Living debt free is easy. Don’t go to college, rent your apartment, lease your car, live out of Dave Ramsey’s money envelopes like it’s 1950 and voilà, you're debt free!
It has become so easy to prey off people’s anxiety over debt that society has created entire curriculums to make people feel bad about their credit cards and short-term debt. Financial pressure already splits more marriages than nearly any other problem people face. The unnecessary focus placed on liabilities rather than building wealth and assets only compounds the problem. Keep in mind, the goal is not to be “out of debt” i.e. - broke. The goal should be to have enough wealth to sustain lifestyle when necessary.
It amazes me how many clients come in and list out their goals by putting “getting out of debt” as the number one priority. Business owners, entrepreneurs, executives, medical professionals, etc. surprisingly list “get out of debt” as the priority and it’s a huge mistake. Let’s look at why:
- Understand the time value of money. For example, if you were given $50,000 to pay off your student loans today. Would it cost $50k? No, it would cost the future value of what that $50k would be worth. Using a future value calculator, $50k at 8% over 25 years will become $367,008. So, if you wait until you are out of debt to start building wealth, you are losing both time and money.
- Your personal balance sheet is no different than any business’s. It operates from a top line of income and a bottom line of outflow. Every moment your brain spends agonizing over the bottom line and paying off debt, it robs you of energy needed to spend being creative and figuring out ways to building wealth and increase the top line. Focusing your time on expanding your influence, networking to the right people, writing that book, starting that side hustle, will all contribute to maximizing your wealth building potential.
- Get your priorities right! Cash flow should follow a well thought out process. If you don’t fully understand that process, you should contact my office today.
My point is not that debt is good or bad, or even that you shouldn’t try and pay it off. My recommendation is to move it down the priority list, minimize it in your head and take full advantage of every opportunity to build wealth and create legacy.