Wealth & Finance

Living Debt Free and Truly Wealthy

Debt Free & Truly Wealthy

Build a life that inspires and find peace in financial stability. Five great reasons to ditch debt and five practical ways to do it!

We are all looking for meaning in life even if we don’t always know it or admit it. On our journey to find meaning it’s all too easy to go financially astray. Many of us find ourselves in a rat race buying things we don’t need to fill an emotional hole that they can’t fill.

True wealth comes in many forms and isn’t an absolute, what true welath means for me may be different to what it means for you. Something that is an absolute however is the peace of mind that comes from achieving financial security and removing the burden of debt from your life.

For me true wealth is having the freedom to live the life I choose with the people I choose to be with. So where does money come in to this? Well I have found that repaying debt and learning to manage my money has allowed me to achieve this and so much more.

In this article we will explore why living debt free can help you achieve true wealth, whatever this may mean to you. 

After reading this article please let me know what true wealth means to you by commenting below and please subscribe if you would like to be notified of new articles as soon as these become available!

Five Reasons to Live Debt Free

1. Work for You

What’s the point of working hard only to hand the fruits of your labour to someone else? Imagine how much more meaning you’d get from work if you retained what you earnt and didn’t immediately pass a huge sum of it to someone else.

Not only is your income your best route to creating wealth, working for yourself and enjoying the benefit of your efforts feels great.

Ditch Debt
Ditch Debt

Regardless of your income you can’t accumulate wealth when you’re heavily indebted. Debt free living lets you enjoy the fruits of your labour and success whereas debt itself is an illusion of success that can cause immense damage to your true wealth over the longer term.

Ditch the debt and work for yourself rather than the bank! Avoiding borrowing money means what you do have will truly be yours and in the longer-term you will have so much more.

2. Remove Interest Rate Risk

Interest-Rate risk is the risk that interest rates could rise or fall impacting on the cost of some borrowing and the return of some investments.

Given that personal debt levels in the developed world continue to spiral out of control it’s perhaps unsurprising that citizens and governments alike are addicted to low interest rates. Many believe that the last decade of economic recovery has been built significantly on borrowed money and cheap credit.

With eye wateringly low interest rates for a decade we know at some-point the party has to stop. Personal debt levels are so high that even modest interest rate increases will squeeze many households beyond breaking point; you don’t have to be one of them.

If you owe nothing at all your main exposure to interest rate risk may be the impact of any rate changes on your savings rate. When you owe lots of money even small interest rate rises can be hugely costly. Avoiding and repaying debt enables you to remove much of the interest rate risk from your life.

3. Forget the Stress

Reducing stress is undoubtedly a theme in much of this article. Debt is not conducive to a stress free life as it places a significant burden on your finances and introduces risk and uncertainty into your life, such as those described above.

In my article “Why Living Debt Free is Awesome” I explain that personal debt worries are citied in numerous studies as a common cause of depression, divorce and even suicide.

With so much evidence to demonstrate the destructive power of debt on your mental and emotional wellbeing, why do it? True wealth starts with removing such destructive burdens as debt from your life forever. 

If debt doesn’t worry you then you should really be worried. Understand that debt has the power to turn a challenge into a disaster. You lose your job unexpectedly and you will be stressed and stretched, add in high levels of debt and you can be homeless before you have chance to react.

Debt multiplies the impact of the challenges life presents and creates significant stress and unnecessary worry.

4. Build Wealth for You & Your Family

Getting and staying out of debt enables you to build wealth and live a life that inspires you. Think how quickly you could accumulate huge wealth without a car payment or a credit card bill, or even a mortgage payment.

Your income is your number one wealth creation tool. If you don’t retain any of your income you will never accumulate wealth, it’s that simple.

Build Wealth
Build Wealth

Wealth and true wealth may be different things but they are interlinked. My true wealth is my family and our health and happiness but these things are interwoven with our finances. Being debt free and financially secure enables us to live a life that keeps us healthy and happy. When you borrow money you are not only sacrificing your ability to build financial wealth but your ability to live a life of true wealth and meaning.

If you are interested in learning more about building wealth then see my article “How to accumulate Wealth from Nothing” and “How to avoid dumb investment decisions”.

5. Create Financial Freedom

Maybe getting on top of your finances cannot make you happy in itself but it can give you the freedom to do the things that will. I get great meaning from seeing the fruits of my labour and being able to do the things I want to do for myself and my family.

Being able to save significantly for my daughters future and for an abundant retirement are both hugely important to me. Repaying and avoiding debt has allowed me to direct my income to those things that matter to me the most and build a life and a future that inspires me, you can do this too.

Truly Wealthy
Truly Wealthy

Debt heavily restricts your ability to do the things that matter to you. The illusion of debt is that it offers a shortcut to something you want but cannot really afford. The reality of debt is being completely handcuffed to those decisions not only for years but sometimes for a lifetime. There are no shortcuts to financial freedom, it takes discipline and hard work.

Five Great Ways to Live Debt Free

1. Habitually Repay Debt

Even the largest debts can be repaid over time. Success with personal finance is about changing the things you do habitually. Rarely does someone end up thousands or hundreds of thousands of dollars in debt because of one bad decision, it’s usually hundreds of bad decisions you have made habitually. The same is true with getting out of debt, one good decision isn’t going to cut it; you need to change the person in the mirror.

When I started to repay my own debt, I owed more than I earned each year and my income was entirely taken up with minimum payments. It seemed impossible to get out of the mess I was in but I did and you can too. I started making any overpayments I could using my online banking to make additional payments on a habitual basis. Often this was just a few dollars and when I got money unexpectedly I would use this to pay more off. The cumulative impact of even small repayments are huge over time, an extra ten dollars a week adds up to hundreds of dollars over a year.

When you find yourself in the middle of a place you don’t want to be what’s important is you change direction. Sometimes it will take years to get to where you do want to be but you have to change your path and take one step after another no matter how small and eventually you will find yourself somewhere new.

2. Expect the Unexpected

A great way of avoiding debt is to plan for the unexpected by holding a cash reserve for emergencies. Its best practice to hold three to twelve months expenses is an easy access bank account. If you are just starting out and don’t have any savings it will take you sometime to build up to this level but what’s most important is that you do start.

Holding an emergency fund means that you are not forced to borrow money if you have an unexpected expense or a reduction in your income, such as a car repair or losing your job. Holding an emergency fund not only protects you it provides great peace of mind. A car repair bill isn’t a stress when you have specifically budgeting for such unexpected costs.

3. Habitually Save and Invest

As we talked about earlier success with personal finance is about changing the things you do habitually. This works for clearing debt and is equally true for accumulating wealth.

A great way to rapidly accumulate wealth is to habitually save and invest. Set up regular contributions to savings and investment plans and you will be surprised how quickly these pots can grow. Making additional contributions whenever you can is another great way to build momentum.

When you are trying to clear debt build a small emergency fund then focus on debt repayment, once the debt is paid off you can then direct all of your energy on saving and investing and see your wealth grow!

4. Keep the Goal in Mind

Remember what you are working towards and keep the goal in mind. You will no doubt have many challenges and obstacles to overcome in your journey to repay debt and build wealth. To stay motivated you need to have a vision that inspires you.

Stay Focussed
Stay Focussed

If you need some help to get motivated and to define what true wealth means for you then see my complete “Guide to building self-motivation”.

5. Calculate the Lifetime Cost of Debt

One of the reasons many people are drawn into borrowing money is they don’t fully understand the costs of doing so. The financial impact of debt can be immense especially over the longer term where even low rates of interest can reap havoc on your finances.

Calculate the costs of your debts on the basis you hold these until maturity and you will be shocked at the cost. Understanding the costs of your borrowing can be a huge motivator to get out debt as quickly as possible and never to do it again.

Conclusion

That’s my guide to living debt free and truly wealthy! Let me know what true wealth means to you by commenting below and please subscribe if you would like to be notified of new articles as soon as these become available!

I hope you found the information in this article useful. You may also like How to Achieve AnythingHow to Accumulate Wealth From Nothing and How to Stop Making Dumb Investment Decisions.

Good Luck and Thanks for Reading!

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