money down the interest rate toilet. In turn, you can drive those interest rates in your favor by making smart, sound, investing decisions.
So, if you are in debt, you have made a mistake. This can actually be helpful, because you can learn a valuable lesson. Those who succeed, learn from their mistakes and those who fail build on their mistakes. Your debt is a tidal wave of an emergency. Don’t try to keep up with your friends, do what is best for your situation. Spend less than you make, and invest the rest soundly.
Cheers,
Andrew
Andrew is the host of The Personal Finance Podcast, a show that is changing the way you think about your money. His primary goal with the podcast is to bring as much value as possible to his listeners.
Andrew's favorite free financial tool he's been using since 2014 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free. It has no trading fees and is his preferred way to invest without having to lift a finger.
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Great read! I thought we were on Fast & Furious 47 by now, but who is counting. Additionally, I am glad someone turned Miley Cryus into a verb.
I agree with you completely about debt except in one instance. Mortgage debt for quality real estate that provides positive cash flow and passive income is a wonderful thing. I plan to retire with 7 figures of this kind of debt