Break the Shackles of Debt (Pt 2 of 2)

Man Cutting Up Credit Card
Man Cutting Up Credit Card

Yesterday, I discussed the harsh reality that you are not free until you are debt-free.

To continue our theme on financial freedom, I want to give you my 3 key steps to finally breaking the financial shackles that might be restraining your freedom.

I was taught early on that if you can’t afford it in cash, you can’t have it, period.

I use a credit card primarily for tracking and mileage reward incentives, but it is completely paid for each cycle.

I never revolve credit. That’s a fool’s game.

With my personal finances (beyond real estate), I don’t believe in carrying any debt (as in zero) whatsoever. I never have.

If you are not there, get there quickly.
Make that your first and most urgent priority in life.

Eliminate every possible expense beyond your absolute BASIC survival needs until you have zero debt.

It’s amazing to me when I know people who have thousands of dollars of credit card debt and I see them going out to dinner, going on vacation, or going shopping for new clothes.

“Really!?” you gasp.

Am I saying if you have credit card debt, you can’t go out to eat, treat yourself or have any fun?

Yep! That’s exactly what I’m saying.

If it costs MONEY (that you don’t have), then no, you cannot afford to go/buy.

Hey, have all the fun you want… if it’s FREE.

What I am saying is you cannot afford treats or fun that costs money.

Look, you already danced, so no more dancing until the fiddler is fully paid up.

So here’s a quick plan to break your debt shackles:

1) Cut to the bone

Go through every single expenditure you have and eliminate or slash everything as deep as possible. Get your monthly expense overhead as low as it can be short of you having to live under a bridge and eat Top Ramen for three meals a day.

2) Make investments

While you don’t spend money on expenses, you do make investments. The kind of investments that can help you dig your way out of a financial rabbit hole.

You heard this before, but it’s a discipline you have to adopt no matter your current financial state — no, particularly if you have a financial situation that is grave.
And it’s this:

Carve out 10% of every dollar you earn and invest it back in yourself.

To get out of debt you have to grow out of debt.

Hey, the person that got you into debt isn’t going to be the person to get you out of it.

You have to become the kind of person that builds wealth, not debt.

That requires a new and improved version of you. You 2.0.

Thus, you have to invest in some product development.

To make sure this tip is executed, I have found it is best to automate it — divert it before you even see it.

What I do is I have my account set up to take 10% of my monthly deposits and auto-transfer 10% into my personal development account. I don’t have to think about it, make a choice to or not to do it, and I never see that money in my regular banking accounts.

I suggest setting up such a system for yourself. Money can burn a hole in your pockets (and your bank account), so be sure to pay yourself first. The best way to do that is to do it without thinking about it.

3) Make more money

Sounds obvious, but wait for it… without increasing your lifestyle in equal proportion.

This is why many people who even make a significant income still do not become wealthy. No matter how much money they make, their lifestyle (meaning expenditures) grows in equal proportion (sometimes even more) to their increased income.

As I mentioned earlier, the people with the most debt tend to be the ones with the larger incomes, as crazy as that sounds. I call it the spiral effect.

You buy a new house, now you also need to upgrade all your furnishings. Now you host or go to get-togethers in your new uppity neighborhood so you have to upgrade your wardrobe. You can’t park that old jalopy in the driveway, you need a car (or better one) than your neighbors. You talk about where your kids go to school and where you are going on vacation and what restaurants you have and haven’t tried or golf courses you’ve played and what driver and putter you use, and all of a sudden you are tens of thousands of dollars in credit card debt, just to keep up.

Sound familiar? Even in the smallest way?

Be careful of every decision you make. The one decision by itself doesn’t seem very expensive, but the spiral effect it triggers can be the beginning of a tailspin that ends up in the heavy chains of debt that could enslave you for the rest of your life.

So getting back to it, make more money — without spending any more. Of course, I suggest starting your own business or getting into sales. Something that rewards performance. If you produce more, you’ll earn more.

Thus, when you do #2 (invest in your personal growth), it will help you do #3 (make more money) while maintaining #1 (keeping your expenses Spartan) and accelerate your financial freedom plan.

There it is.
It can’t be put to you any more plainly than that.
There’s no magic wand or genie in a lantern.
It’s simple math.

1) Reduce expenses.
2) Improve yourself (the one who created the “situation”).
3) Make more money (and don’t spend it).

Execute on those three and you will no doubt earn your freedom, your financial freedom!

As William Wallace said (kind of), “Tell our enemies that they may send us their credit credit card offers, but they will never take OOOOUURR FREEEEEEEDOOOM!”

[Ed note: This essay was originally published on DarrenHardy.com.] 

  •  
  •  
  •  
  •  
  •  
  •  
  • I embrace the idea that we need to invest in ourselves. I believe we need to close the gap between educating ourselves on finances and debt. Too many people rely on an advisor who is solely in the business of getting you to invest in anything to make him a buck. Rather making more money for their clients in the long run so they can take home more of what they earn. We owe it to ourselves to educate ourselves about these critical decisions that will have consequences in the long run.

    What personal investment in financial education would you recommend (book, course, etc.)?

    • Check out, “Choose Yourself Guide to Wealth” by James Altucher