Debt is seen as one of those taboo topics that most people don’t like to talk about. It’s generally not discussed much because it’s one of those things that many of us are embarrassed to talk about. We know it’s not a good thing but it’s something we just can’t help right? I mean how else am I supposed to buy a brand new car every few years if I don’t go into debt.
One of the great things about the financial independence community is that there is no judgement here. I think it’s very well known that society’s mindset, the lack of financial education, and the emphasis on consumerism has contributed to our poor financial outlook. But thats ok, trust me. One of my greatest joys is helping people escape the shackles of debt and realize the freedom it brings them. So lets get to it.
One of the facts I’ve heard tossed around is most Americans can’t afford an unexpected $1,000 expense. From the studies that have been done, about 65% of us, living in the richest country in the world, can’t afford a simple $1,000 expense…
I’m sure if you think about it real quick, a certain family member, friend, or even yourself may be apart of this 65%. But why is this? Why is it that so many of us can have good paying jobs, drive nice cars, have nice clothes, go out for dinner and drinks, but yet so many of us are still broke?
Here’s a few stats to start showing the whole picture.
- The average car loan is $27,000
- The average credit card debt is $7,000
- The average student loan debt is approx $43,000
- Financial Issues is #2 on the list of leading causes of divorce
So if we think about it, the average person already has $77,000 stacked up against them. This doesn’t include their mortgage, which depending on what area of the country you live in, is about another $180,000. Oh, and because none of this money is actually yours, you now have to pay interest on it.
Interest rates depending on the type of loan generally range from about 3% to 27%. So lets take a look at what exactly interest does to you. Let’s say your the average American currently carries a credit card balance of $7,000. Credit cards are notoriously one of the worst debts you can carry. They are extremely expensive debts and usually carry an interest rate of about 16%-27%. You have to pay them this rate just for you to be allowed to borrow their money. So, speaking in averages, you will now have an additional $100 per month, just in interest, added to your bill. This begins to make it almost impossible for people to keep up with their monthly bill. This is how the vicious cycle of credit card debt occurs. The debt becomes more and more expensive over time especially if your making the minimum monthly payments.
So what can I do?
Now that we’ve looked at a small example of how debt works, your wondering, what can we do to get rid of this. This first thing is TREAT DEBT AS AN EMERGENCY! Without taking debt seriously it will only continue to grow and keep you away from your financial freedom. Do everything you can to pay this down. The best thing you can do is adjust your spending. Sit down and take a quick look at where your money is going each month. Are you spending too much on subscriptions, food, gym memberships, vacations, expensive car payments etc.? A few others things you can do is to look for a higher paying job, find a side hustle, maybe sell some items around the house that you no longer need or use etc.
To help visualize this, I’ll tell you a quick story about Gabe the co-author of this blog (Sorry Gabe)
One night, myself and Gabe were at work sitting in our squad cars. I, of course was talking to Gabe about Financial Independence and doing my best to get him interested in it as well. This conversation took place well over a year ago and I can still remember it vividly. Gabe began to explain to me that he was never going to be able to retire early and said it wasn’t important to him. Gabe was okay with working for another 30 years so he could collect his pension and continue with his current lifestyle. But I didn’t let up, I continued to talk to him and tell him that he could easily get out of debt much sooner than he thought. I think this spiked his interest and we started to go over the numbers. So I said to him, lets figure out where all of your money is going on monthly basis. We quickly found that he had a cable bill over $120, 3 gym memberships…yes 3! He was also spending about $300 a month on health supplements! So as my jaw dropped I told him “Dude, look at how easily we can cut some of this stuff out. The next morning I got a text from Gabe saying that was able to cut his cable bill down to $60 by canceling his big channel plan, he cancelled two of his gym memberships, and cut his supplement order in half. In one day, Gabe had reduced his monthly spending from about $480 to $240. That’s a $240 savings per month! This was just one quick step taken that has since saved him thousands of dollars with just a few slight adjustments.
Another example is another good friend of mine who has been struggling financially for almost his entire adult life. We had a talk about my goals of financial independence and I told him that he could do it too, it would just take some serious motivation. His response was, “How in the world am I supposed to save any money when I live pay check to pay check?” I then asked him about some of the things he spends money on and quickly found out he spends $260 per month on cable, $65 on a monthly massage, countless dollars on fast food, and $5 every day for coffee. So if he were to cancel his cable and just have internet and some basic channels he could save $200. Lets eliminate the massages for now and thats another $65. Then lets make an effort to make some meals at home and have some homemade coffee which probably will save him an additional $150 per month. In two minutes we just saved him just over $400 per month that can now go toward paying off debts or saving, without really changing his life all that much.
What I’m trying to get at is that very simple steps can be taken to completely change your financial situation
While there are bigger things out there that can save you large sums of money I encourage you to start with the small things. This will only help to push you to do the bigger things later on.
Navy Seal Commander William McCraven gave a commencement speech at the University of Texas a few years ago. In that speech, he urged the students that if they wanted to change the world they should start by making their bed each day. This illustrates that if we want to make big changes we have to start with the small things.
So please tell us, what are some small steps you can make that will begin to save you some money and get you one step closer to financial freedom. Or what advice can you give to our readers about small changes you have made in your life that have benefited you today.