Last month I wrote about “BUDGETING” as the second of the FIVE key ingredients to Financial Peace and the recipe that I find most useful to get there. To recap here’s the Full list of the 5 KEY Ingredients once again: (I believe in repetition!)
- Simplifying your Life
- Eliminating Your Debt
- Saving/Investing/BUILDING WEALTH
This month I want to focus on ELIMINATING YOUR DEBT and why this is such an important part of the recipe. As of December 2015, the most recent data from the from the US Census Bureau & the Federal Trade Commission indicates that the current outstanding “revolving credit card debt” in the United States is $936 Billion. BILLION! The average American today holds 52% more debt than they did a decade ago.
The average household has $15,779 of credit card debt. Then add in Car Loans. Student Loans. Debt Consolidation loans. You see where I’m going with this? American’s have become accustomed to using credit as a means to get what we want for years and it is crushing our ability to retire and to truly reach financial freedom. The APR’s that we are paying to the lending institutions, who so freely lend us money, are allowing them to build bigger buildings and crippling us from being able to retire at a reasonable age. But it doesn’t have to be this way. You CAN make a decision to eliminate your debt and start using your number one wealth building tool, YOUR INCOME, to grow wealth for you and your family. The best method: THE BUDGET combined with THE DEBT SNOWBALL APPROACH.
If you truly want to build wealth and have the Financial Freedom to choose the next stage of your life freely, Eliminating Debt should be your number one goal.
How do you get there? Start by making a list of your non-mortgage debts smallest to largest with their balances, APR’s, and minimum payments due each month.
Look at this example: A $1200 Purchase at Lowe’s of a new washer/dryer came with a 24.99% APR *(yes this client signed up for 90 day ‘same as cash’ but didn’t have the money to meet that goal and ended up with this balance at the end of the 90 days!)
Making $50 minimum payments each month means it will take almost 3 years to pay this $1200 purchase off and at the total cost of $1680 (*$480.64 is paid in INTEREST)
The goal in Eliminating Debt is to DO it QUICKER! How?
*GET COMMITTED TO BUDGETING!
*GET CLEAR ON YOUR GOALS.
*GET IN TOUCH WITH YOUR EMOTIONS (and by that I mean the 4 yr old that says “but I want it!!!!”)
ASK YOURSELF THESE QUESTIONS: Do I just want to continue to owe? Do I really want to be paying 1/3 more for every purchase I make in life because it’s easier to “charge it” and figure it out later or am I willing to save for the things I want before I buy them? Can I soften that 4 yr old voice of immaturity that says ‘but I want it!’ because it comes with a huge cost to me (and maybe my spouse and my family) when I don’t?
If you are ready to change these things then here’s where you start and how to eliminate debt quicker:
STOP making just the ‘minimum monthly payments — You must stop spending money in others areas so you have those dollars to use towards the debt–YES, you can go without eating out for lunch/dinners, getting your nails done, and the daily coffee stops on the way to work if you want to get out of debt quicker and reallocate those dollars to eliminate the debt. (As a financial wellness coach I have 100+ ways I help people figure out the HOW)
You can go back to those things if you chose after this temporary period of taking back control of your finances. You see, you will have the FREEDOM to choose those things when you have all of your income coming back in and not hundreds of dollars being wasted on ‘interest’ to others.
Stay tuned for the next part of our recipe: SAVING/INVESTING= BUILDING WEALTH!