I can't tell you how many times I've heard someone say, "I just can't save. I don't make enough," or "I can't give. There's nothing left in my budget after I pay the bills." Time and time again, people tell me they just don't have enough money.
But, here's the truth...the majority of the time, it's not an income problem. It's a 'priorities problem.' You see, we have this idea that we have to go to the perfect college, we have to drive the perfect car, we have to live in the perfect house in the perfect neighborhood. And all this 'perfect' has come with a cost - an overwhelming amount of debt.
You see, most of the time, it's not that people don't make enough money. It's that they have too much debt. We are so apt to think that we need more, more, more, and we often fail to consider that, in reality, we might just need less.
Have you ever taken a close look at your finances and actually added up how much you're forking over every month for debt? Let's look at the average debt payments per month for an American household.
The average credit card minimum payment = $296-$741
The average revolving credit card balance per household is $14,821. The monthly payment range noted above is calculated based on the average minimum payment being two to five percent of the balance owed. Let me emphasize that is the minimum payment...and if you pay just the minimum balance, you'll also pay an exorbitant amount of interest before you're done.
The average student loan payment = $393
If your spouse also took out student loans, that's a total of $786 spent every month on student loan payments.
The average new car payment = $563
In a household with two drivers (and two car payments), that's upwards of $1,126 spent every month on vehicle payments.
The median* mortgage payment = $1,513
A monthly mortgage payment includes principal, interest, property taxes, and homeowner's insurance.
*This statistic is reported as the median, by the U.S. Census Bureau, instead of reporting the calculated average because the median is a more accurate reflection of the norm.
Let's add that all together now...
If you have all of the debts listed above, you could be paying at least $2,765 each month!!
(Side note: I say 'at least' because this total is assuming that you are on the low end of the average credit card minimum payment and that your household only has one new car payment.)
It's no wonder people can't save! Or feel that there's nothing left to give. Some people are paying $2,765+ EVERY SINGLE MONTH just on DEBT!!!! (I don't think there are enough capital letters in that last sentence to express how much this concerns me!!!)
Now, I can only assume I know what you're thinking at this point. It's something like, "Annika, I get that people have a crazy amount of debt. Let's face it, I have a crazy amount of debt. But, how do I ever change that? Is there really another option? Are you actually suggesting that there's a life without a house payment?"
My answer: Yes! There is absolutely a life without a house payment! In fact, I'm suggesting that there's a life that's free of all debt - car payments, student loans, medical bills, and the list goes on! And, don't worry, I'm not about to leave you wondering how in the world this is possible. Instead, I'm going to map out a plan detailing how you are going to kick your debt to the curb and use what you've been paying on monthly debt payments to cash flow your dreams! Just think for one second...what could you do with an EXTRA $2,765 in your pocket EVERY SINGLE MONTH?!?
Step 1: Know your numbers!
The first step in any plan is knowing what you need to tackle. If you're not sure what debts you have (or even how to find them), check out the Resources page on our website and read the section titled 'Knowing Your Debts.'
Step 2: Fill in the Debt Snowball form.
Paying off debt fast is best done using the Debt Snowball principle coupled with some hard work and determination. (Trust me, my husband and I used the Debt Snowball to pay off $97,000 in just 26 months.) So, step two is filling in the Debt Snowball form (found on the Resources page of our website under the section titled 'Dumping Your Debt'). When you fill in the Debt Snowball form, you're going to list of all the debts you have from smallest to largest. We are going to start by tackling just your consumer debts, so you won't include your primary mortgage on this list.
Step 3: Get your snowball rolling!
The idea with the Debt Snowball principle is that you concentrate your efforts (i.e. "your snowball") on one debt at a time. Meaning, you pay the minimum payments on each debt you have and then any extra after that is all thrown on your smallest debt. You attack that smallest debt with everything you have until you knock it out! Once you have paid off that smallest debt, your snowball rolls onto your next debt. And so on and so on.
Are you feeling a bit lost? Maybe you're a visual learner like me. I get it. Don't worry, I'm not about to expect you to master the Debt Snowball principle just by reading what I've written. Here's an example Debt Snowball with debts not far from the averages previously discussed.
Notice that the debts have been listed from smallest to largest (shown in the second column), followed by listing the minimum payment (in the third column). The column on the far right shows what is actually being paid every month on each debt. The household in this example had enough to pay the minimum payment on every debt plus an additional $250 on their smallest debt (CapitalOne). With that extra $250, their smallest debt is knocked out in just two months! Roll that snowball and add that $250 to the next debt payment making the total monthly payment, on American Express, $320.
You with me so far? Let's keep this snowball rolling...
That second debt takes seven months to pay off, then just five months for that third debt. The snowball continues to get bigger and Student Loan 1 is being attacked with $589.08 every single month. You can see how having that laser focus on one debt at a time makes progress happen and further fuels the fire to pay off your debt!
This is what the Debt Snowball looks like when it comes to completion. You see, that snowball continued to pick up steam and by the time this household reached their largest debt (Ford Motor), that debt was being attacked with $1,298.26 every month. In just 4.2 years this household paid off all of their consumer debt and set themselves on the path to financial freedom!
And it all started with just an extra $250 every month.
This is what happens when we are intentional with our finances. This is what happens when we focus our progress on one thing at a time and get our debt paid off! This is what the start of financial freedom looks like!
Do you know what you could accomplish with an extra $1,298.26 every single month?!? I guarantee you could take that mission trip, beach vacation, or family Disney cruise you've always dreamt about! I guarantee you could pay off your house fast (freeing up even more cash flow) and never owe anyone again! I guarantee you could set yourself for retirement. Did you know that investing $1,298.26 in a good growth stock mutual fund from the age of 40 to 67 will result in just over 2 million dollars?!?
You guys, here's the harsh reality. Chances are good that more income isn't going to change your financial problems. In fact, studies show it's more likely to further exacerbate your problems (with increased income comes increased lifestyle). So, rather than continually asking for more, more, more (believing that we don't have enough), let's focus on what we could do if we had less - less debt, less pressure to keep up with the Joneses, and less cash leaving our pockets every single month.
You saw the impact that an extra $250 each month had on this household's debt-free journey. It doesn't take a lot, but you have to start. So, quit allowing your debt to be your excuse. Pay it off and start cash flowing your dreams!