Don’t give your income away in debt payments

Don’t give your income away in debt payments

This is article 3 of 7 in the Common-Sense Financial Principles series.

Your income is your most powerful wealth creation tool.  To ensure that you thrive financially, take control of your income, and make it work for you.

In my experience working with banking customers and wealth management clients for 30 years, it is always the client who has control of their income that wins with money.

These clients are proactive, and they happen to their life; they do not stand back and wait for life to happen to them.

Debt seems to creep up on you.  But in reality, we all sign on the dotted line and agree to the payments.  We figure that if we can afford the payment that we can afford to item.  But, if we don’t have the cash to buy it, then we cannot afford it (putting aside housing).

Once the debt is incurred, then the payments must be made.  There’s no option to stop paying because we’ve changed our mind.  Often, it’s only after the thrill of the new purchase that we come to realise how much of our regular income is going out the door to lenders.

For a good wake-up call plug your debt payments into an investment calculator and project it out (5 or 10 years, or until retirement age).  The figures will astound you and this is what you are willingly (if unconsciously) giving up.  Debt payments are a great example of the miracle of compound interest – but in reverse.

We rationalise debt, when it is NOT in our best financial interest. So, challenge these thoughts.

(i) I want it – Do you need it?
(ii) I work hard, and I deserve it – Hard work shouldn’t necessitate more hard work to keep up the debt payments.
(iii) Everyone else has it (clothes, phone, gadget, car, private school, holiday house) – Set your own course. If you’ll live like no one else, then later you can live (and give) like no one else.
(iv) I’ve got to maintain our lifestyle – Tell the Joneses you’re breaking up with them.  Don’t lock yourself into feeling trapped just to earn the income to pay for the things that don’t deliver true meaning.
(v) YOLO – Time is our most precious non-renewable resource.  Spend more of your time how you’d like to, rather than how you have to.

So clearly, I’m not a big fan of debt.  It’s partly about building wealth, which is a natural biproduct of staying clear of debt and controlling your income.  However, it’s more about the avoidance of unnecessary suffering and the emotional toll of financial stress.

The good news is that money stress is avoidable, or if it is already present, it is fixable.

Remember, your income is your most powerful wealth creation tool – don’t give it away.

Do you have a debt hangover to deal with?  Would you like help with that? Let’s schedule a Zoom chat to talk about how you can move forward today.

“Money is a terrible master but an excellent servant.”
P.T. Barnum
American author