HOW TO BUILD A WINNING BUDGET YOU’LL LOVE FOR BEGINNERS – PART 3: PAY OFF DEBT
“If you think nobody cares if you’re alive, try missing a couple of car payments.”
Earl Wilson
The Drawback Of Debt On A Budget
Much wiser individuals than me have written about and spoken on the problem of debt. I highly encourage you to explore their writings.
However, because debt IS going to influence how you budget, I think it’s important to make a few points here.
Aside from our mortgage, my wife and I do not personally carry any debt. We used credit cards, held on to student loans, and had car payments for much of our adult lives. But then, as we looked at our budget, we realized something: debt is a thief.
Not only is debt a thief, but debt is a highly effective thief that steals from your present, and your future.
Debt In The Present
Let’s start with the now. If you have debt of any kind (credit cards, student loans, car payments, etc.) it is basically a requirement that it go at the top of your budget.
Why?
Because if you don’t stay current, someone is going to come knocking. And if someone comes knocking too many times, they’re eventually going to take what you owe them.
So, if you owe on your car and you want to keep driving it, you have to make the payment.
Okay, you say, that’s kind of a given. Everyone has car payments, credit cards, and student loans, right?
Wrong.
I’m not saying debt is uncommon. It’s very common, but it’s not required.
As long as you carry debt, you are really just working to bring money in so you can send it right back out. As Andrew Jackson said, “When you get into debt, you become a slave.”
Debt’s Impact On Your Future
If you do choose to continue making the minimum payments on those debts, you will look up in a decade and, guess what: they’ll probably still be around. And the longer they’re around, the more interest you’ve paid to make someone else wealthy.
See, interest can either work for you (through investments) or against you (through debt).
When you have debt, you’re someone else’s investment. They loaned you X amount with X% interest over X number of years knowing that by the time you paid it back, you’ll have paid twice what you borrowed. Think of what that money could have become in a good investment!
Don’t make someone else wealthy! Make yourself wealthy!
What About “Good” Debt On A Budget?
Now there are those (and you may be in this camp) that use debt as a form of leverage. Simply put, they intentionally take on debt at a low interest rate and reinvest it at a higher interest rate or into something they believe they can sell at a profit.
Like I already mentioned, I have done this in the past, and choose not to do so now. It is certainly possible to play with debt and leverage and come out on top. But, eventually, if you keep playing with snakes, one will probably bite you.
Do This Now
Whether you’re working to eliminate your consumer debt or attempting to use debt as part of your financial plan, debt’s place in the budget stays the same. It will be right at the top of your list, after your income and giving.
Double check and make sure you’ve completed parts 1 & 2.
Then, make a list of all your debts, what you currently owe, and the minimum monthly payment.
We will revisit this later, once you know how much leftover money is available after completing your budget and begin making additional payments towards your principle balances to get these debts knocked out.
Budget At A Glance (So Far)
Section 1: Gross Income
Section 2: Paycheck Deductions
Section 3: Giving
Section 4: Debts
“When you get into debt, you become a slave.”
Andrew Jackson
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Look at how much of your budget is currently going to debt. What would you rather be doing with that money? Think about it, and share with us! Let’s get motivated!