Why do I believe it’s so important to become debt free? Before I answer, let me give a real world example of a situation that faces at least one person you know.
Imagine being married to your lovely spouse of three years and you both decide to start having children. You’re excited! You’re finally going to have that sweet baby to complete your wonderful family inside your marvelous white picket fence. You try to conceive. Then you try again. And again.
Now imagine you have a monthly car payment of $471 (average car payment in 2014). And you can afford this indulgence – meaning you’re able to pay your monthly payment, eat food, sleep under a roof, and stay fully clothed. That’s $5,652 a year! You have been trying to conceive for two years but with no luck. That means in two years you have spent $11,304 on your new car that looks amazing at the 11 second stop light on 4th and Main Street; but you’ve spent (or saved) $0 in helping your dream of becoming a parent!
Unfortunately, the unthinkable happens! You’re biologically unfit to conceive a child! After going through something as heartbreaking as this (which I cannot even begin to relate to), people just assume they will adopt. But you know what adoption requires? Money! Not insurance, but money!
Now imagine not having enough money (and you weren’t even working towards having enough money!) to adopt a child – your child – without debt! Yes, Megan and I would go into debt in a heartbeat to adopt a child if either of us were deemed biologically unfit! But you know what else we would have? A bill! Stress! Obviously not enough money; that’s why we went into debt!
Bearing or adopting a child is blessing from God! Each child has the ability to instantaneously bring joy into the world – not a chain of financial burden! I can’t imagine the feeling of looking at a child and seeing them as blessing AND A FINANCIAL CURSE! How unfair is it to that child to be unwilling to prepare for that child! We never know when an emergency such as this will occur! All we know is to be prepared for the unexpected!
The only way to justify the acceptability of indulgences is to look at it from a mathematical perspective. “I can afford the payment and nothing else changes. I have a salary of $100,000, and it’s more than my $500 car payment. I still eat and provide for my family!” Okay, I’ll also judge this transaction by its mathematical competency – you want a nice car more than you want a child! Look at your bank statement – its math!
I can’t even to begin to imagine what it’s like to live the scenario I presented above. I wish that upon no one! I also can’t avoid this from happening in the future. But my goal is teach people how to become financially fit enough so that when this happens they are not left without options!
Permanent freedom from debt is about opportunity! Getting out of debt is important because it enables you to decide what you want to do when you want to do it. Becoming debt-free is not about always saying “No”! It’s about saying just a few smaller “No’s” so you’re ready for that one big “Yes!”
Don’t have a car payment? Don’t want children? Have so many children you’re waiting to hear back from TLC? Fine, but envision all the different ways your indulgences could impact your life!
Would you be able to immediately move out of state to take care of a terminally ill family member? Or do you have to stay at home because you are relying on that next paycheck?
Debt limits our options. It traps us places we don’t want to be in forever. Living empowered lives revolves around predicting expenses, planning for unpredicted expenses, and building wealth. Debt diminishes all these things.
If I can’t get you to see the importance of being debt free with a depressing story, how about I try the old fashioned way – with cold, hard cash!
Let’s say Fred and Nancy are normal with a monthly student loan payment of $280 (average student loan payment), monthly car payment of $480 (average car payment), and other miscellaneous monthly debt payments of $200 for a total of $960 a month. By only paying the minimum monthly balance (or only slightly above) Fred and Nancy would easily be in debt for 15 or 20 years, assuming they added no other debt.
Now let’s say their weird neighbor’s Karl and Elizabeth are debt-free and also have a monthly payment of $960, except instead of paying back creditors that money is contributed into a mutual fund averaging 10%.
At the end of ten years Fred and Nancy, not believing the detriment debt can have, would have spent $115,200. As a result, they would still have debt for a degree no one cares about, an old car that no one cares about, and some other miscellaneous junk that no one cares about.
Meanwhile, Karl and Nancy would have spent the same $115,200 in ten years. As a result, they would have an additional $201,959 in their nest egg just from investing another couple’s monthly debt payments for ten years.
Debt robs us of opportunities. Debt robs us of money – literally.