If you’re like most people you have a mortgage, a car loan or two or three, at least a few thousand dollars in credit card debt, student loan debt etc. Also, if you’re like most people you think this is perfectly normal…
In the opening lines of their best selling book the the Millionaire Next Door, Thomas Stanley and William Danko share the parable of a trust officer at an investment firm who just finished interviewed 10 first-generation millionaires, he says, “These people cannot be millionaires! They don’t look like millionaires, they don’t dress like millionaires, they don’t eat like millionaires, they don’t act like millionaires–they don’t even have millionaire names. Where are the millionaires who look like millionaires?” The trust officer on the other hand owns expensive suits, expensive watches, leased cars etc… The authors go on to ask the question of the trust officer and the actual millionaires, “who looks more like a millionaire?” Most people would say the trust officer, they would be wrong.
How much of your life do you spend working and stressing to make payments on all that debt to LOOK the part, like Stanley and Danko’s trust officer? Go on, add it up, how much do you spend each month on debt payments?? Now, what percentage of your monthly income is that number? If you’re working harder each year, and stressing more each month just to make payments on debt then you’re a slave to your things. From cars to cell phones we’re all told by the global marketing machine that we DESERVE the best, and we can have it NOW. Most of us have been sold the expectation of a lifestyle that we can’t afford. Your neighbors, friends, family are all running on the same financial treadmill to nowhere, and because everyone else is doing the same thing YOU think it’s ok. It’s not!
Getting off the debt treadmill is a multi-year process, but in a shorter time than you think you can pay it ALL off and free yourself. What would that feel like to be truly debt free, have you ever even considered it? The following techniques can be used to start the the ball rolling, I will dive deeper into each of these topics in future posts which can all be accessed from the righthand toolbar under the Freedom From Debt category.
Techniques for becoming debt free, for more ideas see 7 Money Saving Tips – Use These Ideas and Your Money Problems WILL be Solved!:
Redefine your lifestyle, are you driving a $50K vehicle when a $20K vehicle will do just fine? Are you living in more house than you need? You will never free yourself from debt if you can’t live within your means, and stay there. You have to understand that if you’re using debt to fund your lifestyle, this includes auto debt, credit cards, large mortgages etc. then you’re not living within your means. Which, might be fine for the moment but it will rob you of your future.
Snowball your debt payments, Pay off one debt, use the amount that you were paying on that debt each month to start prepaying another debt until it’s gone, repeat. This will snowball and allow you to eliminate your debt completely without increasing the amount that you’re spending on debt (as long as you execute the first point). It won’t happen overnight but imagine how it would feel to be completely debt free in 10 years.
Pay your debts before you invest, People will disagree with me on this one, and in a very conceptual sense they are right and I’m wrong. However, in the real world executing a rate spread arbitrage scheme is hard at best. So, It’s essentially a question of future cashflow and risk. Paying off your debt provides a guaranteed risk free return, and increases your future cashflow by eliminating principal payments.