The premise of what I want to discuss with you today is not given much attention in our current society. But this site will be a bit different and enlighten you to get a basic understanding of what it means to be debt free. There’s been a lot of talk recently about reaching the pinnacle of financial freedom, the crossover point where your finances can cover expenses with no problem. The wishing well from others trying to reach this status in life is very high, but before you dive in to begin your FI journey please keep reading.
Everyone who wants FI must reach a very critical stepping stone, and that step is called debt freedom. People this is a wakeup call, because money sharks are out there ready to take your cash flow away from you. For a few examples look at that new shiny credit card offer, or the new sedan waiting to be driven off the lot, plus never forget the always modest student loan. Many of these debt perpetrators can be halted, by telling the reflection in the mirror, I will not borrow money under any circumstances.
If you can successfully go 3 years without borrowing any money, then you can finally reach debt freedom. The average American consumer reaches debt freedom in 18-36 months if they can keep new borrowing at bay. (Which means Never Again?)
Now I will show you how getting to that step will elevate your finances to work extremely hard for you and possibly help you reach the pinnacle of finance. In a few examples below I will show you several cash flow killers. Once you rid them from your life one by one, then invest the amounts below consistently you can be wealthy.
What it means to be Debt Free?
– The credit card monthly payment = $150
– The car monthly payment = $350
– The student loan monthly payment = $280
– The medical procedure monthly payment = $75
– The tax man monthly payment = $75
– The Home equity loan payment= $120
– The Retail Store monthly payment = $50
– The second credit card monthly payment = $75
The total comes to a whopping $1,175 dollars every month going to fake bosses robing your cash flow. The proof is in the figures. If you made a plan to pay these horrible loans off and invested it every month, in 1 year you would have 14 thousand dollars.
In 5 years you would have upwards of 75K compounding year after year, and paying you back for being money smart.
In 10 years you would have over 141K + any market increases and dividend reinvestments on top of that figure.
These estimates are on the low end because we can never predict what the future will hold with invested dollars, but believe me I would rather be in the game making my dollars work hard for me than not in it at all.
How will you get there?
– Stop adding new Debt
– Use the Snowball Method
– Get an Extra job
– Sell Something Valuable to apply towards any debt
By applying these 4 debt freedom methods you will be free sooner rather than later. Can you really give up the opportunity to have financial freedom because you made mistakes early on, and never attempted to correct those debt mistakes? Sacrifice is when you hold yourself accountable for the actions that held you back in life.
In the end that sacrifice will pay off, and that is the right financial path anybody who wants debt freedom should take. But many just want to wave the white flag and not fight debt impulses.
Another issue I have witnessed with debt freedom is that people, who reach that stage, immediately increase lifestyle to the sum total of all the debt repayments. Instead what they should do is to gradually increase as income escalates every year, and not blow the opportunity that debt freedom gives them to become wealthy.
Comment if you have an idea of what it means to be debt free?
Rich Uncle EL
I have no debt but for a rental property. I love owning the house I live in and having no mortgage or obligations, it makes the need for money much lower and life much simpler.
Well I have to agree with you, pay off your house first before any rental properties. Very financially smart Pauline.
I think debt free doesn't mean not having any debt at all. I'd be comfortable with mortgages and business loans, but not any kind of debt that's used to fuel personal, unnecessary spending.
Well I understand that it is very hard to pay off big loans like mortgages and business loans, but I think it's best to be debt free. Granted it might take a decade, but for a stress free life debt freedom makes sense. On average a mortgage company will make thousands of dollars off homeowners because they do not pay it off early. I say save money by paying loans off early.
We paid of our student loans a few months ago (our last debt) and it was an amazing feeling! It just felt great not to have to send in money for a debt before. Now, we just carry credit card debt from month to month that gets paid off in full each month.
Wow congrats for getting rid of those dreadful student loans Jon. I wish you the best of luck, and now you can save all that money. Thanks for the comment. Debt Freedom for all.