I was analyzing our overall expenses this weekend and I was amazed at how much of my salary goes toward paying debt. Each month, after withholding for taxes, insurance, and my 401(k), I bring home $4,300. Over that same period, the car loan, student loans, home equity loan, and mortgage bleed away $1,700. That means I’m throwing almost 40% of my disposable income at debt. And that number doesn’t include the more than $400 each month I have to put away to pay property tax and insurance.
That weight that debt puts on your finances is why nearly every personal finance professional encourages you to pay off your debt as soon as possible. Freedom from debt is the biggest step toward financial freedom. Instead of being a slave to the bank, you are able to decide for yourself what you will do with your money.
I won’t be paying off my mortgage any time soon, but we could reasonably kill off our other debt within 5 years according to our snowball forecast. That would provide a relative “raise” of $715 per month, so that got me to thinking what I could do with an extra $715 each month, or $8,580 each year…
- I could max-out a Roth IRA (I don’t currently have one) and put the other $3,580 into a education savings plan for my daughter (another thing we don’t have yet).
- I could save up over the course of a year and buy a good used car outright (or nearly outright) to replace my old truck.
- I could finish my basement and give us more usable living space, a new office for my business, and a workout room to replace our dropped gym membership.
- My wife and I both could get the LASIK procedure done.
There are so many things that freedom from debt can bring you, as long as you don’t get stupid with it. It’s very easy to get too wrapped up in your new lifestyle and fall right back into debt again. The goal is to achieve freedom and stay free.
You just have to decide to not let debt hold you back any longer and then do something about it. It may take a few years, but you have to stick through it. You don’t reap what you sow today; you reap what you sowed yesterday and you will reap tomorrow what you sow today. So there will still be hard times ahead for a while if you’re just starting to pull out from under the load, but if you stay focused eventually you will start benefiting directly from your hard work. That is when you will truly start feeling free.
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