Get Out of Debt
There is nothing worse than the feeling of slavery. Do you come home after working all week long and barely have enough money to pay the bills? Worse yet, do you work all week long and do not have enough money to pay the bills? The feeling of everything going out that you make is not a good feeling. You may not realize how much that feeling permeates your life and affects your feeling about everything.
Avoid Interest Like the Plague
In the old testament, charging interest was not allowed because it was deemed immoral. The idea was that if a person had extra money they should lend free of charge. Christians forced Jews into banking and finance occupations because they thought the charging of interest was immoral.
In today's world, interest has allowed for the expansion of huge economies. The capitalist economy would not function without the wealthy lending to the poor. If there were no interest to be earned, the rich would simply hoard all their money. Nations would not be as prosperous.
On the other hand, there is a growing divide between the rich and the poor. You can actually make a distinction between rich and poor people with one statement, “Rich people earn interest and poor people pay interest.” If everyone would simply learn how important the avoidance of interest is, they would have much more freedom and money.
A wise professor once said to a group of college students, “I am going to tell you the secret to wealth. I know that none of you will take my advice and so I hesitate to tell you. The only difference between rich people and poor people is that rich people earn interest and poor people pay interest. When you graduate from college, live as you do now for ten years. Do not buy a new car and a house. Be frugal and save for ten years. If you do this, you will become wealthy. ”
Housing Mistakes that Encourage Debt
Nearly every financial guru out there will tell you to get a 15 year mortgage. Why then does everyone get a 30 year mortgage? The reason is that they can afford more house for a lower payment. People look at homes and want the best they can get. That's natural. However, it's not a good home for you if you can't afford to live there. How much fun is it to live somewhere you can't afford anyway? Will you have nice vacations and things to do or will you be working nonstop to pay for the home? To maintain your sanity, the home must be affordable.
An affordable home is one that is about 25% of your net take home pay. That means that, after taxes and everything, that the home will only take about one fourth of each check. In the book, The Millionaire Next Door, they found that millionaires followed this rule. Their homes cost a lot less than what they could afford.
Today, almost half of all people pay 50% of their incomes to their house payment. And, how much of the payment goes to principle? Not much. The first ten years paying on a home (30 year mortgage) and about 80% of the payment is interest. Research shows that, in the world of dual income earners, roughly one persons entire take home pay will be devoted to interest. The other spouse must make up for the principle and the rest of the bills. What that means is that roughly half of all people are only a few paychecks away from living on the street or back with mom and dad. That isn't the most fun way to live.
Credit Card Debt
Everyone thinks that they are the exception to the rule. When everyone has problems with credit cards, you say to yourself, “That's not going to be me. I'm responsible.” Then, after living on the brink for a while, unexpected thing happen and credit cards put you into debt.
What people with debt problems do is that they live just a little beyond their means. They do not usually have a budget. They may go over their budget now and again and think nothing of it. They are using credit cards to cushion their cash flow. What they do not realize is that they are slowly getting into more and more debt. It's the story of the frog that never jumps out of the water that is slowly heating up.
Then, one day, much older than you would expect, people realize their mistakes and get serious about cleaning them up. It might happen the first time you realize that credit card interest could have put your first three kids though college. For most people, they slowly get squeezed until there is no more wiggle room. Then, one day, they must make a choice to make some hard choices or to go under. Fortunately, most people can get out of debt in a year or two of disciplined effort (excluding house). The sad part is how much wealth you have freely given away for things that you probably didn't need or should have known not to purchase. Anyway, you have to move on, put that out of your mind, and stop the bleeding.
Getting Out of Debt Bottles
One of the best ways to get out of debt is to have a good budget. The budget should have a weekly goal. Then, you take some jars (Mason jars would work) and label them for each category. Then, after shopping, you put the receipts into the jars. As you go, you tally up the receipts to see where you are in the process. This will allow you to not go over budget. Many times, staying in budget is easy. You just have to know where to draw the line. If no line is drawn, it is impossible to know when and where to stop.
Some people take it a step farther and it is even harder to go out of budget. They will put money in the jars. Once the cash is spent, than that is all you have. You simply go to the bank and refill the jars once a week.
Pay Down Small Debts First
It is mathematically better to pay off higher interest first. However, there is a reason to pay off the lowest debts first. It is emotionally rewarding? When you get some success, you feel like it is really going to happen and that you can do it. What happens is that your intensity increases. Then, you take the added cash flow, from paying off a debt, and add it to the next highest debt. If you follow this plan, you will have a much better chance of success. The problem for most people is feeling discouraged. The smaller debts going first gives you emotional momentum that you need. When you see the added cash flow, you will feel that the larger debts are now doable.
Wants Versus Needs
Most of us think that we need a lot of things. The definition of need is that we want it (not really). A need is something that sustains life or that will increase your income. For example, you need a car to go to work because it sustains your income. You need food to eat so that you do not die. You do not need a new plasma television, a trip to Disneyland, some ice cream, or your nails done. Truth be told, you don't need a television, a microwave, a blender, new shoes, or to eat out. One of the main ways to get out of debt is to truly be honest with yourself. Is this a want or a need? If we carefully figure out the wants from the needs, then we can get out of debt much more easily.
Save for Needs and Wants
It is much more expensive to purchase low quality items. A high quality item can last much longer and produce much more benefit. With that in mind, being cheap isn't always the goal. The return on investment is the goal. Here is an example. One man purchases a dresser at a big box retialer and it wears out in a few years and he must purchase another dresser. Another man purchases a finely made dresser from a fine furniture maker. The dresser lasts a his lifetime and is handed down to his posterity who also enjoy it. In the long run, the finely crafted dresser is less costly and is appreciated for its beauty much more than purchasing some low quality stuff every few years.
The same ideas can be applied to getting an education and preparing one spiritually for life. It rarely pays to take the easy route. Even the goal of getting out of debt will require hard decisions and discipline for a lifetime. Is it worth it?
It's worth it because you can live like no other. You will feel a quiet joy that can't be explained from living a life that is rich with good things that are worked for and treasured. Much of our happiness, of today, comes from making goals and then working towards something or worth. When you mind and spirit are free, it is much easier to seek out the good things.
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