Life Over Money is about living a life rich in life experiences rather than making material wealth your main goal. We are not anti-wealth but we believe that building wealth to experience freedom in life is a backwards approach. You should be building the life you want and using wealth as a tool to achieve it. One of the biggest problems in achieving real prosperity is debt. Debt is almost a fact of life in today’s world but it doesn’t have to be. While it is entirely possible to live your vision with debt, it is much easier to do without. For most people, going into debt is to agree to give your future time to a creditor in order to have something right now. If you take out a 30-year mortgage of 25% of your income, 25% of your working hours for the next 30 years belongs to the lender. The bible puts it perfectly.
The rich rule over the poor, and the borrower is slave to the lender. – Proverbs 22:7
Why Do People Have Debt
There are many reasons for people to use credit and go into debt and many creditors that would love to help you get there. It is so easy to go into debt in today’s world. You can open a new credit line in minutes at the register as you check out. Isn’t it great that you can save 10% on your purchase today just by agreeing to pay 30% interest monthly? There is a huge amount of marketing aimed at credit and it’s targeting people of all ages and backgrounds. You can even use a fake credit card to play Monopoly and LIFE!
Most Americans don’t have enough savings to cover a $1,000 emergency. In a recent Bankrate.com survey, only 39% of Americans would cover the cost of an unexpected $1,000 expense out of their savings. Emergencies happen. Cars break down. Water pipes burst. Jobs are lost. You will have an unexpected expense to cover at some point and you need to be prepared. I recommend having three to six months of expenses saved in an emergency fund. I’ve found that when I have an emergency fund, I tend to have fewer emergencies and I have much more peace of mind when they happen.
We love to buy things, don’t we? When is the last time you saw something in the store you just had to have? Many people decide they need it so bad that they pull out their convenient credit card or use a store account and pay 16% in order to avoid saving for it. We also like to compete with other people. Some of us like to compete so much that we will buy a better version of something we don’t really want just to outdo someone we know.
Not following a written budget is another quick path to financial problems. Many people have a negative idea of budgeting because they feel it will keep them from doing things they want to do. In reality, a budget is you telling your money what to do. If you take the time to plan your budget, you may even find wasted spending that went unnoticed before to help you do the things you want to do. How many subscriptions do you have to services you never use? The fact is if you didn’t plan your spending and you find yourself with too much month at the end of the money, you may reach for a credit card to help make it through.
Many people consider debt to be a wealth building tool. There are many debates about this one and definitely strong arguments to be made for both sides. I’ve been around real estate for a few years and many gurus will tell you of the wonders of leverage and how it will build wealth quickly for you. Debt is a great wealth building tool – until it isn’t. A vacancy isn’t as much of a setback if there is no mortgage payment. Although leverage can allow you to purchase more properties with the same amount of capital and possibly give you more cash flow in the process, wouldn’t it be easier to manage fewer paid off properties for the same cash flow? Risk is an important consideration in any investment decision and there is a much higher level of risk when you have mortgages on your rentals. I’ve met many people who lost a lot of what they worked for when the housing market dropped. Debt free investors were able to wait it out.
I’ve had conversations with many people who think I’m crazy when I mention paying for a car or house in cash. I’m not really sure how this one came to be other than it is the accepted norm to finance a car or take out a mortgage when buying a home. It’s entirely possible and bringing cash to the table can even help you negotiate the price. Let’s use the example of buying a home. The seller may be relocating for work and can’t really make the payments on both houses if they don’t sell quickly. An offer may come in from someone who is using a mortgage. This mortgage will need to go through underwriting which will take a few weeks and the financing could even fall through during this time. You have also made an offer which is a little less but you have cash and can close as soon as you can get an appointment with a closing attorney. Sure, your offer is a little lower but they won’t have the financial strain of making both mortgage payments. They decided it would be best to accept your offer.
When is the last time you heard a 90 days same as cash offer? This sounds like a great deal. You can make low easy payments instead of one bulk payment. The fact is a large percentage of people do not pay the debt off in 90 days. These deals are generally structured so that if you don’t pay it in the allotted time, it will convert to payments and you will be back charged interest. Sure, you may have the discipline to pay it off within 90 days, however, most people get into the agreement thinking they will do that and the majority do not pay it off in time. You may also spend more than you would have if you were thinking about it as one lump sum. The best option would be to simply save the amount you would make in a payment for 3 months. Take cash with you and you may even be able to negotiate a better price on top of it!
Living A Debt Free Lifestyle
Being debt free gives you much more in life than a few extra bucks in your pocket. It gives you decision-making power! How many people do you know that absolutely hate their job but can’t leave because they need the money? What about someone who enjoys their job but wishes they had more time with their kids? If you are living a reasonable lifestyle and not paying your future dollars towards lifestyle choices of the past, there is a much higher likelihood that you can change careers even if it means a pay cut. Maybe you could only work 20 hours a week and spend more time with your family.
Earned income is your most powerful wealth building tool until you reach a tipping point where your investments are earning more than you are. Your money and interest can work for or against you. If you are in debt, the interest is fighting you by taking extra money from you on top of what you spent going into debt. If you are debt free, those same dollars are available to be invested and earn their own interest which you get to keep!
Debt brings a lot of stress into our lives. What if your income is unexpectedly reduced? Can you afford all of your payments? What if you can’t pay the mortgage? You could lose the house. The bank can’t foreclose a house without a mortgage. Just saying.
Commit To Being Debt Free
I was debt free before but at some point, I let this slip. On the sidebar, you will find a new debt countdown. This will display my progress as I work towards becoming debt free again. I’m putting it out there for everyone to see because I feel it is helpful to have the accountability. I’d like to encourage anyone who reads this to become debt free as well. In the comments below, please answer this question. What effects would being debt free have on your life? I love hearing stories of people who are working towards this goal as well so please feel free to reach out.