Let's be honest. Hoping for a big inheritance or to win the lottery is not a proven plan for building wealth. The only sound way to build wealth is to control your income. Some people think that just making more money will solve all of their problems. Build you business bigger or get the promotion with the big raise. Those will certainly help if you control your income, but most people do not. The more they make, the more they spend, so they have to chase even more money to try and keep up. This is money and the money lenders controlling you and your life.
Now, imagine if you didn't have car payments, student loans, credit cards payments, medical bills, or a mortgage. With no debt, you could become wealthy very quickly with some sound investing. Most of you reading this probably think that will be impossible in your situation. Very difficult maybe, but not impossible if you make the commitment to do it.
Consider these statistics: A typical American with a $40,000 a year income normally has a:
- $850 house payment
- $350 car payment
- $180 second car payment
- $165 student-loan payment
- $185 in minimum credit card payments
- $120 in miscellaneous debt on furniture, etc.
If you could take that $1850 a month and invest it in an average growth mutual fund instead of sending it to the creditors, you would be worth a million dollars in fifteen years, two-million in twenty years, three-million is twenty-three years, and five-million in twenty-eight years. Is that worth the hard work now to create your dream life later?
So how do we eradicate all of our debts? You have already taken the first steps to pave the way to the finish line when you created a budget that spends no more than your income and creating an emergency fund. Remember that in this process, what happens throughout the course of your lives will change the numbers, but the process that you will follow here is to learn how to control money instead of it controlling you.
Eliminating your debt starts with listing all of your debts in of order of smallest payoff balance to the largest, except for your home. You'll get to that later. Any debt that is less than 50% of your annual income must be included. Be sure to list ALL of your debts, even that money you may have borrowed from your family or medical debts that have no interest. It doesn't matter what the interest rates are. Just list them from smallest payoff to largest payoff.
There is really no secret to why we pay off debts like this. Paying off that nagging $50 medical bill or $80 cell-phone bill (still hanging around from when you closed the account) may not seem to make much of dent. That doesn't matter. What you are doing is starting the process of changing your behavior so that you will learn to be the master of your money. As you pay off each debt, you will find yourself becoming more fired up that this is a future you can really have.