Financial Peace in the Storm
|October 20, 2008||Posted by Roshawn Watson under Uncategorized||
Ridding ourselves of consumer debt is one of the quickest ways to achieve the necessary financial stability to build wealth regardless of what some say. When surveyed, 75 percent of the Forbes 400 (the richest 400 people in America as rated by Forbes magazine) said the best way to build wealth is to become and stay debt-free.
Image Credit: StueyH
In fact, the decision to become debt free can be life-altering. I am not referring to debt CONsolidation, where debt is merely moved around. Debt elimination not only removes the constraints on your cash flow but can literally change how you relate to money. For example, before getting on a budget to pay off debt, many treat money as an easily renewable resource. They quickly spend tomorrow’s wealth today by borrowing without much care because “they’re doing alright.” For most, this means they have a good income, and for others, it means they have an emergency fund worth three to six month of expenses.
However, after you have cut deeply into your lifestyle so you can quickly get rid of debt, it is hard (but not impossible) to carry forward that same irresponsible attitude. It is not easy to tell friends that you do not want to go out because it would break your budget. It is difficult when you fear buying clothes because it will slow down your debt repayment. It is not fun when everyone goes out for lunch but you decline their invitation because you are “brown bagging it” to save money. It can be heart-breaking to limit traveling to visit family because the travel money is just not there. It can be physically and mentally exhausting to have a second (or third) job to generate some funds to cover your deficit. Quickly becoming debt free is not fun, which is why so few people achieve it. However, for those who do, the process often changes them profoundly.
She Eliminated $30,000 Over 15 Months
In the above clip, we meet Katrina Clements. Ten years ago, she was drowning in debt, holding $30,000 in credit card debt spread across 100 credit cards. However, after getting a hold of some basic financial principles from a class provided by her church, she made the decision to become debt free. She eliminated $30,000 worth of debt over 15 months. Today, she remains debt free. It is hard to accurately assess the intensity at which she eliminated debt because the clip does not mention her income during this time and whether she sold anything to generate cash to pay off debt or to get rid of some debt. Still, she does mention that she cut down her lifestyle substantially.
Perhaps, the most striking observation from her story is that in the midst of these very turbulent times, she feels financially free. If she continued her good financial habits, that would mean she now has over 8 years of wealth-building under her belt.
Imagine what could you do if you had no car note, credit card bills, HELOCs, or student loan payments for nearly a decade.
Building Wealth In Today’s Economy
Still some argue how can I even think about building wealth in the midst of today’s economy. Many are just trying to keep their heads above water, combating fears of potential layoffs, delayed retirements, and running out of resources. Perhaps that is all the more reason to set up a strong financial foundation for our families, to get rid of the credit cards so that we’re not hit with a Universal Default Rate, and get rid of that ARMs, balloons, and other drains on our finances.
In addition to setting a strong financial foundation, it is also critical to develop an objective filter for financial news. With financial concerns dominating the headlines, it is easy to lose sight of the long-term economic picture. For instance, the Wall Street Journal recently reported that young workers are not investing due to fear over the present market turmoil. If anyone has a chance to benefit more from the decimated stock market right now, it is those who plan to leave their money in the market for at least 7 to 10 years. The truth is “the financial future is no more uncertain now than it used to be; in fact, it’s far less uncertain than it was in the summer of 2007, when the Dow shot above 14000 and the future seemed bright.” (Jason Zweig of the Wall Street Journal) However, with rampant fear, the risks are so distorted.
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Copyright 2008, Roshawn Watson, Pharm.D. All Rights Reserved.
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.